THE BANKS IN THE DEPRESSION

Dominion, Volume 28, Issue 286, 30 August 1935, Page 8

THE BANKS IN THE DEPRESSION

How They Helped

A CUSHION FOR THE SHOCKS Finance Minister’s Comments Exception is taken by the trading banks to certain statements attributed to the Minister of Finance in his speech to the Aucklanl Creditmen’s Club o„ Wednesday. “Mr. Coates is not sufficiently generous when he answers the question, ‘Where would the country have been had it not been for the banks?’ by asking another question, namely, ’Was it the banks who pulled the country through the difficult times, or was it the country that pulled the banks through?’ It savours of biting the hand that fed him,” said a spokesman for the banks to a "Dominion’’ reporter yesterday. “Mr. Coates’s contention that everyone had assisted does not dispose of the fact that the trading banks played a special part in a period of particular difficulty, and it is surprising, seeing that Mr. Coates was extolling the policy of unbalanced budgets, he did not remember that such a policy was only made possible because the banks had in the period of boom eschewed the primrose path of high profits, and remained true to their tradition of keeping their resources in a fairly liquid condition. By such conduct these institutions were in a position to provide funds to make up the shortage in Government revenue as compared with the expenditure. “Unbalanced budgets avoid the imposition of the fullest burden of taxation in difficult times, but it is a policy which can only be followed by Governments which have some source of financial succour. The Government had reserves, but, as Mr. Downie Stewart said in his 1932 Financial Statement, The only difficult}’ is that these reserves are more or less frozen and are not easily realisable.’ In 1933 Mr. Coates was able to show, instead of a large deficit of over £2,000,00(1, a paper surplus of £40,124 ‘by liquidating reserves (£2,500,000) invested in Discharged Soldiers’ Settlement mortgages liy (the banks) advancing against hypothecation of these securities.’ The words cited are Mr. Coates’s own. In the following year £2,000.000 was raised by the same method. “The point which Mr. Coates ignores is that while the banks are part and parcel of the Dominion, and can only prosper when the community does so—which possibly is Mr. Coates's real point—the banks have refused to allow to become frozen the funds entrusted to them by the public; which was the condition of the Government’s own reserves. The trading banks were thus in a position (1) to increase their advances to their customers and thus cushion the first shock of the depression; and (2) to assist the Government in the manner I have indicated, thus avoiding either (a) the imposition of a full burden of taxation to meet outgoings, or (b) the discharge of a large number of public servants and the greater curtailment of social services and pensions than in fact took place. It is for saving the community from these inconveniences,” concluded the speaker, “that the thanks of the public are due to the banks.”

MR. COATES EXPLAINS No Reflection Macle or Implied

“I want to be perfectly fair with everybody and with every institution or organisation in the Dominion,” said the Minister of Finance, the Rt. Hon. J. G. Coates, when informed yesterday that financiers in Wellington thought he had been unkind to the banks in New Zealand by his reference at Auckland to their national service during the years of acute depression “I was not misreported in Auckland,” said Mr. Coates. “My last shelter would be to blame reporters. What I said about the banks in New Zealand during the depression was plain erough and, I think, fair enough. I said the same thing in London about the British banks and no umbrage was taken. I said definitely that the . banks had done (to use a colloquialism) a ‘good job of work,’ but I added that the country, which means all the people, also had macle a splendid response to abnormal demands upon it. Do not imagine for a moment that I, or any member of the Government, has been blind to the sacrifices that have been made by the Dominion as a whole. It has not been a pleasure to any one of us, whose greatest duty has been to face exceptional responsibilities, to inflict hardships on individuals and institutions, but we all have done what we believed to be the best, not only for the extraordinary times, but for the future. It is quite true that I said in my speech at Helensville on ’J uesday night that ‘had it not been for the banks where would have this country been?’ also that where would have the banks been bad it not been for the country? There is no reason at all for any misapprehension. It may be argued, of course, that the position could bare been stated in a different form, but even any possible crudity of expression could not hide the fac’ that the banks in New Zealand did t’neirpart well and that the country also played its part. You may worn it out in your own or in any other way, but what I tried to make clear at Helensville is the simple truth that, in a difficult period, the banks and the country alike did their duty. One cannot say mote or less about the question, and I leave at that, confident iu belief that everybody will admit the fairness of my remarks.” «