BANKS AND THE CRISIS

New Zealand Herald, Volume LXX, Issue 21647, 13 November 1933, Page 8

BANKS AND THE CRISIS

A REPLY TO CRITICS 1 MEETING GREAT DEMANDS AID TO THE COMMUNITY BT PERTINAX A story is tolrl of Trent ham Camp in war time that when the shower liatlis went wrong an order was given, "Fall out the tailors,'[l and that when help was wanted in the clothing store, "Kail out the plumhers!" The story is probably untrue, but is it not characteristic of many of the critics of the hanks in New Zealand to-day? Unthinking and uninformed critics regard the banks as fair game for abuse, regardless of the incontrovertible fact that throughout such a depression in industry and trade as the world has never known before the banks in Neiv Zealand, in common with those of Great and Greater Britain, have weathered the storm, and met every demalnd made upon them—especially the demands of Governments. There was much loose talk in Kngland, it may be recalled, of "a bankers' ramp" in 1931. How did Mr. Snowden (as ho was then)! meet it? By stigmatising itas "unadulterated nonsense!" He added: —"There has been no bankers' ramp. The Government have had t.ho greatest help from the bankers, who have had no other interest than to save British credit. The Prime Minister and myself were in almost hourly consultation with the bankers during the acute stages of the crisis,, and at no time was there any political dictation whatever. Whenever a political issue was raised we were told 'thpt is your business; we are not politicians and we leave that to you.' "Custodian of Credit" "I say this in justice to the bankers, who are being shamefully maligned. If all the facts were known the country would be eternally grateful to the Bank of England for the efforts it has made to avert and overcome the threatened crisis, not in its own selfish interests, but to fulfil its duty as the custodian of British credit." Viscount Snowden ( a S he is to-day) has never been accused of being of, or too friendly to, "the capitalist class." What he said of the bankers of England could with equal truth be said of the bankers of New Zealand and Australia. i 11 However, they are not on that account spared malignant criticism in a recently published criticism of their policy, in which the public is asked to believe that they, the banks, are responsible for New Zealand's present economic difficulties. They are charged in this precious indictment with the following offence: —(That in order to sell sterling at aj fixed price they are prepared to bankrupt everybody and bring industry to a standstill, turn everybody out of work and reduce the country to ruins. Deposits and Advances Was ever more arrant nonsense put to paper? Why should the banks, who are always out for business, try to destroy business by making the community bankrupt ? ;If this kind of criticism is not "unadulterated nonsense," as Lord Snowden would say, what is it? The writer of the pamphlet referred to has fallen into the common error of regarding his own hypotheses as established facts. The same critic of the banks charges them. with calling up overdrafts and j attracting money from free deposits to! fixed deposits in order to restrict the birculation of money in New Zealand, and so enable them to quote an exchange rate that is not the true economic rate. But there is not the slightest credible proof of this assertion. What is the actual position? London funds to-day. are in more than adequate supply. Externa! trade returns of the Dominion show this. Fixed deposits ha-ve never before been larger than they are to-day, and not for the past 20 years have rates of interest on siich deposits been as low as they are to-day. Overdrafts, or advances, since March, 1920 (with occasional fluctuations), have risen from under £31.000.000 to approximately £48,000.000 for March, 1933. Does thik justify the charge against the banks that they have arbitrarily restricted the circulation of money in order to sell sterling at their, own price?" Protection of Credit Why do banks offer to pay interest on fixed deposits? In order, to a large extent, to provide themselves with the basis for making advances. They borrow to lend; that is their business. In other words, they put the equivalent of these deposits into circulation —providing the security is sound. It is not in the interests of the banks —quite the contrary—to "attract" large sums of money on fixed deposit unless they can lend on sound credit-worthy business. There should be no need to stress the obvious in these remarks, but today so much of the criticism of the banks operating in New Zealand plainly shows that the need exists. The banks in New Zealand have protected the credit of this Dominion, and in doing so have protected the interests of every person in the Dominion, no matter what his or her condition. This is no mere assertion, for proof is to be found in the bank returns, in the good standing of New Zealand in London, and in the contrast between their strength and the weakness in the banking systems of some other countries.