N.Z. RESERVE BANK

Hawke's Bay Tribune, Volume XXIV, Issue 156, 16 June 1934, Page 14

N.Z. RESERVE BANK

Establishment Criticised B.N.Z. CHAIRMAN OUTSPOKEN The “disappointment and strong sense of injustice’’ felt by the board of the Bank of New Zealand towards the Government in respect of its action in establishing the Reserve Bank, and the board’s views of the probable effect upon the Bank of New Zealand’s profits, were dealt with in the report of Sir Harold Beauchamp, chairman of diractors of the bank, at the annual meeting of shareholders. “The most important event in banking circles,’’ said Sir Harold, "has been the establishment of a reserve bank. Our view regarding tho necessity for such an institution in our small Dominion ha? already been made plain at previous annual meetings, and I do not propose to make any further comment on that aspect of the matter. Parliament having decided that a reserve bank should be established, the Bank of New Zealand will co-operate in every way possible to serve the interests of the Dominion. The Reserve Bank is to commence operations on Ist August next. “The Government accounts, which for so many years have been kept with the Bank of New Zealand, will be transferred to the Reserve Bank, but we do not consider this will have any material effect on the earning power or this bank,’’ Sir Harold added. "The right of note issue will vest in the Reserve Bank. To redeem their existing issues, the trading banks will have to purchase Reserve Bank notes. “The banks have allso to maintain balances at the Reserve Bank equal to 7 per cent, of their free deposits and 3 per cent, of their fixed deposits. Altogether for notes and deposit, tho Bank of New Zealand will have to find for payement to the Reserve Bank approximately £7,000,000. Of this amount about IjJ millions will be provided by our gold holdings, and the balance by repayment of treasury bills out of funds | to be remitted from London through ■ the Reserve Bank. "It will, no doubt, occur to you that I the transfer of this large amount into | non-interest bearing assets will affect the profits of this bank, particularly as I the greater portion is now- invested in I New Zealand Government treasury i bills. "The loss of this income,” the chairman continued, ‘‘will certainly affect our profits, especially if the present conditions of a low level of advances and high level of fixed deposits continue, but as a substantial set-off there will be a saving of note tax (4$ per cent.) and cost of maintaining our note department, which together have been costing us over 6 per cent, pn the amount of our notes in circulation —an expensive privilege in these times of low interest lates. “The gold held by the trading banks is to be handed over to the Reserve Bank m exchange for notes of an equivalent nominal amount, tor every sovereign a Reserve Bank £1 note will be received. "You are aware, from newspaper reports, of the banks strong opposition to the proposal that their gold should bo taken over at practically half its market value, and you will readily I understand that we regard the matter I with disappointment and u strong sense of injustice. . Sir Harold concluded by remarking: "The Reserve Bank, which is to receive I £1,000,(XX) from the Government for its general reserve fund, free of in- , tei'est,” tho report concludes, “is also to be exempt from taxation, and it will I thus he in a very advantageous position I as compared with the trading hanks, ■ which have paid both note tax and | income tax,”