BANK LOANS AND DEPOSITS
A substantial measure of credit inflation and increased liquidity are the two outstanding characteristics of the posi- tion revealed in the banks' balance-sheets at the end of 1939. Deposits rose sharply in the final quarter, mainly as a result of heavy Government expenditure, but advances did not keep pace. It is clear that war controls have caused a repayment of advances in some directions, and that the banks must have discouraged demands for accommodation from industries providing non-essential services. Up to the end of last year those tendencies were only just offset by the growth of advances to firms connected with armament pro- duction, but it will be surprising if this factor does not turn the scales quite decisively before very long. That the ser- vices of the banks will be more fully utilised as our war effort gets under way is clearly the opinion of Mr. Cohn Campbell, chairman of the National Provincial Bank. In his annual address to shareholders he foreshadows a growing need for capital of all kinds as the industrial machine is gradually geared up to maximum output He sees the Function of the banks mainly as " the provision of temporary finance to enable producers of food, clothing and munitions to bridge over the period between production and the receipt of proceeds from the various purchasing authorities."
On the subject of investments Mr. Campbell pointed out that last year the National Provincial reduced its holdings by £8,000,000 to something over £78,000,000, which was 23 per cent. of deposits against 28 per cent. at the end of 1938. Moreover, the board had continued its policy of maintaining the bulk of the portfolio in short-term redeem- able stocks, even at the cost of a reduced income. As for the future of gilt-edged prices, he is confident that the Treasury is strongly placed. The new 2 per cent. three-five year stock he regards as providing the cue to the Treasury's intentions. When the time is judged ripe for launching a longer-dated loan to raise fresh money for financing the war "a moderate rate of interest is to be anticipated."
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