Minister Gives Trading Bank Charges In U.K.

Press, Volume CVII, Issue 31521, 8 November 1967, Page 28

Minister Gives Trading Bank Charges In U.K.

A claim by a correspondent of “The Press” that trading banks in Great Britain did not make any charge for keeping customers' current accounts has been denied by the Minister of Finance (Mr Muldoon). In a letter to the editor of “The Press," Mr W. B. Bray of Leeston said: “In Great Britain the trading banks make no charge for collecting cheques on any other bank in the country. Neither do they make a charge for keeping customers' accounts. Why cannot our banks follow suit, seeing that they enjoy the same advantage of getting interest on money which they create by the simple process of making credit and debit book entries? The Chambers of Commerce should demand that the Government use its ownership of the Bank of New Zealand to investigate the difference between the market values of its bank premises and investments as compared with what they show in the balance sheet. The income on the reserves thus concealed should more than cover all the costs of services rendered. The Royal Commission of 1955 suggested that the investigation be made. I challenge the Government to say that it has ever been made.” When the letter was referred to Mr Muldoon for comment, he replied:— “Your correspondent is not correct in asserting that in Great Britain trading banks do not charge for keeping customers’ current accounts. While it is true in some cases they make no charge for collecting cheques as such, they do charge an activity fee for each entry. The United

Kingdom Prices and Income Board recently found that the average charge made byclearing banks for personal accounts was just over 22 shillings or 5N.Z.2.20 a half year.

“In his suggestion that the Government should use its ownership of the Bank of New Zealand to investigate bank reserves, your correspondent is confused as between income and capital. Banks do in fact have secret reserves and make appropriations to them. This approach has been traditional, as banks have to make provisions to protect their depositors. “The result of this, of course, is that the earnings on capital employed are usually much lower than disclosed. Full trading profits are declared to the Inland Revenue Department and taxes are paid on these amounts. Profits on capital arising from a revaluation of assets are not a substitute for current income and it is wrong to suggest that banks can cover costs of services by I this method.

“The report of the Royal Commission on Monetary Banking and Credit Systems of 1966 did not recommend that the reserve position of the Bank of New Zealand be investigated but that their profits should be investigated. Paragraph 602 of the report stated:—

“ ‘The Government by virtue of its ownership of the Bank of New Zealand is in a position to inform itself of the general trend of trading bank profits, as evidenced by its experience with its own bank, and so to determine whether a complete investigation of

Bank profits would appear to be warranted.' “The Commission also found that, at the time of the report, trading bank profits were reasonable and it is probable that banks have not fared as well as the average public company in the last decade. There is therefore no reason for the Government to have had an investigation made.”