The Trustee Savings Bank (TSB) was a British financial institution that operated between 1810 and 1995 when it was merged with Lloyds Bank. Trustee savings banks originated to accept savings deposits from those with moderate means. Their shares were not traded on the stock market but, unlike mutually held building societies, depositors had no voting rights; nor did they have the power to direct the financial and managerial goals of the organisation. Directors were appointed as trustees (hence the name) on a voluntary basis. The first trustee savings bank was established by the Rev. Henry Duncan of Ruthwell in Dumfriesshire for his poorest parishioners in 1810, with its sole purpose being to serve the local people in the community. Between 1970 and 1985, the various trustee savings banks in the United Kingdom were amalgamated into a single institution named TSB Group plc, which was floated on the London Stock Exchange. In 1995, the TSB merged with Lloyds Bank to form Lloyds TSB, at that point the largest bank in the UK by market share and the second-largest (to HSBC, which had taken over the Midland Bank in 1992) by market capitalisation.
In 2009, following its acquisition of HBOS, Lloyds TSB Group was renamed Lloyds Banking Group, although the TSB initials initially survived in the names of its principal retail subsidiaries, Lloyds TSB Bank and Lloyds TSB Scotland. In July 2012 however, it was announced that the TSB brand would be resurrected by Lloyds Banking Group for the 632 branches it would divest as a separate business. The new TSB Bank began operations in September 2013 and was divested via an initial public offering in 2014, with the remainder of the business reverting to the Lloyds Bank name.
History
Early history of the trustee savings banks From the outset, savings banks were retail finance institutions set up under democratic and philanthropic principles. They sought to create thrifty habits amongst small and medium-sized savers such as craftsmen, domestic servants or the growing proletariat, who were outside the well-to-do market that the commercial banks served.
In the first half of the 19th century, bank runs or bank collapses were common, so savings banks had no safe outlet for their own deposits. To create trust among potential depositors, the Savings Bank (England) Act 1817 (57 Geo. 3. c. 130) required funds to be invested in government bonds or deposited at the Bank of England.Lawton, C. L. (November 1950). "Trustees Savings Banks in the Twentieth Century." Bankers' Magazine This requirement was extended to Scottish savings banks by the Savings Bank Act 1835 (5 & 6 Will. 4. c. 57). From then on, regulation of savings banks in the UK was quite detailed, with several periods of "ill-health" and lack of trust in their capacity resulting in government intervention in most aspects of the operation and day-to-day management of savings banks, particularly the nature of their investment portfolios.Horne, H. O. (1947). A History of Savings Banks. London, Oxford University Press
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 with interest no matter how long the deposit. Funds would be under control of voluntary managers or trustees, hence the roots of the name. This guarantee could not be achieved unless funds were held in securities with a similar guarantee. As a result of the Savings Bank (England) Act 1817, all money received by trustee savings banks, other than that needed to deal with everyday transactions, was held by the Bank of England to the credit of the National Debt Commissioners. The act specified duties of the treasurers, managers and trustees of the savings banks, none of whom was to derive any benefit from their 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 3% to 5%) proliferated. The number of successful institutions in the UK grew until there were 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 1891.
Modern history of the trustee savings banks By the inter-war years it had become clear that trustee savings banks could compete in the retail bank market. By 1919 the sum of cash and assets held on deposit for all the TSBs reached £100 million, which rose to £162 million in 1929 and £292 million in 1939.
From the 1970s the Irish trustee savings banks followed a similar path of amalgamation to their UK counterparts, becoming, in 1992, a single entity; this was purchased by Irish Life and Permanent in 2002.
Together, the TSBs were as big as any of the four main London clearing banks. There was little competition between the various trustee savings banks. Each individual trustee savings bank served a separate geographic area, although other organisations competed with them, and this competition grew stronger after 1945.
In 1955, inter-savings-bank clearing was extended to the whole country. Such a system had been in operation in Surrey in the south of England for a short time, and it had been proven successful in helping to settle transactions between different savings banks and in improving the service to clients (particularly when on holiday 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 ask the Exchequer and the National Debt Commissioners to allow withdrawals by cheque (as originally proposed in 1926 by W. A. Barclay of the Perth Savings Bank). In 1965 a review of retail credit markets led to the trustee savings banks being allowed to issue current accounts (with cheque withdrawals but no overdraft facilities), undertake the payment of utility bills, and safeguard securities and valuables.Pringle, R. (1973). Banking in Britain. London, Charles Knight & Co. Accordingly, the TSB Trust Company was established in 1967 and a year later the first unit trust issue was offered.
Regulatory innovations which allowed the TSBs to diversify their business threatened to erode the deposit base of the clearing banks. But this potential diversification was limited by the restrictive central control of the Exchequer, the National Debt Commissioners and the Trustee Savings Bank Inspection Committee. This type of central control had been designed both to guarantee depositors that the savings banks would remain a secure alternative for their deposits and, by standardising general interest rates and regulations, to make it possible for local trustees to work autonomously.
By the early 1960s transactions at retail counters were increasing at around 5% per annum. In 1964 the London Trustee Savings Bank was the first to computerise standing orders, and all account records were put on computer by 1967 – this being the first UK bank to do so. Some other savings banks still worked with leather-bound ledgers, and others used passbooks; either way handwritten record cards piled up in thousands and even the most basic management information and accounting (such as the annual balance sheet) was a huge task to compile, requiring a lot of overtime. The savings banks' administration was thus antiquated and time-consuming. They needed modernization and streamlining.
Amalgamation into a single entity In 1970 there were 75 savings banks in a loose association, with £2,806 million in total assets. There was a wide variation in size: five of the banks each had over £100m in assets (together accounting for 25% of the total), 14 had between £50m and £100m (35%), 39 between £10m and £50m (38%) and 17 under £10m (2%). The largest trustee savings banks were based in London, Glasgow, Edinburgh and Belfast. Those based in the north of England accounted for 50% of total funds, while those in the south of England and Wales accounted for 27%, those in Scotland for 19% and those in Northern Ireland for less than 5%. Geographical location of the 1,655 trustee savings bank branches was also unevenly distributed, with branch density higher in parts of Scotland and the north of England. In 1978 there was one savings bank branch per 18,000 persons in Scotland, but only one per 75,000 persons in London. There was a similar pattern for individual accounts, with two out of five persons in Scotland having an account at a trustee savings bank, one out of five in the north of England, but only one out of twenty in London and the Home Counties.Revell, J. (1973). The British Financial System. London, Macmillan
In 1973 at the time of the report by the Page Committee, there were still 73 TSBs and 1,549 branch offices. Eight years had passed since the introduction of cheque accounts. The TSBs sensed the need to respond to changing customer needs.Marshall, I. (1985). "Strategic Issues for the Trustees Savings Banks." Long Range Planning 18(4): 39-43 However some individual TSBs had grown faster than others. The assets of the Scottish TSBs, traditionally the strongest members of the TSB movement, had been growing more slowly than those in Lancashire, Yorkshire, the Midlands, Wales and the West Country, which 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 considering the movement's future organisational structure and functions as well as those of individual TSBs, the TSBs remained restricted in what services they could offer: they could not give loans to their customers, and there were still limits on how funds could be invested. At this critical stage, the Page Committee recommended that the TSBs be freed from government control, allowed to develop their service range, and thus become a third force in banking.
These recommendations were high on 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, bearing in mind the need to build up adequate capital reserves virtually from scratch. For the government, there was an advantage in widening the TSBs' investment powers only slowly, not least the threat of competition to its own newly created bank, National Girobank.
TSBs actively computerised their administration. Two companies were set up in 1972 in preparation for future change: TSB Computer Services Ltd., co-ordinated all computer systems and related developments, and Central Trustee Savings Bank Ltd. dealt with volume transactions.Moss, M. and Russell, I. (1994). An Invaluable Treasure: A History of the TSB. London, Weidenfeld and Nicolson
The (c. 4) allowed TSBs to offer services equivalent to those of the clearing banks, but it also required that, in the space of one year, the number of independent TSBs was reduced from 73 to 19, under the central co-ordinating authority of the TSB Central Board.
The 19 banks were:
Aberdeen Savings Bank Birmingham Municipal TSB TSB of the Channel Islands TSB of Eastern England TSB of Lancashire and Cumbria TSB of Leicester and Nottingham TSB of Mid-Lancashire and Merseyside TSB of the Midlands TSB North East TSB of Northern Ireland North Staffordshire TSB TSB North West Central Region TSB South East TSB of South Scotland South West TSB TSB of Tayside and Central Scotland TSB of Wales and Border Counties West of Scotland TSB TSB of Yorkshire and Lincoln