WAR AND BANKS

Evening Post, Volume CXXIX, Issue 63, 14 March 1940, Page 18

WAR AND BANKS

QUESTION OF PROFITS

PURCHASE OF SECURITIES

CHAIRMAN EXPLAINS

(By Air Mail, from "The Post's" London Representative.) LONDON, February 6. A reference to "some people who seem to think that the country would be stronger if the banks were weaker, and are obsessed by the fear lest banking profits should be increased in consequence of the war" was made by Lord Wardington, chairman of Lloyds Bank, Limited, at the annual meeting last week. These people, he added, cited the last war as an example of what may happen.

"The position, however, is very different now; from it was in the years 1914 and those following," Lord Wardington continued. "It is true thatj from 1914 to 1919 the deposits of the; Big Five banks were trebled, and their published profits were more than doubled. This increase in deposits Was due, primarily, not to any action of the banks themselves 'creating something out of nothing' and 'earning a coiner's profit.' It was due to the action of the Government, and to the large sums which they borrowed from the public and subsequently spent in paying for war commitments of all kinds. These sums for the most part came back to the banks in the form of deposits, and to a large extent were invested by them in Government securities. PAID FOR IN GENUINE CASH. "It is, however, quite untrue to say that by this latter operation 'banks bought a security with money which did not previously exist, as if they had printed notes and bought securities With them.' When a bank buys a security it follows exactly the same procedure as any private individual, and pays for it by drawing a cheque on its bankers, in this case the Bank of England, and its balance with its bankers is" reduced accordingly. In other words, its investment is paid for in genuine cash, which certainly was lin existence.

, "Then again, in regard to the profits earned during the last-war, it gives an entirely incorrect picture to look at the published profits alone. In the case of this bank, the increase in the profits, comparing 1919 with 1914, was required to meet the depreciation which had occurred in those very investments which it had bought. It must also be remembered that some portion, both of the increased deposits and increased profits, was due to the amalgamation of banks which. took place during the period.

"Even if, however, this talk of the 'self-created' increase' in deposits and profits were true, it is pertinent to point out that little of the latter went into the pockets of the shareholders. Broadly speaking, there was no increase in bank dividends during the last war, and increased profits were used to strengthen the position of the banks, a fact which surely is as much in the interest of the country as it is in that of the banks themselves and their depositors." CONTROL OF PRICES. Referring to the problem of' rising prices and the consequent demands for increased wages, Lord Wardington said:

"The problem is really a very simple one, though the solution is more complicated. If commodities for general consumption are short, either because they are being produced for purposes of the war or because of the difficulty of importing them due to the delays in transport or the difficulties of paying for them, and if, on the other hand, there is growing competition in bidding for them, prices are bound to rise, while if the means with which to buy them are then increased prices will inevitably rise higher still and the increased wages will prove to be of no avail. A man is no better off even 'though his nominal income is doubled if the result is that prices are doubled also.

"The suggested remedies to counteract this dangerous tendency, and to control prices, are fourfold: a high level of taxation all round, which would curtail the. possibility of excessive purchases; rationing, which would have the same effect; the payment of wages partly in cash and partly.in a form of deferred loan certificates; or the voluntary- abstention from buying those things which are scarce or which have to be bought from abroad and therefore put a strain on .our exchange position.

"The last remedy is the only one in which the private individual can take the initiative, and he is definitely asked to do so in the interests of the country and to lend what he saves by so doing to the Government."