AGRICUTURAL BANKS.

Manawatu Herald, Volume XLVI, Issue 2805, 1 November 1924, Page 4

AGRICUTURAL BANKS.

HOW IT MAY AFFECT THE PUBLIC. * Out' first article shortly outlined .Mr. Poison's proposal and before Hie siipportors of such pr.iposal can insist on legislation to bring it into actual practice, they must (dearly show that it is not only going to hone lit the farmer lint a! the same time will not prejudice the public as a whole. Our second article showed that it was very questionable whether it would materially assist the farmer owing- to the peculiar conditions attached to the loans and also to the fact that the advent of a new borrowing institution on a market already short of liquid cash must raise the rate of interest.

The farmers as a whole we believe, earnestly desire to see some scheme which will provide longterm loans in order to avoid the constant and expensive renewals of short-term mortgages. This idea is quite natural and sound, and should lie -easily realisable provided it combined the introduction of new capital into the country, and sound management. It is already in operation in the Government Advances Department and is capable of extension. Bill this is not -the plea advanced by the advocates of the proposal, they allege that a farmer buds it hard to finance himself at all, and yet they have never shown that a man with proper security cannot get credit. A “Bank" which coniines its operations to lending money on longterm mortgages on some such terms as proposed would be a boon to the small and medium farmer. Such an institution, limiting its loans to, say, C'bbOl) or even C'l.llUU, i< a fair proposition, the c2n.<mo maxi mum proposed is ridiculous. Bui Ihe advocates of Air. Poison s

s< heme do not want an institution of this description, they have dis-lim-lly staled Iha I they aim at a Bunk to carry out all the business of farmers usually performed by j Bankers, and Stock and Station A j gcuis. —a very ambitions pinpos- j ml. ?n.t. OF PITFALLS. if this is examined from Die community's point of view, which, a fluall, is Die crux of ih<- m:m«-!-, «■<• bud it full of jtii falls, in fa el it breaks most rules of sound limiiice. ’Che firs! and best established join eiple in starting a Bank is nde«j:iai<■ paid-up capital. No mstiiniion should aeeepi depo-ils iude---ii has strong reserves of "liquid assets in order 10 meet demands ai:d protect depositiors. The neglect of such a safVguaid must result'in disaster, as we saw m 11 1 i country recently, when Earmer.-. “Co-ops" and fit her bodies had ro seek the protection of a Moratorium because the deposits in their hands were not supported l»y “liquid" reserves. Even if carried by real property soeurliies. bank is uni safe, because iaiid is mdably the leas! "liquid" of a |! a s s e i s, ami the ] X 2 •» crisis in Australia was dm- to a too free creaihni of credit on land v. inch caused a boom in prices, and v jii'ii the fall came the banks found their cash tied U]) and could no! moot demands. These are irmsms and cannot he disputed, yet Air I’ldsoii proposes to rsiahlish a hank of deposit and issue on burrowed money instead of paid-up capital, and literally no assets. The verv essence of the scheme is to Inn row money to start with, |o lend this out of bind and then to repledge lo their full value all the securities in hand to obtain further sums to advance. The depositors in his hanks would not he protected even by land assets.

As ;i hank it starts in debl and intends to try the impossible task ,>f trading on its indebtedness by passing its risk on to the public through its issue of Bonds. Jt is true that a 34 per cent margin is provided for but s.ti'll the risk is a grave one, owing to the fact (hat land prices are even now too high, and a fall in produce values would easily swamp up this margin «»t solely, fader normal conditions, it would lt.> safe enough but the very factors which have caused the troubles comjcained of make Die proposed remedy a very risky experiment. We shall probably be told that the

scheme (locs provide for share capital in ns much as the borrowers have to subscribe live per cent, of their loans in cash to take up sliavThis means that live millions „.,,sl he borrowed before even £250;nl!) share capital is accumulate.!, and even then it is not real share capital. but a loan from the borrowers, as it must be repaid l<> them cash as the loans mature. NOT K ISSUE. The scheme includes the right to issue notes, and here a train is a -rave danger to the public. Notes ,ir ;i n v form of octroi in bic papei sio.uld lie based on “liquid” reserves we have seen that this proposed bonk has none, therefore its “paper” would be of less value than the notes of Joint and Stock Hanks, which are properly secured by law. As siteh they would bring “firesham's Law'' into operation. mid drive good money out of circulation —for every one would pass them on as quickly as they could. 11 the bank failed it would brine- disaster to every section of the community, because the people would hold more of this had “paper” than good. This creation of paper credils unsupported by actual capital can only have one result, namely, dearer land, whereas the real need of the farmer is cheaper land and more liquid cash in the country for his ttse. MANAGEMENT. ,Sound banking necessitates the

study of almost a life!"me. and even experts of long experience make mistakes. M'lial, tlicrci'ire, can be said of lhe proposal b'd'oiv us. when Die management is considered I'ivi. ciil of seven directois arc to lie elected by members from iheir fellow members, one from each disiriei. The only qualitiealion insisied on is that he he a liori-ower from the hank, of which he is ,-i director i which is regarded in oilier companies as a disqualification). This Board, therefore, can only he drawn from a limited group, and yet it has power to commit the country to a banking policy which may bring ruin on thousands. Amateurs, whether farmers or commercial men, cannot mu those special operations—even when properly started with paid-up capital. How, therefore, can they mu a hank whose very existence depends oil credit, which only exists tu give credit, and whose credit is hacked, not-by paid-up capital, but by a debt for borrowed money. An institution based on such a foundation and under such management, must inevitably involve Die whole fanning community—as well as other sections —in financial disaster. Even under jjiost carefully constituted management a similar scheme to this has caused ruin to hundreds of farmers and others in the North West States of America. We propose to deal with this more a detail in our concluding article, and shall at tlie same time comment on the proposed Government guarantee. (Contributed by the N.Z. Wei I are League).

The latest reports show that Die police have been unable to find any trace of the prisoners Dale and W ig'g who escaped from the prison e-amp :ii W’ahimrino mi Monday evening. ScMi’ch parlies „eourcil the eoiiuiiy .hie all dav yesterday and are sear , liing again to-day. P is surmised )!,.-(i Die prisoners made m the dir.ciioii of Tokaaini, and ike parties mv concentrating mi Dun area.