The Daily News. SATURDAY, DECEMBER 13, 1919. THE BANKING QUESTION.

Taranaki Daily News, 13 December 1919, Page 4

The Daily News. SATURDAY, DECEMBER 13, 1919. THE BANKING QUESTION.

The extension of banking facili-' ties in order to quicken development and increase production that the times insistently call for is one of the most important questions before the country to-day, and yet it is one that receives scant attention from those that are now wooing the suffrages of the electors, whilst the political leaders are unable to give the country an intelligent lead on the subject. Sir Joseph Ward proposes to take over the Bank of New Zealand, paying shareholders the market value of their shares, to continue the present arrangement respecting the issue of bank notes, and to allow banking institutions to have the right to substitute Government stock for gold as security for the note issue. Sir Joseph's scheme, in our opinion, will in no way improve the present banking f acuities or achieve the laudable object he has in view.' On the contrary, it will only perpetuate the disabilities respecting banking that the country is suffering from to-day. The Bank of New Zealand is described by Sir Joseph Ward as partly a State and partly a proprietary bank. It is only partly a State bank because the Government holds shares in it and it handles State business, put of which, by the way, it derives very considerable profits. In every other sense it is a proprietary concern, and as such can never do what is required for the development of the country. The policy of the Bank of New Zealand, like that of other proprietary banks, is to make pro-

fits for and pay dividends to shareholders. A glance at the balancesheets of the banks trading in New Zealand shows that the amount of money subscribed by the shareholders forms only a small part of the banks' capital. The bulk of the capital is deposit money, with which special banking legislation permits the banks J to trade under certain defined limits. Some of the deposits are "fixed" for ia specified period, for which the banks pay interest; but the great bulk is placed on "current account deposit," for which the banks pay no interest. This latter money is payable on demand, and so the banks' policy | is to so arrange their business as to turn it over quickly and have it available at short notice. For this reason bank overdrafts are made payable on demand, which means that a banker may suddenly call up a customer's overdraft. The chairman of the Bank of New Zealand, in his last annual address, said the policy of the banks was to keep the money for "turnover" business and put as little as possible into development work. Prom the standpoint of the banks the policy is sound enough. The Government, in its wisdom, has granted the banks the privilege of issuing notes, for which it receives

three per cent. This paper money is loaned at from six to eight per cent, to customers. In other words the banks pay the people three per cent, and lend it out to them again at from Six to eight per cent., a very profitable transaction—for the banks. The Government allowed the banks, after war broke out, to issue a good deal more paper money than was warranted by their gold reserves. It declared the notes legal tender, and

thought that was all that was necessary, "but there's a point beyond which it is impossible to issue notes without injuring the currency, and we get beyond that point, with the result that the pound note became depreciated, and the consequent rise in the cost of living and the general dislocation that have followed. We made the same mistake, as England did, and we are now suffering from it. As Mr. Massey tells us,

we must get back as soon as we

can to the gold standard, but tlie process after the mischief has been done is a long and—to" some—will be very painful. Sir Joseph "Ward

proposes to continue the arrangement in regard to the bank note issue. A State bank on the right lines is an absolute necessity, but ] it must be established on sound \ and proper lines. In our view the ' State should withdraw the privi- J lege the banks enjoy to-day regarding the note issue, and re- , serve it for its own institution, as i has the Commonwealth of Aus- ] tralia. The credit of the people ' should not be given to capitalistic , concerns; it belongs to the people, and should be employed entirely , in the interests and for the benefit i of the people as a whole. , "We ' require a State development bank, ] conducted on the lines of the Con- ( tinental and American agricultural banks, which are an immense success. In Denmark, for instance, the State Bank will make advances to an approved person up to nine-tenths of his security, and, according to Sir Rider Haggard's "Rural Denmark," the individual failures have been remarkably few. A man's character and industry are regarded there as the most important assets. In New Zealand to-day the poor man, anxious to go on the land, has very little chance of getting assistance from the banks, and it is a time, too, when he most needs assistance. The Government is now assisting returned soldiers on to the land. They need not have capital so long as they are regarded as suitable for the work, whilst the Repatriation Boards are granting loans for stock, etc., on the guarantee of a friend of the applicant. An adaptation of the system could be followed by a State bank. As for financing such a bank, the State could sell its holding in the Bank of New Zealand, and with a loan of a couple of millions and a monopoly of the State note issue, have all the capi-

tal required for a start, more money being borrowed as was found necessary. Such a scheme is what the country requires; not a continuance of the present arrangements, which play into the hands of the proprietary companies.' It is interesting to note that the Commonwealth Bank, in its first year (1913), lost £46,637, whilst in 1918 the profits were £1,076,026. This shows State Banks can be made to pay, but, as we have said, the chief object should be the exploitation and development of the country's resources wherein the scope is practically unlimited. Banking plays just as important a part in the life and progress of a nation as transportation, and we should lose no further time in providing our own development bank.