BANKS' POLICY.

Auckland Star, Volume LXV, Issue 56, 7 March 1934, Page 8

BANKS' POLICY.

. MAIN FEATURES. .. j EVIDENCE BEFORE COMMITTEE COMPETITIVE INTEREST RATES (By Telegraph.—Press Association.) WELLINGTON, this dny. A comprehensive outline of the banking policy in New Zealand was given before the Parliamentary Monetary Committee to-day by the Associated Banks. In order to give the banks a lead 011 the committee's requirements, a questionnaire was prepared, involving some of the salient features, and the replies were submitted to members for their perusal last evening. The questions touched on the rate of interest on overdrafts and advances, the cheque-using habits of the people, stock and station agents, exchange rate factors taken into consideration in granting overdrafts, and declaration of dividends. It was stated that, broadly speaking, the rate of interest charged and paid by the banks was determined by the law of supply and demand. To preserve what the banks considered the proper volume of deposits, it was necessary for them to offer rates which would enable them to compete effectively with the rates offered by competitive institutions, such as Government Departments, including the Post Office Savings Bank and the Public Trust Department, also many trading concerns. Extending Advances. As to whether there is any unsatisfied demand for advances for business, the statement replies that there is 110 bank limitation. In fact, the banks are very willing to extend their advance business, and reduction of the total overdrafts is not in accordance with their own wishes. The factors a banker takes into consideration in granting such advances are fully set out, and the statement says that to advance money 011 insufficient security or unsound propositions would have an inevitable effect of freezing the bank resources and aggravating the existing conditions. Concerning the gruery regarding cheques, the statement says: "Cheques are already used widely, and the Government stamp duty of twopence per cheque, coupled with the convenience of legal tender for pocket and till'money, would probably militate against a much more general use of the cheque." Stock Agents. To the question, do stock and station agents come into active competition wvth trading banks, it is answered that to an extent they perform banking functions. They may be said to be active competitors. That was involved by the very nature of the stock and station agency business, but against that there were certain functions performed by stock and station agents which -were outside the scope of ordinary banking practice. To some extent the stock and station agents obtained financial accommodation from the banks, but they also got their funds from (1) their own shareholders, (2) by debenture stocks, and (3) by deposits from customers. There were examples in New Zealand of large stock firms which did not require financial accommodation from their bankers. Regarding the exchange business, it was asked what proportion was conducted by the trading banks (a) in normal times and (b) at present. Thereply was that these particulars were not available to banks. Possibly 80 per cent or more was done by the banks, but that was merely conjectural. Under the present exchange conditions there was more inducement for importers to endeavour to deal outside the banks. Undistributed. Profits. Reserves were set up from undistributed profits and/or from contributions to strengthen the banks' general position, to assist in maintaining the banks' position, and provide for losses and other contingencies. The primary essential for the effective conduct of a sound banking business was that there should be entire confidence on the part of the depositors, the business community, and the public generally. To another question it was replied that every bank carried easily, realisable securities, that were available should It he necessary to add to its cash holding. The present conditions in New Zealand were due to world conditions outside the control of this country. It was not the present banking policy to restrict financial accommodation. The amount of the demand deposits in the trading banks and savings banks alone aggregated over £70,000,000 at the end of 1933. The fact that money was available for good investments was evidenced by the response to the Reserve Bank issues and by the premium already attaching to the Reserve Bank shaies.