The morning call., 1893-05-20
THE BANK CRISIS IN AUSTRALIA.

THE BANK CRISIS IN AUSTRALIA.
The bank collapse in Australia appears
less puzzling when the history OF the
banking Institutions in the colonies is ex-
amined. The banks were part of the high
pressure machinery by which the norm al
development of Australasia was quick
ened. 1t is little over forty years since
that part of the world ceased to be penal
settlement and invited colonization from
persons who were not criminals; in those
forty years the colonies have acquired
population which does not exceed 4,5oo, 900
souls; yet they have undertaken to find
employment for SOC, 1000. 600 of bank capital
and these banks, by discDunting their Gus
toners paper, have accumulated deposit
line of S720,000000. as against a deposit
line of 1,779, 30o.0 reported by all the
national banks in the United States.
It is no wonder that such forcing-hOuse
tinanciering led to crash
We spoke of the deposit line of the Aus
tralasian banks as being the fruit of lib.
eral discounts. Only about half of it was
obtained from that source. The other
half was deposits by people in England,
who put their money in the London ageu-
cies of the Australian banks to gain 31b or
Az per cent interest, which is fully per
cent more than the English banks were
able to allow. These deposits were all
time deposits; the depostors agreed to let
their money lie for six or twelve or eigh-
teen months. AS matter OF fact they were
permanent deposits. So long as the inter-
est was regularly paid, the depositors did
not ask for the principal 1t is on these
re hat thn ho,, 10 hor,
fault. Most of the Australian depositors
have been paid in full. The English
depositOrs have not been paid, and indeed,
under the terms of their contract, they
could not demand payment. Some OF the
English depositors have applied to the
English courts for relief. In other cases,
the banks which have failed have trans
mitted to their London agencies state
ments showing their solvency, and relying
upon the f0rbearance of their English
creditors have reopened their doors, ard
are doing business in trust for whom it
may concern. They receive deposits and
discount paper as usual. They are so little
distressed that one of them, which owes
million and a half sterling, due next
year. refuses to renew the loan, except at
per cent. 1t has the money on hand to
pay dollar for dollar.
The four banks which have not failed,
and which everybody believes will not
fail-the Bank of New South Wales, the
Bank of Australia, the Bank of New
Zealand and the Union Bank-are pro-
digiousy strong and prosperous. Only
the other day. after the bank troubles
began, the Bank of New South Wales paid
semi-annual dividend of TX per cent, and
carried the usual sum to surplus account
1t has deposit line of 100000, 900, which
will be increased ii it passes unharmed
through the storm.
According 10 American ideas, these
banks. have been doing business on
wrong principle. They have been allow
ing interest on deposits at nearly the
market rate of money. In this country no
bank can pursue this course without sooner
or later getting into trouble. There is not
enough margin between what the bank
gets for money and what it pays for it, to
reimburse it for its trouble in lending it.
and to meet the losses which are inevitable
in business. There is, too, an er-present
danger in allowing the deposit line to
grow indefinitely. The old rule of the
Rothschilds was never TO accept money
them at all times to keep track of their
own capital. At the present day incorpo-
rated banks do not give security for the
repayment Of their deposits. But when a
bank finds its deposits in
creasing too rapidly it lowers its rate of
Interest on time deposits. If it did not do
so it might be tempted by the plethora of
coin in its vaults to expand its business to
such degree that panic would place il
in position of embarrassment
The Australian banks have been Grip
pied by lending other peoples money in
such amounts that it could not be called in
when the labor crises of 1890 and the con-
sequent commercial crisis of 1891 go par
alyZed the normal working of business.
When the working classes exhausted their
savings in the strike their capacity to con-
sumo was reduced, and the dullness of
trade thus caused struck the merchants
just as they were expanded to their fullest
capacity in developing the varou, indus
tries Of the state. All hands fell upon the
banks for help and dragged them down.
But the crisis will only be temporary
Australia is producing more wool than
ever and the mines are all doing well. At
the mining towns in Ballarat and Bendigo
there is not house to let. At Sydney the
Government is feeding 80, 600 persons daily,
but that is because the impecunious will
not go into the interior to work. By and
by there will be a redistribution of labor
and property. The banks will realize on
their assets, and though in some eases the
stockholders may be assessed, depositors