TRADING BANK RESERVES

Press, Volume XCI, Issue 27675, 3 June 1955, Page 14

TRADING BANK RESERVES

Increase In Ratios Announced FEBRUARY LEVELS RESTORED (New Zealand Press Association) WELLINGTON, June 2. The Reserve Bank announced today an increase in the reserve ratios of the trading banks. As from June 2 each bank is required to maintain balances at the Reserve Bank equal to not less than 16£ per cent, of its demand liabilities, plus 7£ per cent, of its time liabilities in New Zealand. “The previous ratios were 15 per cent, and 7£ per cent, respectively, to which level they were lowered on February 28,” said the Reserve Bank. “As stated at the time, this was a technical adjustment and a temporary one to cover the period in which the banks were obliged to transfer very large amounts in cash to the Public Account in settlement of income tax payments by their customers.

“There was no question of any relaxation of credit policy. “In fact, the strong degree of credit restraint which was already in operation has been continued throughout the period of three months ended yesterday, even though the ratios were held at the reduced figure of 15 per cent, and 7| per cent. “Had it not been for the deposits which, by arrangement with the Reserve Bank, the-Treasury lodged at the trading banks, it would have been necessary to make a further temporary reduction in the ratios during some part of the last three months. “In a few days the trading banks will be repaying to the Treasury the amount of these deposits which are still outstanding, that is, £3,400,000.

“It is expected that, after allowing for the repayment of these deposits, the new ratios will have the effect of putting the banks, as a whole, ‘into the red’ at the Reserve Bank to the extent of several million pounds. “It will probably be necessary to keep this intensified restraint on bank credit in force for a number of months because of the continuing strength of the demand for bank overdrafts.

“It should be emphasised that the fact that the trading banks’ balances at the Reserve Bank may be fully frozen by the ratio requirements should not be taken as an indication that those balances are physically at a low ebb,” the Reserve Bank statement added.

“In fact, they are at present more than £43,000,000, but the necessities of credit restraint make it incumbent on the Reserve Bank to place the ratios at a level which will freeze even more than that amount.

“In order to continue this restraint, and even intensify it further if required, frequent small changes in the ratios may be needed, depending P n , Jhe movements in actual balances fie la by the banks, the movements in their total overdrafts, and the general economic situation.”