THE OTAGO DAILY TIMES TUESDAY, JUNE 20, 1933. BANKING PRACTICE

Otago Daily Times, Issue 21984, 20 June 1933, Page 6

THE OTAGO DAILY TIMES TUESDAY, JUNE 20, 1933. BANKING PRACTICE

With some people it has become a habit to blame the banking system as the cause of a great many of the ills, from which the community is suffering. The persistence of the attacks upon the banks led the president of the. Bank Officers’ Guild last week to suggest that action should be taken to combat the insidious propaganda against the system of private banks. This might be to attach overmuch significance to the propaganda. When, for instance, a statement is made that the present banking system is maintained by the super-financiers, whoever they may be, because “ the domination of the great majority of every community ” satisfies “ their lust for power,” all sensible people realise its absurdity. • Grotesque exaggerations of this kind carry their own refutation. And there is a large amount of glib talk about banking and banking practice that hardly merits serious consideration. The chairman of the Associated Banks claimed, at the social function of the Bank Officers’ Guild, that the banks in New Zealand were rendering the Government and the country all the assistance that was consistent with sound finance. The reservation that was contained in this statement is important. It is because they are not prepared to depart from a policy of sound finance that fault is found in some quarters with the banks. They are criticised because they are said to be withholding advances that would be of value to industry. It is true that bank advances have fallen by about £8,000,000 within the last three years. But this is not because advances have been refused that might reasonably be made. It is by making advances that the banks obtain their profits. It is of no advantage to them to have fixed deposits, on which they must pay interest,' piled up on their hands unless they can find a remunerative outlet for the funds thus entrusted to them. Obviously it is because the depositors have no confidence in the investments offered to them that they adopt what is, for them, the safe course of placing their money on time deposit in the banks. It is not, however, to be expected of the banks that, in making advances, they should incur risks that would not be incurred by any prudent investor. Quite rightly, they adhere, as far as possible, to the principle of sound finance. But the decrease in advances may not be attributable wholly to the avoidance by the banks of risks that might be regarded as unsound or hazardous. The chairman of the Bank of Australasia said at the annual meeting of that institution on March 30 that there was “ very little demand for accommodation ” at that time, the explanation being a lack of enterprise, which should, however, be stimulated by a reduction in interest rates. It comes to this that the banking business, like every other business, is affected by depressed times. It is most prosperous when other businesses are prosperous. And it is more than a little ridiculous to suppose that when, by foi’ce of circumstances, the operations of other businesses are being restricted, banks should launch out boldly without having regard to risks.