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Wednesday, 13 December 1911

Senator WALKER (New South Wales) . - Taking a broad view of the question of banking, and of Federal legislation on the subject, I wish to say at the outset that I am strongly of opinion that certain questions should be above party. Amongst those questions I put the Federal note issue, the electoral law, the transcontinental railway, and the Commonwealth Bank Bill. Unfortunately, our experience of the present Government is that they do not pay much attention to suggestions from the Opposition.

Senator McGregor - That is unfair.

Senator WALKER - I hope that, on this occasion, the Vice-President of the Executive Council will listen to what I have to say.

Senator McGregor - Hear, hear!

Senator WALKER - We cannot forget that the Senate represents the States, and that we are now faced with the possibility of an interference with the banking arrangements which the States have hitherto had. We cannot but lay emphasis on that fact. I hoped that special financial provision would have been made for the Federal Bank which it was proposed to establish, but we find that no provision has been made for placing the institution upon a sound business footing. I consider that after the first twelve months have elapsed the bank should have paid all its preliminary expenses, and should be able, out of its profits, to lay aside a certain amount for a reserve fund.

Senator Vardon - The honorable senator thinks that the bank will make profits?

Senator WALKER - I think it is possible for the bank to make profits.

Senator Barker - The honorable senator knows what a good game banking is.

Senator WALKER - I think that the bank should put 50 per cent. of its profits to a reserve fund in each year, and I should recommend that it should put 5 per cent. aside every year to cover bad and doubtful debts. Our experience in banking shows that it is well to make in advance provision for such occurrences, otherwise the profits in any one year may be absorbed by the bad debts incurred during the year. Personally, I wish that the Government, instead of starting the bank with loan funds, had been prepared to put aside £250,000 as an instalment towards £1,000,000 by way of capital for the bank. That would have placed the institution on a sound business footing. Under present circumstances, we are treating it in a favoured manner. The Commonwealth is to pay the preliminary expenses. That is not a business-like thing to do. I think that the bank should be able to pay its own preliminary expenses in the first year, and that it should thereafter make fair profits. As to the system of management, the proposal of the Government is simply to leave the institution in charge of a general manager, who will control the whole business. My opinion is that we should have a board of management consisting of five persons, all of whom have had considerable mercantile or banking experience in various parts of Australia. If this is to be a truly Australian bank, its board and manager should have some knowledge beyond that which can be acquired in the State or city in which the head office happens to be. A great authority on banking, George Rae, who was for forty years manager of the North and South Wales Bank, lays great emphasis on having a board of management for such an institution. He says -

So far from the control or management of a bank being a thing which any one can understand at sight, there is perhaps no business more difficult of ready grasp. i have given a long business life to the practice and study of it, but do not look upon my education as even yet complete. Every now and again i still come upon something new - some fresh " wrinkle " - some side light which goes to enlarge or qualify, sometimes to upset, old and cherished impressions, and to divest experience of finality.

Mr Rae, who, by -the-bye, had a brother in Sydney in days gone by - I refer to Mr. John Rae - gives a quotation from a wellknown old book written in 1580 by John Lyly, a dramatist, who refers to the unwisdom of relying on possibly a single person to look after any particular business. He says -

Not unlike those which, at the instant and importunate sute of their acquaintance, refuse a cunning pilot and chuse an unskilful mariner, which hazardeth the ship and themselves in the calmest sea.

When I was a young man employed in a bank in London, one of the standard books in those days was Bullion on Banking. It turns out that "Bullion" was another name for Mr. Rae. I may tell tho;se who have not yet read Rae's Country Banker that they will find it almost as interesting as any novel which they could pick up, because it gives instances of various persons who come to a manager to urge what a splendid thing it would be for the bank if it would only do what they wanted. He instances these cases in a most interesting manner, and one can almost imagine that he knew some of the persons who came to him for assistance. In fact, one of the greatest attributes which a good manager can have is to Be able to say "no" without giving offence. I am one of those who think that there are, at all events, three objections to the proposed bank. I think, first, that it should commence with a paid-up capital, and should not have to raise capital by debentures or by a Government loan ; second, that there should be a board of control with power to appoint the general manager and, subject to his recommendation, the other officers ; and, third, that the Savings Bank branch is not called for by the public, and, if established, will, I fear, promote friction between the Federal and State Governments. With regard to the first objection, I think it is desirable that the bank should be treated as a non-political entity, and should show that it is worthy of support by its management, paying its way, including the rent of buildings and taxes, like other banks have to do, and thereafter putting annually, say, 50 per cent, of its profits to a reserve fund, 5 per cent, for bad debts, and handing the balance to the Government as a return on the investment. The balance of net profits should be paid annually or half-yearly to the Treasurer by way of return on the Commonwealth's investment. If the bank's capital is to be £1,000,000, I think that the money should be advanced from time to time as it is required. On the point that it professes to be a bankers' bank, it seems to me that, in time, £1,000,000 will be far too small for such a bank. I have already said, I think, that the board of management should be composed of men who have had experience.

Senator Pearce - Would your proposed board be composed of public servants?

Senator WALKER - Far from that ; but I shall explain later what I propose in that regard. The first directors should, I think,, be appointed by the Ministry. They should be eligible for re-election, one retiring each year, and the board should suggest three names to the Government, which names could be considered by them in conjunction with any others to fill up the vacancy, and the board should elect their own chairman or Governor each year. To call the general manager of the Commonwealth Bank "the Governor" strikes me as a sort of imitation of the Bank of England ; but I shall show in a few minutes how very different the constitution of that bank is. With regard to the Savings Bank, probably some honorable senators are not aware that nearly every third person in the Commonwealth keeps a Savings Bank account. The total number of such accounts kept by the various State Savings Banks approaches 1,500,000. It is natural, I suppose, that the States are not anxious to lose the control of these banks. Some years ago, a Royal Commission was appointed in New Zealand to report on a State Bank, and their report recommended a combination of a private and a State Bank. The Bank of New Zealand is practically such a bank. Many years before the time 1 refer to, when the Government of New Zealand were somewhat in difficulties, they got permission from the then manager of the Bank of New Zealand to draw for so many months something like £200,000 a month to get over the situation, pending the floating of a loan. Years elapsed. Mr. Seddon, the Prime Minister, forgot what the arrangement was, and he came to my friend the general manager, and said to him, " You are aware, of course, that we have an arrangement with your bank that at any time we want it we can have £200,000 a month." But the manager said, " Mr. Seddon, you are under a wrong impression. That was a temporary arrangement. It was not intended that at any time you liked you could come here. You seem to think that you can get £200,000 a month for months and months. That would be over £2,000,000 a year. No bank could be expected right off to be able to do that without inconveniencing its ordinary business." Mr Seddon took rather high ground, and my friend resigned his management. He said, " I have had considerable experience of banking. I have been the general manager of a bank, and I have a certain reputation as a banker.

I decline to remain here if I am supposed merely to obey whatever the Prime Minister thinks proper to say." I saw the correspondence. My friend resigned the position; he was offered an appointment elsewhere, and he only took it temporarily. At the present time he is general manager of a large mercantile company, at the same salary - £2,500. There is an instance of a man of independent character who was a general manager before, and who at the present time is getting as good a salary as he received when he threw up the appointment. I am afraid that persons forget that if the proposed bank is a purely State Bank it may be brought into such a position that its ordinary business will be interfered with through the necessities of the Government. I am speaking of what I know from personal experience. I think it well now to refer to the constitution of various banks. The Bank of England is generally called by some persons a State Bank. It is a private corporation, but it has close connexions with the Government, inasmuch as it keeps the Government accounts, and its notes have been declared a legal tender. Mr. Gilbart, who is another great authority on banking, and who was general manager of the London and Westminster Bank for many years, mentions that the Bank of England was first projected by a Dr. Hugh Chamberlain. But the plan actually adopted was proposed by Mr. William Paterson, a Scotsman, who was afterwards the founder of the Bank of Scotland. The Bank of England started with a capital of £1,200,000, and in the following year Paterson founded the Bank of Scotland with a similar capital, only that it was pounds Scots in place of pounds sterling. A pound Scots, I may mention, is twenty pence, and the consequence was that the capital of the Bank of Scotland was only £100,000. The Bank of England is a bankers' bank, but it is not a State Bank, and the Government is not responsible for its liabilities. I have already mentioned that the original capital was £1,200,000. Up to 1816 its capital had .gradually increased, and it remains the same to-day - £14,553,000. The board consists of a Governor, who must hold £4,000 of bank stock, a Deputy Governor, and twenty-four directors, each holding £2,000 worth of bank stock. A quorum is thirteen, and of that number one must either be the Governor or the Deputy Governor. We hear a great deal nowadays about the crisis of 1893, and we are told every now and again that, had* not Sir George Dibbs made the notes of the ' banks in New South Wales a legal tender for six months, many of the bankswould have smashed. I think that that is quite true; but, after all, what does it mean? What is the history of the Bank of England? It suspended its cash payment in 1797; in 1819 payment in goldwas restrained by Act of Parliament; in 1839 it took a loan of £2,500,000 from the Bank of France; and in 1844 the Bank Act was passed, by. which the bank has two departments, namely, an issue department and a banking department. Its notes are legal tender. Three times since 1844 the Bank Act has had to be suspended. Had it not been suspended, there would have been a tremendous smash in Great Britain. By the suspension of the Act, the Bank of England got the same assistance from the State as the banks in New South Wales received in 1893. As an old banker I maintain that it is very cruel of personsto speak as if we were not relatively in as good and sound a position financially as was the Bank of England when it had that great advantage over us. When the demand for notes is in excess of the amount of gold required, the Act can be suspended, and the notes declared a legal tender, although not convertible into gold. As many persons have not heard of the Bank Act of 1844, I think it is as well to give a short summary of its provisions. It was called an Act to regulate the issue of bank notes, and to give to the Bank of England certain privileges for a limited period, which has been extended from time to time. Section 1 establishes an issue department; section 2 provides that securities to the value of £14,000,000, including the debt due from the Government to the company, are transferred to the issue department ; and section 4 says that the silver bullion must not exceed onefourth part of the gold and bullion in the issue department. Section 5 reads -

On any other bank than the Bank of England ceasing to issue its own notes the Bank of England may be authorized by order in council to increase the securities in the issue department and issue additional notes, provided' always that such increased amount of securities specified in .such order in council shall in no case exceed the proportion of two-thirds the amount of bank notes which the banker so ceasing to issue may have been authorized to issue under the provisions of this Act, and every such order in council shall be published in the next succeeding Government Gazette.

Section 8 requires the bank to allow to the public £180,000 yearly out of the sum payable to the bank for the management of the public debt. That is a matter which many persons do not understand. The bank is paid from time to time a large sum for managing the public debt of Great Britain, but against that it has to pay this £180,000 a year for the privilege of having its notes declared a legal tender. Section 9 provides that if the securities in the issue department increase beyond £14,000,000 the bank must allow the public the profits of increased circulation of the notes after deducting expenses. The form for the issue department gives, on one side, the notes issued, and, on the other, the Government debt, other securities, gold coin bullion, and silver bullion, and it is dated and signed by the cashier. There is a very singular thing here to which I propose to direct attention. In 1844 the total authorized issue of notes by the banks was £36,523,350, of which the Bank of England had only £14,000,000. But, as the various banks lost their issue, the Bank of England's authorized issue increased, so that to-day its authorized issue against securties amounts to £18,450,000.

Senator Vardon - I thought the Bank of England had notes in circulation to the value of £28,000,000?

Senator WALKER - I am dealing now with the authorized issue without coin. For every note issued over the amount I have mentioned - £18,450,000 - the bank must hold coin.

Senator Millen - To the full value?

Senator WALKER - Yes, to the full value, for every note beyond the authorized issue referred to. I have some figures here which I think will be found interesting. I mentioned that there were 207 private banks, 72 joint-stock banks in England, 19 joint-stock banks in Scotland, and 6 in Ireland. But now the number has been diminished. The following is a summary of present fixed issues : -


At the present time the banks are allowed to issue notes, without having coin to the extent of £28,000,000. Honorable senators may ask how it is that at this time a smaller amount of notes can be issued against the securities than then, when the banking business is so very much larger now than it used to be ? The explanation is that since 1844 cheques have been very much more used in business than they were formerly.

Senator Millen - Is that for the Bank of England only?

Senator WALKER - No. The following table, relating to the Bank of England, will be of interest -


It will be seen that the bank held in reserve £25,823,000, so that the total value of the notes issued amounted to £54,621,000. The gold and bullion held amounted in value to £36, 17 1,000. That is to say, that the coin reserve on 6th December this year was equal to £125 for every £100 worth of notes in the hands of the public. But, including the notes held in reserve by the bank, the proportion of coin held represents; £66 for every £100 worth of notes issued. For an issue of £10,000,000 of our notes, the Government require to have coin of the value of only £4,750,000, or a coin reserve of47½ per cent., as against 66 per cent, in the Mother Country. Those of us who take a little interest in banking consider that Parliament has been very liberal to the Government in requiring a coin reserve of only 47½ per cent. for our note issue, and yet it is now proposed that the coin reserve shall be reduced to 25 per cent. I should, perhaps, explain that the Bank of England calls its reserve the "Rest." It is not a fixed amount, as profits go into it and dividends are taken out of it. I give a short extract now from the Insurance and Banking Record for last month, referring to the Commonwealth Banking Bill -

Supposing the bank to be started, its first step would naturally be the transfer to its ledgers of the cash balances now held at its credit by other banks, as set out on page 3 of the Budget statement. Excluding the current account balances, the amount on which the Treasurer is receiving interest from those banks is ^1,631,500. Assuming that the Treasurer is able to float at par his loan of ,£1,000,000 at 3£ per cent, for the " capital " required, the sum which the bank will require to earn during the first year before it begins to make any "profit" may be stated thus : -


I may say that I do not altogether agree with ' that, for the reason that the £1,000,000 will be given only as the money is required.

Senator Pearce - Besides, the statement quoted charges interest against the bank and loss against the revenue.

Senator WALKER - The honorable senator must remember that the bank will have to pay 3^ per cent, interest.

Senator Pearce - If the bank has to pay, how will the revenue lose?

Senator WALKER - But interest has to be paid on the debentures. I have said that I am not tied to that statement. The quotation proceeds -

While we may be sure that the last item will increase steadily year by year, it is possible that the large outgo quoted above may be slightly mitigated by lending some of the money gathered in. But it will certainly not find its outlet in ordinary banking advances unless the bank starts its competition by initiating a scale of rates that will not stand the test of experience. The Labour papers have proclaimed that money will be obtainable by " needy and deserving industrialists" at i per cent, above the rate which the bank will allow on deposits. If so, the initial deficit will take many years to wipe out.

However loudly the Ministry may protest that the bank is to be kept free from any political influence, it goes without saying that once it is started the service will be a hotbed of rank nepotism. It may probably be subject to the principle of " spoils to the victors," and experience ruthless disturbances of the staff whenever there are administrative changes. If this is not the result it will be directly at variance with all historical precedent.

This is taking it for granted that we are going to have one man controlling the management of the bank. It must be admitted that human nature is such that he is likely to be influenced in making appointments by personal preferences. It is very different where there is a board of directors.

Senator Pearce - That would only mean that there would be more friends to provide billets for, according to the honorable senator's argument.

Senator WALKER - I have dealt with the Bank of England, and I now propose to consider some of the Continental banks. The first bank to which I propose to refer is the National Bank of Belgium. The capital of this bank consists of 50,000 shares of £40 each, paid-up, £2,000,000, of which 23,481 shares are called " inscribed shares," 26,519 shares are called " shares to bearer"; total, 50,000 shares. The chairman of the Council of Administration is named " The Governor," and the council consists of the Governor, the ViceGovernor, and five directors. The annual report is signed by the said council, and is accompanied by a report of the Council of Censors, which consists of a president and five additional censors, as well as a " reporter." I may mention here that the censors are really examiners, very much like inspectors, who report as if they were outside the bank upon everything that comes under their notice. Apparently two censors retire annually. They are appointed for three years, and are eligible for reappointment. The censors report at some length on the balance-sheets and profit and loss accounts, and show in detail amounts payable to Government for advantages enjoyed by the bank. I quote this extract from a report of the censors -

We informed you last year that the work which the bank carries out gratuitously for theGovernment and the country increased very considerably the general expenses.


This amount is appreciably higher than thatreceived by the Treasury in 1909, the averagerate of discount having been, in 1910, 1 per cent., higher than in the preceding year.

The Savings Bank and Superannuation Funds, amounting to about £9,000,000, are guaranteed by the State. The bank notes in circulation exceed £36,000,000, and the coin and bullion exceed £8,000,000. The reserve fund exceeds £1,500,000, and the rate of dividend to shareholders for 1910 equalled £16 12s. per cent. The aggregate figures oil each side of the balancesheet exceed £188,000,000. The Government business is a great factor. Bill discounting is also a great feature ; the average currency of bills discounted was forty-seven days in 1910 ; number of bills 4i593»2I8, for £169,134,110. I may mention that the bank premises are valued at £834,292, as against a capital of £2,000,000, which is a very much larger proportion of capital than any bank in Australia would think of having locked up in premises. There is such a common impression abroad that banks are so much more profitable than they really are that I would like the proposed Commonwealth Bank to be given a fair show, in order that the public might be disillusioned^ -

It was during the last quarter of the year 1910 that the rate of discount rose from 3J to 4^ per cent., then to 5 per cent., without there being any direct profit for the bank; this movement has had an influence on the reserve of specie of the bank, and appreciably improved the condition of the exchange on foreign countries. The amount of the notes in circulation increased, in 1910, by £2,360,000; on the other hand, the reserve of specie increased by more than £1,760,000.

The Council of Censors pointed out to you last year that the present condition of the country with regard to monetary affairs ought to be the object of the most searching study ; it gives its entire approval to the steps taken by the governing body of the bank, with a view to improving this condition, which is so harmful to the interests of the nation, as much as possible. The modifications proposed bv the governing body as to our internal management, with a view to the improvement of the allowances or commencing salaries of officials or workpeople, have had our entire approbation ; we have been happy to assist in improving the condition of so active and devoted a staff. The normal donation of the provident fund of the officials was increased in 1910 to the sum of £10,714, representing about 10 per cent, of the total amount of the allowances and salaries of the staff.

The Savings Bank and Superannuation Funds guaranteed by the State - various securities - amount to £9,173,518. The notes in circulation on 31st December, 1910, amounted to £36,181,366, the product of the discount exceeding 3J per cent, to £76,951, the share of the States in the profits for the half-year to £52,708, and the reserve fund was increased to £1,537,240. The dividend payable for the second half-year of 1910 was £166,000. These figures give us some idea of the magnitude of the operations of an institution which is not a State Bank.

I come now to the Bank of Italy -

On the roth August, 1893, a Bill was passed and became law, by which the National Bank of the Kingdom of Italy, the National Bank of Tuscany, and the Tuscan Bank of Credit were consolidated under the name of " The Bank of Italy." The authorized capital was limited to 300,000,000 lire, divided into 300,000 shares of 1,000 lire (£40). As a lire equals a franc, the authorized capita] was £12,000,000. But in 1903 the paid-up capital was £9,000,000. The authorized note circulation at the time of consolidation had to be gradually reduced to 630,000,000 lire, or £25,200,000, to be represented by a reserve of 40 per cent, in metallic money, of which three-fourths must be gold and the balance in bills of exchange on foreign countries bearing first class signatures. The circulation tax was fixed at 1 per cent., calculated on the average rum bv which the circulation should exceed the reserve.

That is to say, if £25,000,000 were the circulation, 40 per cent, of a reserve would amount to £10,000,000, and on the £15,000,000 in excess of the reserve 1 per cent, would amount to £150,000 per annum.

Stockholders furnish the entire capital of the bank. The shares are registered. Ownership is acquired by transfer upon the books of the bank. The bank recognises but one owner for each share.

What we call an annual meeting is called the Bank Assembly, and it meets annually in May.

The assembly, consisting of shareholders, appoints the comptrollers, the administrators of the branches, and the censors, who are entrusted with the supervision. The regents elect " the Superior Council, and each district seat annually delegates for that purpose three of its regents. It holds its meetings at least once a month in Rome. All matters affecting the bank are submitted to this council, especially those appertaining to the issue and withdrawal of bank notes, the fixing of the rates for discount and loans, the declaring of dividends, the verification of balance-sheets, appointments and dismissals of employes, &c. The Superior Council selects a committee of six members, which, in co-operation with the President of the Council and the DirectorGeneral, exercises a more direct supervision over the bank's business, particularly touching subjects of disputes and extraordinary discounts. The comptrollers, designated by the Assembly of Shareholders, exercise, either directly or through the censors, control over the administration, with a view to having the rules and regulations faithfully observed. They examine the balance-sheets, and give their advice as to the amount of the dividends. The censors supervise the district seats, and exact from the directors such information as they deem useful for the discharge of their duties. They enter the result of their observations in a special book, and communicate to the censors a report upon their supervision. The general management is thus constituted : - One director-general, two vicedirectorsgeneral, one secretary. All are appointed by the Superior Council, but the nominations of the director-general and vicedirectorsgeneral must be approved by the Government. The director and two vice-directors-general form a directing committee, which considers all concerns. The director sits in the Superior Council, and has a consulting vote in that body. He has the management of the bank's affairs subject to the authority of the Superior Council. The administration of the district seats has great importance in the Bank of Italy, as these establishments supply the members of the Superior Council. Each district seat is managed by a council of at least eight regents, and at most twelve censors, with a director in executive control. The regents and censors are appointed by the General Assembly of Shareholders for a term of six years. Half the number is renewed each three years. The Regents' Council has charge of the administration of the seat, and sees that the orders of the Superior Council are carried out. For the examination of commercial paper it employs the assistance of a Discount Council of ten or twenty members chosen from a double list presented by the director. Those branches that are less important than the district seat are administered each by a director and supervised by five censors. A Discount Council gives advice regarding the paper to be admitted at the branch. The bank, besides, has correspondents, who undertake to transmit to the nearest office paper, presented for discount, and to attend to the collections of matured paper." The Bank of Italy has charge of the State's Treasury service since rst February, 1895. In «11 the provinces it receives the payments for accounts of the State and its Departments, and makes the payments to its creditors. This service is gratuitous. The taxes levied on the banks are very heavy, that is to say, on the Bank of Italy. They are as follows : - Tax on general ; property. i,575',2g6 lire; tax on circulation, S<536>397 lire; tax on- negotiation of the shares, 288,505 lire ; tax on the verification of weights and measures, 9,655 lire; stamp tax, 19,297 lire; State control, 57,600 .lire; tax on- factories and lots, 116,688 lire; tax for the chambers of commerce and the communal chambers, 7,764 lire; total, 7,611,202 Ike (or ^304,000).

As the latest work I have had access to bears date 1.896, there must be later returns available. The work from which I quote, namely,' A History of Banking in All Nations, says -

The restrictions imposed upon the circulation and1, the extravagant taxes with which it is burdened weaken the bank and thwart the beneficial effect which they exercise in other countries. The legal tender quality of the paper money is a mere- euphemism, as Italy is under a forced currency rule, which means that the notes are a non-convertible paper money, like the scrip of Greece or the Argentine Republic. . . .

The banks have allowed' their own credit to "be merged with the Government's credit ; and, above all, enfeebled: and demoralized by their past, they cannot exercise that regulatory action upon the coin and scrip circulation which is the fundamental mission of banks of issue.

So much for the Bank of Italy. I come now to the Bank of Germany -

The German Imperial Bank was created in 1876, really the Prussian Bank, reconstituted on changed conditions, and vested with so-called " juridical personality." It paid-up capital in 1905 was ,£9,000,000, and its reserve fund ^3,268,000. By the balance-sheet for 1894 the net profits then . were divided as follow : - (a) For the Empire, 3,903,320 marks;

(b)   for the shareholders, 3,312,537 marks, or, say, ^195,166 and ^165,626 respectively. The Imperial direction of the bank is exercised by the Chancellor of the Empire, and, subject to him, the Imperial Board of Directors. The Chancellor, or his representative as appointed by the Emperor, directs the entire administration of the bank, both issuing orders for its business operations to the Imperial Board of Directors and branch institutions, and also fixing the rules and working instructions which govern the bank officials. The board of directors, thus subject to the Imperial Chancellor, is the administrative and executive corps of the bank, as viewed from outside, or as representing the bank in public. The board' consists of a president and the requisite number of members, and passes its resolutions by majority of votes; but its whole proceedings are subject to the prescription and instructions of the Imperial Chancellor. The president and members of the board are appointed by the Kaiser for life, upon recommendation of the Federal Council-. The Imperial Bank is bound by the signature of the Imperial Board of Directors, namely-, by that of two members of the same. In 1905, the bank note circulation was ^187,000,000 created, less ^104,000,000 on hand, or, say-,, ^83,000,000 real circulation. The dividend in 1905 was £6 15s. per. cent.

That is equal to £553,500.

The partners numbered 18,578, and the- bank had 440 branches.

I now come to the Bank of France -

The bank has fifteen regents and three censors'. Five regents and the censors are- from the manufacturing and commercial classes, and three of the regents must be chosen from among the officials of the Treasury General Disbursement Office. The regents are elected for five- years, the censors for three years; and are eligible for re-election. The governor and two under.governors are appointed by the chief of the State. The governor must possess 100 shares, and each under-governor fifty shares. They take their oath of office from the President of the Republic, The governor's salary is 60,000 francs (.^2,400 per annum) ; and each deputy governor's 30,000 francs (^1,200). The bank pays the salaries, and also provides residence and. furnishings. The- general council is composed of the governor, under-governors, the regents, .and the censors; the governor being chairman. The censors have only advisory votes', acting as comptrollers' of the bank. It is 'a bank ' of issue. Paid-up- capital, 182,500,000- francs (say ^7,3.00,000). The reserve fund amounts' to £1,700,000, and the notes in circulation amount to ,£180,603,000. ' "

There are 107 branches. In 1905, the dividend was £5 8s. 46. per cent. ' One or two quotations in regard to this bank will be of interest to the Senate.

Senator de Largie - Do the managers of the Bank of France constitute a board of directors?

Senator WALKER - The regents are the managers. The censors are really examiners.

On March 18th, 1871, the bank was left isolated and without any means of protection amidst the most desperate insurrection of history. It had in its vaults, in bonds and cash, more than three milliards (3,000,000,000) belonging to the public. Everything was to be feared from an unrestrainable mob given over to the worst passions.

It is really a most interesting fact in the history of the Bank of France that it negotiated the great indemnity that had to be paid to Germany at the conclusion of die war -

The Marquis de Ploetic took a bold stand in this emergency. The attaches of the bank, who had been organized in accordance with military discipline during the Siege of Paris, kept guard night and day, with absolute devotion over the institution and the wealth confided to its honour. It is just to mention that relations of some satisfactoriness between the bank and the Commune were singularly facilitated by the course of one Citizen Beslay, whom the Commune had placed at the bank as its representative. This Beslay, an erratic and visionary individual, but an honest man, foresaw the fearful consequences of a pillage of the bank, and opposed himself energetically to all the attempts that the Commune made to introduce ils men into the establishment. The Communistic Government, which was without resources, extracted from the bank several millions, and used the money to provide for its pressing wants. It comprehended that if the bank should be emptied there would be no funds obtainable to feed the insurrectionary hordes, which would thereupon hold its leaders responsible for their distress. Accordingly, the bank was spared. The withdrawals made by the Commune aggregate in round numbers only seventeen millions. The period whose history we have briefly traced was the culminating stage of the Bank of France. Never before, in any country, had there been afforded a like example of an institution exercising such power, inspiring such implicit confidence, contributing so decisively to the recovery of a people that seemed crushed, performing more than its duty with impressive grandeur and simplicity. " The bank," said M. Thiers, in a memorable speech, " has saved the country because it is not a State bank." This remark was eminently true. In that supreme struggle a State bank would not have been able to resist the exactions of the Government, and its credit would have become confused with the credit of the State. When the Bank of France issued notes secured by Treasury obligations, it added its own guarantee to that of the State, and the paper circulated consequently at par. If the bank and the Go vernment had been one and the same, the bank's signature would have been no reinforcement of the States, and the paper intended to have been taken on trust would have been valued at just what the State's credit was worth. The experience gained by the Bank of France in 1870 and 1871 is conclusive demonstration of the absolute necessity of assigning the responsibility for issuing paper money to independent institutions, subject to such conditions of supervision and regulation as should incontestably be administered by the Government. This experience has not been without important practical results. On the occasion of the latest renewal of the concession of the German Imperial Bank it was especially invoked by the German Government. The French may rightly take pride in that signal display of appreciation by their former foes for their chief financial institution. . While the Bank of France continues to be by far the most important of French financial institutions, it is not the sole arbiter or the sole dispenser of credit in France. Side by side with it, and competing with it, always ready to discount paper as credit institutions, are other banks that have grown and attracted large deposits which they procure on extremely low terms, thanks to the liberty that they enjoy under quite different conditions than those by which the Bank of France is restricted. They offer a formidable opposition to the banks, demonstrating that the bank cheque is able to contend victoriously against the bank note, at least in normal times. But when periods of trouble supervene and depositors withdraw their money from the ordinary banks, the Bank of France comes to the front with its inexhaustible resources to supply all needs. Its operations, common-place enough in common-place areas, become energetic and decisive in emergencies of economic and political distress. Then the bank is the rock to which all the nation clings. The bank-note is accepted in France the same as gold, and even as, in some respects, better than gold. Yet this marvellous instrument is not without its faults. The absolute security that the bank gives to the holders of its notes, and the aid that it lends liberally to other banks, and the world in general, have lulled the public into a kind of sleepy routine. Capital is no longer sought, but flows into the savings banks, which are managed by the State. Capital thus diverted, not only takes certain risks, but assumes great responsibilities, instead of fertilizing the country for commerce and industry. Certainly, the Bank of France cannot be reproached with having fulfilled its mission too well; but one may, nevertheless, regret that it operates too much to exempt commerce and banking from the struggle for life. This criticism is not addressed to the bank, but to public spirit. For the rest, it may well be wished that France might preserve 'for ever the old institution that has served her solong and so beneficially.

I now come to Switzerland. As far as I can judge, the only two Continental banks which are Government institutions pure and simple are the Bank of the Federation - that is, the Bank of Switzerland - and the Bank of Russia. Those are undoubtedly Government banks, and, therefore, the Senate may be interested to know what the author of this book has to say about them.

The Bank of the Federation - Banque de la Confederation Suisse - is a State bank, established under a special administration, and has a monopoly of note circulation. At least one-third of circulation must be covered by gold bullion or legal tender coin. The bank performs the Federal Treasury Service free of charge. Of net profits, 15 per cent, are set aside for the reserve, and of the balance of 85 per cent, one-third goes to the Federation, and twothirds to the Cantons. The reserve is invested in Swiss and foreign securities.

The law which came from the deliberations oi the Federal Council may be summarized as follows : - Under the title of Banque de la Confederation Suisse, a Slate Bank is established under a special administration. This bank has the exclusive right of issuing bank notes. The principal mission of 'the Bank is the - regulation of the money market, and to facilitate transactions of payment ; it does the service of the Federal Treasury free of charge. The central office of the bank is at Berne; each Canton can demand the establishment of a branch or an agency of the bank within its territory. The Federal Government supplies the capital of the bank by an issue of consols; it is responsible for all the engagements of the bank. The bank and its branches are exempt from all Cantonal taxes. Its administration consists of the Bank Council and of local committees, which have charge of the supervision and control. There is also a managing committee and local managing committees, who have charge of the administration. The Bank Council consists of twentyone members, who are appointed by the Federal Assembly. The various parts of Switzerland must be equitably represented in this body. This council selects out of its own members a president, vice-president, and a select committee of five members, whose duty is the supervision and control of the bank. The president and vicepresident are ex officio members of the select committee. At the branches, the supervision is in the hands of local committees of five members at least, or ten members at most, who are appointed by the Bank Council for a term of four years. The managing committee has charge of the administrative and executive departments of the bank ; it represents the bank in business dealings, and has authority over the employes and the branch directors. The Federal Council appoints the president and vice-president of the managing committee. The branch management consists of two persons at least, whom the Federal Council appoints. They have charge of the business at the branches. The members of the Bank Council and the local committees receive gratuities for attending meetings, and are paid mileage. The Federal Assembly may also grant a fixed salary to the members of the select committee, or to some special members. The Federal Assembly exercises supreme supervision over the bank on behalf of the Federation ; and the two councils appoint each a commission of five members for a term of three years for this purpose. The two commissions audit the annual accounts and business statements, and prepare the reports, which must be submitted to " the Federal Assembly for approval.

Notwithstanding the autonomy of the cantons, their representatives have readily come round to the idea of a central bank, which alone can have the strength to hold out in times of crisis, and to regulate paper-money circulation. Yet it is a question whether Switzerland has been wise in adopting the State bank. Doubtless a State bank can be conducted with much prudence and be as well managed for general service as a private bank; but this presumes a self-control, a loftiness of view, a practical wisdom, and h disinterestedness on the part of the State which ordinary experience fails to afford. In the case of a State bank, borrowers are disposed to consider the rate of discount and of loans in the light of a tax, and they are easily persuaded to claim relief. Moreover, the inclusion of political influences must be apprehended. These might warp the decisions of the management ; and accusations might arise that unjustified favours were shown to some, while adversaries were vigorously dealt with. Neither is it certain that discounts, when regulated according to administrative and bureaucratic methods, can be obtained as rapidly and on such good terms as if the bank were only guided by personal interests and the desire to earn dividends. However, this is only a minor aspect of the question. Leaving aside the question of the risks of war, which jurists, by common accord, declare to be higher for a State bank than for a private bank, there is no doubt that through the diffusion of Social^istic doctrines the Government might easily be-* come hard pressed to assume new functions and new attributes.

Equally, a State bank stands exposed to inflated issues of its notes. Every service which the State is called upon to render costs money, and the State is generally loath to obtain this by taxation. Sophisms will not fail to be urged for forcing the issue of paper money on the theory that the State hank only needs to print notes from plates. With the obligation to redeem the bank notes in coin, the danger in ordinary times, no doubt, is not great, as the surplus of paper flows back to its source; but the inevitable consequence of an inflation of circulation is forced currency, and possibly a temptation to reach this goal quickly. This is the great drawback of State banks.

Finally, the credit of a State bank becomes involved with the Government credit. In times of political crisis, the bank's signature adds no value or new guaranty to the State's, and we might repeat here the famous sentence of Thiers - " The Bank of France has saved us because it is not a State bank." In the critical phases in the life of a nation, the need of a powerful establishment under firm management is felt. An institution is needed which can discuss matters freely with the State, so that, charter in hand, it may say to the Government, " You ask us for such and such service, which we consider compromising and dangerous for our credit ; we cannot render you this service." The welfare of a nation may easily depend on such wise and patriotic resistance; and it is the height of imprudence to break down safeguards which may sometimes be inconvenient, but are always salutary.

I have already said I think that the only two banks which are really State banks are the Bank of Switzerland and the Bank of Russia. As a matter of fact, there are three banks which are bankers' banks, namely, the Bank of England, the Bank of France, and the Bank of Russia. Of these three banks, the Bank of England and the Bank of France are private banks, while the Bank of Russia is the only State Bank that is a bankers' bank, unless we add the Swiss bank.

I propose now to refer to the Bank of Russia. It was established in1860. Taking the rouble at 2s., its capital in British money is £5,000,000, and its reserve fund £500,000. It had 114 branches in 1906, and its aggregated balancesheet was £212,817,629. The State, of course, is responsible. The affairs of the bank, and the affairs of State, are intermingled. As a matter of fact, they are one now. There was a time, however, when they were not one. The balance-sheet bears the signature of the Governor of the State Bank. The Bank Almanac, of 1907, says -

TheBankisa Government institution, the capital being found by the Government, and all profits go to the Treasury.

The circulation of notes is £119,000,000. This is about the last quotation which I intend tomake-

In1860, the State bank was founded to invigorate commercial undertakings and to consolidate the note circulation ; and, to that end, it was provided with the afore-named capital of R 1 5,000,000, and a reserve of R3,000,000-

That is with a capital of £1,500,000, and a reserve fund of £300,000. backed up by all the resources of the State treasury. Its profits were to be devoted to the payment of the five per cent. Bills of Credit and the amount loaned by the State to the former credit institutions, as well as to establish a reserve against possible losses. It was forbidden to use individual deposits for State purposes. Idle funds in the hands of State or Provincial Department were to be kept on deposit with the bank. The bank was empowered to buy and sell State securities, but the total amount on hand should never exceed its capital stock. . . . All the executive officers of the bank were to be appointed by the State; but representatives of the nobility and of commerce were to be admitted to the directory, with a deliberative voice regarding certain transactions.

In order to emphasize the somewhat modernized character of the institution, there was placed at its head, not a public functionary, but an old banker, Baron Stieglitz, a business man whose fortune was such that it should have insured him the utmost independence of action, and who gave up his banking business to accept the position of Governor of the Bank of Russia. He devoted himself entirely to the work, but, unfortunately, it must be candidly said that he was not equal to the task. True, he was no bureaucratist, but still less was he a financier. He was an honest parvenu, humble and timid, very deeply im pressed with the importance of his office and the honour conferred upon him, but not sufficiently imbued with a sense of the responsibilities of his new position ; or perhaps it would be more accurate to say that he looked at his duty only from one point of view, that of the Government under which he. held office. We may dismiss Baron Stieglitz with the remark that he quitted his position in thefall of 1866.

The Baron had as assistant, and afterwards as successor, m. Eugene Lamanski, the ablest financier and banker in all Russia; a bureaucratist indeed, but at the same time a man of education. He was very bold in his conceptions - to some of which we shall have occasion to allude later - but not consistent in their application. Was he the author of the new regulations of the bank? We believe not; but he was bound to submit to them. The current was then setting in another direction, and M. Lamanski would have asked nothing better than to be allowed to float with it. His aspirations and convictions, founded upon a thorough understanding of the situation, and upon ideas which were entirely modern, had to yield to official exigencies, and he bravely undertook to make of the bank an establishment modelled, as far as possible, upon European institutions of a like kind.

The State is responsible to-day, as it was thirty-five years ago, as it was also a century ago, for all the agreements of the bank.

Senator Rae - You did not say how the Bank of Russia got on.

Senator WALKER - It is going ahead at the present time. I do not profess to know much about the American banks, but I have been supplied with certain figures. Without going into details, it may be mentioned that the National Monetary Commission reported that there were about 25,000 so-called National banks, of which 160 failed in 1893, and twenty-one suspended payment in 1907, the latter owing to the currency crisis through a lack of elasticity in currency legislation.

Senator ALBERT GOULD (NEW SOUTH WALES) -Colonel Sir AlbertGould. - Were these State banks?

Senator WALKER - They were called National banks.

Senator Barker - They were mushroom banks.

Senator WALKER - They were wretched little banks. I dare say that some honorable senators have read a very interesting little book called David Harum, which gives an instance of a small bank with a capital of £10,000. In the Annals of the American- Academy of Social and Political Science, a cashier, referring to bank failures in the United States, writes -

The most usual causes of fraud are the following : - 1st. One man banking ;

Beware ! Take care ! 2nd. Corrupt practices ;

Beware ! Take care ! 3rd. Excessive loans to directors.

SenatorPearce. - Beware ! Take care !

Senator WALKER - It is evident that there had not been an efficient system of inspectorship and auditing. The Canadian banks are, I am glad to say, in a very much stronger position than what are called the United States Banks. In 1890, Canada recast its banking system, and has an association of banks formed under an Act of Parliament. I understand that there are twenty-nine banks, with 2,200 branches, the leading bank being the Bank of Montreal, with a paid-up capital of £3,000,000, the same as the paid-up capital of the Bank of New South Wales. There are only two instances of a bank having failed in Canada for many years, namely, the Sovereign Bank in 1903, and the Bank of Ontario in 1906.

I now come to the trading banks of the Commonwealth. We are indebted to the Government for supplying us with a very interesting and instructive return, giving information respecting the capital, dividends, and reserve funds of the banks from 1885 to 1911 ; but 19 10 being the last completed year, I am leaving 191 1 out of the remarks I propose to make. It is taken for granted by me that the figures given in the return are accurate. I may mention, however, that, unless supplemented as I now propose to do, casual readers might draw somewhat erroneous conclusions, e.g., the dividends are calculated on the paid-up capital only, whereas I maintain the true position, from a dividend point of view, will be shown by adding the reserves to the paid-up capital. I am aware that some folks think this is erroneous, as the reserve funds represent only accumulated and undistributed profits. Even were that so, the present profits are now earned on the two amounts. But not a few persons are unaware that a substantial amount of the reserve funds consists of premiums on new issues of shares. Since1860, when I entered as a junior clerk in the Bank of New South Wales in London, I have seen the capital increased from £750,000 to £3,000,000, but only once, can I remember the new issue being at par. The Sydney Bulletin the other day, in a hit at me, spoke of me as having been a junior clerk in Sydney at one time. I was in London at the time referred to, and I did not come to Sydney as a junior clerk at all.

Senator Pearce - I met the man in London who got the honorable senator's job when he left the Old Country.

Senator WALKER - On one occasion the premium was 100 per cent., and on other occasions from 25 per cent, upwards. Of the latest issue, £500,000 went to capital, £125,000 to reserve. Take the Western Australian Bank : Of its late issue of shares, £50,000 went to capital, £90,000 went to reserve fund ; premium equal to 180 per cent. Without wearying the House too much with figures, I now summarize as follows -

I.   Comparative statement of bank dividends per annum, calculated on capital by itself, as compared with the dividends when calculated on combined capital and reserve funds.

II.   Movements showing increase or decrease of capital and reserves within certain periods, with deductions therefrom.

III.   The true rate of dividends on nineteen dividend-paying banks doing business in Australia in1910.


It will be noticed that the capital and reserve funds in 1910 only exceeded those of 1896 by £944,119, but the net return on aggregate funds rose from £2 7s. 3d. to £5 5s. per annum.

II.   - Movements of Capital and Reserves, Comparing 19 10 with 1896.

The capital showed a decrease of £3,793,143, but the reserve showed an increase of £4,737,262; net increase, as above, £944,119. 1885 represented highest average rate of dividends. 1896 represented lowest average rate of dividends. 1910 represented latest annual dividends.

Between 1891 and 1897 the reserve funds were reduced by £3,476,615 evidently losses written off.

There were twenty -one banks in 1891 doing business in Australia, and the same number in 1910, the only noticeable change being that the Australian Joint Stock Bank Limited has merged into the Australian Bank of Commerce.

Comparing 1910 with 1896, there evidently has been, in addition to loss in reserve fund, as above, £3,476,615, a loss on capital, thus -


Senator Rae - Will the honorable senator explain the enormous premiums on new shares, unless they are a very profitable investment ?

Senator WALKER - The honorable senator must consider, also, the losses which have been paid before.


In the comparative statement supplied to Parliament it will be noticed that reference is omitted to sundry banks that ceased to exist, e.g., Bank of South Australia, Bank of Van Diemen's Land, and Federal Bank. The figures given by me are, therefore, well within the total losses sustained by banks in Australia between 1891 and 19 10. The following is a statement of the bank dividends for 1910, calculated on the combined capital and reserve funds -


Honorable senators will see that the dividends vary from £7 8s. 4d. per cent. down to £2 17s. 4d. per cent., so that banking, after all, is not such a wonderfully profitable thing as some people imagine.

Mr. KingO'Malley's proposed constitution for a Commonwealth Bank bore a close resemblance to that of the Swiss Confederation, and consequently, in my opinion, was preferable to that in the Bill now before us. In his recent visit to Sydney, the Minister of Home Affairs, when interviewed respecting the proposed Commonwealth Bank, was wonderfully reticent for him, and, whilst characteristically interesting and amusing in calling himself the " silent member " of the Government, showed his firm belief in the bank's establishment and great future, one of his expressions being reported thus: "This bank of ours is going to be the centralized institution of Australia. Its establishment will strengthen the position of the trading banks; there is nothing for those

Christian brethren to be the least apprehensive of any harm. It is just the other way round," and " She's coming ! " May I say, without offence, that if the proposed bank is expected in time to become the bankers' bank, it will require a greatly enlarged capital. If it is to have a quasicontrol of the Commonwealth's note issue, it should follow the Bank of England's practice, and have a note issue department apart from the banking department. In that case, particulars should be furnished weekly or monthly of investments in addition to reserve of coin.

Personally, as already mentioned, I think the Government will act. wisely to avoid including a Savings Bank in this measure. I merely, at the present time, summarize the figures of the State Savings Banks as inJune, 1910 -


And of investments, Government securities amounted to £37,792,189, and municipal securities £3,198,879. I quote the following advertisement published by the New South Wales Savings Bank -

Government Savings Bank of New South Wales.

Head Office : Moore-street, Sydney.

Loans from 4 to 5 per cent. on city and suburban securities and broad acres, up to£25,000, with special repayment privileges.

J.   H. Davies, Secretary.

It will therefore be seen that the Savings Banks of the States are doing a very large business. I now give a short summary of the whole matter. From the half-yearly report of the National Bank of Australasia Limited I quote the following : -

As is well known, it is an easy process to acquire business and make advances on securities which will, hereafter, either add to the strength of the bank, or cause great anxiety in their realization. This is the point where the ripe judgment of the skilled financier comes in, and where the fortunes of a bank may either be made or marred. It is thought in some quarters of the Commonwealth that carrying on banking operations by the issue of large amounts of paper money is an operation which may be lightly entered upon, and will produce general prosperity, but the experience of older communities, especially in countries where cautious dealings and prudent counsels prevail, directly controvert this. So long as a proper provision of coin is held against the issue of paper money all may be well, but the experience of the directors of that temple of finance, the Bank of England, conveys a warning which we may not disregard with impunity, and which, in the words of the President of the Bankers' Institute in London, spoken in July last, to the effect that the failure of the directors of the Bank of England in past times to " observe a due proportion between their paper issues and the bullion in their vaults, produced the crisis which in former years had been so severe and disastrous." He further goes on to say, " It would undoubtedly be a more satisfactory state of affairs if the whole of our note issue were based on gold " ; but, he says, " It would cost . " - the Bank of England - "£550,000perannum " to do this. It is to be hoped that our governing bodies will heed such a timely warning, and not flood our market with paper money, which, in times of stress, will remain with us after having displaced sterling coin, which will naturally leave us to pay our debts in those centres of trade where our paper money would not be accepted.

Whether gladly or otherwise, it has to be recognised that the bank has come to stay, and, that being so, it is incumbent on us to see that it is established on a thoroughly sound business footing. So far as I can remember, this is the first attempt in Australia to start a purely Government Bank - that is for general banking business, excepting Government Savings Banks, where business is sui generis. The bank will start with certain advantages over private joint stock banking companies, who have to get shareholders to subscribe capital, and run the risk of losing it. Such companies are, as a rule, started with the expectation of paying dividends of 5 or 6 per cent., or even more, after defraying preliminary expenses, but, in the Commonwealth Bank, the Government - representing the whole community - guarantees the necessary capital, obtainable, probably, at 3½ per cent, or3¾ per cent. In this connexion, it seems to not a few people that private enterprise in banking is somewhat unfairly handicapped, especially when one remembers how much the progress of Australia has been stimulated by the establishment of its joint stock banking companies for nearly a century; that is, since 181 7. We, in Parliament, represent the electors individually, and, to some extent, are concerned in seeing that the bank is conducted on proper business lines, and is independent, so far as is practicable, of political influence. I may be, wrong, but I think I see voidable dangers in the pro- posed constitution. According to the Bill, the Governor-General in Council, which means the Ministry for the time being, shall appoint " The Governor and the Deputy Governor for seven years, subject to good behaviour." What may constitute "good behaviour" is generally supposed to mean good moral conduct, but those of us who have had practical experience in banking are aware that not a few bank managers, who are unexceptionable as regards conduct, make foolish, and even reckless, advances. What has been may again be I therefore strongly recommend the Government, before it is too late to modify the scheme, and, whatever they do, advertise for applicants for the position of - socalled - Governor, or general manager, as I suggest the title should be - "Governor" is more appropriate in connexion with a State than with a private bank. In the Bank of England, the Governor and Deputy Governor are names given to the chairman and deputy chairman of the board of directors, and the Governor is appointed yearly, but is eligible for a second term only. Under the Bill, the " Governor" will be a Czar, and may possibly prove a despot. Those under him will have no redress as far as the Bill prescribes, and, therefore, one need not look for men of strong independent character to seek employment in the service. It is unnecessary for me to labour this point. I presume the High Court could be appealed' to by an officer who felt he had a legitimate cause of action. Then, again, when the Governor knows he has an assured position for seven years, and is eligible for re-appointment, and that should he be unfortunate in making advances to merchants and others - and such advances are not invariably supported by securities - he has no directors or shareholders to put a check on him, he may become unduly venturesome for the sake of - as he believes - attracting business. It is true the Auditor-General is to be supplied with half-yearly balance-sheets, but it will be quite exceptional for an AuditorGeneral to be a trained banker, and the Governor, if a clever man - not to say an unscrupulous one - may do a lot of mischief before any auditor could detect serious fault in the general management. The bank, according to the Bill, will, I fear, be little better than a Government Department, and, so far as I can judge, there is no call by the general public for its establishment. Indeed, Australia is so well supplied, and even over supplied, with banking facilities, in the shape of branch banks, that, on the Commonwealth Bank commencing general banking business, it will not surprise me if some of the less important banks amalgamate, with a view to reducing working expenses, and thereby, with considerable reluctance, reduce the staffs at present employed by them. In such a case it is to be hoped the officers whose services have reluctantly to be dispensed with will find employment either in the Commonwealth Bank, or elsewhere. In my opinion it is unwise, for at least two reasons, to give the bank power to issue debentures or inscribed stock, as proposed - such debentures or inscribed stock, having Government guarantee, will make two Government stocks quoted on the market. I think it is wise, in the interest of the Commonwealth, to have only one Federal stock, so as to make it more negotiable. Again, the Government itself, as already mentioned, should provide the £1,000,000 capital as the business of the bank requires it, and thereafter let the bank trade like any joint stock bank, on its own resources. If it can pay the Government 3^ per cent, or 4 per cent, on its paid-up capital, well and good ; but it should not only pay its own expenses from the start, and thereafter put aside, say, one-tenth, or even more, of its net profits annually to a re* serve fund until such fund equals in amount half of the paid-up capital ; but also, out of its profits, it should begin to provide for the prospective bad debts, because such will arise, even in the bestregulated bank. The staff of the bank should also, from the start, begin to provide, by a percentage on their salaries, for a provident fund on an actuarial basis! so that, in case of sickness or accident obliging retirement, or on an officer reaching a certain prescribed age, he will be entitled to a retiring allowance in proportion to his average salary, which allowance, perhaps, the bank would supplement. On an officer joining the bank's service it should be conditional on his passing a medical examination, say, such as would permit a well-established life insurance company to accept the risk of insuring his life as a first-class risk. Whatever may be said by Parliament, the public, I am persuaded, will look upon a Government bank such as this as more or less political in character. On the other hand, depositors doubtless will feel easy in their minds, as the Government guarantees them against possible loss. It is merchants and others, under advance to the bank, who will not at times like having a semi-political bank as their creditor. In the proposed Savings Bank Department, clause 48 appears to me to be absolutely unfair, and even dangerous. I read it thus -

Where a person fraudulently represents himself to be a depositor and presents the depositor's pass book, and complies with the rules of the Bank and thereby obtains any money belonging to the depositor deposited with the Bank by way of Savings Bank deposit, the Bank shall not be responsible for the loss sustained.

Will its establishment not rather tend to irritate the State Governments by entering into competition with their Savings Banks? This is a matter requiring serious attention. Until friendly co-operation comes about, perhaps it would be well to postpone the Savings Bank Department.

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