The Guardian AND EVENING STAR, With which is incorporated “ The West Coast Times.” MONDAY, JUNE 27th, 1921. BANKING CREDITS

Hokitika Guardian, 27 June 1921, Page 2

The Guardian AND EVENING STAR, With which is incorporated “ The West Coast Times.” MONDAY, JUNE 27th, 1921. BANKING CREDITS

In these days when hank overdrafts are being restricted in * this country, and interest charges on same being increased. it is not without interest to learn something of the situation controlling the financial position in other and larger countries where the v 'ume of trade and commerce' involved in hanking transactions exceeds that of this Dominion many fold. Discussing cucrrent market conditions in the l nited States, the National Hank of Commerce in New York points out that hanking credit cannot In? substituted for reduced capital and credit lines must be commensurate with present assets, business must now recognise that it cannot operate on borrowed money to the same extent as before capital was impaired. It is unsound to attempt to maintain the former high aggregate ot credit lines after a year of heavy losses, and it is further pointed out that easier credit conditions would not alter this fact. Not to recognise it would result in the substitution of capital loans tor current borrowings with serious effect upon the general hanking situation. Fortunately some of the very factors which have combined to make credit liquidation desirable, also make an adequate volume of business possible on a smaller credit base, It will take less money to do business on a lower price level, even though further increases in pro-

dilution and sales, as measured by physical volume, may take place Elimination of the speculative element from business and the trend toward conservatism should bring about a more rapid turnover. For a time also it may well he that, even when measured by physical volume, the total of business will he smaller, and with sharper competition goods will he betier made and replacement requirements appreciably lessened. Dealing with deposits and loans (ho hank states that the steady and substantial reduction of hank! deposits during last year without corresponding reductions in loans has been, and remains. an important, factor in any survey of the hanking position. Deposits of member hanks in New York City reached a maximum in the latter part of May, 1920, between which date and the end of March. 1921. they have declined 776 millions. Loans and discounts on the other hand, did not reach their maximum until October, and have declined steadily since that time. These opposite movements reflected the closer use of balances and in part the tightening of credit, which naturally contracted deposits as borrowing facilities were curtailed. Consequently, there, has been a substantial reduction in the margin by which deposits have have exceeded loans. In May. 1920, deposits, then at their maximum, exceeded loans by 650 millions. Bv October, alien loans were at their maximum. the margin had dropped to 226 millions. At the beginning of February, 1921, the margin had been further reduction to 100 millions, or less tnan one-sixth of the difference in the preceding May. Recently, however,, deposits have recovered somewhat, while loans have Lontinujed to decline, in consequence of which on April B—-the latest date available—deposits exceeded loans by 270 millions. Thus it is that the process of deflation, which has been so apparent in American and other business for the past year, has also been at work in the banking system.