NEW FINANCE

Dominion, Volume 14, Issue 152, 23 March 1921, Page 6

NEW FINANCE

CALL MONEY NOT “AT CALL”

ANTI-PANIC LEGISLATION Surprise was registered on many a shrewd business man’s face yesterday morning as he read in the papers the important move the Government had made to meet the financial trouble which was looming upon the horizon of New Zealand’s affairs.

"I was surprised, indeed a little confounded, by what the Government had done without warning of any kind,” said one business man, “but when I looked into it, and saw the motives which prompted the legislation I was relieved. You see, there are a large number of firms, nearly all 1.-cal bedies and many financial institutions which accept deposits at call. In a crisis the one impetuous action of the public is to realise all they can and to grab at their money. The history of bank smashes is made up of that kind of thing. So in this case if all tbo call depositors were to take fright and demand their money 'on the head’ i) would simply mean that many would have to go to the wall, and chaos would come. That cannot happen now. Depositors will not make any extravagant demands— indeed, many of them will rejoice at the prospect of getting an extra 1 per cent, interest' for money they have been content to let lie at the existing rate. That being the case, those who do wish to lift moneys, may, through this general restraint, be enabled to do so, ns it doer not mean that any company or institution will refuse to pay up call moneys on demand—it means that they may take advantage of the Act, should their financial circumstances dictate such a course. It may be awkward in some cases, but if everyone keeps in good heart, this legislation is going to help lb keep the country sound.”

Good for P.O. Savings Bank.

“One aspect of the new legislation is tho rather serious effect it may have on those companies which trade on margins—the financial and building companies. That) class of company defends a good deal on its call money depositors, people who may have to find a lucrative resting place for a few thousands for a week or two. Such business is going to cease. fo- the simple reason that it is essential that such money must ba kept liquid—it cannot bo tied up. This money will now either lie deposited in the Post Office Savings Bank or one of the ordinary banks. Moderate amounts will go to the P.O. Bank, which now pays 4 per eent. up to .2500, and 3J per cent, on all moneys between JJSOO and J 35000. The larger depositors will seek sanctuary in the ordinary banks, content to do without interest at all rather than make a fixed deposit of it. Depositors in the P.O. Savings Bank are not likely to withdraw their money, for lhe simple reason that all they would get for.it would b» the paper of a private financial institution (one of the banks). Government security is a little better than that. Of course, the full effect of the new legislation cannot be grasped or foreseen at once, but on th* whole it seems to bo a very wise anti-panic step to take at the present juncture in the affairs of the community.” More Interest. A gentleman connected with a financial institution confessed to a Dominion reporter that he had not fully digested the new financial measure. One thing that struck him was the fact that they had fco pay cut one per cent, more in interest yesterday than they did the day before. It meant, too, tliat every finanial company would have to look very closely into its affairs. They were pretty sure to lose their big call-money depositors. The little man did not, as a rule, invest on call —he made „it a fixed-deposit to get the higher interest, even if it wore only for three or six months. The “call” man was generally one who wished to lodge a large sum for a few days or weeks, pending a more permanent investment. The financial companies had been paying 3 per cent at call, 3$ ner rent, for six months, and 4 per cent, for twelve months. The P.O. Savings Bank paid 4 per cent, practically at call; practically because there was provision in the regulations: which allowed the bank to insist on at least, a month’s notice of withdrawal of moneys, a provision which is not often exercised. It was so exercised during the first- few dsvs of August, 1914, but as the public cooled down the necessity for continuing the restriction disappeared, and call demands were honoured as usual. As a matter of fact, tho P.O. Savings Bank has the power Jo extend (by Order-in-Council) the period nf notice of withdrawal required from depositors.

As ar indication of what might have helped to actuate the Government in framing the latest financial legislation is the fact, that for the quarter ended December 31, 1919, the excess of deposits oyer withdrawals was. .£2,322,(100, but In tho December quarter. 1920, the excess <mly amounted to .£lOO,OOO.

Effect on Municipal Finance.

Referring to the new Finance Act, the Mayor (Mr. J. P. Luke) said that the new’ legislation affected the AVellington City Council considerably owing to the changed condition of finance. Mr. Luke explained that, there was a period—up to July or August in each year—when the finances of the city had to be aided by overdraft from tho banks, ae the rate money was not due until then. That overdraft had been more or less reduced for a long time past by a financial system of accepting deposits (on call) from firms and individuals—a system which had. given general satisfaction. The only w’ay to obviate the necessity of getting an overdraft would be to call up the rates earlier in the year, but such a step would mean considerable changes in legislation. Had the legislation not been passed that was passed on Monday evening there would, iu all probability, have been a considerable run on deposits placed at call by firms and individuals, with perhaps very disastrous results. The same thing would have applied to many trading concerns which accept money at call in connection with their business activities.

"We frequently have here some JC50,000 or JIGO.OOT on call,” said the Mayor, "and if that were suddenly demanded, and we could not. get any money by overdraft, it. would be disastrous to the city ser vices. I don’t mean tho necessary cleansing or sanitary services, but we might, have had to stop all road work and other jolis by the sheer necessity of having to got rid of the men. No, I give the Government every credit for the new condition it has brought about. “We will have to give the depositors an extra 1 per cent. —that is only fair to them. Otherwise the new legislation will be of great value to the City Council. as it provides alternative periods for the redemption of the. general improve ments loan (for waterworks, power-house, tramways, extension, etc.). Debentures may now be issued either for ten or twenty years. It was known that there were quite a number of people who would take up corporation stock, but fought shy of it as it tied up their money for twenty years, but these would probably feci inclined to invest in ten year debentures. Indeed, I have already received one substantial amount (.£6000) for investment under the new conditions Tho new legislation, concluded Mr. Luke, also providen for the repayment of loans in instalments, which is calculated to be I helpful to municipal bodies.