OVERDRAFT RATES

Evening Star, Issue 19552, 10 May 1927, Page 14

OVERDRAFT RATES

RAISING WIDELY RESENTED “ DIRTY LEFT TO FARMERS " [Special io the ‘ Star,’] CHRISTCPIURCII. May 9. Although the chief attitude encountered in financial, industrial, business, and farming circles over tho notion of tho banks in raising overdraft rates is one of resentment or alarm, another opinion encountered in course of an inquiry by a ‘Sun’ man is that it is a normal and conventional process intended to deal with a certain condition of affairs. Mr T. G. Russell, an acknowledged financial authority, said the banks were in need of money, and were proceeding to obtain it on conventional linos. Their, action was not unexpected by those who had watched the returns, and had noted tho heavy excess of imports over exports during the past two years Banking deposits had diminished for some time, and it was imperative that these should bo increased, ft was not the canital owned by the_ hanks out of which the profits were chiefly obtained, but the use of monev loaned to them by outsiders. If the trading balance continued year bv vear against the dominion, tho banks were the first to feel the strain, and must regain their deposits by offering a highar rate, which they must again charge up to those who borrow. It was not one particular fac-

•• "’bich was the cause of depression or buoyancy in trade, but a combination of many. That country was invariably more prosperous in which the ratio of labor cost was least in proportion to total value of production. In tho dominion the artificial system of paying wages.not based upon production checked trade development, and kept the purchasing power of the people at a low ebb. For how long the increased cost of banking money would remain at the 7 per cent, rate was not easy to answer, as no one could tell when tho deposits would have reached the figures which the hanks might decide would bo sufficient for the duo carrying on of their businesses. When that total was approached buying rates would fall, and the difference would bo passed on tho public. If wages could ho increased so that the incidence would fall upon results only, prices would recode, the purchasing power of money would be increased. and one of the principal factors of prosperity encouraged. Then, if our primary exporters .should ho able to make a profit, money should soon accumulate, jnd tho banks, not having to pay tho high rates they are now offering, would be able to pass on tho reduction to their consumers. “To my mind the rise in overdrafts is tho most serious thing that has beet, encountered by the business community for a long time,” said a large exnortcr. “It is a revelation of the economic condition of the hanks, although the last quarterly returns by them did not indicate that tho position was so serious. Thcv are now out to attract deposits because they arc short _of money. The hanks have been making enormous profits by comparison with those of the business community, and the least they could have done in those hard times was to have stood their share of the trouble, with the rest. As things now are. some of the weaker concerns must find it hard to bear tbo extra rate. It will mean a contraction of business, and a corresponding contraction of employment, so that mor*’ men will be unemployed this winter.”

A representative of retail interests regarded the increase as an attempt to prevent investments outside New Zealand.

- The head of a manufacturing concern said that, considering that the hanks were virtually trading under State guarantee, and in many xases wore overtrading, it was an iniqiutous thing that the position of the community should ho further exploited hy a rise ; n the bank rate. The fact that the banks were offering high flcnosit rates would prevent investments in other business enterprises, winch at the present juncture the country was in need of. The banks should do like everybody else—be satisfied with reduced .profits instead of adding further burdens to businesses which were hard put to It to make both ends meet.

“ It 5s like swinging a dirty left at tire farmers.” was tiro expressive term used by a city business man. The farmers. lie added, would be hit very hard as the result of the increase, which came at a time when they were least able to stand it. It was all very well for the banks to say tbe _incrca.se was necessary to stabilise conditions, but in his opinion it was bound to have a bad effect on business, and might force a number of people to the wall. The difficulties of tho farmers were serious enough as it was, and this_ increase would only accentuate the position. In spite of nil tho banks might say to the contrary, he considered that the increase was not called for, but was made simply because the banks were out to make money. Ho believed the increase would be reflected in still lower.prices for stock, and the farmers were in tho unfortunate position of not being able to share their burdens with the rest of the community. The increase would probably have a steadying influence on imports, and from that point of view might appear to bo justified, but bo considered it could have been avoided.