DEFENCE OF THE BANKS.

Press, Volume LXIX, Issue 20898, 4 July 1933, Page 9

DEFENCE OF THE BANKS.

—« —— COUNTRY'S STABILITY. FORMER MANAGER'S OPINIONS. A vigorous defence of New Zealand's banking institutions against recent criticisms of high profitearning and general policy, was made by Mr J. Mac Gibbon. formerly manager of Die Bank of New Zealand in Christchurch, in an address at a luncheon given yesterday by the Canterbury branch of the New Zealand Society of Accountants, lie said that had it not been for the banks, this country would already have gone bankrupt, and he deprecated the comments of those who failed to recognise that the banks formed the foundation of the Dominion's financial stability. "Many hard things have been said about the banks and a lot of unfair criticism has been expressed against them," Mr Mac Gibbon said. "I am not speaking now about the Bank of New Zealand, but about the banks in genera]. As I have said before, we should all thank God every day of our lives for the strength of the banks we have in New Zealand and the fairness they extend to their customers. Look at the banking in America, where thousands of banks failed in a year, and just think what it would mean to business in New Zealand if the banks had to close down.

"There is no doubt that the strength oi (he banks to-day lias saved New Zealand from declaring itself bankrupt, and in defaulting in the payment of its overseas debt obligations. The banks have been twitted with paying dividends up to 14 per cent. It is useless to talk to you as accountants about that ridiculous charge. You know as well as I do that (he banks are earning (heir profits on the actual shareholders' money in their business and not on the paid up capital.'' Backing For Commerce. It might appear that the banks were paying up to 14 per cent, on paid-up capital, but to be able to earn that profit the banks had to build up enormous reserves. Not one of the banks in the best of times had been earning more than G per cent, on the actual shareholders' money in their business. It had been fortunate for the country that the banks possessed these reserves in 1921 when over-importation was taking place, and when accommodation was needed by the commercial community. The whole country was bound up with the business of the banks, and it was most unfair fer anyone to criticise them without just cause. On the contrary, the people should try to uphold its banking institutions and realise that, compared with the banking system of the United States, this country had reason to be proud of its banks. The trouble in the United States was that the banks there had entered into commercial activities, departing from the strict business oi banking. No bank in New Zealand was connected with any trading concern, nor had it been, except possibly in "the bad old days of the nineties" when securities had to be taken over. Even this had been merely a phase. Discussing bank history during the early years of his association with matters financial, Mr Mac Gibbon recalled the reckless policy of lending adopted by the banks and commercial institutions during the last decade of last century, and the help which the Government was forced to extend to the Bank of New Zealand. He declared, incidentally, that the Government of the day had no option, but to come to the bank's assistance, so that much of the credit given to the Government at that time and since had been quite unwarranted.

Catastrophe Avoided

Mr Mac Gibbon said he came to Christchurch in 1890 when conditions were far from good, and money was being advanced by the banks on most flimsy securities. This state of affairs had led to the amalgamation of the Colonial Bank with the Bank of New Zealand in 1895, and the next year the bank had to seek the assistance of the Government. Actually the Government could not do anything else but step in, for had the bank not been helped New Zealand would have experienced a devastating catastrophe which would have done the country an enormous amount of harm. As it was, a run on the bank was expected, and notes were declared legal tender. Every one in the bank, from the juniors up, was kept busy signing notes far into the night, but the run did not develop and the public took the situation quietly. At that time shares fell in value considerably, and persons who foresaw the rehabilitation ot the Bank of New Zealand and bought up all the shares they could secure had laid the foundations ot large fortunes. The hoarding of bank notes wab one of the features of the amalgamation, Mr Mac Gibbon remarked. The Bank of New Zealand contracted to take over the notes oi the Colonial Bank at their face value, and it was surprising how many of these notes did not find their way in to the bank until years after. An Old "Promise to Pay." One old lady brought in a bundle 15 years later, and although the bank did not want to pay out, it had no other course under the terms of its contract. On the outbreak of war, too, there had been much timidity, and people had demanded large sums in gold coin. Hundreds of pounds had been paid out in this way, but most of the sovereigns had found their way back to the bank before long. Reference to the latest gold mining boom in Central Otago was made by Mr Mac Gibbon who was in that district in the early mining days. He said that he had been there for some weeks at the heat of the boom, but many of the dredges had not won as much gold as the land they destroyed was worth. Good land had been ruined for all time for the sake of a few ounces of gold. However, he believed that rich fields remained undiscovered in the Cromwell area where such harm as resulted in places like Miller's Flat and parts of Southland would not be done. Nothing would please him better than to see rich strikes made, Mr the winning of large quantities of gold at the present day would go a long way to help the country through its financial difficulties.