BANKING AND STATE

Evening Post, Volume CXVIII, Issue 65, 14 September 1934, Page 10

BANKING AND STATE

THE RATE OF INTEREST

REDUCTION PROPOSED

Tho Committee sees no reason why the method of taxing bank incomes should be altered, but recommends that the charge by the banks for keeping accounts should be reduced from £1 to lOSj owing to the fact that the banks aro no longer required to pay a note tax.

"When the Bank of New Zealand failod in the nineties, the Government came to jits aid and reconstituted the bank,- giving tho State a two-thirds majority on the directorate, the object presumably, being to ensure that tlio largest bank in the country should have close' contact with the Government," states tho report. "All the evidence shows, however, that the Government directors on the Bank of New Zealand have not acted for the Government, but have taken up tho shareholder point of view that dividends should be tho main criterion by which a banking concern should be judged. And, if dividends be the criterion of success, the bank has been admirably successful.

"In several cases it has happened that the Government appointees on the Bank of New Zealand havo publicly criticised Government policy. It is the duty of •a- State appointee to advise and to criticise any action proposed by the Government, but he should do this primarily to the Government.

"When 1 the British Government was borrowing on Treasury bills at a rate as low as 4s 9d per cent!, when the Indian Government borrowed on Treasury bills at 1 per cent, when the South African rate varied from 1| to 2J per cent., when the Australian rate was 2$ per cent., the New Zealand Government was paying £5 8s 9d per cent, on Treasury bills —the best security in New Zealand. This was an exorbitant rate. It was reduced recently to 5 per cent., but this still indicates that the banks wero treating the Government as they would a purely commercial customer who applies for an overdraft. It is not suggested that-the banks could have-lent at 1 per cent., but they certainly could have lent at less than half what they did chargo and still have made a profit. Theso exorbitant interest rates will, of

[ course, be altered by tho Reserve Bank, ■ which will work in closo co-opcratiou • \vith tho Government. CO-OPERATION WITH GOVERN- ! . . . , MENT. ''There is other evidence that tho 8 auks have not always co-operated with tfbe Government.. Generally, they have I*sen treated as purely private profitin nking concerns, but occasionally the Gt ivernment has asked for co-operation on policy measures. For instance, it is not ti generally known that tho Government's internal loan conversion could ha? 'o been purely voluntary if the banks hail ' accepted the first Government plan . '."■When tho Government finally took soint'i steps to direct monetary policy and ; raised the rate of exchange to help towii yds internal economic equilibrium, the links'opposed this move, although in A ustralia and . Denmark —and, for that. matter, in Groat Britain also —the fixing of the rate at tho appropriate level was achieved'by the Government and tl m banks'acting in harmony. The eeonoi, ltie position—the relation between costs i Pid prices—in tho four countries was similar; in tho primary producing countai es especially was tho fall in export prices acute; there may have been Hanking opposition in the other countri Ss mentioned, but, if this wereso, the. banks did not embarrass the Governi -lent by making the opposition public. ' "In i onnection with the Banks Indemnity (Exchange) Act, tho banks also dro» 'c a hard bargain, transferring a low-eaa 'iiing asset in London to a well«p'ayi ng one in New Zealand. While it may t>4 i right to indomuify tho banks for losses! on surplus funds on account of a fall i tt tho exchange-rate, this does not mean, 'that the Government should havo been asked to pay 5 per cent, on funds hold during the currency of the high exeha ugo rate. "When i;hc Government proposed to set up a 111 s?ervc Bank, although the majority oj ' the banks indicated their willingness^ to co-operate, tho Bank of New Zealaj id again openly and publicly opposa d the idea. Officers and directors of, the Bank of New Zealand, in fact, weii t out of their way to let the public, 4s: now what they thought of tho consider**/? proposals not only of tho Government,' I .of all.banking authorities. Parliam tint's answer was to proceed- with the Beserve ■ Bank of New Zealand Act.,,, : COMtEVIpIVE, BANKING. "If, in the Inpneties, the Government had made,the ] lank of New Zealand an entirely St|ate c-e-gover:lle^ institution and had absoiibDd the smaller banks, today we shoit,lcJT have had as an accepted .part of tour economic framework a banking iysteni already operating solely' in' tli c public service; but the position waj.l left so that competitive private banking continued. In these circumstantc es, the Reserve Bank is tho.only'mean'si of control in the national interest. ■ ' '' Competitivo~bi|. piking is here, though we might admit tit »t it is often wasteful. Duplication ai id overlapping could have been avoided ' in, the past, but to some extent we mr.Bt a*cept_the status quo. It depends oi i the political and social philosophy of.a country as to whether or -hot dej ibsit banking should be socialised. If th\)- productive system is to remain uriplan\ »ed and marked by competitive individi.ta.lism, a socialised, banking system > could act only as does our present ,ba«i king system-—that is, according to the '■, credit-worthiness of the applicant for 3 in advance and to his 'chances of ,rnaki« rg, a profit. Under these circumstances, ,the gain from socialised banking wa uld be merely the elimination- of waste*'til overlapping. THE NATIONAL INTEREST. '' But as increasing n Masures of direction and control over t l^e economic system are instituted, so. must the banking system be progressively controlled and directed. For tj.kis purpose, in order to implement tine- policy of the Eeserve Bank and in o^» der to give a lead to the commercinl banking world, the State should excr&iw to the fullest extent its power of appd intment to the directorate of the Bank of New Zealand ;to ensure that the j nimary object of the bank's policy will in future be to promote the national■ ■ »vell-beingv.df Now Zealand. For exau iyle, the rato for advances could be determined By the policy of the Bank of !Mew Zealand, which already does 50 pen- cent, of tho total business of the coinme,#iccial banks. Profits in the past have to ion too often 'the criterion; for the futu .re, and as a definite policy, the profit: niotivo in banking should be strictly -. subordinated to that of servico to the; national interests. • ; "It should be mentionci V that the State appointees have not ii i every case held shares in the Bank cd 1 New Zealand; however, quite apart . from the question of whether or not 1J ie representatives of the State1 should ". Wold shares, it is evident thut the passt • policy of the Bank of New Zealand ;» could have been such that a Reserve,] Sank need not have been necessary. \S c now emphasise that under no cirt umstances should the Government wilj idraw its power of appointment to the i irectorate of the Bank of New Zealaa d."