Loans front Bank Deposits

Press, Volume XCVI, Issue 28446, 28 November 1957, Page 14

Loans front Bank Deposits

The leader of the Social Credit Political League (Mr W. B. Owen), in his answer to several questions asked by C. Fitzgerald in a letter to the editor of “ The “ Press ”, implied that it would be in order, according to Social Credit theories, for trading banks to lend their deposits. In fact, he said that the credit created by the Reserve Bank would “find its way into the " trading banks as customers’ “deposits and will be available “ for lending to credit-worthy “borrowers”. Quite frankly this means that Mr Owen would permit the banks to create credit in precisely the way that they do it now. It would work out like this: The Reserve Bank would create £5O. This would “find its way” into trading bank accounts. The trading banks would lend it to customers. Those customers would spend the money and it would

“find its way” back into the trading banks. The £5O would become deposits again. A second £5O could then be lent. Would Mr Owen try to decide which deposits could be lent and which could not? He would find it as hard to do so as the leader of the Labour Party (Mr Nash) would find it to decide what part of a bank’s profit arose from advances and what part from looking after the money of customers. The return of advances to trading banks in the ordinary course of business explains why deposits under sound banking practice always exceed advances by a large amount. The latest figures show deposits in New Zealand trading banks at £273.6 million and advances at £ 160.6 million. If Mr Owen proposes to restrict bank advances to the amount of deposits he is proposing no kind of restriction at all.