As the oldest member of the banking community, I think, in this House, it seems incumbent upon me to make a few remarks on Senator Connolly's resolution. In doing so I shall try to take as my text the Senator's speech and deal with it, bit by bit, as he made his statement. I think I had better deal with the resolution itself which speaks of "the present excessive rate of interest" and so on because I think the Senator in his speech did not pay a great deal of attention to his text. He dealt with a very large range of subjects, completely outside his resolution, and, so I think, perhaps, it would be better if I followed him on the lines of his speech. There were some things in it I must say that I do not understand. I tried to understand them. He says in his speech that "there is a very considerable discrepancy between the rate of interest charged by the banks, at the moment, and the present value of money not only in this country but all over the world." I have been trying to know what that means and I cannot.
The present value of money all over the world? The man who can describe that to me is a wonderfully intelligent person. I cannot understand it myself. Perhaps the Senator will be able to explain. Then he went on to ask, "What is the accepted bankers' theory, as regards the value of money in this country, compared with the ordinary standard is completely ignored in the present situation." I cannot attempt to deal with a sentence like that. "The value of money in this country compared with the ordinary standard"—what does that mean? What is the standard? Is it the rate at which the Free State borrows money? Is it the standard at which the Free State can do its bills or the British Government can do its bills, or is the standard rate the rate that we can get on deposit? Is it the rate charged by bankers to Governments? I admit that this matter would require such an amount of explanation that I cannot attempt to deal with it.
We come down, then, to more practical matters, and what I want to point out is that at the moment there is a difference of 4 per cent. on the average as between the deposit rate and the overdraft rate. The same thing goes on in Great Britain as here. There is one thing that I think the Senator ought surely to have looked at in dealing with this matter. He talks of the English bank rate. He means, I suppose, by that the London rate. They are two totally different things. When you come to discuss the rate charged upon loans, and you want to compare the Irish bank rate and the English bank rate, it is not the Bank of England rate you talk about, but the London bank rate on loans and deposits, so that when the Senator talks of the English bank rate as showing a difference of 4 per cent. with our rate he means the London bank rate. That is so. The London bank rate, at the present moment, is 1 per cent. on deposits, and their minimum lending rate is 5 per cent. The Irish bank deposit rate is 1½ per cent., and the ordinary lending rate, as compared with 5 per cent., which is the London rate, is 5½ per cent. The difference between the two rates, that is, as regards the ordinary English banks and the Irish banks, is the same when the Senator talks in these kind of general terms.
At the present moment the Irish bank rate is 5½ per cent. That is the ordinary rate we charge on overdrafts, as I said. But the Irish bank rate that the Senator talks about, as compared with these other rates is 4 per cent. If the Senator looks this up on any of the cards he will find that out. Again he says, "we find to-day that the Irish bank rate is 2½ per cent. above the English bank rate." It is not 2½ per cent. above the rate of the London banks. There the Senator is comparing two totally different things. When we come to talk of the Bank of England rate anyone who studies banking in this country must know that the business to which that rate applies does not exist in this country at all. The class of people who deal with the Bank of England and make use of that rate are people who have securities in the nature of bills and other things that can be cashed at any moment. These bills, which have to be met to the hour, are for huge sums, and people only come to the Bank of England, which is a central bank, when there is a strain of money and the other London banks are not lending money enough to meet that. They come to the Bank of England and they produce a class of security which is of such a nature that it has always to be met to the hour and the minute, and the amounts dealt with are enormous. Such business does not at all exist in this country. When we talk of the Bank of England rate and compare it with our rate we are only confusing the issue altogether.
There is another point the Senator seemed not to recognise. He did not seem to realise that loans, overdrafts and those kind of advances must be dealt with in a totally different way to bills which are certain to be met or loans of a certain definite type to be paid on a certain date. Take, for instance, our own Government. They have been very fortunate, and the Senator himself referred in his speech to our Finance Minister having done an excellent piece of business. We agree with him. But to-day the Free State is paying nearly 5 per cent. on this loan while the British Government to-day cannot get any money on long loan for less than 5 per cent. But the British Government can get money on Treasury bills for three months at 2? per cent. or 2¼ per cent., because there is a business necessity for these kind of things in Great Britain. To say that we are robbing the public here because we charge 5½ per cent., when our own Government can only get a loan for any length of time at about the same rate or about 1/2 per cent. less, is begging the question.
Again the Senator uses words that I do not know whether he really meant or not. He talks of the stranglehold of the banks on industry and production. What sort of stranglehold have the banks got? The bankers have in their hands, from the public in this country, a great many millions of money which they are liable to repay at a given instant. During the first month of the deposit there is an understanding that the money put in is to be left for that month. That is the only condition. After that there is supposed to be given a week's notice of withdrawal. But as a matter of fact the client of an Irish bank knows perfectly well that if he needs money he has on deposit he has only to walk into the bank and say so; so that the banks of Ireland have to keep a vast amount of money through which they do their business, and which comes from people who have money to spare; it is the management of this money which is entrusted to the banks and that is what they work on.
The Senator referred to the capital and the reserves of the Irish banks. The whole of the capital, and the whole of the reserves, of all the banks in Ireland, compared with the millions deposited by the public, is infinitesimal. If we were to carry on entirely upon our own capital and resources, and that that was all we had to manage, we would be out of business very soon. The Senator says we have eight and three-quarter millions of capital in the bank and that we have got something like 125 per cent. of a reserve. I think that is why our depositors, and those who leave their money with us, feel so safe about it. Would it be at all likely that we would be entrusted with the amount of money we have if we had not put by these huge reserves?
I have been very long in banking and I can remember a time quite well when the Irish bankers distributed their reserves. I was young in those days and I did not see a terrible lot of harm in doing it, but, sundry matters connected with the policy of the bank, and other things, drew the attention of the banking world, generally, to the necessity for those very large reserves and the banks, for many years now, have altered that old policy. They do not divide up now. They doubled their reserves and the banks can stand shocks now which in my young days they could not stand. People who think that we could do our business on the capital of the banks can be assured that we could not do so. What we depend upon to do business with is the cash deposits of our customers. There is no stranglehold in that. The public give us the money and we distribute it to those who need money. We pay a certain percentage to the public who give us that money, but we have nothing to do with what the public do with their own money. If they choose to take their money from us to-morrow there is nothing to prevent them doing so, but they do trust us not to put their money into a lot of mad-cap proposals as regards industry, etc. They trust the bankers to manage their money, by giving reasonable banking accommodation to the business community with which they deal.
It is not the business of bankers to supply the capital of a business. That is the business of the public and the people who put their money into enterprise to supply the capital. What the banks' business should be is to supply the extra money needed by business from time to time, as it wants overdrafts to manage its business; but it is not the business of the banks to supply the real capital of the business. But there are some cases in Ireland which are different and which deal with the farming community largely. It is an extraordinary thing, and I am sure the Senator will probably say it is very lucky for the banks, that the Irish agricultural customer, as soon as he gets a bit of money, locks it up in the bank because he knows he can get it back whenever he wants it. He is extremely slow in putting his money into industrial investments. The Senator is right there. At the present moment there are a series of industrial investments into which everybody would like to see the farmer put his money, such as creameries and co-operative business of that kind. But it came out very largely before us at the Banking Commission that it is extremely hard to get the farmer to invest in these enterprises; that the most they would do would be take up half-crown shares, and that it takes years to get them to invest more money.
After a lot of arrangements made by the Department of Agriculture with regard to the new creameries to which the farmers were sending their milk, the trouble has been that capital cannot be got out of the farmers themselves. Arrangements are made by which they pay annual instalments, and the banks supply capital in this. But this is a national matter. The banks consider that this is the farmers' money, and that it is a safe and sound proceeding to invest it so. That is an exception to the general rule of banking where it is considered not safe for banks to lend to business concerns the capital upon which they work. It may be sometimes done, but such things are not done generally, and it is not ordinary banking. Why should the Senator talk of the stranglehold of the banks, and how could such a thing possibly exist? We have nothing to say to the holding of that money; we have no rights over it. If people in the country themselves want to put money into any of these industries, they have nothing to do but to go to the bank and take their money out and put it into the capital of a business if they want to promote it. It is quite a praiseworthy matter that businesses that require promotion should get people to put their money into them. We are the guardians and the trustees of the money the people give us. There are safe methods of banking and unsafe methods of banking, but, so far as I know, the Irish banks have had regard to the necessities of their depositors to such an extent that they will not indulge in unsafe banking.
The Senator quoted from a statement signed by Mr. McElligott, the present secretary to the Department of Finance, in the Minority Report which he made at the time of the Banking Commission. I am sure Mr. McElligott will feel himself very highly honoured at having some statements he made at the time selected from his report by Senator Connolly. I am certain when Mr. McElligott wrote that report he had no idea it was going to be made use of for a statement which subsequently came into the Senator's speech, that it is time that the system under which our banks are administered was ended. The main gist of Senator Connolly's remarks was based on Mr. McElligott's statement, and I doubt when writing his report Mr. McElligott had any idea that such use could be made of it, as, I am sure, it would be a matter of considerable astonishment to him to hear that such use was made of it. I see that Mr. McElligott has dropped into much the same mistake as the Senator himself did in his own quotation. He has quoted the deposit rate here and gave 5 per cent. as the Bank of England rate. There, I think, he referred to the English bank rate, which was at that time 6 per cent., and the margin was 3 per cent. I think if the Senator will look into that he will find it is so.
There is one thing we must remember. It is not easy to take a monthly state of affairs, as regards rates, and to base on that an argument for the establishment of laws regarding banks. That is what the Senator has sought to do. In long periods bankers may make more money because of the rates than at others. Sometimes the deposit rate is high and the lending rate low. The margin of profit varies. You will see from the speeches of the chairmen of the banks that it has been bad, or good, for the banks according to the rate prevailing. I could not deal here with what makes these rates. It is one of the most interesting studies in the world, and it has become infinitely more interesting in the last few years since the war.
The Senator seems to think that the bankers of the world are a curse to the world. I would like him to turn to some of the things that have been done by modern banks in restoring the credit of the smaller and the newer States in Europe. There is a combination on the part of the bankers of the world now to help the impoverished States. It is largely being engineered by Mr. Norman, the Governor of the Bank of England, and he has secured the assistance of banks in all countries, and they have lent money to help impoverished and new States in a way that has completely resuscitated and put these new States into good business. It is completely to the methods of banking that that is due, and I do not think it could be classed as a stranglehold upon the people. That kind of thing would not be possible at all in a small country such as this. Banking in this country is totally different to what it is in America. I wonder did the Senator, in his attacks upon the banks, notice at all what the Banking Commission said about the banking system in the Free State? At the Banking Commission we had as chairman Mr. Parker Willis—an American and a great believer in the federal reserve system of the United States of America. When he first sat down with us he thoroughly believed he could turn the banking system of this country into something such as the federal reserve system of the United States of America. He soon found out it was impossible, and I think his final words were: "You should try now and get State bills going which you can rediscount by the establishment of a federal reserve system." I wonder what our farmers would think if they saw their bills rediscounted and someone was to come down upon them for the whole amount. The whole system of federal reserve banking is wholly different. I think I had better not say whether it is straight or safe. It is under that system that we have seen the terrible catastrophes which we have witnessed in America.
Although the Senator referred to the Hatry collapse, surely he does not mean to say that the Irish banks did anything that would induce their customers to go into that. Whether any money was lost by private people or not in that connection I do not know. There must have been some Irish money lost in that transaction, but compared with the losses in Great Britain it was very small. It was outside ordinary banking business.
It was robbery and swindling of a most accomplished description, and, that by it many people were taken in, I have no doubt, but what that has to do with the Irish state of affairs, as I said before, I do not know.
Looking at what the Banking Commission thought about our banking system here, I would refer the Senator to a report which was signed by Mr. McElligott himself. It is a queer thing that I did not sign it myself, but the reason that I did not sign it was that I presented another minority report dealing with the currency problem because I differed from the Commission on sundry points, but that is neither here nor there. Mr. McElligott signed this report. It is the report of the Currency Commission which sat in 1926, and it says:—
"The Saorstát is provided with a sound, well-maintained system of commercial banking which has been free from the failures that have of late years been common in other countries. There can be no doubt that the public at large possess a high degree of confidence in it."
That report was signed by H. Parker-Willis, Chairman; J.J. McElligott, C.A.B. Campion, who was an Australian; Mr. Lionel Smith-Gordon, and three bankers— Mr. Lillis, Mr. Galloway, from Northern Ireland, and Mr. O'Connell. Then again if you take the second report you will see some other references as to what they thought about the thing. I would direct the Senator's attention to this matter, because he apparently would rush into legislation in regard to our banking system without the consideration which those engaged in the business seem to think necessary. Here is what they say (the Saorstát):—"With a population of 3,000,000 persons or less and with an economic system predominantly agricultural while its local financial market has been but slightly developed, it is certainly not in a position to attempt anything of an experimental nature in money or banking, or to undertake the establishment of a monetary base which would set it quite apart from the two countries with which it is economically most closely allied."
It says again: "Nevertheless, in spite of these inevitable variations, the price level of the Saorstát is not far from that of the English market and parallels the latter with an unusual degree of closeness; in fact it could hardly do otherwise when it is remembered that the prices of many Irish staples are practically made in the English market, while the prices of English commodities sold in Ireland are, of course, based upon what must be paid for the goods when they are purchased from their English manufacturers."
The Senator was trying to show that we should be separate altogether. With our markets such as they are with Great Britain that would be perfectly impossible. We are bound by our trade conditions.
Here is another quotation—anyone can get the report—I am only now quoting what applies to the speech that we are discussing:—"In these circumstances any change in currency or banking policies that would create a decided separation from or opposition to those of Great Britain should be carefully considered before being adopted, because of the indirect and incidental harm undoubtedly to be expected therefrom as regards immediate incomes of the farmer, the producer and the business man."
These are the words spoken by the Banking Commission, which had been sitting for months and months, examining all kinds of statements put forward by witnesses, industrial, farming, and every other kind, from all over Ireland. There are other things that ought to be alluded to, but I think I have quoted sufficient to show what a very sensible Commission, with an American at its head, who was fully imbued at the outset with the idea that we were such old-fashioned fogies, finally adopted.
The Senator talks about unclaimed bank balances. I would like to ask him what really put that into his head? What really does he mean? Has the Senator any idea of what amount the unclaimed balances would total all over 10 years in the whole United Kingdom? What do they amount to entirely on the other side of the water?
