WHAT ARE BANK SECURITIES?

Evening Post, Volume LXXVII, Issue 117, 19 May 1909, Page 4

WHAT ARE BANK SECURITIES?

TO THE EDITOR. . Sir, — The long series of letters appearing m the press from one end of the Do-, mmion to the other, on banking, arai oDemnjr the eyes of our people to th« oltects of Ihe present banking system., leople who are possessed of character, and securities, find it almost impossible to obtain accommodation on any terms • while others who have hitherto enjoyed! sufficient credit from their bankers ara staggered by requests for reduction, or repayment ot advances. What, then, ara the securities which are proper, and acceptable to the banks? A recent correspondent in your columns who, has takea up the cudgels on behalf ef the banks against me— one who appears to have aa inside knowledge of the present methods °t banking, delivers hinpself as lollows-— . The taking; in of securities \ nth one hand and advancing money with Ac other ia not banking. It is pure and simple pawn* broking. ,The logit^nate functions of banking are discounting and exchanges and the making of such advances as are promptly recoverable. Dead loans oa mortgage can only moan trammelling a bank's legitimate operations, and tho hara&sing of the trading public. And who, again, is to bo the judge of public financial requirements? It seems to mo that the man who wants to borrow is lesa likely to consider the proa and cons ia the same anxious way as the man' who desires repayment of his money on d<3-< mand. And this ie where the banker stands. To a great doal of this 1 am quite in accord ; it represents the views of most men in bank employment, but at the same time this pronouncement brings no relief to those who are unable to obtaia banking facilities. Does it not rather inform, or impress on people that our banking methods are more restrictive thaa auxiliary? Banking in all ages, and ia ail countries is absolutely pawnbroking-. The three balls are the signs of the old Lombard bankers, and very wiee and wealthy were the Lomnards. Everything taken by a bank as a security for overdraft is a ''pledge,*' just the same as tho vvatch or ring one leaves with the pawnbroker. People 6adly need more pawnbrokers or bankers to do the sound business which this country offers throughout its length, and would have immediate relief if at once our banking laws wero e wept off. One hardly ever hears of a pawnbroker failing; so long as he adheres to the proper valuation of his pledges, ho makes a proper margin of security. If the borrow er cannot redeem at the proper time, the pledge is salaable at a price to clear the loan. Thig guards against inflated values and ensure* safety, even the assurance of repayments. Had such conservative methods been pursued by banks in the past, land boom* and other evils would have, been unknown, and true wealth production would hava taken the place of wild speculation "The legitimate functions of banking are discounting, and exchanges,, and tho making of such advances aa are- 'promptly recoverable." This formula id what ia found in all text-books on banking, and a very admirable one it is for older countries than ours. In other words it suits England — pure commercial requirements in fact. It makes no provision whatever for the banking which tfia young country needs. Assuming fcffat our banking was strictly held to this foraiulpt, nearly all our banks .would go oub of 'business. Take the figures of tho banks at 31st March last. The advances totalled £18,186,909; the discount* only £2,132,562. As the" larger sum represents advances against land, and other "pawns," our banks are, it would 6eem, doing aa llhgitimate business of over £18,000,000. The legitimate business only totals £2,132,562. The country only provides that amount of trade bills lit tor discounting. We are not much of a commercial country from this showing. But we are a wonderful wealth-producing- country nevertheless. We should have banking to aid. I, do not fiud fault with our banks for departing from the cut and dried formuk of English banking. Oa the contrary they deserve credit for thi* departure. My quarrel with them is this — they (the banks) are propping up tha middleman, and tho wealth-producer it denied the help which would otherwisa be ayailablo for \h& latter. The deposit tor in tho banks gets about 2 per cent, less than he should for his money, for the middleman can only pay a low rai* of interest on an overdraft which does not make wealth — only takes from others. The wealth-producer can give more to Uio depositor than a mere wealth taker. This is a very important aspect of the question* and I have often marvelled at the folly of people who own £20,000,000 (depositors) submitting so quietly to this treatment. While on this subject — bank securities — I challenge Mr. Harold Beauchamp'e slatement that the banks do no mortgage j business. I say they do. I would like to ! show him some registered in this very town. ' Even though these mortgages are "on demand," they are, as dead and heavy as millstones. Will Mr. Beauchamp 'face this squarely? It is a matter of fact, not mere assertion. My opinion of bank mortgages is that they are extremely bad in overy sense. They are first of all repayable "on demand," and the man. who mortgages on these terms makee himself the plaything of circumstances. Better far to have a bargain like tho Advances to Settlers, which loans the money on long terms, and gives every inducement for repayments. So long as repayments aro punctually met, the borrower has nothing to fear. He won't be "called up," or crushed as the results of others' wrong doings. He^ also has the chance of making a profit from the use of the borrowed money. It is possible, by adjusting banking methods to a growing country's needs, to safely meet all the legitimate financial requirements that arise. By doing so its people are . helped from being there smugglers, into forceful wealth owners. More power to Sir Joseph Ward for recognising we are under-banked. Let him put the laws on our statute books which will mako it possible to have more banka. — I am, etc., .... „ J- B. HOBART. 18th May.