600 TEANSACTIOKS OF SECTION F. 



into l<>gal tender currency. For the rapid restoration of confidence among the 

 banks the Government measures must be considered as having been very 

 effective. 



In the absence of legislation providing that banking deposits over a certain 

 amount should not be withdrawable without a certain notice first being given 

 by the depositor, some measures of protection to banks were necessary in order 

 to restore confidence among the banks. So far as the public were concerned, the 

 experience of the banks has since shown that the protective measures enumer- 

 ated were unnecessary. If there had been no extension of the Bank Holiday, 

 and the banks had not refused to pay out gold to their depositors in the 

 ordinary course of business, there is no reason to think that gold withdrawals 

 from the banks would have been on a very abnormal scale. There would 

 possibly have been a few extra millions paid out during August, but the drain 

 could easily have been met without much effect on current stocks. 



The measures enumerated were not desirable for many reasons : 



(1) They tended to destroy confidence among the public, whilst admittedly 

 creating confidence amongst the banks. 



(2) The old proved banking maxims that ' the best way to restore confidence 

 among depositors is to pay out smilingly in full the demands of any uneasy 

 depositors,' and ' every restriction on gold going nut acts as a restriction on it 

 coming-in,' were evidently early forgotten by the Government and the banks. 



(3) The measures caused a loss in confidence in the banks by certain people 

 who can never be expected to understand the machinery of finance. It will be 

 n^any years before coafidence in the banks is fully restored. 



(4) There is reason to believe that the more or less forcible issue of Treasury 

 Notes on the public by the banks is one cause of the continuous absorption of 

 gold by the province.?; the public, on account of their preference for gold, 

 showing a tendency to hoard what gold is paid out to them. The available 

 evidence is that the issue of Treasury Notes has not conserved gold stocks, 

 which was one of the objects of such issue, though in future there should be 

 less public hoarding of gold if the Press make widespread appeals to patriotism. 



(5) The Treasury Notes and Postal Orders have given considerable labour 

 to the banks and the public, not being so easily handled and counted as gold. 



(6) Obviously, if it were necessary to use Treasury Notes they should also 

 have been issued in larger denominations than one poinid and ten shillings, 

 say, for 5?., 10?., 20/.. 507., 10(1?., 500Z., and l.OOOL In the event of a run on the 

 banks it would have been easier for the cashiers to pay out the larger denomina- 

 tions than a greater number of the smaller denominations. 



(7) The position of the banks and the fears it engendered during the early 

 days of the crisis have proved that in future there must always be available 

 large stocks of paper emergency currency for times of crisis, and the banks and 

 other people must be in a position to olstain supplies on pledge of Government 

 securities. 



Some criticism is directed against the closing of the Stock Exchange 

 and the action of some of the Joint Stock Banks in the first days of the 

 crisis. In two respects only had anticipation underestimated the magnitude 

 of the effects of the War on the Money Market. ' The first was the scale 

 on which foreign creditors became unable to meet their obligations to us and the 

 strangling effect of this on our own Money IMarket ; and the second was a lack 

 of courage in the early days of the crisis on the part of our joint-stock bankers.' -" 

 The Stock Pjxchange was closed on and after Friday, July 31, and remained 

 closed for the rest of the year. Was this drastic step necessary? Why was it 

 taken ? One authority believes it was not necessary, and he throws the blame 

 for it on the banks. He reasons thus : ' Immense sums were lent by the banks 

 on security of shares. The amount of the loan for which this security is good 

 is ordinarily calculated by reference to the price at which the shares are 

 quoted in the Official List. If the quotation falls the bank may require 

 their customer either to reduce the amount he is borrowing from them, or 

 to put up additional security.' If he does not they may sell his stocks. If 

 the Stock Exchange had remained open there would have been a great fall 

 in prices and the banks would have seen their securities dwindling. ' There 



'^ Economic Journal, September 1914. 



