Trading Banks’ Chairman Questioned By Mr Walsh

Press, Volume XCI, Issue 27690, 21 June 1955, Page 14

Trading Banks’ Chairman Questioned By Mr Walsh

MONETARY INQUIRY

(New Zealand Press Association)

WELLINGTON. June 20. If the trading banks adopted the procedure of paying interest on current accounts, they might have to increase their charges in other directions, said the chairman of the Associated Banks (Mr H. W. »Whyte) before the Monetary Commission today. Mr Whyte was replying to Mr F. P. Walsh, advocate for the Federation of Labour, who asked whether there was any reason why the banks were unable to pay interest on a current account. It was necessary to look at the overall picture, Mr Whyte said. If this interest were allowed, it might be cancelled by extra costs in other directions. In the last few years the banks’ net profits had expanded, he agreed. Business had been good, as it had been for the rest of the people of New Zealand. Bank business had expanded in line with the country’s development, he said.

Capital gain from bank shares was •worse than in any other sections of the investment market, but it was a very safe investment. Banking had to be profitable to be safe, he said. Explaining the reasons for raising the bank fee for current accounts from 5s to 10s a half-year, he said that the former charge was extraordinarily low. It had been unchanged for about 20 years. In that time the costs that the fee was designed to cover had increased substantially. Questioned on interest rates, he agreed that if the rate were increased by 1 per cent, on all bank advances at present, the increase in the banks’ gross revenue w-ould be more than £1,800,000. Basically, such an increase would not involve the banks in any additional cost. In the last few years there had been a slight increase in the average overall interest rate. The rate tended upwards between 4 and 5 per cent. In New Zealand the proportion of bank assets represented by gilt-edged investments was much lower than in any other part of the Commonwealth. Loans to the Government were considered a sqund and profitable investment, he agreed. Short-term Loans Favouring the establishment of a short-term money market, he said it would be a good thing to attract funds lying idle at present Basically, the ordinary man in the street would not be interested in such a market as he could obtain a better interest rate from the Post Office Savings Bank. Asked why the trading banks did not invest their money in the Post Office Savings Bank, he said the limitations on the amount of money that could be deposited there did not make it worthwhile.

Mr Whyte said he had no complaint about the operation of the Bank of New Zealand under nationalised control. Where there was a completely nationalised banking system, the danger element then came in. he said. The important aspect of a free-enter-prise economy was that if a man was not satisfied with his treatment at one bank he could always go to another bank. Nationalisation of the Bank of New Zealand al .ae had had little effect on the country’s banking policy. Its administration was almost identical to that in the past. Asked by Mr Walsh why the bank ahould not make public its assessable profits and reserves, Mr Whyte said that it should not be singled out from the other banks in the country. In the public intereot. the banks should not disclose this information at alt It was a matter for the* commission to decide whether it required the information.

To a question whether the banks would protest if the Government took over their banking business at the value as disclosed in their published balance-sheets, he said it would have to be given thought »It did not seem imminent

Bankers generally would at present be inclined to advise their farmer customers to be a little more cautious in the use of advances. Mr Whyte said. With the changed marketing conditions and lower prices for produce, the outlook for the dairy industry was not so bright as it was last season, he said. Mr Walsh had asked whether the banks would be willing to make advances to dairy farmers to the same extent as last season.

Explaining the increase in advances to the dairy industry from £11.300,000 to £13,000.000 for the vear ended last March. Mr Whyte said it would be accounted for partly by the bad run met by certain sections in the north through drought, and the desire bv farmers to increase productivity. There

had been a good deal of capital expenditure in improving pastures, and substantial sums had been spent on tractors and other farm equipment. Dealing with the advances to wool farmers, he said there had been a great deal of expenditure on the development of pastures, including the costs of aerial topdressing, fencing, and the purchase of additional stock. Though the total advances to all sections of the community during the year increased by £37,800,000, the advances had not been inflationary, he said. Asked why the Government had preferred to borrow £12,000,000 from the trading banks at per cent, interest, instead of from the Reserve Bank at 1 per cent., he replied that he did not know. Handling of Depressions Cross-examined by Mr F. C. Jordan (New Zealand Social Credit Association), Mr Whyte said that the technique of handling a situation such as the depression of the Karly thirties had improved out of all recognition in the last 20 years. More than once in recent years a trade recession had threatened in the United States, but he thought it was combined action by the Federal Reserve Bank and the Government that had averted trouble, said Mr Whyte to Mr E. D. Wilkinson, a member of the commission. To the chairman (Mr Justice Tyndall), Mr Whyte said he thought New Zealand would be concerned if it had the same proportion of unemBloyed as was reported from the nited States. In the Reserve Bank New Zealand had a very effective authority overlooking the financial requirements of the country. Mr Whyte said he had never met anyone who really understood what a “consumer credit” might mean. He was sure that very effective and farreaching steps would be taken by the Reserve Bank and the Government to meet any situation that arose in a trade recession, and the public would be adequately protected. Mr Whyte accepted Mr Jordan’s figure of 4.000.000 men now under arms in the United States. In the event of total peace and the diversion of these men to industry ii was natural to assume the total production of America would increase, he said. Disbandment of the forces could lead to a reduction of taxation. Demand would be created for housing for the new workers for industry. To Mr W. G. V. Bernie, a member of the commission, Mr Whyte said that as production increased the price of goods could fall. He did not agree with Mr Jordan that prices would fall so low that there would be a depression. Avoiding “Depression Complex” The main thing in the handling of a depression was to recognise the possibility of a depression looming, and to take steps in advance, thereby avoiding the development of a “depression complex.” If New Zealand became unable to sell half her production of meat, butter, . and wool, what internal action would be taken? asked Mr C. G. Trotter, a member of the commission. Mr Whyte said he thought any such situation would not happen overnight, and there would be time for consideration to be given. “If no-one is prepared to give us an effective price that would pay the freight on the surplus, what would you do with it?” Mr. hotter asked. Over a period it would not be produced, Mr Whyte said. Mr Trotter: In the meantime, after our people had eaten all they could, what would you do with the surplus? Mr Whyte said that in a short-term situation the produce would probably be stored in the hope that it was only a phase of the market. In the longterm New Zealand might have to follow a stockpiling policy such as that of the United States. Mr Jordan questioned Mr Whyte for some time on the operations of the International Monetary Fund and the World Bank. Mr Whyte said he doubted very much whether, at a time of plenitude of consumer goods, as at present, the switching of labour from capital works to consumer goods would cure inflation. Mr Justice Tyndall commented that he did not agree that there were plenty of consumer goods to meet all needs. Mr Whyte said the volume of money was too great and the pressure on consumer goods therefore heavy, but he did think reducing capital expenditure would be part of the remedy.