Photo by Jeffrey Newcomer.

What is a Mutual Savings Bank?

First opened in Philadelphia and Boston in 1816, Mutual Savings Banks have served the needs of a wide variety of people ever since by offering high quality general banking services. The Mutuality in Mutual Savings Banks defines their original purpose to provide banking services and access to credit to people who, in spite of their best efforts, were effectively ignored by the large and established banking community. Featuring the Trustee System, the organization of Mutual Savings Banks distinguishes it from the co-operative banks.

The term Mutuality stems from the world of 1800’s America, a period in history when philanthropic individuals set about to improve the quality of life for the citizens of a rapidly changing country. The need to set a portion of one’s savings aside for future use was a need not met by larger banks, and it was for this need that Mutual Savings Banks were formed. The individuals who formed the first savings banks in Philadelphia were the same individuals who established hospitals and orphanages throughout the eastern seaboard cities of America. Due to this emphasis on providing a service not previously met, Mutual Savings Banks played an important role in communities throughout the United States. The original intent was not to earn a profit for the founders of the bank. Instead, the earnings would go to or benefit the depositors. Profit not directly paid to depositors in interest benefits the depositors by being held in reserve as retained earnings. This reserve ensures that even in adverse situations for the bank, the depositors’ principal can be paid on request. It is upon these principles that today’s Mutual Savings Banks operate.

Mutual Savings Banks are organized under the Trustee System, and it is this characteristic that distinguishes the Mutual Savings Banks from co-operative banks where the customers are owners. The relationship between a Mutual Savings Bank and its depositors is considered to be that of debtor and creditor. Because no stockholders exist, somebody must own the institution. It is out of this need of ownership that the Trustee System is used in Mutual Savings Banks.

Trustees begin as members of the larger group known as the Corporators. Corporate powers of the Mutual Savings Bank are vested in the Corporators, and this group represents the diverse interests and communities served by the bank. Originally, Corporator members were the founders of the Mutual Savings Bank. As time went on, members of the community filled any vacancies. Corporators elect by majority vote individuals to serve as new Corporators and Trustees.

Corporators, then, are a self-perpetuating body. Trustees, elected from the Corporators, govern the operations of the bank without profit to themselves. That is, Trustees are responsible for seeing that the interests of the depositors, borrowers, and members of the community in which they serve are considered when management decisions are made. Further, a Board of Trustees sees to it that the customers’ deposits are kept and invested safely, interest is paid to the depositors out of the revenue generated from investments after deducting expenses, and that the principal is available to customers on request. It is this Trustee System that ensures that the original purpose of savings banking is carried out.

Mutual Savings Banks strive to provide high quality banking services for the individuals and the community served. Today, Mutual Savings Banks have responded both to aggressive competition and to their customers’ needs by offering through affiliated companies and subsidiaries a wide variety of financial services including fixed income and equity investments, insurance, trust services, and financial planning. In this period of rapid change and consolidation in the banking industry, Mutual Savings Banks represent an oasis of stability, reliability, and continuity—characteristics associated with the best in community banking.