BANKS AND DEPOSITS

Wanganui Chronicle, Volume 79, Issue 195, 21 August 1935, Page 6

BANKS AND DEPOSITS

Sir. 1 see in your issue of the 17th inst. that both Air. Gardner and “How ard U. Douette” have replied to my criticisms. Both these gentlemen, lo begin with, denied your statement that banks lend deposits, but they based their denials on different grounds and in each case I questioned the accuracy of only the opening paragraph, in which the writer apparently thought he had satisfactorily disposed of your contention that banks lend deposits, but while Air. Gardner has admitted that his conclusion, lie originally stated it, was incorrect, “H.U.D.” has not done the same by his. Air. Gardner now wishes to amend his original argument to the following Assuming that banks do lend their deposits, imagine, if you can, a deposit not preceded by an advance. Then suppose A deposits £lOOO in the bank, which advances it to B. who lends it to C. who deposits it in the bank. Then the bank has to pay interest on £2OOO of deposits and is only getting interest on £lOOO and L insolvNow I am quite prepared lo admit that if the final sentence of the above paragraph is correbt, thou Air. Gardner has proved his point that banks can not lend their deposits, but I submit that his conclusion that the bank would be insolvent is still not proved; iu fact, it is quite wrong. Ten pounds in weight of gold at present prices would be worth approxi niately £lOOO, and if we suppose A to be a miner who deposits that amount of raw gold in the bank, there would be a deposit unpreceded by any advance, which would fulfil Mr. Gardner’* condition, as he himself has admitted in his letter of the 15th inst. in the third paragraph. Then the rest of his illustration exactly as before, and as 1 pointed out the bank is not insolvent, because it is still in position to pay its debts, for if C asks for his deposit the bank still has his deposit on hand wherewith to satisfy him and if A calls for his deposit, the bank asks B to return his advance in order to enable it to pay A. In my opening paragraph J slated that “Howard U. Douette" had not

kept lo the point I raised. Ho asserted that banks do not lend their deposits because such deposits arc liabilities and no liabilities can be lent. Now. nobody will deny that all bank deposits are. liabilities, so that to prove his contention that banks do not lend deposits, “H.I’JD. ” has only to prove that no liabilities may be lent, but this is precisely what I maintain he cannot do. This is the only point in his original letter that I criticised, and I submit he must either prove his contention or admit that he was wrong. So far he has done neither. —Yours, etc., ‘READER.” August 17, 193*.