BANK INTEREST.

Evening Star, Issue 21080, 18 April 1932, Page 6

BANK INTEREST.

The statement promised Parliament by the Minister of Finance as to the banks’ attitude on interest rates was published on Saturday by the chairman of the Associated Banks in New Zealand, In effect it is that the banks await a move by the Government before they will reduce the rates payable on fixed deposits (for Government departments are in this respect competitors of (;he banks), while there will be a gap of three months between any lowering of deposit rates and a lowering of bank overdraft rates. What reduction will then be proposed will average J per cent., and the minimum rate payable on overdrafts will be 6 per cent. The concession to borrowers would thus work out at about one-third of the concessions comprised in the legislation dealing with interest rates on mortgages. The announcement may afford reassurance to the very considerable number of people who believe in the principle of keeping banking control independent of politics. The possibility of dictation by hard-pressed Governments as to the conduct of' banking opens up vistas of direful results throughout the whole business structure. Sober, thinking people have probably by now concluded that, for example, the independence of the Commonwealth Bank from political control has been a safeguard to Australia, and that its influence has been a helping one, and will clearly prove itself to have been so when respite is afforded to survey present difficulties, in retrospect. Pending Ministerial amplification or explanation of the statement made on behalf of the Associated Banks, it may be as well to draw attention to certain factors which those who expected more pronounced changes in bank rates of interest may be inclined to overlook. As a northern contemporary points out, the last quarterly banking returns indicate that the money on deposit at the banks has “ been loaned to people in business for assisting the trade and commerce of the country and to the benefit of the labour section, thousands of whom are in their jobs to-day through the banks making available to the employers facilities for carrying on their enterprises and paying the wages of those who work for them.” As the statement on behalf of the banks points out, there will be a margin of only 1 per cent, between deposit and advanced rates. And, as th ejournal quoted from above asks: “How many people today who possessed considerable holdings of banking and industrial shares three years back have seen their capital extinguished . by 50 per cent, since the depression commenced and have said nothing?” There is another aspect, which was stressed recently by Sir A. M. Samuel, M.P., when commenting on the speech of the chairman of a large and successful trading concern in Britain which has never since its inception borrowed money nor issued debentures. “ There,” writes Sir A. M. Samuel, 1 “ is the secret of success in a sentence. The fatal ease with which nations, municipalities, industries, commercial concerns have been able to obtain capital and credit is an outstanding cause of the defaults and bankruptcies which have thrown the trade of the world out of gear. No nation, no commercial undertaking, no man was ever ruined by keeping out of debt. Many nations, many firms, many men have brought ruin upon themselves and upon those around them by getting into debt. During the past thirty-five years the facilities for 1 credit ’ and for borrowing have been abused. Development has been carried out in too muck of a hurry and on a basis of debt. Borrowers failed to consolidate their positions and to develop extensions ' out of revenue. They over-capitalised; money borrowed in advance of current requirements has not earned its keep. The banks, by lending freely, perhaps too freely, on paper symbols of value, financed the issues of securities representing loans to public authorities, industrial and commercial capital, and fixed charges. Investment and insurance companies absorbed huge volumes of these securities. The blame for the universal collapse of trade ought uot to be fixed solely upon the fall in price levels. Part of the blame must rest upon the light-heartedness with which before and after the war everyone used ‘ credit ’ and borrowed. Nations wore taught to say: ‘ What were formerly luxuries are now necessaries,’ whether they could afford them or uot. So everyone borrowed. All, weak or

strong, competent or incompetent, were invited to follow the fashionable craze ‘to use their credit.’ They used it to excess. Then, when prices fell, the shock could not be resisted by structures enfeebled by debt. The banks would now be doing a public service if they refused to yield to the often unjustifiable clamour for ‘ credit,’ quite apart from the fact that the money, or credit, they lend is the property of the depositors, and not of bank shareholders. They would help to rebuild the prosperity of Britain if they reminded each would-be borrower—trading firm, public authority, or company promoter —that the prosperity of Britain was financed on the principle of the avoidance of debt up till about thirty-five years ago. Nowadays debt presents no dangers and has no terrors to public authorities or to trading concerns organised under limited liability.’’