Interest on Public Deposits—A Phase of a Larger Question
| Author | Frederick P. Gruenberg |
| DOI | 10.1177/000271622411300120 |
| Published date | 01 May 1924 |
| Date | 01 May 1924 |
| Subject Matter | Articles |
147
Interest
on
Public
Deposits—A
Phase
of
a
Larger
Question
By
FREDERICK
P.
GRUENBERG
Formerly
Director,
Philadelphia
Bureau
of
Municipal
Research
STUDENTS
of
public
administra-
tion
have
observed
the
wasteful
manner
in
which
most
governmental
units
employ
their
cash.
This
is
quite
apart
from,
and
doubtless
far
less
sig-
nificant,
than
their
wastes
of
material
things
and
of
human
labor.
In
the
latter
fields
much
has
been
written
and
many
striking
improvements
have
been
effected,
but
economical
management
in
governmental
cash
operations
is
still
terra
incognita
to
most
students
of
government
as
well
as
to
legislators
and
administrative
officials.
There
is
room
for
inquiry
and
for
substantial
improve-
ment
in
this
aspect
of
governmental
management.
In
this
respect
the
ad-
ministration
of
most
successful
private
corporations
has
been
far
more
econom-
ical
and
efficient
than
has
usually
been
the
case
with
governments.
In
a
general
way,
the
superior
econ-
omy
of
private
management
of
cash
lies
in
the
practice
of
maintaining
only
such
cash
balances
as
the
nature
and
volume
of
the
business
require,
in
borrowing
at
such
times
and
in
such
amounts
as
will
not
incur
waste
of
interest,
and
in
the
investment
of
surplus
cash
so
as
to
bring
larger
returns
than
can
be
secured
by
allowing
such
surpluses
to
remain
on
deposit.
There
are
notable
exceptions,
but
usually
governments
violate
all
these
rules
of
good
husbandry.
COMPLICATING
ELEMENTS
On
first
examination,
the
subject
of
interest
on
public
deposits
would
ap-
pear
to
present
merely
the
problem
of
securing
for
the
city,
school
district,
county,
state
or
nation
at
least
as
large
a
return
on
its
bank
balances
as
can
be
obtained
by
any
other
depositor-a
sort
of
&dquo;most-favored-nation&dquo;
arrange-
ment.
But
the
subject
ramifies
into
a
number
of
allied
considerations,
some
of
which
would
require
more
space
than
this
brief
paper
affords
for
adequate
separate
treatment.
For
instance,
the
banking
commis-
sioner
of
one
of
the
large
states
ex-
pressed
the
view
that
it
was
contrary
to
good
public
policy
for
the
treasury
department
of
the
state
to
endeavor
to
secure
high
rates
of
interest
on
its
deposits
while
the
regulatory
branch
of
the
same
government
was
endeavoring
to
discourage
banks
from
securing
busi-
ness
at such
rates
as
tempted
the
mak-
ing
of
unsound
loans
and
investments.
Whether
this
view
would
go
so
far
as
to
insist
that
public
deposits
should
bear
lower
rates
of
interest
than
private
accounts
is
not
known,
but
the
point
illustrates
the
kind
of
consideration
that
enters
into
the
formulation
of
a
policy.
Another
and
far
more
important
problem
in
connection
with
public
deposits
is
the
question
of
collateral
security.
It
is
a
widespread
and
grow-
ing
practice
for
states
and
local
govern-
ments
to
require
either
surety
bonds
or
securities
for
the
protection
of
public
deposits,
and
the
Federal
Government
also
makes
this
requirement.
Most
bankers
acquiesce
in
this
arrangement,
and
it
would
seem
to
be
justified
on
the
ground
that
a
public
deposit
concerns
all
the
people
and
is
therefore
entitled
to
this
preferential
treatment.
On
the
other
hand,
one
of
the
foremost
institu-
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