The Gisborne Times. PUBLISHED EVERY MORNING. MONDAY, JUNE 28! 1909. DUTY OF THE BANKS.

Gisborne Times, Volume XXVII, Issue 2539, 28 June 1909, Page 4

The Gisborne Times . PUBLISHED EVERY MORNING. MONDAY, JUNE 28! 1909. DUTY OF THE BANKS.

vThorc is a section of the community .which just now.is asking itself whether the banks and other financial institutions are doing their duty towards the country that supports then)/ and from which their.■■dividends are drawn. It is scarcely necessary to, mention that those who are questioning the policy of the banks chiefly comprise those borrowers* who have of late been refused accommodation. Trade'fs who 'caii seo profitable speculations ahead,,manufacturers who desire to increase their output, producers who are anxious to enlarge their holdings, but who all need a little assistance to bring their desires to fruition, are slow to understand the reason 1 why the banks cannot,- like the alchemists of old, quickly turn their ‘drtificates of title and other ‘• J a so |S ’ r " •■■old . - a - * dined, o the

large volume of floating capital. The , few pounds of tlio poor widow' in tue savings banks are . added to the large fixed deposit of tho wealthier members oi the community, and in an organised way this capital is lent out to those who can best use it in developing the land ir in other commercial enterprises Though there are some essential differences between . the savings bank a, tl the ordinary banks of issue both alike borrow" money-- fr-orii some of their on • • -turners to re'.encl it to otlie-s. To the former they pay, from the latter they exact interest. The one class indeed pays the-other, the banks being merely the medium'through which the Joan is made; and the banks, with their capital and . reserves, in - effect guarantee, that the depositor will lose nothing at the hands of the borrower. For this service they aro paid, and this payment forms' a large part'of their profits.- So it, is obvious that it is to the banks’ interest to have no more idle money in their vaults than they can reasonably help, for tho “interest they have contracted to pay goes on all the time, whether the principal i-s earning anything- or not. From this it is evident that- bankers ordinarily require no incentive to fully employ their resources. But there is a limit to thie* capacity to lend. They must keep two facts ever before them —their duty to make profit for tlieir shareholders, and tlieir duty to pay back to the depositors their money on the duo dates under the contract they have entered into, should these depositors then deeics, to withdraw. The position is involved somewhat by the fact that not all tbe depositors have lodged theC money for fixed terms. Some mnrav hate current accounts, which they may denude of funds at any moment, but tn which they are paid no interest. No largo amount of this money can with safety be lent out at all. But, besides their advance business, the banks have to- care for the oversea trade of the country and, in consequence, a goodly proportion of a bank’s resources are engaged in the exchange business. This is not available for lending out in the ordinary way. From what has been said it can readily be seen that if the banks are to lend moro they must be first provided with more to lend. That is, their deposits must be increased. Thoir position is analogous to that of a small moneylender, with a capital of, say, £IO,OOO. After he has loaned out £9ooo he cannot consider a proposal to lend a further £IOOO at all. It'is not a matter of the adequacy of the security, or even of the tempting rate of interest that the borrower is prepared to pay; it simply cannot be done. Further than that the analogy cannot be extended. , The banks, unlike the moneylender, do not lend out. tlieir own money, hut other people’s, and the amount of other people’s cash entrusted to them increases or decreases with the fatness or leanness of the seasons. Only to a moderate extent can deposits be swollen by offering a higher rate for them. If, then,'it is desirable, which is not so certain, that loans should be made more freely to the borrowing classes, whether these he inanufactuiers working on small capital or producers suffering from land-hunger, then this can only he done cither by our own people first saving more or by getting fresh draughts of .capital from abroad. There is no artificial way of increasing the savings of the people. Good seasons assist, but these are beyond, mundane control. This much is certain, that the mere creation of more banks could not possibly increase the volume of deposits or of the accumulated savings of the people!; it would merely redistribute them. It is equally certain that the mere increase in the capital of the banks would have-no beneficial effect. As the business of the banks grows with the growth of the people, their capital Iwill be increased in proper ratio. Bar-' ing more capital than is actually needed to transact the business they have in hand would be mere, economic waste. If a legitimate demand for money continues rates will advance, and their advance will tend to turn the title of capital flowing in this direction,Tor capital, like water, is quick to find its own level. The creation of paper money and other artificial expedients of the join'd cannot but end in disaster.