Big Dividends and Stability

Sun (Auckland), Volume 1, Issue 91, 8 July 1927, Page 8

Big Dividends and Stability

Finance Minister On Banking Policy (THE SI X'S Parliamentary Reporter.') WELLINGTON, Thursday. JUST how far the Government should interfere with banking practice is exercising - the mind of the Minister of Finance, who expressed a desire in the House of Representatives during the Address-in-Reply debate to-night to keep banking in the Dominion, particularly if a State bank eventually were established, free from political influence.

TT was clear, he said, that the disA parity between deposits and advances necessitated some action being taken. The Government had been blamed for non-interference with tho rise in the bank rate here, but he could not see how the Government could interfere further than representing the general interests of the country through the directorate. The only thing then would have been to remove the present directors or to refuse to reappoint them.

Banking methods should be sound, and any suggestion that they were being interfered with by the Government would create a dangerous situation.

Personally, he had discussed very fully the questions of the overdraft rate and the deposit rate, and as a result five or six months elapsed before the banks decided to wait no longer. Most people in their criticisms had said that the deposit rate should have been raised a year before, but he did not know how far one bank

could pursue an independent policy from another bank. This was tried ill Australia with disastrous results to the hank which tried to stand out. The question had also arisen as to whether the banking policy in New Zealand was possibly being dictated by purely New Zealand conditions, or by conditions created outside through bad trading in Australia or elsewhere. As far as he could see from figures this was clearly a New Zealand problem; in fact, he was advised that Australian banks brought large sums over to relieve the position, and a hank in New Zealand had to cash in heavily on its reserve to meet the situation. Now the question would have to be watched whether this was still a true New Zealand banking policy. Mr. Stewart realised that people felt irritation when the banks paid big dividends, but the building of a reserve fund was one of the sound methods of banking, and was to be defended. All over about 7 per cent, came from ordinary trading or banking operations. Mr. P. Fraser (Wellington Central): It all comes from the community. Mr. Stewart: The reserve is a sound policy. Three out of four of our directors on the Bank of New Zealand directorate did not possess shares. Mr. H. E. Holland (Leader of (he Opposition): Are they special hanking experts? Mr. Stewart: They-are supposed to have special business knowledge. Mr. Stewart went on to say that New Zealand, instead of closing down on borrowers, as some conntries did, merely discouraged them by raising the rate. Already this was having an effect on the banks in the Dominion since the rate was raised.

A comparison of the bank rates in England and on the Continemt was made by the Hon. D. Buddo, w.ho has addressed a question on the subu'ect to the Minister of Finance. Mr. Buddo points out that in April last a reduction in England from 5 per cent, to 4J per cent, was recorded, while in Continental countries the rate was msieh cheaper than New Zealand, where the rate had been raised.