THE BANKING SYSTEM.

Evening Star, Issue 22144, 26 September 1935, Page 8

THE BANKING SYSTEM.

TO THE EDITOR. Sir, —The Welfare League is making itself look rather foolish by its repeated statements that. the British banking system is sound, when I have shown that it was Government guarantee alone which prevented the British banks from failing, thus proving that the banks could not stand on their own legs. But the league is hedging about the creation p| credit, which was the

original point of discussion. The league refused to-take up my challenge of a legal referee on this point, and elsewhere I have quoted the bankers’, own authority, the League of Nations Report on Commercial Banks, to prove that banks do create credit. Thus they are in a unique position, for they lend money which does not exist, and even charge interest for its use. Commercial men, industrialists, or farmers will be interested in this, for it is of vital interest to them. In face of this proof that banks create credit for private profit, no reasonable person would deny the people’s Government the same privilege of creation for the benefit of all the people. In this connection the bankers’ propaganda which is flooding the papers at present may he recognised as a piece of barefaced bluff and , riiisrepresentation, and, since the Welfare League’s obvious defeat on all points, we have seen many letters to the local papers by correspondents (all under “ noms de guerre ”) from Wellington. Why this sudden interest of Wellingtonians in a Dunedin discussion, and why their shyness ? Since the league is so concerned about a State banking monopoly, let us see what the Bank of New Zealand has done, for it is the bank which did half of the total business of the commercial banks A witness gave evidence before the Monetary Committee that the Bank of New Zealand joined with its competitors in drawing monopoly profits from the community; that it has accumulated enormous profits* divided some as bonus shares, and consistently paid dividends, which, judged by all ordjnary standards, were exceptionally high; that the advantage it •secured by having a monopoly of the:. Government account was passed on not - to the public, but to the shareholders; that the inland exchange is an irksome inconvenience to the public and a disgrace to a hanking system which, has been paying double-figure dividends for many years and distributing bonus shares. _ The report also declared that profits in the past hare been too often tho criterion. So we find that the banks of New Zealand squeezed exorbitant profits from the people. Again, in this connection the report declared that while the British Government was borrowing at 4s 9d per £IOO the banks charged our Government £5 8s 9d per £IOO, and that the banks could have lent at less than half what they did charge and still have made a profit* There is a record of barefaced extortion by the banks which no amount of bluff or hedging can hide. However,the Welfare League is so obviously hedging and dodging that we may dismiss its contentions from farther con# sideration.

I had hoped that '‘ Practical,” bo* ing typical of business men, would have let me know if my reply has shown him that banks are not the lily-pure saints they are claimed to be, and that our arguments have excellent foundations. It is significant that only one Dunedin banker (unknown) entered the lists,but retired very early, and I can assure “Practical” and ’every other reader that if my arguments were tinsound and not backed with authority the Dunedin bankers would have pounced with glee upon me and blown my arguments to verv small bits:—l am etc., D. Coulaxi), Jun. September 25, .