CURRENT TOPICS.

New Zealand Mail, Issue 1106, 12 May 1893, Page 38

CURRENT TOPICS.

THE AUSTRALIAN BANKING CRISIS.

The fever of the Australian banking crisis appears to have abated somewhat. So much at least we hope may safely be judged from the fact that the various Australian Governments have announced that there is no necessity for Government interference. Interference could of course have been only by legislation, pledging the public credit How far that might have been wise in the worst event depends on the reasons for the numerous bank suspensions of the past few weeks. It is a very good sign, however, that the need for any such interference has passed away. While things are slowly righting themselves, we may reflect on the unwisdom of the last interference by the State in Victoria, and judge how extremely mischievous further interference might have been. The declaration of a five days' bank holiday for the avowed purpose of suspending the panic is the most amazing thing on record. It forced every sound bank to keep open, and threw doubt on every bank which closed, thereby defeating the very object aimed at, for the weak institutions might have been regarded as specially branded from the holiday date. In one colony, New South Wales, an Act has been passed for enabling the State to come to the rescue of any particular bank in time of need by a proclamation giving its notes the status of a legal tender, and authorising it to issue further notes under that protection, under certain conditions of solvency. The passing of the Act shows that the situation in Sydney is still regarded as urgent. But as yet nothing has been done under the Act, and there is nothing to show that the precautionary measures will be immediately necessary.

The reason given by The Insurance and Banking Record for the failure of the Commercial Bank accentuates the. gravity of a crisis which showed no signs of abatement until four large institutions were forced to close their doors. ' The existing financial circumstances of the colony,' remarks the Record, ' are extra-1 ordinary, for the abstract principles of economic law, having been largely violated in the past by almost the entire colonial community from the Government to the individual, aie asserting their supremacy.' If we place that uncompromising deliverance beside the fact that the liabilities of the shareholders on capital account in the seven institutions which have closed their doors amounted in the aggregate to L 6,100,000, and consider that the public had ample cognisance of both, we shall be astonished at neither the terrible stress of the panic nor the length of its duration. This method of looking at the business makes us particularly thankful that the panic is abating at last. The disaster done by it is, in proportion to the property and population Interested, unprecedented in the world's history. If the recovery be of the same kind there will be reason for the sort of congratulation which is reserved for the unexpected. The indications, we fear, are that the recovery will be a very tedious process, very trying to the patience, nerves and pockets of all concerned. The object now before those /who are organising recovery by the reconstruction of the fallen institutions is not only reconstructive but reformatory. The vices of Australian banking have been exposed. They are the combination of short-dated deposits with indefinitely long-dated advances, excessive disproportion of deposits to means, the utter failure of the reserve liability system as an upholder of credit. The Commercial Bank, which hopes to retain the benefit of its enormous business, embracing no less than 30,000 accounts, is reconstructing on lines which may avoid these evils to some extent. The capital of the new concern being all paid up—a certain proportion in a given time, the balance at once—deposits will be checked to some extent, but on the other hand so will be the liability to forced runs. The lending out, at the same time, will have to be guided by the light of the ' economic principles,' disregard of which has tumbled seven banks into the dust. A noteworthy feature of the reconstruction is that the creditors are invited to help the bank to aave their capital by converting it out of an advance into a portion of the bank's trading capital. Three millions of the six million nominal capital are expected in this way, and if the depositors are backward in taking up the preference shares set apart for that portion of the scheme, the Courtis to be invited to compel them—a fact which shows very clearly the determination of all concerned to pull through the gravity of the crisis. The depositors are in fact treated like creditors who must in some way or other get twenty shillings in the pcund. The shareholders are, on the other hand,placed in the position of debtors who are allowed to keep a portion of their business, and have time given them to pay up the security they deposited when they went into business. They remain shareholders, they get LlO shares like the depositors, they are not preference shares, and ; they are not fully paid up ; but paid up to L 4 only, the balance to be called up by quarterly instalments of five shillings for six years, The amount,

L 1,800,000, is, we notice, the amount of the reserve liability of the shareholders at date of suspension. These terms we may regard as the basis on which all the reconstructions—five out of the seven suspended institutions are reconstructing—are being engineered. If they succeed the depositors will in time be paid in full, and the shareholders will in time pay, or compound for, six millions of money. The latter is the serious complication. But if the panic is really over, and the re-, covery moderately quick, the worst need not be feared even under that head. There will be much unseen sorrow and suffering, no doubt, but these will cease when respect for economic principles is restored, never, let us hope, to be again departed from.