The Feilding Star. TUESDAY, AUGUST 28, 1888. Insufficient Capital

Feilding Star, Volume X, Issue 33, 28 August 1888, Page 2

The Feilding Star. TUESDAY, AUGUST 28, 1888. Insufficient Capital

The Melbourne Argus has published an article, which is probably the most remarkable of its kind ever presented to the Australasian public. In a toue of jubilation we are informed that the bank deposits for Australasia have run up to the enormous sum of £100.0J0,000, or at least they were only a quarter of a million short of those round figures on 30th June last, and in the five or six weeks that have elapsed since, this sum will have been substantially made up. Then it goes on to quote the usual twaddle about the average per head of thfl population being so much, and so on ; but which, after all, means nothing ; and is just as sensible as those wonderful calculations which show how high the sovereigns would reach if piled either flat or on their edges. Now, we will endeavor to show that these figures, although so far satisfactory in themselves, should yet be a cause of uneasiness in the minds of those who have 6ome knowledge of finance. The subscribed capital of the colonial banks^ amounts to £20,350,000, of which' £11,100,000 is paid up, with reserves £5,295,835. That is to Bay the aggregate shareholders in the several banks have risked £16,295,835 against £100,000,000 of depositors. We are told that the assets of the banks in the colonies amount to £145,000,000 ; but we are not told whether they would realise that sum if they were placed on the market ; and we do not believe they would. To be deducted from the ordinary securities is the nineteen millions of gold and bullion on hand, which, it will be noticed, is only three millions, or thereabouts, more than the whole paid up capital. All commercial history goes to prove that overtrading, which really means trading beyond capital, has invariably resulted in disaster; and, with that knowledge, the outcome of much bit* ter experience before th^m, it appears, at first glance, a matter of surprise that directors of financial institutions should be so shortsighted. We will take it for granted that their fissj[ object is to earn a dividend on the capital of the shareholders ; and, as that is attained, their second is to create a reserve fund to forestall any of those losses in trade which appear to be inevitable. That was the declared intention when Joint Stock Banks were first allowed by law. Now, these primary points are made to hold a very secondary position. Witn a minimum of the shareholders money it is attempted — and successfully so as the figures above show — to attract a maximum of money from the outside public, to be employed for the benefit of the shareholders. This looks like what is popularly called " business," and is very much so indeed. But when we look a little further in we find that it is not based on very sound principles. In place of the directors working, as the primary object of their official existence, for money to pay a dividend to the shareholders, they have now to work to pay interest to their depositors, which is a very different thing. The shareholders have to "take a back seat." Such a state of things could not have resulted had the various banks, with increases of population, and consequently of commerce, increased their capital. Had they done so people who are now depositors, would probably, up to forty or fifty per cent, of them, be shareholders instead. But the selfish desire to grasp fat divividends has been tin motive which impelled directors to limit the amount of share capital, both subscribed and paid vp — especially the latter. It would be out of place for us now to amplify on the adfantages which would follow to commercial and agricultural pursuits, if the practice of giving interest on deposits were dropped by the banks altogether. That is so patent to all who have considered the subject that it demands no further remark from us. Our contention is that according to the above the banks are trading far beyond their capital, as represented by paid up shares, and that they should in many instances increase it as soon as possible, or cut down the liability "Deposits Bearing Interest" without delay.