Evening star., 1932-01-08
SAVINGS ACCOUNT
PROTECTION URGED
Changes in Laws May Be
Made by Various State
Legislatures.
BY CHARLES T. sPEARE.

WpCCldA DlbphlCl " 1 llC OIdI'
NEW YORK, January s.-The rec
concentrations periodically made by
State superintendents Of banks that
thrift accounts" be segregated from
the general group of commercial de-
posts have gained force and momen-
tum in the past year from the unfor-
tunate experiences of depoSitors in
insolvent institutions. 1t is not un-
likely that more vigorous measures
may be taken by State Legislatures
this Winter in an effort to create
preferred status for bank deposits that
are primarily Of a savings character.
AS a general rule, the increase In
the deposits of a majority OF the In
terror or so-called country banks" In
the past 20 years, and especially In
the last decade, has occurred in those
representing the savings OF bank
clients and made to insure the safety
OF their principal, and gain at the same
time the benefit of a moderate re-
turn in interest.
Savings so per Cent.
Savings deposits probably average
so per cent, and commercial deposits
~ per CGIll VI IllC tSGdA 4ASHuNAIN+Jb
banks show in their statements time
deposits as high as tWo-thirds Of the
total of all deposits. There has been
q gradual widening of the margin be-
tween the two as the influence Of the
city bank has spread into the inte-
rior, and local corporations and chain
stores have deposited funds in met
ropolitan centerS that formerly were
banked in the home institution.
Mutual savings banks are compelled
to invest the deposits of their clients in
certain restricted types of securities,
such as real estate, first mortgages OF a
prime character, Government and mu-
nictpal bonds and the mortgage obliga-
tions of railroads and public utilities
that pass the specific requirements OF
the State in which the savings bank is
located. Commercial banks, on the
other hand, may place the funds OF
their depositorS, including those moneys
realized from thrift accounts" in such
investments as their boards of directors
considered safe. 1t becomes, therefore,
q matter of judgment as to the type OF
securities in which a commercial bank
invests. Unfortunately thrift funds have
in too many instances in recent years
been employed to purchase domestic and
foreign bonds on which there has been
a heavy depreciation in market value
and some defaults in interest payments.
1t is obvious that the entire policy of
commercial banks toward their invest
ments could not be Immediately recast.
The recommendation just made by
Supt. Broderick in New York State is
that a period of five years be allowed
the commercial banks to make changes
that would place a higher type of in
vestment behind savings accounts, and
in the end build up portfolio approx
mating in character that of the mutual
savings institutions
Fundamental Change.
One of the fundamental changes
compelled by the proposed new order of
things would be reduction in the rate
of interest on savings accounts in COM
mercial banks. The competition be-
tween these banks for new business has
developed policies of high interest rates.
To support these it has been necessary
to invest in securities that, in turn, pro-
duced an average ranging from per
cent to Az per cent to the depoSitor
and at the same time giving margin
of profit applicable to the stock of the
institution. High interest rates on COM
mercial bank deposits and purchases of
securities of inferior ratings have gone
hand in hand all over the country.
There are bankers who believe that a
thrift account in commercial bank
should not receive as a maximum over
21z per cent interest, and that, on this
basis, the bank could afford to invest
and hold against such deposits the
highest types of corporation securities
and a much larger percentage of Gov
eminent obligations and short-term
notes than IS now to be found in even
the best portfolios This would also
permit them to compete with the mu-
tual savings banks in the large centers,
as the average depositor prefers to have
his money in his home bank rather than
out of town, even though it may earn
somewhat more in the latter location.
There has also been some suggestion
Of a guarantee Of bank deposits. This
was tried out IN a number CT the West
ern and Northwestern States few
years ago and did not prove satlstac-
tory or prevent depositors in institu-
tions that were fundamentally weak
from losing a portion of their funds.
(Copyright, 1922