BANK CONTROL

Evening Post, Volume CXXXVIII, Issue 147, 19 December 1944, Page 4

BANK CONTROL

CURRENCY AND CREDIT

WHERE "CRANKS" GO WRONG

The contention ojP the proprietors of the Bank of New Zealand that the proposal that the Government should buy out the private shareholders and institute a State trading: bank would have serious repercussions on the economy of New Zealand if carried into effect is based on sound grounds, says a statement issued by a committee appointed to represent the private shareholders. - .

Criticisms of the trading banks are generally uttered by currency cranks who simply do not know the real ; meaning of currency and credit. One of the criticisms made is that the banks do not lend enough when times are | bad, and lend too freely when times are good; that they restrict credit and make money dear; that they exercise [some sinister and secret control over i the nation's money. What is overlooked is that the banks have any- ! thing but a monopoly of lending in New Zealand. In fact, the totalof advances by banks is only a fraction of the total amount borrowed by New Zealanders. Outside the trading banks I there are building societies, stock and 'station houses, insurance and trustee companies, and the great lending Departments of the Government. All these have money to lend, and all could exert an influence on credit, but one hears very little about theni from the currency cranks. INFLATION RISK. The allegation that the people in charge of the trading banks can create money at will to replenish the supply is completely foreign to sound and proven British banking practice; wherever such money has been created without production, goods and services behind it, it has always resulted in a flood of inflation that has engulfed the fair lands of production and laid them i waste for years. Although it is often [said that bank advances create bank j deposits, we have had in New Zealand ithe spectacle of bank advances declining and bank deposits increasing at one and the same time, which obviously contradicts the contention just mentioned.

The last thing New Zealand wants or deserves is to be thrown into the throes of inflation by having her proven trading bank activities placed at the mercy of unskilled theorists and political experimenters.

The Bank of New Zealand, like any other trading bank, has three cardinal duties to perform; Its first duty, it ov/es to its depositors and borrowers, to see that the funds entrusted to it remain in safe keeping; its second duty is to use its capital for the encouragement of primary and manufacturing industries—which it has notably done in the long history of New Zealand's development; and its third duty is to preserve its invested capital intact, and to earn for its shareholders the maximum dividends consistent with prudent and careful administration. Those responsible for the administration of the bank are actuated' by ' the higher motive of assisting in the development of the country as a whole.

There are those who imagine that all sorts of financial, wizardries can. be effected if only they can get rid of the shareholders of the Bank of New Zealand and make the bank a Government institution. They are not content with the fact that already the Government (a) holds the controlling interest in the bank, (b) has the right to appoint four «out of six directors, and (c) controls, in addition, the supply of credit to the community through the Reserve Bank. There is nothing whatever to be gained by making the Bank of New Zealand a completely State-owned institution, except the right to indulge in the kind of monetary experimentation that has brought disaster in its train in every country where it has been tried. j BANK OF NEW ZEALAND'S POLICY. The Bank of New Zealand, after experience gained during some unprofitable years of trading in the last cen- | tury, adopted a policy of dealing with Ipi'ofits which resulted in a strengthened reserves position. This enabled the bank, with other banking institutions in New Zealand, to face the world depression with courage and a policy of liberal advances to hold together the many farming and trading concerns dependent on their banker's I assistance in a time of stress. The result was that the Dominion as a whole was less disturbed by, and recovered more qtiickly from, the world slump than most other countries. Notwithstanding, currency, reformers continue with their agitation and misrepresentation. [ The trading banks give good seri vice under the same financial policy which has built up world trade. Their methods of business necessarily change to meet the times, but they continue on sound lines. Generally they earn only a reasonable profit for their shareholders —in fact, a return oveu all that is no greater than is today paid by the Government on Government stock.

Rather than that a section of agitators should be permitted to bring about the destruction of what has been built up into a national asset,'the community should be vigilant to preserve a service which has helped so many in the past, and which will continue to give valuable help in the future.