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Friday, 18 December 1914

Senator DE LARGIE (Western Australia) . - We cannot do full justice to an important measure of this kind in the restricted time available at this stage of the session. I am glad that an effort has been made to give our Bank a wider scope of operations, and, therefore, of usefulness to the people. Senator Millen referred to the apparently small amount of capital that it possesses, and apparently he regards the private banks as being of much greater magnitude from that stand-point. I was surprised to hear the figures the honorable senator first gave. He reduced them a little later, but he apparently still has an exaggerated idea of the capital of the private banks. According to Mr. Knibbs' most recent Year-Book, the private banks from the stand-point of capital are very small potatoes compared with what the Commonwealth Bank will be when this scheme is carried out. Senator Millen said the capital of the Bank of New South Wales was £7,000,000.

Senator Lt Colonel Sir Albert Gould -It is £3,500,000. but the 20s. shares are selling to-day at 40s.

Senator DE LARGIE - The capital of the Bank of New South Wales is only £3,250,000.

Senator Millen - I did not say its capital was £7,000,000. I said its total value as a purchasable proposition was £7,000,000.

Senator DE LARGIE - The capital of all the banks in Australia combined is about £29,000,000.

Senator Millen - You could not buy them for the amount of that capital.

Senator Lt Colonel Sir Albert Gould - The shares of the Commercial Banking Company of Sydney are selling at a premium of more than 100 per cent.

Senator DE LARGIE - That opens up another question. I was simply referring to the paid-up capital of the banks. Comment has been made on the very small capital of the Commonwealth Bank, but it does not follow that a bank with a capital of £3,000,000 has three times the amount of influence on the finances of Australia possessed by a bank with a capital of only £1,000,000. The bank that has the confidence of the people behind it, and the credit of the whole nation to back it up, is much more powerful than a bank whose sole capital is expressed in millions of money. Gold may be very valuable, but public confidence is an even greater asset. The importance of the Commonwealth Bank is, therefore, not to be measured by the size of its capital, but as we propose to increase its capital to £10,000,000, we shall be making it by far the greatest bank in Australia, as none of the other banks has a capital even remotely approaching that amount. We may confidently look to its management to utilize the increased capital to the very best advantage. If that is done, the Bank must do an enormous business. Even now, with merely a nominal capital of £1,000,000, it is doing a big business. We have been challenged to name the benefits which have accrued to Australia from the establishment of the Commonwealth Bank up to the present time. It has done, perhaps, more to improve the working conditions of the clerical workers than anything else in recent times. The poorest paid clerical workers in this country up to the time the Commonwealth Bank began operations were bank clerks, and the fact that we have been able to give them better wages and working conditions would be in itself sufficient to justify the establishment of the Bank, even if there had not been many other good effects flowing fromits creation. Since the war began, the existence of the Commonwealth Bank has created a sense of confidence in the banking institutions of Australia that they never had before. We can recall the banking panic of 1893; and in the present crisis we had all the elements of another. The fact that there has not been the slightest breath of anything of the kind is due to the establishment of the Bank by a Labour Government, with a Treasury note issue to back it up if necessary. The continual attempts of our political opponents to belittle the Bank have done them more harm than anything else I can think of. It has been about the most unpopular thing they could have done. From their standpoint it has been very bad political business, and I am surprised that men, so astute in other ways, have fallen into, and persisted in, the error. There is no denying the fact that they are hostile to the Commonwealth Bank, because their very criticism shows it, and they seem quite to forget that the Bank is an institution of which the people as a whole are proud. We have twenty-two private banks, and if it had been proposed to establish a twenty-third on the same basis, there would not have been a word of criticism or fault-finding. All the criticism has arisen from the fact that the twenty-third bank is a Government Bank. One would almost think, to hear members of the Opposition talking, that the Commonwealth, with its enormous business interests, had not a perfect right to establish a bank, if for no other purpose than to do its own business. One would imagine that it was an impertinence on the part of the people to take any part in the banking business of the country. I hope the increase of the capital of the Commonwealth Bank to £10,000,000 is only the first step towards making the banking business of Australia a Government monopoly in the hands of the Commonwealth Bank. The most economical banking is banking on a large scale.

Senator Bakhap - Does the honorable senator not think that it is better that the Commonwealth Bank should justify itself by successful competition with the other banks rather than by being given a monopoly of banking?

Senator DE LARGIE - The Commonwealth Bank will be justified by its competition with the other banks, and the sound business it will be able to do. It may take longer than some of us anticipated a few years ago, but I am satisfied that in. the course of time the Commonwealth Bank will displace most, if not all, of the private banks in Australia. Itis only necessary to secure common-sense in its management, and as surely as the sun will rise to-morrow it must, as time goes; on, absorb all the other banks in this, country. It might interest honorable senators to know the number of banks operating in other countries as compared with the number in Australia. The United States of America possess a much larger population and greater wealth than we can claim in Australia, but I may inform honorable senators that there are no less than 20,000 banks doing business in the United States. That will give some idea of the comprehensive nature of the banking system of that country. These banks have an aggregate capital of something like £2,400,000,000. They include, of course, all kinds of banks. My contention is, that they would be much more sound if the number were cut down by half. The most expensive system of banking is that carried on by small banks. By banking on a large scale the gold reserves cau be accumulated at one centre. It is the fact that the Bank of England holds the gold reserves of all the other banks of the United Kingdom that makes its position so secure. I say that in the same way we should make the Commonwealth Bank powerful by making it the holder of the gold reserves of all the other banks in Australia. Banking cannot be carried on nearly so economically where each bank, no matter how limited its operations, holds its own gold reserves. There has long been a popular superstition that the Bank of England is a national bank, and it is that which accounts for its strength. As a matter of fact, the Bank of England is a private bank conducted for profit in the same way as any other bank in the United Kingdom. The only difference is that it has a charter from the Imperial Parliament, which gives it powers that are not possessed by the other banks.

Senator Bakhap - Can the honorable senator imagine a bank that would not be run for profit?

Senator DE LARGIE - Yes, I can very easily imagine a bank which, like our Railway Departments and the Post and Telegraph Department, would be run for the convenience of the public and to extend their business facilities. It is generally assumed that Bank of England notes are as good as gold, but whenever a financial panic has arisen in the Old Country the Imperial Government have had to rush to the rescue of that powerful institution. This has been largely due to the fact that the Bank of England notes have been considered as good as gold, and of more value than are notes of the Bank of France or of the banks in other countries. The fact that notes of the Bank of England are redeemable in gold at the

Bank has really led in the Old Country to a belief that bank notes are not as good as gold, and so in a financial crisis people holding paper currency rush to convert it into gold.

Senator Bakhap - The fact that Bank of England notes are redeemable in gold has made London the centre of credit for all the world.

Senator DE LARGIE - The Bank of France does not leave itself open to be taken advantage of in the same way, and as a result it is in a far sounder position than is the Bank of England. Time and again the Bank of England has had to ask for the assistance of the Bank of France, because of the run upon the gold reserves accumulated in its vaults, a thing which could not happen in the case of the Bank of Prance.

Senator Bakhap - Why is London the centre of the world's trading settlements?

Senator DE LARGIE - I question very much whether it is. I think that the honorable senator will find if he looks into the matter that the Bank of France is in a sounder position than is the Bank of England. If there is a run on the Bank of France, the institution can shut down, and refuse to convert its paper into gold. The notes can be redeemed at will when the Bank considers it safe to redeem them. It has very seldom refused to convert paper into gold, but the fact that it has the power to do so at any time greatly strengthens its position. I have said that the practice of the Bank of England has been to encourage a popular belief that paper money is not as safe as gold, and this has led to rushes on the Bank in a time of financial crisis. The practice of the Bank of France, on the other hand, creates public confidence in the safety of its notes. People become accustomed to the paper currency, and have every confidence in it. I should like to see a similar practice adopted in Australia. It is a waste of wealth to have sovereigns, or even half-sovereigns, in circulation. We should have more paper money, and conserve our gold, and make the best possible use of it for the benefit of the countryIf this course had been followed in the past in Australia we should be in a much better position than we are in at the present time. I agree with some of the criticisms as to the present management of the Commonwealth Bank. I have not a single word to say against the Governor of the Bank, Mr. Denison Miller. I think that we have secured in him the man best fitted for the task with which he has been intrusted. But I think that there should be a Board of Control appointed by this Parliament. It should be of a non-party character, and should consist preferably of the President of the Senate and the Speaker of the House of Representatives, or of one or two members elected by this Parliament. Such a Board would be a great help to the Governor of the Bank. " Many men, many minds," and in banking, as in everything else, two or three heads, are better able to think out a matter than is one. I am sure that it would be a matter of satisfaction to the Governor of the Bank if, in times of difficulty,he was in a position to refer to the members of a Board of Control. This course is followed by the best banks in other countries, and by the Bank of France, for which I have a great admiration, and the Governor and DeputyGovernor of which are appointed by the Government in the same way as the Governor of the Commonwealth Bank.

Senator Bakhap - Are notes of the Bank ofFrance worth as much in foreign countries as are Bank of England notes?

Senator DE LARGIE - I do not know that the notes of the banks of any country are of very much value outside that country. Paper currency is sufficient for internal trade, but for international trade it is necessary to have gold.

Senator Bakhap - That is precisely why international settlements take place in London - because the gold basis is strictly adhered to.

Senator DE LARGIE - The fact is that the gold basis is not strictly adhered to in Loudon, and we had proof of that at the commencement of the present war. The subject with which this Bill deals is a very alluring one, and if the measure had not been delayed until practically the last day of the session, I am satisfied that a number of honorable senators would have been glad of the opportunity to address themselves to it.

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