As the national income and savings expand and as the opportunities for exceptionally profitable investment within this country decrease, it is clear that there must be a stronger and stronger tendency toward investment abroad. The immense sums, for instance, that have been flowing into railroad construction and rebuilding will not be needed to so great an extent in future. A considerable proportion of this overflow of capital may certainly be expected to spread into South America.
Greater Lending Power of Banks
Third. The adoption of the federal reserve system has made a remarkable improvement in the handling of gold and of credit. It has released and made available for other forms of financing great sums which were formerly tied up in scattered reserves. We have only to look at the monetary history of the German Empire during the last forty years to see how powerful an influence on industry, trade, and investment is exerted by the centralisation and control of bank reserves. The London Statist has calculated the ultimate increased lending power of American banks, under the federal reserve system, at $3,000,000,000.
European War
Fourth. The European war has suddenly stimulated the tendencies which were previously evident. It has temporarily cut off a considerable amount of European trade in South America, thus leaving an opening for even more rapid development of our trade than would otherwise have taken place. It has deprived South America for a period of several years of the steady inflow of European capital. It has enormously increased the exports and decreased the imports of this country, thus placing suddenly at our disposal greatly enlarged financial power, possibly as much as $1,000,000,000 per annum above normal. Its ultimate effect, we may safely assume, must be to increase considerably rates of interest the world over, thus stimulating the tendency toward an enlarged outflow of capital from the United States into neighbouring countries.
By reason of the war the same kind of a situation that would otherwise have developed slowly in a period of years now confronts us suddenly when we are as yet in a state of financial unpreparedness. The new machinery provided by the federal reserve act is not yet fully utilised or adjusted in its final form. It will require careful study, combined with prompt action, to utilise the financial opportunities now before us with greatest advantage to all concerned.
English Banks in South America
Although English interests have share holdings in other institutions, there are only five banks in South America that stand out as unmistakably British. In the order of their development, these are the London and River Plate, London and Brazilian, British Bank of South America, Anglo-South American Bank, and Commercial Bank of Spanish America. Each institution, with one exception, has concentrated on one country, in which it has established most of its branches and to which it has devoted its first efforts. The exception is the British Bank of South America, which has followed the contrary policy of having only a few branches strategically located in important cities; in other words, this bank has concentrated on selected cities rather than on a given territory.