amendment to the New York State Banking Law in 1938, the aggregate of
the guaranty fund and expense fund of a savings bank in New York State
shall constitute the surplus fund. Such fund may be created or increased by contributions made
by the incorporators, by transfers from undivided profits, or by transfers
from earnings. the surplus
fund up to 10% of the amount due depositors shall not be available for
the payment of dividends or to pay expenses, except that the part of the
fund in excess of 5% of the amount due depositors shall be available without
approval of the superintendent of banks for the purpose of absorbing losses.
incorporators of a savings bank in New York shall not transact business
until they shall have deposited to the credit of the savings bank in cash
as an initial surplus fund at least $10,000, and, if the superintendent
of banks shall so require, shall have entered into an agreement or undertaking
with the superintendent to make such further contributions in cash to
the surplus fund as in the opinion of the superintendent may be necessary
to maintain the savings bank in safe condition, and shall have filed with
the superintendent a surety bond securing such agreement or undertaking.
surplus fund up to 10% of the amount due depositors shall be built up
periodically from current earnings.
If at the close of any accounting period, the surplus fund of any
savings bank in New York State is less than 10% of the amount due depositors,
one-tenth of the net earnings for such period shall be credited to the
surplus fund, or so much less than one-tenth as will make the surplus
fund equal to 10% of the amount due to depositors.
Decline in Net Worth Ratio of Savings
of the early 1980s, reflecting the impact of higher interest rates prevailing
in the money market upon market values of lower-rate mortgages and bonds
in their portfolios, and operating losses caused by shift in deposits
from passbook savings accounts to the higher yielding savings instruments
offered by savings banks to depositors (such as six-month money market
certificates geared to the higher rates paid by the U.S. Treasury on its
six-month bills), the ratio of net worth to deposits of many savings banks
(and other thrift institutions), including the giant savings banks in
New York City, declined below 10%, and in some cases below 5%.
The New York State Banking Law provides that except with the permission
of the superintendent of banks, no dividends (interest) shall be paid
on deposits when the ratio of net worth to deposits is less than 5%. As
of 1981, such permission had been granted in every case.
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