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Wednesday, 12 April 1961

Mr Ward d asked the Treasurer, upon notice -

1.   What part do private trading banks play in assisting the Commonwealth Government to meet a budget deficit when called upon to do so?

2.   Are these banks under any obligation to make advances to the Government for this purpose?

3.   What form do the advances to the Government take?

4.   Are actual transfers of money made or is a government account with the private trading bank concerned credited with the amount involved?

5.   What government securities are given to the banks to cover such advances?

6.   Are government securities regarded by the banks as liquid assets which are then used as a basis for further advances to other customers?

7.   If no money is actually transferred and what the Commonwealth Government actually receives is bank created credit, why is the transaction not conducted exclusively through the Commonwealth banking organization, with great benefit to the Australian community generally?

Mr Harold Holt - The answer to the honorable member's questions is as follows: - 1 to 7. When the Commonwealth Government experiences a cash deficit on its transactions for a financial year, the deficit, to the extent to which it cannot be covered by drawings on the Government's bank balances with the Reserve Bank, is financed by issuing treasury-bills to the Reserve Bank. Trading banks are not called upon to assist in financing the deficit, nor are they under any obligation to make advances to the Government for this purpose. The Reserve Bank may resell some of the treasury-bills it holds to other banks (including the Commonwealth Banking Corporation group of banks) desiring to hold part of their liquid assets in that form. The conventional measure of the liquidity of the trading banks is the ratio of their "L.G.S." assets (liquid assets and government securities) to deposits. Treasurybills, as well as any other Commonwealth securities held by the trading banks, count as "L.G.S." assets.

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