A WORD OF WARNING.

New Zealand Herald, Volume XVIII, Issue 6067, 28 April 1881, Page 5

A WORD OF WARNING.

The Australasian Insurance and Banking Record contains an article entitled, " A Word of Warning," in which it says:— "The circumstances which gave rise to the vast and sudden increase in our monetary resources have been fully dealt with in these pages already, but it may be briefly said that the two more potent factors were large and simultaneous Government borrowings, and the launching of financial companies in England for operations in the colonies. Now, the praiseworthy intentions of the latter have now been entirely subverted by the reduced rates of interest that have come into vogue since their inception. As a matter of fact, they were brought into existence by the tempting 'rate of usauce,' which prevailed during 1879 and ISSO, and, practically, they cannot make a living, while the banks are lending freely at six per cent. Some of them will assuredly retire from the field ; a few may hang on in the hope of better times, working on their own capital, refraining from the issue of those 5 per cent, debentures which made up large figures in the advertisements of their resources, and only calling up enough capital to keep their shareholders together. As these companies retire, the station advances will pass again into the books of the large banks, and the first steps towards a renewed demand for banking accommodation will be seen in the returns. The other main element of disturbance, the Government funds, is essentially an evanescent one. "With, the progressive extinction of these two main elements of excess, the relations between supply and demand will rapidly assimilate to their normal condition, and though by themselves they are scarcely potent enough to appreciably increase the cost of money to the borrower, they will effectually disperse that existing accumulation of surplus coin, which is a source of present vexation and latent danger to its unwilling custodians. For it is a wellknown fact in banking circles, that the foundations of the most serious losses are invariably laid in times of plethora, and if we may rely upon the current reports of numerous large transactions recently entered into, for periods in some cases extending to five years., we say unhesitatingly that the interests of bank shareholders are being jeopardised under the influence of a mild panic that is based upon an altogether mistaken apprehension of the outlook. The quarterly returns to the 31st of March will, when published, doubtless show a very large increase on the deposits of the previous quarter, without a commensurate growth in the advances. We predict that those of the 30th of June will tell a different tale, and that those of the two following quarters will progressively indicate the near approach of the end of the plethoric period."