BANK DEPOSITS

New Zealand Herald, Volume LXXIII, Issue 22368, 14 March 1936, Page 16

BANK DEPOSITS

Sir, —Beyond any intelligent doubt the purpose, and, s-ave when accepted as an obligation for value received, the I only purpose, of banks in attracting j and accepting deposits is increase of i their lending powers, and the effect on i the lending power of the banks is prej cisely the same whether the deposits j are fixed or free. Deposits may originate either with the lender or the borrower, but the results, apart from cheque cir- | culation, are precisely the same in both i cases. If "Barrister" deposits gold of ' the value of £IOO in his bank, and the i bank relends the gold to me, the position reached will be that the gold I | desired will have been transferred from | "Barrister" to me; I will owe its value I to the bank and the bank will owe its j value to "Barrister." Under this j method "Barrister" deposits a commodity in the bank and the commodity is j relent, though the deposit itself—a j thing quite distinct from the comodj ity deposited—still stands, and must I stand till the bank returns equal value | to "Barrister." If tho borrower is to j start the transactions 1 will go to my I bank, arrange for an advance of £IOO, buy "Barrister's" gold with a cheque for that amount and "Barrister"' will deposit the cheque in the bank. Again, the position reached will be that the gold has been transferred from "Barrister" to me; that I will owe its value to the bank and the bank will owe its value to "Barrister." If, apart from cheque circulation, any difference exists between tho results reached by these two methods, will "Barrister" kindly point it out? In all eases bank loans consist of the commodities or services the borrowers receive through the agency of tho banks and in all cases, when tho cheques are deposited, tho goods or services are supplied by the jdepositors, not by the banks. Thus bank jjloans are derived from depositors who 2 can supply goods or services they do E not require, and through the useful E agency of banks these goods or ser E vices are transferred to the borrowers z who require but do not possess them •« and this has always been the substance = of banking. J. Johnstonk. E Manurowa. z