VII

L^&

•" That many'of these persons would find accommodation elsewhere is no doubt true, but these would be the better off, large numbers of well-doing but not rich men would be ruined, promising enterprises crushed, and the industries of the colony would suffer damage from which it would take years to recover. That the lock-up of the money of 35,000 depositors would cause immense dislocation of business, inconvenience, and loss goes without saying. Among these depositors there is the Auckland Savings-Bank, with, say, £60,000 at its credit in the Bank of New Zealand. You are aware that a run on it took place last year. There is also the Government of New Zealand, with about £800,000, between actual deposits and drafts of the bank held. This large sum is in addition to the liabilities to the public detailed above. There are, say, £1,500,000 of London deposits which, as quickly as the money could be collected in the colony, would be withdrawn from use there. I will only add that the bank has 1,300 shareholders in New Zealand, who, besides the capital they have at stake, are liable for £720,000. It is not my place to allude to other banks, but I think I only echo a general opinion when I say that the trouble would not stop short with the Bank of New Zealand. On this point recent Australian experience is suggestive. Finally, it is clear that the evil would be intensified by the depression admittedly now existing in the colony, or would greatly intensify it. Employment, already scarce, would become scarcer, and the finding of work for the unemployed would strain the resources of the Government, and unavoidably involve much waste of these; while, as a matter of course, the public revenue would suffer seriously. He would be a bold man who would permit such a calamity to overtake New Zealand if he could prevent it, and I am firmly persuaded it may be prevented if the Government will meet the crisis wisely, boldly, and in good time. The business of the bank is as yet practically intact—: distrust has not to any material extent reached depositors; and it only needs that the bank be put upon a stable footing to avert the mischief which as yet, happily, is only imminent. But I must respectfully warn the Government that it is imminent, and, if they determine to adopt any measures to deal with the situation, these would need to be taken at once to be effective. To do this two things are required: (1) That the bank be placed in possession of increased capital resources, partly to fortify its cash reserves, partly to enable it to extend to its customers the accommodation they require in the second half of the year in anticipation of their wool-clips and crops of the ensuing season; (2) and that this be done to an amount which will suffice to' maintain confidence in the bank's stability, even if no dividend be paid for a time on its existing capital. The directors hoped to have been able themselves to have issued the required amount of preference capital, but this has been found impracticable. - - ;. I have therefore to propose to the Government that the colonial guarantee be given to an. issue of two millions in preference shares, bearing not exceeding 4 per cent, interest, the period to be. ten years ; such issue to be then replaced by a fresh issue of ordinary shares or otherwise, and the State relieved of its guarantee. No dividend to be in the meantime paid on the present capital till the Estates Company assets be disposed of, and the business of the bank declared by an auditor of the Government's appointing to be clean and sound. In seeking the interposition of the State, I have no idea of the bank shareholders being relieved of one penny of the loss which may fall upon them at the expense of the.taxpayer. As cover to safeguard the State from loss, there is the bank's paid-up capital, £900,000; reserve liability, £1,500,000: total, £2,400,000. And as the bank's assets have twice in recent years been subjected to severe scrutiny and writing down, such as no other bank in these colonies has undergone, it is not to be questioned that £2,400,000 affords an ample margin. Of the proposed two millions, one to be at the disposal of the bank in its ordinary business, the other million to be held in reserve, and invested only in such manner as the Colonial Treasurer may approve. .. I have verbally suggested to you precautions which the Government might take to secure itself and to guard against a recurrence of the state of things which calls for such exceptional treatment; but it is for the Government to impose conditions. I need not, therefore, dwell on : that aspect of the matter herein. I will only ask permission to add that, apart from preventing so terrible a misfortune to the colony, such arrangements as I have suggested (including State supervision and public audit) would have the effect of placing and maintaining the banking business of the colony fundamentally on a sound footing. The want of a great bank, the true position of which was known to the Government by independent audit of its own appointee, and through which the financial assistance of the State could in time of monetary crisis be extended to the community without hesitation, was severely and even disastrously felt recently in Australia. The great nations of the Old World have each their national banks in more or less intimate relations to the State. It is felt that these banks have, in case of need, the State behind them; and on their stability the immense fabric of banking, currency, and credit rests. In entering upon such relations, the Government of New Zealand would only be following the highest examples. I have, &c, The Hon. the Premier. John Murray. The following day a conference was held, all the Ministers and Mr. Murray being present. The position of the bank and the Estates Company was discussed. Detailed information was given in respect to the position of the bank in New Zealand. With respect to the Estates Company T however, no detailed information seems to have been given, although asked for, beyond Mr. Murray's statement that "there was a big hole to fill." Mr. Murray stated that, in respect to the Bank of New Zealand,, he was satisfied that if the Government guaranteed an issue of £2,000,000 share capital it would be ample to meet every emergency. He was asked to obtain, as early as possible, a balance-sheet showing the position of the Bank of New Zealand in the colonies, Fiji,.and London. In respect to the position of the bank in London, he stated there would be a difficulty in obtaining .