WELLINGTON NEWS

Hokitika Guardian, 27 May 1930, Page 6

WELLINGTON NEWS

banks and industry

(Special Correspondent.)

WELLINGTON, May 24

Some people hold very weird views regarding banks and their duty to blio public; others think that the funds at the disposal of an average bank are unlimited, and that therefore a bank should lend to all and sundry on request and particularly to traders and manufacturers, and these absurd views are held because most people are ignorant of the functions of a hank and its limitations. A banker may aptly be described as a credit merchant for he b\iys and sells credit. The greater portion of the funds employed by a hank in its. business are not its own hut trust money entrusted to it. Some of the money, indeed a great deal, is at call and the ban,ks must be ready to meet such call promptly; some of the funds may he entrusted to it for various fixed periods. The bank tries to make the fullest use of the funds at its disposal haring regard to the potential demands on those funds by the owners, and by reinvesting the funds hank profits arc earned. It is obvious that a hank to he on the right side must deal mainly in short term securities and thus constantly turning over its funds. Some people think that a hank should make long term loans and lend on fixed assets such as plant, machinery, etc., which would be wrong for no bank could risk tying up its funds in long term loans. Yet the banks do help industry and render as much help as they possibly can. Long term loans should lie financed by investors and companies that make a speciality of such business. In Great Britain the banks, headed by the Bank of England, have made serious efforts in this direction and there has just keen formed the Bankers’ Industrial Development Coy. with a capital of £6,000,000 divided into 45 A shares and 15 B shares of £IOO.OOO each.' The A shares have been subscribed by banking and financial institutions while the B shares have been taken up by the Securities Management Trust, Ltd., which is a creation of the Bank of England. As the B shares have three times the voting rights of the A shares the Bank of England will contol 50 per cent of the voting strength. The new concern is thus in effect a partnership between the Bank of England on the one side, and the City (of London) on the other. Mr Montagu Norman, Governor of the Bank of England, is Chairman of the Gompany. . The object of the company is to examine schemes of rationalisation submitted by the basic industries of. the country; it is intended however that the new company shall not deal; with individual companies but only with industries as a whole or with regional sections of industries. If schemes are approved the good offices of the Company will b e available for assisting the industry to secure the necessary capital, but this will be done through existing agencies and not by the new company itself. The; approval of the company will be evidence that the scheme in question lias been endorsed by the best expert advice which the country can secure. It has been clearly indicated that ip is not the intention of the Promoters of the scheme to find money for buying out old concerns, but, that that the new capital found shall be used for the reconstruction of plant and for placing the business industries in the forefront a.s regards technical equipment and organisation, so* much for industry. With •respect 'to agriculture the Agricultural Mortgage Corporation was formed in pursuance of the Agricultural Mortgage Credits Act, 1928, with the dual object of extending long-term advances to landholders and farmers desirous of purchasing their holdings and of enabling farmers to obtain short-term advances on their stock, crops and other sets. The Company’s capital of £650,000 was subscribed by most of the leading banks while a £5,000,000 5 per cent debenture issue was made last year. The actual administration of the corporation’s affairs is in the hands of the hanks. The first report of the corporation was issued last month, and it was shown that a profit of £33,00 had been made. Mortgagee leans actually granted during the year amounted to £4,169,000 while a further £138,000 had been approved. Tho prevailing impression in agriculture means both that the corporation has to adopt a generous attitude and also to help particularly as to the position of applicants for loans and the securities lodged with them. Thus it will bo seen that British banks at least are doing a great deal for agriculture and industry.