PRIVATE BANKS

New Zealand Herald, Volume LXXI, Issue 21906, 15 September 1934, Page 16

PRIVATE BANKS

CRITICISM OF SYSTEM PROFIT-MAKING CONCERNS RELATIONS WITH THE STATE LACK OF CO-OPERATION t [BY TELEGRAPH —SPECIAL BEPOBTEBI WELLINGTON, Friday "There can be no argument against the right of the State to control currency and credit within its borders. The paramount authority of the State must nOt be merely permissive and negative; it must be active and positive." This statement appears in the report of the Monetary Committee in the sectibn devoted to comment on the relation of the State to the banking system. The position existing before tho establishment of tho Reserve Bank is considered by the committee to have been summed up by the Minister Of Mr. Coates, when he said:"The Reserve Bank will, for the first ' time in the history of this Dominion, bring the control of our <!redit and currency into the hands of a New Zealand board of directors controlled by New Zealanders." •'Maximising o 1 Dividends" This Statement indicated that New Zealand's banking system had been operated by external boards of directors, whose integrity was not questioned, but whose main aim was, quite properly for competitive profitmaking institutions, the "maximising of dividends" for shareholders. There was no Suggestion that the banks in New Zealand had acted deliberately in a manner which they considered would prejudicially affect the interests of "New Zealand. In the past the banks in the Dominion had had their way without control or supervision. It was contended that control would be "interference" and, generally, that one word was sufficient as an argument. But banking was so essentially a matter of public interest that it was unthinkable that this function should be left under private control. It might also be mentioned that any legislative improvements in the banking system, both in England and in New Zealand, had been initiated by the Governments, not by the banks. Attitude of State Directors Referring to the Bank of New Zealand, the report states that, although the Government had a two-thirds majority on the directorate, the Government directors had not acted for the Government, bat had taken tip the shareholder point of viow that dividends should be the main criterion by which a banking concern should be judged. In several cases it had happened that the Government appointees had publicly criticised Government policy. It was the duty of a State appointee to advise and criticise any action proposed by the Government, but he should do that primarily to the Government. An example is given of what is described as an "exhorbitant" rate being charged for Government borrowing on Treasury bills, when it is contended the banks could, have lent at half what they had charged and still have made a profit. "These exhorbitant interest rates will, of course, be altered by the Reserve Bank, which will work in close co-operation with the Government." Instances of Opposition It is stated that there is other evidence that the banks had not always cooperated with the Government. Generally, they had been treated as purely private profit-making concerns, but occasionally the Government had asked for co-operation on policy measures. For instance, it was not generally known that the Government's internal loan conversion could have been purely voluntary if the banks had accepted the first Governmant plan. Other examples of the lack of cooperation between the Government and the banks are'given in the report—the banks' opposition to the raising of the rate of exchange, the hard bargain driven by the banks in connection with the Banks Indemnity (Exchange) Act, and the ppposition of the Bank of New Zealand to the Government's proposal to establish the Reserve Bank. Dealing with competitive banking, it is considered that, in tho circumstances, the Reserve Bank is the only means of control in the national interest. "Competitive banking is here, though we might admit that it is often wasteful. Duplication and overlapping could have been avoided in the past, but to some extent we must accept the status quo. It depends on the political and social philosophy of a country whether tieposit banking should be socialised. In the circumstances, the gain from socialised'banking wonld be merely the elimination of wasteful overlapping." ifei: ■ .

The State should exercise to the ful- I lest extent its power of appointment to the directorate of the Bank of New Zealand to ensure that the primary object of the bank's policy would in future be to promote the national well-being of New Zealand. The comment of a witness before the committee, that the Bank of New Zealand had acted exactly as a private institution, and had joined with its competitors in drawing monopoly profits from the community, is regarded as "appropriate." It was evident that the past policy of the Bank of New Zealand could have been such that a Reserve Bank need not have been necessary. "We now emphasise that in no circumstances should the Government withdraw its power of appointment to the directorate of the Bank of New Zealand," states the report. PUBLIC WORKS POLICY FORWARD PLANNING URGED SCHEMES FOR BAD TIMES [BY TELEGRAPH —SPECIAL REPORTER] WELLINGTON, Friday The forward, planning of certain public works by a special advisory board is advocated by the Monetary Committee in its report. Reference is made to several schemes, put forward by witnesses, for utilising public works as ail adjunct to monetary control during periods of depression, but it is held that, as a cure for economic difficulties, a large army on public works would obviously be futile. Public works were certainly helpful in a time of depression, but it was in good times, when rapid progress was being made, that the strongest demands were made on the Government. Particular productive works could hardly be postponed until a depression came along. It might be possible to keep the public works programme down to bare essentials in good times, but there was the added difficulty of determining what actually were good times. ■ However, there was scope for longrange planning of public works. The National Expenditure Commission had recommended the establishment of an independent Board of Works, akin to the Local Government Loans Board. Such an advisory body might investigate the prospects of proposed works and -also keep tho economic situation under review, planning works for which there might be 90 immediate necessity, but which could be undertaken advantageously in times of depression when working costs were , cheaper. Certain reclamation, swamp drainage and forestry works could bt» considered. A national authority was necessary to keep the situation under survey and to have works planned and ready for such a time as employment and business indices took a downward turn. That policy, if carried out with the sympathetic co-operation of local bodies, the Government and the banking system, would certainly have an ameliorative influence and the committee considered that Government action should be taken along those lines, | LABOUR VIEWPOINT STATE CONTROL OF CREDIT RECONSTRUCTION ESSENTIAL i , In a memorandum of dissent, signed' by Mr. H. M Rushworth and the Labour members of the committee, Messrs. F. Langstone, J. W. Munro and F. W. Schramm, the opinion is expressed that while it is agreed that nonmonetary factors are operating in this and other countries in direct association with the depression, they themselves appear to be the effects of a monetary system which has no relationship to the real wealth of this and other countries. To be effective, it is contended that a monetary policy for the Dominion should be free and unfettered from overseas domination. It is also maintained that this freedom will not he obtained through the Reserve Bank, which will only act as the instrument of the Bank of England. The four dissentient members consider a complete reconstruction of the Dominion's monetary system is essential, and make the following recommendations:—Unification of tho control of tho volume of currency and financial credit, the State becoming the solo creator of currency and financial wealth; the elimination of all elements of private interest and all statutory provisions subjecting it to the London sterling policy from the Statute relative to the Reserve Bank; no interference with savings banks or similar institutions not empowered to manufacture credit; the creation of money and financial credit by the State for the purpose of closing the existing gap between production and consumption, which arises through the insufficiency of purchasing power in the hands of consumers under the present system: and stabilisation of the general whole-sale-price level of New Zealand-produced commodities.