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6 1 S T CONGRESS "l

2d Session

]

SENATE

DOCUMENT

N o . 583

NATIONAL MONETARY COMMISSION

THE

Canadian Banking
System
By

JOSEPH FRENCH JOHNSON
Dean of New York University School of Commerce,
Accounts, and Finance

Washington : Government Printing Office : 1910

NATIONAL MONETARY COMMISSION.

NELSON W. ALDRICH, Rhode Island, Chairman.
EDWARD B. VREELAND, New York, Vice-Chairman.
J U L I U S C. BURROWS, Michigan.

J O H N W. W E E K S , Massachusetts.

E U G E N E H A L E , Maine.

ROBERT W . BONYNGE, Colorado.

PHILANDER C. K N O X , Pennsylvania.

SYLVESTER C. SMITH, California.

THEODORE E . BURTON, Ohio.

LEMUEL P . PADGETT, Tennessee.

H E N R Y M. TELLER, Colorado.

GEORGE F . BURGESS, Texas.

HERNANDO D. MONEY, Mississippi.

A R S ^ N E P . P U J O , Louisiana.

J O S E P H W . BAILEY, Texas.

ARTHUR B . SHELTON, Secretary.

A. PIATT ANDREW, Special Assistant to Commission.

PREFATORY N O T E .

The author spent a few weeks in Canada during the
spring of 1909 and is certain that he sorely taxed the patience of bankers and business men with his questions.
But they did not let him know it, and he now wishes to
thank them all for their uniform courtesy, and to say to
his own countrymen that Canadian hospitality is of the
warm, old-fashioned, dependable kind. He is under
greatest obligation to Hon. T. C. Boville, deputy minister
of finance; Mr. John T. P. Knight, of Montreal, secretarytreasurer of the Canadian Bankers' Association; Prof.
James Mavor, of the University of Toronto; and Mr. Fred
W. Field, editor of the Monetary Times. Readers interested in the development of the Canadian banking system
should read, in connection with this volume, Dr. R. M.
Breckenridge's "The History of Banking in Canada,"
which is also published by the National Monetary Commission.
T H E AUTHOR.
A P R I I , 18,

1910.
3

TABLE OF CONTENTS.
Page.
CHAPTER

I.—INTRODUCTION

The system not new
Other financial institutions
Monetary system
Resources and industries

10
12
14
16

I I . — E S S E N T I A L S OF T H E CANADIAN BANKING SYSTEM

Process of incorporation
Security and redemption of notes
Importance of redemption
The circulation redemption fund
Two negative qualities
Management of failed banks
Monthly returns to the government
Canadian Bankers' Association

I I I . — T H E MANAGEMENT

Management of branches
I V . — L O A N S AND DISCOUNTS

How the law protects the banks
Banks silent partners in industry
A customer's line of credit
The " one-bank " policy
Loans to farmers
Call loans in Canada and elsewhere
As financial institutions
V.—LIABILITIES

34
39

41
42
44
45
48
49
51
52

Three kinds of deposits
Savings deposits always paid on demand
Savings depositors not properly rewarded
No bankers' bank
Issue and redemption of notes
Bank notes have no competition
Elasticity of the circulation
No limit of issue really necessary
The practical limit under the legal
V I . — T H E RESERVE

18
21
22
24
25
26
28
29

52
54
55
57
58
60
61
64
65
67

Amount of the reserve fixed by each bank
Reserve composed of four elements
5

69
70

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72
74
78
81

VI.—Call loans in New York City
Investment securities
Adequacy of the reserve
Fluctuations of reserve, 1906-1909
V I I . — O P E R A T I O N OF T H E SYSTEM

Old banks get the new business
Competition is not lacking
Clearing houses
Banking in different provinces
Eastern provinces have suffered
How the crop movement is
Double pull on the banks
Variations in the circulation
Large use of deposit currency
Investment capital well distributed

financed

85
87
90
91
92
94
95
97
99
101

V I I I . — T H E SYSTEM I N T I M E OF S T R E S S

104

Strong because elastic
Solidarity or unity of the system
Importance of the banker
The panic of 1907
Canadian banks were prepared
Gradual contraction of loans
Call loans reduced in New York
Circulation too near the limit
The government tries to help
Events in 1908
Two interesting bank failures
First outbreak of high

105
106
109
no
in
115
117
118
119
122
124
125

finance

IX.—CONCLUSION

128

Is there a weak spot ?
The rest-fund fad
Have Canadian bankers a monopoly ?
Bank inspection by outsiders
Need of education

128
130
133
135
137

BIBLIOGRAPHY

138

A P P E N D I X A.—MEMORANDA AND LEGISLATION RELATING TO C U R -

RENCY IN 1907 AND 1908:

Extract from a Report of t h e Committee of the
Privy Council, approved by the GovernorGeneral on the 12th of November, 1907
Extract from a Report of the Committee of t h e
Privy Council, approved by the GovernorGeneral on the 26th of November, 1907
An act respecting a certain issue of Dominion
notes (assented to 20th July, 1908)
6

141

146
148

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A P P E N D I X B . — T H E COOPERATIVE P E O P L E ' S

BANKS OF CANADA.

By Alphonse Desjardins, president and manager
of " La Caisse Populaire de Levis"
APPENDIX C.—STATISTICS FROM CANADA YEARBOOK, 1908

149
175

(1) General statement of chartered banks, 18681908
(2) S t a t e m e n t of chartered banks for the calendar years 1904-1908
(3) Principal assets of each of the chartered
banks of Canada, December 31, 1908
(4) Principal liabilities of each of the chartered
banks of Canada, December 31, 1908
(5) Average monthly circulation of Dominion
notes by denominations, 1884-1908
(6) Business of the Dominion government savings banks, 1868-1908
(7) Business of the post-office savings banks,
1868-1908
(8) Total business of post-office and Dominion
government savings banks, 1868-1908 __

177
178
179
180
181
182
183
184

APPENDIX D . — S P E C I M E N FORMS USED BY BRANCHES IN R E P O R T S
TO H E A D O F F I C E

I.
II.
III.
IV.
V.
VI.

185

Quarterly statement of profits
Statement of profit and loss for quarter
Balance of deposit receipts
Interest on demand notes with payments
Return of liabilities and assets
Foreign exchange account

187
188
189
189
190
191

L I S T OF CHARTS.
Facing page.

CHART I.—Net liabilities and current loans in Canada, 1906-1909. .
CHART II.—Call loans in Canada and elsewhere, and current loans
outside Canada, 1906-1909
CHART III.—Time and demand deposits, 1906-1909
CHART IV.—Growth of capital, surplus, and circulation, 1900-1909.
CHART V.—Net liabilities and total reserve, 1906-1909
CHART VI.—Ratio of total reserve and of cash reserve to net liabilities, 1906-1909
CHART VII.—Compairson of maximum circulation with cash on
hand and with paid-up capital, 1906-1909
CHART VIII.—Fluctuations in the four factors of the reserve: Cash,
balances on deposit outside of Canada, call loans
outside of Canada, and securities, 1906-1909

48
48
58
66
81
81
96

122

THE CANADIAN BANKING SYSTEM.
CHAPTER

INTRODUCTION.

Financially Canada is p a r t of t h e United States. Fully
half t h e gold reserve upon which its credit system is based
is lodged in t h e vaults of t h e New York Clearing House.
I n a n y emergency requiring additional capital Montreal,
Toronto, a n d Winnipeg call on New York for funds just
as do St. Paul, Kansas City, and New Orleans. New
York exchange is a current and universal medium in Canada and is in constant demand among t h e banks. A
Canadian wishing to invest in securities t h a t m a y be
quickly marketed commonly turns to the New York market for stocks and bonds. Yet t h e American banker
visiting in Canada, if he is unacquainted with t h e history
of banking in his own country, finds himself in a land of
financial novelties, for Canada has a banking system unlike a n y in operation in the United States a t t h e present
time. Twenty-nine banks, known as t h e " chartered
b a n k s , " transact all t h e banking business of t h e Dominion.
They have 2,200 branches, and each m a y establish new
branches without increase of its capital stock. They issue
notes without depositing security with t h e government

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and in such abundance that no other form of currency
in denominations of $5 and above is in circulation. Notwithstanding the fact that the notes are " unsecured,'' their
"goodness" is unquestioned among the Canadian people.
THE SYSTEM NOT NEW.

But to the student of the history of banking in the
United States there is little that is radically new in the
Canadian system. He finds in it many of the practices
and expedients that were found excellent in the United
States in the first half of the nineteenth century, and is
almost persuaded that but for the civil war what is now
known as the Canadian banking system would everywhere
be called the American system.
The fiscal exigencies of war, which have caused changes
in the banking systems of most countries, have had no
influence upon the development of banking in Canada.
During the first half of the nineteenth century the commercial and financial interests of Canada and the United
States were comparatively intimate and the financial institutions of both countries developed on similar lines.
The safety-fund system, first introduced in the State of
New York in 1829, found favor also in Canada and is still
an integral part of the Canadian banking system. Branch
banking, which was most successfully illustrated in this
country by the Bank of Indiana, and which now exists
in some form or other in almost all countries except the
United States, has always prevailed in Canada. The importance of a prompt redemption of bank notes as exemplified in the old Suffolk banking system in New England

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before the war, was fully realized in Canada and is probably better illustrated in the present Canadian system
than in any other country. There bank notes and bank
checks are treated as identical in nature, both being cleared
with the same regularity and promptness. The so-called
free banking system, which was first adopted in the State
of New York in 1839 and thereafter adopted by 18 other
States of the Union, was tried in Canada in the fifties, but
not on a large scale. This system, requiring that issues
of bank notes should be secured by a segregated deposit
of certain classes of stocks and bonds, has never met with
approval among the leading bankers of Canada.
The Canadian system is a product of evolution. It has
taken its present form because of the commercial and
financial needs of the Canadian people. It was not created by lawyers or statesmen to meet a fiscal need of the
government, but has grown up gradually under the fostering care of experienced bankers, no changes having
been made until experience proved them necessary or
advisable. The business interests of the Dominion,
through their representatives in the provincial legislatures and in the Dominion Parliament, have had much
to do with its development in a natural effort to protect
the rights of the borrower, the depositor, and the note
holder. The banks do not possess all the privileges
many of the bankers would like to have, nor do the business men of Canada believe in the real necessity for all the
protection given to the banks by the law, yet in the main
the system is satisfactory both to bankers and to their
customers.

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The chartered banks transact the business which in the
United States is divided among national banks, trust
companies, private banks, and savings banks. They buy
and sell commercial paper, discount the notes of their
customers, lend money on stocks and bonds, make advances to farmers, and sometimes aid in the financing of
railroads and industrial enterprises. To a Canadian the
word " b a n k " means one of the twenty-nine "chartered
banks," for the law prohibits the use of the word " b a n k "
by any other institution.
OTHER FINANCIAL INSTITUTIONS.

The only other financial institutions in Canada which
possess much importance are the mortgage and loan companies. These usually operate under charters granted by
the provincial legislatures and do a business similar to
that of the farm and mortgage companies which once
flourished in the United States, making loans to farmers
for a term of years and taking farm mortgage for security.
They also make loans upon urban and suburban real
estate and thus aid in the upbuilding of the cities and their
suburbs. The business of these institutions is made
possible by the fact that the bank act does not permit the
chartered banks to accept loans secured by real estate.
The Dominion government maintains a double system
of savings banks. One set is managed by the post-office
department, every post-office receiving deposits. The
other set is managed by the finance department. The
post-office department also sells annuities and old-age
pensions. The money received through the savings
banks is regarded as a loan from the people and is used,

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like money obtained by taxation, in the payment of the
government's general expenses. The government is required to carry a gold reserve of 10 per cent against the
savings deposits, but no assets are set aside for their
security. The chartered banks' pay the same rate of
interest and get most of the business, for they offer facilities
with which the government does not attempt to compete. 0
Most of the government's deposits come from the poorest
and most ignorant classes, people who in all countries are
suspicious of banks. In 1909 the deposits amounted to
about $60,000,000, of which fully 80 per cent came through
the post-offices. In the same year the time or savings
deposits of the chartered banks amounted to about
$350,000,000. Some of the Canadian cities maintain
municipal savings banks, but they are of relatively small
importance.
Trust companies in Canada are not financial institutions. They are trust companies in fact as well as in
name, their business being to act as trustee and administrator. A few of them accept deposits, although it is not
certain that they have a right to do so. The bulk of the
money they handle comes to them through the administration of estates and trust funds.
Private banking firms are almost unknown in Canada,
there being only two or three in the entire Dominion, and
a The attitude of the bankers toward the government savings banks is
shown by the following remarks of a Montreal banker: " T h e government
savings bank deposits are in the aggregate too small to have made any inroads upon our business. The disadvantages to the depositor are so many
more than with the savings accounts of the banks t h a t people prefer the
banks. We do not worry over the competition t h a t they offer.
The
accounts t h a t the government gets we are about as well off without."

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these do a mortgage and loan business rather than a
strictly commercial banking business.
Hence, if anyone seeks to understand the financial or
banking situation in Canada, he must devote his attention
in the main to the chartered banks. These through their
branches furnish the loanable capital necessary for the
support of the Dominion's trade and industry and for
much of its agricultural enterprise. To them the government turns when funds are needed for internal improvements or when the exchequer faces a deficit. The promoters of street railways, steam railways, steam railroads,
and other permanent improvements take counsel with the
managers of these chartered banks before they issue their
securities. The banks as a rule do not invest their funds
in the stocks or bonds of new enterprises, yet their managers are the men most familiar with the world's money
markets and their approval, therefore, of any financial
undertaking is highly esteemed.
MONETARY SYSTEM.

Canada's monetary system is substantially the same as
that of the United States. The unit is the dollar of 23.22
grains of pure gold. The gold coins of the United States
are legal tender in Canada. So is the British sovereign,
which is rated at $4.86^3. Until recently all Canadian
coins were minted in either England or the United States,
but in 1908 a branch of the British mint was established
in Ottawa.
The paper currency of Canada consists of Dominion
notes and bank notes. The former are issued by the
government under authority of the " Dominion notes act,"

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which permits an unlimited issue, requiring security as
follows: That for $30,000,000 of the notes outstanding
the minister of finance shall hold in gold and government
securities a reserve equal to 25 per cent of the issue, the
amount held in gold to be not less than 15 per cent of the
amount of notes outstanding; and that against all notes
issued in excess of $30,000,000 the minister shall hold an
equal amount of gold. The framers of the act evidently
had in mind the limitation placed upon the Bank of
England's issue of notes by the Peel act of 1844. The
Dominion notes, accordingly, are gold certificates rather
than credit notes. The minister of finance is required to
redeem the notes in gold at branches of his department
in several different cities. If need be, the minister may
sell bonds to obtain gold for use in the redemption of
the notes.
Dominion notes are legal tender and may be issued in
any denominations, but experience has proved that they
are most needed in bills of large denominations for use in
banking reserves and in the form of $1 and $2 bills, the
banks not being permitted to issue notes under $5. The
average circulation of Dominion notes in 1908 amounted
to $68,602,944, of which amount $52,882,708 was in $500^
$1,000, and $5,000 bills, and $14,910,365 in $1 and $2 bills.
There has been a pretty constant increase in the amount
of Dominion notes outstanding. In 1900 the total was
only $26,550,465. The bills of large denominations are
practically all carried by the banks in their reserves.
Canadian banks are not permitted to issue notes of a
denomination less than $5. Of fives and multiples thereof

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they may issue an amount equal to their paid-up capital
without deposit of security and without payment of tax.
As a result the currency in the hands of the people consists
almost exclusively of bank notes. The amount in circulation increased from $50,000,000 in 1900 to $81,400,000 in
1909.
RESOURCES AND INDUSTRIES.
The Dominion of Canada contains more territory than
the United States with Alaska included. Its area is
3,745,000 square miles, of which about 70,000,000 acres
are occupied. Much of the territory lying in the unknown North will probably remain long unoccupied and
unexplored. Yet the Dominion contains idle land and
unutilized resources sufficient to maintain a population
many times larger than it now possesses. The minister of
finance in his budget speech in April, 1909, estimated the
population of Canada at 7,500,000 people. It would be
hard to find a Canadian who does not believe that this
country is destined soon to have 100,000,000 people enjoying all the comforts and luxuries of modern civilization,
and it is partly because of this confident belief that the
Canadian public has lost interest in the question of annexation to the United States.
The leading industries of Canada are agriculture, lumbering, mining, and fisheries. Western Canada has a soil
and climate well suited to the culture of wheat and good
for the raising of cattle and horses. Dairying is an important industry in Ontario and all the provinces to the
eastward. In 1908 Canada produced 115,000,000 bushels
of wheat, 267,000,000 bushels of oats, 50,000,000 bushels of

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barley, 21,000,000 bushels of corn, and 73,000,000 bushels
of potatoes. The Province of Manitoba produced nearly
one-half of the wheat crop and Saskatchewan one-third of it.
The foreign trade of Canada has more than doubled in
the last ten years. In 1898 the total of imports and
exports amounted to $304,000,000, the imports having
been $140,000,000 and the exports $164,000,000. In 1908
the total was $651,000,000, the imports having been
$371,000,000, and the exports $280,000,000. Since 1902
the imports have uniformly been larger than the exports,
the excess of imports doubtless representing in some
measure the investments of foreign capital.

31870—10

CHAPTER

II.

ESSENTIALS OF THE CANADIAN BANKING SYSTEM.
A chartered bank in Canada is a bank of branches, not a
bank with branches. The parent bank, technically known
as the "head office," neither takes deposits nor lends
money. All the banking business is done by the branches,
each enjoying considerable independence, but all subject
to the supervision and control of the head office. The
law places no restrictions upon the number or location
of branches. Canadian banks, therefore, have branches
in foreign countries as well as in Canada.
The general bank act, under the terms of which every
bank obtains and holds its charter, is subject to revision
every ten years. In its present form it is substantially
as passed in 1890. A few unimportant changes were
made in 1900, and among both bankers and politicians
there is some talk to-day about the modifications of the
act that will be proposed in 1910. The bankers themselves would be well satisfied if the present law were
reenacted without amendment.
PROCESS OF INCORPORATION.
The provisions of the bank act with respect to the
organization of new banks are intended to guard against
the entry of unfit or inexperienced persons into the banking business. The minimum required capital of a bank
is $500,000, of which all must be subscribed and one-half
paid in before a new bank can open. At least five men of
integrity and good financial standing must agree to act as

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provisional directors and secure a favorable report on their
project from the parliamentary committee on banking and
commerce. These men must agree to subscribe for fairly
large blocks of stock, otherwise the committee will be
inclined to reject their application. They must convince
the committee that their project is a well-considered one,
that there is need for the new bank, that it is a bona fide
enterprise, that they have in mind a competent man for
general manager, that they really intend and expect to
do a legitimate banking business. If they satisfy the
parliamentary committee it will be granted. The bank,
however, can not yet begin business. Provisional directors now have merely the right to advertise and cause stock
books to be opened. If inside of one year capital stock to
the amount of $500,000 has been subscribed and $250,000
thereof paid in, the provisional directors may call a meeting
of the shareholders, at which a board of regular directors
shall be chosen. Before this meeting is held at least
$250,000 in cash must be paid over to the minister of
finance. The regular directors must then apply to a
body known as the treasury board a for a certificate permitting the bank to issue notes b and begin business and
« The treasury board consists of the minister of finance and five ministers
nominated from time to time by the governor in council. The minister of
finance is chairman of the board and the deputy minister of finance ex
officio the secretary.
b The designing and engraving of the notes is left with the bank itself.
Many of the banks have had their notes made in the United States, b u t a
bank-note company has been established in Canada and is getting a larger
proportion of this business every year. The notes must bear the signatures
of two officers of the bank. The authority to sign, however, may be
delegated to subordinates. When notes are shipped by the head office to
a branch they are usually sent with only one signature, the other being
supplied by one of the branch offices. If the notes should be lost or stolen
en route they are worthless.

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the treasury board may refuse this certificate unless it is
entirely satisfied that all the requirements of the law have
been met. Delay on the part of the treasury board might
prove fatal to the new enterprise, for if a new bank does
not obtain a certificate within one year from the date of
its incorporation, all the rights, powers, and privileges
conferred by the act of incorporation cease.
These requirements make it impossible to organize a
new bank in Canada with any degree of secrecy. When
application is made for a new charter the fact is known to
every banker in the Dominion. The secretary of the
Canadian Bankers' Association, although not required to
do so by law, would undoubtedly get together at once all
possible information with regard to the proposed incorporators and the board of provisional directors.
Having obtained its charter, a new bank must open its
head office in the place designated, and may then proceed
to establish branches or agencies, upon the number and
location of which the law places no restriction. Under its
charter it has authority to do a general banking business;
it may discount commercial paper, lend money on collateral security, accept deposits payable on demand or after
notice, and issue circulating notes up to the amount of its
unimpaired paid-up capital in denominations of $5 and
multiples thereof. An amendment of the bank act passed
July 20, 1908, gives the bank the right to issue what may
be called an emergency circulation during the crop-moving
season (October 1 to January 31). During this period the
legal maximum of the circulation of a bank is its paid-up
capital plus 15 per cent of its combined paid-up capital
and surplus or rest fund. This emergency circulation,

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which consists of notes in form and in other respects
exactly like the regular issues, is subject to a tax at a rate
not to exceed 5 per cent per annum, the rate being fixed by
the governor in council. If a bank's circulation does
not exceed its paid-up capital, it pays no tax.
SECURITY AND REDEMPTION OF NOTES.

The law is silent on several subjects that seem of great
importance to most bankers in the United States. For
instance, it does not require that the banks shall deposit
with a government official, or in any way set aside any
kind of security for the protection of the note holder. It
does not even require that the banks shall carry a cash
reserve against either notes or deposits, nor does the law
make the notes a legal tender for any payment. A bank
need not accept the notes of other banks. The government does not guarantee the redemption of the notes.
Neither does it bind itself to receive them in payment of
dues to itself.
Nevertheless the notes of the Canadian banks are everywhere acceptable at par, the people apparently not being
at all concerned about their " goodness." And their confidence in the note has been well justified, for nobody
since 1890 has lost a dollar through the failure of a bank to
redeem its notes. Following are the legal requirements,
which for twenty years have prQved adequate protection
for the note holder:
1. Every bank must redeem its notes at its head office
and in such commercial centers as are designated by the
treasury board. The redemption cities are the same for
all the banks. They are Toronto, Montreal, Halifax,
Winnipeg, Victoria, St. John, and Charlottetown.

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2. Each bank must keep on deposit with the minister
of finance a sum of lawful money (gold or Dominion notes)
equal to 5 per cent of its average circulation; the total so
deposited is called the "circulation redemption fund." It
is a guaranty or insurance fund for use, if need be, in the
redemption of the notes of failed banks.
3. Bank notes possess first lien upon the assets of a bank.
4. Bank stockholders are liable to an assessment equal
to the par value of their stock.
5. A bank must make to the minister of finance on or
before the fifteenth of each month a detailed statement of
its assets and liabilities on the last business day of the preceding month. This monthly return, the form for which
is set forth in the act, must be signed by three general
officers.
6. The Canadian Bankers' Association, an incorporated
body of which each bank is a member, is given supervision by the bank act of the issue and cancellation of notes
and of the affairs of a failed bank.
7. The notes of a failed bank draw interest at 5 per cent
from the date fixed for their redemption by the minister
* of finance, who may redeem them out of the assets of the
bank or out of the " circulation redemption fund."
IMPORTANCE OF REDEMPTION.

Each of these provisions of the law has its value and
significance, but only the first is absolutely essential to
the successful operation of the system. All the other provisions might be changed or abolished without impairment
of the efficiency of the banking system. But the abolishment of this redemption svstem would at once give Canada

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a new banking system.. The bank note is almost the sole
circulating medium in Canada, and the people have confidence in it because it is tested every day at the clearing
houses and proves itself as good as gold. This daily test
would probably not take place with the same regularity
as now if the banks did not have branches or if they were
obliged to deposit security against their issues. Canadian
banks are national, not local institutions. All but a few
of them have branches in every part of the Dominion, and
these branches, as fast as they receive the notes of other
banks, either send them in to the nearest redemption
center or convert them into lawful money—or its equivalent, a bill of exchange—through branches of the issuing
banks located in the same towns. The 29 chartered banks
have 2,200 branches and each bank is seeking, through its
branches, to satisfy all the legitimate needs of the people
for a circulating medium. When the note of a bank is in
circulation it is earning money for the bank, but when it
is in the vault or on the counter of the bank it is an idle
and useless piece of paper. Hence every bank always
pays out its own notes through its branches and sends the
notes of other banks in for redemption, thus increasing its
own circulation and strengthening its own reserve.
Furthermore, if the banks were not allowed complete
freedom of issue within the prescribed limit, but were required to deposit some form of security, as is required of
the national banks in the United States, an investment
or speculative risk would arise that would inevitably
cause friction. If bonds were designated as security,
bankers might often be tempted by high prices to sell
their bonds and forego the profit on circulation for the

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sake of making a larger profit by the sale of the security.
Thus the volume of bank notes might contract even at a
time when the people needed more currency. In such
case, of course, Canada would be obliged to import gold
in order to fill the gap in the circulating medium.
THE CIRCULATION REDEMPTION FUND.

The 5 per cent insurance fund for the redemption of
the notes of failed banks is theoretically an important
and prominent part of the system, yet practically it
would seem to be of little consequence, for not once since
1890 has it been necessary to use a dollar of the fund.
Banks have failed, to be sure, but the notes of these banks
have always been redeemed either out of the assets or by
recourse to the double liability of the shareholders. It
is a mistake to suppose that the people of Canada have
confidence in bank notes because of the existence of this
redemption fund. The average business man knows
nothing about the fund and if his attention were called to
it as being a source of security for the bank notes he
would probably think a 5 per cent reserve altogether too
small. The real reason why the people have faith in bank
notes is because the notes are always honored by the
banks and never fail to stand the test of the clearing
house. In other words, they believe that bank notes are
good for about the same reason that they believe the sun
will rise in the east every twenty-four hours and do not
bother themselves about reasons.
Nevertheless this redemption fund does contribute to
the strength of the banking system. It makes each bank
to a certain extent liable for the mistakes of other banks,

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and as a result gives rise to a spirit of mutual watchfulness
and helpfulness. Other features of the system contribute
to the same result, especially the fact that a Canadian
bank accepts from a depositor without indorsement the
notes of other banks. Since the banks have branches
in agricultural and mining communities, often distant
from the railroad by several days' journey, and these
branches are accepting the notes of other banks and giving credit for them as if they were gold itself, it is evidently important that each banker should have all possible information with regard to the status and business of
his competitors. As a result one finds among the bankers
of Canada a surprisingly intimate knowledge of each
other's affairs.
TWO NEGATIVE QUALITIES.

The two negative qualities of the Canadian bank
note—its lack of a legal-tender quality and of a government guaranty—at first sight may seem to readers in the
United States a source of weakness. Yet Canadian
bankers would doubtless all agree that nothing would be
gained by making bank notes legal tender for any kind
of payment or by making the government in any measure
liable for their ultimate redemption. Such measures
would probably be rejected as likely to prove harmful. It
would be like hampering a flying machine with unnecessary
bars of steel. Bank notes, like bank checks, are mere
promises to pay money and are more convenient than
money because they can be created as need for a medium
of exchange arises. When either has done the work that
called it into existence, it should disappear from circula-

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tion and be redeemed. If it is made a legal tender like
money itself, or if its redemption is guaranteed by a
strong government, there is always the danger that
ignorant classes of people will regard it as money itself
and withdraw it from circulation.
The Canadian government has nothing to do with the
daily redemption of bank notes and does not guarantee
that they shall be redeemed. It is custodian of the 5 per
cent redemption fund and is under obligation to redeem
the notes of failed banks out of this fund, but if a series
of bank failures should exhaust it the note holder has no
guaranty that government funds will be used for his relief .a
The possession by the note holder of a first lien upon the
assets of a bank, including the funds that may be collected
from shareholders on account of their double liability,
gives rise to such general confidence in the ultimate convertibility of a bank note that the notes of a failed bank,
on account of the interest they bear, sometimes command
a premium. As a rule, the notes of such a bank are collected by the other banks and held until the date of
redemption has been named by the minister of finance.
MANAGEMENT OF FAILED BANKS.'

If a Canadian bank fails to meet any of its liabilities as
they accrue, it forfeits at once its right of independent
management and is taken charge of by a "curator"
appointed by the Canadian Bankers' Association. His
powers and duties are defined thus in the law:
a Bank act, section 65: (6) Nothing herein contained shall be construed to
impose any liability upon the government of Canada, or upon the minister,
beyond the amount available from time to time out of the circulation fund.

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"The curator shall assume supervision of the affairs of
the bank, and all necessary arrangements for the payment
of notes of the bank issued for circulation then outstanding
and in circulation shall be made under his supervision; and
generally he shall have all powers and shall take all steps
and do all things necessary or expedient to protect the rights
and interests of the creditors and shareholders of the bank,
and to conserve and insure the proper disposition according
to law of the assets of the bank, and for the purpose aforesaid he shall have full and free access to all books, accounts,
documents, and papers of the bank; and the curator shall
continue to supervise the affairs of the bank until he is
removed from office, or until the bank resumes business,
or until a liquidator is duly appointed to wind up the
business of the bank."
If the curator within ninety days is able to restore the
solvency of the bank so that it is able to resume payments,
it may resume business; otherwise the bank may be
"wound u p " and its charter revoked. During the first
three months of a bank's suspension the stockholders have
a chance to raise funds and restore the bank to solvency.
If they fail, the curator then gives place to an official called a
liquidator, who is appointed by the courts. Under a curator the stockholders still have hope and opportunity; under
the liquidator the creditors of the bank are in the saddle.
The liquidator must first of all attend to the notes in
circulation, their lien upon the assets being prior to all
others. Inasmuch as the notes bear interest at 5 per cent
from the date of suspension, the other banks are perfectly
willing to hold them in their vaults until such a date as the
liquidator names for their final redemption, all feeling cer-

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tain that the notes will sooner or later be paid, for if the
assets of the failed bank should prove inadequate, the
mutual guaranty fund in the possession of the government
will be drawn upon.
Next to the notes the deposits of the Dominion government have a prior lien, and then the deposits of provincial
governments. If the assets of the bank are not sufficient
to satisfy all the claims, the stockholders are liable to an
assessment equal in amount to the amount of capital stock
to which they subscribed plus any portion thereof which has
not been paid up. a Thus if a stockholder has subscribed
for 50 shares of stock, par value $100, and has paid in
only $2,500, he is liable to an assessment of $7,500, of
which $2,500 is on account of the unpaid subscription and
$5,000 is on account of the double liability.6
MONTHLY RETURNS TO THE GOVERNMENT.
The law provides for no publicity with regard to bank
affairs beyond the returns to the minister of finance. The
items called for in the monthly report are shown in the
statements for February and November, 1909, printed in
chapter VI, pages 75 and 76. The minister of finance may
call for supplementary information or " special returns
from any bank whenever in his judgment they are necessary to afford a full and complete knowledge of its condiaSection 89 of the bank act: " In the event of the property and assets of
the bank being insufficient to pay its debts and liabilities, each shareholder
of the bank shall be liable for the deficiency to an amount equal to the par
value of the shares held by him in addition to any amount not paid up on
such shares."
& As a matter of fact in the case of most Canadian banks the paid-up
capital stock is equal to the capital subscribed. For instance, the returns
to the government for February, 1909, give the following totals: Capital
subscribed, $98,294,381; capital paid up, $96,160,555.

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tion." The law, however, gives him no right of examination, and the government maintains no inspecting force.
In addition to the monthly returns, each must make
report once a year as to its dividends, drafts, and bills of
exchange that have remained unpaid for five years, and
the names and residences of its shareholders. This information, as well as the monthly returns, is given to Parliament and the public.
CANADIAN B A N K E R S ' ASSOCIATION.

The Canadian Bankers' Association is an incorporated
body with powers and duties prescribed in an amendment
to the bank act passed in 1900. Each chartered bank is
represented in the membership and has one vote. The
association is required by law to supervise the issue of
bank notes and to report to the government all overissues, to look after the destruction of worn and mutilated
notes, and to take charge of suspended banks. Its headquarters are in Montreal in the Bank of Montreal building,
and its active executive officer is the secretary-treasurer.
The expenses of the association are apportioned among
the banks and do not apparently constitute a very heavy
burden, for the secretary has an exceedingly small staff.
All expenses incurred by the association on account of a
suspended bank are, of course, a charge against the assets
of the bank.
When the notes of a bank are so worn or mutilated that
it wishes to replace them with new notes, notice is sent
to the secretary of the association, a date is fixed, and in
the presence of the secretary the old notes are duly

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counted and taken to a furnace,a where they are consumed
in the presence of the secretary and other witnesses.
After this solemn operation has been performed and the
signatures of all parties observing it have been duly
attested, new notes are issued by the association to replace
those that have been destroyed.
The clearing houses in the Dominion are subject to
regulation by the association. It also has the power to
establish subsections and to do educational work by providing for lectures, competitive papers, examinations, etc.
The Journal of the Canadian Bankers' Association, a
monthly publication of excellent quality, is edited by the
secretary and is at present the only educational force at
work among bank employees.
° E a c h bank maintains one such furnace for this purpose. A wire
netting over the chimney prevents the draft from carrying any portions
of the consumed notes into the air.

CHAPTER

III.

THE MANAGEMENT.

The keynote of the organization of a Canadian bank is
the centralization of responsibility. One man, the general manager, is supreme. Above him in authority under
the law are the directors, representing the stockholders.
Below him is an army of employees, of whom all but two
or three owe their positions entirely to his favor.
The general managers of Canadian banks are, without
exception, men who have been in the banking business
since boyhood. They have worked their way up through
all the grades of employment by the force of brains,
industry, character, and good health. They know from
experience the task of every employee and they know
when it is well done. They hold their positions because
they have proved their fitness. They are, in other words,
professional bankers. Untrained outsiders can not break
into the banking business as they do in the United States.
The president of a Canadian bank is merely the chairman of the board of directors. This body holds meetings
at least once a week. At these meetings the general
manager reports on the business of the week and presents
such applications for new credit as seem to require the
approval of the board. As a rule, the general manager
gives to the directors, either orally or in typewritten form,
full information with regard to all the operations of the
bank. His recommendations as to the granting of credits

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are usually approved without much discussion, yet in
Canada it is expected of every bank director that he shall
give close and personal attention to the bank's operations
as reported by the general manager and promptly raise
objection whenever in his judgment a mistake is being
made. All extensions of credit are reported by the general manager and must be formally approved by the board.
Members of the board can not personally investigate individual cases, and are therefore obliged to place great
reliance upon the judgment of the general manager.
Nevertheless it is expected of each director that he shall
always be well informed as to the important operations
of the bank, as to its general policy, as to the amount of
its cash reserve, the nature of its investments, etc.
The directors are not forced to rely entirely on the
general ^manager. An officer called the " chief accountant" is expected to know quite as much about the bank's
affairs as the general manager himself, and is often present
at the board meetings. If the general manager misrepresents any transaction, or fails to reveal to the board the
true condition of the bank, the accountant is expected to
correct him. In some of the larger banks the board of
directors has deemed it wise to place in the head office
still another man to represent them, having full power to
acquaint himself with the details of all transactions. This
man is usually given some routine duties to perform, yet
his prime function in the head office is as a representative
of the board of directors. The appointment of such a man
does not imply any lack of confidence in the general manager, but is justified rather by the belief that the general

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manager, with two good advisers, will be less liable to an
aberration of judgment than if he has only one.
The other general or * 'chief" officers, with headquarters
in the "head office," are the superintendent of branches,
the inspector, and the secretary. The superintendent is
the general manager's right-hand man and is usually in
very close touch with his chief and in sympathy with his
general policy. The superintendents of the larger banks
have the assistance of deputy and department superintendents.
The inspector is at the head of the bank's system of
examination. He and his assistants visit the branches at
irregular intervals, counting the cash and examining the
discounts and other assets. As a rule they are keen to
find something to condemn or criticise, and branch managers and their subordinates seem to regard them with considerable fear and respect. Canadian banks are not subject to government inspection, and bankers maintain that
no inspection by an outsider could be as thorough or salutary as that which results from the present system. The
expenses of the inspecting staff of some of the larger banks
amount to $80,000 a year.
Theoretically the board of directors is superior to the
general manager and can bring him to a halt if he enters
upon any policy of which they disapprove. In practice,
however, the general manager of a Canadian bank knows
so much more about the banking business than any one
or all of the directors combined that if a conflict of opinion
does arise between the board and himself, the chances are
that he will dominate. Yet in most of the banks it would
be very difficult for the general manager from improper
31870—10-—3

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motives to hold long to a detrimental policy. Even
though the accountant did not report against him, the
directors, the moment their suspicions were aroused,
would call into consultation the managers of some of the
larger branches and other experienced officers in whose
judgment they had confidence. The entire system of
managment is so correlated that it is practically impossible for one man to be the bank. Some of the smaller
institutions are doubtless dominated by single individuals,
but as a rule a Canadian bank has connected with it in
responsible positions, all having access to the board of
directors, so many men of long experience in the banking
business that no one man, however high his position, can
use the institution to gratify personal ambition or cupidity.
MANAGEMENT OF BRANCHES.

The responsible head of a branch is called the manager.
He is selected by the general manager and must conduct
his branch in harmony with the views of his chief. His
duties are analogous to those of a bank president in the
United States. His chief assistant, called the accountant,
has charge of all the details, and in the manager's absence
is the ranking officer in the branch. He is responsible to
the manager and is expected to keep fully informed as to
the manager's policy in all its details and to be familiar
with all correspondence that passes between the manager
and the general manager. He is, in fact, the manager's
understudy. In the United States the duties of the
so-called Canadian bank accountant are assumed in the
smaller banks by the cashier, and in the larger banks are
divided between the vice-president and the cashier.

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A large branch is in daily communication either by wire
or letter with the general manager. The head office
allots to each a certain quantity of the bank's notes, a
certain amount of " legals," as the Dominion notes are
called, and a certain credit balance in New York and
London and other foreign cities. A limit is also placed
upon the amount which a branch may loan without consultation with the head office. This limit, of course,
varies with the different branches, according to the magnitude of their business.a In some respects each branch
is treated as an independent institution. For example,
a man having an account in one branch of an institution
can not draw checks on another branch. His checks upon
the branch with which he has an account, if presented at
the counters of other branches of the same bank, will be
treated as if they were checks upon some other institution, exchange being charged. A customer, however, can
easily arrange to have his account transferred from one
branch to another of the same bank.
a " O u r branch managers," said a Montreal banker, " h a v e the authority
to make loans up to a certain size on their own responsibility. Then each
Province has its own supervisor or inspector. In case there is an application for a loan too large for the branch manager to pass on, he makes
his recommendation and sends it on to his district supervisor. Up to
a certain figure these supervisors have authority to grant loans. If the
size of the loan comes within this figure and the branch manager's recommendation is O. K., and it has the approval of his best judgment, the supervisor will grant the loan. With us he can loan up to $10,000 on his own
judgment, backed by the branch manager's. If the loan is for a greater
amount than this, the supervisor makes his recommendation and forwards
the application with his and the branch manager's opinion to the head office.
The head office usually follows the advice of the supervisor and branch
manager. If this should come at a time when it is necessary to restrict
loans, we can refuse these big loans or have the customer get along with
less."

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Managers of branches are required to make weekly
returns to the head office of all loans and discounts.
They are required to make quarterly reports of profits
earned. Every six months they credit earnings to head
office. At the end of every month they must submit a
balance sheet, a detailed statement of current accounts
and liabilities, and a description of all collateral security
which they hold. Every quarter they report the amount
of profits earned, and twice a year they credit earnings to
"head office."
The manager of a branch is allowed, as a rule, to select
the members of his staff, but this privilege gives him little
patronage, for custom prescribes that vacancies shall be
filled by promotion. Boys are engaged as "juniors" at
about the age of 14 and are paid a salary of $150 or $200
a year. Rarely does a bank take into its service a youth
who is over 16 years of age, or a man who has been trained
up in another bank. Practically no university men are
in the banking business. Bankers believe that the best
results are obtained by taking on boys at 15 or 16 and training them up through the various subordinate positions,
gradually increasing their salaries and adding to their
responsibilities. When a boy applies for a position in a
bank he is given an application blank containing nearly
a hundred questions with regard to his parents, schooling, favorite studies, use of tobacco and intoxicants,
attendance at church, his present salary and employment
if he is at work, etc., and is required to give the names
of at least three or more persons, reputable householders,
who have known him for five years. If he is hired, he
must then take an oath of secrecy, solemnly binding

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himself not to reveal to any person any information
whatever with regard to the operations of the bank.
These precautions in the employment of juniors are
deemed necessary because the bank expects during the
coming generations to select its branch managers and
general managers from these juniors. After a boy is
admitted to a bank he is expected not only to do his work
well, but also to conduct himself in the community in an
orderly and becoming fashion. If he contracts bad
habits, gets into debt, or keeps fast company, he is likely
to lose his place in the bank, and he must beware of too
early marriage, for his general manager will disapprove if
he marries on a salary of less than $1,000. This means
that the average bank clerk in Canada can not marry much
before the age of 25. The managers of the banks want the
members of their staffs to be well dressed and well fed.
Marriage on a small salary, they fear, would give their
clerks a worried aspect detrimental to the interests of the
bank.
Employees are obliged to furnish a bond, which may
be supplied either by private persons or by a guaranty
company. Some of the banks have formed mutual guaranty funds, to which all employees, from the general
manager down, make regular contribution. The bank
itself usually contributes at the outset a sum of money
out of profits as a nucleus for the fund. Employees are
allowed interest on the money they contribute to the
fund, and the entire contribution is returned to the
employee when he retires from the service of the bank.
Some of the larger banks have instituted pension
schemes for the benefit of employees, the directors setting

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aside each year a certain percentage of the profits for this
purpose and deducting from each employee's salary a
certain percentage. The mutual insurance plan has been
found more economical than the older methods, and the
pension scheme is said to be exerting a most beneficent
effect upon the morale of the banks' staff.

CHAPTER

IV.

LOANS AND DISCOUNTS.

The assets of Canadian banks are unusually good for
two reasons: First, because the law provides effective
safeguards; second, because banking practice in Canada
makes it very difficult to negotiate commercial paper of
inferior quality.
The bank act gives almost a blanket privilege to a bank. a
It may engage in all transactions appertaining "to the
business of banking." But the sections of the act which
contribute most to the quality of its assets are sections
88 and 89. These make it possible for a Canadian banker
to become, as it were, a silent partner in an industry and
at the same time to possess a first lien on all its liquid
assets. A bank may loan money to wholesale dealers and
shippers of produce of all kinds and possess a lien, not
only upon the goods originally accepted as secured, but
upon the goods which in the course of business are substituted therefor. These sections apply also to manufacturers, so that a bank may lend to a manufacturer
a

The bank may open branches, agencies, and offices and may engage in
and carry on business as a dealer in gold and silver coin and bullion, and
it may deal in, discount, and lend money and make advances upon the
security of, and may take as collateral security for any loan made by it,
bills of exchange, promissory notes, and other negotiable securities, or the
stock, bonds, debentures, and obligations of municipal and other corporations, whether secured by mortgage or otherwise, or Dominion, provincial, British, foreign, and other public securities, and it may engage
in and carry on such business generally as appertains to the business of
banking.
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upon the security of his raw material and retain its lien
upon the property through all the processes of manufacturing, having the same rights and powers with respect
to the goods that it would possess if it had acquired the
same by virtue of a warehouse receipt. On account of
their importance sections 88 and 89 are printed below:
SEC 88. The bank may lend money to any wholesale purchaser or
shipper of or dealer in products of agriculture, the forest, quarry and mine,
or the sea, lakes and rivers, or to any wholesale purchaser or shipper of or
dealer in live stock or dead stock and the products thereof, upon the
security of such products, or of such live stock or dead stock and the products thereof.
2. The bank may allow the goods, wares, and merchandise covered by
such security to be removed and other goods, wares, and merchandise, such
as mentioned in the last preceding subsection, to be substituted therefor,
if the goods, wares, and merchandise so substituted are of substantially
the same character, and of substantially the same value as, or of less value
than, those for which they have been so substituted; and the goods, wares,
and merchandise so substituted shall be covered by such security as if
• originally covered thereby.
3. The bank may lend money to any person engaged in business as a
wholesale manufacturer of any goods, wares, and merchandise, upon the
security of the goods, wares, and merchandise manufactured by him, or
procured for such manufacture.
4. Any such security, as mentioned in the foregoing provisions of this
section, may be given by the owner of said goods, wares, and merchandise,
stock, or products.
5. The security may be taken in the form set forth in Schedule C to this
act, or to the like effect.
6. The bank shall, by virtue of such security, acquire the same rights
and powers in respect to the goods, wares, and merchandise, stock, or products covered thereby, as if it had acquired the same by virtue of a warehouse receipt. (53 V., c. 31, s. 74, 63-64 V., c. 26, s. 17.)
89. If goods, wares, and merchandise are manufactured or produced
from the goods, wares, and merchandise, or any of them, included in or
covered by any warehouse receipt, or included in or covered by any security given under the last preceding section, while so covered, the bank
holding such warehouse receipt or security shall hold or continue to hold
such goods, wares, and merchandise during the process and after the
completion of such manufacture or production, with the same right and
title, and for the same purposes and upon the same conditions, as it held
or could have held the original goods, wares, and merchandise.

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2. All advances made on the security of any bill of lading or warehouse
receipt, or of any security given under the last preceding section, shall
give to the bank making the advances a claim for the repayment of the
advances on the goods, wares, and merchandise therein mentioned, or into
which they have been converted, prior to and by preference over the claim
of any unpaid vendor, provided t h a t such preference shall not be given
over the claim of any unpaid vender who had a lien upon the goods, wares,
and merchandise at the time of the acquisition by the bank of such warehouse receipt, bill of lading, or security, unless the same was acquired
without knowledge on the part of the bank of such lien.
HOW T H E LAW PROTECTS T H E BANKS.

The law puts the banks in a position to be of great
service to the business interests of Canada and at the same
time protects their advances. If a bank lends money to
a wholesaler or to a manufacturer it practically becomes
owner of all the goods in his establishment. Yet the borrower is in no wise embarrassed, for he has the same right
to buy and sell that he would have if he were under no
obligation to the bank. If at any time, however, he
adopts a policy of which the bank disapproves, or if the
course of his business indicates that something is wrong,
his bank may take immediate possession of his stock of
goods. On account of the importance of this class of advances the law sets forth in detail the form of note or contract which the borrower must sign, as follows:
SCHEDULE

In consideration of an advance of
dollars made
by the
Bank of A. B., for which the said bank
holds the following bills or notes (describe the bills or notes, if any) [or,
in consideration of the discounting of the following bills or notes by the
bank for A. B. (describe the bills or notes)], the
goods, wares, and merchandise mentioned below are hereby assigned to the
said bank as security for the payment on or before the
day of
of the said advance, together with interest thereon at
the rate of
per centum per annum from the
day of
(or, of the said bills or notes, or renewals thereof, or
substitutions therefor, and interest thereon, or as the case may be).

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This security is given under the provisions of section eighty-eight of
the bank act, and is subject to the provisions of the said act.
The said goods, wares, and merchandise are now owned by
,
and are now in the possession of
, and are free from
any mortgage, lien, or charge thereon (or as the case may be), and are the
following (description of goods assigned).
Dated, etc.
(N. B.—The bills or notes and the goods, etc., may be set out in schedules
annexed.)

A bank's lien upon property accepted as security for a
loan, or covered by a bailee or warehouse receipt or a bill
of lading, is superior to that of any vendor unless the
vendor's claim was known to the bank when it accepted
the goods or documents as security. If a debt is not paid
when due the goods put up as security may be sold by the
bank at public auction within ten or thirty days after
notice has been sent by mail to the pledger. The bank,
however, can not acquire this hold on the property of a
borrower unless the security is given at the time the loan
is negotiated. A bill of lading or warehouse receipt
acquired by a bank as supplementary security for a loan
gives it no special rights or powers.
BANKS SILENT PARTNERS I N INDUSTRY.

These provisions of the law contribute greatly to the
strength of the assets of Canadian banks. A large part of
their so-called commercial paper is secured practically by
title to goods in warehouses, factories, and wholesale
stores. Such security is more saleable than stocks and
bonds, and paper having such security back of it is therefore better banking paper than notes secured by stockmarket collateral. So far as would seem possible the
Canadian bank act makes merchandise of all kinds a sort
of collateral security for bank advances. It assumes that

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if a b a n k advances capital for the conduct of a business
it should h a v e a claim upon all the assets of the business
and upon all goods as they come and go in the course of
trade. No m a t t e r how a merchant's stock may change in
character, it all belongs to his bank in case he fails to take
u p his paper or meet his engagements. I n t h e same way
a manufacturer's stock of goods, the raw material a n d the
finished products, no m a t t e r how they change from day
to day and m o n t h to month, will become the property of
his bank if he fails to pay his note. The law practically
makes every bank a silent partner in many wholesale and
manufacturing businesses a n d gives it many rights which
no ordinary silent partner can acquire. I t has the effect
naturally of making bankers keep a close eye upon business
conditions as well as upon the affairs of their individual
borrowers. Canadian bankers are interested in the lumber
market, in t h e prices of metals, in changes in the tariff,
and in t h e acquisition of foreign markets for Canadian
manufactures and products, even as the Wall street banker
is interested in the prices of stocks and bonds. H e is in a
sense t h e owner of merchandise of all kinds, and both
trade and financial news have equal significance to him.
T h e law contains a number of other important provisions. A bank, for example, must not make a loan
secured b y the pledge of shares of its own capital stock.
If it makes loans to any directors or officers of t h e bank,
t h e a m o u n t of such loan must be reported each m o n t h to
the government. No general manager or other employee
of the b a n k can vote a t a meeting of t h e stockholders.
The b a n k must not pay dividends in excess of 8 per cent
unless it has a rest or surplus equal to 30 per cent of its

National

Monetary

Commission

paid-up capital. It shall not hypothecate its notes. It
shall ndt buy and sell goods, nor shall it make advances
upon real property as security. It may acquire title to
real estate and other immovable property, but can not
hold such property for a period exceeding seven years,
except that which is needed for its own business.
A CUSTOMER'S U N E OF CREDIT.

These legal safeguards are not the most important
sources of strength to the assets of a Canadian bank. No
matter how carefully a law may be framed, it can not prevent bad banking if the system under which the law is
applied is unscientific or if the bankers themselves are
not keenly alive to all the risks inherent in their business.
In Canada the banks are managed by men whose long
experience in the business has taught them to avoid certain banking practices that are in vogue in other countries.
Realizing how important is the relation between a bank
and its customer, they believe that this relation should
be made as intimate and helpful as possible. Among
Canadian bankers, therefore, it is part of the law and
gospel of banking that a bank is entitled to full knowledge
of the financial condition and business operations and prospects of its customers. Hence a bank insists that its
customers shall rely entirely upon itself, that they shall
make a full statement of their affairs at least once a year,
and that they shall begin each year with a clean slate.
As a result of this policy a business man in Canada deals
exclusively with one bank. Once a year he arranges with
his bank for a line of credit and learns exactly the amount
of paper he will be able to discount. If he happens to

The

Canadian

Banking

System

need less t h a n he anticipated, he will not exhaust the
credit allowed b y the b a n k and will pay interest, of course,
only upon such portion of the bank's funds as he actually
utilizes. If, on the other hand, his business is unexpectedly large, giving opportunity to make bigger profits
and creating the need for more capital, he will find the
b a n k ready to increase his line of credit, provided the
manager is satisfied t h a t business conditions and prospects
warrant expansion. Under no circumstances, however,
must t h e customer of a b a n k seek to raise funds elsewhere
unless he first gets the consent of his bank. If he sells
his notes in the open market, he must do it with the full
knowledge of his b a n k or run the risk of being placed upon
the " b l a c k list."
THE " ONE-BANK"

POUCY.

This " o n e - b a n k " policy is so thoroughly a p a r t of the
Canadian system t h a t a merchant would find it very
difficult, having exhausted his credit a t one institution,
to get a favorable hearing a t another. The very first question p u t t o him would be, " Where have you been keeping
an account, and why do you wish to make a c h a n g e ? "
If his answers were not satisfactory, t h e manager of the
second b a n k would either decline outright to help him or
get in touch with officers of the bank with which he had
been doing business. a
a A general manager of a large bank gave his views of the one-bank
policy as follows: " In the States the banks are not large enough to furnish
all the credit accommodations needed by the larger firms and corporations.
So such concerns are forced to raise funds by selling their commercial
paper through note brokers. This paper must be paid when due, and in
panicky times, there being less demand for the paper, the concerns are
denied credit when they need it the worst. Consequently solvent firms

National

Monetary

Commission

The effect of this policy upon the quality of the bank
assets is undeniable. The bulk of the paper held by
Canadian banks bears the signatures of men whose
business affairs and financial status and general credit
have long been well known to the managers. They
feel morally certain that the same signatures are not
in the portfolios of other banks. The manager of a bank
knows the extent to which each borrower's credit has
been extended. He knows not merely what his assets
and liabilities were when he made application for credit,
but has every reason to believe that he knows all the
obligations he has assumed since that date.
As one would naturally expect, there is very little
commercial paper floating about in the Canadian money
market. The bill broker is unknown. Wholesalers and
manufacturers, unless shipping to foreign countries,
do not draw upon their customers. If credit is granted,
it takes the form of a book account or of a promissory
note.
The promissory notes received by a manufacturer
or wholesaler are deposited with his bank. The book
accounts under ordinary conditions remain entirely
at the disposal of the business, but in extraordinary cases,
have been pushed to the wall. In Canada it would be a disgrace to a bank
if it should force a creditor into an assignment just because he happened
at the time to be hard up, through a panic or otherwise, and then have it
proved that the firm was really solvent all the time.
" When a firm does all of its banking business with one bank or, if it is
a very large firm, with two or more banks who work in harmony, the bank
or banks will not allow a line of credit which will make the firm insolvent
in case of an ordinary depreciation of values or partial failure of some new
expansion.
" By having all of a firm's business we can and do safely make loans t h a t
would make the hair of a banker across the line stand on end."

The

Canadian

Banking

System

when the situation is not satisfactory, or if additional
credit at the bank is desired, an assignment of the book
accounts to the bank may be required.0
During the harvest season heavy drafts are made
upon the resources of the banks to provide for the movement of the grain crops of the West. In its advances
of money for this purpose the law makes it possible
for a bank always to have abundant security. Under
Q> The head of a large wholesale house in Montreal talked as follows about
his firm's dealings with the banks: "We, like many other firms, have two
lines of credit. One is our single-name paper up to a certain amount. All
in excess of that is secured by trade paper. By the banks getting so much
of this trade paper and of the drafts, it can keep in close touch with a
firm's business, not only with ours, but with our customers' as well. We
discount a customer's paper. He also has the paper discounted which he
gives to other wholesalers and manufacturers. If he is straining his credit,
the bank is in a good position to know it and to warn us.
" T h e accounts of some of the largest firms or corporations are often
divided between two banks. In this case the two banks work in harmony
and they keep in touch with the total debts of the firm by working together.
"Some of our merchants and manufacturers thought at the time of the
panic of 1907 that the banks were too severe on them, but looking backward they all now think that in view of the extent of the panic and the
conditions that followed, the banks gave them all the assistance they could
have expected.
" In our line of business we draw drafts on our customers for from thirty
to one hundred and thirty days. These we discount at our bank and
deposit as cash. The bank then forwards drafts through its branches, and
after they have been accepted by the customers, holds them for maturity.
In this way the bank has both us and the customer on the paper, although
they have to be vigilant in the matter of presenting for acceptance and for
collection at maturity.
" Our business a few years ago was conducted more on a credit basis than
it is now. We then gave two to six months. However, as the banking
facilities have increased throughout the country, commercial credit has
been contracting.
"Our business is facilitated because warehouse receipts may be given
on material in the borrower's own yard, which may be put up as collateral.
If the note is not paid at maturity the material back of the receipt may
be taken as easily by the bank as though the warehouse receipt was from
one of the public warehouses in the States."

National

Monetary

Commission

section 88 of the bank act the buyer makes assignment
to his bank of the grain purchased. When the grain
is delivered to a railroad, the bill of lading becomes the
property of the bank. When it reaches Port Arthur,
or some other distributing point, and is stored in an
elevator, the bank receives a warehouse receipt in exchange for the bill of lading; and when shipment is made
to New York, to Montreal, or to Europe, the bank receives on surrendering the warehouse receipt the shipper's
draft on the consignee, the bill of lading, and other
documents. Throughout the entire transaction, from
the purchase from the farmer to the final sale to the
eastern consumer, the bank practically has title to all
agricultural products which are being moved by means
of its funds.
LOANS TO FARMERS.

The branches of Canadian banks in agricultural districts quite commonly lend assistance to farmers. They
do not make a practice of taking mortgages on farm property, but lend outright on the farmer's credit, depending
for their security upon his character as a man and ability
as a farmer, and often as well upon a neighbor's indorsement. Farmers' paper ranks high among the Canadian
bankers and constitutes a considerable proportion of the
assets of some of the banks. The banks, of course, do not
undertake to supply the farmer with anything more than
working capital. They do not help him pay for his land
and buildings, but they do let him have at least part of the
money he needs for tools, wages, seed, stock, etc. Despite
the fact that these advances are unsecured by mortgage,
the banks suffer very little loss on farm paper,

CHART I.—NET LIABILITIES AND CURRENT LOANS IN CANADA, 1906-1909.
1906
MILAM
923

JAN| FEBMANAPR MAY JUN JUL AUGjErn

DEC JAN

1907
|
/5c?a
fifi MAHAPR MAYmiUL m 3EPT OCT NOVM iAH£.% MAHAP,R MAYm M Mi j^rt OCT MOVW

/$#?

JAN FE| MA*APR MAYLIUN JUL AUCW

900

675

ScTSovEEC\ooii4m
925 I
000

<97>S

350

650
«9

J 025

5
800
k

775

_3t

J 750

323

SOO J

77,5 J
k

750 1
N

725

7Z<5

—A

*
700

1 675

4
V

7tf<? j

673 1

650

6.30

5
625

<£?5

600

J 575

600
575
550

550
k

525

^
.< ^

C
^Q

\500

J 475

>£
\7

500

k
0 J2

)

475

45Q 1

1 4-50
\*25

Y*oo

525

31870—10. (To face page 48.) No. i.

^ ^
<g<9<9 |

CHART II.—CALL LOANS IN CANADA AND ELSEWHERE, AND CURRENT LOANS OUTSIDE CANADA,
1906-1909.
[MILLION1*!
IMILLI0N5]
/SO 7
/906
|
/909
/SOS
or
1
DOLLARS 1JAN FEB MAR! APR WtAYl JUN J U L | AUGstrrj OCT NOV DEC JAN FEB MARAPRMAYI JUN JUL AIM stmocr NOV DEC JAN FEB MAR APR MAY JUN JUL AUG5EPT OCT NOJjDEC JAN FEB MAMAPR MAY JUNUL AUG SEP! OCT NOVMt 1 DOLLARS 1
140
140
I
|

135

r •

/30

126
V

//0

125

f 2 0

/30

1\ ^

/20

//5

I l05

105 1

100

Li\1
/

J 90

J 80

- -

/OO

\
70

I 60

J 55
J 50

[

/ \ / \

\
J< /

A
\

s.\

/
r

rp fs f p
[

V) ^

^
\

r- i
>*!

^
j
1"

5^
A5

4-0

I
L i ••
T\i—

4"—

25
C
CO 9Ri •Hi l

1 20
31870—10.

50 1

fc 4

c*iij.

1 -4-5

J AO

(To face page 48.)

No. 2.

»":A

£t

__—

The

Canadian

Banking

System

CAIvIv LOANS IN CANADA AND ELSE W H E R E .

After "current loans in Canada" the next largest item
among the assets is "call and short loans elsewhere than
in Canada." For example, this item in October, 1909,
amounted to $130,000,000, while the current loans in
Canada were $580,000,000. The call loans outside of
Canada consist mainly of loans in the New York market
and are as a rule secured by collateral easily convertible
into cash. These loans are regarded by Canadian bankers as equivalent to cash and are figured by them as part of
their reserve. Only the larger banks make a practice of
loaning on call in New York. In October. 1909, for example, the Bank of Montreal's call loans outside of Canada
amounted to over $77,000,000, which was about 70 per
cent of the total for all the banks. Indeed, this bank's
call loans outside of Canada during this month were only
about one and one-half million dollars less than its current
loans in Canada. The Canadian Bank of Commerce during the same month had $19,000,000 loaned on call outside
of Canada and $72,000,000 invested in current loans in
Canada. The Bank of British North America had
$9,000,000 on call outside of Canada; the Merchants'
Bank, $7,389,836; and the Bank of Nova Scotia,
$4,000,000. The call loans of these five banks amounted
to over 90 per cent of the total. During that month 14 of
the banks had no funds whatever invested on call outside
of Canada.
The item of "call and short loans on stocks and bonds
in Canada" is relatively unimportant. In October, 1909,
it amounted to only $56,996,065 and was pretty evenly
distributed among the different banks, except that no such
31870—10

National

Monetary

Commission

loans whatever were reported by the Bank of Montreal.
These are not call loans in the New York sense of the word.
The market for securities in Canada is narrow and inactive,
and Canadian bankers realize that a demand loan secured
by the stock or bonds of a Canadian corporation can not
be realized on promptly without considerable sacrifice on
the part of the lender.
A demand note in Canada, as in most of the smaller
cities in the United States, means merely that the bank
has a right to call for payment at any time; that the borrower will pay when called if he can, and that if he can not
take up the note immediately, the bank will give him such
time as may be necessary for raising the money. This
item of call loans in Canada, therefore, is not subject to such
great fluctuations as the item "call loans elsewhere."
The rate of interest, on call loans is always a trifle lower
than the rate on commercial discounts. Consequently,
when there is an increasing demand for money on time,
borrowers on call are less welcome at the banks and the
amount of call loans in Canada is quite likely to decline.
For example, throughout 1906 the amount of current loans
in Canada, which includes time loans and commercial discounts, was steadily on the increase. The total rose from
$450,000,000, January 1, 1906, to $585,000,000, April 1,
1907. Here was a gain of $135,000,000. During this
same period the amount of call loans in Canada rose from
$55,000,000, January 1, 1906, to $60,000,000 in August of
that year, and then almost steadily declined, having been
less than $50,000,000 April 1, 1907.0
a Charts I and I I on pages 46-47 show changes in the different classes
of loans during the four years 1906-1909.

The

Canadian

Banking

System

AS FINANCIAL INSTITUTIONS.

That the chartered banks of Canada are financial as well
as commercial institutions is evidenced by their holdings
of stocks and bonds. In October, 1909, they held of railway and industrial stocks and bonds $51,000,000, of
municipal bonds $21,000,000, and of Dominion and provincial government securities $13,000,000; total $85,000,000. These securities represent partly an investment
carried as a secondary res'erve and partly a business carried
on for the benefit of their customers. In Canada the demand for long-time investments is not large, but whatever market there is for securities is mainly in the hands of
the chartered banks. An investor seeks the advice of a
bank manager and often is able to obtain from him securities which satisfy his needs. The banks do not publish
a list of their holdings, but it is generally taken for granted
that they carry only gilt-edge securities. If a customer
desires to obtain second or third rate securities, being
eager for a high rate of return, a bank can accommodate
him, not by selling him out of its own stock, but by negotiating the purchase of the desired securities in New York
or London.
As the wealth in Canada increases and idle capital accumulates in excess of its immediate needs, this financial
side of the business of Canadian banks will doubtless expand. It may, indeed, during the next generation or two
greatly expand and become an important feature of the
chartered banks. They are in a position to take care of
the business as it develops and will doubtless be able to
prevent the establishment of any purely financial banking
houses in Canada.

CHAPTER V.
LIABILITIES.

The liabilities of Canadian banks, like those of commercial banks in Great Britain and the United States,
furnish a fairly correct index to the expansion of the
country's credit. Since the Canadians, like other AngloSaxons, make free use of the check book in the settlement
of both business and private accounts, any increase of
bank loans and discounts is usually attended by a corresponding increase in deposits. When a Canadian business
man discounts his note at his bank he almost invariably
leaves the proceeds on deposit with the bank. As he
makes his payments by check his own deposit account declines, but the bank accounts of his creditors increase, so
that the net result of borrowing in Canada is an increase in
the total of bank deposits. Consequently, in good times,
when the banks are freely extending credit, the deposits
grow, and in periods of dullness and liquidation they
decline. A growth of deposits, therefore, is commonly
accepted as an indication of business and industrial
activity.
Bank notes constitute the second important liability.
The amount of these in circulation, as will be shown later
in this chapter, has little relation to general business conditions or to the amount of loans and discounts.
THREE KINDS OF DEPOSITS.

Deposits by the public are of three kinds—deposits
payable on demand, deposits payable after notice (usu-

The

Canadian

Banking

System

ally ten to fifteen days), and deposits payable at a
fixed date. The deposits payable after notice are commonly known as savings bank deposits, and are accepted
in sums of $i and upward, interest being allowed on minimum monthly balances. Many of the banks, if not all,
permit a limited use of the check book by depositors in
their savings departments. The deposits payable at a
fixed date are technically known as "time deposits" and
are represented by deposit certificates. In recent years
the banks have paid 3 per cent per annum on both the
" t i m e " and the savings bank deposits. In the monthly
bank statement these two classes of deposits are reported
under the single head of " deposits by the public payable
after notice or on a fixed day," and are commonly known
as the "time deposits." On January 31, 1909, these deposits amounted to $443,170,532, but the returns do not
show how much of this sum consisted of deposits in the
savings department and how much of " t i m e " deposits
payable at a fixed date. As the two classes of deposits
are quite different in character, one being much like a current account subject to check, the other being comparatively fixed or permanent, it would seem worth while to
report them in separate columns.
In Canada the funds of savings bank depositors, who are
usually people having no immediate use for their money,
contribute directly toward the furtherance of trade and
industry, whereas in the United States, where such
depositors put their money into savings banks, it is quite
commonly loaned out upon the security of real estate and
corporation mortgages. The time deposits in Canada
are almost double the demand deposits. For instance, in

National

Monetary

Commission

October, 1909, the time deposits amounted to $481,000,000
while the demand deposits equaled only $251,000,000.
It must not be inferred, however, that the whole of this
$481,000,000 would have found its way into savings banks
had Canada a banking system like that of the United
States. This sum really represents funds which in the
United States would be distributed among the commercial
banks, the trust companies, and the savings banks. A
considerable proportion of Canadian time deposits consists of money belonging to business men, and is quite as
likely to be used in the furtherance of business enterprise
as are any of the funds which stand to the credit of demand
depositors. If a business man in Canada has temporarily
a large balance in his bank and realizes that he will not
need the money for several months, he will either arrange
for its entry as a time or savings bank account, or for the
payment of interest on his balance as a current account.
Of course, the bankers do not encourage this practice, nor
can it be indulged in by a depositor who is also a borrower.
Depositors of the class who are paid a small rate of
interest—usually 2 per cent—by national and state banks
in the United States, usually have savings department
accounts in Canada and get 3 per cent.
SAVINGS DEPOSITS ALWAYS PAID ON DEMAND.

On account of the fact that the time or savings bank
deposits contain such a large proportion of money likely
to be needed in business at any time, the banks regard
both classes of deposit as being essentially the same form
of liability. Practically all the deposit liabilities of a
Canadian bank are payable on demand, although payment

The

Canadian

Banking

System

on two-thirds of them at the present time can not legally
be demanded until after notice. Custom has made it
imperative that a Canadian bank shall pay any and all
of its depositors on demand. For any bank to refuse to
let a depositor have his money when he calls for it would
be regarded by the public as an acknowledgment of weakness. Certainly no Canadian bank would take the risk
of making the experiment.
Canadian bankers feel that 3 per cent is too high a rate
of interest to pay depositors. This rate is a matter of
tacit agreement among the banks and no single bank can
afford to lower it, for such action would cause it a loss
of business. On the other hand, if any bank, hoping to
increase its deposits, should offer to pay 3 ^ per cent or
4 per cent, its conduct would be looked upon with grave
disapproval by its competitors. Some of the new banks
in recent years have obtained business in this manner and
have been severely criticised by the managers of the older
institutions.
SAVINGS DEPOSITORS NOT PROPERLY REWARDED.

To an outsider it would seem that the savings bank depositor in Canada is not generously treated. In the United
States he gets 4 per cent on his savings even in the large
cities. In Canada, a country where real estate mortgages
yield from 7 to 9 per cent and the bonds of new corporations are selling at prices giving the investor a higher
return than he can get in the United States, it is certain
that a real savings bank could well afford to pay depositors
4 per cent. It is doubtless true that 3 per cent is a higher
rate of interest than most of the savings depositors in the

National

M on et ar y

Commission

chartered banks have a right to expect. A large part of
these deposits are not savings deposits at all. Nevertheless it is doubtful if the banks would be justified in a
reduction of the rate.
The right solution of the problem seems to lie in another
direction, namely, in the making of a sharper distinction
between demand and savings deposits. The funds received from both classes of depositors should not be
treated alike. The money of savings bank depositors
should be invested in bonds and mortgages and then could
be made to yield a net return of over 5 per cent. If the
depositors were not allowed to check upon their accounts
they would be a source of such little expense to a bank
that it could easily afford to pay them interest at the rate
of 4 per cent. At the present time the banks are paying
3 per cent interest on money which they are lending to
commercial borrowers and for the care of which they are
maintaining an expensive force of clerks. Depositors who
have checking accounts might be allowed 2 per cent on
large balances, but out-and-out savings depositors, people
who make no use of the check book, are certainly entitled
to a 4-per-cent rate in a country where investment capital
is as fruitful as it is in Canada.
Strictly speaking, the savings departments of the Chartered Banks are not savings banks, for they do not pretend
to devote their time funds to long-time investments. The
amount of securities held by the banks is never equal to
the amount of time deposits. For example, in October,
1909, the deposits payable at a fixed date or after notice
amounted to $480,000,000, against $86,000,000 invested
in securities. The banks in the use of funds at their dis-

The

Canadian

Banking

System

posal make no distinction between the funds received
from the different classes of depositors. Every depositor's money goes into the bank's general fund, most of
which is loaned on short-time paper to merchants and
manufacturers. Thus in October, 1909, when the deposits
payable on demand amounted to only $251,000,000, the
current loans stood at $580,000,000.
A thorough reorganization of the savings departments
of the chartered banks, to equip them for the real business
of a savings bank, would not be possible without an
amendment of the bank act, which now prohibits them
from loaning money upon real estate or upon the security
of real-estate mortgages. It is generally believed that
this prohibition is commonly evaded by the banks through
the acceptance of such mortgages as " additional security "
after loans have been made. A savings bank, of course,
must have the legal right to accept such security. 0
NO BANKERS' BANK.

The indebtedness of banks to banks is not large in Canada. The branch system makes it unnecessary for banks
to carry balances in other institutions located in the financial centers. Nearly every bank has a branch in either
Montreal or Toronto and in these branches carries the major
proportion of its cash reserve, so that branches in the far
west or in the maritime provinces are always able to sell exo The government savings institutions, although paying the same rate of
interest, are in no sense competitors of the chartered banks. The latter
pay the depositor on demand; whereas the depositor can get money from
the government only after several days' notice. Some of the loan companies accept savings deposits and pay interest at from 3 to 4 per cent per
annum, permitting also a limited use of the check book. The total of such
deposits in loan companies in 1909 was $22,000,000.

National

Monetary

Commission

change on Montreal or Toronto. Canada has no bankers'
bank. The Bank of Montreal, which is the largest bank in
the Dominion, its assets being equal to about 25 per cent of
the total, is often spoken of as the government bank because
it is the largest government depositary, yet it holds a very
small amount of funds belonging to other banks. In the
statement of October, 1909, the balances due to other
banks in Canada amounted to only $5,269,216. Of this
sum the Bank of Montreal held $1,395,935, and the Merchants' Bank, $1,309,008.
Chart III on the opposite page shows the changes
in time and demand deposits during 1906-1909. It is
interesting to note that demand deposits fell off much
more than time deposits during the panic year 1907, and
that both greatly increased during the two following years.
The growth of deposits during 1909 was generally regarded
in Canada as a most encouraging sign.
ISSUE AND REDEMPTION OF NOTES.

While the amount of notes that the chartered banks may
issue is limited by the bank act to the amount of their
paid-up capital, 0 experience has proved that this legal
limitation is only nominal and that the real and effective
limit is imposed unconsciously and automatically by their
customers and themselves. Bach constantly seeks to
increase its issue of notes to the legal limit, yet the combined efforts of all are never able to force into circulation
more notes than the people need.
a The only exception is the Bank of British North America. I t operates
under an old charter from Great Britain and its head office is in London.
The stockholders are not subject to a double liability, and the bank can issue
notes only to the extent of 75 per cent of its paid-up capital. I t may exceed
this limit by depositing gold or government bonds, and frequently does so.

CHART in.—TIME AND DEMAND DEPOSITS, 1906-1909.
[_

1906

_ _

'907

MILLIONA

1909

WOUAMJANFEBMARAPR MAYJUNJUL AUG

p OCTNOVDECJANFEBMAPAPRWAYJUNJUL AUGSEPI OCTNOVDECJANFEBMARAPRMAYJUNJUL AUG5LPT OCTNOVDtd JANFEBMAPAPRMAYJUNJUL AUGISEPTIOCT NOVDECOOLLARA

\<500

500 \

\475

475\

•

\450

450\

•
425\

\425

«
\400

400

\i<

T>\ML-

\oS r
1\ef V
375\

\375

350 \

1350

I 323

'
325\

\300

300\

\275

275\
25 0\

250

\225

225\
200\

200

/75
AND

0 £M

\ /50\

7
j

on,

V1si

'75\
/50\

1 ^ *

J30

'30\
31870—10. (To face page 58.)

The

Canadian

Banking

stem

The reason why an excessive issue of bank notes in
Canada is impossible is found in the two following facts:
i. Every bank must redeem its notes on demand in
seven commercial centers in different parts of the
Dominion.
2. The monetary circulation of Canada, exclusive of $i
and $2 bills, consists entirely of bank notes.
The redemption system is an automatic and effectual
check against inflation. It is easier to get notes redeemed
in Canada than it is to secure the payment of checks in the
United States, for the notes are redeemable at different
points throughout the Dominion and no exchange is ever
charged. If a country merchant accumulates more currency than he desires to keep on hand, he deposits it, together with his checks and drafts, in the local branch of his
bank. This branch immediately sorts out the notes of
other banks and treats them as it does checks and drafts
upon other banks, either sending them to the nearest
redemption agency or using them as an offset in the local
clearing house if the issuing banks have branches in the
locality. The branches of a bank are not obliged to redeem the notes of the parent bank, but must accept them
at par in the payment of all dues. Thus each bank is doing
its utmost to bring about the redemption of the notes of
other banks. At the same time it is paying out its own
notes to all customers who ask for cash, seeking to bring its
circulation up to the limit. As a result of these operations,
two powerful forces are constantly at work, one putting
notes into circulation, the other retiring them, and the
people of Canada always have on hand just the amount of
currency they need and no more. It is the people, not the

National

Monetary

Commission

banks, who determine how much the circulation of the
banks shall be.
BANK NOTES HAVE NO COMPETITION.

The fact that the bank note has exclusive possession
of the monetary field in Canada is most important. His
ignorance of this fact is one reason why the average banker
or business man in the United States has been unable to
get a practical understanding of the Canadian system,
Its significance is easily seen. If Canada, like the United
States, had in circulation a lot of government notes in
denominations of $5, $10, $20, the Canadian banks would
be able to increase their issues of bank notes almost without limit, for their new notes would simply take the place
of the government notes, the latter going into bank reserves. The people of Canada in making deposits would
not discriminate against bank notes, but would deposit
the government paper quite as freely as the bank paper.
As a result, the amount of the government paper in circulation would gradually decrease and the amount of bank
notes would increase. The volume of Dominion notes
in the vaults of the banks would expand, and as these
notes are redeemable in gold the banks would feel justified
in larger extension of their credit, so that an increase in
deposits and current loans would ensue. Under such circumstances such freedom of issue as is enjoyed by the
Canadian banks would doubtless result in inflation.
But such conditions do not exist in Canada. All the
paper currency in the hands of the people, excepting $1
and $2 bills, is in the form of bank notes. There is no
chance to substitute bank notes for government notes.

The

Canadian

Banking

System

Hence, if at any time business relaxes and the need for
money among the people grows less, an increasing tide
of bank notes flows into the banks. The people who
bring these notes do not ask for money in exchange, for
to them the notes are money. They take bank notes to
the banks just as people in the United States take greenbacks and silver certificates—to be exchanged for a deposit credit or account.
ELASTICITY OF THE CIRCULATION.

The redemption system, besides making currency inflation impossible, results also in what is commonly
called "elasticity," by which is meant capacity to expand and contract in automatic response to the country's
need of currency. Such elasticity is desirable for the
reason that it enables the banks to satisfy the mere currency needs of a country without increase of their liabilities or diminution of their power to lend.
Canada, like every other country, at certain seasons of
the year makes use of more currency, or hand-to-hand
money, than at other seasons. This currency is supplied
by the banks. If they were not permitted to furnish it in
the form of their own notes, they would be obliged to
furnish it in the form of lawful or legal tender money, and
would at the same time be compelled to restrict their loans
in order that they might reduce their liabilities, the loss of
the legal tender money having by so much reduced their
cash reserve. Since the Canadian banks, however, meet
the seasonal needs for currency by the issue of notes, their
liabilities are not changed, for their deposits decline by as
much as their notes increase. It is clear that if a de-

National

Monetary

Commission

positor draws $1,000 from his bank and receives $1,000
in the notes of the bank, the liabilities of the bank have
not been affected. It has simply converted a deposit liability into a note liability. Its reserve of legal tender
money having been untouched, it is under no necessity
to reduce its loans. It follows that since a Canadian
bank is able to supply its depositors' needs for cash with
its own bank notes, it can do so without being compelled
to lessen its usefulness to the community as a lender of
money.
It is evident also that every bank will steadfastly pursue
this policy of paying out its own notes and getting the
others redeemed. If in the course of business it receives
from its depositors the notes of other banks, it does not
pay these out again, for they are convertible through the
redemption agencies into legal tender money. The more
of such money a bank has in its vaults, the stronger its
position and the greater its power to lend. Every dollar
of legal tender money that a Canadian bank can retain
in its cash reserve, adds $10 to its lending power, permitting the safe increase of its liabilities by the same amount.
That the redemption system contributes to the acceptability and elasticity of the Canadian bank note more than
any other factor must be evident to anyone who considers
how the system would operate if the efficient redemption
machinery were lacking. Every bank must redeem its
notes in seven different cities, and no bank is obliged to
accept the notes of other banks either on deposit or in
payment of dues to it. Yet on account of the ease with
which notes are redeemed, every bank accepts at par the
notes of all other banks exactly as if they were legal tender,

The

Canadian

Banking

System

and then sends them to the nearest redemption center to
be exchanged for gold coin or Dominion notes, or to be
used as a credit offset in the redemption of its own notes.
It is this ease of redemption which gives the circulation
its elasticity and makes it immediately responsive to every
fluctuation in the needs of business. If the notes were
redeemable only at the place of issue, which is usually the
head office of the bank, they would frequently be at a discount in remote parts of the Dominion and would often
stay in circulation among the people for a period longer
than necessary. A tradesman does not like to deposit
money in a bank at a discount if he can circulate it at par
among his customers. Just as the notes of country banks
before the establishment of the Suffolk banking system
in New England filled the channels of circulation in
Boston, so in Canada, without its present redemption
system, the notes of each bank would doubtless very soon
find lodgement in distant communities and remain in circulation in excess of the real needs of the people. Canada
would, indeed, have an abundance of currency, but it
would be exposed to all the risks of depreciation and the
banks would be tempted to adopt schemes for the increase
of their circulation which in the end would prove fatal
to the soundness of the currency.
The Canadian bank note might still be good even
though it were not a first lien upon the assets of a bank,
or even if its payment were not in a measure guaranteed
by all the banks, or if stockholders were not subject to a
double liability. Indeed, all three of these safeguards
might disappear and yet the Canadian bank note remain
a safe, elastic, and acceptable medium of exchange. But

National

Monetary

Commission

if the redemption system were destroyed, Canada would
very soon be filled with a banking circulation in varying
stages of depreciation.
NO LIMIT OF ISSUE REALLY NECESSARY.

Theoretically there is no reason why any limit should
be fixed upon the amount of notes which a bank may
issue. Even though a bank has a monopoly of issue in a
country—like the Bank of France—it nevertheless is
unable to expand its circulation beyond the. people's
needs. Such a bank, unless it should adopt a reckless
policy of lending which would bring ruin quickly upon
itself, can exercise very little influence upon the amount
of currency in circulation. In a country like Canada,
where several banks are issuing currency, no single institution can enlarge its issue of notes beyond the needs of
its own customers. If it should endeavor to do this by
lending freely to customers who promised to use its notes
in different parts of the country, the effort would be futile.
The notes would quickly find their way into the branches
of other banks and be sent in for redemption.
Like most other countries, however, Canada has placed
a limit on the note-issuing privilege, fixing it at the
amount of a bank's paid-up capital. While there is no
scientific necessity that such a limit be fixed in order to
prevent the over-issue of notes, nevertheless there are
other considerations which justify it. It is an indirect
method of compelling banks to increase their capitalization
pari passu with the growth of their business. Inasmuch
as the capital of a bank is the stockholder's contribution

The

Canadian

Banking

stem

toward its assets, it is exceedingly desirable t h a t this contribution be made as large as possible, for, other things
being equal, the strength of a bank varies with t h e a m o u n t
of its capital. I t is not unreasonable, therefore, to require
t h a t banks in return for t h e useful note-issuing privilege
should be required t o keep their capital resources large.
When a Canadian bank has reached t h e limit of its note
issue—which has rarely happened—it begins at once t o
treat the notes of other banks very much as if they were
its own. Instead of going to the expense of sending t h e m
in for redemption, it uses t h e m as counter money, paying
them out t o depositors in response to their calls for cash.
If all the banks in Canada should issue notes u p t o t h e
limit, as some of t h e m did during t h e exciting months of
1907, and if the current rate of interest did not w a r r a n t
the issue of the taxed notes provided for by t h e amendment of 1908, t h e note circulation would immediately lose
its elasticity. As further expansion would be impossible,
the banks would have to meet any increasing demand for
currency by paying out gold and Dominion notes, t h u s
depleting their reserves. Such a situation would doubtless lead to a sharp advance in t h e discount r a t e and t o the
importation of gold.
THE PRACTICAL LIMIT UNDER THE LEGAL.
I t should be noted t h a t t h e practical limit of note issue
is about 10 per cent below t h e legal limit.

The manager

of a b a n k having a paid-up capital of $1,000,000 begins t o
get nervous when his circulation equals $900,000.

His

office m a y be in Montreal and his bank m a y have branches
31870—10-—5

National

Monetary

Commission

in the far Bast and in the far West and in the mining wilderness of the North. Some of these branches he can not
reach by telegraph and some are distant a week by mail. a
He immediately sends warning to all the branches and
cautions them against any large outgiving of notes and
against entering into transactions which will be likely to
lead to unusual demands for currency. On account of
this situation, even in times of greatest pressure, the total
issue of the banks is usually 10 per cent below the authorized limit.6
Chart IV, on the opposite page, shows the circulation
during the last ten years; also the comparative increase of
the paid-up capital and the surplus. The reader will note
that the amount of notes outstanding is invariably largest
in November and smallest in February, and that the surplus has been increased at a more rapid rate than the
capital.
a Said a general manager in Montreal: " We have trouble at times keeping exactly within the limit, and have to keep about half a million under it.
Our branches always have on hand a stock of notes which if they were all
issued would run the total outstanding above the limit. When the total
approaches the limit, I notify the branches not to issue above a certain
amount, say $10,000, without wiring me. I t takes a week to hear from our
Yukon branch."
& The penalty for excessive issue of notes is severe. If the excess is less
than $1,000 the penalty equals the amount of the excess. If it is between
$1,000 and $20,000 the penalty is $1,000; if it is between $20,000 and
$100,000, the penalty is $10,000; between $100,000 and $200,000, penalty is
$50,000. If it exceeds $200,000, the penalty is $100,000. The fact that
such large penalties overhang them explains why the maximum issue of
Canadian bank notes is usuallv $10,000,000 under the authorized limit.

CHART IV.—GROWTH OF CAPITAL^ SURPLUS, AND CIRCULATION. 1900-1909.
1 MILLIONS!

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190/

CHAPTER

VI.

T H E RESERVE.

The subject of cash reserves a is disposed of in the bank
act in two short paragraphs; the first providing that
not less than 40 per cent of a bank's reserves shall be
in Dominion notes, the second instructing the minister of
finance to arrange for the delivery of Dominion notes
to any bank in exchange for specie. As for the amount of
cash reserve to be carried by a bank or its ratio to net
liabilities, the law is silent. Every bank manager is free
to keep his reserve at any figure which in his judgment is
adequate.
There is no reason at present wny the law should compel
banks to hold Dominion notes. As these are practically
gold certificates, the only apparent effect of the requirement, as banking operations enlarge, is to compel the
Dominion government to increase its issue of notes and
guard an increasing amount of gold coin. If the notes
were mere credit instruments, their issue would be equivalent to an involuntary government loan and the requirement that they shall constitute 40 per cent of banking
reserves would insure the permanence of the issue and
save finance ministers from ever being worried over calls
a The bank act uses the word "reserve" in two senses. Section 59 provides that a bank shall not pay a dividend at a rate higher than 8 per cent
per annum unless its "rest or reserve fund" is equal to at least 30 per cent
of its paid-up capital. The reference here is to what in the United States
is called the "surplus." In section 60 the act mentions "cash reserves,"
meaning the amount of legal-tender money held by the banks. This is its
ordinary use among bankers in Canada as well as in the United States.

National

Monetary

Commission

for their redemption. Since all notes in excess of $30,000,000 are secured by a deposit of gold in the Dominion
treasury, their issue in no way increases the revenues of
the finance department. The 40 per cent requirement, as
a matter of fact, is entirely unnecessary; the notes, being
in large denominations, are preferred by bankers to gold
and would be utilized by them even though the law did
not require it.
To American bankers, trained under the national bank
act, the failure of the Canadian law to prescribe a minimum reserve undoubtedly seems a dangerous oversight.
To many these questions will doubtless arise: What is to
prevent a Canadian bank from assuming liabilities in
excess of its redemption capacity? How, indeed, does
the Canadian banker know whether or no he is carrying
a sufficient reserve ? Does not the failure of the law to
require a minimum reserve encourage the development
of speculative banking and a perilous expansion of credit
on an inadequate basis of coin ?
In Canada neither among the bankers nor in business
circles are questions of this sort ever raised. Canadian
bankers and many business men know a good deal about
the national banking system of the United States, but
they do not hold it in high esteem. On the contrary, they
express surprise that a resourceful and intelligent people
should have been content for so many years with a banking
system so cumbersome and irrational. In their opinion,
a law which fixes a minimum reserve against deposits and
forbids the issue of bank notes, except on the deposit of
government bonds, makes safe and sound banking absolutely impossible.

,68

The

Canadian

Banking

System

AMOUNT OF THE RESERVE FIXED BY EACH BANK.

It must not be supposed that the Canadian banks do
not carry adequate reserves. On the contrary, every
bank manager gives to this subject daily and most conscientious thought. To the Canadian banker the word
"reserve" means a fund immediately available for the
liquidation of liabilities. How much this, fund ought to
be depends altogether upon the amount and character of
the liabilities to be protected. Theoretically, with respect
to its time deposits, a Canadian bank is in the position of
a savings bank and in order to be safe need not keep on
hand for the liquidation of such deposits a very large
amount of cash, but may rely upon investment securities
to furnish whatever funds may be needed to satisfy unexpected calls from depositors. Practically, however, the
Canadian bankers do not avail themselves of the privilege
afforded by the law. All do not permit time depositors
to check upon their accounts, but they do pay them on
demand, and no Canadian bank would like to have it
rumored that any of its depositors had ever had the
slightest difficulty in obtaining funds when he wanted
them. Apparently, therefore, all the deposits of a Canadian bank belong in the same class and are equally liable
to become immediate claims upon the bank. As a matter
of fact, however, this is not the case. The time depositor
receives interest at the rate of 3 per cent under conditions
which will cause him loss if he reduces his balance except
on definite dates. A bank manager has learned by long
experience when withdrawals of time deposits are to be

National

Monetary

Commission

expected and to what extent he can depend upon fresh
deposits as an offset.
A Canadian bank manager, having before him the
amount of time deposits and demand deposits, respectively, knowing the probable future needs of the various
depositors, being in constant touch with branch managers
both by wire and by letter, and having back of him information born of many years' experience, easily determines
how much his bank's reserve ought to be in order to assure
its safety. The law neither helps nor hinders him; it
simply requires that the bank shall satisfy the demands
of depositors in accordance with the terms of the contract
and that it shall redeem its notes on demand. The public
by force of custom expects a bank to do a little more than
the law requires, for its credit is bound to suffer if it take
advantage of its legal privilege to delay payment upon
time deposits. The manager is a hired man, sworn to do
his utmost to protect the credit of the bank, trained for
many years in its service, familiar with its history and its
policy, anxious to guard his own reputation and character
against criticism. Under these circumstances it would be
remarkable if he did not fix the amount of his bank's
reserve nearer the ideal figure—if an ideal banking reserve
is possible—than could possibly be done by a body of lawmakers or of any other men outside the bank.
RESERVE COMPOSED OF FOUR ELEMENTS.

A Canadian banker thinks of a bank reserve as comprising four different kinds of assets: (i) Cash on hand, (2) cash
balances in other banks, (3) call loans, and (4) securities.

The

Canadian

Banking

System

Strictly speaking, "cash reserve" means only the first,
but a banker usually has in mind both the first and
second when speaking of his "cash reserve." He keeps
on hand a supply of cash, either gold or Dominion notes,
more than ample for the settlement of daily balances at
clearing houses. The counter demand for cash he knows
by experience can be met almost entirely by the use of the
bank's own notes. In order to be prepared for any emergency that may arise, such as a panic in Europe or in the
United States, the failure of a large customer, the suspension of a bank, an unexpectedly adverse balance of trade,
any of which events might cause a demand for gold for
export, he keeps some money on deposit in banks outside
of Canada, lends some on call in New York City, and
invests some in securities easily marketed. All these
funds are thought of as part of the "reserve."
Although the law is silent on the subject, there is a tacit
understanding or agreement among the banks that in
ordinary times the cash assets of a bank ought to equal 15
per cent of its liabilities and that at least 8 per cent should
be in cash on hand, the remaining 7 per cent being in
balances due from other banks.
From the American point of view the Canadian banks
carry a very small amount of cash. For example, on
January 1, 1906, it amounted to only $61,000,000, whereas
the net liabilities, notes as well as all deposits being included, amounted to $610,000,000, the ratio of the cash
on hand being only about 10 per cent. In November of
the same year the cash on hand stood at $75,000,000

National

Monetary

Commission

and the net liabilities at $705,000,000, the ratio of cash to
liabilities being still only a little over 10 per cent.
For many years the cash-on-hand reserve of the Canadian banks has averaged between 10 and 12 per cent of
the net liabilities. Some banks constantly keep on hand
a higher ratio, and others a lower. The ratio varies with
the same bank at different times. At one time a bank
may feel abundantly protected with a cash reserve of 9
per cent; at another time its managers may see occasion for
holding a larger amount of cash. Again a period of business depression, by lessening the demand for money, may
cause cash reserves to increase more rapidly than satisfactory investment can be found in call loans or securities.
This situation arose in 1908, when the cash reserve increased from $83,000,000 July 31 to $97,000,000 December
31. On July 31 of that year deposits were reported at
only $568,000,000. By December 31 they had increased
to $640,000,000. During these months the ratio of cash
to net liabilities exceeded 12 per cent, and in the case of
many banks was much larger than was necessary. As a
result the banks added to their credit balances in banks
and agencies outside of Canada, thus getting a low rate
of interest on part of their surplus funds and increased
their call loans in New York.
CALIy IyOANS IN NEW YORK CITY.
New York City is the favorite call loan market, and
several Canadian banks find it profitable to maintain
branches or agencies there. In the eyes of a Canadian

The

Canadian

Banking

System

banker a call loan payable in New York City and secured
by high-class collateral, is practically equivalent to
cash on hand. In normal times he can convert the loans
into money within twenty-four hours, adding to his
cash on hand either by the sale of New York exchange
or by an importation of gold. If times are panicky in
New York and stock market prices are tumbling, the
Canadian banker is among the first to get rid of all loans
based on securities about which there is the slightest
question. If the situation gets so bad that the New
York banks decline to ship gold, as they did in 1907,
the Canadian banks utilize their New York balances
for the purchase of sterling bills and so transfer their
accounts from New York to London, importing from
Europe whatever gold they need.
The call loans in Canada the bankers do not rely upon
as in any way equivalent to or as a substitute for a cash
reserve. Call loans in Canada are really not payable
on demand. The securities put up as collateral can not
be quickly marketed without a sacrifice and bankers
know very well that they can not rely on such loans as a
means for increasing their cash in an emergency. Even
though this were not the case, these loans could not be
reckoned as a source of strength to the Canadian banking situation, for the payment of the domestic call loans
would not add a dollar to the country's cash on hand.
Its only effect, as events have often illustrated in a parallel situation in New York City, wQjild be a reduction
of bank deposits.

National

Monetary

Commission

INVESTMENT SECURITIES.
In their choice of investment securities the banks are
not hampered by the law. They may purchase not only
government and provincial bonds, but also the stocks
and bonds of both Canadian cities and cities of foreign
countries, and the stocks and bonds of domestic and
foreign railways and industrial corporations. On January
i, 1907, the Canadian banks held securities as follows:
Dominion and provincial government securities, $10,300,000; municipal securities, $20,000,000; railway and
other bonds and stocks, $46,000,000, making a total of
about $76,000,000. The fluctuations in the amount
of total securities held are not great or frequent. When
the banks need a larger supply of cash, they prefer, as a
rule, to reduce their call loans in New York rather than
to sell securities. During the three years 1906-1908
the total amount of securities held by the banks ranged
from $63,000,000 in March, 1906, to $74,000,000 in
December, 1908. During eighteen consecutive months
of that period the amount varied by only $1,000,000.
Bankers do not place much reliance upon securities
as a part of the reserve. These constitute a sort of
auxiliary reserve, on which the banks expect never to
be forced to lean. But credit balances and call loans
outside of Canada are "cash" to most Canadian bankers
and are quite commonly included in what they call their
cash reserve.
Some of the batiffcs in calculating their reserve make
a distinction between demand and time deposits, figuring
that the time deposits are protected by, the cash on hand

The

Canadian

Banking

System

and the time deposits by credit balances and call loans
outside of Canada. The manager of one of the largest
and most conservative banks said to the writer:
"We aim always to have on hand a cash reserve equal
to 33^3 per cent of the demand liabilities. We carry also
a reserve of about 25 per cent of the time deposits in the
form of funds in New York and London, either balances
in banks or call loans. We consider this a kind of secondary reserve."
Their call loans in New York subject the banks to
considerable criticism. Some people assume that the
money loaned in New York rightly belongs to Canadian
industries, and that it would be loaned in Canada if only
their bankers were not so eager to make "easy" money
in Wall street. This criticism betrays ignorance of the
nature of "the Canadian banking reserve. If either the
law or public opinion should prevent the banks from
lending money in Wall street, Canadian borrowers would
be no better off than now. The banks merely would
be obliged to carry in their own vaults the money they
now lend in New York. As their earnings would be less
than now, quite possibly their equipment and facilities
would also be less and the Canadian borrower not so
well cared for as now.
The statistics furnished by the banks in their monthly
returns to the government are shown in the following
tables, which give the totals for the months of February
and November, 1909.

National

Monetary

Commission
February 28,

November 30,

1909.

LIABILITIES.

Capital authorized
Capital subscribed
Capital paid up
Amount of rest or reserve fund
Rate per cent of last dividend

2
3
4

5
6
7

8
9

. $142,466,000

Balance due to Dominion government after
deducting advances for credits, pay lists, e t c .
Balance due to Provincial governments
Deposits by the public payable on demand in
Canada._
.
__
Deposits by the public payable after notice or
on a fixed day in Canada
Deposits elsewhere than in Canada
Loans from other banks in Canada secured, including bills rediscounted
Deposits made by and balances due to other
banks in Canada _
__
Balances due to agencies of the bank, or to
other banks or agencies in the United Kingdom
__
Balances due to agencies of the bank or to other
banks or agencies elsewhere than in Canada
and the United Kingdom
Liabilities not included under foregoing heads. _
Total liabilities

$98,294,000

$98,960,000

$96,160,000

$98,046,000

$74,490,000

$77,868,000

$67,348,000

$86,391,000

4,808,000
14,512,000

23,137,000

192,969,000

264,286,000

441.391,000

6s.334.ooo

493.254,000
71,836,000

5.347.ooo

4,520,000

7,208,000

5.949.000

2,607,000

2,739,ooo

3,337.ooo
5.753.ooo

3,559,000

5.934,ooo

6,998,000

8 1 0 , 6 1 4 , 000

ASSETS.

3
4
S

6
7

Specie
Dominion notes __
Deposits with Dominion government for security of note circulation
Notes and checks on other banks
Loans to other banks in Canada, secured, including bills rediscounted
Deposits made with and balances due from
other banks in Canada
Balances due from agencies of the bank, or
from other banks or agencies in the United
Kingdom
Balances due from agencies of the bank, or
from other banks or agencies elsewhere than
in Canada and the United Kingdom

26,807,000
67,270,000

31,^98,000
71,511,000

4,051,000

4,575,000

25.346,000

43.609,000

5,108,000

4,421,000

10,417,000

10,523,000

25.9So.ooo

IO,120,000

18,078,000

25,624,000

The

Canadian

Banking

System

February 28,
1909.

November 30,
1909.

ASSETS—continued.
IO

Dominion and Provincial government securities _
Canadian municipal securities, and British or
foreign or colonial public securities other

I I

Railways and other bonds, debentures,

Call and short loans on stocks and bonds in

13
14
15
16

Call and short loans elsewhere than in Canada. _

Loans to the government of Canada
Loans to Provincial governments
Real estate other than bank premises
Mortgages on real estate sold by the bank
Bank premises
_
Other assets not included under the foregoing
heads
__..
Total assets

$12,840,000

20,590,000

22,038,OOO

49.349,000

49,916,000

47.555,000
101,444,000

57,876,000
134,837,000
590,292,000
35,358,000

and

l8
19

$10,240,000

507.35o,000
35,055,000
5,000,000
1,620,000
7,893,000
1,710,000
549,000
18,593,000

2,50I,OOO
7,037,000
1,192,000
631,000
21,I09,OOO

7,920,000

10,502,000

990,340,000

1,155,865,000

It seems worth while to call attention to some of the
items in these tables.
The item " Notes in circulation " was nearly $20,000,000
larger in November than in February. The increase was
due to the crop-moving need for additional currency, and
is an annual occurrence. During the next two months
the amount declined $13,000,000.
The increase in deposits (liabilities Nos. 4 and 5) was
due to the flow of money into Canada and to the great
activity of trade and industry, which caused an expansion
of "current loans" (assets No. 14). In other words,
there was a gain in both cash and credit deposits.
"Loans from other banks in Canada" (liabilities No. 7)
represent advances made to two banks in liquidation.

National

Monetary

Commission

Items 7 and 8 under "assets" indicate that the credit
balances in London increased $8,000,000, while those in
New York were unchanged.
Call loans in Canada gained $10,000,000, while call
loans outside of Canada—mostly in New York City—
gained $33,000,000. On the other hand, in "current
loans" there was practically no increase outside of Canada, but a gain of $83,000,000 in Canada. Such figures
mean good times in Canada.
ADEQUACY OF THE RESERVE.
In figuring the total reserve carried by the banks the
items 4, 5 and 6 under "Assets" can not be included,
although each individual bank might properly count them
as part of its reserve. They are credits with other banks
in the system, and are not a source of strength to the
system as a whole. As they are counterbalanced by an
equal indebtedness within the system, the net liabilities
to the public are obtained by deducting these three items
from "total liabilities." Thus we find that the net liabilities in February were $769,740,000, and in November
$910,453,000.
The ratio to net liabilities of each element of the reserve
is shown in the table below:

Cash on hand _
_
_ _
Credit balances in banks outside of Canada. __ _ __
Call loans outside of Canada __
_ - _ __
Securities
Total reserve

November

Per cent.

30-

12. 7

February 28.

4- 7

4.8

13- 2
10. 4

14. 8

41. 0

40. 6

9-3

The

Canadian

Banking

System

Leaving out of account the securities, which are the
least liquid element, the reserve stood at 30.6 per cent
in February and at 31.3 per cent in November. The
adequacy and immediate availability of a reserve of this
size and kind has been well proved by experience. Some
critics hold that the supply of gold is too small and that a
real crisis in Canada would shake the foundations of banking credit. The situation certainly does not warrant such
pessimism. Canada's banking reserve, securities excepted, consists of gold and of assets that can be turned
into gold within a day. To be sure, if Great Britain and
the United States should both suspend specie payments,
Canada would suffer as one of their financial dependencies,
but its banking system would stand a credit storm better
than theirs, for it would be able more quickly and efficiently to adopt measures of protection and relief.
The bankers know very well that they can not afford
to count New York and London funds as being money
on hand. Clearing-house balances are apt to vary greatly
in certain seasons, and a bank must be prepared at all
times for the unusual and unexpected. Hence the
banks carry a much larger cash reserve than seems necessary in ordinary times. a It keeps them always prepared
a " O n account of our large number of branches and the different conditions they encounter in the different sections of the country," said a general manager to the writer, " we have to carry a cash reserve that seems to
the outsider larger than is necessary. For example, when notes go out
rapidly in a place like Winnipeg, they soon come back and have to be redeemed in gold, and actual cash is required at the western redemption points.
It requires constant vigilance to keep proper cash balances. Balances in the
Bank of England and in the banks of New York we can not count as cash
at a redemption point. During the panic of 1907 we had nearly $2,000,000
in London and New York, but we could not really count them as part of

National

Monetary

Commission

to meet emergency calls from redemption points and prevents local suspicion of their strength. It must be borne
in mind that the public never comes in contact with any
portion of the cash reserve. To most of a bank's customers its holdings of legal-tender money are a matter
of indifference; so long as their checks and drafts are
honored at the clearing house they are satisfied. But
the banks must maintain their standing with one another. That is of first importance, and for that purpose
money on call in New York and London is as good as
money on hand.
Gold exports and imports are of small consequence in
Canada. This is what one would naturally expect. As
seasonal variations in the need for currency are taken care
of by the elastic note circulation, no gold need be imported
or exported on that account. Furthermore, when the
banks increase their balances in New York and London,
they do it by the remittance of exchange, not by the exportation of gold. The so-called balance of trade is against
Canada, yet sterling bills are fairly plentiful as a result of
the sale of Canadian securities in England. The output of
our cash reserve, for we could not have imported the gold without having
caused foreign complications. The knowledge that we had the gold there
did us practically as much good as to have had it here. We seldom import
gold for our own use or merely for the profit of the transaction. Despite
the fact that New York fell down during 1907, we should have had a pretty
serious time if we had not had some money loaned out in New York before
that panic. We knew that we could get the actual money at any time
by selling sterling exchange. In fact, all our money loaned in London and
New York is a kind of secondary reserve."

CHART V.—NET LIABILITIES AND TOTAL RESERVE, 1906-1909.
_
MU/OM
0F
1

_ _

WOLLARS5/33 m MARAPK MAY, JliN iJlR

930

/907

/*a?

/906

1MUU0H\
Of 1

mWlOtl NOVm IANm MARAPKMATJUHJULAUG\mk\ NOVDEdJAN] Til MARAPRMAYJUMI JULIAUG iErt oa NOVDEC' JANFEBMARIAPR MAYljUN; JUL AUGKfngCT MOVm DOUARi\

950\
900\

1 900
\650

^
^
J*
NJ

1 800

830

£f*

800

750

750\

700

700\

\6S0

650\

\600

600

\5SO

550\

600

500\

\<460

450\

\400

\*oo\

\3<50

\*TAI

^r
1300

M-H/

\33o\
\30o\

Yzso

250\
r

1 2Qo\
31870—10.

200\
(To face page 81.)

No. i.

CHART VI.—RATIO OF TOTAL RESERVE AND OF CASH RESERVE TO NET LIABILITIES, 1906-1909.
\wwoA

I906~
JANl "£B vfARl\PR MAYI nmjuy AUG

/907
~~H
/909
/90S
liri OCT NOV DEC] JAN FEB MAR APR MAY JON JUL AUG SEPT OCT NOV DEG JAN FEB MAP APR: MAY JUN JUL AUG SEPT OCT NOV DEC JAN ^FEB MAR APR MAY JUN $1

AUG SEP! OCT

j ffAT/o\
woyOECl mem

\00LMIfk

900
\S5o\
800
730

[

700
"all

^ ^

£ j mru/

f 1/T,
\E. f—**

rr ;
44 1
-42 1

i<>

.«(?
*

650

-4/ J
-*0 I
39 1

600

3S J

550
ft. %Tt O

o. "

'** ^
^

f/f

^£

l\*

L/7 \t

» '

I
I

^^ 1

500

37
36

34- I

- 3 ^ ~J

32 1

\450

3/ 1
30 j

\400

-2?<5

29 1
1

27 j
26 1

\350

23 j
24- J

\300

2»^

22 j
2/ 1
20 J

\250

\zoo

/7 1
\/50
ZO(/

/ 1

31870—10

r~rf *JI r

(To face page 81.)

No. 2.

jC ( i.4j 'A/

st ft*

\ro N f 7

//t

\n r/* J \\

; /76 y/f £ • /

/I 7

tfV< ?//

The

Canadian

Banking

System

Canada's own mines is more than sufficient to furnish the
annual increment in the banking reserve. a
FLUCTUATIONS OF R E S E R V E , 1 9 0 6 - 1 9 0 9 .

Charts V and VI (on the opposite page) show the fluctuations of the reserve during the four years 1906-1909;
also changes in the amount of net liabilities. It will be
noted that as a rule the total reserve (Chart V) moved up
and down with changes in net liabilities, increasing greatly
as the liabilities grew after the middle of 1908. Chart VI
shows that the ratio of reserves to liabilities rose rapidly
during the last half of 1908, when business was quiet and
funds were accumulating. The ratio was nearly constant
throughout 1909, but showed a downward tendency toward
the end of the year, on account, doubtless, of renewed business activity in Canada.
By reference to Chart II (see page 48) the reader will note
that during these three years there were great monthly
fluctuations in the item " call loans " elsewhere, and a remarkable increase in 1908 and 1909. The gain in call loans
in the spring and summer of 1907 doubtless reflected the
Canadian bankers' desire to take advantage of the high
rates of interest current in New York City. At the same
time the Canadian banks were reducing their current loans
in Canada, as is shown graphically on Chart I (page 48).
The sharp decline in call loans in September and October,
a The banks quote sterling exchange in the terms of the old par of
exchange, according to which the sovereign was worth, in Spanish dollars,
$ 4 4 4 1 / 9 . The present par ($4.8665) is about 9% per cent above the "old
par." There is some ground for suspicion that the Canadian banks preserve
the antiquated par because a sixteenth added to 9 ^ per cent means a
bigger profit than when added to $4.8665.
31870—10

National

Monetary

Commission

1907, was probably due to the desire of Canadian banks to
increase their cash holdings, coupled with a rather wellfounded distrust of the New York situation. After the
October currency panic in New York the foreign call loans
of the Canadian banks show a steady increase. They were
at the lowest point in November, 1907, being then
$41,000,000. By December, 1908, they had risen to
$95,000,000. During the same period the cash reserve
advanced from $81,000,000 to $97,000,000. This great
increase in the cash and secondary reserve was due to the
quietude in Canadian trade and industry as a result of the
panic of 1907. Current loans in Canada declined from
$580,000,000 in October, 1907, to $512,000,000 in December, 1908. (Chart I, p. 48.) Canadian banks were suffering from a glut of idle money. Their net liabilities
during the last six months of 1908 increased from
$700,000,000 to $760,000,000, and their cash reserve from
$79,000,000 to $97,000,000. Here was a gain of
$72,000,000 in deposits and oi $18,000,000 in the cash
reserve. As the current loans in Canada during this period
were steadily growing less, having declined $50,000,000
during 1908, it is evident that the gain in deposits must
have been accompanied by an increase in the cash resources
of the bank and that the only available outlet for this surplus was the call-loan market in New York City and elsewhere. As a result of these operations there was, of
course, a considerable gain in both the cash reserve and in
the secondary reserve in the latter part of 1908. The ratio
of cash reserve advanced from 11 per cent in the beginning
of the year to 13 per cent at the close. The total reserve

The

Canadian

Banking

System

rose from 31 per cent at the beginning of the year to 41 per
cent at the end. These figures mean a very easy money
market in Canada, too large a proportion of banking resources being in cash and call loans. The banks would
gladly have reduced their call loans in New York City during these dull months in 1908 if they could have found
profitable use for the money in Canada.

CHAPTER

VII.

OPERATION OF THE SYSTEM.
The 7,500,000 people living in Canada are engaged in
gainful pursuits very much like those which give support
to the inhabitants of the United States. Agriculture,
lumbering, mining, and fisheries are the most important
industries, but manufacturing, stimulated by a moderately protective tariff, is making rapid progress. Capital
at the rate of $200,000,000 a year is coming into the Dominion from England and Scotland. From the United
States are coming both money and men at such a rate that
the western provinces are almost " American. " Ontario
is English and Scotch in ideals and customs. In Montreal
and Quebec the population is largely of French descent.
The population of the Dominion as a whole is intelligent,
thrifty, and law-abiding, and nearly every Canadian is
convinced that his country is the best on earth to work and
live in, and that the development of its wonderful resources
in the very near future is bound to astonish the world.
Great as has been the growth of Canada's population and
wealth in the last ten years, the chartered banks have more
than kept pace with it. The 36 banks in existence in 1900
had 700 branches, or one office for every 7,500 people.
In 1909 the 29 banks in operation had over 2,100 branches,
or one for every 3,600 inhabitants. The average of deposits per branch has declined from $453,000 in 1900 to

The

Canadian

Banking

System

$336,000 in 1908. The banks maintain 50 branches outside of Canada—16 in the United States, 3 in England, 5 in
New Foundland, 1 in Mexico, 24 in the West Indies, and 1
in Parish Only a few of the branches in the United States
are permitted to receive deposits under the laws of the
States in which they are located. The branches in New
York City are mainly concerned in foreign exchange transactions and call loans.
OLD BANKS GET T H E N E W BUSINESS.

The decline in the number of banks from 39 to 29 during
the last ten years has been in part the result of failures and
in part the result of consolidations. Five banks have
either failed or gone into liquidation since 1900. Three
of them were institutions" having small deposits and their
failure was of little consequence. Two, the Sovereign
Bank

and

t h e B a n k of O n t a r i o , w e r e f a i r l y l a r g e

insti-

ll Of these 50 branches 15 are offices of the Royal Bank of Canada, 7 of
the Canadian Bank of Commerce, 13 of the Bank of Nova Scotia, and 7 of
the Bank of Montreal.
The Monetary Times of Toronto, in its issue of February 26, 1910, puts
the number of branches then in existence at 2,214, distributed as follows:
Newfoundland
6
Elsewhere
44
Ontario
962
Quebec
_•
342
Nova Scotia
106
New Brunswick
67
Prince Edward Island
16
Manitoba
175
Alberta
156
Saskatchewan
•__
207
British Columbia
130
Yukon
_
_
_
3

2,214

National

Monetary

Commission

tutions, one having 30 branches, the other 70. The
liquidation of these was mainly due to the oversanguine
and speculative temperaments of their chief managers, as
is explained in the next chapter.
Eight banks have come into existence since 1900, but
one of these, the Sovereign, is in liquidation, and two of
the others, the Northern and the Crown, have been amalgamated. Some critics insist that the difficulties in the
way of establishing a new bank are so great that the existing banks practically possess a monopoly. This criticism,
however, is not altogether justifiable. 4 A dozen or more
new banks have been chartered since 1890, and there is no
evidence whatever that Parliament has refused a charter
to any set of deserving incorporators. The dividends of
the chartered banks range from 4 to 13 per cent, a most of
them are accumulating large rest or surplus funds, and
their stocks are selling at high prices. But other business
enterprises in Canada are yielding higher rates of profit,
and the amount of capital which men are willing to invest
in a new bank is very limited. The real reason why more
banks are not created in Canada does not appear to lie in
the legal restrictions, but rather in the difficulty of finding
the necessary amount of capital. The banking field is so
well covered by existing institutions, and competition is so
keen among them, that the prospects of a new bank are
not as alluring as those of many other enterprises which
invite capital. The population and business in Canada
a According to Doctor Breckenridge the average rate of dividend increased
from 7.59 per cent in 1900 to 8.53 per cent in 1908; while the average per
cent of dividend to total of capital paid up and rest has fallen from 5.01
to 4.81.

The

Canadian

Banking

System

are increasing, however, at a rapid rate, and new banks
will doubtless come into existence, although the old institutions, with their large capital and surplus, and with
the unlimited right to establish branches, are in a position
to expand their business indefinitely. Indeed, it is easier
for the banks now in the field to get new capital than it is
to get subscriptions to the stock of a new bank. Hence,
while it is probable that new banks will be started from
year to year, it is not likely that Canada, even when its
population is four times the present figure, will have
many more banks than it now has. The advantages of
consolidation and the evils of unrestricted competition are
realized in Canada as clearly as in the United States and
have in the last decade caused a reduction in the number
of banks from 39 to 29.
COMPETITION IS NOT LACKING.

In many respects banking competition is quite as active
in Canada as it is in the United States. Apparently there
are only two things which the banks do not like to do in
order to attract business—lower the discount rate, or
advance the rate paid on depositors' balances. There is
no express agreement among the bankers on these points,
but every banker knows that he would become persona
non grata among his brethren if he should discount certain
kinds of paper at less than 6 per cent, or pay his depositors
on their monthly minimum balances more than 3 per cent
per annum. In Montreal and Toronto large borrowers
can get money at 5 per cent, but the average merchant
and manufacturer must pay 6. In Winnipeg borrowers

National

Monetary

Commission

can do almost as well, but farther west the usual rate is 7
per cent, and in some of the remoter districts merchants
and farmers alike pay 8 per cent. Bankers do not believe
in lowering the discount or interest rate unless they are
compelled to do so in order to find a market for their funds.
Some of the older institutions would like to prevent
competition from absorbing the minor profits which come
from collections and transactions in exchange, but they
are not entirely successful. The nominal or schedule
charges for collections and exchange are frequently cut for
the benefit of business men whose favor it is desired to
propitiate.
In their efforts to get new business, to be the first to
open a branch in a promising new community, or to keep
their regular customers from being dissatisfied, these
seems to be the keenest kind of competition. Few villages of 500 people can complain that their banking facilities are less than they deserve, and many of them, with
barely enough business to pay the expenses of one branch,
are supplied with two. The recent rapid increase in the
number of branches has been caused by the great expansion of the West and by the competition among the more
progressive and energetic general managers, each desiring
that his bank shall be the first in a promising field, even
though his enterprise lead him to establish branches
which at first do not pay expenses. In a new mining
camp the first bank, like the first saloon or the first boarding
house, usually begins business in a tent. Some of the
more conservative bank managers in Canada think that
new branches are being started in excess of the country's

The

Canadian

Banking

System

needs, but others are willing to take chances on the
country's future and to charge considerable sums to the
debit side of the profit and loss account in order to keep
their institutions at the front in the great and developing
West.a That mistakes are not infrequent is proved by
the fact that in 1909 the banks, while they opened 267 new
branches, abandoned 40 old ones. Of the 40 closed 30
were located in the Province of Ontario. Of the new
a

" W h e n a new country opens up," said a Toronto manager, " w e often
have to establish a branch on short notice, and we open up in any kind of
quarters. At Cobalt, for instance, we cleared the snow off the ground,
erected a tent, tacked up a sign, and the bank was ready for business.
Supplies were rushed in and better quarters built as soon as possible. Our
employees hold themselves ready to go anywhere on a moment's notice.
"Our branch bank buildings in the smaller towns are uniform in construction and equipment, and have sleeping quarters for two or three men
above the banking room. The construction of these uniform buildings is
so systematized that we can order a certain style building from our carpenters and they can cut and saw every piece and ship it ready to be put
together. Then we have uniform equipment of bank fixtures, desks, etc.,
so when we order fittings for a certain style of building we know every
article that is needed for its furnishings.
" I n some sections of the country west of Winnipeg the branches commenced paying from the first day they were opened. At one small town the
branch had $250,000 in deposits in an incredibly short time.
" We have plenty of promising locations for branches, but our greatest
trouble in expanding is in finding competent managers."
" W e have branches," said another manager, " i n towns too small to
afford a permanent office. They are kept open only two or three days a
week. One manager with two junior clerks has charge of two or three
such branches, dividing their time between them. We make it a point
never to have a branch bank in charge of less than three men, on account
of the protection they afford from without and within. Dishonesty is very
rare. We do not carry any burglar insurance, as till money is all that is
kept at the smaller branches, the reserve being kept at the more important
points. Money can be quickly centered at any branch where there is a call
for it. At least two men are expected to sleep on the premises of the
permanent branches.
•
" Our system allows banks to be operated with profit in all towns of 500
population. In many towns of 200 inhabitants there are branch banks."

National

Monetary

Commission

branches 72 were opened in Ontario and 40 in Quebec, two
of the older Provinces, while in the west 13 were opened
in Manitoba, 57 in Saskatchewan, 49 in Alberta, and 26 in
British Columbia.
CLEARING

HOUSES.

The law gives to the Canadian Bankers' Association
the right to establish and regulate clearing houses. In
1909 clearing houses were in operation in fourteen cities.
Total clearances for the last five years and for 1900 are
given in the table below:
Clearing-house

statistics.

[Expressed in thousands.]
Clearing
house at—

1900.

1905.

Calgary _
Halifax _ _
Hamilton,

$77,594
40,262

$98,251
68,367
50,429

Montreal-.
Ottawa
Quebec

734,941

1906.

$4L77i
3.936
9L552
78,480
57,863
1,533,596
135,866

1907.

1908.

1909.

$64,815

$98,754
50,561
95.278
84,803
62,093
1,866,649
173,181

$69,798
45.7i6
93,587
88,104
65,760
1,555.737
156,487
107,460

1,467,315
154,367
i n , 812

66,150
1,228,905

66,435
1,166,902

14,153
72,404
i,437,7oo

183,083

287,529
70,705
770,649
5,203,269

38,596
90,232
72,329
56,875

70,707

1,324,314
120,891
86,794

37.907

52,836

60,032

5i3;697
46,161
32,038

1,047,490

1,219,125

88,460

132,606

36,890

45.6i5

I9L734
55,330

106,956

369,868

504,585

596,667

55,356
614, i n

Total _ _ _ 1 , 6 6 0 , 2 6 3 3 , 3 3 5 , 5 9 5

3,997,96o

4,321,441

4,142,233

St. John
Toronto
Vancouver
Victoria
___
Winnipeg

92,934

118,803

All the clearing houses are operated alike, the rules
being made and approved by t h e Bankers' Association.
The methods employed are very similar to those in use

The

Canadian

Banking

System

in the United States. Balances are paid with Dominion
notes that are negotiable only between banks, by draft on
Montreal, and sometimes by draft on New York. Since
bank notes as well as checks are always sent through the
clearing house, the totals given above include notes as
well as checks. The amounts of each are not separately
reported or even recorded at the clearing houses.
BANKING I N D I F F E R E N T PROVINCES.

The clearing-house statistics possess special value in
Canada for the reason that they constitute the only available data with respect to the growth of banking operations in the different provinces. The monthly bank
statements give totals for the Dominion. That is all the
law requires, and the banks do not give the public more
information than they are obliged to. One can not find
out, therefore, what proportion of the deposits belong to
Ontario, Quebec, Manitoba, and other provinces, in what
sections loans are expanding most rapidly, or what
branches make the call loans. It is generally known that
the eastern branches get heavy deposits and are creditors
of the head office, and that the funds they collect are forwarded to the western branches, whose loans greatly
exceed deposits. Bankers will admit that this transference of funds takes place, but there is considerable grumbling about it in the old communities of the East, and the
bankers fear that a monthly or even annual publication
of the facts would keep them perpetually in hot water.
A glance at the above clearing-house statistics leaves no
doubt as to the banking importance of the western Prov-

National

Monetary

Commission

inces or as to the relative financial quietude of the East.
Between 1900 and 1909 the total of Canada's bank clearings increased 227 per cent, but Halifax gained only 23
per cent, St. John only 90 per cent, and Quebec only 68
per cent. On the other hand, Toronto's clearings increased 179 per cent, Winnipeg's 600 per cent, and Vancouver's 524 per cent.
EASTERN PROVINCES HAVE SUFFERED.

This transference of funds from sluggish to active communities is the inevitable result of a system of branch
banking and is the cause of the tendency of the rate of
interest toward uniformity in all parts of Canada. Whatever may be said against a system of branch banks, there
can be no question that it does bring about a more even
distribution of capital in a country than is possible under
a system of independent local banks. Canadian bank
managers are anxious to put out their money where it is
most wanted, for there they get the best possible rate of
interest and obtain paper of the best quality. No matter
where a manager's headquarters may be, he is most
deeply concerned in three questions: (1) Where is idle
money accumulating? (2) How can he best draw it into
his bank? (3) In what parts of the Dominion is money
most needed? In localities of both kinds he establishes
branches; in the one the branches accumulate deposits
often much in excess of their loans, in the others the loans
exceed the deposits. Thus it happens that the savings
of the Eastern Provinces, where the growth of industry
and trade is slow and the demand for new capital is not

The

Canadian

Banking

System

increasing, are sent westward and loaned out to merchants
and manufacturers and farmers of the new territories.
The people of the East supply the capital for the development of the West, though many of them perhaps are entirely ignorant of the useful purpose their savings are made
to perform. In the western cities of Canada one hears no
talk among business men about the scarcity of capital.
A merchant or manufacturer in Manitoba gets the money
he needs as easily as does a merchant or manufacturer in
Toronto or Montreal.
Justifiable as the bank's policy is from a national point
of view, one can not help believing that the branch banking
system has really checked the development of business
and industry in the maritime Provinces. If Canada during
the last thirty years had depended, like the United States,
upon independent local banks, there would have been a
plethora of capital in the East, and Montreal, Quebec, and
Halifax, like Boston, New York, and Philadelphia, would
years ago have had 4 and 5 per cent money, while Winnipeg and other western cities, less populous than now,
would still be paying 1 per cent a month. The relative
cheapness of capital undoubtedly helped build up the
prosperous industries of Massachusetts. The same cause
operating in the maritime Provinces of Canada would
doubtless have led to the establishment there of industries
of which the people under existing conditions have not
ventured to dream.

National

Monetary

Commission

HOW T H E CROP MOVEMENT IS FINANCED.

On account of the variety of industries in Canada, the
demand upon bankers for money is fairly steady throughout the year. The heaviest pressure is felt in the fall
months, when the great crops of the West are harvested
and brought forward for export; and during these months
the credit of the Canadian banks is always most extended,
both the circulation and the deposits then being at the
maximum. The movement of the crops causes an increase
in the demand for loans and in the demand for currency.
The additional demand for loans comes from the buyers
of agricultural products and gives rise to a western movement of banking funds. Each buyer of grain or of cattle,
at the beginning of the season, arranges with his bank for
all the money that he expects to need. As a rule, he
draws on his bank for funds with which to pay for the
stock of grain he buys and forwards warehouse receipts
and bills of lading as collateral security.
At the same time depositors are calling upon the banks
for large sums of currency in denominations of $5, $10,
and $20 to use in the agricultural districts in making payments to people who prefer cash to checks. In Canada,
as in the United States, many farmers who are distant
from towns have no checking bank account. When they
pay off their hired men and settle their accounts at the
village store, they do it with cash; and in Canada this
cash always consists of bank notes. As a result, the
circulation of Canadian banks invariably expands during
the months of September, October, and November. By
December an inward movement begins. As the bank

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System

notes are paid to him by the farmers, the country storekeeper deposits them in the local branch of his bank, and
this sends them at once to the nearest redemption center
or clearing house. At the same time the checks paid out
by the buyers of grain and stock are also pouring into the
clearing houses and both checks and notes are cleared in
the same fashion.
DOUBLE PUUv ON THE} BANKS.
The banks stand this double drain on their resources—
the increased demand for loans and for currency—without
any inconvenience. They do not advance the rate of
interest and apparently do not deny any of their regular
customers. Ordinarily, as their liabilities increase in the
fall on account of expanding deposits and note circulation,
they reduce their call loans in New York City, and so add
a few million to their cash reserve. In 1906, for example,
the net liabilities of the Canadian banks rose from
$635,000,000 September 1 to $705,000,000 November 1,
an increase of $40,000,000. Their current loans in Canada
during the same months rose from $515,000,000 to
$550,000,000, a gain of $35,000,000. The note circulation
that year began to increase in August and reached its
highest point in October, rising from $72,000,000 to
$86,000,000. By December 31 it had declined to
$78,000,000. The banks began to increase their cash
reserves on May 1 of that year, raising the total during
the next four months from $59,000,000 to $65,000,000.
During the month of September the cash reserve was
increased from $65,000,000 to $74,000,000, a gain of
$9,000,000 in one month. During October there was an

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increase of $i ,000,000. After November 1 the cash reserve
declined. The increase of $9,000,000 during the month
of September was evidently due to the bankers' desire to
guard against their increasing liabilities and appears to
have been brought about by a reduction in call loans in
New York City and by the sale of securities. Merely by
adding $10,000,000 to their holdings of money the banks
were able to permit their demand deposits during the
months of September, October, and November to increase
$25,000,000, and their circulating notes about $12,000,000,
making a total increase in their net liabilities of $37,000,000.
The conduct of the banks during the next two years—
1907 and 1908—which were unusual in character, is discussed in the next chapter. In both these years, as the
reader will see by a glance at Chart VII (page 96), the
volume of notes in circulation varied in the usual manner,
reaching the maximum in November, then declining to the
minimum in February. The liquidation that everywhere
followed the panic of October, 1907, causing a general
reduction in bank deposits and bank loans, was quickly
over in Canada. The year 1908 was a breathing spell in
Canadian industry and finance, but the bank returns show
that there was no lack of confidence in the banks and that
the floating capital of the country had not been seriously
impaired. The demand deposits, which declined throughout 1907, began to gain in February of 1908, and climbed
steadily upward throughout the year. The time deposits
held their own after February 1, but did not begin to
increase until August 1. That these gains in deposits were
mainly due to increasing cash receipts is indicated by the

CHART VH.—COMPARISON OP MAXIMUM CIRCULATION WITH CASH ON HAND AND WITH PAID-UP
CAPITAL, 1906-1909.

/906
\MIUIOMJ
1
A2<97
waum JAW TOMAR APH MAY buNbui \m•JIM L°ii MOV luti LjAN HB MAR APK MAY JUN JUL AUfc Jtr pelMOV DEC LJANFEBMAS APR

/£tf^

\MUUONA

p DUL[AUG
m/jjUN
pip INOVIDEC CANFEBW A P R I M A Y LJUNIJUL |AUC|S[fl|OCT HDEC \DOUAHA

1 143

145

1 140

140

135

/35

130

125

120

1/5

110

103

J /OO

J^ *

L•

105
100

J 95

%ic

fliio^
r

, c$

^* S

^ M( M K /

£i

—f

\
65

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90

A 1

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7

55 I

\_50 I

-45

45 J

40 \
_35j

]

L^pJ
31870—10.

(To face page 96.)

-J

—j

J J

—J—J

==3_g=j

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System

fact that the current loans in Canada declined steadily
throughout 1908, and by the steady augmentation of the
cash reserve, which throughout both 1908 and 1909
exceeded at all times the amount of notes in circulation.
In 1908, although the maximum circulation was only
$85,000,000, being $11,000,000 under the legal limit, seven
banks took advantage of the amendment to the bank act
and issued notes in excess of their paid-up capital, paying
a tax on the excess at the rate of 5 per cent per annum.
In 1909 the maximum circulation in November touched
the highest point ever reached and thirteen banks issued
notes in excess of their paid-up capital, the largest excess
on any one day being $2,373,000. In 1908 the largest
amount of "emergency" notes outstanding on any day
was only $775,000.^ As is pointed out in Chapter IX, if
the banks since 1900 had properly increased the amount
of their capital stock, instead of charging their undivided
profits to the surplus or rest account, there would have
been no necessity for "emergency" issues of notes
VARIATIONS IN T H E CIRCULATION.

By referring to Chart II (see page 48) the reader will
easily get an idea of the elasticity of the circulation. He
will observe that the amount of notes outstanding invariably increases after September 1 and reaches its maxi« I n 1908 the total daily excess amounted to $9,299,000 in October,
$9,105,000 in November, and $705,826 in December. The largest one-day
excess issued by all the banks was $723,000 in October, $775,000 in November, and $144,000 in December.
In 1909 the total daily excess was $12,500,000 in October, $26,300,000
in November, and $15,612,000 in December. The largest one-day excess by
all the banks, $1,448,000 in October, $2,373,000 in November, and
$1,600,000 in December.
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mum in November, then declining sharply during January and February. With respect to these changes in the
circulation two facts should be borne in mind by anyone
wishing to understand the Canadian system.
First, the autumnal increase is not brought about by
any effort on the part of the banks; it is beyond their control, and they could not prevent it if they wished to.
Indeed, the note circulation of the Canadian banks is one
liability they can not reduce or enlarge at will. They can
stop the growth of deposits by refusing new accounts or
by declining to make additional loans, and the people
would have to submit; but the public's need for currency,
small in the summer, large in the autumn, the banks
must satisfy—the only alternative being suspension.
Second, the additional notes are not directly a source
of profit to the banks. The notion that Canadian banks
give notes to their borrowers and that the additional
issues in the fall represent loans at 6 per cent, is a mistake.
Canadian banks, like those in the United States, give deposit accounts to borrowers, and it is a matter of indifference to the Canadian banks whether their customers check
out their accounts or call for notes. The fact that the
banks can issue the notes as needed is directly an advantage to the public and hence indirectly beneficial to the
banks, for it saves them from the necessity of calling
loans in order to get the extra currency needed in the cropmoving season. By reference to Chart VII (page 96)
the reader will see that the amount of legal-tender money
in the banks, i. e., their cash reserve, tends to vary somewhat with the amount of notes in circulation, the two

The

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being nearly equal; but he must not infer that the fluctuations in the cash reserve are due to changes in the volume of the circulation. The reserve is the protection for
all the liabilities of the banks, and of these the deposits
exceed the circulation nearly tenfold. The banks take
pains to increase it in the fall, because then all their liabilities, deposits as well as notes, are certain to increase,
and they wish to be fully prepared for the redemption of
an unusually large amount of both checks and notes.*
As a rule, they add to the reserve in the fall by a slight
reduction of their balances on deposit in foreign countries,
especially in New York City, and thus are enabled to enlarge their current loans in Canada. If they were not
permitted to issue notes, they would every fall have to
import from New York a considerable amount of gold,
and all the risk and expense involved in getting it would
be borne by the Canadian people.
LARGE USE OF DEPOSIT CURRENCY.

It is sometimes assumed that a free and large use of
bank notes tends to discourage the use of the check book
and the growth of bank deposits. On the continent of
Europe, for instance, where the notes of central banks
supply all the currency the people need, the check book is
comparatively little used. This fact is sometimes explained by the ease with which people can obtain bank
notes for use in making all payments. Experience in
Canada makes one doubt the validity of this explanation.
The check book is almost as popular there as in the
United States, and would probably be used still more than

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Commission

it is if the banks would adopt a policy as liberal as that
in vogue in the United States. The Canadian banks
not only charge exchange on checks and drafts payable
in other localities, but even charge exchange on checks
drawn on their own branches. The charge is a small one
and probably has no great effect one way or the other,
yet it certainly does not encourage the increase of deposits
or the use of the check book. When a Canadian starts
on a journey it is in a small way economical for him to fill
his wallet with all the cash he expects to need. The
notes of his bank will be taken at par everywhere throughout the country; his checks, even though he presents
them at a branch of his bank, will be cashed only at a
discount. a
Notwithstanding this discrimination against the check,
the deposits of Canadian banks have grown much more
rapidly than the note circulation and the inference is that
the volume of deposit currency has increased at the same
rapid pace. Since 1900 the volume of notes has increased
from $50,758,000 to $81,326,000 in 1909, a gain of 60 per
cent. During the same period the deposits by the public
increased from $297,915,000 to $760,350,000, a gain of 155
per cent, and the total clearings in the same period increased 227 per cent. These figures prove that business
men in Canada appreciate the advantages of the check as a
means of payment, and that the proportion of business
transactions settled by it is steadily increasing.
a
Competition forces the banks to grant favors to large and regular customers which are denied to the small and occasional customer, and the free
collection of checks and drafts upon Canadian banks, as well as upon some
cities in the United States, is one of the concessions which a valued customer
usually obtains.

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INVESTMENT CAPITAL WELL DISTRIBUTED.

The conditions which bring about the even or equitable
distribution of business capital have a similar effect upon
the flow of investment funds. A western city in Canada
can obtain money for the construction of a street railway or
the installation of an electric-light plant almost as cheaply
and as readily as can an eastern city. Indeed, the stocks and
bonds of new enterprises in all Canadian towns and cities
obtain capital strictly on their merits. If two towns or
cities—one in the west, the other in the east—need capital
for enterprises containing inherently equally good assurance of income and safety, the one is likely to fare as well
as the other in the loan market. This does not mean, of
course, that all municipal and industrial enterprises in
Canada borrow funds at the same rate of interest, nor that
the rate of interest paid in the west is uniformly as low as
that paid in the east, for the prospects of enterprises vary
in Canada as in other countries, and the future of every
new community is more or less uncertain.
Taking into account the uncertainties that necessarily
attach to the development of enterprises in new localities,
which add to the element of risk always involved in the
loaning of money, it may fairly be said that Canada has
only one money market and only one rate of interest.
In the United States great masses of loanable capital accumulate in the cities of the east and can be drawn into
the country only by positive assurance of an extraordinary
rate of interest. In Canada one finds no such accumulation
of capital in a few cities and no such reluctance to loan it
out at distant points. Banks in Montreal or Toronto lend

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with equal freedom in both the west and in the east, and
their managers have equal familiarity with the needs and
credit of both sections. The fact that a bank's head office
is in one of these cities is no evidence whatever that its
main interests are there. Nor if the head office is in a
smaller city, such as Sherbrook or Hamilton, does it follow
that it is a second-rate institution with local interests only.
The real nature of the Canadian system can not be understood by anyone who fails to grasp the fact that the
Canadian banks are in no sense local institutions. With
two or three unimportant exceptions they are national
institutions, and their managers are on the keen lookout for
any chance to increase their business in any community
between the Atlantic and Pacific oceans.
I have said that if we make allowance for the element of
risk involved, the rate of interest is practically the same
throughout the Dominion. Perhaps we should also take
into account the element of expense. As a matter of fact,
the rate of interest is about i per cent higher in the west
than in the east. Borrowers in country districts also pay
a higher rate than those living in the cities. Prime commercial paper can be discounted in Montreal at 5 per cent,
but the bulk of discounts is at 6 per cent. In Winnipeg
the prevailing rate on commercial paper is 6 per cent, but
in the new towns west of Winnipeg the rate upon all but
the choicest kind of paper is 7 per cent. The rate is
higher in the new localities and in the country districts,
not because the paper is necessarily poorer, but because
the maintenance of branches in these new localities, and
in all small towns, is more expensive per dollar of business

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done than in the larger cities. If the people in a newly
settled community were not willing and able to pay 7 per
cent for money, the banks could not afford to establish
branches among them as quickly as they do. If a bank
has the enterprise to open a branch in a mining camp,
which can be reached only by a long journey through the
wilderness, it is naturally to be expected that it will
charge for its services a price that will compensate for the
risk and expense involved. In this respect banks, as
dealers in money and credit, are like dealers in provisions
and general merchandise. They charge high prices because their risks and expenses are high, not because they
have an assured monopoly, nor because they handle a
commodity which can not stand long or rough journeys.

103

CHAPTER

VIII.

THE SYSTEM IN TIME OF STRESS.

Since the present system of banking was perfected in
1890, Canada has had no banking panic. She has suffered
from periods of depression and hard times, caused either
by short crops or by the failure of outside markets to
absorb her produce at satisfactory prices, but never from
scarcity of currency, from runs upon banks, from business
failures, or from the inability of banks to meet their obligations. It is impossible to escape the conclusion that
the credit for Canada's immunity from panic and financial
distress is largely due to the character of her banking
system.
No country can expect to be free from periods of
dullness, no matter how perfect its banking system.
International relations in trade and finance are so close that
all countries suffer from the mistakes made by any one.
Canada has depended very much upon English capital.
She is relatively a large consumer of the products of the
United States and has many an enterprise which owes its
inception to American initiative. Hard times in England
or in the United States must inevitably affect Canadian
business. She is borrowing from England as this country
did a century ago. Her credit system rests upon the gold
reserves of London and New York. Under these circumstances, when one recalls how the credit and financial
system of England and the United States have been
shaken during the last twenty years, it is remarkable that
Canada has escaped serious damage.

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STRONG BECAUSE ELASTIC.

Canada's banking system contains two features that
give it great strength under the threat of panic or crises.
One is the elasticity of the note circulation, the other the
solidarity or unity of the system. The reason why
Canada has never suffered from a currency panic lies on
the surface. The banks always have cash enough to meet
the demands of their depositors. Instead of being in the
position of their brethren across the border, that is,
anxious to conserve their cash, they welcome any legitimate opportunity for the increase of their circulation.
Except for a few weeks during the panic period of 1907,
when practically all the banks of the United States had suspended cash payments, the Canadian banks have always
had currency on hand in excess of their customers' needs.
This currency consisted of their own notes. To their
customers the bank notes are perfectly good money.
Even though people got suspicious of the solvency of a
Canadian bank, its notes would not be in disfavor.
Furthermore, when Canadian banks satisfy their customers' demands for cash, their resources are unimpaired.
They are not obliged, as are the banks of the United
States, to call loans in order to make good their cash
reserve. With the public their notes have all the efficiency
of gold itself, and the fact that they are paid out so willingly by the bankers, the supply as a rule seeming inexhaustible, prevents anything like a panic starting among
the people.
The elasticity of the note issue% however, is not the most
important factor contributing to the peace and security
of the Canadian financial system. It must be regarded,

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indeed, as an essential factor, for without it the banks
would be unable to maintain equilibrium without resorting to methods that at times would be perilous. If in any
emergency they were obliged to raise their rates of interest
and to seek to increase their resources by the reduction of
loans, it is doubtful if Canada, despite the strength of its
banking system in other respects, could escape from the
losses caused by panic.
SOLIDARITY OR UNITY OF THE SYSTEM.

The other feature making for financial ease in Canada,
namely, the solidarity or unity of the banking system, is
not easy to describe. It is a growth, a situation, rather
than a*creation of the law. When one has in view the
protection of Canada's business and financial welfare, it
is impossible not to regard the 29 chartered banks, with
their 2,200 branches, as a single institution. As lenders
of money they are independent units. For that matter,
the branch of each bank has a great deal of independence.
All are independently seeking for deposits. Each branch
is seeking to make the largest possible profit, and its manager is encouraging to the utmost the enterprises in his
locality, for on the growth of the business he does depends
his favor at headquarters. Nevertheless, from a national
point of view, despite the competition among the banks
and their branches, there is considerable reason for regarding the 29 chartered banks of Canada as one institution.
Consider, for instance, the following facts:
1. Over 50 per cent of the banking business in Canada
is done by 6 banks. One of these, the Bank of Montreal,
has assets exceeding 20 per cent of the total. Another,

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the Bank of Commerce, with head office at Toronto, has
resources equal to 13 per cent of the total.
2. The Bank of Montreal is the depositary of most of
the government funds and among the people is commonly
spoken of as the government bank.
3. The Bankers' Association, an organization created by
law, is a medium through which the best banking opinion
finds authoritative expression. Through this association
the banks keep advised of all pending legislation in any
way affecting banking interests.
4. Bank managers are trained experts and each one has
the expert's regard for a man who has had a wider experi. ence or a better training than himself. As a result, no
manager will venture far upon a policy which is regarded
by his competitors as dangerous.
5. All the banks are equally interested in the unbroken
prosperity of the country. The managers of the six
largest banks, each having charge of over a hundred
branches, are particularly watchful. They realize that
speculative excesses in any part of the country will bring
loss to them and must be discouraged.
6. On account of this mutual interdependence of the
banks, no bank in Canada can hope to achieve success by
striking out upon an absolutely independent policy, if
such conduct is likely to meet with the disapproval of the
banking fraternity. The business public, from which a
new bank must get its support, has confidence in the management and judgment of the established institutions. A
depositor may feel that he ought to get more than 3 per
cent interest on his balance. He may complain that his
bank does not give him credit enough, or that it is not

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liberal enough in its collections. Nevertheless he would
be reluctant to give his account to a new institution or to
any institution, whether old or new, if it were managed by
men not in good standing with the leading bankers.
7. In their insistence on the rule that a man shall borrow
from only one bank the banks have done more than
appears on the surface to make their system a unit. If a
merchant is refused credit at one bank, he finds it practically impossible to get help from any other. This rule
certainly makes the 29 banks of the Dominion, from the
borrower's point of view, a single institution.
8. There is practical unanimity of opinion among
bankers with regard to business conditions and the outlook. The managers of Canadian banks get their information with regard to the country's condition from the
managers of branches. Since all know what is going on
in every part of the country, it is not remarkable that all
usually are very much in agreement, for the sources of
information of all are practically the same." As a result,
Canada has a "banker's opinion" with regard to the
business situation, as distinguished from the "opinions
of bankers" in the United States. In the latter country
the bankers in the West are often in disagreement with
the bankers in the East, and the eastern bankers are frea During the writer's stay in Canada in April, 1909, he talked with
bankers in Montreal, Ottawa, Toronto, and Winnipeg. Everywhere he
raised practically the same topics of conversation, and everywhere got
practically the same answers. The managers at the head offices get daily
reports and letters from their branch managers, and the head offices in
their turn send out information to the branches. As a result the men in
the banking business in Canada know more about the whole country than
any other set of men. The files of one of the larger banks probably contain more valuable and more accurate information about the current
events in Canada than can be found in the files of any newspaper.

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System

quently in considerable ignorance of the conditions and
events which are shaping the opinions of their western
brethren. In Canada, with reference to questions of fact
or actual conditions, one finds very seldom any difference
of opinion among Canadian bankers. If there is excessive
speculation in any part of the country, if a certain industry
is suffering because of tariff changes in Europe, or because
of a scarcity of raw materials, or if capital is being employed in an industry in amounts not warranted by the
demand, or if there is the prospect of a light yield of any
agricultural product, the bankers are among the first to
get the information, and all of them have it.
IMPORTANCE OF T H E BANKER.

This unanimity among the bankers with regard to business conditions makes the individual banker a much more
important person in Canada than he is in the United States.
Business men there do not speak of him as a mere money
lender. They look upon him as a man who has especial
facilities for getting information about business and financial questions and whose opinion, therefore, is entitled to
great respect. This is true not only of the general managers, who as a rule live in the large cities and are men
past middle life, but is true as well of the managers even
of the small branches. In every community the manager
of a branch bank, especially if it is a branch of one of the
half dozen largest institutions, occupies a prominent position and exerts a powerful influence in the shaping of
business opinion. Not only does he send reports daily or
weekly with respect to events of importance within his
field, but he himself is constantly getting letters of advice

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from the head office. He is the one man in the community
who is in touch with the business conditions of the Dominion or, for that matter, of the world. He may be a young
man, but he has had a training in the methods of Canadian
banking, and it is known that he would not occupy his
position if his superiors did not have confidence in his
judgment.
As a result of all these conditions working together, it
may fairly be said that Canada possesses many of the
advantages of a central bank. The employees of each
bank, from general manager down to the office boy in
the smallest branch, are busily occupied in doing their
share toward increasing the bank's business and profits.
Each is keenly on the lookout for an opportunity to establish a new branch in a promising young community, and
each is doing its best to serve its customers and to gain
new ones. But if a cloud appear on the horizon, if bad
news comes from England with regard to Canadian investments, or if there is wild speculation in Wall street, the
leading bankers get together, not formally, but informally,
and as a result the Canadian banks become practically a
unit in their attitude toward the common peril.
THE PANIC OF

1907.

The policy adopted by the Canadian banks at the end of
1906, and followed throughout the strenuous year of 1907,
illustrates forcibly the solidarity of the banking system.
All business men remember the feverish activity of 1906,
the steady advance in prices of goods, the insatiable demand for money, and the high rates of interest everywhere
prevailing at the end of the year. To the average man

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System

it seemed a period of boundless and unending prosperity.
Railroads had not cars enough to haul the freight offered
them and could not get them built fast enough. Manufacturers in the United States and in Canada had withdrawn their traveling salesmen because they already had
orders for a year ahead.
In the United States a few of the leaders in industry and
finance sounded a note of warning, but most men were
too busy to hear it and most of the 10,000 bankers refused
to believe it justified. As the decline in the market prices
of securities began in January, a few bankers in New York
City—those in closest touch with the financial needs of
corporations and with the temper of foreign money markets—became convinced that serious times were ahead.
Most of those men, knowing that a public expression of
their apprehensions would do little good and might do
harm, silently went about the business of strengthening
their resources. Meantime 10,000 or more bankers
throughout the country, wondering why the stock market
should be weak when the country was so prosperous, continued to make advances at high rates of interest to expanding enterprises. As a result, when the crash came
in October, it is doubtful if more than 10 per cent of the
bankers in the United States were prepared for it, and for
several weeks there was an almost universal suspension
of specie payments and withdrawal of banking support
from deserving borrowers.
CANADIAN BANKS WERE PREPARED.

In Canada there was no panic. For a year the leading
Canadian bankers had been urging upon their customers

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Commission

the necessity for caution, and in their annual reports to
the shareholders early in 1907 bank presidents and general managers had given notice that the phenomenal
profits and business of the preceding few years could not
be expected to continue much longer. Financial journals
and editorial writers for the daily press, taking their cue
from the bankers, had for months called attention to the
strain upon the world's money markets and pointed out
the necessity for conservatism, not only among the banks
but among the promoters of new enterprises.
As an illustration of the attitude of the Canadian
banker, and therefore of the Canadian business public, the
following paragraph from the annual address of the general
manager of the Canadian Bank of Commerce, delivered
before the shareholders January 8, 1907, is worth quoting:
" While we are enjoying an extraordinary prosperity,
there are signs about us of a strain which must bring
trouble if they are disregarded. We are a borrowing
country, and we can not be reminded of this too often.
As we fix capital in new structures, public or private,
railways, buildings, etc., someone must find the capital in excess of what we can ourselves provide out of
the salable products of our labor. The number of countries willing to buy our securities has been steadily increasing, but we must not be blind, as we sometimes seem to be,
to the fact that our power to build depends largely on
whether these countries have surplus capital to invest. By
means of the cable the trading nations of the world have
been brought very near together, and while many local
panics have thus been averted, and the adjustment of
capital to the world's needs has been greatly improved, still

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System

for the same reason world-wide trouble in the money markets sometimes arises with a suddenness which is alarming
to those at least who are not watching for the signs. We
are passing through such a period just now, happily without a general breakdown, but unless we mend our ways
we are not likely to escape a similar or still worse condition
next autumn, which may wreck our fair prosperity.
Europe is bearing the enormous cost of two great wars,
both in the loss of capital actually destroyed and also in
the loss to individuals from the decline in the values of the
national securities of the countries interested in the wars.
And since these wars, losses on an unexampled scale have
occurred by earthquake and fire. The volume of trade and
the unusual amount of building in many countries have
at the same time vastly increased the amount of capital
required. This has been accompanied by a steady rise in
prices throughout the world, and by a most pronounced
and widespread advance in the scale of personal expenditure. It is true that it has also been accompanied by the
greatest production of gold and of other commodities, but
the effect of the various influences has naturally been to
put upon the money markets a strain which has only just
failed to cause a general breakdown of credit. To make
the outlook still more serious, the United States and other
less important countries, including Canada, contemplate
expenditures on a very large scale for railway and other
building.
" This, then, is a time for every prudent man to survey
carefully his financial position. If he has debts he should
consider how he will pay them if he should have to face
worldwide stringency in money. Has he assets which the
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world needs for daily use, or assets which will sell only
when the sun is shining ? If he is happily in easy condition as to debt, he will, if he be wise, consider every circumstance arising in his business which tends toward
debt instead of toward liquidation. As for those who are
plunging in real estate at inflated prices, and in mining
stocks, nothing we presume, but the inevitable collapse
which follows these seasons of mania will do any good. "
The important thing about this paragraph is not the
fact that events have fully justified its gloomy predictions,
but the fact that practically every general manager in
Canada was talking in similar fashion at the same time to
his own shareholders. In January, 1907, there was only
one opinion among bankers as to the financial situation.
For several years the country's trade had been expanding
by leaps and bounds. Immigrants had poured into the
country from Europe and from the United States. New
capital had come from England and the United States at
the rate of $200,000,000 a year. The profits of industrial
and commercial products had been large. In ten years
bank loans and deposits had doubled. In short, Canada's
prosperity had been even greater than that of the United
States. The demand for capital had outrun the supply,
and the strain upon the banking resources every bank
manager knew had reached the danger point. Every one
of them said this to their shareholders; the newspapers
published their remarks, and business men throughout
the Dominion knew not only that they ought to retrench,
but that they must. They knew that they could get no
help from the banks if they sought to enlarge their operations.

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GRADUAL CONTRACTION OF LOANS.

It was impossible, of course, for the banks to call an
immediate halt in the expansion of enterprise or in the
use of their credit. During 1906 (as is graphically shown
by Chart I, p. 46) the current loans in Canada had risen
from $450,000,000 to $550,000,000, an increase of nearly
25 per cent. Any attempt on the part of the banks to
bring this upward movement to a sudden termination
would have ruined many a solvent concern. For five
months, or until the end of May, the banks suffered it to
continue, their loans during that period rising from
$550,000,000 to $590,000,000. Then began a gradual contraction and a steady increase in the cash reserve. Between June 1 and September 1 the total of their current
loans in Canada declined $10,000,000. At the same time
they strengthened their reserves by accumulating cash in
their own vaults and by enlarging the amount of their
funds on call in New York City. Canadian borrowers were
treated with more consideration than those in foreign
countries, as is shown by the reduction in current loans
elsewhere from $36,000,000 to $23,000,000 between February 1 and July 1. The banks appear to have endeavored
to convert their time loans outside of Canada into call
loans, having in view an increase in the amount of funds
available for immediate use. (See Chart II.)
Between January 1 and September 1 there was a decline
in the demand deposits from $192,000,000 to $160,000,000
and an increase in time deposits from $400,000,000 to
$425,000,000, so that the total of deposits suffered very
little diminution. After the first of September, however,

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deposits steadily declined until the end of the year; time
deposits from $425,000,000 September 1 to $400,000,000
December 31. Demand deposits remained practically
unchanged during this period.
By the first of September Canadian bank managers were
evidently quite alive to the necessity for caution. Thereafter all the changes in their statements indicated a conviction on their part that the situation was precarious and
that the banker's first duty is to preserve the solvency of
his bank and take care of its regular customers. They
knew that large sums would be demanded of them for the
movement of the crops and were disposed therefore to
take every precaution against weakness. The season was
late and it was known therefore that there would be difficulty getting the crops to market, for the Canadian railroads, like those in the United States, were embarrassed
by lack of equipment. The Toronto News, whose financial
editor was doubtless in touch with Toronto bankers, thus
describes the situation in September, 1907:
"The Canadian situation corresponds more or less fully
with that of New York. Here also considerable sums
must be found for moving the western crops at a period
of the year later than usual. Here also the banks are
finding difficulty in keeping up their deposits and in finding
the funds necessary for financing the extensive industrial
enterprises which they are supporting. The raising of
fresh capital for these enterprises is necessarily a matter
of difficulty under the present conditions. There is,
however, no indication of unsoundness. The obvious
policy is to resist temptation toward increased expenditure

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on capital account on the one hand and to exercise a close
scrutiny of current expenditure on the other.''
In that paragraph the Toronto News doubtless expressed the opinion prevailing among bankers with regard
to the situation. They were confident that they could
take care of their customers' needs and provide funds for
the movement of the country's crops. That there might
be a crash in the United States they knew to be a possibility, but they could not foresee it and they hoped that
the worst was over.
CAIX LOANS REDUCED IN NEW YORK.
When the crash came in New York and the Knickerbocker Trust Company suspended on the 2 2d of October,
Canadian banks immediately adopted measures of selfprotection. During the next two months the total of
their call loans outside of Canada declined from $62,000,000 to $40,000,000. There was also a small reduction
of their call loans in Canada. Their cash reserve was
increased by $5,000,000. Their current loans in Canada,
however, were $10,000,000 less Novenber 30 than on
October 1, and in December they fell off $15,000,000 more.
These two months, November and December, were
strenuous months in Canada as they were everywhere in
the world. The western wheat crop was late and as a
result there was a great clamor for funds for their movement. Currency was so scarce in the United States that
Canadian bank notes disappeared over the border and
performed their function as a medium of exchange in
towns and country districts in the United States many
miles distant from the Canadian line. Most of the banks

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found that their circulation was dangerously near the
maximum and feared that they might be called upon to
pay out legal tender. There was not the slightest suspicion of banks in Canada and no talk whatever of a run
upon any bank. People did complain, however, that the
banks were not doing their duty by the western farmers.
Why should the banks be lending money on call in Wall
street, when the farmers of Manitoba were unable to
market their crops because buyers could not get funds
from the banks ?
CIRCULATION TOO NHAR THE UMIT.

The banks, their deposits declining, their circulation
near the maximum, the railroads unable to haul the crops
promptly to market, dared not tie up funds in agricultural
products which might later be called for by the commercial
and industrial interests of the Dominion. If their capital
had been larger so that they might have expanded their
note circulation with impunity, the situation would have
have been less difficult. Yet something more than notes
was wanted. For the first time in many years Canada felt
the pinch of that want which is annually felt in the United
States, namely, a sudden and great increase in the demand
for both capital and currency. And for the first time they
faced the risk of being compelled to pay out legal tender
money if they satisfied the demands of grain buyers. In
other words, the Canadian banks and the agricultural
interests of Canada during the last three months of 1907
had a taste of what the banks and farmers of the United
States experience every year. The banks dared not make
large advances to the buyers of grain lest the depletion of

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their reserves or an excessive issue of notes should result.
The total circulation had climbed up to $89,000,000, which
was only about $6,000,000 under the maximum, and no
bank felt that it could authorize its branches to increase
the issue of notes; the risk of being called upon to pay the
penalty for excessive issue was too great.
To the Canadian banker and to his customer the situation was entirely new. Never before during this generation had the banks been obliged to restrict their loans
merely because they feared that an excessive issue of notes
might result. Serious and new as the situation was, and
though it gave rise to many complaints in business circles,
nevertheless there were no important business failures in
Canada, and bankers in general felt confident that they
would be able to bring the country safely through the
crisis. In the last two months of the year the deposits
declined $30,000,000 and the current loans in Canada
$25,000,000. This shrinkage was inevitable. Many depositors having investments in the United States were
obliged to protect them by the withdrawal of funds from
Canada. The banks, on their side, were obliged to withdraw their assistance from such customers as needed it
least. It is the boast of the banks, however, and is now
generally admitted, that during these two months no man
who actually deserved and needed a loan was refused it,
and few borrowers were obliged to pay an unusual rate of
interest.
THE GOVERNMENT TRIES TO HELP.
Canadians are readers of the newspapers of the United
States, and they know something about our habit of calling

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upon the Government for aid whenever money is "tight."
So the question was asked, Why should not the Dominion
treasury come to our relief? The banks, it should be
noted, did not ask this question. They did not believe
that government aid was necessary. Nor was it evident
how government aid could be afforded, for the Dominion
treasury, unlike that of the United States, keeps all of its
cash at all times in the banks, and so has no reserve fund
on hand on which to draw for the purpose of easing the
money market. The Government, however, was impressed by the popular demand and came forward with an
offer of relief which involved a suspension of the Dominion
legal tender act, similar to the suspension of the Peel bank
act whereby the Bank of England has been permitted to
issue notes unsecured by coin.
The issue was made upon the authority of the governor
in council dated November 12, 1907, on a memorandum
from the minister of finance, in which he described the
effect of the world-wide monetary stringency upon Canada
and declared that there was much anxiety in the West
among farmers, traders, and bankers over "the prospect
of insufficient financial accommodation to move the crop."
He recommended that the minister be authorized to issue
new Dominion notes and deposit them with the banks
most largely interested in the grain business, and to accept
from the banks high-class securities. In the second memorandum, dated November 26, he recommended that the
advances be made through the Bank of Montreal, at such
rates of interest, not less than 4 per cent per annum, as
the Bank of Montreal might deem fair and reasonable.
The advances were not to exceed $10,000,000 and were to

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be protected by the deposit of securities satisfactory to
the Bank of Montreal. These issues of Dominion notes
were approved by act of Parliament July 20, 1908.0
Events proved that the bankers were right in their claim
that they were fully able to take care of the western situation, for there was a call for only $5,115,000 of this emergency issue of Dominion notes. The bankers understood
the situation better than did the minister of finance, yet to a
citizen of the United States who is used to seeing the
Treasury come to the relief of the money market, it is
not at all remarkable that the minister felt constrained to
give heed to the western cry for more money. The situation was without precedence in Canadian finance. For
the first time in their history the chartered banks were
obliged to limit their operations, not because their cash
resources were low, but because their note issues were
practically up to the legal limit, and they feared that
further expansion of their loans would cause an inroad
upon their cash reserve.
The situation was complicated by the lateness of the
wheat crop and still further by the fact that a large part
of the crop had been injured by frost. Furthermore, the
farmers of the West were dissatisfied with the price offered
for their wheat and were holding much of it back from the
market. These circumstances caused delay in the movement of the crop and hence tended to tie up bank funds for
a longer period than usual. But these were not all the
causes of difficulty and delay. Much Canadian wheat is
shipped to the East via Port Arthur and Buffalo. This
a> The memoranda and act of Parliament relating to this issue of Dominion
notes are presented in Appendix A.

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route in 1907 Canadian shippers did not like to use, for
the New York checks or drafts which they got in payment
were at a discount in gold. The bulk of the wheat had to
be shipped, therefore, either by the Montreal water route
or by the Canadian Pacific, and the transportation facilities were not adequate.
It would seem, therefore, that the inability of the farmer
to get a satisfactory price for his wheat, or to get it forward quickly to market, was due not to the failure of banks
to do their part, but to the inferior quality of a large part of
their crop and to the inadequacy of transportation facilities, aggravated by the panic in the United States.
E V E N T S IN 1908.

During 1908 it was inevitable that Canada should suffer
from the after effect of the panic in the United States.
Immigrants from the United States continued to pour into
the Dominion and they brought considerable capital with
them. As a result the development of the western provinces, such as Alberta and Saskatchewan, continued
without abatement, and the city of Winnipeg, which is
the metropolis for the great western country, had a fairly
prosperous and active year. In the eastern provinces,
however, hard times prevailed. Practically no new capital
came over the border from the United States, prices of
commodities were low, and most business concerns were
seeking to hold their own rather than to enlarge their
operations. Canada's financial and commercial relations
with the United States and England are so intimate that
her economic activities were necessarily affected by the
universal reaction.

122

CHART Vni.—FLUCTUATIONS IN THE FOUR FACTORS OF THE RESERVE CASH, BALANCES ON
DEPOSIT OUTSIDE OP CANADA, CALL LOANS OUTSIDE OF CANADA, AND SECURITIES, 1906-1909.
1
1907
f906
/£<2<5
Uf////M f
WOl/M JAN FEBmi APR MAYJUN\m\MH> 5EP1 per NOV10EC m JFEB MAfWPFIMAibuNJJUl AW pEPT OCT NOVbECUANkg|MAR|APR I M A Y M J I N J U W
140

/909

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p flOCTMOVJ0EC|JAN FEEMAPS |MAY|JUN|JUI. JAUfelfEPj|bc T|NOv|DEC| «i'//^yfrl
J

J /^<?

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/30

A30

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1st

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31870—10.

(To face page 122.)

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u NANs1JJ H
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JMl

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50 1

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25

1 /5 1

The

Canadian

Banking

System

The character of the year 1908 is shown by the bank
returns. Current loans declined steadily from November
1, 1907, until March 1, 1909. Deposits, however^ began
to increase early in 1908, time deposits rising from $395,000,000, March 1, to $430,000,000 December 31. In the
same period demand deposits increased from $140,000,000
to $210,000,000, while the cash reserve moved up from
$75,000,000 to $100,000,000. The banks being unable to
employ their idle funds in Canada during this year, put
them out on call in the New York market. The item " call
loans elsewhere" (see Chart VIII, page 122,) rose from
$41,000,000, December 1, 1907, to $106,000,000, December
31, 1908, and by the end of May, 1909, had climbed to
$125,000,000. This is a much larger sum of money than
the Canadian banks care to employ in the call-loan market.
During 1907 the banks gradually reduced the amount of
call loans in Canada by about $11,000,000. The funds
thus released were loaned to merchants, manufacturers,
and the buyers of grain. In 1908 this item began to
increase, the banks having more money than was needed
by business interests. They adopted the same policy with
current loans outside of Canada, reducing these during
1907 from $36,000,000 to $23,000,000. In 1908 this item
began to increase.
Chart VIII (page 122) makes an interesting exhibit of
the use the chartered banks made of the several -elements
of their reserve in 1907. Early in the year, in anticipation
of a strain, they began to increase the cash reserve, at the
same time calling loans in New York and reducing foreign
balances. Between May and October they loaned rather

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freely in the New York call-money market, but during
October and November they reduced their outside call
loans by $20,000,000. Their credit balances and call
loans outside of Canada both increased greatly in the first
seven months of 1908, when the demand for money was
small in Canada. In the last quarter of 1908 the decline
in foreign credit balances explains the rapid increase in
outside call loans. Throughout 1909 the banks had resources beyond the needs of Canada, and the outside call
loans rose to $138,000,000, an increase of nearly $100,000,000 in two years. In the same two years the cash reserve
rose from $80,000,000 to $105,000,000, and the amount of
securities held from $71,000,000 to $86,000,000. It is
interesting to note that the amount of securities varied
but little during 1907. It was not a good year for bonds.
TWO INTERESTING BANK FAILURES.
The story of banking is not without its dramatic incidents in any country. Canada has probably had fewer
such incidents in the last generation than most countries,
yet there was a bank failure in 1906 which furnished
unique details. On the evening of October 12 the bankers in Toronto and Montreal heard with surprise that the
Bank of Ontario had got beyond its depth and would not
open its doors the next morning.
Its capital was
$1,500,060 and its deposits $12,000,000. The leading
bankers in the Dominion dreaded the effect which the
failure of such a bank might have. The Bank of Montreal
agreed to take over the assets and pay all the liabilities,
provided a number of other banks would agree to share

124

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System

with it any losses. Its offer was accepted and a representative of the Bank of Montreal took the night train for
Toronto. Going breakfastless to the office of the Bank of
Ontario he found the directors at the end of an all-night
session and laid before them resolutions officially transferring the business and accounts of the bank to the Bank
of Montreal. They adopted the resolution before 9 a. m.
and the bank opened business for the day with the following notice over its door: "This is the Bank of Montreal."
Before 1 o'clock the same notice, painted on a board or
penciled on brown wrapping paper, was over the door of
the 31 branches in different parts of the Dominion. Its
customers were astonished that day when they went to
the bank, but none of them took alarm and many of them
were well pleased with the change. The note holders and
depositors were paid in full and it is generally understood
that the venture was a profitable one for the Bank of Montreal, although litigation is still pending over the double
liability of the stockholders. The general manager of the
Bank of Ontario, who had sunk its capital in Wall street,
received a five years' sentence for making false statements
with regard to the bank's affairs.
FIRST OUTBREAK OF HIGH

FINANCE.

One other large bank has been in trouble since 1890.
It was the Sovereign Bank, an institution having over 80
branches and $16,000,000 in deposits. It was established
in 1903 and was managed by an artist in "high finance,"
the only one of that class, it is claimed, who ever controlled

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a big Canadian bank. It is claimed that he was backed
by large financial houses in New York and in Germany.
He was reckless both in spending and in lending money,
and early in 1907, when the assets amounted to over
$25,000,000, it became known that much of its paper was
valueless. The capital stock was reduced and a new
management was placed in charge, but in January, 1908,
the bankers of Toronto and Montreal were informed that
the Sovereign would be obliged to suspend unless it received assistance. On the 18th of January its business
was taken over by 12 banks which guaranteed the creditors against loss. The branches of the bank were
divided among these 12 institutions, and report has it
that some of the general managers were for a time unable
to find all the branches that had been allotted to them.
The manager of the Sovereign, in his search for communities needing branch banks, had got ahead of both map
makers and the post-office department. The assets of
the bank are not proving equal to the liabilities, but the
guaranteeing banks are protected from loss by the double
liability of the stockholders.
The circumstances attending the liquidation of these
two large banks certainly strengthen the view advanced
in the early part of this chapter with regard to the solidarity or unity of the Canadian system. Bankers still
shake their heads ruefully over the havoc wrought by the
Sovereign and over the changes it made in banking practices, whereby various minor profits were annihilated,
and declare that if another specialist in/'high finance''
appears among them they will let him and his friends

126

The

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System

take their medicine. "The banks can not go on forever,''
they say " standing between the people and a rotten bank."
Like the directors of the Bank of England, the presidents and managers of the big banks in Canada deny that
any responsibility rests upon them for the protection of
the country's financial security, yet when the next pinch
comes the situation itself will compel them in self-defense
to act together both quickly and effectively.
Since 1889 s * x small banks have failed, but note holders
have lost nothing and depositors very little. They were
local institutions with few branches and their failures
possess little significance in a study of the banking system
as a whole.

127

CHAPTER

IX.

CONCLUSION.

We have seen that the Canadian banking system possesses features of extraordinary merit, adapting it admirably to the needs of the country which it serves. It performs most efficiently the service for which banks are
created, gathering up the country's idle capital and placing
it in channels of useful employment. The assets of the
banks are of high quality because of protection afforded
by the law and because borrowers are prevented by custom from hawking their paper through brokers. The law
leaves the banks such freedom in the use of their credit
that business is never brought to a halt through lack of
instruments of exchange; whether the need be for checks
and drafts or for bank notes, the supply is always adequate. The redemption system insures perfect elasticity
for both the note and deposit currency. The reserve
seems to be abundant for the protection of the liabilities
and to be composed of elements sufficiently liquid and
available. Finally, on account of the extent to which the
larger banks are interested in the trade and industries
of all parts of the Dominion because of the investments
made through their branches, the system possesses a
solidarity that makes possible united action in the face of
a common peril.
IS THERE A WEAK SPOT?

Would Canada's banking system stand a real strain?
Is its gold reserve large enough ? Does it not depend too

128

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stem

much on London and New York? If England should
withdraw her invested capital, or send no more, would not
this banking system break down ? Questions of this sort,
which are sometimes asked, imply that Canada's system
contains a weak but hitherto undiscovered spot, and most
of the critics are inclined to think it lies in the smallness
of the gold reserve. In the writer's opinion Canada's
financial position is of the strongest. Comparatively
little gold is needed for the reason that the banks have
developed an almost perfect credit system. The people
have unquestioning confidence in the credit instruments
provided by the banks and never demand that they be
converted into gold. Credit settles all debts between the
banks and the public. Gold is used only between banks
and in the foreign exchanges, and in the latter field a credit
balance in London or New York is more useful than a
stock of gold in Montreal or Toronto. If England and the
United States some day suddenly stop sending capital
to Canada, the country will undoubtedly suffer, but the
notion that Canada will at once be called on to export
large quantities of gold in payment for the imported
merchandise now paid for with bills of exchange created
by English investments, is crudely mercantilistic. Canada's imports, of course, would decline the moment English capital ceased coming, and the present " unfavorable
balance " of trade disappear. There is no likelihood, however, that Canada will cease to draw capital from abroad.
It is estimated that England has sent her a round billion
dollars in the last ten years, and prospects are much
brighter now than they were in 1900.
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THE RKST-FUND FAD.
The bankers of Canada m a y some day have cause to
regret having allowed a condition to arise which m a d e
necessary the a m e n d m e n t of t h e bank act in 1908 permitting t h e m t o issue notes in excess of their paid-up
capital, yet at t h e present time they seem rather complacent over their power t o issue an " emergency" circulation. This is surprising, for it is in conflict with t h e principles upon which t h e Canadian system is based, and,
furthermore, would have been entirely unnecessary if t h e
banks within the last ten years had taken pains to see
t h a t t h e a m o u n t of their paid-up capital had increased in
t h e same proportion as their business. I n t h e ten years
following 1899 the paid-up capital of t h e banks increased
from $64,000,000 to $96,000,000, a gain of about 50 per
cent. I n t h e same period t h e deposits of t h e banks grew
from $298,000,000 to $640,000,000, a gain of 115 per cent.
The ratio of capital to deposit liabilities was suffered t o
decline steadily during this period. Meantime t h e rest or
surplus was increased from $30,000,000, or about 50 per
cent of t h e capital in 1899, to $74,000,000, or about 75
per cent of t h e capital, a t t h e end of 1908. The banks
have made t h e mistake of increasing their rest funds rather
t h a n their capital. During these ten years they added
$44,000,000 to t h e rest or surplus. If half of this sum
had been added to t h e capital, t h e banks would have h a d
in 1907 a total paid-up capital of a t least $115,000,000
and would have been abundantly able to satisfy t h e needs
of t h a t year. They would t h e n not have been obliged t o
ask for t h e right t o issue a taxed circulation and would not

130

The

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System

have exposed themselves, as they have done, to the risk
of having a tax imposed on all their notes. If it is right
to tax the notes issued in excess of the paid-up capital,
people are asking, why is it not right and proper that the
banks should pay a tax on all their circulation ?
Sentiment seems to have had most to do with the
increase of the rest fund.a There is a popular notion, and
the banks have done a good deal to create it, that a bank's
solidity and prosperity are somehow measured by the
size of its rest fund, and the banks have engaged in unreasonable competition to bring their rests up to the highest
possible amounts. Furthermore, bank directors and
managers like to have the market prices of their stocks
steadily climbing upward. If they divided part of their
profits among stockholders in the form of a stock dividend,
there has always been the fear that the market price of the
stock in consequence would decline and the bank somehow be injured. Bank directors also take pride in the
maintenance of a regular rate of dividend. If they can
increase the rate and at the same time add a proper
amount to their rest fund, well and good, but they shrink
a The general manager of one of the largest banks said to the writer:
" I consider the new emergency law allowing a bank to issue, during certain
seasons of the year, 15 per cent of their capital and surplus in additional
bank notes by paying a tax, as very unscientific. We have had no real
need to increase our capital stock to supply additional notes. The only
time there has not been an ample supply of notes was during the cropmoving season of 1907. This season and the panic came together; otherwise we could have handled the situation satisfactorily. Only five banks
have ever taken advantage of the new law. With our present powers we
have for the most of the year a large amount of our notes on hand that
we can not keep in circulation. Then there is a tax on capital stock, so
the greater our capital the greater the burden of taxes. The banks take
pride in their surplus fund and do not want it disturbed. By adding to it
we show that we are gaining in strength each year."

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from increasing the capital stock at the expense of the
dividend rate. For all these reasons the Canadian banks
during the last prosperous decade have failed to make
their capital account grow with their business and are
now paying the penalty, for there is no reason in the nature
of things why a Canadian bank should be obliged to pay
a high tax upon any portion of the currency which the
country requires. It is quite possible, of course, that the
banks are not paying their due share of taxes. But this
possibility furnishes no excuse for a tax on circulating
notes. Such a tax in the long run is always paid by the
people. In one way or another, either by the exaction of
a high rate of interest or by the imposition of unusually
hard conditions, banks will probably force their customers to pay the tax on the emergency circulation.
Nevertheless the banks will have the annoyance of payment, and few of them will realize that the tax is shifted.
It may occur to some readers that perhaps the government imposed a tax on the ''emergency circulation" in
order to compel its retirement at the end of the cropmoving season. Such a thought was in nobody's mind
when the law was passed. Everybody knew that the notes,
whether taxed or not, would be retired automatically in
January. However, the country's business is growing so
rapidly that some of the banks, if they do not increase
their capital, may very soon have diflficulty keeping their
circulation within limits even during the dull months.
Since the business of the banks, as indicated by their
deposits and loans, is increasing at a much faster pace than
their circulation, the natural and proper increase of the
capital account should be sufficient in the future to permit
an untaxed circulation adequate at all seasons of the year.

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HAVE CANADIAN BANKERS A MONOPOLY ?

The people of Canada generally speak of their banking
system with a good deal of pride and satisfaction. Many
of them know that it has been called one of the best in the
world, and are not slow to mention this fact when critics
appear from abroad. Home critics, however, are not
lacking.
One of the commonest charges against the banks is that
they possess a monopoly of the money power. This is not
surprising, for the banks pursue a policy of secretiveness
which gives outsiders the impression that somehow they
are leagued together in a manner prejudicial to the interests of the public. In the writer's opinion this impression
is not justified, yet it must be admitted that Canadian
bankers are a bit too secretive. They are unwilling to give
out any more information about their affairs than the law
compels, as is shown, for instance, by their reluctance to
let the public know the facts about banking operations in
the different provinces. In the United States, by the aid
of the reports of the Comptroller of the Currency and of
the state banking departments, one can study the development of banking in any state or even in a small community. In Canada bankers will make general statements
about the growth and prosperity of certain sections of the
country, as indicated by the number of new branches
established, which are matters of newspaper report, but
they do not want any discussion of the sources from which
the funds are drawn for the maintenance of these new
branches. The inquirer should be satisfied with the general statement that the bank's resources are growing, so

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that it is always ready to take care of new business. That
the additional funds come from communities whose loanable funds exceed the amount they are willing to use at
the current rate of interest, is a fact that the banks do not
care to advertise. There is also the policy of the banks
with regard to government examinations. The banks
hold that they can examine themselves better than the
government can and that no bank should be called on to
open its books to outsiders. It is also understood that the
banks act together in matters of legislation. No bill
affecting the interests of banks can get into the Dominion
parliament, or into a provincial legislature, without the
fact being known within twenty-four hours to practically
all bank presidents and general managers. The writer
could find no reason for believing that the banks were
actuated in any of these matters by improper motives.
Yet the secretiveness and effectiveness of their policy do
give the politician as well as the demagogue some excuse
for hostility. a
The tendency in Canadian banking, as in all forms of
business activity, is unmistakably toward combination.
The chartered banks possess no monopoly now, but the
situation is such that the large banks have a great ada l t is interesting to have the view of an "outsider" among the banks.
One of the smaller banks insisted on paying depositors at the rate of $%
per cent, and was in consequence expelled from the Toronto clearing house.
Its general manager talked to the writer as follows:
" T h e older banks demand that no bank pay more than 3 per cent interest
on its deposits. Deposits are worth more than that. Up to a decade or
so ago it was the custom and was expected that all new banks would pay
one-half to one per cent more interest on deposits than the older banks
did. Now the large banks, which dominate the policy of the clearing
houses, say to us younger banks that if we pay more than 3 per cent
interest we can not have the privileges of the clearing house. By the use

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vantage over the small ones and seem destined to get most
of the new business that will be created in Canada in coming years. Their prestige assures their branches a welcome in every new community. No business is too large
for their resources, and none is so small as to be despised.
They are able to open more new branches than their small
competitors, and can much better afford, if need be, to
operate them for a time at a loss. It will not be surprising, therefore, if Canada has fewer banks ten years hence
than now. One or two mergers would give the country a
bank as dominant in its field as is the Bank of France or
Bank of Germany.
BANK INSPECTION BY OUTSIDERS.

The system of bank inspection, satisfactory as it is from
the general manager's point of view, does not altogether
satisfy the public, and will doubtless be amended in 1910.
Under the present system the branches are very closely
watched by the head office, but nobody examines the head
office. Theoretically, the directors are supposed to keep a
sharp eye upon the general manager and to be able to
prevent him from making improper use of a bank's funds.
As a matter of fact, however, boards of directors in Canada
of this club they have forced several of the younger banks not to pay over
3 per cent and thus prevented their giving the depositor the interest he
deserved and prevented the new bank from being a real competitor of the
older banks.
" This is the only bank that they could not force into line, so I am denied
the use of the clearing house here. The other banks in the city have to
send their messengers around to us every day with our notes and checks.
We get rid of their notes and checks by simply depositing them with one
of the clearing-house banks. I find that I can get along very well without
the use of the clearing house and my not belonging to it puts them to a
great deal more trouble than it does me."

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do not always direct. The careers of the Bank of Ontario
and the Sovereign Bank show that it is not impossible for
a speculative general manager to keep a board of directors
very much in the dark as to the character of his transactions and the value of the bank's assets. At any rate, the
opinion is growing in Canada among bank shareholders
and in business circles that the chartered banks ought to
be subject to some sort of outside supervision or examination. In some quarters inspection by government officials
is favored. This is opposed by the banks on the ground
that government examiners would usually be incompetent,
the task of examining a bank with a hundred or more
branches being a very difficult one. Some of their critics
say that the real reason why the larger banks are against
any system of government inspection is because they fear
it would lessen their advantage by giving an unearned
prestige to their smaller competitors, many people being
likely to think that one bank must be as good as another
if the government has its eye on all.
Logically the power of inspection ought to be invested
in the Canadian Bankers' Association. This body now
has supervision of the circulation, but it has no authority
to make any investigation of a bank's affairs. Since it
represents both the government and the banks, it would
seem that it ought to have the power to protect the interests of both. The associated bankers should certainly
be able to devise an inspection system which, while not
injuring the interests of any particular bank, would both
satisfy and protect the public. If they do not do this, the
politicians will probably insist upon some form of government examination.

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N E E D OF EDUCATION.

Being a teacher, the writer must express his regret because of the seeming indifference of Canadian bankers with
regard to the education of their employees. When a boy
at the age of 15 enters a Canadian bank, he leaves all
hope of education behind. He will learn a great deal " by
doing " and by contact with strong and successful men, but
he will have little chance to improve his mind by systematic study or through attendance upon lectures. His
hours will be long and, from the American point of view,
his pay will be small. If he has an iron constitution,
sound nerves, and an inconquerable stomach, together
with a clear head, a steady will, and a good character, he
will some day be manager of a branch and perhaps a general manager. But he will have to work out his own salvation without the aid or encouragement of the world's
best thought and experience. It is to be hoped that the
older bankers of Canada will get a conviction of sin on this
subject and through their Bankers' Association make some
provision for the intellectual growth of the young fellows
in their employ. If they fail on this score, the time may
come when the staffs of the Canadian banks, despite their
prestige, may no longer contain men of the quality necessary to the making of a first-class general manager. a
« Banks are already losing their charm for young men. Said a general
manager in Montreal:
" Twenty years ago there was a long waiting list—often as high as 150
boys—from the best families, who were desirous of entering into the service
of the bank. But of late years the commercial development of the country
has been such that the young men are entering other lines of business where
perhaps the inducements are greater. Now there is not only no waiting
list, but we find it hard to get young men of the standard we used to get."

137

BIBLIOGRAPHY.
The student of financial conditions in Canada will find the following
references helpful:
i. The Canadian Banking System, 1817-1890. By R. M. Breckenridge.
MacMillan & Co., New York. 1895.
2. The History of Banking in Canada. By R. M. Breckenridge, National
Monetary Commission. 1910.
3. Canadian Banking Practice. By John T. P. Knight, Toronto. 1906.
4. Banks and Banking. By J. J. Maclaren, Toronto. 1908.
5. History of Banking in Canada. By B. E. Walker, with a supplement
by A. St. Iy. Trigge, Toronto. 1909.
6. Banking and Commerce. By George Hague. The Bankers' Publishing Company, New York. 1908.
7. Manual of Canadian Banking. By H. M. P. Eckardt, Toronto. 1909.
8. History of Canadian Currency, Banking, and Exchange. By Prof.
Adam Shortt, published in the Journal of the Canadian Bankers' Association, Montreal.
9. Canadian Bank of Commerce: Charter and Annual Reports, 18671907. Two volumes. Toronto. 1907.
10. Canada Year Book. Printed by S. E. Dawson, Ottawa. An annual
statistical publication.
11. Heaton's Annual: The Commercial Handbook of Canada. Toronto.
1909.
12. The Canadian Red Book. A general handbook. Montreal Star
Publishing Company.
13. Monthly Reports of the Chartered Banks of the Dominion of Canada
made to the Minister of Finance. Ottawa.
14. Annual Reports of the Auditor-General. Ottawa.
15. Annual Reports of the Affairs of Building Societies, Loan and Trust
Companies in the Dominion of Canada. Prepared by order of the Deputy
Minister of Finance. Ottawa.
16. Report of the Registrar of Loan Corporations (Ontario). Toronto.
1908

138

APPENDIXES.

139

APPENDIX A.
MEMORANDA AND LEGISLATION RELATING TO CURRENCY
IN

1907 A N D 1908.

I.
[P. C. 2501.]

Extract from a Report of the Committee of the Privy Council,
approved by the Governor-General on the 12th November,
1907.

On a memorandum dated n t h November, 1907, from
the minister of finance, calling attention to certain
conditions of an exceptional nature existing at the
present time in connection with the important business
of moving to the world market the grain crop of western
Canada, which conditions seem to call for governmental
action, the minister observes that throughout the financial stringency which has been and is being felt in all
the money markets of the world the general business of
Canada so far has stood well. At such a time, however,
all loaning business must be conducted more conservatively than at other times. The banks, finding it difficult
to readily turn into cash resources which under normal
conditions are of an easily realizable character, deem it
necessary to restrict to some extent their commercial
credits.
In the case of the grain trade of the Northwest special
conditions have arisen to which the attention of the
minister of finance has recently been drawn.

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Experience shows that a very limited quantity of
grain can be brought to the seaboard by the present
railway facilities. The successful movement of the crop
is dependent largely on water transportation. The
present season of lake navigation will close in about a
month. The crop of 1907 has been somewhat later than
usual, and accordingly the pressure of moving it falls
within a short period. An unusually large percentage of
the harvest, it is represented, particularly in Saskatchewan and Alberta, consists of low-grade wheat, for which
there is at present an available market at good prices in
eastern Canada and abroad, but which, if not brought
out before the close of navigation, will have to be carried
over at a heavy loss, owing to deterioration, which, it is
represented, will take place if the wheat be stored for
the winter.
The prospect of insufficient financial accommodation
to move the crop is the cause of much anxiety in the
West among farmers, traders, and bankers, and urgent
appeals have been made to the government to devise
some means of meeting the temporary difficulty. The
question can not be deemed a local one, affecting the
West only, inasmuch as the satisfactory marketing of
the crop has an important bearing upon the trade and
commerce of the Dominion at large. In other branches
of business, no doubt, the financial stringency is felt,
but the necessity of moving the grain crop before the
close of lake navigation, now so near at hand, creates
exceptional conditions which seem to demand exceptional
action.

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The minister of finance has given careful consideration
to representations which have reached him through
commercial bodies and government officials in the West,
and has had communications with leading bankers, who
agree that the situation is a serious one, which calls
for some relief.
In the opinion of the minister the only way in which
relief can properly be granted by the government is by
placing the banks handling this class of business in a
position to provide the necessary credits to responsible
parties. For this purpose the minister recommends that
he be authorized to advance, upon the security hereinafter mentioned, to chartered banks to be designated by
him, being banks which are engaged in the business of
financing the moving of the grain crop of the Northwest
to the seaboard, such sums of money as he may deem
reasonable and proper, not to exceed in the aggregate
$10,000,000, such advances to be accepted by the said
banks upon the condition that the moneys are to be
employed in the creation or enlargement of credits to
parties in the grain trade, either as producers or dealers,
for the purpose of assisting in the transportation of the
crop from the West to the seaboard during the present
season.
The minister further recommends that such advances
be made upon the deposit by the said banks of such highclass securities as they may be able to offer and of which
the minister of finance may approve.
The minister further recommends that he be authorized
to appoint a competent advisory committee to assist him

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in the carrying out of the proposed arrangements; that
such committee be composed of Mr. E. S. Clouston, general
manager of the Bank of Montreal; Mr. Thomas Fyshe,
late general manager of the Merchants' Bank of Canada;
and Mr. J. M. Courtney, C. M. G., I. S. O., late deputy
minister of finance; and that no securities offered by the
said banks for the advances herein referred to be approved
by the minister of finance unless they have first been
approved by the said advisory committee.
The minister further recommends that any bank which
may avail itself of the assistance herein recommended shall
be required to pay to the government interest at the rate
of 6 per cent per annum on such advances for a period of
three months, and that for any period after the said three
months the rate of interest to be paid shall be at the rate
of 7 per cent per annum; that all sums so advanced shall
be repayable by the banks to the government on or before
the ist day of May, 1908; that the securities deposited by
the banks be returned to them from time to time in proportion as the advances are repaid, and that upon the
repayment of such advances to the government the authority to issue the additional notes herein referred to be canceled and the note circulation be thereafter governed by
the provisions of the existing law.
As to the manner in which the moneys for the proposed
advances are to be provided, the minister observes that
the funds in hand are not more than sufficient to meet the
ordinary requirements of the government's business, and
that in the present condition of the money market, when
the Bank of England rate of discount has been advanced

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to the high rate of 7 per cent, the borrowing of this money
by the issue of treasury bills would be unusually difficult
and a rate of interest would undoubtedly have to be paid
which might have an injurious effect on the general credit
of the Dominion. For these reasons the minister recommends that he be authorized to issue such additional
amount of Dominion notes as may be necessary, not exceeding in all the said amount of $10,000,000. A strict
compliance with the terms of the Dominion notes act
would require that such an issue be made against the
deposit of an equal amount of gold-in the treasury. For
the reasons already stated, it would be exceedingly difficult
to comply with the letter of the provisions of the law in
this respect. The minister of finance is of opinion that
under such circumstances the government might properly
issue such notes against the deposit by the banks of highclass securities to be approved, as hereinbefore stated, by
the advisory committee and the minister of finance. The
government would, in the opinion of the minister, be fully
protected against loss in the transaction, inasmuch as they
would have, in addition to the deposit of the high-class
securities before referred to, the general credit of all the
banks which might avail themselves of the advance; and
in this connection it is to be noted that the government
have priority of claim against the banks over all other
creditors except note holders. In the opinion of the
minister, therefore, although the arrangement proposed
would be a technical departure from the terms of the
Dominion notes act, such departure is justified by the
exceptional circumstances above mentioned.
31870—10

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The minister further recommends that, at the ensuing
session, Parliament be asked to enact a bill of indemnity
confirming and sanctioning the proceedings herein recommended in so far as they require, for their validity, legal
confirmation or sanction.
The committee submit the same for approval.
RODOLPHE BOUDREAU,
Clerk of the Privy Council.
II.
[P. C. 2631.]
Extract from a Report of the Committee of the Privy Council,
approved by the Governor-General on the 26th November,
1907.
On a memorandum, dated 20th November, 1907, from
the minister of finance, recommending with a view to the
taking of prompt action in the case of any bank which
may desire to avail itself of the aids proposed in the order
in council of November 12, 1907, for the handling of the
western grain crop, that the said order in council be
amended to the following effect:
That the advances to be made to the banks be made
through the Bank of Montreal.
That the Bank of Montreal, acting on behalf of the government, be authorized to advance such sum or sums as
may be required, not exceeding in all $10,000,000, for the
purpose set forth in the said order in council of November
12, at such rate or rates of interest, not less than 4 per
cent per annum, as the said Bank of Montreal may deem
fair and reasonable.

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That the Bank of Montreal shall pay to the government
such sums as it may receive by way of interest from the
banks to which such advances shall be made.
That, for the purpose of providing the funds necessary
for such advances, the minister of finance shall deposit in
the Bank of Montreal from time to time Dominion notes
equal to the amounts so advanced.
That the Bank of Montreal shall receive from the banks
to which such advances shall be made such securities as
are deemed by the Bank of Montreal satisfactory, and that
such securities shall be held by the Bank of Montreal in
trust for the government against the issue of Dominion
notes herein referred to, but such securities may be
released from time to time as the advances may be repaid
by the banks.
That the Bank of Montreal, besides holding the said
securities in trust for the government as aforesaid, shall
become responsible to the government for all advances so
made and shall guarantee the repayment of such advances
to the minister of finance on or before the ist day of May,
1908.

That for its services in the management of the business
and for guaranteeing repayment of advances so to be
made, the Bank of Montreal shall be paid a fair and reasonable commission to be hereafter fixed by the GovernorGeneral in council.
The committee submit the same for approval.

RODOLPHB BOUDRKAU,

Clerk of the Privy Council.

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III.
AN ACT Respecting a certain issue of Dominion notes.
[Assented to 20th July, 1908.]

Whereas for the purposes set forth in an order in council of the 12th day of November, 1907, and an amending
order in council of the 26th day of November, 1907,
copies of which with related documents have been laid
before Parliament, and pursuant to the said orders the
minister of finance, between the 20th day of November,
1907, and the 3d* day of January, 1908, from time to
time issued and made advances of Dominion notes to the
amount of $5,315,000, the greatest amount of such notes
at any time issued and outstanding being $5,115,000;
and whereas, with respect to the greater part of the lastmentioned amount, security in the form required by
section 5 of the Dominion notes act was not held; and
whereas it is expedient, in so far as the said issue and the
making of the said advances require legal confirmation,
that they be confirmed; therefore His Majesty, by and
with the advice and consent of the Senate and House of
Commons of Canada, enacts as follows:
1. The issue of Dominion notes and all things done
under the provisions of the orders in council cited in the
preamble are hereby confirmed, and shall be deemed to
have been duly authorized.

148

APPENDIX B .

T H E COOPERATIVE PEOPLE'S BANKS O F
CANADA.
By ALPHONSE DKSJARDINS,^ President and Manager of "La Caisse Populaire
de Levis'1

The perplexing problem of adequately and safely supplying the financial needs of the laboring and farming
classes is one that has long attracted the attention of
thinkers and philanthropists. It was in this connection
that the Mont de piete was originated in Italy several
hundred years ago, traces of which are still to be found in
many large cities of Europe. Although based upon a
very commendable desire to help those who were in great
need of money and credit, the methods evolved proved
very often inadequate, depending almost entirely upon
the charity or benevolence of those who took upon themselves the onerous duty of providing the necessary funds
to carry on the operations of those institutions. In fact,
the Mont de piete was almost purely a charitable establishment, appealing in no way to the energetic and invigorating sentiment of self-help through the redeeming practice of saving. As was to be expected, the defects of this
system became more and more atjparent as time went on,
and with the gradual dwindling of the enthusiasm on
which it was founded, the institution itself waned through
want of the necessary funds. Hence, the unfortunate
«M. Desjardijis was the originator of this movement in Canada, and, in
fact, on this continent. He organized the cooperative bank of Levis, of
which he has ever since been the president and manager.

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borrowers of the working classes had again to call upon
the usurers and pay, as theretofore, extortionate rates
for loans of every description. It was not until the middle of the nineteenth century that a practical method was
discovered, and half a century of success has proved how
sound and reliable this new system is when applied with
common sense and with due regard to local requirements
and circumstances.
It is to Germany that we owe the fundamental idea of
this most beneficent and practical innovation. SchulzeDelitsch and Raiffeisen, without concerted action, but
animated by the same idea of helping the poor, devised
systems, similar in principle, whereby the use of credit,
so advantageous in the higher spheres of trade and industry, could safely be extended to the masses of the people—
the small folk, farmers, laborers, and the like. The first
experiments with the new system were made about the year
1850. It was, however, some years before its safety and
feasibility were generally recognized, even in Germany,
whence it gradually spread to other countries. But its
subsequent development has been marvelous, and it has
taken a firm root almost everywhere with equal success
when the pioneers have been wise enough, as was the case
with Signor Luigi Luzzatti in Italy, to take into due consideration the circumstances and the prejudices with which
they had to deal, and to modify it in such a way as to suit
the varying conditions of their respective communities.
At the start Schulze and Raiffeisen rested their cooperative banks upon the principle of unlimited and joint
liability of the members, the former requiring the coop-

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erators to provide the necessary funds by subscribing
and paying large shares, with a view to impressing on the
members the necessity of thrift if they would expect
credit later on. Raiffeisen, on the other hand, would
not admit the share feature, believing unlimited and
joint liability sufficient to attract savings deposits ample
enough to meet all the requirements of the borrowing
members. But both Schulze and Raiffeisen insisted upon
the exclusively local character of their banks, the sphere
of their activity being restricted to a very small territorial
area, say a ward in a large city, a parish, or a municipality
in a rural district. And in this principle lies the very
essence of the safety of the institution, as will be shown
later on.
The subsequent elimination of the unlimited-liability feature of these banks in many countries, so far from justifying
the fear entertained by the great founders of the system,
has removed obstacles that would, in numerous instances,
have inevitably deprived the population of the immense
benefits that they have enjoyed by adopting it in a more
suitable form. The illustrious father of the Italian Banche
Popolare was the first to depart from the principle of unlimited liability, contending that in his country it was not
viewed with favor by the masses, and, moreover, that it
was not required for securing the necessary funds; experience, indeed, has shown that these funds have been
abundant at all times. He therefore recommended a
milder form of liability based on the amount of the shares
subscribed; and the admirable success of his banks is
evidence that he was right. The same principle is now

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being adopted even in Germany and many other countries that have closely followed the German example.
Taking a still broader view of this question, and considering the decided hostility of our people to anything like
wide and, therefore, more or less unknown liability, I
adopted in Canada an entirely new regime similar to the
prevailing system of the savings banks of the New England
States, where there is no capital stock, the depositors
alone providing the funds and enjoying to the fullest extent the right to withdraw their money almost at will, a
mere notice being required if the necessity of so doing
arises.
Our working capital is composed of shares and deposits,
the difference between them being more of a moral character than a practical one, so far as the member is concerned; for his liability is the same in either case, his
shares and his deposits being alike withdrawable just as
are the deposits in an ordinary banking depository.
The distinction between a share and a deposit is that
the former is made up of savings with a view of meeting
future contingencies more or less remote, a kind of time
deposit, while the latter is money put aside for almost
daily use, like the bulk of the funds put in banks and
withdrawable by check.
This regime of a withdrawable capital was sanctioned
by law in France as long ago as 1867, with the passing of
the legislation authorizing the organization of societies
with a variable membership and capital, the capital being
liable to variation by the admission of new members, or
by the subscription of new shares on the part of the old
members.

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As will be readily seen, the main idea of this system is
exactly the same as is to be found in the uncapitalized
savings banks of the United States, but with this most
commendable feature, that the funds thus accumulated
are utilized to meet the needs of the very classes from
which the customers of these banks are drawn; in other
words, the savings of the working classes are put at the
disposal of such working people as happen to be in need of
money for provident and useful purposes, not for extravagance or ill use, thus preventing their having to appeal
to the professional money lenders or usurers at an enormous if not ruinous expense. One can hardly realize how
benificent such a system can be if properly worked upon
practical and safe principles. Experience of more than
half a century elsewhere, mainly in Europe, and of nine
full years in Canada, proves conclusively that institutions
of savings and credit, in the modified form above indicated, are easily and safely practicable among the humbler
classes.
Now, it is obvious that such a credit system must be
worked upon different methods and with safeguards distinct from those to be found in the higher banking sphere.
The requirements do not very materially differ in their
intrinsic nature, although larger in the latter case than in
the former; but the ways and means being different, so
the methods must differ.
In the banking system the capital is fixed; in the cooperative credit regime it is withdrawable, and therefore variable. Hence due regard must be had to this particular
feature of divergence. The banks use to a very large

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extent borrowed capital in the shape of deposits from the
general public; so do the people's cooperative banks, but
in their case this capital is provided by the members
either in the form of withdrawable shares or of mere
deposits.
The banks do business with the general public, either
borrowing on the confidence they enjoy or loaning to whosoever offers what is considered a good banking security;
the cooperative people's banks are associations dealing
only with their members. The banks being an aggregation of capital, the character of the shareholders is not
scrutinized in any way; the cooperative people's banks
being an association of persons, qualities and good habits
are predominant, not the funds they can bring to the
society. The banks in doing business with the general
public may loan money to parties thousands of miles away;
the cooperative people's banks on account of their special
character do not loan funds outside their immediate
vicinity—in other words, beyond the very locality where
they are worked—refusing even members who have
gone abroad, unless a resident member holds himself
responsible for the faithful repayment of the loan and is
considered perfectly reliable in every way. The banks
being a concentration of capital, the capital alone is paramount, and the system of one vote one share prevails as
well as the vote by proxy; the cooperative people's banks
being associations of persons or individuals, the person is
paramount. Hence the principle of only one vote, without regard to the number of shares held, and there is no
vote by proxy, except for corporate or public bodies.

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The banks being organized by capitalists, or those that
have money to spare, which they can dispense with for a
long time, the amount of the share is generally a larger
one than a workingman or a poor man can afford.
The cooperative people's banks being intended for
people who have no money, except what they can save
by very small sums, putting a few cents aside weekly, the
shares must be of a few dollars only, payable by small
installments. Some of the most powerful cooperative
banks in Europe have started with $4 shares, payable 2
cents a month. This and the withdrawable feature of
these credit unions are necessitated by the circumstances
of the desired members and are adopted in order to induce
the largest possible number of the working classes to join
the societes and reap the benefit they offer.
With these differences in view it is easy to realize how
appropriate are the principles laid down for the management of these cooperative people's banks.
Three boards are chosen by the annual general meeting
called, respectively, the board of administration, the commission on credit, and the board of supervision.
The members of each of these boards must be distinct;
that is, one member can not be on two boards, exception
being made for the president of the society, who is ex
officio a member of the commission on credit, in order
that he may be in a position to acquaint the board of
administration with all that is done in this important
body, the motives and reasons upon which its decisions are
based, and the propriety of measures having for their object the increasing of the funds of the society.

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The president being, or supposed to be, the best man on
this general board, and this board being selected out of
the best men in the society, his moral authority is large,
and so is his responsibility. It is therefore but fair that
his guiding influence should be strengthened by corresponding opportunities for supervision and advice. He
is, as just stated, the only exception to the rule that one
person can not be member of more than one board or
commission, the object of this rule being to avoid any
dividing or shifting of responsibility.
Without going into every detail, let us next consider the
various duties to be discharged by these boards.
The board of administration has general powers of
supervision and control over the affairs of the society. It
controls the admission and expulsion of members, sees to
the transfer of shares, if any, makes all necessary recommendations to the general meeting in connection with
the dividing of the profits of the year, the disposal of
which is not already provided for in the constitution,
approves or suggests any desirable amendments to the bylaws, submits to the general meeting any increase in the
number of shares that may be held by, or the amount
loanable to, one member, appoints the manager and other
officials required, and exercises all the necessary administrative powers not specially assigned to the two other
boards.
The commission on credit deals only with the loans
submitted to it through the manager. It makes by-laws
determining the conditions upon wThich the loans are to
be made, the security exacted, apart from the moral

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qualities which are paramount, the rate of interest to be
charged, and the proper repayment of such loans. The
fixing of the rate of interest upon loans must be made with
due regard to the prevailing rates in the locality for
similar loans and at lowest rate consistent with safety,
having in view the proper interest on the capital in order
always to offer a legitimate inducement to members to
increase their holdings and thereby keep abundant resources for the borrowing portion of the membership.
No loan can be made unless the members present are
unanimous. In case of refusal for want of unanimity,
the would-be borrower can appeal to the board of administration, and the decision of this body is final. The
members of the commission on credit can not borrow
either directly or indirectly.
As the granting of loans must be considered to be the
most important duty of the commission on credit and
therefore deserving the closest attention, it must be stated
here that the borrower is always requested to declare
distinctly the object for which he asks the loan and how
he intends to repay it. If the object is an improvident
one in the opinion of the commission, it must not be
granted for any consideration or under any circumstances,
be the security of the highest character. No person is
allowed to borrow if it is not to effect an economy or for
a productive purpose. This golden rule, this essential
principle, has always been enforced and has worked
wonders as a measure of safety. The character and
habits of the borrower, as well as of his family, have of
course to be inquired carefully into in order to assure not

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only his willingness but also his ability to reimburse the
loan. The moral security is paramount, and refusal must
follow if this security is not forthcoming, however reliable
may be the other guarantees offered, because the contrary
will inevitably bring trouble and discredit upon the society.
Thus honesty, industrious habits, good conduct, and thrift
become valid and negotiable assets for the poor man.
The loan must be repaid regularly and faithfully. The
conditions in most cases are those offered by the borrower
himself, if considered reasonable and fair, but once accepted he must be held strictly to them, unless there is a
case of force majeure, like sickness or unemployment.
Punctuality is a virtue that must be taught. Its practice
will confer so great advantages that the borrower himself
will soon appreciate them.
The interest is usually made payable every three
months, but all installments paid in are deducted from the
loan, the interest being computed upon the balance only,
and so on until the whole sum is repaid.
The board of administration is renewable half every
year. The commission on credit and the board of supervision are elected every year, and are composed, say, the
former of four and the latter of three members. But of
course the number will vary according to circumstances.
The powers of the board of supervision are of the
widest character, including the ordinary duties of auditors.
In fact, its functions may be best described as those of a
general meeting sitting en permanence alongside the officers
chosen to administer the affairs of the society. This
board may, and in some stated cases must, call at any

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time a general meeting and submit to it, as representing
the whole society, an account of the acts of the commission
on credit.
Officers and members of the boards give their services
gratuitously. None can receive one cent either as remuneration or indemnity. The manager and clerks, if
any, alone are paid.
The boards meet as often as the affairs of the society
require. The manager, whose duties are very important
and whose services are most valuable to insure the success
of the association, should be selected, with care and wisdom, from among the members, or must become a member before being appointed.
In a democratic organization like the one here described, it is hardly necessary to add that the general
meeting is supreme, and intervenes as often as required.
It must further be remarked that it fixes from time to
time the maximum amount of shares that a member
can hold, the maximum amount that can be loaned at
one time to a member, the annual dividend to be paid
on shares, and the percentage of the net profits to be
appropriated annually for the guarantee fund, or other
funds, if any.
Apart from good management, certain principles must
be strictly adhered to if the success of such an association
is to be assured. Of these the most important is that the
bank, to be truly cooperative—that is, in order to arouse
the interest of every one of its members and to induce
them to extend to it the benefit of their own personal
experience—must restrict its activity to a very small

159

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Commissi^

area, or if formed in a trade union or some similar organization, then it should not go beyond the membership of such a society to enlist members. The object
being to associate together people that have a mutual
knowledge of their moral worth, this could not be easily
attained if the credit union were to accept members over a
large area of territory or from the population of a large city.
True, there are instances in Europe where such cooperative banks have been very successful in large cities,
the Banche Popolare di Milano, called the jewel of cooperative credit of Italy, being the most striking example. Without denying the force of such cases, I believe that, as a matter of principle and safety, it is better
to restrict the field and make it as narrow as possible,
consistent with the requirements of the existing circumstances. Above all, in America, where the population
is more fluid, so to speak, not having to the same degree
that character of permanency which is to be found in
European cities, this principle offers a safeguard that
can not be dispensed with without grave danger. It
must be borne in mind that the object is not to create
huge concerns with large funds at their disposal, but
small societies for the benefit of the masses, where needs
can be attended to with a comparatively small amount
of loanable capital. Moreover, the union, moving in such a
small sphere of activity, is less liable to be deceived by borrowers as to their good character, the honest utilization
of the funds, their standing, and their means to repay
the loan as agreed, all of which must be ascertained
before the money is handed over.

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Borrowers have also to state distinctly for what object
they want loans, and after the proper officers have satisfied themselves that such object is a good one—that the
parties will in all probability benefit by it—that their experience, their good judgment, industry, and energy will
successfully utilize the funds put at their disposal—
these officers, by the fact that the transactions are only
local, are in a much better position to follow up the borrowers and ascertain that the money is faithfully invested in the way stated. Thus this rule tends to the
safety of the union and protects it against losses—a view
which is confirmed by practical everyday experience, as
will be shown later on.
When a member is admitted, the board of administration has to be satisfied that he is honest, upright, and
industrious; furthermore, a new inquiry is made when
the same individual applies for a loan. The commission
on credit has to look carefully into his character and be
certain that the would-be borrower possesses the required
qualities, for these moral assets are the very groundwork
of his credit. A man may not be wealthy, but nothing
prevents him from being honest, thrifty, and industrious,
and with such qualities he will in most, if not all, cases
be able to repay the amount borrowed. This, again,
can much more easily be ascertained if the cooperative
bank has but a narrow field of activity. However, all
this does not preclude the association from taking additional measures of security in the way of indorsers or
other substantial guaranty, which, indeed, is generally
done until the borrower has established a first-class
31870—10

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reputation for himself by his punctuality in meeting his
installments or payments when due.
Moreover, the amount that can be loaned at any time
to one member is always passed upon by the general
annual meeting, having, of course, due regard to the
funds available and the necessity of providing useful
employment for all the money at the disposal of the
society. Thus the danger or possibility of loaning too
large an amount to one individual is surely avoided.
Loans may be made for a long time, even for ten or
fifteen years, provided the installment plan is adopted,
once the guaranty fund has reached a certain proportion
of the general assets. Furthermore, it is a very strict
and rigidly enforced rule that the smaller the loans the
greater is the preference they enjoy; in other words, the
small borrower has always the preference over the larger
one, this being considered as consistent with the spirit
and object of the society.
The stability of such a credit union is increased and
insured by the rapid formation of a guaranty fund, to be
eventually equal to, if not more than, the maximum
amount of paid-up shares. This fund is early accumulated by means of annual contributions from the net
profits. These contributions should be relatively large to
begin with, say, 20 per cent, or one-fifth of the net earnings. When, as will soon be the case, the fund shall have
reached an amount affording a fairly substantial security,
the percentage can be lowered safely, not less than
5 per cent, however, until the said fund is completed as
provided for.

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The shares being withdrawable in order better to
meet the requirements of the poor, for whose benefit
these unions or cooperative banks are designed, the
guaranty fund above described was devised so as to offset any tendency to instability entailed by that feature.
In the New England savings-bank system the law fixes a
very small percentage of the annual net earnings as a
contribution to such a fund, the total amount of which is
only from 5 to 15 per cent of the deposits held. This
fund is to meet possible losses in the investments of the
banks.
In our cooperative people's banks the same fund has
an additional object, being regarded as the real nonwithdrawable capital of the society, and this explains why it
is allowed to accumulate until it reaches an amount equal
to the total of the paid-up shares.
Thus, by perseverance and stringent provision for the
stability of the institution, the laboring and farming
classes are enabled to create a treasury owned and controlled by themselves, to which they and their descendants may look for credit; ineed, doing along this line what
is done in other spheres of activity, as, for instance, in
the municipal life, where future generations will enjoy
the benefit of all the improvements made by their predecessors.
The guaranty fund has also the advantage of increasing
the confidence and the interest felt by the members, on
which depend the vitality and the very existence of
their association.

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One striking feature of these cooperative credit unions
is that they are excellent local savings banks, stimulating
thrift, bringing out hoarded money, and thus conferring
on the general community the benefits resulting from
capital properly invested. However small a village may
be, it can organize such a union, which will offer to its
people all the benefits of the ordinary bank—except, of
course, the peculiar advantages derived from its larger
sphere of action—and will extend the practice of thrift
to almost every home in the immediate locality.
To sum up, the cooperative bank that I have endeavored thus to describe borrows from and lends to its members. It borrows from them by receiving their savings,
either in the shape of shares or mere deposits, for thrift
must precede credit. This is a fundamental principle
which it would be dangerous to depart from, even if it
could be done.
The advantages of such cooperative banks are very
numerous and far-reaching, among which the following
are, perhaps, the most striking:
Their close proximity to the saver and borrower.
Their adaptability to local wants of all kinds, and their
ability, through the enjoyment of local confidence, to
attract the available resources of the community.
Their familiarity with their clients who are the members, and their influence over them arising from their all
being members of the same labor union or residents of
the same village, town, or city ward.
Their special mechanism allowing them to make the
smallest loans and to undertake transactions of the pet-

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tiest kind, in compliance with local needs, preference,
indeed, being deliberately given to the humbler demands.
Their ability to assist in a general or particular liquidation of debts, especially in the case of farmers whose
property is heavily mortgaged and where the repayment
is made burdensome by provisions of an onerous character.
Their ability to work cheaply, almost gratuitously,
being thus in a position to supply cheap credit to their
members.
Their accumulation of local savings and the profits
thereupon, until they form a capital for the benefit of the
members and borrowers.
Their ability to act as agents for their members in certain circumstances and outside their restricted field of
activity, more especially for the benefit of farmers, whose
needs of this kind are greater than those of the workingmen.
Their power of influencing borrowers toward a beneficent use of credit and of supervising the utilization of
loans in accordance with contract.
Their tendency to group themselves into federations
for mutual help, development, inspection, instruction, and
audit.
Their steady and continuous educative influence in
matters of thrift, association, and self-help, by their constant presence, their daily object lessons, by their frequent
though easy calls upon the activity, thought, and services
of their members.
Their tendency to develop high forms of individual
capacity, of public life, and of national character, and,

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last and most desirable, their powerful influence in calling
forth habits of thrift, economy, and prudence, guiding
expenditure into productive channels, granting credit for
productive and useful purposes only, and in promoting
union and associated action among units which, but for
them, would be isolated and ineffective.
Being administered by responsible officers of the local
population's own choice these local banks, of which everyone can be a member, soon and rightly gain the confidence
of everyone. Unlike the ordinary savings banks, they
have not a mere slot in their wall through which to receive
money, but a mouth wherewith to give advice, a heart
wherewith to feel, and a credit organization designed and
specially fitted to help by loans the very people who
provide the funds. In their keeping the depositor or
member—for both are one and the same individual—may,
so to speak, see his money, see it safely held, see it laid
out profitably in the locality, benefiting the district and
producing more money, whereas elsewhere it disappears
into the large monetary market, absorbed in huge financial
schemes sometimes worked out for the squeezing or the
economic detriment of the consumers, while the poor
men, the very clients who have contributed to the accumulation of this wealth, are, as a class, the victims of extortionate money lenders. Organized by and entirely
under the direct control of the farmers and laborers who
are almost the entire clientele of these money lenders, the
cooperative banks offer the best means of putting an end
to the frightful cancer of usury that is causing so much
suffering in this very part of the body politic. It is an

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undeniable fact that no law, no matter how stringent or
how rigidly enforced, can stamp out or even lessen usury
in an appreciable degree. Centuries of experience have
demonstrated this truth. Usury exists because there
are people who want money, and are ready to borrow it at
any price where there is no organized machinery offering
it at a reasonable rate. Let these people have their
wants provided for in a human and business-like way,
and usury will soon disappear as surely as snow melts
away in the spring.
The proposal to introduce such an institution into a
country often gives rise to objections, which, however,
are, as a rule, based upon ignorance or a wrong conception
of the real nature of these cooperative credit unions. It
is, for example, often alleged that existing banks would
suffer from the competition of the newcomer. But is this
objection founded upon facts and has actual experience
proved it to be correct?
In the first place, this new organization in no way
invades the field of activity of the banks; it strikes
another soil; a stratum unknown to those financial bodies.
Organized to meet the needs of the highest sphere of trade
industry, and for the benefit of larger enterprises, the
ordinary banks have neither the equipment nor the opportunity to cater to the wants of the classes for which the
cooperative banks are exclusively intended. This explains why the money lenders' business is so widespread
and usury so prevalent and profitable where such an
institution does not exist. People in need of money must
go to the usurers for want of a better medium. Expe-

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rience has shown in Europe that the banks, even the
largest, have not been slow in recognizing this fact and
have, therefore, ceased to oppose the cooperative banks,
nay, have even very materially aided them.
Experience, too, soon demonstrated another potent
fact, namely, that these very modest financial institutions
act as excellent feeders to the higher banks, by stimulating
and teaching thrift in a sphere inaccessible to the latter
or to any other similarly organized institutions, and by
depositing the surplus funds that the cooperative banks
must keep constantly available and do not utilize in their
every-day transactions. I could mention here many of
the largest financial institutions of the world that go out
of their way to assist in the organization of such parish
or cooperative banks, or, when so organized, aid them by
special or preferential treatment in order to insure their
success and prosperity.
Another objection is that the farming and laboring
classes would be unable to work out such a scheme. But
why should the farmers, laborers, artisans, and mechanics
of America be less intelligent, less able to learn by practice
how to manage these unions? Or are they less honest
than their brethren of the various European countries, or
even East India? Surely not.
Objection might also be based on the shifting character
of the population, but that difficulty can be overcome by
special precautions and proper safeguards. I feel confident that the genius of our American nations can easily
find and apply an adequate remedy to this particular
state of things, for, after all, this difficulty had to be faced

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to a certain extent by the ordinary banks, and they seem
to have succeeded very well. Other means might be
devised for the protection of credit unions and be as successful in their way as those chosen by the existing banking
institutions.
It may also be argued that these cooperative banks
would compete with the savings banks already in the
field and tend to divert their funds into their own treasuries. This is hardly probable. But even if it should
so happen, is that a good reason for putting aside a more
perfect organization in order to avoid damaging an inferior
one; for enriching the usurers by depriving the masses of
the people of a means to obtain loans at a fair rate of
interest? Surely the savings institutions were established
to benefit the people, not to enslave them; in other words,
the savings banks were instituted for the public, not the
public for the savings banks. But such a fear is absolutely unfounded and need not be considered, for is it not
a well-established fact that the more numerous the depositories for savings, the larger the inflow of funds? And
why? Because each one of these depositories attracts its
own customers, offers special inducements that tend to
increase the number of its clients, and, in the end, by the
accumulation of small sums, creates an ever growing
capital. The savings banks themselves have not competed in a damaging way with the banks previously established, but have, on the contrary, been helpful in teaching
thrift, foresight, and providence, and thereby increasing
the public wealth. And the same result may confidently
be expected from this new system, while its benefits will

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be larger, as it covers a larger area than the existing institutions. In fine, it is almost a truism to say that the
more numerous and varied a country's savings institutions are, the higher is its development and civilization,
for uncivilized nations have none.
The numerous building and loan societies of Massachusetts, together with its large and prosperous so-called
1
'cooperative banks," are doing much good in their own
way, but they restrict their activity to one particular
class of transactions, namely, the purchasing of a home by
the laborer. Why not, as the progressive State of Massachusetts has done, provide for all the various wants of
the farmers as well as of the workingmen? Such wants
can not be denied in face of the large business done by
private money lenders and usurers generally, in spite of
stringent laws. Why not adopt an organization that
will put at the disposal of the people part of their own
savings instead of utilizing them only or mainly for the
advantage of large undertakings, while the wealth producers are entirely left to the tender mercy of the sharks?
Anyone who studies the existing financial fabric on this
continent, seeing, as he can not fail to do, the almost helpless situation in which the farmers and workingmen are
practically left so far as banking credit is concerned,
will inevitably come to the conclusion that there is a
missing link of a very great importance, and that missing
link is the cooperative bank above described.
Such an organization would complete the financial
mechanism by meeting, in a systematic way, the wants
of the masses of the population, who find themselves

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to-day with no organized means for satisfying their economic needs, if we except the item of home building. It
would inculcate and stimulate the habit of making small
savings; it would educate—teach how capital can be
formed gradually by mere cents, how it must be managed,
safeguarded, multiplied by useful and provident employment; it would kill usury; it would be an excellent feeder
to the ordinary banks, as shown by the practical experience of half a century; it would democratize finance, organize credit, and transform the moral qualities into
valuable assets; it would instill habits of foresight, of
providence, and of punctuality in promptly paying a
debt when due; it would teach honesty, and bring to the
man of industrious habits a higher reward than mere
wages—the confidence of his fellow-citizens; it would promote the spirit of local enterprise, and facilitate improvements of all kinds; finally, it would obviate the disasters
attending panics, since everyone would participate in the
management of affairs, through officers representing the
free choice of himself and his fellow-members.
Here again experience has shown that such a cooperative union has never been upset by a run; quite the contrary, because such an institution is not practically owned
by one or a few individuals possessing the largest number
of shares, and thereby having the entire control by the
multiplicity of votes based upon shares, but is open to
all upon the basis of a perfect equality.
A conclusive experiment has been made on this continent, and the results obtained warrant the belief that
such cooperative people's banks would be amply successful

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anywhere, provided there be a faithful adherence to the
principles laid down.
Levis is a small town of 7,000 inhabitants, situated on
the shores of the St. Lawrence, opposite the old city of
Quebec. Its population is mostly French Canadian and
of the laboring classes. It was here that " L a Caisse
Populaire de Levis " was organized on the 6th of December, 1900. It did not, however, commence business until
the 23d of January, 1901. Besides the town proper, the
enterprise included two neighboring parishes inhabited
by farmers, which had been separated from the present
town some years before without, however, interrupting
the daily intercourse between these farming and urban
groups, so that everybody knew everybody else, as if all
were still one unit. The object in including these outside parishes was to extend the experiment to a farming
community in order to see how the institution would
work among both classes.
Started with not a cent in the treasury, its general
assets were at the close of its ninth financial year, the
30th of November, 1909, $102,880.35. The total amount
of loans had reached $463,070.60, distributed in 3,037
accounts.
The 1,000 members of this cooperative bank, the first
of its kind on the continent of America, are proud to say
that as yet not one cent has been lost through bad loans
or mismanagement. The workingmen and farmers have
chosen the managing bodies, have provided the funds,
and it was to them that the money was loaned, their
honor being in most cases the main security. The total

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turnover in these nine years has reached the sum of
$617,483.45, with gross profits amounting to $18,697.90,
and a total of working expenses of $1,774.74, although
there are four branches of joint-stock banks in Levis
doing, apparently, very good business. The success of
the Levis experiment has spread the idea throughout all
French Canada, and in less than two years 32 other similar cooperative banks in as many different places have
been organized by the writer at the request of the local
population desirous of benefiting by the advantages
offered. Twenty-six of these credit unions are working
in rural parishes and are doing most useful work both as
savings and loan associations. One of them has already
a general turnover of $18,727.83 after only ten months of
existence. More than 25 others will very soon be organized in the Province of Quebec alone.
Such a cooperative bank exists in Manchester, N. H.,
among the French-Canadian population, working mostly
in the cotton mills of that city.
The movement has spread to the United States, and
Massachusetts has enacted a law to further it. Other
States seem inclined to follow the good example of Massachusetts and enact laws along the same lines. The prospects are hopeful and promise abundant as well as most
beneficial returns for the masses of the rural and working
classes.

173

APPENDIX C.
STATISTICS FROM CANADA YEARBOOK,

(175)

1908.

The

Canadian

Banking

System

177

APPENDIX C.
[Statistics from Canada Yearbook, 1908.]

(1) G E N E R A L STATEMENT OF C H A R T E R E D BANKS, 1868-1908.0
Calendar year.

1868

Capital
paid u p .

$ 3 0 , 5 0 7 ,447

1869

3 0 , 7 9 0 , 137

Total o n
^deposit.6

N o t e s in
circulation.

Discounts to
the people.

Liabilities, c

S59.350, 646

$33,653, 594

,299 0 5 0

$45, 144,854

860,976

9,539, 5ii

40,028, 090

56 ,433.953

5o, 9 4 0 , 2 2 6

86, 2 8 3 , 6 9 3

1870

3 3 . 0 3 1 , 249

1 5 . 1 4 9 , 031

4 8 , 7 6 3 , 205

66 , 276, 961

65, 6 8 5 , 8 7 0

103, 197,103

1871

3 7 , 0 9 5 ,34o

2 0 , 9 1 4 , 63 7

5 6 , 2 8 7 , 39i

8 4 , 799.841

80, 2 5 0 , 9 7 4

125, 2 7 3 , 6 3 1

1872

4 5 , 1 9 0 , 085

25,296, 454

6 1 , 4 8 1 , 452

106 , 744.665

90, 8 6 4 , 6 8 8

148, 8 6 2 , 4 4 5

1873

5 4 , 6 9 0 , 56i

27,165, 878

6 5 , 4 2 6 , 042

119 . 274,317

98, 9 8 2 , 6 6 8

166, 0 5 6 , 5 9 5

1874

60,388, 340

2 7 , 9 0 4 , 963

7 7 , 1 1 3 , 754

131 , 680, i n

187S

6 4 , 6 1 9 , 513

23,035, 639

74,642, 446

136 029,307

116, 4 1 2 , 3 9 2
104, 6 0 9 , 3 5 6

1876

66,804, 398

2 1 , 2 4 5 , 935

72,852, 686

127 ,621,577

1877

65,206, 009

20,704, 338

7 4 , 1 6 6 , 287

125 681,658

1878

6 3 , 6 8 2 , 863

20,475, 586

7 0 , 8 5 6 , 253

119 ,682, 6 5 9

1879

6 2 , 7 3 7 , 276

1 9 , 4 8 6 , 103

7 3 , 1 5 1 , 425

113 485,108

1880

6 0 , 0 5 2 , 117

2 2 , 5 2 9 , 623

85,303, 814

102,, 166, 115

1881.

59,534, 977

2 8 , 5 1 6 , 692

9 4 , 3 4 6 , 481

116, 9 5 3 4 9 7

1882

59.799, 644

33,582, 080

n o , 133, 1 2 4

140, 077, 194

1883

6 1 , 3 9 0 , 118

33,283, 302

1 0 7 , 6 4 8 , 383

143; 9 4 4 9 5 7

1884

6 i , 5 7 9 , 021

30,449, 410

102,398, 228

130, 4 9 0 053

1885

61,711,

566

3 0 , 7 2 0 , 762

104,014, 660

126, 8 2 7 792

1886.

6 1 , 6 6 2 , 093

31,030, 499

132, 833 313

1887

6 0 , 8 6 0 , 56i

3 2 , 4 7 8 , 118

i i i , 4 4 9 , 365
1 1 2 , 6 5 6 , 985

139, 753 755

1888

6 0 , 3 4 5 , 035

3 2 , 2 0 5 , 259

125,136, 473

141, 0 0 2 373

1889

6 0 , 2 2 9 , 752

3 2 , 2 0 7 , 144

1 3 4 , 6 5 0 , 732

149, 9 5 8 9 8 0

99,
99,
95,
96,
in,
127,
149,
145,
137,

614,014

187, 9 2 1 , 0 3 1
186, 2 5 5 , 3 3 0
183, 4 9 9 , 8 0 1

810,731

181, 0 1 9 , 1 9 4

538,831

175, 4 5 0 , 2 7 4
173, 548,490

760,113
838,941
176,249
777,214
938,095
493,917

704,402

163, 9 9 0 , 7 9 7
029,602
173,
207,587
173,

243, 5 0 4 , 1 6 4
253, 789,803
254, 546,329

187, 3 3 2 , 3 2 5

269, 3 0 7 , 0 3 2
291, 635,251

146,
149,

762,695
954,260

1890

59,974, 902

3 2 , 8 3 4 , 5ii
33,o6i, 042

1 3 5 , 5 4 8 , 704
148,396, 968

153, 301 335

60,700, 697

1892.

61,626, 311

33,788, 679

1 6 6 , 6 6 8 , 47i

193, 455 883

1893-

62,009, 346

3 3 , 8 n , 925

1 7 4 , 7 7 6 , 722

206, 623 0 4 2

1894.

6 2 , 0 6 3 , 37i

3 1 , 166, 003

181,743, 890

204, 124 9 3 9

1895.

61.800, 700

3 0 , 8 0 7 , 041

190,916, 939

203, 730 8 0 0

1896.

6 2 , 0 4 3 , 173

3 L 4 5 6 , 297

193,616, 049

213, 211 996

232, 338,086

1897-

6 2 , 0 2 7 , 703

3 4 , 3 5 o , 118

2 1 1 , 7 8 8 , 096

2 1 2 , 0 1 4 635

252, 660,708

1898.

62,571, 920

37,873, 934

2 3 6 , 1 6 1 , 062

223, 806 3 2 0

28l, 0 7 6 , 6 5 6

1899-

63,726, 399

4 L 5 I 3 , 139

266,504, 528

251, 467 076

318, 624,033

208, 0 6 2 , 1 6 9
217, 195,975
221, 006,724
229, 794,322

1900.

65,154, 594

4 6 , 5 7 4 , 780

3 0 5 , 1 4 0 , 242

279, 279 761

356, 394,095

1901.

6 7 , 0 3 5 , 615

5 0 , 6 0 1 , 205

3 4 9 , 5 7 3 , 327

3 8 8 , 299 8 8 8

420, 003,743

1902.

69,869, 6 7 0
76,453, 125

55,412, 598

3 9 0 , 3 7 o , 493

430, 662 670

466, 963,829

60,244, 072

d 4 2 4 , 1 6 7 , 140

472, 019 689

507, 527,550

509, o n

1903.
1904-

7 9 , 2 3 4 , 191

61,769, 888

^ 4 7 0 , 2 6 5 , 744

1905-

82,655, 828

6 4 , 0 2 5 , 643

1906.

91,035, 604

70,638, 870

d605,968,

1907-

9 5 , 9 5 3 , 732

75,784, 482

1908.

96,147, 526

71,401, 697

^ 6 5 4 , 8 3 9 , 711
015
^658,367,

302, 696,715
307, 520,020
316, 536,527
3 2 0 , 93 7,643
3 4 i , 163,505
37o, 583,991
412, 504,768
459, 715,065
531, 829,324
585, 761,109
641, 543,226
695, 417,756

993

554, 014,076

5 3 i , 2 4 3 , 476

559, 814 918

618, 678,633

513

655, 869 879

7i3, 790,553

709, 975 274

769, 0 2 6 , 9 2 4

767, 4 9 0 , 1 8 3
878, 512,076
945. 685,708

6 7 0 , 170 833

762, 0 7 7 , 1 8 4

94i, 290,619

« The statistics of this table are averages computed from the monthly return; in each year.
b
Including deposits of federal and provincial governments.
c
Excluding capital and reserves.
d Including amounts deposited elsewhere than in Canada, not previously included in deposits.
3I870

228, 084,650
219, 9 9 8 , 6 4 2
219, 1 4 7 , 0 8 0
228, 061,872
230, 393,072

138,

1891

I7i, 082 677

184, 2 7 6 , 1 9 0
200, 613,879
227, 426,835

The

Canadian

Banking

System

178

(2) STATEMENT OF CHARTERED BANKS FOR THE CALENDAR YEARS, 1904-1908.0
ASSETS.
1906.

Schedule.
Balances due from agencies of the banks or from other
banks or agencies in the United Kingdom
Balances due from agencies of chartered banks or from
other banks or agencies elsewhere than in Canada and
the United Kingdom
Bank premises
Call and short loans on stocks and bonds in Canada
Call and short loans elsewhere than in Canada
Current loans in Canada
Current loans elsewhere than in Canada
Deposits made with and balances due from other banks in
Canada
Deposits with Dominion government for security of note
circulation
Dominion notes
Dominion and provincial government securities
Loans to provincial governments
Loans to other banks in Canada
Mortgages on real estate sold by banks
Municipal securities in Canada and public securities elsewhere than in Canada
Notes of and checks on other banks
Overdue debts
Railway and other bonds, debentures, and stocks
Real estate other than bank premises
Specie
Other assets
Total assets

1908.

$7,523,615

,960,562

8,877,979

16,817,357
9,720,652
36,999,790
41,212,007
407,475.439
18,665,002

19,201,939
10,707.018
42,659,144
51.452,955
436,659,384
25,097,824

16,801,119
12,844,918
56,597,649
59.363,639
500,770,572
35,777,625

6,064,286

6,834,816

7,667,093

3,237,891

3,448,463
38,053,983
8,833,626
1,960,465
768,161
602,524

3,923,531
40,186,748
9,360,614
1,353,258
2,521,860
447,001

4,304.524
46,486,741
9,546,927
2.183.799
2,025,495
407,492

18,820,985
22,883,207

20, 460, 670

1,985,146

2, 007, 136
41, 125,898
801,211
21,100,833

21, 198, 817
29,496,390
*3,566,597
41,239,589
923,523
24,063,779
9,191,623

33,428,779
10,705,202
2,465,495
820,508
761,885
15,560,145
19,045.787
2,194,260

27,083,043

$9,828,186

15,363,728

30, 822, 761

16,248,177

18,144,338

49,192,291

42,060,715

52,907,513

60,764,075

574,784,939

529,320,134

27,340. 135

24.383,503
10,641,722
4,249,367
56,007,874
9,522,743
5,542,149
7,789,831
47o,44i
19,788,937
27.843,677
8,100,257

38,779.477
739.905
16,879,092
6,321,182

39,974.520
681,628
18,536,340
8,367.493

9,439,679

695,417,756

767,490,183

S78,512,076

945,685,708

941,290,619

$ 7 9 , 2 3 4 , 191
52,082,335

$82,655,828
56,474,124

$91,035,604
64,002,266

$95,953,732
69,806,892

$96,147,526
72,041,265

131,316,526

139,129,952

155,037,870

165,760,624

168,188,791

5,081,798

6,771,683

IT,240,826

1,498,340

1,715,I7i

2, 2 9 2 , 7 1 8

3,349,179
5,559,020
117,962,023

3, 107,678
7,282,441
138,116,550

4,656,857
8,358,140
165,144,569

6 379,118
10 276,445
166 342,144

io,973.477
169,72i,755

3 0 7 , 0 0 7 , 192

338,411,275

3 8 1 , 7 7 8 , 705

413,014,657

406,103,063

4,542,724
36,388,330

5,152,395
44,325,531

5,562,900
46,030,241

6, 786,223

7,338,252

58, 828,181

65,793,319

823,839

2,616,806

078,923

8,929,166

70,638,870

784,482

9.373.832

7 9 1 , 736
64,025,643
10,668,415

19,939,064

898,725

71,401,697
6,709,865

554,014,076

618,678,633

7i3,79o,553

769,026,924

762,077,184

685,330,602

757,808,585

868,828,423

,787,548

930,265,975

1 0 , 0 8 7 , 154

9,681,598

9,683,653

,898,160

11,024,644

42,651,006
1,416,659
24,646,402
7,295,842

LIABILITIES.
Liabilities to shareholders:
Capital paid up
Rest or reserve fund

Total
Other liabilities:
Balances due to agencies of Canadian banks or to
other banks or agencies in the United Kingdom
Balances due to agencies of Canadian banks or to
other banks or agencies elsewhere than in Canada
and the United Kingdom
Balance due to Dominion government after deducting advances for credits, pay lists, etc
Balance due to provincial governments
Deposits by the public payable on demand in Canada
Deposits by the public payable after notice or on a
fixed day in Canada
Deposits made by and balances due to other banks in
Canada
Deposits elsewhere than in Canada
Loans from other banks in Canada, secured, including
bills rediscounted
Notes in circulation
Liabilities not included under foregoing heads
Total
Total liabilities to shareholders, and other liabilities
Excess of assets over all liabilities, undivided profits not
included

6r,769,888

3.636,753

o The statistics of this table are averages computed from monthly returns in each year.
31870

5,694,43 7

5,775.400

The

Canadian

Banking

System

179

(3) PRINCIPAL ASSETS OF EACH OF THE CHARTERED BANKS OF CANADA, DECEMBER 31, 1908.
Dominion
notes.

Call a n d
short loans
in Canada.

Current loans
in Canada.

$916,328

$1,846,338
2,26l,122

k1.288.758
2,068,566

$17,278,656

558,688
254,330

484,796

4,883,939

B a n k of N o v a S c o t i a

,399,623

2,598,022

553.974
1,968,557

B a n k of M o n t r e a l

,109,969

9,997,919

B a n k of O t t a w a
B a n k of T o r o n t o

775.146

2,918,531

7i4,5i4

2,880,431

Banque d'Hochelaga
Banque Nationale
Banque Provinciale d u C a n a d a . _

282,403

I,115.911

138,146
67,414

Chartered banks.

B a n k of B r i t i s h N o r t h A m e r i c a - .
B a n k of H a m i l t o n
B a n k of N e w B r u n s w i c k

Banque de St. Hyacinthe a
Banque de St. Jean &
C a n a d i a n B a n k of C o m m e r c e
Dominion B a n k
Eastern Townships Bank
F a r m e r s B a n k of C a n a d a
H o m e B a n k of C a n a d a
I m p e r i a l B a n k of C a n a d a
M e r c h a n t s B a n k of C a n a d a
Metropolitan B a n k
Molsons B a n k
Northern Crown B ank
Quebec B a n k
R o y a l B a n k of C a n a d a
St. Stephens Bank
S o v e r e i g n B a n k of C a n a d a c
S t a n d a r d B a n k of C a n a d a
S t e r l i n g B a n k of C a n a d a
T r a d e r s B a n k of C a n a d a
U n i o n B a n k of C a n a d a
U n i o n B a n k of H a l i f a x
U n i t e d E m p i r e B a n k of C a n a d a .
W e s t e r n B a n k of C a n a d a
Total _
1 S u s p e n d e d p a y m e n t J u l y 25, 1908.

3I870

Specie.

16
[, 4 7 1 , 001
,138.165
413.940
7.238

494,140
36,977

948,653

2,674,167

2 , 1 3 3 : 849
2 , 4 i 8 ; 015

30,698

1, 060 793

1, 024

144 ,738
3 6 , 4 2 5 ,865
i o , 7 5 4 205
5 . 5 0 3 001
880 0 5 9
1,508 9 7 7
13,128 014
2 1 , 1 5 9 995

9,137,358
4, 7 6 6 , 9 1 3
718,006
63,812
502,085
6,050,176

31.054
400,327
560,215
300,319
14,072
37. 504
27.099,074

74,051,785

2,785,804
745.527
2,026,144
r,233,307
438,531
3,760,344
21,156
1,869
1,110,881

785,596
2 , 6 3 2 , 234
3.805,238
849,017
21,564
35.0H
66,124,760

7,327,600
3,261,660
920,477
59i,5i8
2,157.297
3.385,994
2,313.196
845.145
2,742,514
140,713
1,384,182
1.936,986
io,000
225,792
1,433,647
875.494
1,871,773
1,088,330
133,629
i n , 650

43,827,774

26,977,711
13,338,795
10,923,915

63,893,420
30,960,438
13,985,468
782,600
3,489,963
25,168,246
29,558,357
3,991,635
22,414,213
8,202,901
9,878,805
21,411,972
596,020
2,401,116
13,008,731
3,076,295
23,512,673
19,371,568
8,561,599
1,254,973
3,236,170
511,808,909

& W e n t i n t o l i q u i d a t i o n A p r i l 28, 1908.

$43, 884,232
3 3 , 8i3,399
7, 828,238

2 4 , 2 1 9 , 229
1 0 6 , 9 6 3 , 055

20,586,837

53,467

319,042

13,561,217

T o t a l assets.

$ 2 2 , 5 5 4 , 152
1 0 , 1 8 5 , 021
1 , 6 5 1 , 199

837,891
1,853,017
615.031
935,730

,128,575
,559,004
102,813
556,016
179,742
378,545
,221,717
9.563
178

18,740,002

O t h e r assets.

44,

33, 5 4 9 , 8 5 7
39, 755,291
19, 781,035
14, 6 2 5 , 7 8 0

8 , 4 3 1 , 452
7.329, 618
4 , 4 2 8 , 895

2, 239
7,623
3.391
2,748

746,648

197, 1 2 2 , 7 2 8

6, 145.226
091,491
145,778
121 2 5 5 , 2 4 4
50 8 8 1 , 3 8 1
540,892
325.227
711,789
861,005
376,356

589

924,709

368

362,255

952

148,615

986

829,049

2 0 , 1 3 9 191
215 3 9 9
6 , 4 2 3 180
4 , 8 2 6 57o
1, 230 ,679
6 , 4 4 2 583

859,590

901

215,252

8,389
4,339
664
2,936

470,210
852,138
055,135
698,871
999,118

519

184,083

336

066,595

388

3 5 2 , 4 9 1 , 773

245,073
1,001,352,290

"> I s b e i n g w o u n d u p .

The

Canadian

Banking

System

180

(4) PRINCIPAL LIABILITIES OF EACH OF THE CHARTERED BANKS OF CANADA, DECEMBER 31, 1908.
Capital
paid up.

Chartered banks.

R e s t or r e serve fund.

N o t e s in
circulation.

Deposited by
t h e p u b l i c in
Canada.

Other
liabilities.

Total
liabilities.**

$2,336,000
2,473,960
1, 291,875

$2,868,943
2,145,498

$23,315,129

$8,183,240

25,738,886

504,556

4, 7 9 8 , 5 8 3

294,649
8,918,070

129,315
481,055

25, 1 5 8 , 7 0 4
23,704,908
8,020,622
1,082,166
4,655,086

415,474
io,610,963
22,492
5,891,312
114,912
109,735
470,035
1.374,352
1,888,102
339.762
155,285

$34, 367,312
28, 3 8 8 , 9 4 0
5. 7 7 1 , 6 8 7
36, 0 7 6 , 3 4 5
169, 8 8 9 , 0 5 1
27, 0 5 6 , 8 1 3
30, 808,395
15, 0 4 7 , 6 3 8
542,451
834,948
681,737
378,580
104, 8 5 0 , 0 9 4
41, 3 6 5 , 1 5 4
16, 1 9 0 , 8 1 8
1, 7 4 i , 1 8 3
6, 4 4 2 , 9 3 0
38, 0 5 0 , 7 4 7
46, 8 6 7 , 0 8 0
5, 6 3 L 3 3 5
27, 8 2 0 , 2 7 6
897,048
73L392
79i,525
586,498
610,878
114,870
954,228
229,644
015,843
338,559
551,243
291,426

73,058,234

639,899,365

107,959,069

820,916,668

R a t e of
last dividend.
Per

B a n k of B r i t i s h N o r t h A m e r i c a
B a n k of H a m i l t o n
B a n k of N e w B r u n s w i c k

866,666

B a n k of N o v a S c o t i a
B a n k of M o n t r e a l

000,000

B a n k of
B a n k of
Banque
Banque

473,96o
737,5oo
000,000

Ottawa
Toronto
d'Hochelaga
Nationale

000,000
000,000
500,000

B a n q u e Provinciale d u Canada
b

B a n q u e de St. Hyacinthe
B a n q u e de St. J e a n c
C a n a d i a n B a n k of C o m m e r c e
Dominion Bank
Eastern Townships Bank
F a r m e r s B a n k of C a n a d a

Molsons B a n k
Northern Crown Bank
Quebec Bank
R o y a l B a n k of C a n a d a
St. Stephens Bank
S o v e r e i g n B a n k of C a n a d a d
S t a n d a r d B a n k of C a n a d a
S t e r l i n g B a n k of C a n a d a
T r a d e r s B a n k of C a n a d a
U n i o n B a n k of C a n a d a
U n i o n B a n k of H a l i f a x
U n i t e d E m p i r e B a n k of C a n a d a
W e s t e r n B a n k of C a n a d a
Total

4,500,000
2,150,oco

886,491

900,000

000,000

300,000

339.375

75,000

000,000

6,000,000
4,981, 731
2,000,000

983,392
000,000

555,254
929,033

H o m e B a n k of C a n a d a
I m p e r i a l B a n k of C a n a d a
M e r c h a n t s B a n k of C a n a d a
Metropolitan B a n k

5,400,000
12,000,000
3,000,000

000,000
000,000
000,000
500,000
201,568

297.705
5,000,000
4,000,000
1,000,000
3,500,000
50,000

500,000

1,250,000

900,000

4,600,000

200,000

52,500

000,000

j
J
J
j
!

560, n o
812,630
4, 3 5 3 , 5 9 2
201,210

1, 760, n o
183,749
2,000,000

3,
1, 5 0 0 , 0 0 0
501,792
555.ooo

1,800,000

; 96,457,573

74,427,630

1,175,000

a E x c l u s i v e of c a p i t a l s t o c k a n d r e s t o r r e s e r v e fund.
b S u s p e n d e d p a y m e n t J u l y 25, 1908.
31870

679,455
2,888,974
n , 068, 327
2,634,405
3,019,219
i>978,756
1,723,302
93L3I3
28,535
10,659
8,596,268
3,087,539
2,307,455
308,745
915,190
3,345,97o
4,267,423
918,922
2,677,423
1,688,800
1,583,773
3,556,432
179,75o
104,025
1,261,147
704,293
2, 6 0 0 , 9 0 5
2 , 9 3 6 , 583
1 , 4 2 9 , 835

2 4 , 2 6 9 , 301
117,488,783
23,884,489
27,236,893
12,692,474
9,216,260
3,525,682
645,086
295.4i8
78,362,075
3 7 , 8 0 1 , 510
13,702,189
1,382,816
5 , 4 5 1 , 158
33,940,590
38,697,788
4,681,349
24,496,776
8,419,161
8,732,145
27,624,130
384,256
6i5,54i
15,738,811
4,140,200

4i,33i,94i
537,919
552,283
376,408
602,489
377,953
8, 116
72,503
17,891,75i
476,105
181,174
49,622
76,582
764,187
3,901,869
31,064
646,077
789,087

c
W e n t i n t o l i q u i d a t i o n A p r i l 28, 1908.
<* I s b e i n g w o u n d u p .

cent.
7
10

The

Canadian

Banking

System

181

(5) AVERAGE MONTHLY CIRCULATION OF DOMINION NOTES, BY DENOMINATIONS, i884-i9o8.«
Denominations.
Calendar year.
$5,000.

$500 a n d
$1,000.

50 and
$100.

$ 4 , $5, $ 1 0 ,
a n d $20.

$1 a n d $ 2 .

Fractionate.

Total
average.

1884.

$9, 507.000

$760,353

$518,409

$ 5 , 4 5 4 . 760

$183,030

$16,423 ,552

1885-

9,885,042

612,646

583,480

5.3io, 5 5 4

i77,n8

1 6 , 5 6 8 , 840

1886.

9, 739,375

557,123

525,471

5,472, 393

164,986

1 6 , 4 5 9 , 348

1887-

7,96i,4i7

503,446

497,106

5,976, 0 9 4

162,838

1 5 . 1 0 0 , 901

9,027,208

451.225

492,788

6, 0 9 4 ,3 1 6

167,282

1 6 , 2 3 2 , 819

8,450,542

412,275

471,617

6, 127,3 9 4

170,470

1 5 , 6 3 2 , 298

8,211,OOO

350,000

434,76o

6,33i, 6 0 0

174,000

1 5 , 5 0 1 , 360
1 6 , 3 7 4 . 459
17,407, 44i
1 8 , 9 6 6 , 006

1890 _

9,050,000

280,860

449,644

6,412, 825

181,130

9,895,000

299,988

473,290

6,55i, 283

187,880

1893-

11,280,125

250.820

451,061

6,788, OOO

196,000

1894-

13,297,166

227,070

403,334

6,615, 0 4 8

206,550

1895-

13,834,666

232,300

369,439

217,802

236,156

$2,28S, 000

12,135,875

219,600

348,827

6,743, 555
6,980, 012

1897-

4.891, 2 5 0

10,309,208

241.821

322,751

7,237, 520

1898,

6, 4 1 0 ,4 1 7

8,137,833

216,883

364,992

7,851, 532

248,122

1899-

7.474, 583

8,130,083

211,196

434,286

8,524, 327

267,175

1896.

227,390

1900 _

8,480, 0 0 0

7,854,500

218,921

395.573

9,315, 354

286,117

1901 _

8,862, 083

9,363,375

232,142

524,48o

9,757, 778

3I2,9H

1902 _

1 1 , 3 5 8 , 750

9,010,667

229,858

639,937

10,463, 359

338,842

1903-

1 8 , 0 0 4 , 167

7,649,000

189,121

558,987

1 1 , 4 0 9 , 251

352,934

1904-

23,460, 000

6,941,167

150,758

456,313

H . 9 9 5 , 396

362,203

1905-

28,300, 417

6,785,792

128,554

493,264

12, 6 3 0 , 271

376,359

1906-

3 0 , 0 1 9 , S83

392,779

13,997 323

407,38l

36,163, 667

6,919,583
6,763,625

122,883

1907-

116,921

334,589

15,188 627

450,

1908-

4 5 , 7 3 9 , 583

7,143.125

105,154

214,831

14,910 365

489,886

a T h e s t a t i s t i c s of t h i s t a b l e a r e a v e r a g e s c o m p u t e d f r o m t h e m o n t h l y r e t u r n s of e a c h y e a r .
31870

2 0 , 7 4 9 , 168
2 i , 3 9 7 , 762
2 2 , 1 9 6 , 704
2 3 , 2 3 8 , 706
23, 2 2 9 , 779
2 5 , 0 4 1 , 650
26,550,
465
29,052,
769
32,041,
413
38,163,
460
43,365,
83 7
48,714,
657
51,859,
532
59,017,
44c
68,602,
944

& Three m o n t h s only.

The

Canadian

Banking

System

182

(6) BUSINESS OF THE DOMINION GOVERNMENT SAVINGS BANKS, 1868-1908.
Fiscal year.

1868
1869
1870
1871
1872
1873
1874
1875
1876
1877
1878
1879
1880
1881

Interest on
total deposits.

Total cash
and interest.

Withdrawals
in year.

$292,994

$66,078

$359,072

$297,9oo

$1, 483,219

323.138

69,528

392,666

281,360

594,525

462,481

77,128

539,6o9

311,564

822,570

556,669

88,256

644,925

395,458

072,037

,186,125

I,142,346

154,234

'•> 536,809

1,732,873

958.170

1,085,289

100,836

2,442,917

93,892

3,207,689

154,491

362,180

2,564,996

4, 0 0 5 , 2 9 5

3,570,289

177,896

748,185

3,508,389

4, 2 4 5 . 0 9 1

3,222,672

178,572

951,244

3.343,170

4, 3 0 3 , 1 6 5

3,911,576

190,156

3,574,204

4, 8 3 0 , 6 9 3

5.366,358

232,816

4,687,338

5, 7 4 2 , 7 2 9

4,549. 2 9 0

242,665

4.431,991

6, 102,492

5,240,195

268,729

6,494,640

323,874

1882

7,090,434

411.949

1883
1884
1885
1886
1887
1888
1889
1890
1891
1892
1893
1894
1895
1896
1897
1898
1899

7,067,390

505,388

6,807,632

576,653

7,170,480

645.707

7,513,069

728,546

6,134,911

795,164

3,541,144

8i3,349

3,645.188

777,300

3,086,935

688,417

2.858,535

614,094

3.155,344

585,989

3,410,093

588,319

3,400,456

601,420

3,242,278

594,283

3,293.378

598,445

3.186,581

597,58o

2, 7 0 5 , 0 2 0

463,313

2,514,398

449,166

1900
1901
1902

2,784,581

452,400

2,881,477

462,809

2,971,583

473,334

1903
1904
1905
1906
1907 (9 months)
1908

3,051,868

475,244

2,879,793
2,817,267

Totals for 41 fiscal years

At credit of
depositors
June 30.

Cash deposits
in year.

101,732
599,174
791,955
508,924
6,818,514
7.502,383
7,572,778
7,384,285
7.816,187
8,241,615
6,930,075
354,493
422,488
775,352
472,629
74L333
998,412
001,876
836,561
891,823
784,161
168,333
963,564
236,981
344,286

4,504, 129

7. 107, 2 8 7

4,297,356

9. 6 2 8 , 4 4 5

4,835,828

12, 295,000

5,624,908

14, 242,870

5.655.171

15, 9 7 1 , 9 8 4

5.899,635

1 7 , 888,536

6, 1 1 5 , 7 0 8

20, 014,442

5,609,992

21, 334,525

5,006,992

20, 682,025

5,159,579

19. 9 4 4 . 9 3 5

4,698,476

19, 0 2 1 , 8 1 2

4,833,062

17. 6 6 1 , 3 7 8

4, 171,565

17, 231. 146

3.533,094

17. 6 9 6 , 4 6 4

3,920,196

17, 7 7 8 , 1 4 4

3,969.749

17. 6 4 4 , 9 5 6

3,670,391

17, 8 6 6 , 3 8 9

5,096,403

16, 5 5 4 , 1 4 7

4,092,309

15, 6 3 0 . 1 7 1

3,123,635

15, 470,100

3,064,825

15, 6 4 2 , 2 5 7

2,888,406

l6, 0 9 8 , 1 3 6

3,425,284

l6, 1 1 7 , 7 6 9

527,112

3,129,088

l6, 5 1 5 , 7 9 3

483,232

363,025

3,140,084

16, 7 3 8 , 7 3 4

489,322

306,589

3,396,198

l6, 6 4 9 , 1 2 6

444,917

2,744,818

473.281

218,099

3-693,101

1,981, 286

333.866

315,152

3,400,702

2,457.330

436,539

893.869

2,965, 582

145,119,466

17,380,026

162,499,492

149,193.037

l6, 1 7 4 , 1 2 4
a

i 5 . 088,574

° I 5 , 016,861

& 15,016,861

a March 31.
b This amount includes $1,422,047 at credit of depositors June 30, : 67, together with $38,418 at credit of New Brunswick account in 1871
and $249,941 at credit of Prince Edward Island account in 1871.

31870

The

Canadian

Banking

System

183

(7) BUSINESS OF THE POST-OFFICE SAVINGS BANKS, 1868-1908.

Fiscal year.

Savings
banks at
e n d of fiscal year.

Deposits
received
in year.

Transferred
from government
savings
banks to
post-office
savings
banks.

Interest on
deposits in
year.

Total cash
and interest.

Amount
withdrawn
in year.

A m o u n t at
credit of
open accounts at

end of year.

Open
accounts
a t end
of year.

-212,

$939

213

927,

21,095

$213, 446
948, 980

$8, 857
296, 754

$204, 589
856, 814

2, 102

1869-1870-.

226

347, 901

48,689

1,396, 59o

664, 556

1 , 5 8 8 , 849

12,178

1871--

230

917, 5 7 6

84,274

2,001, 850

1,093, 439

2 , 4 9 7 , 260

1872..

235

261, 631

116,175

L 7 7 8 , 565

3 . 0 9 6 , 500

17.153
21,059

1873--

239

306, 9 1 8

126,933

2,377, 806
2,433, 851

2,323, 299

3 . 2 0 7 , 052

23,526

1874--

266

340, 2 8 4

126,273

2,468, 643

268

942, 3 4 6

120,758

3 , 2 0 4 , 965
2, 9 2 6 , 090

24,968

1875--

2,466, 557
2,063, 104

i876__

279

726, 2 0 4

n o , 116

2,021, 458

287

521, 0 0 0

104,068

2 , 7 4 0 , 953
2 , 6 3 9 , 93 7

24,415

1877--

1,836, 320
1,625, 068

1878-,

295

724, 371

103,834

1.7i3, 659

297

110,913

297

973. 243
720, 2 1 6

1,828, 205
2,084, 156

136,075

2,856, 291

2,015, 813

304

175. 0 4 2

308

435. 9 8 9
826, 266

184,905
291,065

4,359, 947
6,727, 054

2, 097,389
3,46i, 619

407,305

7,233, 571
6,918, 926

4, 730,995
5.649, 611

7,638, 020
8,252, 302

5,793. 032

1868«_

1879--

33o
343
355

441, 43 9
098, 4 5 9

477,487

1885i886_

392

645, 227

1887-

415

272, 041

607,075
692,404

433

722, 3 3 0

463

634

1,085,980

765,639
841,922

599, 8 9 6

167,502

786,875

634

500, 3 7 2

389,169

734,431

642

056, 0 0 2
7o8, 888

494

18901891-

673

1893-

699
1895
1896
1897
1898
1899
1900
1901

731

493,889

755

876,049

,138, 947

449,982

779

944,525

,223, 000

1,856,474

1,024,512

786,868

814

,183, 693

838

,3lO, 630

847

,448, 485

895

, 0 9 1 ,099

989

1905

1, o n

1906
1907 (9 m o n t h s ) _
1908
T o t a l s for 41 fiscal y e a r s .

777,483
835,800

961

1904

734,591
218,174

934

1903

$217,385

524, 286
488, 028

915

1902

926,

539,56i

1,043
1, 084

,382, 035

141,172

1,049,699
1,126,952

415,508

, 0 6 0 ,825
,737. 940
, 5 0 4 , 430

982,726
1,001,900

1,188,925
1,254,048
1,309,567
1,320,512

1.733, 449

6,183, 47i

9 , 4 7 3 , 662
1 1 , 9 7 6 , 237
1 3 , 2 4 5 , 553

61,059

1 5 , 0 9 0 , 540
1 7 , 1 5 9 , 372

7,554, 273
7.623, 972

8,575, 042

2 1 , 9 9 0 , 653

7,875, 978

7,79o, 593
8,486, 37i

7, 230,839
6,631, 579

2 1 , 7 3 8 , 648
2 2 , 2 9 8 , 402

8,578, 260
8,857, 966

7,473, 585

25.257,

7,3io, 292
7,4o6, 066
7.656, 087
8,853. 178
9.021, 863

9,312, 530
11,639, 356
12,218, 051

8,903, 505
9.774, 695

12,986, 468
13,314, 873

10,617, 071
11.379. 757

13,047, 507
12,077, 716

11,883, 128

,803, 503

1,027,834

12,693, 257
11,047, 506

,293, 274

59,244

1,369,405

I3,72i, 923

8,309,883

25,691,545

12,129, 101
12,324, 529

25,535

51.463
66,682
73,322
80,870
90.159
101,693
113.123
112,321
i n , 230
n o , 805

2 4 . 1 5 3 . 194

114,275

868

117,020

2 6 , 8 0 5 , 542
2 8 , 9 3 2 , 930
3 2 , 3 8 0 , 829

120,628

3 4 . 4 8 o , 938
3 4 , 7 7 1 , 605
3 7 , 5 0 7 , 456
3 9 , 9 5 o , 813
4 2 , 3 2 0 , 210
4 4 , 2 5 5 , 327
4 5 , 4 1 9 , 706
4 5 , 3 6 8 , 321

126,442
135,737
142,289
142,141
150,987
157,368
162,761
167,023
168,572
165,518
164,542

9,330, 766

4 5 . 7 3 6 , 488
4 7 , 4 5 3 . 228

13,610 866

47,S64, 284

165,691

295,337,728 2 5 7 , 7 6 2 , i

o T h r e e m o n t h s only.

31,365
39.605

7.532, 146

N O T E . — T h e fiscal y e a r of t h e D o m i n i o n for 1 8 6 8 - 1 9 0 6 e n d e d J u n e 30, a n d s i n c e t h a t d a t e i t e n d s M a r c h 3 1 .

31870

3 , 9 4 5 , 669
6,208, 227

9,854, 536

9,533, 454
11,103, 986
io,953, 287

24,074
27,445

1 9 . 4 9 7 , 750
2 0 , 6 8 9 , 033
2 3 . o n , 423

7,514, 072

24.294

2 , 7 5 4 , 484
3 , 1 0 5 , 191

6,626, 068

1,328,206

261,326,300

1,726, 083

8,964, 445
8,705, 354

252,774
559,593
1,216,169

.805, 458

2,341, 979

7. 212

167,285

The

Canadian

Banking

System

184

(8) TOTAL BUSINESS OF POST-OFFICE AND DOMINION GOVERNMENT SAVINGS BANKS, 1868-1908.
Cash deposits
in year.

Interest on
t o t a l deposits.

1868

$505,501

$67, 0 1 7

$572,518

1869

1, 2 5 1 , 0 2 3

9 0 , 622

1,341,645

1870

1,810,382

125, 817

i,936, 199

1871

2 , 4 7 4 , 245

172,

53o

2,646, 775

217, 0 1 0

3,602,348

Fiscal year.

1872

Total cash a n d
interest.

1873

4, 7 4 9 . 8 3 5

220, 825

4, 970, 6 6 0

1874

5.797.914

280, 764

6,078,678

1875

654

5,811,289

688

5,237,565

294, 224

5, 726, 8 0 0

336, 651

7,427,380

353, 5 7 8

6,876, i n

404, 8 0 4

8,365, 215

1881

5.512,635
4,948,877
5,432,576
7,090,729
6.522,533
7,960,411
10,669,682

508, 779

11, 178, 461

1882

13,526,422

703, 0 1 4

14,229,436

1883

13.893.656

912, 693

14,806,349

1884

13.249.071
14,268,939
15,158,296
14,406,952
11,480,859
12,657,802

1,054, 140

14,303, 211

1,185, 267

15,454, 206

1876
1877

1878
1879
1880

1885
1886
1887
1888
1889

1891
1892
1893
1894
1895
1896
1897
1898
1899 1900
1901
1902
1903
1904
1905
1906
1907 (9 m o n t h s )
1908
Totals for 41 fiscal years.

o March 31.

31870

16,493,916

569
1,578, 988

15,894,521

1,6i9 : 222

14,277,024

292

11,329,625

1,487,

1.475

13.059,847

$306,757
578,114
976,119
1,488,897
2,920,911
4,056,172
5,033,639
5,850,368
5,364,628
5,300,287
6,400,997

A t c r e d i t of
depositors J u n e
30.

$ i , 687,808
2, 4 5 1 , 3 3 5
3, 4 n , 4 i 9
4, 5 6 9 , 2 9 7
5, 2 5 0 , 7 3 4
6, 1 6 5 , 2 2 2
7, 2 1 0 , 2 6 1
7, 1 7 1 . 1 8 1
7, 0 4 4 . 1 1 8
7, 4 7 0 , 6 3 1
497,013

6,165,441
6,519.942

207,683
052,956

6,394,745
8,297,446

836,672

10,355.903
11,304,782
11,692,666
12,299,179
12,236,060

26, 2 1 9 , 1 0 8

12,521,064
12,691,725

768,662

29, 2 1 7 . 5 3 7
32, 9 7 9 , 0 7 6
37, 1 7 3 , 8 1 4
40, 8 3 2 , 2 7 5
41, 3 7 1 . 0 5 8
42,

956,358

41 0 1 2 , 4 6 5

1,348, 525

11, 096, 6 0 1

10,211,345
11,118,981
11,142,916

1,320, 5 8 0

11, 5 3 L 9 2 5

1.365, 8 0 2

12, 4 8 4 , 783

1,437, 220

12, 580, 136

13.273,518
12.709.040
11,402,404
10,164,673
11,393.782

11,224,195
11,882,307
13,266,055

1,470, 3 3 2

12, 694, 527

11.280.041

1,542, 9 7 o

13,425, 277

I, 622, 0 9 2

14,888, 147

12,675,591
10,825,028
13.374,238

1,446, 0 3 9

1 4 , 121, 6 3 0

11,076,457
12,752,490
12,945,487

i,45i. 0 6 6

12,276,094

12,145.498

I,5°2 : 0 9 9

14,876,337

11,968,330

13,972,574
14,769,126
15,112,695

1,589, 761

15,562,335

12,663,IOO

1,662, 2 5 8

16,431,384

14,042,355

1, 729.293

16,841,988

14,508,845

I4,6i7,733
13.574,471
14,109,869
12,000,958
14,809,848

1,792, 799

16,410, 532

15,023,212

1,809, 8 3 4

15,384,305

15.525,298

i,8oi, 4 8 7

i5,9n,356

l6,017,631

1.361, 7 0 0

13,362,658

12,731,468

1,805, 9 4 4

16,615,792

16,576,448

911.182
541,802
062, 58l,145

458, 1 1 5 , 5 9 0

396,955,921

662,581,145

9,854,333
9, 7 4 8 , 0 7 6

1890

1.335. 6 2 0

Withdrawals
in year.

415,044,018

43.071,572 !

& T h i s i n c l u d e s t h e a m o u n t a t c r e d i t of d e p o s i t o r s J u n e 30,

39 400,026
39 529,548

4i 8 4 9 , 6 5 8

036,OI3
450,499
46 799.319
48, 9 3 4 . 9 7 6
5o. 1 1 1 . 1 1 9
5o, 2 4 1 , 7 1 5
53 1 4 9 . 7 2 2
56, 0 4 8 , 9 5 7
58 4 3 7 , 9 8 7
60 771,129
62 1 5 8 , 4 5 0
62 O I 7 . 4 5 7
43

«62:

APPENDIX D.
SPECIMEN

FORMS

USED BY BRANCHES IN REPORTS TO
HEAD-OFFICE.

31870—10

185

The

Canadian

Banking

System

QUARTERLY STATEMENT OF PROFITS.

.BRANCH.

ABSTRACT OF CHARGES ACCOUNT FROM DATE OF
Months at $

Salaries, viz:

Rent of Office .
Taxes

f Office
{ Officers

Insurance
Water
Fuel:—Wood
Coal
Light
Repairs
Office Furniture
Cleaning Office
Stationery
Subscriptions to Newspapers, Books, etc
Commercial Agency
Rent and Depreciation of Office Furniture
Rent of Telephone
Clearing House Expenses
Advertising
Postage
Telegraph Messages
Telephone
"
Travelling Expenses
Express and Freight Charges on Stationery, etc.
Street Car Tickets
Laundry
Sundries (to be detailed)
Total.
Less
"
"
"

Telegraph Messages Recovered .
Telephone
"
"
Postage Recovered
Rent of Offices, sublet
Received from .

Transferred to Profit and Loss Account.

187

TOper annum.

19—-

The

Canadian

Banking

System

188
II.

STATEMENT OF PROFIT AND LOSS FOR QUARTER ENDING.
AVERAGE BALANCE OF SAVINGS,
Showing Min. Monthly Balance.

ADJUSTMENT OF RESERVED INTEREST ACCOUNT.
Dr.

.BRANCH.
Cr.

Local Bills
Bills Remitted
Overdue Bills
Past Due Bills

TOTAL AMOUNT due to DEPOSITORS

TOTAL AMOUNT OF DEPOSITS not bearing interest..
AVERAGE BALANCE BRANCH CLEARINGS ACCOUNT.

Balance of Account
Reserved for Deposit Receipts as per Statement.
"
for Current Accounts
"

TOTAL LOANS

$
$
$
$

Debit.

P R O F I T A N D LOSS ACCOUNT.

Credit.

Balance

DISCOUNT AND INTEREST ACCOUNT.
Total Discount on Local Bills
"
"
" Bills Remitted
"
Interest on Demand Notes
"
"
" Produce Notes
"
"
" Overdrawn Current Accounts
"
'' Cr. on Overdue and Past Due Bills
"
"
" Cash Items and Items held in Cash .
"
Rebate on Bills Discounted

INTEREST ACCRUED ON CURRENT ACCOUNTS.
Balance

EXCHANGE AND COMMISSION ACCOUNT.
Total

Total Commission on Bills Remitted

Average

" Cash Items

Interest Accrued allowed
for Savings to date,
days @

" Collections..

Exchange on Drafts Sold

Amount paid for Collection of Bills..

Deduct Interest paid since ..
Balance..

Amount reserved

MANAGER'S REMARKS.

Balance of—
Discount and Interest Account
Exchange and Commission Account
Reserved Interest Account, Adjusted
Charges Account
TOTAL PROFITS FOR QUARTER

Average
Cr. Bal.

Accrued
Interest.

Average
Cr. Bal.
Forward.

Rate.

Accrued
Interest.

The

189

Canadian

Banking

System
IV.

in.

BALANCE OF DEPOSIT RECEIPTS.

INTEREST ON DEMAND NOTES WITH PAYMENTS.

SHOWING INTEREST ACCRUED TO DATE.
No. When issued.

NAME.

Amount.

No. of
days.

Rate.

Interest
interest.

W h e n d

]s"
counted.

No.

Amount.

Date of
payments.

Payments.

Balance.

Days.

Rate.

Date interest
charged.

Interest,

The

Canadian

Banking

System

190

v.
RETURN OF T H E L I A B I L I T I E S AND ASSETS OF
BRANCH
AS ON T H E

DAY OF

.19

LIABILITIES.
2.
3.
4.
5.

Due to Dominion Government
Due to Provincial Governments
Deposits by the Public, payable on demand, in Canada
Deposits by the Public, payable after notice or on a fixed day in Canada
Drafts issued account
Balance at Credit of Branch Clearings Account
8. Deposits made by, and Balances due to, other Banks in Canada
9. Balances due to Agencies of the Bank in the United Kingdom
10. Balances due to Agencies of the Bank elsewhere than in Canada and the United Kingdom.
Balance at Credit of Interest and Exchange Accounts
Cash per Specification:
Specie
Legals
Notes of this Bank
,
Notes of other Banks
Cheques of other Banks.
Items held in Cash

ASSETS.

Cash Items Account:
Parcels, Checks, and Bank Drafts
Sight and Demand Drafts
6.
7.
8.
12.
14.
18.
19.
20.
22.

Balance at Debit Branch Clearing Account
Deposits made with, and balances due from, other Banks in Canada.
Balances due from Agencies of the Bank in the United Kingdom
Balances due from Agencies of the Bank elsewhere than in Canada and the United Kingdom.
Call and Short Loans on Stocks and Bonds in Canada
Current Loans in Canada
Overdue Debts
Real Estate, other than Bank Premises
Mortgages on Real Estate sold by the Bank
Other Assets not included under the foregoing heads
Charges Account
Balance at Debit of Reserved Interest Account

We declare that the above return is made up from the books of this office, and that to the best of our knowledge
and belief, it is correct, and shows truly the financial position of the branch.

.Manager.
Accountant.

The

Canadian

Banking

System

VI.

FOREIGN EXCHANGE ACCOUNT.
Balance at Credit of Account
19
Total Exchange on U. S. Drafts sold
"
"
"Sterling" "
44
Commission on U. S. Cash Items
44
"
" " Collections
"
Exchange on Sterling
"
44
n
ii Biu s 0 f Exchange bought
"
"
" Continental Bills of Exchange
Total Debit Exchange on Billsof Exchange bought, and London Agent's charges (Rebates, Stamps,
Total paid for Collection Currency Bills, Discount on New York Funds, etc
Amount Reserved for London Agents' Charges:
For Rebates
£
44
Interest on Overdue Account
£
44
Commission on Demand Drafts, Cables, etc
£
41
<4
" Sixty Day Drafts
£
44
44
4<
Commercial Credits
...£
*4 Stamps
£
44
to cover London Balance Cr
£
@
£„
£
Less—
Premium London Balance Dr
£
@
Paris Exchange adjusted
l4
44
Berlin
4<
Naples
"
Balance

191

Full text of The Canadian Banking System

FRASER