A DOMINION BANK

Evening Post, Volume XCI, Issue 144, 19 June 1916, Page 2

A DOMINION BANK

LABOUR MEMBER'S

PROPOSAL

THE AUSTRALIAN EXAMPLE

Mr. W. A. Veitch, M.T. for Wanganui, has had his Dominion State Bank Bill read a first time. Pressure of public business and the necessity for such takes precedence and make it impossible for its second reading to take place this session. However, it behoves the people as a whole to imitate Ministers of Slate in "keeping the important matter steadily in view," but with this difference—that they do not become so entranced with the proposal in perspective that they allow it to disappear altogether from their view at the vanishing point.

Mr. Veitch does not claim to be the originator of the measure in its present i-form. He frankly states that it is almost an exact copy of the Commonwealth Bank Act No. 18, of 1911, escept for necessary ■ verbal alterations, made to apply it to New Zealand. He argues' with respect to this proposal: "If a Commonwealth State Bank is good enough for Australia it should be good enough for us." The vast sum of money which it is suggested would be saved, to the State, the greater banking facilities to all classes of banking customers, especially "the little man," which it would afford, and the greater efficiency it would ensure in the conduct of Government business, make his Bill, Mr. Veitch holds, a matter of urgency ; still, as aforesaid, it is unlikely that the second reading of the Bill will come on this session. FUNCTIONS OP A BANK. In .coming to an understanding of the functions of a bank, those whose experiences are limited to a savings bank are apt to be confused by banking terms. Banks have a language of their own, with which they and other business men, of course, aro quite conversant; but they do not constitute the whole of the voters of Mr. Veitch's or any other electorate. There are others. To these others it may be said a bank makes its profits from lending other people's money. It makes its profits in other ways too, but lending other people's money is the principal way. People with money ask the bank to take safe care of it, which it does, for, say, 12. mouths, and besides acting as custodians of that money the bank will give interest at the rate of £3 or £3 10s, as the case may be, for every £100 for every year. This money ,the bank in turn lends out to other people at xates that may vary from £5 to £8, or even £10, per £100 per annum. The money so lent by the banks may be called up" at any time; but the money lent by the lending people is for a fixed j period, and may be, and often is, l'enewed, or not taken out at all for long periods. By this arrangement the bank, of coftrse, stands to gain. But it fulfils a very useful purpose in the community in that it takes care of people's money for them, and also lends to,other people money of which they m4y be in particular need at the time. Needless to say, it must have ample security for .its loans. So far, what are known as fixed deposits have-, been dealt with ; also advances. Buti^ the banks have other moneys deposited with them. These are what" aro called current accounts. A shopkeeper or farmer banks his money for safe keeping, and when he wants any of it he draws a cheque. He may have £1000 in his current account,'a,nd only require £300 in, three months. The bank allows him no interest on this money ; on the contrary, it charges him 10s a year for the keeping of the account, and an?account may cost all that in bank clerks' labour and bank stationery alono during a twelve-months. But the bank can lend this current account money also, and mako a profit on that too. jt may even lend, say, £1000 at 6 per cent, to a man who has £500 or £700 to his credit in the bank, and for which the bank pays him nothing at all.

Then the banks issue notes. They are merely promissory notes—promises to pay when presented, during banking hours. They are beautiful exaaples of the engraver's art a3 a general rule, but are only high-priced printed paper after all in 'intrinsic value. ■ Theoretically they are worth what is printed on them, £1 or £1000, as may be. They are not worth much out' of their own country, unless a money-changer .or bank will "chance it"—as in the case of German notes to-day—and pay out, say, 15s or 17s for the £1 note, or more, if times are normal and the credit of the country issuing the note is good. Banks make a profit on the notes, for some never, are and never will be presented. They are something like a pawn-ticket, which may circulate from hand to hand, but "Uncle" holds on to the waistcoat until it is redeemed. If not redeemed, the waistcoat, or security, becomes his. In ordinary times the New Zealand bank notes which are in circulation have ready to meet them—if they were all presented simultaneously for payment—from five to six times their value in gold coin or gold bars. ■

The banks also make profits in other ways, such as exchanges, by'which if a man wants to send £100 anywhere he has to pay the bank something for its trouble. The bank does not actually send that £100, because there is another man at the other end who wants to send £100 to New Zealand. So the bank instructs its people at that end to pay that man's £100 to the man there to whom the ihan at this end wishes his £100 paid. The bank charges both men for its services, although no actual money passes either way. GOVERNMENT BUSINESS. ■Now, a Government has the biggest business of anybody in the country to run. It buys and sells things at home and abroad; it has money to receive in taxation and money to pay out in salaries and wages. The New Zealand Government has many business undertakings in the strict sense of tile term. It is a money lender in its Advances to Settlers, it is a fire insurance office, a life insurance office, it buys frozen meat, cheese, butter, sclieelite, and kauri gum; just now, too, it is buying enormous quantities o£ food and clothing lor soldiers; it is a vast employer; and in many other ways it does an enormous business with the bunks, but mainly with the Bank of New Zealand, in which it has a large interest. Mr. Veitch's idea, with the Commonwealth Bank a going concern before him, is for the New Zealand Government to do its own banking business, and retain the profits. He goes further, and wishes that the Government, its own bank established, shall do private banking business also. As well as the Government business, there is the local bodies' business to be considered—and it is enormous in the aggregate, and highly pvofitahle too. Mr. Vuitch holds that that business should come the Dominion Bank's way. Governments and local bodies borrow money, and the banks arrange for that at a consideration. Mr. Vcitch reasons that profits derived from such tsansaetions eljouMi botfoina Uje people's through the State's ovrn_bank.

As the Dominion State Bank Bill is nn almost '. facsimile of the Commonwealth Bank Act, it may be well to show what that institution has done. Before a bank can do business it has to have a substantial amount of capital to work upon. For instance, the two New Zealand banks—the Bank of New Zealand and the National Bank—have between them an authorised capital of £8,500,000. It is not all paid up, however. The paid-up capital totals £2,529,----000—a sufficiently large sum to take as a working basis. Now, the capital'of the Commonwealth Bank was nil. "What it did was to issue to the twenty-two banks of Australia notes for which the banks paid in gold. It then had money to work upon. But, it may be asked", what security did the Commonwealth Bank pledge with the banks for the gold they gave for the notes? The answer is, the_ whole Commonwealth was the security. Mr. Veitch proposes in his Bill to pledge the credit of the Dominion of New Zealand in the fame way—and that credit, considering the natural wealth of the country and the industry and enterprise of its inhabitants, ought to be good enough —as good as that of Australia, at- the least.

Of course, if the Dominion Bank were established, and issued all the notes, as is done in Australia, it would not collect the tax of 3 per cent, on its own notes, which tlic six private banks in New Zealand now pay, and other bank taxation. 'It would lose that.. The loss of note tax would be some £50,000 per annum—more just now, of course, because bank notes are made legal tender, ■and there are more of them out than formerly. But the returns in other ways would sufficiently compensate the Government for any loss its revenue might sustain by the issuance of all the notes by a Dominion State Bank.

The Commonwealth Bank started with no money and at scratch in 1911; but the Dominion Bank, if the Government of the Day took the matter up earnestly, could begin with a going concern —viz., the Bank of New Zealand, purchasing that institution, at the fair marKet price of the shares. aT. a time prior to any proposal to acquire it, so as to prevent undue inflation of their value. There would be no confiscation. Apart from sentimental reasons, any shareholder in any undertaking is generally disposed to sell. It is only a question of price. A man may decline to sell his house, his horse, or his dog for sentimental reasons but, providing the price is sufficiently alluring, he is generally ready to part with shares held in any concern.", As it is now, the Bank of iNew Zealand does practically all the Government business, and a great deal of local body business besides. The Government also has a large and profitable interest in it already. ACHIEVEMENTS. The example of the Commonwealth Bank is there for the Dominion to follow. The objects it achieved, at the outbreak of the war and since may be thus summarised :\— (1) It preserved the financial equilibrium, and allayed public anxiety. (2) Assistance was given to the Commonwealth Government by granting accommodation in London at the outbreak of war, pending the passing of the necessary Supply Bill. (3) It secured to the Commonwealth all commissions on tho flotations of: the first and second Commonwealth war loans, reducing same to an infinitesimal percentage. (4) The bank has taken in hand the financial requirements of the forces, meeting the convenience of the soldiers wherever they, may be serving. (s)_ The bank, has- fixed a normal rate of 6 per cent, on overdrafts; of 5 per cent, on advances to churches, societies, and other undertakings which do not. distribute profits; and 4^ per cent, to local; and other Government bodies. (6) It has kept fixed deposit rates low, and consequently lending rates low, and has accordingly influenced the private banks in the same direction. (7) It has earned ' banking profits, which go to the State instead of to private persons. Mr. Higgs, the present Commonwealth Treasurer, claimed (only last month) that "the benefit of the Commonwealth Bank i accruing to Australia through its establishment are incalculable." It has. kept i rates of money low and provided cheap money for the State and the public. It has also acted as a brake upon finance, and inspired such confidence in the mind of the public as to avert any possible j panic. . Of course, -it owes much to the other banks of Australia for their support. Both Mr. Fisher (in London) and Mr. Higgs (in Melbourne) have acknowledged that. Mr. Denison Miller, tho Governor of the Bank, has also acknowledged the assistance given by the private banks. He also added, when in Wellington, that the relations between tho Commonwealth Bank and the private banks were most cordial. , In these circumstances, seeing the banks, get along so well together in Australia, while a very large saving is effected to the Commonwealth as a whole, a-nd the States in particular, there doe3 not seem any insuperable objection to the institution of a Dominion State Ba-nk in New Zealand.