THE OTAGO WITNESS. Dunedin, Saturday, August 6,1859.

Otago Witness, Issue 401, 6 August 1859, Page 2

THE OTAGO WITNESS. Dunedin, Saturday, August 6, 1859.

For some time past the question of the establishment of a Joint Stock Native Bank, on the Scotch principle, has been under discussion ; and it is said that the matter has so far progressed, that upon the necessary legal requirements having been obtained, that such a bank will be established. What the legal requirements are, have not been fully stated — whether it simply means to apply for a charter under the existing law, or to await the passing of an act of the General Assembly of New Zealand, altering the laws on currency, we do not know. If the latter be the case, the project is so far distant as to require notice only in general terms. If, on the contrary, there is a prospect of the affair being at once proceeded with, it becomes our duty to point the attention of our readers to a few facts connected with the subject, which it would be well were they considered before attempting to carry the project into execution. The establishment of a Joint Stock Bank hai been a favourite object with a portion of our fellow settlers for many years past ; and a previous attempt in the same direction was made, but it fell to the ground. This was at a time when there was no bank in Otago, and the necessity for such an institution was urgently felt ; but since the Union Bank opened a branch in this Province, we have heard comparatively little upon the subject; ' The revival of the attempt is said to be attributable to the unaccommodating spirit of the Union Bank, and to a feeling of dislike to so large a share of the wealth of the Province being withdrawn from the community by a foreign proprietary. This. first issue is a question of fact which may or may not be as is stated ; but this much may be assumed, as a general rule, that no bank in the world ever gave universal satisfaction. The want of accommodation is a charge which is sure to be brought, either justly or unjustly, against every bank i and we have not the slightest doubt, that were a Native Joint Stock Bank in existence to-morrow, the same accusation would be brought against it unless its business were conducted upon a most reckless principle. It is, of course, very possible that the Union Bank, having a monopoly, may do but a limited and very secure business ; but if so, the question arises whether the judicious course would not be to encourage the establishment of a branch of the Oriental, and by competition to procure a remedy. Upon the subject of bank accommodation, there appears to us to be very wild and incorrect notions afloat in this community. We have seen correspondence in the local journals from aggrieved country settlers and others, which propound the most . absurd theories — assuming that it is the duty of a bank to lend money upon real property — amounting almost to granting money on mortgage without going through the legal forms. We have even heard it stated as an argument in favour of a Native Joint Stock Bank, that were such an institution in the Province, a piece of paper might bt> kept afloat for years, and what a benefit it would be to the public, as they would thereby be enabled to buy land, which would not only be conducive to tbeir interest personally, but would increase the land funds. These are not legitimate Banking transaction's — they belong rather to the business of a loan society and not a bank ; and any bank- which should fall into such courses, would inevitably lead the Province on to a crisis, and would probably sustain great loss itself. We 6bserve that our neighbours at Canterbury and Wellington are loud in their complaints against the Banks in their respective provinces ; and also raise the cry of the advantage of establishing local Banks, attributing the critical position of money matters to the sudden withdrawal of the accommodation afforded by both the Union and the Oriental. From the Canterbury papers —which are more candid in their statements than their Wellington contemporaries — we gather that for some time past there has been a strong competition between the rival banks ; and that accommodation was most freely — too freely — afforded, and that, consequently, an amount of over-trading has sprung up, which, now the screw is applied, has produced a crisis. The suddenness of the pressure is universally condemned, and with considerable justice too ; for it is evident that a bank having encouraged a large trade by its discounts, must produce distress and ruin by suddenly withdrawing its support ; but it appears most singular to us that the real cause' of 'the mischief —the granting the unlimited' accommodation—is lightly passed over; • We point attention to these facts, because, in the face of what has occurred and is occurring in the neighbouring Provinces, an out-cry is raised here because a course is not pursued in this Province which must inevitably lead to the same result. Hitherto our progress, "though no doubt slower for .want of the facilities of business, haa been nevertheless sure and sound; and weVbelieve Otago at this moment tQ be in; a more healthy commercial state than auy^ other Province of New Zealand. But, once let the idea become general, and be acted upon, that persons jean accept .Bank accommodation for the .purchase, of land, and a crisis will certainly follow. We should no longer have, it in our power to say that, the principal merchants of the Province never made a bad debt. - <

Oh the second' joint — as to thji desirability of keeping within the Province the profits made by a foreign proprifstary-r there is no doubt of its advisa'bi&y if it can be done^ and be. djone withoiit loss on other things. < What the profit made by

the Union Bank in Otago may be we do not know ; it is stated at 15 per cent, upon the capital employed. This we take to be an over-estimate, but assuming it to be the case, we will undertake to say that the large mass of the community make a much larger interest upon the capital they employ in their respective occupations ; therefore to withdraw their funds so employed to invest them in Bank shares, even at such a rate of interest, would be a loss to the extent of the difference between the profits upon their present investments and 15 per cent. Let us put the case in another light : ■ — Suppose one individual had invested £100 in town lands a twelvemonth since, and another had invested in Bank shares at 15 per cent. } which investment would have been the more profitable ? From all that -we can gather from the press of New Zealand, and from observation in Otago, we should say that the want of capital is the great difficulty of the whole colony, and that therefore to employ capital in Banking which could be more profitably invested is unwise, and that instead of discouraging the introduction of foreign capital, and grudging its proprietors a fair share of the good things of Otago, we should rather endeavour to obtain the establishment of a Loan Society with a home proprietary, from which money could be borrowed upon mortgage for periods which would afford the means of profitable employment, free from the risk and inconvenience of accepting Bank accommodation.

We should certainly like to see Banking business done upon fairer terms to the public than at present exist: the system of interest on deposits, and the establishment of cash credits would be great benefits, and in fact ought to be given ; but in attempting to remedy this want, we must be careful not to fall into an error, which would be of serious consequence to the Province. It is, however, possible that we may have formed a wrong estimate of the amount of capital in the Province, and we would suggest this test on the point : — Let those persons who take shares in the Bank do so only to the extent to which they have capital for which they have no other investment : and who can invest that capital with the reasonable prospect of not requiring it for three or four years : and should there be found a sufficient number of persons so situate, it is probable that the Bank may be a profitable investment ; but if the public are to take up shares with money they require for other purposes, or have opportunities of investing in more profitable employments, and take the shares merely with the hope that by an additional Bank, discounts will be easier, and with the intention of withdrawing their paid-up capital in one way or another, — then we warn them, that most assuredly they will bring on a crisis ruinous not only to the speculative trader, but to all engaged in any business 5 whatever it be — mercantile, agricultural, or pastoral.