I move the amendment standing in my name as follows:—
In sub-section (1), line 36, to delete the words "such rate of interest" and substitute the words "in the case of sums borrowed from the Bank of Ireland or any other bank, a rate of interest not greater than £2 per cent. and in the case of sums borrowed from a person other than a bank, a rate of interest not greater than £3 per cent."
When the Minister spoke of housing he has indicated how difficult the financial position is. Certain financial considerations enter into the production of houses in the same way as certain financial considerations enter into increased production of other kinds. The Minister seemed to think that yesterday I wanted to suggest that we should get done here what the Australian Government are doing in Australia. No, I simply drew attention to the fact that in various countries in various parts of the world certain things are being done for certain reasons. One of the reasons the Australian Government has taken the action it has taken was that it considered that high interest rates brought about unemployment. They were not going to have a situation in Australia in which unemployment would be continually brought about by the high rate of interest. Their general financial policy has as its object first and foremost to keep the currency firm and honest, and, secondly, to see that full employment will be brought about as far as possible, and, thirdly, to finance the well-being economically and socially of the people as a whole. They felt that financial considerations enter into these matters to such an extent that it was necessary for them to take very elaborate powers and risk very grave criticism in order to get power over the financial position. We have some evidence of what the situation may be from the point of view of increased production if we refer to paragraph 494, on the Report of Housing in the City of Dublin.
No one will deny that genuine savings are entitled to seek a legitimate income or return. We have also to learn to understand that if investment is kept at a particular rate of interest you cannot continue employment in the country or improve the general position of the people. One of the things that we are likely to be called upon to decide as between the general workers seeking work and the person with genuine savings seeking investment is which of these is really the first consideration. If we are going to be in the position that the person with genuine savings is going to stand out for a price that he thinks he can get for investment, then the Government if it accepts its responsibility for the economic and general social welfare of the people as a whole has to decide what its attitude is going to be towards the genuine worker genuinely seeking work and the person with genuine savings. The Report of the recent Inquiry into the housing of the working classes of the City of Dublin at paragraph 494, at page 168, says:—
"Negotiations took place with the Banks Standing Committee on the matter of raising £2,000,000, by issue of stock, but in January, 1939, it was intimated to the corporation that the banks could not underwrite a public issue. The reasons given were:—
(1) the uneconomic character of the housing programme, aggravated by the high level of building costs; and
(2) the magnitude of the sums required for the corporation's five-year programme of public works."
Paragraph 5 says:—
"Negotiations still continue and in April, 1939, an issue of £1,500,000 of 4 per cent. stock at 96, was put on the market of which approximately £850,000 (including Government investments) was taken up. The underwriters had to take up the remaining £650,000. This was taken as a definite indication that the market would not be disposed to respond to any further larger demands in connection with the corporation's housing activities."
I suggest to the Minister if that should be read in relation to the attitude of the banks.
I want to contrast the provision made for the Dublin Corporation and the attitude to the public generally at that particular time. If the banks were not prepared at that time to support a loan of £2,000,000, to issue it to the public, and if they afterwards condescended to lend £1,500,000, at 4 per cent. at 96, which was equivalent to lending it at 4.1 per cent., and if the effect of interest rates on the housing situation, on rents, was to continue, what was to be the Government's attitude with regard to it? The point I want to make is that the Government must have a definite policy with regard to interest rates and must not allow the withholding of savings on the one hand by private persons or refusal by the banks to accept their responsibilities and to discharge their functions to operate in such a way that housing cannot go on.
In moving the amendment, I suggest that, in borrowing this £17,000,000, the Government should pay no more than 3 per cent. to ordinary lenders and no more than 2 per cent. in the case of the banks. I do not think there is any necessity to elaborate on the position with regard to the 3 per cent. at present because there is plenty of evidence before the Minister in that connection. The Government of Northern Ireland is borrowing at 3 per cent. and substantial loans held by local authorities are being liquidated, conversion loans are being issued for millions of pounds of indebtedness of local authorities in Great Britain, at 3 per cent., with the British Government standing behind them. If the persons holding the old loans at 4, 4½ or 5 per cent. do not accept the conversion loan, the British Government stands behind the local authorities and provides them with the necessary capital to enable them to pay off their loans, so that a standard of 3 per cent. in respect of loans of local authorities in Great Britain is being definitely set as a matter of Government policy. The reason, both in Great Britain and elsewhere, is very clear—Government debts have risen to such an enormous figure that there is a general policy on the part of Governments to keep interest rates low.
To return to the banks, in April, 1939, the banks as a whole took up £650,000 worth of Dublin Corporation Stock at 4 per cent. at 96 and subsequently, in July, 1944, the Bank of Ireland, on its own, entered into an arrangement to lend £1,000,000 to the corporation at 3¼ per cent. I want to reduce this to a matter of simple arithmetic, so that whatever is wrong may be sought out and, without theorising in any way but simply facing facts, we may come to an understanding as to the rate at which we can expect to get money from the banks when we have to go to the banks and as to the rate we can reasonably endeavour to fix for private persons lending to the Government. The United States Government have taken definite steps to see that so far as possible banking institutions will not invest their money in high-priced Government securities which should be kept for the ordinary person with genuine savings to invest. It is recognised there that the banks can lend money at a lower rate than that at which the private person can be expected to lend it.
Paragraph 495 of this report says that the banks lent £650,000 to the Dublin Corporation when the loan the corporation floated of £1,500,000 was not taken up to that extent and I want to show what the banks profited as a result of taking up that loan. I will take the figure of £660,000 instead of the £650,000 for purposes of easy calculation. When the banks took up that amount of £660,000, we may accept that new money to that amount was created. I want to isolate the transaction and to deal with this loan of £660,000 by the banks. As I say, new money to that extent was created. When the transaction is isolated and completely gone through, according to the general understanding of what happened, one-third of the amount devoted to housing was spent on imports of materials from abroad, so that £220,000 had to be paid to sellers outside who sold building material of one kind or another to this country for the purpose of carrying on that scheme.
When a sum of £220,000 is paid to persons outside this country for goods received, there has to be a surrender, from the Irish banking system, of British securities to that extent, and through surrendering British securities held by the banks to that extent, there is a loss to the banks of the income they derived from these securities. If we take the average amount of British securities held by the Currency Commission between March, 1943, and March, 1944, and examine what their income from these was, we find that the British securities held by the Currency Commission to the amount of approximately £23,000,000 yielded dividends at the rate of 1.58 per cent.
The banks have increased very substantially in recent years their holdings of British Government securities, and I am not minimising the position in any way if I take it that the British securities which the banks would have to surrender for the purpose of paying for £220,000 worth of goods imported here are yielding not more than 2 per cent. to the banks, so that, as a result of the export of capital for goods required for the £660,000 worth of housing done here, the banks would lose an income of 2 per cent. on £220,000, that is, their annual loss would be £4,400. There would be in circulation in the country additional money to the extent of £440,000. The amount of the £660,000 that was not used for the payment of imports would be left as additional money in the country and the general opinion of the Banking Commission has indicated that additional money like that will be held in fairly definite proportions as between cash in the hands of the people, money on current account and money on deposit account. Any additional money in the hands of the people has to be backed by British Government securities and any additional deposits left with the banks here are paid for by the banks here at the rate of 1 per cent., so that, as well as losing the income from the British Government securities they had to release because of the money paid for imports, the banks will lose an income—again, at the rate of 2 per cent.—on the British Government securities with which they backed the additional cash to the extent of one-sixth of the £440,000 that would be left in the hands of the people. The additional money on current account will cost them nothing but the additional four-sixths of that amount, or £2,933,332, will have to be paid for by the banks at the rate of 1 per cent. The total losses, therefore, to the banks, as a result of the transaction, will be £4,400, arising out of the loss of the British securities which had to go for the payment of imports; £1,466 in respect of British securities that have to back the additional cash put into circulation here, and £2,933 payment for the additional deposits that have gone into the banking system and on which the banks pay 1 per cent. The sum of these losses would be £8,799 or, let us say, £8,800.
The banks, however, have lent £660,000 to the Dublin Corporation at 4.1 per cent. and, in respect of that, they will have an annual income of £27,060. If we take the £8,800, which was the amount of the loss I have indicated, from their income, the banks will at the rate of 4.1 per cent., be receiving from the Dublin Corporation in respect of the part of the loan they took up, to the extent of £660,000, a net annual profit of £18,260. That is from a body for which, in the beginning of the year, they were not prepared to underwrite £2,000,000 required for housing. If that loan from the bank, instead of being paid for at 4.1 per cent., were paid for at 3¼ per cent., the annual net additional income to the banks from the Dublin Corporation would be £12,650. If the money were lent at 2 per cent., the figure would be £4,400. The experience of the world at present is that people expect that the resources of the world will be able to maintain the people of the different countries in fairly reasonable conditions. They are asking that as much intelligence and energy should be brought to bear upon the well-being of the people in peace as was brought to bear on their well-being and safety in war. Just as a bricklayer or carpenter or engine driver has a function to perform and services to render in return for maintenance, bankers and financial administrators of one kind or another have a function to perform. We must demand that that function be performed. If it is not performed properly by those who accept responsibility and have the training and capacity to perform it, then we shall have very considerable chaos. It is the Government's function to see that proper steps are taken to secure that the financial machinery, which is so important, is properly operated.
As I read it, the standing committee of the banks almost deliberately— from culpable ignorance if not by deliberate intent—sabotaged credit of the Dublin Corporation in January, 1939. I cannot find any words to describe what happened in January, 1939, other than that the standing committee of the banks deliberately sabotaged the credit and good financial name of the Dublin Corporation. Then, as a result of the sabotaging of the corporation's credit they made a profit of £18,260 a year on the loan they took up. Following that up in July, 1944, the Bank of Ireland, when it gave a loan of £1,000,000 at 3¼ per cent. for housing, which involved imports to the extent of one-third of the amount, made a profit of £19,166 in the same way. Assuming that the transaction was entirely inside the Bank of Ireland, they lost the income on British Government securities sacrificed to the extent of one-third because of the imports involved. They had a loss because of the necessity for backing by British Government securities at, say, 2 per cent. the additional cash brought into circulation and because of the fact that they had to pay for the additional new deposits created. But, as a result of issuing £1,000,000 credit to the corporation, the bank gained £19,166 from the corporation, having indicated in 1939, in association with the banks standing committee, to the holders of genuine savings, that it was not worth investing their money in this way at 4.1 per cent.
The same banks have a very considerable amount of money invested in British Government securities at the present time that, I suggest, is earning less than 2 per cent. The interest on Treasury Deposit Receipts of the British Government is 1? per cent. The Statist of the 3rd March last gave particulars of the assets of the Irish banks. It showed that there is at least one bank here that has £1,000,000 invested in Treasury Deposit Receipts. There is no obligation, I understand, on the banks to show these things in their balance sheets, but one bank at any rate has done so. The other banks may also hold Treasury Deposit Receipts, but, at any rate, the average income that they have from their general holdings in British Government securities is less than 2 per cent. while those with the Currency Commission are only earning 1.58 per cent. I suggest it is an important point that the banks have earned these very large sums, that is, £18,260 on the £660,000 taken up in April of 1939, and the Bank of Ireland £19,166 in respect of the £1,000,000 loan which they gave to the Dublin Corporation at the end of last year. That will be the amount when the loan is fully given.
In considering what the banks can be expected to do in certain circumstances, there is another aspect of this matter of lending that we have to take into consideration. If the whole of these loans had been lent by the public to the Dublin Corporation the banks would have suffered a loss. In so far as the two-thirds of the amount subscribed by the public to the Dublin Corporation was kept here, there would be no change, so far as the banks are concerned, as regards cash, current or deposit accounts, the reason being that the money would simply change hands. The banking system would lose a certain income by reason of the fact that one-third of the money lent was for housing. Where £1,000,000 was lent by the people to the Government or to the corporation for housing and where that had the effect of sending certain capital out of the country to pay for imports, then on that £1,000,000 loan the net loss to the banks would be £3,000 odd per year. If it be accepted that, normally, we would expect that housing loans to the Dublin Corporation would be subscribed by the ordinary public, and not by the banks, then the net loss in income to the banks arising out of such a loan of £1,000,000 would be £3,000 odd per annum. We may take it, however, that the banks in one way or another would be able to make up a loss of that sort. You have there the situation that a person holding genuine savings and lending them to the Government or the corporation for housing is, by doing so, causing loss to the banking system. Here we have a scheme by which very substantial sums of money are being earned by the banking system either through shaking the credit of the Dublin Corporation or, for some reason, that the holders of genuine savings were not prepared to invest their savings in corporation stock.
From the information put before us by the Government we have very big problems to deal with in regard to housing, roads and drainage and electrical development of one kind or another. Housing, for example, is very necessary for the health of the people, and for their economic well-being. None of these works is positively reproductive. Some are, perhaps, likely to be less productive than housing or road expenditure. We also want capital for industry, and we want to bring agriculture back to a vigorous and progressive state. We ought to be getting clear in our minds now as to where the moneys are to come from to build up the productive capital of the country, and the price that is going to be paid for it. If we are going to accept the situation in which the banks, lending money to the Government or the corporation, are going to claim a rate of interest that the holder of genuine savings may not be entitled to expect, then we are going to lift to a very high rate the interest that the genuine holder of savings is going to expect. By allowing the banks to charge as high a rate as 3¼ per cent. for Government loans or for housing, we are going seriously to injure the improvement of our agricultural and industrial development because we are going to put down on these an amount for interest charges that is going to be swollen by the way in which we allow the banks to increase their charges.
Everybody responsible for seeing that the banks are strong, healthy, vigorous and secure—that they function as faithfully in their own way as we expect carpenters and plumbers, in their way, to function—ought to stand over figures such as I have given. They ought to ask why, in the light of these figures, the banks should be paid as big an amount of money by way of interest as the investor of genuine savings, on the one hand, and why they should be allowed to charge 3 per cent. when they can make substantial profits by lending money at 2 per cent.
