The Bank of New Zealand

Press, Volume LXXII, Issue 21810, 16 June 1936, Page 10

The Bank of New Zealand

At the annual meeting of shareholders of the Bank of New Zealand the chairman, Sir George Elliot, dealt at length, though cautiously, with the relations between the bank and the State. He recalled the circumstances in which the State saved the bank from collapse, the method by which assistance was given, and the consequent changes in the bank’s constitution. He further reminded his hearers that, although much is made of the fact that the bank is, metaphorically speaking, under a heavy debt to the State, the State has also derived substantial pecuniary benefits from its connexion with the bank. The context of these remarks is fairly obvious. Although the State owns only one-third of the capital of the bank, it appoints four of the six directors. So far, no government has attempted to make any use of this power to control the policy of the bank, which has in all important respects continued to function in the same manner as its five sister institutions. Until the establishment of the Reserve Bank, State moneys v/ere deposited with it, but beyond this it showed no tendency to develop into a State bank or to exercise the powers of a “ bankers’ bank.” Possibly this is a matter for regret. If the Bank of New Zealand had developed by gradual stages into a reserve bank, as the Bank of England and the Commonwealth Bank have done, there would have been no need for the creation of a special institution to control credit and carry out government financial policy. It is generally true that reserve banks which have grown out of trading banks are more successful than reserve banks which were created ad hoc and have no roots in the financial structures of their countries. The Bank of New Zealand is now in an unhappy position. The present Government has deliberately set itself out to control the banking system; and it may be strongly tempted, as the State directorships of the Bank of New Zealand fall vacant, to appoint men who will control the bank as though it were a State institution. Such a course would be manifestly unfair to existing shareholders and would place the bank at a disadvantage in relation to its competitors. It is, moreover, an unnecessary course, since the Government possesses, m the Reserve Bank, a more than adequate means of controlling the banking system as a whole.