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the Ordinance to enforce, if and when occasion
necessitated, the form and extent of liquidity to be maintained by local banks" (ibid.), or "to fix maximum
rates of interest which may be granted by banks on current and deposit accounts, should the situation so demand" (8 50). The report itself shows convincingly how difficult if not impossible it is to define and prescribe liquidity, and even if it were possible I doubt whether it would be altogether desirable. In regard to a minimum ratio of cash to deposits, for instance, while I think it quite possible to prescribe a minimum in such terms as to enable the cash reserve to be used in case of
need (see § 28), yet any rule prescribed for general application must, if it is not to cripple the action of the better banks, fix a minimum on the low side which will tend to be regarded in practice by the inferior banks (the nature of whose operations may really require a larger proportion of cash) as a maximum. Any maximum rate of interest that might be prescribed, also, would have to be on the high side and could, I feel sure, be easily evaded.
4.
While, however, I do not much like these
threats of future legislation (or rules of general application with the force of law), some means of bringing improvidently operated banks to heel in individual cases needs, I think, to be provided, and I suggest that the following might be considered. A Government Inspector of Banks might be appointed with power to call for books, accounts and documents (as is already done for credit banks), and with power also, where he is not satisfied with an individual bank, to refer the case
to the Advisory
Committee;