SECOND EDITION Wairarapa Daily Times. [ESTABLISHED 1878.] MONDAY, MAY 8, 1893. RUNS ON RANKS.
The rocent run on certain banks in Anesrslia has direated public attention to the general question of the " safety" of bank?, and as in one Gazette 'of April 28th, there ara the usual quarterly returns; we m&y be doing a good service to some people if we point out a few facta that are common places to bankers, but yet jso.t understood by all their customers." There are bis banks in New Zealand, and oar remarks apply, so far as we know, to all. Supposing thatahank had notes to thevalueol one million and initacoffers it bad coin to the value of £1,400,000,. it could meetall its notes with gold at a moment's notice without any trouble, and this disposes at once of a vulgar error that a bank can be inconvenienced by its notes being refused. The trouble comes in.when people withdraw their balances. For assuming the bank held four millions of money at call, this means that its onstomers had the rightat any moment to demand this four millions in gold. Now, if thay did so, the Sank must suspend payment, for all banks goon the theory that their customers will only ask for the gold they really want, and if it were usual for all depositors to draw their balances periodically, the exact time to be settled by a demon flying down from the clouds without notice and Mowing a* trumpet, then banking business as wo understand it must come to an end. The way the Bank makes its profits may b» roughly in a few words, and this' will explain mora clearly what we mean. London : capitalists subscribe a million in gold, and it is on this million that dividends are . paid. It is called their capital. The Bank then advertises that it will receive deposits both".in.London and in New Zealand. Feoplo deposit money with it because having a capital of one million it moat be solvent as long as its losses do not exceed one million. Tliey are content with interest at about 4 per cent in London, and at that' rate deposit largely. Their money is lent in Now Zealand, and, on various securities, good and bad. The whole art of banking consists in managing to lend out money at a 'paying rale on securities that will secure repaympnt. How if we imagine the; Bank so managed that : six millions were received, iu jLondon on deposit at i per cent., and the whole of this lent iu Hew Zealand'at T p*r oenti, we havi}& net-profit of S per cent on -!eix millions, wbieh is the same 63 IS per oeat 6a; oris million. : In other words,. the who Originally- subscribed t>na million would got IS per cent., and might'do; so fo? eror without robbing anyone. Siit suppose that various other com- • paniea compete, and money is offered . ! sit - lewr rates, tba : beet clasi of j I
borrowers find they can jborww at 6| |i"r Bent., or even fij.j The Bank, * which tinatres to got, hl-voji has to take. * more risky bu»incßn. A : man with » ' freehold of 10,000 new carrying 20,000 ntw-fp wni)i,i (tn ailvtmou of ' S.IO.OtH). Tliin in tin iixmlli-iitßtHHiiity. and wli«mi tlin !!».(< '<«ttU7|'ol'«.'Hthe j uiniß up Ms iK.nr. Another man, who ri<|irrsi-ntn n timbfr compiiny with large eniiimi, of which iMO.OOO 1 W not yet mil ml „p ( wantß „ ■ Mliullur mlysinw. Thi in not an equally B <i,id B.onHiy. n i only a man ot gtent LmniiH«B utmuW outi asy J whether Hhi nluirolioljcfu are all really in a ;ir>!<i(icni to moot calls if made. ThuHiiik Utah Urn risk. If then we wiint lo ktmw: whether tho Uttok is Bolvont, wa lout again at tho balance sheet. Wo lim tlio lialiiUiieiJ (in I lie oniony) nbout H iL million?, of j which throe million,, ca ib c demHtulfjt! at onoo witltotn ii»iio», the other throe are •'deposits iitnring mii-rest," sntl cannot bo dinwii out it sight. I'iie assets aro »ov..ii millions, of which 'esa than oni! million in in tue f orm 0 f cash. 'J'lu> r«'»l consists ol "debts" of varioun kinds. Tlicfc dobls cannot bo called in in a wnmeni'a notice. No outsidiM- a\n poitHiely estimate i heir real value. The directors know, or ought tu know, whether they will ever be pui.i. If, on ,],„ f Qce „£ j t> ihoy are n-ui assets ; if, that iu, Ihey rt present money advanui Q on taxable ri-alunble security, the bank is solvsnt. In this cuso, *iip| oaa ilitre were a rttn on the bank, the gcineral manager would go to other banks, explain bis position, ami »„k for ut million in gold. He would limit] over a pwt of bit! assets (debts due to him) ai» security. Then no fist us he away this million over the counter, it would l» deposited wii I, the other banks, who could, tomcetiboday, jendkim another million. Hut 3uppoßD that hit aissuts represented money l f ]nt to doubtful companies, or advances mado on land of doubtful value, then other banks could not auniKt him Also suppose that tho funeral public laadu ft demand on all bunks. Hero in How Zealand tin, tniul urnimntai(>old hold by all bunks only Hiijounts to about two and r ball niitlioiiir, while tho notes in cinsulutioit j&mount to one million, ami tfm dopcj.iitß at call to four millions, Huchja run moat obviously niuko nil ttuhpend payment, rim abovn rr:iiisrks tipi'vo, wo t'link, to explain exactly how a run bilngß a bank down. Nome of our younger read.ni wi*y ortk why a batik docfi not alwuja ko«:p gold to meet possible demands. He™, they may pay, wa havo ti plain utntfmunt In tho Gasatto that imo Jiaiik ow.'h 21 miltionß (on douwndj emJ ban only to mj<ot it. Wliy hucli Impcuilonoa ? Tho untuvi* of courso Is, that tuny want to make interest oiiihoir capital. If th«y kept 'i\ millions In gold idle, that would town an oxpoam of £IOO,OOO ayoar for interest. Tho wny they maka both ondtt muet n prrsent iu, that out of 2* millions deposited with ibem "in the Colony, nearly two millions ifl lent out, and tho intwt'Bt on tiiia p'aya working expenses. Then aa wu havo explained they borrow in London, and hffia it in New Zealand, and all tha profit they make on (bin is net profit. If for every £IOO de posited with them at call in tha Colony they Sept £IOO in aold, thry would hiive to cbovg.j for keeping people's acbountß, and their oußtomers would not like this. It must alsobs remiimbered that the world's supply of gAld is limited, and ! if_ all bnnbß io the world determined to keep a reserve of gold equal to possible calls, the items would on the face cf it bo impossible, and no increase in i,he amount of sold produce would meat the difficulty, for reasons too long totexplain here. We seß no way out of the difficulty oxoept one, namely that banks Bhould be regarded aß_ public institutions, and their pecurities valued more accurately. At present as long as a bank is in no immediate danger it pretends tit be a priviite company t!nd won't have its' assets scrutinised] Directly it gets intotrouble it pretends it is a public inetication and calls for Government aid. If the public! had any means of knowing the real position of a bank, the weaker ones [would fitzle irat without a general panic, and ?,he atronger ones would never have a jun on them. But Whether any incependent periodical valuation of a bank's assets is practicable is quite another thing. At) present, we feac it is not.
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Wairarapa Daily Times, Volume XV, Issue 4413, 8 May 1893, Page 2
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1,281SECOND EDITION Wairarapa Daily Times. [ESTABLISHED 1878.] MONDAY, MAY 8, 1893. RUNS ON RANKS. Wairarapa Daily Times, Volume XV, Issue 4413, 8 May 1893, Page 2
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