The Daily News. WEDNESDAY, JUNE 22, 1921. THE BANK RATE.

Taranaki Daily News, 22 June 1921, Page 4

The Daily News. WEDNESDAY, JUNE 22, 1921. THE BANK RATE.

The Bank of New Zealand recently notified local bodies in Taranaki, and presumably elsewhere, that not only will eeven per cent, be 'charged on overdrafts, but that if loan moneys are transferred ito the general account (so as to minimise the overdraft and the interest charges payable) the limit of the overdraft will be reduced by a corresponding amount, and the amount will not be restored without the consent of the head office. This is “rubbing it in.” A good deal of public money, and practically the public credit, is behind the Bank of New Zealand, which, in common with other banka trading here, enjoys special privileges. But banks have also their responsibilities. It must frankly be admitted that on the whole they have discharged their responsibilities faithfully in the past, and enabled the country to remain financially steady and sound during the difficult times experienced during the past six months. At the same time, of course, they have been adding considerably to their own profits, the earning of which is naturally their primary consideration. Considering its enormous profits, and the special position it has been accorded by the State, the Bank of New Zealand should carefully reconsider its attitude towards the local bodies, whose operations will be greatly hampered by the proposed increase in overdraft rate and the latest restrictions imposed. For the effect on the country will be serious,*as it means curtailment of work in every direction, thus adding to unemployment, and creating a difficult problem, which in turn must react on the finances of the country. The bank rate has been steadily increasing since July of last year, when it stood at 5| per cent., but local bodies were not subject to the increases, at least to the same extent as commercial accounts. Nor should they. They are engaged in important development work, and the security is gilt-edged. The responsible Press of the Dominion is not very much impressed with the latest policy of the banks. Says the Auckland Star:—

The financial stringency, no doubt, has caused the general manager and the directors anxiety, but it has been an exceptionally profitable time. The community is surely entitled, in the face of prosperity, to ask that it should pay less for the services the bank renders. In English banks interest on current accounts is allowed, and if it had been paid here there would have been less desire to place money at call with won-banking institutions, and the alleged necessity for the moratorium J'would not have arisen.

The New Zealand Herald expresses a similar view. It says:— In view of the exceptional profits resulting from the operations of the Bank of New Zealand, there may reasonably be some expectation of a fall in the bank rates of interest. High rates have been necessary in the past year as a check upon overdrafts and unsafe trading. We are now, however, reaching a safer level. The flow o£ imports has been checked, and it may be anticipated that the bank will recognise that the time is approaching for a lower rate on advances. Such a •step would be appreciated by’the trading public, and there can be no question that the Bank of New Zealand can well afford to take it.

The Lyttelton Times, in a restrained article, makes these pertinent remarks:—

A judicious use of a high bank rate is somotijnes extremely necessary, but the tendency is to maintain the rate after the reason for its erection has gone. The only permanent reason which banking institutions can reasonably adduce for the retention of an abnormally high overdraft rate is that they have to pay a high rate for the money which they themselves borrow. We do not think that defence can be raised in this instance, since while the overdraft rate has been raised by per cent, since July, 1920, the rate of interest on deposits has been raised by only 2 P^ r cent., a change which took effect on January 20 last. The banks have made a good liarvest out of a difficult year, and while we fully recognise that they helped to prevent difficulty spelling disaster, we agree with those who think that the time has come for a relaxation of the precautions which have been deemed necessary in recent months.

It may be mentioned that the bank rate at Home has fallen. The Bank of New Zealand justified a previous increase by saying that its rate was governed by the bank rate at Home. To be consistent it should now lower the rate, as has been done in England. To maintain the present rate is to handicap and injure the commerce of the country, and in the light of the huge profits revealed by the balance-sheet, it <ery much savors of profiteering—a practice in others, by the way, which has brought down the condemnation of the chairman in one of his previous surveys of the Dominion’s economic conditions.