THE AUSTRALIAN BANKING SITUATION.

Hawke's Bay Herald-Tribune, Issue 100, 14 May 1937, Page 4

THE AUSTRALIAN BANKING SITUATION.

Althougk tbe establisbment oi tbe Eeserve Bank of New Zealand bas in a laTge measur© rendorod New Zealand banking independent of Auatralian, tbere is stUl sufficent connection between tbe two aystems cto mako Anstralian banking tronds of interest to New Zaalanders, 'says tbe Cbristcburcb Press. A year ago tbose trends gave some cause for uneasiness. Owing to beavy State and Commonwealtb borrowing and to otber causes, tbe lending position of tbe trading banks bad declined steadily since tbe beginning of 1934. London balances were contracting and liquid resources, wbieb inclnde notes and coin beld with tbe Commonwealtb Bank and treasury bills rediscountable by tbe Commonwealtb Bank, were low in relation to advances. Tbe situiation seemed to require a contraction of internal credits and/or 'a restriction of imports by means of tariffs and quotas. Any of tbese measures would bave bad a distnrbing effect on tbe New Zealand economy. A rise in tbe excbange rate would bave given an undesirable stimulus to New Zealand imports from Australia and would bave given Auatralian primary produce expojters a competitive advantage on tbe London market, A persistent rise in Australian long-term interest , rates, and some rise did occur, would inevitably bave indueed a sympjvtbetic rise in tbe corresponding New Zealand rates. It is tberefore pleasant to find tbat tbe latest quarterly returns for tbe Australian trading banks reveal an all-round improvement in liquidity, an improvement wbicb, for tbe time being at any rate, removes tbe danger of an awkward contrast between economic expansion in New Zealand and economic contraction, witb rising money rates, in Australia. For tbe first tfme since 1934, liquid resources sbow a substantial increase. Holdings of coin and notes witb tbe Commonwealtb Bank bave inereased by £6,437,134 over tbe previous quarter and of treasury bills by £2,805,769; advances are lower by £6,167,000; and fixed deposits bave increased by £5,990,000 and current accounts by £9,873,000. Even wben due allowance bas been miade for seasonal influences, it seems safe to assume tbat money conditiona in Australia will be easier for several montbs to come. Tbis conclusion is supported by tbe suceess of tbe recfent Commonwealtb loan, wbieb was offered at a sligbtly lower rate of interest tban was current oarlier in tbe year.