BANKS AND THE CRISIS

Waipa Post, Volume 47, Issue 3385, 26 October 1933, Page 5

BANKS AND THE CRISIS

MQNEY FOR SOUND ENTERPRISE. -/ HOW THEY HAVE HELPED. "Criticism of the banks has become fashionable during the last few years, writes Mr A. C. Davidson, general manager of the Bank of New South Wales, in the Melbourne Argus. The banks have been charged with not advancing money freely enough, with not reducing . interest sufficiently, and generally with making recovery difficult. It is not always easy for banks to reply to such criticism. They are at "a distinct disadvantage, in that they deal with private affairs of individuals and companies, which they may hot divulge even in their own defence. They may not state, except in the most general terms, what they have done for individuals, . or even groups of individuals. The most convincing information to the ordinary man is the single instance of assistance'given, but there is a form of defence, absolutely denied to the banks, although accusations in that form are frequently enough by their antagonists, who" are fond of quoting individual cases of alleged hardship. -The banks cannot make the reply, even in the cases quoted, that the man or^'business concerned was lazy, inefficient or dishonest, even ?f such a charge were open to them, since they must not divulge the information that has toeen entrusted to them by clients. It is right that this should be so, and the banks have no complaint to make of. it: It does lay them open to unjustified criticism, but they rely on the comsmon sense of the Australian public' to disregard such criticism, or at least to study carefully the case of the banks, with the understanding that the case has to be put in general terms,-,and that it would be disastrous to the community if the banks were to descend to quoting specific cases. V

The Australian banking system, during the crisis and the depression of the last few years, has undoubtedly proved its soundness. While the banking systems of several countries have found the strain unbearable, Australian banks have come through without any doubt of their solvency. In the United States no fewer than 5300 banks have suspended payments in the:last three years; there has not been a single failure among the recognised trading banks of Australia. THE DEPOSITOR'S INTEREST. That fact alone is-of tremendous importance, since the banks' first duty is to their depositors, who trust them with funds. The result has been that the depositors have retained their confidence in the banks, and there has been no lack of deposits to lend. Had depositors been afraid of the safety of the banks there would have been a very different story to tell. The banks, or those of them that remained, would then most certainly have been open to the charge of calling in advances. This charge is made often enough, but it has ho foundation. Throughout the long period of severe falls in prices the Australian banks have stood by their, customers, who have been maintained on their farms and in their businesses as far as the banks have been able to maintain them. There have been some whom no banker could save, but that is no argument against the banks. 1J In such instances the banks have been compelled to take the steps prescribed by law to.protect the money of their depositors which they had invested in these advances. Had it been true that the banks generally demanded the repayment of advances, one might expect a severe shrinkage of advances during the worst period of the crisis but that did not take place. The following, table shows the yearly average of total advances during the last five years:— 1928, £229,000,000; 1929, £255,000,000, a rise of 11.1 per cent; 1930, £257,- ' 000,000, a rise of 0.9 per cent; 1931 £241,000,000, a fall of 6.3 per cent; 1932, £230,000,000, a fall of 4.5 per cent; 1933 (June), £233,000,000, a rise of 1.3 per cent. This shows that there was no appreciable fall in advances during the first year of the crisis, and that the contraction has been very gradual. That does not look like the wholesale calling in of advances. It rather suggests that the banks have stuck to their clients as far as they were able to do so. Nor have they been unwilling at any time to lend where reasonable security could be offered. It is obvious that the banks have a duty both to their depositors and their shareholders to see that they lend only to borrowers capable of making repayment. It is upon this that their soundness depends. Without this judgment their deposits would soon take flight, with the result that they would have nothing to lend. "FINDING THE BORROWER. .There is another side to the problem of which the public is liable to lose sight. As the old proverb puts it, one can take a horse to water but one cannot make it drink. One of the chief difficulties of the banks to-day is not to, find money to lend, but to find borrowers who are able to make good Use of advances. There are plenty of borrowers, but not many who wish to borrow for the purpose of founding •of extending sound enterprise. Such borrowers will choose their own time, and will wait until they feel reasonably sure that the enterprise in which they are interested will pay. Such a time should not be far away, since costs in Australia are now very anuch lower than they have been for irinany years. Interest rates also are very low. Oespite what is being said by ill-iniormed people, statistics, as far.as they are available, prove that the banks have done remarkably well in. reducing interest. Records going back to 1876 show that overdraft rates Wave never been as low as at present. Even after the crisis of the - .'nineties the recorded rate was 6to 7 per cent, and at present the three largest trading banks, which together have 50 per cent of the total banking business in Australia, publicly announce a maximum rate of 51 per cent on secured advances. This means that - there are advances already being i- charged a lower rate. Statistics also show another vmtiortant fact. The rate on six months . deposits in the years 1896-1902 was only 11 per cent, and the rate on 12 months' deposits was 3 per cent. Today the rates are 21 and 23 per cent respectively, so that the spread between the rates paid to depositors and the rate charged on advances is smaller than it has been in thte past.

This argues well for the growing efficiency of the banks. The Australian banks have met the requirements of the community as they have arisen, are still doing so, and are doing it at a>. smaller net cost now than previously, showing their progressive outlook.

The system as at persent developed is well and efficiently organised both to carry out policies directed purely in the national interest and toward national welfare, and, at the saime time deal efficiently with the individual needs of the members of the community. The community has the choice of a number of strong, wellmanaged, competing institutions; and their number, experience, and strength are such that no man who has a sound banking proposal to put before a bank can fail to obtain the accommodation required unless there is some flaw in it.