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Dáil Éireann debate -
Thursday, 23 Apr 1942

Vol. 86 No. 8

In Committee on Finance. - Central Bank Bill, 1942—Money Resolution.

I move:—

That it is expedient to authorise such charges on and payments out of the Central Fund or the growing produce thereof and such payments out of moneys provided by the Oireachtas as are required to give effect to any Act of the present Session to establish a bank to be the principal currency authority in the State, to dissolve the Currency Commission and transfer its powers and duties (with certain modifications) to the said bank, to confer on the said bank divers other powers and duties, and to provide for other matters connected with banking, currency, coinage, and the matters aforesaid and in particular for the gradual extinction of consolidated bank notes.

I wonder if the Minister could give the House any information as to the amount of the annual expenditure which is contemplated under this Bill and for what exactly, or on what, the expenditure will arise?

The Money Resolution of the Central Bank Bill seems to be a suitable occasion to raise one aspect of this legislation which is of primary interest to Deputy Hickey and, indeed, to myself. I take it that the expenses of administering this measure may be fairly substantial. It is hard to foresee what their dimensions may ultimately be. The question arises how far the commercial banks should themselves contribute to that expense. As far as I can see, a great many people approach the whole question of joint stock banking under the illusion that the banks deal exclusively with the capital of their shareholders and the deposits of their depositors, and that to both of those they have a clear liability to compensate them for the funds which the depositors and shareholders entrust to the banks. But, as I understand the situation, in addition to the capital and the deposits over which the banks have control, the banks themselves have determined by long experience that they may also deal in a sum represented by a figure of ten times the amount of their deposits. That is to say that if they deem themselves to have, upon a given day, £1,000 of deposits, they feel themselves entitled to make advances amounting to £10,000 and, while they are paying 1 per cent. on the £1,000 deposit—that is, £10—to their depositors, they feel entitled to lend £10,000, charge 6 per cent. interest on it, and so collect £600, and so far as I am aware, that is where the bulk of their profits comes from. Now, I understand, that commercial bankers the world over have found that to be a safe and prudent procedure, but it is a procedure in which we would all like to share. If anybody could take in £1,000, for which he paid £10, and then lend out £10,000 and collect £600 for it, he would be, in vulgar parlance, sitting pretty.

The Deputy should bear in mind the fact that the Money Resolution should not be taken advantage of to make a Second Reading speech, nor to anticipate discussion which may arise, for instance, on Part V of this Bill. The Deputy in a harmless introduction purported to ask what part of the expenses of this Bill might be contributed by the joint stock banks. He is now discussing the whole business of joint stock banks. The Money Resolution deals with the money actually required, not with the policy and operations of joint stock banks. Much of the issue which the Deputy is now attempting to raise might occupy a whole day and prevent either the Money Resolution or the Bill being discussed to-day.

I would suggest to the Chair that, having described a fund which is at the disposal of the banks, I am entitled to suggest that part of that fund should be employed to relieve the Exchequer in regard to the expenses envisaged under this Financial Resolution. Is not that fair enough?

If the Deputy adheres to that.

Quite, and very strictly, but in making that proposal I have got to ensure that a suggestion to that end will not wreck the whole economic stability of the country, and I have got to emphasise that the long experience of joint stock banking has established a ten to one ratio as the safe ratio. Deputy Hickey often asks me, and I often ask Deputy Hickey, where is the money going to come from for all the things we want to do. Now, one of the things we have got to do is to finance this central bank legislation, and Deputy Hickey and I ask one another where is the money to come from. If we were to solve that question in relation to this matter, I suggest that we might be able to solve it in relation to a variety of other matters.

I do not think I asked it in relation to this matter.

Well, if the Deputy did not, he ought to have. Might I suggest that that credit-creating capacity in the joint stock bank exists by virtue of the existence of this House and that, while I am prepared to admit as just and equitable that a fair share of the profits derived from credit created by joint stock banks in pursuit of their lawful occupations should go to those who create it with a stroke of the pen and by the use of their good name, the State is entitled to say: "We, who have created the stability of the legal system and the free institutions within which such credit may safely be created, are entitled to some share in that credit volume, more especially when the banking system requires the intervention of the State to assist it by the establishment of a central bank which is designed to facilitate banking institutions in this country, to maintain their stability, and to secure it." Would it, therefore, be unreasonable for the Minister for Finance to go to the joint stock banks and say to them: "Already, you are under an obligation from time to time to determine the volume of your deposits in order to ascertain the safe limit of your advances. I, therefore, want you, on the occasion of the determination of your deposits, to advise me of what you, joint stock bankers, deem to be the limit of credit which you may properly create"?

The Deputy's mental vision has wandered outside the limits of his own proposal.

I shall relate it in a moment, Sir. And then to say to them——

An occasional reference back to the Deputy's alleged proposal does not make his remarks relevant.

I think, Sir, that the argument is closely knit. And then to say to them: "Of that credit figure represented by ten times the amount of your deposits the Minister for Finance requires that you will advance to him, free of interest, one-tenth or one-fifth of the total credit which you deem it expedient to create on your deposit foundation. That means that you can take profit on four-fifths of the entire credit volume which it is safe to create, and make available to the Minister for Finance one-fifth of that credit volume for the purposes of paying the expenses of the Central Bank Bill, and this machinery secures that there is left in your hands a reasonable fund with which to make profit; there is made available to the State a fund with which to pay these expenses, primarily designed for your benefit; and the economic fabric of the State is uninjured by any fortuitous inflation of credit over and above what long experience and common practice have proven to be a safe margin in relation to the deposits, at any given time, resting with the joint stock banks." I do not see Deputy Hickey giving this scheme the close attention which it deserves from a man with his outlook, because I think it is a gold mine, and if Deputy Hickey will lend his mind to this line of country I think he will discover something almost as good as the scheme for providing credit that the Deputy has in mind, and I have long been waiting for that baby to get born from Deputy Hickey's mind.

The Deputy called it a will-o'-the-wisp on the last occasion.

I am dealing with this suggestion in its very restricted application to the expenses requisite to the financing of the Central Bank Bill.

Its restricted character is not obvious.

I think that the more Deputies will reflect upon it the more they will come to the conclusion that there is a great deal in it, and I am surprised that a Deputy of Deputy McGilligan's notorious perspicacity should describe it as a will o' the wisp.

No. I said that is was your description.

I know that Deputy McGilligan has an analytical and distinguished mind, and he ought to be able to see the difference between the argument I am now putting forward and some of the airy flights of imagination that I have so often condemned. This suggestion of mine is a very different thing from the printing suggestion. This is a plan to withdraw from the general volume of commercial credit whatever sum it is deemed expedient to take over from the joint stock banking system to finance this Bill. The proposal that I am putting forward, I know, will give many so-called orthodox financiers fits. They will just lie down, gnash their teeth, and go into convulsions, but that does not make it any the worse. The orthodox financier always goes into convulsions over anything which threatens to interfere with what he regards as his legitimate profits. I am concerned to maintain stability in this country and I am concerned to make an end of things which I see clearly the people will not stand for once the people come to understand it.

The Deputy has again strayed from the question at issue.

I am suggesting now to the Minister for Finance that there is a volume of credit available from which the money necessary to finance this Bill might properly be sought. I would be interested to hear from the Minister for Finance what his views are on the broad outline of the scheme which I have adumbrated on this Financial Resolution of the Central Bank Bill legislation.

Section 8 of the Bill sets out that the Minister for Finance will supply £24,000 of the capital of the bank. At least that is the money advance he is making. The capital, as set out in the same section, is £40,000. This is a departure from the recommendation that was made by the majority of the members on the Banking Commission. We have got no very good reason from the Minister as to why a departure should take place from the recommendation that was made or, in fact, why it is now proposed to alter the capital arrangement which was made when the Currency Commission was established. The point as to who subscribes the capital in this case is not a very strong one. Speaking from recollection, the capital of the Currency Commission was approximately £40,000. They were allowed to make a profit of 5 per cent. on that. They have been in business for some 15 years and there is a very large sum in reserve. Paying off the banks now—although I think no one would claim that the banks are entitled to any share of whatever reserves there are in the Currency Commission—and taking possession of the reserves and merely putting £24,000 or £40,000 into this, is a change from settled practice which has no recommendation of any sort or kind behind it. A different system was recommended by two Banking Commissions. It may be that the Minister thinks that 5 per cent. gives too much of a profit. That is not a big point, assuming that it is so, but there is no limitation, as far as one can see in this Bill, as to what profit the Minister will get. In any event, it is immaterial because he proposes to get whatever profits will be derived from this new system which will be a more expensive system than the former one, a system which seeks to get, for every £ that is issued in currency notes, sterling banking. To get sterling backing means that the banks have got to put up either cash or securities of equal value, so that, so far as this system is concerned, it will be more expensive for the banking institutions of the country.

Whatever strength there was in the Currency Commission, or whatever strength there is going to be in this new Central Bank, was or will be derived from the existing banks. Whatever integrity there is in the currency that is at present in issue in this State or in circulation depends exclusively upon the banks. These are questions of fact and do not admit of argument or contradiction. The safeguarding of the integrity of the currency of this country depends more upon the joint stock banks of this country than upon the central bank which one may compare to a policeman on point duty.

It will simply regulate the channels, having nothing to do with the sources, or the origin of the sources. I would like to hear from the Minister what reason there is for the change. There must be a guiding motive of some sort or other to suggest a change of this kind. It is not, as I have said, a matter of very great consequence except to this extent, that it would appear as if it were thought that the banks were not worthy now of participating in the shareholding of what will constitute the capital of the central bank. Now every penny that can be got out of the services of the banks is being got by the State. For years there has been a reduction not only in bank profits but in bank dividends, and, what is worse still, in the reserves put by by the banks from year to year. In other countries the main concern of the people has been to conserve the strength of their banking institutions. They are regarded as the anchor, one might almost say the foundation, of industry and commerce throughout those states. Here it is quite a common and popular thing to point the finger of scorn at the banks as if they were the concern only of rich people. They are nothing of the sort. That also is a question of fact and not one for argument. The House is entitled to be told by the Minister why this change is being made.

When the Money Resolution for the Currency Act of 1927 was being moved in this House, the then Minister for Finance explained the possible State liability under three heads. He said there might be some liability in respect of the issue of gold coins—about refining and putting into coinage any bullion that was brought in. The second thing was that under a particular section of the Currency Act there might be a State liability in regard to the redemption of token coins, and the third thing he said was that there would have to be some money provided against what he called the ultimate State guarantee for legal tender notes. It is to be presumed that these three possible liabilities are still in some sort of existence. I would like to hear the Minister segregate his £24,000 under specific headings, if there are any.

With regard to what Deputy Dillon said, in so far as it was relevant at all, I listened to him speaking here on the 25th March last explaining his great interest in Deputy Hickey's remarks because, he said, it always annoyed him to find Deputy Hickey so much in revolt against the credit restrictions that at present harass and hamper the local authorities and other bodies with which he had been associated. He said he hoped to be in the House when Deputy Hickey found out where the money was going to come from, and said there was only one way to do it— the printing of bank notes. But Deputy Dillon, in his remarks to-day, comes very near to Deputy Hickey in his view because, he said, if you get a £ in cash you can print nine bank notes against it, so that the only difference between Deputy Dillon and Deputy Hickey is the original £.

Deputy Mulcahy asked about the capital of the bank. The sum of £24,000 was the actual amount paid by the shareholding banks when the Currency Commission was founded. Deputy Cosgrave asked the reason the Government had for changing the system in operation since the Currency Commission was founded. We unquestionably read and considered the report of the Banking Commission. We did not accept their recommendation on this matter. We felt it would be more in keeping with the purpose and function of the central bank that its capital should be subscribed and held entirely by the State. I think that is a good and sufficient reason. There is no reflection in any way on the joint stock banks. The accumulated funds of the Currency Commission were, I think, at least 12 times the amount of the capital subscribed, so that the capital in the matter was hardly of anything but formal significance. I do not think I can agree with Deputy Cosgrave when he says that the strength of the new central bank, if and when it is founded, will depend more on the strength of the joint stock banks than on the central bank, or anything that the central bank can do. I think the strength and the influence of the central bank will depend on the State's financial and economic position as much as on anything else, if not more.

I do not want to take one iota from the words used by Deputy Cosgrave in describing the strength, the integrity, the efficiency, the reliability, or any other word of that kind you wish use, of the joint stock banks. They have a record that everybody in the country ought to be proud of. They have maintained a position, certainly for a period of 50 years, second to no other banking institutions in the world. They have safeguarded the deposits and the finances of this community in a way that did great credit to themselves and brought them considerable profit, as well as profit and credit to their shareholders. But the central bank, I hope, will be of assistance to them, to the State, and to the community as a whole in still further maintaining the security, not alone of the currency, but of the finances of the State and of individuals who are lucky enough to have money to place in the custody of the joint stock banks. Certainly, I think everyone is agreed that we ought to be in line with the rest of the world with regard to having an institution of this kind, especially in the times in which we are living, to assist in preserving and maintaining the credit we already have for sound financial institutions, and to help to guide us and protect us in our currency and monetary affairs through the dangerous and difficult times which probably are ahead of us.

I should like to thank the Minister for his lucid explanation.

Is this a question to the Minister?

I submit that we are in Committee.

I understood the Minister to be concluding.

No, it was not mentioned. I wish to thank the Minister for his lucid explanation of the change and for his courtesy in giving information as to why the Government made the change. I have only to add one thing, that so far as the State is concerned in this business it has availed of the capital put up by the shareholding banks for 15 years. Twelve times the original capital is in reserve and the banks make no claim on it. The State now, in a burst of piety, says: "We will pay you back the money you put up in the first instance. It will relieve the new central bank of paying you 5 per cent." The State sets up this bank to make money. There is no reason for setting up the bank except to make more money for the State.

I asked the Minister for Finance to intervene. I have no right to call on any Deputy unless to conclude a motion moved by such Deputy. The Minister for Finance himself did not rise to speak. Hence the Chair could not have called on him to conclude. It is not a function of the Chair to ask any Deputy, not rising, to intervene in debate in any other circumstances.

We do not know what you, Sir, have a right to do in the matter.

The Deputy's innocence is refreshing.

I should like to ask the Minister two questions. The capital of the bank is £24,000. Is that correct? Might I ask the Minister if he thinks that that is an adequate capital for the central bank to do all the things he requires it to do? I should also like to ask him what was the capital sum required by Hospitals Trust when it was established some years ago before it was allowed to run even one sweepstake.

I asked the Minister under what headings the expenditure was going to be incurred as a result of this Resolution and the annual amounts. The information we got from the Minister is that it is to cover the £24,000 that is being paid over. I did not understand from the Minister whether there were any other expenses to be covered by it. I should like to ask him whether there are not other expenses to be covered by it and particularly whether there are any annual expenses to be covered by it.

From the Exchequer?

Is Section 13 of the Currency Act, 1927, still in existence?

I am not aware of any other expenditure.

The section states that the expenses under this part of the Act shall be borne out of the Central Fund. Is that still in existence?

I am not aware that there are any other expenses that will arise under the Bill.

There is a part of the Currency Act, 1927, which deals with gold coins and the last section under that particular part of that Act says that all expenses incurred by the Minister in carrying that part of the Act into effect shall be paid out of the Central Fund. When that Act was introduced a Money Resolution was moved and the Minister divided it under certain headings, one of which was to meet this expenditure. If that section is still alive, there may be expenses under it. Are they being provided for?

I would say that any liabilities that were properly chargeable under the Currency Act will remain, in so far as they are not proposed to be discharged by an amendment under this Bill.

This section still remains. There still remains the charge on the Exchequer. The Minister talks about £24,000. That is exhausted in the repayment of the capital to the banks under Section 8. Therefore, there is nothing left to meet any expenditure under Section 13 of the Currency Act.

Whatever liabilities exist under the Currency Act that I am not proposing to amend—the Deputy says that there are certain liabilities under the provision for coinage—those liabilities remain in so far as they are not amended.

And the cost of redeeming token coins?

Is it the Minister's point that these expenses were covered by the Money Resolution passed in 1927?

Might I ask the Minister to give me any information on those two questions I put.

The only one I am competent to answer is the one I have already answered, that is the one in regard to the capital of the central bank. I know nothing about sweeps. The Deputy may know more about sweeps than I do.

The central bank capital is £24,000, and, before even a sweep could be run, approximately £150,000 capital had to be put down by the Hospitals Trust.

There is a reserve of £250,000.

It is quite clear at any rate that the Minister is asking for a sum of about £24,000, which will be completely expended under Section 8 of this present Act?

And if there are any other expenses to be met out of the Central Fund, then we are not providing for them.

Resolution agreed to.
Resolution reported and agreed to.
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