Dominion Banking Strength

HUMAN limitations being what they are, there is nothing very surprising in the fact that the general public in this country is unfamiliar with the work of the British banking institutions operating in the Dominions and Colonies. Banks of this class, whether their official domi- cile is in this country or overseas, have, however, contri- buted , greatly to the development of imperial trade, and now form an essential link between the British nations, in addition to financing a very large business with outside countries. A short study of their work during the recent years of depression will reveal an unmistakable family likeness between British financial institutions throughout the world. This similarity seems at least to form a basis for the central banking plans, now being carried out to unite the Empire more closely in a financial sense.

PRIMARY PRODUCERS' DIFFICULTIES.

The performance of the Dominion banks during the period of depression has been noteworthy. The oversea areas served by this type of institution are among the most susceptible to the effects of economic depression. Situated in the relatively " new " countries, they have had the least time to develbp a stable economy, and as primary producing areas they have been most severely hit by low prices and stagnant trade. In addition the Empire banks have of necessity worked without the advantage of direct assistance from a highly developed internal money market such as exists in London, and have thus lacked what is generally accepted as an immensely useful stabilizing factor in the finance of oversea trade. Operating under less favourable conditions, from many points of view, than their counterparts in the United Kingdom, the Empire banks have yet survived the disastrous lean years without a failure, and without even a serious suggestion of weakness. The following figures will do something to illustrate the scope of the business of the British Dominion banks, and at the same' time convey an mpression of their steadiness during times of financial change and economic adversity. For the.sake_of brevity, it has been necessary to show the Australian and New Zealand banks as a group, and also to combine the figures of the three largest Canadian banks and similarly to amalgamate those of three of the most important Indian under- takings. Among the three banks whose figures are shown separately, the titles of the Standard Bank of South Africa and the Hongkong and Shanghai Banking Corporation sufficiently explain the principal areas covered by these institutions. Barclays Bank (Dominion, Colonial and Overseas), the other individual bank selected, operates throughout British territory. in Africa, and the British West Indies are among its other spheres of operation.

DErosrrs.

11 Australian and New Zealand 1929 1933 banks 352,458,333 357,410,683 3 Indian banks .. 90,722,459 91,076,851 Barclays Bank (D.C.O.) 60,905,282 74,305,1-47 Hongkong and Shanghai Banking

Corporation .. *63,199,756 *63,270,603

Standard Bank of Soutl; Africa

54,715,708 53,794,504

Total 17 banks • •

612,001,538 039,858,088

S.

3 Canadian banks .. 2,108,093,202 1,661,054,258 *Hongkong dollars converted into sterling. CARR AND CALL LOAN ITEMS.

11 Australian and New Zealand 1929 £ 1933 £

76,670,058 76,178,983 3 Indian banks .. . • 12,212,582 18,724,939 Barclays Bank (D.C.O.) 15,967,546 19,493,066 Hongkong and Shanghai Banking Corporation .. • 10,242,763 *27,840,594 Standard Bank of South Africa 11,008,277 17,065,467 Total 17 banks 126,101,226 159,303,049

3 Canadian banks .. • •

844,400,399 455,265,256 !Hongkong dollars converted into sterling.

Except in the case of the Canadian banks, deposits have shown an increase during the past four years, mainly the result of the deposit of funds which depressed industry has been unable to put to more profitable use. Caslv items in the balance-sheets (again with the exception of the Canadian figures), show an even larger proportionate rise than the deposit, totals. The financial position of the banks, therefore, far from being impaired by the effect of depression, has in fact been strengthened.

$ $

3 Canadian banks • • 335,841,650 613,855,256 *Hongkong elollars converted into sterling.

IA1CKS .

11 Australian and New Zealand

DISCOUMNL

1929

£

1933

£

banks.. .. 304,984,683 289,760,790 3 Indian banks 45,315,553 35,087,153 Barclays Bank (D.C.O.) 41,255,019 32,737,951 Hongkong and Shanghai Banking

Corporation *27,26%282 *28,112,285 Standard Bank of South Africa 35,687,953 28,370,583

Total 17 banks • •

454,512,490 314,068,762

3 Canadian banks

1,339,580,783 819,956,283 *Hongkong dollars converted into sterling.

The increase in the investment figures, particularly those shown in Australia and New Zealand, can be attributed largely to the fact that the banks have partici- pated in financing the Governments of the Dominions in which their business lies. Apart from considerations of public usefulness, Dominion bankers as a whole haVe been only too glad to add to their holdings of Government securities, within the limits imposed by their business, as a means of maintaining their earning capacity as far as possible. The necessity for such a policy can be seen plainly from the table of discounts and advances, which in practically every case shows a heavy shrinkage. This item is- the true measure of depression, and its reduction means that a large proportion of the finance which 'agriculture and industry in the Dominions was able to use profitably before 1929 could no longer be absorbed in 1933, although even last year business in many directions had already taken a turn for the better. While industry lost the profit which could have been made on turnover financed by banking accommodation, the banks were robbed of one of their most necessary and profitable functions.

SOUND LOAN POLICY.

Dominion banking institutions have been ready and anxious to finance any reasonable proposition, but the business has simply not been there to use the assistance they have offered. The decline in the discount and advances item, although it 'discloses a serious trade contraction, does at least suggest that the accommodation formerly granted by Dominion banks was on the whole round. Loans did not become permanently " frozen " to an extent impairing the liquidity of the banks, which, as already shown, were actually able to increase their proportion of cash to deposit liabilities. The repayment of loans in times of trade stagnation throws a favourable light on their judgement in making advances,

INVESTMENTS.

11 Australian and New Zealand 1929 1933

45,053,668 71,357,714 3 Indian banks 30,150,269

404819,119-

Barclays Bank (1.C.0.) 9,200,777 27,170,192 Hongkong and Shanghai Banking Corporation . *1%515,100 *16,619,908 Standard Bank of South Africa 5,207,233 8,880,184 Total 17 banks 100,127,047 164,847,117

As a matter of course, the lending functions of the Dominion banks are vastly different from those practised in this country. The oversea banks also differ as between one part, of the Empire and another, since each banking system has been evolved to suit the area it serves, although a widespread branch banking system is common to all the Dominions. In the case of Australia and New Zealand, the bulk of the finance of exports of wheat, wool and other produce is carried through entirely by the banks. In Canada, with its close proximity to the United States, conditions are different, and a feature of the Canadian banking system is its machinery for financing the successive stages of the harvesting, transport and export of wheat. The Opera- tions of some of the other Empire banks are more diversified, but a feature of all the Dominion banks is that the facilities they give carry rather more risk than those normally offered by banks in this country. The survival of the Dominion banks from the slump with enhanced reputations shows clearly that the funda- mental principles on which they work are perfectly sound.

It is true that, like most of the United Kingdom banks, profits of the Empire institutions have been reduced, and dividends to shareholders have had to be cut down. But since banking is the servant of industry, it is perfectly natural that bank profits should fall when general business declines, and the essential fact of the depression, as it concerns Dominion banking, is that stability has been fully maintained.

BRITISII BANKING TRADITION.

Despite dissimilarity of their work, the banks of this country and the British banks overseas have something definitely. in common. Their common advantage is, of course, British banking tradition and experience, which has in course of time grown up throughout the Empire and has enabled the Dominion institutions to withstand the shocks of recent years with the same steadfastness as the Home banks. It may be well to emphasize here that the stability of British banks both at home and overseas, is in no wise fortuitous. It was undoubtedly the excellence of organization and policy over .a number • of years, due to the character and foresight of bankers, which has kept the Empire free from the banking troubles which have developed elsewhere.'

The steps which are now being taken to establish a chain of central banks throughout the Empire are evidently designed to bind the banks of the Empire more closely together. Among the chief functions of central banks arc the holding of centralized banking reserves, the management of note issues, the handling of Government financial operations, and nowadays, the initiation of measures for eliminating violent exchange fluctuations. One such institution has been in operation for some years in South Africa, and part of the business of a central bank is already conducted by the Common- wealth Bank of Australia. A new central banking institution is on the point of commencing operations in New Zealand, and the necessary legislation has been passed to enable Canada and India to follow the example of the other principal countries of the Empire. The setting up of central banks will undoubtedly make for changes in the existing banking lay-out of some of the Dominions and may incidentally tend to limit the scope and initiative of existing commercial banks. Whatever advantages, however, Empire central banking may eventually be found to possess, the change is not due in the smallest degree to dissatisfaction with the conduct or financial strength of the commercial banks, and should not be allowed to obliterate the record of the good work they have already done in fostering trade and upholding British prestige. It might, indeed, almost be said that it is the existence of such a wide system of strong banking institutions throughout the Empire which has made Empire central banking possible.

ALEC H. DAY,