BANK PURCHASE

Evening Post, Volume CXXXIX, Issue 136, 11 June 1945, Page 4

BANK PURCHASE

Sir, —In order that a fair perspective of issue involved may be obtained it should be remembered that the question of nationalisation of banking is not peculiar to New Zealand. The Reserve Bank of New Zealand, which has been State controlled for a number of years, has been conducted according to the best traditions of banking practice. Moreover, the activity of the State through the Reserve Bank in the regulation of sale and purchase of overseas exchange and of rates of interest has been of benefit .especially during the war years. If such control has been necessary during an emergency brought about by the war then a continuance and expansion is indicated rather than a return to the stringent financial practice which >~ aggravated bad conditions during the depression years.

Economists agree that the range of State activity in business is limited to those enterprises in which competition is of no economic benefit. This argument may be used even more strongly in regard to the banks. In New Zealand* there are six trading banks in business, in every town of x'easonable size, and in direct competition with one another. Each bank is faced with high overhead costs in the maintenance of numerous branches, and at the same time seeks to obtain a substantial return on shareholders' funds. It is noteworthy that the capital in five of the banks is mostly held overseas. Competition in ordinary business is admissible and healthy where by improved methods one firm may be able to market a commodity more economically than its competitors. But competition in the marketing of the credit of a nation can only react to the disadvantage of the nation as a whole because the associated banks, unless controlled, will dictate how and by whom that credit will be used and with this essential difference from State control — the prime motive will be profit to the banks and not for the State. Thus the case for the Bank of New Zealand becoming a State institution has strong support on economic grounds despite the bogy of political control. However, this letter is not intended to unduly minimise the difficulties in the project, but merely an endeavour to show that if the administration of the bank is left largely intact, there is nothing to be feared by complete State ownership.— I am, etc.,

ECONOMIST.