THE FREEDOM-FIGHTING BANKS
By NICHOLAS DAVENPORT THE remarkable speed with which the joint stock banks
jumped into the hire-purchase finance business—by buying blocks of equity shares in the
leading finance companies—
proves that the move was a con- certed one and planned well in advance. In fact, the staff work was so brilliant that I suspect that it was the result of a com- bined headquarters operation with a generalis- simo in command. Could the 'supremo' possibly be the Governor of the Bank?
Something, of course, had to be done about bringing the hire-purchase finance business under
some form of central bank control. Under the Thorneycroft regime foreign money of the 'hottest' variety had been attracted to London to take advantage of the high money rates prevailing, and as the credit squeeze had prevented the com- mercial customers of the banks from obtaining the financial accommodation they required re- course was had to hire-purchase finance com- panies—at incredibly high cost. A mushroom crop of finance companies appeared overnight to lake advantage of this profitable form of usury financed in the first place by the 'hot' money from abroad. The rates charged to the unfortunate commercial customers must have worked out well above 25 per cent., for the finance companies themselves were at one time advertising for public deposits at 10 per cent. or more. That the Government policy of restraint in bank advances should be vitiated by unre- strained advances being made by so-called 'industrial' banks is so absurd that I am at a loss to explain why nothing was done about it in the Finance Bill. Mr. Amory did drop a few hints about coming legislation, but it looks as if he has now left it to the joint stock banks—with Bank of England connivance—to enter the hire-pur- chase field and establish sonic degree of control. For the sure result of the leading hire-purchase companies receiving unlimited joint stock bank support on a partnership basis is that the mush- room finance companies will now be squeezed out of the business. The latest move by the Midland Bank to offer 'personal loans' (on the American model) from £50 to £500 at 5 per cent. for one to two years makes this a near-certainty.
The benefit to both parties in the recent equity share deals—banks and finance companies—is obvious enough, but does the State benefit at all by these transactions? The Government's para- mount interest is to steer the economy towards equilibrium—away from inflation at one time and away from deflation at another—and for this pur- pose it is essential for it to exercise the greatest Possible control over the lending policy of the joint stock banks. But this Government—or is it the Governor?—seems content to leave lending policy to be decided by the money-making in- stincts of the joint stock bank chairmen. To buy the equity of their greatest commercial rivals— the hire-purchase finance companies—was no doubt a good stroke of busine'ss for the banks, but how does it advance the credit-control apparatus of the Government? Previously the Treasury, through its directives, could instruct the banks to limit their routine advances to the hire-purchase finance business, but now that the banks have taken these companies into part- nership—by acquiring their equity shares—how can the Treasury control in future the supply of money for hire-purchase finance? The lending policy of the banks in another field—the small industrial or commercial com- pany—presents a striking contrast. This lending they channel through the Industrial and Com- mercial Finance Corporation, in which they also own equity shares. But the 1CFC remains a victim
of a special credit squeeze. According to, its chairman; Lord Piercy, it could usefully advance
at least double the finance available to it if the banks would play. There are evident, he says, 'new springs of enterprise among small concerns': but the banks' squeeze has made more difficult 'the lot of quite an interesting crop of new ven- tures.' Now the professed policy of the Govern- ment is to help new enterprise among the smaller concerns in the business world, but it is not apparently the policy of the joint stock banks. The ICFC 'robs' their branch managers of a lot of business which they are not allowed to do direct since Mr. Amory lifted the official credit squeeze. Is it really safe for the Treasury, I wonder, to leave official lending policy entirely to the money-making instincts of the bank chair- men?
Recently Mr. Amory made a useful change in the technique of over-all credit control. He came to a temporary arrangement with the bank chair- men—'pending the recommendations of the Rad- cliffe Committee'—whereby the banks will be required to deposit at the Bank of England a certain percentage of their gross deposits. This is intended to draw off excess liquidity when that occurs and is comparable with the 'variable liquidity ratios' which I had often advocated in the past. This shows that the wise Mr. Amory is groping towards more direct control over bank advances. Should he not go further and secure sonic direct control over bank investments—in- cluding equity investments?
1 am not against equity investment by the banks. It could well be carried further. 1 would like to see the banks finance—by equity partici- pation as well as by credits—national fixed in- vestment trusts whose Is. units could be sold over the bank counters 4nd help to attract the savings of the working man. Perhaps the Midland Bank, under its new chairman, Lord Monckton, has another surprise in store along these lines. But Mr. Amory should be watching these de- velopments closely. The fight for freedom can go to the head.
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