From the outset, savings banks were retail finance institutions generally operated through democratic and philanthropic guidelines. British savings banks sought to create thrifty habits amongst small and medium-sized savers such as craftsmen, house servants or the growing proletariat, who were outside the 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 was characterised as quite detailed. Several periods of “ill-health” and lack of trust in their capacity as a viable organisational form, resulted in government intervention in most aspects of 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in the UK was that depositors should have a guarantee of the nominal value of their savings, so that these could be withdrawn at their full value plus interest (no matter how long the deposit had been with the bank.)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 trustee 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 whatsoever from that office. This feature was to dominate the management of the TSBs 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. Their business remained in collecting low-volume deposits, as early attempts at market diversification had been curtailed by the Savings Bank Act of 1891.
The potential of trustee 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 TSBs reached their first £100 million, which rapidly rose to £162 million in 1929 and £292 million in 1939.
Together, the trustee savings banks would rank in size with any of the four main London clearing banks. In practice, however, there was little competition between trustee 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 climbed 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 Surrey in the south of England 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. Barclay 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 not until 1965 that 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 trustee 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 trustee 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 Trustee 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 and badly in need of modernization and streamlining.
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 allowed 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, trustee savings banks in Lancashire, Yorkshire, the Midlands, Wales and the West Country had built up enviable reserves and were anxious to protect their territories. London and southern England remained 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 trustee 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 be freed from government control, allowed to develop their 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. Officials 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 Trustee 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 the creation of 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 becoming 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 trustee 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 trustee savings banks failed. Together with the National Giro Bank and the Co-operative Bank, the efforts of the trustee 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 purported 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. The government, however, profited from the sale of the bank, as it received the value of the flotation without at any point paying any sums for the ownership of the bank's assets.