BANKS AND DEPOSITS

Nelson Evening Mail, Volume 80, 11 September 1945, Page 6

BANKS AND DEPOSITS

(To the Editor) Sir.—ln reply to the letter by “Heal Democracy” in your issue of September sth, may I first of all state that his or her letter contains statements which prove very conclusively that the writer has not the remotest knowledge of the rudiments of banking or finance, as stated in my first letter quoting Viscount Bledisloe’s remarks, etc. Firstly, he says banks do not loan deposits because they are a liability; they are what the bank owes, as shown on balance sheet. Then he follows this up by saying deposits do not even exist (save inside the bank’s own books in which it is created and destroyed.) Could a six year old moron argue better or worse? I am asked to state wiiat it is the banks lend. They lend deposits. All banks that take deposits from customers and make loans to clients, loan the deposits. A portion of capital and reserve may also be used for the same purpose. Now the paid up capital and reserve of a bonk also constitute liabilities as well as deposits. Will the correspondent say that the banlc can’t lend these, that the paid up capital too. which is a deposit from tfiouands of shareholders, does not exist either, that it is just a myth? Arguing that a bank can’t loan its deposits because it does not owe them is tantamount to saying, for example, that a hotel manager who is leasing- a. hotel can't rent any rooms because he does not own the hotel. Will “Real Democracy” tell me next that my neighbour next door could not borrow £IOO from me (or a tenner) and pass it on to his needy neighbour over the fence just because he does not own that money? What do I care what my neighbour does with the money I loaned him as long as he pays mo back? It is the same exactly with the banks and those who loan money to the banks, i.c. the depositors. The banks convert their deposit liabilities into assets by the simple procedure of making loans. Perhaps even “R.D.” will admit that a bank’s balance sheet has an assets side to it as well as a liability side. If “Real Democracy” will pay £lO to the Returned Services’ Association in event he is wrong, I will pay £IOO to be divided among four returned first echelon men if my statement is wrong, viz.. Banks loan deposits. I am ptc.. ANTI-LIES. Nelson, 6th September.