Trustee savings bank

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A trustee savings bank or TSB is a British financial institution which specialized in accepting savings deposits from the poor. They did not trade their shares on the stock market and unlike mutually held banks, depositors had no voting rights nor the ability to direct the financial and managerial goals of the organization. Directors were appointed as trustees (whence the name) on a voluntary basis. Between 1970 and 1985, the various trustee savings banks were amalgamated into a single institution called the TSB Group (informally just "The TSB"), which was floated on the London Stock Exchange. In 1994 the TSB was acquired by Lloyds Bank, resulting in the Lloyds TSB.

There were other forms of savings bank in the UK including the National Savings Bank and the Post Office Savings Bank.

1 Early history of the trustee savings banks
2 Modern history of the trustee savings banks
3 Ammalgamation into a single entity
4 Sources

[edit] Early history of the trustee savings banks

From the outset savings banks were retail finance institutions organised as mutuals: owned by depositors and generally operated through democratic and philanthropic guidelines. British savings banks sought to create thrifty habits amongst small and medium-sized savers like craftsmen, house servants or the growing proletariat, who were outside well-to-do market that the banks catered for at that time. In the first half of the 19th century, bank runs or bank collapses were common, so savings banks had no safe outlet for deposits. To create trust among potential depositors, the Savings Bank (England) Act 1817 was passed, which as a matter of policy required funds to be invested in government bonds or deposited at the Bank of England. This regulation was extended to Scottish savings banks in 1835. From then on regulation of savings banks in the UK characterised as quite detailed. Several periods of “ill-health” and lack of trust on their capacity as a viable organisational form, resulted on government intervention most aspects for the operation and day to day management of savings banks (particularly the nature of the business portfolio).

An essential feature of a savings bank in the UK was that depositors should have a guarantee of the nominal value of their savings so that these could be withdrawn at their full value plus interest (no matter how long the deposit had been with the bank.) Funds of the savings banks would be under control of voluntary managers or trustees (hence the roots of the TSB acronym). The guarantee could not be achieved unless funds were invested in securities with a similar guarantee. As a result of the Act of Parliament of 1817 the payment of all money received by trustees savings banks, other than that needed for liquidity to deal with every day transactions, was transferred to the Bank of England for the credit of the National Debt Commissioners. The Act also specified the duties of the treasurers, managers and trustees of the savings banks, none of whom was to derive any benefit what so ever from that office. This feature was to dominate the management of the TSB's until the 1970s.

Savings banks paying interest on deposits (at a rate ranging from three to five per cent per annum) proliferated. The number of successful institutions in the UK grew until it reached 645 in 1861. This as their business remained in collecting low volume deposits as early attempts at market diversification had been curtailed by the Savings Bank Act of 1891.

[edit] Modern history of the trustee savings banks

The potential of trustees savings banks to contest retail bank markets became evident in the interwar years. By 1919 the sum of cash and assets held in deposit for all the TSB reached their first £100 million, which rapidly rose to £162 million in 1929 and £292 million in 1939.

Together, the trustees savings banks would rank in size with any of the four main London clearing banks. In practice, however, there was little competition between trustees savings banks. Each individual TSB served a separate geographic area, although they were actively challenged by other organisations and this competition became more acute in the decades that followed the end of the war in 1945. For instance, by 1952 the percentage of deposit transactions of £1 or less with the Savings Bank of Glasgow had risen steadily over the previous five years from 3.5 percent to 4.7 percent and the average weekly number of transactions had climb to 76,178. Although there was a “surprise” at the high turnover in most ordinary accounts, the fact remained that the majority of savings banks’ accounts remained short-term deposit and mid-term savings through which individuals met short-term needs such as rents or the cost of holidays.

In 1955, inter-savings-bank clearing was extended to the whole country. The system had been in operation in the south of England (i.e. Surrey) for a short time and it had proven successful in facilitating the settlement of transactions between different savings banks and in improving the service to clients (particularly when on holidays within the UK). Also in 1955, increased competition for deposits (and most notably the growing popularity of hire purchase) led to calls for the Trustee Savings Banks Association to revive a proposal originally make in 1926 by W.A. Barlcay of the Perth Savings Bank, that the TSB should seek permission from the Exchequer and the National Debt Commissioners to allow withdrawals by cheque. However, it was until 1965 when a review of retail credit markets led to the TSB being allowed to issue current accounts (that is, withdrawals by cheque of deposits but not to give credit in the form of overdraft facilities), undertake the payment of utility bills and safeguard securities and valuables. Accordingly, the TSB Trust Company was established in 1967 and a year later the first unit trust issue was offered.

Although most customers of trustees savings banks were lower middle- and working-class, and had little need for cheques or cheque guarantee cards, regulatory innovations which opened possibilities for diversification in the business portfolio of the trustees savings banks, threatened to erode the deposit base of the clearing banks. The potential diversification of the savings banks’ business portfolio, however, was limited by the over restrictive central control by the Exchequer and the National Debt Commissioners and the Trustees Savings Bank Inspection Committee. This type of central control had been designed to both guarantee depositors that the savings banks would remain a secure alternative for their deposits and, by standardising general interest rates and regulations, make it possible for local trustees to work autonomously.

By the mid-1960s transactions at retail counters were increasing around 5 percent p.a. while automation and mechanization had completely eluded even the largest savings banks. Some savings banks still worked with leather-bound ledgers and others depended on the passbook system, either way hand-written record cards piled up in the thousands while even the most elemental source of managerial information (such as the annual balance sheet) was a huge task and involved substantial amounts of over-time pay. Organizational methods at savings banks were thus not only antiquated but time consuming. They were clearly in badly need of modernization and streamlining.

[edit] Ammalgamation into a single entity

In 1970 there were 75 savings banks loosely tied up in an association with £2,806 million in total assets. Size was unevenly distributed. Five of the banks had over £100m in assets (together accounting for 25 per cent of the total), 14 had between £50 and £100m (35 per cent), 39 between £10 and £50m (38 per cent) and 17 under £10m (2 per cent). In spite of the largest trustees savings banks being based in London, Glasgow, Edinburgh and Belfast, those based in the north of England accounted for 50 per cent of total funds, those in the south of England and Wales for 27 per cent, those in Scotland for 19 per cent and those in Northern Ireland for less than 5 per cent. Geographical location of the 1,655 trustee savings bank branches was also unevenly distributed with branch density higher in Scotland and the North of England. Hence, in 1978, there was one savings bank branch per 18,000 persons in Scotland, but only one per 75,000 persons in the otherwise high density area of London. A similar pattern existed in respect of individual accounts, with two out of five persons in Scotland having a savings bank account, one out of five in the north of England but only one out of twenty in London and the home counties.

In 1973 at the time of the report by the Page Committee, there were still 73 savings banks with 1,549 branch offices. Eight years had passed since regulatory change had been allowed for the first time the introduction of cheque accounts. The trustee savings banks community sensed the need to change in response to changing customer needs. However, there had been mixed developments in the growth of assets at individual banks. On the one hand, the assets of the Scottish trustee savings banks, traditionally the strongest members of the TSB movement, had been growing more slowly than those of their southern counterparts. On the other hand, trustees savings banks in Lancashire, Yorkshire, Midlands, Wales and West country had built up enviable reserves and [were] anxious to protect their territories. London and southern England still remain the areas where the savings banks had little presence.

While savings banks and government were engaged in deliberations about the future organisational structure and functioning of the movement as well as of individual trustees savings banks, the savings banks remained restricted in what services they could offer. The TSB could not give loans to their customers and regulation still limited the way funds could be invested. It was at this critical stage that the report of the Page Committee recommended that the trustee savings banks were freed from government control, allowed to develop its service range and as a result, become the third force in banking.

Dealing with recommendations of the Page committee was high up in the agenda of the newly elected government of Harold Wilson. But the pace of change was to be slow. Officals at the Bank of England, with the support of Sir Athelstan Caröe, then chairman of the Trustee Savings Banks Association, called for the establishment of a strong central authority to assume many of the control powers vested in the Government as well as the need to build up adequate capital reserves virtually from scratch. From the Government’s point of view, there was an advantage in a gradual staging of the period during which the TSBs investment powers were widened and they ceased to invest solely in public debt.

Trustee savings banks then became active users of computers as part of a long effort to articulate organisational change. Two companies were set up in 1972 in preparation for future change. One was TSB Computer Services Ltd., to co-ordinate all computer systems and related developments, the other being the incorporation of the Central Trustee Savings Bank Ltd., to deal with volume transactions.

Efforts within the trustee savings banks and within government then gave rise to the publication of the Trustees Savings Banks Act in 1975. This Bill granted savings banks the right to offer equivalent services to those of the clearing banks. But it also required that, in the space of one year, their number was reduced from 73 (of varying sizes) to 19 independent banks, under the central co-ordinating authority of the TSB Central Board. This organisational framework for savings banks was in place between 1976 and 1984, a period during which TSB management undertook a series of fundamental changes while pursuing to create an independent and profitable financial services group.

Tom Bryans, general manager of the Northern Ireland Trustee Savings Bank, was appointed the first new chief executive of the amalgamated Trustee Savings Banks. At the time in his mid fifties, he had spent all his working life at the TSB movement, achieving manager status in 1956 and then became an expert in computerized banking. Bryans took the helm with a mandate to turn the savings banks from a quasi-government body into successful independent providers – although his salary of £17,000 p.a. was well below those paid at similar posts at clearing banks.

The amalgamation of individual trustees savings banks into purposely created regional banks and the establishment of a central board in 1975, then brought about the use of own resources to support the introduction of personal lending in 1977. However, the attempts to diversify across retail bank markets by the trustees savings banks failed. Together with the National Giro Bank and the Co-operative Bank the efforts of the trustees savings banks to penetrate retail finance, from scratch in 1971, resulted in only £200m in direct consumer loans in 1979 and this accounted for less than 3 per cent of total consumer lending that year.

In 1984 the government published a White Paper and a new TSB Bill in which the quasi-federal decentralised structure was abandoned in favour of a single central organisation which was no-longer legally unique but incorporated under the Companies Act 1985. The aim was to give the then called TSB Group a more effective operating structure and also establish clear guidelines for ownership and accountability, neither of which was clear under former legislation.

[edit] Sources

Bátiz-Lazo, B. (2004). "Strategic Alliances and Competitive Edge: Insights from Spanish and UK Banking Histories." Business History 46(1): 23-56. [1]

Bátiz-Lazo, B. and Boyns, T. (2003). Automation and Management Accounting in British Manufacturing and Retail Financial Services, 1945-68. Information Systems and Technology in Organisations and Society, Universitat Pompeu Fabra, Barcelona. [2]

Bátiz-Lazo, B. and Del Angel, G. (2003). "Competitive Collaboration and Market Contestability: Cases in Mexican and UK banking (1945-75)." Accounting, Business and Financial History 13(3): 1-30. [3]

English, L. (1972). A competitive industry's move to expand clientele. The Times. London: 11.

Horne, H. O. (1947). A History of Savings Banks. London, Oxford University Press.

Lawton, C. L. (1950). "Trustees Savings Banks in the Twentieth Century." Bankers' Magazine(November): 2.

Marshall, I. (1985). "Strategic Issues for the Trustees Savings Banks." Long Range Planning 18(4): 39-43.

Moss, M. and Russell, I. (1994). An Invaluable Treasure: A History of the TSB. London, Weidenfeld and Nicolson.

Moss, M., et al. (1992). From Ledger Book to Laser Beam: A History of the TSB in Scotland from 1810 to 1990. Edinburgh, TSB Bank Scotland.

Payne, P. L. (1967). The Savings Bank of Glasgow, 1836-1914. Studies in Scottish Business History. P. L. Payne. London, Cass.

Pringle, R. (1973). Banking in Britain. London, Charles Knight & Co.

Revell, J. (1973). The British Financial System. London, Macmillan.

Ross, D. M. (2002a). Clubs and Consortia: European Banking Groups as Strategic Alliances. European Banks and the American Challenge. S. Battilossi and Y. Cassis. Oxford, Oxford University Press: 135-60.