182 years ago, in January 1835, the Airdrie Savings Bank opened its doors – then, and now, a locally run business where people could safely store their savings and invest them wisely. This week, it was announced that the bank would close and downsize in the spring. We see its closure as a harbinger of greater calamity. We live in a world where thrift – frugality and wise financial management – is a thing of the past.
My first memory of banking as a young child is walking with my mother into the (to me) huge main banking hall of Airdrie Savings Bank, carrying a large glass jar full of three pence coins. This was Airdrie banking, with real savings, and a touch of grandeur to the experience. The two-storey neo-classical banking hall, the atmosphere of quiet concentration of the staff, and the huge portrait hanging on the wall (of a gallant man in red British Army dress uniform and a fine plumed military cap) made quite an impression on me. Of course, there was no shielding between staff and customers. I felt like a welcome investor. Even if I had been in London or New York and had millions of dollars to invest, I would not have been treated the same as I was as a young boy with my oddly shaped brass jar.
That's the state of banking in the late 1960s. Even then, Airdrie Savings Bank (ASB) was a maverick – the only independent savings bank remaining in the UK, and the only one that refused to be absorbed by a bigger organisation. But it worked well when the pound was linked to the dollar and the dollar was linked to gold, and gold was real money that couldn't be printed or counterfeited.
Looking back with adult eyes, the chain of causes and effects that would ultimately destroy the organization was already in place. The evening news was full of helicopters and gunfights, for the Vietnam War was raging. War is expensive, and we must not forget that not only does it cost blood, but it also devalues the currency and quietly takes away the people's money. Bombs were needed, and dollars were needed. Dollars were duly printed, and gold flowed out of the U.S. vaults. First little by little, then in large quantities. In 1971, President Richard Nixon appeared on television to speak to the American people and the world about evil speculators and the need to protect America's financial security. He said he would temporarily suspend the exchange of dollars for gold. What he really said was that the United States was bankrupt and in default. The last link to reality in the world's financial markets was severed, the last restraints gone. For the Airdrie Savings Bank, its fate was sealed, but it took a generation for things to come together.
Unrestricted fiat operations led to inflation in the 1970s, speculation in the 1980s, and a transition in the 1990s to the “PhD standard,” or management by enlightened economic sages like Alan Greenspan. We were told this was the end of boom and bust. Central bankers now had the wisdom, power, and data to fine-tune the global monetary system for best performance and best social welfare. Banking became glamorous, or politics, or maybe even a religion. It was all a long way from Airdrie and frugality. The effects were felt first in the real economy, where good, productive jobs disappeared from the town of Airdrie, slowly eroding the independent spirit that built and sustained the bank. But the bank continued much as before. But now there was a bandit screen between the tellers and the public.
And now we come to 2008, September 11th to be exact (interesting date). The entire banking system was in crisis and was hours away from total collapse. There would be riots, blood in the streets, martial law, famine and panic, unless governments used their power to extract wealth through taxation to bail out the banks. And governments did.
For a while, “bankers” was an insulting term, as people realized how much money was being paid and how ordinary people were suffering. Those who look at cause and effect have begun to see the issue as a case of big bank greed, from a PhD standard of financial regulation, to “The Greenspan Put” Some people looked for alternative models. Some looked to Airdrie. In 2010, a new investment It was introduced to encourage expansion. This was a direct and explicit response to the 2008 banking crisis.
A group of Scotland's leading businessmen has come together to support Airdrie Savings Bank's expansion outside its home county of Lanarkshire.
The list includes Brian Souter, Euan Brown, Alastair Salvesen, Sir Tom Farmer, Ann Gloag, Sir Angus Grossart, Sir David Murray and DC Thomson & Co. They plan to set up at least one, and possibly two, new branches over the next 18 months, coming as the bank celebrates its 175th anniversary.
In addition, Airdrie Savings Bank is looking to build out its account opening network in towns and cities across Scotland where there is a proven demand for its services. The bank is also investing in internet banking as a platform to support its expansion.
Bob Boyle, chairman of Airdrie Savings Bank, said: “The trustees are delighted that a number of prominent Scottish businessmen have come forward to support the bank's expansion plans, some of whom have supported the bank with a combination of deposits and borrowings.”
“Airdrie Savings Bank, as you would expect, is taking a cautious approach to expansion. We will open one branch at a time to prove the sustainability of growth before considering more ambitious plans, and then proceed with any expansion plans.”
“Airdrie Savings Bank embodies the ideals that Scottish banks once stood for: safety of funds, focus on savings and exceptional personal service,” Brian Souter said.
“We believe the principle of mutual assistance is fundamental to banking integrity and by supporting the development of the bank we aim to bring this traditional blend to the people of Scotland.”
“We are doing this because many Scots are disappointed by what has happened in the banking sector.”
But what happened from the optimism of 2010 to closure in 2017? It's not a case of overexpansion: the bank isn't complaining about insufficient reserves (which are more than three times what government regulators require). Rather, it's a story of the bank slowly being squeezed by the very regulations that politicians claim prevent risky bank behavior and encourage prudent resource management, which has been the ASB's modus operandi since 1835. In other words, the cure was the killer.
Chairman Jeremy Brettel said: “While we are financially strong, after a comprehensive strategic review of all our future options we have concluded that, as a very small bank, we will lack the resources over the coming years to provide the products and services our customers need in an increasingly digital world.”
“The decision to phase out our business activities is fully consistent with our Board's overriding responsibility to protect the best interests of our customers, now and into the future.”
Chief executive Rod Ashley said: “In taking this difficult decision, the administrators have fully considered the bank's proud history.”
“But there is no doubt that acting now from a position of financial strength is the prudent and responsible thing to do, and is in the best interest of our customers going forward.”
Ashley cited a “shrinking customer base” and “declining foot traffic” as reasons for the closures.
He said: “While the course of action outlined today is disappointing given our company's history and tradition, I have no doubt that it is in the best interests of our customers going forward.”
of Hidden Effects Regulation that hampers competition with incumbents, stifles innovation and disproportionately burdens small businesses is well known in (Austrian) business circles, yet politicians still manage to sell it to the public as a restraint on big business. In reality, it is a restraint on the free market and small business, and a subsidy for big business.
Consider the specific case of government bank deposit guarantees. This fiction claims that if a bank fails, the government will refund depositors the first £85,000 (€100,000) lost in the failure. To a public that believes in the clear meaning of the words, this means that more conservative and prudent institutions are no safer than riskier institutions, because the government is guaranteeing that all banks and all depositors are equal. The natural free-market advantages that normally accrue to risk-averse, sensibly run institutions disappear for all but a few investors who don't believe that a huge financial industry can be guaranteed with meager reserves in the hands of the government.
Moreover, regulation wasn't the only thing the ASB had to blame: the bank's revenues also took a hit, which came from three main sources: deposits with other (bigger) banks, loans to members of the public secured against property, and purchases of UK government bonds.
All of this was hit by the unprecedented Zero Interest Rate Policy (ZIRP).
This has put the bank under relentless pressure, and thanks to ASB's ultra-frugality costs are too low to make a loss. Corporate Structure:
No Shareholders
The Bank has no shareholders. It is not required to pay dividends and surpluses can be reinvested for the benefit of customers. The Bank is run by a Board of Trustees and Executive Directors. The Trustees serve their time without remuneration and have no financial interest in the Bank's development. This form of corporate governance is another unique feature of the Bank. (ASB website)
But the cut in interest rates hits ASBs' revenues, forcing them to similarly cut the interest rates they pay to savers to near zero. Why would people cross that threshold if there was no incentive to save, or at least to save through institutions like banks? Storing money in cash, a Paypal account, or somewhere else that's safe but doesn't earn interest is just as good as a bank in a world of zero interest rates. Worse, it makes saving itself less attractive. Instead, subsidized debt is just a way to save. grow up and family Continue to find yourself in an unforgiving situation grip.
In summary, incentives for thrift and careful management of scarce resources have disappeared in the modern world of fiat currencies, economics PhDs, and zero interest rates. Instead, we have a burdensome regulatory environment and a monetary system in which money is free for bankers and nearly free for ordinary people. Frugality is deadIt has been replaced by theft from savers and subsidies to speculators, and I will miss that service as much as I missed the service I received at Airdrie Savings Bank as a child.
