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We recommend that the 12 of the draft Ordinance annexed to this report. accounts so published should include a Revenue and Expenditure account, an account of Deposits and Withdrawals, and a Balance Sheet, in some such form as is set out in Appendix B to this report. In addition we suggest that statis- tics relating to the progress of the bank should be published at more frequent intervals, showing, for example, particulars of deposits and withdrawals and the total funds in the bank; this would in our view serve the valuable purpose of bringing regularly to the notice of the public the existence of the facilities which have been established for their use.
10. We assume that, before publication, the bank's account will be audited by the Government Auditor in the same way as the ordinary departmental
accounts.
CONTROL OF BANK AND ITS FUNDS.
11. From the discussion of the principle that the savings bank should be, at least from the financial standpoint, a distinct entity, we proceed to consider who should be responsible for the conduct of its operations, subject, of course, to the authority of the Governor. There is at present a wide divergency of prac- tice in this respect. In the majority of cases the savings bank forms one of the services conducted by the Treasury or the Post Office; in other cases a separate organization has been set up charged either with the whole conduct of savings bank operations or with more restricted functions such as the management of the bank's invested funds. This divergency of practice is, no doubt, the result of difference in local conditions, and we do not consider that there is any need for standardization in this respect except that, as the Treasurer is the principal financial authority in the Colony, the control of savings bank funds and the responsibility for their employment should rest with him or, if thought pre- ferable in any Colony, with a committee of public officers under his chairman- ship. If the latter course were adopted, it would no doubt be convenient to include in the committee the officer responsible for the conduct of the bank's business. We also consider that the funds of the savings bank should be deposited in the public Treasury and that the Treasurer should clearly show his liability for these funds, as well as the assets held in respect of this liability, in the Colony's statement of Assets and Liabilities.
12.
EMPLOYMENT OF SAVINGS BANK FUNDS.
We turn now to the question of the employment of savings bank funds. As a general rule interest commences to accrue almost immediately on money deposited with the savings bank, and it is therefore important, in order that the bank may be in a position to meet the payment of this interest, that the whole of its funds should be invested as soon as practicable, except for such cash as may be retained as till money
or a working balance. The amount of such
cash should not exceed what is reasonably considered necessary to meet normal day-to-day excesses of payments over receipts, since, in the event of abnormally large withdrawals, we suggest that it should be possible for the bank to obtain temporary advances from the Treasury pending the realization of investments. Any such advances should, in our opinion, bear interest, which we think might reasonably be fixed at the rate payable to depositors. The proportion of cash which it is necessary to retain will no doubt vary from time to time and in different Colonies, and it would serve no useful purpose if we were to attempt to lay down any standard, but in examining various annual reports we have found cases in which the proportion of cash in hand appeared to us to be unduly high. There were no doubt special reasons for this. We would only observe that it would not be proper to keep an unnecessarily high proportion of savings bank moneys in liquid form merely in order to swell the liquid resources of the Govern- ment. We consider that any cash held by the Treasurer on behalf of the bank as part of his general cash balance should be specifically shown as such in his published accounts.
13. A regards the investment of savings bank funds, the general practice is to remit the money to the Crown Agents, who invest it at their discretion sub- ject to such directions as may be given them from time to time by the Colonial Government, or to such restrictions as may be contained in the Ordinance, and
subject also to the general directions as to the investment of Colonial funds which are given to them from time to time by the Secretary of State. In certain Colonies in which there are facilities for local investment, some proportion of the invested funds is held locally. In our opinion the freedom of the market for securities in London combined with the many facili- ties possessed by the Crown Agents, who are constantly engaged in investment business on behalf of some hundreds of different Colonial funds, amounting to upwards of £120,000,000 is an overwhelming argu- ment in favour of the present practice of holding the bulk of the invested funds in this country; and as the currencies of the Colonies concerned are, with five excep- tions, all linked to sterling, no inconveniences are likely to arise on account of exchange fluctuations. Four exceptions are Ceylon, Zanzibar, Somaliland, and the Seychelles, which however are indirectly linked to sterling through the Indian rupee. The other exception is British Honduras, which is on the United States dollar standard, and, in the case of the savings bank of this Colony, the advisability of establishing an Exchange Reserve will no doubt be borne in mind by the competent authorities. Hong Kong, which is on a silver currency, has no Government savings bank.
14.
As to the classes of securities in which investment may be made, the provisions of the existing Ordinances differ widely, but the general practice is to permit the investment of funds in such securities as may be approved by the Governor or the Governor in Council, or by the Secretary of State. We suggest, and have provided accordingly in Section 11 of the draft Ordinance, that the funds held by the Crown Agents shall be invested in such securities or employed in such ways as the Secretary of State for the Colonies may from time to time approve. This would bring the investments in London within the general stand- ing instructions of the Secretary of State, which are applied to Colonial loan sink- ing funds and to all the other Colonial funds of various kinds held by the Crown Agents, except so far as may be specified to the contrary in any Ordinances govern- ing particular funds. The present standing instructions cover generally all trustee investments, but the Crown Agents are authorized to buy trustee stocks irrespective of the price limits laid down in the Trustee Act, 1925, and also Colonial Government stocks or bonds not issued under the Colonial Stock Acts and therefore not included in the list of trustee investments. In practice we understand that investments are confined to securities issued or guaranteed by the Governments of the United Kingdom, India, the Dominions and the Colonies, and to the stocks of corporations and counties in the United Kingdom.
15.
A number of existing Ordinances provide that savings bank funds shall not be invested in the securities of the particular Colonial Government concerned. We recognize that the object of such a provision is to ensure that the solvency of the bank is not imperilled in circumstances which might at one and the same time adversely affect the credit of the Colony and produce a widespread with- drawal of deposits, but we do not think that this consideration need be carried to the point of entirely forbidding investment in the securities of the Colonial Government. We are of the opinion that no objection need be taken to investment in such securities, whether issued in London or locally, provided that they are publicly issued and marketable securities, and that the proportion of such securities to the whole fund is limited. In the case of one savings bank the proportion of the fund invested in securities of the local Government has been limited by the Secretary of State to one-third and this proportion might be generally adopted. Investment in locally-issued securities should be subject to the approval of the Governor-in-Council, in the same manner as London invest- ments require the approval of the Secretary of State. Particulars of all invest- ments held on behalf of a Savings bank, showing in each case the nominal amount, the cost price and the latest known market price, should be submitted by the Colonial Government annually with the accounts to the Secretary of State.
16. Apart from the foregoing provisions, savings bank funds should not be applied in any way to the purposes of the Colonial Government.
17. In order to diminish as far as possible the risk of loss on realization of investments through depreciation, invested funds should include a reasonable proportion of short and medium dated securities. We understand that this is the Crown Agents' present practice in the management of savings bank investments.
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