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I.—2b

Feiday, 27tii August, 1875. M Mr. D. L. Muhdoch, Inspector of the Bank of New Zealand: Examination continued. 124. Mr. Murdoch.] Before proceeding, I wish to state that I observe that, in stating the terms 27th on which the banking business of the Government of New South Wales was transacted, I omitted to name the terms of exchange between London and the colony, and I should now like to add that information to my evidence. Funds are placed in London in one of the three undermentioned ways : — Ist. By remitting sovereigns through the Bank at current rates of freight, insurance, and cost of packages. 2nd. By remitting the bills of the Bank at the exchange of the day. 3rd. By placing in the hands of the Bank, Government debentures for sale, the Bank agreeing to advance in London as the Government account may require, to the extent of 90 per cent, on the market value of such debentures ; the Bank not to be required to advance at any one time on the deposit of debentures a larger sum than £350,000. The interest payable to the Government in respect of any cash balance in the hands of the Bank to be 1 per cent, below the Bank of England rate for the time being on the daily balance, and the interest payable by the Government for cash advanced by the Bank shall be 1 per cent, above the Bank of England rate, and on such advance shall never be less than 5 per cent. A commission of i per cent, shall be charged on the half-yearly payments of interest on the Public Debt, and £ per cent, on the payment of the principal sum of debentures that have expired. Upon application by the Government to transfer funds from the credit of the Government account in London to the credit of the like account here, the money shall, on the day of such application, be made available in the colony, the Bank being paid upon the operation exchange at the rate for sixty days' bills on London ruling at the time of the application. But if tie Bank desire a notice of the transfer, then the application, if for £100,000, shall be made available at the expiry of fourteen days from the date thereof; if for £200,000, at the expiry of one month from the date thereof; and for any sum over £200,000, at the expiry of two months from the application for such transfer. I have also to state to the Committee that I have made inquiries on the subject on which Mr. Shephard questioned me, as to the position in which the Government would stand as compared with the public in the event of the worst happening, and I find that under easy proceedings by the Crown it would have priority over any other creditor. 125. Mr. Shephard J And probably you might add to that—which I think would be clear—-that there would be no difficulty in the process, because, as the moneys held by the Bank are not mixed up with any other account, the process could not be retarded? —No, certainly not retarded. It would be perfectly simple. 126. And this necessarily leads to a very great security to the Government in dealing with any bank ? —Almost absolute security, it appears to me. 127. The Chairman.] The Committee requested your attendance to-day with reference to your answer to a question which I put to you in the first instance, and your subsequent answer to another question put to you by another member of the Committee. The question I put to you was, Whether, under that agreement between the Government and the Bank, you considered that you were entitled to have all the balances deposited with your Bank, and I understood you to answer, " Certainly." Subsequently—on the following day—a question was put to you by another member of the Committee to this effect: Do you consider that it would have been in contravention of that agreement if the Government, instead of depositing the balance of their loan with you, had invested it in Treasury bills or any other investment ? And you were understood to say that you did not think it would be in contravention of the agreement. The Committee wish to know now whether it would have been in contravention of that agreement if the Government, instead of investing the money in Treasury bills, had deposited a portion of it with some bank other than your own ? —At the time the agreement wfus made it was not contemplated that the Government would be so largely in credit as they are by proceeds of the Four Million Loan, and therefore I do not suppose that such a thing occurred either to the Treasurer or the Bank. Under the strict reading of the agreement I should say it would be in contravention of the agreement if such a deposit were made. But if it was the desire of the Government to fix a limit to the credit balance which the Bank should hold, I think the Bank would be willing to agree to it. 128. The Hon. W. Fitzlierbert.] Supposing the Bank had chosen to stand on its strict rights, could it have demanded that all these sums should be placed with it, and not with any other bank ?— I think I have already answered that under the strict interpretation of the agreement I do think the Bank could have done so. 129. Mr. Shephard.] You have already said that you thought the Government would be justified in purchasing Exchequer bills as a temporary investment with part of the money, instead of depositing it with the Bank of New Zealand ?—Yes. 130. Well, if instead of doing that, they took a part of the money, not to open a new banking account, but to lend to another banker on his receipt, would that be a violation of the agreement ?—I cannot see any distinction between lending money to a bank on receipt, and opening a bank account. It would certainly be a lodgment of money with the bank, and therefore a contravention of the agreement. 131. Then supposing that the Loan Agents had lent the money to some private individual, so healthy as to make it perfectly secure, would there have been any objection to that ? —I do not think so. 132. Why should there be any objection to lending money to a banker then ? —lt is a very nice distinction, but I think that in lending to a banker the transaction partakes of the nature of a division of the Government account, which by the agreement is not permissible. 133. I do not mean putting the money into another bank as a current account, which could be operated upon from day to day 5 but as a loan for a term, say a six months deposit, which is actually a loan for six months ?—The agreement might be interpreted in that way.

D. _. Murdoch.

Aug., 1875.