The Timaru Herald. WEDNESDAY, JANUARY 16, 1895.

Timaru Herald, Volume LVIII, Issue 1662, 16 January 1895, Page 2

The Timaru Herald. WEDNESDAY, JANUARY 16, 1895.

The reconstructed Australian banks are casting about for some scheme by which they may escape or tide over for a while the very serious difficulty which looms large m front of them m the not remote future. It seems but yesterday that directors and bank experts were proclaiming to the world, and especially to depositors who saw small prospect of obtaining their money, that reconstruction did indeed mean financial salvation to all concerned, and that the several institutions would, on their new bases, enter on a prosperous career with the certainty of meeting all their engagements. Not one of the promoters of the reconstruction hinted that any danger of collapse would remain. Did not the figures and veiy moderate estimates of values and profits show that the position would be absolutely impregnable, and that it would be nothing short of idiocy to allow such a mass of moneymaking business to pass into other hands? The shining lights of finance, particularly those who stood to lose heavily by a permanent stoppage, could see nothing but good m the schemes put forward for the reconstruction of the several institutions, or if they did foresee more than ordinary risks they kept their thoughts to themselves. It is true that dissentients and doubters who were outspoken were plentiful, but they did not belong to the inner circle, and their voices were drowned m the clamour raised by those who were determined to go on. At the time when the cablegrams were full of scraps of information regarding reconstruction, we ventured to suggest that possibly the outlook was not so bright as it had been represented to be, and that, at least m some instances, reconstruction might be merely a postponing of the evil day of total and undesirable ruin. The principal grounds of our belief (perhaps belief is too strong a word to use) were a firm conviction that the process of writing down landed estate had by no means been thoroughly done; that the available capital of the several institutions was too small ; that m view of the competition to be faced and the altered monetary condition of the community the anticipated profits were grossly over-estimated; and that the reconstructed institutions would be heavily handicapped, firstly, by having to pay interest on an enormous mass of deposits which, as a fact, were no longer m existence, and, secondly, by having to make provision m the course of the next few years for the repayment of those deposits. It has not taken 7ery long to furnish evidence that our forecast had a strong degree of probability attached to it. There is great uneasiness m Australia m regard to the deposits which are locked up m the Australian reconstructed banks. The article m the Age, which was quoted from m one of our Melbourne cable messages on Monday last, looked as though it was intended to test the feeling of the community m relation to the question touched on. Perhaps there had been a bank expert or two and a few heavy shareholders m the editor's room before he committed his thoughts to paper. The Age now fully recognises the difficulty which will arise when the deposit receipts issued by the reconstructed banks begin to mature. That difficulty of course will be that the money, so far as it can be said to be m existence, will be either tightly locked up m investments not worth their nominal value, or will be engaged m the ordinary, banking business, and quriip^vmayaU^le, for meeting the baiik'^ liability" *ib the unfortunate 9eposifcx>rs: Such will undoubtedly ; Be-fcftS* .'Situation, and the prospect is serious because, as the Age says, the Australian reconstructed banks will have to meet [face ?] a demand for the repayment of deposit receipts to the extent of .£44,000,000, between the years 1897 and 1901. Our Melbourne contemporary assumes that the banks will not be prepared to pay the money. Under ordinary circumstances that would involve putting up the shutters. and going into bankruptcy, or some sort of liquidation. But the circumstances are not ordinary, nor is tha course suggested by the Age as advisable for the purpose of enabling the banks to keep going. Firstly, says our contemporary , there should be consolidation (the scheme was mooted some time ago) and, secondly, State assistance should be claimed. The shape which it should take is not suggested, but perhaps the idea is to follow m the steps of this colony when giving support to the Bank of New Zealand. We cannot say that the cases are parallel. A Stat6 guarantee to the extent -of; £44,000,000, or even the half of it, is a large order for Australia. Beside it, the £2,000,000 guaarnteed by New Zealand sink into comparative insignificance. But thore is an essential difference apart altogether from the amount Involved. Assuming that the Bank of New Zealand will be fairly well managed, the danger of the taxpayer having t6 1 make good any loss is remote. Can \ the same be said of a huge Austra- { lian guarantee which would enable the reconstructed banks to keep faith with the depositors and at the same time provide for current requirements"? The answer that we are disposed to give is that the Australian taxpayer would be a very substantial loser. Eventually the amount of the guarantee or a large proportion of it would' become part' of the funded debt of the colonies ; m other words,

the Australian taxpayer would bear the perpetual burden of the interest on losses made by the banks previously*, to- their reconstruction. It is ionei:, thing to guarantee a sum which, though for a time locked up, will eventually be forthcoming ; it is another thing altogether to guarantee that which has vanished into thin air. How much of those fortyfour millions is a reality ? The whole of it is a reality, sure enough, m the sense that it is owing to the depositors ; but will the securities m which it is invested ever find a market at their nominal value ? Never, we say, unless a mad land boom visits Australia, which is a contingency not to be looked for, and which ought not to be hoped for by any man who wishes well to his country. Under the circumstances, the true interests of Australia will be best served by allowing the reconstructed banks to face the situation as best they can. The loss may be severe on individuals, but that constitutes no ground for shifting the burden on to the shoulders of the community.