AUSTRALIAN WAR LOAN

Evening Post, Volume CXXIX, Issue 136, 10 June 1940, Page 12

AUSTRALIAN WAR LOAN

LIQUIDITY OF BANKS

"PLAN FOR PROBABILITIES"

The Australian local war loan of £20,000,000, after, nine days before I the public, closed on Friday with | £500,000 over-subscribed. This result was not unexpected. It will be obvious that demands made by the Government for loans will reduce the supply of money with the banks for other purposes. But those other purposes, for the time being, appear to have been fully provided for. The returns of the nine trading banks of Australia for April show that deposits with them were £352,700,000, or £300,000 more than as at the end q£ March, whereas advances had risen to £283,900,000, an increase for April over March of £6,300,000, but they were less than as at April, 1939, when they were up to £289,700,000.

- It has to be remembered that it was only as recently as March last that the Commonwealth Government went to the public for a loan of £18,000,000, of which £8,000,000 was for defence, the balance for public works. This loan was also over-subscribed.

The liquidity of the banks no doubt contributed to the success of both issues—and the rate of interest for the latest loan was lower than that for the March issue. In what he described as the need to "plan for probabilities," the Federal Treasurer, Mr. P. C. Spender, emphasised the importance of the liquidity of the banks. "If their liquidity is low," he said, "they are unable to meet the needs of business for working capital.

"A year ago the liquidity of the banks was so low that there was grave danger of a serious contraction of credit."

The improvement in so', short a time was attributed by Mr. Spender to better export prices and more rapid payment to producers for their exports; and increased defence expenditure financed directly or indirectly through the banking system. The banks, he added, had been able to support a continuous business expansion and at the same time make substantial contributions to Government loans.