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.
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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. 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.
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. 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.
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.
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. 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.
Flotation
In 1986, the shares of TSB Group plc were floated on the stock market and the proceeds given to the bank, adding to the ownership equity – a process described by one commentator as "selling people a gold box in such a way that when they opened it they found the purchase price inside". The original holding company, Trustee Savings Banks (Holdings) Limited, continued to be registered at Companies House under that name until 2013.
The newly formed TSB Group's retail banking operations were consolidated into TSB England and Wales, TSB Scotland, TSB Northern Ireland and TSB Channel Islands, each trading as TSB Bank. In 1989, TSB England and Wales officially became TSB Bank, with TSB Bank Scotland and TSB Bank Northern Ireland becoming its subsidiary undertakings. The Northern Irish business was sold to Allied Irish Banks in 1991 (trading as First Trust Bank until 2019) and the Channel Islands business was integrated into TSB Bank in 1992.
Merger with Lloyds Bank
TSB Group merged with Lloyds Bank in 1995 to form Lloyds TSB. The merger was structured as a reverse takeover by TSB; Lloyds Bank plc was delisted from the London Stock Exchange and TSB Group plc was renamed Lloyds TSB Group plc on 28 December, with former Lloyds Bank shareholders owning a 70% equity interest in the share capital, effected through a scheme of arrangement. The new bank commenced trading in 1999, after the statutory process of integration was completed. On 28 June, TSB Bank plc transferred engagements to Lloyds Bank plc which then changed its name to Lloyds TSB Bank plc; at the same time, TSB Bank Scotland plc absorbed Lloyds' three Scottish branches becoming Lloyds TSB Scotland plc. The combined business formed the largest bank in the UK by market share and the second-largest to Midland Bank (now HSBC) by market capitalisation.
Revival of the TSB brand
Following its acquisition of HBOS in January 2009, Lloyds TSB Group was renamed Lloyds Banking Group. In 2009, following the UK bank rescue package, HM Government took a 43.4% stake in Lloyds Banking Group, which later announced that, in order to comply with European Union state aid requirements, it would spin off a part of its business under the TSB brand. The new TSB business consists of all Lloyds TSB Scotland branches, all Cheltenham and Gloucester branches, and some Lloyds TSB branches in England and Wales.
After a provisional agreement to sell the Lloyds TSB Scotland business to Co-operative Banking Group fell through in early 2013, Lloyds decided to divest it through a stock market flotation. The new TSB Bank began operations on 9 September 2013, at which time the remainder of Lloyds TSB was renamed to Lloyds Bank.