BANKS AND DEPOSITS

Wanganui Chronicle, Volume 79, Issue 198, 24 August 1935, Page 8

BANKS AND DEPOSITS

Sir, — It is indeed annoying and exasperating for correspondents such as ‘‘Reader, ’’ the N.Z. Welfare League and “Prosperity” to ignore my main argument, viz., that the banks create bank credit against deposits. This must be clear to those who are not prejudiced with preconceived idea*. How is it possible to argue that they, the banks, lend their deposits when their balance-sheets prove conclusively that they still retain them, and have to pay 8s 9d on every £lOO held. The banks, as pointed out previously, also pay Ss 9d per cent. for advances, created against deposits. No other commercial bouse in New Zealand is taxed on its liabilities. Why? For the simple reason that they cannot do the same as the banks—monetise their liabilities. “Prosperity” suggests a hypothetical case to prove that the banks lend their liabilities, by quoting a depositor lodging a cheque that is returned as cancelled. This is no parallel. 1 have often received cheques returned for some infringement, or insufficient funds (credit), and the banks always, without exception, notify that my account has been debited with ' the cheque (herewith returned.) Why? For the simple reason that mv deposit slip has been credited to my account and no debit elsewhere has . taken place in the bank’s books. Surely by now your correspondent “Prosperity” cun follow the argument, and see the fallacy of trying to prove that liabilities must and can be lent, by maintaining that deposits certainly a.-e treated as liabilities in a bank’s balance-sheet, “but is not every company’s capital shown thus.” What extraordinary reasoning. This argument is not how liabilities are treated in balance-sheets, but how and why deposits, although liabilities, arc lent. Will your correspondents keep to the point or else for ever hold their pens.—l am, etc.. “HOWARD U. DOUETTE.”