DEPOSITS.

Auckland Star, Volume LVI, Issue 224, 22 September 1925, Page 4

DEPOSITS.

COMPETITION WITH BANKS.

(By BANKER.)

Though not apparent on the surface, ther. is keen competition to secure de]K>sits on the part of several different sections or groups, and the keenest party, according to reports, is the Public Trustee. There does not appear to be any law or regulation governing the acceptance of deposits on the part of private firms or companies, except the trading banks. It seems that anyone can accept deposits, fixed or at call, and a practice has grown up for many concerns to accept deposits at something below bank rate for advances, and thus save seeking bank accommodation. There is, perhaps, nothing radically wrong in this in normal times, but when times are bad and the depositors call for their deposits, there follows serious trouble. This • indiscriminate acceptance of deposits produced special legislation, and it is said that even now some depositors have not been able to recover their amounts. The State differentiates in the treatment according to the trading banks, whom business is to accept deposits and .do a legitimate banking business, and the other groups, such as the Public Trust Office, building societies, and private firms and companies, which accept deposits and do a quasi-banking business. The trading banks are bound by legislation to furnish the Treasury with quarterly returns, which are published in the "Gazette." This is done as a protection to the public, and yet others who accept deposits and make advances on fixed terms are not required to furnish similar returns. Surely the public requires as much protection in respect to these other groups as with the banks. A couple of years ago the Wairarapa Farmers' Moat Company went into liquidation, when it was discovered that many people who had deposits with the company suffered losses, and other instances can be quoted. The banks have long contended, and still maintain, that these other deposit-takers should be ' placed on the same footing as the trading bank, and be made to furnish the Treasury with quarterly returns. Tho justice of this contention has been admitted by the Government, but no action has been taken. In New South Wales others besides the banks have to furnish returns of deposits and advances, and the figures are published in the Government "Gazette." Such publicity would act as a check, if not as a deterrent, to the. indiscriminate acceptance of deposits at comparatively high rates of interest. If a concern needs additional capital, that should be raised in the market in .he ordinary way, and not by accepting deposits. It is stated that the Public Trust Office is a formidable competitor in the acceptance of deposits. This State institution enjoys many privileges and concessions denied to the trading banks, and the competition it has set up is considered unfair. The banks have to finance the exports of our primary products, and the export season is just beginning. Butter and . cheese will be going forward in some volume, and presently wool and frozen mutton will be shipped. Last year our exports were valued at about £54,000,000, and it is safe to say that during the next three or four months the banks will have about twenty millions advanced on produce, and to carry this business through there must be a free flow of deposits into the banks. This flow is being checked by the competition of the other groups. The banks can, of course, meet this competition if they choose, but they are not desirous of taking action, because such action must cause a disturbance There are two courses open to IfLT BIO^ 1 this competition: (1) £__L r nCt tbeir which would cause considerable hardships to t P od «\* ™_ld find it difficult to meet their early engagements and that would be reflated T n the general trade of the country, < 2 i th. I can attract deposits by _____nl «_fZ interest rates P to conforrTt? ££ offered by their competitors. If the deposit rate is increased, then the rate for overdrafts must also be raised because the trading banks dare not follow he example of the Government and lend at 4. per cent the money they borrow at 5 per cent. If the rate for overdrafts is raised by only 10/ per cent it would cause a great disturbance in trade.