^ ■^% ^^^ ^ '^^' nO, ^ V] ^"^ ^;; ■> ■) y /A IMAGE EVALUATION TEST TARGET (MT-3) 1.0 I.I 11.25 Uitm, |2:> |50 '■^" IIIII^H 1^ 1^ 12.2 .If 110 2.0 U IIIIII.6 fe A 'li'coforN in f^oiidoii : c;iiair.>ianj M. to the Faniilie^i and UepreMentatives of Policy Holders $:i,000,000. IT HAN 1>ITI1>GI> PROFITS to Assnrerst anionntinff to ){{(l,350,OOO. IVinety per cent, of the protit.s of tho Society aiv divided amongst the assured every live years. One IInnollars in Cash is deposited with the Dominion (iovernment for the Security of Poliey Ifolders in Canada, The " fSTAR " continues to meet the convenience and advantage of Assurers in every way consistent witli prudence and sound management,, having regard essentially to tlie fittlrk welfare and security of Assurers. Every information furnished on appHcation to Local Agents, or to J. GREGORY, General Agent for B.N.A^ Canada Branch Office, 78, King Street East, Toronto, {Over Wesley an Book Room.) ^'V THE ^y ^mUhn Sanltinjg ^pt«m; r-^.r. *$ EXPOSITION AND A DEFENCE. «»» WITH REASONS AGAINST THE ADOPTION OF THE UNITED STATES NATIONAL BANKING SYSTEM, AND THE WITH- DRAWAL FROM THE CHARTERED BANKS OF THEIR PRESENT INDEPENDENT NOTE CIRCULATION. - i . -—* By the Editor of the " Canadian Journal of Commerce." TOEONTO ■ %->* 1869. B. T. BEOMFIELD & CO. -s nn*-! THE tenaiiaH Jouriial of ii^miner^e, AND > Trade Advertiser for the Dominion, ; Is now recognized everywhere as the ablest and most Independent Exponent of Commercial and Banking Affairs in Canada. It affords a regular and business-like means of intorcommunicatiou between the Wholesale and Retail TRADES OF ALL BRA]S CUES. Its pages are freely open to correspondence on all topics connected with the Advancement of the Country. OR POLITICAL BIAS. .YAt ' Amongst its prominent features arc ample Trade Reports, a Financial and Meroantilc Review of tlie Week, Prices Current, MtatsHtlcal lui'or- mation. Reports of Public Companies, Correspondence, '"^f • And Original Articles, on iN:,.,;,. Commerce, Banking, Mercantile JAWf and Political Bcononiy, Insurance, JNLinlng, , And other topics of interest. PUBLISHED BY ^ EDWARD T. BROMFIELD & CO., 48 King Street East, Toronto. PRICE, #S PER. AIVJVXJM: I3V ADVAIVOE. Post-free to Country Merchants for $1.50 Per Annum. e^¥7 THE CANADIAN BANKING SYSTEM. ■'■;„v':'i> ^> The author of the following pages has approached this subject from a practical and mercantile point of view. . The science of banking is, in many of it.s aspects, abstruse and difficult, and there will always be differ- ences of opinion among political economists, to say nothing of theorists who know little of political economy except the name, as to the relation between paper and hard money, and the propriety or otherwise of a governmenl issue. The author would suggest that the particular cir- cumstances bearing upon each case, where it is proposed to change one form of circulation for another, are really the chief points to be deter- mined, and that what may be a very proper step to take at one time and in one country, may be u very foolish stop to take at another time or in another country. TIad the author been writing about the United States cuirency three or four years ago, he would probably have been among the advocates of a legal tender issue and of the national banking system ; and why ? The government of the country was fighting for very existence, and could only meet the fearful emergency by pledging the resources of the nation for many future years. But to attempt a comparison between this state of things and what obtains in Canada at the present moment is absurd. We have no need to increase our debt. Our government is not embarriissed. There is no overwhelming and pressing necessity upon us which makes it essential that the floating capital of the country be placed in its hands. Far better. employ it in trade and manufactures through the legitimate operations of commerce. And further, the country cannot afford any drain upon its mercantile resources. The community is young. Vast merctmtile fortunes have not been amassed. A largo proportion of our merchacts — and these the men whose enterprises are greatly beaefittAng us — are men of compara- tively smal) means ; and any measure which will deprive them of their banking facilities by diminishing the volume of money on loan at cur- rent rates, will inflict an untold injury upon them, and through them upon the country. These two points then, the author invites his reader to keep prominently before him. There is no absolute and pressing neces- sity compelling us to make a radical change, whether we desire it or not : — It is, moreover certain, that a change, such as has been indicated as desirable in certain quarters would inflict very great injuries upon the country. These propositions will, the author hopes, be further elucidated in the course of the succeeding observations. 4 t It may bo useful to stato the main features of the preteiit hanking system of Canada. There arc incorporated banks and dealers in unourrent money doing business in the country. Of the latter it is unnecessary to speak, but of the former it may bo observed that no bank can issue more notes than to the amount of its paid up capital, specie, and government securities. In speaking of specie in this connection, Provincial Notes must be in- cluded, being legal tenders. ^ The paid up capital (average 1868) of the various chartered banks of Ontario and Quebec (the returns from the other provinces are not completn) amounts to $27,223,262. The specie, provincial notes tmd government securities average f 14,875,099. This gives a total of al)out $42,098,271, or, deducting the capital, specie and government securities of the Bank of Montreal, which abandoned its circulation two years ago, and which therefore Ought not to be taken into account in the present connection, say, $29,145,626, as the outside bank circulation permissible. The independent bank circulation varied in 1868 from $7,030,800 in July to $10,589,589 in October. We therefore have the following result, taking all the chartered bonks of the two provinces except the Bank of MoL^real : — '^' ' Permissible Circulation. Outside Circulation. $29,145,626. $10,589,589. The proportion will be a little nearer if we take into consideration the diminution of specie in the banks during the month when the cir- culation was jmost expanded, but taking the average specie as well as the average circulation, and the nearest approach to exactness we can obtain, we have, as nearly as we can compute, the following result : — Permissible Circulation 1868. Circulation 1868. Paid up Capital, less Bank of Montreal $21,223,262 Highest $10,589,589 Average Specie, Provin- cial Notes and Gov- ernment Securities, less Bank of Montreal, say 7,922,454 Lowest 7,030,800'" Total $29,145,716 Average $ 8,525,152 Here we have a total average circulation of between one-third and one-fourth (say four-thirteenths), the circulation allowed by law. The following table gives the figures as nearly as possible for each bank, for May 1868. Paid up Capiuil, Hpocie and Oovcrnment Hccuritiu8. Bank of n. N. A, .. Quebec Bank City Bank Gore Bank Banque dii Peiiplo . Niagara DlHtrict... Molsons Toronto Ontario E, TownsliipH B. Nationale Jacque8-{!artier. . . , Menliants Koyal Canadian . . . Union Bank Bank of Commerce • •• ••••■• $0,517,172 1.903,854 lfi(,iifil5 1,109,909 1,907,409 407,593 1,342,375 1,414,044 2,82G,242 509,500 1,312,521 1,159,089 3,880,802 1,700,487 1,133,032 1,729,845 Total $^0,549,615 Circulation. 922,003 $ 472,325 280,161 290,634 69,371 119,446 90,452 760,118 1,078,462 104,795 112,760 83,115 593,623 1,133,586 81,8!)9 693,389 f6,898,139 The above table shows the proportion of circulation to capital and specie for one month only. The proportion varies in different months, according as the demand for money is more or less active. In October of the same year the circulation of bank notes rose to nearly 10^ millions, and it is sometimes higher still. The peculiar feature of the system is that it provides for u large expansion of the currency to meet the require- ments of business. At the same time, as the banks are directly liable for the repayment on demand of every note they issue, they have every motive to guard against an over expansion. After each season of ex- pansion there invariably follows a season of contraction, in which the notes come back again for payment, so that a bank cannot always cal- culate upon having the same volume of notes afloat. This necessitates watchi'ulness and care, because the bank's name and fame would be lost were it to be unprepared to redeem its notes in gold, when the time of contraction comes round. This necessity for watchfulness is a bettf- security to a bank and to the public, than any artificial support whi might be derived from a government connection, and is one of th> strongest arguments for the maintenance of the present system. The proverb " Take care of the pence, and the pounds will take care of themselves," really applies to this view of our subject. By the habit of constantly feeling the pulse of the community through the influx and reflux of the circulation, a bank can foresee and anticipate changes, and is better able to take care of its depositors. The only other feature of Canadian banking which it is necessary to notice here, is the principle of double liability as applied to shareholders. A shareholder is liable to the public for twice the amount of his sub- scribed shares. This is a very important feature, inasmuch as the majority of shareholders would be able to bear the double liability in case of its being jaforced, whereas an unlimited liability would defeat itself. ^ G Thow. who, liko tho author, think that the syHtom of haiikin}^ now prcvuUirit in this country, is, upon th« whole, better luluptcd to itH cir- cuniHtances than any other, are nioHtly quite willing to admit that it is Huseeptible of amendment, but not in respeet of either ofitM leading fcaturos just mentioned. There In abundant nxtm for vvine legislation OD questions of detail; tho qualifications of directors, the propriety or otherwise of government inspection, the nature of the official returns, the amount of specie to bo held, the question of making notes a first charge upon assets in the event of failure. But to give up the principle of an independent note circulation, of direct responsibility to the public, would be to submit to a grave public injury. The banks themselves might not suffer, for they would probably obtain a higher rate of interest for their loans, but tlu! public would suffer, as we shall herewith proceed to uuike plain. Meanwhile does it never occur to tho advocates of a change that upon them li> s the responsibility of shewing the necessity for it and the good to arise out of it ? It is said, as offer- ing in some sort an apology for this interference, that several (Janadian banks have failed under this system, but there cannot be a shadow of doubt that these banks would have failed under any other system. But the essential point for consideration is, what have the public lost by these failures ? In one case, that of the Commercial Bank of Canada, the notes have all been paid in full ; while any loss that may have been sustained through the Bank of Upper Canada, can clearly bo traced to its connection with government, which involved it in such a mass of corruption and jobbery, as ought to be a warning to the public against all government interference in banking. - ■ > II. It is sometimes alleged that under the present system the noteholder is not siifficientli/ secured, A bank, it is said, ma^ at the time of its failure owe some hundreds of thousands of dollars to the general public upon its notes. These notes are in the mcanllme passing from hand to hand as money, and it is very important, says our theorist, to give to the general currency of the country the stability of a government guarantee. Give us, saj's the advocate of a change, a secure currency — one placed beyond the reach of bank failures or commercial panics. We admit that there is some force in this demand, but we contend that, except for peculiar reasons, such as obtained in the United States during the late war, it is unwise for the general interests of a country to have a government issue. We shall explain this further in another section, but in the meantime let us look into this charge of insecurity as alleged against the note circulation of Canada. We argue that as the syatefiii now stands the noteholder is practically well secured, and that for the purposes of a currency lie is really better secured than he would be by a government issue. Governments may fail to keep their promises to pay as well as banks, and it is very easy for a government, when it fliijs thoH*, pror.iiscs to [iiiy ratiicv prcHsinR, to irhuc nn order in Council to relieve itself of the oblij^atioii, mid to redeem thi"n by insuinf; other pronuHOH to pn^,. When thin is the ea.sc the ji^per depreciates in value, and every noteholder suflFerH. But under our preHcnt Hyfltcm the eimplc anie!idnu'iit of the cliarters ho m to make bank notcH a first and speedy charge upon the assets, combined with one or two other guarantees for the public safety, would cause every vestige of insecurity to disappear, while all the advantages of an independent circulation would remain. Jitt us illustrate this point. The average note circulation of the Dominion, irrespective of Pro* vincial Notes, may betaken for the sake of argument at S1(>,(I0(>,000* The bank capital (subscribed) is nearly 840, 000, 000 ; but supposing it were all paid u]>, there is the double liability principle under which the shareholders of the various banks, including a large proportion of the wealth owners of the country, are directly and personally liable for $40,000,000 more. Supposo now that it were enacted, that tliis double liability should be charged first and foremost with the note circulation — that not a farthing should be appropriated to the payment of the other debts of a bank until provision was m?de for the redemption of every note extant. Surely this would place the notes on a secure basis ! Then, there are the go^ rnment securities, the specie, and other assets of a real and tangible description. These might be impounded for the redemption of notes, and in the majority of cases they would, of themselves, go a groat way towards paying off the potes. Then there are the notes discounted by the banks — their bills receivable, of which a large portion is always running. These also might be set aside and not touched for general purposes until the notes were redeemed or provision were made for their redemption. During 1868 the government securi- ties alone held by the different banks, ranged from $3,000,000 to $4,- 000,000, irrespective of the Bank of Montreal. The discounts ranged from $45,000,000 to $50,000,000, mostly on paper representing com- modities and at comparatively short dates. The total liabilities of the banks during 1868, including their liabilities in respect of circulation, ranged from $40,000,000, to $50,000,000, whereas their assets ranged from $70,000,000, to $80,000,000. And behind these assets comes the double liability, $40,000,000 more ! Surely if this proportion between circulation, capital, and assets, is anything like preserv<'s, and, to bo consistent, should regard all lock-up investments witlr jealousy. To compel the banks to lock up their funds in stocks which they arc forbidden to sell, is Himply to divert so much money from commerce to the Treasury. 4. Every bank note issued upon the security of government stock, represents a portion of the public debt for which the public has to pay interest. The public, therefore, first lends the government the money and then has to provide the interest upon it. It is obviously then the interest of the public to keep the principal as low .'vs possible. Further, that portion of the country which takus the largest share of these notes would bear the heaviest share of the national burden. VI. What then are the practical deductions which should be drawn by the reader from the foregoing arguments ? 1. TiiK Proposed Change to a National Banking System IS, IN THE PRESENT CIRCUMSTANCES OP C AN ADA, UNDESIRABLE, AND ITS ADOPTION WOULD INFLICT DISASTER UPON THE MATERIAL INTERESTS OF THE COUNTRY. It would be a step in a wrong direction, and while opening the path to riches to a few, would seriously imperil the interests of commerc j as a whole, and would bring absolute ruin upon many individuf.ls. Change in itself may or may not be desirable, but it certainly rests with the advocates of change to prove its necessity. In this instance they have not done so. Tlieir sole plea, as far as we can learn, rests upon the fancied insecurity of the note- holder — a plea which has no real foundation. Let not any one fancy that the general security of our banking system will be promoted by introducing a government connection of any kind. History abounds with examples in which a government connection has been the ruin of noble institutions. " The National Banks," says Mr. Hulburd, in the report from which we have quoted, '• are not exempt from the disasters which are common to all banking institutions and business corporations." This great experiment may have been — doubtless was — expedient and proper in the then condition of the United States. But the proposition is altogether unsuited to our present circumstances. Nothing could justify our government in drawing off so much capital from our commerce, and locking it up in government stock. This course might suit the ambition of bold financiers, whose proper sphere is, one would suppose, New York or London, where there are millions of money lying nearly idle, but it it is altogether out of place in a com- munity like that of Canada. If the government could devise a plan of attracting capital to us in agriculture or manufactures without com- mitting itself too deeply to a protectionist policy, it would earn a good 16 name and fanu!, biit to drain our working reeourccs to the extent coii- tcuiplatod in the proposed adoption of " a wy ^tcni ai.iihigous to tliat of the National IJankH of the United States," w a ste]) which nothing can justify. 2. The Mercantile Community should study this hvb- jbct and losk no time in imphessinc their view's ui'on the Government. The danger to them i:\ imminent. The banks ean hardly bo expected to agitato this question beyond phicing tlieir views on record, which they will no doubt do when parliament meets. It is for the mercantile community, through the various Boards of Trade, oi* through special organizations, to bring the pressure of public opinion to bear upon the legislature. The country us n whole is deeply interested in the question. The science of banking, it is true, is not an attractive one to the general reader, but in its main features it is not so difficult to understand "" us some people imagine. And meanwhile there is no slight danger, lest government should construe the seeming ap.ithy of the community into a consent. The daily press of the country, wielding as it does a vast popular influence, lias a grave responsibility in this matter. They owe it to their country to examine this question thoroughly for themselves, and to utter their convictions boldly. Wo are in danger of drifting into an era of centralization and governmental extravagance, without enquiry or concern. A calamity threatens our commerce and our manu- facturing, agricultural and lumbering interests, which is none the less real and terrible, because it approaches us in the guise of friendliness. The plea of " additional security to the noteholder " is sufficient to lull the apprehensions of the community until the crisis is past and men awake ivs from a dream, but are powerless to shake oflp the enemy. It is with the view of awakening popular interest in the question that this essay has been penned, and, whatever be the result, the author will feel that he has performed a duty to his fellow citizens and to the country. ftf 1869. SPRING IMPORTATIONS. 1869. ■ ■• ■ . , JOPIN CHARLESWORTH & CO., 44 Yonge-St. and 3 Wellington-St, HAVE pleiiHuro in informing the Tradti that thoy have completed tholr extenHivc alterations and improvumentH, l>y a New Front on Wolling- ton Ht., and aro now in mTi|)t of th.-ir Hl'RlNU IMPORTATIONS, with a complrto asHortment in every Department. Their MILJ.INKltY and STIIAW UOODH aro unuHually choice, compriBing ALL TKii] NOVELTIES OF THE SEASON. They would call CHpecial attention to their Flowers, FeatlierH, iUbbons Parasols, Mantles, ShawlH, DroHH Goods, Mantle (JlotliH, Trimmings, Hosiu ry Gloves and Fancy TrowserinKH. The STAPLE GOODS having; been purchased under most favorable cir- cumstances, will be found extra good value. Their Stocks will l)e kept well assorted, by constant arrivals of Now Goods throughout the Season. For a full enumeration of Goods, they beg to refer to the annexed list of Departments, soliciting an inspection :— Straw Goods, Millinory Bonnets, Widows' Caps, Bonnet Shapes, Bonnet Fronts^ Hair Nets, Ribbons, ^lowers. Feathers, Lace Goods, Sewed Muslins, Parasols, Silks and Satins, Terry Velvets, Hosiery, Gloves, Haberdashery, Fancy Trimmiiigs, Dress Buttons, Umbrellas, Ladies' Belts, Bonnet Ornaments, Braces, Stays, Scarfs and Ties, Paper Collars, Enamelled Collars, Linen Collars, White & Printed Shirts, Flannel Shirts, Velvet Ribbons, Table Covers, Linen Handkerchiefii, Boys' Belts, Prints, Fancy Dresses, Alpacas, Cobourgs, Circassians, French Delaines, French Merinos, Scotch Tweeds, Fancy Doeskins, Black Cloths, Silk-Mixed Coatings, Russel Cords, Gambroons, Alpaca Coatings, Mantle Cloths, Mantle Alpacas, Mantles, Shawls, Irish Linens, Ginghams, White Shirtings, Grey Cottons, Sheetings, Forfars, Rough Hollands, Dressed Hollands, Towellings, Table Cloths, Hessians, Baggings, Ticks, Regattas, Denims, Drillings, Rolled Linings, Silesias, Fancy Flannels, Linen Drills, Plain Muslins, Crapes, Oil Baises, Hemp Carpets, Window Hollands, Hoop Skirts, Men's Felt Hats, Albums, Smallwares, &o., Ao. Good Indaoements to Cash and Short Date Buyers. JOHN CHARLESWORTH & CO., Entrance 44 Yonge Street, Toronto. lO, EARLY SPRINGJPORTATIONS. r£UK uiKlerHiK'neil bcjr to cnll tlio attention of the Trade to their SPRING IiMl'OilTATTOXS OP BBY G-OOBS^ Which will be arrivinj,. by Weekly Stean.ers durinji this and next month, and will be fully aHHorted and 01^Tr;:Nr FOR I NST^KCTIOISr BY THE FIRST OF MARCH. V^ To Close, CAsii,'or Prompt I'avino buyers wo can ofler VALUABLE INDUCEMENTS. BUCIIAI^AISr & CO. Hnmilton, Ont., Feb., 18C9. J. WINER