The Waikato Times With which is Incorporated The Waikato Argus. SATURDAY, SEPTEMBER 20, 1924. THE BANK'S OFFER.

Waikato Times, Volume 98, Issue 16096, 20 September 1924, Page 4

The Waikato Times With which is Incorporated The Waikato Argus. SATURDAY, SEPTEMBER 20, 1924. THE BANK'S OFFER.

The offer of the Bank of New Zealand to lend the sum of £1,125,000 to the Government for the use of the Slate Advances Office is a notable one in many ways. It is an indication that there is plenty" of money in the country ■to finance the farmers; the only thing wanting was security. The Government will lend the money and the Bank will have the best security in the country. It will be noted, too, that the Bank finds only twothirds of the cash, as oncthird is to be taken up by the Government in new shares, while shareholders are permitted to take up the balance on terms which have not yet been stated. The money will be of substantial assistance to the State Advances Office and as it is all New Zealand money it will not increase 1 the exchange difficulties as would have happened if the money had been borrowed in London. On the part of the Bank the proposal is a shrewd one, as it will do something to cut the ground from under the movement for agricultural banks. It should also make it possible to revise the date to which the moratorium has been extended. Although the Government deplore its existence they do not seem to adequately realise the evil which it causes, and the deep discredit which this continued interference with legitimate contacts throws on the whole community. The necessity for the great increase in State Advances would not have arisen if the moratorium had been abolished in 1919, or, better still, had never been instituted. Its chief effect has been to maintain the price of land at an artificially high rate. The' high price has checked settlement, and is responsible together with the moratorium for the fact that money cannot be obtained on mortgage under ordinary conditions. The Government are aware of these facts, and deplore them, but nevertheless pursue the line of policy which makes them inevitable. Now the Bank has come to their assistance in carrying out the policy, although the responsible officers of the institution have repeatedly pointed out the errors of their course. As a matter of business, if it could be regarded from that standpoint only the Bank have made a wise proposal, but they have a responsibility for something more than earning dividends for their shareholders. Under existing conditions banks are enabled to dictate policy to an ever-growing extent, and they do not always realise how far their power extends. They might very well in the present instance have made their offer conditional upon the disappearance of the moratorium at the end of the year. The rate of interest which is to be paid to the Bank Is 5J per cent., which is a very favourable price at the present time, and as the Government has the option of repaying <it any time it will be admitted that the offer is liberal. On the other hand the capital of the Bank is again to be increased, which will mean that still larger sums arc paid in dividends. It is bul 12 months since shareholders' capital was increased from £2,200,000 to £3,000,000. Now it is again to be increased by £700,000. This amount is not really required for the purpose of the loan. The balance-sheet at March 31, 192 i, showed deposits £30,000,000, against advances of £18.000,000. The securities of the Australian and New Zealand Government which the Hank held were over £0,000,000, and could have been increased Id £0,000,000 without adding to paid-up capital. The position of the Bank is in truth extraordinarily strong, for which we may all feel thankful. Its weakness lies in the fact that the Government appoint, a majority of directors, and no one can foretell exactly who will hold that power after any election. If a Gov-

eminent with a desire lo plunge are tempted lo go into banking they commonly have to start a State Bank, and it is many years before its business has become of Importance. here a Government with an inclination in this direction would find a ready-made business to its hand. It would be well for the Bank and well for the country if the connection between the Bank and State were Ices cloae. The

tendency of late years has been for the Government to increase its interest in the Bank until the public are sometimes puzzled to know whether the Government regard the questions that arise from the point of view of shareholders or of the State. A State Bank is an institution which abounds in risks, practical and theoretical. The experience of our neighbours in Australia is not one that will make us anxious to try the experiment. If, however, the profits are palpably large it is certain that cupidity will be created. The Bank has on the whole been prudent, cautious and wise, and they have passed through a period of exceptional difficulty with much success. They have, however, drawn much closer to the Government, and it is very questionable whether they are wise in so doing. The present loan is one more step in the same process. The Government will come to rely on the Bank to rescue it from financial difficulties, and in the meantime is considerably increasing its holding of Bank shares. The identity between Bank and State will create suspicion, and it would be better If these two mighty potentates were independent of each other. If that were the case it would be a matter of unalloyed gratification that the money for internal requirements should be obtained in the country. As it is the pleasure is lessened by the reflection that it is one more link which binds Bank and State together.