Evening star., 1935-11-16
LOSS Of SAVINGS
ACCOUNTSFEARED
A. B. A. Leader Sees Danger
in UnattraCtiveIy Low
Interest Rates.
BY EDWARD C. STONE.

terest paid savings depoSlters may
end in driving these deposits into
other forms of investment such as
building and loan associations, was
expressed by T. J. Caldwell OF Hous-
ton, Tex, president of the savings
division of the A. B. A. at the New
Orleans conclave. He also added his
opposition to the Postal Savings Sys-
TEN. His views made a great impress
sion on the savings bank men every
where who have been doing lot of
serious thinking along this same line.
Developments of the year have
brought feeling on the part OF bank
ers interested in the savings business
that savings will eventually be driven
away from banks into other types of
financial institutions by lack Of f1eX-
ible interest regulations and through
competition by other institutions
offering higher rates Of interest" he
said. "The present tendency in the
regulation of interest rates is to dis
regard the type of assets held by the
banks.
He called attention to the vast
amount of money held in the mutual
savings banks in the Eastern part of
the United States, how much can be
invested in mortgages and to the fact
that in many instances savings funds
are comingled with commercial bank
funds. Naturally, the returns on this
type of business are low. To protect
the banks able to pay only very low
rate of interest, regulatory boards have
set the maximum interest rate at low
figure.
Higher Rates Essential.
"In the long run" the speaker
added. IF banks having so to 70 per
cent of their assets invested in good
mortgages at rates from 4 to 512 and 6
per cent, are not permitted to pay a
commensurate rate for savings. COM
peting agencies will drain them of saw
ings deposits. Regulations may prove
effective in destroying competition
among banks, but regulations will not
serve to bring customers into banks,
and after all, the money deposited by
customers is the life-blood OF the IN
stitutionS.
The subject is one of wide ramlt1-
cations, requiring thought and study.
Its solution may well be the answer
to many of our recent banking troubles,
growing out of the hybrid character
of our banking System-a system
under which we have failed utterly to
distinguish the different kinds of de-
posts and to permit such deposits to
perform the functions to which they
are adapted.
Commercial deposits are credits
growing out of the activities OF busl-
ness. and should be used exclusively
In furnishing the short-term bank
credit necessary to the production and
distribution of goods and services. On
the other hand, savings deposits are
investment funds growing out of the
excess of income over expenditures on
the part of the people. Their proper
function is to meet the capital needs
of the community. They can be safely
invested in much longer term and
slower assets than can commercial
deposits. and they are entitled to a
much higher RETURN" the banker as
serted.
Postal Savings Attacked.
Bankers have to stand for good
deal of criticism for opposing postal
savings. Their opposition has been
called grasping. Mr.. Caldwell gave
particularly clear expose of the bank
ers' viewpoint when he said:
"A great menace both to banks and
to the progress of communities exists
in postal savings-that of syphoning
money from areas where it is most
needed both to insure the permanence
of banks to the community and to
form a backlog of funds for COM
munity development.
THE Federal Reserve Bulletin of
October, 1885, indicates that postal
savings as of the end of May, 1885,
amounted to S1,237 100000. OF that
amount, according to the Bulletin,
only $412,000,000 was redeposited IN
banks. The rest, over $500, 900,
had been taken out of the various
communities and sent to Washington
for investment.
In some States, from one-third to
one-half of the time and savings de-
posits are in postal savings, with only
a small percentage redeposited in the
banks of that area. 1t seems waste
full for the funds needed in the help
full development of State to be
syphoned to Washington by one
agency, later to be returned, and at
considerable expense, by other Gov
ernment agencies.
"At present, the rate established by
the trustees Of the Postal Savings
System, the Postmaster General, the
Secretary of the Treasury and the
Attorney General, and charged banks
on postal savings, equals or exceeds
the miximum rates permitted by the
Federal Reserve Board on savings de-
posts in banks. The rates are also
higher than are yielded by the short
time obligations of the Government
itself"
Financial District Gossip.
j. G. Hopkins, washington repre-
sentative of the Lincoln National Life
Insurance Co., held fifth place in VOL
ume of paidfor business in october,
according to word received here from
his home Office in Fort Wayne. This
achievement means national recoghi-
ton for Mr.. Hopkins ability as he won
his place in competition with more
than 1,500 other statesmen, the COM
pany adds.
Norman E. Towson, assistant treas
urer of the Washington Loan g. Trust
Co., and manager of the foreign de-
partment, is spending much of his
time these days at the court house
as foreman of the grand jury. He
declares it is easier to figure all kinds
of foreign exchange IN American dol
lars than it is to get at the inside of
many of the complicated cases pre-
sented to the grand jury
The next convention Of the Ameri-
can Bankers Association is unofhcially
scheduled to be held IN San Francisco
The decision probably will be an
nounced formally after a meeting of
the Administration Committee this
Winter.