BANKING IN 1925

THE ordinary observer may be excused if he finds in the banking results for 1925 a good deal that is perplexing. In common parlance, it has been a year of industrial depression with large figures of unemployment and with a heavy adverse balance - of trade as reflected in the figures of imports and exports.

It has also, however, been a year of higher banking profits, with dividends well maintained and, most sur- prising of all, perhaps, a year in which an outstanding feature has been the rise in banking loans. Now, it is cus- tomary to find bankers on public occasions telling the com- munity, and especially the commercial community, that the prosperity of bankers and that of the trade of the country is practically inseparable. How comes lit, 'then, that we do not find these alleged conditions of ;industrial depression more clearly reflected in the banking `results for 1925 ? This is a question which fairly challenges reply, and I hope to deal with it later, but it will be easier to do so, perhaps, if I deal first with a few actual facts and features of the year in so far as they have affected financial • and commercial affairs, and, at the same time, give the actual banking developments as reflected in the balance sheets which have recently been issued.

EUROPEAN DEVELOPMENTS.

In surveying the general financial and political develop- ments for the past year it is necessary to make the horizon as wide as possible, for the outstanding feature undoubtedly was the return to somewhat more normal conditions in Europe. With political and financial conditions in such countries as China and Russia in a state of chaos, and with the unsatisfactory currency and financial conditions prevailing in France, it is clear, of course, that the world's monetary and commercial markets are still far from normal or pre-War con- ditions, but nevertheless during the past two years there has been progress of a kind calculated to increase both political and financial confidence, and this has not been without its effect upon the chief monetary centres. The dawning of better things began in 1924 with the acceptance of the Dawes Report, and the working out of this Report during 1925 may be said to have culminated in the Locarno Pact.

'THE RETURN TO GOLD.

Moreover, the year 1925 will always be chronicled, in banking circles at all events, as the year of the return to the Gold Standard. Unquestionably it is a develop- ment .which has done much to steady many of the other gold exchanges, while its effect upon sterling may be gathered by the fact that the index number compiled by. the Statist show that whereas sterling was at an average discount of .84 per cent. in the gold exchanges in May, 1925-the first month of the restored Gold Standard-it had improved by the beginning of this year to .14 per cent. There is no doubt, too,. that the fact that our return to gold was unattended by any very high Bank Rates was also a helpful influence, as was also the fact that the net loss of gold was less than had been apprehended.

DEPOSITS DECLINE.

Before dealing with the actual financial and industrial conditions surrounding banking operations during the year 1925, I may now pass to a consideration of some of the results as disclosed in the published balance sheets, and it will be useful, perhaps, if for purposes of com- parison I ignore the mid-yearly figures and give those relating to the ends of the year for the past three years. The following three tables, therefore, show the position as regards Deposits, the Cash in Hand, and the proportion of Cash to Liabilities.

DEPosus.

Dec. 31, Dec. 31, Dm. 31, 1923. 1924. 1925.

£ £ £

301,549,963 301,026,825 306,259,816 340,168,551 339,989,727 337,178,515 360,267,722 355,774,872 348,682,134 263,786,055 254,921,144 252,737,817 269,502,093 272,832,400 271,379,667 1,535,274,384 1,524,544,968 1,516,237,949 Bank of Liverpool and Martins District Bank .. Lancashire and Yorkshire Bank ..

Manchester and County Bank ..

National Bank ..

Union Bank of Manchester Williams Deacon's Bank .. 261,066,272 255,766,993 247,514,490 AND AT BANK OF ENGLAND.

Dec. 31, Dec. 31, Dec. 31, 1923. 1924. 1925.

£ £ £

44,614,311 45,997,586 45,672,882 38,169,276 42,005,032 39,401,271 54,298,126 50,876,592 53,590,604 32,252,247 30,920,371 28,472,434 31,032,092 34,185,041 31,687,095 ,Total .. 200,366,052 203,984,622 198,824,286 Bank of Liverpool and Martins .. .. 8,142,056 7,781,370 7,252,886 District Bank .. 8,078,025 9,335,374 7,997,847 Lancashire and Yorkshire Bank .. *5,651,584 *5,422,289 *5,211,803 Manchester and County Bank *3,050,477 *4,320,158 *3,978,857 National Bank .. 4,549,409 4,642,141 4,072,378 Union Bank of Manchester *1,607,848 *1,710,381 *2,608,341 Williams Deacon's Bank .. 4,708,207 4,330,282 4,071,011 Total . : .. 35,847,666 37,541,995 35,193,123 * Including money at call and short notice.

PROPORTION OF CASH Di HAND AND AT BANK OF ENGLAND TO DEPOSITS.

Barclays Bank •-• Lloyds Bank • • Midland Bank

National Provincial Bank ..

Westminster Bank .. .

Total ..

Bank of Liverpool and Martins District Bank ..

Lancashire and Yorkshire Bank Manchester and County Bank National Bank Union Bank of Manchester ..

Williams Deacon's Bank ..

Total .. ...

„..

...

• • • • • .

• • • •

..

Dec. 31, 1923. oo 14.8 11.2 15.1 12.2 11.5

Dec. 31,

1924. o.

15.3 12.4 14.3 12.2 12.6 Dec. 31.

1925.

14.9 11.7 15.4 11.3 11.7 13.1 13.4 13.1 12.6 14.8 21.8 14.1 11.2 8.2 13.9 12.7 17.0 21.3 20.6 11.7 9.1 12.4 12.1 14.8 20.9 19.7 10.9 14.2 12.4 14.5 14.7 14.2 LARGE CASH TOTALS.

In the foregoing tables it will be seen that the banks are grouped as to the Big Five and as to the banks whose operations are chiefly conducted in the -Provinces, though, of -course, in some of the larger institutions such as the Bank of Liverpool and Martins, and Williams Deacon's, the operations in London are also very considerable.

Barclays Bank ..

Lloyds Bank ..

Midland Bank ..

National Provincial Bank .. Westminster Bank Total 64,537,818 54,547,553 25,925,424 21,560,559 40,531,188 19,591,486 34,372,244 61,290,020 54,786,962 25,509,563 20,991,160 39,512,415 18,840,503 34,836,370 59,819,627 54,050,540 24,990,776 20,211,047 37,371,727 18,283,110 32,787,663 Total ..

CASH IN HAND Barclays Bank Lloyds Bank .. Midland Bank National Provincial Bank .. Westminster Bank

• •• A glanCe at the figures will show that the downward movement in Deposits which was proceeding a year ago has made still further progress, so that, as compared with December, 1923, there is a decline to note in the Deposits of the Big Five of some £19,000,000 and in the other banks of about £14,000,000, making a total decrease of about £83,000,000. The Cash figures call for little comment excepting that there is quite a sub- stantial increase in the total of Money at Call and Short Notice when compared with two years ago or even a year ago, notwithstanding the decline in the meantime in Deposits.

MONEY AT CALL AND SHORT NOTICE.

Dec. 31, 1923.

£

Dec. 31, 1924.

£

Dec. 31, 1925.

Barclays Bank 18,654,259 20,347,095 19,894,335 Lloyds Bank 15,979,470 21,913,353 20,507,062 Midland Bank .. 16,187,565 16,926,145 18,679,349 National Provincial Bank.. 15,872,368 15,997,118 18,358,868 Westminster Bank 18,872,671 23,399,849 28,301,235 • Total 85,566,333 98;583,560 105,710,849 Bank of Liverpool and

Martins 4,888,198 3,606,664 4,741,132 District Bank .. 3,363,890 4,782,240 5,331,360 Lancashire and Yorkshire

Bank

Manchester and County

Bank

National Bank . *4,352,191 *3,613,336 *4,183,195 Union Bank of Manchester

Williams Deacon's Bank .. 3,220,481 3,514,495 2,985,794 Total .. .. 15,824,760 15,516,735 17,241,481 * Including Stock Exchange loans and Treasury Bills. RISE IN LOANS.

It is, however, when we come to the next four tables that the somewhat unusual character of the figures becomes more evident, and both as an indication of the conditions of the past two years- and, as a guide to the preparedness of the banks to deal with financial and commercial developments in the future, they are worthy of attention.

LOANS AND ADVANCES.

Dec. 31, 1923.

£ Dec. 31 1924.

£ Dec. 31, 1925.

£ Barclays Bank . 132,520,239 140,078,976 153,028,485 Lloyds Bank 141,405,774 164,714,331 183,330,726 Midland Bank 188,737,732 190,691,323 196,747,548 National Provincial Bank.. 127,074,515 131,242,924 133,617,259 Westminster Bank 101,302,025 121,946,012 126,516,051 Total .. 691,040,285 748,673,566 793,240,069 Bank of Liverpool and

Martins .. 32,927,980 37,431,444 35,413,244 District Bank .. .. 24,310,210 24,048,403 25,555,233

*Lancashire and Yorkshire

Bank 10,341,319 9,935,930 10,672,495 Manchester and County

Bank 13,443,245 12,980,265 13,017,569 National Bank 16,553,951 16,285,400 16,321,759 Union Bank of Manchester 15,438,830 14,403,507 13,047,953 Williams Deacon's Bank .. 19,243,089 18,683,878 18,295,020 Total .. 132,258,624 133,768,827 132,323,273 ACCEPTANCES, ENDORSEMENTS, ETC.

Dec. 31, Dec. 31, 1923. 1924.

£ • £ Dec. 31, 1925.

£ Barclays Bank 7,677,388 11,308,303 17,175,922 Lloyds Bank .. 19,176,523 22,701,940 20,686,775 Midland Bank .. 36,552,607 39,203,319 35,747,790 National Provincial Bank.. 10,708,228 12,948,372 10,025,151 Westminster Bank 12,099,401 16,430,325 13,562,790

Total .. • •

86,214,147 102,592,259 97,198,428 Bank of Liverpool and

Martins 7,852,472 8,254,768 6,618,372 District Bank .. 3,136,927 2,486,752 2,035,112 Lancashire and Yorkshire

Bank .. 122,477 202,350 135,948 Manchester and County

Bank 611,228 664,071 574,419 National Bank .. 144,000 987 100,000 Union Bank of Manchester 1,539,752 1,287,714 917,857 Williams Deacon's Bank .. 3,104,070 2,970,674 2,359,452

Total .. • • • •

16,550,926 15,867,316 12,741,160 Buns Disconarrien.

Dec. 31, Dec. 31, 1923. 1924.

£ £ Dec. 31, 1925.

£

Barclays Bank ...

38,623,075 33,248,646 32,028,847' Lloyds Bank .. .. 54,403,792 43,890,956 41,624,130 Midland Bank .. .. 58,418,748 50,818,762 41,888,022 National Provincial Bank.. 40,843,930 37,093,884 35,880,917

Westminster Bank ...

64,654,184 41,970,486 39,999,504 Total 256,943,720 207,022,734 191,421,420 Bank of Liverpool and

Martins .. .. 3,944,024 3,415,813 4,315,722 District Bank . : ' — 4,917,289 3,668,431 4,101,395 Lancashire and Yorkshire

Bank .. . 3,164,786 3,438,369 3,217,326 Manchester and County

Bank 1,010,470 1,141 792 1,071,559 National Bank— 2,882,692 2,880,324 2,700,596

Union Bank of Manchester

934,667 1,091,966 1,010,940 Williams Deacon's Bank .. 1,840,777 3,424,298 3,713,382 Total .. .. 18,694,705 19,060,993 20,130,920

INVESTMENTS.

- Dec. 31, 1923. Dec. 31, 1924. Dec. 31, 1925.

Barclays Bank .. 70,211,045 62,806,250 59,596,214 Lloyds Bank .. .. 91,910,320 69,916,464 53,722,653 Midland Bank .. .. 41,890,168 42,725,269 34,791,276 National Provincial Bank .. 51,540,182 42,587,820 38,964,003 Westminster Bank 55,576,865 53,307,672 46,938,525 Total 311,128,580 271,343,475 234,012,671 Bank of Liverpool and

10,131,320 9,503,748 - 8,677,097 District Bank .. 17,446,779 16,381,628 14,565,211 Lancashire and Yorkshire

Bank 8,588,494 8,554,407 7,719,123 Manchester and County

Bank .. .. 5,939,397 4,448,397 4,065,897 National Bank— -. 16,828,260 17,391,033

.15,435,845;

Union Bank of Manchester 2,654,121 2,678,774 2,659,160 Williams Deacon's Sank ..

6,310,770

5,631,107 4,745 249 Total 67,899,141 64,589,094 57,867,682

Note.—These figures do not include investments in affiliated banks.

The main point which arrests attention even upon a cursory examination of the figures is that although there has been a decline in Deposits there has been a great expansion in lending activities. It is true that as against the combined increase of about £110,000,000 in Loans and Advances and in Acceptances—chiefly the former—there is a shrinkage of about £63,000,000 in Bills Discounted during the two years, but, even so, the net advance in loan facilities is striking in view of the decline in Deposits.

FALL IN INVESTMENTS.

It is almost a maxim in banking that the loan creates the deposit ; that is to say, if nothing has previously, occurred to deplete the deposits, a fresh advance by a bank usually means an automatic increase in the deposit. The question, therefore, arises as to whether there has been some special influence tending materially to lessen the deposits, and the answer, of course, is to be found in the great decline which has taken place in the holdings of long-dated Investments. Thus, it will be seen from the foregoing table,- that as regards the Big Five, the Investments have declined during the year by about £37,000,000, or during the two years by about £77,000,000, while if the entire list of banks is included, the decline is about £87,000,000 over the two years. Incidentally, it is remarkable that, in spite of these huge sales, prices of British Funds and kindred stocks should have kept so firm. A moment's thought will show how these realizations of investments by the banks affect Deposits. When the ordinary investor sells his security and another investor is the buyer, there is no change whatever in the aggregate of Deposits but simply a shifting of ownership. If, however, the banks are selling and the public is the buyer, it will be seen that of necessity the result is a net decline in Deposits. Consequently, we have an explanation of why the increase in the Advances has not been reflected as, usual upon Deposits in the special influences which haves operated.