especially if, as suggested by Sir Josiah Stamp and Professor Bowley, real wages are somewhat higher than before the war. it is prima facie unlikely that there are wide fields which none of the existing facilities have touched.

The results obtained by the Birmingham Municipal Bank.

76. After a careful review of the experience of other thrift agencies in Birmingham (the details of which are set forth in Appendix 2) we endorse the opinion expressed in the memorandum that perhaps 25 per cent. of the whole of the deposits in the Municipal Bank represents money which would not otherwise have found its way to any well-established savings agency. We agree that the money diverted from the Post Office Savings Bank may be estimated with tolerable accuracy at 30 per cent. of the whole. That diverted from Savings Certificates may be taken at 20 per cent. of the whole; this estimate is less certain than the last, but if it may be too high, it may also be too low. A further 25 per cent. of the whole would probably in the absence of the Municipal Bank have found its way to investment or to the Joint Stock Banks, the Building and Cooperative Societies, and other lesser agencies. It should be emphasised that by diverted money we mean in all cases money that would otherwise have found its way to one of the other agencies and not merely money actually transferred from another agency to the Municipal Bank.

77. The remaining 25 per cent. includes not only money which would otherwise have been used for current expenditure and not saved at all, but also hoarded and floating currency and amounts which would otherwise have been placed with miscellaneous clubs and societies. On the whole, though it is not possible to form any but a speculative estimate, it seems doubtful whether the actual new savings which the Municipal Bank has caused to be made much exceed £1,000,000, even if they reach that figure.

78. It is a little difficult to reconcile this conclusion with the very definite belief of several of our witnesses that the Birmingham Municipal Bank has induced a vast number of persons to save who would otherwise not have saved at all. The explanation is perhaps to be found in the fact that there, as in any Savings Bank, four-fifths or more of the total deposits are in one-fifth of the accounts. Making ample allowance for duplication of accounts between the Municipal Bank and the Post Office, we find that the total number of accounts in the two together in Birmingham is remarkably high and a very considerable proportion of the depositors in the Municipal Bank may well be persons who would never have had a savings Bank account at all if there had been no Municipal Bank. But these new accounts which at first sight would be the most noticeable provide only a small proportion of the funds, while the larger

accounts which contain by far the greater part of the total deposits, and into which money will flow almost unnoticeably, probably do not to the same extent represent new savings attributable to the special effect of the Municipal Bank.

Birmingham experience as a guide to experience elsewhere.

79. Most of the advocates of Municipal Savings Banks who gave evidence before us rested their case mainly upon the experience of the Birmingham Bank. There are, however, several substantial reasons which make it unlikely that Municipal Banks generally would be as successful as the Birmingham Bank or would obtain so large a volume of new savings or so many new depositors.

80. In the first place, there is no Trustee Bank at Birmingham. Such Banks exist in all the large towns in Scotland and most of the large towns in England and Wales. It is true that the Birmingham Bank has obtained in eight years deposits as large relatively to the population of Birmingham as all but the most successful of the Trustee Banks in England, though its deposits fall proportionately far short of those in the large Trustee Banks in Scotland. It is the case also that Post Office deposits in Birmingham before the establishment of the Municipal Bank were above the average and included a certain proportion of potential Trustee Bank money for which allowance has been made in the estimate of diversion from the Post Office. But there is no doubt that the Trustee Banks where they exist already cover a good deal of the ground which would be covered by a Municipal Bank, and in a town where there is already a flourishing Trustee Bank, the new money obtained by a Municipal Bank might not exceed 10 per cent. of the whole. Indeed, in such a case it is doubtful whether a Municipal Bank would achieve any considerable success unless it absorbed the Trustee Bank. It is true that Mr. Ogden Whiteley thought that "the existence of a Municipal Bank would not necessarily be detrimental to the existing facilities but might even be the reverse," and Sir William Hart that 'there was no need for the Trustee Banks to go to the wall," but Mr. Bray said that the view had been expressed in Manchester that" if a Municipal Bank was opened and it gave 3 per cent. interest, it would be bound very seriously to affect the present Trustee Savings Bank and it would be a question as to whether that Bank should not be merged in the flotation," and Mr. Cobbett, giving evidence on behalf of the Trustee Savings Bank Association," had no doubt that the taking over of the Trustee Bank would be the proposal, and could see no reason to doubt that the establishment of a Municipal Savings Bank would practically destroy the business of the Trustee Savings Bank."

81. Again, in many large towns the Building Societies are exceedingly strong and have proportionately much larger deposits

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than in Birmingham. We doubt whether a Municipal Bank would divert any large amount of money from a well-established and energetic Building Society which made a strong effort to appeal to local sentiment.

82. Further, the Birmingham Bank was established at exceptional time, when wages were high and there was ample opportunity for profitable investment of its funds. It must be remembered too, that Birmingham was the only city that took advantage of the Act of 1916. The present Bank was thus able to start operations with a considerable volume of deposits collected under exceptional war conditions. Moreover, Birmingham, though it has large poor areas, is on the whole a rich and prosperous city. And again, though we have no doubt that many other municipalities could conduct Savings Banks efficiently and vigorously and command the support of strong local feeling, it is generally admitted that the municipal spirit in Birmingham is unusually powerful.

The Incentive to Thrift: Conclusion.

83. For the reasons given in the immediately preceding paragraphs, we think it exceedingly doubtful whether there are many, if any, other towns where Municipal Savings Banks would achieve results approaching those obtained at Birmingham or contribute to anything like the same extent to the encouragement of thrift. Such banks would indeed obtain in the aggregate a considerable amount of deposits, some part of which would no doubt be money that would not with existing facilities have been saved at all, and a number of new depositors might be attracted who would not have become depositors in any other bank. But to a large extent the deposits would be obtained only at the expense of other institutions, and after reviewing the existing facilities for thrift and the experience and special circumstances of Birmingham, we of opinion that the additional savings resulting from the establishment of Municipal Savings Banks would be very small in comparison with the aggregate volume of new savings of the community as a whole, and that an appreciable part even of this increase could be brought about by an improvement of existing facilities independently of the establishment of such banks. From the purely financial point of view, therefore, we do not think that the particular virtue of Municipal Savings Banks as an incentive to saving is substantial. We fully appreciate that from the social point of view the value of small savings is out of all proportion to their amount. Habits of thrift promote a certain stability of mind and outlook and thus indirectly social stability, and contribute greatly to the ultimate happiness and well being of those who practice them. Even quite small savings may often help to preserve a vigorous and independent spirit in hard times and to alleviate the distress

of ill-health and unemployment. We recognise too the very great value of local sentiment and municipal patriotism in the life of the community and the importance of enlisting this sentiment in the cause of thrift. But making full allowance for these general considerations we do not think that Municipal Savings Banks would in fact provide an incentive to thrift so great as to justify their establishment irrespective of all other considerations.

(b) Assistance to Municipal Finance.

84. While most of those who submitted reasoned arguments in favour of Municipal Savings Banks expressly disclaimed the desire to obtain cheap money through them, we cannot but feel that the hope of obtaining cheap money is not wholly absent from the minds of many of their supporters. We think, however, that a Municipality could only obtain cheap money through a Savings Bank by making inadequate provision against the risks involved, and that the responsible advocates of Municipal Savings Banks would agree that it would not be wise to use for capital expenditure money which though apparently cheap involved a hidden risk.

85. But quite apart from any question of cheap money, a ready supply of capital is in itself a convenience to local authorities. The anxieties and incidental expenses of raising loans may be considerable, and it would no doubt be a relief to the Finance officers of local authorities to have a considerable amount of money coming to hand almost automatically without the necessity of an appeal to the market. Associated with this is an undefined but not unsubstantial sentiment in the mind of the citizen that local money should be used for local needs, that it is better to spend it on developing and beautifying his native town than to invest it (perhaps more profitably) elsewhere. We think that these two arguments make a considerable appeal to many of those who advocate municipal banks; indeed we doubt whether in ordinary times a Municipal Bank would ever be started if the money, though under local control, were not allowed to be invested locally. It is to be observed, however, that the amount which would be available from the funds of a Savings Bank for Municipal capital expenditure would at most be only the excess of new deposits and interest over withdrawals. When once the Bank was well established this amount, so far as the experience of other Savings Banks shows, would be comparatively small, and, if a part of the Bank's funds were required to be invested otherwise than with the Municipality it would be even smaller, and certainly in the long. run very much less than one half of the gross sales of savings certificates, which is at present made available to local authorities through the Local Loans Fund.

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86. We appreciate that it is important that local authorities should be able to finance their requirements without undue difficulty, but, we think that, when allowance is made for the risks discussed later in the report, the disadvantages to Municipal finance of obtaining money through Municipal Savings Banks would ultimately outweigh the advantages.

(c) The encouragement of house ownership.

87. It is suggested that Municipal Savings Banks are in a particularly favourable position to encourage citizens to buy their own houses, as compared both with the ordinary procedure of direct loans by the Municipality under the Small Dwellings Acquisition Acts, and the Housing Act, 1925, and with the Building Societies. The citizen who owns his home. is practising thrift in one of its best forms, and a Municipal Bank could invoke local sentiment and civic pride to encourage this, as other forms of thrift. It is contended moreover that a Savings Bank organisation is particularly well calculated to serve this end; it encourages depositors to accumulate the initial deposit on the house which is required before a loan can be made, and, when the loan has been made, provides a convenient means of collecting interest and repayment of the capital in small instalments. In particular it gives the borrower special facilities for accelerating the repayment of capital since he can at any time make additional repayments in the same manner as if he were depositing money to the credit of a savings bank

account.

88. The argument that house ownership can be more effectively encouraged and advances for house purchase more satisfactorily administered through a Savings Bank than directly by the Municipality seems to us not without force, though it is of comparatively small moment in relation to the main arguments for and against the establishment of Municipal Savings Banks. But the superiority claimed for Municipal Savings Banks over Building Societies in this connection does not appear to us to be established. The Building Societies have made great efforts to encourage house ownership and can effectively appeal both to local sentiment and to their own well-established traditions. As we have already mentioned, they also do much to encourage thrift generally and it is open to them, if they find it helpful, to collect money due from borrowers on savings bank lines, interest and capital repayments being kept separate, though in fact they usually find it more convenient to adopt the annuity basis of repayment. It is hardly possible to judge from the figures available whether the Birmingham Municipal Bank is more successful than the average Building Society in encouraging borrowers to repay their loans quickly, since the Birmingham Bank makes many advances under exceptional arrangements in respect of Corporation houses,