BANKING IN AMERICA

Evening Star, Issue 19666, 20 September 1927, Page 4

BANKING IN AMERICA

• COMPARISON WITH BRITISH METHODS . Imuressions of banking practice in America was the subject of an address delivered before the Banking Institute’s annual meeting in Melbourne by Mr A. Gooch, assistant general manager of tho State Savings Bank, who has recently returned from a trip to Great Britain, Europe, and America. Mr Gooch is president of the Bankers’ Institute of Australasia. Mr Gooch said banks had taken an important part in many remarkable events in the history of the United States. Tim latest addition to that nation’s banking systems was the federal reserve brinks, which were created to establish co-operation between trading banks with a view to centralisation of flic control of discounts, for currency circulation, and to prevent curtailment of credit. The system had been described as the federation of American banking power. During the war it proved of groat assistance in consolidating tho resources of all hanks, and it had enabled America to finance tho Allies at n time when they had been approaching breaking-point. Prior to tho creation of the federal reserve system the 30.000 banks in tho United States were all individual units. Had federal reserve hunks not been established each troding bank would have felt tho necessity of consolidating its own resources by accumulating reserves and curtailing advances, which would have injured trade and disturbed the stock exchanges. Financial assistance to the Allies would have been difficult. America was divided into twelve federal reserve districts, with a federal reserve bank in each. The system was controlled bv a board sitting at Washington. All national banks bad to join. Membership was optional in the case of State banks and trust companies. Member banks invested 6 per cent, of their oaid-up capital stock and surplus funds in the reserve banks. Every member bank had also to maintain other reserves in a. federal reserve hank. National hanks had to transfer all reserves. State banks and trust coinnames transferred 3 per cent. _ of the aggregate amount of time deposits, ami from 7 to 13 per cent, of demand deposits. Each federal bank had a charter for twenty years. _ Member hanks were entitled to a dividend of 6 per cent, on the reserves lodged by them. After that net earnings were paid into surplus until that fund equalled 100 per cent, of tho subscribed capital stock. After that, 10 per cent, of

earnings went to surplus. . All excess earnings went to the Government as a franchise tax. Note issue was undertaken by the federal reserve banks on the ssajirity of certain eligible bonds lodged by member banks, or on the rediscounting of certain classes of paper. Savings banks existed in America under laws of the individual States. There were 615 separate savings banks operating in seventeen out of forty-eight States. There were more than 10,000,000 depositors, and the aggregate deposits amounted to £1,500,000. There was no savings bank in America with donosits as large, or with'the number of*depositors so great as those of the Victorian State Savings Bank. American banks dealt largely in short-term credits, .and were in close touch with stock exchange and bill market. They also financed agriculture through specialised companies. When a bank granted what we would call an overdraft —a term not much used in America—the limit of the advance was at once shown as a debit balance in the ledger, and interest calculated accordingly There was an open market lor bills of exchange, which were made a popular security against which federal notes were issued. Trade acceptances were not common. Wholesale firms preferred to give retailers credit on the security of a promissory note, the balance being usually settled by a debtor’s cheque. The discount broker was very much in evidence.. Bank fixed deposits as known, in Australia were not in favor in the United States. Money •which Australians would invest in that way was used for buying bonds on short-term notes. A peculiarity about deposits in American banks was that certificates which they carried were,'negotiable instruments. American banks balanced every night and made a complete statement of their position daily. A groat many banks allowed interest on current accounts calculated on the average daily balance on the basis of thirty days to tho month. Interest was made on the balance of the previous day. Iho day lost was the equivalent of the time lost in collecting cheques. America had always held the view that every little township should have its own separate bank. Hundreds of new banks opened yearly, and hundreds suspended payment. Americans did not approve of branch banks. Last year 660 banks suspended payment throughout the United States.