B.— 3.

That is not a normal transaction, but normally it seems to me that the only way in which you could arrive at a situation where you have an excess of advances over deposits is the reflection of an unbalanced external position ? —I will agree that this is the major factor, but would not say that this is the only one. Apropos of that, you mentioned that at the present time the ratio of advances to deposits has fallen ; is not that due to the fact that we have a large surplus on our external position ? —Taking all advances ; you 'are including the Government ? Well, not necessarily ? —I would not go so far as to say the ratio has fallen if we include the Government. Including Treasury bills, the ratio is not far from normal at the present time. Treasury bills have made up the extra that otherwise would exist between overdrafts and deposits. Only when you are counting Treasury bills as advances ; I was assuming Treasury bills as securities ? —That is just the way you look at it. The bankers look upon discounts as part of their advances, and Treasury bills are discounts, as well as securities. Treasury bills are homogeneous ; they are advances and security. Taking that view, of course, the amount is equal; I suppose you have the security on one side and the advance on the other ?—No, because we do not put the security into the balance-sheet. For instance, if you had a farm valued at £20,000, and borrowed £100, giving the farm as security we would not own the security and would not put that on the balance-sheet. We will leave the Government out of it. Where the position overseas affected that difference, the conditions that cause a surplus of funds in England are the same set of conditions that cause the maladjustment here ; both are effects and not causes. Would it not be that the condition which led to us having a large balance externally would be the condition that brought about the other condition. As the result of the trade position, you have got disparity between advances ? —Yes, both are effects from certain causes. With regard to fixed-deposit rates ; you say that advances business is not remunerative ; of course you have also your free deposits ; what is your average deposit-rate ?—That would be a very difficult matter to work out and I have not the information here. We would have to take into account the expiry dates of all individual deposits and the volume of deposits at different periods, and different unexpired currencies. But at any given date, it would be possible to assess the average rate ? —Yes, it would be possible. It is mathematically possible to do so. The majority of the deposits are for twenty-four months, so that the average rate would be far nearer the maximum rate than it would be the minimum. Are not the banks at the present time somewhat embarrassed by the amount of fixed deposits ?— You are asking me to tell you what they feel about it ? After all, "you are a business concern ; when your fixed deposits rise at the expense of your free deposits,' the banks have to pay more interest. Would you not prefer to have more free deposits ?—To put it on a human basis, we would far rather have the free deposits for nothing than have to pay for them. That is really the point of my question ?—lt is quite true that the tendency has been for a greater proportion to be held on fixed deposit than on free d.eposit at the present time. To what do you attribute this abnormal rise in fixed deposits ?— I should say to a very large extent it is due to lack of avenues of satisfactory investments or profitable investments, and people regard it more important to have their money on a gilt-edged basis, definitely safe and secure and to have a very moderate interest on that, even to the extent of moving over from the free deposits to a fixed deposit. People who would not have bothered to do so in prosperous times, do so now to catch that extra 2| per cent, or 3 per cent. Do not you think it would be a benefit to the country to lower your fixed-deposit rates with the idea of driving the people to make a more active use of their money I do not' believe that could be done. We have to see that we get our share of deposits to keep the ratio of deposits. I think it is desirable to lower the rates, or to enable interest-rates to be lowered. If the outside competitors, including the Government Departments, would be willing to reduce the rate, I think you would find that there would be no difficulty in the banks doing so. I do not see that they can in the ordinary course take the deposits away from you ?—From the actual facts of the case, you will see that the deposits do go away from us at times, otherwise the ratio would not alter. You have mentioned that the cause is overseas, but the *fact is there whatever the cause, and we have to adapt ourselves to the effect. I quite agree with your working-basis of the thing. _ . I think it is indicated in one of yonr replies to Dr. Sutch that m the past it has been the traditional policy of the banks to keep stable rates of exchange, year in, year out, and to bring about any necessary adjustments to the trading position by other means ? —I would not put it quite in that way. The de facto position was that England, Australia, and New Zealand had a paper currency represented by parity with gold and internationally by approximate parity which would be represented round about the gold points, and charging that rate of exchange did not cause any such maladjustment in the London funds position as would prevent the banks from selling the exchange bought at par at a rate on the same basis. The forces which would call for an alteration in the exchange-rate did not arise. To take a concrete example: I think your telegraph rate on London stood, at about 17s. 6d. for about ten years prior to 1914. In that period there were some quite considerable fluctuations in our external trading position. You did not find it necessary to alter the rate to adjust that ? No ; I should say that to the extent that there is a fluctuation in external conditions, it would result from forces" emanating internally, and the maladjustment emanating internally, if there was such maladjustment, would be corrected internally.

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