BANKING PRACTICE

Otago Daily Times, Issue 23558, 22 July 1938, Page 13

BANKING PRACTICE

TO THE EDITOR

Sir,—" Seeking Light ’’ points out that none of the several correspondents who have written through the popular correspondence columns of your paper has answered the question put by “ Facts “ How is it to be accounted for that in New Zealand, between January 1933, and July 1934, bank deposits increased by over £13,000,000, whereas during the same period bank advances decreased by £11,000,000?’' Yes, Sir, this seems strange to the uninformed, to whom it appears that a greater volume of deposits have been lodged with the banks than the banks have advanced by loans. When it is understood, however, that the banks are engaged in activities that are not exclusive to that of creating credit for industrial and production purposes, and that they are always anxious to earn profits during periods of business recession, when confidence becomes sick and credit-worthy borrowers are moredifficult to locate, then the bankets turn their attention to other avenues of profit-earning. To quote again Mr Reginald McKenna, "Every bana purchase creates a deposit, etc.,” hence by the banks’ open market operations deposits are rapidly expanded under

certain financial conditions. Those who are interested and familiar with Stock Exchange quotations of recent years will recall the slump in giltedged securities, and after interest adjustment, will recollect their rapid rise to premium rates. No doubt many of these securities were snapped up by financial institutions about the neriod of 1933-34 referred to, and every bank purchase creates a deposit. It should not be forgotten that the monetising of Treasury bills and similar operations are creations of credit, and result in expansion of deposits.—l am, etc., C. E. M.