NORTHERN ADVOCATE DAILY WEDNESDAY, AUGUST 16, 1933. CONTROL OF BANKING

Northern Advocate, 16 August 1933, Page 4

NORTHERN ADVOCATE DAILY

WEDNESDAY, AUGUST 16, 1933. CONTROL OF BANKING

Registered for transmission through the post as a Newspaper.

State control of banking is a subject about which much is being heard. One of the chief arguments in favour of such n system is that the State would become the banker of the people—that borrowers would be given greater consideration than bank shareholders. That is as it may be. Depositors, however, arc too often left out of the question. They must not ho forgotten when any change in banking systems is under consideration, even though, as may be forcefully argued, their interests could be safeguarded under any banking system which was kept independent of political control. Opponents of Government banking are making much of the experience of America during the past eleven years. There the Federal Reserve Board ’ controls banking and the Federal Reserve Board

is a creation of Government. In 1921 tlic Federal Reserve Board was of opinion that there should lie some diminution of borrowed money, and steps were taken to bring about that policy. A steep fall in prices occurred, and, the Federal Reserve Board being blamed, there arose through the United States so universal a shout that the Capitol at Washington trembled on its foundations. As Caret Garrett writes in the “Saturday Evening Post,” “the resentment was politically terrifying. After all this time it is still echoing about, especially in the West; the idea that the Government was contracting the volume of money or permitting it. to he contracted by the Federal reserve system. That was all the popular mind could see.” Mr Garrett points out that it would he the ruin of any administration to persist in such a course. The Federal Reserve Board at Washington repented, this being the Government body that minds the Federal reserve system, and presumably governs it, but, does not control it. The Federal reserve system repented. The next anxiety was how to restore prices. What followed was an incredible uncontrollable expansion of bank loans and credit currency. To finance the war the loans and investments of all banks of the country increased by 7,000,000,000 dollars, but to finance the life of the new era bubble that began in .1922, and burst in 1929, the loans and investments of the banks increased by 15,000,000,000 dollars. The vast part of all that expansion of bank credit went into the bubble, or mere specifically into real estate and securities, called bonds, and the delirious rise in common stocks. The creed, both political and economic, in the United States, as Mr Garrett understands it. is that if a man can give but security and collateral, he is entitled to all the credit he wants, no matter what he means to do with it. A British hanker or a French hanker, and it may be added a New Zealand banker, would be aghast at the idea. Each takes it to be a banker’s responsibility to be guided not only on the security proposed to be pledged for a loan, but also the use to which credit will he put, or, in other words, the shape of the debt. . It will he probably argued that this care on the part of the banker is actuated by a desire to safeguard shareholders. But who will say that such a policy is opposed to the interests of bank customers?