Evening Post. SATURDAY, MAY 4, 1929. IN THE PEOPLE'S BANK

Evening Post, Volume CVII, Issue 102, 4 May 1929, Page 8

Evening Post. SATURDAY, MAY 4, 1929. IN THE PEOPLE'S BANK

Returns published yesterday showthat deposits in the Post Office bavings Bank for the March quarter, 1929, exceeded withdrawals by £390,640. In the March quarter of 1923 there was an excess of withdrawals amounting to £109,417. The change is a most welcome one, and for several reasons. In the first place, it is an index to the prosperity of the workers in receipt of wages or small salaries.' The returns of the private banks of issue show how business at large is faring; but a healthy state of business does not always denote an equal measure of prosperity among workers. The Post Office Savings Bank, on the other hand (when there are no special circumstances to be taken ] into account) reveals the extent to which the people of smaller means are securing that surplus which enables them to practise thrift. It would be unwise, however, to receive this improvement with too much jubilation. The March quarter stands alone in showing a deposits credit in the 1928-29 financial year. The June, September, and December quarters all closed with an excess of withdrawals, and if the figures just . published are added to the returns gazetted previously it is seen that the whole year shows an excess of withdrawals of £859,560. Against this, however, must be set interest payments due to depositors, and amounting to at least £1,700,000. This would leave depositors' accounts increased, despite the excess withdrawals, by some £850,000. Even when the whole year's operations arc taken into account, however, the result is one which must afford satisfaction , to the community if it is compared with the result of the preceding year, when depositors withdrew not half but all of their interest and almost a million and a quarter beside. In the past ten years the total amount to the credit of depositors has increased by some £10,000,000, bul only half of that increase is due to actual excess of deposits over withdrawals—some six and a quarter millions added in 1919 (calendar year), 1920-21 (fifteen months ending 31st March), and 1924, less a million and a quarter over and above interest withdrawn in 1927-23. The balance of the gain has been by accumulation of interest. For the lasl five years the excess withdrawals and the interest compare as follow:—

It is 100 soon to say that we are out of the wood, but the improvement in the past four quarters has been reasonably steady and if the prosperity evidenced by bank returns and the trade balance can be given a wider spread the funds in the people's bank should soon show a marked improvement.

At least one great hindrance to stability has been removed—the big deposits. The returns of deposits and withdrawals by themselves attest the prudence of the reduction made in the limit. It was the withdrawal of these big deposits in 1927-28 that led to the big drop in Savings Bank funds. When the private banks of issue in 1927 increased the interest offered for fixed deposits it was plain that the Savings Bank could not retain the big deposits. It began to lose them immediately, and when the Government, acting on authority given earlier in Parliament, reduced the deposit limit from £5000 to £2000 all the big amounts had gone. The reduction was made, not to relieve the Savings Bank of embarrassing accounts, but in Mr. Downie Stewart's words: "To prevent any similar situation arising again or large depositors using the Savings Bank at their convenience and to our great inconvenience." These deposits were never "savings" of the class which the Post Office was established to receive. They were funds awaiting investment. An arrangement which resulted in their earning 3£ per cent, while deposited at call was all to the advantage of the depositor. All Post Office money is, of course, at call, but the smaller accounts balance each other. As may be seen from the quarterly returns, over a long period of years there is a movement of funds which can be traced and anticipated by officers with experience. The small man withdraws his savings when he is out of work, or to buy a house or take a holiday. But the man with a credit of £5000 is in another class, and his use of the money is guided by other considerations— considerations which it is the business of the commercial banks to study and understand.

When Mr. Massey's Government in 1920 agreed to accept £5000 deposits tfie Savings Bank was brought into touch with ihis different class of depositor. The Government acted

then, as Mr. Stewart afterwards stated, because it needed funds for public works; but the course was risky. The big deposits became a nightmare to the Savings Bank officials, for they could never tell when they would be withdrawn. To guard against this contingency, the Savings Bank had to keep a substantial sura available. This the Post Office cannot afford to do. It must keep its funds invested if it is to pay the interest allowed to depositors on monthly accounts. The withdrawals of 1927-28 and the subsequent recovery prove that the Savings Bank acted prudently in ridding itself of these big accounts. The functions of a thrift bank and a commercial bank cannot be mixed in this way. Where such functions are combined, as in the Commonwealth Bank, there must be adequate provision for meeting the distinctly different requirements of each branch. Yet the Reform Government was harshly criticised for taking the steps it did to reduce the deposit limit. The Labour Party charged Mr. Stewart with acting at the dictation of the commercial banks and financial institutions. Unprejudiced study of the facts and figures shows rather that such steps were highlynecessary to assure the stability of the' Savings Bank and maintain its strength as a- thrift-promoting institution. Safety must be the first consideration when handling the people's savings, and this safely should never again be lessened, even though the temptation to obtain some cheap money from big depositors may be strong. In the end such cheap money may prove exceedingly dear.

Excess withdrawals. lntoieat. 3020 1927 mas 1929 £ 530.712 708,884: 693,24 (i 2,073,031 sno.oco 1,ti50,020 1,731,57S 1,707,426 1,747,136 1,740,000 (iipprox.)