Untitled

Waikato Times, Volume XXXVIII, Issue 3058, 20 February 1892, Page 2

The general manager of the Com- < uiercial Banking Company in Sydney made some sensible re- i marks on the occasion of the ; opening of the Institute of Bankers lately. He pointed out that no depositor in any bank which was recognised by the banks themselves had ever lost a penny. He recommended that no institution should be allowed to style itself a bank or savings bank unless it was properly incorporated by an Act of Parliament; that no Banking Company should be allowed to advertise enormouß fictitious sums under the title " authorised capital"; that only capital actually subscribed should be announced and that in every case half the capital subscribed should be actually paid up. This would ensure that banks should only be started by responsible men, with a large stake of their own capital in them, which capital affords some guarantee that creditors of the concern are not likely to suffer loss. At present any adventurer may call himself a bank or banker and if he can entice the simple and credulous into depositing their money with him and bully or cajole them into changing their purpose when they want to draw it out, he can plunder enormous sums before his career finally comes to a standstill. Store numerous perhaps than the deliberate swindlers are the sanguine incompetent men who, as directors or what not, have assumed financial responsibilities which they were quite incapable of fulfilling. They, too, have styled themselves bankers, and have taken enormous sums of money on deposit at high interest, without making any provision for the return of these deposits, except such as might be involved in the possibility of obtaining an overdraft from their own banker. Every one knows, that no banker worth the name will put himself in the place of a number of depositors by paying off the whole of their claims. Hence overdrafts, However liberally granted, have proved quite inadequate to allay distrust. In the case of the land and building companies it has become quite evident that whilst the liabilities are liquid and liable to be called up ac comparatively short notice, the assets are irrevocably locked up for a term of years. As long as every one is pleased and satisfied everything goes well, But as soon as depositors become the slightest degree uneasy and wish to withdraw their money, as they have a perfect moral and legal right to do, then it becomes evident that the machinery is unworkable and that the business is based upon unsound principles. In place of honest con., cerns fulfilling their engagements and paying their way we have wretched " lame duck " concerns, straining every nerve to cover their repudiation by some shred of legal sanction and to continue to carry on business in a semi-insolvent way which will render them dangerous in the extreme to all who have any , dealing with them. Some writers, : who have evidently not given the subject a thoughmaintain , that the banks proper are in no better position than 'the deposit , companies, of which so many have , recently come to grief. They say i that their reserves of gold are only a fraction of the total claims upon them, and that their assets, like • those of the building companies, are i to a large extent locked up—not, i perhaps, in unproductive allotments s or brick and mortar, but in station

properties, commercial operations, and the like. But these views, which chiefly come from the unfortunate financiers aforesaid, overlook the fact that the banks proper fulfil a function. They receive the deposits of the public and make it their business to be in a position to return those deposits. Now the public is not fond of hoarding money and mounting guard over it with a | revolver consequently the proportion of deposits which is required co be kept in readiness to be withdrawn iR very much smaller than that which may safely be employed in legitimate banking. If there should be a " run" upon one bank the money so withdrawn is immediately deposited in others, so that under any financial circumstances with which we are at present acquainted an all round depletion of all the banks at the same time is impossible. But in the case of deposit companies which do not fulfil this function of being the accroditod and recognised custodians of the money of the public, a wholesale withdrawal of deposits ia not only probable, but is almost certain to occur. Money is placed with them not because there is any lack of recognised facilities for banking, but because of the high interest they offer. As soon, however, as it is thought there is the slightest doubt about the safety, or even the accessibility of the principal, interest becomes a very secondary consideration. There is a rush to withdraw, and the point is that the money so withdrawn does not go into other companies of a like kind, as would be the case with tho banks. If the companies laid themselves ouc to pay deposits as well as to receive them, they might become banks too. But they would have to very materially alter the character of their business before this would be possible.