Banking Amalgamations.

Press, Volume LIV, Issue 16263, 13 July 1918, Page 8

Banking Amalgamations.

One very pronounced feature of the preparations being made to meet the new conditions of trade and commerce after the war has been the amalgamation of ijarious companies to an extent unprecedented in our commercial histary. This has been very noticeable in connexion with shipping companies, a fact which has been brought home to us in New Zealand by the absorption by the P. and 0. Company of,the New Zealand Shipping Co. and the Union Steam Ship Company. It is argued, with a good deal of force, that such amalgamations aro necessary to effect the pooling of resources, cconomv of administration, and prevention of overlapping, which are essential if we aro to hold our own in the keen contest for the carrying trade of the world with which we shall be faced. A more recent development is the amalgamation of banking institutions on a very largo scale, and a recent cable message hinted at the possibility of some of the colonial banks being involved in tho movement. So important is the subject considered in England that a Treasury Committee on Bank Amalgamations was appointed to enquire into the subject, and a few weeks ago presented its report. It appears that the process of amalgamation among banks is by no means a new phenomenon. It is pointed out that since 1891 the number of private banks has fallen from 37 to 6, and the number of English joint stock banks from 106 to 34. But amalgamations have recently changed thftir type. They consist no longer in the absorption of a local bank by a larger and more widely-spread joint stock bank, but in the union of two joint stock banks both already possessing largo funds and branches spread .over a wide area. While they allow that it is very desirable that the banking interest should be adapted to tho new position which will arise after the war, the Committee remark that it is a question whether the continued practice on the part of exceptionally large firms of resorting to two or more banks for advances instead of one would not meet all their needs, and whether the existing large banks aro not large enough to meet the requirements of the immediate future, at any rate if supplemented as far as may be necessary by combinations for special purposes on tho lines of German "Kon- " sortiums" or otherwise. The possible dangers resulting from further large amalgamations which led the Committee to recommend some measure of Government control are three in number, as set out in the report. In the first place, amalgamation schemes would mean a reduction in the total paid-up capital and uncalled liability. The amalgamation of the National Provincial Bank of England with tho Union of London and Smith's Bank, for instance, resulted in a reduction of oVer £1,000,000, or 16 per cent. in. the total paid-up capital, and of over £9,000,000, or over 48 per cent., in the uncalled liability of tho Union shareholders. This means, of course, that substantial benefits to shareholders qre purchased at tho cxpenso of some of the security of the depositors, although it may be argued, as a set-off, that the depositor in a great powerful institution is safer than a depositor in a comparatively weak institution, even although tho •uncalled liability of the shareholder may be larger in the latter case than in the former. The second danger is that of reduced competition. Certain municipal corporations protested that it would increase'their difficulties of borrowing money, at a reasonable rate, while on behalf of the money market and the Stock Exchange, it was urged that a reduction in banks might mean a reduction in discount facilities, and thus lessen the freedom with which London bills can be discounted. Thirdly, there is tho, danger of monopoly. It was suggested that there was a real danger lest one bank, by the gradual extension of its connexions, might obtain such a position that it could attract an altogether preponderant amount of banking business; or, alternatively, lest two banks might approach such a position independently, and then achieve it by amalgamation. Any approach to a banking combine or money trust by this or any other means, it was pointed out, would undoubtedly cause great apprehension and give rise to a demand for nationalising the banking trade. Such a combine would mean that the financial safety of the country and the interests of individual depositors and traders would be placed in the hands of a few individuals who would ' naturally operate mainly in the interests of the shareholders. Even the position of the Bank of England—which the Committee assumed would stand | outside of such trust —would be seri- I i ously undermined, and the Bank might < find it difficult to carry out its import- 1 ant duties as supporter and regulator of the money market. The Committee 1 therefore recommended that legislation be passed requiring that the prior approval of the Government must be obtained before any amalgamations are announced or carried into effect. • The Committee thought that the approval 1 i both of the Treasury and of the Board i oi Trade should be obtained, and that legislation should be passed requiring i 1 the Departments to set up a special I ( statutory committee to advise them, the j nembers of which should be nominated ] jy the Departments, and should con- ] iist of one commercial representative, md one financial representative, with { power to appoint an arbitrator, should r iey disagree. It may be that the j

I Committee have taken an unduly alarm- - ist view regarding the possibility of a 5 " money trust" being established, but . we think most commercial men will r agree that unrestricted amalgamations 5 of banks are fraught -with danger, and , tliat the Government should have power s to stop amalgamations which are clearly not in the public interest.