§ 4. Investment banking and bond houses. Enormous amounts of securities issued by governments or by corporations (railroad or industrial) are now on the market and to be bought conveniently by private investors. Some bonds are to be had in denominations as small as $100 and $500. The regular brokers on the stock exchanges buy and sell, for a small commission, the regular bonds and investment stocks. For many investors the personal examination and selection of sound securities is too difficult a task. Several large statistical and financial agencies,5 in return for an annual subscription, offer advice to investors regarding general market conditions and special securities. Many banks and trust companies have of late developed special departments for investment banking. Through these agencies the banks are constantly placing as relatively permanent investments securities which they have bought or have aided " to float" or which they handle only as commission agents. In any case the real investment banker is bringing to his task special training and a high sense of his professional obligations, and is employing the services of statisticians, financial experts, and of practical engineers to determine exactly the fundamental conditions of each investment. Investment banking promises to increase steadily in amount and importance.

§5. Savings banks in the United States. For the increasing number of wage-earners, salaried employees, and persons following professions, investment as active capitalists has been steadily growing more difficult.6 Their savings must usually take the form of passive investments. The opportunities for lending money in small amounts without great risk are few, and the requirement of skill, time, and labor to look after the loans and to collect the interest is prohibitive to a small lender. To provide a place where small sums could be kept with safety and so as to yield a moderate rate of income, the first modern savings bank in the United States was instituted in New York in 1816 after a plan already developed in England.

5 E. g., Babson Statistical Organization, Brookmire Economic Service, Harvard University, Committee on Economic Research, Moody Manual Co., Moody Corporation Service.

6 See Vol. I, p. 318.

In form these banks are mutual, having no capital stock on which dividends are to be paid. The boards of directors are self-perpetuating and the members receive only fees for attending meetings. In their legal aspects these banks have a philanthropic character. Their investments are limited by law to specified, conservative classes of securities and loans on real estate. The total increase from investments is, after paying the expenses of operation and setting aside a surplus, distributable to the depositors at regular periods. In the United States the number of such institutions reported in 1920 was 620, all but 24 of which are located in the Northeastern and Eastern states. (The 24 are all in the four states of Ohio, Indiana, Wisconsin, and Minnesota). These banks are not increasing in number, though their depositors and resources are. They have nearly 10,000,000 depositors, deposits to the amount of more than $5,000,000,000, an average of $550 per depositor, or of nearly $200 per capita of the population of the geographical divisions in which they are located. Though but one third of all institutions with the name of "savings banks" are on the mutual plan, these are the most important, the typical "savings banks" in the United States, and hold about four fifths of all the deposits in "savings banks" (as distinct from the savings departments of commercial banks).

Savings banks seek to keep invested as large a part as possible of their assets, keeping in ready cash only enough to meet a possible temporary excess of withdrawals over deposits. The mutual savings banks average about $.006 of actual cash (and "checks and cash items") in their tills for every dollar of deposits, but in addition they have for every dollar of deposits $.04 due on demand from state and national (commercial) banks (in the aggregate a large sum, much of which bears a low rate of interest). About one half of their resources are invested in long-time loans, mostly to small borrowers and on the security of real estate, and most of the remainder is in bonds and other securities of the safer kinds. The average rate of interest they have paid to depositors since 1914 has been nearly 4 per cent; the rate is not fixed in advance by contract, but is declared at regular periods (usually three months), as in the case of a dividend of a corporation.

The name "savings bank" is applied also to institutions known as "stock savings banks," organized for profit like other banks.7 These are not in most cases sharply marked off from commercial banks with savings departments. The number reported in 1920 was 1087, their deposits being more than $1,300,000,000; almost one third are in Iowa, and almost two thirds in California, the remainder (only 3 per cent) being in nine other states. The capital stock of these banks is about 9 per cent of their deposits. Since the change in reserve requirement for time deposits under the Federal Reserve Act, the contrast between savings banks and commercial banks has become less significant and that between time and demand deposits (and banking departments) more significant.