The Banking Position Growth in Deposits and Loans AFTER .

a period of contraction in banking deposits, following upon prolonged expansion, the totals are once again ascending, and the growth during the past year is fairly striking. Largely as a consequence of War inflation in credit and in prices, banking deposits expanded enor- mously from 1914 onwards, but there had also been a very steady rise during the previous decade. The peak was touched about that time or early in 1921, since when there has been a steady contraction.. Two years ago the total deposits of the ten clearing banks had declined to about £1,684,000,000 (being a drop of. E24,000,000 for that year), but a twelvemonth ago there was a small rally to £1,687,000,000, and noW it will be 'seen that during the past year (from June 30th, 1926, to June 30th, 1927) there has been a jump to i1,747,000,000, a rise for the year of about £60,000,000 _

Bank oi Liver- pool and

Martins Barclays Bank.. Coutts and Glyn,Mills and Co...do.

Lloyds Midland Bank .. National Provin-

cial Bank .. National Bank.. Westminster

Bank .. WilliamsDeacon's Bank .. • DEPOSIT'S.

Juno 30th, Dec. 31st, • 1926. • 1926.

£ £ 59,328,980 59,819;32%

304.247,461- 309,883,691 ..

16,669,435 17,119,599 .

26,810,718 30,766,210 ..

336,631,359 .. 346,132,523 ..

349,469,875 366,423,103 ..

255,260,105 .. 259,249,807 36,962,819 .. 36,814,913 270,286,855 .. 285,406,068 31,427,121 32,433,363 June 30th, 1927.

-58,881,530 308,538,672 . 18,175,554 31,849,150 353,934,406 376,528,502 258,681,386 37,162,306 272,068,407 32,064,318

1,74.4,053,8011 ..

1,747,884,231

CAUSE OF ADVANCE.

Nor is the cause of the rise in deposits far to seek. It has been a case, for the most part, of loans creating new deposits, for in spite of trade depression, a feature for the past few years has been the steady rise in loans and advances, so that we now have the somewhat extra- ordinary situation of the proportion of bankers' loans to deposits standing at a higher level during a period of alleged trade depression than was registered during the premature trade boom of 1920-21. As compared with a year ago, there is an increase to note in the loans and advances of the ten clearing banks of nearly £50,000,000, and as compared with three years ago the expansion is about 1130,000,000. • - The figures for the past year are as follow

LOANS ANO ADVANCES.

June 30th, Dec. 31st, June 30th,

1926. 1926. 1927. Bank of Liver-£ pool and

• • • •

Martins . . 34,601,139 36,702,937 35,715,086

• •

• • 155,454,795 162,012,044

Barclays Bank.. 155,566,604

• •

• • 9,209,538

Coutts and Co.-.. 8,133,090 8,772,383

• •

Glyn,Mitls and Ca. 9,638,705 10,541,358 11,707,420 • • 202,417,660

• •

Lloyds Bank .. 189,735,988 194,757,519 209,661,918

• • •

Midland Bank .. 198,717,420 200,459,993 National Provin- cial Bank .. 136,281,499 142,190,250 .. 145,168,821 National Bank .. 15,799,081 15,903,430 .. 15,383,580 Westminster Bank .. .. 132,168,073 141,741,479 .. 138,312,884 WilliamaDeacon's Bank .. .. 19,211,025 18,984,829 .. 19,256,747 899,852,624 .. 925,508,973 .. 948,845,698 Win' LOANS HAVE RISEN.

To what, then, must this great rise in loans and advances be attributed in the light of the industrial depression of the past few years ? Without pledging the order of importance, I think the following may be assigned as the main causes := Activity hi certain industries.

Aid -US distressed industries.

GroWth in overdrafts to the public.

Stock Exchange operations..

Banking affiliations,

PROSPEROUS -INDUSTRIES.

While in key industries, such as Coal, Railways, and Iron and Steel, there has been marked depression over a prolonged period,' there have been many other industries, including some of the new activities such as artificial 'silk, where there has, been great expansion in operations and, in many. directions, great prosperity. This activity and this prosperity hays been stimulated by banking loans and has called for a great deal in the way of banking ,accommodation." _Indeed;_as ii-frequently shoWn in the Economist's careful examination of the results of indui- trial companies aa,a whole, _the figures have been fairly good for some time pait, while the same fact is revealed in the great advance which" has taken place in the shares Of many industrial companies.

AID TO KEY INDUSTRIES.

On the other hand there is little- doubt that first in -connexion with the breakdown of the premature trade boom of 1920 and the depression which followed, and in connexion also with the severe depression resulting from the coal crisis of last year, the aid given by bankers to those industries chiefly affected must have been on a very large scale, and to some extent there must in that connexion be a good deal in the way of temporarily frozen credits in the balance sheets. Latterly it is probable that the posi- tion may have been eased a little by the slight rally in the iron and steel industries, but it will not be until we haVe a real restoration of prosperity to our key industries that we can expect a thorough liquefying of these positions, and meanwhile bankers are handicapped to that extent in meeting demands from other directions owing to the present high proportion of loans to deposits. There can be little doubt,however,that the exceptional circumstances not only justify the present expansion in loans to trade, but May. be held to justify an even further expansion should the occasion arise. Moireover in this connexion it must be noted that as against the great rise in deposits and in loans during the past year must be set a very great increase in the holdings. of cash.

OVERDRAFTS.

Undoubtedly another explanation of the growth in banking deposits is to be found in the much greater use of overdrafts on the part of the ordinary private customer as distinct from the manufacturer and trader. And here it must be admitted we are up against a rather different proposition, the merit of which it- is more difficult to appraise. Just as trade depression has caused many industries to lean heavily upon the banker for assistance, so it is to be feared that onerous national and local taxation, the high cost of living, and the enforced purchase of houses to live in has driven the general public to the bankers for assistance to an extent unparalleled in our previous experience. Up to a- point, no doubt,- this banking credit has stimulated consumption of goods which would otherwise "have -suffered by the causes already referred to, but inasmuch as there must be a limit to overdraft accommodation it. is; to be.feared that in this respect we have .somewhat . limited the capacity for purchasing power to expand-rapidly, which-makes it the more imperative that our export trade should be stimulated and also that our national expenditure should be cut down and onerous taxation be reduced.•

STOCK EXCHANGE ACTIVITIES.

To what extent the activity in existing Stock Exchange securities and also in new capital-issues may have been stimulated by bankers' loans it is difficult to say, but it may be doubted very much Whether the capital "appreciation— running into some hundreds of millions—in Stock Exchange securities during the last few years can be attributed entirely to purchases by investors out of their own resources. Both to the general public and to the large Stock Exchange-firms it is likely- that there has been a steady increase in banking loans, and in the event of any great trade revival it is likely that the fact would be revealed by a calling in of such loans and a consequent sale of securities.

EXTENDED SPHERE OF OPERATIONS.

And finally in considering the growth in banking loans as a whole and especially as regards the " Big Five," it may be well perhaps to remember their extended sphere of activities: It is true that theSe have largely taken the form of separate or affiliated institutions which employ their resources in financing activities in foreign countries or those of our oversea Dominions, but it is not at all unlikely that at times the lending resources of the main institution play a part in 'foreign and Dominion loans, and the more so perhaps when trade demands at home are less pressing.

SOME PRACTICAL CONSIDERATIONS.

The practical question which would seem to arise out of this somewhat cursory examination of the growth in • banking loans is whether the best possible use is being made of our liquid resources as expressed in the lending power of the banks. I:scarcely think that it is, but, in my judgment, the fault lies not with the banks but with forces almost entirely beyond their control. Let me e.cprt's-S the matter iirthia way.- If riatiOrfal-eXpeaditifte were smaller and taxation were lighter, if through better organization in industry, and- greater individual output in labour, costs of production were reduced, enabling us to compete successfully with other countries and achieve a favotirable trade balance,-weshould ha-vebankers7 loans employed in directions ministering more directly .to the wealth-creating power of the country than they do to-day. At the moment we must recognize that our gold standard and our banking system are being used to minimize and to some extent conceal the ill-effects of the paralysing influence of high taxation and the other defects I have mentioned. Moreover, the banker is virtually power- less to make his views felt, for so many of the causes of economic depression are political in character, and we seem to live in times when politics are far more highly organized than industry, at all events so far as the management of industries is concerned. Meanwhile it is good to observe that while the banks, acting in the capacity of servants to the public, have not hesitated to employ their resources in aiding industry to the utmost of their- power, they-have in-no way departed from the principles of sound banking in the matter of reserves and. general liquidities, and this liquidity has been increased by the large sale of long-dated investments. Lack of confidence in politics, in labour, and in social affairs . has. no counterpart in all that :pertains . to our banking system. SCRUTATOR.