MONETARY inquiry “Lack Of Co-ordination” In N.Z. Financial Policy

Press, Volume XCI, Issue 27657, 13 May 1955, Page 14

MONETARY inquiry “Lack Of Co-ordination” In N.Z. Financial Policy

(New Zealand Press Association)

WELLINGTON, May 12. A lack of co-ordination among the different bodies set up to deal with various aspects of New Zealand's economy was alleged by the chairman of the Associated Banks (Mr H. W. Whyte) before the Monetary Commission today. Mr Whyte said that the trading banks, which bore the brunt of any criticism, should have the opportunity of expressing their views directly to the Government. There should be more collaboration among the Government, the Reserve Bank, and the trading banks, he said. The trading banks had a strong case by virtue of their intimate knowledge of the needs of customers throughout the country. Answering questions by Mr F. W. Holmes, an expert assisting the commission, he said he refused to accept suggestions that trading banks must take the resj/bnsibility for the increased bank advances when other bodies made certain decisions which the trading banks “got caught up in.” It would be improper for the Government. having allowed a flood of imports into the country, to suggest to the trading banks that not another penny should be advanced. If anything went wrong the trading banks got the blame. They were the scapegoats all the time, he said. Mr Whyte said that over the years there had been close collaboration between the Reserve Bank and the trading banks, but it was also true that the trading banks had proposed to the Reserve Bank views that had conflicted with official policy. The direct collaboration between the Government and the trading banks was almost negligible. Trading banks had received directions from the Reserve Bank on monetary policy without being given the opportunity of expressing their views directly to the Government. By placing their views directly before the Government they could give more emphasis to their points, he said. . . Boards and Authorities in New Zealand over a period of years a number of boards and authorities had been set up to deal with aspects of the country’s economy, ™ j Salt k mentioning the Board of Trade, the Capital Issues Committee, “e Treasury and the Reserve Bank. Yet tne trading banks, representing the only body of men right in the front line dealing with the problems oi individuals and companies, were not, except on very isolated occasions, given the opportunity of expressing their views directly to the Government. With 509 branches and many agencies throughout the country the banks were in a position to assess the desirability of certain production 111 any particular district. te said he had no complaints afloat the collaboration between the wading banks and the Reserve Bank, but there were times when the trading banks were invited to give an “Pinion on something when it was certain that a decision had already been reached. H the trading banks had been asked lor an opinion in 1950 it would have savea at least some of the tremendous mports in 1951, he said. Again, bad the trading banks been given the opportunity of collaborating with the authorities, their approach to the decision in 1954 to free imports from the exchange allocation system would have been more guarded. __ ■r^? n * ncc for Companies Mr Whyte said he agreed that a the need for some restraint in the raising of capital was a strong case for the Capital Issues Committee, but to him it seemed extraordinary that such a body could meet behind closed doors and give decisions without giving any reasons for them. There were many cases over a period of years in which companies had formulated plans for the development of their business and proceeded in the hope and anticipation that in due course they would be able to finance their projects, but their applications had been refused. Mr Whyte said he believed that with the intimate knowledge banks had about the nature and scope of the operations of the applicants, the Capital Issues Committee would be in a better position to make a decision. Throughout his evidence Mr Whyte emphasised that he was expressing personal opinions only. Mr Whyte said that he favoured the establishment of an industrial finance corporation to deal with medium and long-term finance for industry in New Zealand. He believed there was a need in New Zealand for long-term capital for industry, which was not now easy to obtain. Mr McGregor: Do you think New

Zealand banks would be interested in such a proposal? Mr Whyte said that the banks had a duty to develop the country by every possible means. However, he was not authorised to speak for his own bank or for the other trading banks whether they would or would not subscribe to such a corporation. The banks would certainly give such a proposal their fullest consideration. Mr Whyte said he believed the economy of New Zealand had developed to the extent where a central bank was necessary and desirable. Speaking of unexercised overdraft limits, Mr Whyte said there was about £98,000,000 of unexercised overdraft authorities, which, superimposed upon actual advances of £185.000,000, made a potential advance total of about £280,000.000. However, in practice a total of such magnitude could not occur. The position would be more comfortable if the £98.000,000 were reduced to, say, £70,000.000. Refusals of Overdrafts Thousands of persons in New Zealand had been refused overdrafts in the last five years. If all “safe” requests had been granted, the £185,000,000 of actual overdraft could easily have reached £250,000,000 and would have aggravated inflation. If the Resreve Bank had not applied controls, they would have been imposed by the trading banks themselves, as a matter of prudent banking policy. He believed, he said, that interest rates of 5 per cent, or 6 per cent, would have held bank advances to less than the £184,000,000 at which they stood at present. Asked why the minimum interest rate of 4 per cent, was granted to industries handling the country’s primary export production. Mr Whyte said the whole basis of the country’s economy lay with the primary producers. Trading banks therefore gave them the best possible treatment. This interest rate did not apply to individual farmers, although farmers received an indirect benefit through the low interest rates granted to industries in which they were concerned. Mr Whyte said, in respect of a “series of warnings” issued by the Reserve Bank about expansion of credit, that they were appropriate to conditions existing at those times since 1947. Mr Holmes referred to a Reserve Bank bulletin saying that between January, 1947, and January, 1955, £99.500,000 of the increase of £132,300,000 in volume of money in circulation was attributed to trading bank credits. Mr Whyte agreed that the table mentioned would be a fair indication of the causes of the changes in volume of money. He did not think the expansion in trading bank credit was the major factor in price rises in that period. It would be a contributing factor. It was very difficult for anyone to say with any degree of certainty to what degree price rises were affected by trading bank credit. The very large volume of imports in relation to population was a major cause of the price rises. The second cause, said Mr Whyte, would undoubtedly have been wage rises, which had caused a great deal of trading bank advances. The country’s development in recent years had put an intolerable burden on the labour supply. It was inescapable that costs would be forced up by the volume of over-employ-ment There had also been a certain expansion in Government borrowing in that period, more particularly in the earlier part. Consumer Stocks Mr Whyte said he thought that everyone would agree that the volume of consumer stocks today was infinitely greater than in 1947. This' had forced someone to find the money, and a great deal of the £99,500,000 increase in bank advances would be accounted for by credits to obtain such stocks. Also, that had been the changeover period from bulk selling to free marketing. In spite of qualitative control of advances from 1943 to the period mentioned, it was quite clear that many projects simply had to be financed as essential undertakings. Some of those advances would still be part of the total advances today. In view of the extent of development in the period, the £99,500,000, he thought, was “very moderate indeed.” The great bulk of the contributions by trading bank customers to the £30,000,000 national development loan last year came from credit balances, and not from the extension of overdraft facilities, said Mr Whyte. The reduction in the ratio at that particular time should not necessarily be ascribed to the creation of credit, he said.

Mr Justice Tyndall, the chairman of the commission, thanked Mr Whyte for this information, adding that the point had been concerning him and his colleagues.