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March 19,
Chairman Eooles

Canadian financing

L. M. Piser

1. At the end of I9I4I demand deposits of the ohartered Canadian banks
and currenoy in circulation outside of the Bank of Canada and the ohartered
banks totaled 1,61*0 million dollars, national income in the United States
is about fifteen times that in Canada. In terms of the sise of the United
States this would be equivalent to 2^.6 billion dollars. Actually the total
for the United States was lfi*5 billion dollars or roughly twice that of
Canada when both countries are put on a comparable basis.
2. the reserve ratio of Canadian banks at the wnd of I9UI was 11.2
per oent. the reserve ratio of United States banks was 18*2 per cent. For
reporting Sew York City banks it was 1*1 • 7 per cent.
3. Recently the Dominion Government offered 600 million dollars of a
12 year loan at a yield of 5*07 P«r oent and a 6 year loan at a yield of
2.25 per cent. These loans were sold in a campaign which lasted three weeks.
Subscriptions totaled 960 million dollars* which would be equivalent to
nearly 15 billion dollars for the United States. It is understood that
subscriptions were allotted in full*
I;, the increase in the Canadian debt from the beginning of the war
to the end of last year amounted to about two billion dollars. In the same
period the chartered banks increased their holdings of Dominion and Provincial securities by 3^9 million dollars or about 16 per oent of the
increase in the debt. In the United States the interest-bearing direct
and guaranteed debt increased by 16-7 billion dollars in the two years
ended December 31* 19^1» and eommeroial banks inereasod their holdings by
5*5 billion dollars or 33 P*r oent.
5. The support rendered to the market by the Bank of Canada is conditioned by the characteristics of the Canadian market, which is quite
different from the United States Government security market* Trading Is
small in volume and is generally conducted at spreads of l/k to l/2 point*
and each transaction may take several days. Dealers keep the Bank of Canada
informed as to offerings on their books. If the securities are pressing on
the market or are being offered at a price below that of the previous trans*
action, the Bank of Canada or Government accounts will purchase the
securities. From the beginning of the war to December 31, I9I4I, the Bank
of Canada's holdings of securities increased by 1^5 million dollars, moot
of which was to offset a large increase in notes In circulation and the
remainder to offset a decline in holdings of gold and foreign exchange and
to add to the deposits of chartered banks, the average yield on intermediate and long Canadian securities has declined slowly from 3.16 per
oent in January 19U1 to 3.07 per oent In January 1 ^ 2
Host of the information in this memorandum was obtained from Mr.
Kindleberger, Mr. Robinson, and Mr. Longstreet.