THE BANKING POWER OF AUSTRALASIA.

Press, Volume L, Issue 8483, 15 May 1893, Page 6

THE BANKING POWER OF AUSTRALASIA.

TO THE EDITOR OF THE PRESS. Sir, —With respect to your article of today permit mc to add that I had not overlooked the fact that the Bank deposits, or banking power, of Australia were in a way provided mainly by Australia. But when 1 thought of the Australian Bank deposits 1 could not forget the Australian debts. You showed that Australia had £35 per bead of banking power. I cannot at present lay my hands on the exact figures, but I fancy the public (not to speak of private) debt of Australasia is somewhere not far from £35 per head—and the debt it must be reinembired is practically to foreigners. Inordinate borrowing by colonies is necessarily largely reflected in apparent corresponding banking power while the money is being spent. Our own colony afforded a striking illustration of this. When New Zealand was spending tnillious of borrowed money banking facilities became so great and so tempting that thousands of colonists became speculators, and ultimately were ruined.

I don't mean to say that the money borrowed by Australia necessarily becomes bank deposits. What I desire to point out is that bat for the immense public and private borrowing from foreigners on the part of Australia, the recent banking power of Australia would not. and could not, have reached anything like the magnitude it did. Therefore I think the reasonable conclusion is that Australian banking power has been fictitious to a degree that has approximately corresponded to the extent that Australian borrowing has been unwarrantable. If you will forgive mc for appearing too

critical, there is just one other point upon which your argument does not seem quite conclusive.

You are no doubt right in saying that the Banks' advances have been only in reasonable proportion to the deposits they held, and that the only error was in the advances being at long instead of short dates. Now, it seems to mc that this is just the weak spot of the whole business. How is the trade of Australia going to supply legitimate banking business for the numerous banks and the enormous sums of money apparently at their command? If the Australian (like the English) Banks were to confine themselves to short dated advances on liquid securities, not a few of them would fiod their occupation gone. Legitimate banking business iv Australia is not possible for anything like the number of Banks established. Much of the so called great banking power is therefore uudesirable, and becomes a source of danger rather than power. Many of the Australian Bauks have been doing the business of finance aud mortga_e companies, with deposit money of which they were respousible for the return at short dates. To do safely an ordinary finance and mortgage business, money must be obtained on long-dated debentures. The sum of the whole matter seems to be that Australia had become intoxicated by great facilities for credit aud the use of money, and the result is demoralisation all round.—Yours, X' . May 13th. Trader. [Our correspondent concedes all that we have affirmed in our articles on Australian banking. We said that the banking power of the banks was provided mainly by colonists themselves, and " Trader " admits that such is the case. We also pointed out that had the banks which have suspended confined their operations to legitimate banking — that is to say, to makiiigshort-datedadvances ou negotiable securities—the present trouble would never have arisen; and "Trader" also agrees that the banks which have suspended have been doing the business of finance and mortgage companies rather than that of baukiag. "Trader" agaiu admits that the " buiks' advances have been only iv reasonable proportion to the deposits they held," a fact which we also pointed out in our article. Whether the banks which have suspended could have made a legitimate use of the deposits entrusted to their care is a question which we did not discuss ; if they could not make a proper use of them they should have been courageous enough to refuse them. As we pointed out in our article, there are banks doing business in Australia which refused to depart from the transaction of legitimate business, with the result that pubac confidence in them rcmaius undisturbed. In conclusion, we would add that "Trader" appears from one of his letters to think that in quoting the banking power of Australia per inhabitant as standing at the head of the list we regarded the fact as matter of congratulation We expressed no such sentiment, but simply noted the fact as an interesting one to our readers.—Ed. Press.]