The Press. THURSDAY, MAY 11. 1893. BANKS AND BANKING.

Press, Volume L, Issue 8480, 11 May 1893, Page 4

The Press. THURSDAY, MAY 11. 1893. BANKS AND BANKING.

The subject of Banks and banking, owing to events in Australia, is naturally occupying a good deal of attention at the present time. The temporary euapeusiou of financial institutions doing a large business in the sister colonies, is making men realise what a very importaut part Banks play in the commercial operations of the world, and how completely the whole machinery of trade and interchange would be brought to a standstill were it possible for all banking business to be stopped, even for a week, and were the vast fabric of credit, on which banking is founded, to tumble to pieces. Although banking as'carried on iv these days is practically a modern institution we have evidence that it was not unknown in the era of the older civilisations. Recent excavations prove that at least one firm of bankers conducted aa extensive advance and general business in Babylon seven or eight

hundred years before the Christian era. In the days of ancient Greece banking was well understood and carried on, the Eomans subsequently adopting the same methods. And in the twelfth century, when Venice became the great emporium of the trade between the East and the West, her mere bant princes early felt the necessity of a banking institution to conduct their extensive financial operations. It was not, however, till the 18th century that banking, iv anything like the seuse it is now understood, realty commenced. Before that time Banks were not very mac a more than safe depots for coin and bullion, the receipts passing from hand to hand like a modern Bauk note. We need not attempt to explain to our readers, who are no doubt quite familiar with the subject, the nature of the business carried on by Banks, it will be interesting, however, to give a few, facts illustrating the vast extent of their operations, in order to show bow intimately banking is mixed up with the world-wide ramifications of commerce, and how rapid have been the onward sirides of trade operations in recent years. Fifty years ago the banking power of the world was calculated to amouut to £308,000,000; in 1890, it had reached £3,203,000,000, or an increase by nearly ten-fold in fifty years. By banking power we mean the capital, righc of issue, aud. deposits of the Banks; the capital, in other words, which can be employed by them in their business. The figures are as follows:—

1840. 1890. £ £ United Kingdom 132,000,000 910,000,000 United States ... 90,000,000 1,030,000,000 France ... 16,000,000 268,000,000 Germany ... 12,000,000 231,000,000 Australasia, ... 6,000,000 140,000,000 Oauada. ... 3,000,000 40,000,000 River Plate ... 2,000,000 37,000,000 Other Countries 48,000,000 547,000,000 Total ... 308,000,000 3,203,000,000

This shows a very remarkable rate of progress, and in no part of the world has the increase been moce surprising than hi Australasia. Fifty years ago a modest £5,000,000 was all the capital that was needed to do the business of these colonies. Now so extensive have grown our commercial operations that in 1890 the figures reached £140,000,000, whiie at the close of 1892 they had risen to £142,000,000. The- great banking facilities which have been afforded to the people of Australasia is further illustrated by comparing the backing power of the Banks with the population in the different countries of the world. By this test Australasia is a long way ahead oE any of them. While in these colonies ifi is £35 per inhabitant, in the United Kingdom it is £24, and in the United States £16. For the purposes of comparison we give the ratio for a number of countries as follows:—

£ per Inhabitant. Australasia ... ... 35.0 United Kingdom ... ... 24.0 United States ... ... 16.1 Denmark... ... ... 11.6 •Canada ... ... ... 8.0 Argentina ... • ... 8.0 France ... .... ... 7.0 Cape Colony .... ... 6.0 Germany ... ... ... 5.0 Belgium ... ..»f "... 5.0 Austria ... ... ... 3.8 Italy ... * ..4 ... 3.6 Kussia ... ...' ... 1.2 We have said that the remarkable growth of banking power represents to some extent the rapid expansion of trade and commerce during the same period. But after all the figures give only an imperfect conception of the trading operations of the world. That branch of a banker's business which deals with exchange. Las vastly simplified commercial transactions, and permits of gigantic operations being effected without the intervention of coin or even bank notes. How large these transactions are it would be hopeless to express in figures. Some idea, howeverj may be obtained from the fact that the cheques paid, in London and New York in one month aggregate £1,270,000,000 sterling, which is fair in excess of all the gold and silver coin in the world. In 6ne day as much as £25,000,000 and over is settled in tho London clearing house, and nearly the same amount in New York. Thus transactions representing many millions., sterling daily are settled without even the use of a bank note or coin/ And as similar methods are adopted whenever commercial transactions are of miiibt£ magnitude, we are enabled to realisje| what an important part bauks play in the business operations of the world, j

As we have said, modern banking is based very largely upon credit, without which commercial operations would be very greatly restricted. Banks use not only their own capital, but employ the money entrusted to their care iv the shape of deposits, for the bulk of which they pay a moderate rate of interest. This money they lend to borrowers at a higher rate of interest, the difference between the borrowing and the lending rate being one of the chief Bourcea of profit to the shareholders of the Bank. When their business is conducted on prudent principles, and the public feel confidence, the capital of a community is in this way put to the most profitable use. Those who da not wish to trade, and are satisfied with a moderate return, place their money iv the Banks. Traders aud mercbante, who need accommodation, obtain the use of that capital from the Bank, and so long as confidence is maintained everything works smoothly. But at times of panic, such as periodically arise in different parts of the world, the system breaks down, and we have such occurrences as are being wituessed in Victoria at the present time. Perfectly solvent institutions in that colony, under the pressure of unfounded panic, have been forced, in the interests of all concerned, to temporarily close their doors, although they have been doing a sound banking business. A panic having set in, those with money to their credit on general current account, as well as those who have held short-dated deposits have, in Victoria, to a large extent demanded to be paid in gold. Aud although the several institutions affected have held large stocks of coin, yet vast as those were they have found it impossible to meet all demands at a moment's notice; for although they may have made their advances to their customers on

good aecuritiee, these securities cannot in this, or in any part of the world, ibe turned into gold in a day. Hence the icrieie which haa arisen. It is, we I believe, an admitted fact that some of I the Banks affected have, in the past, I in order to profitably employ the large amount of money thrust upon them in shape of deposits, lent n?oney on long dated securities instead of confiniug themselves to advances of a liquid nature ; in other words, to short dated advances of a negotiable character. The result is the unreasoning panic which is working such mischief in Victoria. The Banks which have suspended have found themselves compelled, in the interest of all, to seek time to readjust their affairs. There is little doubt but that) the securities held are amply euffi cient to pay everybody, and to permit of the commerce of Australia being carried on, if the Victorian community cau only be brought to look at the position in a common-sense and dispassionate manner. But if people will blindly shut their eyes to their owa interests and to the interests of the country in which they live, if they act in a manner to disorganise trade by withdrawing the gold from circulation which is necessary to carry on the commerce of the country, Australia may not yet have seen the end of the troubles which are, in the fullest sense of the word, of their own making. It is the people of Victoria at whose door must be laid this undoing of the commerce of Australia. But a few years ago they displayed a reckless spirit of credulity in their land transactions, and in trusting to every wild cat scheme which was placed before them. Now they are, to some extent, reaping what they sowed. It is usually the wildest speculator in times of apparent prosperity who is the greatest coward iv times of adversity; and therefore we presume thafc a people so frivolous as those of Victoria have proved themselves to be, are scarcely to be expected to exercise that calm reassuring courage which is so essential to allay a panic Much mischief has already been done, but fortunately there are some Banks still doing business in Australia which restricted their advances during the time of the land boom iv Victoria, and whose resources are of a sufficiently liquid nature to meet every demand that can be made upon them, and it is to those institutions that we must look to provide a barrier that will stem back the unreasoning wave of distrust which has seized the minds of a portion of the Australian community.