BANKING SYSTEMS

Evening Post, Volume CXVIII, Issue 145, 17 December 1934, Page 14

BANKING SYSTEMS

AMERICAN AND BRITISH

WHERE THEY DIFFER

"EVENING POST," December 17.

- Discussing differences between the American and British banking systems, the Guaranty Trust Company of New York, one o£ the great American banks, attributes the wisdom of the British banking delegation mainly to the scarcity of legislation. "It' is the tradition of sound bank management, combined with a minimum of unnecessary Government interference and restriction, that explains the strength of the British banking system," holds this American authority. The difficulty of making a comparison is admitted because there is very little similarity in the British and the American system, but a careful analysis of the banking and monetary policies of the two countries will show that, under the English system, the-banking business has been handled more during ten years of depression than has been the' case in America during the depression, that began in the latter part of 1929. "Such a study, however, will not show that the English banks and industrial concerns are sounder than those in America, but simply that their method of organisation makes possible saner and- more satisfactory operations." FREEDOM OF BRITISH BANKS. Special reference is made to the freedom of the British banks. It is remarked that there is- "no regulation or supervision of the English banks; no minimum capital requirements; no examination of the banks made by the Government; nor are any reports of conditions, except asi indicated, concerning any phase of the bank's affairs required by either the Bank of England or the Government. "Nothing in the nature of minimum reserves, places where reserves are to be kept, or types of assets in which a bank my invest its funds is controlled by law or regulation. "In other words, an English bank may, and does, invest its funds in any type i-f loan or security that it sees fit, whether of a capitl nature, against^ stocks, bonds, real estate, including farm, residential, and business property^ in unsecured loans based upon balance-sheets, or simply upon character." It is also noted that "the Bank of England, England's central bank, like the joint-stock banks, operates with ■ a free hand. At no time is it subject apparently to regulation, .domination, or control by Government officials or members of Parliament. In fact, apart from statutory provisions regulating the issue of notes, the grant of loans to the State, and the publication of a weekly account, there is only one real prohibition imposed upon the Bank of England; and that is that the bank is debarred for all time from using any of its funds in dealing in merchandise or wares of any description. Its directors have full and absolute control of the bank's affairs." CONFUSING LAWS. The Guaranty Trust then describes American banking laws as "a hodgepodge ot rules, regulafions, and supervision;". Every State in the Union has its own banking law and issues charters authorising the creation of banks. The Federal Government, through the Comptroller of the Currency, may issue charters to engage :n the banking business in any State. "There have also been federal central banking institutions; but none has outlived a period of twenty-one years, although in other countries their life has exceeded a century. "In the United States, politics has invariably spelled their doom. "For the Federal .Reserve banks of America to suffer a similar fate would be a serious blight on the history of banking. The Federal. Reserve system was' devised, after long and careful study and deliberation, by some of the outstanding statesmen and business leaders of modern times; it is amply capitalised; and it provides the elasticity that a currency such as ours requires, thereby meeting the need of seasonal business operations in various sections of the country. Moreover, * the currency base, as stipulated originally by the_ Federal Eeserve Act, 40 per cent, of which is gold, creates the soundest money the country has ever known.' The twelve Federal Eeserve Banks and their branches have worked out among themselves a system for clearing cheques and for. the collection of time items that is indispensable to the member institutions. "Admittedly there are some defects In the Eeserve system that should be remedied, and the revision of certain features of the Act would unquestionably improve its effectiveness in times of depression, as well as of active business." <fc"~ WHY BANKS FAILED. The one factor that has probably been more responsible than any other for our American bank failures has been the practice of granting charters without ally attempt to limit the number of banks organised in any one locality, states the Guaranty Trust. There have been instances of four banks in towns of 1200 to 2000 population as well as an excessive number of banks in towns dependent entirely, on one industry. These institutionß have competed keenly with each other, and •fhe natural consequence has been the payment of high rates of interest for deposits and the' making of unsound loans. "Many other comments pertinent to the situation could be made, the Trust explains; ' but, in view of the foregoing, it is not surprising that we have had many bank, failures. ■ And it is a rather obvious fact that the bankers themselves are not wholly to blame for our banking ills, but that our law-*making bodies, both State' and national, are also responsible." Stress is laid upon the maintenance of, the British policy of "hands off / the banks" and the great importance of tho: feeling of mutual confidence existing among British bankers, Government officials and the public; and regret is expressed that reputable American bankers have not enjoyed the confidence that British bankers have experienced. ; "Yet,the .facts.prove indisputably that the banks of America l»ve stood ready at all times to serve industry and commerce as well as the Government, as willingly, as Tiave the English banks." : RAW MATERIALS. (By Telegraph.- -Press Assn.—Copyright.) LONDON, December 15. Friday's closing prices for tho following raw materials were as follows, those for. i December 7 being in parentheses:— \ Cotton: Liverpool quotation, good' American middling, spot, 7.08 d a lb: (7.02 d); • January delivery, C.7Bd a lb '(6.75 d). Eubber: Para, 5d a lb (same); plantation smoked ribbed sheet, 6%d a lb (6 l-8d). Jute: December-January shipment, Indian jute, Dundee quotation £16 12s 6d a ton (same). Hemp: December shipment, nominally '£15 a ton.

Copra: December-January shipment, South Sea, £8 15s a ton (same); smoked, £8 15s a ton (£8 12s1 6d); plantation Rabaul, £9 10s a ton (£9 12s 6d). Linseed oil: £20 a ton (£2O 10s). ■ Turpentine: 45s a cwt (46s Cd).

The directors of the Cheltenham,1 Kairanga, Rongotea, Rangitikei, and New Zealand Farmers' Dairy Union companies have fixed the advance for November cream supplies at 7d a pound. Last year 7d a pound was the general pay-out of these factories.