The Daily News. MONDAY, APRIL 18, 1921. THE FINANCIAL BAROMETER.

Taranaki Daily News, 18 April 1921, Page 4

The Daily News. MONDAY, APRIL 18, 1921. THE FINANCIAL BAROMETER.

Banking operations may be relied upon, more than any other sources of information, to accurately indicate the financial position of a country, and afford a clear indication as to the condition of the money market. At tlie same time, notwithstanding all. that has transpired relative to the necessity for the banks reducing overdraft and exercising a policy of great caution in making advances, it has to be remembered that their first duty is to safeguard, the interests of those for whom they are trustees —the shareholders and the depositors—while their chief aim is to make profits. In considering the returns for the March quarter, those factors should be borne in mind, otherwise it will not be possible to reconcile banking policy with banking action. For instance, the figures show that while fixed and free deposits decreased by nearly four millions, the advances and discounts increased by over twenty* millions,, this exceptional increase denoting the extraordinary call for advances occasioned mainly by the large imports that, have come to hand. Obviously'if nearly fifty-two and a half millions (the amount advanced by the banks last quarter) had been taken from the banks and retained by the borrowers, there would have resulted a financial panic of an exceptionally severe character, but one of the phases of the banking system is that advances, make deposits. Moreover, the banks, during the war period, wisely increased their financial strength by creating additional-capital, so are in a better position to meet and tide over a limited period of financial depression. It is generally considered that the banks have risen to the occasion, and though they have not hesitated to turn many requests for advances, have been of great help to others. This was inevitable if a panic was to be averted and enormous losses caused both to the banks and their customers, besides causing great injury to the credit of the Dominion. By making this large increase in advances the value of the securities held 'by tlie banks was protected, though only by _ ensuring that the margin of safety was higher than usual, so as to allow i for a fall in values- Even so, great I caution was necessary, for at any time there might arise ‘ that would precipitate the calamity it was so vitally important

should foe averted. The money represented by banks’ advances flows back to their coffers in due course, the sooner the better for the borrowers, whilst the high rates charged for accommodation should swell profits. The situation, however, is not healthy, though it cannot be described as dangerous. Possibly the most, accurate definition would be that it is abnormal. Apparently we are passing through another transition stage with a downward, instead of an upward, trend of values for goods produced in the Dominion as well as for those sold here. Hence the need for greater production and effective economy. With the reduction of the cost of living, a corresponding lessening of the wages of the -workers will necessarily follow, and much will depend on the manner in which this readjustment is met b(y Labor. Although the outlook may capse anxiety there need be no apprehension of serious, trouble if the com-mon-sense of the community is brought into play, the seriousness of the position realised, and a general effort made to maintain confidence in the prosperity of the country. This will involve the curtailment of expenditure on non-essentials and the practice of thrift. The first essential is to reduce the cost of living and thereby increase the volume of trade as soon as good are retailed at lower prices than now prevail. The effect will be to reduce the consolidated revenue, so that the Government is charged with the imperative duty of instituting drastic economies, especially as the country has been drained of its surplus money to supply Government needs. There is much food for serious reflection to be found in the banking returns, and the moral conveyed therein.