FINANCE

Observer, Volume 2, Issue 27, 19 March 1881, Page 7

FINANCE

COLONIAL BANKS AND BANKING.

Part I.— lntroductory.

In the quarterly return of the liabilities and •assets of the banks doing business in New Zealand, issued from the Treasury on the 9th February last, for the quarter ended 31st De■cember, ISSO, are several grave matters worthy the public attention. The return, like all other returns, looks better on paper than when subjected to analysis. The business of banking is as simple as that of selling oysters, and very much like it. The analogy need not be pursued. By the return it appears that the total liabilties ■of the banks in New Zealand at the end of the year were £10,042,507. To meet these obligations to pay the banks have the following means for a sudden call for money : — Coined sold and other coin £1,964,324 ■ Gold and silver in bullion and bars £182,549 Union Bank of Australia Reserve Fund invested in Government securities £500,000 Bank of Australasia Reserve Fund invested in Consols and Three-per-cents. . . £215,710 The Bank of New South Wales, having lately accumulated large stores of coin, has placed itself in an exceptional position. The reserve funds of the other banks are absorbed in their business — forming, as it were, a portion of the cash they keep in their tills to ■open shops with. Bullion is the only legal tender in New Zealand, and, should a period of .great stringency in the money market arise, it is evident, in the event of a run being made on the banks, that the securities forming a portion of the reserve fund of our reputable banking • •corporations could not be hypothecated in .this Colony, because there is no cash in New Zealand to advance on the securities which would "be sought to be hypothecated, other than the •Cash above mentioned. The securities, therefore, held by such banks as the Union, and another, would afford only a fietitioussourceof ■confidence in the time of a commercial crisis. The actual cash the banks have in New Zealand is thus found : — Coin and bullion £2,146,873 less notes and bills in circulation £998,907 Caslikeld by banks £1,150,966 - It will be needless for us to point out that if 'Consols and Government securities could find ho market in New Zealand in a time of unusual monetary stringency, that other securities held j by the banks would, at least, be in no better position. The securities in themselves would be valuable, but we have no purchasing power. Turning to the amount of money placed in the •custody of the banks, bearing interest, and not bearing interest, it will be found to amount to the large sum of £8,255,817. If, however, the •deposits not bearing interest are departed from those bearing interest, the hollowness of our banking arrangements will become at once apparent. The deposits not bearing interest j amount, to £3,343,750. These are deposits at j ■call. It. will be seen that when the notes in circulation, and the bills payable, are redeemed, the banks have only one third, roughly speaking, of coin in their cotters to pay the demands that any day may be made upon their cash reSources. It is true that some of the banks may ■hold good securities that would enable them to meet their engagements to their customers in time ; but there is no store of what has been aptly called "unused cash," for a portion of ■which they could pawn their securities, and by this means be enabled to meet their urgent liabilities. It will, doubtless, be urged against the cogency of these figures that, besides the moneys which constitute the actual New Zealand working capital of the banks, there are "debts due to the bank," exclusive of debts abandoned as bad or doubtful, amounting to a very large sum, which abundantly proves the solvency of the Corporations, and would dissipate any fear of mercantile calamity. The answer is, however, very plain. We are not •discussing the solvency of the Banks — that of course is assumed to be" beyond question ; but what chances, we can ask, would a bank have of realising its debts if the money market were tight. We are looking at the time, yet to come, when men Avill refuse bank notes unless they are made by law n legal tender, and will demand coin in the time of their fear. Let us suppose a run taking place on a bank in New Zealand, and people calling in those moneys they have deposited in the .bank, not bearing interest. What position would the Manager find himself in ? The bank •would have to redeem its notes, it would be subject to a call to pay on demand of a sum 'which, as we have shown, is greater than its come-at-able resources. • It is true that banks have landed property, notes and bills discounted, other securities, and debts due to the bank from its customers — but there is no pawn office in this Colony where these things can be pledged. It will thus be seen that, like many of its customers, a bank under such exceptional circumstances, Avould have a trouble to meet its engagements. It should, however, be observed that the danger is more apparent than real, and there is one source of safety. It is extremely improbable that a rush would be made on all the banks — local and foreign at onee — and, as in the case ■of a like occurrence in Melbourne recently, the banks that were not pressed, upon being satisfied the solvency of their less fortunate neighbour, would no doubt come to the rescue and, by their runted resources, tide over the panic. We say this is probable ; but if it has not already been placed beyond the region of doubt by aii understanding between the banks, such as that which is achieved in the Banking Association ;of Victoria, an arrangement of the kind ought not to be delayed, in view of what is a possible, if remote, danger.

— Two (colonial) Scotchmen met at the Thistle the other night, and grew somewhat "disputations " about their respective claims to long descent. •At length one of them, a Highlander named McDougal* •declared that his forefathers took shelter in the Ark at the time of the flood, with Noah. " Noah be tammed " retorted his irate opponent, "the Mackays had a boat 'o' their own."