THE BANKING LEGISLATION.

Otago Witness, Issue 2215, 13 August 1896, Page 54

THE BANKING LEGISLATION.

SPEECH BY THE HON. MB LARNAOH.

(From Qvn Own Correspondent.) Wellington, August 7.

The speech made by the Hon. Mr Larnach on banking matters in the House yesterday was very attentively listened to by hon. membsrs, and caused a good deal of comment. As several points of importance were dealt with, I give a pretty full rimm of this speech :—

Mr Larnach, at the outset, explained that he was in no way^responsible for the banking legislation of 1894. When the legislation was passed giving a guarantee of two millions to the bank he was not even in the House, and therefore was in no manner responsible for that, and he took no part in the other legislation that followed. In last yaar's_ legislation j he took no part whatever, excepting to absol utely oppose the amalgamation of the Colonial Bank with the Bank of New Zealand. He' felt then thet the legislation proposed in connection with those two banks was an absolute injustice to tho Colonial Bank. Referring to Mr Henry Mackenzie/ late manager of the Colonial Bank, he said: "I have heard hon. members speaking in a disparaging way in connection with the bank, and also in connection with the bank direotors and officers ; but let me tell them, this, that while I have nothing to say in defence in respect to a portion of the management of the bank from what I saw, yet in another reapect I h»vo to say this, that the bank possessed, a general manager who had * valuable faculty in the science of exchange and a perfect knowledge of his business, with the faculty ot keeping very stroog reserves of coin and liquid assets." AMALGAMA HON. _ In regard to the amalgamation of the tiro banks Mr Larnach spoke as follows!— I think the extinguishing of the Colonial Bank was nob a good thing ab all, be:ausa as a bank it was one of the most useful institutions in this colony. It was one of ths strongest shareholders' iust'tutions in the colony, having about 1300 shareholders— all good men and true,— who were ready to pay their calls when wanted. I think the whole banking legislation was against the interest of tWColouUl Bauk. Looking at the extensive business that bank wa3 doing who dare say that the goodwill was not worth anything ? I say, Sir, emphatically, that the goodwill was given away too cheaply. — (An Hon. Member: "Oh, Oh!") Mr Larnach: Well, perhaps my assertion may amuse my hon. friends when I repeat that the bank has given its goodwill away, and although I took no part in givipg the bank away, I d.d attend meetings at different times to try and protect its interests. But I always steadfastly opposed the scheme, and I begged and prayed my colleagues up to the last moment to withdraw from the negotiations. lit was who first raieed the question, of the goodwill, and I wanted for io £150 000.— (An Hon. Member ; "You had something up your Bleeve.") Mr Larnauh : No, nothing, mora than common sense, and I am going to educate hon. members. The deposits stood at about two millions (£1^947,000, as far as I remember) ; notes in circulation, £107,600. The bjnk has branches established in most parts of the colony, and consequently shareholders. The whole of these deposits were not bearing interest. Surely, then, there was a margin of 1£ per cent, on that amount of money at least, and is not that portion of the buunes* worth £30,000 & year, sir ? When I saw that monstrous and cruel agreement that was brought down here last year, and passed through this House with a provision in it that ths court was to be brought into action to interfere in matters a3 between shareholders and their interests, I objested to it in toto. This bank*, sir, had no creditors, and yet it-waß practically given away to the Bank of New Zealand on their terms when it 3 position was, a* I have stated, better than the Bink of New Zealand. What are the facts ? Why, that many of the accounts that were placed in the "B" list would easily have worked out if the bank had been allowed to .carry on its business, and all would have come out right. Take, sir, the Bank of New Zealand to-day with all your guarantee, and place ib in exactly the same' position as you fixed the (Jolonial Bank. Let the Bank of New Zealand sell to another bank. Let them sell to the Bank of New South Wales, or to the Union Bank, or to~ the Bank of Au*trala>ia, on the same conditions, and the Bank of New ; Zealand would not come out by a long way as i sound as the Colonial Bank. Your five millions guarantee would have disappeared, with another million. Sir, I have told you the Colonial Bank business was given away. It had nearly two millions of deposits, and over £100,000 worth of cotes in circulation, and what had it besides? It bad over £400,000 in coin and bullion; it had £500,000 odd in remittances in transitu, equal to coin and debts due by other banks, making altogsther about £1,150,000 of liquid assets, besides which it had a direct call liability from its shareholders of £3 per share, equal to £600,000. Why should that bank be afraid to go on ? Can anyone rightly say that it ought to have been afraid to go on ? It is simply nonsense on the part of those blatant and ignorant people who mischievously created a fear about the bank. If the bank had gone on, as I wished all along, it would to-day have been in a superior position to the Bank of New Zealand. Sir, there is not the slightest doubt about this fact. — (An Hon. Member : "It would have been a bad lookI out.") Mr Larnach : No ; but it will be a very bad look-out if you gentlemen go on as you are going at present. Your bank, will become very much poorer. Sir, we have been here now eight weeks to-day, and what have we done ? — (An Hon. Member : " Nothing.") Mr Larnach t Many of you have done nothing but talk "bank." And our Bauking Committee, what has it done ? Absolutely nothing, excepting barm. What the country should do and the House insist on, is, if you wish earnestly to know about this guaranteed bank and why the guarantee was required, why not go to work in a methodical manner and see whether its pontion is really sound ? Sir, ! that can be dove better and more wisely by a Royal Commission. Sir, jou are not satisfied with the officers you have employed. If you cannot believo and trust them — for that practically mehns the reason «bj oil this unseemly confusion is going ou • (Hoa. Members : "No" aud "Yes.") BANK OF NEW ZEALAND. Referring to the balance sheet of the Bank of New Zealand, he said the information in it was of little usa to Parliament, and he argued that a different form of statement should ba produced by the banks of the colony. He proceeded to analyse the balance sheet; and to comment on the various items as follows :— lf hon. gentlemen will take the first heading on the assets eide, whioh I will oaU No. l x the coin '

and cash balances are abated- at £1,630,614. Now these assets should be shown separately, under distinofc headings, aud I would also show the coin separately — gold, silver, and copper — for the reason that ia is useful to know how much gold is held from time to' Lima by the banks in the colony apirb frost silvar and copper. It would not give bank officials any more trouble, and it would be more useful at a form of analysis. Then the bullion that appears in hand aud in transits, £115,792, should he shown separately. The amount in transitu is that which is on its way from this colony to other parts, therefore it should be shown separately. The investments, headings, .and consols, as we know, change bo me what in value. They stand in this* balanoe sheet at £51,868. ' The market prioe should be shown in the margin of the statement. With regard to colonial " Governmant securities £627,431," each class should be specified, giving datss of maturity in each class, and the' totals that make up the £627,431 should be specified separately. "Municipal securities, £8827." The name of each local body should bo given, with the amounts and currency, with the due dates pertaining to each loan. " Other securities, £378,061." Now, this heading ii ambiguous, and it is a dangerous heiding which should not be allowed. The nature of the securities should be specially particularised. You do not know what is inoluded hero. Bills receivable and billi) discounted amounting to £2,521,652. These compile two distinct classes of risk. The former relates to foreign b'.lte drawn and hypothecated against goods shipped to' this colony, and should be shown separately. These bills are , drawn aud accepted in the colony, and tiny are as a rule considered to be secured bills by pledged goods, and it would bo useful tb»t thii account should bo shown separately. Billet discounted certainly should be shown «eparatoly— th»t is to «ay, three months' currency, and uudef four, Ore, and six mouth*' currency; and promissory notes under different heading* relate only to bills of exchange and promiiKory notes given on account of trade commercial transactions. " Other advances ami smirifciet, and debts doe to the 'bank, £7,282.526 " Her* ■again is another dangerous heading, and hide* tha particulars of orcr seven and a-rjtartet millions of money. An analysis of tbU account should be insisted upon. Are there any in' operative and dormant advance* in this Urge aura ? Are thero any overdue bill* ? When bills are not paid at maturity th»y are cb*rged to the overdue bills account in the bxtik'a general ledgtr and should be shown separately, as they are likely to become a weak asset. There are a kind of assets, such at doubtful debts, that can ba bidden in this account, and you shonld insist on amplifications of itscluse? as much as possible. There will ba overdraws, of which I have no doubt this large sum it chiefly composed. There are overdrafts secured by land, overdrafts secured by cish credit, and overdrafts secured in other ways— by personal guarantea and so on, — and pe.-haps overdrafts unsecured. If there should be any Such or other advances in a similar condition, they should be all particularised "Bank of New Estates Companies shire accounts, £1,089,822." Under this head an explanatory note thowg that £45 000 is to be yet provided for, and also the debit of. the Assets Realisitiou Board, whatever that may be, therefore the particulars are insufficient. We do not know what the amount of the other debt referred, to in the note is, and certainly it should b3 shown. Now I will take ' hon. members to the liability side. Under the first head, "The guaranteed stock of two millions," the due date of the stock should appear on the balance sheet. Secondly, " the preference shares subscribed by the Bank of New Zealand, £500.000." The number of shares issued should bj shown, and also the amount paid up. " £500,000 capital paid up ; paid in advance, £7423." It should point to " no further liability " or " liability if any," and the amount per share should be stated. "Reserve fund, £23.4lß." It should ba stated whether it is used in the bank's current ! business or is invested. If the latter, the nature of the securities should be given. It is a. disputed point with bankers whether the bank's reserved fund should be separately invested and held distinctly apart, from general business in the names of trustees or commissioner*, or be more profit ibly and prudently employed ia the bank's general business No doubt the latter course will give the best results if the business of the bank is | successful. The Bank of New South Wales, for ! instance, has always employed its large reserve fund to advantage in their own business. It amou&ts to nearly a million and a quarter, hence it is that so long as a bank is going along I safely it gives that bank an enormous advantage ' that has a large reserve fund so employed with its paid up capital. It is a great advantage as an earning factor . Now for the amount of notes in circulation amounting to £533,229. This seems satisfactory, as it shows that the Bank of New Zealand has ,kept the note circulation which it acquired from the Colonial Bmk, because the increase .is about tbo difference between what' the Bmk of New Zsaland oould olaim and the C loui*l Bank claimed last year. But here again it would be useful that the amount issued voder each denomination should ba stated— that is, how many one and five and ten - pound notes and other denominations were in circulation. You m*y' cay there is nothing much in this ; but, sir, there is' this :if you wish to analyse the bank's statement, you can more easily see whether its note circulation is of a steady character. If you find the greater portion represented by notes of large denomination, you will conclude that the circulation is only of a temporary nature, because large notes as a rule do not long remain in circulation. If the circulation consists of one, five, and ten-pound notes chiefly, you may rely that the circulation is steady and sound in character and going on well. " Bills payable in circulation, £673,232."' These refer to drafts issued by the bank and its branches in Great Britain and elsewhere, and might for convenience be shown separately, so much as may refer to Australia and New Zealand for exchange comparison. That is to say,' where the bank is doing business in both colonies ib is wall that you should know the amount of exchange business done by either colony. The deposits are £9,894,778. This shows a satisfactory state of things so far as the liability is shown in globo, beciuse it proves that ib had maintained the two million of deposits acquired from the Colonial Bank and j some million and a-quatter further of Govern- j ment and public moneys, partly, I expect, raised by the advances to settlers scheme. It j shows at any rate an increase in deposits to the Bank of Nt>w Zealand of £3,283,000. _ Therefore it shows practically that it has retained the wfiole of ttie deposits taken over from the i Colonial Bank. There again my hon. friend will say that the goodwill of the Colonial Bank was worth nothing, but I think that my remarks show to' the contrary. The deposits of a bank should certainly be classified under several headings as a guide- to the' bank's earning power. You look at the amount ot deports shown in globo, but you do not know what the bank is earning, unless you know the rate of interest being paid on them, Some of the deposits may be at high

rates of interest, while other deposits are M ■ ca'l, and not bearing interest! : " Depoiits aft three months, bearing — per cent. ; "- " Deposits at six months, tearing — per cent.;". 11 Government deposits, bearing — ' pet cent. ; " " Government deposits on cunvnfc " account and at call not bearing in- * terest,"— for it is well that we elnuld . know the amount of publio money the Govern* . ment have in the banks. There o.\n bs ; if any no objection, and you ought to know if any Government moneys ara beating interest and also the am.mafc of Government deposits that are unproductive. A reserved interest account and other accounts for a likn purpose may be hidden undtvr tbo \\*nH of deposits. Then a bank must nrnke bad and doub.iul debts, . All bank's must do so if they have a largo turni over, and it is necessary to take extra risks and it must make bad and doubtful debts ; and when a bank sees an account that is at all doubtful the prudent course is when oharging interest on the account every half-year not to carry it to profit and loss, but to carry it to the credit of reserved intarosb acoonnb. Shareholders and others do not know whether the result or the balanoe of profit and loss as shown is the ex not total sura that the bank hat charged to its different customers, while on^ doubtful ncounts intcrent will bo charged an<f* carried to a reserved account ; aud in the oaie o? the Batik of Now Zealand that 10 million! . miy or >tuy not hive such roecrvo moDey. IE ho, we should know all about it.— (An Hod. Membflr'i "And tbo olhor Hpeclal rmrve9.") Mr Laroaoh : Yo>, and all other epcoial .reeorvea, for 1 unc!«fl*ke io say that the transcriptions and cross entries in connection wi'h tbo owly bfofce/ry of the Bank of Now Zealand made Anting Mr John Murray's reign would be very difficult to nor»rel, 16 would cwt tbo bi«t expert thai covM be found some ! trouble to unravel hte nOftMrfoa* wyatifkafcloiM, sir. Day after <hy htte we »ifc, ttfitiu io pksw tbtfc bftt/k ju * jrafe *tnl awtd eunaftfoo, Imfe Are we to tecvph & sWmtstib Ufc« th*k year j after year, Th« fc»xp*y«i* »&*y ftad sk tva& *ar)y d*te ihbtjp »r« wrong: ggsfa, 1 So o<s* say they wiff, btffc (A *ny rate w« onsfcb to Ufa* mah p*e«*oMoTM as wilf pus \t wxbet iiepwftx t>l tlufc mstitotfo* to gttmtv favr&atfrfifficuft&sv I ifmife tnm piatt of miift* won M bY &a# 6i-p> m tbub rfi'eetfon', Novr, aaitt t tin* otlier- liv.oiiidic^, £608' 912- Laaft yea* deposit* and 1 - abaer- lii*b'iti«tiex wer« found in one adaouafy and' wer<j= lamped together, butf it is 9, mibl'eadtog- Seeding: to to larg» * liability w regard 1 to-any bArtlr,,aa<f paftusnlatly for one guaranteed By bile S&t«.. I sh*ll Haaaardiaa fclii* statement as ±.naaae£ a£ my opinion. Ido cot car* whether id w adopted by the country ot not, bub aa I have a- few spsre copies of the statement I shall he h&pf7 to j tupply any, hon. member with; * cjpj for his coauderatiot). Farther, I pofcted oafc in conI nection with this balance ihte*, we have «n i auditor appointed by the Government as guarding the interests cf the olony Mr Allen : You did not fiuith' the assets on the other side, "landed property and premises." Mr Larnaoh : I am comiDg to them. Well, sir, land, buildings, furniture, &c. should be shown under 'separate headings. There is always a probable increase to the cost of buildings every year or every half-yeur, and they ought. to be shown separately. '' Land, . buildihgp, furniture, &c* Now, in this bilanco sheet of the Bank of New Zealand I see that , it has a very important form of certificate ab 'the foot, which says :' " I, John Martin Butt, the ' auditor appointed by the Gorernor-in-Counoil, , under ♦The -Bank of. New Zealand Share Guarantee Ao6 1894' do hereby certify— l. That having carefully examined the foregoing balance sheet and statement?, I em satisfied that they have been correctly compiled from the books and accounts of the b.tnk." Well, sir, what does that inform us of ? Does that; touch the securities or the transaction of tha bank for the year ? - Then it goes on :— •" 2. That I am satisfied that the said balance sheet is a i ull and fair balanca sheet." " Full and fair." Those are very expressive ternw.' They might also be seafaring terms. Properly drawn up with notes, '• a " and "b" exhibit a tiu« and correct view of the state of the bank's affairs at the date thereof. Well, sir, what can you make out of that? "a" refers to a memorandum with regard to the Elates Company and to the sum of £45,000 to be gradually written off , while »\i " refers to the Ci>lonial Bank's landed property and premises (£125, 000), atfd points out that this is only book valu«. WJtuc, pray, is that ? Now the next part of this wonderful certificate of the Government auditor says :— " 3. That I have verified to much of the oash investments, securities, and assets of the bank 'as at the date of tha said balance sheet were held at the head office in Wellington, and have bad access to the certified returns of so much thereof as were then hold ab tha various branches and agenoieß of the bank or. were . thpn in transit." Then, sir, the general manager and the accountant add the important certificate: "We hereby certify that, having oarefully ex-imined the fore* going balance sheet and statement, we are SRtiffi-d that they have been correctly com*' piled." That, sir, means written up from (ha" books and accounts of the bank, and tbatlhg' balance sheet; is " a full and fair balance sbeafc, properly drawn up, and exhibits a truo and correct view," Again, we have the words •J view," "of the state of the bauk's affairs at the date thereof." Does that givo hon. msmbers any security ? Does thit give Parliament any guarantee as to the real position of the bank ? Mr Seddon-: Very little. Mr Larnach : Very, very little. Why, these certificates make the statement worse thua if they had not been affixed at all. They are absolutely misleading. And what are these certificates worth ? What do they pretend to guarantee— have they any meaning •of real security ? No, sir ; and unless different forms of certificates are provided from those now appearing on the balance 6heet as a faithful statement of the bank's position it will be absolutely useless for practical information to members of this House. Now, . sir, do not suppose that in placing a statement of my own before the House to-day that I am pointing only to the Bank of N«w Zealand. What I say, ia conclusion, is that a more fully amplified and classified statement should be formulated for the compulsory ' use of all banks doing business within this colony; and, Sir, I do not think that I have amplified my statement sufficiently, bub at any rate I have given the cue and the headings for tha consideration of hon. members, so that they can consider my recommendations and amplify oc modify them as they may consider necessary. I may here say, sir, that I have heard id whispered in connection with the Government! auditor, and I do not know whether it is trua. —and if it is not it' is only fair thab such an officer should have the opportunity of denying so vicious a rumour,^ nor, sir, do I know whether the Govern* ment' is aware of it, but I have heard that this officer after accepting the position o{Government auditor accepted *> letter from tha present directors of the Bank of New Zealand agreeing with him or guaranteeing to him an appointment equal to what he had held before he was appointed to the position of Government* auditor, If ttiftt is the case/ sir, the auditor, is

in that irregular and improper position of serv- ; iog two masters. Should that be P lam only' etating what is an open recret, and I aay ifcisonly fair to that officer to do 10, for if it Ib vntrne ho will have an opportunity of knowing what is generally believed. If it is frue, I say what is tbe use of our Government auditor? Jt "simply means thats ha is serving two matter* if ihe holds such a) letter promiiing him that if he -loses his offioe; in the fervice of the <Gorerament he can go baok to * position equal , to that'iwhich he held before he was appointed ■' Sir, I was snrpriee'd, and cannot helpjasyiog.so,. to hear the president of the bank' at the 1 bar of the-fflotue jeoentjyjiay, -while *givinj» his-.evi-. derico.'thttt ibe^kaew nbthing -whatever 'about' ihe (Bank< of New JZealand\l)usinefls.from its commencement L-antil '189*, when he rjoined the bank. >WeU, Sir, I think if ho does not 'know 'it 'he' ought to learn as soon 'as possible the whole of his bank's business and all the books from Genesis to Revelation. Sir, there were several more subjects that I wanted to refer to, but; my time is about up. I would merely again say that I do hop 9 the House and the Government; will take the drift; of my remarks very seriously in connection with banking statements, because .'I r feel perfectly satisfied that If you are going to allow the banks to formulate statements in > the manner that has previously obtained and as they are made out now, then information will not -.be .given -which the country ought-' to "have and is erititled'to have. Mr Seddon : They are all the same. Mr Laraach: Well, it is time that the fyctamvwMw.altered. - , MrSpeaker : Time is up.