BANKER’S REPLY

Manawatu Standard, Volume LV, Issue 254, 24 September 1935, Page 12

BANKER’S REPLY

FALLACIES OF CRITICISM. BANKS’ PLACE IN COMMUNITY. At the half-yearly meeting of the Wellington Chamber of Commerce Mr F. W. Dawson, acting-chairman of the Associated Banks of New Zealand and General Manager of the Bank of New Zealand, delivered an address on the subject of “The Banker and His Critics.”

Mr Dawson said the basis of much of the criticism levelled against the banks was the belief held by somo people that the present depression was the result of monetary factors, and, further, that the fall in prices was Wantonly brought about by the action of the banks restricting credit. This could best be answered by an extract from the report of the Committee on Finance and Industry of which Lord Macmillan was chairman, set up in 1929 by Groat Britain to inquire into banking finance and credit. The report on page 93 said:—“lt seems to us equally clear that the economic difficulties of the post-war decade are primarily due, not to any wanton misbehaviour on the part of the monetary factors themselves, but to unusually large and rapid changes on the part of what are rightly described as nonmonetary phenomena, these non-mon-etary factors again themselves producing monetary changes.” “In New Zealand,” added Mr Dawson, “we are dependent on our markets abroad, so it was only natural that a sudden and heavy fall in the prices realised for our exported commodities would immediately disorganise our local economic conditions and bi'ing the depression to our doors.” After dealing with references to the money, or banking system, the speaker said that any material alteration in the monetary system must affect everybody, and not just one individual or one particular set of individuals. “It is impossible to avoid this, and with such a realisation in our minds it must be evident that whatever the change the relations of borrower and lender are affected, the manufacturer Who contemplates installing plant for future production, the wages and salaries of the employees in trade and industry, the annuity of a civil servant and the commercial man, the value of the life insurance policy held for the express purpose of providing for old age or dependants (and numerous other examples could be mentioned)- —all these must be affected by any important variation in the present system. It is therefore natural -that the closest scrutiny is given to all new monetary schemes and their effect on the currency closely investigated by bankers. Tho number and variation in character of the schemes which have been proposed even in this small country is remarkable, and it is no lvonder that a large proportion of the people are" in a maze when endeavouring to understand them. As bankers are constantly in touch with the people and their financial affairs, I say emphatically it is our concern that while we have any responsible connection with monetary matters the people of this Dominion shall have a sound banking system.” A popular cry of certain critics was that the big moneyed interests, whoever they may be—presumably the banks—had put the farmer off his land and forced many an unfortunate trader into bankruptcy. Considering the large number of farmers who had had loans from the banks, the number ol applications to the Belief Commissions was remarkably small. The banks took no little satisfaction in the knowledge that they had been able to arrange voluntary adjustments with their customers and had thereby obviated recourse to the Mortgagors’ Belief Commissions. “With such a record I feel that the charge that the banks have dealt harshly with their embarrassed customers requires no further refutation. If any confirmation were needed, I had it recently from the chairman of one of the country Mortgagors’ Belief Boards, who told me his board had no complaint whatever against the banks’ treatment of their farmer mortgagors.”

CURRENCY AND CREDIT. Regarding currency and credit, Air Dawson said there was so much misconception as to the functions of trading banks, and such a multitude of mysterious powers were ascribed to them that he really wondered whether the average critic was as well-inform-ed on matters connected ith the currency and credit of the country as he would like one to believe. “Tile fact is often overlooked that the trading banks have not the functions of a central bank and vice versa—both fit into a financial system which has been built up to meet the business and social needs of the people. . . .

Provided the banks have the necessary resources at their disposal, there is never a refusal to lend to the creditworthy borrower—in fact, the banks are always anxious to lend when they have funds available. But you can readily understand that the ability and circumstances of the borrower must still be the guiding factors if sound banking is to be practised in this Dominion.”

There were also critics who gave articulate expression of thoir antipathy towards the present banking systgm but pinned their faith on, nationalisation, and assured themselves that all would be well. “No more important issue affecting the financial welfare of the people can arise than this one of nationalisation, and it behoves one to examine closely the arguments which are so enthusiastically put forward by its protagonists,” the speaker added. “That any advantage would accrue with nationalisation that is not already in evidence under the present system is hard to believe, unless, of course, the risks which no wise banker will run are to be undertaken by the State. “Experience has shown that in the past political expediency has often Minded governments to what tho real effect of their actions entails, and in the case of a socialised system of banking the temptation to make it a tool of the party in power would be ever present. It'would take very little to undermine confidence in a socialised banking system, and once doubts arose in the minds of depositors as to tiie safety of their money, panic and confusion would set in. Business m an atmosphere such as this would be impossible, and the whole monetary system would be thrown out of gear. “Another danger inherent in a socialised system is that of inflation. One would not bother to lay particular stress on this point were it not for the alluring promises of credit for all kinds of undertakings which those who espouse the cause of nationalisation hold out to the people. It is - idle to counter with tiie argument that tiie management ot tiie banking system would still remain in the hands of those specially trained in tiie profession. That may be so, but the credit policy would nevertheless be determined by the Government, and it is this policy that is so open to abuse. “It seems to me also that a nationalised system would be a fair field for experimentation with ail sorts of currency schemes, but surely it would be unjustifiable to place the assets of the people at the mercy of those monetary theorists who sponsor such schemes and are only too anxious to try them out in practice. The result would he disastrous. “It needs to he remembered that

the banks would not have been able to maintain tlieir strong position lia'd they not in past years made wise reservations, which, strangely enough, have in themselves seemingly given offence in some quarters. “The banks have performed tlieir duty to the public in all that they have contracted to do. It is only reasonable, 1 think, to ask the public of New Zealand not to judge us on failure to perform functions which are not really ours to perform, but to have regard to the way in which those functions that arc properly ours have been fulfilled.”