RESERVE RATIOS

Te Awamutu Courier, Volume 53, Issue 3841, 2 December 1936, Page 5

RESERVE RATIOS

“DANGEROUS AND IRRATIONAL PROVISION.” POSITION OF TRADING BANKS. Reference to the ratios of deposits of the trading banks in the Dominion required to be maintained with the Reserve Bank of New Zealand was made by Sir Thomas Buckland, president of thei Bank of New South Wales, in his speech at the annual meeting of propriteors, held at Sydney on F riday. A new and very important item appearing in the balance-sheet, said Sir Thomas, was the statutory deposit in the) Reserve Bank of New Zealand of approximately £342,000. Under the law establishing the Reserve Bank of New Zealand in the Dominion and its subsequent amendment, the bank was required to maintain a statutory deposit with the Reserve Bank of New Zealand, which was not to be less than 3 ped cent, of the amount of deposits placed with it for fixed terms and 7 per ce'nt. of the amount of call deposits. There was only one way in which the Bank of New South Wales could regard this minimum deposit, and that was, that it was outside its control. They were compelled to replace it by building up their cash reserves to a 'similar extent in order to maintain the nroportion they liked to see. between their cash and liquid assets as compared with their deposit liabilities. Should the bank at any time require to reduce its cash holding temporarily to such a point that it would require to use some or all of the amounts so set aside by law it could only do so by becoming a borrower at the central bank. This was undesirable in the administration of a large trading bank undelr the British system, although it was known that it was not so regarded by large numbers of the small individual banks in a system such as that obtaining in the United States of America. Recently, by an amendment of the law there had appeared a very much more, dangerous and irrational provision in that the Reserve Bank had power to vary at will the ratios by which the statutory deposit was assessed. This provision placed a trading bank in the position of being exposed at all times to having its ratio varied without notice. It had to regard the statutory deposit as out of its control. It was saddled with the added responsibility of being ready at all times to build up that statutory deposit whenever the Reserve authorities might see fit to alter the ra*io, otherwise it would have to inflict injury on its borrowing customers by contracting advances. The ratios being what they were, it was unlikely they would over be reduced until Parliament, in its wisdom saw fit to restore the traditional freedom of the British banking system to New Zealand. Until that event occurred they must observe the dictates of prudence and be prepared at all times for any such alteration being made in an upward direction, necessitating the setting aside of further sums of cash.