IV

1.—6

under the critical circumstances existing at the time, deem it advisable to insist upon the coin reserve being increased, but gave instructions that the position of the bank should be carefully watched. 1894. On the 24th June Mr. John Murray saw the Colonial Treasurer, and disclosed to him the fact that the bank was in a serious position. On the following morning an interview took place between the Premier, the Treasurer, and Mr. Murray, at which Mr. Murray stated that, unless the colony came to the rescue, the Bank of New Zealand must close its doors in the course of a few 7 days. He presented a cable from the directors in London empowering him to act on their behalf. The bank balance-sheet of the 31st March and the quarterly Gazette returns were produced, and Mr. Murray admitted that, notwithstanding the apparently sound position of the bank as therein shown, there was no hope of it being able to carry on beyond the following Monday (2nd July). He asserted that, since the 31st March issue of the balance-sheet, the position had become so impaired that the directors, in preparing the balance-sheet for the August meeting, found themselves again unable to declare a dividend; that losses had been discovered in the bank; that there were no receipts on account of a large portion of the shares held by the bank in the Estates Company ; that the bank had been obliged to pay a large portion of the interest on the company's debentures; and that these combined circumstances rendered it impossible for the bank to further carry on business. As a result of this interview, Mr. Murray was requested to place the position of the bank before the Government by letter, and to meet the whole of the Ministers the following day. On the afternoon of the same flay (25th June) Mr. Murray wrote the following letter : — Sir, — Bank of New Zealand, Wellington, 25th June, 1894. I have the honoui to inform you that I have been commissioned by the directors of this bank to communicate with the Government regarding its affairs, and to say that, owing to low prices, bad seasons, and other circumstances, the directors find that it will be quite impossible to declare a dividend to shareholders at the approaching annual meeting, the certain result of which must be the closing of the bank ; because even now, notwithstanding efforts to collect resources, the executive find the utmost difficulty in maintaining the gold reserve prescribed by law. The very low price of the bank shares in the market is itself evidence of distrust which may at any moment develop into panic. That the closing of the Bank of New Zealand would be a calamity to the colony of the first magnitude can be questioned by no one. Its business relations in New Zealand are larger and more important in proportion to the population and resources of the country than are those of any bank in any other colony. This will appear more strikingly when the following figures are considered : The bank has within New Zealand ninety-five branches or agencies. At these there are kept 25,000 current accounts, with an aggregate on deposit of £1,600,000; 12,000 fixed deposits, £2,800,000; which means, after allowing for cases of persons holding more than one fixed deposit, say, 35,000 separate depositors, with a total of £4,400,000 on deposit. On the other hand, there is afforded accommodation by way of overdraft to 4,600 persons to the total amount of £2 550,000; and there are, besides, 950 discount accounts, representing a large number of traders' acceptances, the aggregate amount being £600,000. That many of these persons would find accommodation elsewhere is no doubt true, but these would be the better off, large numbers of well-doing but not rich men would be ruined, promising enterprises crushed, and the industries of the colony would suffer damage from which it would take years to recover. That the lock-up of the money of 35,000 depositors would cause immense dislocation of business, inconvenience, and loss goes without saying. Among these depositors there is the Auckland Savings-Bank, with, say, £60,000 at its credit in the Bank of New Zealand. You are aware that a run on it took place last year. There is also the Government of New Zealand, with about £800,000, between actual deposits and drafts of the bank held. This large sum is in addition to the liabilities to the public detailed above. There are, say, £1,500,000 of London deposits which, as quickly as the money could be collected in the colony, would be withdrawn from use there. I will only add that the bank has 1,300 shareholders in New Zealand, who, besides the capital they have at stake, are liable for £720,000. It is not my place to allude to other banks, but I think I only echo a general opinion when I say that the trouble would not stop short with the Bank of New Zealand. On this point recent Australian experience is suggestive. Finally, it is clear that the evil would be intensified by the depression admittedly now existing in the colony, or would greatly intensify it. Employment, already scarce, would become scarcer, and the finding of work for the unemployed would strain the resources of the Government, and unavoidably involve much waste of these; while, as a matter of course, the public revenue would suffer seriously. He would be a bold man who would permit such a calamity to overtake New Zealand if he could prevent it, and I am firmly persuaded it may be prevented if the Government will meet the crisis wisely, boldly, and in good time. The business of the bank is as yet practically intact — distrust has not to any material extent reached depositors; and it only needs that the bank be put upon a stable footing to avert the mischief which as yet, happily, is only imminent. But I must respectfully warn the Government that it is imminent, and, if they determine to adopt any measures to deal with the situation, these would need to be taken at once to be effective. To do this two things are required : (1) That the bank be placed in possession of increased capital resources, partly to fortify its cash reserves, partly to enable it to extend to its customers the accommodation they require in the second half of the year in anticipation of their wool-clips and crops of the ensuing season; (2) and that this be done to an amount which will suffice to