Readings in Money and Banking Part 28

The figures cited for bank failures, so far as they relate to savings deposits, are so incomplete as to be of doubtful value in measuring the extent of the losses....

After all, such figures give us no adequate measure for losses of this kind. "Among the experiences of working people none is more demoralizing and few are more cruel than loss of savings through failure of banks or absconding of individuals intrusted with funds." To such people there is cold comfort in the a.s.surance that the average loss of savings bank depositors over a long period of years is but a fraction of a mill on a dollar. The loss is theirs: it is not distributed among all depositors.

In urging that a postal savings bank would draw money from h.o.a.rds into circulation, the advocates of the scheme claimed also that such a bank would keep in the United States money that would otherwise be sent abroad by foreigners.... Much was made of the fact that every year many millions of dollars in money orders payable to self are bought for savings purposes.... In such cases the purchaser not only failed to receive any interest on his savings but was required to pay the money order fee. Many immigrants, moreover, distrust American banks, and, being familiar with postal savings banks in their home countries and having great confidence in government inst.i.tutions, remit their savings to these home banks. How extensively this is done we have no figures to show....

THE MAIN FEATURES OF THE SYSTEM

[95]The Postal Savings Bank System of the United States, which began operations January 3, 1911, by the opening of a postal savings bank in each state, is under the control of a board of trustees, consisting of the Postmaster-General, the Secretary of the Treasury, and the Attorney-General.

Depositories for the receipt of such moneys are designated by the Board.

An initial appropriation of $100,000 was made to cover the cost of putting the law in operation, which was supplemented by another appropriation of $500,000 in the session of 1911.

Any person over ten years of age may deposit, but no person shall have more than one postal savings bank account in his or her own right. Upon making the first deposit, a _certificate of deposit_ is issued, which is to be surrendered when paid, and cancelled; or in the event of making a subsequent deposit is to be surrendered for one calling for a higher amount. The lowest deposit permitted is one dollar, the limit being $100 in a calendar month; but to provide for small deposits, a postal savings card is issued for ten cents, to which may be attached postal savings stamps, which when filled will be accepted in lieu of one dollar.

The interest rate allowed is 2 per cent., credited once a year, and the highest balance permitted is $500 to one person. Withdrawals may be made on demand.

The funds so received are to be deposited in national and state banks at 2-1/4 per cent. interest. Five per cent. of these deposits may be withdrawn and kept in the Treasury of the United States as reserve.

Before becoming a depository, the bank must furnish as security government, state, or munic.i.p.al bonds, the limit of deposits being an amount equal to the paid-up capital and one-half the surplus.... Not over 30 per cent. of the amount of such funds may be withdrawn by the trustees for investment in United States bonds, and it is the intent of the act that the residue of such funds amounting to 65 per cent., shall remain on deposit in the banks in each state and territory willing to receive the same under the terms of the act, but may be withdrawn for investment in bonds under the direction of the President, "when in his judgment, the general welfare and interests of the United States so require." Provision is also made for the conversion of savings bank deposits into United States bonds, at the request of depositors.

"POSTAL SAVINGS BEHIND THE SCENES"

Speech of Hon. Carter B. Keene, Director of the United States Postal Savings System at the Banquet of the Investment Bankers a.s.sociation of America at Denver, Colorado, Tuesday evening, September 21, 1915.

_Mr. Toastmaster and Gentlemen:_

I appreciate very highly your invitation to speak here to-night, also the words of commendation from your presiding officer. I have often wondered whether the fact that I am the only director of a big savings inst.i.tution has anything to do with the ability of that inst.i.tution to pay every depositor his money on demand. (Laughter and applause.)...

The toastmaster was wrong when he said that postal savings has nothing to do with investment bankers. We have a great deal to do with them.

Indirectly, we are one of their best customers. More than ninety-four million dollars in bonds are now with the Treasurer of the United States as security for postal savings funds, and you gentlemen have largely supplied the banks with these bonds. Sixteen million dollars are in State and Territory bonds; city, town, and village bonds amount to forty-six millions; county bonds nine; miscellaneous bonds ten; and bonds of the United States Government and its dependencies thirteen....

Since I have been here this week I have heard billions and billions talked about.... I can hardly comprehend what a million is. But I want to tell you that in four and a half years the postal savings system of the United States has become custodian of sixty-eight million dollars, in cash, of the people's savings. Let me lay emphasis on the _cash_, because big figures do not always mean cash. Sixty-five million dollars of this money is on deposit in six thousand banks scattered throughout the country. In other words, practically all of the money we have collected has been released through the banks to channels of trade in the very localities where it originated. I am sure you will agree with me that this is a very creditable showing so far as dollars and cents are concerned.

The Federal Reserve Act, which went into effect on the 16th of November last, provided that postal savings funds should not be deposited in non-member banks. The Attorney General for the United States has held that the prohibition relates to funds received on and after November 16th. Therefore, postal savings on deposit in state inst.i.tutions when the act became effective have been allowed to remain, except as it has been necessary to withdraw it to pay depositors.

The Post Office Department has made frequent investigations to determine where postal savings deposits come from; with the invariable result that they are found to come from chimney corners, mattresses, bootlegs, etc., but until very recently no effort has been made to ascertain where postal savings go when withdrawn. And this recent inquiry has been both gratifying and entertaining. It was found that in a vast majority of cases savings were withdrawn for very substantial reasons, prominent among them being payments on homes and the launching of small business enterprises. Occasionally a hospital bill was paid. Some depositors sent money to the old country to bring over a parent or a brother; a wedding trousseau here and there; and in Colorado we have record of a withdrawal to buy an automobile. (Laughter.)

I am glad to say that there has been a very great change in the att.i.tude of the banks toward postal savings in the last few years. At the outset, many bankers thought that postal savings was an unwarranted invasion of the domain of private enterprise and that the service would prove a severe drain on their established business. The opposite has been the result. The tarnished coins and soiled currency that come into our postal depositories represent hidden savings--money that is beyond the reach of any corporate banking inst.i.tution no matter how sound it may be or how conservatively managed. This newly discovered money has been made available for commercial purposes in the very cities and localities from which it was withdrawn, so instead of being a drain on corporate banking inst.i.tutions postal savings has added to the deposits of some six thousand banks more than sixty-five millions. The bankers now freely admit that postal savings has been a help to them, and it is no uncommon thing for banks, especially in the mining regions of the West, to urge the Post Office Department to extend postal savings facilities in order that more money may be made available for local uses.

Among our 540,000 depositors every nation on the face of the earth is represented, also every conceivable occupation. The fisherman, the miner, the shoemaker, the preacher, the bank teller, the butcher, the baker, the candle-stick maker, all have accounts, but the great bulk of our deposits come from the men and women who work with their hands for a daily wage.

The foreign born are our most numerous and liberal patrons. An interesting poll of depositors has just been made by the Post Office Department and it was found that 59 per cent. of all postal savings depositors were born outside the United States, while the American born comprise 41 per cent. A still more surprising fact is that the foreign born own 72 per cent. of all the deposits. The Russians lead with $14,000,000 to their credit, or 20.7 per cent. Then follow the Italians with $9,650,000, or 14.2 per cent.; natives of Great Britain and her colonies with $6,000,000, or 8.8 per cent.; the Austrians with $5,900,000, or 8.7 per cent.; Hungarians, $2,900,000, or 4.3 per cent.; Germans, $2,800,000, or 4.1 per cent.; Swedes, $1,500,000, or 2.2 per cent.; and Greeks, $1,200,000, or 1.8 per cent.

What a splendid vote of confidence on the part of our foreign-born citizens in the good faith of the United States. And in these figures also is a high testimonial to the industry and frugality of our newly acquired citizens. That they should take most kindly to postal savings is not remarkable when we consider that they were accustomed to a similar service in their native countries....

Another thing that has induced foreigners to become postal savings depositors is the disastrous experiences many of them have had with so-called "private banks," usually operated by people of their own tongue. It is difficult to conceive of a more heinous crime than some of these so-called "bankers"--slick and persuasive--have committed in alluring credulous, hard-working men and women, to entrust their humble savings with them for the deliberate purpose of theft. I am glad to see that prosecuting officers have recently been aroused to the "private bank swindle" and that their promoters are getting the punishment they deserve.

When Europe got on fire last year, our postal savings receipts began to increase by leaps and bounds. During the fiscal year 1915, the deposits jumped from $43,440,000 to $65,680,000 and more than 140,000 new accounts were opened. The war still has an influence upon postal savings deposits, but the more immediate cause of large deposits at this time is the remarkable revival of commercial activities. Seven cities now have more than a million dollars on deposit, namely. New York, Brooklyn, Chicago, Boston, Detroit, San Francisco, and Portland, Oregon. Greater New York, including Brooklyn and several other offices in the munic.i.p.ality, now have over one-fourth of all the money in the Postal Savings System. During the past fiscal year New York City gained 200 per cent.; Bridgeport, Connecticut, 188 per cent.; Brooklyn, New York, 167 per cent.; Paterson, New Jersey, 162 per cent.; Jersey City, New Jersey, 122 per cent.; Detroit, Michigan, 112 per cent.; Newark, New Jersey, 100 per cent.; Akron, Ohio, 77 per cent.; Gary, Indiana, 66 per cent.; Pueblo, Colorado, 52 per cent.

Now, my friends, I come to a point that I hope will make an impression on your minds--a lasting impression--and that point is that the Postal Savings System from the first has been seriously handicapped by statutory restrictions on the amount that may be accepted. The law permits the acceptance of only one hundred dollars a month and five hundred dollars in all from a depositor. It has been shown that the foreign born are the largest patrons of our savings service and if this service is to reach its full measure of success we must recognize and respect the habits of the foreigner, and one of his habits is to save his money until he gets several hundred dollars together and then take the entire amount to the post office, just as he did in the old country.

Because the postmaster cannot accept all that is offered, the intending depositor very frequently goes away in resentment and disappointment without depositing a dollar....

It is the testimony of postmasters from all over the country that they are rejecting about as much money as they are taking in. The Postmaster General last year recommended to Congress that one thousand dollars be accepted with interest and that another thousand dollars be accepted without interest, but for safekeeping. That was a practical and reasonable recommendation--one which would meet all requirements in ninety-five per cent. of the cases. Unfortunately the recommendation failed.... The Postmaster General has indicated that he will repeat the recommendation in his forthcoming annual report and I sincerely hope that Congress will promptly recognize the urgent need of the legislation. Millions of dollars, my friends, are spent every year by uplift societies for the betterment of the foreigners. These foreigners, these begrimed, hard-working foreigners, come to our post offices and ask us to take their humble savings. How unfortunate that we cannot accept what they offer, within reasonable bounds. What an effective agency this would be in bettering in a most practical and permanent way the conditions of the very people we want to Americanize as speedily as possible.

... We have five hundred and forty thousand depositors in the United States to-day and postal savings has a new and different story for each of them. It is not always the big things in life that change or fix our course. Can't you remember when a few dollars or the want of a few dollars tipped you one way or the other in some important matter. Who can estimate the happiness and prosperity that the starting of a postal savings account may lead to. It is a step, and an important one, in the right direction. Some one has well said that the immigrant who opens a postal savings account steps unconsciously on a moving platform; one thing leads to another, and his deposit might lead him into local investment and investment into business and into citizens.h.i.+p.

There is a very interesting human-interest side to postal savings in which every phase of good fortune and disaster is reflected. An aged couple at Norfolk without the knowledge of each other had been carrying $100 on their persons as a guaranty of respectable burial. They are now postal savings depositors. Two sisters died in each other's arms in the _Eastland_ disaster in Chicago a few weeks ago--two working girls--and they had postal savings accounts for like amounts. Their savings went to pay for their burial. One of Uncle Sam's bluejackets who went down on the ill-fated submarine _F-4_ was the owner of a substantial postal savings account. Gentlemen, the Postal Savings System means something more than a cold array of a.s.sets and liabilities, a balance sheet. Way off in an isolated spot in Russia a money order went not long ago to the home of a humble peasant. That money order represented the savings of a son who was drowned in the Susquehanna River. A few weeks back, a thrifty Mexican girl withdrew her savings from the post office at San Diego, California, to buy a trousseau. After the honeymoon she returned to the office with her new husband and both opened postal savings accounts.

Last year Leadville, Colorado, struck a thrift note that was new in this country, so far as I know, and reference to it is particularly timely as Christmas is approaching. A mining company in that city struck the note and I hope it will be heard from one end of this country to the other.

It was this: Last December an officer of the company went to the post office and opened a postal savings account for every employee--ninety in all--as a Christmas present. He placed to the credit of each 2 per cent.

of what he had earned during the year. These Christmas remembrances amounted to over fifteen hundred dollars. Out of the ninety employees only five had previously opened postal savings accounts. Now, I count that substantial charity; I call that well-directed charity. We have kept track of these particular deposits and the workmen who get their start through that Christmas bounty are adding to their savings weekly by their own personal efforts. (Applause.)

Gentlemen, as a rule, we in official life swing back and forth in a measured arc, and the little one can do is so small when compared with the ma.s.s of Government activity that we feel insignificant and lost. But I feel, my friends, that in the Postal Savings System my a.s.sociates and I are doing a positive good for humanity. I believe that we are making people better and happier because postal savings points the way from the sweat shop to the school--it stands for clean homes and empty alleys.

Each of you is a stockholder in the Postal Savings System and its success is your success. Your dividends are in the better and happier American citizens.h.i.+p which it encourages and promotes. (Applause.)

FOOTNOTES:

[93] Adapted from W. H. Kniffin, _The Savings Bank and Its Practical Work_, pp. 54-75. The Bankers Publis.h.i.+ng Company. New York, 1912.

[94] E. W. Kemmerer, _The United States Postal Savings Bank_, _Political Science Quarterly_, Vol. XXVI, No. 3, September, 1911, pp. 465-77.

[95] W. H. Kniffin, _The Savings Bank and Its Practical Work_, pp. 75, 76. The Bankers Publis.h.i.+ng Company, New York. 1912.

CHAPTER XVII

DOMESTIC EXCHANGE

[96]The banker has become the bookkeeper and settling agent of the business world. The products of a locality, let us say the State of Georgia, move out to the markets of the world and create credits in favor of that locality on the books of banking inst.i.tutions in the commercial centers, while at the same time a counter movement of commodities is under way from other localities into Georgia, in like manner creating credits for those localities which are debits against Georgia. The practical effect is that the commodities moving between these communities are exchanged and pay for themselves, the running accounts being kept and settlements effected in the banks.

To ill.u.s.trate the details: A dealer in cotton in Atlanta makes a sale to a mill in Fall River and receives in payment a check or draft drawn on a New York bank, which he deposits for the credit of his account in an Atlanta bank, and which the latter forwards for the credit of its bank account in New York. Meanwhile an Atlanta merchant has bought goods in New York and in order to pay for them buys from the Atlanta bank an order for the New York credit, and this when forwarded completes the circle of payments for cotton and goods.

If we would extend the investigation to include the bank accounts of the Fall River mill and the Atlanta dealer we would find, first, that the mill account was built up constantly by deposits of checks and drafts received in payment for goods sold in all parts of the country and perhaps all over the world, with almost no deposits of cash, and that it was drawn down by checks for raw cotton, and supplies and large amounts of cash for the pay-rolls; second, that the cotton dealer's account was built up entirely by deposits of checks or drafts received for cotton s.h.i.+pments and drawn down by checks and cash payments to farmers for cotton.

For payments at a distance bank credit in the form of a check or draft is [commonly] used....

The foregoing ill.u.s.trates the movement of the exchanges constantly proceeding ... between ... different communities.... There is a network of relations.h.i.+p between banks through which each local community and market is connected with all other communities and markets.... No locality is so remote as to be outside of the circle and no community's sales and purchases are so scattered but that they can be brought together in the settlements. Each bank is the center of a circle of which it is the clearing agent; all payments between its own customers may be made by a transfer of credit upon its books. If there are two banks or more banks in a town, all payments between their customers are resolved into offsets between these banks, and in like manner all payments between localities are resolved into offsets between banks, and if not settled in local centers are pa.s.sed up to larger and larger clearing centers....

But while the cross-payments of trade may be depended upon in the long run to balance and settle themselves, it does not follow that they will do so from day to day, or that they coincide so closely that payments in money are never required. An individual's sales and purchases are seldom made at the same time, and the sales and purchases of communities are not constantly balanced. The trade of a one-crop farming district will not be so evenly balanced as one of a district in which mixed farming prevails, and in every industry there are periods, usually recurring every year, when the payments exceed the current income, and corresponding periods when income exceeds outgo....

A region like the cotton states, whose products move quickly to market, may have large credit balances at one season and at another be wanting to borrow....

The banker is an equalizing agency in the situation. He stands in the breach: he must either supply the missing offsets of credit, or, as a last resort, make the payments in money....

The entire system of settlements, with transfers and offsets and advances and interchange of capital and credit, is exceedingly interesting and wonderfully simple and effective, but depends for its effectiveness upon a scrupulous observance of the principle upon which it is based. That principle is the natural reciprocity of trade....