Trading Banks’ Reserves of Cash

Manawatu Times, Volume 63, Issue 181, 3 August 1938, Page 12

Trading Banks’ Reserves of Cash

AUSTRALIAN PROPOSAL

SYDNEY, July 20.

Strong differences of opinion in the ranks of the Federal Government Party may lead to a crisis if tho Government persists with its stated intention of compelling trading banks to lodge with the Commonwealth Bank a portion of their cash reserves. This action has boen recommended by the Banking Commission, whose report was made last year after more than two years’ deliberation.

Frequent informal discussions among an influential group of members of tho United Australia Party havo been held in Sydney, at which plans to induce the Government to abandon its move nave been made. The group has been promised the support of several members of tho Country Party and members in other States.

The members concerned believe that the results of the suggested legislation would havo serious repercussions upon the Government, and therefore, they intend to fight it to the utmost. In faco of this opposition, the delay of 12 months which has ensued since the declaration of the Government’s intention may be extended at least until next year.

Dissatisfied members claim that already, owing to tho sharp decline in export prices, there is a tendency by certain banks to contract credit. They fear that Government action along tho lines contemplated would cause a serious credit contraction.

Supporters of the Government’s proposals claim, that as the trading

banks, with one important exception, already lodge a substantial portion of their cash reserves with the Commonwealth Bank, the reform would not affect the amount of credit at their dis* posal. Against this, tho party critics say that whereas, at present, cash lodged by the trading banks is obtainable by them at call and therefore is equivalent to being in their own vaults, under the compulsory scheme the cash would not be available.