BANKS AND LOANS.

Auckland Star, Volume LXVI, Issue 234, 3 October 1935, Page 6

BANKS AND LOANS.

Your paper of tlie Ist inst. reports Mr. J. Guinivon, Liberal candidate for Waitemata, as having stated at a meeting of electors at Nortlicote that banks do not and could not lend their deposits because deposits are liabilities of the banks. I would ask Mr. Guiniven, if he borrowed £100 from one Smith what is to prevent him lending it to Brown? Deposits and credits are really one and the same thing and when banks lend the people's credit, as admitted by Mr. Guiniven, they are lending their deposits. Why should not a bank charge interest 011 what it lends? A bank in the course of its business has very heavy expenses to meet in the shape of promises, salaries, general overhead expenses, and most important of all, taxation. The business community places the control of the bulk of the exports and imports of the country in the hands of the trading banks because they know the banks can be trusted to "deliver the goods." The alternative to the present system is barter, which obviously would slow down production and produce stagnation in trade. The banking system lias developed along the lines demanded by the economic system, and the two are inextricably ' interwoven. Mr. Guiniven is also reported as having said that the lack of purchasing power is due to the banks having the monopoly of th> issue of currency and that they only gave about 50 per cent of the bank credit necessary to business. The amount of credit available depends primarily on the value of our exports and the currency drawn 011 the credits (shown as deposits) consists of depositors' bills or cheques. Bank currency is brought into circulation through customers changing cheques at the bank for notes and coin, as may be required. Bank currency is only a fraction of the total currency, as cheques and bills are very much more in favour for settling business transactions. It should be apparent that the lack of purchasing power referred to by the candidate is not due to any action of the banks, but to the fall in the value of our exports and (by unwillingness of the customers of the bunks to make use of their credits to the full. Banks do not restrict credit arbitrarily, as it would be to their own disadvantage to do eo. Banks are not the only lenders in the country. Depositors are lenders, and there is-' nothing to prevent a seeker after a loan from going outside for hie loan. R.T.E.