THE NEW BANK

Evening Post, Volume CVI, Issue 46, 31 August 1928, Page 6

THE NEW BANK

GENERAL APPROVAL BUT LABOUK CRITICAL WILL IT PROVIDE HELP? General, approval was expressed in tho House ol! Representatives yesterday of tlio proposal to establish a now bank in the Dominion. Continuing his speech after "The Post' 1 went to press on his motion that the report of tho Committee which cousidored tho London and New Zealand Bank, Limited, Bill bo agreed to, Mr. J. G. Eliott (Oroua) said that if an increase in trado of £29,750,000 in 21 years from 1893 warranted the establishment of a. new bank in 1913 (tho Commercial Ban]: of Australia), it was surely logical .to .say. that a further inereaso 6i £.62,500,000 in tho succeeding thirteen years very fully justified tho application which was now being mado to provido additional banking facilities. After quoting the not disclosed profits made by tho banks, Mr. Eliott said that ho did not want to attack tho banks for making huge profits, . which depended very largely on turnover, on the care/ul investment of accumulated reserves, and on capable management. Ho thought one could say uuhesitatingly that it had been tho operation of thrso throe factors which had placed the banks doing business in Now Zealand in an exceptionally strong financial position. There was tho fact, however, that banking in New Zealand to-day was in the hands of a. very close corporation. Competition, as tho Financial Adviser to • the Government had pointed out to the Committee on tho Bill, was desirable, and he thought there was no doubt that competition in banking, .is in other business, must produce good results. He did not agree with thoso who said that the now bank could not operate except, in combination with the Associated Banks. ABSENCE OF COMPETITION. Mr. M.J. Savage (Auckland West) said the promoters *of the Bill had established their bona fides without question. The evidence given before the Cojnraittco showed very plainly that competition did not exist in New Zealand so far as the banking business was concerned, and his concern was 'whether the new bank would do the job -(7111011 it was setting out to dp. The Associated Banks had made it pretty [plain that unloss the new bank caiuo into tho-fold it would not be allowed to exist. That, to him, showed tho urgent: need that existed cither for a, 1 State- bank or for the State to take, a bigger hand in banking affairs. He j did not question, tho sincerity- of the promoters, but he looked upon the now institution as a competitor in tho banking world with a good deal of doubt. The banking facilities of New Zoaland were controlled by a more handful of men who wielded enormous power, and thore was no competition at all. A mere handful of men had_ it in their hands to make or break industry. ■ ■: Mr. W. A. Veitch (Wanganui): "And individuals." Mr. Savage: "Yes, and individuals." Ho did not think tho new bank would be able to stand up against tho Associated Banks, which had been assisted in their operations by the State itself, [f tho new bank could compete with tho Associated Banks it would bo an economic'advantage, and would act as a, brake on the rising values of money. However, ho believed that only the State could act as such a brake.. He did not see how they could expect tho new bank to act as a competitor to the existing banking institutions. In tho event of the new bank reducing its interest charges tho Associated Banks would follow suit in order to savo their money, and they would be the last to give in. The only hopo for the new institution was to fall in with tho Associated Banks. Ho doubted whether those who wanted additional financial facilities would gain them as a result of the inauguration of the new bank. Moiiey was going out of tho country to Australia, whereas sufficient inducement should bo offered to keep it invested in this country. Mr. W. A. Veitcli (Wanganui) pointed out that none of the promoters of tho Bill had had experienco in banking, although that was no serious reason for criticising the measure, as the bank would be managed by bankers. Ho agreed that the new bank could not hope to compete against tho existing banks. Actually, there was only one bank operating in the Dominion, and the new bank would not increase the number. (All it would be able to do would bo to share in tho banking profits. That could not be altered until new laws changed the system of the distribution of capital'in the country. Tho new bank might bring the existing institutions to a better realisation of tho needs of the people, because nt pre^ sent the banks were retarding the development Of the country. From that standpoint some good might be expected, but tho starting of a new bank would not remove present difficulties. A FAVOURABLE SYMPTOM. The Hon. D. Buddo (Kaiapoi) said that tho general view was that banking was a sacred sort of business, and the loss said about it the better. Tho for a new bank to start business must be regarded as a favourable symptom, as it showod the country's capacity to attract it. Ho did not think tho addition of another bank of issue could be regarded as anything more than enough. What was necessary, was to establish a greater personal touch with thoso having securities to offer. In that connection bank managers were doing valuable service to-ilay. Ho considered that the Bill had been improved by the amendments piit into it by the committee. ■ Mr. W. D. Lysnar (Gisborne) expressed tho opinion that a new bank would do no harm, although ho would rather support a long-term mortgage bank than tho one proposed. On the whole he' did not think any great objoction could be taken to tho methods adopted by tho Associated Banks, which had done their best to meet tho financial needs of the country. Mr. .F. F. Hockly (Eotorua) said tho object'of the Committee had been to ensure tho financial stability of tho bank, and in this connection he paid a tribute to tho promoters who had put nil their cards on the table, and had ■done their best to.mako the proceedings of the Committee ontiroly harmonious. ■ Mr. Hockly referred to tho evidence which had been given before the Committee, and said that the provision iv tho Bill that the Bank should open its doors with a capital of £1,000,000 compared very favourpbly with tho provisions in regard to other banks which had started in New Zealand. Ho wished the bank every success. "FAK-EEACHING COMPETITION." Tho Minister of Finance (tho Hon. W. Downie Stewart) referred to tho fair manner in which tho promoters of the bank had placed their case boforo tho Committee. As he had stated before, tho Government would offer no objection to the new bank being started, provided adequate safeguards "wore provided in the interests of tho public. There was a great divergence of opinion in New Zealand as to whether further banking facilities wero required, and ho had heard the opinion expressed that New Zealand was over-banked at

tho present; time, That question, of course, turned..on, what they considered to bo real banking'business. The general discussion on tlii) Bill hail proeccclcd on the assumption tliat banking, properly so-called, was ouly that carried on by the e,ommerc.i;i] banks. There was jio definition as to what eon-, stitutod banking. It whs his own. opinion that there was very i'ar-reacliiug competition in tlio banking business nil through Now Zoaland when ono considered the trust eouipanics and institutions, the stock and station agents, ana all who were carrying on banking in tlio real senso of the word. The only real difference botweon those . institutions and thp Associated Banks was that tlio banks had. the right to issue notes,: mitt very largely deult with excliaugo. Even in regard to exchange, they know there wore quite a, number of private firms which bought and sold exchange outsido tlio banks altogether, l^or that reason the view that there was no competition in Now Zealand had to be qualified. Banks, if they were well managed, had to make largo proCits, and that'was why tlioy woro unpopular all over the world. He thought it was generally recognised that so far as the rates, of interest were concerned there was little competition botwoon the banks, but where the real competition carao in was in tlio clifferoiit ideas they entertained as to the value of securities. In that respect, the banks were definitely in competition. However, continued the Minister, the quostiou as to whether thevo was room for a new bank in Now Zealand was ouu that 'could ouly be decided by experioneo, and it was not really material to the consideration of the Bill before, tho House. Tlio fortunos or misfortunes of a bank was a question for the promoters and tho shareholders to consider, and tho only question tbo House had to consider was whether there wore, suiiicicnt safeguards, and. these hadbeen imposed by the Committee. The fortunes of one bank were no indication as to how another bank miglit faro. Complaint had often been made against banks on the score of the very large dividends which they woro able to pay, but it had to bo romembered■ that it was essential for abauk, by the: very nature of its business, to build up adequate reserves. Those rosorvesi were interest-bearing all the time, while tho true earning on the bank's eapi-: tal, as subscribed by shareholders, was not more than 7 or 7h per cent. What; made the dividends so large was the. amount which came to the bank from! interest on reserves. In that respect^ both banks and other financial institu-.. tions were somewhat unjustly criticised; by those who investigated their bal-ance-sheets. THE STATE BANK QUESTION. Dealing with tho romarks made by Mr. Savage in regard to a Stato bank,. the Minister said that thore were three systems of-'banking. Tho. first was the system-of - free banking, which wasi allowed in ;A.tncrica some time ago with; very disastrous results. Under that system anybody was allowed to start a bank. The second system was that which was maintained in New Zoaland at the present time, under which banking was allowed to be carried on only under strict control and with strict safeguards for tho public and those dealing with banks. The third' system \ 'was that providing for a State bank.: Ho did not think it would be permissible- for .hinuto debate that question at that time, although the banking policy was a subject that was creating a: lot of interest at the present time and' would become increasingly under discussion. However, it was his opinion that tho question of initiating a State bank at the presont time should be approachod with considerable caution, because tho indications wore that banking in tho near future was not going to be as profitable as it was during the war years and immediately after-: ward's. "" That was" beginning to show' itself in the balance-sheets of the; banks.. Complaints had boon made, that money had been allowed to go out; of Now Zealand into Australia, aud it; | was quite true that money, like water, found its own level. It was suggested: that the Government should confine Now Zealand's surplus money to Now: Zealand, and should not allow it to go, outside, even if more attractive rates were offered; but ho did not know how it could bo prevented, even, with a Stato bank or a. State monopoly in banking. The Australian banks at tlie present juncturb had moro money.in-; vested in Now Zealand than they had by way of New Zealand deposits. The. Minister asked if members of the Opj position would liko to see all Australia's money tied up in Australia, or all Britain's money tied up in Great Britain. Under- thoso conditions there would be no movement of capital at all. The Minister concluded by expressing.' the wish that all companies operating! jin New Zeauand would give him as lit-; I tie concern and as little anxiety as tho banks gave him. "I am satisfied,", said the Minister, "that in course of time some further provision will have to be made with reference to tho publication of deposits and securities against deposits held by a largo number of 'half-pie' banking institutions throughout New Zealand. I don't want to say any more at the moment. I can only; Say that I wish their business was on as sound and as satisfactory lines in tho interests of the whole Dominion as the business of the Associated Banks." "FINANCIAL DICTATORSHIP." : The Leader of the Opposition (Mr., H. E. Holland) said tho Minister had practically told them that there was no banking combine, but ho submitted-; that the events of May last year, whenv tho Associated Banks raised the in-' tcrcst rate on deposits and instructed tho Welfare League to conduct propaganda against the Post Office Savings Bank and other institutions, showed that there was a, combine. If there was jio combine how was it that tho. chairman of the Associated Banks made a definite throat as to what action thoso banks would take against the now bank if certain events took place? He wanted to know what the new bank would do in respect to rural advances and what would be done by the Associated Banks if the new bank commenced an offensive. He could not sco that tho institution of a new bank would be able to do much in regard t to. credit and making money cheaper, as it was unlikely that it would have more than it million when its doors were opened, and the nominal capital of £3,000,000 would not go far. A financial dictatorship was seeking to control finance in the Dominion, also Government policy. The Minister of Education (the Hon. R. A. Wright): "Nonsense." Mr. Holland said ho ventured to say that tho financial dictatorship would do tho same, oven if a Labour Government were in office, although ho did not say that it would do it with tho same measure of success. Would the new bank confine its operations to Now Zealand or would it seek investments abroad if the inducements were greater? Capitalism had never known tho real meaning of patriotism, and someone had said that Capitalism came with hands "dripping with blood and: dirt." (Reform laughter.) A voice: "Is that your religion?" Mr. Holland replied that the man who wrote that well understood the position and did not hold the views tho speaker did. Ho suggested that the law should provide that so long as there was. room for the employment of money in tho Dominion a bank should be compelled to confine its investments to. New Zealand. If the bank would set out to help the rural and secondary industries of. tho Dominion' ho did not think there could bo any objection to the Bill. Mr. ,T. Mason. (Napier) assured Mr. Holland that the export, evidence given

before the C'oniuiittoo was to Ihc (.fleet that £1,000,000 would be suflu lent loi the new bank to commence business Ho was satisfied that witli jiu.icasing business the bank could i)Hica,so Us capital beyond £3,000,000. It would not bo necessary for another Act to permit the bank to ineroaso its capital. Ho did not gather from tho chairman, of the Associated Banks whou the evidence was being hoard that the banks were doing business at an extravagant rate of interest, but that the rate was such as to ensure sound business. What tho chairman had meant was that if the new bank lowered interest rates it would weaken the soundness of its position and thereby fail. Nothing was to bo gained by using epithets about Capital such as that quoted by Mr. Holland in the course of his characteristic attack on Capital. It was absolutely cssontial in our present financial conditions that there should be capital. They pvust havo capital as well as labour. The two nuiat oxist together, and there was no reason,why epithets should be applied to Capital any more than to Labour. Mr. J. Horn (AVakatipu) thought the new bank, had a fair ohanco of success, and considered that it should have a "sporting show." Mr. G. W, Forbes (Hurunui) said that no evidence had been adduced against a new bank when the Committee sat, and ho did not see how there could be, for this was a free country and. if thore ivas business to get no objection could be raised against a bank competing for it. Ho did not join with the Leader of the Opposition in condemning Capital, although he had not had the advantage of hearing Mr. Holland's speech, but simply Mr. Mason's summary of it. Mr. Holland: "You had bettor wait till you see it." ' Mr. Forbes hoped tho bank would prove to be a good institution. It seemed to him that tho House would bo safe in passing the Bill. POLICY FOR THE DIRECTQKS. llcplying to tho discussion, Mr. 331----iott said, that if the n«jw bank undercut interest , ratos the .Associated Banks would undoubtedly '' comb back "at that competition. Ho did not know what the policy of the new bank would be, but ho hoped that it would not lock up its raonoy in rural land mortgages. The functions of a bapl? wore to supply the working capital necessary for tho carrying on of the trade and con> merce of the country. Its assets should be kept in as liquid a state as possible. or not it would link up with the; Associated Banks or whether it would confine its operations to. this Dominion, were matters to bo decided by the directors. Koferring to the quotation used by Mr. Holland respecting Capital, Mr. Eliott said he hoped tho directors of the bank would, so conduct themselves and their business that their hands would bo clean, both from blood'aud .dirt. .. ; Tho report of the Committee was '. agreed to. '.-