BANKS IN CRISIS.

Auckland Star, Volume LXV, Issue 57, 8 March 1934, Page 10

BANKS IN CRISIS.

POLICY EXAMINED.

EVIDENCE AT COMMISSION.

BTrrrPTDTG fire or questions. (By Telegraph.—Own Correspondent.) WELLINGTON", this day. Following on the presentation of the statement of the Associated Banks before tie Parliamentary Monetary Committee yesterday, Mr. E. C. Fussell, on beihalf of the banlc3, made a statement embodying the opinion that the present economic situation was not due to any fault in the banking system, but to more deep-seated causes. The monetary system was eimply a reflex of the existing economic conditions. He did not think that normality could be restored by monetary measures.*' The matter arose in the course of the examination of the banks' representative by the committee.

In reply to a question, Mr. Fussell said there was a lack of avenues of profitable investment. People preferred to have their money on a gilt-edged security basis at a moderate rate of interest rather than risk it in other enterprises. Even those who had small amounts on free deposit showed a tendency to place them on fixed deposit in order, to obtain the benefit of the interest. Mr. Ash win: Do you think it would benefit the country if there was a lower rate of interest on fixed deposits? Would it not make more money available for use? Mr. Fussell said that it was desirable to keep interest rates as low as possible in order to induce people to use money, but the banks could not set a lower rate than their competitors, such as the Government Departments. If their competitors subscribed to a policy of lower interest rates lie thought the banks would do the same. However, they had to keep in line with other financial institutions or there would be a tendency for them to lose their funds. Mr. Lye asked Mr. Fussell if there was a great shortage of credit. "There is no shortage of credit as such," replied Mi". Fussell, "but if a person has nothing to give in exchange he cannot have that credit expressed in Ihe form of money." Mr. Lye said some people claimed |hat the'velocity of currency was not • factor in monetary transactions, and that the money available should equate production. Mr. Fussell pointed out that the lelocity of circulation was a tremendous factor. For example, one /hilling could purchase a pound's worth of goods by circulating twenty times, j

"Costless" Credit. Mr. Lve: The statement has been made that the banks create and destroy credit at no cost. I would like you to define what is this costless credit. "Credit is the use of wealth made available by one person to another," said Mr. Fussell. "As to whether credit is something made out of nothing I would reply that all credit has a tangible basis. If a person comes to a bank for an overdraft he gives a basis of value for it. If I was a farmer I would say to the banks: I have several thousands of pounds in property. Will you give me credit on a portion of that property in order that I may spend it? The essential point to notice is that for every credit that is made there is a corresponding dtbit." Mr. Lye: Do the rates of deposits for advances really influence the amount of credit available?

Mr. Fussell: When deposits are not in I sufficient volume the balance is restored )by increasing the rates on advances. That has always had the effect of restoring balances, but if people wish to take credit at a higher rate there is nothing to bar them from doing so as long as they give a security in return.

In answer to a further question by Mr. Lye, Mr. Fussell said that the practice of making advances in New Zealand was different from that in England, where, once a customer had been given credit, that amount was credited to his account. In New Zealand accommodation was granted by way of overdraft and interest was paid only on the amount that was drawn. Mr. Lye: Do you agree that purchasing power should be given to people with no security at all? Mr. Fussell: No. That would be giving something for nothing. He added that the value of money varied in inverse ratio to the quantity, and the more money there was the less it was worth. There was no cure through the indiscriminate printing of money. He said further that the real difficulty in New Zealand at the present time was a lack of confidence. There was no shortage of purchasing power. The total amount of deposits in the trading banks, the Post Office Savings Bank and other institutions was about seventy millions, but the people could not be induced to purchase goods with it. The troubles at the present time were not monetary and could not be restored by monetary measures. They were more deep-seated. Mr. Fussell did not think the monetary system had anything to do with the situation. The monetary system was a reflex of the position. The inquiry is proceeding.