FEAR OF CREDIT RESTRICTION

Press, Volume LXXIV, Issue 22435, 23 June 1938, Page 11

FEAR OF CREDIT RESTRICTION

EFFECT OF PROPOSED AUSTRALIAN LAW DISPOSITION OF TRADING BANK LIABILITIES (UNITED press ASSOCIATION —COPYRIGHT.) (Received June 23, 12.10 a.m.) SYDNEY, June 22. Addressing the Institute of Accountants, Sir Alfred Davidson, general manager of the Bank of New South Wales, directed attention to proposed Federal legislation which will require trading banks to keep a percentage of their total deposit liabilities as a cash deposit with the Commonwealth Bank. He emphasised that this was bound to lead to a drastic reduction in advances, causing a decline in business activity, incomes, and employment.

He indicated that the deposit would be about 10 per cent, of the total cash balances. Consequently, to protect their depositors, trading banks would be faced with the need for finding additional cash in order to meet the compulsory minimum deposit requirements. Existing liquid items could not provide the additional cash; thus the only way was to reduce advances, which would probably lead to serious depression. Sir Alfred Davidson added that the proposed legislation would disturb the development of the Australian banking system from the lines of the well-tried flexible English system and produce a revolutionary change, bringing the undesirable rigidities which had proved so unsatisfactory in other countries. No official intimation has yet been made concerning the legislation referred to by Sir Alfred Davidson.