TRADING BANKS

New Zealand Herald, Volume LXXV, Issue 23103, 30 July 1938, Page 10

TRADING BANKS

RESERVES OF CASH AUSTRALIAN PROPOSAL POLITICAL CONTROVERSY [from our own correspondent] SYDNEY. July og Strong differences of opinion in the ranks of the Federal Government Party may lead to a crisis if the 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 been recommended by the Banking Commission, whose report was made last year after more than two years' deliberation.

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

The members concerned believe that the results of the suggested legislation would have serious repercussions upon the Government, and therefore, they intend to fight it to the utmost. In face 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 the sharp decline in export prices, there is a tendency by certain banks to contract credit. They fear that Government action along the 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 oi credit at their disposal. Against this, the 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, und<?r the compulsory scheme the cash would not be available