BANK DEPOSITS

New Zealand Herald, Volume LXXIII, Issue 22346, 18 February 1936, Page 15

BANK DEPOSITS

Sir, —I have frequently heard of banks having suspended payment in countries where there was no legislation in force which exonerated them from fulfilling their monetary contracts. But the suspension of payment has never had anything to do with any cause other tiian their inability to produce gold in honour of their depositors' legal demand for gold (or silver). In regard to the point raised by "W.M." relating to the matter of lending deposits. Admitting that there is much confusion of thought in many minds owing to the' loose use and ambiguous meaning of money terms employed in'the sophistry of modern banking, it is impossible to escape the fact that banks no not lend their depositors' money. If a bank lends Mr. Smith £IOO on overdraft, then when Mr. Smith spends the £IOO, it almost invariably comes home to roost in the bank's ledgers as a new deposit in favour of some customer of the bank. If the customer is a debtor to the bank, his overdraft may be reduced thereby. If he is a creditor his credit will thereby be augmented. But, in any such cases, not one of the original credit deposits is reduced by £IOO as having been lent to Mr. Smith. The bank has, therefore, not lent any deposit. It has lent new credit and created a new deposit. Will "W.M." answer that point fairly and squarely? P. B. Fitzherbert.