BANK OF NEW ZEALAND.

Dominion, Volume 7, Issue 1912, 21 November 1913, Page 10

BANK OF NEW ZEALAND.

CRITICISM BY HON. J. DUTHIE; THE DOMINION'S CREDIT. The Hpn. H. D. BELL moved tlie feecond reading of the Bank of New ■Zealaud Bill. ~Thov.objcct,.,of,.tho Bill, lie said, was to;euabl6..rVrbvision to he.:. mado for tho'.one, anil I ion guarante«l stock, w-luch would fall : due in July next, and to-en.ablo the bank to increase its •"capita)',' "with tho consent alm'ays of tho Minister of Finance, to an •amouiit not''.'exceeding £3,000,000. It <lid not propbso to amend the. previous legislation '.dealing; with the Bank of; New Zealand, except in a few details. The capital of the bank at present was one million, of which the country had paid up half and the shareholders half, Mbut tlio shareholders wero liable for another lialf million. For this reason the holdings': x>f the; shareholders and the company were in the ratio of two to one, and when the new capital came to be issued the country was to have the option of taking up ono share for every two shares issued to tho shareholders. The cduntry would not lave to part iwith money, from its chest for the purchase of'the new shares/but would pay for them with debentures at four per cent., thereby incurring a liability- for ttho amount of the share capital taken 'flip by it, plus the premium at which. the new shares would bo issued. ' .< ' ' State Should Buy. Out. Tho Hon. J. EIGG said the Leader of the Council had omitted to advance any argument in favour of the Government proposals; as being acceptable and desirable front the point of view of the State. To him (Mr. Iligg) they wore by no means satisfactory.' what was needed was-a very much wider measure, for tho time;had come when the Government, should put forward proposals for taking over the Bank of New Zealand. This very desirable end was gradually becoming more difficult of attainment, for tho value of tho shareholders' stock was increasing, and this very largely owing to tho «npporb; ; of :■ the, .State in •'-. the past. Even now the shareholders wished to [relieve the State 'of.all its responsibility in respect of tho bank, and to reduce the. State's share of control'except in respect of the £500,000 worth of "A" preference shares hold by the State. The shareholders wero anxious . to pay •-off ~': tho million guarantee of the State. The proposals the shareholders were, he suggested," no .mor© than , a bare-faced' steal. Ho urged that'before the ■ bank should be permitted to issue new capital, it should bo required to call up its uncalled capital. The Government proposals for the allocation of tho now capital_ mado a lopsided arrangement, he said, in favour of the ordinary shareholders, and to tho detriment.of tho State. Also, he did not see why the bank needed this increased capital. Ho could only think that a large part of tkfe new money was i'or investment in London. What the Government, should have done was to buy the shareholders out. The Stato did not want the shareholders, and ithe shareholders did not want the State ' The State could get on with.cut the shareholders, but the shareholders could not get on without the Stato. Tho reason was that the bank would not, without tho Stato support, tommand the confidence necessary to its success: The Government should offer tho shareholders tho alternatives of being bought out on generous terms, or of submitting. to the competition of-"a separate State; bank. X "No Easy Matter." Thc/Hon. J. DUTHIE said theuast Speaker ,had revelled among millions, some real and somo imaginary, in an endeavour to prove that a State bank could be easily established. In his (Mr. Duthio's) opinion it would be no. such easy matter to establish a State hank on a sound basis. To him, tho importance of keeping the bank divorced from .State control was very great. -Ho was a member of tho House on the occasion when tho hank disclosures took place, and wero dealt with. He did not like tho proposals of ■ the Government.''. Ho considered that it was far better in tho interests both of '.ibo bank and tho Stato that tho State iihould be entirely disassociated with banking. In view of the present financial position, of tho colony, and of the world, there was a grave danger in this further alliance between tho bank and tho State. ' In 1894 ho'had reluctantly assented to tho report of the conimit.fce which examined the position, and finally decided to accept the Jess of two evils. But the course adopted was not then intended to form the basis of a permanent alliance. He thought tho proposals of the present Bill, which would continue the alliance for at least twenty years, really -..implied a permanent relation. Sound Banking Essential. In a progressive age, and in a progressive country such as this, one of the bulwarks of financial stability must be sound banking. Iu Australia there wero hanks which gave steadiness ■ to commorco, which could never be so assured in NewZealand in the present anomalous position of the principal bank. What tho country needed was a hank strongly established with its own capital, conducted with prudence and a wise discretion, avoiding the locking up of capital—one of the causes that brought the bank to grief in past days. Tho capital of a hank should be in floating commercial iiirestments, and for this reason a bank could hot lock up its money in aiding in the development of the country All a bank's investments must be such that its assets could .be liquefied fo- the nss of its'customers in times of'stress. If this were- not so the country would he liable at any time to financial disaster. Whose the Credit? But to what was tho success of the auk diwJ? --X. most extraordinary, cir- J

cumstance was that when the bank fell into the hands of the Government, and a most extraordinary thing in the history of banking crises, was that it did not affect the credit of New Zealand. No depositor had rushed the bank. The people of Now Zealand had pride in the institution of the Bank of Now Zealand —though tho bank had done much to forfeit that confidence—and regarded it with patriotic feelings of loyalty. Parliament had treated the shareholders somewhat harshly. Some had forfeited their shares, and ..those who had weathered tho storm had- been denied dividends for .year?, in order that a reserve fund might bo built up., This present sound position did not provo that the baiik had been' well managed by the Government, for. in all tho long period siuco tho Government took charge of it there had-been scarcely any.bank:.'ruptcy in the colony. The country had boon.prosperous, and the country had .'been developed by the introduction of freezing machinery, which had .increased o'nofmou'sly our exports of frozen meat and dairy produce. This all helped to build, up'the bank in abnormal times, abnormal because in that time there had been expended in the country fifty millions of borrowed money. " Tho bank could not go wrong. There had been no such ability shown by 'the State's managers of the bank as was alleged. On-tho contrary, the' State's management had been bad. Tho chairman, directors, and inspectors had been changed repeatedly, having been.' removed for somo political purposes after gaining experience. Tho Government in ho way deserved the credit given to them. Good men should have been secured to control the bank, and their services should have been kept. Also, one, of the fundamental. rules about banking w ; as that the directors should not bo engaged in business, for it was manifestly wrong that men in trade should have the right to know what other men were doing through the bank hooks. That rule had not been observed in the choice of directors of the Bank of New Zealand. Tho State had shown no capacity to manage the bank. The remarkable success of the Dominion had carried the bank along by itself. The Public Credit. It should bo considered how this Bill would be likely to affect the public credit of tho country. The financial world never was in a more critical position than it was at present owing to the enormous expenditure recently on; war material and navies. This had brought about. the scarcity, of money show.n by the Bank of England rate. Money would not be available in future, and there were critical ■ times ahead. Loans in'.future would probably never bo refused, but money would have to be obtained on such terms and at such prices that no sane people could afford to pay. And nothing would have done the credit of this .country more. good than for the financial world to have kiiown that the Bank of New Zealand had been established on a sound basis separate from the control of tho Government. Nothing better could have occurred to restore tho financial-credit' of the country than the knowledge that tho bank was established with a strong capital of its own and independent of tho State. He was sorry the Bill was before Parliament. He was sorry his friends of the Government had not felt the responsibility upon them to establish the bank on a sound basis. This would have struck confidence into the financial world, and built up tho credit of our Dominion. It would have been better, too, if the shares had been held by local shareholders, and not by men abroad, unacquainted With our country. Customers' Interests. The Hon. J. ANSTEY said the Bill had-been drawn up in the interests of the shareholders only. It contained no word about the interests of the customers of banks, which worked under Government protection, which gave them something like a monopoly. Ho did not agree' with tho proposal that the bank should bo allowed to increaso its capital for the purpose of investing tho money so raised in London. That would not aid in developing the resources of the country. Ho urged also that some of tho charges made by the bank to customers, especially for exchange on cheques, wore absurdly high, and that something should bo done to ensure that banks should not bo allowed under State protection to make such exorbitant charges. Tho Government had neglected the interests of tho public, confining their attention to. the interests of shareholders, and for this reason lie was disappointed with the Bill. Meanest Use of Power. The Hon. H. D. BELL, in reply, said he had been interested in Mr. Itigg's speech, interested in wondering when Mr. Iligg would come down to things mundaue. Mr. Bigg was a visionary and all his dreams wero of a Utopian impossibility. The Government had to deal with real things of to-da3 - . It was quite wrong to indulge in the usual laudation of any ono party for what was dono in 1894. All parties were united in that, and thoro never had been any party connected with it! He did not believe in any such institution as a State bank. At all events, wo should wait and see how tho State bank- in Australia fared. It was a pure accident that the Government came to the assistance of tho .bank in 1894; the Government had no special desire to do so, but they had a special desire to. help tho country. Now it would ho the meanest tiso of the power tho State had so acquired over tho bank to insist upon tho Bank of Now Zealand refraining from making ■ profits, in tho ways Mr. Anstey had suggested, while other banks were allowed to go iroo. He hoped tho Council would agree that the Government had tried to do its duty in .framing this Bill, and that the Bill represented in concrete form what all parties concerned were prepared to accept.. Tim Bill was read a second timo on tho voices. HAURAKI PLAINS. Tho Hauraki Plaiii3 Amendment Bill was recommitted for tho purpose of having corrected in it an error made hi Committee previously. The amendment was made and the Bill was read a, third time. 1 The Council rose at 4.55 p,in- {