Government-Bank Co-operation Plea

Press, Volume CI, Issue 29908, 23 August 1962, Page 12

Government-Bank Co-operation Plea

(New Zealand Press Association)

WELLINGTON. Aug 22. A plea for greater co-oper-ation among all parties involved in monetary policy was made tonight by Mr J. W Rowe, research director of the New Zealand Bankers’ Association.

Mr Rowe was addressing the Wellington branch of the Economic Society of Australia and New Zealand on banking developments in New Zealand.

There was little future m banking unless radical changes occurred in the thinking of both Governments and banks, he said. ’•The relative importance of trading banks has been weakened by official controls, thus reducing the effectiveness of monetary policy Controls need to be relaxed sufficiently to allow banks to compete effectively with fringe financial institutions. “Over-all restraint on bank lending is inevitable but there is little justification for discriminatory controls. Thus, prohibition of bank loans for capital purposes has created a shortage of finance for industry.’’ Mr Rowe said that the pattern of interest rates was seriously distorted today by controls on banks only. For

example, he said, both borrowing and lending rates of banks were too low. Mortgages cost more now than overdrafts and call money on the short-term money earned nearly twice that on bank three months fixed deposit. “The decline of fixed deposits leads indirectly to further pressure on bank lending to offset excess economic activity financed by activating idle bank deposits. “Bank profits are too low in relation to the resources involved, and in particular trading banks need an in-come-yielding alternative to advances.” said Mr Rowe. He said that it was becoming abundantly clear that New Zealand would be hard put to achieve sustained growth and development in the years ahead. “All aspects of economic management must be improved if orderly material 1 progress is to be achieved in the future and an obvious pre-requisite is a strong and efficient banking system. This cannot be maintained unless the controls on the trading banks are relaxed sufficiently for them to compete effectively with the unfettered rivals.”