Manawatu Evening Standard. TUESDAY, APRIL 8, 1930. AUSTRALIAN BANKING LEGISLATION.

Manawatu Standard, Volume L, Issue 112, 8 April 1930, Page 6

Manawatu Evening Standard. TUESDAY, APRIL 8, 1930. AUSTRALIAN BANKING LEGISLATION.

The proposal to eatablisli a Central Reserve Bank in the Commonwealth of Australia is interesting. Thursday’s cablegrams, apprised us of the fact that a Bill to establish such a bank had been read a first time in the House of Representatives at Canberra the previous day. That it is a Government measure may be taken for granted since the bank, and the bank alone, is to become responsible for the ilote issue, and is to act as the agent for the issue of loans on behalf of the Commonwealth and the States, and is - to be also empowered to make advances to other corporations. Apparently it will hold the sole right to buy, sell and deal in specie, while the private trading banks are to be required to establish and “maintain in the Reserve Bank’s reserve balances of not less than 10 per cent .of-their demand liabilities with the Commonwealth, and 5 per cent, of their true liabilities.” The necessity for establishing such a bank is by no means obvious, for the Government owned Commonwealth Bank has a paid up capital of £4,000,000 with a reserve fund of £1,217,750, and, under the banking legislation of last session, passed by the Labour Government, is in full control of the note issue and of the gold and bullion formerly held by the Joint stock banks. These latter iave a paid up capital of £35,328,006, and reserve funds of over £25,000,000. The Reserve Bank is to have a capital of £2,ooo,ooo—merely ■ half that held by the Commonwealth Bank -—and will have an independent directorate, including one representative of Labour. It will function on precisely similar lines to those followed by other banks, except that it is to be “forbidden from making advances .against land or engaging in trade, or purchasing shares in trading companies or o ther banks. ” An -extension of the note issue is apparently contemplated, as the Reserve Bank will be empowered to issue Australian notes In denominations of five shillings in addition to the notes of ten .shillings, one pound,, five pounds, ten pounds and so on, as at present in use. 'As, in addition to controlling the note issue, the Reserve Bank will act on behalf of the-Commonwealth and States in floating loans, etc., it inay be taken for granted that it will carry the Government accounts,, and that must seriously- affect the position of the Commonwealth

Bank, with its total assets of £82,637,613 against liabilities amounting to £80,429,314 (the figures are taken from the Commonwealth Year Book and relate to the year 1927), included in the assets being £52,904,863 held in Government and municipal securities. The reserve funds of both the Commonwealth and some of the joint stock banks are invested in Government securities, so that it does not appear that any great advantage to the public will be gained by the transfer to the Reserve Bank’s reserves of the 10 per cent, balances of the joint stock banks’ demand liabilities and 5 per cent, of their true liabilities. Such a transfer could have no other effect than to restrict the advances the banks are able to make'at present, the ultimate effect being to cripple, rather than to assist, the credit available for trading and industrial purposes. The “demand liabilities,” it may be assumed, are represented by the “liabilities at call,” which on the 1927 figures (the latest we have available in the Commonwealth Year Book) amounted to £110,294,894, so that, on that account alone, the banks would have to turn over to the Reserve Bank some £11,000,000 on the 10 per cent, basis. Just what wopld be required on the “true liabilities” we are unable to say, but some £160,117,702 were on interest bearing deposit with the banks at the same date, and 5 per cent, on that amount would.mean another £8,000,000 to be added to the Reserve Bank’s reserves.