In comparison with similar banks in other countries the trading banks in New Zealand are subjected to very firm control and their activities in some fields are severely circumscribed. For example, they are subject to controls or, if not controls, to the terms of informal agreements either with the Reserve Bank or with the Government over:

1. The average rate of interest to be charged on all overdrafts.

2. The amount of overseas funds they may collectively hold at any time.

3. The rates of exchange charged for various transactions.

4. Their investments in Government securities.

5. Their participation in ancillary activities such as hire-purchase finance or savings banking.

Reasons for these restrictions on the trading banks' activities are to be found in the sources set out later. Here it is sufficient to note two points. First, despite the limitations on their activities, the trading banks in New Zealand have expanded steadily, as measured by the number of branches and the value of their advances to customers, although in relation to other financial institutions the expansion over recent years has been modest. Secondly, they provide a considerable range of services to their customers.

Of the five banks operating in New Zealand, the largest is the State-owned Bank of New Zealand which handles approximately 40 per cent of the total business. It is also the only New Zealand bank. The National Bank, whose business is almost entirely in New Zealand, is controlled by a London Board of Directors. The three others are essentially Australian banks.

In New Zealand bank profits are earned from four main sources–interest on advances, margins between buying and selling rates of exchange, charges for inland exchange and other services, and interest on investments. That these are relatively modest is evident from the annual accounts of the Bank of New Zealand. In its financial year 1963–64, this bank's disclosed profit of £748,375 was equivalent to just under 6.5 per cent on total shareholders' funds.

The main business of the trading banks comprises the following:

1. The acceptance of deposits either for a fixed term, in which case interest is paid, or on an “on demand” basis; i.e., current accounts on which no interest is paid unless the account is operated by a non-trading organisation.

2. The granting of loan accommodation to customers by overdraft or by discounting bills of exchange.

3. The provision of the current account and cheque system at a modest cost to customers.

4. The provision of facilities to handle transactions in overseas currencies, that is, remittances overseas in payment of imports or services and the receipt of overseas funds from exports, for example.

5. Assisting overseas travellers not only in their financial requirements–travellers' cheques and letters of credit–but also by arranging bookings.

6. The preparation of trade reports and confidential reports on the financial strength of local and overseas businesses.

7. The provision of facilities for the shipment of produce, particularly wool, to overseas markets on the producer's own account.

8. The provision of safe-custody facilities for documents and other valuables and of other ancillary services such as acting as attorneys for investment holdings.

9. The provision of savings bank facilities. (Authorised in 1964)

A few statistics will illustrate the scope and importance of the trading banks' major activities.

At the end of June 1963, total deposits with the banks were £343.3 million, compared with £275.9 million 10 years earlier. Of the total of £343.3 million, 265.0 million, or 77 per cent, were non interest bearing (i.e., current accounts), and the balance £74.3 million, interest bearing (i.e., largely fixed deposits).