perspectives regional retail banking 63… · business model for responsible, regional retail...

200 YEARS OF SAVINGS BANKS:A STRONG AND LASTING BUSINESSMODEL FOR RESPONSIBLE,REGIONAL RETAIL BANKING

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ES63September 2011

200 YEARS OF SAVINGS BANKS:A STRONG AND LASTING BUSINESSMODEL FOR RESPONSIBLE,REGIONAL RETAIL BANKING

The findings, interpretations and conclusions expressed in this paper donot necessarily reflect the views of WSBI (World Savings Banks Institute) orESBG (European Savings Banks Group). Neither WSBI nor ESBG guaranteethe accuracy of the data included in this work. The material in thispublication is copyrighted.

TABLE OF CONTENTS

Foreword 7

Chapter 1: Savings Banks: From an Idea to an Institution 9

Henry Duncan and the Savings Bank Movement in the UK 11Michael Moss, Professor of Archival Studies,University of Glasgow

Savings and Economic Development: Sweden in the 19th Century 27Enrique Rodriguez, Professor at the Center for Bankingand Finance and Senior Vice-President of Swedbank, andMats Andersson, Archivist, Swedbank

Savings Banks in Portugal: Origins and Attributes 49Pedro Sameiro, Secretary General, Montepio

Chapter 2: Savings Banks: A Banking Model Worldwide 57

Why Does the U.S. Have a Weak Mutual Savings Bank Sector? 59R. Daniel Wadhwani, Assistant Professor, University of the Pacific

The First Savings Banks in Latin America: Cuba and Puerto Rico 87(1840-1898)Angel Pascual Martinez Soto, Professor, University of Murcia

Savings Banks in the Asia-Pacific Region: A History 107of DevelopmentPui-Tak Lee, Research Officer, Centre of Asian Studies,University of Hong-Kong

Development and Diffusion of Savings and Savings Banks 125in China: A Historical PerspectivePui-Tak Lee, Research Officer, Centre of Asian Studies,University of Hong-Kong

Do savings banks differ from traditional commercial banks? 141Prof. Giovanni Manghetti, Chairman, Cassa di Risparmiodi Volterra

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FOREWORD

This is a report on the “200 Years of Savings Banks: A Strong and LastingBusiness Model for Responsible, Regional Retail Banking” conferenceheld in Edinburgh on 10 June 2010. The conference focused on the past,present and future of savings banks.

In 1810, Reverend Henry Duncan opened a savings bank in his smallparish in Ruthwell (Dumfries, Scotland). Two hundred years later, theEdinburgh conference celebrated the savings bank in Ruthwell as a modelfor modern savings banks and retail banking institutions that continue tocater to the needs of European citizens, small and medium-sizedbusinesses and local authorities, and have evolved into dynamic financialinstitutions that represent one-third of the current retail banking sector.

Chapter 1 of this report retraces the development of savings banks on theEuropean continent. The article by Prof. Michael Moss, author of a historyof savings banks in Scotland, focuses on Henry Duncan and the developmentof the savings bank model in the United Kingdom. Two case studies ofsavings banks follow: Prof. Enrique Rodriguez and Archivist MatsAndersson focus on Sweden, and Montepio Secretary General PedroSameiro focuses on Portugal.

Chapter 2 explores how savings bank ideals and principles have spread allover the world. The institutions assumed different forms but share thenotion that banking is a tool for all and not a privilege for the few.

The report includes research by R. Daniel Wadhwani, Assistant Professorat the University of the Pacific (USA), on the development of savingsbanks in North America, followed by Martinez Soto, Professor at theUniversity of Murcia, who writes about the proliferation of savings banksin Latin America, particularly Cuba and Puerto Rico, and in the Philippines.Lastly, Prof. Pui-Tak Lee highlights the development of savings banks inChina, Japan and Korea.

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In conclusion, Prof. Giovanni Manghetti reflects on savings banks in thecurrent financial crisis and elaborates on risks and future opportunities.

The report aims to stimulate and encourage research on the developmentof savings and retail banks all over the world.

I hope this publication will be a source of inspiration for further research.

Chris De NooseESBG-WSBI Managing Director

CHAPTER 1: SAVINGS BANKS:FROM AN IDEA TO AN INSTITUTION

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Michael Moss, Professor Archival Studies, University of Glasgow

Michael Moss is a professor of archival studies in the School ofHumanities at the University of Glasgow. He was responsible forsurveying and rescuing the records of the savings bank movementin Scotland and England before flotation. In collaboration withIain Russell, he was commissioned by Sir Nicholas Goodison,Chairman of the TSB, to write a history of the movement, whichwas published by Weidenfeld and Nicolson in 1994 as AnInvaluable Treasure: A History of the TSB. In 2000 he published ahistory of Standard Life, the Edinburgh life assurance company,which had similar values to those of the savings bank movement.He is a member of the board of the National Archives of Scotlandand of the Advisory Council on Records and Archives.

Reverend Henry Duncan was born at Lochrutton,Kirkcudbrightshire, on 8 October 1774, the thirdson of the minister Reverend George Duncan.Lochrutton is about six miles south-west ofDumfries in south-west Scotland. In the late18th century it had a population of some550 people, who were engaged mostly infarming. Reverend George Duncan complainedthat the landowners showed no enthusiasm forimproving the agriculture of the parish, eventhough there was a flourishing export trade with

the west coast of England. Henry Duncan was educated at DumfriesAcademy before attending St Andrews University for two sessions from1788 to 1790. At the time it was common for children as young as 14 togo to university, and for young men in general to spend a year or two atuniversity before entering a trade.

HENRY DUNCAN ANDTHE SAVINGS BANKMOVEMENT IN THE UK

Reverend Henry Duncan.

He left St Andrews in 1790 to take up a position as a junior clerk in theLiverpool banking house of Arthur Heywood Sons & Co. The attraction ofLiverpool for Henry Duncan was that his two brothers were alreadyworking there. However, unlike his brothers, he did not find the world ofcommerce to his liking. His employers complained he devoted too muchtime to literary pursuits and theological study. Deciding to follow hisfather into the church, he returned to Scotland to take classes atEdinburgh and Glasgow Universities where he was influenced by thejurist John Miller and the moral philosopher Dugald Stewart. He wentback to Lochrutton in 1798 and the following year he was appointedminister of Ruthwell where he was to remain for the rest of his life.

The weather in 1799 and 1800 in much of Scotland was cold and wetand the harvest poor. Henry Duncan responded to the plight of hiscongregation by arranging with his brothers to send supplies of Indiancorn from Liverpool, which he sold to the needy at cost price. In a spiritof self-help, he encouraged women to take up spinning woollen yarn tosupplement their family income and employed destitute labourers on hisown land.

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The church in Ruthwell, where Henry Duncan was minister.

Recognising that such measures offered only partial solutions to theproblems of poverty, he revived the local friendly society that had beenfounded in 1795 and had quickly become moribund. He rewrote therules and regulations and improved its management. So successful wasthis initiative that he formed another society specifically for women.Soon over a quarter of the parish, some 300 people, were members ofthe two societies. Opposed to compulsory taxation, to provide relief tothe poor and destitute, he was a passionate supporter of “self-help”.Such attitudes begged the serious question as to whether the very poorhad sufficient marginal income to save, even in good times – a debatethat still continues between those who are committed to state-sponsoredsocial welfare and those who oppose it or at least wish to curtail the levelof spending. After the resumption of the war with France in 1803, theprice of food climbed and hardship, particularly in rural areas, becamemore acute.

From 1808 Henry Duncan tried to inculcate ideals of thrift in the localcommunity by publishing a series of tracts and articles in the Dumfriesand Galloway Courier, which he had created with financial support fromhis brothers. These had a strong moral message – the provident and well-behaved could look forward to a secure independent future, while theimprovident and dissolute, especially the intemperate, could anticipateruin and destitution. Such moralising has continued to this day.

Despite the success of the friendly societies, Duncan was not convincedthat their rules and regulations, which required regular subscriptions,were appropriate, for they entailed collecting the uncertain savings ofthe poor. This led him to propose that savings banks with verysimple regulations should be opened in every parish in Scotland.Although Scotland’s banking system, with interest bearing accounts, wasmore advanced than those of other countries, it did not provide servicesto individuals with only small amounts to deposit, and who were thusoften obliged to keep their savings in cash or lend them in the localmoney market, which could be very risky. In May 1810 Henry Duncanopened the Ruthwell Savings Bank in the Friendly Society’s rooms.

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Deposits were invested incommercial bank interest-bearingaccounts. In a practice thatbecame familiar in Scotland, theKirk Session (the church elders)

and the minister were trustees,while prominent locals wereextraordinary members of the courtof directors. Ordinary members

had to make an initial deposit of GBP 1, while extraordinary membershad to pay GBP 2 and honorary members GBP 5. This was very prescientof Henry Duncan, as the better-off depositors made only occasionaladditional deposits and almost no withdrawals, while ordinary memberscould be expected to make a large number of small deposits. The subsidyof small depositors by those with large balances persisted and waseventually a factor in the erosion of the savings bank ideal that ledinexorably to privatisation.

In deciding to open the RuthwellSavings Bank, Henry Duncan drewon the experience of other savingsschemes and friendly societies.In 1797 the utilitarian philosopherJeremy Bentham proposed theestablishment of what he called“Frugality Banks” or savings banksthat would pay interest ondeposits and that would be builtand managed by a proposedNational Charity Company.The following year Mrs PriscillaWakefield established a FemaleBenefits Club incorporating a Children’s Bank in the parish of Tottenhamto the north of London.

Anybody could open an account for a child by making regular monthlycontributions of a penny or more. At the turn of the century sheconverted her Female Benefit Club into a Benefit Bank, recognised at thetime “as the first distinct Bank for Savings publicly set on foot for thebenefit of the lower classes”. The Wakefields were a remarkable family.Her son Edward Gibbon Wakefield pioneered emigration to theAntipodes as a way of reducing the cost of poor relief.

Deposit box of the Ruthwell Parish Bank.

The Wakefield family, with Mrs Priscilla

Wakefield who created the ‘first distinct

Bank for Savings publicly set on foot for

the benefit of the lower classes’.

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The political economist Thomas Malthus, in the second edition of hiscelebrated 1803 Essay on the Principles of Population, writes, “To facilitatethe saving of small sums of money for this purpose [he is referring to thepurchase of a cow] and to encourage young labourers to economise theirearnings with a view to a provision for marriage, it might be extremelyuseful to have County Banks, where the smallest sums would be receivedand a fair interest granted for them”. He elaborated on these ideas in the1817 fifth edition, going so far as to suggest that by postponing marriageuntil sufficient capital had been accumulated there would be less needfor the state to support needy families, as there would be fewer of them.Although he admitted that such a transition could not be effectedquickly, his concept of “saving a portion of present earnings for futurecontingencies” has remained the bedrock of much of the rhetoric ofthrift and providence ever since. Nevertheless, he later recognised that“the principle of saving taken to excess would destroy the motive toproduction”. While he extolled saving “as a most sacred private duty”,he had doubts about its public application, which a century latereconomist J. M. Keynes crystallised into his well known paradox of thrift:“a private virtue and a public vice”.

In 1804 George Rose, a member of Parliament for Christchurch and vice-president of the board of trade, called for imaginative ideas to help solvethe intractable problem of poverty. He was later to play a crucial role inpromoting the savings bank ideal. Within a year John Bone responded tothis challenge by advocating the abolition of poor relief and, along withwhat amounted to sheltered accommodation for old people, suggestedthat “a Bank should be opened to receive the small savings of the youthof both sexes, who have no dependence but their labour and economy,and to return them on the day of their marriage with the interest andpremiums proportional to the amount”. With wartime inflation runninghigh, Patrick Colquhoun, a stipendiary magistrate in London, expandedon these ideas by outlining a scheme for a National Deposit Bank forParochial Savings managed and guaranteed by the government. The bankwould be a powerful force for social change and “unquestionably give anew and more provident character to menial servants and thereby rescuefemales from the walks of prostitution”. Samuel Whitbread, the reformingmember of Parliament for Bedford, attempted to introduce legislation toestablish a national savings bank based on post offices. There were otherlocal initiatives, such as the West Calder Friendly Bank outside Edinburghestablished by Reverend John Mackersy in 1807, and at Bath, in south-westEngland, a society was formed in 1808 to attract the savings of servants.

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Such concepts and developments were critical in shaping Henry Duncan’sideas for the parish bank in Ruthwell. What set him apart from the otherswho could lay claim to be the founder of the savings bank movement,such as Priscilla Wakefield, was his unstinting effort to publicise hisachievement and promote the formation of savings banks in every parishin Scotland. Because the concept of thrift and self-help had been soheavily promoted and followed, additional banks were formedspontaneously both in Scotland and England. John Henry Forbes, the sonof the Edinburgh banker Sir William Forbes, promoted a savings bank asa branch of the City’s Society for the Suppression of Beggars, in 1813.When GBP 10 had been deposited it was to be transferred to Sir WilliamForbes & Co. Within less than two years the bank had almost 750subscribers. In England the Liverpool Mechanics, Servants & LabourersFund was founded in 1812 and the Bristol Savings Bank the followingyear. By the time these banks were beginning to make an impact, the warwith France was over.

The sudden cessation of government wartime expenditure after thevictory at the Battle of the Nations in 1814 triggered a catastrophiceconomic recession that was compounded by appalling weather due toexceptional volcanic activity. Confronted by unprecedented demand forpoor relief, parishes throughout the United Kingdom looked for ways toreduce the burden, especially by encouraging saving. During 1815 severalsavings banks were formed in Scotland and England, which weremodelled on the ideas of Henry Duncan and other commentators.In England, where there was no tradition of commercial bank interest-bearing accounts, deposits were invested in government stock, whichbecame common practice. As the savings movement in England gatheredpace during the remainder of the decade, its principal advocate wasGeorge Rose, who was still a member of Parliament for Christchurch andan effective publicist with strong links to the national press. Unlike Duncan,Rose was a Tory who believed savings banks “would gradually do awaywith the evils of the system of poor laws”. His Observations on Banks forSavings, published in 1816, relied heavily on the example of Forbes’sEdinburgh bank and ignored Henry Duncan’s Ruthwell venture.

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Rose was vehemently attacked by William Cobbett, the social reformerand political thinker, who again warned that the poor lacked themarginal propensity to save. Nevertheless, in 1817 Rose successfullyintroduced legislation “to encourage the Establishment of Banks forSavings in England”. All deposits in England and Wales were to be placedon account with the Commissioners of the National Debt which wouldpay interest at the rate of just over 4.5% per annum.

The purpose of this substantial premium on the prevailing rate ongovernment stock was to attract savers. The principals of this legislationwere to remain in force until privatisation, and in some senses GeorgeRose can lay claim to being the founder of the savings bank movement.Although Henry Duncan came to London to advise Rose, the legislationdid not apply to Scotland, as Duncan and his fellow Scots wished toretain the ability to place deposits with commercial banks.

Government protection stimulated a wave of publications supporting thesavings ideal. By the close of 1817, 101 savings banks had opened inEngland and Wales with more than GBP 250,000 in deposits, with anadditional 125 banks established in the following year. In his 1818 Annalsof Banks for Savings the political reformer and radical Sir Francis Burdettsaluted Henry Duncan as having founded the first successful savings bankand fully supported his vision of a future Utopia, with savings banks atthe centre ensuring an absence of poverty. The experience of the banksdid not support the naivety of this rhetoric. The majority of saverswere drawn from the ranks of shopkeepers, skilled craftsmen, domesticservants, school teachers, farmers, and their wives and children,confirming that there was a genuine gap in the financial market for thesurplus income of wage earners. However, this initial experiencecorroborated the opinion of commentators, such as William Cobbett,that savings banks would do nothing to reduce expenditure on poorrelief, which indeed proved to be the case. Ironically, the governmentcould be encouraged in a period of heightened political tension, as it wasargued that depositors were unlikely to be radicalised or to rebel if theirsavings were invested in guaranteed public funds, as many savers wereartisans, who were most prominent in the radical causes supported bySir Francis Burdett.

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As the concept of saving amongst those who had benefitted from therapid industrialisation of the late 18th century took hold, so the rhetoricshifted towards self-improvement and self-help for the “respectableclasses”. Inextricably linked to “self help” was the emerging temperancemovement. Temperance literature contrasted the ruin that accompaniedoverindulgence in drink and riotous living with the prosperity thataccompanied saving and temperate behaviour.

Much of this literature was directed at women and children, who wereportrayed as the victims of male dissolution. Henry Duncan shared suchconcepts and they came increasingly to colour his later writings, in whichthe dissolute drunkard could anticipate the direst consequences, evenpublic execution. Scotland was also home to the first Sunday school inthe United Kingdom, in Glasgow, in 1815-16, and the first temperancesociety, in Greenock, in 1829. Just like the savings banks, Sunday schoolsand temperance societies were quickly established throughout the UnitedKingdom, attracting large numbers of supporters. As enthusiasm for thetwin gospels of “self-help” and temperance grew, so did concern thatthe government was subsidising the savings movement by paying interestat an above-market rate, particularly as the anticipated decrease in poorrelief had not materialised. In 1829 interest rates were cut and the ceilingon annual and total deposits reduced, leading to a decline in savings.This was followed in 1834 by a root and branch reform of the Poor Lawin England and Wales, largely designed to save money. The ability todeposit funds with the Commissioners of the National Debt wasextended to Scotland the following year in an effort to revitalise amovement that was in danger of becoming moribund.

Although the new Poor Law paid lip service to the savings movements,the connection between poor relief and savings was now broken andwhen in 1844 interest rates were cut again there was almost no mentionof the social benefits of the savings banks. There was suspicion ingovernment circles that those better off were taking advantage of thegenerous rates paid on deposits in savings banks. This was a contradictionimplicit in the savings banks from the outset. To finance their servicesthey needed major depositors who exercised few transactions.

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Henry Duncan died in 1846 at age of 72. A true son of the ScottishEnlightenment, his interests were wide ranging, encompassingantiquarian pursuits, drawing, modelling, sculpture, gardening andarchitecture. In his later years, he could take satisfaction that he had beenin some sense the progenitor of a movement that now covered the wholeof the United Kingdom, even though its customer base and purpose wasfundamentally different from his original concept, with the one exceptionthat “saving for a rainy day” was to remain a core value until the comingof the welfare state in the early 20th century.

After his death the savings movement and friendly societies were hit bya succession of frauds that damaged their standing and restrictedprogress. By 1861 there were 645 individual banks with total deposits ofGBP 41 million. Two years earlier, the concepts of thrift and improvementhad received a ringing endorsement in Samuel Smiles’s best-selling book

Self Help, which has never been out of printsince. To a modern reader the text may seemoverburdened with Victorian platitudes from theopening sentence (“Heaven helps those whohelp themselves”). Like Henry Duncan, SamuelSmiles was a Scot who chose medicine ratherthan the church as a career, but abandoned hiscalling in favour of the insurance industry.In his view the struggle to live prudently was anachievement because man’s natural state wasprodigality. Saving was for him a matter ofinvestment that provided the opportunity towork, which for all its tedium was honourable.The notion that there was a moral duty to save

was novel: “A penny is a very small matter, yet the comfort of thousandsdepend upon the proper spending and saving of pennies”. Smiles hasbeen criticised by left-wing historians, who condemn him as a championof an unbridled selfish capitalism. Such attacks overlook his efforts toillustrate the rhetoric of “self-help” with well chosen examples from allwalks of life that tempered hedonistic self-interest with a mutual respectfor others.

Samuel Smiles, author

of the best-selling book

Self Help.

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Smiles had much in common with Henry Duncan, believing that the roleof government was to be a benevolent spectator of its hard-working,industrious and thrifty citizens. His rhetoric struck a chord with many butwas not entirely shared by the Liberal government of William Gladstone,which in 1861 established the Post Office Savings Bank to complementthe savings banks and achieve nationwide coverage through the networkof sub-post offices. Many in the savings bank movement distrusted thegovernment’s motives, perceiving the Post Office Savings Bank as acompetitor, which indeed proved to be the case. By the close of 1862 thePost Office Savings Banks had attracted over 178,000 customers andtotal deposits of almost GBP 1.7 million at the expense of savings banks,which experienced a sharp decline in the number of depositorsthroughout the country. There was an urgent need for the movement tospeak with a common voice. A national extension committee was formedin London in 1862 and led in 1886 to the formation of the TrusteeSavings Banks Association. Savings banks were facing competition notonly for small deposits from the Post Office, but also for their greater,customary role from commercial banks that were seeking additional retaildeposits through evolving branch networks to shore up their balancesheets. Savings banks were unable to offer competitive rates of intereston their current accounts.

With competition from commercial banks and an increasing volume oftransactions, savings banks had to find ways of offering higher interestrates to their major depositors, on whom they depended to meet theiroverheads. A legislative provision enabled them to do this by openingspecial investment accounts that were invested in local governmentstocks, which paid higher returns than the National Debt Commissioner.During the 1870s the savings banks and thrift movement in generalgained ground in the north of Britain, particularly Scotland, while it lostground to the Post Office Savings Bank in the south. This was to haveimportant consequences in Scotland and northern counties, which weresynonymous with provident institutions. Several savings banks closed.One victim was the bank at Ruthwell which in 1875, faced with adwindling number of depositors, amalgamated with the Annan SavingsBank that eventually was acquired by the Royal Bank of Scotland.

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By the mid-1880s attitudes were beginning to change, with socialcommentators and philosophers, such as T. H. Green, arguing that personalfreedom could only be achieved through a degree of state direction andcontrol and by finally laying to rest the notion that the poor had amarginal propensity to save. This was very different from Samuel Smiles’sconviction that hardship and struggle allowed an individual to escapefrom a natural state of prodigality into one of self-determination.Such ideas were confirmed by the first systematic social surveysconducted in the 1890s, and led in turn to the beginnings of the welfarestate by the Liberal government just before the outbreak of the FirstWorld War and to the emergence of the Labour Party. With the rhetoricof thrift off the political agenda, the government could afford to allowthe Post Office Savings Bank, aimed directly at the poorest in society, andthe savings banks, whose customer base was better-off, to coexist. In thesouthern half of Britain the result was that more savings banks closed andhanded over their funds to the Post Office, while in the north theyprospered, helped by rising real wages and increases in both the annuallimit on deposits and the ceiling on total deposits. Once again, craftsmenand artisans fuelled an increase in business, particularly in the economy’sservice and tertiary sectors. Saving by and for children also grew. By 1899the savings banks had achieved a 7% market penetration. Much of thisgrowth seems to have been driven more by saving for a short-termpurpose – for example, holidays and entertainment – than for the longterm. In the century’s prosperous final decade a rise in savings occurredthroughout the thrift movement, accompanied by a huge increase in themembership of friendly societies and a sharp rise in the sale of lifeinsurance products. In the face of criticism of their rhetoric by socialcommentators, the movement questioned its purpose but wasencouraged to persist when analysis showed that the majority ofcustomers held small deposits of about GDP 10.

The long recession that began at the turn of the century and lasted foralmost a decade confirmed Keynes’s observation that the propensity tosave correlates with disposable income. By 1905 total withdrawals ofsavings exceeded deposits but turnover did not decline, suggesting thatsavings accounts were being used effectively as a form of currentaccount. There were those who rejected a Keynesian explanation for adecline in savings ratios during periods of austerity and preferred toblame Edwardian Britain’s extravagant spending on luxuries andamusements.

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Many in the savings bank movement clung to the old rhetoric that formost families thrift was an essential virtue that safeguarded health andhappiness. Such ideas were finally debunked by evidence presented in1906 to the Royal Commission on the Poor Laws and Relief of Distress byCharles Booth, who from his detailed investigations of householdincomes showed that a large part of the population “ha[s] not theambition or the ability to establish out of their wages a fund to whichthey may turn in times of stress”. In keeping with these findings manysavings banks ceased to promote thrift as a way out of poverty, butinstead attacked extravagance, amusements, gambling and particularlyoverindulgence in alcohol. The National Insurance Act of 1911 provided,for the first time, health insurance and unemployment benefits to thoseengaged in certain cyclical industries, and paved the way for theintroduction of old age pensions. Although the state might haveappeared to be taking over the original role of the savings movement,the Liberal government went out of its way to emphasise that thrift wasno less the handmaid of the new welfare state, as “a new and verygeneral desire will arise among men to augment the State allowances,which is theirs in certain emergencies, by some effort of their own, forthey will have the State’s assurance that sickness and unemployment,the grim spectres which have hitherto confronted working men, will notrob them of a penny of their savings”.

The progress of welfare reform, including the introduction of old agepensions, was interrupted by the First World War. Extensive campaignsorganised by the National War Savings Committee reached a crescendoin 1918 and were designed in part to cool the economy by deferringspending until the war was over.

With the coming of peace Thomas Henderson of the Savings Bank ofGlasgow articulated a widely accepted view when he wrote: “To manythoughtful minds in the savings bank movement it has been apparent forsome time that, if savings banks are to maintain their hold upon thecommunity, then they must adapt their methods to the changing needsof the day, they realise that the old conceptions of their functions whichwas limited very largely to making provision for a rainy day, must giveplace to a wider conception and meet, more adequately, present dayrequirements”. The managers of the Coventry Savings Bank were struckby the number of depositors who withdrew savings in 1925 to buyhouses: “The purchase of a house is an excellent use to make of savings, andthe most satisfactory way of doing so is to save the money to pay for it”.

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As enthusiasm for house ownership swept Britain, particularly the southof England, savings banks could not match the growth of buildingsocieties in attracting depositors, usually with much higher rates ofinterest. They were not, however, eclipsed and the number of depositorsand total deposits continued to grow, while those of the Post OfficeSavings Bank fell. During the economic slump of the early 1930s savingsbanks went to great lengths to counter Keynes’s claim that depositorswere saving when they should have been spending. They could beforgiven, as advice from economists was conflicting and thrift remainedvery much part of the government agenda, through the National SavingsCampaign. However, a debate emerged over what might be theappropriate level of savings at various points of the economic cycle.

Before this argument was resolved, Hitler had come to power and Britainonce more found itself at war and desperate for savings to support thewar effort. The saving campaign continued after the war, during the longperiod of austerity that lasted into the early 1950s and witnessed a fall insaving ratios from 10% in 1945 to less than 3% in 1950. Under the post-war Labour government the welfare state was extended with the creationin 1948 of the National Health Service and a costly programme ofnationalisation of essential services and industries. Against thisbackground the whole savings movement had no alternative but toreturn to the interwar rhetoric of saving for future consumption – for apurpose, particularly the purchase of household goods and for holidaysand recreation. The Oxford Savings Bank was typical in telling depositors:

In many cases saving through the Bank is for short periods only, butthe Committee believes that the type of savings, for example, to meetcommitments for household expenditure, or for holidays orChristmas, is a form of Thrift no less valuable than the old establishedconception of saving as being the accumulation of small sums over alonger period of years, often with no particular end in view.Experience has shown that the short-term saver, having learnt thevalues of his short-term saving, becomes a long-term saver.

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This did not mean that the old rhetoric was completely abandoned, as itcould be applied to both long- and short-term savers. Advertisements stillcontrasted the contented provident saver with the dismal improvident.The predominance of short-term saving aligned savings banks muchmore closely with commercial retail banks that by now had greatlyextended their branch network and were competing directly for deposits,particularly those of larger better-off customers, which made it difficultfor savings banks to service smaller accounts.

The 20 years from 1950 to 1970 can best be characterised as an unequalstruggle between the whole of the thrift movement in the UnitedKingdom and commercial banks that were rapidly extending theirservices to retail customers who were themselves coming to expect arange of financial services that savings institutions lacked the power toprovide. Savings banks responded by amalgamations that werestimulated by the need to automate processes to reduce the cost ofmanaging thousands of small accounts and the need to introducemovement-wide services, such as cheque payment, which often requiredeither legislation or government approval.

As is well known, this led inexorably to the amalgamation of nearly all thebanks into regional groupings and finally into a single, broader UKorganisation – the TSB, which was floated on the stock exchange in1986. Although the decision to float rather than leave the TSB as amutual organisation was taken by the Conservative government, whichwas opposed to any involvement by the state in the market for financialservices, with hindsight it would probably have happened in any event.The problem for the TSB and its managers was that they lacked anyexperience of commercial banking and most of the capital raised atflotation, which was much in excess of capital requirements, was lost invery risky ventures into merchant banking and insurance. After a periodof reorganisation and restructuring around its core business of retailfinancial services, Lloyds Bank, an established UK commercial bank,acquired TSB in 1995 and traded under the name Lloyds TSB until 2009,when it was renamed Lloyds Banking Group. This transition from anetwork of savings banks of various sizes with deep local roots into a fullyfledged commercial bank was painful and not without its critics. A recentreport from the Lloyds Banking Group suggests that far from being deadthe old rhetoric of thrift is alive and well: in the current downturn,household saving is at its highest ever level and pension and welfarepayments much reduced. In other words, people are saving for a rainyday, which Henry Duncan would have approved.

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n Halifax 50 Years of Savings report (2010), available online athttp://www.lloydsbankinggroup.com/media/pdfs/halifax/2010/190610Halifax_50_years_of_savings_report.pdf?WT.ac=018.

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n Keynes, J. M. (1936), The General Theory of Employment Interest andMoney, London, Macmillan.

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n Lloyd-Jones, R., and Lewis, M. J., (1991), Small Savers in the LateVictorian Period: Business Data Base of the Sheffield Savings Bank,1861-1901, Leicester, Perpetuity Press.

n Malthus, T. (1798), An Essay on the Principle of Population, London.(1803), An Essay on the Principle of Population, London, quarto edition.(1817), An Essay on the Principle of Population, London, John Murray,fifth ed., available online at http://books.google.co.uk/books (accessedAugust 2008).(1836), Principles of political economy considered with a view to theirpractical application, London, William Pickering, available onlinehttp://books.google.co.uk/books (accessed August 2008).

n Maseres, F. (1772), A Proposal for Establishing Life-Annuities in Parishesfor the Benefit of the Industrious Poor, London, Benjamin White.

n Morris, R. J. (1981), “Samuel Smiles and the Genesis of Self-Help”,Historical Journal, 24, pp. 89-109.

n Moss, M. S., and Russell, I. F. (1994), An Invaluable Treasure: A Historyof the TSB, London, Weidenfeld and Nicolson.

n Ogborn, M. E. (1962), Equitable Assurances: The story of lifeassurance in the experience of the Equitable Life Assurance Society,1762-1962, London, George Allen & Unwin.

n Pratt, John Tidd (1830), The History of Savings Banks in England,Wales, and Ireland, etc., London, C.J.G. & F. Rivington.

n Price, R. (1771), Observations on Reversionary Payments; on schemesfor providing annuities for widows ... and on the National Debt.To which are added four essays on different subjects in the doctrine ofLife Annuities ... Also, an appendix, containing ... tables, shewing theprobabilities of life in London, Norwich and Northampton, etc.,London, T. Cadell.

n Rose, G. (1816), Observations on Banks for Savings, London, T. Cadell& W. Davies.

n Smiles, S. (1859), Self-help: With Illustrations of Character, Conduct,and Perseverance, London, John Murray, available online athttp://www.fullbooks.com/Self-Help.html (accessed July 2008).

n Smiles, S. (1875), Thrift, London, John Murray.n “Tracts on Savings banks” (1816), Quarterly Review, October.

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Mats Andersson, Archivist, Swedbank

Mats Andersson has been archivist at Swedbank since 1998 and isauthor of numerous articles on savings banks history.

Enrique Rodríguez, Senior Vice-President, Swedbank

Enrique Rodriguez is professor at the Royal Institute of Technology,Stockholm, Sweden, and has been senior vice-president of Swedbanksince 1985. He is the author of books, research publications andscientific articles on, i.a., public finance, savings and developmentand savings banks history.

1. Introduction

A fact that is scarcely known in northern Europe is that the general ideaof savings banks had already been hatched, in France, in the early 17thcentury. In 1611, Hughes Délestre published a booklet on theestablishment of “pawn shops”, which already included the idea ofpromoting saving. Délestre gave voice to the need to offer workers thepossibility of depositing small amounts at a modest interest rate, so as tomitigate periods of hardship. In a 1697 booklet, Daniel Defoe introduceda similar idea. Both, however, remained mere ideas until well into the18th century, when philanthropic and social-liberal ideas envisagedsavings banks as a means to fight and prevent poverty.

In Hamburg a savings bank was founded in 1778, “for people of lessermeans”, and a few years later the Oldenburg and Kiel savings banks wereestablished. During the first years of the 19th century, the number ofsavings banks grew rapidly in Germany, but the movement was stuntedby the Napoleonic Wars.

SAVINGS BANKS ANDECONOMIC DEVELOPMENT:SWEDEN IN THE 19THCENTURY

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Independent of the German process, similar institutions were establishedin Great Britain. In 1798, an institution was founded in Tottenham, whichresembled savings banks, and the following year another one inWendower. But the first savings bank with modern characteristics, whichserved as a standard for the British and Nordic systems, was founded in1810, in Ruthwell, in southern Scotland. From then on, the ideas thatformed the foundation of the European savings banks movement were asubject of serious consideration.

The ideas were imported into Sweden, where savings groups were alreadyin existence, with characteristics that resembled those of savings banks.

In 1805, Berndt Harder Santesson founded a savings group for theworkers of one of his own glassworks and a few years later another onewith similar characteristics. Bearing in mind the close connectionbetween German and Swedish incipient capitalism, Santesson veryprobably received inspiration from Germany. In any case, the main goalof the creation of these groups was to help poor classes forestall times ofhardship and thus fight against poverty.

During most of the 18th century, economic ideas did not attributeimportance to saving. It was even said that saving reduced spending,and therefore lowered both production and employment levels.Classical economics, however, very soon managed to prove that savingwas one of the bases for improving production and consequently forstrengthening other macroeconomic variables. Saving became thefoundation of capital formation and was thus crucial to the well-being ofnations. Religious authorities, such as those in Nordic countries,reinforced the increasingly favourable perception of saving by preachingit as a virtue, which also explains part of the process.

Nevertheless, the savings bank movement had to convince people of theadvantages of saving and launched nationwide promotional campaigns.The following phrase expresses great pragmatism in a poetic tone, but italso clearly exposes the commercialism that has often lurked behindphilanthropy: “Saving does not develop on the basis of commands andsermons, but on the basis of banking institutions, as the earth receivesseed. No sensible man squanders seed so as to benefit more. The urgefor profit, through a country’s banking institutions, should become thereason to save” (Hessling, 1989).

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Savings banks are the oldest banking group in Sweden, and in manyrespects they have led the march towards the modern banking system.Since 1928, the savings banks’ symbol has been the old oak; its evocationof strength and security has helped make it one of the most famousmarket icons.

After the creation of savings banks in Gothenburg, in 1820, and inStockholm, in 1821, the movement expanded with such speed that 500savings banks existed by the time the old oak became the movement’ssymbol. Very soon, savings banks distinguished themselves by their closebonds to local and regional authorities, who sometimes took the initiativewhen founding savings banks. Among the promoters were also farmersand local businessmen. As a result of this process, Sweden’s savingsbanks played a key role in the capital formation that was required for theindustrialisation process, which in this country did not come about untilthe second half of the 19th century. The savings generated during theinitial stage not only managed to support local investments but alsofuelled the consumption of the first manufactured products.

For many years, savings banks acted unaware of their importance incapital formation and economic development. One could say with someexaggeration that savings banks in Sweden ignored that they acted asbanking institutions until 40 years ago. But, indeed, savings banks werecrucial to the rationalisation and mechanisation of agriculture at the endof the 19th century, the massive migration of the rural populationtowards cities, the development of the first industries, cultural andeducational evolution, etc.

2. Central figures

Four individuals played particularly important roles in the introduction ofsavings banks to Sweden: Johan Westin, who launched the idea, Carl DavidSkogman, who outlined it officially, Berndt Harder Santesson, who put itinto practice, and Eduard Ludendorff, who headed the first savings bank.

Johan Westin (1751-1828) was a prominent politician and a member ofthe board of directors of the National Bank. Having studied the savingsbanks legislation passed by Parliament in Great Britain in 1817, the followingyear he proposed similar institutions for Sweden, which aroused considerableinterest in Parliament.

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However, his idea that the National Debt Office should take charge ofsavings banks met with no success; a Parliamentary committee decidedthe government should not be in charge of such activity. Instead, thecommittee proposed to the government that “some talented person”should write a paper on the so-called savings banks, in order to offer thepublic a clear notion of the definition of such banks.

Carl David Skogman (1786-1856), who played the most crucial role ofthe four, was the “talented person” whom the government entrustedwith introducing the idea of savings banks. His paper on the subject waspublished in 1819, and 1,000 copies were printed. At the time, Swedenwas experiencing serious financial problems: the monetary system wasanarchic, public finances were inadequate and the economy wasunderdeveloped. The country needed fresh ideas from abroad,particularly from England, which was considered the cradle of the newworld economy.

Skogman wrote several papers during an official journey to the U.S. andBritain. Back in Sweden, in 1815, he held several offices and, among otheractivities, concerned himself with the banking system. The forerunning“discount” banks that had been established after 1770 were sufferingbecause of the economic crisis and liquidity and management problems.The government named Skogman head of one of the most importantbanks, and in 1817 he was appointed secretary of the committeecharged with resolving the banking crisis, among other tasks. He soonwas named minister of finance and trade, and towards 1830 he wasundoubtedly the government’s key figure.

His 1819 paper compared experiences in Scotland and England of dealingwith the poor. He claimed that English laws on social welfare encouragedvagrancy and harmed the working class interests. In Scotland, however,the first savings banks showed the positive effects of organised saving.The paper concluded that there were better ways to prevent poverty thansocial welfare programmes: society’s upper classes should not only helpfinancially but also do good deeds and promote work and saving as ameans to economic independence. Thus savings banks were the bestsolution transform “help to self-help”, and for the well-to-do classes toavoid tax increases to fund social welfare. For savings banks to besuccessful, according to Skogman, persons of “fortune and well-knownintegrity” had to convince potential savers of the banks’ efficiency and oftheir founders’ altruistic aims.

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Berndt Harder Santesson (1776-1862) was a practical man whoorganised saving among workers. His main field, however, was industry.He headed several companies and was the owner of two glassworks.In Swedish history he is especially known as the builder of the GreatCanal that spans the country and as a member of Parliament. Santessonwas born in Gothenburg, where he spent most of his life.

As early as 1805 he established his first “savings bank” in one of hisglassworks, and reached an agreement with the workers to save 10% oftheir wages in order to meet future needs. The deposited savings, whichearned 5% interest, were invested in the same glassworks. The generalidea was to generate funds for employees to use in old age, but fundscould also be withdrawn in the event of transfer. Santesson continued tocreate savings banks in his successive positions, and some of them enduredfor many years. In many senses, Santesson was a man of the future.

Eduard Ludendorff (1790-1824) was a businessman of German origin whofounded Sweden’s first savings bank (1820), and in addition to devotingtime to religious and liberal ideas, he was engaged in developing tradeand markets. After studying in Berlin, he worked in his family’s tradinghouse, and later became involved with Swedish trade. With great effort,Ludendorff managed to acquire the funds required to create the firstsavings bank, and in his own home created the administrative andcommercial foundation for its development in Gothenburg.

3. The first savings banks

In addition to causing great damage to agriculture, the crisis afterthe Napoleonic Wars wreaked havoc on Gothenburg’s commercial life.Real estate prices fell and bankruptcies were numerous. The city’s own“discount bank” closed its doors to the general public. Thus it was thefirst savings bank that became the bank of local businessmen.

The first savings bank’s statutes were based on Skogman’s 1819 paper,but they differed in that they required half the members of the board ofdirectors to be elected from among the persons who contributed to thebank’s founding and maintenance, and that the rest be appointed byroyal decree. The Parliament’s view was that savings banks would needsupport from public authorities to gain the people’s confidence, but thiswas not the case.

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When the second savings bank was founded in Stockholm, in 1821, noroyal appointment was required either. On the other hand, when newsavings banks were established, the county governor or another publicofficial would often automatically become a member of the board ofdirectors.

The fact that Skogman’s idea to appoint half of the board members byroyal decree was unsuccessful actually resulted in a positive outcome.Savings banks develop without government control and in adecentralised way, which at the same time creates closer bonds to localactivities and strengthens the general public’s trust in these institutions.

We have already mentioned that savings banks, as far as their goals areconcerned, were in line with the bourgeois ideology of the day, but theirsuccess was rather fuelled by meeting genuine economic needs. The useof money was spreading, and as a result so too was the need for financialinstitutions. In 1822, three new savings banks were created. During theremainder of the 1820s two to three savings banks were foundedannually, so that by 1830 24 savings banks, most of which were locatedin the county capitals, existed.

The savings bank movement’s explicit mission was to promote saving.Providing loans was also important, although theoretically as a secondarymission. The most common interest rate for deposits was 5%, andtherefore loans were usually granted at 6%. In 1828, savings banks wereauthorised to open accounts in the National Bank, but since the latterpaid interest at 3% or less, savings banks did not use it to a great extent.As a rule, deposited money was invested in businesses more or lessheaded directly by savings bank board members. In Gothenburg, as wehave already mentioned, loans to industry and trade predominatedduring the first years. According to the auditors, most of the loans weresecured by easily sold commodities. Of the total sum of loans in 1821,23,000 Swedish crowns were guaranteed by iron and steel securities,9,400 by gold and silver securities and 7,300 by miscellaneous shares(Hessling, 1989). Loans against personal securities were also verycommon; this way many workers and farmers were able to gradually freethemselves of local usurers.

During the second half of the 19th century, owing to the industrialrevolution, the new savings banks set the goal of gaining their localpopulation’s support to pursue a new activity: developing agriculture andsmall business. At the time, there was a limitless need for local loans.

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Traditional villages were changing, farmers were deserting their land andnew land was being farmed. In 1839, the statutes of a new savings bankin southern Sweden declared that loans should be offered to small-scalefarmers, making it the first to establish loan-granting as a savings bankservice. This generated a wave of new savings banks.

During this period, we also find a particularly interesting reason for theincrease in the number of savings banks. In the counties of southernSweden, towards the mid-19th century, grain exports, revenues, and,consequently, savings increased. In many cases, savings banks in citiesrefused to accept new deposits, for obvious reasons: more money meansmore work, and most work in savings banks was performed on avoluntary basis. Thus parish savings banks met this increased demand andproliferated (Hessling, 1989).

Agrarian crises during the second half of the 19th century also fuelled theproliferation of savings banks. In general, farmers’ trust in local savingsbanks grows stronger in times of crisis, as savings banks offer better loanconditions than mortgage institutions or commercial banks do. The 1862local administration reform attracted additional interest in creatingsavings banks, because the latter was a necessary complement tothe reform.

For a long time, loans with personal securities were the predominant typefrom savings banks – with the exception of the largest banks, wheremortgage loans and loans with other non-personal securities have alwaysbeen of great importance. Because of the saving bank’s philanthropic andpatriarchal nature, and because its loans were small, borrowers andguarantors were trusted more than real securities. In small communities,where bank employees knew the residents, loans with personal securitieswere quite suitable. Thus this type of loan continued to serve its purposeuntil well into the 20th century.

Initially, mortgage loans were usually redeemed in order to make way fornew borrowers, but when pay-off rules were introduced it could beavoided and capital formation could be fostered simultaneously, whichsoon became one of savings banks’ main goals. Industrialisationincreased demand for this type of loan, thus savings banks increasinglyspecialised in larger loans, at cheaper administrative cost, which in timemade it possible to hire wage-earning employees.

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The 1892 Savings Banks Act, as we shall see, caused certain difficulties.Some savings banks were forced to cut down on their loans to industry,trade and local agriculture. Therefore, real estate loans, with theexception of industrial real estate, became predominant. Loans to localauthorities also continued to grow as a result of the needs of newpopulation centres.

The Savings Banks Act was a turning point. By the mid-19th century,commercial banks had attained an important position. The first one hadbeen founded in 1831, in Ystad, southern Sweden. The important role ofcommercial banks in the industrialisation process is undisputable. In away, the Savings Banks Act echoed the power achieved by commercialbanks, which experienced their most expansive period during the threedecades following its passage.

Incredibly, savings banks were not represented on the committee in chargeof preparing the Savings Banks Act. Commercial banks, however, werewell represented. The committee chairman was a well-known commercialbank shareholder and 17 bank representatives participated. This had aprofound impact on the bill. Loans to business, according to the Act,were the purview of commercial banks, while savings banks should belimited to savings administration. Thus a division of functions was establishedthat would mark the savings bank industry until the mid-20th century.

4. Savings banks and local communities

By encouraging individual savings, savings banks have contributed tostabilising the value of money and hence to curbing inflation, particularlyto finance major public projects and mobilise funds for potential crises.However, savings banks have been local institutions with a definedsphere of activities and specific rules adapted to local circumstances.The savings collected in one region, as a rule, are used in that very region.This has enabled savings banks to enter new sectors, in accordancewith local needs, to develop local industries, thus helping to improveregional balance.

From the start, Swedish savings banks operated as independent banks.Before the Second World War, and particularly before 1892, strong centralgovernance and uniform performance and credit-granting standardswere rare.

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Each savings bank had its own policy. In Gothenburg, the savings bankwas engaged in export and import commodity mortgages, while inStockholm it focused on real estate mortgages. The interesting point isthat each savings bank’s lending reflected local trade and industry, andeach bank tried to adapt its credit policy to changes in economicdevelopment. Moreover, savings banks adjusted to general credit needs.Municipalities borrowed money to invest in infrastructure programmes,while savings banks consistently supported financing for housingconstruction and government borrowing. To a great extent, savingsbanks have acted as though they were government banks, given that thepublic sector has never needed to own institutions that meet local andgeneral credit demands so well.

Initially, certain savings banks had difficulties, since they totally lackedeconomic support from government authorities. Savings banks were noteven allowed to invest part of their assets in the Swedish Central Bankagainst a fair interest rate. Apparently, the government felt that savingsbanks should manage on their own, and that the Central Bank should notbe burdened with any possible expenses. But beginning in 1830, savingsbanks were entitled to invest some of their capital in the Central Bank,which in some cases proved vital. The fact that savings banks were forcedfrom the very beginning to approach the market without governmentsupport may explain why many savings banks developed rapidly frompublic utility undertakings into common money-holding institutions.

It took a rather long time before it was officially recognised that savingsbanks could be of great value to business: they made it possible toestablish small-scale enterprises, carry out soil and real estateimprovements, etc. They could also help the poor strive to improve theirlot. And of course such local support enhanced the general public’swell-being. Savings bank loans remained within the local communityand empowered it to develop.

Eduard Ludendorff, the founder of the Gothenburg savings bank, wascommitted to poor relief, which may have contributed to the bank’sgranting several loans to poor widows. As security for their loans they leftpersonal property such as jewellery, silver cutlery, etc. The bank’s firstannual report stated that its assistance included not only managing smalldeposits, but also granting loans to people in temporary need. Thus poorand needy people would not have to resort to public poor relief, whichin the long run does not benefit the individual.

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In other words, the bank helped people help themselves. If it did not,the report stated, small borrowers would otherwise fall prey to usurers orbe forced to sell their property at a loss.

However, the Gothenburg savings bank was not the only one to acceptpersonal property as security for loans. Many other savings banksaccepted “good and working pocket watches”, gold rings, etc., assecurity. Auditors of several savings banks pointed out that their businesswas beginning to look like a pawnshop.

The Gothenburg savings bank had other ways to illustrate its responsibilitytowards the community. For example, when an embezzlement scandalrocked its major competitor, Gothenburg savings bank took it over, thussecuring depositors’ money. Meanwhile, savings banks in general earneda reputation for cash donations. During the 19th century, they donatedgenerously to education and granted subsidies to organisations engagedin poor relief. As a rule, savings banks leaders and board members werepeople who took an interest in economics and social development.Many pursued commercial, agricultural, industrial and other social activities.

The government’s hands-off approach to savings banks – from the verybeginning, it had no interest in either centralising or steering themtowards the purchase of securities or government bonds – determinedthe path they took. For most, their only chance to grow was in tryingto make deposits productive by loaning money on local markets.Other savings banks took it upon themselves to finance local and countyinfrastructure. Moreover, through their social work, comprised mainlyof donations and financial support, savings banks contributed tothe country’s economic and social development and thus shaped thefoundation of economic growth.

5. Savings bank lending

The first savings banks main goal was to administer the savings of peopleof lesser means. By and by, new savings banks were created to serve abroader purpose. Many founders were philanthropists and businessmensimultaneously. The Färs Savings Bank was founded, in 1839, with thegranting of loans as a primary mission, and many others were createdto grant agriculture loans. Thus farmers could obtain loans with betterconditions than those of either commercial banks or mortgage associations.

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In many cases, loans were granted to the members of savings bankboards of directors, but also against personal guarantee and againstcollateral. In ports, loans were usually granted against securities inexport/import goods. In the Stockholm City Savings Bank it was commonto borrow money against bonds, and as the Stock Exchange developed,loans against securities in shares became crucial to savings banks ingeneral (Nygren, 1981). The most common loans, however, were againstreal estate mortgages and valuables. As the demand for loans grew,in the 1850s, the statutes of many savings bank stated explicitly that theirpurpose was granting loans in addition to administering savings.

Local authorities obtained savings bank loans to finance infrastructure,schools and hospitals. It might be argued that local needs determined thedevelopment of lending. They drove Swedish savings banks to develop asindependent credit institutions and become, in the second half of the19th century, more important than commercial banks. Thus the Swedishsavings banks movement turned out to be rather unique in Europe.

Savings banks would never have survived without increasing theirlending. Unfortunately, it took time for the savings bank movement tounderstand this and for the top savings banks to take the lead andincrease lending (Sommarin, 1940). Borrowers were offered possibilitiesto expand their businesses, using loans for agriculture, buildings, toolpurchases and materials. Some savings banks even borrowed capital fromprivate banks to grant loans.

For the Gothenburg savings bank, lending against commodity collateralwas the dominant form of credit during its first 20 years. There was alsoa great number of small loans against silver and gold collateral.Several other savings banks lent against valuables and became full-servicepawnborkers. This form of lending was replaced gradually by moremodern forms. Moreover, the Gothenburg savings bank made it possibleto establish Gothenburg Private Bank, since almost one-third of the paid-up share capital was mortgaged at the savings bank. Thus cooperation inand the differentiation of Gothenburg’s banking sector was established.

The Norrköping savings bank was founded in 1824 by two manufacturerswho lent against mortgages, valuables such as silver and gold, and evensecurities in shares in steamships sailing the Norrköping-Stockholm route.The last was not entirely according to its statutes, but it met the localcommunity’s needs.

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In northern Sweden, the Piteå savings bank suffered a small loss duringits first year, 1852, but the total amount in loans granted almost equalledthat in deposits. Regional agricultural societies were the main playersbehind efforts to improve the state of agriculture and infrastructure,which led to the creation of several savings banks.

At the Söderhamn savings bank the first mortgage loan against securityin land was granted on the first banking day. During the 1850s and1860s, lending was based on real estate mortgages, but loans againstshares gradually increased, and at the turn of the century this form oflending had risen to approximately half the amount of deposits.

The expressed intention of various early savings banks was to preventpoverty. However, when savings banks opened in rural areas, lendingbecame the key purpose, as from the beginning their focus was onthe credit market (Perlinge, 2005). Around 1840, many new savingsbanks were defined as credit-oriented, targeting agriculture andagricultural communities.

Promissory notes an debt obligations, which were means of paymentaccepted by the local community, i.e. as local bills, comprised much thelocal credit market. Thus institutional loans were not very important atthe beginning of the 19th century, but they expanded as local savingsbanks were created and partly took over traditional instruments, in thesense that savings banks mainly granted loans as promissory notesagainst security or mortgage.

During the Industrial Revolution, the British strategy to help the poor byecouraging deposits in savings banks, which in turn invested money inthe English government, did not work in Sweden. And investing savingsbanks’ money in government bonds could not be materialised, largelybecause of the lack of a developed bond market. Instead, savings bankshad to play the part of independent banks.

Savings banks did not share a lot in common when it came to theirlending practices. Each savings bank had its own pattern, adapted to theneeds of the local credit market. In Gothenburg, as we know, money wasraised on merchants’ export/import commodities, and in Vänersborgdeposited savings were lent to the savings bank’s board members.Savings bank lending for agriculture fuelled tranformation and specialisationin the 1840s and 1850s and led to the foundation of industrial society.

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One significant idea amongst savings banks was that savings generatedin local communities should be used for local credit needs. This was ofgreat importance to the savings banks’ own development since theincreasing lending activity created greater needs to procure deposits.Little by little, the work done by savings banks through promotion ofsavings, savings clubs, school savings, etc. became a complement to theirbusiness. All this undoubtedly provided very strong impulses thatfurthered Sweden’s economic growth.

Various reports in the 1960s and 1970s (Nygren) analysed the role savingsbanks played in the development of local credit markets and the incipientindustry. For instance, overall Swedish savings bank lending againstshares as security doubled between 1876 and 1893, and equalled 25%of commercial bank share lending during the latter years of that period.Lending to businesses was a strong component of savings bank lending.At the same time, board members could be engaged in other creditinstitutions and local commercial banks. Thus savings banks played aneven more important role in financing local business by transferringmeans between institutions and through common strategic ideas.

Table 1: Institutional lending 1835-1875. Millions of SEK.

* Note that the size of savings bank loans were generally much smaller.

Central Debt Commercial Savings MortgageBank Office Banks Banks* Institutions

1835 27 - 2 2 2

1840 32 1 10 5 13

1845 35 7 10 6 18

1850 35 4 16 11 33

1855 33 4 24 20 70

1860 40 5 54 27 85

1865 35 7 74 35 129

1870 43 8 121 57 156

1875 49 7 246 111 213

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Table 2: Savings Banks and Commercial Banks: current loans

* Loans to Local Authorities excluded

** Including other lending (Letters of Credit, Bills of Exchange, etc.)

Source: Nygren 1981, Pettersson 2001.

Section “Savings Banks’ Lending” based on Nygren’s work.

Already in the 1830s and 1840s, several savings banks developed a typeof lending that in practice turned them into a kind of commercial bankfor the urban bourgeoisie. Savings banks increased institutional lending,and as time went on they managed to break down the private promissorynote lending system.

The banking innovations achieved by savings banks consisted mainly inthat they developed the local credit market, differentiated lendingaccording to the varying conditions of the sphere of action, and increaseddeposits as a source of financing lending.

After 1820, new savings banks opened with great frequency. In 1859,there were already 125, with an overall lending of 27 million SEK. By 1875,the number of savings banks had grown to 325, and lending totalledapproximately 150 million SEK, including loans to local authorities.

The first savings banks were established in cities and trade areas.Railway creation fuelled savings bank creation. In most cases, this build-up was supported by philanthropy and savings ideas, but in practice thebanks were limited to the local credit market. In rural areas, however,savings banks were established with a view to gaining access to greaterlending opportunities. Agriculture needed financing, and it is obviousthat a strong agricultural region such as Skåne in the south of Sweden,savings banks were founded with the support of agricultural societies.

Current loans, million SEK, Total lending

Savings Commercial Commercial Year Banks* Banks Banks**

1876 116 104 294

1880 121 109 287

1890 241 203 457

1900 362 462 1.046

1910 693 1,029 2,063

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In the mid-19th century “county” savings banks proliferated. They werefounded with the support of county administrative boards andagricultural societies and were intended as both savings and lendingbanks. Their intended purpose, which was not fully realised, was to coverthe whole country in a homogenous way, and they were thus partly areaction to the diverse structure of savings banks. Between 1865 and1885, almost 200 “parish savings banks” were created. When cropsfailed, the need for agricultural loans was great. Therefore, agriculturalsocieties supported a vast network of local savings banks.

Naturally, deposits were the basis for lending, but the idea of developingdeposits with that intention was sometimes unfamiliar to boardmembers. In practice, deposits depended on the kind of depositors thatpredominated. It is rather obvious that a savings bank whose customerswere mainly workers had a weaker balance than savings banks wheretrade, craftsmen, and persons of rank predominated. Therefore, thepossibility of receiving deposits from well-to-do citizens was crucial to asavings bank’s development (Nygren, 1981).

In general, by 1870 the economic situation in Sweden allowed for moreextensive and generalised saving. The institutional credit market wasexpanding, and therefore money stayed in banks instead of passing on tothe private promissory note lending market.

Saving bank boards of directors, which frequently represented localbusiness, often decided how lending was aimed. Lending was adjustedto the board’s views and the development of the credit market. Whensavings banks started lending, there were a great many “board loans”,i.e. board members taking over deposits themselves for investment. Lateron, others close to board members or with similar professions andinterests could get involved in the lending process. There are manyexamples of board members who were involved in railways, woodproducts, industrial enterprises, banks and handicrafts, etc. Many boardmembers also held similar positions in private banks. “Board loans” weresometimes a last resort, when no better investment could be found, butin some cases they led to conflict and even loss.

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6. Differentiated credit system

In the early 19th century, the board’s knowledge of people was crucialand could in part compensate for the lack of economic knowledge whenloans against personal guarantee were granted. In addition, it was possibleto cancel such loans at short notice. During the first half of the 19thcentury, private individual loans came mainly from other private individuals.These loans were complemented with others from savings banks andwere largely based on personal relationships. Later, mortgage loans wereconsidered less risky and increased at the same time as commercial loans,also based on personal relationships. A savings bank was not primarily anindependent organisation, but rather a part of local business.

Table 3: Percentage of Securities in Different Savings BanksGroups, 1859

Personal Rural Urban Otherguarantee real estate real estate credits

Size 1 2 3 4

Over 1,000,000 10 22 26 42

500,000-1,000,000 44 20 28 8

250,000-500,000 54 22 16 8

Under 250,000 56 21 15 8

Activity

City savings banks 33 17 25 25

County savings banks 37 33 23 7

Hundred savings banks 77 19 2 2

Parish savings banks 76 14 5 5

Founded

Before 1836 29 23 29 22

1836-1850 64 15 12 9

From 1851 72 6 6 6

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Most loans against personal guarantee were small, and thereforeadapted to the category of customers that savings banks intended to serve.Bigger loans against personal guarantee offered savings banks advantagesowing to their stability and were also less costly to administer per currencyunit. Mortgage loans, however, were administratively burdensome.

Unfortunately, loans against personal guarantee turned out to beinadequate to grant loans for construction, including that of railways andstations, housing and business buildings, as well as for agriculture.Savings banks had to change direction and procedures and considermortgage loans as safer. On the other hand, it was rather obvious thatloans against personal guarantee involved high administration costs.The transition to the mortgage loan-based structure influenced the futureof savings banks. In 1912, they were the most important creditinstitutions for financing housing. They played a less important rolefor share lending. In 1859, the large savings banks of Stockholm,Gothenburg and Uppsala had nearly 90% of total savings bank sharelending. In smaller savings banks this form of lending was less significant.

Savings banks contributed to the country’s infrastructure developmentvia a large amount of lending on railway shares, which was grantedaccording to advantageous conditions. Loans were also granted onshares in factories and industries, and also on the wood sector. After the1860s, savings banks granted loans to finance important communityinvestments, e.g. water and sewage disposal systems, gasworks, streets,etc. Part of health care reform was also financed by savings banks.

In general, savings banks focused in granting small loans. For example,during some periods of the 19th century, they only granted real estateloans at below half the rateable value of the real estate. By limiting loansize, they were able to increase the number of loans to differentindividuals, thus achieving better risk apportionment. In order to reachnew borrowers, they could cancel granted loans, but owing to theproblems this might create, amortisation rules were introduced later.Through this repayment obligation, savings banks also contributed,through borrowers, to enhancing the capital formation that became one oftheir main tasks (Sommarin, 1940). Our oldest savings banks thus pioneereda function of utmost importance to the Swedish people of today.

44

Savings banks also targeted the bond market. In the 1820s, the Stockholmsavings bank based nearly 40% of its investment of funds on bonds,mainly government and local community bonds. It was situated at thecentre of Sweden’s bond market and its board was dominated by personsclose to government, for instance, Carl David Skogman. By financing majorlocal projects, bonds contributed to the country’s economic development.

Bonds also exerted a balancing influence on savings banks, whendeposits could not be invested against the usual securities. For instance,investment in the Stockholm savings bank’s bonds increased four-foldbetween 1831 and 1840, and between 1841 and 1850. The samedevelopment can be observed in lending to local authorities andassociations between 1842 and 1850, when the number of loans forStockholm real estate hardly changed.

In 1876, bond holding amounted to 17%, or SEK 26 million of the savingsbank total investment of SEK 151 million (Nygren, 1981). Towards theend of the 19th century, savings banks had come a long way, consideringthe number of banks and branch offices and society’s interest in them.But they could not completely fulfil their intended role of reducing costsin order to mitigate poverty and support social welfare. On the otherhand, savings banks could build up institutional saving in banks andcontribute to a differentiated credit system.

The 1892 Savings Banks Act introduced some restrictions on savings bankactivity, but since the banks were firmly rooted in local communities,authorities had fairly limited possibilities of controlling them. One importantaim was to create more space for commercial bank activity, and it wasargued that savings banks should not be able to compete against commercialbanks, because it put depositor money at risk. Therefore, savings bankswere forbidden to grant loans other than against promissory notes andsimilar instruments of debt; they could no longer grant letters of credit oroffer cheque accounts; and they were obliged to hold a cash reserve.A few years later, there was an idea, which never did evolve into law,to forbid lending against securities in shares entirely and to introduce amaximum deposit amount of SEK 10,000 in all savings banks. For thetime being, commercial banks had won the battle.

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7. Summary

During most of the 18th century, economic ideas did not attributeimportance to saving. It was even said that saving reduced spendingand therefore lowered both production and employment levels.Classical economics, however, very soon managed to prove that savingwas one of the bases for improving production and consequently forstrengthening other macroeconomic variables.

Saving became the foundation of capital formation and was thus crucialto the well-being of nations. Religious authorities, such as those in Nordiccountries, reinforced the increasingly favourable perception of saving bypreaching it as a virtue, which also explains part of the process.

Savings banks would never have survived without increasing theirlending. Borrowers were offered possibilities to expand their businesses,through agricultural improvements, new buildings, purchasing tools andworking material, etc. Unfortunately, it took some time before there wasunderstanding and consideration of these incomparably crucial results ofthe savings banks movement, so as to enable certain leading savingsbankers to strive to increase lending.

Savings bank lending supported 1840s and 1850s agriculturaltransformation and specialisation, and consequently the foundation ofindustrial society. One significant idea amongst savings banks was thatthe savings generated in local communities should be used for local creditneeds. This in turn was of great importance to the savings banks’ owndevelopment since the growing lending activity created greater needs toprocure deposits. Little by little, the work done by savings banks throughpromotion of savings, savings clubs, school savings, etc., complementedtheir business. All this undoubtedly provided very strong impulses thatspurred Sweden’s economic growth.

Among the promoters there were also farmers and local businessmen.As a result of this process, Sweden’s savings banks played a key role inthe capital formation that was required for the industrialisation process,which in this country did not come about until the second half of the19th century. The savings generated during the initial stage not onlymanaged to support local investments but also made up the basis for theexpansion of consumption of the first manufactured products.

46

The fact that from the very beginning the government had no interest ineither centralising savings banks or steering them towards purchasingsecurities or government bonds determined the path that Swedish savingsbanks would take. The only chance most of them had was that of tryingto make deposits productive by offering money on local markets. On theother hand, savings banks took it upon themselves to finance local andcounty infrastructure. Moreover, through their social work, mostlydonations and financial support, savings banks contributed very activelyto the country’s economic and social development. Thus savings banksshaped the foundation of economic growth.

In addition, savings banks adjusted to general credit needs. They lent tomunicipalities to invest in infrastructure programmes, helped financehousing construction, supported government borrowing during theworld wars, and so on. To a very great extent, savings banks have actedin part as though they were government banks. The government sectorhas never had any need to own institutions that meet local and generalcredit demands so well.

Lending to businesses and entrepreneurs was a strong component ofsavings bank lending. At the same time, board members could beengaged in other credit institutions and local commercial banks.Thus savings banks played an even more important role in financing localbusiness by transferring means between institutions and throughcommon strategic ideas.

The banking innovation achieved by savings banks consisted mainly ofthe fact that they developed the local credit market, differentiatedlending according to the varying conditions of the sphere of action, andincreased deposits as a source of financing lending.

Savings banks could not completely fulfil their intended role of reducingcosts in order to mitigate poverty and support social welfare. On theother hand, savings banks could build up institutional saving in banks andcontribute to creating a differentiated credit system.

47

Bibliography

n Andersson, M., Rodríguez, E. “Swedish Savings Banks and Society”.Perspectives, ESBG, 2006.

n Björk, L. Sparande och sparpropaganda (“Savings and SavingsPromotion”), Sparfrämjandet AB, Uppsala, 1936.

n Forsell, A. Moderna tider i sparbanken (“Modern Times in the SavingsBank”), Stockholm, 1992.

n Hessling, T. Att spara eller inte spara, vilken fråga (“To Save or not toSave, What a Question”), Stockholm, 1990.

n Hessling, T. Envar sin egen lyckas smed (“Every man is the architect ofhis own fortune”), Sparfrämjandet AB, Stockholm, 1989.

n Håfors, A. En statlig affärsbank I Sverige (“A State-Owned CommercialBank in Sweden”), Department of Economic History, Uppsala, 1995.

n Körberg, I. Förändringsprocessen inom sparbanksrörelsen 1980-1995(“The Process of Change in the Savings Banks Movement 1980-1995”),Stockholm, 1999.

n Larsson, M. Staten och Kapitalet (“The State and the Capital”),Stockholm, 1998.

n Nygren, I. Svenska Sparbankers Medelplacering (“Swedish SavingsBanks’ Investment of Funds”), Gothenburg, 1970.

n Nygren, I. Svensk kreditmarknad 1820-1875 (“The Swedish CreditMarket 1820-1875”), Gothenburg, 1981.

n Perlinge, A. Sockenbankirerna (“The Parish Bankers”), Nordiskamuséets förlag, Stockholm, 2005.

n Petersson, T. Kreditmarknad i omvandling (“The Credit Market inTransition”), Department of Economic History, Uppsala, 1999.

n Petersson, T. Framväxten av ett lokalt banksystem (“The Rise of a LocalBanking System”), Universitatis Upsaliensis, Uppsala, 2001.

n Rodríguez, E. “Swedbank, From Foundation to Stock ExchangeIntroduction”. Sixth Symposium on the Savings Banks History, Paris, 1998.

n Rodríguez, E. “The Traditional Independence of the Swedish SavingsBanks”. Seventh Symposium on the Savings Banks History. Bonn, 2000.

n Sjölander, A. Att reglera eller inte reglera (“To Regulate or Not toRegulate”), Department of Economic History, Uppsala, 2000.

n Sommarin, E. Grundläggningen av vårt sparbanksväsen (“The Foundingof Our Savings Banks System”), Håkan Ohlssons Boktryckeri,Stockholm, 1940 and 1942.

n Sparbankernas långtidsutredning (“The Savings Banks’ Long-RangeReport”). Svenska Sparbanksföreningen, Gothenburg, 1972.

n Svensk Sparbankstidskrift (“The Swedish Savings Banks Journal”),Svenska Sparbanksföreningen, Stockholm.

48

Anniversary publications

n Göteborgs sparbank, Gothenburg Savings Bank, 1820-1945.n Jönköpings stads och läns sparbank, Jönköping City and County

Savings Bank, 1852-1952.n Sala sparbank 175 år. Sala Savings Bank 175th Anniversary, B.

Engelbrektsson, 2003.n Sparbanken i Vänersborg, Vänersborg Savings Bank, 1822-1922.n Sparbanken Nord 150 år, Savings Bank North 150th Anniversary,

1852-2002.n Stockholms Stads Sparbank Stockholm City Savings Bank, 1821-1921,

Stockholm, 1921.n Söderhamns Sparbank Söderhamn Savings Bank, 1854-1954.n Various monographs and anniversary publications.

1 História de Portugal, direcção de José Mattoso, Vol. V, “O liberalismo”, Editorial Estampa,Lisboa, 1993, pp. 17-119.

49

Pedro Sameiro, Secretary General, Montepio

Born in 1945, Pedro Sameiro has a degree in law from the ClassicalUniversity of Lisbon. Formerly the public prosecutor and stateattorney, he joined the savings bank in 1973. He was, successively,head of human resources department, legal adviser, internationalrelations manager, legal department manager and generalsecretary. He has published works in law and history.

The first Portuguese savings bank was founded in 1844, which is latecompared to other European countries. Why so late? And what alternativecredit and savings solutions, if any, existed previously?

During the last quarter of the 18th century and the first half of the 19thcentury, Portugal suffered from political and social instability fuelled bycontinuous degradation of its economic situation: wars with France(1797-1799 Roussillon campaign) and Spain (1801), three French invasions(1808-1810), the Peninsula War, consecutive liberal and conservativerevolutions culminating in the Portuguese Civil War (1829-1834) thatended in liberal victory – and still the violence didn’t end.1 Despite thepeace agreement’s guarantees, more than 5,000 partisans of deposedKing Miguel I were slaughtered, then radical and conservative factions ofthe victorious liberals alternated several revolutions and coups-d’état,leading to a second civil war (Revolution of Maria da Fonte, 1846-1847)that was ended by foreign military intervention.

SAVINGS BANKS INPORTUGAL: ORIGINSAND ATTRIBUTES

2 “Colleccção de Legislação Promulgada em 1836”, Lisboa, 1836, p. 122.3 Cordeiro, António Menezes, “Manual de Direito Bancário”, Almedina, Coimbra, 4th ed.

2010, p. 98.4 Nunes, Ana Bela, Carlos Bastien, Nuno Valério, “Caixa Económica Montepio Geral – 150 anos

de História 1844-1994”.

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Not much time and space was left for social, economic and politicalreform, which requires not only legislation, but also the social peace thatassures investors of returns, and a stable public administration capable ofevaluating, authorising and supervising entrepreneurial initiatives.Nevertheless, some savings banks legislation was produced.

A 17 August 1836 decree2 announced that “A Savings Bank [Caixa deEconomia] shall be set up in Lisbon that will be joined by a Credit Bank[Caixa de Empréstimo] called Monte de Piedade”. The savings bank wouldaccept deposits from the public, generally, above the limit of 400 reals(“réis”), but an interest rate of 4% would only be paid on deposits of5,000 reals or more. The deposits could be withdrawn on demand, or onspecified notice. The “Montepio” would use the funds received by thebank to grant pawn credit at a minimum of 1,000 reals for a maximum termof three months; net profit would be donated to institutions providingshelter for the poor and invalid or to abandoned orphans. In order toraise funds for launching the savings bank’s activity, an appeal was madeto investors, who would receive redeemable shares, but the highlyunstable political situation apparently discouraged any response and thecreation of the first savings bank was delayed for a couple of years.

But successive governments never lost their faith in legislative measuresto promote the bank’s creation. A legal act of 31 December 18413

created the Companhia de Crédito Nacional, a financial company withwide-ranging capacity and especially active in raising investor funds tofinance the concession of the tobacco monopoly. In 1844 the company,renamed Companhia Confiança Nacional, was granted the right to createsavings banks. Confiança Nacional set up two savings banks in 1845, butthey didn’t survive the financial crisis of 1846.4

The founding of the first Portuguese savings bank was executed byneither a legislative act nor a government initiative, but by the action ofcommon people. In 1840 a group of civil servants created a mutualbenefit society, named Montepio dos Servidores do Estado (nowadaysMontepio Geral), with the aim of providing pensions and dowries to theirmembers or their families.

5 Oliveira, João Ferreira Craveiro Lopes de “O Montepio Geral no Primeiro Século da suaExistência”, Montepio Geral, Famalicão, 1940, p. 212.

6 Lei de 22 de Junho de 1866 in “Collecção Official da Legislação Portugueza – anno 1866”,Lisboa, Imprensa Nacional, 1867, p. 254.

7 “Collecção Official da Legislação Portugueza – anno 1867”, Lisboa, Imprensa Nacional,1868, p. 180.

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In order to increase the mutual benefit society’s financial capacity, itsmembers decided to create a savings bank, which opened in 1844,after the necessary funds had been raised to cover operational costs.They deemed the savings bank should receive deposits from the generalpublic, use them to grant pawn credit, and distribute the net profitamong the beneficiaries of the mutual society.5

Two other institutions were born that same decade: Banco Rural de Serpain 1840, and the Caixa Económica de Angra do Heroísmo in 1845.The latter is unique among Portuguese savings banks, as it was createdindependently, without being linked to a pre-existent entity, and by a groupof prominent citizens who became guarantors but were not entitled toreceive dividends. This is the most common model in other countries.

Years later, after selling convent and monastery properties, which hadbeen nationalised after the first civil war, the government realised thatmany estates and buildings belonged to misericórdias – brotherhoodscreated by royal influence with the aim of performing the “14 Works ofMercy”, hence their name – and other entities linked to the CatholicChurch, and decided to force their sale in 1864.6 At first, it waswelcomed, because many institutions struggled to manage large volumesof real estate, but the selling procedure, conducted through stateauctions dominated by influential people, resulted in very low prices,and the investment of the public bonds received impoverished all partiesin the medium term.

Ignoring these facts and trying to drain a supposed excess of liquidity,the government maintained its persistence on the foundation of savingsbanks. A law of 22 June 18677 authorised misericórdias, hospitals,brotherhoods and confraternities to establish agricultural and industrialcredit banks, which in the domain of passive operations could act assavings banks, collecting deposits of limited amounts that could beremunerated according to higher interest rates.

8 Lopes, Maria Antónia, “As Misericórdias de D. José ao final do século XX”, in “PortugaliaeMonumenta Misericordiarum”, vol. I, Lisboa, União das MISERICÓRDIAS Portuguesas,2002, p. 89.

9 “Banco” in “Diccionário…”, op. cit., p. 889.10 Ibid., p. 887; Bainville, Jacques, “Histoire de France”, Paris, Arthéme-Fayard, p. 227 and

following pages.

52

Only the Misericórdias de Viseu e Viana do Castelo founded banks;one from Castelo Branco began the procedures but eventuallyabandoned the process.8 From then until the end of the monarchy (10October 1910), nine more savings banks were founded, five of them bymutual benefit societies and four by misericórdias. During the republicanperiod only four additional savings banks (not including mergers) wereestablished, the last one in 1932.

Prior to the emergence of savings banks, what credit and savingssolutions existed? Banks, stricto sensu, appeared rather late in Portugal.The first one, Banco de Lisboa, was created in 18229 both as acommercial bank with active and passive operations, and as an issuingbank. Credit operations included discount and negotiation of creditdocuments, loans under pledges of precious metals and stones or tradegoods, namely those deposited in customs warehouses. As an issuingbank it was allowed to issue bank notes for legal circulation.

Before this, the only known attempt to create a public bank was a 17thcentury proposal by a certain James Preston, an Irishman, but the projectwas never realised and we don’t know exactly why. Perhaps the king andhis council were more prudent than the French regent when theyaccepted Scottish economist John Law’s similar proposal.10

In the absence of banks, entities that granted credit under the formerregime belonged to three categories: brotherhoods linked to the RomanCatholic Church; entities specialised in commodities credit; and privatecapitalists, especially those acting as general tenants. The most importantof these entities were brotherhoods and among them the misericórdias.Most brotherhoods possessed considerable funds from donations,legates and simple alms, which was more than enough to cover theircosts, and as they were scattered all over the territory and authorised tolend this excess of liquidity, they performed a very important role ingranting credit.

11 The ability of misericórdias to grant credit attracted government attention several times,especially during the Marquess of Pombal’s leadership as prime minister. In 1756,misericórdias in the north were forbidden to grant loans unless they were invested in theshare capital of the new Company of the Douro Vineyards. In 1768, priorities were fixedto the loans, the first of which was financing military and diplomatic expenses. Lopes,Maria Antónia, op. cit., p. 85.

12 Pestana, Manuel Inácio, “Celeiros Comuns da Antiga Casa de Bragança”, Portalegre,Assembleia Distrital, 1982, pp. 5-19.

53

Recent studies have shown that misericórdias exercised financialmediation, borrowing money at a rate of 5% and lending it at 6.25%,a practice that ended in 1775, when they were obliged to lower the latterrate to 5%.11 In the 19th century, the financial activity of misericórdiasand other brotherhoods declined as banks took their place.

Specialised in commodities credit, “Celeiros Comuns” (“CommonGranaries”) were created in 1576 to grant to poor farmers loans inwheat according to its cost and against interest paid in quantities ofgrain. They were managed by municipalities and profits were allotted topublic works.12 Their activity was confined to the southern part of thecountry. In the early 19th century, 19 were founded in the north-east,bringing the total number throughout Portugal to 57. They suffered theconsequences of the country’s economic deterioration, suffocated by anexcess of non-performing loans. The government tried to reform themin 1852, but it only extended their agony to the early 20th century.Even the one that eventually became a bank, Celeiro Comum de Serpa(transformed into a rural bank in 1840), failed in 1908.

Finally, general tenants rented land from prominent landowners andrented out parcels of it to others.

Portuguese savings banks were founded on the basis of otherinstitutions, either mutual benefit associations or brotherhoods, andadopted the legal status of incorporated foundations. Exceptions wereCaixa Económica de Angra do Heroismo, the independent foundationmentioned above, and four savings banks in the Azores that were limitedcompanies regulated by commercial law. This general situation imposedconsequences on savings bank goals and governance.

In general, savings banks exist and have existed as ancillary institutions totheir founders. This implied that the profit generated by their activityshould not merely be distributed among themselves or their members butused to fulfil mutual benefit society and brotherhood goals.

13 Lopes, João Ferreira Craveiro, “O Montepio no primeiro século da sua existência”,Famalicão, 1940, pp. 18, 26-29.

14 Herculano, Alexandre, “Da Instituição das Caixas Económicas”. In order to collect depositsfrom the working classes, the bank was open on Sundays. In 1867, it advertised amongLisbon brotherhoods and worker associations to collect working class deposits (see Lopes,op. cit., p. 213).

15 Except for an association organised ad hoc to formalise the representation of some entitiesin ESBG.

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For example, mutual societies increased pensions and dowries, andbrotherhoods invested in charitable works. Portuguese savings banksinherited these social callings and, as a consequence, the founderbecame deeply interested in the governance of the savings bank.Normally, the same persons participate in the general meetings of founderand foundation (savings bank), and board and audit committee membersare often the same persons in both entities. Even the business structure,at least in part, can be shared.

This caused some oddities, especially in the case of mutual societies andsavings banks. Mutual societies were typically middle class institutions,and in the case of Montepio Geral throughout the 19th century, itsmembers were predominantly civil servants, army and navy officers,judges, traders, etc.,13 and this was reflected on the credit side of thesavings bank, whose loans were guaranteed by credit documents, gold,silver or jewels, which does not correlate with the normal 19th centurypawn bank. This incongruity becomes even clearer given that some of thecredit documents used as guarantees were public treasury notes relatedto wages of civil servants, whose creditors were members of the mutualbenefit society. On the deposit side, however, the assumed targetpopulation was the lower classes, to whom savings would bringfundamental progress, according to a booklet written by AlexandreHerculano.14 Despite such educational activities, Montepio Geralremained a mainly middle class bank, as it is today.

The connection between savings banks on the one hand and mutualsocieties and brotherhoods on the other has also presented managementchallenges. The management logic in mutual societies and brotherhoodswas voluntary service, which proved inappropriate to banking and led tothe collapse of most Portuguese savings banks. Those that stayed afloatowed their success to management professionalism, which imposed thesame development standards on the management of the mutual benefitsociety, such as in the case of Montepio Geral. Moreover, a savings bankassociation has never existed in Portugal.15

55

Its savings banks have existed in isolation from one another and havelargely ignored what happens in other countries, constituting one of thesystem’s more serious weaknesses.

Table1: Portuguese Savings Banks

NameFounder Founded Present Situation

Caixa Económica Montepio GeralMutual benefit society 1844 Active

Caixa Económica da “Confiança Nacional” - 1Companhia Confiança Nacional 1845 Defunct

Caixa Económica da “Confiança Nacional” - 2Companhia Confiança Nacional 1845 Defunct

Caixa Económica de Angra do HeroísmoGroup of citizens 1845 Defunct

Caixa Económica OperáriaCooperative 1876 Defunct

Caixa Económica do FunchalMutual benefit society 1879 Transformed into BANIF

Caixa Económica da Misericórdia de Angra do HeroísmoMisericórdia 1896 Active

Caixa Económica da GuardaMutual benefit society 1903 Defunct

Caixa Económica Picoense, SARLShareholders 1904 Merged into

“Caixa EconómicaAçoreana, SARL”

Caixa Económica de Vila Praia da Vitória, SARLShareholders 1904 Merged into


Caixa Económica do PortoMutual benefit society 1905 Active

Caixa Económica SocialMutual benefit society 1906 Active

Caixa Económica Açoreana, SARLShareholders 1908 Defunct

Caixa Económica da Ribeira Grande, SARLShareholders 1908 Merged into


56

Table1: Portuguese Savings Banks

NameFounder Founded Present Situation

Caixa Económica ComercialMutual benefit society 1910 (June) Defunct

Caixa Económica e de Crédito do Sindicato Agrícola de ElvasFarmers association 1910 (July) Defunct

Caixa Económica da Misericórdia de Ponta DelgadaMisericórdia 1925 Defunct

Caixa Económica Associação de Socorros Mútuos Empregados Comércio de LisboaMutual benefit society 1930 Active

Caixa Económica da Misericórdia da PovoaçãoMisericórdia 1932 Defunct

Caixa Económica de Vila Nova de Gaia3 mutual benefit societies ? Defunct

Caixa Económica AbrantinaMutual benefit society ? Defunct

Caixa Económica Faialense, SARLShareholders Before 1977 Defunct

The church in Ruthwell, where Henry Duncan was minister.

Reverend Henry Duncan.

Samuel Smiles, author

of the best-selling book

Self Help.

The Wakefield family, with Mrs Priscilla Wakefield who

created the ‘first distinct Bank for Savings publicly set

on foot for the benefit of the lower classes’.

HENRY DUNCAN AND THE SAVINGS BANK MOVEMENT IN THE UK

Deposit box of the

Ruthwell Parish Bank.

“Irish Depositors of the Emigrant Savings

Bank withdrawing money to send to their

suffering relatives in the old country”

Bank Run on the Seamen’s Savings Bank

During the Panic of 1857

Interior of the Bowery Savings Bank, 1870

WHY DOES THE US HAVE A WEAK MUTUAL SAVINGS BANK SECTOR?

Banknote of the Somerset and Worcester

Savings Bank

Hon Nin Savings Bank

1910s advertisement

emphasising that because

the bank is linked with

China Kong Nien Life

Insurance Co., Ltd.,

depositors can easily pay

the premiums via their

bank account.

Hong Kong Savings Bank

advertisement emphasising

the bank’s operation by HSBC.

SAVINGS BANK IN THE ASIA-PACIFIC REGION:A HISTORY OF DEVELOPMENT

Subscription form of the International

Savings Society.

Passbook of the People’s Bank of China in 1959.

Savings was promoted as a way to build

the country.

Lottery savings was promoted intensely in

1950s China and even during the Cultural

Revolution.

SCSB poster

DEVELOPMENT AND DIFFUSION OF SAVINGS AND SAVINGS BANKSIN CHINA: A HISTORICAL PERSPECTIVE

57

CHAPTER 2:SAVINGS BANKS:A BANKING MODEL WORLDWIDE

59

Prof. R. Daniel Wadhwani, Assistant Professor, University of the Pacific

R. Daniel Wadhwani, Assistant Professor of Management andFletcher Jones Professor of Entrepreneurship at the University ofthe Pacific, received his B.A. from Yale University and his Ph.D. fromthe University of Pennsylvania before studying on a NewcomenFellowship in Business History at Harvard Business School. He was alecturer on the faculty of the Harvard Business School prior tojoining the University of the Pacific in 2006. He has conductedextensive primary source research on the history of savings banksin the United States and is currently completing a book on the roleof savings banks in the development of the market for personalfinance in America. He has also examined the development ofsavings banks from a comparative-historical perspective.

Over the last three decades, mutual savings banks have experienced aprecipitous decline in their role in the American financial system.Dozens of savings banks have failed and hundreds have chosen toconvert from their traditional “mutual” form into joint-stock institutionsthat are akin to commercial banks. The 82 mutual savings banks thatremain in existence today account for less than 1% of the assets of theAmerican banking system (OTS 2010: 9-10).

Their position was not always this weak. At their height in the late 19thcentury, mutual savings banks accounted for over a quarter of the assetsin the American banking system and financed infrastructure and housingdevelopment that was crucial to the growth of the industrial economy(Welfling 1968). For most of the 19th century mutual savings banks werethe fastest growing financial institution in the US and generally had areputation as conservative but well-managed institutions (Kroos Hermannand Martin Blyn 1971).

WHY DOES THE US HAVEA WEAK MUTUAL SAVINGSBANK SECTOR?

60

Why, then, have mutual savings banks become so marginal in theAmerican banking system? What caused their precipitous decline?While it is common to attribute the decline of mutual savings banks in theUnited States to the period of bank deregulation beginning in the 1980s,the inability of American savings banks to compete in a deregulatedenvironment has deeper historical roots. Savings banks in some otherparts of the world – Spain and Germany, for instance – have successfullycompeted in the deregulated bank environment that has developed inthe last three decades. To understand why American savings banks wereunable to compete like their Spanish and German counterparts we needto understand the historical development of savings banks in the UnitedStates and their relatively weak capabilities. Their decline holds lessons forsavings bank managers in other parts of the world today.

Part of the decline of savings banks, as we shall see, was attributable tofederal regulation, and especially to deposit insurance. By insuringcommercial bank and savings and loan deposits as well as savings bankaccounts, federal deposit insurance wiped out mutual savings banks’most significant advantage in the eyes of depositors: their reputation forsafety. But deposit insurance only accounts for part of the story. Mutualsavings banks in the United States also remained regional rather thannational institutions, failed to aggressively innovate their products andservices when given the opportunity or presented the need to do so, andrefused to cooperate as a group to engage in meaningful collectiveaction. It was these historical weaknesses in the capabilities of mutualsavings banks – as much as the regulatory environment – that led to theeventual decline of the institution when deregulation no longer protectedits market from competitors.

The paper is organised as a chronological account of the developmentand decline of mutual savings banks in the United States, focusing inparticular on the weaknesses that would lead to their eventual demise inthe late 20th century. Part I examines the origins and growth of savingsbanks in the United States. Part II considers the emergence ofcompetitors in the market for personal savings, including commercialbanks, S&Ls, and other intermediaries. Part III examines why savingsbanks failed to innovate and diversify their services in response to thecompetitive threats that emerged in the late 19th century. In part IV,I examine the lack of effort at collective action among savings banks inthe United States; though they formed an association, it provided a verylimited array of services when compared to similar savings bankassociations around the world.

61

Part V examines the regulatory environment both before and after theNew Deal and shows how it both protected savings banks fromcompetitors while eliminating the key source of the savings banks’competitive advantage. The sixth section examines the crisis of the lastquarter of the 20th century. I conclude by considering some of theimplications of the American experience for the managers of savingsbanks in other parts of the world today.

Figure 1: Mutual Savings Banks’ Share of Assets of SelectedFinancial Intermediaries

Sources: FDIC, White, “Were Banks Special Intermediaries.”

Notes: Intermediaries include savings banks, commercial banks, and savings & loans.

1. Origins and Early Growth, 1810s-1870s

The financial system in the United States during the 19th century wascomprised of an array of institutions, each designed to provide a specificand often quite limited bundle of services. Its cornerstone was thecommercial banks that state legislatures chartered to maintain a moneysupply and extend short-term commercial credit. Prior to the NationalBanking Act of 1863, commercial banks were regulated by the states;after 1863, some also came to be regulated by the federal government.

30%

25%

20%

15%

10%

5%

0%

1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2009

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While commercial banks were extremely important for conductingbusiness, they were only rarely used by individuals of modest means whowished to set aside small sums for future needs. The needs of small saverswere met by a variety of other financial institutions, of which the mostimportant were the mutual savings banks.

The first savings banks in the United States were established during the1810s in Philadelphia, Boston, New York and Baltimore, based on themodel of the British Trustee Savings Banks. These savings banks acceptedsmall-denomination savings deposits from the general public, which theywere charged with investing in prescribed “safe” asset classes, usuallygovernment debt and high-grade mortgage loans. However, sincemutual savings banks were state rather than nationally charteredinstitutions, the rules governing their investment practices varied fromstate to state (Olmstead 1976; Wadhwani 2006).

From the outset, these institutions had been intended primarily to enablepersons of modest means to save a portion of their present income tomeet future needs. They furnished, as the founders of the Bank for Savingsin New York explained in 1819, a “secure place of deposit” for “all whowish to lay up a fund for sickness, for the wants of a family, or for oldage” (Manning 1917: 125). Savings banks were state charteredinstitutions that were prohibited from branching, and so remained “unitbanks” targeted at serving savers in the local community (Welfling, 1968;Wadhwani, 2002).

Though these early savings banks were based on a seemingly simplebusiness model, it is easy to underestimate their innovative accomplishments.Prior to their establishment, no formal intermediaries existed that servedthe mass market for personal finance, and most “ordinary households”saved, borrowed and insured through direct personal transactions withpeople they knew. Over their first half-century, savings banks proved theviability and profitability of serving the mass market for personal finance.Much of their success lay in the credibility and trust they had developedamong the general public, a growing portion of which entrusted theirsavings to the institutions (Wadhwani 2002). A critical element of thedevelopment of this credibility was the innovative corporate governancestructure of mutual savings banks, which (like their British counterparts)were established as trusteeships on behalf of depositors, without aconflicting class of joint-stock shareholders (Wadhwani, forthcoming).

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Throughout the 19th century savings banks grew extremely rapidly,buoyed by the rise of the urban, wage economy in which ordinaryAmericans found ways to manage their income and save for periods ofold age, sickness and unemployment. With few competitors in this urbanenvironment, mutual savings banks became the fastest growing financialintermediary in the United States between the 1820s and the 1870s.Between 1820 and 1910, the number of mutual savings banks inthe country rose from 10 to 637, while their deposits soared from USD1 million to USD 1 billion (Lintner 1948, Welfling 1968). In fact, inthe 1870s, mutual savings banks controlled nearly a quarter of the assetsof financial intermediaries in the United States – a moment thatin retrospect represented the high water mark in their share ofthe American banking market.

The rapid aggregate growth of savings banks in mid-19th-centuryAmerica, however, masked one significant weakness. Throughout theirhistory, mutual savings banks remained a regional institution rather thana national one. Mutual savings banks were chartered in only 19 states,primarily in New England and the Mid-Atlantic. In fact, historically morethan 95% of savings deposits in mutual savings banks were accountedfor by only nine states: Connecticut, Massachusetts, Maine, New Hampshire,New Jersey, New York, Pennsylvania, Rhode Island and Washington(FDIC 1997, Lintner 1948). Outside the urban north-east, policymakersand local institutions remained sceptical of what was seen as an eliteEuropean-influenced institution and promoted instead the small localcommercial and community banks as places for small savers.These regional limitations circumscribed the influence of mutual savingsbanks once banks and banking regulation became controlled at a nationallevel. As a national banking infrastructure and regulations developed,mutual savings banks came to be seen as a regional institution ratherthan a national one.

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Interior of the Bowery Savings Bank, 1870

Source: Harper’s Weekly 1870

Note: At its height in the late nineteenth century, the Bowery Savings Bank in New York was

the largest savings bank in the United States. The Bowery catered to a wide cross-section of

New York’s working class population.

2. The Emergence of Competition, 1870s-1920s

Despite their regional isolation, for most of the 19th century the growthof savings banks outpaced that of other intermediaries. In large part,this was because savings banks remained largely uncontested in themarket for the personal savings of ordinary Americans. Beginning inthe last quarter of the 19th century, however, this began to change,as commercial banks as well as a host of new intermediaries entered themarket for personal savings. By 1930, savings banks’ share of financialintermediaries’ assets had slipped to below 10%, where it remained formost of the 20th century. Savings banks faced direct competition fordeposits and, to some extent, for borrowers, from commercial banks.Moreover, the incumbent savings banks faced competition from a host ofnew entrants, including trust companies, industrial banks, savings andloan associations and insurance companies, which competed in large partbased on the new financial products they introduced to the market(Lintner 1948, Welfling 1968, Wadhwani 2002). Despite a keenawareness of this competition and the new products they introduced,savings banks largely failed to offer competing products.

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The first and most significant challenge to savings banks came from savingsand loan associations, which offered innovative small-denominationamortised mortgage loans to members. While savings banks investedheavily in mortgage loans, their loans were typically not targeted at themass market savers who comprised their depositors. In order to achievesafety and processing efficiency, their mortgage loans went typically towealthy borrowers. Moreover, the terms of late-19th-century mortgageloans made them onerous to small borrowers; loans were typicallyrestricted to 50% of the underlying property value, had three- to five-year maturities, and included a massive balloon payment at the end ofthe period. In contrast, savings and loans (or, as they were then called,building and loans) offered innovative and favourable mortgage lendingto members in their mutual societies. Members subscribed to anassociation’s plan, in which they paid in capital that was lent on a rotatingbasis to other members for the purposes of building homes. The systemallowed small denomination lending, lower monitoring costs, and a self-liquidating feature that eliminated the large and risky balloon paymentthat traditional mortgages featured. By the 1910s and 1920s, savings andloans were effectively acting much as traditional intermediaries, taking insavings deposits as well as traditional membership dues and makingamortised eight- and ten-year loans to small borrowers (Mason 2001).

A second major set of competitive innovations originated from existingplayers and new entrants in the life insurance industry. Though lifeinsurance companies were as old as savings banks, they had traditionallyserved primarily affluent customers and had remained relatively modestin size in their early years. Their first major expansion took place in theantebellum era, when they began to aggressively promote certainfeatures of their plans as “investments” for middle-class investors.Their most rapid growth, however, began in the 1880s and 1890s with anumber of product innovations that moved them directly into traditionalsavings bank customer and product markets. One significant innovationwas the tontine insurance policy, which combined an ordinary lifeinsurance policy with deferred savings and an investment feature thatbenefitted surviving policyholders at a specified date. The addition of a“savings feature”, first introduced by the Equitable Life AssuranceCompany in 1867, proved a significant engine for growth; as much astwo-thirds of insurance in force by 1905 were tontines. Another significantproduct innovation was industrial life insurance, small denominationinsurance with face values as low as $100 targeted at the mass market.

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In contrast to ordinary life policies, which typically have minimum facevalues of several thousand dollars, industrial life insurance directlytargeted the mass market customers that savings banks traditionallyserved. Industrial life insurance was directly and aggressively marketedto homes door-to-door. Several new entrants into the industry, includingthe John Hancock Company (1862), the Metropolitan Life InsuranceCompany (1868), and the Prudential Insurance Company of America(1875) entered the market based on the introduction of industrial life.By the First World War, life insurance companies had become the leadingtype of financial intermediary in the United States, in large part becauseof the innovations they introduced in savings banks’ traditional productand customer segments (Murphy 2002, 2010, Welfling 1968).

Commercial banks and trust companies introduced yet another setof product innovations that directly challenged savings banks.Commercial banks in antebellum America had traditionally raised capitalthrough equity offerings and banknote issues, not deposits; thoughcommercial bank demand deposits had been introduced and had begunto grow before the Civil War, bank balance sheets show that they wereunlike the highly leveraged intermediaries with which we are familiarwith today (Lamoreaux 1994). As state bank notes became taxed out ofexistence following the National Banking Acts (1863, 1864), state-chartered banks began to actively search for new sources of liabilities.By the 1880s and 1890s, the rapidly proliferating number of state banksin the US began to offer interest-bearing deposit accounts that mimickedthe essential features of the savings banks’ core product: the savingsaccount. Though national banks were prohibited from offering similarservices, many of them managed to circumvent the regulation until thelaw itself was relaxed by the Federal Reserve Act of 1907 (White 1983).

Trust companies, largely unregulated state-chartered intermediaries thatbegan to proliferate in the late 19th century, presented an even greaterchallenge by offering not only interest-bearing deposit accounts but alsoa one-stop retail shop for all financing needs, from saving and investmentto insurance to small business loans to brokerage services (Wadhwani2002). Commercial banks and trust companies hence mimicked the basicsavings bank account while offering potential customers enhanced rangeof services.

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In many ways, savings banks were in a strong position to capitalise on thiswave of innovations in personal finance in the late 19th century. They hadestablished high levels of trust among savers in the mass market, whowere generally far more suspicious of malfeasance among commercialbanks and other intermediaries. They had facilities and staff familiar withretail finance that could be leveraged to expand their scope of productofferings. And, in general, they were perceived favourably by regulators.Yet, American savings banks made little effort to capitalise on productinnovations and made only limited efforts to respond to competitivepressures. Between 1870 and 1930 they made no efforts to establishdemand accounts, serve small business, create amortised mortgage loansor consumer loans, and made late and futile efforts to offer life insuranceto their savings customers.

In contrast, the savings bank sector in other industrialising countriesreacted very differently to the wave of product innovations, makingsignificant attempts to enter one or more of the product categoriesdescribed above. In Great Britain, trustee savings banks and the postalsavings bank began to offer life insurance and annuities relatively early(Gosden 1996). In Germany, savings banks began to offer checkabledeposits, giro transfers, small business loans and mortgage loans (Mura1996). In Japan, the postal savings system developed extensive lifeinsurance and pension products, in addition to basic savings accounts(Anderson 1990).

The most appropriate comparison for American savings banks is probablywith their German counterparts. Like American savings banks, theGerman savings banks were seen as distinctively local institutionsoverseen by a federalist regulatory state. In the 1880s, their balancesheets looked very similar to those of American savings banks, as did theirposition in the market as institutions designed to serve the savings needsof local wage earners and middle classes. The German savings banksbegan experiencing competitive pressures from new entrants, such ascredit cooperatives and credit banks, similar to those experienced byAmerican savings banks beginning in the 1890s. Most notably, after theturn of the century, the large credit banks began establishing deposit-taking branches that competed directly with the traditional business ofthe savings banks (Guinnane 2002; Fear and Wadhwani 2011).

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Strikingly unlike their American counterparts, however, German savingsbanks had reacted by embracing a number of innovations and competingdirectly with commercial banks on local, regional and national levels.They successfully implemented a system of demand deposits and anational giro payments system. They moved aggressively into smallbusiness lending, and even underwrote and marketed securities in orderto compete with the large credit banks. In the 1920s, they establishedbuilding associations and expanded their mortgage lending (Fear andWadhwani 2011).

Why did American savings banks fail to innovate and to effectivelyrespond to competition? The following three sections examine in turnfirm-level capabilities, network or associational capabilities, and regulatoryinstitutions as reasons why American savings banks failed to innovateand to respond to competition. Their failure to deal effectively withcompetition in the late 19th and early 20th centuries, I will argue,would have significant implications for their demise a century later.

3. Limited Response to Innovation, 1870s-1920s

By the late 19th century, savings banks developed a number of clearcapabilities and resources that served as the basis of their competitiveadvantage in the market. Their most significant competitive capabilitieswere their relatively low-cost business model, their operational ability tohandle a large volume of retail customers, and their cultivated reputationas especially safe and trustworthy intermediaries. Archival evidence fromsavings banks and other primary sources shed light on the extent towhich these factors served to inhibit savings bank managers and trusteesin adopting the product innovations discussed above. While their low-cost business model and their operating capabilities do not seem to havebeen significant handicaps, savings bank managers’ positioning of theirfirms as safety-oriented institutions became a significant source of inertia.Other factors, including the trusteeship organisational form and a provincialoutlook, also contributed to their inability to react to innovation.

Savings banks’ hesitant and limited entry into life insurance and annuitiesprovides an example. Despite its establishment as a viable expansionopportunity by savings banks in the UK and Japan, savings bank lifeinsurance (SBLI) had a slow and difficult start in the United States.

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In fact, the concept of SBLI was first promoted not by savings banks at allbut rather by Progressive Era reformers, especially Louis Brandeis, whosaw an opportunity to provide wage workers with low-cost, over-the-counter life insurance through savings banks. Remarkably, the majority ofMassachusetts savings banks not only opposed the measure but alsofought its adoption once it was passed. Some of the savings bankers’arguments against the adoption of SBLI rested on the weak reasoningthat the provision of life insurance did not complement the capabilities ofsavings banks. “We have trouble enough as it is now, from depositorswho are hardly able to write their names, and if an insurance departmentwere to be added here I don’t see how we could find time or floor spaceto handle it”, argued one Boston savings bank manager (Welfling 1968:189-190).

Much more common a concern, and perhaps a more reasonable one,was that the provision of life insurance might somehow compromisethe savings banks’ reputation and position as especially safe financialinstitutions. Savings banks had developed and protected a reputation asconservatively run organisations by trustees who put safety first(Wadhwani 2006). Now, with life insurance, as with other products,savings bankers were concerned that it might compromise that position.“The main barrier in the campaign [for SBLI] was the ultra-conservatismof savings bank officials themselves”, explained one observer.“Vague apprehension prevailed lest insurance departments thusengrafted in savings banks should somehow impair the latter’s integrity”(Welfling 1968). Even after the enabling legislation was passed and majoremployers like Edward Filene made efforts to publicise SBLI, most savingsbanks showed little interest in the product. As late as 1922, 15 years afterthe enabling legislation was passed, only four savings banks in the stateoffered SBLI. Outside of Massachusetts SBLI was not adopted untilthe late 1930s and 1940s, by which time life insurance companies hadonce again regained their reputations and re-established their dominanceover the product.

Life insurance provides a particularly vivid case of how savings bankmanagers’ focus on safety and reputation became a source of inertia thatled to their failure to act on new product opportunities. Similar storiesabound in mortgage and consumer lending, which expanded rapidlythroughout the 1910s and 1920s owing to the proliferation of S&Ls andindustrial banks.

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Though savings banks did begin to offer slightly lower denominationmortgages, there was little effort to adapt the terms of the product asS&Ls had done. By the eve of the Great Depression, when S&Ls in somecities had begun to introduce mortgage loans that were amortised,required as little as 20% down and had maturities of ten years, savings banksclung to the traditional structure of the mortgage loan as it had existedin the 19th century: 50% loan-to-value maximums, three- to five-yearmaturities, with enormous balloon payments at the end (Wadhwani 2002).

By positioning themselves as ultra-conservative institutions, savings bankshad created a comparative advantage in the 19th century that served asthe basis for growth of the general public’s trust in formal financialintermediaries. With the introduction of new product innovations,however, this same positioning and organisational asset became a liabilityto savings bank managers’ ability to react to innovations that weretransforming the industry.

Relying solely on such firm-level explanations, however, make it difficultto explain why American savings bank managers were so much moreconservative than their German counterparts. German savings banks,after all, were also positioned as particularly safe and trustworthy localinstitutions. Yet German savings bank directors and managers reactedvery differently to the introduction of new innovations and thecompetitive threats they represented, aggressively seeking to adoptinnovations that would allow them to effectively compete on the regionaland national level with the large credit banks. To understand thesenational differences, we need to move beyond firm-level factors andconsider the ways in which regulatory institutions and inter-firm networksand associations differed between the two countries.

4. Limited Efforts at Collective Action, 1890s-1930s

While firm-level factors clearly contributed to American savings banks’apparent lack of ability to embrace product innovations, they tell us littleabout why these capabilities to innovate differed so much in Germany.Given their similar market positions and histories, why were Americansavings banks so much more conservative about engaging in innovationthan their German counterparts?

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One factor that helps us understand why German savings banks wereable to integrate innovations better than American savings banks was thegreater extent to which they developed stronger networks andassociations. In recent years, scholars have devoted considerableattention to the role of alliances and associations in the introduction ofinnovation (Brandenberger and Nalebuff 1996), and in the case ofGerman savings banks inter-firm cooperation seems to have been criticalto their ability to adopt innovations. By the 1910s and 1920s, Germansavings banks had transformed a set of informal relationships into a“group” structure that linked autonomous local savings banks to largerregional or state level institutions (such as the Landesbanken), whichwere in turn members of a national savings bank association and anational-level clearing bank (Mura 1996).

Informal cooperation between local savings banks and the state-levelLandesbanken had begun in the early 19th century, but it was not untillate in the century that significant levels of coordination between firmsbegan. The impetus for the coordination was more practical than strategic:the creation of a regional and national clearing system. For decades,workers’ associations had lobbied for the creation of facilities to transferfunds across institutions at low cost, arguing that high rates of mobilitycombined with the difficulty of moving their savings discouraged the useof savings banks. To create a national giro-based transfer system, thesavings banks created the Girozentrale to facilitate transfers and clearaccounts across banks. Opposition to these moves by the larger creditbanks intensified the associational movement among savings banks.By the early 20th century, the association was actively involved in fightingfor legislation permitting savings banks to offer checkable accounts.The pursuit of these practical and political activities eventually led to theformation of a formal “savings bank group” or association, whichcoordinated activities between local banks, regional landesbanken andthe national clearing bank (Guinnane 2002, Schultz 2008, Fear andWadhwani 2011). Local savings banks remained formally autonomousbut benefited from the scale that the national association offered.

The benefits of the creation of a strong association among savings banksare most apparent in the introduction of the giro system and checkabledeposits by the German savings banks. The association allowed thecreation of national payments capabilities that local savings banks bythemselves would have found difficult or impossible to provide.

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As German savings banks began to serve small businesses as well as the massmarket for personal finance, such regional and national transfer capabilitieswould prove critical. Coordination between savings banks hencefacilitated product innovations that required regional and national reach.

The savings bank association aided product innovation in less direct andobvious ways as well. Though the initial impetus for the association waspractical, it soon became important for its strategic value. Because of itsnational reach, the savings bank association could help local institutionsunderstand how the broader competitive landscape was changing andcould help transfer best practices, innovation and ideas to localinstitutions that were limited in their resources and their understandingof competitive threats. For instance, the association played a critical rolein helping transfer practical knowledge and practices about smallbusiness lending and mortgage lending to local savings banks whichmight otherwise be more reluctant and less capable of taking on the risksof such product introductions. In later years, they would also play acritical role in the introduction of consumer lending to local savingsbanks. More broadly, the association allowed the local savings banksaccess to strategic information and advice that helped mitigate risks ofnew product introductions and better understand the liabilities of stickingto their current position (Fear and Wadhwani 2011).

In contrast, the associational and network capabilities of Americansavings banks were extraordinarily limited. Savings banks in a few states,including Massachusetts and New York, created state-level associations.These associations, however, served very limited roles, primarily outliningpolitical and regulatory positions rather than aiding members in strategicdecision-making or introducing innovative capabilities. At the nationallevel, associational efforts were even weaker, perhaps in part becausesavings banking in the US was not as geographically dispersed as inGermany. A savings bank association was created within the auspices ofthe commercial bank-dominated ABA (American Bankers Association).Whereas the German savings bank association played a critical role inpositioning savings banks as a group to compete against credit banks, theAmerican savings bank association was embedded and co-opted withinthe commercial bankers association, inherently limiting its strategic value(Wadhwani 2002).

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Even after a separate national savings bank association was formed around1920, the organisation primarily served as a lobbying and marketingorganisation rather than one that developed a wider range of “group-level” capabilities. Efforts during the Great Depression to expand inter-savings bank cooperation to provide liquidity and consulting servicesproved short-lived (Steiner 1944).

The relative weakness of associational capabilities among Americansavings banks also played a direct role in limiting the ability of savingsbanks to engage in product innovations that required regional or nationalcoordination. One of the often repeated arguments that savings bankerslaunched at SBLI was that the local institutions were not capable ofserving customers who moved. As one manager stated, “It appears to methat the average savings bank cannot well conduct an insurance businessbecause the bank is a local institution only. The machinery of insurancewould be costly even if there were a central association to keep us intouch with our policyholders in other parts of the state” (Quoted inWelfling 1968: 189). While American savings banks were struggling toconceive of the viabilities of such regional capabilities, German savingsbanks had already created the network and associational structures thatmade such product introductions possible.

For both German and American savings banks, deep local knowledge ofcustomers and the economy had long served as a source of competitiveadvantage. In the end, for American savings banks, this intensely localorientation also turned into a liability as the autonomous savings banksproved incapable of dealing with competitive changes that were regionalor national in scale and incapable of introducing products that requiredthis broader knowledge and organisational capabilities. Germany’s savingsbanking system was able to overcome this, not by giving up local autonomyand positioning but by associating and creating inter-firm ties thatallowed them access to regional and national information networks,strategic perspectives and organisational capabilities. Lacking suchassociational capabilities, American savings banks hence left open suchregional and national innovative opportunities to be tapped by newentrants into the field.

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5. Political and Regulatory Constraints on Innovation

While firm-level rigidities and limited inter-firm capabilities played asignificant role in inhibiting product innovation among American savingsbanks, so did factors beyond their control. In particular, political andregulatory constraints played a large role in inhibiting innovation amongAmerican savings banks, especially when we compare them to theirGerman counterparts. German regulations in the late 19th and early 20thcenturies supported competition through incumbent innovation, whereasAmerican regulations worked to fragment and segment financialmarkets, unintentionally paving the way for innovation by new entrants.

Business historians’ comparisons between American and Germanmanagement has often employed the trope of German “cooperation” todistinguish it from American “competition”. Chandler’s (1989) analysis ofnational differences in industrial management, for instance, distinguishedbetween German “cooperative managerial capitalism” and American“competitive managerial capitalism”. These broader generalisations arebased largely on the notion that American and German economicregulation took different paths, with the former choosing antitrust as thecornerstone of economic policy while the latter permitted and evenenforced cartelisation agreements. In the context of personal financeregulation, however, this simple distinction between pro-competition andpro-cooperation policy proves misleading (Fear, forthcoming). Ratherthan eliminating or reducing competition, German regulation evolved inways that fostered “group-level” national competition between savingsbanks, credit banks and cooperatives, in turn permitting and evenencouraging product innovation within each of these groups. In contrast,US regulations tended to enforce fragmentation and segmentation as away of preventing concentration, channelling innovative and creativeopportunities toward new entrants rather than incumbents.

Until the 1880s and 1890s, the regulation of savings banks in the twocountries was remarkably similar. There was a relatively clear division oflabour between savings banks and commercial or credit banks, with theformer focusing on personal finance for the mass market and the latterfocusing on enterprise finance and investment opportunities for thewealthy. Regulations helped enforce this division. In particular, there wereasset class restrictions on savings banks in both countries, typically limitingthem to investment in real estate-backed lending and government debt.

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The restrictions were designed to help ensure the safety of theinstitutions on behalf of small savers who were naturally in a poorposition to monitor their investments (Wadhwani 2006; Guinnane 2002).In both countries, the regulatory framework began to change whencommercial banks and other intermediaries aggressively entered themarket for deposits, undermining the market divisions that hadpreviously existed. In both countries, popular and regulatory concernsgrew over the possibility of banking sector concentration and the threatthat regional deposits might flow to national urban centres.

In Germany, Deutsche Bank and the other large Berlin credit banks beganto rapidly establish retail branches to accept deposits beginning in thelate 19th century. Along with regional credit banks, they also createdlarger strategic groups (or konzern) and eventually a credit banking cartelto stabilise interest rates (Guinnane 2002). Regulators reacted byallowing savings banks to develop offsetting regional and nationalcapabilities to compete with the credit banking group. It was in theprocess of responding to the competitive pressures created by the creditbanks that savings banks made headway into innovative new products,enabled along the way by German competition policy. The savings banks’late 19th-century development of a national giro payments system was inpart aided by this policy. Similar regulatory accommodations followed inthe early 20th century as savings banks made strategic moves into newproducts that allowed them to compete with the credit banking group.In 1909, regulators bent to pressure from the savings bank association toallow savings institutions to offer checkable deposits and current accountcredits, despite the fact that this had traditionally been the market servedby commercial banks. Similarly, in 1915 and 1921, new legislation waspassed allowing savings banks to underwrite and broker securities andto make loans to businesses. As Guinnane (2002) has pointed out, thisregulation-supported competitive dynamic created pressures for emulationand “universalisation” among Germany’s “small banks” as well asamong its big banks. From the point of view of product innovation, itcreated a regulatory environment that was conducive to productinnovation and experimentation by the incumbent savings banks.

Like their German counterparts, American regulators and politicians grewincreasingly concerned that strategic moves by larger national banksmight lead to concentration and consolidation in the industry.

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Unlike the German system that fostered the creation of competinggroups of banks, however, the US system more directly intervened toenforce fragmentation, most famously by maintaining anti-branchingprovisions (White 1983). Well before the Great Depression-eraregulations that codified banking segmentation at a national level, state-level regulations had worked to maintain local unit banking and enforcemarket segmentation. Though innovations and new entrants (particularlytrust companies) challenged this segmentation, regulators were slow toliberalise restrictions, particularly in the case of savings banks.

In the case of savings banks, state legislatures and courts throughout the19th century had emphasised that the institutions’ charters permittedthem to engage in only a very limited set of activities, essentially empoweringthem to accept savings deposits and invest them in a highly restricted setof asset classes. The strict rules circumscribing manager and trusteediscretion were designed largely as way to protect the safety of depositors.When a number of savings banks failed in the 1870s, state courts placedfurther sanctions on managerial risk-taking by holding trustees andofficers personally liable for contracts and activities that extended beyondthe narrow bounds of the charter. Savings bank regulations and bankcompetition policy hence directly restricted innovative activity in order tomaintain market segmentation and exposed managers and trustees toextraordinarily high levels of personal risk if they made changes in theprescribed structure of their balance sheets (Wadhwani 2006).

The US regulatory system in turn unintentionally favoured new entrants,which were typically not subject to the same statutory restrictions andcommon law standards as incumbents. This pattern was most apparentin the case of trust companies in the late 19th century, which were largelyunconstrained by regulation and hence moved most rapidly towardthe introduction of new products and services to the point where theyresembled small universal banks. While heavily regulated, commercialbanks and insurance companies were somewhat less constrained bysegmentation rules than savings banks because the dual state and federalregulatory structure they were subject to allowed them to play regulatorsoff of one another (White 1983). Savings banks, which were exclusivelystate-chartered, did not have this luxury and were subject to theenforcement of the tight regulations discussed above.

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Tight regulatory constraints on the scope of savings banks created astrong constraint on the ability of incumbent savings banks to innovate.Though control over these regulations were largely beyond the control ofsavings banks by the early 20th century, it would be inaccurate tocharacterise the regulatory institutions that evolved as entirely distinctfrom the organisational and associational capabilities described above.German savings banks and their associations were favoured with aconducive regulatory environment in no small part because they shapedlocal and national political institutions in the process of development.In addition to developing key market capabilities, the savings bankassociation developed essential political capabilities, winning allies in thelabour movement and developing the ability to effectively lobby thegovernment (Guinnane 2002). The US savings banks had shown littleinterest in developing these political capabilities throughout their historyand by the early 20th century the rules they were subject to were largelyout of their control.

6. Depression and the New Deal: Deposit Insurance &Segmented Markets, 1930s-1970s

Despite their ineffective response to competition between the 1870s andthe 1920s, mutual savings banks were presented with a uniquely goodopportunity to expand their role in the banking system in the 1930s.Unlike other intermediaries, savings banks performed very well duringthe banking panics of the Great Depression. Few mutual savings banksexperienced panics and, in fact, the mutual savings bank system experiencedrapid growth in deposits as savers sought out safe havens for their moneyamidst the turmoil. Highlighted by the Great Depression, savings banks’reputation for safety and security remained the one core capability thattruly distinguished it from other institutions (Ornstein 1985).

Ironically, however, the disaster of the 1930s would undermine savingsbanks’ competitive advantage despite their being the only institutionsthat had clearly managed the crisis well. The biggest long-term impact ofthe Depression on savings banks came not as a result of the financialcrisis but as a result of the government reaction to it. In 1933, the federalgovernment introduced federal deposit insurance through the newly formedFederal Deposit Insurance Corporation for any bank – federal or state-chartered – in the United States.

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Commercial banks flocked to deposit insurance as a way of re-instillingdepositor confidence and regaining its deposit base. By backing depositsin all institutions regardless of size or corporate form, deposit insuranceessentially wiped out the one significant competitive advantage thatsavings banks had: their reputation for safety. S&Ls received a similarguarantee from a separate federal deposit insurance program, alsoestablished in the 1930s (Wadhwani 2002).

Lacking strong collective action capabilities, and content with their healthyresponse to the banking crises of the 1930s, mutual savings banks largelyfailed to take advantage of their excellent performance in the crisis toshore up their position within the banking system. Initially, few savingsbanks even signed up for deposit insurance, feeling that they had beenessentially immune to the crisis that affected smaller institutions thatexperienced runs. Remarkably, savings banks also resisted efforts to enlargetheir significance within the American banking system. Several proposalsto manage the crisis by expanding the role of mutual savings banks intothe commercial arena and by expanding them nationally failed to garnerstrong support from savings banks. In contrast, commercial bankers andthe S&L association worked closely with the Roosevelt administration onbanking reform and benefitted most from the blanket security providedby deposit insurance (Wadhwani 2002).

In addition to introducing deposit insurance, the regulatory reforms ofthe New Deal also sharply segmented the financial and banking marketby circumscribing the roles of various institutions and by putting intoplace tight restrictions on both sides of the balance sheet. Most NewDealers felt that the severity of the banking crisis had been largelyattributable to the high level of competition between intermediaries inthe previous decades. As commercial banks, savings banks and S&Lscompeted for the same savers and same assets, their cost of funds hadrisen and their yield on assets had shrunk, in turn squeezing margins andleaving the institutions with vulnerably small capital and reserve accounts.New Deal regulations sought to control this competition by dividing upthe markets that commercial banks, savings banks and S&Ls would beentitled to. Savings banks and S&Ls – or thrifts, as they came to be calledfollowing the New Deal – would focus on taking in savings and timedeposits and investing in long-term, fixed rate assets, especially mortgageloans and (to a lesser extent) bonds (Ornstein 1985).

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These New Deal regulations effectively controlled both sides of thebalance sheet. Commercial banks were prohibited from paying intereston demand deposits, leaving savings banks to tap the market for timeand savings deposits. Moreover, to prevent competition over deposits,federal regulators introduced a ceiling on the interest rates commercialbanks could pay on time deposits. Savings banks and S&Ls werepermitted to pay a slightly higher interest rate, guaranteeing a source offunds while controlling the overall cost of those funds from gettinghigher. On the asset side of the balance sheet, restrictions on the kinds ofinvestments that savings banks could make – long a feature of stateregulations – were now federalised. Savings banks were essentiallylimited to long-term fixed rate lending (Ornstein 1985).

The overall effect of this segmentation was that it preserved the place ofexisting mutual savings banks within the banking system over thefollowing four decades and hid the underlying weaknesses in their lackof real competitive advantage over other intermediaries. With their targetmarkets essentially protected from competition, mutual savings banksmaintained a steady 10% share of financial intermediary assets between1940 and 1970. The number of mutual savings banks also remainedsteady at approximately 500 institutions. New Deal regulations essentiallyworked to preserve the status quo in terms of the position and share ofvarious intermediaries. It hid, however, the fact that underlying theregulation mutual savings banks had essentially lost any real competitiveadvantage they had enjoyed over other intermediaries.

7. Crisis and Decline

In many ways, the regulations that sheltered savings banks throughoutmuch of the 20th century made them especially vulnerable to the risinginterest rate environment that would lead to the crises of the last quarterof the 20th century. The interest rate ceilings and investment regulationsthat segmented the savings banks’ market and protected them fromcompetition worked only so long as the interest rate environmentremained relatively stable and as long as regulation remained effective indampening competition. Both these conditions began to change in the1970s, leading to the crises of the 1980s and 1990s.

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The crisis was initiated by the rise of interest rates, especially in the late1970s and early 1980s. In the early 1980s, interest rates on three-monthtreasury bills hit a high of 16%. The spike in rates prompted rapiddisintermediation as savers moved their money out of low-yieldingdeposits and into capital markets, government securities and eventuallyinto money market mutual funds. Some institutions lost as much as 30%of their deposit base in a short period of time. Mutual savings banks inNew York faced particularly difficult circumstances as regulatoryrestrictions combined with aggressive competitors rapidly placed the city’ssavings banks in a compromised financial state (FDIC 1997).

Disintermediation placed increasing pressure on savings banks to paydepositors just as the long-term, fixed rate assets held by savings banksbecame less valuable on the market. The result was widespread andsevere losses for mutual savings banks that ate into reserve funds and lefta dozen institutions on the brink of failure. Between 1980 and 1982,mutual savings banks experienced USD 3.3 billion in losses, accountingfor 28% of their aggregate reserves. The FDIC was forced to step in toassist weaker institutions that were about to fail. Rather than allowingoutright failures, FDIC used a programme of “assisted mergers” thateffectively allowed stronger institutions to acquire weaker ones whilecovering losses. These savings banks had lost USD 1.8 billion or about12% of their assets (FDIC 1997; Ornstein 1985).

The crisis also led to calls to dismantle the restrictions on mutualsavings banks in order to allow them to more effectively compete.Serious discussions of deregulating the banking system, and particularlythe segmentation of various intermediaries, had taken place throughoutthe 1970s but had been opposed by various interest groups, includingthe savings banks themselves. Reflecting their long history of conservatism,the savings banks, as one FDIC report noted, “were reluctant to competedirectly with banks.” But the reforms gained particular urgency with thefailures and mergers of the early 1980s. The Depository InstitutionsDeregulation and Monetary Control Act of 1980 finally instituted a phaseout of Regulation Q, the nationally imposed ceiling on deposit interestrates and the favourable treatment of mutual savings bank deposits.It also liberalised restrictions on the assets that savings banks could hold,allowing modest amounts of commercial lending and other types of assetholding. Finally, it made it easier for mutual savings banks to convert intostock savings banks as a way of recapitalising savings banks. The reformsessentially allowed savings banks to act more like deregulated banks

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The result of the deregulation was a dramatic decline in the ranks ofmutual savings banks from approximately 500 in 1970 to fewer than 100today. Some of this decline took place as scores of mutual savings banksconverted themselves into stock savings banks, or even commercialbanks. But the decline was also attributable to the failure of dozens ofother savings banks. Between 1985 and 1994, scores of savings banksfailed, many of them institutions that the FDIC had saved just a few yearsearlier through mergers. The net impact was a significant reduction ofmutual savings banks in the United States (FDIC 1997).

Contemporary observers and social scientists often attributed the failuresand decline of savings banks to proximate causes, such as deregulationand the movement of savings banks into new lines of activity that hadnot previously fallen within their purview. The FDIC, for instance,attributed the failures “to activities in which the banks became involvedafter the introduction of expanded powers.” But, as this paper hasshown, the inability of savings banks to deal effectively with heightenedcompetition in a deregulated environment actually lay in causes that werehistorically deeper. In their conservatism and failure to expand bothgeographically and in terms of product scope in the early 20th century,savings banks in the United States had undermined their ability todevelop the range of capabilities needed to compete against banks,markets and other intermediaries, in stark contrast to their Germancounterparts. The New Deal regulatory regime both undermined savingsbanks single remaining competitive advantage (their superior safetyrecord) and protected the institutions for decades by segmenting thebanking market. That combination of weakened capabilities andregulatory dependence had virtually ensured that the institutions wouldnot be able to effectively respond to competition.

8. Managerial Implications

The decline of mutual savings banks in the United States providesimportant lessons for the managers of savings banks in other parts of theworld today.

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First, it highlights the risks of complacent growth. Throughout the earlydecades of the 20th century, many of the mutual savings banks in theUnited States continued to grow, even though as a system mutualsavings banking was rapidly losing market share to new, more innovativeintermediaries and products. The relative stability and success ofindividual firms masked the declining competitiveness of mutual savingsbanking as a model of intermediation within the financial system.Ultimately, however, the long-term viability of individual savings bankswas closely linked to the competitiveness and relevance of mutual savingsbanking as a category of financial intermediation; the success of savingsbanks rested on the ability of consumers to distinguish them as a uniquetype of intermediary and on their treatment as a group by regulators.Individual firm growth thus proved deceptive in the long run because itallowed managers to be complacent about the declining competitivenessof mutual savings banks as a group.

The importance of “group-level” competitiveness also indicates thecrucial importance of collective action capabilities to the long-termsuccess of savings banks as type of intermediary. American mutualsavings banks remained intensely local firms that knew their local marketsand customers well. This local knowledge, however, also became ahandicap in their ability to react to changes in the market that requiredregional and national capabilities. Unlike their German counterparts,American managers’ efforts to “coordinate” innovations and developregional and national capabilities remained limited and this ultimatelyconstrained the ability of individual firms to introduce innovations thatrequired regional and national scope.

Lastly, American mutual savings banks’ narrow adherence to their originalproducts and markets proved detrimental to their long-run competitiveness.Unlike some of their counterparts in other parts of the world, Americansavings banks remained focused on their traditional customer base andproducts throughout their 200-year history. However, because marketsand regulations changed so significantly over time, this narrow focus onproviding savings accounts to small savers and investing in long-term,fixed-rate assets such as mortgages made them extremely vulnerable tochanges in market conditions, disruptive innovations and shifts inconsumer preferences. Their narrow vision for the scope of their role inthe financial system ultimately proved harmful as the structure ofAmerican financial system itself changed.

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Ultimately, these implications suggest that deregulation and competitionby themselves did not determine the fate of mutual savings banks.Rather, the long-term effects of managerial decision-making andresponses to competition ultimately undermined the survival of mutualsavings banking in the United States.

“Irish Depositors ofthe Emigrant Savings Bankwithdrawing money to sendto their suffering relatives inthe old country”Source: Frank Leslie’s Illustrated Newspaper

(March 13, 1880). Library of Congress.

Notes: Some savings banks catered to

specific ethic groups. The Emigrant catered

primarily to Irish immigrants, many of

whom remitted large amounts of savings

to relatives in the home country.

Banknote of theSomerset and WorcesterSavings Bank Notes: Prior to the Civil War, some

savings banks issued their own

currency.

Bank Run on the Seamen’sSavings Bank During thePanic of 1857Notes: Bank runs were a common

experience in the nineteenth and early

twentieth centuries in the United States,

and savings banks were not immune.

Source: Harper’s Weekly. Library of Congress.

84

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n Anderson, Stephen. 1990. “The Political Economy of Japanese Saving:How Postal Savings and Public Pensions Support High Rates ofHousehold Saving in Japan,” Journal of Japanese Studies 16: 68-70.

n Chandler, Alfred. 1990. Scale and Scope: The Dynamic of IndustrialCapitalism. Cambridge, MA: Harvard University Press.

n Davis, Lance and Peter Payne, “From Benevolence to Business: The Storyof Two Savings Banks”, Business History Review 32 (1958): 386-406.

n Fear, Jeffrey and R. Daniel Wadhwani. Forthcoming 2011. “Populismand Political Entrepreneurship: The Universalization of German SavingsBanks and the Decline of American Savings Banks,” in Doing Businessin the Age of Extremes edited by Juergen Kocka, Dieter Ziegler, andHartmut Berghoff. New York: Cambridge University Press.

n FDIC (Federal Deposit Insurance Corporation). 1997. History of the 80s:An Examination of the Banking Crises of the 1980s and Early 1990s.Washington, D.C.: FDIC.

n Gosden, Peter. 1996. “Great Britain,” in History of European SavingsBanks, edited by Jürgen Mura. Stuttgart: Deutscher SparkassenverlagGmbH.

n Guinnane, Timothy. 2002. “Delegated Monitors, Large and Small:Germany’s Banking System, 1800-1914”, Journal of Economic Literature40: 73-124.

n Keyes, Emerson. 1876. History of Savings Banks in the United States.Volume I. New York: Bradford Rhodes.

n Keyes, Emerson. 1878. History of Savings Banks in the United States.Volume II. New York: Bradford Rhodes.

n Krooss, Marin Blyn. 1971. A History of Financial Intermediaries. New York:Random House.

n Lamoreaux, Naomi. 1994. Insider Lending: Banks, Personal Connections,and Industrial Development in New England. New York: CambridgeUniversity Press.

n Lintner, John. 1948. Mutual Savings Banks in the Savings andMortgage Markets. Andover, MA: Harvard Business School Press.

n Manning, James Hilton. 1917. Century of American Savings Banks.New York: B.F. Buck and Company.

n Mason, David. 2004. From Building and Loans to Bail-outs: A Historyof the American Savings and Loan Industry, 1831-1995. New York:Cambridge University Press.

n Mura, Jürgen. 1996. “Germany”, in History of European Savings Banks,edited by Jürgen Mura. Stuttgart: Deutscher Sparkassenverlag GmbH.

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n Murphy, Sharon. 2002. “Life Insurance in the United States ThroughWorld War I”, EH.Net Encyclopedia, edited by Robert Whaples.August 14, 2002. URL http://eh.net/encyclopedia/article/murphy.life.insurance.us.

n Murphy, Sharon. 2010. Investing in Life: Insurance in AntebellumAmerica. Baltimore: Johns Hopkins University Press.

n Olmstead, Alan. 1976. New York City Mutual Savings Banks, 1816-1861.Chapel Hill: University of North Carolina Press.

n Ornstein, Franklin. 1985. Savings Banking: An Industry in Change.Reston, VA: Prentice Hall.

n OTS (Office of Thrift Supervision). 2010. 2009 Fact Book: A StatisticalProfile of the Thrift Industry. Washington, D.C.

n Schultz, Günther. 2008. “The German Savings Banks between Stateand Market”, in Savings Banks Between State and Market: 7thEuropean Symposium on Savings Banks History. Brussels: WSBI/ESBG.

n Sherman, Franklin J. 1934. Modern Story of Mutual Savings Banks.New York: J.J. Little and Ives.

n Steiner, W.H. 1944. “The New York Mutual Savings Banks Fund”,Journal of Political Economy 52: 74-79.

n Wadhwani, R. Daniel. 2006. “Protecting Small Savers: The PoliticalEconomy of Economic Security”, 18 (2006): 126-45.

n Wadhwani, R. Daniel. 2002 “Citizen Savers: Family Economy, FinancialInstitutions, and Public Policy in the Northeastern United States”.Philadelphia: University of Pennsylvania, unpublished dissertation.

n Wadhwani, R. Daniel. Forthcoming. “Organizational Form and IndustryDevelopment: Mutual and Nonprofit Firms in the Development of theAmerican Personal Finance Industry”, Business History.

n Welfling, Weldon. 1968. Mutual Savings Banks: The Evolution of AFinancial Intermediary. Cleveland: Case Western Reserve University.

n White, Eugene. 1983. The Regulation and Reform of the AmericanBanking System, 1900-1929. Princeton: Princeton University Press.

n Willcox, James M. 1916. A History of the Philadelphia Saving FundSociety, 1816-1916. Philadelphia: J.B. Lippincott.

1 This paper is part of a larger corpus of work being undertaken alongside Francisco Comínand Inés Roldán. A book will be published in the near future (it is currently being printed)which is the result of this study: Las Cajas de Ahorros de las provincias de Ultramar:Cuba y Puerto Rico, 1840-1898, published by the Fundación de las Cajas de Ahorros.

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Angel Pascual Martinez Soto, Professor, University of Murcia

Angel Pascual Martinez Soto (1955), Senior Lecturer in EconomicHistory and Director of the Department of Applied Economics ofthe University of Murcia (Spain), focuses predominantly on thestudy of several aspects of the financial history of Spain.He contributes to the main Spanish journals in the field, mainly oncredit cooperatives and saving banks. Other research topics are thedemography and standards of living in the Spanish miningindustry. His recent work examines the financial system during theSpanish colonial period in Cuba, Puerto Rico and the Philippines.

Despite the progress made in researching the history of savings banks inSpain, there are still aspects that remain largely unknown, especially withregard to their introduction in the colonial environments of HispanicAmerica and the Philippines. This paper studies these hitherto largelyignored institutions in Cuba and Puerto Rico during the period from 1835to 1898.1 We are therefore dealing with a subject that is novel and,in our opinion, important in order to better understand the history of thistype of entity both in Europe and in other non-European territories.We will develop two themes in this introduction: first, a brief insight intothe founding process of the new savings banks and the main setbacksendured by these institutions over the period covered and; second,a heuristic analysis of the sources used over the course of our research.

THE FIRST SAVINGS BANKSIN LATIN AMERICA: CUBA ANDPUERTO RICO (1840-1898)

2 On this subject in Cuba see García López (1996) and Ely (2006) and (1961). For PuertoRico: Picó (2006) and Szaszdi (1963).

3 Moreno Fraginals (1978).4 On the development of the railway, see the works of Zanetti and García Álvarez (1897) and

Santamaría García (1995).

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In the early 19th century, Spain lost its colonies in the Americas throughvarious independence movements. Eventually, its empire in the continentwas reduced to the islands of Cuba and Puerto Rico. Liberal governmentsturned their attention towards these lands and endeavoured to improvetheir economic development as a means of obtaining revenue sourcesthat would compensate for the loss of the other colonies. Sugar, coffeeand tobacco became the focal point for commercial development onthese islands. In this new context, Havana established itself as the primarycommercial and financial centre. The city experienced not only an influxof all kinds of goods, but also the liberal political and economic ideas thatfuelled the ideological drive behind the economic development.The Patriotic Society of Havana played a crucial role in thistransformation. Its members included the leading intellectuals andbusinessmen of the city, and their meetings and reports were the sourceof myriad projects that fed the economic and social innovations.

Credit became a hindrance to productive development, because highinterest rate payments consumed the earnings of the islands’ growers.It was not until the middle of the century that banks were formed ascorporations in Cuba, and until the 1870s in Puerto Rico. Merchant lenderswith ties to foreign business networks played a key role as financialintermediaries.2 During most of the 19th century, credit was controlledby commercial undertakings carrying out the business of banking.Lending mechanisms that gave the sugar and coffee grower access tofinancial capital via merchant lenders remained in place until the end ofthe colonial era.

Between 1830 and 1860, sugar plantation boomed on both islands.The introduction of new steam technologies and innovative productionmethods transformed Cuba into the largest sugar producer in the world.3

This progress was closely related to the development of railways connectingthe production centres with the ports from whence exports were sent tothe United States, England, France and Spain. Between 1837 and 1870more than 1,000 kilometres of railways were built and several companieswith indigenous capital were founded.4 Infrastructure linked to the sugartrade (port installations, wharves, warehouses, etc.) grew at breakneckspeed during those years.

89

These developments in Cuba and Puerto Rico, in addition to the clearingof new land for the planting of sugar and, to a lesser extent, coffee,required substantial investments. This context was favourable to thegrowth of the financial sector, leading to the emergence of institutions inthe form of joint-stock companies.

Similar to the first Spanish savings bank, whose foundation in Madridwas the fruit of a project by the Madrid Economic Society of Friends ofthe Country (Sociedad Económica Matritense de Amigos del País),Havana’s first savings bank was born out of its own Patriotic Society.As in its mother country, in 1835 this institution started to disseminatethrough its reports the knowledge and information concerning thenature of savings banks and mounts of piety and their role in Englandand France, as well as the benefits they brought to the “needy” classes.Within this institution Havana’s first caja, or savings bank, was created in1840, the work of partners Auber and Bachiller. The heads of the colonialadministration at the time, the Governor Prince of Anglona andSuperintendent Martínez de Pinillos, welcomed an idea that was wellreceived by a group of businessmen in the city, notably including Carlosdel Castillo, member of one of the most important families in the colony.In 1840, merely two years after the Madrid Savings Bank was founded,the first savings bank was founded in Latin America under the name Cajade Ahorros, Descuentos y Dépositos de la Habana (Havana Savings,Discount and Deposit Bank). This bank continued in existence until 1884,during which time it became the largest in the country in terms ofmanaged loan capital. This founding process continued on the islandwith the establishment of the Santiago de Cuba Savings Bank in 1849,created and run by the Santiago Patriotic Society. Numerous initiativesfollowed to form such institutions in other cities, albeit to little avail.

The Havana city council proposed the creation of a mount of piety, alsoat the behest of the Patriotic Society, in 1835, although it was notapproved by the government in Madrid until 1844 at the request ofTreasury Superintendent Martínez de Pinillos. The creation of thisestablishment gave rise to a different situation from that in Madrid andother cities in the Spanish mainland, due to the fact that the Mount ofPiety operated independently from the Savings, Discount and DepositBank. At the time it was the only mount in Spanish territory to operateindependently from a savings bank. Its functioning depended entirely onthe colonial administration, and it thus evolved into one more institutionwithin this structure and remained as such until 1898.

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The second step took place in Puerto Rico. In 1859 the Economic Societyof Friends of the Country drafted a project to introduce a mount of pietyin San Juan under the stewardship of the island’s authorities, but it didnot prosper. In 1860 the governor received a letter from the director ofthe Madrid Savings Bank, León García Villareal, in which he offered hiscollaboration for the creation of a similar establishment in San Juan.In 1861 General Echagüe, who at the time headed the local government,wrote to the director of the Madrid entity requesting a copy of itsstatutes, which he dispatched to the Economic Society. Thus the firststeps were taken towards the new establishment, yet the process onlybecame a reality in 1865 with the presentation of a definitive projectsigned by some of the partners, among whom figured some of the futureleaders of the Puerto Rican autonomist movement such as RománBaldorioty de Castro.

The San Juan Bautista Savings Bank was established, like those in Cuba,as a joint-stock company, in compliance with the Royal Decree of 29November 1859. Its by-laws incorporated many of the organisational andoperational elements of the Madrid Savings Bank. Despite authorisationfrom the island’s Governor General, the new entity was undermined bythe authorities in the mainland in 1867, placing it in a difficult situationthat was not resolved until June of that year. The legal status of the entitywas expiring in 1875 and its managers did not initiate the procedures torenew its validity. Consequently, the existence of the entity between 1875and 1879 was illegal, although no authority stepped in to resolve theissue. Mismanagement – including illegal activity outside the procedureslaid down in its founding by-laws – brought about its bankruptcy in1879; the bank had placed nearly the entirety of its funds in a loan tobusinessman Leonardo Igaravídez, whose bankruptcy inevitably broughtdown the institution.

This precedent led the authorities to increase oversight measures andrequirements for authorising new banks on the island. Nevertheless, inspite of these difficulties, from 1872 to 1895 a series of newestablishments was formed in the towns of Ponce, Mayagüez, Humacao,San Germán, Cabo Rojo and Sabana Grande. The Overseas Ministryintroduced a gamut of obstacles to the creation of these new entities,including denying some the right to use the name “savings bank”,instead requiring the use of “bank of economies and loans” (caja deeconomías y préstamos) in the cases of those in San Germán and SanJuan in 1893.

91

Be that as it may, unlike Cuba, Puerto Rico succeeded in establishingseveral banks in the main towns and many of these survived the 1898Spanish American War, operating under the administration of the UnitedStates.

The creation of each of these shared a common trait: the administrativeprocesses that needed to be overcome. These were made up of torturousprocedures starting in the territory and continuing to mainland Spainwith the intervention of the Overseas Ministry and the Council of State,with the latter advising the former in its decision-making. These complicatedproceedings could take several years, during which time, in many cases,the entities operated by circumventing prohibition through the consentof the local authorities.

The greatest obstacle stemmed from the non-application of Spanishlegislation in the colonial territories, which had their own set of specificlaws. Projects in Cuba and Puerto Rico therefore adjusted to conform tothe legislation pertaining to the formation of corporations in the Overseasterritories (Royal Decree of 29 November 1853 and, subsequently, RoyalDecree of 16 August 1878). The savings banks found themselves obligedto form as joint-stock companies and operate within this legalframework. At no stage were they awarded the status of charitableinstitutions as was the case for their counterparts in Iberian Spain, despiteclauses contained in the statutes and by-laws regarding their purposesand objectives to this end. In many cases their creation was subject to thevagaries of colonial politics, such that those backed by liberal reformistand autonomist personalities, as was the case for the savings banks inPonce, San Germán and San Juan (1893), encountered numerous obstaclesto gaining approval that took several years to overcome, with repeatedrequests to amend all kinds of documents. As mentioned above, theseobstacles went as far as denying the use of the name “savings bank” andenforcing the use of the euphemistic “bank of economies and loans”.

With the enactment of the Savings Banks Act in 1880 in Iberian Spainand the abolition of slavery, the Overseas Ministry changed strategy andordered the colonial authorities, in the case of Cuba, to set up savingsbanks and mounts of piety in all the island’s provinces. This measure wastaken as a precaution against potential social conflicts that could havebeen caused by the former slaves, acknowledging, like in Iberian Spain,that the cajas had significant potential to prevent them by making use oftheir educational value in terms of savings and financial planning.

5 On this commercial undertaking and its network of business and financial ties, see Ely(2001), pp. 342-384.

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Despite repeated calls from the Governor General and from the variousprovinces, no new entities were created for lack of economic resources tomake it happen. The Spanish government neither contributed nor providedany funds to assist these new establishments and the provincial governorsmade it known that the provincial councils were virtually bankrupt andtherefore unable to contribute. This latest attempt at forming savingsbanks vanished with the outbreak of the Independence War.

1. Savings banks in Cuba, 1836-1890: The Havana Savings,Discount and Deposit Bank

1.1. Who were the founders?

The shares in the entity were subscribed for by 128 people (Table 1), ofwhich the largest group was merchants (24.3%), followed by landowners(17%) and high civil servants (12.5%); these three groups representedhigh urban society and together accounted for more than half of theshareholder base. The remainder of the groups represented the middleand upper Creole social classes. The group of shareholders comprisingmerchants, landowners, high civil servants and industrialists togetherheld 76.8% of the share capital of the new entity, with merchantsnotably holding 31.7%.

A breakdown of the shareholder base by filiation shows that the “delCastillo-Loyzaga” family were represented by 16 shareholders holding atotal of 684 shares (65.4% of the total), which gave them total controlover the entity. Within this group there were six female shareholders witha total of 150 shares (14.3% of the total). This was one of the mainfamilies of the local high society, which controlled a broad network ofbusinesses in the commercial and financial sectors, in addition to sugarrefineries. Within this group was one of the largest commercialenterprises of the period, “Drake del Castillo”, specialised in sugarexports.5 The central figure in this group was Carlos del Castillo Loyzaga,who held 9.5% of the entity’s shares and represented the group’sinterests at the savings bank.

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This family group controlled the savings bank and appointed those whowould occupy the main managerial positions. The only position thatescaped its control was that of president, who was appointed by theisland’s Governor General. This post was occupied by the Count ofCañongo, a major businessman in Havana. The positions of director andsecretary of the board were awarded to eminent members of the familygroup, namely Carlos del Castillo Loyzaga and Antonio Bachiller Morales,respectively. Both positions were remunerated, with an annual salary of4,000 pesos for the director, plus 6% of net earnings, and 1,104 pesosfor the secretary.

Of note is the fact that the professional nature of the entity’s managerialposts differed from the unpaid functions of the corresponding positionsin Iberian Spain’s savings banks. In addition, the managerial team wasmade up of individuals with ample experience in the world of business,with legal training and knowledge of accounting. The advanced technicaland intellectual level of the board members was crucial to the developmentand sustainability of the entity.

Table 1: Breakdown by profession of the Havana Savings,Discount and Deposit Bank shareholder base, 1841(as percentage and in pesos)

Source: Author’s own work based on the Spanish National History Archive (AHN), Ultramar,

leg. 4638, exp. 10, doc. 5.

% total CapitalProfession shareholders % shares subscribers

Merchants 24.3 31.7 66,570

Lawyers 5.6 4.8 10,080

High civil servants 12.5 16.3 34,230

Second-tier civil servants 3.5 2.7 5,670

Military (officers) 8.6 4.5 9,450

Industrialists 9.8 10.2 21,420

Doctors and pharmacists 7.5 3.5 7,350

Land and plantation owners 17.0 18.6 39,060

Priests 4.1 3.1 6,510

Teachers 2.6 1.9 3,990

Artists 1.7 0.6 1,260

Women with no profession 2.8 2.1 4,410

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As for the transactions provided for in its by-laws, the entity would acceptdeposits of three or more pesos; when these were lodged for a periodexceeding six months they would pay an interest of 6% per annum,compounding every six months. As for asset transactions, the companyused its funds to discount bills and negotiable notes with a maturity ofsix months, guaranteed by two firms, which was a novelty in thefunctioning of finance companies at the time, which discounted for onlythree months with the guarantee of three firms. In addition, the by-lawsprovided for mortgage loans on urban property.

Concurrent with the Havana Savings, Discount and Deposit Bank,another project was initiated by the Presbyterian Domingo de Aguirre,who had formed an entourage comprising a number of the city’simportant businessmen – some of whom, such as Julián Zulueta, wereinvolved in the clandestine African slave trade – to found an entity underthe name “Havana Charitable Savings and Deposit and Discount Bank”(Caja Benéfica de Ahorros y Banco de Depósitos y Descuentos de LaHabana). This group passed the institution’s articles of incorporation, whichwere very similar to the by-laws of the other entity, although despiteamassing 212,000 pesos in capital, it did not receive the approval of theGovernor General Prince of Anglona. Some of its backers subsequentlybecame shareholders of the Havana Savings, Discount and Deposit Bank.

1.2. Who were the clients?

Depositors in the institution were for the most part of European origin,although they also included a significant number of coloured individuals,both free and enslaved. From the moment of its inception, the savingsbank accepted savings from slaves, so long as they carried writtenpermission from their owners, which was in the form of a templatedesigned by the institution. The objective of these savings was to obtaincoartación, or self-emancipation. Cuban slavery law provided for theprinciple of coartación and recognised the slave’s right to gain freedomby paying his owner his price. This possibility, however, was only withinthe reach of urban slaves, who were often rented out by their owners andthus received a small wage. For slaves who formed part of the workforcesof the sugar refineries of the interior, coartación was unattainable.

From a history of savings banks viewpoint, the presence of slaves amongdepositors at the Havana Savings Bank is one of the most notable features,a reflection of the slave- and sugar plantation-based economy on theisland of Cuba.

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The number of black slaves and black free men among total depositors inthe entity was modest, barely exceeding 100 in a given year. The proportionof coloured people (free and slaves) in the total number of depositorsdecreased over the course of this period, from 20% for the 1840-1841fiscal year to 2.6% in 1867-1868.

Similar to the trend for savings banks in Iberian Spain, women andchildren accounted for approximately one-quarter of depositors (24.5%)during the period 1840-1868 (Table 2). Within this group, white womenwere clearly predominant (22.4%) over coloured women (3.2%).Coloured women were a minority, with slaves and free womenaccounting for respectively 1.3% and 1.6% of depositors. Most of thesewomen worked as servants, although some did work in tobacco plants orheld urban jobs (washers, pressers, etc.).

Figure 1: Havana Savings, Discount and Deposit Bank,breakdown of depositors, 1840-1868

Source: Author’s own work based on data from the records of the Havana Savings, Discount

and Deposit Bank 1840-1868.

10,000

1,000

100

10

1

1840

-41

1841

-42

1842

-43

1843

-44

1844

-45

1845

-46

1846

-47

1847

-48

1848

-49

1849

-50

1850

-51

1851

-52

1852

-53

1853

-54

1854

-55

1855

-56

1856

-57

1857

-58

1858

-59

1859

-60

1861

-62

1862

-63

1863

-64

1864

-65

1865

-66

1866

-67

1867

-68

1860

-61

n Total – White - - Coloured free – Coloured slaves

96

Other groups with significant representation were merchants of all kinds(12.9%) and workers (11%). Within the latter, “white collar” office andbusiness employees (7.5%) were predominant, having a greater savingscapacity. Furthermore, a whole range of urban trades and professionswere represented, which was also the case for the European savingsbanks: craftsmen (7.5%), farm owners (7.5%), civil servants (6.5%),industrialists (4.8%), liberal professionals (4.5%), military officers (2.7%),among others. In a port city with a vibrant business sector, large groupsof both resident and non-resident foreigners (6.5% and 2.1%respectively) were also among the savings bank’s list of clients.

Merchants (18.2%) deposited the most funds in the savings bank amongprofessionals, followed by women of classes (13.1%) and industrialists(11.3%). Next came other groups representing the middle class withsimilar contributions: owner-farmers (9.2%), civil servants (7.4%), liberalprofessionals (7.4%) and workers (7.1%). The presence of the middleurban class among the depositors was crucial in the initial phase of thesavings bank’s development, as they provided stability and the necessaryfunds for entering into other transactions. Operating in this manner enabledthe bank to portray a solid image that facilitated growth in confidenceamong the “needy classes” with respect to depositing their savings in theentity in quantities that grew over time. Thus, when the savings banksuspended payments in 1884, the majority of its 14,000 depositors wereworkers of all types.

1.3. Growth in deposits at the Havana Savings, Discount andDeposit Bank

Throughout this period, deposit transactions took place according to oneof two methods: with interest or without interest (Figure 2). Deposits ofthree pesos and above were accepted and when these deposits wereplaced for a period exceeding six months they were paid an annualinterest rate of 6%. Deposits for shorter periods therefore paid nointerest and were considered as current accounts. This second methodwas used widely by the city’s merchants as it facilitated their receipts andpayments, while they were more sensitive to the financial changes andfluctuations besetting the Cuban economy and, in particular, Havana’strading centre.

97

Table 2: Breakdown of depositors and funds deposited byprofession, social status and gender at the HavanaSavings Bank, 1840-1868 (percentage)


and Deposit Bank, 1840-1868.

CATEGORIES % total depositors % total funds deposited

Women 22.4 13.1White 19.7 10.8Coloured (slaves/free) 3.2 2.3

Slaves 4.1 4.9Men 2.8 3.9Women 1.3 1.0

Free coloured 3.4 3.7Men 1.8 2.4Women 1.6 1.3

Children 2.1 1.4

Liberal professionals 4.5 7.2Doctors 1.8 2.1Lawyers 1.7 1.8Surveyors 0.5 2.1Dentists 0.5 1.1

Farmers/landowners 7.5 9.2Landowners 1.5 6.3Farmers 6.0 2.9

Clergy 1.9 2.3

Military 2.7 3.2

Civil servants 6.6 7.4

Industrialists 4.8 11.3

Workers 11.0 7.1Sales clerks 3.3 1.9Office employees 4.2 2.3Labourers 2.2 1.8Servants 1.3 2.1

Craftsmen 7.6 3.5

Merchants 12.9 18.2

Foreigners 6.5 4.2

Non-resident foreigners 2.1 2.2

No profession declared 2.8 3.4

98

Figure 2: Havana Savings, Discount and Deposit Bank, growth indeposits, 1840-1868 (thousands of pesos)


and Deposit Bank, 1840-1868.

Growth in deposits was constant from the savings bank’s inception until1852. All in all, between 1840 and 1868 the entity’s stock of depositsgrew from 315,104 pesos to 3.4 million pesos, with an average annualgrowth rate of 8.9%. Growth in interest-bearing deposits was fasterbetween 1848 and 1862, after which the stocks of both account typestended to converge.

Comparative data with the Madrid Savings Bank help to betterunderstand the level that interest-bearing deposits reached at the Havanaentity in 1850. As shown by Table 3, the ratio between depositors at theHavana and Madrid Savings Banks and the total population in each citywas much greater for the latter. In fact, for every 1,000 inhabitants,Havana counted 8.09 depositors, whereas in the monarchy’s capital thisfigure was almost double, at 16.64, demonstrating the superior penetrationof the Madrid Savings Bank in the wider social fabric.

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

1840

-41

1841

-42

1842

-43

1843

-44

1844

-45

1845

-46

1846

-47

1847

-48

1848

-49

1849

-50

1850

-51

1851

-52

1852

-53

1853

-54

1854

-55

1855

-56

1856

-57

1857

-58

1858

-59

1859

-60

1861

-62

1862

-63

1863

-64

1864

-65

1865

-66

1866

-67

1867

-68

1860

-61

– Total - - Deposits without interest – Deposits with interest

6 Memoria (1851), p. 7. Data for France and England are provided by Antonio Bachiller himself.7 Martínez Soto (2003), p. 183.

99

The remaining indicators, such as the volume of deposits, their averagevalue and their size per inhabitant, were superior in the case of theHavana Savings Bank. It is likely that this situation stemmed from thesocioeconomic makeup of the Havanan clientele, in which the middleand upper classes still played a greater role than the lower-incomeclasses. The average value of deposits at the Havana Savings Bank wasalso higher than that at their French and English counterparts, which thatsame year averaged respectively 524 pesetas and 590 pesetas perdeposit.6

Table 3: Comparison between the Havana and Madrid savingsbanks in 1850 (pesetas)

Source: Author’s own work based on the Memorias of both entities. Those for Madrid are

found in the population census of 1857; those for Havana in García de Arboleya (1859),

p. 104. The data for Havana are for interest-bearing deposits.

The funds collected by the Havana entity were not only double those ofits counterpart in Madrid, but were also equivalent in value to the totaldeposits of the savings banks operating in Iberian Spain combined.7

Figure 3 shows the growth in the savings stocks of the Havana andMadrid savings banks between 1840 and 1867, and gives a fairly goodimpression of the scope of the Cuban undertaking.

Average Total % urban Total value per Deposit per

depositors population deposits deposit inhabitant

Havana 998 8.09 4,254,840 4,263.50 34.50

Madrid 4,679 16.64 2,709,366 579 9.63

100

Figure 3: Total savings at the Spanish savings banks combinedand at the Havana Savings Bank, 1840-1867(in millions of pesetas)

Source: Author’s own work based on the records of both entities. For the Spanish savings

banks, Martínez Soto, Ángel P. (2003), p. 83.

Despite a wave of successive crises that engulfed the island of Cuba(1857, 1860, 1866 and 1868) the savings bank emerged strengthenedfrom each of these, thereby evolving into the most solid Cuban privatefinancial institution and a safe haven for deposits in times of crisis.

The insurrection of 1868 signalled the start of the Ten Years’ War. Duringthis time the savings bank was faced with serious problems with respectto both its finances and governance. Amidst this context of war, AntonioBachiller fled to the United States, thereby escaping arrest, while Carlosdel Castillo was detained and deported to the island of Fernando Po, nowpart of Equatorial Guinea. Thus the savings bank lost its core leadership.Furthermore, its prestige was jeopardised to such an extent that thebank’s customers arrived en masse to withdraw their deposits, and in oneday the bank was forced to pay out more than 500,000 pesos.

18

16

14

12

10

8

6

4

2

0

1840

1841

1842

1843

1844

1845

1846

1847

1848

1849

1850

1851

1852

1853

1854

1855

1856

1857

1858

1859

1861

1862

1863

1864

1865

1866

1867

1860

– Spain - - Havana

101

The savings bank responded by restructuring in the hope of resolvingthese problems, and formed a new entity pursuant to the by-law of1871. This provided the institution with a fresh impetus that wasreflected in the volume of business it generated from this date onwards.Nothing suggested the imminence of the crisis that the savings bankwould be faced with in 1883, and which would drag it into bankruptcy.

Figure 4: Havana Savings, Discount and Deposit Bank, growth indeposits, 1840-1868 (thousands of pesos)

Source: Author’s own work based on data taken from the Cuban national archive, Miscelánea

de Libros, and balance sheets of the Havana Savings, Discount and Deposit Bank from 1863

to 1884.

During this period, the Havana Savings, Discount and Deposit Bank wasfaced with serious problems with respect to both its finances and itsgovernance, which were aggravated by the onset of the Ten Years’ War(1868-1878). Soon after its coming into legal existence, the companywas nearing its end. Another reorganisation followed, leading to a thirdcompany with the passing of a new by-law in 1871. This enabled thesavings bank to return to its financial business with a renewed impetus,which was reflected, as we shall see, by an extraordinary period ofgrowth after 1878.

12

10

8

6

4

2

0

1863

1864

1865

1866

1867

1868

1869

1870

1871

1872

1873

1874

1875

1876

1877

1878

1879

1880

1881

1882

1883

– Total - - Deposits without interest – Deposits with interest

102

2. Savings banks in Puerto Rico, 1865-1898

The economic development of the island stemming from growth in sugar,coffee and tobacco production led to an increase in financing needs oflandowners and farmers. Initially, these were covered by merchantlenders and foreign financing. But this supply was expensive andultimately created the absolute dependency of farmers and landownerson the merchants through a continuous chain of debt. The only way tobreak from this situation was to develop formal financial institutions(banks and savings banks) in order to standardise the credit market.The failure of projects to form banks and financial entities continued from1813 to 1865, when the San Juan Bautista Savings Bank was formed.Like its Cuban counterpart, this institution evolved into the largest of itskind in operation on the island.

This entity did not gain official approval to operate until 1867. Similar towhat occurred with its Havanan counterpart, the San Juan Savings Bankwas backed by the Economic Society of Friends of the Country, includingeminent figures of the Creole liberal reformist movement such as RománBaldorioty de Castro. In 1875 the entity lost its legal status due to theexpiry and non-renewal of its articles of incorporation. In addition, thefounding partners left, while the institution’s managers operated in areckless manner. Such mismanagement went so far as to commit nearlythe entirety of the savings bank’s funds to a loan to businessmanLeonardo Igaravídez, who was attempting to put in place a “head office”on his ranch in San Vicente. Igaravídez’ bankruptcy immediately broughtdown the San Juan Savings Bank, which dissolved in 1879.

Between 1871 and 1895 other savings banks were founded in the townsof Ponce, Mayagüez, San Germán, Humacao, San Juan, Cabo Rojo andSabana Grande.

103

Table 4: Savings Banks in Puerto Rico, 1865-1898

Source: On these savings banks, Comín, Martínez Soto, and Roldán de Montaud (2010),

currently being printed.

These were small centres operating in the main regional nuclei of theisland, linked to the growth primarily of the sugar and coffee plantationsin these areas. The groups of backers were led by branches of the Creolebourgeoisie of liberal and autonomist tendencies. This characteristic wasan impediment to their respective projects, which entailed withstandingall kinds of administrative obstacles, above all from the Overseas Ministrywhich, as a precondition to granting approval, demanded that the entitiesprove their charitable character, whereas they were only able to form underthe existing regulations pertaining to corporations in the overseas territories.In some cases the complications, as mentioned above, went as far asrequiring these entities to change their name to “bank of economies andloans”. Despite the obstacles, once in operation these institutionsenjoyed rapid growth within modest funding constraints and played avery important role in their respective localities, where they were able tocollect savings and introduce cheap credit to meet the financing needs offarmers, small businessmen, craftsmen and even workers. In this waythey managed to distance themselves from the merchant lenders andreduced the cost of borrowing.

Entity Year of establishment

SAN JUAN BAUTISTA SAVINGS BANK PUERTO RICO 1865

PONCE SAVINGS BANK 1872

MAYAGÜEZ SAVINGS BANK 1874

SAN GERMÁN SAVINGS BANK 1882

HUMACAO SAVINGS BANK 1882

CABO ROJO SAVINGS BANK 1895

SABANA GRANDE SAVINGS BANK 1895

Other entities with character similar to a savings bankSAN JUAN BANK OF ECONOMIES AND LOANS LTD. (PEOPLE’S BANK) 1893

104

Table 5: Deposits at Iberian Spanish and overseas savings banksin 1875 (in thousands of current pesetas)

Sources: Taken from the records and general accounts of the Madrid Mount of Piety and

Savings Bank for the year 1875; Havana: AHNC, Miscelánea de Libros, Libro nº 4072; AHNE,

Mayagüez: Fondo de Ultramar, AHNE, Legajo 328, Expediente15, Documento 12. Report by

the Governor General of Puerto Rico for the Overseas Ministry on the functioning of the

Mayagüez Savings Bank Corporation, 22-I-1890; Ponce: El Avisador 17-VI-1876. Records from

the Ponce Savings Bank for the year 1875; San Juan: Boletín Mercantil, 24-V-1876.

* Data for the Havana Savings, Discount and Deposit Bank are for 1876.

Deposits Average(in thousands % of Number of deposit

Savings Bank of pesetas) total depositors (pesetas)

1 Havana-Cuba* 22,412 47.75 - -

2 Madrid 13,247 28,22 15,136 875.2

3 Barcelona 6,121 13,04 20,197 303.1

4 Seville 2,944 6,27 2,640 1,115.2

5 San Juan-Puerto Rico 467 0,99 563 829.5

6 Sabadell 377 0,80 1,173 321.4

7 Mataró 311 0,66 520 598.1

8 Burgos 308 0,66 153 2,013.1

9 Jerez 244 0,52 306 797.4

10 Vitoria 225 0,48 603 373.1

11 Ponce-Puerto Rico 85 0,18 205 414.6

12 Alcoy 58 0,12 323 179.6

13 Sagunto 47 0,10 158 297.5

14 Mayagüez-Puerto Rico 47 0,10 163 288.3

15 Malaga 32 0,07 144 222.2

16 Manresa 16 0,03 70 228.6

TOTAL 46,940 100.00 42,354 1,108

105

Figure 5: Growth in deposits at the Puerto Rican savings banks,1871-1898 (thousands of pesos)

Source: On these savings banks, Comín, Martínez Soto, and Roldán de Montaud (2010),

currently being printed.

2,500

2,000

1,500

1,000

500

0

1871

1872

1873

1874

1875

1876

1877

1878

1879

1880

1881

1882

1883

1884

1885

1886

1887

1888

1889

1890

1892

1893

1894

1895

1896

1897

1898

1891

n Total – Mayagüez - - Humacao – San German - - San Juan • Economias San Juan

107

Pui-Tak Lee, Research Assistant Professor, Centre of Asian Studies,University of Hong-Kong

Dr Pui-Tak Lee was born and educated in Hong Kong. He receivedhis master’s and doctoral degrees of Oriental History from theUniversity of Tokyo in 1991 and 1995, respectively. Currently, he isResearch Officer and Honorary Assistant Professor at the HongKong Institute for the Humanities and Social Sciences (whichincludes the Centre of Asian Studies), University of Hong Kong.Dr Lee convened the First, Second and Third Chinese BusinessHistory Conferences in Hong Kong in 1996, 1998 and 2000,respectively. Since 2009, he has edited the publication series onChinese Business History for the Hong Kong University Press.His major publications include: Xianggang changshangqishiwunian (Seventy-five years of Hong Kong manufacturing: pastand present, 1934-2009) (Hong Kong: Commercial Press, 2009);“Chinese Financial Entrepreneurship: The Case of K.P. Chen”,in Journal of Asian Business, Vol. 14, No. 1 (July 1998), pp. 23-40;“Understanding and Practice of ‘New Business’ in Nineteenth-CenturyChina”, in Rajeswary A. Brown (ed.), Chinese Business Enterprise:Critical Perspectives on Business and Management: volume one(London: Routledge, 1996), pp. 453-80. He is now working on a bookmanuscript entitled Shanghai bankers: The making and unmakingof a profession. He is interested in the study of Chinese accountbooks, history of overseas remittances and movement of capitalamong Hong Kong, South China and the Asia Pacific region.

SAVINGS BANK INTHE ASIA-PACIFIC REGION:A HISTORY OF DEVELOPMENT

1 Kanji Ishii, “Japanese foreign trade and Yokohama Specie Bank, 1880-1913”, in OliveCheckland, Shizuya Nishimura and Norio Tamaki (eds.), Pacific Banking 1859-1959: EastMeets West (London: Macmillan; New York: St. Martin Press, 1994), pp. 1-23.

2 R.P.T. Davenport-Hines & Geoffrey Jones (eds.), British Business in Asia since 1860(Cambridge: Cambridge University Press, 1989), pp. 1-30.

3 Takeshi Hamashita, China, East Asia and the Global Economy: Regional and HistoricalPerspectives (London: Routledge, 2008), pp. 145-166.

4 Compton Mackenzie, Realms of Silver: One Hundred Years of Banking in the East (London:Routledge & Kegan Paul, 1954), pp. 104-113.

108

1. Introduction

The intrusion of Western colonial power into Asia forced Japan to openup to foreign trade. During the Meiji Reformation, which began in the1860s, Japan successfully adopted the Western way of banking in termsof accounting, auditing and corporate management.1 In order to supportthe British trade in Asia, commercial banking was widely introduced tothe British sphere of influence in Asia, such as Singapore, Hong Kong andShanghai.2 They served as the hub of the intra-Asian flow of capital,merchandise and labour forces. Chinese connections with Southeast Asiain terms of trade and emigration can be traced back to the 10th century.Including Japan, Southeast Asia was usually the main partner of Chinesemaritime trade in Asia. In the 19th century British expansion in Asiafuelled Chinese emigration. Remittances and business networks weremingled with these outflows of emigrants.3

Savings banking was comparatively popular first in the Japanesehomeland, then in its colonies, including Taiwan, Korea and Manchuria.It was regarded as a business that was socially stabilising. In fact, postalsavings in Asia was first initiated by the British. However, the concept wasconsidered more a public service for the poor than anything else.Japanese considered postal savings an effective way of mobilising capital,which could be transformed to support colonial operations. Thus it wasmore encouraged in Japan and its colonies.

2. Singapore and Hong Kong

2.1. Singapore

Modern banking in Singapore was first started by Western banks,including Oriental Bank Corporation, which set up a branch in 1846;Chartered Mercantile Bank of India, London and China (1855); CharteredBank of India, Australia and China (1859); and HSBC (1877).4

5 Tan Ee-Leong, “The Chinese banks incorporated in Singapore & the Federation ofMalaya,” in Journal of the Malayan Branch of the Royal Asiatic Society, Vol. 26, Part 1(1953), pp. 113-139.

109

These commercial banks were interested mostly in government finance,international trade, mining and agricultural plantations, foreign exchangeand issuing currency – not in savings. Chinese banks emerged in the early20th century: Kwong Yik Bank established in 1903; Sze Hai Tong Banking &Insurance Co., Ltd. (1907); Chinese Commercial Bank (1912); Ho Hong Bank(1917); Ban Hin Lee Bank (1918); Overseas Chinese Bank (1919); Lee WahBank (1920); United Chinese Bank (1935); Overseas Union Bank (1949);and Chung Khiaw Bank (1950).5 Obviously, none of these banks specialisedin savings, but this doesn’t mean savings in Singapore was unpopular.

Postal savings in Singapore was operated by the Post Office Savings Bank,which was established in 1877. The bank was placed under the controlof the colonial government, which continued to oversee even afterindependence in 1965. It was under the Ministry of Communications in1972 and then the Ministry of Finance in 1974. The Post Office SavingsBank had the greatest number of branches in Singapore, especially in thesuburbs. In 1990, it was renamed POS Bank. In 1998, it was acquired byDBS Bank for 1.6 billion Singaporean dollars. It offered low fees, whichhelped many lower class Singaporeans.

2.2. Hong Kong

The first savings bank in Hong Kong was Hon Nin Savings Bank, foundedby Li Xingqu in 1916 with 400,000 Hong Kong dollars. Prior to that, Liwas involved in organising China Kong Nien Life Insurance Co., Ltd., withone million taels in capital. Li was regarded as a Chinese pioneer inmodern banking and insurance business that operated on the Westernmodel. In 1921, the National Commercial & Savings Bank, Ltd., was setup by a group of returned overseas Chinese in Australia, including CaiXing, Ma Yingbiao, Du Zewen, Cai Chang, Guo Quan and Ma Yongcan.The bank was established in Hong Kong with five million Hong Kongdollars in capital. Two years later, the Ka Wah Savings Bank was foundedby Lin Zifeng with capital of two million Hong Kong dollars. Smaller thanthe National Commercial & Savings Bank, Ka Wah did not open itsShanghai branch until 1932. In 1948, Liu Baoshan founded the LiuChong Hing Savings Bank, which was renamed Liu Chong Hing Bank in1955. It had been the last local registered Chinese bank whose nameincluded the word “savings”.

110

Hon Nin Savings Bank 1910s advertisement emphasising thatbecause the bank is linked with China Kong Nien Life InsuranceCo., Ltd., depositors can easily pay the premiums via their bankaccount.

Savings banks in Hong Kong were all founded by ethnic Chinese,including Li Xingqu from Taishan, Cai Xing, Ma Yingbiao and Guo Quanfrom Zhongshan, Lin Zifeng, Liu Liewen and Liu Baoshan from Chaozhou.One of the common features among them was the network of regionalorigin that extended from South China to Hong Kong and from HongKong to elsewhere in Southeast Asia and North America. They wereregistered in the Hong Kong colonial government and traded widely inmainland China and other Chinese cities in the Asia Pacific with Britishlegal protection. These banks were funded by Chinese capital butorganised according to the Western model. Given this Chinesefoundation, they could easily mobilise savings through their network offriends, family and business partners who were of the same native origin.British banks in Hong Kong were less interested in the savings businessand thus allowed Chinese banks to expand. Obviously, the former weremore interested in government finance, international trade, foreignexchange and issuing of currency.

6 Frank H.H. King, The Hongkong Bank in Late Imperial China, 1864-1902: On an Even Keel(Cambridge: Cambridge University Press, 1987), pp. 350-353.

7 Frank H.H. King, The Hongkong Bank in the Period of Development and Nationalism,1941-1984: From Regional Bank to Multinational Group (Cambridge: CambridgeUniversity Press, 1991), pp. 362; 367-8; 445.

111

The idea of postal savings came to Hong Kong in the 1880s. However,this Victorian heritage of self-help for the poor did not thrive for a postalsavings bank as it had for European savings banks. The idea was finallyadopted by HSBC to set up a subordinate called Hong Kong Savings Bank,in 1884, with the support of the Hong Kong government. HSBC consideredthis savings bank a public service more than a business enterprise.There were four provisions: a. free mailing privileges were granted bothto the bank and to depositors; b. no stamp duty was acquired; c. unusedstamps could be saved and submitted in sums of a dollar for credit to thesavings account; and d. all savings were guaranteed by the Hong Konggovernment. In 1929 the savings bank was covered by its own ordinance ofincorporation with the mother bank, but the savings bank was discontinuedin 1957.6 During the early 1960s, when Hong Kong was in the early stageof urbanisation and industrialisation, HSBC reactivated the Hong KongSavings Bank in order to compete with local Chinese banks in theexpanding savings market. In 1961, the bank resumed business and washoused in HSBC’s Mongkok branch, which was regarded as the biggestamong all the bank branches in the Kowloon peninsula. Moreover, it wassaid that the ordinance that covered the Hong Kong Savings Bank actedas a model for the HSBC’s Iloilo branch in the Philippines.7

Hong Kong Savings Bankadvertisement emphasisingthe bank’s operation by HSBC. Source: Sing Tao Daily, 7 April 1961.

8 Katō Toshihiko, Honpō ginkōshi ron (The treatise on history of banks of our country)(Tokyo: Tokyo University Press, 1957), pp. 46-47.

112

3. Japan, Taiwan, Korea, and Manchuria

3.1. Japan

Japan was regarded as the first Westernised nation in Asia. Modernsavings banking started earlier in Japan than in any other Asian country.Its first savings banks were established in 1878 when the Number TenNational Bank commenced business in Yamanashi Prefecture andthe Number Thirty-three National Bank commenced business in Tokyo.In 1890, the savings bank ordinance was announced but was notimplemented until 1893. The ordinance had been revised twice before itwas transformed into the savings bank law in 1921. The first time was in1895 in order to protect the depositor. The second time was in 1899 inorder to ensure proper investment of the banks in the capital market.In 1880, Yokoyama Magōichi and Hara Rokurō went to Europe andAmerica to study modern savings banking. After they returned to Japanthey proposed to the Japanese government to set up a modern savingsbank named Tōkyō Chōchiku Ginkō (Tokyo Savings Bank) with a capital of20,000 yen. It was regarded as the first professional savings bank in Japan.

In 1883, there were 21 savings banks in Japan. The largest was TōkaiChōchiku Ginkō (Tokai Savings Bank) with a capital of 75,000 yen, andthe smallest was Hachinohe Sekken Chōchiku Ginkō (Hachinohe Thrifty& Savings Bank) with a capital of 2,000 yen. Table 1 shows a continuousincrease in the number of savings banks during 1893-1914. The amountsof capital, reserves, deposits and loans all increased steadily. However,due to the new requirement set by the banking law, which wasimplemented in 1922, the number of savings banks dropped drastically.Approximately 500 savings banks reorganised as ordinary banks in thesame year. During the savings bank boom years in the 1910s, the interestrate they offered was as high as 20%, which they never offered in the1920s and 1930s.8

113

Table 1: Savings banks in Japan, 1893-1914 (unit: 1,000 yen)

Source: Katō Toshihiko, Honpō ginkōshi ron (The treatise on history of banks of our country)

(Tokyo: Tokyo University Press, 1957), p. 156.

Number Authorised Paid-up Year of banks capital capital Reserve Deposits Loans

1893 23 1,110 537 25 6,035 1,066

1894 30 1,350 653 63 6,871 675

1895 86 4,620 1,777 104 12,178 2,728

1896 149 9,495 3,964 304 20,674 8,088

1897 221 17,499 8,622 813 33,045 22,360

1898 260 21,504 11,639 1,371 42,707 31,486

1899 333 28,455 15,430 2,188 67,641 48,184

1900 419 40,100 21,040 2,908 78,882 63,715

1901 441 41,656 23,370 3,463 74,210 60,880

1902 431 40,789 22,413 3,548 84,966 62,962

1903 469 51,384 29,530 5,404 106,707 82,229

1904 467 54,639 32,187 6,490 120,760 87,119

1905 481 57,124 34,364 7,772 153,813 101,047

1906 488 62,424 37,767 9,877 200,661 126,311

1907 484 69,688 42,234 11,421 218,743 148,771

1908 485 73,888 45,413 13,127 214,974 147,242

1909 483 75,839 46,803 15,024 248,679 153,794

1910 474 78,413 48,628 16,865 277,683 171,873

1911 478 81,093 51,135 18,753 311,983 201,451

1912 478 86,263 54,315 20,584 333,929 232,096

1913 489 102,383 63,391 23,424 356,079 261,866

1914 508 123,580 72,929 26,400 376,066 293,156

114

Table 2: Savings banks in Japan, 1914-1931 (unit: 1,000 yen)

Source: Katō Toshihiko, Honpō ginkōshi ron (The treatise on history of banks of our country)

(Tokyo: Tokyo University Press, 1957), p. 317.

Number Paid-up SavingsYear of banks capital Deposits deposits Loans

1914 508 72,929 376,066 165,641 193,156

1915 657 120,944 528,938 193,066 437,670

1916 664 126,139 687,539 253,607 514,230

1917 663 143,331 932,948 334,000 669,774

1918 661 165,337 1,288,529 433,055 952,500

1919 656 221,186 1,777,547 542,536 1,466,819

1920 661 320,308 1,843,000 564,631 1,597,592

1921 636 325,728 1,945,989 570,660 1,618,758

1922 146 33,659 651,245 549,587 186,372

1923 139 34,023 693,560 594,812 202,448

1924 136 36,397 793,512 688,894 188,050

1925 133 37,647 904,605 782,330 191,881

1926 124 41,138 1,067,551 963,853 264,676

1927 113 42,915 1,101,473 1,016,298 297,019

1928 100 40,722 1,249,934 1,160,561 348,744

1929 95 40,577 1,421,887 1,318,505 406,638

1930 90 41,653 1,539,252 1,488,882 477,603

1931 88 43,131 1,635,622 1,609,490 467,215

9 Taiwan Sōtokufu saimukyoku kinyūka (Finance Department, Treasure Bureau, TaiwanGovernor Office) (comp.), Taiwan no kinyū (Finance of Taiwan) (Taihoku: Taiwan Sōtokufu,1930), pp. 118-119.

115

3.2. Taiwan

Taiwan was ceded to Japan in 1895 after the First Sino-Japanese War.Taiwan was soon transformed into a Japanese colony. In 1899, TaiwanChōchiku Ginkō (Taiwan Savings Bank, abbreviated as TSB) wasestablished. This was the first savings bank in the island organisedaccording to the Japanese model, with capital of 250,000 yen. In 1910,Taiwan Shōkō Ginkō (Taiwan Commercial & Industrial Bank) was set up.It was aimed to finance the industry of central and southern Taiwan.However, it was merged with TSB in 1912. The capital was increased to1 million yen. In 1923, TSB took over two smaller banks, Kagi Ginkō(Bank of Jiayi) and Shinkō Ginkō (Bank of Xingao), placing itself in astronger position in the banking industry of the colony. The new capitalafter the takeover was increased to 5 million yen with a top-up of 11million yen from the colonial government, thus TSB became a giant bankwith total capital of 16 million yen and 48 branches throughout thecolony. In 1921, the colonial government implemented a new savingsbank law in order to replace the old savings bank ordinance of the late19th century.9

Table 3 demonstrates that all types of savings, including ordinary savings,special ordinary savings, fixed-time savings and fixed savings (the lastbeginning in 1927), steadily increased, except during 1926-27 whenTaiwan suffered from economic panics. Nevertheless, TSB was the biggestsavings bank in Taiwan; it collected almost all of the colony’s savings andpossessed additional deposits from the colonial government and otherlocal Taiwanese banks constituting 9-43% of its total amount of savings.

116

Table 3: Savings in Taiwan and the role played by the TaiwanSavings Bank, TSB (unit: yen)

Source: Taiwan Sōtokufu saimukyoku kinyūka (Finance Department, Treasure Bureau, Taiwan

Governor Office) (comp.), Taiwan no kinyū (Finance of Taiwan) (Taihoku: Taiwan Sōtokufu,

1930), p. 183.

Special Fixed -Ordinary ordinary time Fixed Savings Loans

Year savings savings savings savings at TSB by TSB Balance

1922 1st 621,072 88,054 44,814 - 1,572,927 818,986 753,942

1922 2nd 738,678 238,888 128,882 - 1,585,165 1,232,657 1,106,448

1923 1st 984,504 368,424 257,341 - 2,032,115 1,528,294 1,610,269

1923 2nd 1,235,515 500,793 411,014 - 2,589,604 2,061,550 2,147,323

1924 1st 1,615,629 699,373 587,489 - 2,963,228 2,208,060 2,902,492

1924 2nd 1,927,784 880,602 791,937 - 3,777,636 3,079,803 3,600,323

1925 1st 2,042,637 1,318,629 757,698 - 4,298,947 3,780,306 4,118,964

1925 2nd 2,105,267 1,873,695 802,555 - 5,218,802 4,556,249 4,781,517

1926 1st 2,414,864 2,304,146 796,735 - 5,233,563 4,499,334 5,515,745

1926 2nd 2,474,840 2,573,780 885,038 - 4,917,954 4,500,042 5,933,658

1927 1st 2,332,303 2,651,447 969,630 21,461 5,923,138 5,881,954 5,974,482

1927 2nd 2,515,476 2,597,329 1,044,199 36,308 5,348,853 5,128,382 6,193,313

1928 1st 2,849,817 2,632,479 1,159,393 80,986 6,570,463 6,041,101 6,722,675

1928 2nd 2,899,210 2,718,520 1,183,953 103,770 6,338,720 6,155,941 6,905,453

1929 1st 3,332,537 2,737,367 1,245,654 151,773 7,436,459 6,874,581 7,467,332

1929 2nd 3,457,882 2,699,893 1,392,707 168,660 7,502,607 7,250,796 7,719,143

117

As shown in Table 4, most of the savings held by the TSB went towardmortgage loans. Followed by that was the acquisition of bonds andstocks, general loans to savings depositors and loans to fixed-timesavings depositors. There was a setback in 1927-28 when Taiwan’sfinancial market was in chaos and regressed to 1923 levels. Loans tofixed-time savings depositors increased by 258% in 1928-29, reflectingan economic boom before the Great Depression affected Taiwan.

Table 4: Outlets of savings in Taiwan and the role played bythe Taiwan Savings Bank, TSB (unit: yen)

Source: Taiwan Sōtokufu saimukyoku kinyūka (Finance Department, Treasure Bureau, Taiwan

Governor Office) (comp.), Taiwan no kinyū (Finance of Taiwan) (Taihoku: Taiwan Sōtokufu,

1930), p. 184.

Loans to Loans to fixed-time Loans

Bonds Mortgage savings savings Loans returnedYear and stocks loans depositors depositors by TSB to TSB Balance

1922 1st 10,800 93,840 11,030 - 140,480 24,810 115,670

1922 2nd 15,775 208,100 13,232 - 260,121 138,684 237,107

1923 1st 21,255 220,910 29,491 - 273,811 239,262 271,656

1923 2nd 95,055 233,035 15,740 60,645 516,045 383,226 404,475

1924 1st 109,193 230,490 16,575 126,477 787,730 709,470 482,735

1924 2nd 219,208 240,050 17,285 179,650 1,257,007 1,083,549 656,193

1925 1st 278,344 235,778 26,607 166,625 1,666,997 1,615,836 707,354

1925 2nd 247,448 228,568 43,813 169,276 1,802,211 1,820,460 689,105

1926 1st 169,446 238,519 58,201 172,280 1,743,457 1,794,116 638,446

1926 2nd 120,192 248,449 79,393 219,711 1,966,625 1,837,326 767,745

1927 1st 264,392 241,194 109,207 259,912 2,158,312 2,051,352 874,705

1927 2nd 253,609 250,941 192,386 270,694 2,085,849 1,992,924 967,630

1928 1st 280,036 223,161 223,513 331,101 2,099,246 2,009,065 1,057,811

1928 2nd 290,609 239,961 240,924 856,694 3,318,755 2,744,008 1,627,558

1929 1st 349,205 246,905 207,110 1,233,358 5,133,237 4,692,157 2,036,638

1929 2nd 306,449 277,760 163,840 1,835,602 7,142,392 6,587,701 2,583,651

10 Taiwan Sōtokufu saimukyoku kinyūka (Finance Department, Treasure Bureau, TaiwanGovernor Office) (comp.), Taiwan no kinyū (Finance of Taiwan), pp. 215-218.

11 Taiwan Sōtokufu saimukyoku kinyūka (Finance Department, Treasure Bureau, TaiwanGovernor Office) (comp.), Taiwan no kinyū (Finance of Taiwan), pp. 265.

118

Mutual loans associations, such as Mujinkō and Tanomoshikō, becamepopular after Taiwan was made a Japanese colony. It was the colonialgovernment policy to control these private financial activities since manyof these associations went bankrupt in 1904-05. In 1913, Taiwan ChikusaiMujin Kabushiki Kaisha (Taiwan Mutual Loans & Savings Ltd.) wasestablished with capital of 50,000 yen, followed similar institutions such asTaiwan Mujin Kabushiki Kaisha (Taiwan Mutual Loans Ltd.) in June 1915;Taishō Mujin Kabushiki Kaisha (Taisho Mutual Loans Ltd.) in July 1915;Taiwan Kankyō Mujin Kabushiki Kaisha (Taiwan Industrial Mutual LoansLtd.) in 1920; Tōtai Mujin Kabushiki Kaisha (Eastern Taiwan Mutual LoansLtd.) in May 1926; and Taiwan Nanbu Kabushiki Kaisha (Southern TaiwanMutual Loans Ltd.) in December 1926.10

The other way to absorb private capital was through postal savings,which was introduced in 1896, soon after Taiwan was made a Japanesecolony. It was not until 1912 that the aborigines were allowed to deposittheir own savings. The interest rate of postal savings was set at 4.2%-5.04% in 1915, in order to attract depositors.11 Table 5 shows that postalsavings in Taiwan was mainly fuelled by Japanese. It was not until 1915that Chinese depositors outnumbered Japanese depositors. In fact,Japanese depositors contributed the biggest portion of the total amountof postal savings. Beginning in 1924, the total amount of savingscollected by the post office was almost equal to that of savings banks.

119

Table 5: Postal savings in Taiwan (unit: yen)

Source: Taiwan Sōtokufu saimukyoku kinyūka (Finance Department,

Treasure Bureau, Taiwan Governor Office) (comp.), Taiwan no kinyū

(Finance of Taiwan) (Taihoku: Taiwan Sōtokufu, 1930), pp. 266-267.

Num

ber o

f sav

ings

dep

osito

rAm

ount

of s

avin

gsYe

ar

Japa

nese

Chin

ese

Abor

igin

esTo

tal

Japa

nese

Chin

ese

Abor

igin

esTo

tal

1896

5,84

7-

-5,

847

228,

487

--

22,8

47

1899

21,9

0761

3-

22,5

2055

3,29

45,

685

-55

8,97

9

1902

35,6

845,

461

-41

,145

728,

415

35,1

00-

783,

515

1905

45,1

4618

,186

-63

,332

896,

168

213,

085

-1,

109,

252

1908

57,9

3626

,074

-84

,010

1,44

0,04

936

1,83

4-

1,80

1,88

3

1911

69,0

2974

,441

-14

3,65

01,

693,

634

583,

167

-2,

276,

801

1912

74,0

8763

,741

846

138,

675

1,94

0,47

445

4,05

66,

382

2,40

0,91

2

1915

102,

359

169,

472

1,08

227

2,91

32,

188,

866

979,

881

8,60

93,

177,

356

1918

136,

414

220,

058

1,73

235

8,20

43,

969,

466

1,53

5,78

113

,003

5,51

8,25

0

1921

162,

485

257,

628

2,23

942

2,35

25,

398,

604

2,11

9,14

016

,106

7,53

3,85

0

1924

192,

680

295,

121

5,66

549

3,47

66,

384,

884

2,66

2,25

611

4,05

09,

161,

190

1927

183,

095

279,

048

7,00

446

9,50

78,

294,

708

3,77

2,52

715

5,87

912

,223

,114

1929

194,

790

292,

877

11,7

6049

9,42

710

,300

,722

4,54

9,16

921

4,03

915

,063

,930

120

3.3. Korea

Korea became a Japanese colony in 1910 signing the Japan-KoreaAnnexation Treaty. Due to the fact that savings societies prevailed in thecolony, the colonial government implemented a special law to nationaliseall savings businesses in 1919. By then the Chōsen Shōkusan Ginkō(Industrial Bank of Korea) had monopolised all savings businesses. InDecember 1928, the colonial government implemented its first savingsbank law. A year later, the Chōsen Shōkusan Ginkō was transformed intoa new savings bank, Chōsen Chōchiku Ginkō (Savings Bank of Korea),with subscribed capital of five million yen. Table 6 shows the increasingtrend of all types of savings as managed by the Savings Bank of Korea in1929-1931.

Table 6: Figures of different types of savings collected bySavings Bank of Korea (unit: 1,000 yen)

Note: * inherited from the Industrial Bank of Korea.

Source: Saitō Seji, Chōsen ni okeru shōmin kinyū no kaikyō (The general situation of ordinary

people finance in Korea) (Seoul: Chōsen kinyū kumiai kyōkai, 1931), p. 51.

In order to absorb long-term purchasing power and increase the savingsrate, the colonial government tried to link savings with life insurance andsimple insurance. This, combined with the national savings campaign,fuelled an insurance boom.

Savings managed by the post office was equally important. Table 7 showsthat Japanese depositors outnumbered Korean ones until 1915, when itbecame the other way around. The amount of postal savings byJapanese, however, was always greater.

Types July 1929* December 1929 June 1930 June 1931

Ordinary savings 2,162 5,948 5,269 6,430

Long-term savings 1,693 1,962 2,258 2,942

Fixed savings 4,164 12,401 13,536 14,098

Fixed deposits 11,465 1,040 2,828 4,524

TOTAL 19,485 21,352 23,893 27,994

12 Research Group of the History of the Central Bank of Manchuria (comp.), Manshū ChūoGingōshi (History of the Central Bank of Manchuria) (Tokyo: Tōyō keizai shinpōsha, 1988),pp. 145-146.

121

Table 7: Postal savings in Korea, 1907-1929 (unit: yen)

Note: * inherited from the Industrial Bank of Korea.

Source: Saitō Seji, Chōsen ni okeru shōmin kinyū no kaikyō (The general situation of ordinary

people finance in Korea) (Seoul: Chōsen kinyū kumiai kyōkai, 1931), pp. 35-36.

3.4. Manchuria

After the Russo-Japanese War, in 1905, Japan successfully extended herinfluence to Manchuria. In 1906, the semi-privately held South ManchurianRailway Company was established with capital of 200 million yen. TheSouth Manchurian Railway Company operated not only railways but alsomills, coal and iron mines, storage facilities, soybean farms, agriculturalconcerns, harbour facilities and public utilities. It was not until 1932 thatthe Central Bank of Manchuria was established, to consolidate allfinancial resources in support of the newly born Manchukuo (ManchuEmpire). After 1932, the Manchukuo government reintegrated allbanking and financial institutions in Manchuria. During that time modernChinese savings banks were not all permitted to trade in Manchuria.Besides savings banks, quite a number of savings societies emerged in the1910s and 1920s. One of the prominent ones, Hōten Chōchikukai(Savings Society of Hoten), was reorganised as Hōten Kōshō Ginkō(Industrial & Commercial Bank of Hoten) with new capital of 2.2 millionyen in 1934. Nevertheless, postal savings were widely encouraged by theManchukuo government. The first postal savings law and the first savingssociety law was passed in parliament in 1937 and 1942, respectively.12

Year Japanese Korean TotalDepositors Amount Depositors Amount Depositors Amount

1907 55,554 1,128,847 4,284 30,710 59,838 1,159,558

1911 123,641 3,906,175 99,958 459,821 223,959 4,365,996

1915 221,223 6,574,582 649,528 1,470,683 870,751 8,045,265

1918 271,807 11,791,915 1,120,571 2,570,453 1,382,387 14,362,368

1921 331,641 15,422,190 1,084,154 2,563,137 1,416,325 18,726,338

1924 438,763 18,112,984 1,167,977 2,916,865 1,606,740 21,029,849

1927 542,537 23,184,652 1,367,752 3,777,373 1,910,289 26,962,025

1929 595,777 31,349,222 1,482,825 4,937,195 2,078,602 36,286,417

13 Ibid., p. 152.

122

Table 8 shows the increase in postal savings was tremendous, though thetotal amount of deposits constituted only about one-tenth of thecommercial, savings and national banks through the period 1938-1945.

Table 8: Comparison of three sources of savings in Manchuria(unit: 1,000 yen)

Source: Research Group of the History of the Central Bank of Manchuria (comp.), Manshu

Chuo Gingoshi (History of the Central Bank of Manchuria) (Tokyo: Toyo keizai shinposha,

1988), p. 152.

In 1939, in order to support the First Five-Year Economic Plan of theManchukuo, a national savings campaign was launched. The target wasset at 500 million yen but was changed to 6 billion yen in 1945. Table 9shows that the biggest source of savings came from banking institutionsand savings societies. The mandatory elements of the campaign werecomposed of national bonds and savings bonds. Obviously, the campaignwas initiated from the top down. A government department called theBureau of Promotion of Savings was set up in 1938.

Manchuria was colonised by Japan after the Mukden Incident in 1931.Banking institutions, banking laws and the postal system were allremodelled according to their Japanese equivalents. Even the nationalsavings campaign in Manchuria could be guided by the similar campaignlaunched in Japan in the 1930s. Over 63% of savings were contributedby Japanese even though they constituted only 5.26% of the totalpopulation of Manchuria.13

Year Banking institutions Cooperatives Postal savings

1938 1,134,915 (100%) 38,000 (100%) 109,555 (100%)

1939 1,869,388 (165%) 72,030 (190%) 161,531 (147%)

1940 2,144,025 (189%) 136,050 (358%) 230,255 (210%)

1941 2,896,343 (255%) 234,280 (617%) 300,496 (274%)

1942 3,810,190 (336%) 353,673 (931%) 391,703 (358%)

1943 5,077,259 (447%) 462,658 (1,218%) 547,368 (500%)

1944 9,003,929 (793%) 1,331,513 (3,504%) 945,708 (863%)

1945 10,029,742 (884%) 1,835,780 (4,831%) 1,337,732 (1,221%)

123

Table 9: Composite of the National Savings Campaign(unit: 1,000 yen)

Source: Research Group of the History of the Central Bank of Manchuria (comp.), Manshū Chūo

Gingōshi (History of the Central Bank of Manchuria) (Tokyo: Tōyō keizai shinpōsha, 1988), p. 149.

4. Concluding remarks

Modern banking in Asia was initiated by two colonial powers, Britain andJapan, but obviously their versions were not the same. The organisationof savings banks was not a prevailing interest of the British in Asia. Postalsavings was an exception, for it was considered a public service to helpthe lower classes. The first post office savings bank was set up inSingapore in 1877. Then, in 1884, the HSBC organised the Hong KongSavings Bank, which was discontinued in 1957. Therefore, the Britishsavings bank history in Asia did not last for more than 80 years.

Savings banking in Japan was far more vigorous. The first savings bank inJapan was set up in 1880 with strict government control. The value ofthrift and the drive to gather microcapital were widespread in theJapanese colonies.

Items Amount

National bonds 190,000

Savings bonds 722,000

Occupational savings 80,000

Agricultural savings 1,000,000

Opium smokers’ savings 148,000

Real estate savings 50,000

Lottery 40,000

Savings from other banks and savings societies 1,920,000

Stock speculators’ savings 1,300,000

Special account 600,000

TOTAL 6,050,000

124

Nevertheless, savings banking failed in the 1940s when it became a lessprofitable business. In Japan, Hong Kong and Taiwan, the word “savings”to describe a bank gradually disappeared after the Second World War,because many of the savings banks reorganised as ordinary commercialbanks.

Note: The author wishes to thank Professor Shizuya Nishimura who haskindly provided him valuable reference materials on Japanese bankinghistory.

1 Lien-sheng Yang, Money and Credit in China: A Short History (Cambridge, MA: HarvardUniversity Press, 1971), p. 80.

2 Victor Mok & Joseph Wu, “‘Yi Hui’ and ‘Yin Hui’: An Introductory Analysis,” in Chung ChiJournal, Vol. 11, No. 1 (April/May 1972), pp. 126-137.

125

Pui-Tak Lee, Research Assistant Professor, Centre of Asian Studies,University of Hong-Kong

1. Introduction: the Chinese concept of savings

Modern savings banking began 200 years ago in Scotland. It then spread tothe United States, Europe, Japan and China. China has a long history ofsavings but it did not become institutionalised until the early 20th century.

The Chinese philosophy of savings emphasises safety. As Confucius said,“Ren wu yuanlei, biyou jinyou” (“A person is subject to either long-termconcerns or short-term troubles”). In order to manage these concernsand troubles, Chinese usually save for emergencies. It is not easy toanswer the question of how much China was challenged by the West inimporting the ideas of modern savings. Does China have its own modelof modern savings? According to documents found in Dunhuang, theearliest history of “yinhui” (savings club) can be traced back to the TangDynasty (618-907). Chinese organised different “hui” (clubs) for differentpurposes, including savings, insurance and mutual assistance for weddings,funerals, health care, etc. A proto-type of savings banks called “guifang”was also traced to the Tang Dynasty.1 There were three features aboutthese savings clubs: firstly, the club members were usually a group ofpeople of similar background. They relied much upon personal trust.Secondly, money was paid in instalments, mostly on a half-year or yearlybasis. Thirdly, depositors did expect a good rate of interest.2 Why weren’tthese private savings organisations institutionalised? Regional ties,kinship ties and personal trust may be the answer.

DEVELOPMENT ANDDIFFUSION OF SAVINGS ANDSAVINGS BANKS IN CHINA:A HISTORICAL PERSPECTIVE

126

Ordinary Chinese joined different types of savings societies instead ofdepositing money in banks. It was not until the end of the 19th centurythat China had its first modern bank, the Imperial Bank of China, whichwas based on the Western model. Savings then became institutionalisedin the first decade of the 20th century when, in 1906, the first savingsbank, Sin Chun Savings Bank of China, was established. In order tocompete with savings societies, the bank emphasised how a savings bankoperated like a savings institution whereas a saving society did not.Shun Hee Savings Bank commenced business in 1907 and was granted alicense to issue currency in 1908. The bank took it as an opportunity toadvertise how a savings bank was safer than a savings society. On theback of its five dollar note, a short story of savings and the savings banksentitled “Xinyi chuxu yinhang qianshuo” (A brief note on Shun HeeSavings Bank) was printed, which reads:

What is a savings bank? How can it help you? Say for an example,if a woman saves her money with a loan society, she will probablybe cheated by the loan organiser and finally lose both the principaland interest. If she puts her money in the bank, she will never becheated since banks are permanently safe. They are huge in capitaland registered in the revenue and commerce ministries. There areso many advantages about banks. Whether you are a man or awoman, young or old, once you have saved your small sums ofmoney with the bank, you will be able to withdraw a big sum whenyou need to spend money.

Everybody can save money. Businessmen can save several dollars ina month by having fewer dinner parties and by playing lessmahjong. After a period of time, this saved money will beparticularly helpful if you become jobless, and not being scolded byyour family nor bothered by your wife. Artisans can save two orthree dollars a month by playing fewer games and smoking lessopium. After ten to twenty years, you can easily withdraw severalhundred or a thousand dollars from the bank. Everybody can save,including a coolie, rickshaw puller and barber. With this savings,you can easily quit your job and run a business by yourself.

3 Ma Fude (ed.), Lao Shanghai huobi (Currencies in old Shanghai) (Shanghai: Shanghairemin meishu chubanshe, 1998), p. 38.

4 Wang Zhishen, Zhongguo zhi chuxu yinhang shi (History of savings banks in China)(Shanghai: Hsin Hwa Savings Bank, 1934), pp. 1-2.

5 Pui-Tak Lee, “Luelun yibasanling zhi yijiusanling niandai huoyue yu Xianggang he Shanghaide yingzi yinhang” (A brief discussion of British banks in Hong Kong and Shanghai fromthe 1830s to the 1930s), in Shanghai Bank Museum and Hong Kong Museum of History(eds.), The Development of Banks in Shanghai and Hong Kong (Hong Kong: Hong KongMuseum of History, 2007), pp. 50-59.

127

There are so many advantages about savings. Parents who are afraidof being short of money for your son’s or daughter’s marriage,please save one or two dollars on their behalf, the bank will takecare of their wedding expenses. Old people who are afraid ofrunning out of money to hold their funerals, or worried about theirunreliable descendants, please urgently go to the bank and savesome dollars on a monthly basis and even on a yearly basis. This isthe only way the bank can help you. The bank will take care ofeverything for you.

Listen up, don’t miss the chance!3

2. The introduction of foreign capital andthe Chinese reaction

The first modern Chinese bank, the Imperial Bank of China (later renamedthe Commercial Bank of China), did not come into existence until 1897.It was modelled on Hong Kong and Shanghai Bank (now called HSBC),established in Hong Kong in 1865. The first Chinese savings bank, SinChun Savings Bank of China, opened in 1906. The bank’s founder, ZhouTingbi, who organised a study mission to Japan in the early 20th century,had visited many Japanese banks and government officials. Sin Chun wassaid to have based it on the models of Tōkyō Chōchiku Ginkō (TokyoSavings Bank) and Nippon Kangyō Ginkō (Industrial Bank of Japan).4

The introduction of foreign banks in China did not make a great impacton the local savings industry. For example, Oriental Bank Corporationcame to China in 1847; Hong Kong and Shanghai Bank in 1865; bothBanque de l’Indochine and Deutsch-Asiatic Bank in 1889; YokohamaSpecie Bank in 1892; Russo-Asiatic Bank in 1896; and Citibank in 1902.All these foreign banks were more interested in government finance,industrial loans and foreign exchange, instead of competing with localChinese banks in the less profitable savings business.5

128

The first real challenge by a foreign savings organisation in China was theInternational Savings Society (in French, la Société Internationaled’Epargne), founded by the Frenchman J. Beudin in Shanghai in 1912.The headquarters was located in the French Concession of Shanghai.The lottery savings programme launched by ISS rapidly spread in all majorChinese cities. There were three main types of lottery savings: a. Full Plan:with $12 as monthly instalment; b. Half Plan: with $6 as monthlyinstalment; c. Quarter Plan: with $3 as monthly instalment. As Table 1shows, after the mature period of 14 years, the full, half and quarter planholder would receive $2,000, $1,000 and $500, respectively. During these14 years, drawings were held every month for depositors to receive theredemption amount before the end of the mature period.

Table 1: Savings plans offered by the International SavingsSociety (unit: CN$)

Source: Regulations of the Lottery Savings, International Savings Society, 1927.

In 1935, it had accumulatively absorbed about 200 million dollars.As Table 2 demonstrates, ISS attracted many depositors and continuouslygenerated a huge amount of profit. According to its annual businessreports, ISS compiled its reserve by investing in various options, includingmunicipal loans and debentures, Chinese government bonds, shares, realestate and loans to savings depositors. In 1918, ISS met with itscompetitor, the Sino-French Savings Society (in French, la SociétéAnonyme Chinoise de Capitalisation l’Epargne Franco-Chinoise), whoseheadquarters was located in Tianjin. However, eight years later, it wassold to its Chinese partners.

Plans Monthly instalment Redemption amount

Full 12 2,000

Half 6 1,000

One quarter 3 500

129

Table 2: International Savings Society (unit: CN$)Source: Shanghai Municipal Archives Q275-1-1820.

Figure 1: Subscription form of the International Savings Society.

Source: Shanghai Municipal Archives Q185-3-23380.

Number of Investment Year depositors capital Profit

1928 80,659 30,566,937 290,000

1929 91,989 38,816,540 325,000

1930 106,669 51,794,640 340,053

1931 113,219 59,520,026 713,746

1932 115,979 66,566,886 743,484

1933 124,799 79,497,103 813,484

6 Cases of grievances and complaints can be seen from Wang Zhishen, Wo de chuxu jihua(My savings plan) (Shanghai: Hsin Hwa Savings Bank, 1934), pp. 63-64; 115-116; 118-119.

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Since lottery savings was a profitable business, Chinese merchants tookevery chance to compete with their rivals. Firstly, in 1921, Huang Chujiu(1872-1931) opened the Shanghai Day & Night Bank inside hisamusement park in Shanghai, “Dashijie” (Big Big World), which was builtin 1917. This bank was regarded as revolutionary, because park visitorswere primarily wage workers and could easily save their money afterwork. In return, the bank promoted the park by giving its depositors freeadmission tickets. As shown in Table 3, savings plan holders receivedtickets according to the amount and duration of the savings. In addition,Huang invited the famous painter Xie Zhiguang to design a calendarposter with the famous picture “Meinu chuyu tu” (in English, “A beautifulwoman after bath”). Secondly, in order to counterbalance the everexpanding ISS and the Sino-French Savings Society, four major Chinesecommercial banks united to form the Joint Savings Society of the YienYieh, Kincheng, Continental, China & South Sea Banks, in 1923.Lottery savings as initiated by ISS and Sino-French Savings Society waswelcomed by Chinese for two reasons: a. wealth accumulated quickly;b. bonus incentives. Nevertheless, they were ideologically disgraced as“imperialistic exploitation” by a nationalistic view to resist foreign capital,particularly in the early 1930s when China’s capital market was in chaos.Criticism of ISS and the Sino-French Savings Society was directed mainlyat the fixed redemption period. Within the period, depositors could onlywithdraw from the plan, and not redeem money.6

Table 3: Terms of the savings plans offered by the Shanghai Day& Night Bank in 1920s (unit: CN$)

Amount of Bonus of BBWPlans savings Duration Interest admission ticket

A 100 (one-off) 1 month (starting) 10% monthly 2 per month

B 5 per month 3 yrs/6yrs/9yrs 30/ 166/ 452 3 per month

C 50 (one-off) 1 yr/2yrs/3 yrs - 3/6/7 per month

D 500 (one-off) 1 yr/2yrs/3 yrs/5yrs 50/120/200/400 20 per month

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The boom years of modern Chinese banking were the 1920s and 1930s.Savings banking was no exception. Chinese savings banks competed witheach other to collect savings from city households and invest it in thecapital market. During 1928-1934, Chinese bankers made huge profitsfrom speculating in government bonds, foreign exchange, gold and realproperties. In order to promote savings, a wide range of publicitymethods were used to propagate “savings” ideas among the middle andlower classes, such as advertising through mass media, song compositioncompetitions and distributing practical gifts. Coincidentally, China’surbanisation and progress in public transport development, together withthe rise of the middle class, leisure and feminism, all contributed to therapid expansion of savings banking. The first women’s savings bank wasopened in Beijing in 1921. Three years later, the Women’s Commercial &Savings Bank commenced business in Shanghai. Branching out was themost successful strategy for many savings banks. For example, by 1934,Shanghai Commercial & Savings Bank (SCSB) successfully establishedabout 100 branches, including in Hong Kong. Assisted by the bank’ssubordinate, the China Travel Service, which was set up in 1927, SCSBpenetrated both coastal and interior regions. Nevertheless, governmentintervention was necessary to help the banking industry grow.

3. Institutional development of savings banks: the case ofShanghai Commercial & Savings Bank

The SCSB commenced business on 3 June 1915. It was established withcapital of CN$75,000 and a staff of seven. It launched the “one dollardeposit account” campaign, which the powerful native banks saw as ajoke. They did not believe this newly established and so-called new styleof business would one day become the leading Chinese private bank.But the bank’s growth was phenomenal. It was regarded as a businessmiracle in Chinese banking circles, created by an untiring organiser anddisciplinarian leader. The bank opened branch after branch, not only inShanghai but in other major cities.

7 Pui-Tak Lee, “Chinese Financial Entrepreneurship: The Case of K.P. Chen,” in Journal ofAsian Business, Vol. 14, No. 1 (July 1998), pp. 23-40.

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SCSB accounts showed steady progress in terms of capital, deposits andnet profits. Within a period of 12 years, the bank accumulated a profit ofCN$3,550,443. By 1932, the bank’s net profit was ten times greater thanit had been in 1915. Table 4 demonstrates that the Bank of China, theBank of Communications and the Central Bank of China were theleading Chinese banks. Nevertheless, they were either government orsemi-government banks. The business achieved by SCSB wascomparatively outstanding.7

Table 4: Comparison of leading Chinese bank assets, deposits,income and net profit in 1932 (unit: CN$1,000)

Source: Institute of Economics, Bank of China (ed.), Zhongguo zhongyiu yinhang yinye gaikuang

yanjiu (An analysis of the accounts of the prominent Chinese banks) (Shanghai: Bank of China,

1933), pp. 3; 8-8; 11.

SCSB’s motto was: “To serve society, to assist commerce and industry, andto develop foreign trade”. The concept of “service” was central to thebank’s image, business operations and principles. It was one of the firstChinese banks to initiate the “one dollar deposit accounts”, and alsopioneered issuing small loans to individuals without collateral.The savings department was one of the three departments established bythe bank in 1916.

Banks Assets Deposits Income Net profit

Bank of China 804,993.0 557,197.0 11,288.7 1,848.0

Bank of Communications 326,391.1 214,339.4 4,577.6 451.2

Central Bank of China 249,287.0 168,539.0 14,678.7 11,962.0

Shanghai Commercial &Savings Bank 166,836.6 129,428.7 3,268.6 865.0

Kincheng Banking Corporation 116,342.1 105,910.5 2,067.3 831.0

China & South Sea Bank 106,326.0 96,130.8 1,677.0 937.0

National Commercial Bank 95,402.3 77,265.9 2,007.3 552.5

Yien Yieh Commercial Bank 93,673.2 80,301.1 1,460.1 656.0

Continental Bank 86,412.0 75,805.0 1,563.8 512.8

Chekiang Industrial Bank 48,912.7 39,272.0 1,520.5 503.6

8 See Haiguang, Vol. 2, No. 10 (October 1930), quoted from Institute of Finance, People’sBank of China Shanghai Branch (comp.), Shanghai shangye chuxu yinhang shiliao (Sourcematerials for the SCSB) (Shanghai: Shanghai remin chubanshe, 1990), p. 431.

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The other two were the trust fund and the commercial bankingdepartments. A series of savings schemes was introduced in the late1910s. Banking offices were established in most of the universities andcolleges in Shanghai in order to promote student savings. SCSB evencollected tuition fees from universities, set up model banks in schools,and organised student savings societies. As a result, more than 20,000students from 109 schools joined savings societies, which theythemselves managed under SCSB sponsorship. It offered a higher interestrate to attract more savings and pursued special savings objectives suchas “educational savings”, “travel savings” and “baby savings”.“Corporate savings” were also widely introduced to companies whereemployees were urged to keep their savings account in the bank. Table 5shows that fixed savings, along with current savings, increased steadilybeginning in 1915, when SCSB commenced business. Beginning in 1919,current savings rapidly surpassed fixed deposits as the major portion oftotal deposits. In order to gain public trust and create an image ofaccountability, the bank separated the savings department into anindependent account in 1926. Moreover, four years later, the savingsdepartment annually disclosed all its assets and liabilities via thenewspapers.8

Figure 2 shows a SCSB poster emphasising “serving society and assistingindustry and commerce”. The three small signs read: “smoothingfinance”; “encouraging savings”; and “promoting travel”. A man beatstwo men – one represents international economic intrusion and the otherexcess profit and economic speculation – with a big stick.

The boom years of railway construction in the late 1910s helped SCSBopen branches. Usually, the bank opened branches at railway stations orrailway junctions, locations of Chinese industries and so on. As mentionedabove, beginning in 1919, the amount of current savings surpassed fixedsavings as the major proportion of bank deposits. A network of branchesin the cities helped SCSB absorb capital through savings and made loansto city dwellers and small industrialists.

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Table 5: SCSB fixed savings and current savings, 1915-1937 (unit:CN$)

Notes: *half-year, from January to June; %A is the increment compared with last year; %B is

the share in the total deposit.

Sources: Miscellaneous balance sheets, the 23rd business report and annual business report of

1927-1937, Institute of Finance, People’s Bank of China Shanghai Branch (comp.), Shanghai

shangye chuxu yinhang shiliao (Source materials for the SCSB) (Shanghai: Shanghai remin

chubanshe, 1990), pp. 262-3; 448.

Year Fixed savings Current savings Total %A %B

1915 13,219 (70) 5,665 (30) 18,884 - 3.3

1916 31,558 (70) 13,538 (30) 45,126 +139.0 3.1

1917 63,224 (60) 42,150 (40) 105,374 +133.5 5.1

1918 428,001 (65) 235,662 (35) 663,663 +529.8 20.5

1919 12,834 (4) 339,425 (96) 352,259 -46.9 5.7

1920 40,482 (5) 798,421 (95) 838,903 +138.1 8.3

1921 175,874 (15) 990,846 (85) 1,166,720 +39.1 9.1

1922 303,516 (18) 1,407,709 (82) 1,711,225 +46.7 14.5

1923 527,340 (22) 1,831,818 (78) 2,359,158 +37.9 15.3

1924 753,344 (27) 2,018, 306 (73) 2,771,650 +17.5 16.8

1925 1,104,184 (25) 3,367,926 (75) 4,472,110 +61.4 19.5

1926 1,062,095 (20) 4,236,616 (80) 5,298,711 +18.5 16.7

1927 1,107,706 (18) 5,007,071 (82) 6,114,777 +15.4 20.1

1928 1,338,145 (16) 7,150,717 (84) 8,448,862 +38.8 19.2

1929 1,756,520 (16) 9,519,404 (84) 11,275,924 +32.8 19.0

1930 3,091,886 (18) 13,862,077 (82) 16,953,963 +50.4 20.4

1931 4,493,023 (23) 15,292,220 (77) 19,785,243 +16.7 23.6

1932 5,884,276 (22) 20,809,210 (78) 26,653,486 +34.7 23.6

1933 7,441,898 (22) 25,860,956 (78) 33,302,854 +24.9 26.0

1934 8,977,363 (23) 29,462,056 (77) 38,439,419 +15.4 24.3

1935 10,528,000 (33) 20,981,937 (67) 31,509,937 -19.1 23.9

1936 13,348,565 (34) 25,478,592 (66) 38,827,157 +23.2 25.2

1937* 15,671,488 (35) 29,764,841 (65) 45,436,329 +17.0 23.1

9 Wang Zhishen, Zhongguo zhi chuxu yinhang shi (History of savings banks in China),pp. 172-173.

10 Weigao Qiaozi, “Cong Li Jinhui bian de ‘Jiande geji’ laikan 1930 niandai Shanghai” (1930sShanghai as viewed from the “collection of thrifty songs” compiled by Li Jinhui), in Journalof Tianjin Conservatory of Music (Sound of Nature), No. 2 (2008), pp. 10-24.

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Figure 2: SCSB poster Source: Shanghai Municipal

Archives (comp.), Chen Guangfu riji

(Diary of Chen Guangfu) (Shanghai:

Shanghai shudian chubanshe,

2002), p. 187.

The rise of the middle class and the proliferation of smaller families incities helped savings institutions promote savings. The middle class werefixed-income earners, thus they were concerned about monthly expenditure.Women’s status in China was promoted after the 1919 May FourthMovement. The concept of women’s rights was applied to savings banking.In 1921, the first Chinese women’s bank opened in Beijing. Three yearslater, Shanghai Women’s Commercial & Savings Bank was established.9

Li Jinhui (1891-1967), born and raised in Hunan, was called the father ofChinese popular music. Extremely popular among the grass roots, he wascommissioned by the Shanghai Silk Industry Commercial & Savings Bankin 1935 to compile the first “Jiande geji” (thrifty songs anthology).In order to promote savings, the bank asked him to oversee an opencompetition to compose thrifty songs. The competition’s impact wasgreat. The values “hard-working”, “thrifty” and “savings” spread all overShanghai and nearby counties. Among the 101 songs in the anthology,39 were composed by Li himself.10

11 Wang Zhishen, Zhongguo zhi chuxu yinhang shi (History of savings banks in China),pp. 217-232.

12 Ma graduated from Columbia University in 1914; his doctoral thesis was entitled “ThePublic Finance of New York City.”

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4. State intervention

After China was unified in 1927, the central government tried to launcha series of monetary reforms including the setting up of the Central Bankof China in 1928; implementation of new banking laws in 1928 and1934; enforcing postal savings in 1929; abolishing lottery savings in1934; nationalising both the Bank of China and the Bank ofCommunications in 1935; and launching the new currency “fabi” in1935. The purpose of the reform was to strengthen control over financialresources in order to cover the government deficit caused by hugemilitary expenditure. As compared with the Beiyang government (1912-1927), the Republican government (1927-1949) intervened more in thebanking industry.

Chinese postal savings was modelled on Austria’s system. In 1908, Chinasent a mission to Austria to study the postal savings industry of Europe,but it was not until 1918 that China issued its first postal savingsordinance. As indicated by Table 6, during 1929-1931, there were drasticchanges to postal savings agencies in China. Firstly, administration wascompletely separated from the post office in 1929. Secondly, both thenumber and the amount of savings increased. The number of postalsavings agencies increased from 206 to 399 in 1930 and from 399 to 566in 1931. The amount of savings increased by six million in 1930 and byten million in 1931.11 However, private savings societies were still themajor competitor of postal savings agencies.

In June 1934, an American-trained Chinese economist, Ma Yinchu (1882-1982),12 helped the government draft the “savings bank laws”, which werethen passed in the Executive Yuan. According to this newly implementedlaw, lottery savings would not be allowed. Postal savings reform was oneof the Republican government’s policies to impose financial andmonetary control over the country. From 1942, the Central Bank of Chinatook over responsibility from private banks for printing currency.

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Table 6: Amount of savings and number of postal savings banks(unit: CN$)

Note: until June 1933.

Source: Wang Zhishen, Zhongguo zhi chuxu yinhang shi (History of savings banks in China),

(Shanghai: Hsin Hwa Savings Bank, 1934), pp. 229; 232-233.

The most detrimental impact was the failure of the “gold yuan” reform.In August 1948, the Republican government issued this new currency inorder to suppress inflation. Gold, silver, foreign currency all had to betransformed into gold yuan. It only lasted for a couple of months; thegold yuan soon collapsed because of insufficient reserve support andoverprinting. Hyperinflation greatly damaged the economy. As a lastresort, the Republican government retreated to Taiwan. In 1949, beforeShanghai fell into the hands of the communists, people withdrew moneyfrom the bank and transformed it into gold, silver, foreign currency orsome form of valuables. Savings banking formally came to an end in thischaotic political situation.

Number of postal Year savings banks Amount of savings

1919 81 108,626.05

1920 219 754,029.65

1921 334 2,132,249.33

1922 334 3,444,929.71

1923 358 4,649,279.12

1924 340 5,815,408.76

1925 340 7,747,127.03

1926 345 9,515,521.83

1927 263 8,268,595.03

1928 206 8,747,047.56

1929 206 11,436,934.00

1930 399 17,899,215.49

1931 566 27,822,074.32

1932 583 25,808,851.67

1933* 586 25,397,057.71

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Interestingly, after China became a socialist country, lottery savings wasrevived. In 1955, the new Chinese government launched the NationalSavings Campaign all over the country. The People’s Bank of Chinaopened thousands of “chuxusuo” (savings agency) in cities, prefectures,towns, villages and even in factories. Savings became an importantchannel to aggregate resources to promote industrial and agriculturalmodernisation. Obviously, the huge network of the savings agenciescollected capital from all walks of life.

Figure 3: Passbook of the People’s Bank of China in 1959.Savings was promoted as a way to build the country.

Source: Author’s private collection.

According to Chairman Mao, “qinjian” (being hardworking and thrifty)could help China become a strong and wealthy country. His words werewidely quoted during the national savings movement. Factory workerswelcomed lottery savings in the 1950s and 1980s , when televisions weregiven in exchange for opening accounts. Instalment savings and collectivesavings were the two most popular savings types among factory workers.

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Figure 4: Lottery savings was promoted intensely in 1950s Chinaand even during the Cultural Revolution.

Source: Author’s private collection.

5. Concluding remarks

China has a long history of savings, which can dates to the 7th century.Chinese organised different “hui” (clubs) in order to meet their financialneeds for weddings, funerals, health care, etc. China began to organisesavings banks based on the Western model in the 19th century, but thefirst one was the Sin Chun Savings Bank of China in 1906, which wasbased on the Japanese model. The first postal savings bank, which wasbased on the Austrian model, was set up in 1919. The ShanghaiCommercial & Savings Bank, which commenced business in 1915, wasbased on the American model. Founder Chen Guangfu was a graduateof the Wharton School of Pennsylvania University and imported theconcept of “service” from America. SCSB was regarded as the mostsuccessful private bank in the 1930s, as compared with the governmentbanks such as the Central Bank of China, the Bank of China and the Bankof Communication.

In order to strengthen the government’s financial position, lottery savingswas abolished in 1934, but without success. Together with lottery savingssocieties, general savings societies constituted about one-fourth of thecountry’s total savings. General savings societies did not support the newsavings banks laws, which would eliminate them from the market.

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Two French institutions, the International Savings Society and the Sino-French Savings Society, opened in China in 1912 and 1918, respectively,and attracted a huge number of Chinese depositors. Lottery as atechnique for promoting savings proved successful in all parts of China.Huang Chujiu, the owner of the amusement park Big Big World, built thefirst 24-hour bank in Shanghai in 1917. Huang imitated lottery savings bygiving admission tickets to his park as an incentive.

The Chinese psychology of “saving against risk” and “saving asincentive” has hardly changed. Even today, savings is a positive virtuewelcomed by every Chinese. In regions where banking facilities are notavailable, private savings clubs functioned as lending institutions and cannever be completely replaced. It is anticipated that competition betweenlocal and foreign savings banking institutions will take place when Chinaopens up its market, as already happened in the 1920s and 1930s.

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Giovanni Manghetti, Chairman, Cassa di Risparmio di Volterra (Italy)

Professor Manghetti has been chairman of Cassa di Risparmio diVolterra SpA, Volterra – Italy (regional bank) since 2003 and is anAssociation Banking System board member. Previously, he waschairman of the Task Force for the Revision of Insurance CorePrinciples (ICP), which functioned on a mandate from the TechnicalCommittee of the International Association of InsuranceSupervisors (IAIS) whose goals included harmonising theSupervision Principles for all world jurisdictions. Task Forcemembers included representatives of the IMF, the World Bank and13 leading nations. He has also served in the following posts: 2002-2008, member of the Scientific Technical Committee, ItalianAccounting Standards Setter; 2005-2006, World Bank Advisor inSerbia to the local insurance supervisor; 1988-2002, professor ofbanking at LUISS “Guido Carli” University, Rome; 1996-2002,President–Managing Director of the Italian Insurance SupervisorAuthority (ISVAP); 1983-1996, Economic Advisor of the LabourMinister, Foreign Commerce Minister and Finance Minister;1990-1996, board member of the Italian investment bankMEDIOCREDITO, Rome. Professor Manghetti has published workson insurance and finance.

Nearly two years ago, this article’s title was limited to the question:What are saving bank risks and opportunities for their savers, borrowers,shareholders, and stakeholders, and in the midst of the crisis in general?I concluded savings banks had many opportunities, but only if theirbanking activity respected supervisory principles.

DO SAVINGS BANKS DIFFERFROM TRADITIONALCOMMERCIAL BANKS?

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Two years later, now that the financial crisis is over and the nightmare ofa systemic default is a simple lesson for the future, I have to answer asecond question: Do savings banks now, after their reforms, differ fromtraditional commercial banks? In my view this question has strategicimplications for the future of savings banks.

In the first part of this essay I will present a summary of their commonhistorical identity. Then I will show some essential data regardingEuropean savings banks in the period before the crisis. I will insist thattheir risks had been very high, in some cases higher than those generatedby the crisis. By comparing data before and after the financial crisis, I willalso insist that some savings banks’ structural limits and mistakesoccurred during the pre-crisis period.

In the second part, I will present my views about some limits of savingsbanks exposed during the crisis, and some responses by Spain, a countrywhere savings banks are particularly important and consequently moreexposed. In my view, their responses can be considered a paradigm, alesson to follow. Finally, in light of the reforms that transformed manysavings banks, I will ask whether the two souls inside savings banks canlive together, thus answering the title question.

1. The historical identity of saving banks

It is difficult to summarise the centuries-long history of savings banks inone country, let alone several, but its essence boils down to the nature ofsavings banks, or what we might call their DNA.

Not only in Italy but in every culture and tradition, the first essentialcomponent of a savings bank’s DNA happens also to be part of its name:saving. It means the bank is dedicated to safeguarding the poor’s moneyand to vindicating their sacrifices. Savings banks started out closely linkedto poor classes and have continued to be, involving in the banking systempeople without the necessary collateral but with intelligence and vision.

As time went on, a second component of the savings bank’s identityemerged: sustainable development. For savings banks, the word“development” is always strictly tied to the word “sustainable”.

1 Rym Ayadi, Reinhard H. Schmidt, Santiago Carbò Valverde with Emrah Arbak andFrancisco Rodriguez Fernandez, Investigating Diversity in the Banking Sector in Europe,Tables 3.3, 3.4, 3.5, Centre for European Policy Studies, Brussels, 2009.

2 SNL, Financial Banking (Europe), quoted in ESTABILIDAD FINANCIERA 05/11 N.20, BANCODE ESPANA. The quoted research presents many limits (references to medians, limited timehorizon 2007-2009, absence of any specialisation and, above all, size).

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But what do they mean together? Their history provides the answer:savings banks have lent to local small companies, entrepreneurs andfamilies – above all, by means of residential mortgages and consumercredit – and provided social services (such as pension payments).Everywhere, savings banks have permitted people to buy homes, cars andthe essentials for a decent life.

Finally, programmed into savings bank DNA is social responsibility:continuous attention to providing returns to society. All or most dividendsand deposits are reinvested in the territory.

The business of retail banking differs across countries, and bankstrategies are not necessarily the same. Savings banks have differentcultures and traditions, but they share the above values and businessapproach. They are not merely economically essential; they are aconcrete, historical expression of our democracy.

2. Before and after the crisis

Essential data regarding the period from 1997 to 2007 allow us toexplore what happened to savings banks during the positive, pre-crisiscycle. In my view it is during periods of boom and easy money thatsavings banks can risk more.

Traditionally, and generally speaking, some economists have charged thatsavings banks are less efficient, less profitable and less stable thancommercial banks. It is difficult, given the difference in size per regionand specialisation, to come to general, consistent and unambiguousconclusions, but some studies1 recently showed no significant differencein savings bank performance compared to that of other banks.

Studies2 at the end of the financial crisis, regarding the period 2007-2009,partially confirm this conclusion (Table 1), or at the least, in my view, donot contradict it.

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Table 1

Source: SNL Financial in Estabilidad Financiaera n. 20, Banco de España

* The group of stakeholders-based banks includes those entities that are not controlled by

shareholders, including entities like the Landesbanken and the French cooperative banks and

excluding pure public financing institutes (Istituto de Crèdito Oficial) or national entities (Databank).

Note: Includes data for France, Germany, Norway, Spain and United Kingdom. For each

variable those entities for which data is available are included, thus the number of entities

between each variable may vary.

According to these studies, commercial bank profitability is greater thanthat of savings banks, but the decreasing tendency is more accentuatedin commercial banks than in savings banks; the same can be said forincome ratio and its tendency.

Ratios regarding asset quality, which is a measurement of stability, aremore reassuring in savings banks, as is savings bank behaviour regardingmanagement fees and benefits, while many investment and financialinstitutions, as we discovered in the middle of financial crisis, behavedshockingly. Reassurance in this case comes from savings banks refusinga short-term approach to profitability; instead, they are committed to along-term perspective, especially when it comes to manager remuneration.

However, some savings banks suffered substantial problems and risksduring this positive cycle. Savings banks in Germany, Spain and Swedenconfirmed their relative dominance in the growing market, while those inItaly, Belgium and Austria suffered dramatically (Table 2).

Stakeholder-based banks* Commercial banks

Profitability (%)

2007 2009 2007 2009

ROAA 0.36 0.19 0.69 0.31

ROAE 8.41 3.88 15.95 7.84

Net interest margin 1.55 1.54 1.26 1.38

Cost to income 60.67 59.04 55.08 58.48

Asset quality (%)

Impaired & delinquent loans/loans 2.32 4.49 3.85 6.05

Credit costs/Pre-impairmentoperating profit 20.43 39.67 17.92 49.59

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Table 2: ESBG market shares (total assets)

Source: ESBG, Retail Banking in Europe, The Way Forward, my own calculations.

* 1999

**According to the Centre for European Policy Studies (Brussels) publication “Investigating

Diversity in the Banking Sector in Europe”, Austria’s 1995 market share was 30.7%.

Now let us examine the role of non-bank deposits (Table 3) in financingsavings bank total assets. Most savings banks registered a constantrelative decline of direct deposits. Only in Italy, the country whose savingsbanks suffered the greatest general decline, was the trend positive. For allother countries cited in Table 3, deposits fell. How do we interpret thischange in the traditional support of their assets?

In many countries the share is far below 50%. I suppose savings banksbecame more involved with financial and capital markets to support theirincreasing assets. If so, it would have been an opportunity for the region.In my view, it was. For financing what?

1997 2007

France 194,486 = 6.4% 601,454 = 9%3,026,370 6,682,335

Italy 271,522 = 16.9% 1,717,487 = 5.1%602,929 3,331,830

Germany 1,702,815 = 35.7% 2,632,000 = 34.8%4,774,748 7,562,431

UK 236,093 = 6.1% 494,397 = 4.9%3,151,807 1,093,134

Spain 278,542 = 33% 9,155,001 = 39%844,807 2,945,262

Netherlands 23,051 = 3% 70,584 = 3.2 %769,034 2,195,020

Sweden 76,977 = 19.8% 186,468 = 22%389,130 845,958

Belgium 76,603 = 11.6% 67,080 = 5.2%661,487 1,297,788

Austria* 191,751 = 39.4%** 150,351 = 16.9%486,709 890,747

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Table 3: Non-bank deposits as share of total ESBG assets

Source: ESBG, quoted.

Let us examine other data regarding their typical activity. What, forexample, are savings banks’ market shares of residential mortgage loansand consumer credit? (See Table 4) Complete data are not alwaysavailable, but where we have the right reports, they show that thesemarket shares are nearly everywhere greater than the general savingsbank share of total assets.

Table 4: ESGB market shares, 2007

Source: ESGB, quoted.

* Asset market share in parentheses.

1997 2007

Denmark - 50.0%

Germany 44.4% 39.8%

Spain 78.9% 63.0%

France 81.8% 30.4%

Italy 60.2% 73.0%

Netherlands 45.9% 38.0%

Austria 42.0% 37.0%

Portugal 74.0% 44.9%

Sweden 32.5% 33.0%

UK 54.1% 44.3%

Consumer credit Residential mortgage loans

Germany 28.1% 28.7% (36.8%)*

Austria (n.a.) 18% (8.7%)*

France 6.6% 15.3% (9%)*

Sweden (n.a.) 30% (22%)*

UK 14% 8% (4.9%)*

Spain 34.47% 57.4% (39.2%)*

Netherlands (n.a.) 7.4% (3.2%)*

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Table 5: Asset share of five largest credit institutions

Source: ESGB, quoted.

The banking system’s general evolution during the positive cycle reducedthe savings banks’ relative importance in the European market, above allwhere savings banks have not been able to adapt to competition.In some countries, some savings banks disappeared, owing generally totheir mistakes, while others joined large financial groups.

According to European supervisory authorities, during the positive cyclesavings banks showed the following significant limits:

n A structural weakness in governance. Savings banks revealed gaps andan insufficient division of their internal authority (audit, supervising,transparency, control committee, and so on). This weakness is crucial:if it had been eliminated earlier, many negative consequences wouldhave been avoided. The weakness is not mitigated even if we see thesame problem in many – too many – commercial banks (but we mustadmit that in their situation the market is ready to punish them,even if in many cases it does so too late for savers and creditors).

n A contradiction between commercial targets in a rising market andsocial aims – or, technically speaking, between short-term objectivesand long-term economic and social goals.

n A structural weakness in capital, and consequently in their stability.The positive cycle generated a need to increase capital resources,but for savings banks it was difficult, if not impossible, to attractprivate investors. So their capital increased less than their assets, withall the implicit risks.

n Their activity was concentrated in long-term investments, such asmortgages to families and loans to the real estate sector.

n The traditional funding strength – retail deposits – was insufficient totackle liquidity risks in a market characterised increasingly by liquiditytensions and in banks characterised by a strong need to refinancelong-term goals.

EMU (13) 1997 2007

45% 54.7%

148

Of course, during the positive cycle many savings banks in some countries(e.g. Norway, and to a certain degree Italy) were able to compete byrespecting the old values while becoming involved with the financial andcapital markets. They were successful because the market obliged them tobe more cautious in lending and pay more attention to lending principles.

Being modern and efficient institutions was not in contradiction withtheir social identity. But we cannot ignore that savings banks in somecountries, such as Spain, have not been able to respect lending principlesin their competition with commercial banks. At the same time, they triedto reach their social targets, which they also failed to do.

3. Spanish savings bank reform

Spanish reform must be studied closely because it is a paradigm for thewhole sector of what happened during the positive cycle and of thesolution that was found. It was major reform in a country where savingsbanks had a greater national market share than those almost anywhereelse in Europe. It reflected the limits described above. According to BancoDe Espana, Spanish savings banks suffered from:

n Limited bank size: excessive fragmentation. Average total assets were€29 billion. After reform, the average increased to €76 billion.

n Excess capacity: this was measured in terms of branches and staffinglevels. Cuts from 10% to 25% in the number of branch offices andfrom 12% to 18% in their staff are in process.

n Write-down of balance sheet losses: they amounted to €52 billion.This explains points a) and b).

Given this situation – excess of losses compared with insufficient capitalresources – the only solution was raising capital from the market in suchway as to avoid future public intervention. For the moment public fundshad to be used in order to avoid immediate default, but their use had tobe considered exceptional, una tantum.

Therefore, the reform:

n provided some incentive to raise private capital;

149

n transferred any financial activity to a commercial bank (which wascompulsory only for entities using public resources);

n restructured the sector via 12 mergers involving 38 savings banks andreducing their total number from 45 to 17.

After Italy’s public bank reform (the Amato privatisation and Ciampilaws), this can be considered the greatest restructuring process in Europe(Table 6 and Box 1 show the European situation).

4. What is the difference between post-crisis savings banksand traditional commercial banks?

As to their social vocation, new savings banks are distinct from their socialentities (which are in some countries called foundations), or they dedicatepart of their profits to social purposes.

Looking at the common denominator of many European reforms, can weconclude that savings banks, in many countries, have been transformedinto commercial entities? Yes, but only insofar as savings banks have theopportunity to raise external market capital. So I must refine thequestion: Is savings bank activity – not their legal status or governingbodies or profit-sharing – really the same as what we see in traditionalcommercial banks? Are savings banks and traditional commercial banksindistinct when it comes to their management? No, because savingsbanks continue to distinguish themselves:

n Nature of their profit: it still essentially derived from a bank’s traditionalactivity: the margin of interest. Financial gains are secondary if notabsent in their income. This does not happen in traditional commercialbanks.

n Quality of their customers: these continue to be small enterprises andfamilies, while commercial bank activity is connected with big andsmall companies as well.

n Nature of their objectives: savings banks give priority to mid- and long-term targets. Traditional commercial banks continue to give priority tothe value of capital ownership, so looking at short-term market targetsin terms of dividends.

150

n In many cases savings bank activity continues to be local.

n Savings bank ethics: management bonuses depend on neither annualnor quarterly income. They are transparent and reasonable, thussociety accepts them.

5. New opportunities for savings banks?

People continue to move away from big commercial banks and towardlocal banks, refusing to be considered mere numbers and distrustful ofbig banks. Increasingly, customers need a close link with the same bankemployee who is able to keep his/her word; they want to share theirneeds, projects, difficulties and dreams. If local savings bank managersare ready to offer consistent and efficient solutions, savings banks ingeneral will generate satisfying results. People know local bank is alwaysthere; they know decisions are made in the region and see the socialreturn on banking policy. Reliability is thus part of the savings bankidentity, especially when it’s raining and pouring and a solid umbrellareally counts.

I believe this situation offers savings banks an opportunity for furthergrowth – on the condition that, given the new opportunities to raisemarket capital, they always maintain their identity and avoid listening toUlysses’s sirens. Let us continue to do what is necessary to be competitivein the open ocean: respect banking principles and the ethics at our roots.

151

Box 1: Italian savings banks: a summary

LEGAL STATUS: On 30 July 1990 law no. 218 (the “Amato” law),along with the relevant implementation decrees, passed.In accordance with this law, savings banks transferred their bankingactivities to ad-hoc joint-stock banking companies (the new savingsbanks). Once this transfer had taken place, the original savingsbanks were converted into foundations of banking origin assumingall the socially-oriented and charitable tasks provided for by thestatutes of the savings banks.

Today, the joint-stock savings banks are business enterprisesgoverned by the Civil Code and the banking laws. They operateon an equal footing with all other banks in the credit sector.Approximately 50 of them have kept their names. The rest, uponmerging with other banks, changed their names and gave rise tosome of the main Italian banking groups.

GOVERNING BODIES: Decision-making bodies of Italian savingsbanks are based on two alternative models of governance:

n a traditional governance system, regulated by art. 2380 of theCivil Code, which consists of a Board of Administration,appointed by the General Assembly, and a Board of Auditors;the Board of Administration could devolve its power to anExecutive Committee and to a CEO;

n a dual governance system, since the 2003 reform, whichconsists of a Supervisory Board and an Executive Board. TheSupervisory Board is a unique body: it combines powers that ina typical company are separated. Represents an effectivesolution to create a separation between shareholders andmanaging bodies. It concerns the determination of addressesand strategic business goals and verification of theirimplementation and accounting of the bank. The ExecutiveBoard has the main goal to manage the bank aimed at achievingthe strategic lines. This model doesn’t frequently use by theSavings banks.

152

REGULATION: The savings banks are regulated by three maincodes. The Civil Code, which governs all joint-stock companies;Banking Act 1.9.1993, n. 385 and subsequent amendments,following the European directives on banking, called the“Consolidated Law on Banking”; the Financial Act 24.2.1998, n. 58and subsequent amendments, following the European directives onthe financial market, called the “Consolidated Law on FinancialIntermediation”. So, at a glance, the reorganisation of the Italianbanking and financial system, focusing on privatisation, mergerand de-specialisation, began during the 1990s and was completedin the 2000s. As a result, the financial system is more robustand competitive.

SUPERVISION: Bank of Italy, Treasury Department, AntitrustAuthority, Consob (securities and exchange authority).

RESTRICTIONS ON ACTIVITY: Freedom of operation. They operateas universal banks.

PROFIT-SHARING: Legal obligation to allocate part of their profitas reserves and annual dividends are distributed among shareholders.

CAPITAL: Accumulated reserve and capital from the market.

OTHER CHARACTERISTICS: The activity of Italian savings banks ismore deeply rooted in the real economy than that of internationalbanks, especially in the development of the region in which theyoperate. The ownership structure of Italian savings banks organised asjoint stock companies includes many long-time private shareholders,who hold equity, become elements of the reorganisation, andprovide stability.

For this summary my thanks to ACRI (Italian Savings Banks Association).

153

Table 6: Characteristics of the main group of stakeholder-basedbanks by country prior to the recent change inregulatory burden (2009)

Fran

ce

Ger

man

yN

orw

aySp

ain

Uni

ted

King

dom

Inst

itutio

n ty

peco

oper

ativ

e ba

nks

savi

ngs

bank

ssa

ving

s ba

nks

savi

ngs

bank

sbu

ildin

g so

ciet

ies

Lega

l sta

tus

Gov

erni

ng b

odie

s

Loca

l or r

egio

nal

inde

pend

ent b

anks

orga

nize

d th

roug

ha

fede

rate

d tw

o-or

thre

e-tie

r stru

ctur

e(lo

cal,

regi

onal

and

natio

nal i

nstit

utio

ns).

Loca

l coo

pera

tives

are

mem

ber-c

entri

c w

ithth

e pr

incip

le o

f “on

em

embe

r, on

e vo

te”.

Loca

l ins

titut

ions

dele

gate

a g

reat

varie

ty o

f fun

ctio

ns(m

utua

l sup

port,

debt

issu

ance

,re

pres

enta

tion…

)to

the

Cent

ral

Net

wor

k In

stitu

tion.

Publ

ic la

w in

stitu

tions

with

no

priva

te o

wne

r.Th

ere

are

also

regi

onal

bank

s in

side

the

Savi

ngs

Bank

s G

roup

(Lan

desb

ank)

whi

chpr

esen

t diff

eren

t leg

alfo

rms;

som

e ar

e jo

int

stoc

k co

mpa

nies

whi

leot

hers

are

pub

lic la

win

stitu

tions

.

The

Exec

utiv

e Bo

ard,

whi

ch re

ports

to a

Supe

rviso

ry B

oard

,is

com

pose

d by

2/3

appo

inte

d by

the

mun

icipa

lity/

ies

whe

re it

is lo

cate

dan

d 1/

3 el

ecte

d by

the

empl

oyee

s (th

usde

posit

ors

are

not

repr

esen

ted

in th

ego

vern

ing

bodi

es).

Inde

pend

ent

foun

datio

ns.

Lim

ited

liabi

lity

bank

sin

whi

ch a

lmos

t 10%

of th

e ca

pita

l is

owne

dby

a fo

unda

tion.

Com

mitt

ee o

fre

pres

enta

tives

,th

e hi

ghes

t bod

y,is

com

prise

d of

empl

oyee

s, de

posit

ors

and

publ

ic ap

poin

tees

.¼

of t

he c

omm

ittee

isel

ecte

d by

the

owne

rsof

the

prim

ary

capi

tal c

ertif

icate

s.In

depe

nden

tly o

f the

irsh

are

of to

tal c

apita

l.

Foun

datio

ns o

f priv

ate

natu

re c

ombi

ning

finan

cial a

ctiv

ity w

ithso

cial v

ocat

ion.

The

Gen

eral

Asse

mbl

y fo

rmed

by

diffe

rent

sta

keho

lder

s(in

cludi

ng e

mpl

oyee

s,re

pres

enta

tives

of

depo

sitor

s, lo

cal a

ndre

gion

al g

over

nmen

tbo

dies

, fou

ndin

g en

titie

san

d co

mm

unity

inte

rest

grou

ps).

The

repr

esen

tatio

nof

pub

lic in

stitu

tions

inth

e G

ener

al A

ssem

bly

shou

ld n

ot e

xcee

d 50

%of

the

votin

g rig

hts.

Mut

ual i

nstit

utio

n ow

ned

by it

s m

embe

rs.

Mem

ber-c

entri

c un

der

the

prin

ciple

of “

one

mem

ber,

one

vote

”.

154

Fran

ce

Ger

man

yN

orw

aySp

ain

Uni

ted

King

dom

Inst

itutio

n ty

peco

oper

ativ

e ba

nks

savi

ngs

bank

ssa

ving

s ba

nks

savi

ngs

bank

sbu

ildin

g so

ciet

ies

Regu

latio

n

Supe

rvisi

on

Rest

rictio

ns to

activ

ity

Subj

ect t

o ge

nera

lba

nkin

g re

gula

tion.

Bank

of F

ranc

e.

Free

dom

of o

pera

tion.

They

man

age

diffe

rent

activ

ities

(mar

ket

finan

ce, i

nves

tmen

t,in

sura

nce,

etc

.)th

roug

h sp

ecia

lized

subs

idia

ries.

Subj

ect t

o ge

nera

lba

nkin

g re

gula

tion

and

to s

avin

gs b

ank

law

of t

he re

spec

tive

Ger

man

sta

te in

whi

chth

ey a

re lo

cate

d.

Fede

ral F

inan

cial

Serv

ices A

utho

rity

(BAF

in) i

n co

oper

atio

nw

ith th

e Bu

ndes

bank

.

They

can

not h

old

equi

ty p

artic

ipat

ions

in e

nter

prise

s ou

tsid

eth

e Sa

ving

s Ba

nkG

roup

, und

erta

ke ri

sky

oper

atio

ns o

r ope

rate

outs

ide

thei

r loc

al a

rea.

Land

esba

nks

enjo

yfre

edom

of o

pera

tion.

Fina

ncia

l Sup

ervi

sory

Auth

ority

.

Free

dom

of o

pera

tion.

Bank

of S

pain

has

pow

er o

ver f

inan

cial

stab

ility

asp

ects

(sol

venc

y an

d liq

uidi

ty).

Auto

nom

ous

Com

mun

ities

set

oth

erle

gal c

onsid

erat

ions

rela

tive

to th

ego

vern

ance

stru

ctur

ean

d co

nsum

erpr

otec

tion

issue

s.

Bank

of S

pain

.

Free

dom

of o

pera

tion.

Subj

ect t

o th

eir o

wn

legi

slatio

n (th

e 19

86Bu

ildin

g So

cietie

s Act

as

amen

ded

by th

e 19

97Bu

ildin

g So

cietie

s Act

).

Fina

ncia

l Ser

vice

sAu

thor

ity (F

SA).

Mor

tgag

e lo

ans

shou

ldre

pres

ent 7

5% o

f tot

alas

sets

.


155

Fran

ce

Ger

man

yN

orw

aySp

ain

Uni

ted

King

dom

Inst

itutio

n ty

peco

oper

ativ

e ba

nks

savi

ngs

bank

ssa

ving

s ba

nks

savi

ngs

bank

sbu

ildin

g so

ciet

ies

Prof

it sh

arin

g

Capi

tal

They

hav

e th

e le

gal

oblig

atio

n to

allo

cate

part

of th

eir p

rofit

as

rese

rves

. The

list

edno

n-vo

ting

shar

esre

ceiv

e an

ann

ual

divi

dend

det

erm

ined

by th

e ba

nks’

sta

tute

san

d le

gal c

eilin

gs.

Non

-mar

keta

ble

shar

es h

eld

by n

atur

alpe

rson

s (c

usto

mer

s),

“Prin

ciple

of s

olid

arity

”am

ong

entit

ies

with

inne

twor

ks, w

hich

prov

ides

acc

ess

toca

pita

l whe

n ne

eded

.Th

e na

tiona

l bod

y ca

niss

ue d

ebt i

nstru

men

ts(in

cludi

ng s

ubor

dina

ted

note

s an

d in

vest

men

tce

rtific

ates

).

A su

bsta

ntia

l par

t is

dest

ined

to fu

nd s

ocia

l,cu

ltura

l and

oth

erpu

rpos

es. D

ivid

ends

are

dist

ribut

ed a

mon

g sil

ent

equi

ty u

nits

’ hol

ders

.

Accu

mul

ated

rese

rves

.Th

ey c

an is

sue

a fo

rmof

pre

fere

nce

shar

es,

know

n as

sile

nt e

quity

,w

hich

do

not h

ave

right

s ov

er to

tal a

sset

san

d w

hich

abs

orb

loss

es, a

lthou

gh th

eyca

n re

cove

r thi

s am

ount

in s

ubse

quen

t per

iods

inca

se o

f pos

itive

pro

fits.

Dist

ribut

ed a

mon

gch

arita

ble

gifts

and

cash

div

iden

ds to

prim

ary

capi

tal

certi

ficat

e ho

lder

s.

Accu

mul

ated

rese

rves

(ow

nerle

ss c

apita

l) an

dca

pita

l fro

m th

e m

arke

t(p

rimar

y ca

pita

lce

rtific

ates

).

At le

ast h

alf t

ore

serv

es, t

he re

st w

asde

vote

d to

Obr

a So

cial

(com

mun

ity p

roje

cts)

and

to d

ivid

ends

toeq

uity

uni

ts (q

uota

spa

rticip

ativa

s) a

ndpr

efer

ence

sha

res.

Accu

mul

ated

rese

rves

.Th

ey c

ould

issu

e ca

pita

lin

form

of e

quity

uni

ts(q

uota

s pa

rticip

ativa

s),

whi

ch c

ould

not

exc

eed

50%

of t

otal

equ

ity.

No

one

coul

d ho

ldm

ore

than

5%

of a

lleq

uity

uni

ts in

circ

ulat

ion.

They

cou

ld is

sue

pref

eren

ce s

hare

s w

ithno

n-vo

ting

right

s.

Dest

ined

to a

ccum

ulat

ere

serv

es a

nd to

impr

ove

cond

ition

s of

the

finan

cial

serv

ices

supp

lied

tode

posit

ors

or b

orro

wer

s(h

ighe

r sav

ings

rate

s an

dlo

wer

mor

tgag

e ra

tes)

.

85%

of t

heir

capi

tal

com

es fr

om re

tain

edea

rnin

gs. T

hey

can

issue

capi

tal t

hrou

gh P

erm

anen

tIn

tere

st B

earin

g Sh

ares

(PIB

S) –

non

-cor

e Ti

er 1

.


156


Fran

ce

Ger

man

yN

orw

aySp

ain

Uni

ted

King

dom

Inst

itutio

n ty

peco

oper

ativ

e ba

nks

savi

ngs

bank

ssa

ving

s ba

nks

savi

ngs

bank

sbu

ildin

g so

ciet

ies

Oth

er c

hara

cter

istics

The

grou

p (n

atio

nal

body

) is

liste

d on

the

stoc

k ex

chan

ge.

Loca

l or r

egio

nal b

anks

have

maj

ority

ow

ners

hip

of th

e na

tiona

l bod

yan

d pr

ovid

e fin

ancin

gfo

r the

loca

l ban

ks.

By la

w, t

hey

shou

ldse

rve

the

publ

ic in

tere

stof

the

regi

on (p

rincip

leof

regi

onal

ity) a

ndco

nduc

t the

ir bu

sines

sac

cord

ing

to s

ound

busin

ess

prin

ciple

s.Th

ey s

houl

d op

en a

trans

actio

n ac

coun

tfo

r eve

ry a

pplic

ant.

Mer

gers

or t

akeo

vers

with

inst

itutio

ns o

utsid

eth

e Sa

ving

s Ba

nk G

roup

are

proh

ibite

d.

Gift

fund

des

tined

to s

erve

soc

ial a

ndcu

ltura

l pur

pose

s.

Stro

ng lo

cal r

oots

.In

ter-r

egio

nal m

erge

rsne

eded

the

auth

oriza

tion

of th

e au

tono

mou

sco

mm

uniti

es c

once

rned

.

50%

of t

heir

fund

ing

shou

ld c

ome

from

reta

ilde

posit

s (th

e re

mai

ning

50%

can

be

obta

ined

thro

ugh

who

lesa

lefu

ndin

g).

Sour

ces:

Aya

di e

t al

. (20

10, 2

009)

, Ori

et a

l. (2

004)

, Ban

k of

Eng

land

, Ban

k of

Spa

in, F

inan

cial

Sup

ervi

sory

Aut

horit

y (N

orw

ay),

Spar

eban

kfor

enin

gen,

and

Per

ez e

t al

. (20

07).

Banc

o de

Esp

ana,

Est

abili

dad

Fina

ncie

ra, n

um. 2

0.

WSBI – ESBG – The Global Voice of Savingsand Retail Banking

WSBI (World Savings Banks Institute) is one of the largest internationalbanking associations and the only global representative of savings and retailbanking. Founded in 1924, it represents savings and retail banks andassociations thereof in 90 countries of the world (Asia-Pacific, the Americas,Africa and Europe – via ESBG, the European Savings Banks Group). It worksclosely with international financial institutions and donor agencies andpromotes access to financial services worldwide – be it in developing ordeveloped regions. At the start of 2009, assets of member banks amountedto almost €9,000 billion, non-bank loans to €4,300 billion and non-bankdeposits to 4,600 billion. Together, the member banks conducted operationsthrough more than 160,000 outlets.

ESBG (European Savings Banks Group) is an international banking associationthat represents one of the largest European retail banking networks,comprising about one third of the retail banking market in Europe, with totalassets of more than € 6,000 billion, non-bank deposits of € 3100 billion andnon-bank loans of € 3300 billion (1 January 2009). It represents the interestsof its members vis-à-vis the EU Institutions and generates, facilitates andmanages high quality cross-border banking projects.

WSBI and ESBG members are typically savings and retail banks or associationsthereof. They are often organised in decentralised networks and offer theirservices throughout their region. WSBI and ESBG member banks have reinvestedresponsibly in their region for many decades and are a distinct benchmark forcorporate social responsibility activities throughout Europe and the world.

Rue Marie-Thérèse, 11 n B-1000 Brussels n Tel: +32 2 211 11 11 n Fax: +32 2 211 11 [email protected] n www.savings-banks.com

Published by WSBI/ESBG. Copyright WSBI March 2011. Responsible editor: Chris De Noose

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