24 JANUARY 1936, Page 36

Barclays Bank Meeting


I Am always glad when that period of the year arrives when I am able to present to readers of these columns the carefully considered review of-the financial and-economic outlook as expressed by leading bankers at the half-yearly meetings of their respective institutions. I am constantly expressing on these pages the views of the -City as a whole, and also, at times, my own views with regard to the general outlook, but I always ,consider that special value attaches to the views of bankers, particularly with regard to industrial conditions in the country, for they have exceptional opportunities for coming into touch with the realities of the position. - It is only the bankers themselves who are able to tell us- to what extent the real' economic conditions of the country are reflected in their balance-sheets and in their daily transactions with industrial concerns throughout the country. As, indeed, was well said by the Chairman of .Barclays Bank, Mr. W. Favill Tuke, at the meeting of- that institution held last Thursday—" Our prosperity depends upina the common prOsperity and otir interests upon the common `interests. An examination of our balance-sheet is, in effect, an examination of the conditions ruling throughout the country."

Two important Banking InAittitionS—Barclays and Martins—and two discount houses—Alexanders and the National Discount, .haye held their -meetings during the past week, and while reports of some of these meetings will be found on another page, I shall endeavour to sum- marise some of the maiiipoirits of the addresSei which were directly concerned with the financial and economic position of the country.


. It has.always to be remembered that while the manage- ment of our Banks can be congratulated upon conducting -their affairs with prudence in fine and stormy weather alike, they are none the less dependent for profit-earning power upon general conditions in the country and upea circumstalleet - 'completely. lagyond their own control. This is a matter which was strongly emphasised by the Chairman of Barclays Bank, and he pointed out the manner in which the joint stock banks have been more TaVourably affected during this year owing to the general improvement in economic conditions throughout the country. Among- other things, he showed how the decline in the numbers registered as unemployed had fallen from the peak level of 2,903,065, reached in January,- 1933, to 1;868,565 in December of last year. Moreover, in each successive month since last March, a fresh high record has been obtained in the official estimates of the number of insured workers. In addition, we have had further evidence of the improved, eonditions in the higher profits of joint stock companies, the increased amounts which these companies- have been able to place to reserves, and also the buoyancy in the National Revenue. These conditions have found their. reflection in the figures on bankers' balanceLsheeti, and in the case of Barclays .Bank alone the lateSt balance-sheet shows an increase in the deposits of nearly £27,000,000.


With regard to this increase in banking deposits generally, Mr. Tuke drew attention to a point which is most imperfectly understood by the general community, but which is one of great importance. Among other things he showed the necessity the banks are under to increase .steadily their cash, holding as their deposits rise. Refuting the assertion so frequently Made to the effect that every increase in bank assets as a whole must involve an equivalent increase in bank deposits, Mr. Tuke said : It should be clearly understood that there are certain definite limits to an expansion in banking, assets. Aa I hive pointed Out, a net increase in the Meets of the banks increases deposits, but deposits are a liability against which the need for liquidity Mikes it essential that the banks should hold an adequate proportion of cash. There is, therefore, a definite restriction upon the ability of the com- mercial banks to raise the total of deposits, for the control of the cash base of the country is not in their hands, but in those of the Bank of England, which in turn operates subject to such limita- tions as result from "the- statutory restrictions uprin the issue of legal tender money. I feel that this matter should be thoroughly understood. When we consider the pdsition of an individual bank, there is still less justification for the extravagant and dan- gerous misconceptions which have arisen. Statements which have been made from time to time are capable of the interpretation that all a bank has to do when it wishes to increase its own deposits is to buy an investment, make an advance or discount a bill. But if it were possible for a bank to create deposits for itself without cost or limit, it would be absurd for the banks to endeavour to attract deposits by the payment of interest and by the rendering of many valuable services to their customers. In actual fact, just as it is true that every net increase in banking assets increases deposits, so is it true that an individual bank can only continue to lend so Fong as it Continues to receive deposit-1360m its customers. Having by the granting of a loan or by any other operation increased its deposits, the bank does not retain any ownership or right in such deposit. The amount can be drawn out in cash, or paid into another bank, and in eithercase the first bank'S holding of cash would be reduced and its ratio of cash to deposits would fall. ii this process were not arrested, the bank's business would 'soon come to an end. Consequently, it is only by attracting deposits to itself that it can continue to function, and to provide the many services upon which the smooth working of the trade and industry of the country depends.


Of particular interest, however, was Mr. Tuke's reference to the 'nature of banking advances and the movement which has taken place during the past year. Too often the impression seems to prevail that banking favours in the Matter' of advances go almost entirely to the large borrovVers and that the small man does not .get a fair "look-in." That this is not true was -demonstrated by Mr.- Tuke so far as his own Bank was concerned, and I have little doubt that the speeches which will follow from other Bank Chairmen will demonstrate this same fact. For the second year in suecession, the- advances of Barclays Bank show an increase, and because of the marked recovery in general conditions, their quality and velocity of turnover have, said Mr. Tuke, -also improved. He theft gave a most interesting analysis of the advances. as recorded at the ' • (Contimied'oi> page -150.) • —


(Continued from page 148.) end of last October. Out of 200,744 borrowers, 9 people or concerns received loans exceeding £500,000, 75 received advances ranging between £100,000 and half a million. One hundred and thirty-six borrowers obtained loans ranging from £50,000 to £100,000 ; 1627 borrowers obtained loans ranging from £10,000 to £50,000 ; 2,532 obtained loans ranging from £5,000 to £10,000 ; 19,402 received loans ranging from £1,000 up to £5;900, while no fewer than 176,963 customers obtained advances up to a -maximum of -£1,000. Thus out of the 200,744 borrowers, the average advance was £774. A more complete refutation of the assertion that the Banks do not cater in their advances for the small individual and the smaller industrial concerns could not possibly be furnished.


But while faithfully recording the improvement established in economic conditions during the past year, it is scarcely surprising that Mr. Tuke's views concerning the general outlook were governed to a considerable extent by the unsettled international, political outlook and the restricted state of international trade. Any attempt, he said, " to assess the future trend of economic events must take account of the fact that, after a long period of peaceful endeavour, there is now a revival amongst many nations of that feeling of insecurity which accentuates the tendency towards economic nationalism and thus postpones the benefits which would result from a more liberal trade policy." Mr. Tuke then referred to the further restrictions of trade resulting from the disequilibrium between the dollar and the " gold bloc " currencies and the maldistribution of gold. The Chairman of Barclays Bank also pointed out that the world-wide conditions of unemployment were largely connected with this spirit of economic nationalism, with its restrictive effects upon trade. Few people, however, will disagree with his assertion that while one of the major requirements of the present time is the restoration of confidence in the stability of exchanges, world con- ditions, political, financial and economic are scarcely such as to justify the hope of an early return to a suitable international monetary system. ARTHUR W. KIDDY.