VALUE OF BANK STRENGTH

Evening Post, Volume CXVI, Issue 27, 1 August 1933, Page 6

VALUE OF BANK STRENGTH

There has from time to time been strong criticism # of the New Zealand banking system, and it may help to correct our perspective to note-' the s results of other systems. Writing towards the end of June, Mr. Carlton Shively summarised the effects of the crisis on the banking system of the United States. At tho end of March, he said, about 12,800 banks out of 18,000 in operation before tho crisis were in unrestricted operation. In 1929, at tlio height ■of the boom, there had been 24,030, while in 1923 there were 30,178. Today the number of operating' units in the United States is down to about the level of 1903. On the dead or sick lists there aro now 5200 banks, or about 29 per cent, of tho number in operation before March 4. Mr. Shively estimated the deposits immobilised by bank failures during ihe first quarter of 1933 to be at least 4,000,000,000 dollars. This, it should be noted, was the loss after great assistance had been given by the Reconstruction Finance Corporation Mo save other banks from failure. The magnitude of this help may be gauged from the fact that one large institution alone 'received a Corporation loan of 20,000,000 dollar's. The weaknesses of a banking system which produced these losses were analysed by Professor Gregory in "The Times" International Banking Number. In the greater part of the country no bank may possess branches, and though this has been corrected in some States by "chain and group" banking the structure of Anierican banking "remains atomic to an cxtwit unparalleled elsewhere." Other weaknesses were the almost universal participation in" the real estate and stock market boom which had involved the banks either directly or through advances served on stock and real.estate'collateral. Professor .Gregory-notes that these weaknesses have not been corrected by.President Roosevelt's'policy measures.. While these weaknesses remain there is even danger in some of the rescue measures.. Professor Gregory men-tioned-particularly that one of. the first effects was "to reproduce on Wall Street some of the exaggerated optimism of pre-depression days." In view of recent events this was almost prophetic. His conclusion is that real reconstruction must be based on sound banking. Perhaps New Zealanders who are apt to criticise our banking methods may at least reflect that they have v no fear of widespread failure, nor of activity which will produce stock booms. Strength and conservatism have their value.