New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1917-05-27
How Savings Banks
Were Unfettered
To Aid the Loan
Simple Solution of Difficulty
Which Made Them Hold
Aloof at First
TILLIONS Of dollars are now
n being poured into the Lib
- nrtv Loan by the savings

New York alone have subscribed Tor
upward of $lO,OO0,OOO in the last
few days, while all are urging their
depositors to subscribe. Such ac-
ton may contribute Importantly to
the success of the flotation, because
the savings banks are probably IN
closer touch with the small investor
than any other class of instltlons IN
the whole country. The 622 mutual
savings banks of New England
and the Eastern states have
100000 depositors and $4,6oo,-
100000 of deposits. And yet,
with all this wealth and power,
they were forced to hold aloof
from the loan operation for
time. Until recently, for example,
scarcely a savings bank had posted
in its corridors an invitation to its
depositors to subscribe. Now they
are working as industriously to
make the loan a success as the other
banks. And this is the explanation
of the change, which is due to con-
siderable extent TO efforts of the
American Bankers Association.
Assets of the mutual savings
hanks arc largely in the form OF
high grade bonds and real estate
mortgages. Their cash resources
average between and q per cent.
of their deposit liabilities. These
mutual savings banks have no capt.
tai stock and they are, therefore, IN
eligible for membership i'll the Fed
eral Reserve system. They all carry
deposits with commercial banks,
from which they obtain the supplies
of currency necessary to meet the
demands of their depositors for cash.
AS an emergency proposition this
connection between savings banks
and commercial banks is not very
satisfactory. 1t is fair weather
arrangement. Commercial banks
have only limited capacity for the
absorption of unliquid securities
such as savings banks carry as in
vestments. Undoubtedly such Sc
cutities are attractive as collateral,
and the commercial banks would ac-
cept them as such from the savings
banks. But if the demands of saw
ings bank depositors for cash are
large and unusual, the borrowing
capacity of the savings bank is soon
exhausted. Recourse in that event
Is the liquidation of its securities or
insistence on the legal notice it may
exact from its depositors of inten-
ton to withdraw funds.
Liquidation of securities when the
bond market is in its present dis
ordered state involves huge losses.
Notice of intention to withdraw
funds is given to depositors only in
an extreme emergency and by con-
certe d action of all the savings
banks
A final factor in the savings banks
problem is the provision in the Fed
eral Reserve act which forbids
member bank to act "as the medium
OF agent of a non-member bank in
applying for or receiving discounts
from Federal Reserve bank" ex-
cept by permission Of the Federal
Reserve Board.
Under such circumstances it is not
surprising that the managers Of the
savings banks were in a quandary
OYER the Liberty Loan. Of course,
the condition varied in different
banks. Some had large amounts of
cash OF hand or available, and the
position of some in this regard was
far from easy. But so long as they
had only the ordinary recourse they
were hampered. They could not very
we'll make large subscriptions for
Liberty Loan bonds. Such subscrip-
tons would deplete the funds they
were bound to hold against the
probable demand, Of their deposit
tors for cash with which to buY
bonds. They did not even dare en-
courage their depositors to buy the
government bonds. The situation
was further complicated in New
York by the absence of ruling by
the State Banking Department
which would permit them to buy
bonds and sell them over their coun-
ters on instalmeht payments. This
plan would divert current, instead
Of past, savings to the purachse Of
bonds. The situation was not helped
any by Secretary MeAdoo's advice