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Lorsque ie document est trop grand pour ttre reproduit en un soul cliehO, il est film* i partir da I'angle supdrieur gauche, do gauche t droite. et do haut en bes. en prenent le nombre d'Imegea ndeesseire. Les diagrammes suivents illustrent la mothode. 1 2 3 1 2 3 4 5 6 ••CtOCOW nSOUITION TBT QUIT (ANSI and ISO TEST CHAiT No. 2) H^ I.I ■ 2J la ■ 72 11.8 1^1^ A ^PLIED IN/HGE Ir ''t^3 Coil uain Strwl ' Banking and Commerce A PRACTICAL TREATISE FOR BANKERS AND MEN OF BUSINESS. TOGETHER WITH THE AITHOR'S EXPERIENCES OF BANKING LIFE IN ENGLAND AND CANADA DLR- ING FIFTY YEARS By GEORGE HAGUE Formerly General Manager of The Merchant! Bank ol Canada Experientia ilo(H NEW YORK THE BANKERS PUBLISHING COMPANY ■ ••> Ha C.2. CopyriBhl, l«H INTRODUCTION. 'yilF, following work i> llic ri(l.cllnn of n banking „„,! , ,„,.„|,1 ^ nlions ifnin.d in tht ...|..rv,.,„„ of ,1,. N,.„ York l„,.i„.„ „f ,„„. „f ,1„ l^,^*^., ("„„d „n Bank. f»tnl,ll,l,t.d in that c'r Cllharl. or tl,o ,ci,nlilir trrali..- of a political .cononmt lik,- .MoI..„d, l„.t cov,t, al.o tl,,- firld of .oounrrcinl and nmnu- fjcturin,! oiiorntion, a, w,ll, and dl,c,„«,-, tl„- .mw» of ,„cc.«s or fail- ITf, in tacli of tllcm. Tl„- niillior ha. lakrn particular pain, to open up tl,c rclr.tion of Bnnkinj, t„ mimrcc, as a handmaid and tributarv to it. and thi> ., d,.t,n^„„h.,„ iron, other mode, of en.ployinR and inv. ..in, umnev and ha, endeavored to ,how the danger of confounding the fonction, of , S'," , ■ "J. ", '"""■""""• "■■ " '•"»" <'>n>P»".v, wl,o,e ,phere I. found in the lending of money on mortgage, or 11,' .uulertaking It iLZ tor long periods to government, or corporation, '• ""''""H "Ko oh,, rved that a large part of the art of hanking con- ..,ted ,n knowing the diHerence between a bill of exchange and a morl- Simple a, this may sound, it open, up a whole world of intere,ting h.. baffl""^ .1" TZ ";""•""'•'?• "■""" of it. in it, ,.r«-t,. al application h., baffled the ability of many a man otherwi,e emin.n, 1„ the ..here of finaijce And the failure to carry out thi, di.linetio .„ „r» ha. .molved many an institution of the.,e time, in finane, ,1 over.- , 41 thi, .„ II be con.idered in the course of the work no. sul.milt, and'., the author ha, largely drawn from hi, own experience a„,l le-v^Ho" he Ih.nk, ,t may be well to ,ay a few word, about them Commencng hi, hanking career in one of the joint-,t,„ I,. „r the ,,orth of England, having it, centre in a large manufaet w,th branches i„ the agricultural di,trict around, the author be, «, ,ar with reprcentalive, of nearly every class of the oroduc.g ,.. „„, of Lngland. " *^ - Thi, hank, in which be served for nearly eleven years, was founo > bv men of rcnarknble intelligence and ability, who had studied the pro, '-, m wh,cl, bankin,. should be conducted, and carried them into eir„ « judiciously, that the bank has had an uninterrupted career of pr..ne, «nce I , foundation, and is still well known as one of the be,t-m . ,.,- banks jn Knfflnnd. ^ In course of time, «nd after «>me years' experience in a large husine,. ISTRODIXTIOX. offirv. he rntcrril Ihr irrvlcr of onr of the rhnrtrrrd bnnki of Canad/i, •nd thirt, tominlon, all which prf)tart'd him fur the larger iphrrr to which, in the providence nf God, he waa aftrrwardi called, via., to the general innnagrrihip of one of the larger hank* of Canada whnif bi*»incii cxtrndi over nearly every diitrict of the country, from the Atlnn:tc to the PaciUc. Theta larger banks all have ofRc-s in New York, and, in connection with the New York Agency, the author became familiar with the various dasiet of busineii carried on by foreign hanks In that city. Note Circulation. >Vhile engaged In the first of these spheres of work In Canada, the ODvernnient of the day, under the guidance of its Finance Minister, cn- dcHvored to change the basis of the note circulation. The chi?- ' ' pro- posed was in furtherance of a certain theory of note Isiuei, whlc ite hod adopted. The plan proposed would have met the pressing necessities of the Government at the time, but it would scriouslv have crippled the power of the banks to carry on the businms of the agricultural districts of the country. As it was in one of these that the busincis of the bank he was then connected with was mainly done, he made strenuous efforts, along with others similarly situated, to induce the Government to modify Its scheme, in so far as to permit the banks, under regulations, to continue to circulate their own notes. These measures compelled a cloiif study of the whole question of note circulation, and the author was drawn into taking a prominent part in the discussions that arose respecting it. Hll opinions gradually took the shape of doubt as to the desirability of any Government Issuing notes for circulation; all such notes, In every coun- try of the world where they were issued, even in the United States, be- ing at that time at a heavy discount. The Canadian Government, how- erer, wm too strong to permit of Its hands being tied In the motter, and a system of Government issues was established, under very strict regula- tions as to redemption, which has continued to work side by side with the banking Issi">b of the country ever since. After some years, an attempt was made by the Government to assimUate the circulation of Canada to that of the United States. The bankers doing business in the agricultural districts saw, however, that such a system would bt inimical to their interests and those of their cus- tomers, and in fact to the interests of the country generally. They there- fore united in at, Informal association, of which the author became secre- tary, to oppose the measure. The discussions that arose, and which were IskcTi np by Boards of Trade throughout the country, were continued through several sessions cf Parliament, but ultimately, under the auspices of another Finance Minister, a compromise was effected, and a measure INTBODU HON. , BAxmimcT. „„L«i°"ir.iV"'''; ■'''*"'" ""• ""■ ' ""'• " •"!'i»«'' '" '■«■ -. «n «.,l^ ,i,h ,M, ccdito™, i. . „.„„ of ,iul lmport.n« u, b.nk«. n..„„ch « . ..r„ p.rt of ,l„„ ...... con.1.,. of Z p„„„., .Wi«.' m»y «„d h.m«lv„ „„,bl, to dl«.h.,g, ,ho« obllg.tlon.. At on. -Hod r,«L".„°d'.'o'TV7:' '". '■"""''"■ "■' B""''"'P".v L" — -f .uoh r„ t™™„\ •" ,"'"""'•'"'-'• "' '" f»™ • Po-illv. irmpftlon to tr.d.« In trmporarr rmbArraiinipnt. Ih™ th! i; J" "; °"' '"■"'""''' '''■™" '""""'•'J' *"• "« to f»r Wrond th. ..„,„. It I. ..In to expect th.t .t .„y timo. ov„ the mo.l pro.p,rou., tr.diDg c.r. be conducted without inwlvenci-l .t .11 on. of ln«.lvc,,ele. refl«* very f.i.ly the condition, of tr.de .t .n, p" llc,,l.r p.r,«,. ,,.1 the period .pok.n of l„„lve„cle. ,e,e „ numcL .. to l«„me . con-t,.,! s„„ce of .n.iety to .11 the bank, of the country .nd the evil w.. being con.l.„t!y .ggr.v.ted by the development of . ^"1 , '"'° y™"^'' ""•"• "'"' ""^ » *Mr bnilne.. to .»i,t InwlvenU to obt,ln .eltlemenl. under the Act, .nd n,.ny of whon. becme. .Imort In .pite of t hcmKlve., pKimole,. of ln.olvency. The B.nkruplcy Act of C.n.d., .1 lh.t ttae. w„ l«,ked upon by l.t b.„ker. .. ,«lly c.l- ^^^ iIYkT" '""'""'■ '""•" "»" """"wl". In th.« circuB- r oo^ ,m, .' '",? '" i"' '"*' '"""• "'"' ""■' """' '» '"■""""• » q-'te willing to allow the .ct to expire, by efflux of time, .nd r.ther u Jure the evil, of having no bankruptcy l.w .t .11, th.n f.« the poi- ri INTRODUCTION. aibilitjr of a recurrence of the evils that had so sorely troubled them for years back. But after a time a new crop of evils sprung up, and grew to such a height and extent that wholesale traders and bankers became urgent in their demands for the passing of a new law. Men failed and gave pref- erences to relations and favored creditors to such an amount as to work (lagr%nt injustice to the rest of their creditors, and the law afforded no redress. Men went on trading after they were insolvent and frittered away their whole estate, while their creditors were powerless to stop them. They rould thus go on buying goods while there was no prospect of pay- ing for them, and in other ways ecunmitting grievous trade wrongs, of which the ordinary law took no cognizance. The Bankers' Association, under these circumstances, had full dis- cussions of the whole matter, and considered what the provisions of an equitable law of bankruptcy should be. There was little difference of opinion upon the subject, and they Trrived at conclusions which were in due time communicated to the Govtriiment of the day. The ideas em- bodied in these conclusions will be found largely reflected in the chapter on Bankruptcy. It will be observed that this work has been chiefly written from a Canadian standpoint. This was inevitable, seeing that the author drew so largrly frnm his own experience and observation, as any author must do whose work is of a practical character. Thus Mr. Gilbart's able work is written from the standpoint of London, and reflects largely B London banker's ideas on the subject. That excellent little treatise called "The Country Banker" gives the views of a banker from the country districts of England. The author, however, though writing in Canada and from that standpoint, has endeavored to avoid a narrow and partial view of both banking and commerce, and has founded his remarks on the broad principles which are common to both of them everywhere. He therefore confidently hopes that the work may be found a useful hand- book to bankers and merchants in every part of the country to which it mav And its way. After a life of business activity protracted beyond the usual course of human affairs, he now, in retirement, is able to look back quietly upon the activities and conflicts of former years, and can sympathize with a new generation who are fighting their way, with varied success, through the same conditions and circumstances. He has written this work largely for their guidance; and not for theirs only, but for the guidance of their customers; for he has stood on both sides of the counter in his lime. He has felt more than once at the end of a bank year, but especially when a General Manager, as if he had just concluded a voyage round the world, and was thankful to have brought his vessel once more safe into port. INTEODUCTION. ,i, In theM voyage, (to purine the .imile) he had the opportmilT of notbc the ihosli .nd quickaandi thnt Uy in the way, and of noting alao the indieatlont of the weather, ** CHAPTER XX. THE DISCOUNTING OF TRADE BILLS -*' CHAPTER XXI. FOREIGN BILLS "' CHAPTER XXll. OVERDRAFTS IN CANADA AND CASH CREDITS IN SCOTLAND ITl CHAPTER XXlll. BANK RESERVES "' CHAPTER XXIV. BANK INVESTMENTS AS RESERVES •" CHAPTER XXV. SECURITY \ND SECURITIES IN GENERAL >" CHAPTER XXVI. SECURITY AND SECURITIES IN GENERAL (Continued) «» CHAPTER XXVll. BANKING AND COMMERCIAL LOSSES '" CHAPTER XXVlll. BANKING AND COMMERCIAL LOSSES (Continued) Ml CHAPTER XXIX. LOSSES IN CONNECTION WITH THE IMPORTING TRADE AND OTHER LINES OF BUSINESS "* CONTEXTS. xi CHAVTKR XXX. Page IRAUDS, FOBGERIES AND DErALCATIOXS g» CHAPTER XXXt, A BANKRUPTCY LAW Ml CHAPTER XXXII. INSlIRAXrE IX ITS REI.ATIOX TO BAXKIXG set CHAPTER XXXIII. THE NATIOXAI. BANKS OF THE tXITED STATES AND AMERI- CAX nANKIXG 869 CHAPTER AAAVr. VARIOlfi THEORIES OK NOTE CIRCILATION 279 CHAPTER XXXr. BANKING ACT OF CANADA 29(1 CHAPTER XXXri. IINAXCIAI. PANICS AND BEVII.SIOXS IX ENGLAND AND THE UNITED STATES 301 THE AUTHOR'S EXPERIENCES IN FIFTY YEARS OF BANKING LIFE IN ENGLAND AND CANADA,. CHAPTER I. EXPERIENCES OF BANKING LIFE IN ENGLAND 31S CHAPTER II. MY EXPERIENCES OF BANKING IN CANADA 317 CHAPTER III. MY EXPERiFNCES AS A BRANCH MANAGER 3M ■PTER IV. EXPERIEVCES IN HEAD O JE MANAGE.MENT IN TORONTO. . 342 CHAPTER r. NEGOTIATIONS WITH THE GOVERNMENT RESPECTING CIRCU- I-ATIOX 3^ CHAPTER ri. MY EXPERIENCE AS GENERAL MAN.\GER IN .MONTREAL INCLUDING REFERENCES TO BUSINESS IN NEW YORK, CHICAGO. MILWAUKEE AND TO THE BARING CRISIS 3«7 A Practical Treatise on Banldng and Commerce. CHAPTER I. ■LmOHTABT PRIN01PL18 0? BAMBNO. A BAN«n-. S«TI« TO THE CoMMONITT-D.T.lWM.KT or MoDl.» Ba»k.ko-E«,„v«.nt or a Bank'. Fbkd,-R.iat.„n. Bit.™ TM BamkH add THI MmchaST. "WMIC M^ wiU And him..lf under obIig.tion to render .ervic. thereto. TbU .„„,!. l' n. °^ °''^""^ "'"' " ^'f""" °f -^i"^ to which :.«h'"e".l::.if..T "■"■ °""**'"- '^- "-' " • ■— " «" -*. A Bakkcr'i Sertici to the Cohhvhitt. * f "n ".■'" ' ™™""'""'' '• °f ""'»>" kind., depending generally noon a. inclination of the individu.l. Son,e n,en devote thenScL ,„ prX" tort in order of time m every community, but survive, in the mo.t «J. vanced .tage of development. Other, devote them.elve. to „«,», what otter, produce Other, to the «ork of (ra,.por,a• mo.t cw- 3 BANKING AND COMMERCE. the clan of profpisional mcii who make or adminiBtrr law, cure diieate*, or care for the ipiritiinl Intereiti of the people. For the first few yearn, a very imall supply of actual money suffice! an infant commimity in the conduct of its buiineis. Barter in varioui fonnii is the ordinary medium of exchange. So many yards of cotton for so many buahcls of wheat; so much of nets or ammunition for lo many fish or skins. This and such-like modes of making exchanges serve all the prncticsl purposes of life, and at this stage of development all wealth, roughly speaking, consists of land, houses, or goods. But as time goes on, Money in the shape of notes or coin finds its way to the community; and one man after another who prospers in his affairs comes to have more or less of it. When, from such simple rudiments as a blacksmith's smithy, a store, a grist and carding mill, and a tavern, nt some crossroads of the olden time, or a railway station of the present, there has grown up an aggrega- tion of such conceni.-,, some of them in a well-developed form; and when, all round about, the forest or prairie has been converted into productive farms, sufiicient money will generally have been accumulated to give rise to the question, Who it to take care of it? The answer to this question opens up another clasb of service ; that, namely, rendered by a person who hak ior generations been known ns A BANKER. This being understood, let us enquire under what conditio.t e«ei, they will eipect it to be .. much .t their eom- n..nd ai if it wai locked op in • cupboard of their own. In aome caaei however, they may consent to give notice of withdrawal. Tim., at the very oulaet, we are confronted with two of the principle, Ujal have alwayi governed banking operation., and which have a. mucli force to-day a. they ever had. The greate.l banking corporation, in the werld are not elempt from enquiring a> to money depo.iled with them, i. it to be wiTHDn.iwv ,t call, or i> it lo u .u.j.ct to notio? The kich all the reit mag be employed. whe^'lfrr ""^n ""''""''■" "« »fe-l«Ping of money and it, return when called for wm .oon a«ertain that the commodity he ha. undertaken lo .afeguard .. different in kind from all other commoditie,. It i. repre- «ntat.ve of property rather than property ifelf; and the obligation, he from tho.e which per.on. enter into with regard to other property. If for e«mple, a farmer underUke, lo take care of a neighbor'. hor.e, he mn.t retnm that very animal when called upon. If . wharfinger unde" take, the care of a merchanf. iron, (lour, or cotton, he deliver, back the very good, he receive.. But the care of money i. governed by different eon.ider.tion.. No man who deliver, money to a Unker for .afc-keeping want. Uck the n'JL f ■ °',r'"' ""* '"L'^'P'-"''*- What he want, i.! not the id ntical pi«». of gold or paper, but the value of them in current money, or in ::ZnTJ.z^T """^ ■"" "' "■■■""'"«' "" "■"">'" *" • ■»»" I. „?!i.'!'°c°" "'"'■'°? '^"""' "" ■^'PO'i'i-g '""omcr and hi, banker . not that of OWNER and .a.lej, but of ch.d.ior and dmtoi.. Thi. be- ing .0, the banker i. not bound to take care of hi. creditor', money a. a wlMTfinger take, care of hi. customer', good.. But he i. bound-nnd thU t*aU in an American city, the Preildent iiHrip«.iT.. m ,, '' "'Wnwed |n ..^h „ch person-. „„„",. Z^^t'^^T'i^U'l.^T^^T^rSlll such an .m.nKn..„,. -°"<'»P»» "ow tht bank was ,„ a^ „„„„ „„a„ 4 BANKING AND COMMERCE. ii the fint limple contract of bankitift — to repay the aoMunt depoiitedt or inch part of It ai may be rcquirea, at the time agreed upon, whether on demand or after notice. In the meantime, a banker hafi the power, and the law give* him the right, to dral with the money at if it were hli own; that li, he hai the power to uie the money at his plcaaure fo' '>"! purpoie of making a pnillt out of it. The obligation, however, to pu^ a depoiitor'i money on de- mand, at the very moment It li aiked, U of the moit stringent nature* Univenal cuitom Iniisti on a rigid enforcement of it. A merchant may Atk for time from hii creditori; a banker never. If he it reduced to tfaif position he must close his doors.' Common prudence therefore dictates to one who Is undertaking the responsibilities of a banker for the first time, that he shall, at the outset, keep a considerable part of the money lodged with him in his own pos- session. As time elapses, and the conditions of the supply and demand for money gradually assume a more settled form, such a banker will come to understand what portion of his funds he must keep on hand, and what portion be can otherwise employ. Thi Emplovmkmt of a Bank's Funds. But the (]uestion at once arises, in what form it may be otherwise em- ployed, consistently with the peculiar requirements of his business? Money may be employed In various ways to make profit, and the mode of employment will be largely influenced by the consideration whether it if a man's own, or whether he is taking care of it for another. Some modes for the employment of money have been demonstrated by experience to be suitable for a banker; others have been equally proved by experi- ence to be highly unsuitable. (1) For example, a man who has money at his command may buy productive property with it, and so obtain a reasonable return in rent. A banker, however, would soon discover this to be a very dangerous busi- ness. He might be compelled to close his doors and wind up his business although in possession of immense amounts of valuable property. (2) He can lend money on mortgage of property, and draw the inter- est. This is just as unsuitable for a banker as the other; for wherever ■ There have been, however, n'Mne curious exceptions to this. There was formerly a little bank In Prince Edward's Island, which made no scruple of telllnc depositors at times that they had run out of money, but would have some next week— Just as a storekeeper would tell a customer thnt he was out of a particular pattern of print. There was, however, some excuse for this In the tact that the Island Is sometimes cut off In winter from the outside world for a fort- night toother. This bank has long disappeared. But It is rather odd that so recently as at the Louisville bankers' convention, a Cashier of a National bank In Georgia, with a c&pltal of |ZS,0O0. should be boasting of the arrangements under which businrsB was done in his part of the State. Our customers, he said, are never discomposed when we run out of money. They are always good natured with us, and willing to wait while we get som«! ELEMESTaRY PRINCIHLES 01 BANKING. j inortgiigM Mitt, they run nlnuiil InvornWy for lonft , irlodi of lliuc. Etrn It ■iibji'd to Rradiinl rrpnymrnl, the iirrl™). ..i „. ilow rtcurnnci-. (3) Wlun » cominunity ii tullicicnll. divrlapcil to giv.- riat' to tin in, moni-y run bt Invritnl In Ktoclii or bonilt. Il ii oiKn o a bnnktr to da thla, to , rcMonnblc extent, m will bo lirrrnflrr dliruitrd under the head of in' initnli, |irovldcd tht iloclti involve no linbillty and thai both ■tocks ...id bondq are inch ai can be readily realiied. (4) He con engage in commercial or manufacturing bi ine»«. Thii ii wholly improper for a banker under modern condi'ioni, and the banking law of Canada very widely prohibita it. The above are all legitini.ite channel! of inveitniei't for a captlaliil. aa aoch. Bui a banker'i 'mineia la governed by other considerations. II is i ' the very essence of a banker's business to Incur IMilUiri. The larger a banker's liabilities arc— paradoxical as it may sound— the more he has of the elements of a flourishing business. For while a wealthy mercantile house will pride itself on having no liabilities at all, the pride of a banker i. in the client to which his liabilities exceed his capital; or, in plain lerma, in the amount of his deposits and note issu-. His creditors may be numbered by thousanda, and the total amount he owes them may, iii the 'gff^', 'f. ten times the amount of his capital or more. He, there- fore, as a simple matter of prudence, will at all times so shape his busi- ness as to be able to fulfil his daily obligations.* But how does he accomplish this.' In every community, where busi- ness has become developed, there will invariably be found, in addition to those WHO have more money than they need, another class of persons, who have less than >Vy want. Merchants, manufacturers, miners a. d trans- mitters of eommodu: ,, no matter in how simple a form their business is carried on, need, as a rule, more money than they have of their own. And If there is, in that community, a person who has spare money under hi> control, he will certainly be interviewed by one or more of this class with r>ropo»als for the use of a portion of that money. Thus we arrive at the first rnpprorhement between Banking and Commerce. That bankers should listen to overtures from this class of the com- munity IS natural; and this for several reasons. Their business, in the very nature of things, is in a constant condition of flux. It is active at one period, a,id dull at another; largely arising from the changing seasons of the year, and therefore inevitable, and such as can be calculated on. The world s eonimcre.- is conditioned by the law, which govern its prod- ucts. ■These products come largly (but not wholly) in the shape of yearly harvests; some of food, some of material, fo'r clothing, some of appliances for shelter, some of materials for producing warmth or power. * In the ■tatomi'ntB thai loint ttiuic »mn«-j i.i c i j < BANKING AND COMMERCE. Stocks of jrrrat maipiituclr mi»t br hrld at one period, to be lueceeded hj « 1ar|p>ly dimininhrd volume im the eoniumptlon of the world pngrftet. Thete world-lianrstK, thrrrforr, require at one lime Inrge amoiinti of money for the pui)>oie of ptirrhailng, itoring nnd prepnring them for u*ei eonvenrly, nn inimenie rolnme of monp« !• irt fri-r when purehas- lnf( ii lurrerded by renllintlon. All ffoodi, whether material product* or manufactured nrticlei, are ultimately converted into money or book entries or pnper representing money. As stocks of goodn increase, the stock* of money (using that word in a broad sense) diminish, and «« stocks of goods decrease, those of money increase.' RtLAFioNs Betwken ymb Rankkii and THB MnCHAITT. This being the case. It can easily be seen that the Iwinker and the mer- chant have 11 natural relntlon to each other. The one deals with a fluctuat- ing supply of money, the other with a fluctuating quantity of goods. The banker must perforce employ his money in fluctuating transactions. The merehant desires fluctuating supplies of money to meet his require- ments. There is thercl'ore perfect correspondence between them. I'he business of both Is, to con"" * how these fluctuation* arc likely to opeiate In the spheres of their busines*. The merchant, naturally, moves first. The natural order is for the borrower to approach the lender. (Cases, indeed, sometimes arise, in the stress of conipetition, in which the order is reversed, but the results are usually injurious to both.) The merchant approaches the banker, stating that the time has come for him to buy the productions of the district; the lumberer, that he Is about to send his gangs into the woods; thj fisherman, that his fleet is ready to begin operations; the manufacturer, that the ycar'h supply of wool, grain, iron or raw cotton is arriving. There are •s numerous varieties of such application* a* there are of commercial •vocation*; but In every one of them there i* a statement of a want; i. e., want of monej/. That want Is exactly the conntern.-irt of a want on the part of the banker. He has money for which he wants profitable employment. Thus both are brought within the operation of that all- embracing law of SUPPLY and demand, which governs the world'* transac- tions in commerce and finance as surely as the laws of gravitation gDvem the material universe The want being opened up, and the application made, it i* for the banker to determine, having understood for what length of time advances are wanted, what tecuriig is ofl'ered, and what is the pOMtlion of the penon proposing to Itorrow, whether he can (1) make the advance, (2) oiien the credit, or (S) discount the paper. These are B Thf» \b the natural law. but it la affe< ^ed by numb«iit of eounteractlr* el""- cumstanrMi. the omM-cHrrrBtw nt traflo an^l nf fiTif»TJo^, BO to gpr'ttk. Tli? ope^ratton thHrefore of Ihla natural law it not always ensy to trac«. But it la a law not- wlthsUndlng. And, as a part of this law, all stocks of aooda bear Intereat— a tact often lost slsht of. ELEMENTARY PRINCIPLES OF BANKING. the three fundamrntal fomii of thr drnling of n banktr with the buiinru comniuiit^. All drTrlopmrnts of buiinrw may at tlmrt nlTord outlet! for the money • bukkcr dciirei to employ. They are legitimate ipherei for utiUilng hli fundi, alwayi on the luppoiltlon, netcr to be forgotten, that atich loani •hall be temporary, repayable at a fixed time which can be depended upon, that they ihall be allowable by law, and within the legal borrowing powen of the corporation, if the borrower i« luch. And It ii not too much to lay that it depends upon the banker'i aniweri whether the wheeli of the machinery of commerce In his district are to begin to revolve for another icaaon or not. Naturally, hli deiire li that they ihall; for upon thii a thousand other thingi* depend, in wlilrb no one i« more interested than the banker himself. There is this, however, further to be said, that n ^frrnt banking cor- poration may at times, and in certain circumitanci'S, employ a portion of its resources both safely and profitably in other spheres than commerce. They may assist the financial operations of t*^L> Government, or make ad- vances to municipalities, or assist in developing enterprises not strictly commercial, yet which have a close relation to commerce — such as rail- ways, steamboat lines, gas and electric corporations, etc. All this will b« fuUy treated of in succeeding chapters. I ,* li I CHAPTER 11. THE ELEMENTABY PRINOIPLES 07 OOMBIEBGE IN CON- NECTION WITH BANiONa. Beoinninos op Commerce in North America — Development of thi Export and Impo?it Trade — Co-operation of the Banker in thm Carryinq on op Trade. IT has been shown in a former chapter how naturally the business of a bnnker is connected with that of a merchant. Therein arc roughly sketched the elementary features of a, banker's buslneas, as custodian of the money of the community in which he lives, and the source whence the temporary wants of the commercial portiun of that community oiay be supplied. As this is a treatise, not solely respecting banking, but banking and commrrce, it is reasonable to consider also the elementary principles of commercial business, including in that term not merely those who buy goods and sell them, but those who in various ways produce the goods required to be sold. Beoinninrs op Commerce in North America. Going back, as some persons now living can do, to the earliest devel- opments of commerce, in certain parts of this continent, the time can be recalled when its sole production was in the shape of the skins of fur-clad animals. Before the time of farms and mills and crops and mines, wai the lime when the trapper, or hunter, penetrated to remote depths in the forest, or to unknown wastes of the prairie, captsring the animals, whose fur was so highly prized by the civilized world, and bringing the skins for sale to a central depot. There still fluurishes, on both sides of the Atlantic, the great Trading Corporation, which has carried on this traffic, without interruption, for more than two centuries, over half a continent, whose centres of trade, generally called "forts," have, in some instances, developed into important towns and cities of the present day. In these forts, the Hudson Bay Company received the furs from the Indian tribes around them, and gave suitable goods in exchange, on such equitable terms that the Grcnt Company came to be looked upon as the embodiment of all thit was just and honorable, as well as rich and powerful. This reputation, first acquired many generations ago, the Hudson Bay Com- pany and its agents have never lost. There were similar operations in the older parts of French Canada, New England and New York, and also in the remote regions of the Far West of the United States. These were the first beginnings of commerce in North America, and a ELEMENTARY PRINCIPLES OF COMMERCE. 9 legilimole development il wns; nnmcly, the gnlhering together from re- mote regions of »hnt was useful to mankind, and bringing back in ei- ehange such products of other parts of the world as were suitable to the wants of its inhabitants. Developjievt of the Export and Impost Trade. But the simple trade of early days on this Northern Continent has now developed, under modern forms of division of labor, into various great lines of export and import trade. Instead of furs as the sole product for export, we now have cotton, p-ain and flour, cattle and cheese, pork and lish, timber, iron, and gold, as well as many varieties of manufactured articles. And instead of simple imports of beads and ammunition, we have laid the whole world under tribute for the supply of our wants, and built ware- houses and stores in our cities filled with every possible requirement of modem comfort and luxury. For the great Creator of the world has so ordered that the different parts of the earth shall have productions com- plementary to each other. The East produces what the West needs, and the West supplies the wants of the East. The South produces one set of commodities, the North another, the interchange of which is of mutual advantage. A perfect eiempliUcation of this may be found, though on a small scale, in the simplest store of any Canadian town or village. In such a place are gathered for sale the products of almost every country under the sun. China has contributed tea, Java sugar, the West Indies colTee and fruits. On its shelves are to be found spices from the Eastern Archipelago, and currants from the .Mediterranean. There are woolen goods made from row materials supplied by flocks of sheep in Australia, cotton goods from the produce of plantations in the Southern States of America. The factories of Great Britain, France and Germany have contributed their quota, as well as those of the United States and Canada. There is, in truth, scarcely a country or climate in the world which hai not taken part in furnishing the shelves of even a simple Canadion vil- lage store. A remarkable thing, truly; and it is worth considering how this has come to be. Evidently, it cannot have come to pass without a combination of mercantile operations on the part of numbers of individuals, many of whom had no idea what the final result would be, and also just as compli- cated a machinery for the supply of mo»r.» during the process. Let a typical example be taken. How, for example, has that chest of tea come to find its way to a place so remote from that of its growth? The cultivator of tea-plants in the interior of China cannot have any idea of the persons who are to consume his jiroducc. But these small parcels of tea, when once produced by the cultivator, become almost immediately subject to the operations of Commerce. The country trader of an inte- nor province mu«es his appeornnce, and purchases the products of a few plantations around him. His knowledge, however, is limited, and so il the extent of his operations. He passes the tea on to a trader of larger BANKING AND COMMERCE. il capacity in a commeTcial centre. Even he has little comprehension of the distances the chests will have to traverse before reaching their final destination; and little indeed can these traders comprehend how many agencies,, both of commerce and banking, have to be combined before the products of those plantations can make their appearance on the other side of the world; to be sold, and finally consumed, by people of whom the Chinese lea-grower and merchant have no more idea than they have of the inhabitants of the moon. The Chinese tea-planter never writes a letter to the Canadian store* keeper, advising him that he is growing a number of choice tea-plants, and asking whether he will buy the leaves when ready. But, if he did, and the storekeeper listened to his proposal (let us imagine this for a moment), some questions would arise, one of which would be, How is the tea to be delivered f and another, How is it to be paid for ? The producer and possible customer re thousands of miles apart; separated by vast stretches of sea and land, how, then, can they trade together? A very pertinent question; and it would pass the wit of any of the declaimers against middle-men to answer it, except in one way. Thejf mutt be brought together by middle-men; to tpeak in language be- coming the tubjeci, by the merchant,* who will conduct his operations ac- cordingly. He will inevitably follow also the law of "buying in the cheapest market, and selling in the flearest," for he could do no business if he did not. This law is as beneficent as it is inevitable; inasmuch as goods are cheap wherever ihejf are redundant; and dear where they are tearce. At every stage of these complicated processes, the dankie finds « For th« sake of argument, let ua auppose that some tea-rlanter determineg to diBp«iiie with intermftdlarlei and to so. In person, to the consumer of hia product*. To enable him to do this, he will probably borrow money from one of the numeroua bankers who abound In the Interior of China. The project would certainly And favor with thoae who Imagine the merchant to be the natui-al enemy of the pro- ducer, and who sometimes Initiate arrangements with a view to dispensing with him altogether, by which— to say truth— they generally lose money. In pursuance of this Idea, the planter will proceed with his tea to the nearest river, or canal- down which he voyages, week after week, to a seaport- with his tea. He then crones the ocean, lands on this continent, pays customs duties, and travels thou- sands of miles, arriving at last In a commercial city of Canada or the United States. Thence he proceeds to And his customer, and dispose of his product. But Is It not evident that the expenaes of »uch a journey as this would more than swallow up the whole value of his tea. and probably leave him stranded In a foreign city, unable to return home? For the few chests of tea. which he had been able to produce, would have had to bear the whole expenses of his Journey. This may seem an absurd Illustration, but It represents what would he inevi- table. In case the theory of dispensing with "middle-men" were fully carried out. If the Ignorant prejudice against Intermediaries were to prevail generally, al- most every farmer on this continent would have to undertake some such a Journey every year. The first Journey of the kind would undeceive him. and compel him to ac- knowledge that the merchant la as necessary a factor In business as the pro- ducer. For It has been demonstrated by experience, that even If a numtwr of formers pod thtir products, and appoint an agent to sell for them, his remunera- tion, on the average, will be as much as the profits of a merchant, and their risk far greater. EI.EMENTAHY PRINCIPLES OF COMMERCE. 11 hit plnce, and renders nssijlancc. Almost from the time when the seed is sown, the mine opened, the trees felled, the fishing fleet sails, and all through the journeys taken, either by row materials or finished products, to their destination, the aid of the banker it reqt-red and rendered. CO-OPEPATION OF Till BaNKER IN THE CarrvinO ON OF TrAOI. Throughout the whole processes of trade, the banker co-operates by supplying money to those who carry it on and also by transporting money, from place to plnce, as needed. The bankers who lake part in the work ore of various grades. Some of them, indeed, take only a small part: passing it on to others of a larger calibre and with wider connections. The largest class bankers not only supply money at first hand to the men who purchase the products of the planter and the farmers, but they also open credits for the lumberer and the foreign merchant, give cash for the bills drawn by the exporter on foreign correspondents, lend money ^o the importer to pay customs duties and finally assist in the distribution of finished products, by discounting the notes given to him by his customers. What are the methods and principles under which all this is done; which of them are sound, which of them conduce to success, and which lead to failure or disaster, will be fully opened up in subsequent papers. IF !il CHAPTER III. FtniTHEB PBINCIPLEB OF BANKING, AND DEVELOPBIENT OF PRIVATE BANKING IN ENOLAND. Oeioin and Meaning op the Wohd "Bank" — The Dblbqation or a Banker's Powers — Development op Private Banking in England — Considerations Governing Private Banking. A BANKER who has opened an office for businesa will not have pro- ceeded far before perceiving that his occupation is a far more e«- acting one thai, that of a capitalist or money-lender. The obliga- tion to pay variable sums nf money on demand involves another obligation, viz., that he, or some one acting for him, shall always be on the spot to answer the demand mad If the banker, before entering upon the busi* ness of banking, propyl/ so called, has been in the habit of lending money, and has become known ns a money-lender, he will have had appli- cations in abundance, but he would be under no obligation to be on the spot to answer them. He could intermit his business to pursue other engagements., yet no one would have ground of complaint against him. Herein is precisely the point of difference between a money-lender and » banker — a difference that is frequently not well understood, and the fail- ure to imderstand which has led to confusion both in thinking and in- writing. Origin and Meaning of the Word "Bank." It is of the essence of a banker's business that he shall be in a posi- tion> at all times, to pay money on demand to those who have the right to demand it. This necessity is the reason why a banker finds it necessary to have what is nniversally known as a counter; an elevated table, in fact, of proper height for convenience of counting. If we pursue the idea we shall arrive at the genesis of the word bank in English, or bunco in Italian,. ss applied to money matters.^ But there is a further idea connected with this word. The word in common usage in invariably connected with the idea of protection — pro- tection, for example, against floods, as are the levees of the Mississippi, or against the tides, as in Hclland and Nova Scotia. Av^ the idea of protection is strictly applicable to a banker's counting-tal > or counter, T The word bank In Its original meaning, as Is well known. Indicates nothing but a raised platform, generally of earth, behind or before which persons can stand. The word thus came to be applied to the elevated table, or platform, behind which the banker, or his substitute, stood to receive or pay money. This elevated table is the real "bank." and the person who stand* behind it li a banker or hfs rtp- reaentatlv*. IX FURTHER PRINCIPLES OF BANKING. la BO made, ex neceaaiia, ns to protect the banker hitnselt r the purpose of mere counting, a table in the middle of a room woiim answer. Bot a banker must have n store of money beside him, and finding it necessary to protect that store, needs to arrange his counting-table so he can stand behind it, and do business in security. Indeed, it is customary on this side of the Atlantic, ns every customer of a bank knows, to protect the counter itself by screens. In conducting the business of banking, it is necessary to fix certain hourt when demands for money can legally be made. -s to these hours, a private banker tan fix i\um for himself; in which case his customers, or the public, being duly notified, will be debarred from making legal demands at any other time. This is part of his contract with them. But usually, as the business of banking is developed, the hours of business become settled by custom, to which all conform for the sake of conveni- ence. If the bank is a corporation its hours of business are usually stated in its by-laws, and advertised, especially in country districts, where per- sons have to travel far at times to rer \i the banker at all. The only way in which, as a rule, the law intervenes, is to declare what days shall be ■considered as holidays on which no demand can be made at ail. Thr Delkoatiox of a Banker's Powers. The necessity of being always present to answer demands soon im- poses on the banker a serious question, vix., to whom can he delegate the power to answer demands in his absence? For absent, at times, he must be. Even if he can trust a clerk to answer the demands of depositors from hour to hour, the safe custody of his stock of money or securities is a matter of the first consequence, demanding the attention of more than one person. But even the function of lending money cannot be intermitted by a banker, ns it can by a mere money-lender. With his open door and open counter, lie must be prepared either in person or by deputy to answer the demands of borrowers as well as of depositors. The commercial customers of a hank ha\'e obligations of their own to meet day by day, and in these days depend upon arrangements with their bankers to enable them to meet these requirements. It is therefore neces- sary for a banker to have some person in his office whom he can trust to exercise this function of lending money in his absence. But what posi- tion is such a person to occupy? This question, in former years, was repeatedly asked by the bankers of England, and it was generally and finally answered the same way. When sufh a person was found, and he was generally some clerk cr officer of their own, whose qualities of shrewdness and sound judgment had been obseried in course of business, he was at first entrusted with power of attorney and placed in the position of managing elerk. But it would soon occur to a shrewd banker, that such an officer might build up an interest and connection of his own, which interest, so long as there was no closer connection between them than employer and employed, 14 BANKING AND COMMERCE. might in time become ■onicthing distinct from his own. It might, in fact, be used to his dlsndvantage and loss. This irould naturally lead to the coniiderntion whether it was not desirable to bind such a capable officer to hitnaelf by taking him into partnership. By this means all thoughtu of rivalry, or separate interest, would be banished, and such a close iden- tity be established that the banker and his confidential officer would no longer be two persons, but, for all banking purposes, only one. Development of Private Banking in England. * Through this process of what may be cnllrd banking evolution, nearly all the grea*' banking firms of England have passed. The clever and shrewd accountant has been promoted tn the mnnagcmml of the office, taken into partnership, accumulated wealth, and has finally become the head and principal of the concern which he once served. And his name, once utterly unknown, is now in a prominent place in the firm's title, and figures in banking and commercial directories so prominently as to be known all over England. It is thus, probably, that the banking firms of England came to have such long titles as many of them ha^ until modern developments set in. Thus, for example, it was with Barclay, Bevan, Triton, Trella & Co., Glyn Mills, Halifax & Co., Williams, Oeacon, Labouchere & Co., Smith, Payne & Smiths, and other firms of like character. And so great a weight did the more prominent of these names carry, that they have been generally retained in the corporate name of the joint-stock company into which thej have btcn merged." But in the serious step of taking in a partner, either a merchant or a banker will have regard to many circumstances. Perfect honesty and reliability are the primary considerations ; after that come uusiness knowl- edge, prudence and industry, and a due measure of caution and enter- prise. Along with all these a merchant who consults his own comfort will take care to have a man of reasonably good temper and common sense about him. A quarrelsome, cross-grained man, one who cannot give and t-tke, a man so conceited that he cannot fancy any other person knows anything, no matter how clever he may be, should be left to plow his own furrow., but never entrusted with a partnership. In a business like banking, wh^re the interests of so many persons depend on a successful continuance of the business, it is of the first im- portance to provide for the future. The business of a bank carried on by 8 Moat of this haa as close an application to commercial partnerehlpn as to partnership In banking. It Is well known that many of the men who ar-^ now heads of great commercial Hrms commenced their career In the "house" as clerks. While doing their own special work faithfully, they dlsplujcd ability for some- thing beyond It — ability not only for keeping books, but for suggesting Improve- ments; capacity not only as salesmen, but shrewdness in discrlmlnati^ig between cuetomers; ability not only to hanflip sckuIp, hut capacity for underst-indlng what goods would suit the customers. They displayed. In fact, that quality that Is so dUItcult to defln*, but so well understood, vis., business ability. FURTHER PfllNTIPLES OF BANKING. private individuals mijilit, in tlu- .iliscncf of such arrangements, be brought to an entire stop by the dtntli or wittidriiwal of a singk partner. Such a stoppage, in certain cnst-s, mi^lit lliro«- the biininess of a whole district into confusion. Tliesc contingfncirs in fornier days were necessarily pro- vided for by arrangtnunts Iietwren the pnrtntra themselves, and the best legal skill 'n England wns drawn upon to prepare deeds that would ensure a continuance of business. That this has been successfully done is shown by the record of hanking firms that have h.id an unbroken career for upwards of two centuries, and are in vigorous life at this day. In such arrangements none are so much interested as junior partners, for they, obviously, have most to fear from an interruption of the business. Private banking on this continent has never occupied the high position it attained in England. The reason for the extraordinary development of hanking by private firms in England «as the jealously-guarded monop- oly of the Bank of England. In the United States, however, and in Can- ada, as in .Scotland, the development of banking by joint-stock compa- nies has always been unrestricted by monopoly; and even the very ap- pearance of it, in the case of the United Stales Bank, was ruthlessly stamped out by a Democratic President. But though the banking business of towns and cities on this continent has been almost wholly conducted by joint-stock companies, a consider- able sphere has existed (at any rate, until late years) for the operations of private banking in the thriving villages and smaller towns of the country. The humorous story of David Harum, which, as is well known, was written by n bank officer, probably gives a fair picture of the kind of persons that many of them were, and the kind of business they did, in the village communities of the United States. Private hanking at one time had obtained a considerable development in Canada, and that for a good reason in the circumstances of the coun- try, largely agricultural as the Provinces of Canada are, the towns and cities generally at considerable distances from each other, and between them having grown up vill.iges of fair population, in which are to be found some of the features of town life. Such villages did not at one time afford sufficient business to make it profitable for joint-stock banks to be established in them, for their methods and machinery are costly, and it is contrary to law for them to undertake any other business. , But where a joint-stock bank would scarcely pay expenses, a private banker might make a respectable living; for in addition to banking he could undertake, for example, to effect insurances, both fire and life. He could assist in drawing up the simpler kinds of legal instruments, and do the same busi- ness as is done by professional accountf.nts. This state of thing, how- ever, is gr^tdually passing away. By tiie development of the country, many former tillages are becoming towns, and are affording sufficient business to enable one or more brnnchos of joint-stock banks to be estab- lished in them. Even in this case, however, a private banking firm may 16 BANKING AND COMMERCE. maintain iti position, if iti partner! are known to have undoubted meafu, and hnvc »o conducted the buiineu aa to gain and keep the confidence of the community'. CONIIDERATIONf GOTHNINO PRIVATE BaNKIHO. Before entering on the Inrger class of questions that appertain to joint-stork banking, it may be well to note briefly the considerations that should govern a private banker in the conduct of his business: (1) He should certainly not carry on any mfrcantile business, for In •o doing he might be in competition with his own customers. (S) He should undoubtedly be possessed of a sufficient amount of CAPITAL. Every private banker, in the nature of things, should have a fund out of which he can meet the losses Mrhich are incidental to the lending of money. For if he cannot meet them out of his capital, he must draw upon the money of his depositors for the purpose, to their loss. It must be remembered that the customers of a private banker are almost invariably persons of small means, who have deposited money with him which they cannot afford to lose. A village community, as a rule, is not distressed or embarrassed by the failure of one of its store- keepers; but it may be very seriously distressed, and the distress will probably extend to the farming community round about, if a private banker cannot repay the sums deposited with him. There is, however, this to be said, that a private banker can take •ecuritiea for his loans that are prohibited to a chartered bank and so keep himself safe. (S) A private banker must beware of getting his money "locked up," and will need to calcilate carefully the le.igth of time which borrowers require so as to be sur; of having sufficient money in his office, or zt ^ota- mand, to meet daily Mn, ^nda. And in taking fixed deposits, the notice should be sufficiently long to enable him to make arrangements to meet a large demand without embarrassment. He will, of course, have it imder- ttood in taking deposits of more than an average amount that the notice will be required, as a matter of business. (4) To insure all this, he must keep sufficient reserves. There are private bankers in Canada who have continuously fulfilled these conditions, and maintained a prosperous busin'^os. On the other hand, there have been a certain number of failures amongst this class, which failures have been almost invariably traceable to want of sufficient capital to begin with, coupled with a disposition to take risks which a chartered bank would avoid. I CHAPTER ir. J0INT-8T00K BAMKINO IN OBHEKAL. CiNADiAN Joint-Stock Banki— The Bank or Enolano— Okoahiia- TliN or Banki in the Unitcd Statu. THE early bankers who co-operaled in the raovemenlt of commerce, In Europe, apart from the great inititutioni wliich were avowedly created to assist the Government, were largely, as has been seen, private individuals or firms. Hut since the extraordinary oiiening up of countries in lodern times and the vast deveJopment of commerce in con- sequence, ine tendency has increasingly been for banliing to be carried on by incorporated companies. Banking, therefore, in .nil its im|iortant spheres, is thus carried on; and It has been evident that the principal motive for giving ponera to banks in a corporate form is that they might efficiently co-operate in the promotion of commerce. A joint-stock bank with its headquarters in China and its agencies in England, the United States, and Japan, takes an influential part in the movements of the Eastern trade of those countries. Similarly, an Indian bank having its headquarters in London covers the whole of our Indian Empire with its operations and takes part in the movements, both outward and inward, of the commerce of Australia and Sew Zealand. These are simple facts. Canadian Joint-Stock Banks. The principal banking corporation of Canada covers the whole Do- minion from the Atlantic to the Pacific with its branches, and there is scarcely an operation of manufacture or commerce therein which that institution does not assist in developing. Bui the commerce of Canada has an intimate connection with England and the United States. This bank therefore has offices in London, New York and Chicago, and assists in carrying on the larger operations of trade in all these cities. The same may be said of other Canadian banks whose operations cover an immense eitent of territory in the United Slates as well as in Canada, from New Orleans to the Yukon, and enable them to co-operate in the movements of commerce from its smallest beginnings in the opera- lions of a country trader, to those vast developments by which the pro- ductions of whole countries are massed for shipment in great ports and sent across the ocean to the remotest parts of the world. It is evident, however, that banks covering so wide a field must of necessity have a corporate form. No private firm, however wealthy, could possibly cany » 17 '• BANKING AND COMMERCE. on buiin,.. In „ m„„y divf Midrf f„™,, ,„ ,„eh divm. condltloni, .„d covering .uch v.tt .phcm of oixration •• .rr covmd by tome nodeni bank!. Incorporallon thrrcfon vai a nccniily. Till BtNic or Ei»oi*»D. It haa brni alrrad.r pointrd oat that the Miili„il) of a bankinz Ann is a moit «.™tl,l fratur. of the bailn»i. So manv interest! depend upon it, that all modem eoontrle. have «>uRht by lexUlation to prorlde that, .0 far a. possible, they shall not be subjeet to the ehaoRe. of time and chance. In Scotland the greater part of the basir.-si of banking has been carried on for t.o hundred years by corporations organised direcllr or indirectly by acts of Parliament. And banking would doubtless have had the same development in England, but for the fact that up to a cer- tain period the Bank of England was by long tradition extremely jeal- ous of hanking being carried on by corporations. That great corpora- lion, while willing to tolerate what it eould not prevent, vis., the forma- tion of private banking partnerships, would never tolerate the formation of banking corporations created by act of Parliament. The idea of the Bank of Engla'qd was thai all other banks in England should be Iribntaries to itself, revolving round it as lesser lights revolve around the ..un. They should keep an account with it, deposit with it all their spare funds, keep their cash reserves in Its hands, and in case of need rely upon It for assistance by redlseounting or by secured advance!. The Bank of England was thus lo be the Banker', Bank; and anj coming into touch on Its port with the commerce and trade of the coun- try was to be through the medium of otiicr bankers. There was no ei- press law to this effect, but the unwritten custom gradually grew up, and '.a potent was its force that in time It became lixed and universal. Even ofler the force of public opinion became potent enough (.is It did after the crash amongst the private banking Interest in 1885) to break down the opposition of the Bank to the estobliahmcnl of banking corporations, the ,oree of this tradition prevailed. To this dav the Bank of England it larnrly the banter's bank. All the banks in the country keep an account with some bank In London, or with the Bank of England direct, and all London banks keep an account with the Bank of England, and commit to its keeping their reserves of cash. Such great banks as the NaHonal Provincial Bank of England, with its 200 branches and 50,000,000 ster- ling of deposits: or the London and County, with its deposits of 11,000,- 000 sterling, not to mention other great corporations In London, Man- chester, Liverpool and other centres, besides every bank in Scotland and Ireland, all acknowledge the supremacy of the great central institution by keeping accounts with it, and lodging with II their spare funds. It Blight he thought that when power was given by Parliament to es- tablish banking corporations, the Legislature would endeavor to have them modelled upon the j ttrrn of the Bank of England. That great corporation had demonstrated the wisdom of its constitntion by a re- .rOINT-ST(KK BANKING IN GENERAL. ,9 .11 tbo v,..|„l,„d... of eIu I „ ' 7r V"^ "-n-HOwnt. l)„ri„g ..»:bic';:,vi:r u,:' s : , "t ';;;:'„:i'"rr" ,°1 - - -. . n,„,I..h nnd tl,„ f,„ «,„.,"" ,.1„, "'^^^ I i'""",^ """.'"" '"'"" in."!;: :::: :!::::■:;;,:;:;;-;;■ -x^:;:': •• '■""^•" - - n.M« „f London. B„, non. of ..i „°:^'. 'J^; ll 1 ";"""," " " ''"^ .. .he. ei,e,„^„„ »„. „,„,„, .„„„, ™^:d 'i: , ' t.;;rr Ti;: tli.y W.TC iMui-d. Bui II,,- not,-, of ll,c Bank of K.,„l»„Ti. ■ , . .-..der ei„,d„..d. .nd .„.- i„„.,.d..d .o'^l'l,, '„, '^ "1,';,::, 'T ..Tc a K-g„l „-„d,-r ov.-r.v«-l,..r.. oxc-pl a. the Bank i,.c-lf.» B,„ ,h 'w -"^ nfvtr legal trader in Scotland. ^ couH'l',''J"f'M"°"r' ";"'"" *''•'■ "'" '^'■""■' •"• 'I"- "»"'' "f England could not be followed .n fra,„i„g la.-, for „tl,cr j t-,l,K.k hank., n „ mernn,enl ba. had tl,c been c^Wied in legi.Ia.ion, b„, i, i. „„e of tl,„.c traditio 1 lit I' bee^.o long ,n operation a, to hove oequired the force of law." Cl..v,..,ment of Enitlana n..,"r 1,,,,,-d olmrtaH, t . '° "'">'"'"" ""'l It ".ii.. Tho • ™ l.,ued. B,it n„ nt,l,-l,„l„,.r °r oihorcr ,11,,?; ,7 ,1 '"i'""„""''" ""'^l' """" '.t«bll.h,no„t cr mand bank, "r of a ^ZZ^ , "' r,'""":"^' '" '""" ""> ■!"■ money „, „rry on ,ho war. And H fully TmlLT^,""^'""- '"" "" '"•talnlnB of b»nl• ^"y.of.h. w.rl,,,^Jyp,„„,,b'"■,<,^J°^™'l,™'>•^»■«" 'h, operallon In the early BANKING AND COMMERCE. Thr rhnrirr of Ihr Bititk of England, whirh ctuirtrr U limply an Mt of Parliatnrnt rmbodyinfi Itn ronititii^ion, hai thrrrfore nrvrr brrn adopt* rd at a mode] fur nthrr banki in England. In fact, thr Jalnl-itork banki of England liavr m vtr brrn govrrnrd by Ihr |)ro%-liioni o( a grnrral art ai have thr banki of Cnnndn and thr United Statri. A|>art from the iMveitity of making a drrlaration at to the amount '>f their propowd e.-Dltal, thr nnmra of thrlr original dlrertori and ito. Solders and moft particularly the nnmr of the offirer in whose name the corporntion can lUt nnd be «ui-d, they art' at liberty to carry on their buiinets In any waj that ■tocklmMem and dirrrtora may deem advisable. The one important rettriction tn whieli thry are iiibjrrt li in the amount of tlieir rirculation. Since the passing of the celebrated Hanking Act of Sir Robert Peel in 1841, every bank in England, whether private or joint-stock, hns been obliged to restrict its issue within the amount of its average issue for the three years previous to 1844. This amount has Iwen registered, and ap- peirt in eveiy published statement of the note issues of English banlu. The banks of Seotland made a strenuous resistance to the restriction be- ing applied to them; and succeeded #o far as this, that they were allowed to eiiceed this limit on condition that they should hold gold for the excess — an academic rulf, devised by legislators of little lianking experience- But the lib<-rty they obtained to pass bejond the average of circulation of half n century ago has proved to be most profitable to the banks and advantageous to the country. Orqanixation or Banks in the UNiTr.o Statkr. The organization of banks in the United States has passed through various fltages. and is complicated by the fact that it has been dealt with by both State nnd Federal legislation. To attempt even a brief summary of the steps by which the banking laws of 'the United States have reached their present development would be beyond the scope of this work. Suf- fice to say that after an attempt made many years ago to establish a Bank of the Uniltd States on somewhat similar principles to that of the Bank of England, which projrct failed for political reasons, numerous charters wt-re granted by the separate .States, Many of these, especially in the Eastern cities, were well considered, and framed with much financial wisdom. But it was far otherwise in some of the States of the West. In these newer communities, many charters were granted by their several Slatt'S in a manner that set common sense at defiance. Numbers of banks were established with powers to issue notes, under the foolish idea that by this means money eould be made plentiful, and the development and prosperity of the district insured. No proper provisions were made for the redemption of these notes; it thus came about that masses of cur- rency were set afloat which speedily went to a discount; whilst much of it ultimately became almost as valuHess nn the Cnntinrntal enrrmey of the Revolution. This "wild-cat" currency (as it was named) was a source of untold trouble to merchants and travelers, from the fact that the notes JOINT-SKKK BANKING IN OENEHAL. n «i,ri^'\:::z'J!'aT '""L'"'' ' '"""•' ••'"'• "'•"'' ">« «>-m ulk Z,rTlT P""'""""- l"".d for Ih, purp«,. Tk.. Wll. th,l «„ 'J^xl'M, wlthou. con.ulti„g „„, of ,h,„ „„,j.. B., . fr»t "lr«y h«^" .nd le,. v.Iu. I. the bond, yelded . le„e . , r.te of intcre.1, until «„,IIy it became of K;.rce- IZ'tuVb^L ■",:",' "■"• " "• " """ ^'""' "> '«"k' i" .^^' cenlre,. But bonk, ,n the large citie., .nd cpeciall, in New York could ^:::'^:i^ '^-'-' -' --^ -'- «- '•>--» CHAPTER f. THE INTERNAL ECONOMY OF A JOINT STOOK h^hl^. Thb Two Main Dbpartmknts — The Teller— His Qualification! — The Ledoer Keeper — Dibcount and Loan Department — The Ac- countant — The Branch Manager. IN every banking office, be it large or small, the work will be divided into two main departments — the handling of money and the keeping of accounts; each of these, in a large office, having various subdi- visions. Abo\e and beyond these is the department of management, whether of a single office, or the whole bank. Let us consider each of these in order. The Teller. The first persons with whom a banker has to do when he opens an office are those who bring money to deposit. Tt is for the purpose of receiving them, that he must have a counter. This counter, as has been shown, is the original bank, behind which the banker or his officers stand and on which money is pl.iccd to be counted. Hence its name. A person who stands at this counter ready to receive or pay money is called in Eng- land a cashier, meaning a person who handles cash. In Scotland, the United States, and Canada, this officer is called a teller, or a person who tellt or counta out the money he handles. In a small branch the manager himself often performs this office ; but when the business is enlarged, the work must be delegated to another. The amount passing through the hands of such an officer in the course of a day is very large, and he is re- sponsible for it to the last penny, or the last cent. Such a man must have a good head for figures, quickness of fingers, be able to count rap- idly all sorts of money, and also to make rapid calculations. A slow man, no matter how correctly he may do bis work, will never answer for this post. He will only waste the time of customers, and irritate them. A good teller must have a quick eye, so as to be able to tell a bad coin or a forged note or draft, the moment he sees it. An expert teller will come to have a sort of instinct about such things, and be able to detect a bad coin or n had bill, or raised draft, by instant eyesight. Besides this, he must be able to keep cool on busy days, and liarn not to be flurried when many are waiting about the counter, or are imreasonablc in their require- meiiis, as some people are nt times.*' If he does get flurried, he will be iT In Ev »e English bank* a practice prevails of providing an ante-room and only admitting Into the banking office as many perBons at a time as ther« ara tfllers to wait upon them. .Thus there is never a crowd alwut the counter, and the teller has only one person to attend to at »i lln.e. To caiiy out this practlca. THE IXTERXAI, ECONOMY OF A JOINT STOCK BANK. i3 ftfe'„°J°„","'77.,"l'''°"''' •"•" ' '"»' development of civility, if It be not natural lo him, he should cultivate 11 .nH^lr"* """' ^'^" """"^ '>'''•'*' ""■^ ™'. "'" »!»» bo ob.erv.nt; W.t,n1 % " "" ""■•"' «>"■»"■>-•«"« lo the manager. In . large bank a d,v,„on « enstomnrilj- made between the duUefof thoac who receive money and those who pay it out. In both of theae, however, ntat'y "" ' "" '""'' '''' '"'' "" """"1 «-«"• »« "l-W l,MiK° f"" ^",'" °' ''".'''""■^'' Sfl«, the senior teller has the responsi- b,l,ty of cert,fy,ng cheeks to l,e g„od-„ difficult function to perform, a, self and must trust largely to hi, memory. This olBcer in an American bank IS entrusted w.th a certain discretion in the matter of certification. He .. always a man of cperience, and his position is next to that of AJtinn^r or Cashier. The Ledoem Keeper. In the natural order of things, the next person with whom a bank customer has to do, is the person who keeps the ledger containing the customer, accounts. The connection between him and the teller is necea- aanly close and it is important that the money paid in or taken out by a customer should be speedily entered, so that on a busy day of many transactions the account may be accurately stated at anv hour. Otherwise there is danger of a check being relused when there .r"e funds lo meet it, or of a check being paid after all the funds have been drawn out. The ledger keeper, like the teller, must be both accurate and quick; but above aU thing, accurate, as a mistake in the keeping of a customer', account may lead to an actual loss of money, or to the closing of the account itself And like a teller he must have a quick eye to observe, for upon him rest the responsibihly of discovering forgeries. To this ofBcer in a Canadian bank al! check, are preaented to be ■marked good" before being paid. But there 1, a difference in thi, maHer between the custom prevailing in the United SUtes and in Canada. The ledger keeper in Canada before he marks a check good, dMi, the cuslomtr', account mlA ■(. There il thus a scientific precision about the process. In an American bank, the check is simply certified to be good without the customer's account being debited with it, a practice which seems lo open the door to serious abuse, this custom IS analogous to that prevailing in many English banks. It IS not good in theory, but it seems to work well in practice. iLh™"' '"""": """"""^U are regulrea from those In a Canadian bank ** BANKING AND COMMEHCE. The ledg<;r keeper, like the teller, if ob.ervant, may notice manr thing, m the working of aeeonnt. that are worth eommunicating to the manager, especially symptoms of exchanging checks, or borrowing .nr- reptitiously from anotl,..- bank. He can also form an opinion a. tc whether a customer is easy financially or otherwise. The Discount and Loan DEPAnTUENT. In this important o/Fce a clerk has many opportnnitiei of clisplaying more than ordinary intelligence if he is possessed of it. To a discount clerk is committed the responsibility of seeing that the bill, he handle, are in proper legal shape. The manager considers whether or not the name, on the bills are satisfactory, and if they ought to be discounted. But the discount clerk examine, every bill to see that there has been no material alteration in it, that it is not dated on Sunday, that the signature and endorsement are in proper order, that it is complete, and not defec- tive. He will also notice any peciUiarity in the signature or endorsement which would lead to a suspicion of fraud. A good discount clerk will notice how the account of a customer is working, whether favorably or otherwise, also whether renewals are frfquent, and certain lines of paper tend to become chronic. In the case of loans he will be expected to scrutinize the security, and to see that such document, as warehouse receipts, bill, of lading, policies of insurance, etc., are in proper order. Loans on bonds and stocks, where the business is large, are generally under charge of a special clerk. Hi. dutie. will be very similar to those of a discount clerk. Here again an observant clerk will notice much, in the actual handling of the business, which would be of interest to a manager to know. The duties of a colleelim clerk are of much the same character as i discount clerk, and call for no special remark. The same may be said of the exchange clerk. He deals with foreign bill, as a discount clerk does with inland ones. And while a manager determines whether the bills are to be bought or not, and fixes the rate, the exchange clerk will see whether they are drawn in accordance with law, and whether the doc- uments of security are in proper form. The Accountant. The highest officer in the ordinary working of a bank, and coming immediately next to the manager, is the accountant. He keep, himself, or causes to be kept, the important book called the general ledger in which the leading department, of the oflice are summarised. It is by an accurate keeping of this book that the manager is made acquainted with the amount of the deposits, discounts, and cash, day by day, together with balances due from one or to other banks or agencies. "ll is' by infoimation gathered from this book that he guides his course, very much as a navi- gator guides his ship. Summaries of the principal account! are also laid' THE INTERNAL ECONOMY OF A JOINT STOCK BANK. « ledge, i, „„, di«c„>? "eeT B,.i toleTn r °' ""f? '^"■"'""« "■" pcible importance, for m, .111 '^ .ccuMtely i. „f the highert book, of the bank The e ,. ,t T", ""'' " '''^ '° *» "« ""■" .houIdbekeptbvtheleoLanr r """'' °' '"«'' ™P<"*«°« 'W'^" known ., the niZZ^'VlM^Z^'''''- "'' "■■" " «'""""^ every dUconnting or'borrTwL cllll .•";: '^°""' " '^"'^ "■"- :^:s:Xt^-r^:t™S:?;^-?.''rt::^ 4 examination o t' sula" hat h T '"""J"" "• ""= ■"'■"°«"' it off by heart. The aeelZ ' hoi IH 7' I '"^ "'^"'"''^ '° '"■°'' through the grade, andrattlnt" e'woTk ^f "er. l^r"',"!"^" ::;^Xhf2^r:;'rr"*'2"'''7'^'-^''-'-i^ d»tie., and to adW e them n e! I'of Jii' ',. '"pi""™' ''""" '" "■"' manager's plaee in case of »h/ °' ''"B'^" 'y- He naturally take, the motioS ,0 a Lnagrh,; ,, o ,d Te di,'l """" " ='"^''" "" P'- plaeed temporarilvin charge ^ ^ """'«'"« ''"'"«" ^l-^" Ba„^:2:m';trf zr'Tcrv i' "r -^ -^ ..ter on; JarhU^'t'he Wg^ ^g J l v^r^r";'^] '%r "•""' divi,i„n, of vork in a banking XT I t ,h *^ " °' "" ''''"''"e and le„ time occupied with^^h?™ . „ "wo k 'of'troTc'e "" T '"" ::x?::r-.Xt!r^'z:r:i~r^^ of thousand,. ^ "" """■■ '"'^ '°»= thouMnd. or ten. The foregoing .ketch i, applicable solely to the .tagk «ffi„ „f , 96 BANKING AND COMMERCE. bank. The general manager's department, or, as it ii MmeUmes called, the making fnolUh «tc«Bes fy Wm." THK INTERNAL ECONOSlY OF A JOINT STOCK BANK. S7 ter of ranking npon it. If tht bank of which he i. manager ha. no brMchea other duties will devolve upon hin.: .nch, for example, a. relate to hu, intereo„r.e with the director., and .!«> to general adminiatration. CHAPTER VI DIRE0TOR8 OF AN INOORFORATED BANK. DmECTORs — General Qualification! — Duties — Thb pREtniKNT — Committees of Din»:cTORs — Local Directors. THE general framiwork of a joint-stock bank in Canada and in the United States, and in some respects also, but in a lesser degree, in Great Britain, is defined by acta of Parliament or of Congress. In Canada and the United States the law regulates the minimum of capita], the rights and functions of stockholders, and their voting power. It ordains that such banks must be governed by a Board of Directors; it regulates also the minimum amount nf stock they must hold, and the minimum number of which the board shaU be composed. The law gives these directors the power of appointing and dismissing officers, but it does not preseriht tiything as to the duties and responsibilities of such officers. The B..nkiiig Law of Canada also limits the amount of circulating bills, and regulates the security under which they* are issued. But it im- poses no limits on deposits, or discounts, or investments, or reser\'cs. The principal difference between the banking law of Canada and that of Eng- land is in the restrictions that the former lays upon the manner in which banking loans shall be made, namely, forbidding absolutely any loans upon- real estate, and in the imposition of elaborate rules and regulations, with penalties, with respect to loans on merchandise, all which are absolutely foreign to English and Scotch ideas of banking. But on these points- the law of the United States agrees with thnt of Canada. Directors. All these and some other minor points being preserib'cd by law, it wilL be well to consider how such laws are, or should be, worked out in prac- tice, in order best to secure the object for which a bank is established. Proceeding upon this idea, it is evident that the first matter of con- sideration will be the composition of the board of directors. Upon this will largely depend not only the well-being and prosperity of the bank, but the very continuity of its existence. The government of the bank is placed in their hands by law, and they are held responsible for it by public opinion. And rightly so. What manner of man therefore should a director be individually? And what sort of selection should be made with regard to the men who have to act collectively? These are pertinent questions, and an endeavor- will be made to answer them. When the legislature ordained that jolnt-itock bankr and trading: DIHF.CTOns OF AX IXf OBPORATED BANK. 29 compnniM slioiild bi- jjmcrncd bv directors, the intention wa« doubtleji that Ibrjc nhould luiii- scniewhiit of the plnce of portners in a private (inn. This was lli,. llnorv, no doubt. But considtrntion will show that it cannot K- sfictly carried out. For the [Mrtners in a private firm, whether of bankers ir traders, are men who have the sole ownership of the bu.iiness. and are responsible to its creditors to the full extent of their fortune. Tliev are. tuo, generally men who hove a practical acquaintance with the business, most of them having been brought up to it. and gone through the gndes necessary to a familiarity with its details. The beads of the tr.iding bouses of every country are generally men of this sort, and know bow to make, buy, sell, and handle the goods of their line of business. As to Imnking it is well known that the partners in the great private banks of Knglnnd have generally had a practical training in the office, many of them having entered early and gone through the grades of each department exactly as if they were to be subordinates all their lives. But it is impossible that conditions like these should be found in a number of men selected for the Iward of a joint-stock bank, or of a manu- facturing company. They have not, and cannot have, the technical knowledge that jiartners would have. Hence they must rely much more upon the skilled and trained officers in their employ, upon whose shoulders rest the daily care and administration of the concern. In the sphere of banking such a class of officers has long existed, the necessity for them having arisen many generations ago in Scotland and the United States, and partially so in England. In manufacturing and trading corporations such matters can only be said to be in a condition of slow development. Meantime the nuestion will arise as to what can be reasonably looked for from a body of gentlemen who are placed by law in the position of directors, but who have not ))ractical knowledge of the business to be di- rected ? To answer this, let us first take the case of a Joint-stock Bank. When a gentleman takes his seat for the first time at the board of a bank, and [jarticularly one with branches in various parts of the country, lie will probably have placed before him reports as to its general condi- tion, the amount of its deposits, its discounts, and its circulation; .also the 4imount of cash on hand and balances in banking centres. He will not, at first, probably understand much about the bearing of these statements, orary advance without srrurity. In such a case, the informa- tion possessed by a single menilvr of the Imard may be of invaluable assistance to the whole, in arriving nt a safe eonrlusion. In time a director may arquire sufficient knowledge of the theory of banking to form an opinion as to the general course of its business; namely, as to whether it is extending its discounts too widely or not; whether its loans ntv properly distributed; whether the reserves of the bank are sufficient and in proper shape, nnd other questions of general policy, which can only be properly considered by a man of experience. In the case of a director of a manufacturing company — let us say, large ssw-milling establishment- -a director who i.s imt a prietienl lumberman may form an idea as to the financial position and banking arrangemrnts of the company, and whether they are doing too much or too little business for their capital. In time he may be able to judge whether the cutting of timber is proceeding economically, and whether the outcome of logs is suffieirnt for the money expended on a certain camp; whether the drive is well managed, whether the mill itself is pro- ducing all it ought to do, and of the right proportion of qualities. If a responsible foreman or manager is to be engaged, he may have special knowledge of applicants, and so on. The same principles will apply to the management of every kind of manufacturing enterprise, whether it he a cotton factory, an iron foundry, a sugar refinery, or any other of the diversified industries of the country. Tn all these, as well as in the sphere of banking, a body of men of business experience and general intelligence may render aid of a highly valuable character, "ven though they have no knowledge of the technique of the business. General Qualifications or a Bank Director. Proceeding to the general characteristics that should be sought for in the director of a bank, it may be said that: DIRECTORS OF A\ INCORPORATED BANK. (1) A bank dinrtor Hhoiild l»-. in Hir Hnt place, a man of meaiu. TIiP law itult prifirriU'ti tliiii, in i vvrin'm rxtrnt, for it ordcM that the dirrotor muni hold a crrtaiii ninnunt of stock, Ihr amount btlnfj propor- lionrd to the cnpitjil of th<- Imnk. lint the pnncribrd amount is small comparrd with the rt-NpoiiNiliility nf the officr, and it might, with ad- vnntaffr, br larf^fly incrriiHi-d, and douhlrd or trcblrd in the casr of an ordinary director, and qundruplid in the case of a president. But even then a man would be thought poorly qunlifird to direct the affairs of a bank whofw mcaim diil not exit ml biyond aurli a minimum os that. The amount of wealth implied in the tirm "man of means" should be such ai gives n man importance and standing in the community, and cause* him to be lookt-d up to by the people generally as a man of capital and sub- ■tance.'^ It would be well, as a rule, in whTting men of wealth for directors to give preference to such as have been the architects of their own fortune. There are exceptions to this, of course; but it will W found, as a rule, that such men know the value of money better, how it is gained, and how it it lost, what is safe and what is not. .\ man who has made n success of bis own business is likely to be able to direct other affairs successfully. (3) A bank director should be a man of character, respected in the community be has lived in, with good antecedents and connectionit, a man of whom it could be o$ed of men of that kind could not direct anything. (6) A bank director should be a m^n who can give sufficient time to the affairs of the bank to make himself acquainted with them generally, who can attend bourd meetings with sufficient regularity as to make his influence felt. (7) A bank director, lastly, should be a good judge of the capacity of men, for a most important part of his duties is to make appointment* to the higher offices. A Bank Directob's Duties. Such being the qualifications of a bank director, it remains to be con- sidered what may be counted as his dutUt, and how they should be dis- charged ; in fact, what a director should do. and what he should not do. (1) It is clearly the duty of the directors to see that the officers of the bank, especially those of the higher grades, be men of proper capac- ity; also, to see that they are properly remunerated according to the gen- eral standard in such matters, and that proper provision is made for them in case of retirement in advancing years. (2) It is above all the duty and province of the directors to see that the loans, discounts, and investments of the bank are made with due cau- tion and on proper security. No attention to other departments of the business can atone for inattention to this. For in this lies the key to success or failure. It is the one thing to which all others are secondary. The directors, therefore, will see that all important transactions of that kind shall be submitted to them for consideration, saving only such small matters as may safely be left to the officers. They will also require statements to be laid before them at every mecv ig of all important transactions that have transpired in the interval. And to such statements they will give such attention as will enable them to have a dear appre- hension of the business the bank is doing. It has not seldom happened in the case of the failure of a bank that there were on its board of directors men of conspicuous ability in their DIRECTORS OF AX INCOHPOBATED BANK. 33 own linr „f huiinrwi nnd the qur.linn w,. grnrr.llv ..Iced, how w» II tlMl ilucl. mrn could nilow Ihr Innk to drift into .uc. . poiltion? They would never h.ve dreamed of nllowing their own buiine.. to become w nvolved: how wa. It the,- allowed it In the c».e of o b,nk .t .ha.e bo.nl 1 "ft ■ 1°°^ "'"' '''•""' ■ " " "» ''"•'"■' »"■"" '» '-^h "i""™ to plead tl,.t th.y were m.t lnfum.0,1 of the tr.n..ction. by which lotin lud been .uiUinedj .till lew Ih.t they h.d not time to examine .t«te- ment. put before them; le..l of all that they tnirted .11 ,ueh nmtter. to lie manager. There are undoubtedly number, of matter, th.t mu.t be trujled to the manager; and it cannot Ik- pretended that a board of di- rector, ihall be acquainted with the multitudinou. .mall transaction, that make up .o much of the tolal bu,ine.. of the bank. But e.p..rience .how. tliat aa a rule it 1. not in the •mailer Iranaaetioni of a bank that li».e> arise of aufticirnt amount in the aggregate to cau.e a bank to fail. It i. Invariably the case that the failure or . mbarra..nient of a bank arise, from the failure or emliarrns.m. nt of a comparatively .mall number of iU largeit cn.tomer.. Tlie bank may have Ave thousand small customers whose transactions no Iward of director, can take rlTeetivc cogni.ance of. But although there will be an average of loue. from .uch trsnsactiona, the average will never be high enough to eauM seriou. difficultv. But the •ame bank may have on its books twenty or thirty, or, in the ease of a very large Institution, with widespread connection., forty or fifty ac- counts of considerable magnitude. It is within such a narrow circle as this that the stomis of the banking world strike. Now, it i. plainly within the power of any board of director, to keep an efficient oversight over such a small number of customer, as this. Amongst the circle of large customer., there will be, to a certainty, a proportion that practically do not require watching at all; firm, of un- doubted strength and capitol, whose aceounU are so conducted a. to give evidence of their soundness. But there will almost certainly be a propor- tion to which directors should give clo.e attention; make elo.e enquiries of the manager, and be ready to check any signs of irregularity, or what might lead to danger. It is with reg.ard to this smaller circle that the director, .hould distinctly no( leave everything to the manager. For if they do, they can, very fairly be held up to reprobation, if matter, go wrong. With regard to thew, the director, should reqi.irc eonitant and full information. Long and voluminou. lists of comparatively small transac- tions it would be impossible for them to keep trick of, unless they were prepared to spend the whole of their lime al the bank. But any body of director, who take their duties and re.pon.ibilitie. seriously can keep track of this small number of accounts within the time that director, n ay reasonably be expected to give to the business. Not that they need never extend their observations beyond this circle. A director may well, at times, extend hi. observations over transactions of a second and third order of magnitude and particularly those with regard to which he ha. I r M BANKING AND COMMEBCE. •prcl.l knowlodir. And br.ldc thli duty of Individual dlrrolon It i« dniriibic lor Ihr whole board, at tlmri. to xaminr the whole biuin». done at a certain branch, and If needful to give dlrectiou retpecting It, By following thU method the whole bnilncH of the bank can be brought under review at lea»t on. a year. But let It be repeated, the circle of Im- portant account! ahould be before the directora, not once a year, nor even Mcc a month, but eonatantly. For when a large Arm or trading companj bcglna to go wrong. It ii apt to go wrong at a conitantlr accelerating pace. And its couric may be lomething like that of runaway honei— rapidly getting beyond control and ruihing on to deilruction. In one •hort month all thli may develop, and if director! intermit their atten- tion to large account!, even for thii period, they may awake to «nd that one of them hai gone wrong to aiich an eilrtit that an enormoua loaa l» !Uring them in the face. It wai one large account, rapidly developing miichlef, that ruined the Royal Bank of Liverpool. Four large account! brought the City of Glaagow Bank to the ground. Yet the hundred!, Indeed It may be laid, the thon!andi, of it! !maller account!, even of thif bank, were on aa good a footing a! thoac of the reit of the Scotch banka. In thi! caw. too, the cour!e of deterioration wa! very rapid. The !ame may be aaid of the Weatern Bank of Scotland. And, referring to Cana- dian banka, one of the largcat of them, the Commercial Bank of Canada, waa ruined by one account, another by aome all or leven, other! by two or three, II would be a de!irable point of adminlalration for the director! of every bank to reqrire to be laid on the table, at every meeting, a alale- mcnl of all advancea amounting to a certain aum and upward!, at all point!; the amount of the minimum to be proportioned to the magnitude of the whole boiine!!. Thia ahould not be in too much detail, but in auch a ahape that it could be readily taken in and underatood at a aingle aitting. If detail! are wanted in the caie of any account, they could be called for and furnlahed by the general manager at the next ritting. It l! needle!! to add that if the hank haa large inveatmenta, such aa conaiderable holding! of debenture! and bondi, thc!e ihould be examined and crltici!ed by director! olao. They generally conaiat of conaiderabic anm! of any one aecurity, and may be looked over without a great expendi- ture of lime." IB ThM« obB«rv!tlonfl are founded upon the theory that the board of director* ahould conilit of men who are not only men of character and Influence, but men who underatand the bualnega of the country, and al«o have a aubelantlal Intereat In the bank. It li a fact within the author's hnowtedce. that In a certain areat bankinc corporation that failed the directors collectively held no more stock than would have Iwen considered much too small for any one of them to hold Individ- ually. This was before the present Banklna Act was passed. Tet the capital of this bank placed It In the front rank of the banklni corporations of tlie country Theee directors, loo. consisted almost wholly of men who had no practical ac- quaintance with business. In another case of the failure of a areat bank In the same part of the country, the dlreetoia were lariely retired aentlemen or pollllclans. On one occasion when en Important business account was under discussion by the board one of Its DIHECTOHS OF AN INCORPORATED BANK. ,,, Tub Pheiidbnt, o««rl.,.. , ,„1, ...lied „„, p" vM . •"'I.S«."'nd, Ihc presiding t!»f • '""^ p"* "f ••" "- to tCff. rVo7. ;".;: r/vt *"' «r .h.ii ic^ „„, o„i^hV.h.ir.„ of thVi^H j.T'" "*.;?" functioiu above deicrilxd I- in. Vi. ' "' ««'«'•« Uie In the United State! an enlipcly different order of H.l„~ i. |ai7 coo,, to p„vail, thongh it doe.'not prevalrjoterl^.f^'-" «'^;- ne«, having a poaition in the com"„„ /^r^^X." fir °« '"t tte bank, like the Chairman of an EnglL 3 He f. " rj "", ^There are both advantage, and diaadvantage. in Ihi, method. The connection ,1th. The., cm. to b. "S ,o « JIT- ?"" '** ""» '°" »rot.,... NMl... i„ „,. that thrba^k 7r»Jf; ""cHnw. a. Mr. u.; other loan. „, ,^, „;,„„„a7'"'""' " ""• '°"« ""'w out o( poM.h-.l .aa 36 BANKING AND COMMERCE. a-lvantages are that such a president carries more weight and authority In the bank's daily administration, by reason of his being a director. The disadvantage is, that he docs not move about in the commercial community and acquire information as a commercial chairman of the board would do. This is a serious practical drawback. It is a disadvantage also to the man himself, that though a salaried officer, and his livelihood being de- pendent upon his continu-ince in office, he is subject to an annual election. There is this further to be said, that it is much more difficult for the rest of the board, in case of need, to criticise unfavorably the actions of one of their own number, than if he were simply an officer and not a director. And there is more dangci, under such an arrangement, of matters being left wholly to the president and of his being allowed to administer the afTairs of the bank without efficient check. But some American bank presidents are men who correspond to the English chairman of a board and who have large interest* outside the bink. In Canada, the position of president is somewhat midway between the English anil the American position. He is always styled president, and not chairman. And he ice they may take or refuse at their pleasure. They may modify it, suggest changes, or, if they think well, rejeet it. This they have the power to do. But to reject entirely the advice of a professional banker In any matter of im- portance, involves responsibility, and directors will scarcely take such a step unless for very good reasons. This, certainly, should only occur rarely in practice, for to be often rejecting the advice of a general man- ager would be a sure indication for the necessity of a change. His posi- tion with regard to the managers under him is one of undisputed author- ity. It is to him they look for direction as to the course of the business of the branch. And his orders they must obey. Otherwise there would OFFICERS OF AN INCORPORATED BANK. S9 be danger of aerioui mischief to the bank as a whole. For branch man- agers to fancy they can appeal to the board against a general manager's directions would speedily bring about a dislocation of the whole business. Each branch manager, however, is supreme in his own sphere. To him his officers look for directions, and his orders they must obey. There may, of course, arise extraordinary circumstances in which this order of things is set aside, but the foregoing must be taken as ordinary practice. To understand properly the responsibilities of a general manager it is needful that the powers and functions of each branch of the bank should be understood. Every individual branch carries the full powers and re- sponsibilities of the bank within iUelf. To the general public and to the body of customers, the "branch" is the batilc. For every dollar of money deposited in the branch the whole bank is responsible. For every engagement to lend money or to transmit money the bank is responsible. This is the strength of the b^^^ch system so far as the public is con- cerned. But there is a reverse side. For every failure in these respects the whole bank is responsible. If at a certain branch, even the least, there were a failure to perform any of the engagements it had entered into, the whole bank would be discredited. It is under these circum- stances — and they press upon him constantly — that a general manager exercises the functions of his office. These functions may be summed up in one sentence. It is his business to see that every branch during every day is properly equipped and managed; th.it it has a sufficient and im- mediately available supply of money of every kind for the wants of cus- tomers and the public; that the money lent at the branch is lent safely and according to directions; that the bills discounted are good bills; that the securities taken for loans are according to law; that delinquent cus- tomers are sharply looked after; that proper men are appointed to the various departments; that the accounts are properly kept; that proper statements of the business arc forwarded to be laid before the directors and to be reported to the Government, and, finally, that the cash on hand always corresponds with the amount shown in the books. This is a large line of responsibilities, but they, every one, fall upon a general manager day by day. It is to enable him to fulfil them that he requires a staff tit officers whose duties are of an entirely different de- scription from any that have been named hitherto. The work of a general manager is thus; 1. A work of supervision. S. A work of audit. S. A work of control. To enable him to perform these functions he has in his department: An assistant general manager. An inspector and officers under him. A chief accountant and officers Uilder him. A secretary with officers under him. nr 40 BANKING AND COMMERCE. In addition to theie will be an officer in charge of the stock regitten and dividends. The most imporUnt officer in the department is The Inspector. This officer is usually a man of considerable banking experience, and he has generally been a branch manager. He visits the branches and makes a perfect audit of the accounts and examination of the cash and securities. The time of the inspector's visits is confidentially arranged with the general manager, so that his arrival may not be anticipated and prepared for. For if it were, the object of the visit would be frustrated. In former days, when practical banking was not so well understood, and no officer was set apart to the work of inspection, it was customarj for the president to make a tour of the branches, taking an accountant with him to assist in the details of the inspection. But so liltlt was thought of the importance of secrecy in these visits that it was generally known throughout the branches that the president w.-"* on his annual tour and might shortly be expected. It was even sometiuts mentioned as an item in the daily papers. Of course, in that condition of things prepara- tion was made for his visit. It is known to the writer that on an occa- sion of this kind the manager in a large city branch was actually advised that the vice-president of the bank would be visiting the city shortly and would take the oppprtunity of examining hin branch. At that very time great irregularities were occurring in the management, improper loans to a large amount being carried on by overdrafts, and false statements sent week by week to the head office to conceal them. The manager, being apprised of the approaching visit, took the pains to transfer all the car- rent accounts to a new ledger and managed, by borrowing checks and concocting fraudulent f itries, to make the irregular accounts appear cor- rect The visit took place, the books were balanced, the accounts were examined, and all was reported in order. Shortly afterwards, circum- stances transpired which rendered further concealment impossible. The manager came to ■ p head office of the Kink and made a confession to the directors, though He did not confess all. A trained officer was at once sent down to make examination. The whole machinery of fraud was then brought to light, and the manager's trick exposed of a new ledger being opened long before the old one was filled up, and bogns checks credited to the fraudulent account. This case is referred to in a subse- quent chapter on frauds, but it is noticed here to show the folly of the old inspecting system. The importance of the audit and examination hy an inspector will be evident when it is considered that it is by reports and statements from the branches that the whole bank is governed. It is only by sommariaing th. - statements that a gi neral manager can know, for example, whether the law with regard to circulation is being complied with, or whether the bank as a whole is holding adequate reserves of cash and available fundi. It is by statements from branches that the bead office can judge whether OFFICERS OF AN INCORPORATED BANK. 4] Ibey are doing lonnd biuincu and following the linea laid down for the govemment of nanagrri. Yel ht can not know that the ttalementt are comet eitxpt b) actual tiamination o» the tpot. Whether there actually il m much cash at a certain branch aa ii represented, whether the billl discounted are secured as they are reported to be, whether the loans are really endorsed or guaranteed by the parties whose names are entered in the lists, these and many other important matters can only be proved by actual examination. An inspection, therefore, is of vital importance. No general manager and no board can he on sure ground with regard to the business of any branch until an inspection has been made. But to be of value the inspection must be thorough. An inspection carelessly made is more dan;ferous than none at all, for il lulls into a false security. A cose once came under the writer's notice of a weak manager, having allowed some of the securities for an important account to lapse, and being afraid to confess, went on reporting advances to be covered as before. The supposed endorsers were good beyond doubt and, according to the statements rendered, the account was working satisfactorily. But when the ollice was examined the inspector failed to notice that the names of the snpposed endorsers were not on the paper. They had in fact with- drawn their names, having a well-founded suspicion that the party waf not doing well. This, however, the inspector failed to notice. The head oJSce being lulled into a false security, the account went on aa aceonnti usually do. The advances increased considerably, but the business was reported as enlarging and the customer aa prospering, and the endorse- ments made the account perfectly safe — apparently. But n subsequent examinotion of the office revealed the fraud. Twice before, the inspecting officer had failed to notice it, but he discovered the real poaition at laat. The bank, instead of advances well secured, had no security at all; the customer's affairs were in a bad condition ; he had been going from bad to worse ever since the endorsements were with- drawn, and was utterly bankrupt. Now, had the false sUtements of the manager been discovered at the first examination, the account would have been stopped before much mischief had been done; the customer would have failed, but the bank would have made but a small loss. As it was, the loss finally sustained was sufficient to wipe out all the profits of the branch for years. The inspector's business is therefore one of eerification. Examina- tions most be made down to the minutest detail. In counting bundles of notes, for example, an i..jpector must not make a cursory handling of each bundle, but must handle every note. He must not excuse himself from this minute examination by thinking, "Oh, it is impossible that such a manager or such a teller as this can be wrong." The very reason of his office, and the work he has to do, is to prove that the) are not. If man- agers and tellers had never done wrong, and never could be guilty of irregularities and frauds, there would be no need for inspections at all. In law every man is considered innocent untU he is proved guilty. The BANKING AND COMMERCE. Inipector who doei hit work thoroughly will proceed on the aHumption that everything ii wrong until he him proved it to be right. He will be tpecially careful in examining caih to guard againat a mode of manipula- tions by which a parcel can be handed him twice over. This has been done to the writer's knowledge and a shortage covered up thereby. In examining the checks on hand he will be careful to notice any indication that they have been borrowed. This, too, has been done and inspections passed successfully when large shortages existed at that very time.'" It is Important in making examinations to notice any slight irregulari- ties and probe them to the bottom, for a very trifling iirtgularity may be a key to the discovery of nombers of others extending back, perhaps, for months and even years. For example, the books oi a certain branch on being examined by an inspector were found to be irregularly balanced. This was a key to irregularities that had been going on almost from the day the branch was opened. It is within the writer's knowledge that these books required to be checked over again from the very opening of the branch and much of them absolutely rewritten. The flnal result of this was that after the irregularities had been rectified, the manager, who was of course dismissed, had to make good a defalcation of between seven and eight thousand dollars. In this case, if the inspection had been loose and inefficient the irregularities would certainly have gone on for many months longer, and the deficit have grown to much larger proportions- It should be noted that the reports and statements made to head office from this branch were always in order. No amount of attention there It A sad revelatton of fraud of this sort transpired In a branch office of an Important bank many years avo. The senior t«ller waa a man highly reapectsd in the community. He had Ions held hia poaltlon. which was an unuaually cood one. It was. In fact, more like that of an aaalBtant nutnaser than a teller. He occupied a beautiful place In the ouUklrta of the city, and hla pretty pony carrlaae was well known to the habltuea of the streeta. But one day a rumor vot about that there waa somethint wrona with hla caah, that he had been auspended; then, soon after, that he had been dismlsaed. It proved to be too true. Hla face waa seen no more In the bank and hia pony carrlace disappeared from the streets; his effeeu were aold and he left the city never to return. The truth aradually leaked out A considerable ahortaye waa discovered In hla cash. Whether It waa ever made food the author la unaware, but It la an undoubted fact that the shortaae had Ijeen foln* on for a conalderable time, and that the oflAce had been Inspected nor* than once whllat It existed. It then became '.laown to bankera In the city that the teller had observed moat carefully the movementa of the Inspectlns ofHcer and had succeeded more than once In ascertalnlnv very nearly when a visit mlaht be expected. In preparation for this he had on each occasion borrowed checks from his friends In the mercantile community, of whom he had many, which cheoks were counted In amongst his cash when examined. It so passed muster. The checks were of course never presented. This, however, can not often be re- peated. The resource Anally failed him and discovery followed. Upon this ease a remark or two may be made. The manager shouM certainly have notloed the style in which his officer was living. His salary would not have allowed him to occupy such a cottage with grounda and to keep a pony carriage. This tendency to overspending should therefore have been checked at the outset. In which case all the subsequent sad developments might have been prevented. It ahould be said In addition that I* Is almost certain that there waa some loose- ness In the style in which the Inspections were oarred on. otherwise the ahortag* would have been discovered at an earlier stage. OKIICEHS OF AN INCOHPOHATED BANK. 43 «ould hme rciulled in the discovery. But discovrry immediaWy rMulltd upon on inspection on the spot. Yet there was no anterior reason why there should be more suspicion of this branch than of any other, for the manager, thougli not a practical banker, was a man of high standing in the community, and was able from his own resources to make good the deficiency. This audit and exaniinatlan Is a sufficiently onerous business in itself to occupy all the attention that any man can give to it. In the examina- tion of the teller's department all his care and vigilance will be needed to ensure that the cash, including checks and cash items, is exactly as has been represented. It has been known that a teller by clever sleight-of- hand succeeded in passing oil' a bundle of notes twice when his cash was being taken over by a successor. The examination of the discounting de- partment is a far more difficult and laborious matter, for here he should not confine himself to the mere checking of the amount of each bill and noting whether the total agrees with the books, but ascertain irhelhtr ntrg bill it in legal form, properlf drawn and endoned. proper authdr- ity being held for such as are signed by officers of corporations; and also that proper vouchers have been received for all the bills reuiitted for col- lection. It is also his business, as has been shown, to see that the securi- ties for loans are really as has b«'en represented to head olfce. But when an inspector goes beyond this business of verification and expresses opinions upon the soundness and goodness of the names or the •afety or otherwise of the discounts of the office, he is going beyond his province. For in this case he is conveying not information but simply opinions, for the formation of which he has only had slender opportuni- ties. An inspector visits a branch only at long intervals, and can not pos- sibly have the materials for forming a judgment as to the goodness and soundness of the borrowing customers themselv a. It is his business to see that the various securities are Ihtrc, or that, if sent away, there are proper vouchers for them, and also, what should never be overlooked, thai they are exactly as they have been represented to head olfice. But when he not only certifies of the existence of bills and securities, but makes re- ports upon their soundness or value, he raises two questions: one, as to where he gets his information, and the other as to the soundness of his judgment. As to information, in almost every case he will get it from the manager. His report, the:-fore, will be a mere echo of the manager's opinion, and consequently of no value whatever as a check. As to sound- ness of judgment, that is a quality not always possessed by an inspector. It has been known that an Inspector who was a keen and vigilant examin- ing ofiScer was lamentably deficient in judgment as to the standing of merchants. To suggest to head oflice that the advances to a certain cu^ lomer were not on a good foundation because they fluctuated so much, or that, in considering the position of a certain firm, if certain assets were left out they eould not be considered solvent, was not calculated to en- hance the value of an inspector's opinion. Ifet both instances have oc- ♦♦ BANKING AND COMMERCE. cumd in bunking pri!: when he report! what he hal K^en, and eoramunieatea to a general manager vhat the latter eannot otherwiae knov; .neb, for ewmple, aa that .ueh and lueb an account if * very inactive one, or that in another caae the deposit account of such a customer showed him to be constantly short of money. It is generally placed upon the inspector to report upon the ofictrt of the branch. But here again he should only report aa to what comes under his own ohservation. He c«n see how an olfieer does his work dur- ing an inspection, and how the books in his charge have been kept; also whether be makes out statements quickly, and, in the case of a teller,, whether he is accurate and courteous in attending to customers. But to express an opinion as to the general value of an officer, and whether he is worthy of promotion or otherwise, is to go beyond his province, for in the coarse of a few days he eannot have sufficient opportunities of obser- vation to enable him to form an opinion that could safely be acted upon. Above all things the error must be avoided of allowing an inspector to give orders and directions to managers. That is the business of the- general manager alone, if an inspector is allowed to do this, there wil! be the proverbial danger of having "two masters" whom it is impossible to serve. It is only when the olBce of inspector is held by an assisUnt general manager, as it sometimes is, that orders and directions can prop- erly be given by him. But In that ease the orders are given invariably by the officer as assistant general manager, not as inspector. In the case of an inspector the old saying applies, QhU cMttot c it- todieif Who Is to inspect the inspector.' Who is to see whether he la attentive, efficient and reliable? It may be thought that the directors are the persons to do this. But the work can only be properly performed by a professional banker, and the proper officer to eiamine the inspector'a- work Is the general manager. Directors sometimes conceive that an inspector should be independent of the general manager, and that his reports should be a check upon hi* superior officer. And it has been known that an inspector has endeav- ored to work himself into that position. But it would be dangerous. In- deed, for directors to listen to such overtures, for, if carried out, such • course would introduce an element of anarchy and confusion into the business. There would soon come to be two governing olficera — two beads ■ — each having independent authority, but the one more In the confidence of the directors than the other. There would inevitably be friction in that ease, conflicting ideas of man.igement would be introduced, contradict- ory directions could not fail to be given to managers of branches. These officers would soon discover the real state of things, and ascertain icAose dlreetioiis they were to follow. This would naturally be the officer who was in the confidence of the board. OFFICEKS OF AN INCORPORATED BANK. 43 To put the cau In concretr form: The general manager would, for «xunple, give direction! that sueh and such an account wai to be handled carefully, and on no aeeounl to exceed the limit fixed. The inipector, however, might uy at hi> next visit that the account wai a very Mti.fac^ torjr one to the board, and that close reilrietion was not desirable. The branch manager, therefore, being placed between two fires, would lose *ll sen«! of responsibility to head office, and as he could not please both his superiors he would try to please the customer. The general manager under such a stale of thing., will come to be a mere "figurehead," having no more controlling power than a secretary. This is not .. fanciful sketch of what might be, but a description of what has actually occurred; anarchy and misrule prevailing in the estab- Jishment, and losses gradually developing which ultimately almost brought the bank to a stop. Yet the board of director, was one of the ablest bod- ies of men ever brought together to administer the affairs of the bank. It will thus be seen that a clear understanding of the inspector's real functions and duties is of essential importance to a joint-stock bank. His proper functions are im|wrtant enough and difficult enough to perform without intruding into the office of the general management." The Chief Accountant. The chief accountant's position is of such importance that he is re- « tbat tJw paper nferred to ma Uwa Ktlrrd. Thoa the general manager ii in the poaitlon of nuuuglBg partner of a large eaUhlUhment who thoronghljr underatanda hia bnaUieaa bat baa trained men about him, each with atrictlj deflned linea of doty, all of whom muit be in hli confidence, all obeying hia ordera, jet with liberty to make angfinliant, all acting together like a complicated macbiile, wheel within wheel, all mated by one central power, and all conrerging to tbe one nniform end, namely, the good of the whole body of th« proprietora of the Inatitution. Il CHAPTER nil. THB lUOOUSrUL MUOHAlfT. CONDITIOKI AMD CaUOH OF SvCCRM— ImPORTJIIVCI Of CARirUL BtrTIXt — Thi OrricB— Thi Wahhouu— Thainiho im B vh !■■•■— Eli- umttn or a Good Salumam- -KNowLBnoi or Gooh — Knowlidoi OP Miir. BEFORE a bankrr can do a succruful buiiiKM, there muit be (iic- ceiiful inerchant«> manufacturers, or farmeri, In the conununlty. It U for this reason that the consideration of their business comet at this stage. Some yean ago there was published in England a very readable book entitled "The Successful Merchant," in which was described the career of a Bristol trader who was not only a successful man himself, but the foander of successful firms that bear his name to this day. The success of this merchant, it is evident, was not due to speculative ventures by which some men seek to acquire a fortune rapidly, but to perfect knowl- edge of hia own line of business, combined with industry, shrewdness and rectitude. It becomes evident, too, that this is the reason why the busi- ness he founded has continued to flourish In the hands of his successors. It is essential to the success of a banker that the mercantile customers with whom he deals shall be on the whole successful men; otherwise they will cause him loss and embarrasimcnt, even though he holds what is called "security." For security in many instances fails to secure. It is equally essential to a merchant that his customers shall be also successful. If they are not, their failure will result in even a larger pro- portion of loss, seeing that generally the merchant gives credit without security at all. The losses of both banker and merchant may be, and, indeed, not sel- dom have been, serious enough to bring both into embarrassment, in fact, they continually act and react on each other. The study of the causes of success and failure is therefore one that practically comes home to both. COKOITIOHS AND CaVUS OP SuCCISi. Let us first consider the conditions and causes of success. ^Vhen a person enters upon any line of commercial business, as distinct from mere speculation/' he will find that the first element of success is knowledge of goods : that is, what goods are, where they are to be bougie to advantage, what is the right time to buy them and how to place them to advantage. IS Th« dlir«r«ne« b«twnii th« merchant and the speculator is that the mer- chant handles the aoods he deals In. and therefore requires to be a Judse of their qualltr and tultabllltr; while the speculator rarely handles the merchandise In which he QtecutBtes. and could not tell good c-jtloti or grain from bad. His bual- nesa la simpir to watch the markets, and to buy or sell on change. For his opera- tions he needs neither a warehouse nor stock. THE SUCCESSFUI. MERCHANT. «, wl™. t.",,. " , "„"j ^: "*7 'o '"P'y. -'»« to giv. Ih™ ,„ do, lo "«l "".ngr thtn. for ,.£ Z.,. "« «»«i> d"ll In; how to „rt «xr whtt,!'^;: .r-h" r:^r^^^^^-^ bought .trictiy'r™™ n,.„ro,:„r-,ho„hl;iirld .'■■:''';.;'' "■* fwturr thra. and wh,„, a / .. "'' °"' "''° ''"' "•""- i...h.r i„f„™..":^ ;i",„,4" -';"„■»- «"''°--""' -"' "-^ •" Umn hr .kl. . ■".>"""» nifn not in the ume house, and will at «-., be able to eon,n,„„ie„e to hi. prineipal. .„„,e,hing to their adian c. J.':':ea"ie;: zzi^^^lhz": 1'"t '- ° '"""•'■ --" •• tendanee. A good junior win .1 ,^ { "'^'"' P"""^"'"'." '" 't- -. . cwer-^pCrvi: "a 'rn,;:;;''nr„'; r* 'a":d""'"'"'" " '•It Is soDMtlmne suppoaea that t,-. u„ ^m, . ."Plow muat not b. tr«™puloo.- ™1? , i ."."" ""^* ■""•—'•'">•. ar U.™. But ,„.,. .par, fr« tta"mmi,Sft,'o^^.Mf "" T'""* "" "" "" ■*"»' BANKING AND COMMERCE. It may not be pouible in a large establishment for every salesman to ascertain what is the net cost of the goods he is handling, and to a ma- jority of those engaged in selling, a principal would scarcely think it pru- dent to give such information. But as a salesman grows in experience he will be «ure to exercise himself in this direction. And it is desirable he should; for in the case of salesmen and travelers of experience, they may sometimes be allowed discretion in the selling price of goods. It would obviously be of advantage to a salesman^ in using this liberty, to know what things cost, so as to ensure that no mistake was made in re- ducing the price unreasonably. A successful salesman or traveler will exercise a good deal of tact in dealing with the peculiarities of customers, and a large amount of pa- tience and perseverance also. Experience shows that a stubborn "no" may be changed into a complacent "yes" by quiet and intelligent per- ttistence. Above all things he will be civil; ready to anticipate a cus- tomer's wishes, ready also with suggestions as to what would V . satisfac- tory in case the party does not see the article he wants. But it is a mif- take for a salesman to push off undesirable goods on a customer by brag and volubility. The customer who has been overreached in t' '9 way will avoid the place in future. In the life of George Moore, of the great house of Groucock and Co., of London, who used to be called "The Napoleon of the Road" because of his wonderful quickness and energy, there is an excellent story of his suc- cess with a rrtail storekeeper who, after repeated refusals such as would have damped the energy of most men, was at last induced to make a pur- chase of some insignificant article and thereby open an account. The door once opened, the young traveler took care it should be kept open; with the result that the casual buyer became a valuable customer of the house. The responsibility of a traveler is, of course, much more than that of a salesman in the warehouse. Pic needs much more tact, more knowl- edge of human nature, more patience, more perseverance. And, it needs to be added, he will need to be more watchful of his own conduct. Living in hotels, he will be in the way of temptation that does not meet those whose duties are at home. far as this, he will certainly make a complaint. If he has been deceived by an employee, he will complain to the principal, and the employee will suffer. If h« has been deceived by the principal hlmaeir, he will probably be more outspoken. In either cuae he will want redreaa. It was said of the late A. T. Stewart, whose retail store used to be one of the wonders u( New York, that one element of hla success was this, "He always turned the rutten aide of the melon up"; a very homely phrase, but highly ex> preselve, as Indicating that. \t there were anything defective atwut his goods, h« never concealed It. It thus came about that people had Implicit confidence in Stewart's goods and consequently (locked to his store to buy them. There arc manufacturing firms In England that have built up a reputation by the Invariable rule of never stamping their name on an Inferior antcle. They have found tha advantage of this In the fact that the name came to have a dlatlnct mercantll* vatue: auch, for example, as that of Rodgera of Bhaffletd, for fine cutlery. THE SUCCESSFUL MERCHANT. gi iMtOCTANCE OF CaREFUT. BuVINO. Pursuing the future sueeessful mcrehant through his eourso of prep«- ratioi,, .„d supposing him to h«vc achieved success as a salesman and a traveler the next question will be, whether he can be trusted with the responsible function of buying. It ■■• • iMiim of trade that "goorf, «,tll bo„gU arc half toU." Though the most difficult function, of a buyer are exercised in lines of business where taste and fashion come into play, yet his sliill, if he has it, will «nd ample ,™pe even in dealing with raw materials and groat staples. Judgment and special knowledge are required even to buy grain, cheese, timber or iron to advantage. Passing, however, by these for the present, let us look at the charac- teristics of a successful buyer of dry goods and fanev goods. Here an cssenUal difference must be noted. While the buyer of'grain or anv other like commodity may make mistakes, it is certain that the goods he bnvi can be sold at .o».e price. But the buyer of dry goods can never be sure that what he buys (unless it be simple staples) can ever be sold at all. Ihe buyer then will naturally be one who has had experience as a sales- man or traveler, and has learned by experienec what the taste and fancy of customers are likely to be when new goods arc offered them. Ther'e is a difference in this respect, between the customers of one house and another, between the people of one city and another, and between one period and another. A class of goods can be safely imported bv a mer- chant in New York that it would be unwise to bring into a smaller city. As to the differei.cc between one time and another it is a fact that in the inflation that prevailed in the early days of Manitoba, there were goods to be found In the Hudson Bay Company's store at Winnipeg of so cosUy a character that no merchant in Montreal and scarcely even in New York would have dared to impart them. Such goods could be sold in Winnipeg at that time. Two years afterwards a heavy reaction set in, and no such articles have been seen there sineo.=° The buyer then will consider the customers of the house, as to their taste and capacity, as well as the time. An intelligent buyer after some eiperience develops a sort of Intuitive apprehension of goods. He could Wlnnl^;;""'.,""^ 1.""'"°° ' """■ '°°'""' ""'°* """" « crockfry .lore In cnaraclcr. The man, however, said .t once, "That wont do.- other sets were then Shown him of . better khd. but none of them suited him. The,-" er.^ot oTof .X. , """ "'" "'"■ ■'■" "'' ' "" """' "< """■■ ^''"mm ^methln, !^^ """*:"■■ """ ' *■""' "" "™ ""^ "'"■ ■°">"l'ln« really tlp-.op; ^Mv^miV.J.,'',"'' ""■ ■"" ••"""•"P"- then bronshl out a ,et h. had ^^ f^ f "" """""'• " ""> «~ee.« rlrtl, order; a ,ct ot .ueh rarity L« ^rZ wt, * '.°""'/»" •^"O ""> '■".'« «' ". B:n,U.h nobleman Tb. man !t™J^u? ^ ?"■ ""'' " "• '^""''^ •"<' ■»" '"' on "le spot. The merchant ".r.v:"m "h^a'ariyr*' °' •°°'- " ■ '""" •"" ■»•"' •"-- •■>-•■ r Si BANKING AND COMMERCE. not explain it if he tried, but it exists, and it will lead him to say of some new patterns, "Our honse could never sell them/' and of others, "These will suit us exactly." Judging thus intnltirely he judges promptly; and in a majority of cases he will be ri^t A buyer's judgment, however, is not only exercised as to what goods to buy, but how much. This, sometimes, is a more difficult matter to de- termine than the other, for if he buys too much, even of an article that takes the fancy of customers, the extra quantity will be carried past the time when the fancy of customers favors it. On the other hand, if he buys too little, a feeling of vexation is generated in the warehouse at op- portunities of profit being missed. The latter error, however, is the safer of the two. If the goods are evidently going off well a repeat order can be cabled. Buying too much is a foible of some otherwise capable men, and some- times a cause even of financial embarrassment. The amount to be bought is a matter for the principal to judge of. He will look over his stock, consider his average sales, and give his buyer instructions accordingly. But cases may arise in which an experienced buyer may take the risk of varying from instructions. He may learn things about the market when abroad that make it desirable rather to hold off than to buy. Or, what he learns may lead him to buy more heavily than was arranged. This, however, he will do at his own peril. A young buyer entering this difficult field will do well to err on the side of caution rather than otherwise. Bet- ter for him to cable for instructions and pay the cost himself, than to moke such large purohases as, to the writer's knowledge, have not only caused loss to his principals, but deranged the whole market. There are fields of mercantile enterprise in which the functions both of buyer and seller would api>ear to be for more eosy than the foregoing, ■eeing that prices are quoted day by day, and that all a man has to do, apparently, is to follow the market. A plausible theory, but utterly fal- lacious. For in all staple articles, such as grain, cheese, wool or timber, there is a remarkable range of qnalittf. The grades, certainly, are indi- cated by market quotations. But even in such apparently simple mat- ters as grain and flour, there are shades of difference thitt none but ex- perts can appreciate. Yet it is often in a correct appreciation of these that the profit or loss of a given line of operations consists. The same remark applies to im- ported articles in other trades, such as groceries, fruit, wines, raw sugar ; not to speak of hardware, iron and steel, in all of which there is room for the finest exercise of j udgment on the part of the buyer as to the quality of goods. It may indeed be laid down as an absolute rule with regard to every variety of staple goods, that none but a man of experience can safe- ly venture on the operation of buying. If he does, he will infallibly "bum bis flngns," and if he continnei. he will rain himself. i.-- - THE SUCCESSFUL MERCHANT. „ Till Otfici. « promot in nnvm^-nf „- „*i. . '""■'*'"'"■ "i ine hna are; wheth- M BANKING AND COMMERCE. But this is not all that !• neceuary to success. There have been men who could sell and buy goods, and know how to keep accounts, too, who have entirclv failed in the attempt to carry on business for themselves. It was said that at one time a considerable number of the salesmen in the employ of Mr. A. T. Stewart, of New York (who has been already re- ferred to) were men who had failed in business. They were expert lalef men ; and perhaps some of them expert buyers, but were deficient in other qualities essential to success. They could sen'e an employer and be de- pended upon to follow instructions. But experience had pro.-ed that they could not succeed when they had no guidance but their own judgment. What, then, are the other and final conditions of business success, permanent success, let us say, in addition to the technical knowledge and skill before referred to? The consideration of these is of sufficient importance to form the subject of further treatment. CHAPTER IX. THB BVOOESaniL KKROHAMT-OpntliiB«d. Cmx AND Cap.ia,^B™n.m Locaiion-Eotndino C«dit-Eco»- CODK,-ADT»T..,.Va-P,.„ONAt D»AW,Na— P.0O»l„„.N«. AMD COU.TMT— CarEPIII. ACCOONTINO. pEBSONS of little experience in the world m,y think it Urange that .Lr^ 7 T "1" ""'' "P""^ ■""■' ^'^ "'h " ''« P,„ • K ("""i'ng P«p€r should not .ueceed in bu.ineM. ft^ wh.?. "Tk"""" ""' "■''' ^° '° '•"■ B"' "•" « -y ""d- lH»ine„ in fhi. tre.t,.e i. considered in reUtion to bonking. FoUowin, g.gen,enls; to perform every obligotion he h.. entered upon, .„d to eC h,. bosine.. creer without being in debt to .ny n,.n. HV^y .nd ou^ prim.^ eond.t.on, thi. must be I«,ked on with no litUe «ti.f«:tion But ■Lm l^n "T" " '■' *" ""'"^ "° '""''" """ **". *« -"""tile world wdl generally pronounce it to be in«ie,u.te. Every man o. ent«! weU hare remained an employee. What he generaUy «ipire, after i. " leaat, a competeney-a aufficiency over and above hi. liabUitie. to .up^n him when old age has deprived him of hia power.. "^ Creoit and Capital. No man could condu hi. bu.ine« with comfort if he were alway. kL? ^rr "i"^. '" ""^^ '^^" °f *■"' ™W» •*«'", being barely able to pay h., debt, nnd nothtag more. A eaptata may at time. would undoubtedly lo« hi. .hip. There n.u.t be a ™argi, if there i. to be aiiy .at..f.clion in bu.taes.i and thi. margin in the ca« of a merchant i. hi. Capitol Of Ih.. a few word, require to be .aid. And the fir.t thing i. that the capital, .o called, mu>t be a man', own. There i. hardly a more dangerou. delusion than for a merchant to tolk of "borrowed capital," and no more dangerous practice than to enter m hi. balance sheet as "capital" money that does not belong to him. Borrowed money Is not "capitol," it is a liability. No matter though the loan has been uranged for a long term, though there may be an apparent certointy of the loan being renewed when due. or what is more dangerous, that M BANKING AND COMMERCE. II* no period of payment has been fixed at all — money borrowed, no matter from whom or under what circumstances, is not "capital." Traders sometimes think it does no harm to reckon as capital an amoont of money which is certain to remain in the business for a con- siderable period. But it does this harm, that a merchant, if he so considers it, will incur risks, bay goods, and give credit to a larger Linount than he would do, if he rigidly thought of this supposed capital as a debt of which payment would some day be demanded.'* Capital, then, is what a merchant owna himself, on which no other person has a claim, the surplus over all liabilitieM, no matter to whom. To ensure success in business, capital must be sufficient ; an elementary truth, indeed, but capable of a great variety of applications. For example, it may be taken as a well established truth, that other things being equal, the larger the business the larger the capital needed. But the proviso, other things being equal, must be carefully noted. The slower the course of the business, the more the capital required to conduct it. The country store doing business where payments are only made once a year, requires more capital than a town store that sells a good deal for cash, and gives no credit for longer than a month. And the cash store, that gives mi credit to anybody, requires pari patiu least of all. The business of a saw miller or the maker of timber is one that calls for an unusually large capital in proportion to the annual production ; for expcnditu- es go on continuously for a whole year before tlic article is ready for market. At the other end of the scale, we find a grain merchant where the article is bought and sold on the spoi foi cash. This consideration, of course, determines the percentage of profit called for. It is argued by some theorists that credit answers ev>,.y purpose of capital. It answers some purposes of capital, for a time, beyond doubt. But such theorists are apt to forget that cretlit muit always be paid for, no matter in what shape it is taken, whether in goods or in money. And Mpeiience sliowi that what is paid for credit in the shape of interest sometimes absorbs all that remains of profit, after expenses and losses have been provided for. Young men, for t-xample, who hnj out the assets of an established firm, paying a small amount down and giving notes for the balance, may find that interest absorbs their profit year by year, and renders progress impossible. The same thing is likely to happen when a young man is set up in business by a wholesale house, he ha\'ing nothing wortli the name in the shape of capital. The house fells him a stock of goods, and keeps him supplied with what he needs. He is compelled to buy from them, for if he buys elsewhere, they can bring his business to a .^^tand. Under these circumstances, he invariably pays a high price for everi-thing he orders, which high price renlly rep- 31 A very common form of the d«lualon spokpii nf is apt to arise wh«n a part- nerahlp Is dlMolved, and the retlrlns partner leavM his money to those who rpir.aln. Thf r'.-nainlnjr partnprp are rhpn --mrtor ---.nptan' temptation fy ■wnsWef the capital of the houie to be as much as l>eforc. and to carry on business accord- Incly. From this delusion they sometimes receive a rude awahenlnc THE SCCCESSFUI, MERCHANT. .bHuk tn blth "•.■"-'f^-'"".. together wit,. eon,p.™„.„ f„ ehlin 7 w •"PP'>""« '«'"«■ If « "■■" detern.ine.7o b,e»k the ch.in .nd ge' free bending hi. energie. ,„ effeet it by . .te.dy c.n,« of ee.„„„y .nJ ind„.try. he n..y p«„ibly make progre... .nd in,,™ T""! '""'^'"•'y- B"' >f "ot. he will .ln^,t eertlinW "il on hro.gh l.fe, .nd be a. poor at the end ». he w.. at the beginnLg But ;:g%3"r/hrru''!;:' "-- "^ — - - - - -V"- b„.ines. .. n,oder.,ely bri,k, ..„„t „„e-fif,h „r .U.h of hi. anZ tZ; Of .nv kind .hould h.ve at le..l .» „„ch capit.1 „ hi. f.etorv or miK rle f Th "■' r'7 T" °' """^'"""'' '-.ve e„,t together Uh Tie or timbered land. mu.t be added. .\ merchant in .grieultur.1 prwlncU dnnng the .e..on of n.vigation, n,„y do , large bu.ine.. on a' slS eap.t.l than a merehanl in any oth.r line of bu.ine,.: f„, the movement ., JO ,„,ek^ a. he may he able repeatedly ,o turn over hi. whole Z^t im^J:J:.t',^r'- "^ ■""■' -" °" '-^ ""-'-" •" -'-'"^ But. when navigation i. closed in river and c«..l, a produce merchant Zldlhlf \""' "" ""r """"""'^ ■""•' his prSt atT H ^•.ould herefo e have a, much capital, .1 ka.t, a. will enable him to "f tad°c ° ■' ""'^"'"°'" "f "-^ ""'■et, but unfavorable eond^o™ Paradoxical a. il may ,„„„d, it i, undoubt. dlv true that, on enterinir urK.n bu..ne,. it i, not desirable for a firm ,„ hav'e too much cap.m "f hey have, they w.II be apt ,„ indulge in an e..y-g„ing style of^onducl- .ng b„,.„e„ crediting too much, not collecting .ha^ly, carrying too fTu!;e'::Llir -" "' '"•^"' -^ -- ".vThrf„un/a.ifn':? If a father i, setting up his son in business, the wisest course to hi T " ^.f ". ""''' "" ""^""^ °' "-"P""' °"'>- «» "ill "eccilale h.s being both mdustriou. and careful. Better he .hould learn (he value of money by being occasionally short of it. Better he should learn lo be economical in personal and businc, expenses by it, being rendered .mpo,.,ble for him lo be olherwi.e. The law of neccily is a wl,„le«,me one, though many a man has fretted by reason of it. pressure. Experi- ence, in the majority of ca«-, and in due time, will convince him that rt i, Ealutary. V.U.UI OP A Goon BusiXEs. Location. An important element of success in mercantile busine,. i, a good •land in a prop,, locality! and. in the case of .uch a buiineu a. dry- good., a well arranged, well lighted, and convenient warehooM or rtore BANKING AND COMMERCE. But, eveii in the Mine locality and in the sune street there arc differencei in the eligibility of a stand. The chance of obtalainf a eholee corner haa not leldom been the making of a boilneM. On the other hand, the energy and ikill of an able man may be nentraliied by a badly lighted itore, or one placed on the wrong tide of the itreet. With regard to the building in which he ii to carry on busineai, a young merchant will beware of entering upon a warehouie too large for hii meani. If he makei thff mistake, he is in danger of either attempting too large a style of buslnest for his capital, and being continually ham- pered for money, or of paying out too much of his profits for rent and taxes. The Extinsioh or Cninir. But now, on the supposition that a merchant who knows his bnsinets. has secured a warehouse in a good position, that he has a proper amount of capital, that with the judgment of a good buyer he has laid in a seasonable stock of goods, he will immediately be confronted with the difficult question of giving credit In all lines of wholesale business, this may be said to be the question of questions. It is eren so to some extent with a retailer, especially in a country store. The giving of credit In a country where the average of failures is so high at times as it is in Canada is so difficult a function to exercise, that, in a large establishment, it is well for one partner to devote his whole attention to It. In this matter, a few general rules and principles may be indicated as the result of experience, some of which are applicable to the whole- sale merchant and some to the retail storekeeper. It may be said, also, by the way, that most of them apply to a Banker also. With regard to the former, the importance of correct information cannot be too much emphasised. Get information, and be alwayt on the lookout for more; that should be the rule. Day by day, it should be the merchant's business to keep his information up to date. The things be knew about his customer a year ago may utterly mislead him now. Solvent a year ago and doing well, a man may now be losing ground and even unable to pay his debts. But while the present condition is important, the past has also to be considered. A man's antecedents are an important element in considering whether he Is deserving of con* tinued credit or not Information requires sifting, for there are false reports as well as true. The working of a customer's account will tell him much. Conversation with the customer himself will elicit what could not otherwise be learned. The traveler who waits upon him will bring Information also." It is always desirable for a mercantile house to have a maximum turn beyond which they will trust nobody. This maximum will be care- fully considered in relation to the capital of the house itself, and so ti An this win b* mon fully coRai. That good old trade maxim, "DiTide your rlikl," can niier lafely be forgotten. A tendeiicT to be watched ii' for the large euatomen of a «rm to drift into a habit of leaning upon the liunac. Such account! hiive a general tendency to go on increaiing, and their very aiae makea it difficult to throw them olT. It ii alwayi known in the trade that luch and lueh cuitomera are "inpply houaci" of thii (inr. or that, and the fact of IIk pnrtiea deairing 'o open an account elae- where raiiea a lutpicion tlinl tlie aupporting Arm desirei to get rid of Ihem. Hence they cannot be got rid of at all; the only alternative being, either to bring them to a stop and face a loai, or carry them on with a conatant endeavor at reduction, which ii generally futile. In the ordinary run of aecounia the amount of credit will vary with the means and standing of the customer, a theory which is unquestionably true, but which requires n firm hand and watchful oversight to carry out. For some customers, »hen kept strictly within bounds by one house, will endeavor to run up an account with another. A dangerous amount of credit may arise when dealings are with a number of houses; each one imagining its own line to be judicious, while the whole, collectively, are unreasonable in a high degree. The remedy u to keep well informed, and to require periodical statements from customers, in addition to which the partner at the head of the credit department will And it useful to have statements rendered him by his clerks in compamlive form, showing the progress of accounts from month to month, or year to year, indicating the amount of a customer's purchases during these comparative periods. From this it could readily be seen whether the account was sufficiently active for the indebtedness. The head of the credit department of a house will also do well to note any hints he may receive from his banker. The banker often knows what the merchant does not. He deals with other houses in the same trade, and has branches in other cities. He may therefore be able to say to a wholesale merchant: "You are aware, I suppose, that such a customer of yours is running an account with a house in another city?" The banker need not violate confidence by going into details. "A word to the wise is sufficient." But if a hint is not sufficient, a banker may sometimes render an essential service by throwing out the paper of that customer. The real test as to whether a merchant is crediting judiciously is the average prrcenlage of hit lottet to hit talet. Some percentage every merchant may expect. But in ordinary times this percentage should be so moderate as to make no serious impairment of profits. Even in times of depression, when insolvencies are double or treble the average, the losaes ought never to be so much as to impair the stability of the house, though they make serious inroads into its profits. The foregoing observations have reference wholly to dealers in •» BANKING AND COMMERCE. iiuportcd nr manufactUKd good>. Thr dealing in riporti, however, ll gonrned by othrr ronildnatlnnl. It may W laid down aa a grncral ^e that the eiportn of Canadian prodneta. partly from the nature of the prodneta themaelvri, and partly from other rirrumatanrri. ahoutd nauaUy give no credit at all. For how ran he keep hlniielf informed of the changing poaition of DHrchanti In a foreign country? A partner may die or retire, yet the conwrvntive hahili of RnglUh' houiei will lead to the »■•« heinf retained, while the capital may have heen withdrawn. Even the ratlnga of Am» In reference hooka m.v be kept ai before, olthough a vital change ha« taken place in their compo>ltlon and caplul. The true poaition for the Canadian exporter to take ii, that If the buyer abroad wanta credit, he ahonld get It in hia own country; an Idea which ia undoubtedly reaaonable. and has led to the habit, now general In many line, of export trade, of attaching billi of lading to billi of eichange, and requiring thr bill to be paid before the lecurity is given up. All this will be fully considered later." With regard to the credit giv.n by retailers, a distinction must be made between those in the city and the country. The accounts of respectable families in cities are seldom a source of loss, though some householders do occasionally run up tradesmen's accounts to an unreasonable extent. Such accounts, however, seldom give rise to discountable hills; and if such are presented to a banker he will generally do well to decline them. But the credit given by country storekeepers to farmers rests on dilTercnt grounds. The farmer has property which ce.i be seen, both real and personal, and though often slow, is generally sure. The danger with farmers' accounts is not so much of ultimate loss, as of their degeneraUng into what bankers call "lockups." A storekeeper with Us books full of such accounts is apt to become as slow as the farmer himself. His Interest account therefore becomes heavy and tends to eat up his profits. He Is made also to feel in times of pressure that his account is unde- sirable. In dealing with farmers, storekeepers need to be careful to consider whether their customer is owner or tenant; and if owner, whether his land ia free of encumbrance or not. The utmost limit of credit to a farmer should be the amount of one scaaon's supplies. When an account gets beyond this, it should be stopped. No consideration of e.nse in getting bank discount should pre .ail to alter this rule. .1-,,!.'," J- '". ** T": ^'""^'■'' "■•' ">» '"»'•" 1" "r«at Brilain wllh whom our mm, ^^rrVJtlf. 'Z'L'" ^'""Sf l'""i»'>>'y "• » hlah cl«.s. both In «e.ltli and Jlfi^. . I,. "' "undlna ana unblemished antecedents, nho haie never P,^L,f l"„°'T """'"i'"; '" "" "•"> »' tltne.. r.t It I. .Inaular how cntlon.ly fta? ?h.,.^i'''''."E!w "'"■" ".'"f •" """"'"" "' •"•» "«"• eircum.tano™ prove 1 hl.1, ,IL„1 ?^ 'k "",- * """^ merchant In Eniland who h.d maintained ™™r.."1iuu"., '," ' '""5. ™"'~ ■" •""• "«»»■• emtnurassed and stopped Kjr.,i in!^„5.5 iy_ "•, " ;>' "t"""- T" Ilia astonlahment o( th™ .11. hi. ii,?,. .J., k'';*'- '.Vr" '°"."'' "»' ■'• """ •"••K'l in reekle.. speculation In an article that had nothlni to do with his trade, which speculation «^n: wronr ha* rauited in such heavy 10.. .. to ,„in him. Thl. .fCalr was tha wcislon of cSn- sldcraW. loss to Canadian llrms who had dealt with him contlnuouSj. for yaanT THE SUCCESSFUL MERCHANT. 61 EroxoMv IN Bi'iivin £zrixDiTt'ir>. Thli I, .nothw coiwlition of .ucccm. By thi. I. not mrant mm a 7 < ., ''^-V°""t- K™»'""J- prlm.ril.r mr.n. m„a/,fmf,l. .. Ih. drriv..lon of l„ word im|,li,. to h,gl„ ,1th, c.rrful clculallon of wh.t ch.r^, ...n b, ,ff„rdrd .carding to the .!«■ of the bu.ine». Tbt prlnwr,- rh»rge m n in.„v,ntilc hunln.-.. i. the rent of the warehowe To rent too Urge . .lore I. „ .„.ri„„. mUfke. But it i. poor economy to rent ^ I , t°' """'■""• ""'"» "' ""■ ■""<• »"' •>' f" "><"« th.n oflwt by loii of eiistomeri.** The ularle. of clerk,, Mle.nien and traveler, i. another item of even nMr. importance ll,a„ the other. Here again it i. p«,r economy to employ an inferior .la., of men. Such are apt to injure the bu.ine« by inefficiency. More men. too. are required to do a certain amount of bualne., when l,.-v ,«■ blow a proper .tandard. Three competent men will do a. much work aa four of an Inferior cl.», and while they coat no more in the aggregate, tllcy help to build up the buiiiie.» by wise attention to the want, of ciutomer.. A merchant will do well to have young men about him who are undergoing training in the method, of the biiiineu. Thi. tend, to economy, but mu.t not be carried too fai, a. no warehoiue or oHic. can 1« carried on well when there are too many junior, in it. ' Cicely connected with tin, matter of employee, and making the moat of their capacity, i. that of the treatment of the .eaior,. Some of Mice, although they grow In year., and can be more and more tru.ted, do not develop bu.ine,. cnpncity. Men of thi. kind have their value- a. they .ave the principnl much anxiety, and need no .upervUion. They can al«. be u.eful in the training of junior.. They gradually therefore grow up to the poaition of old ,enanl. of the houae, who have a comfortable Mlary and are contented with it, on whom >«Iiance can be placed and who never a.pire to anything beyond. It i. alwav. good economy to treat .iich lervant. well. But there are other, who develop a capacity for buiine... Such al theae not only work, but think. They ,ugge.t improvement, and economic They calculate how much things co.t, and nimetime. find out where they can be bought cheaper. Such employee, a. these .hould be noted and encouraged, an ' sometime, taken in a. partner.. It i. thu. ti.al the traditions of a house are preserved from generation to generation, the firm going on doing service to the community and ..It n«Kl »„rcely be pointed out that th, rent of a .tore I, a oharri upon the buslneu, even when the preml», are owned by the nnn. And In an .dlu.t- Z'^. Ti""."- " •■'■'■■'■'""»• ""' ■'•'""' »• «»«■■.«■ .. par. ot the annl «pen» ot bualn.™ exactly a. ir It were paid to an o,„,|de pe„o„. wh.r, th. biialnn. belong to one p,r«,n. and ha own. the warehoua. or .tore, he I. deludlna 1ilm«ilf a. to the eapenee of the bu.lne»i If he omit, to Cham It with rent, and lie la of courw deceived a. to the peroentaie of Increaee to ch.r.e on hi. (ooda •• BANKING AND COMMERCE. MraHng wnlth for III mrnibm, nuiny rxnmplri of which m»f be Men on both liilri the Atlantic, but cipcclally in Or»t Britain." Inivramck. Another item of expenditure, and one In which lerlaua mlatakei are made. I. that of ■•uaraa.e. Thii will be fully treated of hereafter. It may, however, be noted In Ihia connection that ininrance il aa reaionablo a charge at rent and taiei, and if buiinen, „ carried on, will not bear the npenae of iniurance, there It lomething wrong with the buiincH. Intsrbbt AUD DiaCOUNT. Another item of cipenic which, in soinc caiei, l> the moit lerluut of all, ii iaferrtf anif rfitcoaal. Few firnii are in condition lo conduct their bnilneu without bnnk loans or diicounta at all. But there ii .1 reaionable uie of bank credit, and an imprudent uie. When a wholeiale merchant'i line of diicounted paper areragei more than one-fourth of hit annual lalei, it ia generally a ilgn that hii credit to euitomera la too long, or that he doei not collect sharply, or that he Is too easy In renew- ing. But when, in addition lo discounted paper, he borrows directly and regularly from his banker, he has reason to reiisc the whole methods of his business. Bank credit to some men la a dangerous luxury. Such loani may Kne a useful purpose, provided they never amount to more than one-fifth of the average line of discounted paper and tliat they never extend beyond one or two months. But when such loans arc required constantly, and exceed the amount above named, it is, as a rule, a sure sign that the credit department of the house la loosely managed, or that It Is carrying too much stock. When times of difliculty set In, and the general average of failures rises, the pressure will show itself in a tendency to require more of this kind of bank credit. But this state of things is best met, not by taking more credit, but by curUlling the business. As to the interest account of a merchant in agricultural products, It will not amount to more than one-third or one-half of one per cent, on the total sales, if the buslncsa it aa active aa an exporter's should be. But should such products be held month after month, in our long winters, Interest and charges will almost certainly swallow up the profit, even of an ordinary rising market. " A mlstalie has sometimes bpen made by the tipnd of a oommerclal tioune who hns one or more sons arowlnc up. whom he naturally dealrea to auocoed him in bualnem. While they are trowing up one or more of his employees are devel- oplni a rapacity for manaiemrnt: yet he hesitates to uke them Into partnership, fsarlnt they may diaplaee memhera of his own family. The result often Is. that these employees leave the houae. enter Into bnilnen for themselves, and lie- eome a.rlou. rlvala. If the sons prove 10 have manaalng capacity, the arm mar not ultimately be damaied. But If not. the chances are that a buslneaa founded and malnulnrd by the father may disappear under the Incapacity of the sons. It Is. therefore, wise to keep manallnc capacity In the Arm. even If, under sucb a realms, sons have to become illlle more than sleeplni partners. The prevalllni tendency to convert firms Into Joint-stock i^mpiinlci altonjs, however, an easy mstbod of deallnt with this stale of thlnfs. THE SUCCESSFUL MEBCHAXT. 1$ Adtertiiixo. Thtn m olhrr itrini of npriiir, «ich ■• tdterlisi,,, which fvfrr n.rch.nl m,M think out for blin«-lf, for no grn«.l „.!« wn br laid r."'7!: ',yT """' """ «'«'♦'""» ■'""''' >»• '■• • p«r-r nmiiun., th.t It .hould b,. nrr»ng,J .o ,. to attnrl .ttrntlon, .nd that it .houM b« T."i.. """ '° ""^ ^ "• ""' '" '*"™* monotonout. In the n/ilurt of thing, .omc kind, of bn.in... depend mon on .dvertLIng th.n others rho.e who df,l in iiHiele. that are conalantly ehanglng niu.t Ivlng their noreltie. before the pnblici on the other hand, thow who deal In .tapla iooda with a limited range of euitomer., and where the price i. a matter •t 111 rket qiiotalioni, auch a> grain, etc., never need to advertiie at all. Hi.' In the general matter of charge! and eipenaei. when thev have 'x-tv .r, nged m a. to comport with the .i»e of the buaineai, the thing 1 Ik k. pt conalantly In view I. to get good value for the expenditure, »liit .er n rent, aalarief, iniurance, adrertiiing, or what not. PEBao.xAt Drawinoi. It HOC. without laving that pertonal drawing! from the firm and per.onal expenditure. >hnuld be on an economical icale alM. Thi. 1. a 1 latt. r requiring careful adju.tment where there are two or more part- ner., and careful conaideration wh-- there I. only one proprietor. The Amount to be drawn i. u.nf> should obvlou.ly be on between drawing, and * exceeded by one or m. by no means entered a 1. a most dclu.ive prac^ ing a firm's bankers, accounts to show how t for a firm to enter amr ■■ member to the rest, ai: ■ ■:■■:;,■ •lint i'l» But ;.. . ,. p.-5i^r '"«, tile I i'li-:; tlif fipi II ami hiH oil « wcnilnri o* 'H; ^' !t» JlTfH'>,i.). J.; ■K-r tn •.,.-, fn.Bil. 1 in the deed of partnership and allow a considerable margin ^'' he amount is for any reason inu-unt of the excess should be »> cuatomen don't like the good, he i. ahowing them, he will not take the trouble to ahow them aomcthing elae. True, a merchant lometimea knows what will auit a customer better than does the customer himself But It is bad policy to say so, or to ahow that he thinks so. A drv goods merchant should make a practice of svatematically clearing out all goods that arc fxuK. or becoming «o. That waa another of Mr Stewart's cardinal rules. He made a point of having nothing but salable goods on his .helves. But there U a great temptation to hang on to stock that has once been bought, and some men constantir do it, hoping against hope that it will be sold in ordinary course. It is an unpleasant thing to sell goods at a loss, but it is often true economy in the end. The procew of weeding will, of course, be carried on by the principal, so as to ensure that good plants may not be pulled up with the weeds. Valui op CAHEFcr. Accounting. The final element of business success is the keeping of ii<-e»rii(e accounts, and the systematic balancing of them once a Tear at least. It has been said of many a merchant, but perhaps more frequently of a manufacturer, that he doe. not know what his goods cost, and therefore he is deluding himself during the whole time that he is selling them The only eficient check upon this is the careful taking of stock, and periodically balancing of books. In stock taking, when goods on hand »ri' written down to what the merchant could buy them et for cash, or what he would be willing to give for them; when all accounts are put at their collectible value, and written off if they have none; and when due allowance has been made for depreciation in filed property, a mer- chant will sometimes be astonished to find that he has not made half the profit he had anticipated, or perhaps none at all. This being so, he will naturally endeavor to ascertain where the leak is, overhauling every department of his business for the purpoM. He will, after this, buy more carefully, sell more closely, economise expenditures, collect more sharply, and barrow less money— thus laying a foundation for a satis- factory result in future. It may be objected to this that many a man has prospered and made a competency in Canada who conducted his business by "rule of thumb" and never made out a balance-sheet in his life. There have been cases, no doubt, where great natural shrewdness and ability in buying and sell- ing have brought out such results. But these were eiceptions, even in the early days of the country. Bjt now that population has increased and competition increased with it, the "rule of thumb" must perforce give way to the keeping of accurate accounts. CHAPTER X. MANUTAOTCBINa. E.RLV D.,.„p„,NI, O, MANor*CTI,«.NO-SuiTA.LE LOCAT.OK— Bonu«^-Th. Socc.«,ui, Makuf»ct™„_Ca,,ta.. Rc,u.,.»- P.0P« Mach.«rv-W„at Good, to Make and to Whoh Th.t A»» TO B. S0tD-C0»..0NME.-,T.-S.lI.,NO Ao.NT.-Sal.. TO WHOIMALI MIRCHANTIH-IN.II1ANCE. 'T>HE .ubitct of Manufacturing, apart fron, the prtly development, of ■«. a primitive condition, at once open, up thi. fundamental que.tion, . ■""••» n«l"ral capacity or .nitablene., exist, in any given country, «,ofe^!e " T^ "■""'"' ''" "" P««'"*™ °f «'^' V manufacturing L?^T 7..' ""'"" '° ""■' ">"""™ ""f^' "PO" "■<= P^Wein. thai gather round the controversy between free trade and protection. These problem, ,1 „ not within the «»pc of thi, worl, to consider, mlliec it to ! lit^b^^ "f """orsally acknowledged, that the primary condition, of the •uitability of any country for manufacturing are two, the poMession of P0|rer, and the possession (or possibility of acquiring at a competitive price) of roir maUru,l. There are .eeondary consideration., .uch a. a Ztl:^y '""'- "'"' '"= '''"''""^ "' ■»""»"■ •"■' "» '-«<"-« .nd^?!^ "■ «' "'° ."? ^"°"* '°»'="'"' """»'f«'='"ring is most natural, and if efficiently carried on. most profitable. Where onlv one of them is found, the possibility of profitable manufacturing depend, on the cort of bringing the two info conjunction. Where neither of them i, found profitable manufacturing i,, generally apeahing, hopeless. Earlv Dfveiopment, of Manupactuhino. The early developments of manufacturing almort invariablv arose around «.«(er po„r.. Thus it was with nearly all the manufieturing to«i, of England. The stream, that flowed down from the central moor- lands of the North gave riM to the fall, and power, that were the origin of the manufacture, of Lancashire and Yorkshire. Thus it wa, also in Scotland, in central England, in New England, and notably with the powers arising from the great river, of Canada, and of the United States. The development of coal mining introduced a new clement into the question, which element, in moat ca.e., ha, become the dominant one. Except In a few centre, where water power, are found of prodigious magnitude and continuity— inch a. Ottawa, Minneapolis, and Kew.atin, the power of coal ha, not only become supplementary to the power of M BANKINO AND COMMEBCE. w»ter, but hai almoit supplanted it. But even in localltlea where water power hal fallen almoit into diiuie, and great manufacturing citlef •re found at the pment day, whoae engine! are almist wholly run by the power of coal, it will generally be found that some water power waa the beginning of its development. Thus it was that several little converging moorland streams in Yorkshire were the origin of the lo«n of Sheffield, though the power derived from them is now iniinitesimally small. The little river Idle, which is hnmorooslv said to be the hardest working stream in the world, flows down the western sides of these same moorlands, and was the origin of many of the thriving communities of Lancashire, Manchester included. Yet hard as the little stream works, its total power and that of other streams like it is a very small factor in the total production of the district. Nature itself, that infallible mother of all forces, has indicated with certainty where manufactures may profitably flourish And it is one of the most striking developments of these days that water power is asserting itself again as a generator of Electricity. Suitable Loc.\tions. But though a given country, as a whole, may have the natural elements of manufacturing success, it is not every locality that is suitable for every kind of manufacture. Other elements have to be considered, and particularly the important factors of labor, economical supply of raw material, and the ease of reaching a consuming market. What particular manufacture will suit a certain locality has finally to be determined by these. It has become plain that flour milling suits Minneapolis, saw milling the OtUwa Valley, cotton manufactures New England, iron and steel Pennsylvania. Cotton spinning flourishes in Lancashire, but an attempt to introduce it into Yorkshire was a signal failure. Montrec! has remarkable facilities for a variety of manufactures, and a variety of them are therefore found in that city and neighborhood. So, by a natural process of development, each of the manufacturing towns of Canada has come to be what it is; and the best has come to he made both of our coal mines and the water powers of our smaller rivers, such as the Trent, Otonabee, and Grand in Ontario, and the St. Francis and the Chaudiere in Quebec. And what is true of Canada is true of the United States on a much larger scale. In a forest covered country, as most of Canada was originally, the most natural form of manufactur- ing was sawing up the wood of the forest into lumber, or hewing it into square timber. Both have been the source of great profit at one time, both have caused gickt lasses at another; the profit and loss having been generally traceable to knowledge of the business or lack of it ; but sometimes to the chances ,:nd changes of winter and spring. But too much or too little snow in the woods, or too much or too little water in the river, may spoil the labor of a whole season. But n person who has been successful ns a maker of timber sometimes MANUFACTURING. gf rondiUon. of „|„el, W ha, h.d no experience, and r„i„„„, Io.,e. have followed ll,e expenment. Mill, were bnilt where the best condition, did not exi.t, and profit frittered awav in cost of hauling one'^twtnr"?-,'^'""" ","'" "^''^ "" ^ ""■''^ P^P"'" •"<> one that will enta, constant lo.. nay be only a difference in l«,Uty of half a dozen m,le,. To Wate a miU on one ,idc of a .tre.o, or the other, or on the eastern side of a hill instead of the west, may make the difference to the owner of a fortune or ruin. The .ame principle applies to another natural industry of Canada, the flour nnll; a business that has undergone a rtrikin,;' development corresponding to the development of the country. The gristing mill of former days, often buried in the wood., picturesque in a„pearance, w,th the rudest description of equipment, ha. been necessarily replaced by the substantial mill of these times, contiguous to a railway or naviga- tion, equipped with modern machinery and perfect appliance, for power and transport. '^ At quite an early period there followed woolen mUl., tanneries, and pork factories; and, somewhat later on, breweries, dLtilleries coal mines, iron works, fish-curing establishment, and implement manu- factories, paper mills, etc., all of which are indigenous to the soil, and work up the natural products of the country or its contiguous water.. In all these, as in flour milling, there have been enormous development, from the past to the present; and in all of them much money ha. been both made and lost. But there are now in the country manufacture, of a different dewrip- tion which have yet attained a high degree of development and give employment to a large number of arliMn.. These differ from the fore- going, inasmuch as the raw material they work up i. not a product of the country. They owe their inception and, in part, their continuance, to legMlative conditions, for which reawn it i. considered bv .ome that they .hould never have be -n set on foot, and have no right to be continued. (Many of them, however, have Tcry fine water power.) These manufac- tures, however, exist, and their development illustrates the importance of locality as much as those before mentioned. .Some mills have never been a success, and if they had been owned by private individuals the partio would long ago have gone into hankrnptCT. In other cases, after the diflicultic. that attend all new enterprise, had been overcome, succes. ha. been conrtant and remarkable. .Ul of them demonatrate the poinU in.l.tcd upon, vi.., that an ample supply of power, either of water or coal, an easily available .upply of raw material, good communication, both to and from the factory, and command of efficient labor, are the foundation, of success, without which the largest expenditure., the most efficient machinery, am) most economical management will be in vain. There must, in the nature of things, at some time be a pioneer ertab- liahment in the caie of every manufacture In every locality. It is not il m BANKING AND COMMERCE. ■eldom the cane that a large amount of money U lost while the experiment la in progrcit, even if nucceu be atUined ultimately. Some of the well- ertabliihed manafacturcs of Canada were commenced by men who were not diicouraged by loifes at the outMt. They persevered, but not on the same lines. They tried experiments, found out defects, introduced new methods. Thus, sometimes very slowly at first, but surely, they dis- covered the art of not only making goods but making money." Closely conectcd with the matter of locality is the practice, once so common in Canada, of municipalities offering inducement to manu- facturers to establish their business amongst them. This practice is unknown in Great Britain, and it has been of doubtful advantage to this country. For it is certain that unless a manufacturing business is estab lished in a proper locality it cannot permanently succeed. The great centres of manufacturing industry in Great Britain have not become so by chance, or by means of miinicipal bonuses, but because of their facilities. ^Vhy are they all found in the North, or in other localities contiguous to hills.' It is because of the water power originally found there. In the early days of development, when a district is only imperfectly known except to the people therein, these, knowing the district to have advantages, may reasonably call attention to them, and offer inducements to a mannneturer to establish himself amongst them rather than elsewhere. These inducements Mill offset the risk of building and bringing capital to a place hitherto unknown. Its success as a seat of manufacture has to be proved, and it may take years to accomplish it Remission or reduction of taxes, or an actual bonus in money, may therefore be offered without violating any economic principle. If the place proves to have the advantages claimed and the parties receiving the bonus have capital and rapacity, the experiment will succeed, and other enterprises follow. Then bonuses should cease. But when the people of a town, simply out of a spirit of ambition, or what is called enterprise, seek to draw manufactures to a place without natural advantages, the effort is foredoomed to failure. Any mann- fncturer. looking round for a s|>ot in which to commence operations, will beware of being tempted by n bonus to an undesirable locality. Better borrow the money at ten per cent., supposing it necessarv to imttTQw at all, .ind settle in a desirable locality, than get a supply of 2uslneu prtmiplea iruuBht to CHAPTER XI. THE BUOOIBBTUL KANUFACTUBER. CArirAL Rk^vircd — Pboprr Maciiinrry— Conhonhknti— Sillimq AaiNTf — Salm to Wholesalk Mibchanti — Ihiuranci. ¥T may at first sight xem ahnrcesury to make a distinction brtween A the successful merchant and the successful manufacturer. But the iwints of difference are important enough to make it desirable. Almost all that has been said respecting a successful merchant applies also to a manufacturer; hut all that applies to a manufacturer docs not apply to a merchant. In using the word "manufncturpr." it should be understood that, in this chapter, a flour miller, a tanner, sugar refiner, aaw miller, [lork packer, and hewers of squared timber are included. They all produce goods by a manufacturing process^ thopgh they are not generally called "mnnufacturers." To be a successful manufacturer implies at the outset that the goods produced are such that, speaking generally, there will be some certain demanti for them. There are goods which are subject to the changes of fancy and fashion: it is then of primary importance for a manu- facturer to watch these changes and regulate production accordingly. There are others for which the demand is certain. But though a man may be sure of selling the goods he produces, it by no means follows that he can always sell them at a profit. A manufacturer may have an imperfect equipment, or insufficient knowledge, or inadequate capital, in which case, so strenuous is modern ciunpetition, that to make profit is o;it of the question. Capital Required. With regard to capital, it is obvious that more is required for a manufacturer than for a merchant. A merchant buys the very goods he sells; and can generally buy them on credit; the only immediate cash outlay on them being for freight and duties. He can generally lease the warehouse in which he does business. But a manufacturer can rarely rent his mill or factory; in fact, it is almost a necessity for him to own it. The minimum capital on which a manufacturer can carry on business with ease, is that ext>cnded on land, buildings, plant and machinery. But it is certainly desir.ible for a manufacturer to have some capital beyond this, otherwise he may find himself seriously embarrassed, in a time of monetary pressure. It is only prudent therefore for him to allow his profits to accumulate until he can look circumstances sqnsrely In the face no matter what financial changes may transpire. THE SUCCESSFUL MAXUFACTUHEh. Proper Machikkbt. 71 Bui, though being in po.m.ion of .dequ.l<. capital, it mav be .afely Mid that a manufacturer cannot be .uccewful unleu he, or 'a manager nader him, ha. a facullf for machtn.rt. "nd ean tell, a. by inrtinrt, wlwtJier any particular machinery i> ieniceable and workable Thi« faculty, if he baa it, will enable him to make economical repair, and re- placement., or introduce improvement., perhap. peculiar to binuelf. For it 1. a necenity for every factory to adopt current improvement, when their merit ha. been demonatrnted." Here it i> that tlie faculty for machinery will have it. .cope. It mil enable a manufacturer to judge whether the new thing i. „ good thing and whether improvement., .o colled, will reallv imi.rove; or whether he cannot, by .ome alteration, make hi. own machinery answer the Mme purpoae. The proprietor of a large flouring mill, not" in Canada, once Io.t a large .um of money by hastily adopting a new method recently patented. The mill wa. at a .tandstill for some time while the altera- Imn. were being made, and its customer, were obliged to trade elsewhere Hut when the mill started again, although a great flourish of trumpet, had been made about the new process, it was found to make no better flour than the old and no cheaper, and in the end it was abandoned altogether. What Goons TO Make, and to Whom They Are to Be Sold. The question, however, now arises to whi.ii all that has been referred to is preparatory, vis., ir*o/ goods are to be manufactured, and to trhom and hatt are they to be sold.> It is not necessary in a tre.ilise like this to enter upon the specialties of the many line, of manufacture estab- lished in the country. The greater part of them are of staple products. But there i. thi. to be said, that it is highlv conducive to lucce.., even in the manufacture of staples, for the manufacturer to make a special article, and to brand it with his own name, so that it mav have a name in the market, familiar to his customers and the public. Unless he can do this, he will rarely make profit. There i. a general .and noticeable movement toward, specialising manufactured goods, and labeling them with a name which carries with it a guarantee of quality, even of such articles as flour, pork, whiskey, etc. The reputation once established, the demand is certain, and, in most coses, the profit is assured. But in such line, of munufaclure. a. cottons, woolens, boot, and •hoes, rubber goods, etc., etc., many varieties are to be found. .Some of •» Not tliat every new im In maolilaery Is to be adopted n. s.mn a> It ootnes out. A thlnE Is not nece.eartly »ood because It l> now. Tile patent offlo,, „ »a.bln«ton and Otuwa contain hundreds of model, or Invention., and of sup- posed Improveinent.. which turned out on trial to be unworkable. A manufacturer therefore, while keepln( Ms eye. open to what Is transplrint In the wsy of Im- provements, will b. careful not to spend money on what may turn out to be mere ^•ds, unless Indeed he ha, capital enou.h to enable him to .pend money In es- n BANKING AND COMMERCE. thtM, too, arc ifaiplt, tnil olhrn Hi* of fht kind whrre tutc »nd fancj liave «»«_t; inch u rolored and fancy cottom, woolcni and lilka. In agiicnitural Implcmrnli alM a coniidcrablc clement of taile and fancy haa away, and competition prevaila aa to the qnalily of varioui kinda of macUnea. For the wiie prodaction of Ihene clanei of goodi, Ihc same initlnctivc feeling of what mil •nil He aiaritct ii required, that haa been referred to in the ease of a merchant. CoNflnNMENTi. Failing, however, from Ihc cnnsldemlion of what la to ho mann- factnrcd. to that of hoir the prodiirtlona of the factory are to be toW; a wide fieid is entered upon, which brings the manufacturer into cloie contact with the banker. At the outset, questions arise as to whether goods shall be sent on rontifnmtni, or whether they shall It coade to reach the merchant direct; whether the services of a Mllntg agent shall be secured, through whom the whole product shall be distributed to tht dealer, or whether dealingi shall be with customers direct. With regard to consignmrnU, it has long come to be regarded as an unprofitable method of doing business. Manufacturers of goods for export have long seen it necessarr to establish such connection abroad that they can make •ajei. at definite prices and on definite terms of tia« and delivery; and will not trade except for what are called "firm ofen." Skllina Aornts. Manufacturers of cotton and woolens have, however, found the coB- v.^nience of dealing through a selling agent who will guarantee salea; or will accept himself against the goods that pass through his handa. It saves a large amount of olBce work, and seems also to save a con- liderable amount of risk in giving credit to a large number of traders scattered over the country. But experience has proved that though trouble and office work nre »aved, (»e n'sit remains. The selling agent himaelf takes the risk of numerous arcounts; and in dillicult times he may himself succumb. Hence it hag come about that while the ser\icea of a selling agent are retained, he is in some cases relieved from the responsibility of accepting against goods, or guaranteeing accounts, a diiference in remuneratioTi being made accordingly. The manufacturer then deals directly with llir customer so far as collectii^ is concerned, and takes the risk of giving credit. This arrangement is looked upon with much more favor by the banker, for obvious reasons. The practice of selling goods through an agent is found convenient in the case of factories located in country districU. The selling agent in such caae* performs the service of a well-informed partner. Being resident in a nieicantile centre, he can give the manufacturer advice as to changes of fancy and taate; and prevent him running on undesirable goods. L THE SUCCESSFUL MANUFACTUREH. 7f Suit lo WiioLiiALi MucHAxn. In Doit linn of nunafutare, the natnral count ii to kU to the whokMle iKKhut. In thU caur the manafactnrer will have large anwunti in hii hooka, npeclally in the timber trade, where it ia a common practice to aell the whole product of the year to one mercantile hooae. Thia Involvti eiceptional riik, and a prudent banker will be careful ai to diaconnting billa of the magniti-de called for unleaa a lien it preterred •n the good! until payment. But throughout all thete aelling arrange- mcnfi, where paper It required to be taken, a prudent manufacturer will nlwav. keep in touch with hit banker, a> to irAom to credit, and to irAai amount. The latt coune open to a manufacturer it to tell to the retailer. Thit la, or certainly wat, a commci practice in Great Britain, but It hat not taken root here, except Indeed In the cate of the departmental cIIt itorea, whote purchaiei are on the lame acale at thote of a wholeiale merchant, and are treated aa luch by a manufacturer. It It evidently not deilrable for the manufacturer to .ell to the ordinary retailer, for in that cate he will endanger hit trade with wholetale houiet.» Inivhance. In the matter of Iniurancc there It even a greater necettity for a care- ful outlook; for the damage to the butinett of a manufacturer by Are It ntually far more teriout than to a merchant It It much more eaty for • merchant to obtain new premliel and a new itock of goodt than for a manufacturer lo replace his buildlngt and machinery. The fact that a !• The method ot dlepoalna ot .uple export aooda by ccnelninieiit WM tjr- merly .Imct unlverwl, but It 1... ],- to .o maay loew. .. to have been Ura!!!, abandoned It wat an eaey way of dolni buslneea to forward rxide to a con.linea !!l»i'.„ML r .""." """"• *"* ""'' • M"™"*' •■•In" them, that percental, ta tre.IT:''™ nl^,'!/ ^"" '° " """" '" '" '"'""• Tl" maraln wool" iL^IIl. Ll^^, 1"" *°°" •'"""■ * '•'»'••"• ">"k«; aM "•ny an export., JSlnTl.H, M ".k""""? " " * ""'""• "*"' "■■'■ " -' -J'-lvln. ha. «l.n awaltM him on the receipt of Account ■)«, : m mnj easei th^-ro waa a halanee nialn.t him In.Md of to hi. orrdll wbl^b t l«nce l„- «a. called upon to nay. The technical name for thi. I. -reel. -..mien , ,„rd which ha. had an omlnon. .ound for many a .hlpper, and p o,. 1 .1., oep ,.nlni ot h .downfall. A con.lpiee wh.n hi. own acceptance. i.re rcmina -la*. .,,.1 market. »r. adver... rJi •»""l'"«^"'«u»l>'" hi. corre.pond.-r,l.' aood. An an»!rupul.. .. •on.lanw. T^rJ: •" advancln, mark., ha. been kno.,: .. .i:, ,,„d. ,„",!. ,.,,, .c^uM. randerlni a far Im favorable return than he -ou.I „■ ,,,,,.„ ,,„„ j„„ ^J, the tood.be.n actually «,1d. There .re, In tact, ajs d>. „!.,„ .> , , ,„, ,„,,„" •Wnlnr The manufacturer ha. not the adventaae ot tliat direct c^.n,., t «|ih .s, .^J " T " "" """* elBclent check, npo., hi. bnelns., I, he cili. JJ!!; 1^^ not know for w^k. that hi. r»d. ar. un.ult.ble or badly m.nufa,,. other be will at once chant, hia method, overhaul !.l, m.chinetv ,r boy mora .. . ""' •» "><>u«l» dimcult to arrant. Mie. with buyer. aci,». .„> ,.b but «? t°o v^-T::" '"•""'«■»«"■■ '"••'"• to open commun,'i',rn «,,"', '4 muni™.7™ ,. ,' ^"? " ««"»"P"<"> •'"•* and In thM. day. of .,l,i com- munlcatlon It la bwcmint eaay to do it. ^^ u BANKING AND COMMERCE. BuafActory it ottullr writ built, or tb«t it h«i anuiuAlljr good fire pro- lection^ ibould never indnee a maaufActurrr to diminiih iMurance. He (Cti the benefit of hii good appUsncu in » lower rote. But to dimtoJih tbe amount !• opt to prore a terioue mietskf. Another factor in manufacturing sueceM moit finally be noticvd. It ti that a Duuiufacturer ehoiild be aboot hi* worki earlj in the nwming. One of the moet couplcuoui Inttancei of tnannfactur.ng lucceu that Canada has knoim, in which, from imall beginningt, an rnormoui and nuMt profitable bnilneai had been bailt up, was characteriicd by thii fea- ture. One of the principali was alwaji about the eitabliihment ai earlj at anj of the workmen, going from floor to floor, from room to room, from department to department. Doaty and dirty he was as anj workman In the building, before breakfast. But n few hours later the same man might be seen on 'Change, in the bank parlor, or in his own oiBce, guiding the finances of his large business, or attending to operations involving the welfare of men in all parts of tbe country.*^ With regard to other elements of success, all that has been said of the merchant has an equal application to the manufacturer. ■0 It Is omoncst th«M Ura* and dlvemlfled apheres of Induatry. torn* m«r- ctntlU. torn* manuracturlna, that banka Hi their principal field of operatlona: their mod* of daallny with aach will b« fully opened up later un: meanwhlla It may b* otMcrvad that It would be of extrene Intareat. thouah It may not b« poaalble, for a apMlal Oovarnment return to be publlahed. say once a year, ahow- ing bow much aaelstanee the banks were rendering to the varloua llnea of Indus- try In the oountiT. CHAPTER Xn. ELmuTS or suoomruL bakkimo. Wht * BtKKn CoMii ArTiH a Muchant axd MAXurACTiniR— Phi- •i»«v Elehehti or SicctM-CAFiTAL— It« Miximum— How Di»- pouo or— I.OTATIOH AND Sttli or Owwicr —OtriCIM AND CimH —Till Maciii.vi>y or thi Orricr— Ultimati F.no axd Siumixo Vr OF What a Bankrr Shoi-ld Be. TX n Irenliw on bnnkinu and commcrM it li |>erfccllr in nccordoncc with ■i- the rrinon of tilings lliat tlw succruful menhant »nd lOMrMfal m«n- ufni'lurcr slioiild !«• Iri-.it.d of beforr tlie lurccuful bonittr. There mait br inirolinntt niid nmniifnrturers before there can be a remunerative buiinru for tlie banlsrr: and unli'u there are »ueceMful men in thi>e call- ing», a blink, r. though lie may take care of the .lurplua money of the community, will tind it duii^.rou» to lend money amongrt Iheui. He will he proicd to do this beyond doubt, and every kind of influ- ence will be brought to bear upon him to induce him to comply. He will, for example, be told that he- mn»t do bin duty as a citizen. The town ■upportl him, and he ought to lupport the town. Il ia a matter of plain obligation to help its indurtries along, for these, it will be aaid, are the very foundation of his own business. So the people will say, and what they say is anfliciently plausible to make a strong Impression. But many n banker has had to sulTcr severely for listening to such representations. In sui 11 circumstances, (hat is, when t!.ere are few desirable customen In the locality the banker will b. oNerid high rates of discount. From •ome of the applicants In know, that he could take, practically, what- ever he pleased; and from the best of them, or those who seem so, he will be offered rates such as he might think wouH enable him to provide a safety fund. But on the supposition that the business of the town is in such a state that there an .as yet few or no successful men in it, high ratet of interest will lie no proteelion. Xo safety fund can be built up that is large enough to offset the hisses which will inevitably ensue. The successful merchant and the successful manufacturer therefore must come in order of time before a banker can do a successful business."* •1 It ni8>- be said that such a state of thlngti as has bevn Imaalned thus far Is Impossible. But experltnce retuw. this opinion. A case Is kno»n to the writer In which In the collapse In a cerlstn town of a remarkable "boom" every sinde storekeeper In It. except one. fallen. The town Itself became bankrupt and could neither pay Interest nor principal on Us Indebtedness. Its popubitlon de- creased from 3.500 to 700. Its main streets became jrass-lrown. and handsome bulldinvs became tenantlesa. Of the money lent by a branch bank In that town more than thtee-tourths was lost. If the banker had been a private Individual. would have (one down In the crash and been ruined beyond redemption. This case was In Uanltoba. but even In Ontario the writer can recaU in- MKXOCOPV nSOUITION TBT CHA (ANSI and tSO TEST CHABT No. 3) 1.0 12.2 120 /IPPLED IIVHGE 7t8) ««J - 0300 - Phw.« 76 BANKING AND COMMERCE. Bill now on the supposition thnl in n certain locnlitv sullioiont savings hnve been aceumulnted to give business to a bunker, and also that there are a nuinher of prosperous men of business in the locality! what are the elements that make a banking enterprise successful? (1) Capital is certainly as much a necessity for a banker as for a merchant; for, speaking of him in this personal style, no man can ex- pect a community to trust him with the care of their money unless he has shown ability to take care of his own. (2) But how much capital ought a banker to have? WTiat is reason- able in the case? PuHing aside for the present the private banker, it may be noticed that the legislatures both of Canada and the United States have dealt with this question in their banking laws." In Canada, where the system of chartered banks inuing cireuliiliiin is firmly established, the Bank .\ct provides that no bank shall possess a imdler paid-up capital than |23O,O00. This sum is certainlv small enough for a corporation which has the power to issue notes for circula- tion—which notes arc, in effect, guaranteed by the whole body of the banks of the country. In the United States, however, every banking office is owned by a sep- arate corporation and some of them, owing to the absence of the" branch system, are permitted to he organized on a capital of only $85,000. This must be conceded to be running near the danger point. It cer- tainly imposes upon a bank of such small dimensions the duty of incur- ring only the most moderate risks, and confining the business within limits more like those of a storekeeper than a banker. England has no legal requirement of minimum capital in banking; and the tendency from the beginning has been for banks in England (as distinguished from Scotland) to have a smaller capiUl in proportion to the business done than is common in Canada; the Bank of England alone excepted. The reason for this is twofold; First, the branch system, until lately, has never been developed in England to the extent that it has in Scotland and in Canada. The banks of England, as a rule, do a much more hcaliied business than those of Scotland and Canada. Secondly, but a more important and pertinent reason is, that business conditions in Great Britain are so much more settled that banks may safely work on a smaller relative capital than is necesary in this country. stance, almml enlnUlnB It In dlw.ler. During a period or heavy eollapie Ih. losses .urterrd by liank! In certain towns have amounted to a largo peroentags of their assessed value. 1! There are no law«, properly jpeaking. In Canada, on the .abject of private banking, though, as experience has shown, some regulation, might have been embodied In .peelllc legislation with advantage. The only provisions affecting this class of bankers .re contained In two clauses of the General Banking Act vlr., one to prohibit them from Issuing circulating notes: the other to prohibit them from assuming a corporate name, such as that of the -Irofluols Banking Company, These provisions are obviously reasonable ELF.MEXTS OF SUCCESSFUL BANKING. 77 Beyond the nii»imi.m required by the Banking Act the member, of e»eh c„,por.H„„ in Canada decide iV the,„,clvc,lhat thl cT, W ",al tty r,:-;:tst °" '"^ ""-"= "■^•' '■"™'' '° -^-p^' •"■> "™ '- ,omf b?.! „*'°r'''"? '"'"':' '""^ "'"' '"^°'ll"""" in »n>all town,, and At the other c, d of the scale is an immense corporation like the Bank all ovtm; "■ '" """ ■'"''' '•" " ""«^ ^""■--™' centre brancTe' all o,er the I)„,„,„,on, agencies in the United States and England and d,«ng bn..nc„ no. only with the mercantile community but wiU, ™vern mcnts and great railways. "iui go.crn or ml"e:"""""°" '""^ '"'' '"" «"" """^"^ '"* a capital as $14,000,000 .0 $wo"oo.''"' ■'""" "" '■""'" "'"' ^'"'""' "■"«'"« f'- ^^o-ooo tinn^'"!!'!"* ""","" '"'""™ "^ " '"'"'' '""" "' ""K"'- "•« fi"' considcra- tmn wdl be ,n„.„tfon« shall the capital be held Wfore business i ac u- atin rrbaL W """'' ■'" ''"™"' "-'^ '"'""™ •■■'• -quiring tit haveH ■ ? ^'^ commencing business under its provisions shall have he whole amount of its capital in cash. To ensure this it is re qmred that the cash shall be placed in the hands of the Govemm nt^^and that no business shall be done before an authorisation is issued. A bank before opening for bnsiness in Canada will need to arrange for correspondents in England and the United States. Much will dfoend upon a proper choice and satisfactory arrangements in these ZLrTn Will also be prndenl, as soon as possible, to invest some portion of the cap- ■tal ,„ reah,„ble securities, and not hold the whole amount for discount- »h.eh the bank would begin to incur to depositors and noteholders, and yet bear a moderate interest. They are useful also to further needful arrangements with English correspondenta. Moreover, the holding of .uc^h securities strengthen, the position of the bank, and it. credit with the Thk Arrangements of the Office. In the choice of an office, two question, arise, the first of which will be it. lorMj,; a matter of a, much importance to a bank as to a merchant. It should .f possible, occupy a corner, for the «ke of light. It should be in the wholesale quarter of the city, or if there be no such quarter, then not far from other banks if there are other,, not far from the post office: near the market, or the exchange, or board of trade; and also, if po.- Bible, near to the retail shops. A building will naturally be rtnM at the outset, for it would be im- prudent to devote capital to building at so early a stage, and one should be sought that is .uUt.ntially built, . good lire risk, with other good Ml 78 BANKING AND COMMERCE. buildings about it. mid with a lofty main floor to give the bank a respect- able appenrancp. As to the intcrnn] t'coiiomy of the oHice, convenience for doing buiinett should be the dominnnt consideration, and not show or ornament; too much of which Hisplnys hnd taste, though the fittings should be solid and as good as money can buy. Light should be cnrefuUy studied in the internal arrangements, for it is of the utmost importance both to those who handh; money and those who keep books. A bad bill, or forged paper, may be discovered in a good light, where it would be passed when light is dim. A mistake also in bookkeeping M'hich would be readily apparent in a good light may easily be passed oy when light is insuflicicnt. The next important element is a judicious choice of of^cert, who should be men who understand their business, and display civility and attention to customers and the public. The subject of officers, the divi- sion of their work, their duties and qualifications will be fully discussed later. It will be suflicient to note here that upon a proper selection of officers, a convenient arrangement of their work, and an efficient system of check and supervision no little of the success of a banker depends, especially in times of competition. Without going into detail as to Mnat constitutes the special qualification of each, let it be noted that there are certain qualities which are essential to the success of any of them. A bank officer should be of good character, honorable and tnutworthj in the instincts of his nature ; in fact, he should be what is generally un- derstood as a "gentleman" not in outward manners merely, but in charac- ter. He should have a good natural aptitude for arithmetic and have been well trained therein. No matter how intelligent and well educated a young man may be in other respects, a want of aptitude for arithmetic will prove a fatal bar to progress.^^ A bank officer should write a good plain hand and make plain figuT Jt. Many ^ mistake, costing the labor of scores of hours of officers to find out, has been occasioned by carelessly-formed figures. He should have a good general education. What is known as a good English education may be said to be essential. Som^ drilling in mathematics, as distinct from arithmetic, will be found highly useful as a young officer advances in his profession. A university education is not necessary in the case of a young banker; indeed, it is rather undesirable than otherwise, for to acquire it a young man will be carried too far on in years before the long course of training begins to fit him for the work that is to occupy bis life. 3B A former General Manager and President o( the Bank of Montreal wa» well known to have an extraordinarj' faculty for arithmetical calculations. To this he owed all his early advancement, and some of his later remarkable success. He had, of course, other prominent qualities which would have made him a notable man In any sphere. But it was his arithmetical faculty that laid the foundation of his success as a banker. ELEMENTS OF SUCCESSFUL BANKING. 79 oivii?,?'' f'Z"' '""' .°,',''" '•"''''">•'•"• "••l""- "> <•'■">»•»(. habit, of cml.ly „„d pafence All .oris of people are to be found at the oouMler 01 a bank. Some of tnen are ignorant, who want mueh telling what to do; some are .mpalient „„d unreasonable, who are nevertheless good eus- TZ': f . °"""J'''° " '"""' ""■' ""P"'™' ""• drive .wav both e asse. of customers. He will need also to enltiv.te a habit of re/iceaee It ,s a e.rd,nal rule in all banks that elerks and ollieers must never talk on s,de of w-hat they see or hear inside. The whole business is conHden- tial. A banker who ,s master of his business will, amongst other things, suffieiently understand human nature to gather about him sueh men a, are here indieated. One bv one, and during a eonsiderable time, he will pur- sue th,s .■nd, seleeting and training hi, offieers until thev are thoroughly ■atrf^et > 7 """ "^"^ '"■"' " '""'■" '■''" ''"y °" l-i' business satisfaetorily so far as its internal eeonomy is eoneerned, and fultil the purpose for whieh the business was commenced. Thus far with regard to a banker's staff and machinery. A banker howenr, ■..«>• carry on every department of his routine business elticient- Jy, and yet fa,l ,n the essential object of doing well for himself. He mar f..l so fa, as not only to lose part or the whole of his own capital, but . part also, or even the whole, of tl'e money deposited with him. These unfortunately, are not suppositions and possibilities onlvj they have be- come in not a few instances very exasperating facts; casing distress in thousands of households, and embarrassment to men in business. Suc- cess then, to the banker is primarily wh- it is to the merchant, vi.., that be should contmue to fulfil his functi, ad meet hi. daily obligations to the end, prcservmg h.s own capital in. ., to say the least, but adding to It trom time to time in prosperous seasons until he accumulates a re- serve fund to provide for contingencies. For, as a merchant desire, to increase hi. capital until it amounts to a competence, so a banker, with equal propriety, desires to aeenmulate such a surplus, after a reasonable distribution of profits, as will amount to a reserve sufficient to render im- pairment of his capital impossible. But to attain this he must be thor- oughly „u fad in the art of lending money and avoiding lo.se5. \ sum- ming up of what the banker should be himself may be indicated as fol- lows : (1) A successful banker, like a successful merchant, must not only understand the theory and practice of his business and the law. with which it IS carried on, but must, a. a rule, have gone through such a pre- paratory training in the office as will enable him to .ee that every part of 11 1. earned on with economy and efficiency. (2) He mu.1: possess a sound judgment, and be able to discern be- tween good loans and bad, desirable account, and unde.ir.ble, and have such a knowledge of human nature as will enable him to know whom to trust and whom to avoid. W He must possess, and keep himself possessed, of a good stock of Information, well-sifted, and kept up-to-date. 4 I 80 BANKING AND COMMERCE. (4) To rnnblc liini to make a right use of the qualities, he mult hare a well-balanced cliaracter, vix., a due combination of caution and enterprise, and neHhcr of tlicm in undue measure. Excess of caution will prevent him from taking up accounts and transactions that are safe^ for to the over-cautious man risks loom up in unreasonable proportions. On the other hand, if a banker has an excess of enterprise he will take up accounts that arc undesirable, enter upon lines of operation that will result in lock-ups or losses; and so conduct his business with regard to reserves as to endanger the bank's very exist* nee. The over-cautious banker may lose oppc/tunities of business, but tlie interest of depositors and stockholders will always be safe in his hands. The ovcr-enterpristng banker will always have a tendency to enlarge his business beyond safe bounds, and possibly place himself in the position of being compelled in a time of pressure to ask assistance from his more prudent neighbors. (3) The banker should have firmness and strength of character, com- bined with ^>od will and courtesy. Of these the first are by far the more important. While a banker, in his intercourse with men, is bound, like other men, to be courteous, he has to beware of being what is generally known as "a good-natured man." For a man whose predominant trait is good nature and benevolence runs r^rcnt risk of becoming the prey of schemers or enthusiasts. If he is a banker on his own account, he will almost '-ertainly ruin himself. If he is an officer in charge of the general bu. iness of a corporation, he will almost certainly bring it into embarrassment. On the front page of the New York Bankeri' Magazine there used to appear the following motto: "Favor and b'lteijLnce are not attributet of tound banking. Strict juatice and the fulfiltment of contracts are its essential elements." This witness is true. It is the commonest of truisms that a banker must be able to say no, aad stick to it; but, on the other hand, a banker who is always saying no will drive away good business. If a banker gets a reputation for being crusty and sour-tempered, people who have desirable business to offer will avoid him. Such a reputation will not drive away men of the unde- sirable sort; for, as a rule, they care nothing about the reception they get, if they can only get the money. But men of standing and position, who know that what they propose is reasonable, will not put up with surly criticisms. The old Latin motto, Suaviter in tnodo, fortiter in re, exactly ex- presses the combination of temper needful to a banker. Courteoua in manner, he will give even a negative answer without giving offence; firm in his position, he will maintain it in spite of all the importunities of cus- tomers if -yhifit is usked is undesirable. (6) A banker should have a shrewd judgment as to subordinates. Men have various capacities; and to know how to put "the right man in the right place" is all-important. Especially is this the case under a banking system like that of Canada, where branches are put under charge ELEMEXTS OF SUCCESSFUL BANKING. 81 of men wlio exercise almost nil ti.e powers Biven to the eor|iornlion. On the exercise of n sound judimient in tliis respect, a Inrjje pnrt of tlie suc- cess of a joint-stnelc bank with kranclirs depends. FinaU.T, it sliould be said, tliat a banker especiallv in the highest |iost. needs to be a man of eonsider.ihle "nerie." There alwojs have oreurred, at times, and always will occur, crises, times of difficulty.' (iiiergencies that could not be foreseen, ai.d sometimes startling events that com; like "a bolt out of a clear sky," sufficient to try the nerves of the strongest man. A great bank suspends payment: cniifidenee in all banks is shaken, de- positors and riotehold. rs crowd ri.iind the counter all day long, and for days together. In these eircumstances a banker needs to kie)] Ills head cool, and will not only avoid yielding to panic himself, but will be a cen- tre of strength and contidenee to others. Two inslanei's of this kind of courage and coolness mav be given. On the occasion of the failure of the Commercial Bank of Canada, some thirty years ago. a panic seized upon the public of Toronto, and a severe run set in on the banks having their head offices in Ontario. Their counters were crowded with an excited nmllitude for several days, and one of the banks bad to be supplied with gold by its strong neighbors. There was excitement in Montreal, too, and on the third day a telegram was received from a well-known public man there stating it as the opinion of some prominent financiers that a general suspension of specie pay- ments by the Western banks should take place. This advice was under consideration by bank presidents and directors in Tormito. ami some were so alarmed that they recommended its acceptance. But the Cashier of one of the banks, a young man, strenuously opposed such a humiliating course, and declared '.hat so far as his bank was concerned, bis advice would be to stand out to the la.st dollar. This counsel jircvailed, and the banks were saved from a step which would have damaged their credit be- yond recall. Shortly afterwards, a step was taken by the Government which stopped the panic. The other case was that memorable action of the Governor of the Bank of England on the occasion of the >r:sis which had overtaken the great firm of Baring Brothers. This is referred to elsewhere, but mav be briefly noticed here. Had that bouse suspended, some eighty million dollars of bills would have gone to protest, followed by an incalculable number of failures in all parts of the world. The prospect of a world- wide financial panic was sufficient to shake the strongest nerves. But the Oovernor of the Bank was equal to the occasion. He clearly perceived it was a case for the co-operation of the whole hanking interest of the United Kingdom, and called on every bank of importance to join in tak- ing the risk of paying this enormous amount of bills on the security of the assets of the boose. The call was responded to at once. The risk was divided amongst the banks without difficulty; whereupon the Bank of England made it known that arrangements were made to pay the bills, and the whole finanuial world in every quarter of the globe breathed a •igh of relief. The courage and coolness of one man saved the situation. 11 ly ''. ,'i ;l" CHAPTEH XIII. THE BANKERS INFORMATION AND OTHER ELEMENTS OF BUOCESS. iNroHMATlo.v Xeces.ahv T(. Slcci;.«fii. Bankixo— Chauicteh and CaPACITV of BoRROWEBS— FaIMHES IN BlUlNEM— AmOINT OP CAP- ITAL— FaSIILIAHITY WITH Banking Lavi«— Deaiino «nii Embar- rassed BoRHOHEBs— Knowledge ov SEriRiTv V'AtiEs— Cheuits— Mercanhle Agenhies — ExniANoiNG Information. ' I 'HOUGH n bnnkcr lias promdrd so fur .is lo have iidequatr rnpital, i line aulhorUnlioD, suitable correspondeiils, and well-equipped office and staff, he will find himself utterly unable to proceed in the way of making profit, without an adequate stock of information. If a young banker has passed through the grades of a banking office, and acquired proficiency in counting money, keeping books and handling securities, he may fancy lie is well equiri>ed for business, but this is only one-half of a banker's business, and by far the easiest half. It is when persons come with proposals for Loam, or for the Ditcount of business bills, that the banker finds the necessity of another sort of stock than money; .ind another sort of capacity than handling it. A iierson, for example, eomes into the office, with a proposal for a loan. The banker has funds, and he would be glad to employ them. But he is at once confronted with the question, who and what is the person proposing to borrow.' Who and what is his proposed endorser? What il the real value of the security he offers? The primitive banker, sketched in the beginning of this tre, iise, ■ wealthy and successful man of business md long esUblished in the com- munity, knows everybody in it, and haa already this valuable stock of information at command. He can proceed safely enough in the busineu of lending. But woe to the unfortunate banker who would attempt to do a loaning business without information. Information, then, being essential to successful banking, and to suc- cessful trading, too (for Kinking and commerce in this respect are close- ly connected), it is proposed, at this time, to enter more fully than here- tofore into a consideration of the whole subject. There are four gener.il heads under which may be gr 'ped all the information a banker needs as to the periom who propose to negotiate loans or discounts with him; viz. — 1st. Antecedents. 2d. Character. Sd. Means. 4th. Experience. THE BAXKEHS IXKOHMATIOX. 03 .nd!lt „°fM'"' °'""': ,'"'"'« "'■ <<"■'>"<<•'>■"'•> |...„li„rHi.., of i,. „.„, ■nd ewll of ll„.„, r.iiinfi, » into ,„„„i.,„„, ,„„tiiiilnr. For ,x.u>,|,l,- will, r,,|,...l to ..|,ara.t.T (for II,.. „|«v,. n,,,! „ot I,, upnghm.. .; ,|,„ „ „,„, „ ,„„„ ^„„ ^^ ^ , . I prom,.e,. to ,,„.„k tl„. tn,(l, „,„| ntt..,„|,t n„tl,i„g „„f„i,. ' ' of A" r" *''ir""-'' "''l'"''i"'''' »« i' »l"'"l „,any „„ll,„„, of „„el, eon»i,t ,i,„p|.v of ..i.e,, of paper „„ ." ™ '»';„w"i"'t?' '""■■' ' rr '" ""■'• *" ' -'" '- "-«' ""-'"'•"" a lie a, the hond, „, g„ ernn,ent,, or other eorpora.ion,, are nothing b,„ pron,,e, ,„,,„,. eerta.n ,„„„ey, after a ter.n of year,, whiel. pro,„i,e, may be kept or broken „, eircnnstanees develop. Sueh pr„,nij, to thl please „), and bondholder,, on endeavoring to enforee perfo™,anec by law have epeatedly found lhe,n,elve» baHled and disappointed. Certainly of perfomianee, therefore, i, the foundation of all dealing m pron.„e„ and ,1 „ only when a high degree of -eliabili.v i, re.acl.ed .ucZ'.°"' "' "'""°"" "'" " ''"■"'" '-■ ""'y "" '^'■-"» »"h to nl """'''"'■■ "' ,'° ""'""■■"" " ■'■"'-' - ""Portant a, reliability a, to pro„,„e,; ,na„„„eh a, a banker', bnsine,, i, largely founded on" the repre.e„,„,„,„. n.ade to hi,,, by hi, eu,to„,er,. The^ „e degre , ." r ! l.ab.l.ty ,n ,„en. One Mill „,ake .nisrepresentation,, deliberately, from ..n,erup„lo,,,ne„, another fro,„ a ,„„g„ine ien.pera.uent. and the, 7Z fal e though ,t „ rare for men to go so far, „nle„ in an extremity, O he (or the same man „, other time,) will eolor representation,, l m,n,.h,„g ,„,„e tl„„g,, „„rf exaggerating other,, makiig the favorable po,n , too prominent and ke.ping baek those that are u'nfavora ,le the hood has been spoken. Beyond all this lie, the terrible region of fraud TllT'-' " ; " ''""""" '■""'" P"""'"-' '" P"-" for liseount, of wh,eh the ,up,H>,ed pro,„i,er never existed, or, •' he exists, that he n^ver A |.r<,l™ted bin I. nothing but i broken ^oml.. v"?"*'"" J"""'" '" EnrlanJ. ba.ln«» In Eniland Ha. e .o,eldom baa ME^;„r', 'i""l '""''" "»'"« « '"*• .ue- . „„, „e„ „ did happ^i-r ti'lir.', ^ 'dV.lSoi'S' aXJeT" ""°" BANKING AND COMMEnCE. Wlu-ii n iiinii liim gwnv no I'nr nn tliix, hr hns put i)iii))ti>lf nut of tlie pnit' of Ixink dcnlingN. His proper plnrc ii in the rriminnl dork. Vabyino Drorees or Reliabilitv and Capa(itv. 'lut npart from such a cn»c ns tliit — iK-twri-n the mnii of alisolutr lion- rsty wlio can W relied upon to prrforni liin proniiae. no ninttrr wh.it it tuny rofit hhn. mid tlir tix-n wlioir word rniiitot 1m' relii-d uiKtn nt all, tlirre (irc ninny drgrtes of reliableneu. Men there are who on all ordl- niiry ocennionit tell ^hr truth, but whoir moral courage I'niU them in an eiuergetiry. There are nthrrit who have a character for nmkiiig uiisstate- tneiits to their nrighhors. who never try to deceive their hanker. The hanker learns hy i xperience how to balance conflicting re|Mirt!i. lie will note whether statruients may In- made from per^oiiitl prejudire, trade rivalry, or )tolitieal nnlngonism. p'qually will he guani againtit being niish ' liy stateiiuntft of ;i f.-ivorabic nature tliat cireumstauces do not jus- tift ; rnr this in llie more dangeroufi of the two. The one wmild lead to htss of business, wliereas the other would lead to a htss of money. And, as Mr. (iilbart lias well observed in his Treatise on Hanking, when j banker has a written re)>ort on a customer lieforc him, he will note af nmch what is omitted, as what in said. A man may he eminently honest and truthful, yet it might he very undesirable to lend him money. There are honest simpletonii and truthftd visionaries. There are men who m-IuIc scrupulously careful as to prrf'onnitii^ prom- ises, are raNli and sanguine in making them. There .Tre men who enter upon business operations who arc forc- dotimed lo failure from the outset. A hanker, therefore, in the course of liiH loaning operation?), must direct his attention not only to honesty but to capacii't. This (piality. like honesty, has many degrees and varieties. It is a composite nualily. made up of various elements which are to Ik- found in various combinations in ditTerent individuals. Some of these arc essential, such as gimd judgment^ and common sense, together «'ith a due combination of caution and courage; not an over-developed cautiousness, for in this case he would be afraid to run rensonable risks, nor an overweening courage, for in that case he will venture into rash operations. Capacity such as will make a man a desir- able lM»rrower is a sum of desirable qualities well and reasonably com- bined. For example, no man can be a desirable borrower from a bank who is not abV to put forth strenuous exertions in emergencies; foi such contingencies occur in every business; and if he cannot meet them he will be overthrown. If a man is given to pleasure, and spends too much time in the enjoy- ments of the table, especially in drinking, he will prove to be a very un- desirable customer for the banker. It need scarcely Ix" said, except as a passing allusion, that all vicious pleasures must l>e shunned by every THE BANKERS INFORMATION. «, zi :!::w::Jz!. ^''"'""- '*""'"•'" "■■■- '-""-^ "-' '"'■ A bn.,k,., t|„.„ 1,„. ,1, „„ ,o,rg„i„g ,,.,|„,, ,„ ,„„.i,,„, i„ „,^|, , who I. ™,,.,l,lo nnd ,«..,„,„io„|, if |,, ,. „„, ,,„„,„, „, h„„,rt """ lircuMr, 111 t,.,ki- llif loroijoing |..iinl. into »coount. n,i- »,./f,Wf«(. of „ m,„ „e g,-ner»lly more .„„■ (o „,„,..,,„ Ih,„ borho<.i. Wl,r„ ,o«rvor, „ con.id.r.ble p.rt of r. per-o,,-. o»rr.r L .f" ''T '" " ''"'""' '"""'''•'■• " '■ """•"'""■• "i*""" "> """. at th" irull,. K„q,„r„.. „. ,„ „„,e,ede„t, obviou.ly g,thrr .b„„l „, l„d- r/err '•■, I " n'l ■"; ''''^"'" '" ""' "' ••"• ""' •»•- •"«"-"? H" U a . till ; '"' '""•■''• "'" '■"■''■' «'•" -"-».t.n«..> W. hoM Tl, "■■"" ''^■P"-"'""' «'>™ "« '^""Xft fir-,. co„ld «.„rcely hold their own, or w... it when affair. In the commereial world werrw^2 mg .mooth ly? And what wa. the r„,„„ of hi. failure? wji ineot pet nev, idlene.. o. extravagance? I,id he over-trade or .pec, la"e T, ng Ha. he fooli.h in crediting, and did he let every .l.iftle,, feMow in the e„„,„,„„i,y tak. advantage of bin,? Wa, he lining in ^ «„ I whrr ^?.'°? *"r " ■'"'*• •""•"■• '""■""« - t.'^ing p,opert; when he ought to have kept the money in the b,„ine,.? P™dent bank™ W.II endeavor to ascertain in addition whether he got a .ettlemc" and how he got it. Also what did hi, creditor, think of S; opecianvThA did h.. anker think? Part .,r.v, wa. there any .n.pi;ionT Li^ al^ 1 b.. fadnre or any attempt .o take advantage of the ...y p^vWorof bein;trrer.n"lr """'^ "' ^"'"'"« ''-"' »' '^ -"-■ Ihi, kind tr "'f "1"^ T ''™"" "" ''*"' '■""'«'' '" '"q-i'i" of faded nnder any e,rcum.tance.. I, .„„«, perhap., work to hi. di.adv.1 Uge at t,n,e,, for a man who had learned le„on. from experience m^ be condnefng a v -ndenl and pr„,pero,„ bnaine... But it i.'ee^ n Z' one who ha, fa.k i. apt to fail a ,eeond time. When time, of difficnl'y oome, a per.on who ha, once failed, i, .trongly t .pted to give up the struggle even when really .olvent. K"<: "F me A banker may aI,o re.,onably enquire whether the man ha, had fair "ere., ,n bu,ine„, whether he "got on" a. the phr.,e i,. One who h.^ barely kept hi, head aWe w.ter may .ometime, p.-ove an ™d«irab" cn»,e,, and yet have pa.d hi. way, and maintained an honorable repula- t,o„. Such men although they do nrt accumulate money, are, .ometime. the very ,. 1. „f the earth," and among the ,.fe.t of a banker- cu.tl™ i:ii .!»« 8G BAXKIXG AND COMMERCE. Amoi-n't or Mcwf oh Capital. The tliird mnttrr riniHctitifi wtii<>li iiil'oniintion Hill nntnrnlly be Kitigllt is n> to n pro|K>twil rii: 'oinrr'i iiHnti«, or i-apital. Soint' iiH-n who Irnd nmiii-y would •my tliat tliiit !■ tlir only llihi|{ worth enquiring nboiit. Without fioiiift HO fnr at* this, cointiiun pru luggmti thnt a ninn'i rapitnl is ji tnultcr of thr first iin|H>rtnn«-i'. Vt-t it is i-xtrt-nit-ly iliHi^'ult to get ncTurnti' infonnntimi nliout it. Men fllinost inv/irinMy roniidt-r thi'tn- at-lvcit worth more thnn thvy rcnily nrr. hcnri' it is iicci'iiiary to criticisr nil dtntrtnrntii of nssits with n view to rorrrrtinf{ fivcr-vniiintions. But ilitTf fire nun in hiiNiKt'ss and dftirinft to Im- ciistouiiTS ol' Imnks, too, who never make out n LalnnrL -sht et at nil. contenting themselves with mere lists of nrcnunts due to tht-ni. and now nnd then estitiiating the vnlue of their stoek hy giirsBWor». If they own renl (iroiM-rty. they generally consider it worth its cost. Of lifibilitiefl lliey rarely keep nn accurate account, except |M>ssibIy of notes they hive signed. Thu«, judging Intth their assets and HnbiliticH by guet«!twork. they estimate their means by guesuwork too; guessing them- »elvi4 to l>e worth one or lore thousands of dollars, they claim credit acco 'dingly. But a hanker would be simple, indeed, who woult^ lie satisfied with this. He will ask for wlmt is generally called n "statement," which statement, for obvious realms, should l>e in writing. Yet a prudent banker will rarely act upon a written statement without a convenatiun with the party who has submitted it. Siieli conversation will often bring out i>oints that a bare statement leaves unrevealed, and will prove, if carried out judieionsly. of great value to the party concerned, as enabling him to understand his real position. Moreover, in many coses, this will afford a fair index to the borrower's habit of mind, and show how far he is to be trusted in any future representations he may niake."'^ With regard to the Experience a proposed borrower has had in the business be is carrying on, it is a comparatively simple matter to ascertain it. If he has always carried on business in the same town or neighbor- Itood his experience will be a matter of notoriety. If it has been gained in some distant place the inforraat.on received as to antecedents will cover the point. But now supiwsing thnt the banker has acquired a sufficient stock of information to justify him in commencing to deal with borrowers, he must mt imagine that he is exempt from the trouble of making future enquiries. Changes are constantly taking place, and it is lecessary for a banker to keep his information abreast of the times. Last year's reports ore not a safe foundation for this year's business. Premonitory symptoms of coming trouble are of the first importance 85 Th«TP l8. however, a mode of Riving Infnrmnttnn which may be more valu- able evei: than a written statfment. When n merchant IIvpr In a distant town and his banker casually calls upon him, the merrhtint mny then take him Into his iifTiif uiid ui>fii llie private Ivdgft' contuiniriK tiiti lust atiK-k-taking iind Btat<^- ment of profit and loss. It la Impossible for this to have been made up for the occasion, and the very act of doing so will tend to Inspire confidence. THE BAXKF.HS IXFOHMATIOX. •r m'-kV: ,r":ir" ':r„"°"- "- :•-" "•"-""" --''"•'.v i:r.t Thi.i! ■ ,'""' "-ncuurAu , In, ni.tomtri to gouip to l,i„ In ..rking inf,„„„.li„„ „ |,„„|.,, .i,, ,„. for wl..t I. c»llrd ,,„„g, l„. will 1„. „v,ml,.,|. Tl,.. ti„,.- „C „.,„„. le c,„.o„,..r. ,. proUhlv ,. v„l,„.,,|,. „. ,„. „„„, „„., .,,„„ „„. . ;' ^ ben-'il to lilm who ini|uirt< it. a m«n o( l|,„ i-l,,,, „ i„val„ahle to n hank.r. wi.h'Lir.t'''' '" '"■ """""•" ' "•"■ *'"""'"^- '^'"■-'••' " "•■»'« Tlure are, however, other thing, thai claim the att: : , of a baoker Ihe fir,t „f the.e » a knowledge of the law. under which he doc. bu.1- to .|0.nt..t«.k ba„k,og in Canada and the United State.. A, bv far thf .Will Ke ^' ^"''""' •" ""■ ""■""•'• " """d -" under- th„ law iTl^.'"" , ^"' »/'"""»" '>»"'■" "•" become familiar with uT lender. nd.r''"' :';■''■'' "'""■ '-'■""" '" •"' f""-^"™ " " "-ney! lender and the .ecnnt.e, he can lake therefor. He will learn from thence wM T," '° ''°' ""'' "'"" •"■ '" P™'"'""-'' f™» iolng, what "" h. power, and tailalion, regarding red date and fi.ed properlv, .1,„ Wm L ini "" ^T,: "■?' " ""' ^"'"^ P^'i-^'ll.v in>po..ible for h.m to incr any of the penaltie. provided for violating them BMides thi. special knowledge of the banking law, a banker will need . general acquamlance with the law of bti!. of exchange, and pr„mi..ory note,; what co„,t,.„te, their validity, and negotiability, .!«, recLrae npon 2tZ"lr f """'"""' «■""■"»'"». """(r'ge' on real e,t.te, chattel mortgage,, how lo proceed to enforcen,e„t, and other mutter, re- M,ng to .ecnnhc.. A banker need not be . lawyer to have .uch knowl- edge of the.e thmg, a. .. neccMary to conduct hi, daily bu.ine,., and 88 BANKING AND COMMERCE. give instructions to his clerks. There will, however, arise at times que»- lions regarding particular points of procedure respecting which he would do well to consult his lawyer. Bui, as he proceeds, a banker will grad- ually become as familiar with what he has power to do and what he has not ns a merchant is with the tariff. With regard to cash reservus and investments a banker should not only understand what is the proper proportion to be observed, but be possessed of sufficient skill and firmness to guide his discounting opera- tions so as to maintain them. An important qualification of a successful banker is the faculty of dealing with customers who fall into embarrassment, and of realizing securities to tlie best advan' gr. In spite of all a banker's caution he will find himself rompell' d at times to deal with embarrassed customers (em- barrassed through no fault of his), and compelled also, much as he may dislike it, to devote time und skill to the working out of Insolvent Estates. Times of difficulty recur periodically in the commercial world, when in- solvencies rise far beyond the usual average. It is in these difficult times that a banker's judgment and skill are severely tried: not only in making the best of securities, but in considering that most difficult question, Shall he support his customer, and nurse him into a safe position, or shall he refuse further advances and let matters take their course.' Which of these lines to take is generally a perplexing question to answer. Either of them may lead to loss, if a mistake is made. The customer's businetf may be too deeply embarrassed lo permit of its recovery; in that case udditional advances will only lead to additional loss. On the other hand, if it is not too far gone, a little timely help may tide a worthy and capable man over temporary difficulty and preserve him as a good customer to a future time. To refuse help altogether, would lead to certain loss. There is thus the alternative of certain loss on the one hand, of possible avoidance of loss on the other, with the other alternative that the help may prove in- sufficient, and the loss be increased. The only safe course to follow in such cases is this: if the party is honest and has the capacity to succeed if help is rendered — then care should be taken to ascertain, by the bank- er's own examination, whether the party is really solvent; and, next, to require such additional security as the law will allow, and as will not prejudice the customer's position. If the debtor is thus kept on his feet, it is not unreasonable lo require that the banker should have some super- vision over the business until such lime as circumstances prove to be un- necessary. If such a step is taken, the banker will, of course, carry it out prudently, and not give the cusfomer reason to complain of inquisi- torial prying, or of unreasonable interference with his business. It is, at all events, certain that this course has been more than once tried, and with the best results. A banker will not have proceeded far in the way of hia discounting before he perceives the importance not only of information respecting hU immediate customers but of the persons with whom Ihev deal. He THE BANKERS INFORMATION. g^ will (ind it necessary also if he is doing business in a city to Income ae- qua.nled witli tlie various classes of ,ec«ri/ip, that are olfVred for Loans or which it may be desirable to purchase for investment. It will be well also that he should become acquainted, in some degree, with the staple pnducU, which, under our banking law can be transferred to him as security, and with the prices current from time to time, and th. condition ot the trade in general. A banker should be sufficiently well informed to be able to advise an importer, let us say, to moderate his purchases, giving reasons therefor- or an exporter whether to warehouse and hold for a time, or to engage all freight possible and bring his goods to market. This by no mean, implie. that he shall acquire such technical knowledge as would enable him to either buy or sell the commodities. No banker could pretend with any reason lo discuss the .|,iality of a piece of cotton goods with a merchant or to criticise the working, of the gang, in a sawmill with the owner. But he should know enough, let u, say, of the trade of a wholesale mer- eliant to judge whether he was carrying a reasonable or unreasonable amount of stock, as bearing on the amount of the credit such a merchant might apply for. Similarly, with regard to a flour mill, a banker should be well enough informed about the business lo judge whether a proposed credit would be reasonable. He should also have such a general knowledge of the timber business in its financial aspect, as would enable him lo judge whether the scale of his customer's operations was in proportion to hi, capital, and whether his credit was being used economically. He •honld know how much lumber a given expenditure ought to produce, and be able to judge whether the business was well managed or otherwise bj the working of his customer's bank account. And so with every leading line of business in which his customers are engaged. It tends to establish good relations between the banker and the merchant, when a man of business finds his banker well enough informed to be able to discuss the financial aspect, of his business. From such a banker a merchant will more readily take, not only pertinent hints and ordmary advice, but those checks and refuses which at times are nece«- sary to sound banking. It is not only, however, with regard lo general lines of credit to the customer himself, that the banker', information is important, but also With regard to the credit that his customer give, to those who buy from him. A banker should be sulficiently informed to be able to saV lo s wholesale merchant who offers bills for discount, "You give a lar^ line of credit to such a one. Probably you suppose you have his whole ac- count. But I may tell you in confidence that you "have not. He buys the fame kind of goods to my knowledge, from another house, and my judg- ment is that both of you are giving him more credit than li desirable." A merchant would be foolish indeed who did not take such a hint in good part and profit by it. The conversation may take the shape of a criticism of the standing of a wholewlc house. This house bu), goods from a manufacturer, who ii m\ 90 BANKING AND COMMERCE. wUe enough to ponsult hia banker about credits. It would rait the manu- facturer to aell the merchant a larjter line of goods, but he does not know enough about him to take the risk. Here the banker may feel justified in giving his manufacturing customer the benefit of confidential informa- tion. In doing this he will consider well the kind of man to whom he to speaking, and what use he is likely to make of the opinion expressed. ExpoHen are increasingly in the habit of attaching bills of lading to the bills they draw. These are commonly directed to be held until the bill of exchange is faid. But there are exceptions. It is in regard to these that a banker's information might be all important. Some mer- chants in Great Britain will not accept bills at all unless the bills of lad- ing are given up; or they may require that bills shall be surrendered to a certain amount, and in some lines of export business it is not customary to attach bills of lading at all. In such cases the exporter has to rely altogether on the standing of the foreign house; and a well-informed banker can render his customer invaluable service. The banker may pos- sibly express his opinion rather in acts than in words. He will not take the bill except with documento attached; or, if the documents are attached, he will not consent to their being surrendered before payment A Canadian banker will therefore take means to keep his information well up as to changes in foreign firms. In the commercial centres of Great Britain the facilities for specula- tion are so multiplied as to constitute a positive temptation. A shipowner in Liverpool may be drawn into dabbling in cotton; a Glasgow grain merchant may try his luck with iron. As to London the opportunities for speculation are infinite, and embrace everything going on in the business world. It is therefore of high importance to an exporter and a banker who deals with exporters to keep his information up to date." Mkrcantile AnRNClR^. Mercantile agencies have been so remarkably developed during the last thirty years that they aje indispensable to all who give credit, either in the shape of goods or money. The information they place at the ser- vice of their clients goes much beyond mere liooks of reference, and em- braces detailed reports covering all four of the points referred to in an earlier part of this treatise. Such reports, too, are often accompanied by balance-sheets, so that a banker has furnished to him what are practically a number of business histories condensed into a small compass and so methodically arranged as to be accessible with the smallest trouble."^ »« 8« the chapter on commercial bills arawn In eterllng money. >T The records hitherto publlehed by one or.-du asencr In Great Britain are of exceptional value, belnf arranged on eclentlRc principles, and enablina every leadlnc clrcumsunee allectlnv credit to be taken In at a glance. It It well known In banklns circles that the conductors of thia agency have been men of remarkable information and sound judgment. THE BANKERS INFORSfATIOS. gi A banker, however « ill find ii prudent to bring a eritieal judgment to bwr on sueh reports, for a nureanlilc agency makes mistakes, as well as lU clients. It can only report what is reported to it; ard its re.wters, though generally well-informed men, do not, and cannot, know evervthini that IS occurring. " * In examining Uiese rei>orts it is always important to note the differ- ence between farti alaled and opiuiom eiprrtied. With regard to the balance-sheets in sueh reports, it should he re- membered that they are comnumieated by the partv himself. A banker ol course, will compare such balance-sheets with anv that have been ren- dered to him. But these reports are not the only reports that mercantile agencies publish. An important part of their busine«i is to collect information of the change, that occur, especially those of an unfavorable character Thus Iney furnish their supporters with lists of .»,(. that are tak.n, and what •s more important, of chatld mortgage,, bill, of talc. judgmcnU. c^cca- (MM. and ,n,olvencic,. Partnerships also come within their purview those formed or dissolved, together with information as to dcalli of part- ners, which, of course, ends the partnership. The lists containing such information are long and the task of examining them laborious. But no banker who does an .active business with the mercantile communitv can afford to pass them by, or to look over them in a perfunctory manner An omission to notice some single unfavorable particular may coat a banker or his customers thousands of dollars, especially if it relate to a foreign firm. Bankers at times ask information of one another. Formerly there was scarcely any other source of information available, and much eorrespondence was carried on between them on the subject. But time has brought new developments. Bankers do not now correspond as much as they once did respecting their customers, though they do occasionally compare notes in confidence. There are considerations as to auch information ihat do not apply to any other mode of obtaining it. , For example, let us suppose that a banker desires of a confrere informa- tion as to one of his customers. If the customer is in a good position and doing well, there is little difficulty in answering. But if the contrary is the case, what then? The account of such a customer may be one that the other banker is carefully "nursing,'' getting increased security when- ever he can; hoping all may be well, yet being by no means sure. Is he to damage his customer's credit by telling a confrere this? If he does, he may bring about a stoppage and ruin his customer. On the other hand, if he conceals the real position and gives a favorable opinion, he will violate the confidence which ought alw.ays to exist between 'oankers. The result usually is this: As bankers never care to give an un- favorable opinion, while a favorable one may be unjust, and as the de- clining to express an opinion would be construed unfavorably, they seldom 92 BANKING AND COMMERCE. or never ask one another at all, that is, as to their own rcnectivc enstom- eri. A banker in Canada who buvs a large amount of bills upon houses la centres of British trade, wiU find it advantageous to visit surh centres oc- casionally, and compare notes on the spot, with his banking correspond- ents. In so doing he will learn many things which would never be eom- munieated to him in writing, and which no mercantile rating would give him any idea of. There is this reason for taking such a course, that English bankers never commit themselves in writing eicept to very guarded statements. They are in the habit of stating that such and such a «rm is "cotuidtred to be morth," say, a hundred pounds, or it Is "good lor engagements." Such reports generally fail to meet the need of the enquirer. To say that a firm in Britain is good for a few hundred pounds, when the banker on this side knows that they are making purcliases amounting to many thousands, is obviously insulBeient. And to say that such a one is "con- sidered" to be "good for his engagements," if the statement is taken hierally, is simply to suggest that he has no capital at all. If specific information is wanted, the better course is to ask speciiic- ally, giving eiaetly the point to be covered. When the question is put in a vague and general form, "What is the standing of such a one^ ' it will bring, as a rule, only a vague and general answer. But if the querist puts such a qneslion as this: "Would it be safe for our customer here to ship snch a firm two thousand pounds' worth of merchandise without security?- he is likely to get a much more specific answer, guarded though it may be. The last remaining source of information arises in the daily inter- course of a banker with his customers and the public. This has been re- ferred to already, but it may be desirable to observe that a banker, even while transacting routine business with customers, or mingling with hil fellows in the club or elsewhere, will note anything affecti: g his interests; and by practice will acquire the art of doing this even when least appear- ing to do it. A casual remark dropped in conversation across the table, or a query addressed to him in a chance meeting with an .icquaintance, may give to a quick intellect a clue which, if followed up, will lead to most important consequences. Almost every particular in this and the preceding chapter has an ap- plication to Commerce as to Banking. The wholesale merchant witli his large circle of customers is under the same pressure co keep up informa- tion as is the banker. Both mainly rely on the same sources of informa- tion and their interests, as regards information, are identical. They cover the same ground, and are subject to the same conditions. Both are dispensers of credit, the one in money, the other in goods, and the same general laws of credit are applicable to both bankers and merchants. CHAPTER Xir. LOANS. D.PFEBINCE Betukex Loans and Di.counts-Loans to Vabiou. tl.A88E»-To Fabmeb.— To G»Aix Mebchants— \Va»ehou.« Rx- CEiPTi or Vabioi-8 Kinds and Tiit Law Relating Tiiibeto. "VJ^HEN' n bankir Iras ncquired «ii(Iicient information as to personi T T and serurili.s to enable liiin to part with money with reasonable assurance of its return when promised, he may enter upon that difficult field of operations which will prove either the making or the marring of him, viz,, the conducting of Loans and Discounts. It is obvi- ously in this department of a banker's business that the eonneelion be- tween Banking and Commerce is most clearly shown, and most constantly in operation. The public a; large has to do with banking corporatiom as issuers of ci.tulaling notes and receivers of deposits, but in making loans and diseounUng bills, banks have to do with the commercial classes almost exclusively. It is well, however, at this stage, for the sake of clearness to reiterate that the word "commerce" is used throughout this work in a broad and comprehensive sense. Besides the merchant, prop- erly so called, the whole class of manufacturers is included, inasmuch as they require to .ell what they produce and to 6ay their raw material. For the same reason, the whole farming class is included; for the farmer appears on the market both as a seller and a bu)er. He sells his products, and he buys his machinery and materials. Banking is distinguished from money lending in that it requites an active "lurn-over;" hence loans for periods of years are enlirelv u«.a, rJLi „. ^ SMlana renaer. .uoh contounaini of loan, and aiKounta ImDonlble Loan, or advance, ar. made by mean, o, „h., b.„|„„ ^,„ call " v"^«t.." Sb,,,M."or a reined",' "^""°' " "" "•"""" '»'°' «"«wS .0 runTth. , .1 " " '" '""'■ """ncm. Thl« mode cl maUni advance, li called tlc^l, the „m.. Both a,™. In ..i.bll.hin, a di.tlacUon betw,er™n,y lit to a cuitoner and trade bui, dLeounted tor Mm. 96 BANKING AND COMMERCE. gage company or cnpitaliit, but ai roUaUral The meaiu of ordinary re- payment are always eonsidered. and this must i-onsist of merchandise. This being premised, various classes of banking loans will now be brought under review, for the purpose of iwinting out the conditions which govern them respectively, and the proper mode of dealing with them. Loans Conncctcd With Aonict'LTi-RAL Pubsvits. First amongst these come loans or advances to the cultivator of the soil, the farmer. Loans to farmers are the common staple of the business of branches of banks in rural districts, and the accusation made against chartered banks, that as a rule, they refuse to make such loans, is without foundation. But a bank cunnut he expected to lend money to every farmer who applies for it. If a farmer wishes, as he sometimes does, to borrow money to bui!d a new house, or to make a payment on his land, or to improve his barns and stables, still less if he wants to buy more land, he cannot be surprised if the banker refuses to lend, for none of these will furnish the means within themsolves of repayment. That could only be had by forcing the guarantor, or by selling the borrower's property. Further, if the appli- canl is known to be dilatory, or unsteady, or unreliable in his representa- tions, he cannot expect a banker to part with his money in his fai'or, no matter how good a guarantor he offers. The fact that a farmer's land is heavily mortgaged, or that he does not own the property at all, are cir- Ciimstances very unfav^.. able to borrowing, but if the farmer is a man of respectable character whose promise can be relied upon, and can offer a good guarantor, he may reasonably ask for a loan from a bank for the following purposes: 1. He may require nn advance for the purpose of buying seed, pre- paring his land for a crop, meeting the expenses of gathering in and harvesting, all having in view the resulting crop. 2. A farmer whose prinripal occupation is breeding horses, cattle or sheep may reasonably ask, and the banker may reasonably lend, as much money as will buy such stock as will, when fattened, he sold off the farm. In this case as in the former the money loaned will furnish from within itself the means of repaj-ment. But, obviously, more care is needed for this kind of business than the other. S. In a dairy district a farmer whose principal product is butter or cheese, or raw material for making them, will, as a rule, need to borrow less than one who has to depend on his crops, for returns of dairy prod- ucts are more rapid. But he may reasonably ask an advance for such a moderate amount as is required to buy fodder at certain seasons, or as is represented by the amount accumulating at his credit in the books of a cheese factory. (Care, however, is needed here, for this money is some- times not forthcoming.) But in the last two cases a banker needs to watch that his monej !• LOANS. ^ d«d lo.n or lock-up on hi. h.nd., .nd comnwnlr «ouL „ 1. , teg . K.,on.bk .mount, con.ldering the .i.e of U. f.nn, „, ,he extent of hii dairy operation.. ' '"° ""'" if ™fd »f °".^ """f"-'"."- I-°.n. to f.m,er. rTelfre-uJ fnlo.^ «i;";"Cft'o::.°' '""^-"' --^ -«- --" i/borro,:. t P...lng from the f.rmer him.elf to the man who deal, in hi. nroduet. « are .ntroduced to a cl... of loan. „f . „„„ e«en.ive cha LJeT^T .1^a'r« ,r,rh "' 7"" ""■ ^' "" P'"^"^' "f "-e fanner are .o large a. to have given ,i« to .everal well-marked line, of .ubdivi.ion One el... confine them.elve. to ^oi». other, to c»ee.e and 6.Her oth« to ».ooi, other, to ra«(e. others to hog,. The country rtorekceper, indeed, mav buy from the farmer. aho,rt him more th» one of thi, variety of pr«.ict. ;'but at the „™t m^v^ h- ^d „tv°" >" ".f"™',""""- The larger grain merchanU buy grata and nothing el.e the wool merchant, wool, and « on with the ^rt The deahng, of each of theae cl.„e. with a banker are of a ch«^er i^! vojviug a different .tyle of ri.k,, and demanding . di.ttart I^TLI The Gnaw Trau. The mo.t important of the.e i> the grain trade. ri.k andl'fl'l "v °" °' ^2" •T"'*'°"'' ''•'"'' ""»"■'• ""•Wcrabl. at „;,« """"■r""*' P«>«"i "'* po..ibilitie., however, of heavy gata. at one time, and heavy Ios.e. at another. It i. a trade, too, ta which kr« apeculative operation, are con,t,ntly going on ta gr;at Centre.. It"?! ^S»l i"»tance, than any other of penn^ient proaperity, and mo„ ^iti^. mi I T °":J' "■" '''■° *"" " "f"^'™' "f deaLg. aggrT gittag million, have ended their career ta poverty. Yet no tradf refdl^ •eta aU the wheel, of commerce ta moUon. The men, therefore, who per- f n7t„ " "^'" r/"';""* '" ''°""'''''= recognition in the cimmunUy, and t. . con.iderate hearing from a banker when they apply for adva^l P8 BANKING AND COMMERCE. But in draltng with inch npplicatlont the bAnktr will nerd to rxrivlie nil the facultiei of jiidgtnrnt, caatlon and t-xperlcncr he poiieiiei. The ac- counti of grain merchnntt are among the most profitable and, in many resprcti. the most indirectly odvantigroui that n bank poiieiiet. Thej ran be carried on with much facility in Canada, owing to the admirable ■yitem of circulation the country enjoyi. The turn-over ii large, the re- t**ni ripid, and the advances give rise to numerous bllli of exchangCt both inland and foreiipi, yielding collateral profits. Yet a prudent brnker will never forget that the huslnrss is accompanied with unusual risks. Wheiif therefore, a grain merchant proposes to obtain advances, the first con- sideration will be how much tapilal he hat of hit own, and in what shape that capital exists. For the amount of such capital and the shape In which it is held furniHh nn exact index to the amount he may reasonably borrow. No man has the right to hold grain on borrowed money, without having his own capital as a margin against loss to the lender. How much per cent this margin should be, will depend on the season and the state of the trade; but, obviously, the higher the price, the higher per cent, should be the margin. In such circumstances there Is more room for a fall, and more chance for a holder and even the bank itself to lose. When, therefore, a banker knows with reasonable assurance what his pro- posed customer's capital is, he can calculate how much It would be rea* sonable to lend him. But this is only the 6rst step. It would be most unwise for a banker to lend any man money to buy grain, unless the borrower had a good knowledge of the trade. Yet this is often wanting. The grain trade is the easiest of all trades for n man to venture upon. If he has a little money he can open an office anywhere and announce himself a buyer of wheat. If in the country, farmers will certainly come to him and sell for cash. If in a city he can go on Change like any other man, or employ a broker to do it, buying and selling to his heart's content, as long as be has money to put up a margin. He needs no warehouse, no store, or factory, or water power, or, in fact, anything whatever such as men need In other lines of busineu. This facilitj' is the* special danger of the business; and experience proves that when a man enters upon it in this style he will, before long, be ruined. The temperament of the borrower is a matter to be considered. The grain trade is a dangerous one to s man of sanguine temperament. A man of this sort who has borrowed, let us say, $10,000, from a bank, may, inRtead of buying that amount of wheat, be drawn into putting up the money as a margin for his share in some deal or "corner." This has happened, as will be seen in a subsequent chapter. The risk of $10,000 worth of wheat he could legitimately carry; but the risk of ten or twenty times as much would plunge him far out of his depth. Even if he avoids speculation, a sanguine man is apt to persist in hold- ing for a rise when he ought to sell, and pay off his advances. To a banker's remonstances, such a man always has a plausible theory, which LOANR. gp th., for, bold. „„ „„„i „ ,„.. ,. ,„,„,„d .„„^,.„, ,„ ,j;„ ,,,___ ;^ 'Ple of thli If nlw) gircn. •nd willing to «11 ,l,e„ . „„„d profit „» be „wdc. On.- of Ih. frw .Ufib .ted hi. being »bk to .t.nJ while other, were ^.lllng to the fT^ h' w.. alw.,.. wdling for .om. „,*„ ,„„. ,o take the /.„ ee,< „,' pS Another important point, bnt one often lo.t .Ighl of, I, tha a g,.|„ merchant need, to have a eertain line of clomer.; ex.ctlv a. a dry g^ i. one of tho.e who« mercantile eour.e I. generally .hort. Saeh buying doe. not de.erve the name of trade. It I. .imply .peeulatlon. All".„* ce«ful gram merehant. buy with a definite purpo.e In view. Thev have a conneellon, at home or abroad. They know that eertain varirtie. an, wanted by eertam people, or in eertain market.. Commonly, or .requent- I: ^Z ■"•" "1"" '«"" """"• " ••"••"' "•"cfc.nf. MlUer, who «, Vl'l^'l'T^l ■" " "f-""""" •«• "■" '»■•«' '•nough to go into . w.de market themaelve.. The.e are legitimate eu.lonKr.. So are the merchanU of foreign itie. like Liverpool. London, Glaagow or Antwerp, who maintain a eon.lant eorre.poDdenee with Canada indicalin. thcS particular wanU, and not .eldom making firm offer, to buy. The.e ^■. .11 legitimate form, of outlet to a grain merchant on thi. .ide the Atlantic But the man who buys without any .peelfle purpo.e, and .end. hi. .tock to "foreign market on con.ignmenl, lru.ling to the mere chance, of the market, and having no idea who will be the real buyer of hi. .tock i. pur.uing a road which .ooner or later lead, to ruin. Of thi, al.o a con- .picuou. example I, given In a .ubHquent chapter. Loan, on Warehoi-.e Receipts. The amount of a reaK,nable credit to a grain merchant ha. already been^d.«o,.ed. It remain, now to eon,lder the important quction of Except for .uch moderate amount, a. may be advanced to the grain dealer of a .mall village-generally the .torekeeper-the time when per- sonal guarantor, or endorKr, were commonly offered ha. long paued by The amounU are too large for .uch a form of .eeurlty to be taken But as there was necessity for the trade to be carried on, and an ahnost uni- versal necessity for bank advances to do it, special forms of legislation were devised by which the grain itself could be pledged as security. The ordinary chattel mortgage was seen to be ineffectual, as too slow in opera- tion, and too formal in character for so q:.iek-movlng a trade. A special style of pledge was therefore legalized, giving the „me righU and pow- ers as a mortgage, yet of so simple a character that men of buaines, could m 100 BANKING AND COMMEBCE. Du- II wllhool the IntfnTnllon of n Inwyrr. ThU tprclal rtjrlc of pMgt wai 9 nirrhouit rrccipl. and w»« no frmiird •• to give the bank idvanc- Ing upon It, in tlirnry nl linrt, llic Mnw powrr ovrr the rommodlljr u If he hod it locked ii|i In n wnrfhouM of hli own, «lwi.yi auppoiing the rinrument to tie iffHiiinr, The Idea of inch «PCiirlt.T hn« licrn developed al elreuniataneea oroM by amending and enlarging rnaetmenla, lome of them anything but rea- sonable, but In it« original and noturnl form the document wai an acknowl- edgment bv the keeper of a warelionae that he bad ao many buihell of grain In hi'a iwaneiaion, which he would deliver to lllc owner when called for. or to hit order. Such receipt! were natural a> between the owner of grain and the owner of the warebouae, and were in uie long before there wni any ipecinl legiilatlnn about them. The leglilation wal to en- able the owner of grain to make a legal !r»«ffer to a bonk, not of the document merely, but of title to the groin Itaelf, lo that a banker would b€-come M much' the owner of the grain a> if he had bought it; with, how- ever, two important limltatloni. The banker wal debarred from aelllng the property without giving ample notice and could of course only lell what would cover hia advance. Both were moat reaionablc. But, on th-- other hand, the banker'a right to the grain, after making an advance upon it, wai made absolute aa against the claim of any other creditor, even of the party who hod sold the grain, in case he had not been paid for it. This provision was absolutely necessary to the safety of loons made on the security of such properly, and the whole trading community have acqui- esced in them aa being for their advantage. For they well know that the more perfect the security, the more easy it Is to obtain odvancea on it, and, other things being etjual, the more moderate the rate of interest. The law containi-d another provision of a p.'rfectly equitable nature, vii.. that the document could only carry such powers when it had been lodged at the time the advance was made. It was seen to be unreasonable that a man should be able to pledge grain to a banker aa security for an old debt, and th.it such banker should have s prefennce even over an unpaid vendor.'" The liw intended that the loan secured by the pledge should always be connected with the pledge Itaelf. But as time went on, and circumstances transpired, two amendments were made. The most important of these was *.*-3t a man mi^ht pledge grain (and other specified agricultural products) when ilored in hi* own trarrkoate; and that this pledge, when properly transferred, should give a banker the same rights as the receipt of a warehouse keeper would give. This was to meet the case of grain buyers in towns and villages, where no public warehouses exist, and whose purchases were therefore stored in warehouses or sheds of their own. It had reference also to the dealers in « There Is. however, not'ilns to prevent a borrower from givlna a warehouse receipt to a bank ae eecur'.y fur nn liiiteuedent debt If he pleased But In thAt case the document will Klve the bank no risht to hold the gnln as afalnst other eredltora. The banker can onljr take the receipt for what It Is worth. LOANS. othrr aurli'ijllurnl prmliuU, >iit given by a nth r. nnd the pledge : ■■i| /ill BANKING AND COMMERCE. pledged, that receipt will hold the grain although the advance was not made simultnneously with its delivery, ^fEMORANDA ON WAnKHOUSE HeCBIPTS — BeINO EXTRACTS FrOM AN Address ^n Own Rrcripts and pLEOfiEs, to the Stockholders OF the MincHANTs' Bank of Canada. "As the productions of the country became more nnd more diversified, it wns important to grant facilities for enabling banks to lend money to purchase them. So from time to time, the scope of the act, i. r.. The Warehouse Act, w.is enlarged. And the intention of the Legislature in these successive enlargements is clearly shown by the title of one of the nets. It was called '.in .net granting additional facilities in commercial transactions.* a very proper title, too. So when hogs beeime an important farm product, pork was included; then hides and wool, then, as maltsters and distillers were large pur- chasers of farm products, maltsters and distillers were included. Finally, the matter was summed up in general terms of the products of agricul- ture, the forest, the mine, the sea, lakes and rivers, together with live and df-ad stock, in addition to which manufacturers were allowed to borrow on pledge of goods of their own manufacture, or raw material therefor. Down to the very Inst revision of the Warehousing Act, the great object was kept in view of affording facilities for obtaining money on goods, wares and merchandise; without which the true value of all our products would never be obtained, and the wheels of commerce nnd indus- try stand still. The men who sat on the various Parliamentary committees on this subject were nearly all men of business, who had a practical acquaint- ance with the needs of the country. They knew the vital importance of affording banking facilities to the dealers in the country's products, and from time to time, as the act was reconsidered, they kept this object stead- ily in view. Yet they showed their wisdom in the safeguards with which they surrounded the business, and particularly with regard to the right of an unpaid vendor. And to show how equitably the matter is worked, though transactions of this kind have amounted to millions every ■) ear, and to hundreds of millions in all, the claims that have been made by unpaid vendors have amounted to an infinitesimal fraction. But now a mode of looking at this class of business has arisen (through decisions of judges) which will, if carried on, go largely to defeat the object intended by the Legislature. This is founded on what I must consider to be an extraordinary misconception. It has been as- serted in various quarters that the general principle of legislation is that banks shall not make advances on goods, wares and merchandise, and that the cases in which it can be done must be taken as exceptions to a general rule. This idea is not only contrary to the fundatiiental rules of all banking, but to the spirit and intention of all the foregoing legisla- LOANS. lOd tion. To legislate thai banks shall not make advances on goods, wares and merchandise a. a general rule, would be equivalent to a legislation mat a Mw miller shall not manufacture lumber as a rule, or that a drv good, merchant shall not, as a rule, sell cotton, or that a farmer, as a rule, shall not grow wheat. The very essence of the business of a banker is to advance on goodl ware, and merchandise, either in the shape of discounting bills repre- sentmg goods sold or m.aking loans to enable goods to be purchased or held. Aau the whole object of the Warehouse Receipt le'gislation is to enable such advances to be got at the cheapest rale by basing them or actual merchandise. T:.c restrictive clause of the Act is, that advance, on goods shall not be made except as provided bv the Act. But the \ct itself opens the door to a wide enough range of transactions, and the limitation plainly means that banks shall not lend on goods as a pawn- broker does, or keep warehouses to store them in as the Bank of Germany does, and also that a storekeeper or a dry goods merchant who buys goods on credit shall not have the power of pledging them for bank advances. It IS true that the Act gives the lender of the money, when he advances on goods, a nghl to them, even over an unpaid vendor— a very strong pro- vision, and showing how strong was the desire of Parliament to facilitate loans on merchandise. But it is safeguarded by restricting the opera- tion of the Act to cases in which, as a rule, there i, vo unpaid vendor. Any other limitation, I venture to think, should always be interpreted reasonably and liberally, and with due regard to the great object intended to be accomplished by the Legislature, and to the vast importance of such advances to the country at large in its increasing development. An Act of Parliament, as we know, may be variously interpreted; in fact, il is impossible to frame clauses that are not susc'eptible of divers interpretations. If such interpretations are of a nature to hamper and emborrass banks in assisting merchants to handle the products of the country, they cannot be for the good of the community, but very much to its detriment." CHAPTER XV. LOANS TO DEALERS IN GRAIN AND OTHER AORICXTLTURAL PRODUCE.— Gontinaed. DlFFEHENCE IS WAREHOUSE RECEIPTS — ChBEBE AND BuTTER — AdTANCIS FOR Dealing in Cattle — Pork — Hides — Wool and Hav. PURSl'ING the subject of ind' pendent wnrehoiise receipts, it may be noted that Ihey are by no means all equal in quality. If given by a private individual, a banker needs to make enquiry as to his reliability before adi-ancing money on his receipts, for sometimes the relations between a warehouseman or wharfinger and the borrower of money are closer than is desirable. Without any intention to defraud, a warehouseman has sometimes been induced to give a receipt for goods before he has obtained them, trusting to his customer sending them on. There is a particular temptation to do this in these days of exceptionally heavy deliveries, which are common in the grain trade. Such cases are, of course, rare, and every warehouse knows it to be a dangerous business. The receipts of a railway corporation or a city warehousing company are the most reliable a banker can have. This is especially the case when a banker is making advances in the grain centres of the United States. In Chicago and Minneapolis the system by which warehouse receipts are registered and checked renders them exceptionally valuable as a security. Error or fraud are practically impossible in connection with them.*' When a borrower can present documents of this kind, insurance in all eases being effected in favor of the bank, advances may be safely made to a far greater extent than when they are secured by guarantee or by a dealer's own pledge. In all such cases a margin is required and given, and if the margin is well looked after, loss is practically impossible, so long as the grain is in the warehouse. There is, however, a danger which arises out of the necessity for parting with the receipt when the time comes for grain to be delivered. It is practically impossible for the ordinary dealer to pay for the grain before it is delivered, yet without possession of the receipt the warehouse company will not -illow it to be moved. The bank cannot attend to this matter of shipment; none but the owner can do it, but to do it he must *i But Canadian bankers who have, durlns some yeara, advanced money to ■Tain merchants In Duluth and Mlnneapolta have learned by experience how much difference In quality there la between receipts technically known as termi- nala; that la. those fflven by the great worehouaes at the terminal of a railroad, and those given by small country ele\-«tor8 situated along the line. The former have Invariably proved satisfactory. The grain never failed of dellverj-. But th« latter were not seldom the occasion of long corregpondence, dlsputeB, lawsuits, and Injunctions— which laated for months t>erore flnal aettlement was reached. 104 LOANS TO DEALERS IN GRAIN. loj hove the warehouse receipt in his jiossession. The necessity of the case has given rise to the standing custom in such cases of delivering the document to the borrower, he giving the banker a formal pledge by which the shipper is constituted a baii-de of the properly for the purpose of ship- ment or sale, and under which he undertakes to account for the proceeds if sold, or to bring back a hill of exchange if shipped. A breach of this engagement renders the party liable to proieeutioa for fraud. In an active shipping season the amount of grain in Iramil in this shape, owned by a single firm at a particular timf, is often very large, involving large sums of money for which the banker during a short lime has no security but the borrower's pledges. The amount of these in Chicago during any grain season runs up into millions, yet it is a fact that failures to meet the engagement of a hiilee have scarcely ever been known, even in such a vortex of speculation at Chicago. The experience of other grain centres has not been m.iterially diiferent. Yet it is natural for bankers who have large grain .iccounts, involving the necessity of temporarily parting with security, to feel anxiety when many sales are being elTecled at the same time, and large amounts are afloat on the mere honor of borrowers. '• hese are times that press strenuously on a banker's attention the importance of having honor' able men as borrowers, even if at the outset all transactions rest on undoubted security. When the borrower brings a Bill of lading, or Railway receipt, for the goods he is shipping, he almost invariably draws a draft against them. The bill of lading being attached to the draft, giver to the banker dis- counting it the same rights and powers over the property that the ware- house receipt does. And practically most of the risk of the transaction is then at an end, except in certain cases that arise in foreign ports. These matters, however, are dealt with under the head of foreign bills. Owing to the closing up of navigation, on the lakes and c. lals of Canada and the Northern States, it is sometimes necessary to hold grain for many months in warehouse. To send it by rail would be altogether too costly. It would destroy the profit of the dealer, unless there had been a large advance in the price. These long periods of holding grain are not without anxiety to bankers who have made advances on it, for the holder may be at the mercy of the market for a long period, during which neither he, nor any other person, can move the grain. In former daya great losses have resulted to merchants from this circumstance, and not a few have been ruined altogether with considerable loss to their bankers. Now, however, the system of dealing in "fuluret" and "options" has be- come so perfected that it is possible for a holder of grain, who is com- pelled to carry it for a considerable season, to guard himself from loss. And thus the very speculation in grain, which, under one aspect, is in a high degree baneful, becomes in another aspect the means of guarding an ordinary trader from risk. Of course, such contracts for future delivery are. liable to fail in execution, in case misfortune overtakei one of the 106 BANKING AND COMMERCE. contracting parties, ot, in case he bfomcs involved in the vast operations of one of those speculutire "corners" that loom up now and then in the trade. But the risk of this is small compared with the risk of long win- ter holding. On the whole, and to sum up the matter in a few words, the banker. In carrying or. the account of a grain merchant, will need first to be thor- oughly satisfied as to the honorable character of his customer. A failure here is sure to end in trouble sooner or later. But 'Equally necessary it is for the dealer to be tt prudent and cautious man; for the grain trade ii — of all otl ers — tht most dangerous to a man of sanguine temperament With customers of hontr and prudence, whose capital is proportional to the amount of business iliey do, and who understand the trade, both as to the article itself and the markets for buying and selling, a banker may do business from season to season with no greater liability to loss than would be found in the a^'erage of occupations. But he certainly does need to be on the watch for any tymptoma of a speculative spirit in his customer, and especially of his taking money lent to him for the purchase of grain, and using it as a margin for sneculative operations. The Trade Bills drawn by grain dealers on correspondents are dealt with in subsequent pages. li IS now necessary for other branches of the trade in farm products to be brought under review, and the first to be taken up will be: The Cheese and Butter Trade. This, as is well known, has attained very large dimensions in Canada during the last quarter of a centurj-, and the accounts of merchants in it are amongst the largest of those carried on by Canadian bankers. Yet the trade in cheese and butter is a wholly diiTerent one from the trade in grain. It is not so easy to enter upon; it demands far more special knowledge of the article, and also more intimate acquaintance with the markets and merchants of foreign countries. There is no speculative centre like Chicago, for this trade, and cooiparatively little of that buying and selling in which the article is never handled at all. And though the prices fluctuate, they seldom fluctuate from anything but natural causes, such as the abundance or scarcity of grass and fodder, or the conditions of the markets of Great Britain. The trade is not in .many hands; and ruost of those who carry it on are men of knowledge, experience and good connections abroad. Moreover, the small dealers in country places are seldom merchants on their own account, but act as agents for large dealers in cities. The transactions of banks through their country branches, with this class of men, are numerous, aiid involve little risk, owing to the fact that they are almost always in the shape of drafts from city dealers duly authorized. A large part of the cheese and butter exported from Canada is purchased at first hand from farmers, creameries and cheese factories by this useful class of men. But their dealings with a, hanker, though numerous, and large in the aggregate, are matters which proctically. in- volve no risk. The real risk begins with advances to the cheese merchant LOANS TO DEALERS IN GRAIN. 107 of a city. Tliwe ndvances, ns in the case of grain, and other analogoua trades, are almost invnrinbly arranged beforehand for a whole season. In considering them a banker has to give unusual weight to the character of the borrower for honi'sty and reliability, seeing that it has come about, by force of circumstances, that cheese and butter are almost invariably stored in warehouses belonging to, or leased by. the merchant. The ordinary warehouse, or elevator, has not the appliances necessary in this climoto for the safe-keeping of cheese and Imtter, as they are spe- €iall_'- liable to deterioi^tion under changes of temperature; from all which it follows that much more of the security tendered in this trade is in the shape of a merchant's own receipts. When, therefore, an applica- tion is made for advances to cany on a season's trade in these articles, the banker nerds, .ibove all things, to be sure of the men he is dealing with. If the applicants be a firm, with one or more partners, the character of every partner is a matter for weighty consideration. If during the currency of odvnnces an additional partner is taken in, that also should be a matter for consideration, lest on unsound element he allowed to creep in. ond damage the stability of the firm.*- The matter of knowledge and experience in the trade no banker will lose sight of in considering an application; but the men who propose to obtain advances from a bank to buy cheese and butter are seldom deficient in this respect, either as to the article or the markets. But a banker will require to be particularly well satisfied as to the applicant's capital; for it may be taken as a rule, in this line of business, that the capital, in pro- port-on to the advances asked, should be large. The fluctuations in prices are sometimes rapid and very considerpble.*^ The article is required at times to be held in large quantities and for long periods, ot the risk of the market, and there are not many facilities for rapid selling in n falling market, whereby men may escape loss. There are, too, more dangers from the Huetuations of the seasons, and the suitableness, or otherwise, of the article to the market it is bound for. All these considerations naturally lead up, not only to the require- ment of a large capital in the borrower, but tliat his capital should be in Some available shape, in case of a bad season, unfavorable markets and loss to the buyers. 42 Bankers lu often taught. \nes(y, Yet the name nf the firm may be the same as before, and the traditions of honorable dealing will survive, although the foundation for it has disappeared. « These fluctuations are apt to appear less than they are. owing to the quo- tations for cheese and butter, even in the wholesale trade, being at so much per pound. The rise or fall of a cent per pound sounds like .i very small affair, yet It may amount to as much as ten to fifteen per cent., according to the price of the article. Thus, If a merchant Is carrying a hea^T winter's stock f.ind such stock* ore sometimes carried of a value of two or three hundred thousand dollars), this seemingly trifling change of a cent per pound may make a difference of twenty or thirty thousand dollars In its value. The changes In \-alues in this trade are, 4n truth, heavier than in the fraln trade, and need more constant watching. 108 BANKING AND COMMERCE. ThU trade is one giving rise to large amounts of i-xirarta, ciprcinllv to Great Britain. Tlic consumption of cheese is much larger in the agri- cultural districts of loth F.ngland and ."^cotlnnd than in Canada or the United States. The cheese trade in Great Britain is in mony respects ns different from the grain trade »s it is on this side the Atlantic. It is not so rapid, so changeable or so speculative. The article, moreoi r, ia itself n finished product, not requiring n manufacturing process to make it available. It if, therefore, commonly held longer in stock, and as it cannot be held i". ordinary warehouses, it comes about that merchants in Great Britain must more commonly ask for bills of lading to be given up on acceptance, in order to remove the slock to their own warehouses. To this, of course, the banker must consent if it is to be done at all; but bankers on this side are usually ready to meet the views of thtir customers in this matter, as the persons in the trade on both sides the Atlantic are, as a rule, men of capital and standing, and t!ie bill will have two presumably good names on it, even when the bill of lading has been given up. So great is the confidence between one merchant and another in this trade, that it has not been uncommon for parties in England to accept bills drawn against goods warehoused on thit aide. Experience, however, has proved this practice to be exposed to peculiar risks, which may render it dangerous for the foreign merchant, and unsatisfactory for the Canadian banker. The Cattle Thade. Passing from the trade in dairy products to the trade in the animals themselves, we enter upon another set of considerations altogether. Adiances for the purpose of dealing in cattle or feeding them com- monly begin with loans to small dealers in country districts who gather together small lots and sell them to large dealers or distillers. These ad- vances are usually of moderate amount, and such short time that they can be reasonably secured by an endorsement or guarantee. Such sn- .11 deal- ers, indeed, arf sometimes ambitious to become exporters, but bankers arc usually chary of encouraging such operations. Small dealers, as a rule, have neither the knowledge of foreign markets, nor the experience, nor the capital necessary to do this successfully. Tlieir proper business is to pass on the animals to men of greater weight. Of tht'sc some of the most prominent are Distillers. T'lc advances to- distillers for the purpose of feeding cattle, in some cases, are on a large scale, and continued for a considerable time. They are commonly se- cured by the pledge of the distiller, which pledges arc of a much safer character than any others handled by bankers; the reason being that the animals, having once entered the distillery, are never removed until finally shipped away. An inspection of them, moreover, is perfectly easy. When ;iie process of fattening is completed, and the time has arrived for shipping, they are generally sent in a live state across the Atlantic. The trade of shipping live cattle across the Atlantic is a development Si LOANS TO DEALERS IN GRAIN. 109 of rnwnt .venre; and until il vns l«-tl,r undf. tood nnd more perfect ship- ping facilitie. were devised f-r it, it „„ „lt,.„ded with heavv easualtiel «ld tones. This trade is no' le o.' those that are easv to 'enter upon None but men who are fnmil...!- with cattle ever think of meddling with .t. It has been proved to require not only large capital and thorough knowledge of animals, but (irsl-rate arrnngoments for handling cattle in Greot Britain. Xnlurally. it is a far more difficult business to handle live animals than grain, cheese, or pork. The.v ore exposed to far more «a8nall.es both from cold and heal. The risks of land transport are con- siderable, but Ihr risk of ocnn transport is imniens.lv greater But per- haps the greatest risk of all is in the hot davs of summer before steamers are well out at sea. The risk., of this trade are considerably augmented by the fact that the c.iltle cannot be held in an English [wrl, or sent into the interior. They must be sold and slaughtered at once, be the market bad or good, the price high or low. II is evidentlv a trade therefore for men of large means, and for no others. With regard to security for the loans of bankers, the pledge of the dealer in the ease of live animals herded or .yarded is of the weakest quality, theoretically, for it is obviously more easv to take cattle awav ftan to move any other commodity. The ease is entirely diHerent with the distiller, for the caHle in his byres are a part of the verv machinery of his business. He could not take them awav while feeding without suf- fering heavy damage. But the cattle dealer can make away with his property without the slightest difficulty if he chooses. The animals can walk off by thimselves, and need neither trunks, wagons nor carts to transport them. Yet this cattle trade is one of the most important that Canada has- and with the development of the Northwest, with its great stretches of ranches, is becoming increasingly so. And in the hands of men with ade- quate capital and knowledge, it may be conducted as safelv as any other branch of export business. But woe to the men, or firms, that plunge into it without these requisites, or to the unfortunate banker who is beguiled into lending them mone.v. And one consideration will be found by bankers to be fundamental, never to make advances or buy bills against cattle Jhipped in winter. Pork and Provision Trade, In this trade the animal itself is never exported. But Canada carries on a very large business in its products, and some of them, namely, ham «nd bacon, are figuring heavily in our list of exports. The trade is dif- ferent from that in grain or cheese in this respect, that the portions of the ilaughtered animals undergo 3 change before being sold. This can : ardly be called a mannfactarmg process, being merely salting and curing, for which reason it is not dealt with under the head of loans to manufaclur- ank advanrei to any extent. Farmers use much of it themiclves. A good part of the rest is handled by small dealers scattered through the country districts. The article is too bulky to be gathered into warehouses; but coniidcrsblc quantities are sent over the border, into the United States. Banking trnnanctions arising from the» are almost universally in the shape of sight drafts, with bill of lading attached- Occasionally, however, when the hay crop is a bad one in Eng- land, owing either to rain or drought, a demand sets in from that quarter to Canadian dealers. In such circumstances, a large and active trade hni been done. It is a trade that involves unusual trouble in handling, and merchants in large centres do not care to meddle with it But exporting, as hai been said already, is a business by itself; and country dealers, in venturing upon the export of hay^ have sometimes brought infinite trouble upon themselves, their correspondents in Great Britain, and also upon London bankers. Although the difference in price paid to the Canadian farme** and the price as quMed in England is unusually great, and seems to give opportunities for large profits, the multiplied cost of freight by land and water, added to the cost of warehousing, wharfage, demurrage and commissions in England, generally swallows up this difference. Some- times, as a matter of fact, they do much more, and involve tlie Canadian shipper, and sometimes his banker, in heavy losses. It has been known that in an active season enormous "luantities of baled hay have been lying about on the wharves and docks of England for weeks together. The risk of this, in that climate, may be Imagined. It has also happened that canal boats loaded with Canadian hay have been held under demurrage for many consecutive weeks, at enormous cost, owing to the refusal of purchasers to receive the goods and accept bills drawn against them. In that case it has happened that scores of bills have lain unaccepted in the London banks, to whom they were sent for collection; and that the hay, when brought to forced sale, did not realise a half, or even a quarter, of what was drawn against it. It may \k oncluded, therefore, that no Canadian banker will in future make advances to any country dealer for the purpose of buying hay for export. And if bills drawn against hay shipped across the Atlantic are offered him, he will prefer to make a moderate advance, and send them on for collection. Of all the various descriptions of advances referred to in this chap- ter, there is one thing to be said that admits of no exception; vis., that they should be paid off ftt the end of every season. On no account should one season's advances ever run into another. CHAPTF.K Xri. LOAMa TO KANurAonntnta amd ikpoetiba LoAMi 10 M NUf*cTO»i»i or TlMum, anb Saw Millihi— Loahi to Fiom Mii.i.n>— Loam to Cotton and Woolin MANurACTuuu AND WhOUIALI iMrOITCM. Although the oper«tion of culUng down the foreilt of Canada ■i- »■ nnd turning the fallen lree< Into timber by hewing, or into lumber by uwing, is not generally ealled manufaeturing, it will now be treated ai luch, inaimueli as both are carried on with plant, machinery and tools— the last especially. The operations of the timber and lumber men of Canada hove been very dilTerent from those of the settlers who cleared the forest for the purpose of creating farms. For in the latter case the trees were absolutely destroyed: in the former, they were pre- served a> the raw material of manufacturing operations. No lines of business have colled for such heavy advances from banks, and -lone have gi>en rise to such large amounts of inland and foreign bills of exchange as those now to be considered. These two divisions of manufacture are so distinct from one another that they require seporatc treatment; the only (mint in which thev coin- cide being thai both require large tracts of timbered lai d, sometimes ei- tcnding over thousands of square miles, from which to draw the raw mote- rial for their operations. The fore the timber can finally be placed on boanl thip, and foreign bills of exchange drawn againit it. Thit money for the mott part, from the very beginning, hat been obtained by advances from banki. An unusually large capital is required to carry on these operations, for the timber growing on these tracts of territory must be owned by the mer- chant before a tree can be cut down. The land on which the timber grows is rarely valuable ftr settlement. And the timber merchant does not care for the freehold of the land at all. What he want - (• " - trees that are growing upon it. A systtm has therefore grown up by which the right of cutting trees over de6ned lines of territory is told to operators under the name of limits. Thetc "limits" are simply licenses to cut, renewable on payment of ground rent year by year. Yet to well established has the t/stem of renewal become that they are highly valuable property, and constitute in many catei a large part of the capital uf many wealthy firms. Before applying to a banker for advances for a season's operations, it is usual for firms to own their limits ab lutcly, and to have paid for improvementt on them, such as dams, slidet and water-ways. The operations of a woodsman require to be carried on for nearly twelve months before the timber in ready for market. Advances to such firms are therefore necessarily as long, and once entered upon they cannot be stopped. To stop advances when the whole floating assets of a timber firm are in the shape of half-hewn trees lying scattered over hundreds of miles of territory, would be disastrous on both sides. Bankers, therefore, are in the habit of considering the situation well before consenting to allow inch advances to begin. And this consideration embraces not only the points common to all lines of business, such as capital, experience, and reliability, together with the security ofl"ered, but whether the bank can afford to carry such large loans for so long a period at all. But when a banker is satisfied that he can afford to make advances for io long a period, he will consider whether the amount desired is reason- able in proportion to his customer's capital, and the extent of the yeac's oiire illl LOANS TO JIANUFACTUHEHS AND IMPORTERS. lu oprratloni. Every llmbrr nuikrr hy, out I.U pl.n. . vc.r beforrhnMil, to gtt out, i» It I. <.»l|c.l, n crrtnln quiinlll.y. U|«>n thii U Uwd the number of nirn »n.l horn. » nt inlu (l,r wa, do: ;ind the luinkir will doulitl.,. hnvi- linrnrd < nou^ll to ..tini.nl.- how much momy will I,.- nquinil to .■.„ry liim thrnugh. It ,„„,. h.- l„k.n lor grant- ed thnt the l„rrow,r undrr.tmid. the Irnde, for no uinn eould e-irrv it on for n month unlms he did. ChoMctrr nnd nlinbilily »||| l,e eon.id.Tfd «, u>unl. But in the ninller of enpitnl wide dlir.r.ne.-» will he found. .Xonie of the wenllhi, ,t firm, thnt fnnnd,. In. known Iwve Iwen nhle to earry on the o,«.rntion. ol n whole .euon involvinx imnHn,e di.bur«'ioent> without liorrowinit at all. '^ But at Ih. other end of the .eale are men of eapneitv and eharaet, r who have barely capital enough to own their limits. Tin'., however i» a miniimim requirment. T.i make advance, to a timUr-maker while .'ome- one el.e ha. a claim on hi. limit, i. a very ra.h prooediug, and ha. led during had ,,a.on., to heavy Iwnk l,.„e.. .\ l,..,.k,.r, nnd.r all eircura- ' •tanee., will aim to be the (ir.t claimant; never the sei-onil. Limit, can be ai.igm'd to a bank as .ecuritv. a. tliev are not real e.tat,'. They pncrally are .o a..igned. .\nd verv good .eeuritv they generally prove, if valued with reasonable core. Bi.K. TO Bl' Taken i.sto .\ccou.st. But in addition to limit., the piece, of timlK-r tlleln.,lve. can Ih- a.- .igned, nnd .|R-eial legislation ha. been devised for the purpose. They are always .tamped with a regi.tered mark, and oeca.ionallv a bank wil'l have tlum marked on its own account. It i., however, almost i card of that a bank should lose it. hold upon the timb.-r, or fail to receive the pro- ceed, when sold. The risk, lie in another direction, vii., that the piece, .hall .tick f.-„t in .nbordinnte streams, or In- carried nwnv hv flood, on the larger one., both involving the danger thnt mnnv of them" will never be recovered, or that the expense of recovering them will destroy the eliance of proht. Then- so the risk of a fall in the British mirket during the long period of work in the woods and of driving to Quebec. A drop in the price ha. Ixen known of so serious a character as not only to de.troy the chanc- of profit, but the possibility of reali.ing anything near cyen the cost of the article. Hence it is that banker, require to be satis- tied beforehand of the ability of their enstmmr to bear :,ueh reverse. In this branch of trade there i. usually a distinct line of demarcation between the producer and the exporting merchant. The producer rarely 116 BANKING AND COMMERCE. exports liis product; in fnct, when he does so, the result is not alwayi satisfactory. And the banker has something to say to this also; \\v has carried the risks of the producer's operations for twelve months, and it is time that they should end. For undoubtedly a new line of risks begins when timber is shipped across the ocean. To whatever market destined, whether to Orent Britain, or to the Continent of Europe, or any other market, the trade assumes an entirely new aspect when once the timber is placed on board ship for transport across the sea. Before that is done. the man who has produced it and carried it through all risks of navigation to a seaport has a right to be paid for it, and thus have the means of recouping his banker. With respect to bills .-irising out of the export of tiraWr a practice has grown up which is peculiar to this trade. Every timber house in Canada has usually some corresponding hmise in Great Britain on whom it draws Sometimes these houses are merchants of large capital in the seaports of Great Britain. Sometimes thry are branches of the Canadian house, sometimes they are London bankers. To these correspondents the bills of lading are remitted; but the bills of exchange arc drawn M-ithout reference to them. When such bills were accepted by a diflFcrent corresponding house, they could stand on the merits of both drawer and drawee. But when the corresponding house was a branch of the other, the bills stood upon the merit of the drawer alone. In this ease, it was for the hanker to have thorough and up-to-date information of what the two branches of the house were doing. Casualties in this line of business, however, h.ave not been frequent. Only seldom in a quarter of a century has there occurred a failure on this side the Atlantic, and rarely indeed on the other, unless the English merchant had engaged in speculations for- eign to his business. Saw Milt.ino. Though the operations of the timber merchant and saw miller both commence by hewing down the trees of the forest, there is a marked dif- ference in subsequent developments. The squaring of trees in the woods is a simple process, after which they only require transportation to mar- ket. But lumber and deals, in addition, need for their production an elaborate manufacturing process, carried on in expensive mills, filled with costly jtlant and machinery. But larger and finer trees are required for timber than for the others. There is a difference also in several respects between the manufacture of dials and lumber, the principal being that they are intended for different markets. Deals are wholly exported to Europe, while lumber is manufactured for the Canadian and I'nited States market. Deals are much fine.- and more costly articles than lumber, requiring finer logs for the raw material and a more valuable kind of trees. Deals, moreover, are cut in pieces of three inches in thickness, while the standard thickness of lumber is one LOANS TO MANUFACTURERS AND IMPORTERS. 117 inch. Thus it -••n almiii th.it ,. „ gjvcn range of forest terrilory, th" selection is mn. ■ at tli,- fiiiisl I- cs for timber, of trees of the second quality for liea , .1 hI of tlie tlv i for sowed lumber. But of all tl e .1- tl rn- tliere are many varieties, involving great dilTer- enees in value. Only a prneiued expert can judge rightly of such dif- ferences, and it is largely in the knowledge of what will be the best use to make of certain trees, so as to get the best possible value out of them, that a surcessful carrying on of the business of a lumberman depends. With regard to ihe mill itself, where the operation of manufacturing is carried on, great and irretrievable mistakes have at times been made, occasioning ruin to the operator and loss to his banker. A mill may be built in the wrong place, as respects water power, con- venience of receiving logs, or shipping lumber, or it may be built in too expensive a fashion for the work it has to do, or it may be fitted up with inferior plant and machinery. Hence the importance of a saw miller hav- ing a practical knowledge of machinery and also the faculty of using it profitably, as has already been shown. From all these considerations it will be evident that more capital is required in the saw milling business than in that of the making of timber; practically just so much more as is required to bnild and equip the mill and the adjoining storage grounds. In nearly all other respects the conditions are the same. Mills Should Not Be Encumbered. Now, when a banker comes to deal with the account of a saw miller it is obvious that the first condition is that the fixed property shall have been paid for, both the mill, and the timber limits. But if an exception may be made in cither case, it should certainly not be in favor of the mill. A lumberer whose saw mill is not free from incumbrance is not in a position to ask advances from a bank. Limits are, as a rule, much more salable than saw mills; and, moreover, a bank can take securitT on them at any time. But now, supposing this preliminary to be as it should be, the saw miller desiring advances will state the quantity of lumber he is proposing to manufacture for the season. If the trade is brisk, demand strong, and profit good, he may determine to nm his mill to its utmost capacity, and work it night and day. If the trade is dull and demand slack, he will no doubt be wise enough to run his machinery moderately. The banker (op his board of directors) will doubtless know sufficient of the conditions of the trade to judge which of the two courses i. more prudent, and regulate advances accordingly. The security taken will probably be the same as in the timber trade- namely, a transfer of the limits and a pledge of the logs and their product In this trade, unlike that in timber, the banker requires to look nar- rowly after insurance. In the square timber trade no insurance is ever required, for the article is never out of the water. But saw mills and Inm- \m BANKING AND COMMERCE. bcr are terribly inflammable articles, nnd in a large concern insurance to the amount of hundreds of thousands may be necessary to safety. All advances to lumberers and timber-makers should be made gradu- ally, as the season advances, and as more and more money requires to be spent on the article to bring it to a salable condition. If they are asked for otherwise, there is reasonable suspicion that they may be used to pay antecedent debts. When the lumberman's stock is in a finished condition, a distinction arises between its two varieties, viz.. lumber and deals. Tlie saw miller sells his deals for export to Europe. They go, therefore, to an Atlantic seaport, and. as a rule, they are purchased by a merchant of the iwrt. It has been customary for such merchants to give their acceptances in pay- ment to the manufacturer; but, considering the very large sums such ac- ceptances amount to, it has been common for a lien on the property to be held by the seller or his banker until the acceptances were paid. The manufacturer of sawed lumber, as distinguished from deals, has always found his principal market in the United States. It is here per- haps more than in any other product that the interdependence of the two countries has been manifest. Canada in proportion to her population has always had far more forest area than the adjacent States; hence it came about naturally that the lumber mereli.iuts of the latter, from an early period, looked to Canada as a market of supply. In many cases they formed permanent connections with the saw millers of the North, making nrrangenients, not seldom, to buy the whole product of certain mills at a schedule of prices agreed upon. Bankers therefore who kept the accounts of saw millers, would have the acceptances of such houses offered for dis- count and naturally became interested in their means and standing. For the discount had to rest on the credit of the parties to the paper, inas- much as it was impossible for a Canadian banker to maintain a lien upon an article like lumber after it had passed beyond the borders of his own country. The lumber trade of the Northern States, with a few striking excep- tions (one of them hereafter noticed), has for a long period been in the hands of firms of tried character ond sufficient means, not to speak of others of large wealth. This class of discounts has been subject to few casualties and has always been looked on with favor. One reason for this is that there is no speculative element in the trade, though it is subject to cycles of good and bad years, generally about five. The changes, how- ever, either in the way of improvement or deterioration, proceed slowly, and there is ample time for operators to prepare for changes, either by curtailment of business or enlargement, as circumstances call for it The bad years in the trade are generally extremely trying, involving not only the doing of business without profit, but the carrying it on at a loss for years together. Yet the bw-niness has wonderful recuperative powers. At the end of a cycle of bad years it sometimes appears to be so prostrate as to be incapa- LOANS TO MANUFACTLHERS AND IMPORTERS. 119 blc of revival. Not only the lumber itself, but all Hint goes to produce it •terns to have Iwt its value. Mills and limits, but especially the latter become sueh a drug in the market as to become practically worthless Such times as these try the faith and courage of a banker sorelv. But if he is unwise enough to bring a customers account to a close at s'uch a time, and •ell his property at a price which results in a heavy bad debt, he is not unlikely to hear later on that the same property had been resold at a price which would have enabled his customer to pay his debts in full with the addition of sei-eral years of interest. Few bankers in Canada but have known cases of this kind, and some have seen such extraordinary ciscs as the realizing, after a lai.se of years, for one-tenth part of a certain area of timbered lands a greater price than the whole was once in danger of being sacrificed for in a time of depression. There is one feature of this trade in .vhieh it differs from almost every other in Canada, vis., that many Americans have crossed the border at various times and established mills on their own account. Not a few of such have become perman ..t citizens of the country, transferring to it not only capital, but themselves and all their interests. Some of the largest of the lumber tirms now in Canada are of this description; hay- ing acquired limits, built mills, and amassed wealth; becoming, it scarce needs be said, most valuable citizens and satisfactory customers to the banks. Natural it was for houses of this description to keep up close connections with lumber merchants in American cities; using them as agents or consignees. Such American houses would, not seldom, accept for the Canadian house in advance of shipment In that case the banker would be advised of the fact, and use his judgment as to discounting the bills. If he did, he would take care that his own advances should be paid off before they matured, or that the proceeds of the bills should be used to take them up. The position which has resulted during recent years in the lumber trade from the strife of parties in politics in the Unitrf States and in Can- ada, has had the result of inducing not a few firms in the lumber regions ot the States to acquire properties in Canada, and carry on their operations here. As the forests of the Northern States become more and more de- pleted, this step is likely to become more frequent. All that has been ob- served with regard to the migration in the earlier years in the trade applies in the fullest measure to this. The only other variety of banking transactions connected with this trade Is in the case of American houses of such wealth and capital that Ihcy can carry on the large operations connected with a Canadian branch of their business, without requiring bank advances at all. In this case all that a Canadian banker will be required to do is to give cash for authorised short date drafts upon the parent firm. But here an observation requires to be made. In cases of this kind it has sometimes occurred that a change of policy, or a change of times, brought t-t 120 BANKING AND COMMERCE. about a diiferMit style of dealing with Canadian banksj an ', that the cash- ing of sight drafts drifted into the making of permanent advances. An occurrence like this is fully opened up later on. On the whole the accounts of persons in this trade, while in many respects the most advantageous that a banker can carry on, are, at the same time, such ns to require more technical knowledge and more good judgment, more foresight, and, in difficult times, more courage and pa- tience, than any other class of business that may be submitted to him. Adva:;ces to Flovr Millers. This branch of manufacture diners from almost every other in the f..cl that the raw material is of a highly speculative character. The Produce Exchanges of Chicago, New York, and Montreal, on this side of the Atlantic; and of London, Liverpool, and Glasgow on the other (not to speak of Continental cities), are all the scene of transactions in grain to enormous amount/ by persons ^.ho never either see or handle the commodity, whose operations have a constant bearing upon prices. This has already been fully considered under the heading of "Ad- vances to Men in the Grain Trade." What we are now concer.ied with are the operations of the men who turn the grain into flour, oatmeal, or other manufactured products. Of these there were formerly a large number scattered over tte grain- producing countries of both Canada and the United States, utilizing the numerous water powers to be found therein. Their little establishments in some cases would grow with the growth of the town or district, until they became of sufficient importance, not only to supply the country arouiid them, but some distributing centre, whence it might be shipped across the Atlantic. In the early days of this trade the miller almost invariably sent his product for sale on consignment; drawing against it for a portion of its value, with the usual result, at length, of embarrass- ment on both sides. As matters progressed, consignments gradually gave place to purchase and sale; and this was carried out, not only with ship- ments to centres in Canada, hut also to exports across the ocean. As time progressed and population increased, the mills situated along the line of water powers were enlarged in capacity, and Sicam called into aid, until^ in some centres, large establishments were tt be found, whose brand became well knowi:. not only in every part i>i:' this country, but also in the centres of population in Europe. In dealing with ihe men carrying on this business the banker wiJl re- quire the same fundamental conditions as to full ownership of propeiiy, capacity, experience, and prudence which have been referred to already. But ns »very trade has its special requirements and dangers, the hauker, in making advances to a flour miller, will take care to limit them to such an amount that his funds cannot be used for speculative holdings. If the miller carries on his trade steadily, and sells ai fait u he LOANS TO MANUFACTURERS AND IMPORTERS, jai produces, .idvonccs will never need to be more, as a rule, than will buy about a month's supply of grain. There is no br.ineh of manufacture which is so simple in character which takes so little time, and which adds so little to the cost of the arti- cle as milling. A dour miller is not like a lumberman whose article takes twelve months to produce, nor a tanner or pork packer whose procesi requires we-.ks or monlhs to complete, nor a cheese-maker whose product when made, requires time to ripen. The product of a flour miller can alwa.v. be sold. The world needs and buys it every day, so that the process of manufacturing could go on, if circumstances required it, with- out any accumulation of stock whatever. Some time, however, may reasonably be allowed for contingencies both for obtaining a supply of grain, and of manufacturing, barrellinc, sacking, and transporting to market. If the advances exceed the amount required to purchase a months sup- ply of raw material, the banker will need to be satisfied that the condition of tlie market, the difficulty of transport, the blocking of supplies, or other causes, may account for the excess. In a miller's account, as well as a grain merchant's, any indication of speculating on margin will need to be carefully watched and checked at the very outset. The banker will also be careful that his advances are not expended in additions and improvemen.s to the mill; or in the purchase of an addi- tional one, should some tempting offer be made. A man who desires to stand well with his banker will never be tempted to such a misuse of funds advanced to him. This trade, unlike that of timber and lumber, does not move in cvcles of a temate prosperity and depression. « has its changes, ncverthde.., but they are of a more transient character. The market is ebbing and Mowing continually; and there is a necessity for the miller, like the grain dealer, to keep a daily and hourly watch upon it. It scarcely need, to be added that every miller will act wiselv in en- deavoring to make specialties, which v ill practically sell themselves at better prices than an article which has ..o name, however it may be pushed. To do this, he will, of course, be rigidly careful in selecHng his grain, have his machinery up-to-date, and work his process at every step to the desired end. And men of small capital in this business, perhaps more than any other, need to beware of launching into operation, larger than their capacity or capital justify. It is so easy to do it; easier in this trade than any other that can be named. But in no trade is there more reason tor the observance of the old adage, "V'essels large may venture more. But little boat', should keep near shore." The principl . L.id down so far will equally apply to such manufac- tnrer. a. tanners, di.tiller., sugar refiner., and other, of a like character, iii i : Ji m ?l 122 BANKING AND COMMERCE. where larger rapital in bnildingt »nd plant ii neeeiaary, but where there is not a large proportionate employment of labor. In all these there in required to ensure success a well chosen site, mod- ern buildings and plant, adequate capital, thorough knowledge of mar- kets, and if possible a special article with a well-known name and mark. And the banker who is applied to for advances {or fo.- foreign credits under which he ..lay be requested to surrender documents) will look care- fully into all these points, so as to judge whether advances asked are of reasonable amount, and also whether, from the "working of the account," if he has h£ •\ it before, the business appears to_ have been carried on pros- perously or not. This will stand him in special stead in times of de- pression, when it seems impossible to make profits in any line of business, and when that most difficult alternative is presented, between making fur- ther advances and keeping a concern alive, or stopping advances alto- gether, with a certainty of bringing it to an end. In the former ease, there is risk of increasing what may be a possible loss, tempered with an expectation of assisting a worthy customer over a difficult time, and avoiding a loss altogether. In the latter case there will be an a, .)lute certainty of loss, with the wearing vexation of handling an insolvent estate, realizing stocks of merchandise ([lerhaps shipping them to distant markets, and waiting anxiously for returns), selling, or attempting to sell, mills, factories, lands, or ships; processes which every banker of experi- ence has learned to dread as not only vexing to the last degree, but as almost invariably disappointing. In such circumstances nothing enobles a banker to come to a sound decision better than a knowledge, not only of the customer himself (which is the first element), but a general knowledge of the business he is carrying on. Cotton ano Woolen Mills, Etc. There are, however, manufacturers of an entirely different description to the foregoing. In fact, these are seldom spoken of as manufacturers at all. But we now have in Canada large developments of manufacturing in- terests, such as were formerly confined to England and the older countries of Europe, and which crossed the Atlantic, and became established in New England and other parts of the United States at an earlier period than in Canada. These last have been largely, but not wholly, the growth of a protective policy. It is not the intention of this work to discuss the debated question of Free Trade vs. Protection. The fact is simply noted that there are now esUblished in Canada, as developed by what is known as the "National Policy," cotton factories, woolen mills, iron-works, and many other manu- facturing industries, with respect to all of which one particular point of difference from the former ones is noticeable, vil., the large amount of mechanical labor that is required to carry them on. To produce the same LOANS TO MAVUrACTURERS AND IMPORTERS. 123 nnniml output of goods in n cotton factory thnt would be turned out of a Roiir mill, for example, ten or rvcii twenty tiuKs tlie nuinlirr of nrtisdUE M-ould be required. And the outl.iy for wnjrts would be liirge, in a corre- epondini; deprrc. Some of this cbiss of manufactures are more indigenous to the soil than others; for exaniplr, woolen mitU more than cotton mills; inasmuch us part of the raw material of a woolen mill is a product of the country. Wooh'n mills were therefore known in Canada long before cotton mills were heard of. Such mills, however, were of n very simple type, and corresponded largely to the grist mills of primitive days. These woolen mills, however, have now developed, in many eases, into large establiMlnnints in whith gcMwis are produced of a quality rivaling those of the old world. The same process of development has Iwen seen in nianufactnres of iron, steel and agricultural implements. The blacksmith ■shops have grown with the growth of the locality. A primitive village has become a busy town or city, and the blacksmith of former days has expanded into n manufacturer of all kinds of goods in iron and steel, including machines for producing other things. Similarly the wagon maker and mechanic of a former generation is now the head of a vast establishment employing thousands of hands, and manufacturing agri- cultural machines, not only for the Canadian farmer, but for export to distant colonies of the F.mpire and other countries. The little cabinet maker's shop has grown into a vast furniture factory able to produce goods that can be exported to advantage to the mother country. This process of development is constantly widening, and embracing ■other articles, other lines, and still wider areas of production. All this must come under the cognizance of the banker; and the enter- prising men who have developed these industries will certainly seek to be his custnmrrs. and need his facilities, not only to give cash for the bills of their customers, but in the way of direct loans. With respect to these lines of manufacture, as has been observed re- specting others, the first and fundamental requirement of a sound busi- ness concern is, that if the customer owns the property it shall not be '!y covered by insurance; all of which call for expenditure that cannk>w be met out of profits. Or the manufacturer may be of a quick, inventive capacity; fond of trying experiments calling for new machines or additions to build- ings. In all these cases such expenditures should be met out of a reserve fund invested in a realizable form, or out of additional capital, or an issue of bonds. But in some cases they become a drain upon banking advances, and cause such advances to assume the shape of a "lock up." In this manner many of the losses in the manufacturing districts both of England and Canada occurred. Indeed, to such an extent has this been the case it times, that a manufacturing concern has drifted from bad to worse, until bank advances were represented by nothing but buildings and machinery, whicli when realised left a debt behind, on which the banker might receive a dividend of iive cents on the dollar. These are not fancies, but facts.** 44 In one of the larsrejt manufacturlnr districts of England a bank ha^ long carried on business which had almrst the whole of Its resources employed in man- ufacturins accounts. Two principles have been rigidly ob8*rv*ed In the manasre- ment of this bank from the beginning, vIe., that advances shall never exceed moio than one-tenth cf the annual uulijut of the cuncerni and that ail such ad- vances shall be paid off once a year. (This, of course, does not refer to the dis- count of trade bills.) This bank hu had a career of singular prosperity amongst LOANS TO MANUFACTURERS AND IMPORTERS. 125 LOANI TO WllOLKSAlE MLRrHANTM, There is tills fundnimnlnl differt-nce between the wlioltsnle merchant and the maniifacturrr: that the merchant, if his credit is good enough, cnn put the whole ol his stock upon hi shelves without the expenditure of A single dnllnr exeent for freight and duties. Om>d credit will enable him to obtnin nil he wants from manufacturers on this side of the Atlantic, or from wholesale mouses in England. But a niannfaeturer can do noth- ing of the kind. I'roni the time that he begins operations he has to pro- vide for a cash expenditure which never ceases until goods are ready for sale. In nearly every branch of manufacture he must pay cash for his raw material and his fuel. And the moment he begins the manufactur- ing process, his pay-roll of wages confronts him week by week, and must be m;'t. There can be no possibility of asking credit here; not for a single week could wages be left impaid. In the case of the sixeial lines of manufacture lately under review, where wages are a most important item of cost, the necessity of meeting the large sums required is the most harassing of all financial pressures. It presses indeed more heavily than the necessity of meeting accept.inces and promissory notes, for the payees of these ciin be approached for renewal at a pinch, while a request to a body of workmen to defer payment of wages is utterly impossible. And as pa.vnient is imperative, the manufacturer will naturally, in such cir- cumstances, have recourse to his banker. Hence, it is more difficult to finance for a manufacturing establishment than for the business of a wholesale merchant. The latter, having the power to buy goods at all times on credit, has no reasonable ground for asking regular ad\ ices from his banker. His dealings should be con- fined, as a rule, to the discount of bills given by his customers. The only payments ii wholesale merchant has to make, which are abso- lutely imperative, are the customs duties and freight on imported goods. It is just as impossible to ask credit here as it would be for the payment of wages. Hut no wholesale merchant could reasonably think of com- mencing business without capital, and the very lowest minimum necessary would be an amount sufficient to pay the duties on the stock requisite to commence business, and thereafter on his average stock. Once he has his goods in warehouse, he can begin to sell, and with such facilities as bankers arc now ready to olTer for the cashing of cus- tomers' bills, a merchant may, from a financial point of view, be said to be an the Riictuar'ons of the trade of the district, and Its losses hnv« been a mer« fraction I'f Riich as have been suffered hy even wr-Il manngi^d Canadian banks It would be dlfflcult to apply both of these rules to such lines t-f manufacture as saw milling and tanning, owing to ihe great length of the manufacturing process. But the Inst of them is an absolutely necessary requirement In every case. And the flist. which Implies that there should be a certain proportion be- tween the amount of advances and (he annual output. Is Important ae in.lfcatlng what Is desirable In all manufacturing advances, the proportion varying, of tourse ■with the r edition of the business. KM:' ite BANKIVO AND COMMERCE. Me to Bell for f.-mli. Thus, liy the tiinr thr pnrnirntfl for hli itock hc- rtime diir. thi- prwrcdii of hia lalei ou^lit to W itiffiririit to nirrt them. Thin clfimiit.iry tinancinl theory of a wholrnnle builncBi bccnniei modiHrd by firciini»tnnrr« m time projirfBird, nnd no pnidrnt mnn would be •atUtird with iK-infr sn wholly drprndcnt on his credit with other houiet at to have nothing left over after pnyment of dutiei. He will, of oonrse. nim at having fnr :nore capital than that. Bi three months at the most. Fourth, renewals should not be granted. Indica- tions of continuance should lie carefully watched and promptly dealt with. If ndvances become chronic, security should be insisted upon. Fifth, it is always desirable, too, that when such advances are granted to a firm, the endorsement or gunrantt-e of each individual in its should be obtained; for individual partners may have separate estates which the endorsement would bind. If the business is carried on by a joint-stock company, the guarantee of some of the principal stockholders would be desirable. By the observance of such rules as these, and with constant exercise of vigilance, loans of this character may be granted without unreasonable risk." 4!i In the par1> dayi of Jolnt-titnrk banklnR In Enclftnd and Scotland, when th« businpM was not ao well understood as at present, numbers of acroiints In ths ntanufacturlnB districts of England had drifted Into the condition of bclns larcelr represented by fixed property. Half the cotton mills of Lancashire, the woolen mill, of Yorkshire, and the Iron foundrlea of the "olack district" were mnrtsaKed to the banks of that t'erlod, some of which were ruined by the heavy losses that ensued. Thene severe lessons have had their fruit tn the Improved style In which bank advances are made In these timea to the mutual advantage of both the banks and their customers. The same condition of thlnca prevailed In certain quarters at one time In Canada, and with the same result of either embarrassment or abso< lute ruin. In a certain district of Canada where flour milling wrb a leading Industry, It was well known at one time that nearly every mill It contained had fallen Into the hands of the leading bank of the dUtrlct by foreclosure of mortsmce. This was the result of the style of business adopted by one who was known as a most enterprising and pushing manager, whose lavish dealing with the fundit entrusted to him by his head office had not only ruined the customers who dealt with him but brought about heavy losses to the bank. The disposal of these properties and the operatlcns connected therewith, formed a principal part of the occupation of the officer who succeeded the en- terprising manager. If the bank referred to had been an Independent one. llkt the banks In small towns tn the United Sutes, It would have been ruined beyond redemption; but. fortunately It was only a branch of a larger Institution which could afford to lose large sums i"lth no more consequences than temporary em- barrsssment. CHAPTER Xni. LOAN! TO BAILWATS AMD RAILWAY OONTRAOTOKB. RaILWATI UMDM CoKtTBVCTIOir — PlCUUAll tJAKOKKI RaILWAYI IM OriltATIOK CoNTmACTOM DeLAVI iN PAVMCNT ENOlNllft'f CBBTiriCATKt— LocK-Un — CoKTiucTi roR Railway Cohpaniii — COMTRACTt FOB PuBLIC WOBKI OF GoTIRMMEMT. THE development of r«ilwayi in modern time* ii one of the mott itriking facton in oar indiutrial progreti. Though thej do not produce or create anything, thty bring producer and coniumer more nearly together, and lewen the coit of raw material to the pro- duoer and of finiahed product! to the coniumer, m much as to have given an enormoui itimolni both to manufacturing and trade. This hai been the caie even in the older countries of Europe, whoie every acre was cultivated long ago, and whose means of transportation were in a well developed condition long before railways were heard of. but whatever stimulus might be given to production aiid tradr by railroads in older countries, It has been immeasurably exceeded by the effect which their construction has produced upon the undeveloped or partially developed regions of North America. Whether in the United States or in Canada, the effect of the extension of railways into undeveloped tracts of country has been such that it may almost be said that the railway has created the country. For, so far as the interior of the continent is concerned, when we consider the enormous distances to which the product of the soil had to be carried to reach a market, it will be seen there was an insuperable bar to profitable cultivation, and that great regions now populated and prosperous must have remained in their oriirinal state of wildneu, but for better means of transit. But the railway which penetrates these regions enables their products to be brought profitably to market, and so opens up a path to settlement and the industrial development that follows. Thus it has been in all the WcKtern States of the American Republic, and thus it has been in Canada in a most remarkable degree. But at an early stage in these developments the Intervention of the banker has been needed. The financing of nearly every railroad during the period of itv construction has been attended with not a few financial difficulties; the only exception being the railroads avowedly undertaken as Government works. Of this we have had one conspicuous example in Canada in the case of the Intercolonial. Railway corporations have two modes of raising money; viz., by the •obscription of stock, and by the issue of bonds; tlie latter being partly of the nature of mortgages, and partly of long-dated promissory notes. SulMcriptlons on account of stock are invariably, in these times, paid in . RAILWAY LOANS. 189 to • binlicri and iMa li the point at which the bank and the railway Ant come Into contact. The banker openi an account with the company; recelvet money on lla account ; payi out that money aa cunitrucllon pro- ul»crili<'ra nhrimd. ami plana tin ui to the credit of the comiuiny In Conodn. .\ll the for.nolng arc •impli- and natural hank- ing traniactions, and although the aniounti involved are aometiuiea enor- mout, amounting to teni of milllona In the courie of a lingle half-year, they are not luch a> to give occniion for thought or anjiety on the part of the banker. So long ai the lunii drawn out are no ii'iore than the aumt paid in, the transaetioni are port of the mere routine of hanking. Thii ii the elcmentory theory of banking in connection with railroadi during conatruction. But, ai a matter of fact, it often hn|ipenB that the financiol opira- tiona connected with the building of a railway do not run as amnothly as this. The Incoming of money does not alwara keep pace with the ex- citing demands of its outgoing. These demands are imperative, consist- ing as they largely do of wages of laborers and artisans. It has already been shown how necessary it Is to meet demands of this nature at the time they are due. It hap|>ens, therefore, at times, that emergencies arise which lead to an application to the banker for advances. The banker Is naturally the jierson opplied to, as the company Is having large monetary transactions with him; and the application can be represented as simply the honoring, for a short period, the checks of the company, until subscriptions are paid In, or bonds are sold. It has thus come about that many a banker has been induced to consent to advance), which, though represented, with perfect slncerit.v, as "temporary," were found to have an unpleasant element of permanency about them In practice. The new subscriptions or the proceeds of new bonds could not In some cases be applied to the advance, inasmuch as the money was required to meet other and more Imperative demands. The temporary overdraft, therefore, went on, with varying amount, but undischarged, even for years, until some turn of events i-ftcr completion enabled funds to be set aside to meet the banker's claim. These, however, are not the only contingencies that meet the banker, when, as is generally the case on this side the Atlantic, the money Is raised In one country and expended in another. The officials of a road uniier construction are subjected to constant pressure to find funds for vas pay-rolls regularly recurring, sometimes running up to miUlonj; and on the banker demurring to increasing an overdraft, would suggest that he might cash bills of exchange drawn by them on headquarters. They might not, it is true, have explicit anthority for so doing. But they would trust to the exigencies of the case being recognized and the bills honored. Such things have been known, however, as of these billi BAVKIXG AND COMMERCE. being refused acceptance or recognition, and of the banker being com- pelled, to his intense disgust, to write them off, as losses. A case has also happened where a railway, pushing works of con- struction ahead, for a road of which it has obtained control, but which is still carried on under its old name, has made arrangements with ft bank for supplies of money from month to month to be repaid periodi- cally by drafts on the headquarters of the company. For a time the arrangement works smoothly, and advances are paid off periodically. But, as time goea on, money is not paid in the one country as fast at it is needed in the other. The bankers, therefore, are asked for the peri- odical payment to be deferred. Meanwhile, outlays proceed, advancet- go on increasing, until at last the bank is itself embarrassed by the huge amount to which the account has grown. Further advances are therefore stopped, and payment demanded of those existing. Then, to the disgust and alarm of the bank, the point is raised as to which corporation ha» had the advances. Is it the corporation that has obtained control of and absorbed the other, or the corporation which has been absorbed, but which is practically a mere name ? The lirat repudiates responsi- bility. Litigation ensues, and is continued for years. Meantime the bank is embarrassed by the enormous amount of its funds locked up, and suffers in credit through the facts becoming known. The case is finally settled by an arrangement for a special issue of bonds, the whole of which are handed to the bank. But of these bonds neither interest nor principal is ever paid, and the bonds themselves are finally can- celled by legislative arrangements, which give the bank about one-tenth of its advances, the remainder being a total loss. Largely as a conse- quence of this, the bank ultimately suspends payment and finally passet' out of existence. Advances to a railway during construction are therefore critical af- fairsj and require much judgment and caution, and also much firmnesa, on the banker's part, in dealing with the account. Such advances, if" once allowed, are almost certain to increase. And aa the disbursements,, during construction of even a small railway, are very heavy, the pres- sure for advances may soon raise them to large amounts. The only safe rule for a banker with an account of this kind is to be firm at the outset, and not to allow the thin end of the wedge to be inserted without outside security. It is a delusion to suppose that a railway corporation must in the nature of things be good to repay advances. A banker, until he has learned the contrary by experience, finds it difficult to believe that a corporation, with a paid-up capital of millions, can fail to pay Its debts. But reflection would teach him that when the whole of the capital afore- said has been expended in works, from which it can never be extracted again, it is impossible that capital can furnish the means of repaying what he haa lent. Still more is this the case when such a company RAILWAY LOANS. ,3, e'xte'ntto .h'TT''"' T""'"'; '" "" "'"P" "' ^■'^' "> ">' "'"■0,1 «m.t.t.ted by law a hr.t mortgage on .11 the property of the cZ^ The banker hercfore find. him.elf in a difficult po.itL if he^ZS^ recovery by law; he indeed find, thi, in.po..ibIe ^ It may be taken therefore a. an .,iom in banking, that advance, to pz n:t;^art!f."Zn^ i^^^r -f they .honld be received with cantion, for tte p"per ^o^t "f "nir''^ .imp y a c„n.en.„. of the opinion, of the finaneUl world """ " .Many inatance. have been known, of a finished railw.'v !,». 1 nected with iu bond, or .tock.. But .hcnT^^ U .74 1" X crMn.n.t,ve judgment in regard to advance. like thi.: for he" ha« been .nstance. of railroad, getting into ,uch low water tha. !„ ^ 7 cnc conld be placed upon them for any J of ^ent "^^t^Zt' they would be wanting in judgment to a .ingnlar degree TtheV "l ^ n<.^treat .uch a railway a. they would an imr«uni.:r:erl'tu7b^;! A railway corporation, in fact, come, to have what may be called a commerc .1 .tanding, exactly a. a „ereh«,t doe.. It i. not ^"0" foj mcrcant.1. agencie. to enter raUway. in their book., and ^e U,! r.dc. of credit; but if they did, they would find it'nece-a^ry to ^^ « many .ymbol. a. they do in ca.e of merchant.. Some wo,Jd have fc-8''«; P'i' of credit that any mark, could indicate, whU. other, would be found at the other end of the «.le. But a. there are no book. of reference indicating the .tanding of railwav.. and any reference to I ,,( BANKING AND COMMERCE. their .uppo^d cpitol i> utterly delusive, a banker mart hta.elf lake means lo find out what is neeessarv, only taking eare that he doei not find it out by costly experience. Railway Contractors. Closely connected with the foregoing are advances which banks are often called to make, during construction, to railway contractors. Through the hands of this class of the community very large sums pass during the course of construction, and the eipendltures of a single month, at times, run up into millions of dollars. The usual course is for pavments for work to be made on the certificate of an engineer or inspector, at periodical times, named in the contract, and usually once a month. This process seems very simple and not likely to lead to finan- cial difliculties. But experience teaches otherwise, as will now be shown. Any person or firm engaging, or contracting, as the phrase is, to do a certain piece of work, will require, before he begin, it, a conaiderable stock of material and plant. He murt have horses, barrows, shoveU, wagons, and a varietv of other tools and plant of more or less value, according to the extent of his contract. In some case, the whole of the contractor's capital will be invested in his plant. If he open, a hank account, and it i. almost a necessity that he should, he will inform the banker of the amount of money he has so invested, and will, naturally, open to him the amount of the contract, the mode and time of payment for his work, and so on. In fact, he will explain his position, so that, in case he require, advances, the banker may understand what to do. In a majority of cases, a contractor wUI want advance, before he has got on far with his work, for the pay-roll, of his men will come due, and murt be met, before his receipts from the company come in. For there is always an interval, during which his work is being measured, his account passed, and payment received in the treasurer's ofiic. This interval may be days or it may be weeks, but his litUe army of workmen cannot wait for weeks, or even for days; they moat be paid, or they wiU not go on with the work. Now, some contractors have avaUable cap- ital enough to enable them to pay their wages in the interval; that is, they have, in addition to the capital they have expended on the plant, or "material, sufficient, at leart, to meet a month's pay-roll of their men. Men of such capital as this seldom require advances at an early rtage of 1 contract, though they may do «o later on.<» But the majority of contractors have not so much capital as this, and are in the habit of applying to a banker for advances, the ground for such application be- iTnt aulhoi will reni«ir.ber. an nccount opened with the bank In whkh his early da>» were pMsed. by the contractors for the worka of th« Manchester * Bhemeld Hallway. They depo.ll.y] a .in.le .om ot £SO.0M. IJine aa this was. It waa all abeorbed aa the work went aid, or to malr* tf- flclent banking arranflrMn*nt8. Numerous cases of this kind have arisen wh«r« the worka were on this side the Atlantic wh'lst the money had to be ralscA on the other. RAILWAY LOANS. ,gj But the ..„e cnnol be ..id of .11 g„ver»,„.„„, „ h„. b«n «.„. 4** CHAPTER XrUI. LOAMS AUD ADVAH0E8 TO OOVEBJUIBIITB AMD MUMIOt PAL OOBPOEATIOMS. ENOLAND— THt UnITID STAT..-FH4NC.-lN.0L«IiT GoTIHNMCNI. or Ekro«— Th« Sepahati Statu of th« Uniok— Siparati Provinces op Canad.v— Mcnicipm Corporation Loans. THE dealings of bankers with governments have peculiarities of their own, and at times are so important that the whole foundation of * banking corporation has rested upon them. This was the case with the Bank of England, the very purpose of whose establishment over two centuries ago was to aid the finances of the Government of the day. By the terms of its constitution its whole capital of one million ster- ling was loaned to the Government of the time, and this primal condition has been observed down to the present day through all the changes and vicissitudes of the last two centuries. Although the capital of the bank has been increased from lime to time until it now Amounts to fourteen millions sterling, there never was a time when the whole of it was not lent to the Government. The debt is represented by those Government securl- Ues which regularly appear in its published balance-sheet, and with which, so far as the amount of its capital is concerned, it cannot part without a forfeiture of its charter. In consideration of this, the whole business of the Government of Eng- land— using that word in its broadest sense— has always been done with this one bank. The Bank of England, howevtr, is not a Government institution, u is often supposed. It is distinctly a b^-king corporation with its own body of stockholders who elect its own board, appoint its own office™, receive dividends out of profits, and hold annual meetings exactly as do other banks. In all these respects the Bank of England is on the same footing as an ordinary joint-stock bank. The only difference is that in consideration of its relation to the Government it has powers of circulation of a peculiar kind, as opened up in another chapter. But notwithstanding that the Bank of England is not a Government institution, the fact that the whole financial business of the Government passes through its hands, has always been held to constitute a claim on the part of the Government for firfandal assistance should it ever be needed! and that in prtfemrc to tht commercial commumi). If the commercial community were urgent for discounts at the same time as a Chancelloi of the Eichequer was urgent for advances, there can be no question which of them would have the preference. Yet the Instinct of self-preservatioB LOANS AND ADVANCES TO GOVERNMENTS. 137 li ai itrong vltb the Governor and Company of the Bank of England ai it is with the directors of any other corporation, and that would undoubt- edly prevail in case the demands of the Government were likely to endan- ger its existence. This, of course, has been well understood by every Chancellor of the Exchequer from the beginning, and no demand would be made upon the bank that would be likely to bring it into danger. The bank is altogether too valuable an adjunct for any Government to allow its usefulness to be imperilled ; besides, there are other ways in which thf Government could borrow to meet pressing emergencies, such as the issu- ing of Exchequer bills and so forth. Yet undoubtedly it has happened at times that the directors of the bank must have felt their position with the Government to be burdensome, notwithstanding the privilege of having its notes made legal tender. A natural longing for freedom to use their immense capital in a way that might seem agreeable to their own judg- ment as directors of other corporations could do, would, at times, almost of necessity arise, and if it did so arise, would be pardoned. The principle of lending the whole capital of a bank to the Govern- ment prevails also in the United States, as has been set forth in another chapter. Most of the National banks lend their whole capital to the Federal Government, and receive in acknowledgment bonds for the amount The banks are authorized to issue circulating notes on the security of these bonds and every possible safeguard has been devised in order to render these notes secure. The Government retains the custody of the bonds, thus insuring that the bank cannot dispose of them. The Govern- ment also furnishes the notes to the bank, thus insuring that the proper amount and no more shall be put into circulation. These notes, though absolutely secured by tlie Government, were never made a legal tender, the reason probably being that the Government itself became an issuer of legal-tender circulating notes, and is so to this day. The Bank of France has a more intimate connection with the Govern- ment of the day, whatever its character might be, than the Bank of Eng- land. The Government is always represented influentially on its board, so that the obligation to meet its necessities bears upon it with even a stronger pressure than in the Bank of England. Still, the Bank of France is not a department of the Government, and its advances must be regulated in the last instance by the all-prevailing law of self-preserva- tion. It might be supposed that advances to governments must, in the nature of tilings, be safe. But experience teaches some bitter lessons in this respect. All governments are not like the Government of England. There have been times, revolutionary limes of course, when the obligations even of the Government of France became utterly valueless, and iti promissory notes so depreciated that a thousand francs of them would hardly buy a loaf of bread. Yet these were secured by assignments of Government lands, and hence bore the name of attignatt. A similar state of things prevailed in revolutionary times on this Continent when what BANKING AND COMMERCE. I 'I w«t known u Continental money of the revolting coloniet became ai much depreciated at the atifgnata of France. Of this itate of things we have seen a repetition in recent times with regard to notes issued hj the revolting Southern States. These became, ever^ one of them, absolutely worthless. It is well known In the higher circles of finance In Europe that the Government of Spain has more than once compromised with its creditors, exactly as a merchant does when he cannot pay his debts. What is more, that Government has even com- promised on its compromise. At this very time t1>r Government of Turkey is under heavy default on its obligations, and it it were a railway company, we should say It was in the hands of a recdver. A certain portion of Its finances are adminls* tered by representatives of its bondholders, comprising French and Eng- lish capitalists, each of whom, in terms of a year about, receives certain allocated revenues, and after appropriating a certain sum for the interest on bonds, pays over the balance to the Turkish Government, if there be any. A government is unlike any other debtor in this respect, that if de- fault is made, there is no mode of compelling payment except by going to war. In all ordinary cases of debt the remedy is to appeal to the judgment of the court, which judgment will be enforced against the debtor by the Government But when a Government itself is the debtor, there Is no higher authority to appeal to, unless in these times the interna- tional tribunal of The Hague may be considered such. But how could that tribunal enforce its decisions ? Nothing but the terrible arbitrament of war will meet the ca«e. Now, private persons, no matter how rich and powerful, cannot levy war. Their case must, therefore, if it is to be enforced at all, be taken up by their own Government, which if payment is refused, can declare war, seize custom-bouses and ships, and bring the whole machinery of the defaulting Government to a stand. This was the futioti d'etre of the measures taken against the Republic of Venexeola by Germany and England in 1909. Bankers therefore who keep accounts with governments and make advances to them have always this risk to reckon with. They cannot com- pel payment. Even if a government endeavors to satisfy the bank by an issue of bonds, there are difficulties and disadvantages even in this simple process. If the Government is a constitutional one, bonds cannot be Issued without authority of Parliament; and such an issue may become a matter of fierce contention between opposing parties, may be ddayed indefinitely, or refused altogether. Or If the government has succeeded in obtaining authority to negotiate a loan, it may have already exhausted its credit, in which case it cannot press more bonds upon the market without a heavy sacrifice. Canada itself before Confederation, consist- ing only of Upper and Lower Canada (corresponding to the present Provinces of Ontario and Quebec) had sunk so low in credit that its London agents were unable to place further loans upon the market ex- I.OAXS AND ADVANCES TO GOVERNMENTS. 1S9 ■Mpt «t a hcavj- inrrifirr. Time ngrnis ln-ing undrr Iitnvy ndvancci themirlvri, at one time abioliitely rrfiiaed to inerpnie tlieie advanrei, and wrote letter!, al may be leen in the Blue Booki of the time, to tlie Finance Miniiter of Canada eouehed in terms eiaetly limilnr to tliojc employed by a banker to a debtor whole bilU were overdue. It w.ii natural, therefore, onder theie eireumitanee. that the bankeri of the Government in Canada •hould be ealled on for advonees to a constantly increasing amount, which advances becoming, at length, really embarrassing, led to coniuliationi and conferences which finally ended in the proposal for a Government Issue of circulating notes. The present legal-tender note issue of the Government of Canada had its origin in this way. Since this great settlement the credit of the Government of Canada has steadily improved, and its Imnd issues are almost on as high a level as those of England. Its relaUons with its bankers have therefore never since ceased to be satisfactory ; and at times when other Canadian banks have been ealled on to co-operate in placing loans on the London market, they have gladly consented to do so. It ii to be noted, however, that the Government of Conada, through all the periods of slroin and stress of commercial and financial depression has never failed to meet the interest on its bonds to the day. There are, however, other forms of Government advances than those referred toj namely, those of the separote States of the American ITnion, or of the separate Provinces of the Dominion of Canada. Each of these las its own financial system. It levies taxes within certain limiU, coUecU and disburses revenue, and places bonds upon the market exactly in the same manner as an independent State does. Each is a separate financial entity, and has a character and credit of its own. The Provinces of Conada differ widely in their financial position; but all have maintained a reputation for meeting interest on their bonds with as much regularity as the Dominion Government itself. Nevertheless, there would be a wide difference of judgment in the case of an application for loans as between one Province and another. This matter is well understood by financiers. As to the mode in which pressure could be brought to bear in case of difficulty or embarrassment, an appeal in Canada would undoubtedly be tnade to the Dominion Government, which Government possesses powers in the way of compulsion in the fact of its granting subsidies to the different Provinces. The cose may never arise when the question of with- holding a portion of these subsidies to meet the claims of creditors may become a practical one. Nevertheless, it is conceivable that under circum- stances, say, of exceptional extravagance in expenditure on the part of a particular Province and consequent default, the claims of the creditor! may be carried before the higher power and demand made that prcMure be put upon the defaulting Province. In this respect the Canadian Provinces differ from the States of 1 I 140 BANKING ANU COMMERCE. AmiVlo. The l«tt municipallt/ under the regimr of an enterpriainf major or catmcU, eiaclly ai It may with an Individual. In that caac there will be itrong prcuure put upon a corporation banker to extend hii adrancei brjond due boundi. He will then need to remember that there are ehargM upon the income of the manicipalltj which lalu precedence of hia adrancea. Wagea of employeca, for example, and intereat on bonda; theae cannot be left In abeyance. For It hai been the juit pride of Canadian municl- palitiei (with one or two eiceptlona after the rollapie In the Northweit) that tbrj never made a default In their bonda, either of intereat or prin- cipal. In carrying on the account of a corporation a banker will need to keep the foregoing In view. He will alio be careful not to allow one year'* advsncn lo be carried over Into another. Each year ahould atand on Ita own foundation. This la the regular and normal working of advancea to corporationa. But both in timca of proiperily and adveriity there are apt to ariie clrcum- •tancea which militate againit it. In times of expansion and prosperity when a close watch is not kept over the finances by corporation officials, expenditures of a lixed character sometimes get so mixed with those that are temporary that the moneys advanced for the one may become locked up In the other. Thia is especially the case when advances are made in the form of an overdrawn current account. Nothing is more easv than for a treasurer or finance committee to issue checks ad lihitan, the result of which Is that the banker finds himself at the close of a corporation year with a heavy undischarged debt. This, of course, may not give a banker the same anxiety aa if the debt were against a mercantile firm. A corporation cannot go out of business as a merchant can ; and the cases of corporations being absolutely unable to pay their debta have been extremely rare. Usually the worst conse- quence of abnormal adra.icea is that a certain amount of money is locktd up. Now, though a "lock up" is not the same as a bad debt in Its ultimate consequences, it may, ,f large enour'' be a cause of real embarrassment. It may, however, be thought that Vcr's advances can olways be pre- vented from becoming embarraaaing t^ a corporation issuing bonds, or In a last resort, exercising the power of Uxation. There are, however, serious limitations to both of these plans. Corporations cannot Issue bonds except within the llmiU of their charter or the general law. If attem, >ta are made to extend such powers, the ratepayers are very apt to initiati apposition. With regard to taxatior the same objection would apply in even stronger form. Nothing provokes more determined opposition than undue increase of taxation. The only mode left under such circumstances is a considerable re- trenchment of expenditure; but that, too, is a very dilEcult process, aa anyone connected with mmiicipal matters knows well. A banker therefore who has incautiously allowed his advances to drift into this position may have the morti6cation of finding it impossible ta ti,,. IM BANKING AND COMMERCE. collect for ycAri the Amount due, and of bring under the neccMtty of eorUlling advancei to mercantile euttomeri. AH that hai been observed with regard to thl« matter ie founded on actual experience. The total anwunt which a municipal corporation majr prudently bor- row, that ii In a permanent form, U a queition on which dilTcrent opiniona may be and have been entertained. It generally reiolvei itielf into » question of m much per capita of population. But here diitinctions must be made. For lome munleipalitiei are so much wealthier than others, as a whole, that ^n amount per capita that would be a serious burden to one would rest lightly upon another. But the limit of safety will be found, as a rule, to lie bet.veen sixty and eighty dollars per capita: the former, let us say, in the case of a municipality hnving a considerable population of artisans, and the latter where a much larger percentage consists of the well-to-do class; such, for example, as towns resorted to for the purposes of health or recreation, or which are agreeable places of residence for persons of competence. Suburban towns within reach of a great city ean bear a higher rate of debt per capita than many others; but there have been on this Continent (but not in Canada) some striking instances of extravagance in such places under the regime of an enterprising mayor or council, when new streets, squares nnd boulevards were made in advance of population, burdening the existing inhabitants to soeh an extent that the taxes became intolerable, and compelled many of them to leave the place altogether. Thus the expenditure defeated its object Population, instead of being attracted, was driven away, so that those who had property in the place and could not leave were compelled to allow the bonds of the corporation to go Into default Under such a elond as this an attractive municipality might lie for years, its bonds becoming for a time almost worthless until some forced arrangement was made with creditors that lightened the burden of taxation, and enabled the natural advantages of the locality to assert themselves and bring in population. Such a state of things as this would scarcely arise until the mnniclpal' iebt bad increased to more than a hundred dollars per capita. Sometimes, in a large and prosperous city, under the regime of an enterprising board of aldermen, great works of improvement would be planned and carried out year after year that added nothing to the revenue of the city, while they added immensely to the burden of taxation. Such expenditures might at length become so serious as to arouse organ- ised resistance on the part of the property-holders, and appeals to the Legislature to limit the borrowing power of the municipality. Under circumstances such as these, if a bank went on making advances on open account, there might be danger of such advances being declared to be beyond the limit of the law, and considerable difficulty might arise as to liquidation. The above observations as to the limit within which the debt of a mnni- cipality should be kept are of course irrespective of expenditures of a remunerative character. If a municipality borrows for the purpose of LOANS AND ADVANCES TO GOVERNMENTS. u» But eiperience ihowi that ■ miuiiclDalitT hu .1-... . j ch«k. upon borrowing" ^ '"PO'I"*, when nerfed, ,trtag«,t ««« .i»i] b. i„uM.,« „„, „, i. p^™a?" "This!,'?'""' ""' ■"* "• —lOT until . »,, „ .u*^ I„ .11 ™AM ,"'! "" "'"'" " <•<• <"" PM- "l.« .ll^ u,OM tt., „ „"7„ „^,^ Sl'^'^jf" '"^"^ '">■» '"""'n. •'■11 CHAPTER XIX. LOANS OH STOCKS AMD BONDS. Growth o, Thi. Bhanch oi- I.£Nd.n<.-C»m. Loan.-Loani os Time. n-«HIS branch of banking loans ha. come into great prominence of lale 1 year, on both aide of the AUantic, owing to the increaamg difficul- ty of obtaining Mlisfaclory commercial loan, and diKOUnti. Ihe imn,en.e increaae in the deposit. entru.tedtoCanadlan bank. ha. more ^ kept p«:e with the increaK of .atiafactory con.merc.albu..ne..;hence,w.th many bank., the larger one. c.pecially, it h" 1>«™""= « ««"'"':''' of ba.ine.. to make advance, on the .ecurity of bond, and .tock.; not that, M a rule, they have deliberately pa..ed by commerewl bu.,ne.. in order " enter upon thi. branch. No bank ha. a right to do th.., for the very object for which bank, are chartered i. to promote trade and =«^'«- It i. only when thi. requirement i. fulSUed that bank, can fairly enter upon thi. other field of enterprUe. To put it in one word: .t '• «>ly *' b^ker'. .pare fund, that can be properly «, employed. The amount of ,uch .pare fund, varie. with the course of business and the .eaMn of th. year, but, generally .peaking, there i. alway. .ufieient »• «»g«(!« "-"« La.ure of a Unker'. attention, and to make it important that he .hould maater the principle, on which loan, .hould be earned on. There are two very important difference, in thi. das. of buaine... u.ually exprced by the term, "loan, at caU," or "loan, on time. There is also a distinction between "loan, on bonds and loan, on rtock.. Loan. o8 Call. By far the larger part of theK are .ecured by .tock., of wMch there i. in Canada a comparatively .mall range to chooae from. Loan, on bank rtock. have been prohibited; for, when permitted they «■« "« to dangerou. .peculation. There remain., therefore, only *« -lofk. of ..Uway., .hipping companie., and industrial enterpri«s. A b«nk« >" a»ling ;ilh Aese wiU do well to make it a ml. to lend on no ^oct <».. i, JlMci and reg.l«rl, ,.ol«rf. He wUl require a. a minimum a margin of ten per 4nt., but the higher the price the larger perc»Uge of margin he will exact. In fact, when a .tock i. obviou.ly ^^'f'^ will do well to fix a definite limit to hi. advance., no »»"«' ho" Mf •" «« .tock may be quoted. Thi. U a cardinal rule, and it wUl be found very d«.gerou. to depart from it. He will be careful to have a .uUt«,UJ i«m.»er, and avoid dealing with impeeuniou. .peculator., no matter how good the Kcurity may seem to be. And he will keep his eye npon lu LOANS ON STOCKS AND BONDS. the fluctuatioiu of the market, and take means to keep well informed of the doings, ipecolationi, and schemei of the principa; operators. He will do well to observe certain rules or traditions, the result of experience, which, when applied, will rule out wrong classes of securities altogethei. The greater part of call loans will be to stock brokers. Loans to them are prima facie safer than to principals, for the reason that they them- selves have a principal behind them on whom they can call if needful. A banker dealing with brokers is, therefore, almost in a position of having a double security, besides the stock itself. A banker will take care to have his risks rrell diitributed, not only amongst persons, but amongst stocks. He will take care not to hare too much loaned on any one stock, otherwise he may 6nd to his annoyance that he has been a party to some scheme for inflating a stock beyond a reasonable value. He may then be caught in a reaction, and find that he has locked up his money, instead of having it at his disposal on a day's notice. In a limited market like that of Canada, a banker will need to be careful not to have too much money out upon it. Experience has proved that this market cannot stand any vn-y heavy strain of calls for money, especially on stocks that have a local value only. Some stocks there are on w iiich money can always be obtained in New York or London. These, of course, can bear a much heavier strain of call than the rest. But if advances rest on stocks that are not known in New York or London, the calling In of loans may sometimes result as "the calling of spirits from the vasty deep" by the Welsh bard was said to do. But much of the money lent on call by Canadian banks is through offices in New York. There the field is immensely greater. There is a much greater variety of quoted stocks, the changes in which are known f«r more rapidly than is the case in Canada. There are large numbers of brokers of solid means and standing, who are well able to stand the changes and even shocks of the market, as has been repeatedly proved. The tone of honor amongst this class is high. If colls for money are made, it is a point of honor to respond at once; and if the call is for more margin., it is at once lodged. No complaint is ever made cither of the suddenness or the amount of any call; or even of the sale of stock In case the call is not responded to — a rare event, however. The great objection to the New York market is the rapid changes in the rate for money, and the fact that the rate may be as low as two to three per cent, for months together. Then, in a remarkably short time, the market may assume such a condition that rates of ten, fifteen, or even twenty per cent, per annum are paid without grumbling. This state of the market, however, rarely lasts more than a few days, or a few weeks at most; and, during its continuance, a vast amount of clearing out of weak speculstors usually takes place. The New York market, as Is well known, is occasionally Tistted by 146 BANKING AND COMMERCE. tpasms and cataclysms. Memoriei of "Black Fridays'* still linger abont Wall Street (as indeed they do about Lombard Street), but these spasms are not so common now u formerly. They depend partly upon the money market itself. A continued period of very tight money will result in sharp spasmodic movements in which a fall of twenty to thirty per cent (or even more in some cases) will take place along the whole line of stocks in a single day. Yet so solid is the underlying stratum that It has been known again and again that banks having large sums out "at call" have found themselves at the end of a most convulsive day in just as good a position as at the beginning. Their calls for margin or for payment had, in every case, been responded to, and not a single failure occurred amongst the circle of their customers. Loans on Time. The principal point of difference between call and time loans Is that the latter are more nearly analogous to the ordinary loaning operations of the bank, and are not a mere employment of funds that may be wanted at any time, and must be at command on a day's notice. A banker who is purposing to make loans on time will consider whether the prospective state of his finances warrants this mode of em- ploying his funds. He will also scrutinize the security more carefully and avoid such stocks as have a tendency to considerable fluctuations during a given course of months. It has happened to a lender of money on time, that circumstances transpired making it most desirable, and in- deed necessary for safety, to call in the loan. But being precluded from doing this, he was compelled to allow it to run on and so to submit to a loss. Loans on time are often advantageous to a banker with whom money is plentiful, when the rate he can command is good. He is saved from the trouble attendant on the constant changes involved in dealing with call loans, and will sometimes have the satisfaction of having hii funds out at a higher rate than call loans are bringing. Of course, hii experience may be the contrary. There is one fundamental rule which experience has suggested in dealing with loans on stocks, viz., that it is never desirable to lend tliiect to the promoter of a company or to the man who owns and controls the majority of the stock in it. CHAPTER XX. THE OISOOUNTINO OF TRADE BOLS. Bank-B.iu upon B,a.vchm of th. S*m. Hou..-Bit« o> S.r.m- Ao,NT.-B.L,.. op W„ol„a.„. on H.tml„-,-B,l:, or MANl-PACTlBEm o.V MERCHANT!. 'T'RADE bill, ordinarily (though there aro other cl...„) „e rrpre- X «„Ufvc. of «,!«, and .ri.e .1 th. point where . b<,rg„i„ f„, purch.K of a commodity ha. keen eon,ua>mated, and the property .0 it h.. pa.,ed to the p„reha.er, who ha. given a written promi.^ to pay for ,t. That promiw to pay, in accordance with univerwl modem practice ., wr.tlen on a brief docoment eaUed varioualy a note or . biU or diZ'^'f ''T'" '■ '" "■' '"^ "' ■" •«'?'•"« of an order or d. ection to pay. It i, then called a bill. But when it U a .impl. ™Jif ,?''.""'"' "' P"'"'?""? "««« of form. Th. ewenee of all .„ch doe.ment., when legitimate and regular. I. that certain good, have been bought, and that the purchaae, ha. given written engagement to par for them. ' .Vow, when ,uch document, are what they purport to be, uid .» fiJe. of the document though not of it. legality), the buaine,. of a bwAor to deal.ng with one of them i, comparatively .imple. He ha., in the 6r.. place, to be „ti.fied that the .ignatnre of the maker or ie eptor company, he i. bound to enquire whether he ha. authorit, to bind hi. Z-",^'J"' ■'^'"""- """« •""■"'^ <■" "« P"'"'.!" will "exl the law. For the law in rcpect of thee .impl. looking document, i. re:d^3e„;in-n;'"a':racr " " '^*" "-'' '" -- - Byle. on Bill, of Exchange i, a well known handbook. Yet, though containing hundred, of page., it i. .o far from exhau.ting the .„S that hundred, of e„e. have been argued and decided .Inee it wa. writ^n the record of which would occupy many volume, more. Th. 7m^ appear, to b. unfathomable, for new ca„. are con.tantlv ari.ing i^™^ tag new con.ider.tion, b..ed on new .et. of facU, and deman'dtor if not new law., new application, of thoM already eiirttag The more ab.tru.e point, connected with no"te. and bill, are matter, for (he con.,der«tio„ of a lawyer alone, and a b«.k.,, if he i. wi*,™" ii ■■11 jSl 14t BANKING AND COMMERCE. .n let hii solicitor deal with them. But there are certain general principles which every banker ought to have, lo to ipeak, "at hit fingers' ends," via., that the document shall not have been aUered in any essential point; that is, as to amount, or date, or time, or the perftm to nkom it is pajfoble. or the person who promitet to pat/; also that it promises to pay a apeeifie amount at a epecijied time, and without any condithn*; also that it is properly endorsed. All these are of the essence of the document. It is not a bill that ean be sued on by a banker if there is a failure in one of these respects, although the seller of the goods would, always have the right to recover on his contract. But a bill may be made in perfect accordaiicc with the law, and the person who brings it to the liank may have a perfect riglit to transfer it, and yet it may not be a de«',i'ble document for him to discount. The person promising may not be what is generally called "good" for its amount; which brings up once more a commercial question whether the seller of the goods was wise in selling him so large an amount on credit as he has done. It is a banker's business to keep informed as to the whole series of bills made by any one promissor standing in his books, to keep the total in mind, and to consider not the single document presented to him at any one time, but t!ie amount of the whole of the bills made by this one person or firm that may be afloat. And this brings up another point of vital importance, vis., whether the bank's customer keeps more than one bank account. For in that case the banker will need to keep himself informed of the amount of bills p»sde by the same party that are domi- ciled in another institution. Want of consideration on this point will result in constant misconception. Let us suppose, for argument's sake, that the amount of the bills of a certain promissor in his own office is $2,000. That figure will be before him whenever a reference is made lo the bills of the party. He will recall the information he has on record respecting him, and applying that information lo this specific amount will exercise his judgment ac- cordingly. But if the merchant who oiTers the paper has another discount account, he will, in all probability, offer the paper of the same customer in that quarter also. Thns the very basis of a banker's judgment will te a misconception. For he is thinking of a credit of $2,000; when-as, he ought to be thinking of some larger sum, viz., $3,000, or $3,000. or even more; and may awake to the true condition of things only when he is prevented from applying a remedy. For his own customer, i. e.. the wholesale merchant, may fail, and his failure be due lo the fact of his having given too much credit. Then, for the first lime, the banker realises the true position. The retailer who was considered perfectly good for $2,000 is found qnitc unable to pay $9,000 or $10,000, and the merchant who has been con- THE DISCOUNTING OF TRADE BILLS. 149 ™h «d ,n,p™de„t in .,„rti„g him doubk or Irebl. th. .n.ouot. The ,u«tion therefore of what i. called ta banking phraae "a divided «r." "*■" """ import."" in conneellon with loan, of In a bonking .yrtc™ like that of Canada, where braaohe. are ..tab- ..hed at n,.n.v point, a banker ha. al«, to eon.ider whether hi. en.- dZont """"« ™ ''"""■■•• '" """-o «"« one centre, and keeping. di.co«nt ««,„nt at .on,e other branch of hi. own, or .ome other bank hetd offier°r.'J\' Ti" ^'" ""^ «>n.ideration of th„.e who from the head oiBee of the bank have ,uper,i.ion over what i. g„i„g „„ .t ih° branche. But in general it „.y be .aid that it i. not deafrabk fo . he'lT ; %■"■"""' •^""' " "°« «■■•" "- br«.ch though ..rable a. a role, for ,; cu.ton.er who earrie. on bu.ine.. in two place, to have b.II. d,«ounted ior him drawn upon hi. own firm in another «n.^ b anch "."■■ """"""J '" "■"' ■■■■"■ '"' '"«' "■'"■" •« "t^l •" for the , TTk,'". °"'" """" ■"■' " ■PP^"" »• ■""""l "t time. But con..derat,„n will .how that there i. an cential dilTerence U*^ h. two c..e.. In the one there i. a. actual tran.fer of prorrty J^ Lft!, J \n%?°°^'/r,°"''' "•"""«■' f""- one warehou.e to another the obligation of the keeper, of the «cond wareh„u« adding no «:'^h.r i^r i ^' ""• ■"■' ^'^^ "■"• ™"^'» *'- '» - 1^ .Zt. of I "" S ' '"" " ' ""■ ""^ '"» ""ehouM.. in differ«.t .treet. of a c.ty, and one wareho^ie drew bill, upon the other. hi. fjrL^T. ""'•«"••.«'' I-y " '"Wl'gent banker not .m„ng.t hi. to«Ie b,ll., but a. Jo,„ „«»„., ,„,„■(,. Such loan, mar be g,Sd o|^otherw..e acccrding to circ„m.tance., but the document, are^not ^ i.J'^T': !^^^°"°^ "" *■'" " •* «"■"'"'- " '»"i"g the real or duly .„ hori.ed ..gnature of the partie. to it, and that it be pr"l?; drawn m accordance with law, the b«.ker, bearing in mind thcTtJ amount that he i. aaked ,0 di^ount of the „me periLn. wil have be^^ h,m the fundamental que.Uon, whether the maker of the bill. c«, k reUed on to pay them. To the .ettlemenl of thi. quealion a b«.ker wiU brn.g .11 the information at hi. command from out.ide «,urce.. aidrf^ that of other perwn.. It not infrequently happen, that . purcha«r of comm^ife. may deal with .everal hou.e. in the .am. trade, aU of whom keep accou.^. in the one bank, either at the head oiHce or at «,me of the branche.. The banker ha. tbu. a .omewhat wide range of experience 11 BANKING AND COMMERCE. and information at hit command. A large Scotch bank may have a mercantile account in Glasgow, and discount thereat the bills of trader* in different towns of the interior. But some of these traders may buy goods also in London, and their bills may be offered at the London office of the same bank. Thus, from two sources the bank can form a judgment as to the quality of the bills. The tame principle will apply to cities in Canada, for it is common there also for retail traders to make porchaset in more than one centre of wholetale trade. Thus, their billt may come under the review of a banker in any one of the ccntret where the head offices of banks are situated. The same custom of buying from wholesale houses in other cities doubtless prevails in the United States. But American bankers have not the tame facilitiet for discovery that the bankers of Canada have. Almost every large wholesale firm hat a circle of cuttomeri who, for various reanona, deal almost exclusively with it. The bills given by this data of customers will swell up to a much larger total than those of the average trader, and the attention of the banker will very naturally be given to llirm with corresponding care. For experience shows that the line of credit given by a wholesale merchant to a retailer of this rlatt is very apt to be abuied. The retailer gradually acquires the habit not only of buying his goods from the merchant., but of leaning upon him financially, looking to him for help in emergencies, expecting help when he has not the wherewithal to meet his bills; in fact, practically making the merchant his banker. In such cases it is not uncommon for a merchant to hold security, which tecuritr may, or may not, be strictly applicable to the paper held by the bank. Such security may be for an open account, or a balance due over and above the notes given for goods, in which case the banker would derive no benefit from it in case of failure. When the amount of a retail customer's paper swells up beyond the average, it will always be wise for a banker to ascertain what it hit total indebtedness to the merchant ; and, supposing he has given security, what is the nature of it, and the terms on which it has been given. And if an account begins to show unfavorable features, it may be desirable to have tl : security transferred. It ■> in connection with customers' paper of this kind that the danger of a divided account becomes manifest. For, in that case, it is certain that the bills of the customers who owe the largest amounts will be divided between two or more banks. The result it that an excessive credit is apt to be concealed or overlooked. The banker, having before him a statement of the account of a certain customer, may not notice what he would consider an excessive amount under one name. And though he may have been informed that there it another bank account, he does not always recollect at 'the moment that the .'.moimt he has before him is not the true total. But if the whole of the paper of the retailer THE niSCOUXTI.NO OF TRADE BILLS. iji were in hit own hand, he would at once be struck with the amouni e fair on both sides. But for me to go on discounting so-called commercial bills that have a taint of fraud in them would be to become a party to the fraud myself. There are, however, bills of this character which have the element of fraud outright. Bills have been offered to banks and have been dis- counted to ronsiderable amounts which rested on no business transac- tion whatever. Commercial firms in great business centers having high credit and standing have been found capable of concocting and carrying forward for years srhemes of deliberate deception with their bankers, like the following. They would arrange with a number of small traders in various parts of the country to accept bills drawn upon them, although no business transactions whatever had passed between them. A con- sideration was given in such eases; and the bills were always careful . seen to at maturity by the negotiating house. It was by a perfect net- work of arrangements of this kind that the great wholesale firm of Macdonald & Co., of Glasgow, managed to deceive the Western Bank of Scotland, and to keep themselves afloat long after they were insol- vent. The amount involved in the deception was enormous (some ^408,> 000), and when the bubble burst, as it could not fail to do, it had much to do with the stoppage and ruin of the bank itself. It may be said without a carping style of criticism that the ofScert ri IM BANKING AND COMUERCE. »t Um bank might inrrljr ban diM«Tcl »n, t Hoi jm Yuit Bauiic Cum RiClLLID. ' I ■'HE bllU dr«wn upon Greal I' i,'*.: ft otli. r rji."trit5 agi>iritt goodf •I- ihipprd Ihcrr are In • djT.r.nt cIms. •<> : n na ixKiLkerping il concerned, from the forenunj, bcii'n (" . an ijajaW. in itcrllng oi other foreign currency, and neccuiliitinit .1 ilitiVrcul sljl.- of treatment in a baniccr'i boolu. But they arc csieiillollv t\r fni.u- in effect ai billi drawn upon some commercial centre in tli.' lou.ilr}. Tli ;r repreient, or ahould reprcacnl, either purchaiei of giHj.is or ytoLdj srnt'on conalgn- ment They are tubjcet to the fame ritka of non-acceptance or non-pay- ment, laving only the fact that there are atUched to a large proportion of commercial biUa of nchange what are called Jocumenit, via., bllla of lading and policiei of iniurance, which are traniferrrd to the bank, and which are held aa aeeurity until the bill it paid. It wai at one time a aort of luperatition amongat bank official! that a bill drawn In aterling, payable in pounds, shillings, and pence, was, by that fact a safer document than a bill drawn in dollars and cents. There waa some ground for this opinion in the fact that it was not so easy for accommodation paper to be manufactured payable in sterling money as it waa when the note was made by persons in the same town. At one time, when the Canadian law imposed heavy penalties on the dishonor and return of a sterling bill, it would have been a serious business for any one to concoct aeoommodation paper payable in London. These penalties have been largely done away with. Yet it Is still much more difficult to float accommodation foreign bills than inland. It has. however, been done. There are several distinct classes of bills drawn payable In sterling cr other foreign money, via., commercial bills, banker's bills, bills drawn by finance houses or other corporations upon their agents, and bills drawn by governments. It is of the first of these that the present chapter will treat. Commercial bills, properly so-called, payable in sterling or other foreign money, are drawn by the seller or consignor of exported goods on the purchaser or consignee on the other aide of the Atlantic. Of theaa there are several varieties, and the risk to the banker dealing with them ▼aries greatly. '^' BANKING AND COMMERCE. Bills with Documents. It hai beronir cu.tomnrjr of late ye«ri in leveral of the larger branchei of the export trade for the exporter to secure himself from loss by attach- ing bills of lading and policies of insurance to his bills. These documenU are so drawn that the goods shipped cannot pass into the possession of the purchaser until he has paid the bill (if he has accepted it). If he fails to pay, or refuses to accept it, the banker who has bought the bill, in addition to his claim against the drawer, acquires property in the goods, and can sell them as the law may allow, placing the proceeds to account of the bill. The drawer is then liable for the de«cicncy, if any. It might be supposed that this proceeding would make a banker so safe that the purchasing of such bills would become almost a mechanical operation, requiring neither knowledge nor good judgment. But experi- ence dissipates this delusion. Every banker who has had to do with bills of this class is aware that the same considerations arise with regard to them that are needful with inland bills. To begin with, he has to consider the character of the shipper, both as to honesty and capacity. At to honesty; for the bills of lading may not be genuine. Instances have been known of forged bills of lading being attached to sterling bills, and heavy losses sulTered by the bank purchasing them. But supposing the bills of lading to be genuine, thev mav be very insufficient security for the bill to which they are attached.' For the shipper may have only an imperfect knowledge o. \'v merchandise he is shipping, and sends across the Atlantic goods which no prudent merchant will accept against. Or the shipper may be of that sanguine tempera- ment which invariably leads him to think his goods worth more than they are, in which case his bill is drawn for too large an amount. In both these cases the bill is liable to be refused acceptance, and the banker may find Kimaelf with the goods upon his hands which the English mer- chant, on the spot, considers not worth as much as the bill. Then ensues one of the most unpleasant of all a Canadian or American banker's ex- periences, vii., the bringing to sale, in a distant market, of goods which are stamped as undesirable by the very fact of their being in the hands not of a merchant, but of a bank. The goods must be warehoused and msnred. Charges begin to accumulate. A broker must be employed. The goods are offered for sale, but naturally purchasers are shy. Offers are made which are, perhaps, forty per cent, less than the amount of the bill. If the offers are accepted, a loss more or less is certain. If they are not, the banker takes the risk of the market. A rise will bring him out; a fall will increase the loss unless the dra\7er can make it good. The holding of goods becomes therefore a speculation; meanwhile one thing is certain— that charges are increasing. But the banker has another party to deal with in these eases, via., the shipper of the goods, who it Us own cnstomer. FOREIGN BILLS. ]jj nenta were attached. --"""merBi aa it no docu- .» end both rXpe-f the'^Vrj^^H " '"" *" ""^'^ document, attached to it at .U ri. tk\ / T "'""'' """ '"^ Other Cunti of Bilm. b J;rThZetwtrheTr:.?„r '"*™ -^ '""■■ '- »"■" mert., must be ca,hrf on II,-. J-. / . .' °"«"'"'P«nl«l by doeu- to take the ri.k of ». M„;.''<:;!pT;d'' '" °" "'""' "" "« '"^" "" — :.::ei'';:;r.trai,:':rr:Lr' -^ ^"" "- — .» JJ: rLCfrran"; :ircaT';;r r '-"." "■""■ -' '- «- on a„.v oth„ ™„ L JylZZ jZ sLt'lT "" f """"« '"" a .maJl b„.i„„. i„ . ,„„ber centre in r.„^ ' ^ "' "''' '" ""^'"8 '«' commit a f„„d, „„j ,„ etorhta elf r.h ""' '' "" ''"^ »» l50 BANKING AND COMMERCE. course of baBinetf, and will be accepted on preientation. The banker knows that the house on whom the bill is drawn is abundantly good for ten thousand pound«> or ten times as much, and can scarcely help being influenced by the sight of such a powerful name, though it may be that the drawer has no more right to use It than be would have to'draw on the Bank of England for a million. The banker haa therefore to consider, when a sterling bill is offered, unaccompanied by documents, whether his customer is likely to have dealings for such an amount with the English house; whether he has ever known of transactions between thcsi, whether the course of his busi- ness lies that way; and, in fact, whether he ever had the right to draw a sterling bill upon anybody. By such reflection and queries he will easily be able to satisfy himself whether the transaction is genuine and the bill likely to be accepted. But such things have been known as for a banker, possibly a young beginner in the responsibilities of management, being persuaded to give cash for a fraudulent foreign bill, in which case he will have a rude shock of awakening on learning that the bill has not been accepted, and never will be.*" The example in the accompanying note is adduced to show the neces- sity of only buying "free" bills when written authority to draw is shown, or in the case of commercial bills from houses whose relations with the drawee are such that no bill is likely to be refused acceptance. And •uch houses there are, firms that have drawn millions of pounds sterling of bills in the course of their business of which not one has ever failed of being honored. The Drawino of Fraudulent Bills. Yet the history of Canadian banking has furnished singular instances of fraudulent bills being negotiated by houses of apparently good standing. Some years ago a house in the timber trade in a certain part of Canaoj, which had conducted its businrsj soundly for a long course of years and had established itself in good credit, became embarrassed, and to keep itself afloat set on foot a system of drawing free bills from various centres where it professed to do business. The house opened 4S A cane Is known to the writer wher.- h nf «i--nmtr lo Canada, iiinving in lh» iMst circles, who had mad* amin««mrntB to enter Into partnership with a manufacturinv houss. induced a banker t<^ cash a sterttnc btll for about four thoiiund pounds, aHednc that this amount was comlns to him from hU father's estate, and that the le*al flnn on whom he drew had authorised the bill. But they refused to accept It, alleatnff that the estate was In no poalUon at the Um« to meet sush a demand upon It The banker Indlrnantly demanded payment from the party who had sold It. but he was entirely unable to refund. The procrpds had vone Into the buslnoaa. and he could not ret them out. This was not a caae of obtaining m'>ney under false pretences, for he hoa* eully believed he bad the rlcht to draw. But more than two years elapsed ba- fore the estate was atde to pay the money, end during the whol* of this time the banker had to return this protested bill Ir. Ms statements t" head ndlce. FOREIGN BILLS. ,g, Mcr. al .ever»l .dditional point. i„ Canada, Montreal being one, al« l^Tvo?.' hr ""'• ^'■"' ""' "" '" ^""Pondence wi h a" Both ,„ Canada and England, were of firma of weight and slandin. and . considerable amount of aetual bosine,, was done """■>"■«. ""1 The machinery once atarted, and credit eatabli.hed, the leading apirit ^^<:t::^x^^^^t ^d-r-r :: -sr "tF z^'iT" '"" "' ;"' -— -^'edr^rLTr tTc K "^^:^::^r;ar""" """ -- "■ -- -- rtrnc'lr of"""«!i'v°""^;''°" °' "'^'"°' ''""""• "■■ '•-<• « huge .uper- to another, transferring the proceed, of a bill «,ld in Monlreafto Ztli «x:^.'::J:'t?r„""ttr^;-t.- ^d on the other, n,o.t of whon. were entirely ignorant of the eal cb." Ihe bubble of cour.e, bnr.t in Ume. Th. le^iing .chemcr took car. to be out of the way when the bilU came b«,k, but .„nd,y hZ^ Z otate of which the aweta were undiKOTerable .cll^rTetm" °f "'°" "" """ '° "^^ •""""' ='«"' '» "-We theiu to i"g "«me, .uch a. Can»ron, Bo«nquet, McGregor -» Co, the very n^. d„r,ng wh ch drawing, are promptly paid, their bUl. become .ufficienUy known on the market to enable them to offer them in variou. bank.. Probably, a. they proceed, they may adopt a cunning method of .UB- porting heir credit by refn.ing to take any but the fighe-t pril f J^ .beir b,II., and withdrawing them from the offer, thji creaHng ft. ■mpreuion that they have abundant mean, at command. Thu. ihe bffll iii liliil t«l BANKING AND COMMERCE. acquire a character and arc readily purehaicd, the regular operation of the house lending color to their genuineness. The time comei at length for a great coup. Simultaneously a number of bills are drawn, offered to all the banks who trill take them, and sold. Then, on some morning later on, the community is startled to 6nd the office closed and the partners fled the country. Some banks shortly after have numerous br*^' '■' of worthless protested bills in their possession. This, or somew..ng like it, has actually occurred in Canada, and it is always liable to occur when the free bills of a commercial house can be easily negotiated with banks M'ho are ready to buy them in entire ignor- ance of the total amount i.flnat. It is a good rule, in such cases, for a bank to determine that it will take all or none; and, if all, then for un- doubted reasons; the only exception being when the drawers are of known 'vealtli and whose business is of such a magnitude as to justify the domiciling of their free bills with various banks. Releasino Documents on Acceptance. When the question of giving up documents on acceptance is raised, a banker will be careful to have the permission of his own customer on this side before consenting to it. And this permission must be a written one, for nothing would be more likely to create difficulty in case a bill wai dishonored than a failure to establish consent. To give up documents without consent would, of course, release the drawer from liability. In some cases a drawee will request documents to be given up in exchange for a banker's or broker's guarantee. The guarantee of a bank, as banks are now in Great Britain, is about as good security aa can be conceived. But of brokers there are numerous varieties, from wealthy Anns of unlimited credit, to the smaller class who are hardly good for a thousand pounds. In the case of these, a banker on this side, and his customer with iiim, are generally guided by the judgment of their banking cor- respondents on the other. And it is to be said that they exercise the discretion committed to thetn with remarkable prudence. Cases have not been infrequent where a bank in one or other of the great ports of Great Britain has exercised this discretion in multitudes of cases during manv successive years, snd to the amount of many millions sterling, without once making a mMake. BiLu Drawn Aoainst Futubb Shvmbntb. There is anotfaer ci^am of bills which, thouftfl not drawn against shipments actaallr maik. are sometimes clawed as "commercial," inas- much as they are manm against goods that ^re to be shipped. In the pomplicated arranyaaenta be t we e n mercfaante of Afferent countries, it is sometimes the ease that a hovae in Londaa or Liverpool will agree to FOREIGN BILLS. lea aectpl billi for a drawir in considcrotion of goodi to be shipped here- after. Such arrniigcnirnl«, of course, argue a very high degree of eon- fidenee, which confidence may lie well placed or misplaced. Thil, how- ever, is not altogether the concern of the banker on this side, whote business is simply to be satisfied that such an arrangement existi io that he may he sure that the bills he buys will be accepted. Sometimes this IS secured liy an engagement in writing, either special or general, that is, either to accept all bills that may be drawn, or to accept bills for a certain amount and during a certain time. It is, however, not uncommon for an exporting merchant on this side to be so well established as to capital and rcputat „,i that his bills can be negotiated without any engagement to accept Wing required. In that case, however, a banker on this side requires to keep himself particnlarlT well informed as to the condition of bclh houses concerned. For change! in these times are rapid. Partners die, and capital is drawn out. New partners are introduced who change the whole style of the business- it may be for the bitter j but possibly for the worse. And a strong hoMe in these times of huge operations and speculation, may lose their whole capital in a year. It is thus incumbent on a banker who buvs such bills to be satisfied in the first place that the former rclaUons between the parties still exist, and then that the house on the other side is as good as ever. The only other class of commercial bill to be noticed is that where a commercial house has offices on both sides of the Atlantic. A manufac- turing firm in Canada may have an agency in England, and a resident partner in some large centre. The name of the firm wiU probably be changed in that case; the Brown, Jones and Robinson, of New York becoming the Jones, Brown & Co., of Liverpool. But the responsibUitT K the sam-. ' The banker in all such cases has constantly to bear in mind that Ul bill IS a one-name bill and nothing more. In fact, such bills have a stroni tendency to degenerate into accommodation bills based on nothing. ST««Litio Bins OF Banks and Financi Housas. This is a class of bills well known in all ixporting centres, and II form, the great medium of remittance by importers on this side the Atlantic. It is one of the most noticeable developments of the financial opera- tions of modem times, that foreign bills of exchange are dealt .n ezaetlr as a merchant deals in goods. And just as the merchant is a necessary factor between the buyer and seller of goods, so is the bank or finance house between those who draw bills against com-nodities exported and those who desire to pay for commodities imported. HTlen a merchant ships a quantity of grain, cotton or any other staple across the ocean, he has the power to draw . bUl of exchange ; ! 1G4 BANKING AM) COMMERCE. againflt it. In a primitive condition of things and if the cominnnitT in which he lives is a small one, \m neighbor who ha« bought goodi abroad and deiires to pay for them, might approach him and lay, "If you will draw a bill for a thousand pounds against that cotton you shipped, I will give vou the cash for it. For I want to send that amount to Eng- land." Thus, by direct dealings between the exporter and importer the wants of each might be satisfii-d. But this mode of operation would not diHVr much from dealings by barter, in the case of merchandise. For the exporter would always Hnd it dilfieult to find persons who wanted the exact amount of the biUs lie had to draw against his cotton, while the importer might find that the exporter could not draw for as much money as he required to send; or at the time he wanted to remit, for anything at all. There tliiis r ose the necessity for an intermediate, a person with com- mnud of money, who would buy the exporter's bills at any time, without reference to the amount, and would be ready to sell his own bill to the importer, to whatever amount would satisfy his rrquirements. Before this could be done the intermediate would require the services of a corresponding house abroad; and particularly in London. This house might be a banking house of the old school, — like the Glyns, — or a financial house like the Barings used to l»c; and the arrangement would be, that the intermediate, on this side, would remit to them the bills he had luught from the exporter and draw upon them the bills he would sell to the importer. These the London house, or bank, would agree to accept, on terms arranged. This, stated in its simplest form, is the foundation of the great masses of bills that arc constantly being drawn by bankers and finance houses on this side, on bankers and finance houses on the other. It will be perceived that the foundation of this business in its elemen- tal form is the cxpoht op goods, in which term, as will be seen later on, more than merchandise is included, the bills drawn against which are sold to a bank on this side, the payment of which bills affords the means of payment of the bills drawn by the banker against it. Thus, all these bankers' or financial bills rest, if legitimate, upon the foundation of salable merchandise or securities, exactly as all legitimate bankers' loans .ind trade bills do. The export of articles, therefore, gives rise to two classes of bills: first, the bill drawn by merchant upon merchant, and then the bills drawn by Iwnker upon Iwnker. This has the appearance, at first sight, of that objeetiunable operation, the drawing of sets of accommodation bills; the first set drawn against goods and having a mercantile foundation, the other drawn against nothing. The sale of the cotton will provide the means of paying the first, but out of what fund is the second to be paid? How i-un the sale of so many bales of cotton of a certain value pay more than one of the bills drMrn against it for that amoun;;? FOREIGN BILLS. ICS A raniidrralion of the fmli will, lio»evcr, >|jow tlinl lliii supposition would be rrronroiif. What tskri pUce ia rcnilj- this: a mcrchmit in Xcw York Kndl over to a Liverpool mcrrhnnl a quantity of cotton, worth, 1ft us snv, a thousand pounds. Afioinst this cotton he draws a bill for a thousand |iounds. This bill is simply an order to the Liverpool merchant to pay a thousand pounds to the person who will present that bill. But what lH-eomo3 of the bill.' In the ordinory course of business a banker in New York buys it, pays the ei|»irter a thousand pounds for it (less ciehange) and ob- tains the rijfht to collect the same amount in Liverpool. Having thai document, giving him the right to receive a thousand pounds in Liverpool, he sends it over to hi, correspond, .it in London, directing him to collect the money and place it to his credit. When the Liverpool merchant pays the bill and gets it from the London banker, that banker will have'a thousand pounds of the New York banker's money in his possession. How is the latter to get it.> He can, if he pleases, write a letter order- ing it to l>e sent over in gold packed up in n box; which indeed is some- times done. But a much simpler process than that is available, and a much more useful one, for it subserves the needs of the other side of commercial operations. The importer has his wants as well as the ex- porter; vis., to ie,i,/ money over to Europe to pay for goods. But in modem financial arrangements there is no need for him to send a box of gold. He can go to the banker who bought the exporter's bill and get an order for his London correspondent (who is collecting a thousand pounds for him) to pay that sum to the importer's correspondent. This order is that second bill of exchange just referred to, which the importer remits and with which he satisfies his obligation. (This second hill, let it be noted, is drawn not against the cotton, but against the money lodged in the London bank.) Thus, the whole operation is complete, and all accounts settled without the transmission of gold at all. The New York exporter gets the money for his cotton from the New York banker. That banker is recouped by selling his bill to the importer. The London hanker, as the final intermediary, rmiie, the money from the Liverpool merchant and therewith po.,,. the bill, which his New York correspondent has drawn upon him. Thus, although two hills have been drawn, they have not been drawn by the same person upon the same drawee, but by diirerent parties upon a dilTercnt correspondent and to effect a different purpose. And the proof that the second bill is not an neeonunodation one is that both of them have ken paid without the b''dents. These bills are accepted by a London financial liouse, whs ; iv them out of the sale of the bonds. In this manner, loans to tht extent of hundreds of millions are carried out, without any movement of gold, exactly ss is the case with mercantile transactions. In like mnnner, when a great railway corporation has need to borrow money in Europe on its bonds, they are sent across and drawn against as if ther were merchandise. The acceptors of the bills in London or Paris take the risk of floating the bonds and accepting against them. The Baring Criiis Ricalled. But as these bonds have been treated exactly as if they were merchan- dise, it has happened that embarrassments have arisen in connection with them, just aa embarrassments arise in consignments of staple goods. A catastrophe on an immense scale, in connection with acceptance against bonds was only averted some years ago by the courageous and far-sight- ed action of the Governor of the Bank of England. The case was that of the great house of Barings; it occurred in the last decade of the nine- teenth century, and created a sensation all over the financial world. It was indeed so extraordlnnry as to be deserving of permanent record. The house of Baring Brothers had been known for a century as negotiators of government loans for states and countries in every continent on the globe. Their character for prudence and judgment was so high that for generation after generation any bond on which they placed their im- primatur was accepted by investors and found ready sale. Time, how- ever, passed on. Old partners passed away; new men and new methods were introduced, corresponding to new developments in modern times. The name of the great house was of course retained, for it was a synonym of wealth, almost equal to the name of Rothschild. Yet, not- withstanding all the changes in the personnel of the firm, the commercial world in general considered the House of Baring to be as good as ever, nnd bought its bills as readily as they would those of the Bank of Eng- land. But abont the time spoken of it became known in the inner financial circles of I.ondon that the Barings hod negotiated loans to an enormous FOREIGN BILLS. J«7 .mourn which they found difficult)' in placing. Thli wal npecUUy the eaie with loana lo the .Argentine Govermnent. The debenture market In fact had become overafocked with them; yet the Barlnga had accepted againat the whole, and the bills were con«:«tly falling due. Theae acceptances were met for some time out of olhei" resources of the firm. They were able also to borrow large sums of money on the bonds. All this was whispered about among the higher magnates of Lombard Street, and the whispering gradually spread even to circles on this aide the Atlantic. Such a thing as hesitating to buy the bills of Baring had never been heard of in Xew York, but such a heslUncy did undoubtedly prevaU for some time. At len^h a very eitraordinaty event happened, the like of which had never hien known in the fciancial world. A few of the heads of the leading banks of London were invited one day to meet the Governor of tue Bank of England, and confer with him on a matter of importance. What this matter was they could not divine; but on entering the bank parlor, they were Informed of this very extraordinary state of facts, namely, that the Barings were under acceptance of biUa, mostly drawn against Argentine bonds, to the amount of ii.r(ee agreed to the principle. The only thing now remaining was to arrange the amount of the advance which each bank was to make upon the bonds, and to such an extent did > spirit of mutual respect and confidence prevail amongst these magnates of hmt fivnnrt, that a distribution was made without difficulty. I I6t BANKING AND COMMERCE. The Bank of England nndrrtook by far the largest share of the burden. Then the I^ndon banks, Including the agencies of Scotch and Irish baiiki. followed with their respertlvr shares, and finally the grvat banks of Manchester, Liverpool, and other prominent centres. The Bank of England undcrtodi to see after the retirement of the whole of the acceptances, and the other banks paid In their quota to the Bank of England to rnnble the Bank to do it. When these arrangements had been completed, every banker In the United Kingdom breathed a sigh of relief, seeing that the shadow of on impending panle which had overhang the financial world was dispersed, end that business could go on as usual. And not only they, but bankers in great centres of North and South America, India, China, and Australia — not to speak of the Continent of Europe — also felt easier when the dreaded possibility of the Baring bills bring returned upon them, protested, for tens and hundreds of thousands of pounds, had passed away. As for the great house itself, it went into liquidation. A considerhMe surplus of assets remained to the partners, after the liabilities were all discharged, but the prestige of the name of Baring was permanently impaired. The partnership was dissolved, and n new company formed, of large capital, which Is doing the same kind of business, but which, we may be very sure, will never overload itself with unmarketable Hccurities. It has been stated that the bills drawn by banks on their foreign correspondents have their foundation in exports. This is true, in a large majority of cases. It is, however, not uncommon for banks and capital- ists in London to open a credit for banks or finance houses abroad, which credit is availed of by the drawing of billi. To this extent the foreign bills Bold in the financial centres of thlt continent are not founded upon merchandise. They are, however, a mere fraction of the whole. And, it may be added, such drawings are invariably covered afterwards by mercantile bills. Yet another class of bills may be briefly noticed, vi«., guch as are drawn by banks or capitalists upon thplr own offices in London or Paris. These bills afl^ord a mode of raising capital which may be profitably em- ployed on this side of the Atlantic. The bills, however, are of the one- name class, and no matte: how high the credit that the one name com- mands (and it runs up inio very many millionfi in some cnses'") the money market of London «iJl at times discriminate between such bills and those drawn upon a London bank. There is another description of foreign business which has attained a large development in thtjc times, vis., the issuing of Credits by banks on this side of the Atlantic to importers of staple goods. The working of 60 It 1». however, known to old bankern that In the fvmt revulsion of 1857 on* of the vreatMt of the eapiUIIst houaes was obliced to apply for eailBtana* to the Bank of England. The Bank loaned the flrin a million sterilnv, and en- tnwted the acleetlon of the securltlei to a well-known officer of the Bank of Ifcntreal In Hew Tork. FOREIGN BILLS. 1« Ihii •7it«B illaitnlM In . .irik|„g d,g,„ ,1,^ co-op.r.11011 of bmUag Mid rommnw. I.rt u put tbe nutter in • concrete form, that II mtj b« better nndentood. A woolen mannfaeturer In the United Stain or Canada require, certain wooU which can be had moat mnvenlentir iB Aurtralia. How li he to gel them f It would not be rcaionable for a wool eiportcr In Anatralla to lend hli good, lo Boston or Montreal on credit, "I k 1."° '""P""" '" ■"••■»"« '••I' to buy a bill to Knd to AuitraUa, which bill might be for an amount much Ich or much more than the value of the wool hi. correipondent would buy. What he doe. i. >hi.. A banker In Boiton or Montreal will give him a letter, on an engraved form, aiithoriiing any corrnpondent of hu in Au.tralia lo draw on a Ijank in London or Pari, for any amount he need, up to a certain .urn, the bill to have attached to it an invoice for wool, a bill of lading for the .ame, and a policy of in.urance. With thii document In hand, the Au.trallan wool eiporfer can .hip wool to America and obtain c..h for I! at once from a hank In Melbourne or Sydney by drawing in conformity with the credit. The bill with it. documenU j. pre.enled and accepted m London, the bill of lading. Invoice and inaurance being paued on lo Boaton or Montreal, with advice of the amount drawn agaln.1 them. The banker on thi. .ide of the Atlantic then advLci hi. cu.tomer that he hold, the document, for the wool, that Hi many pound, .terling have been drawn ag.in.t it, which amount i. at hi. debit, for which he i. called on to .ettle by furniahlng, on the term, of the credit, a banker', bill on London. Thu., the Aral dl.bur.ement of the wool merchant In New Eng- land or Canada la coincident with the arrival of the good, or the document repre.cnting them. And a clean Kttlement of the whole tr ,n.acllon ha. been made For the credit ha. been u^d to the nact amount needed, «nd tlif halancc is cuncrllrd." Letter, of credit for the uu: of traveler, are on a different fooling altogether. There ii no merchandlM in the caw, and the u.e of the credit i* ..mply to tranamit money by bill, of exchange in the ordinary way, without risk. One final remark with regard to foreign bill. need, to be made. The development of menage, aero., the ocean by cable ha. given ri.e 10 number, of monetary lran.aetion. between different countrie. in which bill, are di.penMd with altogether. A New York banker can order hi. London correapondent to pay money to an applicant by cable menage, 51 It I. « point of vfry Imporfant eonnldpratlon »lth • bunker oho hai 1...,^ a comm..cl.l crrtlt which b«,on„ pr.ctlc.llv an advance on Joo^.l«t™nJ^ 11 tn« Danker doea. he la than under advance without aecurlty The onlv ..^ Hon to thia 1. when the cuatomer taealve. a bill ot ladln. tor th. nu^JIT^ r„"a'pj%rd."i;L.''':hr.:u'Tr,":',j::i'.?r„vr.;r-our:- era warehouae the hanker will merally loa. hi. ^iurtTr. -ft ■>' « HKMOCOrt nsoUTION TBI OMIT (ANSI onl ISO TEST CHAUT »>. J| 1.0 ^^ ^■a |72 Slii ^ I.I SUS |2jO 11.8 |i»|^|^ /IPPLIEO IIVMGE ieS3 Edit Main strHt CtB) *« - 030o"- Phon* {7ie) 2M- SMS -Fa. 170 BANKING AND COMMERCE. juit as easily as he could by drawing a bill. The importer referred to in the former part of this chapter can obtain a cable transfer, as it is called, just as formerly he would buy a bill of exchange. By means of this he could pay a London merchant, with no more loss of time than would be required to pay a bill to a neighbor across the street. These transactions, however, require different arrangements in Lon- don. For when a bill is drawn at sixty days after sight, the London banker who accepts it has sixty days before payment in money is required. But a cable transfer requires payment of money on the spot Now, as no London banker has an infinite supply of money at command, he has to watch the daily calls upon him for cash with as much care as a banker does on this side the Atlantic. For this reason, the banker on this side will be careful when selling "cables" to keep within the limits prescribed for his drawing on London for cash. CH.iPTEH XXIl. OVEEDKATTS IK CAKAD. ^ CASH CKEBXTS I. SCOT- mAND, th.n o^erHrcf,,. For L™e of H ?"!.' ''"""'' ■"• *'""d the discounting of " de bil , ""^ '^ 'TT'' " ■"»«"!n.i>hed fro" of th« p„tv to be in debt Tb f\'' °"°"'"« ""' '"•"™' «™unt i- «xedV-t.,e uJd 'f' direct "td' Z^t!' ""' t" "« ">' »- >ule, i, held. This ,T.tem of „!l, 1 ''"'"""'■ "^"ri'v. .is „ the well-known ™AT,rf" site" oTs'' >/ TT' "''"' ''°''^-'- " ever, being ™n,™„ all overU^ Zth of E .T'd ^ T'"^ '■"'="■■ '■'"'- consists simply („ fi,i„ . ^ """l °' Engfend, at least. This system customer shallValWd to rl 'a .°- "S'", "■" ''''"'' >"■'"•" "l . «f England too, it i onK. when this ^'ti" °,"°"''' ""'' '" ""-^ P"" the account is said to b^ oTerdrawn Th "'*' "'""'","' " """'"' «"« called an overdraft. If a merZnt ^^' ."''" ""^r- "> ""t case, i, pounds, fron, a Scotch or EnTlhtnfr ° "f ' "' " "■™'-» '-an.ger, whose business it is take™ tb . ' """"""^ '° "■« that snn,. Occasions, howe,"r do al ^"1 °™""' ^'^" -«''"' * check which overst psThe Lft « T " '5' "''"='"'"' ""y ■'""' vertence, sometime, 'S^^Leut ptrrrif lb """'' "" '"'"; ™-'- responsibility of allowing the check to W „",.,. "°''"°«" "''" *■« overdrawn bv so much and the cl,„ .."^u ' "" '"™"' " "■" order. Or .^ customer and tW i^ e "„: "" 'T'*"" '° P"' " '» monager, explain that some.! . j "^ "^ """''' ""'•'' '"terview the .nd ask to bl ^owca to ovcT v'™"'""'^'^ ''"^ "■" ™"»> to hand, or two, to the c^rtif*: ltd p'o^r'Thc'm "' '■'•''■ "" " -«"■ not consent. If be consent, H., J I,-, i. , "■■•"nager may, or may drawing, if be findstZ 7 , I " l^^ '^»P°"»it''- for any o.er- S hnds that a teller or cashier has paid the chock, of 171 w I I! BANKING AND COMMERCR. a custonuT to an nmoiint beyond the sum authorized, he will call him fcharply to account, and insist upon Ins getting the overdrawn amount paid in. Similarly, the debit balances of customers at all pointu are constantly under review at headquarters; and for this good reason, that the loans or advances of the bank arc all to be found there. Overdrafts, therefore, cannot fail to be noticed. If the returns from a certain branch show that certain accounts are overdrawn, the manager will be called to account, asked for explanations, possibly sharply reproved, and may even be suspended from his functions, unless he can show that he was authorized to allow them by correspondence. But this is not all It is perfectly easy for a board of directors to examine such statements of debit bal- ances, and as all credits in this shape have been authorized by them, it is easy for them to see whether any accounts are overdrawn. If any of thtm are, they will no doubt ask the reason why. And if a general manager (or officer acting as such) cannot give good reasons, he is liable to displeasure in his turn. Thus the whole system of the bank works harmoniously. Everything is clearly apparent. AH advances are regularly reported, considtrcd, and dealt with by the branch manager, and the general manager, up to the final autliority. the boird itself."- Otbrdrafts in Canadian Banks. But overdrafts in a Canadian bank are on a different footing from the outset. The rule is that current accounts are all expected to be in credit. A general manager, therefore, does not look for advances in lists of deposit balances. Such lists are generally sent at much longer intervals than the statements of loans and discounts, and this for an obvious reason. Whilst it is of the first importance for a manager to keep an eye on the total amount of deposits, so as to keep proper re- serves, it is of only secondary importance whose particular r oney it it that is deposited with him. Mr. Thomas Johnson, let us say, keeps a current account with one of the branches of the bank. It matters little whether the balance at his credit is $500 or $.1,000. .\nd what he puts in and draws out week by week is not a matter of particular interest to the management."^ But if Mr. Johnson owes the bank money, the amount he owes is a matter of the first consequence. If he owes $5,300 he may be abundantly good for it. The board may have authorized that amount; security for that sum may be held. But let us suppose, and such things have really 52 TM" \c ff cinirnp. the svstem In theory. Whether it Is properly worked out in practice will depend on the care and attention the dlrectori beatow on the buBlnesa of the hank. The best system may be badly administered, and produce poor resulU. But there can be no doubt that the syatem of advances prevailing In Bcottond and the north of England Is a much safer one to work, and that under ft the direc- tors find It much easier to keep track of advances made at various points. B3 If Mr. Johnson has discounts or advances. It is. of course, doclrable to keep an eve upon the working of his current balances as bearing on the profltableneta of his account, cr othci-n-i=e. But what Is now hciT^g (HsriiRsrd in ita aafety. OVERDRAFTS IN CANADA. 173 liappened, llmt wl.ilu $.5,000 U the sum wnicli Mr. Jolimon lios been aulhoriMd to borrow, a weak manager has been privailed on to advance liim double or trcLle that amount. This is a state of things to create serious concern. For the general management may be well aware that the latter sums were not only entirely unauthorized, but beyond his ability to pay. Underneath, then, what may be a single line of a state- ment, there may loom up the horrid figures of a bad debt. It is apparent then that statements of loans and advances are of vastly more import- ance than Stat ments of cridit balances, and that they should be sent much more frequently, and in such a form thot they will be naturally looked for, readily comprehended by dirictors, and attract the attention they deserve. Yet persons on this side the Atlantic may draw cheeks which turn a current account to a debit; and here, as in England, a manager may think the amount desired to be perfectly good, and take the responsi- bility of allowing it. lie mmt lake the re,pon,ibililg; and, at times, a very serious responsibility it is. For even perfectly good customers are not all considerate, neither are they all attentive. A responsible arm, considering thimselves to be perfectly good, may at times take libertira with their account, and overdraw to a considerable amount. The mana- ger has now to consider whether he shall refuse the check, and thereby oiTend and alienate a firm whose account is valuable, or whether he shall pay the check and so make an unsecured advance without authority, to a firm whose position may possibly turn out not to be so good as he supposes. But now, supposing the chic, 'ta been paid and the advance made, is a manager to allow it to appear as a simple item in a list of deposit balances, every one of which is presumed to be a credit, and therefore returnable only at considerable intervals to head office? Such a course is obviously dangerous; all which leads up to this conclusion, that an) merdraftt in the deforit ledger, if such there be, ihoM be reported in the eame etatement mhich containe the loans of the branch. It should be the business of a general manager to see that this is done. Bnt the directors may very properly take the matter up also; first seeing to it that statements of overdrafts are regularly laid before them, and then taking care to examine them, conferring with the gen- eral manager, and giving through him such directions as may be needful. The board will of course not care to have lisU of triHing sums brought to their attention ; they would do well therefore to fii a minimum below which no report need to be made to them. The general manager will, however, take cognizance of them all. Danorrs of Making Unsecured Advances. The making of advances by allowing debit balances of a current account, when it is not provided for as part of an established system like that of Scotland, has been proved to be dangerous. The advances II BANKING AND COMMERCE. that brought ruin to the CoiDuicrcial Bank In the enrW rears of banking in Canada could never have assumed the disnatrous shape they did if ihey had bien made in the customary manner, viz., by promissory notes. For it was not simply that advances were allowed to grow to enormoiu dimensions, but the fact that the bank was unable to prove that the debt was contracted by the corporation that was supposed to owe it. There were two corporations in the case, very intimately connected, but legally distinct. One of them was sound and solvent, the other practically insolvent. The same officers, however, ffovcrned both. The loans were negotiated by these officers. The bank supposed they were advancing money to the sound nud solvent company, to be used by it in furthering the business of the weak and crippled one of which they had control. Bjt the solvent company, when calltd upon to pay, declared that they never borrowed the money at all; that their officers, being also officers of the weaker company, borrowed the money in its behalf. Whtn issue was joined in court, the bank was utterly unable to prove that the solvent company was its debtor, and on books and pass-books being produced it was found that both in the ledger and ill the pass-books, the headings had repeatedly been in the name of the weaker company. Thus issues of hundreds of thousands of dollars hung upon the entries of subordinate officers. The case was decided against the bank, which decision was the beginning of its downfall. Now. had the advances been nade by promissory notes, which notes must in the nature of things have been drawn in a clear and unmistaka- ble maniuT, the officers must have signed them, either in the name of the one company or the other. Th; liab'iity, in that case, could never have been disputed, and the bank wo;:]d have been saved a protracted and costly lawsuit, with an enormous loss at the end of it, which loss proved its ruin. This instance may be said to prove that the Canadian system is better than the Scotch. But the advances of the Commercial Bank were not made on the Scotch system at all. They were made on a deplorably bad imitation of it, in which its most essential feature was lost sight of. Under the Scotch system, the amount of the credit is strictly defined, and 4 bond of security taken, duly signed, sealed, and delivered, for the whole amount. If these advances had been made on the Scotch system, the solvent company would have been required, at the outset, to give a bond of guarantee, which bond would have been drawn by the legal advisers of the bank, making the solvent company liable beyond doubt. Then further, that guarantee would have fixed the amount to be ad- vanced, an invaluable safeguard against advances being allowed to run on indefinitely as they did. As it was, the advances were allowed to run to nearly ten times the amount verbally agreed upon at the outset. They were made, in fact, neither on the Scotch system nor the Canadian." 54 In another fnstatipe known to the writer, one of the heaviest bad aebtB ever made by a Oanaiiien bank arooe through advancee to a eerUln Arm being aUowed to be carried on to the Bhape o( continual overdrawlntB of & v«ry ootlv* ourrent account. THE SCOTCH SYSTEJI. 17, It ii at this tlmo of dny vain to think of raakini a fnnj.™,-. 1 St.t«, bnt .t i. certainly worth while to consider .he ,^inU ta wh ch the Seoteh sy.te,n ha. the advantage. In .peakin, of ScoUand let tt J. .°^i:;rfha.l" ""•■!^"''}'r:' -f Eng,„„; i. .ncluded- o , In^ ■pecally that wherein the write,'. English experience wa. gained. Adt.»ni,om arm Dis.tnTANTAoM of thu Scotch i;y.tem. The advantage, of the Scotch system are the following- b.„V 1. "/'"""" *"■ ™"''°»"'i'^'i with trade bills. Everr banker know,, and every merchant knows, too, that there are f^ndl n^ental diff,rence, between these two: first, in the ri,k; ne" in t .™lab.l.ty, and, la.t and n,„st important of all, in the a^™. of alt n! ,on they require The risk of trade bills (provided onlv they „e bon. f d and genume) is immensely less than the risk of loans. Their avaU- .bd,ty to bring in money when due is immenselv greater. And a, o the amount of attention that loans require, it would b. to speak „"hta ; 1° "'"• "■"" ""'''' °f '""■■« be exception,. In all bank ,tate. ments, therefore, it i, of vital importance to keep advance, ^d trad" bU, separate. Thi. is most elTectually done under the Scotch ,y m which ."■' !?'!.? '" ■"°«'"'" ■"f"^""' «' "f 1"'°'', from tho« «h.ch contain trade bill,, and they are reported to head office on d ffer- en tatement.. But in Canadiin practice they are apt to be confound^, torn, both ar. entered, commonly, in the same register and ledgers, and „ffi.V ,1. . fV/l ' *" '" '""•*•% mixed in a badly-managed office that ,t ha, taken week, of the time of a superior officer to dis!^ tangle the account, .n which they are entered, and to fix the primary and ■econdary liability on the proper parties. ^ „ {^V^ "econd advantage of the Scotch .y,tem i. t',.t aU advance. ^o matter in what branch advance, are made, authorisation must come from headquarters. Thi, ha, so long been the established custom ,11 over Scotland that every person understand, it and conforms to it, both branch managers and customers alike. Hi, quite true that in Canada all advances on credit, of importance and those which are to be spread over a whole season, are, a, a rule applied for to the board, and not entered on until sanctioned bv them But it is also a part of the Canadian system that discount, of promiMOry notes, known to be loans, are constantly made in a majority of office., that have never been submitted to the board at all. The first that a general manager knows of them i. when they come before him in a li.t of bill. di.counted. (S) The third advantage of the Scotch system is that aU such ad- .176 BAXKISG AND COMMERCE. v»ncM are accompanied by, not mere cndoriementi, but by bonda of guarantee, drawn up in legal form, and duly lignid, aealed, and de- livered. Thia hai prevailed in Scotland for generationa, and it it now an ingrained habit of llie whole people, rooted by long continuance, that when they want to borrow money from a bank, th.y give lecurily for it bv a bond. There if the further advantage in giving leeurity by legal documenta, that the guarantora cannot but feel the legal reaponaiblUty that attachea to them, when Inatead of merely writing their namea acroaa the bock of a promiaaory note, often in a very perfunctory way, think- ing little about it (,imd it ia undeniable that they do), they aign and aeal « legal document in the presence of one or more witneaaea. The im- portance of having endoraera alive to their reaponsibilitica haa been en- larged on already. Every banker ia well aware of 11. There ia under thia Bvatem the further important advantage to the banker hlmaelf, that aneh i> document of guarantee can »?arcely ever be forged. A branch manager can never be certain that the endoraement on a promiaaory note li genuine, unleM the endoraer cornea in person and aigna in his pretence. He hat been authorised to lend John Smith up to $3,000 on the endorae- ment of Thomaa Malcolm. When, then, the customer brlnga promiltory notes, apparently endorsed by Thomaa Malcolm, the manager it apt to be taliafied. Yet Malcolm may never have aigned at all. What it, per- haps, more dangeroua still, although Malcolm may have aigned the original note, he may liot have signed the renewal of it. But o bond of guarantee is not only signed, generally by more than one person, but witnessed in the office of the bank. Thia renders forgery practically im- poasible." There are undoubtedly some disadvantages in the practical working of the system. One of these is that in case of an account becoming un- aatisfactory, it is more difficult to deal with than if it wa- ipreated by one or more promissory notes, coming due on definite da. i. If renewal U desired, as it almoat certainl; will be in such a case, the opportunity arises of insisting upon payment or reduction. It ia generally •«P'>J«'«i that a cash credit shaU be paid up at least once a year, but untU the lime for retirement comes, the Ucit understanding it that advances shaU be continued without criticism, unlesl often overdrawn. But when a promissory note comes due the opportunity for criticism ari.es naturally, and muat be met Another point of disadvantage ia that if a customer is caUed upon to pay the balance against him, and the amount ia disputed, it it lome- timet diiBcult to etUbliah it. If a tingle voucher i milting, it cannot be done The writer hat a vivid recollection of a case of this kind occurring when he was a young clerk, and of the weary lime he had, day after day, in the inUrvalt of butinesi, and after bank hours, in laborious M A ml. hu l»ei. aom.tlo." aaoBtrt by a bank th« «"!,"•"''»"«' °"* '"J Bol. muat alia Ua nam. In «»« imMno. of a, manamr. But It haa b.« Jound vary dlffleult to catty It out In ptactlca. THE SCOTCH SYSTEM. ,„ ™^^V.::d:;'.r;.r:' rr:.rT"? :"" «■' •"- •"■ «.« of the working „f boih " ''"' '"°'""' "P""" tag out or m«Jlf,|„, what ,~™7dT.! ^ V '' «°°^ •'°'""' ""» '"•- representing .dv.nce' ,3^1 pt fn en"™? dii T""""^ """^ ported into entirely different li.bilttv I,J T ^ ^5'™' «8'""". ■■>d bill.. Advance, .houid "redt d.ff"' fT.""°" "'"""« '» *"^ •re plaeed before the boird oIm ff ■" f'"'-"""- "hen .ocomit. cority 1. held, but" .llo "d 1'/" '■""^"^ *•" '°">'^<'" ""«' «- «cur.te aeeounl .hoZ be ,re„ „f 1" "7"°""/'«™'t.nee., .n .d«nee. to .he ..™ party if ."/'j'r '"'' "'"''' """8 "'"■ »«>" II might be well to consider whether thf l>.ld by .on,, E„„i.h ]„a,e. that . ^r™^ '"" °""" "' "" '«"K. II ■i.ed to .trument. They doob.le., ,'" aLi.lTt'"" T' "" "■" * """"•W la- Boney borrowed. .„d not of a not. .tan „ •"."'"""'"■' ""'• """ •» '«Pr".at a not. ,lve„ ,„ ,.„„„,„, „, ^ mercantile account f^ CHAPTER XXIII. BANK Kinsvia. Ratiokali or Caih Riuhtci — How Much — Or What Cha«actiii— Canadiax I.ioal TiHDn — PaoroiiTioM to u Kik •» Baku — Othir Foihi or Ruiiitii — Baric Baiamch— Call LoAm— Cok- DiTioxi Ai TO Both. IT hai been pointed out that the Ant idea of one who hai commenced the boiinen of talcing care of other people*! nonejr, and ha« engaged to repay it on demand, will be to keep the whole of it In hii lafe; and a humoroui example of thil feeling hai been given in the addreu of the preiident of a newly-orgnnixed banl: in the United Statea. There would, indeed, be some juitiUcation for this courie; for how, lueh a banker might lay. can 1 poaiibly tell when these people will want their money, or Aoie mac* they will want, if they need any at all. Until, then, he had arrived by experience at what may be called a law of average, aa to the demandi of hii cuitomers (at a whole) from time to time, he would, if prudent, keep the larger part of the money depolitr'' with him within reach. But ai time went on luch a banker would arrive at thia general average, and after providing for thia, and alto for unforeieen rmergenciei, would feel himielf lafe in niing the balance of hii depoti- tor's fund* in traniactiona yielding inccreat. Through luch a proceif ai thii the whole bniineii of banking haa palled, until in the evolution of eventi general rules and priniciples have been arrived at; applicable, some to one condition of things and some to another. For conditions dilfer in dilTerent countries and also at differ- ent times. It ia universally conceded, for example, that in the case of the Bank of England a larger percentage of actual money reserve is needful than is the case with an ordinary bank ; and for this reason, that the Bank of England is the depository of the spare money of all the banks in the Kingdom. In the balance-sheets of all London banks will be found the significant item, ciuh on hand, and in the Bank of England. They all keep large amounts of money in the great central institution, not that they get any interest for it, for they do not, but for the sake of convenience, and partly, also, for safety. But these London banks are themselves custodians of the spare funds of the banks of the interior, all of whom keep accounts with a London bank, and usually have large amonnts of their reserve money lodged with them. It thus hns come about, by a gradual evolutionary process, that much of the reserve money of the whole Kingdom is in the shape of bal- ances due by the Bank of England; a fact which at once suggests that BANK RESERVES. .1. '™ •l>' g™t „,ii„„,i i„„i,„t,„„ ,|,„„,a I,, , •"'•"«•• '" "f' I ,!oM In I,, vault, ,SL,„uir '"°P""'™ "f ""-li po-itor, wore wl,.,!!.' ,„ercn„t|'c '''' ** "'■"•■•■•y " "■ J- bound .„ r..coive „, .„.„ .o^H^ „""?.; ojf'' 7"".' '" "" >*™" l«nAL TtNMR for thr Bnnk H„nl.„ i , Jf ^ ^'"" '" ""• ™> the .»„. „;• M, BoJoTfJI ,"' ^'"^'""^ ''"• l^-'i-)"! that the pro-n/.r, „f the rorporation t„ „-,. , ■" "°"'' '" ""Ply flank n>u.l prrfor.. pav In ,1 Tf „ . ^ *" '° ° '*'■"■'"•• ". •"""<., i. le^al tcndclf ."/^h' 'Lr/"""' '' ^"^"^^i- Gold, of Silver coin, are ree„gni/ed al C^^t^ZT ''7'" '° '"^" "• two po„nd_„„ „„,„„„, evIdentTy S '^ th '"" ""'•' "• '"- "'™' <>' criy about with him, or wherewith • """ °" i""*"'-)""! «r change made. It I., howcveTlH ""' -»«""" b' P«id, or .mJl of trade and oomme;," ' """""'"'' '-' "" '»'«" P"rp<>« En^a°nJ:St'::':;:':;.'j;rr;'l-\™-^,<-f f-.-.nd <'•■' »»"- " England I. the onlv pl.„ whe e t ' b • "^ "' "" ""'' ="' o'.nd.. thi. Bank li thrLat'Lli, , T7, "'" """" '"""' ^ ".hor bank In the Ki.X an k«p 1.°' a^l^f, S' '"' """"-• ^'"^ tnglan.i note., and wu hem ^- T "' "\"''»'»e rejone in Bank of no bank note, in EnZd «r" tl^Z « ""l °''"*°"°"'- »"' " gold coin mu.t nece-.^ilvbe kept f„r ,E "''' '"""^'' ° '"«^ »>"''""' of II ha, come, theref"i ,' Z ">« acquirement, of bu.ine... .gcof the -.e/ve oTorB nk .h':«r: ': r'Tr'' "•°' "■= p'™"- •idered neeessarv for .n „.J . " '"'«''" «»'c »hnn i. eon- ."«, t„ «f..r;; e-nt "o'th Ta^k' 'nlr;- " 'T'"' "•"''• '""■ whole finaneial world wHh a. nTueh ear T' """' " """'''^ ^^ "«= -ic.,,a,.,,e. ather j;:'c^/;;:-::^--- """ "" "™- i. .uffieient for ordinnr, ,™ about twenty-fve per cent, of liabilitie, of .econdar, re r .11 ^^2 '"°'"°' """""' "«" « «"« vcment.. The latter il f ,1 ' , ,eT 1^ T "tI'' ■'"'■' °' '"" Iwentv-five per ecnt h.« b„en' j /j ^'"' Proportion of •». ....... ,..., ™ =-":-« ;r,;.rr,-s:i:'C,; lan BANKING AND COMMERrE. fully rnogninlng tills prrirntngt »• n tiinonahli' onr, have alwiyt de- llini a ti) linn- II liioJf cimilMiliorv. for nnsoiit >it lortli In other rhaptrn. Cii.\>«rTiii or Tii« Riu»>. Auuming, tlirn, th»l Ihli nmounl mnjr bt r«l«nnlilc for s b.nk to krfi. tlu- qiicitlon miir f»irlv bt r«lKd ai to Ihr prcclif iliapi In which liirh a rcK^^f should 'bf hrld. Thlt bring. »• to the que .lion of what I. Irgal-tender money In Canada? a i. to the credit of Canadian financier, and lianker. that they have alwnvi maintained that gold li the only proper ba.i. for a moneUry .v.teui. refu.Ing tn lie drawn away by the plaii.ible argument., at one time lo general in the United Stale., In favor of a double .tnndard. And whatever niav b-ve iR-en Ihe cn.e in He early day. of Ktllement, it la ertain that fir more than .iitv year. pa.t the .ingle .tandard of gold a. legal lender lin. b.en nnolulely maintained. The only lime when .pede pavraenl. were ever .u.pended in any of the Brlll.h Province, wa. when the counlrv was in a .tale of civil war. Thi. wn. In 1837. But about fort vear. ago-or immediately after Confederalion-ll itrenuou. attempt wo. made to introduce a Government currency whicll would operate Kimewhat a. that of the Bank of England do.. In Eng- land. The.e Government note, were to be legal tender, eicepl at the Government Trea.urv. There they were to be redeemable, on demand, In gold. Under thi. meaaure It wa. intended to abolLh bank-note cir- culation altogether. The majorit; of the bank., however, .trenuou.ly re.l.lcd thi.; and after a controveray extending over several .e..ion» of Pavllanienl, a compromiae wa. 'Snally agreed to, by the ten... of winch the bank, retained the right lo i.sue note, to the extent of their capital. An act wa. pa.sed aulhori.ing the i..uc of Government note., but only ot .mall deno.nination., for general circulation; and al«. of note, of large denomination, for u.c between bank, in .etllement of claim, againlt each other. Both alike were to be redeemable In gold. The final ba..., there- fore. In the country wo. .till to be gold. . , . .u In connection with thi. on important clauae wa. introduced ™° »« Banking Act. which CMurcd that the bank., at all lime., .hoold hold large amounts of thee Government note.. The cl.u.e wa. th.., that whatever amount each bonk might hold from time to time, a. a ca.h re- ,cr>e, at Iea.l forty per cent, thereof .hoald con.l.l of Government note.. Being then under obligation lo hold .uch large amount., it became a mat- ter of vital importance lo the bank, that thU currency .hould never fail to be redeemable in gold on demand. When, therefore, the Dommion Note Act wa. pawed, the banker, of the day, in conference with the Government, prced .trenuously for a broad foundation of actual gold, to be alwav. available in the Treasury, and that Government bond., duly authorized by Parliament, .hould be held for the balance. TheK idea, were acquiesced in by the Government, and on thi. foundation the legal- tender not,-» of Canada have ever since retted. It i. important lo not BANK RFSERVKS. ,^| II-.I tl,rr.- h,. „„,-, Wn „„ ™v«.ioi, In which Iho Trc...,ry f,ll„| ,„ rr.,«„d ,„.ln„tlv l„ nny ,1, ., ,1 r„r „„l,l „,„1, „,,„„ ;, ^" ' """' " B,.. n. the l„w of thrlr „r«. ,„,!„„ l,l„d. ,he„ ,„ keep .Mea.M^,,; p« „.„(. ,„ Covrrnnunl „„,„, „„d ,hi. „„,ler h«vv p™!! c ,h„ do .. . .n„„or of f.c.. k...,. n,„rc. How „.„ch more ■l.T,,^, heir ot' n.„eh more com- • ie„l to h.ndl. tl,„„ the bag. of g,ld Ihev we e orZw ZZTjtW. r\ "'"'"• ^"'' """^ "'" """need ih.. he ": S cxr^-- ■■■- '"-' •— - •- "- r„'.hr:::! p™etie„„, lmp„„|h,e for . th, o"e.^r"lt ^w" •.'" I". eTof'-C; gold h.. never oecnrred In the experiene; of bank, of C.n.d. .MooA ■I hi.. Wen known thit bar, of .pecle have been .to en T ,^ * the f«.l that all engraved note, ear, be imitated ar ,rg,d, a very pr." tKal danger, a. experience hu proved. In view , oth til l„Mr tie. the Government, ,fter con.„ltati„„ with the . ...e™ of banr. Lj« ^ r^.r ;^tM:? ^:=cvt^^ i;- "ed ^th le'.aT't „h" ""•. ^'7 """"""^ "■"''' "'»" "•™ "" ^^ """^ lied with legal-tender note.. But a. a matter of faet all the bank. rf„ oThe-oC^VeL'^Th"' ^ *""'' ••.f"^ "^ •"" -^ ""^ -'"- -^ to tne Omernment. There ha. never been an l..ne of lhe.e return, in "*"* '" «°" '■'' '""»"'« "ho are traveUing, „, who have a u.e f " "" th. counter ff Ti taSS'S^rtn™? b' ■ 'S .TJ". T,'"" """ "■"' »""»« thoruad to Inue note. .lain." tfc. l™ .™L. J, ?. ' '*"'"'' ^' """I- '• au' r~enl lu own raplui. Thi. &ff'o?Tn«l °/ Go»e™men. bond, which rep- jn.m.nt or c.nMa, re.t partly up" . «rto^S".''„.j .'■-,'''•. '''°!" °' "» O*"' bona. Md partly upon „«. '„ JtouM be nMeS r^«K„ T".°' ^ °' Oivemment *« jWctly limit, ih, .mount of ntS; iS,? ™v hi ?.; "i" '"? """In'O" Not. Monrltle. and oraalr, that for any Soim bfi^L fh. '"''' '••'"■' Oovemment *»a b. held In acluu gold coin beyond thie nmount dollar for dollar I i 18S BANKING AND COMMERCE. goldf at times, in the traniaetion of butlncH. These demands, however^ are always very slight. Another reason for keeping gold is that in cer- tain conditions of exclmnge with Great Britain and also with the United States it is the most profitable medium of remittance. This, however, docs not, as a rule call for what may l>e called large amounts, that is, in proportion to the total reserves of the bank. A third is, that long and traditional habits with Canadian bankers have led them to value gold as the final foundation of all their transac- tions, and to krep an much of it as they can with convenience and under compliance with the law. It may be truthfully said, that in spite of the great convenience of legal-tender notes in practice, there ts not a Cana- dian banker but would feel more satisfaction in carrying gold in his vaults to represent Ihe whole of the cash reserve. Another reason (rather a remote one in pracLice) why the banks keep a certain supply of gold is, that on the ra.j occasions that a "ran" takes place on any of them, nothing will satisfy demands as cfTectually as gold. Indeed, it has been known more than once, in the experience of both sides of the Atlantic, that the mere piling up of gold on the counter in sight of all and sundry who came, has been sufficient to stop a "run" altogether. Fifty thousand dol- lars is the merest fraction of the reserve of r-jst of our banks, but fift> thousand dollars in gold coins, piled ap on the counter in front of a pay- ing teller will generally satisfy all but the roos) nervous applicants. When the people see so much gold they are ashamed to ask for it. But now, granting that the cash reserves of the bank must, of neces- sity, consist partly of legal-tender notes, and assuming that twenty-fire per cent, of liabilities may be considered a normal amount, why shoold not a bank keep the whole of this percentage In Government notes and gold? That none of the Canadian banks do this is known to all who examine their statements to the Government. On the other hand It Is equally well known that the sum total of what the banks call their atail' ttble retervet is, as a rule, far beyond the twenty-fire per cent., and it more frequently as much as fifty per cent. A critic, however, may say, that as the liabllitiea of the bank are sU payable in legal tender or gold, why not keep this twenty-five per cent at any rate in this solid shape? Demands are daily made on the banks by other banks, and it is certain such demands cannot be satisfied by ten* der of balances due from banks abroad or by call loans. Why then not keep in tlie vault the kind of material which can be used on the spot? This is a very reasonable question, to which every banker is bound to give reasonable consideration, with a view to satisfying not only himself but the banking community and the public generally. For, In any country, none are so much interested as bankers in the stability of banks OS a whole. But this is more particularly the case in Canada, where, under the operation of the "redemption fund," all the banks are practi- cally guarantors of each other's notes. No persons watch the returns of the reserves of the banks with so much care as bankers do. Bnt with far BANK RESERVES. jjj .nd Government notes, he would undoubtedly do it 8,7^ r .*^ N« yo* .t l^edi... e.U. TTrLt!e!":Sh'BSr'n° Nr?'„,'S .Imort „ .vilable .. if he had locked it up in hU .1 wTr v it .vaUaHe in the intereouTK of bank, by d»fta for ^w;h ^ Z^' ^^^^ -Tf :r.hrc.rh ri'"^ '° '^- --' - • -- Utiuzatioh or Spau Fundi. WhJ.t A/r'f^'Tl'' f"' "'■»""•«-'■>• <»""«ted with thi. matter. WhU.t the fi„t inahnct of every Unker i. to keep hinuelf ..fe, uader aU |ii:i mi 184 BANKING AND COMMERCE. circumitances, it is equally his instinct to endeavor to make as much profit as he can out of the funds at his daily command. This has long led to the consideration whether spare funds cannot he so employed as to yield some interest, and yet be absolutely safe and at command when wanted. It is obviously only in great financial centres, where vast masses of monej are constantly to be found, that such operations could be devised ; accord- ingly, it is only in London and New York where they are developed to any large extent. They are found indeed, but only to a limited degree, in smaller financial centres. Now, in London, for one or two generations back, the balance-sheet of every bank has contained amongst its assets this significant item, ^oanf at call, the significance being that this item was invariably included as a part of the cash reserve of the bank and not nmongst its lonns or investments. Caah on hand, in Bank of England, or at call; this form, slightly varied as it may be. but the same in substancCj has appeared in every London bank statement for fifty years. And the fact that it has so continued and is in full force to this day, is proof that it has worked satisfactorily. The same conditions that have prevailed in London have also arisen, and had influence in New York. Aloney can be loaned there with a large margin of security and with an assurance of being returned on demand, to a class of borrowers of high standing. It has been so for a sufficiently long term of years to enable the system to be tested. And as it has yielded similar satisfactory results, ittt banks have steadily followed the course purused in London and placed money out on call, repayable on demand, with a large margin of security, taking for it whatever rate may be current at the time. And long experience, in every variety of circum- stances, even in sharp crises, has proved to bankers that they can do this with assnrance of receiving it when wanted. The bankers of Canada well know the importance of having their ordinary reserves at absolute command; and if at any time any events had transpired which cast m iliade of uncertainty over this fundamental requirement, it would have been discontinued beyond doubt.'^" Much that has been observed with regard to placing spare money and keeping part of a banker's cash reserves in New York applies equally to London. The whole trade between Canada and Great Britain gives rise to banking transactions in the shape of sterling bills of exchange or transfers of money by cable. Indeed, if the amount of such bills passing 58 There are, however, call loans put out In smaller centres of flnance than New Tork or Xxtndon. In fact, wherever there le a etock exchange, of eufflclent macni- tude to fflve rlBe to larye daily transactions, there Is the opportunity of placing out moner strictly at call, on rhe security of stocks and bonds. But bankers are well aware of the difference between such small centres and those of continental or world-wide magnitude like N*m' TOTk or London. This difference la not so much in the safety of the loans aa In the certainty of repayment of large amounts Immediately on call. It has aonaequently been the practice, especially by the larger banks, to pla >. » , eertained, i, „„„,d be fo„„d1„"ff'"d aT f • "'? """■ """ •» ■»■ .ween Canada and the Zfh "iX "f, tA" "' ""= '"''' *- ecntre in London. It i, , ™„., „77' . v '"""""o"" finally dian bank, to keep an c^n^t " h . bankTl' r'°"' "* »" C""- at eo,nn.and there With the maioritv ^f '1 ^"^''"^ '» l-ve money ^^"rr;rt,^^=~t^^:rrter .eeond, ea.h balanc , dne on deiand f™l T^'L ■"."" °"" P""""'™! York and London, but .omettoeMn I^ °"'" """•"' 8^»"»Uy '» New on demand-or it n,./™ . Tn, J " " "" " = ""'^' "«''' PV"' i.. e'lheVtt 'thet„r?,r,r "" '° "'"'^' ""^ «>' "'«''» rawed and fail lo r«p„"d Itl ^"7 " ''"= "'^ ^"^^ <^'°'»'- "oney on call n,:;X fli '.neCnd . d "•"i Vl° ""^ '»"°-'' hi. loan by selling neurit e. TW. f "*' ""= "»■*" "^ '""« th». make .ueh trfnraS'undl^^'^J,' '^Zl T'' ^"'f. "^"y- "'' if Is .nfficlent to reply that time «„? • '""""■ To all which brought lo this test, bSh lhe,er„de ,"P"'"" ""' '^' *'"«"• When ..rated to be ,„cee, fT t o Tatne;. t''7 T'l*"" '""' ^"^ ttere ha, hardly been knol »„ w "^ """^ '" '"«<= «"««•. .»de of .ransaeL.™ whi^anv X r?' IT"?,"" """""^ -J"' <>™.nd.. No. that no Jf h^e^^Tail"/ n'^w V rt L"""""" " ond-rale eoneerns have stonne,! «.™ . ^ ' ''" ■°""= •«• ration. With whon. .he SdL'S 'aret .rUittf k'" "-^ eonnlj, have tver f«ile,l t„ .. j . , °'' °' 'Kpuig ac- .urpri.e to tho.e not a^a" ted w.lh Z . b- . .",°"'^ ^ ' "-'"" "' scarcely ever been an in.t.nr .he subject to learn that there ha. loan., when a delay even Jor.; ZT "" ""f™ """°"'°"' '" -" «. -etual lo.. of LhlnevhaTWarceT 1° '"r"""' '»■' *" "-and experience have bo^rror/lrfrr X^tllrU^" "Pon a. part of . l«nl.-.*c^h ™~?'"''. Sff"' ™'' """' ■»"»■" ». *„kM th. mm. „,„„„„ ,"^ "»'<'' f'f'n™ .Kln,l .mer^enol... rom.whl.^J moM, c„ b. ^bUtart ™f„:r.\ """*"'■ "" ■>• '" "•• „,n Sir .^ •Ithl. .w.„„.,„„,T;„%'"'"« ■""■ • ""It. by a c.„.a,.„ bank.r ar."P u^ 186 BANKING AND COMMERCE. mnneys due by bankers in financial centre*, and cash placed out on call, are both available at any time within twenty four hours.'" There are, of course^ occasions during which the signs of threatened disturbance in financial matters have become so serious that bankers have thought it prudent to draw in balances due them by other banks, and to call in the money they placed out at call. Such a time, for example, was to be found when what was known as the "silver agitation" rose to socli a height in the United States as to become the main factor in a Fresiden- tial contest. Canadian bankers well knew the dangers involved in this question, and were convinced that gold would rise to a premium if the views of certain parties prevailed. They had previously taken the pre* caution to have all their contracts for loans at call made pagable in gold; but in addition to this it was thought desirable by some to draw away money altogether from the scene of possible disturbance, leaving only such balances as were absolutely necessary for the conduct of business. This matter is of interest to merchants as well as bankers. For they should undoubtedly so manage their affairs as to have a reserve of cash — in hand, or in bank, or bills undiscounted, or a reserve of credit un- drawn upon with their banker. If not, they may be compelled to stop payment, even though solvent. 60 It may leeic ttnnga ttutt a banker can reckon upon money at his credit In London belnj as much at bU command as If he had it deposited In a »»nk In Nsw York. But to such pflrfectlim hav* axchanse operattona between these nnancUl centres been brou^t tha.t bUU of •xcban^.e, either at sight or time, can at ones be negotiated and the amoimt placed to or«dit. with as little loss or time an It would take for a merchant to draw a che^ on his own bank In the aame city. And If an exacting critic should object that this Is not a auinclent reliance In such an Important matter as cas^ reserves, inasmuch as financial disturbances would Im* pede Ita operation, the reply must be that expertence Awb not Justify this con- tention. There has never been a Ume in the heavleet crisis in which money could not be tranaferred from London to New York or Montreal by means of bills of exchange, or cable transfers. Tho only difference between the tranaferrinc of money In a crlala and In an ordlrarr time is In the rate of exchange. CHAPTER XXiy. BANK INVESTMENTS AS EEBEKVES. ^"'VZ \""'" ^"'"--""-Should B. .V.ootm... ^s-o AvAa- I?„e „ '' Tf ' '"i"'.";' -"""'"ing "hat may be died . .eoond line of .afcty and defence in the .hape of Inve.lmcnt, The.. .nveatment. „„„l, i„ ,he nature of thing., if they are to answer the D^ pose. eon,i„ of .ecuritio. that ean at aU tin,e. L ea, ly reaT"ed E at once differentiate, h,. investment, from tho.e of a private individ™ ne . ™ralfT .' "''°" '"""""^ ^"' '" "•= "^«"'" -"<• of «■"«'- Ztr, T "''""« "P"" "■= ''°"" »■«> ""-J"" of their ™^T. M °r" r' T'^°'*""^ ^™''"^'' ">"' extraordinary „.„. rin, i. the fi... pr ncple that dominate, every movement that a banker 7Mr:L:r''"" " " " "'"'*'- - '- '"= -'-^-> <" — «"• In fact, the word "mv»lment." a, „,ed in reference to a banker", buame,. ha, a radically different meaning from that which apperta^ to Lel'le^r'tZ '"•• ''™/ P'''"= "^'"'•^"'^ ""■*' of making .n mvctment, the pnmary condition he think, of i. per,nane^ce. If h. i. Ltt ^whlT 7"! ^' ■"'/' ■"' "'"""»"^' ■■« ■■«?■ " "■ "-e bank. But when the need i. for .teady interct and .ecurity of principal, he take. ,t out of bank and buy. .omething that can re.t nndilrbed, «" wen'eluw-'n ,. "" ''"f'"" '"' """' " "l-^ °» intere.t to . K h l!™ .°T'fi " '""* ™"'y °" "■°''8«g<= f" '"-g term.. If he become, a .tockholder in a bank or other company, he thi,.k. not of U.e r«I...blene.. of the .ecurity, but of the permanence of the corpora- tion And he act. with regard to investing in bond, on the .ame rule. But with a banker thi. idea of permanence i. out of place. Hi. In- Te.tmcnt., so called, are really a part of hi. fund to meet liabilitie.. But not h.. ordinary and daily recurring liabUilic., but .uch as are eilr«„- duiary which ari.c under special circumstance, and at inlenahi of time .uch, for example, as when a bad harvest cause, scarcity of money and a heaver demand for it both from depositors and mercantile customer., or when a .eason of bad trade supervenes and continue, year after year with the same result. If a banker's whole spare resource, are employed in dlsconntine bill. «.d making buaine.. loan., he will find when .uch a time .upervene., uid * °"'» "f/'PMits or contraction of circulation set. in, that he cannot reduce his discount, without embarr.«.ing his cMtomer.. In fact, at such IK a !■ U 188 BANKING AND COMMERCE. a time the majority of liia commerrial ciiitomers could not respond at •U' to his demands for rrdtietton. Instead of that they will want more money from Aim. Thus, instead of his being a tower of strength to the circle who do business with him, he may become weak himself. The Investments of an Enolibh Bank. Experienced bankers in old financial centres like those of Great Brit- ain have, th'>refore, long found the necessity of placing out a certain percentage of their resources in securities which can be realized without disturbance. In all the statements of English and Scotch banks, but of the London ones especially, we find the item of securities owned by the bank figuring prominently. These securities, let it be observed, ar^ the actual property of the bank and must not be confounded with call loam. Take, for exam])le, the following, which may be looked upon as a typical instance, inasmuch as the bank in question combines within itself almost every description of bank business as carried on throughout Eng- land. With its head office in London, where the firm of Barclay Bevan & Co. was for generations known as one of the most conservative (and }et most prosperous) of the great banks of the metropolic, it is now a joint stock corporation (under the name of Barclay & Co., Limited), in perfect touch with the commercial interests of the whole country, its cus- tomers representing every class and interest. The paid-up capital of the bank is $13,100,000 (the figures are given in dollars that they may be the more easily followed). The capital, of course, can never be demanded, and though sometimes considered as a liability for bookkeeping purposes, it is a great error to include it along with such liabilities as can be demanded. But when we look at the item of deposits, that is, of moneys that can be actually called for, we are struck at once with the enormoni amount. Deposits amount to $1 65,8 1 8,000. The reserve to meet this immense total consists, in the first instance, of cash in Iinnd, or in the Bank of En^lard, or out on call or short notice, $14,335,335. This is what wc have described as the ordinary reserve, kept against ordinary demands. But the bank has a provision for extraordinary de- mands also, in the shape of invfitmentt to the amount of $i3,6l3,735, being nearly the same amount as the ordinary reserve. These investments are summarized as follows in the balance sheet of the bank: 1. British Government securities and Bank of England stock $18,643,000 3. Metropolitan and British corporation.stocks and bonds 8,938,000 3. Indian and Colonial Government securities, including guaran.:ed railways 7,550,000 4. British railway debentures and guaranteed and preference stocks 5,592,000 5. Other securitiea 7,928,000 HA\K INVESTMENTS AS RESERVES. ,89 ^f avlabihty. The.v c.„ be r,„luod „„ ., „,„,• be r,„„ir..d within . .h«^ ....0, «„d .„ enable the bank l„ „,eel extraordinarv de,.,»nd. without 1 lurUnee to tho.e mere.nlile c>..lomcr. who depend „,,„„ it for .upplle,. In looking over this .umnwry of investment, it i, i„tere,tin, to no- '.'■, °?u °,' ^7° P™"" " '" ""■'' "■'"■•IfiMlio"- Th„., for e„niple while the leading position i. given to Consols and other British (lovern- ment seeuri tie. it is ciirioi,. to note that Bank of England .(or* is grouped with them, thus plaeing the Bank of England, in point of St.- Wlty and eredit, on a par with the British Government itself. This of cour.e, rvHeel. the opinion and judgment of the directors of only one of the many l»„k. of London, but that judgment, let u. remem- ber, i. the re.ult of .everol generations of knowledge and experienee- and U a striking tribute to the unique position oeei d bv the Bank of fcngiand amongst the linaneial institutions of the world.' For tliire i. really nothing like it, unless perhaps the Bank of Franee niav be in- cluded in the .ame category. The .tability of that great Bank, aiuid.l the constant political upheavals of the country, is one of the most re- markable phenomena of modern times. Rcrerting to the classification of the Barclay Company's investments, I "" JT'" '"'""•"i'-K •" "'"'■ that CorpnraliM .lock, '„,„! h„„,l, are placed before Indian and Colonial Government securities. The corporation bonds referred to are probablv those of British mmncipalities-cities and towns ehiefly-and it is "interesting to Ke how high a place they hold. But the .toe*, must be those of manufacturing or trading companies, «1 which there is an immense variety quoted on the London Stock Ei- ■ change, and of all possible degrees of stability. It is interesting tc note that there are stocks of this description which are con.idered to I at lea.t equal, a, a hanking investment, to the bond, of our own Govern- Trent. We, however, on this side of the AUantic might classify the seeuri- tie. dilTerenlly. For even with regard to the bond, of m'miieipalities, n IS a question if the element of municipal trading now so prominent will not mtroduce a very considerable amount of uncertainty as to the financial position of such corporations. As to stocks of trading corporations, called on this side of the Atlan- tic Industrials, they surely cannot be compared for stability with the ob- ligation, of the great colonies and dependencies of the Empire. Their deb,.nlures are worth nearly as much a. consols, and might weU be placed immediately after them. The next two classification, are natural enough. British railw« bonds, with their guaranteed and preference stocks, are a class by them- selves j and their stability ha. long been proved. It i, noticeable that ordmarj- stocks are not included. They are all either guaranteed or lOO BANKING AND COMMERCE. prrferrnce, though fvrn with these the qnestion niny ariic, guaranteed by whom? The final item of nearly $8,000,000 of "other securities" ii one in whieh there may be endlt-ss scope for variations in value according to exigencies of the times, and the judgment of trained experts may find constant opportunities for exercise in considering them. Investmbnts or Canadian Banks. It will also be interesting to compare this classification of invest- ments with that of the Government statements of Canadian banks. This classification reflects generally, though not absolutely, the consensus of both the Finance Department of the Government and the Council of the Bankers' Association. It is divided into three heads, as follows: 1. Dominion and Provincial Government Securities, 2. Canadian Municipal Securities, nnd British, Foreign, or Colonial Securities other than Canadian. 3. Railway and other bonds, debentures and stocks. This classification is not materially dilFerent from that of the Lon- don bank. The first item is the same, with the exception of the omission of bank stock. We have nothing analagoua to the Bank of England in Canada. The second and third items correspond to the second, third and fourth in the London statement; but they are less specific and more compre- hensive. In considering the Canadian classification it will be evident that other considerations than relative stability of value have governed it. Dominion and Provincial Government securities naturally come first, but there is a very wide difference between the value of the two. The second item includes under one heading classes of investments that arc as different from one another in stability and value as can be conceived. In the same column are included all sorts of Canadian mu- nicipal securities (town, city and country alike, in all the various -prov- inces), and British public securities, which last item, of course, includes consolt. Then, in the third, there is no distinction made between railway bonds and stocks, though it is evident that for purposes of bank invest- ment these two are widely different in character. Railway ttockt are subject to such fluctuations and manipulations as to put a majority of them rather into the category of speculative holdings than solid invest- ments that should be chosen by a bank. (It will be noticed that in the London classification all the stocks arc either guaranteed or preference.) The Canadian bank statement might be amended with advantage in many particulars, and in none more than in the columns showing their investments. Thus, if the object of the differentiation of the assets be to show how much of a bank's funds is employed in dfscotmting and how much in investments, one column for each would be sufficient. This BANK INVESTMENTS AS HESEHVES. ,9, dIrtncUon i. on. of the hlgh«t importance; for th. total .nount of th. ixllr^ f^ «ni ^ ""■■«"'■' "mmnnlly of th. country, „d to^ the invchncnt. woald .how wh.1 provUion the rule, of the buk tbon,ht t^rn"' """"''""y mergence., th.t I., to .eeure^oTpt Ihe" ,wo"'Fo"r ^''th'""' l''""!'' ^ " "■■»""'''• P""""'™ '-'-<«'• incM two. for, on the one h«nd. If an eicmlve miplf />f •....• .0 prev.„. the who,, of the fnnd.'of Z ^'Z'"^ LT^'^ZZ of c..h and a«II.He., a.lghl be invded In Government .ecurilj, J^d « ave the authorltlc. of the bank from .11 the anxiety "r°2Tf,"m he charter Ihrongh it. repre.entatlve., wonid certainly complain tM thi. .tyle of manaf -ment wa. not ,„]fi||i„g ft, „bj„, „', the bank', exi,! ".7™" " """'" "* "■"*" '° *« ■"-"'''«d. and witi Zl at a^it wo!;f/L'""^' " !' °r'"^ ""' "" '»"'' ""^ "- inve.tmn.ta Ite nrlrin^ """""' ""■" ""' "" """■«"• «" "■"''ing inade- quate provLion for emergencie., or that their ordinary ca.h re«urce. holder. might complain that the bank wa. not earning .ufflcient proT GENiBAL Chahacthh Or A Bank'. Inte.tm.nt.. to ^n.f'f r"""" °"'"' '""■•'-»™" of « bwk, unlc» the whole I. udZ^t °f '''""^"'■"™' «™"«". " " evident that the experienced Jndgmen of a manager or b«,rd of director, would «„d ample Mope to the election Even to municipal .ecuritie. there 1. con.iderable dif- .rcald" ■"''""^,'-'' -'"', although it may be .tated, ta ttc hot, of Canadian municipal bodie., that none of them to the older provtacel ever made default in the payment of either prtodpal or in"re.t BuJ Ujl. cannot he .aid of the munieip.litie. of "ihe Ltbwe t "s L. of hem, m the excitement of the great "boom" of an early day, entered unabirfXr„ tT'' T "" '"*'"' ""•P'^"' «■'/'- ;n°Wy Ze „f ?M k" " T"" ™ " ~-"P""°i'" with their creditor.-, .tate of thing, however that may ne^.er be repeated ex„."' '"f""' r"" "' ""'"'' '""iti". there i. infinite Kope for the .hLr. i "^'r' '"'' """ '"•"' "■ "■""■^ °' enterp,i.er.„ch „ .h,ppmg and manufacturing companie.. It i, to be .uppo.ed that no prudent banker will choo.e the .tork of „ch companie. .'^ .ubj«^^ f"° tovcmcnt. The fluctuation, are far too .eriou. for .uch a fieldl t private individual. That a man may do what he likes with his own is proverbial, and true enough within limitations. But no man may do what he likes with money he holds in trust. In in- vesting such money he will do well to act on the established rule that high interest denotes poor security. Yet a banker can scarcely avoid feeling the attraction of high Interest. He is investing for the sake of the interest; that is cerUin. And when a choice of investments is before him, as it continually will be, the higher figure will ineviUbly attract attention. A difference of one per cent, in the return on a considerable amount of bonds wUl make a perceptible difference in his profit and loss statement. * i • There are always two impulses in such cases— that of enterprise uid that of caution, the former saying, take the risk and get the higher return; the other, be careful, for in seeking higher interest you may lose soae of the principal. It need not be said that the latter is the voice to be listened to. . . ,. l i But mere caoUon wUl not be sufficient in the case. A banker, in considering investments, wUI take means to acquire mfonuawn; he wdl make comparisons; be will look into antecedents and range of fluctua- Uons; be will, perhaps above all, consider the personnel of the fartu, in lontrol. If his information as to the last is unfavorable, he will do well to lake the beneSt of the doubt. For bonds, as well as stocks, though not to the same extent, may be subject to the operations of the giants of «nince, whereby innocent "lambs" are «eeced. Ahme all, mlh regard to bond., he leiil ckoote out (Jose that ore fi"' preference. A banker will certainlv observe another rule of investment, vis., to dmde hit rift.. And in so doing he will divide not only amongst cor- porations, but amongst classes. So much of ordinary railways, so much of street railwavs, so much of light and power companies, so much of navigation companies, so much of iron, cotton, wool, flour, and so on; this will be the rule, as well as so much under thU control, and so much under that. He will thus ensure a general average of safety, for it is scarcely possible that the same cause, at the same time, can affect them •"■ u J 1.. A banker will revile his investments from time to time as he does lus discounts, and pass judgment upon them in de'ail. In so doing, he can HANK INVESTMENTS AS HESEHVjiS. ,9, «r»e fund th.t i. ,..p„„„,ed by balldin^ '^J ™„ge„.i«. A «- fund at .11." ^ Building .„d machinery i. no rcwrve ' »u-.,„,. .„,. .„„ .....'^Jl'nU" r, XVJ; ';4'„V",'; '"•'""• "'""'■-" •nd otiur naioiiabia liondi Pronu In Oovarnmut nr-eurlllM £2.%o".-;r r ,•.-,': oM-^^x^'unru-" -•" »«"•" •-. -u,. Uk. >j.lr bona. ,. . b.„k ,„j ob7."n '.rano- o„ 'r'""'" "°" '^^ -"I" than that at which th., couM «•.«„« bin. ™.v. ^"° " ' """"> '■ ■•'• ■»!. "c-lPt. To thi. ,t w b. t.pllM JS« a ™».,l, ,' '^ """■ " ■■» ""--ua. ll'rt"« cone™ ,.. dlv.r.lon of funa. from p,„„t,"r:^^ trTn.™,^'"' "'' "■*' " " '•"••■■ • rat. of lnt.r..t. But It I. not .1;,. .^!. ' '" "'""l"aa th.t ylria a low from It. bank.™ .. li'ZT ^^x^'.^",^""' -»-"» «*» •"«'" " v.n« ana ar. oon.tr.l„.a to r.fo« ."n lh"r IJonaZ 'T " """■■ "■°" « "'""'■ >o a commorclal hou., of havln," i^„rof „?!?, m ""' '^' "'■"'•••■ 'ban. Knc, ,rt.e.. they can .pply to anj^i; So,^!.*; '"."* ""'^ " "»' « " •»"■ bayona It: or. In th. I.., „V,rt. th'y^;' om ThJ, ':L"*: '" """ "•""'■ " •«" I. .vld.nt that a n™ i„ .n^ ^."tton "n";,' u'''T^'' "? "" "■•"■«• B-t It ctan,™ in th. prlc. of commoaitl«° and bT' i- "?* «■"""•«• " tavorabl. •r. pncluaM from doln, it. Th",* „ "L ' u. ".V " ', """ "f" ""'•" bam. In ,0 .tron. a |».l,io„ a.t th"y 1' """.*" """""al Proni. held., •ma. that blow, no matter how .to™y ' ""•" '"■"' "■ "' "» CHAPTEh XXI'. noinuTT AXD aouunu im ouiikal. SiCCaITT »;1D SlCUWTIM TH10»lTIC«lt» COKMDIHD, WITH PlACTICAl ArrLic«Tioii»— Or Sicwkitt m Oixuai.: It» LimT»Tio««— Pi«- ■OXAI, SICUHITT— EllDOIlKMlKTt— Ou*»«NTII»— S«CI.'«ITT TlUlt OK GOOM. SOME of the obtfnulloni In thii nnd the prrccding chapltri will h«v« btfn found In other portioni of thli work where model of doing bniineM are referred to. (See chaptera on Loam.) They are repeated here becauw of their Inlrlntic imporlanee and beoaoae the que»- tlon with which thla chapter if concerned li •peclflcally thai of ttcnritf and the varloua coniideratlonl connected With It. In one of the rtrlklng icenca of "Hamlet," the great dramatllt make, the Prince of Denmark lay to Horatio while they are Itandlng In the churchyard talking together: "la not parchment made of iheep ikini?" To which hU friend replica: "Ay, and of calf iklna, too, my lord." Hamlet rejolni: "They are iheep and calvea too that leek out auurance in that." A biting larcaim, and one that haa proved only too true In the experience of many an unfortunate money lender, who relied for what Shakcapcore calli "aaaurance," but what we generally name iecurlty, upon the mere poaacMlon of parchment deedij forgetting that the real aMTirance la not in the parchment, but in the property, wha'^ver It may be, that the parchment purportl to held. "Purporti" la a ver^ impor- tant word In thii connection, for deeda do not alwaya fulfil the purpoie which the holder anpponea they do: A deed may be improperly drawn', It may be algned by a party who hat no right in law to convey. If he ■igna iir an official capacity, let ui iay ai curator, tniitee or what not, the inrtrument creating lii« authority niny be a faulty one." The con- veyance of itaelf may be one that la agalnit common or itotute le^; aa, for example, certain conveyancei are prohibited by the Banking . S; or the whole document may be a forgery, iigncra and witneaaet alike. But even If the parchment itaclf it ttri-iiy reguUr In terms and the con- veyance authorixed by law, it may atiU faU abort of being what it pur- porta to be ; I. c, .ccarily. For, if it ii a tlUe to land, the land may have fallen out of cultivation, with buildingB Jilapidated, fences thrown down or destroyed, and a plentiful crop of weeds and new underbruth, which « An instance ot M, is altorted bv som.tl.ln. th.t took place In one of th. n.MI.nd counties ot Enrtind, .1..™ a bank took over a. "»»*";*;.^"^ deeds of a propert •• valued at ««0,MO. Trouble arose. It wai aseaaaarr to pro- JJS oS.n .M de-d.: -►.n, to .h. dl..,:.t of tb. bank. tb„ ,.™ pro.oj^«l^ a hl.b-cusa co.,vsyano.r mtsrly worthless to convey a ner>tlabl. 1,11.. T.t 'be, bad been exan.ln«l by tb. banka own solicitor and pronounc.4 perfect. m SECl'RITY AND SF.CURITIES IN GENERAL. ,95 .»■ r.ioic, cimltrli and nrrcliand ir can. So tlirn _l.il.i .1. pnrchmrnt o, other docomrnl „f .„„,1,, 1,„ Z(, 1„ iJl '\"'* "■.• brcn made away will,. True it I. hat fl,!. I .^ ""■' ''"• r..rd In the .ifape of .inZnt Lnalt 1 T"""^" " "'^•'" "''- Bknbtolint Ldani. The grntral queation of arcurity ia one that h.. ^ ..ji.l with the banker'. bnainrM that it „ dtalr ble ,0 I / « """"'ion elcarne.. all that appertain, to it. iri.^w.1 ,,1/ ."^ ""J" '"""* .! prineipl . .hat whT. man allow, iiol^ To'' .: t ^ „'f"hi.Tn:; .sf»oti„„ „„, in the receipt of i„tc„.t, bn, i„"o"g ^T!" "'^ '"• "'- Fnni»L Odirahtu. By far the mort common of .11 form, of bMiking .ecurity 1. U,.t „f penonal g„a,.nt«. That there .hould be two n.m*,Tl.«t to !^e!! biU^u a banking axiom, and, in .he ...e of trade bili;,"l '.TJ:nZ7t iaon.r Irat to nealy ^rVth^S i„ J!!?,I2? I" '■»"• "' 'hi' «1«". vl... S « matter of 6u,i„„,. (Se. Math™ »K"*"7 " """ "" •™™itt>o.. u punlr 196 BANKING AND COMMERCE. course; for such billi arise from a transaction between two parties, both of whose names are on the document. Hence every trade bill would be clnssifii'd ns a sccurrfl trnnsnction."' But a banker will not, as a rule, deal with trade bills long before finding out that security, so called, does not necessarily make secure. lo estioiating the value of trade bills it is customary to use the phrase, are the makers or promisers good for the amount — a phrase which primarily means, have they money or available resources enough to pay the bill. This is the commercial sense of the word good; but the primary meaning of the word, as every one knows, is a moral one. It has to do with char- acter, not money. The question therefore is one of morality also, and Involves the consideration not only whether the maker is able, but whether he is willing. In looking at a certain name a banker therefore considers not alone tlie n'sotirrt-s of the pnrly. but his clinractcr also, and from this forms his conclusion, whether payment of that particular bill may be relied upon. But this is not all. A trade bill is never brought to the banker by the maker; and in tliia there is an essential difference between a trade bill and an endorsed loan bill. In the latter case the maker invariably brings it. But the trade bill is brought by the endorser; the man who sold the goods. These points have been brought to the reader's attention in other chapters and need not be enlarged upon here, further than to say that the banker in discounting a trade bill looks, primarily, for his security to his own customer, the man who brings it to him. And in so doing he has an assurance, with regard to the other name, that of the maker or ac- ceptor of the bill, for before he got the bill at all the seller of the goods must have exercised his j udgment and concluded that the buyer was able to pay for them. The banker, therefore, with regard to such bills, exer- cises a double mental operation and considers, first, whether the maker can and will pay the bill, and also whether his customer can and will in case the maker does not. So important has this last con- sideration become, that in nearly all well governed banks the rule pre- vails to continue discounting for no man who has not proved himself able and willing to take up such bills at once, in case they are dishonorcti. A customer who fails to do this is speedily made aware that his account is undesirable. But the question of security by endorsement arises most frequently G4 There Is Indeed a mode of dealing with trade bills, In large financial cpn- treo known as "buying and discounting bills without recourse," that Is, whore the "banker relinquishes the right to call upon the seller of the bill, and under- takes to rety, solely, on the maker. The seller of such a bill. In endorsing, adds the words "without recourse." meaning without recourse to him. The bill then becomes a one name blU. and naturally a higher price Is demanded for cashing It Some merchants systematically conduct their discounting business on this principle, and are willing to pay much heavier charges for discount in consider- ation of being relieved of rwponslblllty for their customers* bills. There are blU-broklng firms and companies who cuUlvate this class of business, making a •peclalty of it, and taking meana to acquire the wide range of Information neoes- Mry to do U safely. SlitUIUTY AMI SECURITIES IN (iENEHAL. l!(7 with rog.rd to jt,.l ,„ch advance, of a.o„ey by a banker to a eu.tomer. A man in b.«,n«s, needing .npplie, „f ™„„,y f„, hi, operation,, will frequently preva.I upon .ome neighbor, relative or friend to beeome hi. surely; or, to apeak in eoramon phrase, to endorse hi, paper. Sneh an endor,eraenl i, of an entirely different eharaeter from that of the owne" of a note or bill, who pa„e, hi, title on to a aneeeeding holder for value bv endor„ng it. The endor.eme„, now referred to i. of the nature of . SLrety or guarantee. e„„f "•'' "Tit '°,""' '"'"' '° ^ ""•'^'"•'' "■ '"''■ '■"'iorsement, much eonf„„on of thought e,i,t,. A banker who lends ten thousand dollar, on the endorsement of another man, reputed to be worth twenty thou- leTi""'.1 /r"" '° " r-'r'"'''"* " '"y '"f-^ "P-""""; b"' experience teaehe, that he m.ght be leaning upon a broken reed. The 'ndoraer nnght be ,urely for other per,on, al,o, and the aggregate amount of these obligation, might be far beyond his means of meeting them. Such ease, have arisen and have opened the eye,, more than once, of confiding banker, and shown that before lending money on the strength of a ee* ta,„ endorser inquirie, should have been made whether he wa, not in- volved m the success or failure of half a do^en commercial enterprise, over which he could exercise no effective control. But, beside, this, there .s another very important eonaideration. An endorser becoming surety for ten thousand dollar,, might be utterly unable to pav as much, even .1 he had a real surplus of twenty thousand, without winding up his own busines, Th>, surplus might consist in land, buildings and maehinerv on which the very existence of hi, own bu,incs, depended. And it might be, and probably would be, impcible for him to diminish hi, own capital by the sum necessary to pay the amount he endor,rd, without ruining hi, own credit. In thi, instance the banker would almost eertainlv be con- fronted, in ea,c of need, with a propowl from the endor,er to releaae lum, on payment of only a portion of what he had endorsed. If he re- fused, and demanded what wa, due, he might find himself the plaintiff .n a vexatious lawsuit, and only obtain judgmint after long delav, by which tune the affair, of the endorser might be put into such a shape that to collect the debt would be impossible. The banker, in considering an endorsement, will do well to remem- ber that what he want, from the endorser is assurance of repavment of the Itme promwrrf,— time Wing of the essence of the value of the ,ecu- f'''.u .,.""'" '"."'■'°" ""'''•^" "■'<■"'" "«• ••ndo'ser i, in such a posi- tion that he could pay the amount n-Jea rallej „p„n without embarrass- ment. Many a man is in a position at all time, to meet hi, own engagements who would be seriously embarrassed to pav the debt, of another person. It is sometimes said by a borrower, to a proposed en- dorser, that it is a mere malle, of form, that he, the borrower, will be •lire to pay the note at maturity. And not a few endorsers have been Incautious enough to belicyc it, finding out to their cost that to guarantee another man's debt is no mere matter of form, but a very solid reality. 198 BANKING AXD COMMERCE. Vabiocs Clmmi of EHDOnniu. There are rarioua classea of endorsers, as there are of borrower!. There are endorsers who treat the matter so lightly that they will en- dorse for any amount, and never think of keeping a record of their re- sponsibilities. These are a class for a banker to avoid. On the other hand, there are endorsers who are keenly alive to the responsiblUty Ihey undertake, who consider carefully, and insist on knowing accurately the position of the borrower before undertaking that he shall pay a certain amount of money on a certain day. A prudent endorser will lake means to have an efficient oversight of the borrower's business so long as the obligation endures; considerlnjt, very properly, that his guarantee gives him a right to this position. An endorser of this kind is esteemed, and very properly so, a more valuable one than another of much larger means who would neglect such precautions, especially if he has had more eipe- rience in business than the borrower and is able to give him valuable hints as to his business. Thus a father's endorsement for a son just commencing business is of a particularly valuable kind, or that of the senior partner of a firm, who, after retiring, consents to guarantee a cer- tain amount of their liabilities. There is another class of endorsers that used to be much more com- mon than at present; namely, the profeuional endorser, who is known in the community as such, and endorses or guarantees for a commiasion. Such men, generally, have some capital at command, but the value of their endorsement largely depends on the prudence with which they carry on their business. A prudent endorser of this class will always scruti- nise carefully the position and character of the borrower. He will make accurate record of his guarantees, as if they were his own promissory notes. And he will take care never to allow his name to remain in de- fault. The endorsement of such a man, so long as he is commercially "good," wiU come to have a peculiar value in a banker's eyes, as being almost equivalent to a certificate that the borrower is both able and will- ing to pay his debts. This class of man, however, is rapidly disap- pearing. 1 *i. t There is another class of endorsements to be considered; namely, that of more persons than one on the same note. A loan will sometimes be proposed to a banker, generally in connection with some public enter- prise, in which the notes are to be endorsed by four or five individuals. This class of endorsements, however, often proves very unsatisfactory, for although each of the endorsers is responsible for the whole amount of the note, it rarely happens that any one of them is willing to pay the whole amount. He will come to a banker and offer to pay his share and request a discharge, which, of course, the banker will not grant. Con- sultations then follow between the parties as to how the obligation is to h- met, in which one will offer to do this, and another that, hut seldom coming to an agreement satisfactory to the banker. Not infrequently SECURITY AND SECURITIES IS GENERAL. 199 Jhcy quarrel among themsdvcj, each one of them declaring that he will fight to the last in resisting payment. The banker then finds himself involved in half a doien lawsuits, and it will go hard if some clever law- yer, employed by one of the parlies, does not find a loophole for evasion, or delay, owing to some peculiarities in the case, possibly suggested by false swearing or confused testimony. We know how a clever counsel can confuse a witness so much as to get him to admit almost anvthing, and a banker in the witness-box is just as liable as other people' to be wheedled or bullied into admissions of a damaging nature, such as may be almost fatal to his case. There is another consideration with regard to these multiple endorse- ments ; namely, that by law each endorser on a bill has recourse upon the preceding one, this being founded upon the practice of passing notes from one man of business to another for a valuable consideration, as used to be common in the business world. In this case it is perfectly equitable for the last endorser to call upon the preceding one to pay him, and so on, until the maker or acceptor is reached. This law prevails even in such cases as have been referred to, although the circumstances are en- tirely dilTerent. There is no method under our law of bills of exchange by which a number of men can endorse a note, one after another, so as to be jointly and severally liable, and avoid recourse upon previous names. It is therefore belter that the persons proposing to become security should become joint and several promaon, or joint and several guaran- tors on a separate instrument. DimniNcis Betwiin Endorsimint akd Guarahtie. This leads to the question of the difference between an endorsement and a document of guarantee: respecting which it is well to note some points for consideration. The first point is that endorsements require to be on each separate note, and thai when there are seieral endorsers for the same debtor on separate notes, and difficulties arise in the circumstances of the maker, each endorser can claim the right out of any security realized to have his notes paid in the order in which they become due. This operates, in some cases, very much to the creditor's disadvantage. Moreover, if the time for a loan is long, as it requires to be in some lines of business, notes require to be renewed, failing which, Ihcy lie under protest in the banker's hands. Now, the endorser may not be at hand; he may be, in these times of travel, at a considerable distance; or he may, in some cases, refuse to endorse a renewal, and insist on the banker forcing pay- ment. If the banker refuses, as being contrary to agreement, the en- dorser may pay the note himself, and sue the maker, to the great damage of his credit, and with a danger of bringing about a stoppage of his busi- ness. A guarantee, however, obviates all these difficulties. But such > . i: ! eoo BANKING AND COMMERCE. docnnnent requires to be dra\. n with exceeding care — so as to avoid brinp ing the banker himself under obligations upon which a defense might be bung in case of suit. There is scarcely any instrument capable of giving rise to so many conflicting points as a loosely drawn guarantee. For this reason the banker will bring to his aid the best legal talent available to prepare a proper form of instrument applicable to general uses. Thi« guarantee should provide for renewals, changes of security, additional advances, partial payments and other contin^ncies, and in most cases should hind the guarantor to pay a specific sum whenever called upon. But a gua.'antee mhf be taken for a running account, and made to cover the balance due on such an account, whenever it may be struck. In some cases, indeed, where an account is a complicated one, and consists partly of trade bills and partly of securities of various classes, a guaran- tee may be taken for the final balance remaining after other securities are cxliausted. This word exhausted, however, in a legal document, re- quires to be very carefully defined. But one thing a banker needs to be particularly careful about, viz., not to introduce special conditions, of bis own motion, into a form of guarantee which has been prepared by bit solicitor. He will always find it prudent to let his solicitor insert the special conditions also. Of the two forms of personal security, therefore, an endorsement is the most simple and the least open to misconstruction, and affords the least opening for a vexatious defense in case of a suit. And vhen the note guaranteed is a single transaction, and not a part of a general ar- rangement for advances, it is the most advisable form of personal secu- rity that can be taken. But there is this to be said, that a guarantee is always witnened, and is generally signed in the office of the bank, or the bank's attorney; while it not infrequently happens that the maker of an endorsed note brings it Ic the hnnk for discount, and expects it to be passed without further cere- mony. But a prudent hanker «"'" inrnriabl^ require the endoraer to he preaent when he a^ftxea hit signature, especially when the amount is large. For an endorsement may be forged; or, even if the original signature is genuine, the renewal may be forged. An endorsement of a loan bill, in fact, as it is a document of guarantee, should be treated with as much care and ceremony as if it were a deed to be signed, sealed, and delivered by the partf to it. Loans Sixured by Mkrchandise. It is a fundamental ax.jm in banking that all discount loans for com- mercial firms should rest on, or be represented by, salable goods, on which no other person has a claim. Exceptions there are, as have been noted, but the exceptions are few. It is here that banking differs from mere money-lending; its loans should be founded, not simply on valuable property or even valuable goods, but on goods that are salable, that have SECURITY AND SECURITIES IN GENERAL. zoi > ™r«-rt ».!„, th.t .re dealt In brtWMn a.n .nd nun, and brtween conntry and country I„ „,he, word., .*nkiko I. th. hakdma.d or C0M1..BC. But although th«e thing, are .o, it i. not aU banking di.- counl, or loan, that eon.titule a claim on any particular good.. It can- not he ...d, for cample, that . trade bill i. reprcenled by .uch and .ucb loU of d'y good., pocerie. or hardware in the .tore of the per.on who ha. made the bill. They are not earmarked and .et aaide for th.t pur- ^"- \f "! ""• '""«''"■ ''•"l'i''« lo>n. that do ret on good, that .re •peciflcnlly de.ign..;ed .nd .et aside for the purpose. The .ecority for thi. cla>. of loan. h.. now to be con.idered. The aimplct .nd moat natural form of lending money on the .ecu- r.ty of good. i. that of the pa«n6roier. .o clled-a very mi.Ie.ding namc^for hi. re.l bu.ine.. i. to lend money on good, th.t .re left in hi. po..e.sion. It i. a mo.t .imple bu.ine.., requiring Marcely any capacity to carry it on, e«ept a fair judgment a. to what good, will ,ell for. The pawnbroker doe. not rely on any legal document, to .ecure him and he care, nothing .bout the .t.nding of hi. cu.tomer. He ha. the go^. thcmwlve., and it u hi. own lookout if he doe. not t.ke proper c.re of them. The p.wnbroker'. lo.n> .re, howcTer, not commercij. V ° "','"' JV ""'" '"" ^'''"«° "' I-i''"Pool, would deposit . thouMnd barrel, of flour with a pawnbroker .nd get .n .dv.nce on them. Such loan. ,re p.rt of the operations of commerce, .nd would be applied for to a banker. '^'^ Now, a. a pawnbroker keeps a .hop or a warehouse in which to store the good, he has lent money upon, il would naturally be supposed to ap- pertain to a banker's buaines. to have a warehou.c, wharf or yard with convenience, for the storage of various clasK. of good, owned by hi. curtomer.. Thi. would strike ,nyone as the most reasonable, natural, not to .ay .afe, mode of transacting bu.ine... "Bring me your good.," the banker might .ay, "and I will lend you money upon them." In .ome parts of the world thi. is actually the mode on which banking loan, on good, are made. The bank own. as a part of it. machinery (k> to .peak) a commodious warehouse, yard or wharf, in which it require, all good, to be depoailed on which advances are made. These are, of courae, in charge of it. own officer., and the bank attend, to Insurance at the charge of the borower; charging him also, direcUy or indirectly, with the .storaffc,"^ That this tends in a remarkable degree to the safety of such louu goes without .aying. The only danger to the banker in that case is that he may overestimate the value of the goods, or forget to take into account the chance of decline. This mode of procedure, however rational it may seem, ha. never been adopted by bankers generally. The banker, of Great BriUin, gen- I. IB^ T^l^T^J^'^ nf uvr„,.,„j. ,„„j„,„ |„ b„„„„. „„ ,^„ ,„^, «„„! T^ J "*"' ""'•I'"™™ In aiBtfrmt part, of th. E/npl™. l„ which u« ■tor«a an aoodi that are advanced iioor. 4 r.; 20! BANKING AND COMMERCE. er^llv .poking, know nothing of it:«» neither do those of the I'nlted Stmtei or Can>d>. They keep no itorehoMei or yardi In which to plue good! they h«ve loaned upon; though daubtlen m.ny of them have wUhed they had done m when they have been deceived by document, purporting to repre.ciil good.. All the loan, in their book, .tated to be on goodi re.t in fact upon nothing but fitct, of paper- or rather let u. .ay, on what i. written on piece, of paper. Ju.t a. a.i American Treaiury cei- UBcate for five thouaand dollar, repreaent. that amount of actual coin In iU vaulU, M are the.e piece, of paper pre.umed to represent .t many ton. of iron, Ug. of wool, barrel, of fiour, or bu.hel. of wheat. And, to .ay the truth, there are .uch document, which carry almoat a. much auurance with regard to good. a. the gold certificate, of the American Trea.ury do with regard to money. When the officer, of a well-known warehousing or dock company iMue a certificate that they have received a thousand barrel, of «our from John Smith or a thousand bale, of cot- ton from MacGregor & Co., and that they wiU deliver the .ame on pro- duction of the certificate duly endoraed, a banker will feel almoat a. much assurance in advancing on such a document a. if he had the good, in hi. own possesion."^ Thi. i. more e.pecially the caK if »uch document, are regiatered, a. they are in Chicago and other grain warehouaing centre, of the United Slate.. The truth 1. that the ualae of the document i» in the retfOfm- bilit) of the port, iwatag i<. Thi. i. a principle that i. often forgotten, and it la here repeated, that it may be better remembered. The value of the document !. in the re.pon.ibility of the party i..uing it. There are varlou. grade, of .uch document, a. there are variou. grade, of bill, and promiMory note., the quction alway. being, in the fir.t place, will the i..uer of .uch a receipt .ign the document unlcM he ha. the good. In M It ha., however. Mm.tln.- happmrf that to eontervatlve areal Brltalnjex- cplloiuU neaaure. are taken with reiara to property aavai.o«J upon. A l""* in the ■•Bl.cl. country ... at on. tlm. In the •'»>''' "'•'''■J'.'f""' ,i?« •tored in a certain horrow.f. own yard, or In the yard of the halt '"""•";"; It WB« produced. Thte ou.Wmer havlnl once removed thiB Iron .0 advaneoa upon, the bank adopted the plan ot l«»liit a .mall are. In .ome furnace y«d. fencing It In. pl.cln. It under lock and key. and requlrln. Iron advanced on to h. deposited there. This plan proved effectual. «7 There are, however, caeea at tlmaa which .hake a banker', confidence In ""'TheTrlter once had to do with a draft secured by a bill of ladlna for r>«d. .lr.«l by the ehlppln. officer of a railway elation on the company a "•^.U'form. But .uch good, were never delivered at the d..tln»tlon Indicated. And Inveetl. latlon brouaht out the fact that auch mod. were never received at the .Utlon The bank contended that the railway company «a. liable for the ««• »' '" "''" otncer done In the repilar cour.e ot bu.lne... Thi. wa. denied, the "nl""' c"mln, that they were only liable for good, they had « "•"' T"'"^*, "J thi. contention wa. upheld, though It really did not touch the J" "', ™" f "'" w... a wron. having been done by an employee of the company '» <" °«4"^ «>u™ ot hi. duty, who I. to .uffer for the wrong-th. company that wnployed talm. or a perfectly Innocent party? .„,„.- h, hiiia Th. dmtalon I. calculated to undermine the conBdenc. entertained In bllU ot lading a. eeourlty. SECURITY AND SECURITIES IN GENERAL. pOMCHion? And, ■rcondlr, will he tnk due cnre of them and not let them go except to the righc larty? And, if he fails to do ci»her of theie thiiigx. is he of sufficiriit - oiisniiljly to make hix engagement gooti?"' In Canada and the United Statei the isauing and advancing of theie documenti is carefully regulated by law; the object being to facilitate bank advances on the great staple productions of the country and so to assist in that great annual movement upon which all internal commerce depends. This law of warehouse receipts, let it be borne in mind, traverses the law of chattel mortgage in two respects. The ordinary law is tliat a bank cannot make a new advance on the security of chattels ; and also, if a chattel mortgage is given to secure an existing debt, it must he entered in a public registry within a certain number of days. But the warehouse receipt law enables new advances to be made on goods, and gives the lender a valid title to them against all comers, subject to certain restric- tions. It also dispenses with the necessity of registration, though it i$ often contended that it would be better in all cases if registration were required. Under this law bankers can advance on documents in the same manner that they discount bills, looking to the names of the parties and considering also the genuineness of the document itself. 6'i There is thia dltTerence, between a hanker adv^inclng on goods In his own poM«sBlon and advanclnc on a warehouse receipt, that the document may tM forged. The certificate of reglatratlon may be forged alHo. and the banker may be deluding himaelf by an Imagined security of gooda. while such goodi have no existence whatever, or may have been pledged to another party on a genuln* document. on who undertook to lake core of Ihcm, the loiter being a warehoose- kteper, or wharfinger, by occupation. Bnl in process of time, and what may be called the evolution of business, it came about that another class of receipts or certificates were proposed as security. The borrower, in small towns especially, often having a store, warehouse or yard o. his own, the question was asked, why should he not be the ..rehouseraau of his own goods, and give his own certificate of possession, borrowing upon that? These receipt, were warehouse receipt, nndoobtedly, and the fraudulent issuing of them, or making away with the goods would be equallv an offence against the law. It thus came about that banker, in places where no professional warehouse-keepers were to be found became willing to advance money on this kind of document. The law for .ome time, however, did not recognise them as convey- ing title in the same manner as the former document, did. But in time cpeeial clauses were added to the Banking .\cl legalising this class of receipts, but defining very strictly the kind of goods '" »'"f '"f certificates could be given. Strict provision was also made that the document should 1« handed to the banker at the time an advance wa. made, or that the banker should hold a written engagement from his customer to lodge such a document with him. In every other respect the provision, relating to the older elas.es of receipts were made applicable to these receipts. ... ,. _ .r It is evident, that these restrictions have in view the prevention of what might prove to be a great .bu.e, vis., thai a dealer in imported or manufactured good.- such as dry goods, groceries, etc •l)""" h«J '' in his power, while such go ds are still unpaid for, and without remov- ing them from hi. .helve., to pledge them for advances, thus making it casv to deceive or defraud hi. creditors. These creditor, under such circumstances, would find that the .toek in trade ""r''''''' ''l". !!i., for payment had been .o pledged a. to give a barfi a title to it, thu, c^lrt- tog a preference of . very inequitable kind. The Act therefore, very SKCUnJTY AND SECURITIES IN GEXERAI,. properlj limited the clan of goods that could be pledged by the owner's limple certificate to luch artlclei of merchindlie as are Invarlablj bought for caih, via., all kinds of agricultura' and natural productions. There could then he no conflict of claim betwen one class of creditors and another. These documents being thus legallseJ, gradually came to have, la the minds of Inexperienced bankers, the satue veight and consideration that attached to the certificates of a professional warehouseman. And in the consideration of the various classes of loans and discounts In their books they would describe these as "secured" and place them In the same category as advances secured by goods stored In a public ware- house or wharf. But little consideration is required to show that there is a f ndamental difference between them. The warehouse receipt, or docih warrant, properly so called, is the receipt of a person who has no interest In the goods except to take care of them, and deliver them In good order when called upon. This is his business. For this service he receives due re- muneration, and his whole reputation and standing are involved In per- forming the duty well. He Is practically, so far as the banker is con- cerned, in the position of a guarantor holding speci6c goods with which to meet his obligation. There is no Inducement to him to give a certifi- cate unless he has the goods; and every possible Inducement to refuse to give them up except to the banker who holds his pledge. These safeguards, however, are wholly wanting when a man bor- rows money on his own pledge. There is nothing, except a borrower's honor, to prevent his uniting out a certificate before he has the goods in possession, or for a larger quantity than he actually has in store, or for goods of a higher brand than he has in stock. Even If a banker takes the precaution to have the goods examined, it is next to impossible for him to arrive at an accurate statement, either as to quantity or value. Then, as to the other point of safe custody and delivery, it is impossible to prevent the owner, when {n possession, from taking the goods into the stock which is being manufactured, and selling and de- livering the goods produced. Nay, it is not uncommon for a banker to give nis consent to this, either In general terms or specifically, either verbally or In writing, so that an underttanding is established, or sup- posed by the borrower to be established, such as can be pleaded in court against a charge of wrong-doing. From all which it is evident that the pledges of the owner of goods are not to be looked on in the light of an actual security. It does not make secure in the manner that intenention of a third party does. It amounts, in reality, only to an additional promise on the borrower's part Having already written a promise to repay a certain sum of money on a certain day, he adds to it a promise to deliver certain goods on a certain day. It is only a promise added to a promise, both by the same person, and not an en- gagement by another person. m M« BANKING AND COMMERCE. Th.™ U however, thii to be Mid, tli«t while the pledge of • prom- ^T«i'n nr^kln, ..« .h.. .he good. P''"*"' '" f"^ iJU the, .«■ rep,e«ntod to be, It I. . ..rong .ecnrl.y when tte g«J. rTTch-lly then., .nd the borrower become. .m.ble to p.y ^ ^^ ¥JrT c«not be .el.cd In ludgmenl, .nd they do not p... «• ." ""«~J to «.e of in.olvencv. The law hold, them .trieOy or the ^•^'■'^ S. debt «cured by then. 1. p.ld. But he mu.t be .We to P""' '" »" rf d. put"*'* 'he "'»* •"«•«• "f:"'""''. '■':i"i5:fc«. :««i . nroner w.rehouM receipt nor » borrower, own pledge «"'•"«» «3» tl. debt d„e to . b.nker. A .peelflc .»n. of ">°"'y *•' "» r» Identified n„..t be lent on cerUln .peclfie good. th.t ..n b. Identl- ted: othrrwi.c the .«nrlty will not hold. ^h.rMter There 1., however, thi. ..fegn.rd: th.t . pMp at '"• ''•"^"; ,f no bon. fide, 1. ...bjeet to the ..n,e erimln.l .«"■•"" '^^ f'* ^ . doeun>ent i««ed by . third p.rty. If . m.n 8»" "'»»''" •P''*^ on good. th.t do no. c,i... or .re no. wh.t "' "P™"^,^^™ ^„g ^ he «po»e. hinl.elf to . erimin.l pro.ecutlon. And '^j'*" P' "« ' o!ed« on good. th.t .o.u.lly «l.t, he remove, the good. w»">out «^e blnkfr-. eoC or wi.hou. .cooonting for .hem he 1. «l>»»y P"^*^, S^h 1. the l.w: .nd, to . cerum extent, it 1. effic«lo.i.. But when . frVL in e.p"rt.He good, beeome. pre«ed, M he «meUme. m.y ta 'Xown to M. b-nkerVbe tomp....on i. very gre.t ,o ,.U. m^ey b, -z7;^^;:Jyisc:sr^"3?^''^^^ Z tb»t he m.y be •"-» f -,.f ^.^ ^^^^^ rXl^n'oTZ pie. 1. enterrf th.t there WM «. .«»er.<..A.g ("»' *"«™" ^"^ r.irbo^^:.nir^-^^^/p^^ „..r.in them from i..«ing f.Le pledge., or '™°;"|Xpre..rf f^ "ecnrHv h». been properly token, .he pledge w.11 hold .he good, for '^±:l^r^fe^ptrr::.lrn■:f . debt ..oln^ly scored hy rp.-i«.m of 1ii> linWinc the borrower, pl.-dne. SECURITY AND SECURITIES IN GENERAL. 8or Bailki RtcEirrf. In the cair of nil good* and mrrchandiie plrdgrd to ■ banker, the tfane romrfl vhrn Ihey mnit be rrmnvrd; and, In nM>drrn buiincM, the reiDOTal will be rllher to a ihip nr to a railroad. Now, daring the prorcsi of niiioval it Ik iiii)H)ii«ih1i> thnt th<- arnirity hit'ort- incnIioiK <| will hold the ftnodi. They muit be released from the warehouieman'f enstodjr, and until they arr loaded on board ihlp ur placed In custody of a raJway company, a hiatus nrcfsiarlly nrtirs in which there li no lecurlty to the banker at all, except whnt it ftcncrnlly known ai a "bailee receipt." Thi« li a document lomewhat limilar to the pledge which hai he^n discuHSid, and ii given by the ownrr of the goodi during thf time they are in transit. In this document the ownrr nrknowlrdges to have rictivrd certain sprrlfird goods for shipment by rnil nr steamer, as may be; constituting himself n bailee for the same, nnd rngagtng to deliver them ns directed. A breach of this engagement is a criminal offence Upon the lodgment of such a bailment with the banker, the custom is to surrender the warehouse receipt, to be exchanged, after ren- sonable delay, for a steamship bill of lading — or a railway receipt. When a banker gets either of these, his anxiety is generally at an end, always supposing that the goods are worth what he has advanced and that the document it genuine. Bills of Ladino and Railway Rcciirrs. When the process previously described has issued in the shipment of goods by steamer, the captain or agent slgin that important docu- ment called a Bill of Lading, making the ship and its owners respon- sible for safe carriage, and delivery of the goods. This document insures that the goods are on their way to a definite destination. The owner of the goods, who has had them in I^'s own charge, for a time, now draws upon a purchaser or consignee and attaches the bill of lading to the draft together with a document of insura'ce; the law giving the banker the same position now with regard to the goods that he pre- viously had as the holder of a warehouse receipt. The goods on that ship are his, until the draft is paid, and tht security to the banker on the transaction is as complete as a mortgage on real estate is to a BtncK, let ua aay. of iron In tlie yard, or wool In the warehous©, such as may be. at any time, found there. But thia kind of pledge will not sUnd tlia tsst of a lawsuit or an aBUlgrnment. unleas It can be Bhown that the atoek has not been changed since the pledge was given. The law doea. however, provld* tbst when wheat la changed Into flour, logs Into lumber, hides Into leather, or drasaid hogs Into pork, the pledge shall attach to the manufactured article. If the saaae can be Identined, which Is aometlmea a difficult bualneaa- But b^nken ha»* learned to take care. In lending money upon pledges of this kind, that the bor- rower shall have no other creditors. There Is. too. a method of lendlnc upon ra»- naterlHl. which l« prevalent In the lumber trade, namely, that the toe* ai- oranded with a cerUln mark, by which they are Idintlfled aa tha KooOs that ha .'6 been advanced upon. (M BANKING AND COMMERCE. muT-lerdcr. Tht one point > bonlur iw hu lo think •>»<* ^ wbothcr th. rxxi- •« "■>'*'' *•" •"">""' ■*'*'" •**'"*' 'r":.n contldnstion, bowofr, li d"lt with In th. ch.p«CT on trwlo bllU, of bill! dr.wn In tttrllnij monejr. H>Tln( thui conildfrrd thf v.rlou. polnti •rUinf oat of Mcortty bT endonmifnt or guownlM, and .Im by fMOtlly of (oodi, cither in «(■ or (r.wi(.. It ii In order to conilder other fonni »t Mcurlty met with In bonklnd. , u j Of IheM reme .re met with In the Mllve proiecutlon of builnMi, while wme eome to > h.nher when .ddlllon.1 leeurlljr li demanded. The Uit will be treated of «r«l. .... , In ordinary loani the euitomer olTera aemritiP at the Inception. In real eiUte It la the banker tliat Jimanili It. Sit'imi'Tiii RiiTiNo OK H«At Err»Ta. The bankln. law of Canada dlffcri from that of Great BrlUln, In that It prohibit! loana on real eatat. lecurUjr. A banking trjmiaetion cannot be inUicUd bj a mortgage on real property. Former dUaatroui operlence led to tbU prohibition, and more recent e.periencei ta Aoa- tralla, of a much more dUtreaiing character, bate ahown the wiidonl of adhering to II. One. at leaal, of the greater banki of Canada after a long career of nuefolneia to the Infant community, waa «nally forced t. .uccumb owing to the fact of lla reK,urce. having be... e. u -^'"J^ •peak, by real dale tranaactlont. In the day. when tbla bank wu dVtag it. mort «rtlTC buatae.., the loan and mortgage companle., now io common, were almoat unknown. Only one company, an Englah on6-"The Tnat uid I«n Company of Can«I."-cxiiled. It wa. im- ponible, however, for thi. one company to meet the need, of the »jul rtretch of cou»try-thcn known a. Upper Canada-and now called OnUrio. It came naturally about, therefore, that M loan, were «- mured for clearing land, improWng p- -,erty, and building .tore.. mllU Li factorie., rcconrK wa. had to the bank, of the time; and to thi. one bwik In parUcular. The true principle, of .ound Unking were UtUe under.tood in thc.e early day.. If a man wa. p«..jc«.c.1 of a piece of land, large or .mall, encumbered or unencumberec, he w.. con- .idered to be an eligible cuatomer. Many of the loan. n»dc were paid off in the courK of event., but large number, were not, and remamed on the b«A'. book, year after year. It Ihn. came about Aat the ma« of undigMtcd and Indlgertible «curiUe. in the .hape of pronii.«.ry note, of red ctate owner., many of whom were domiciled in tl.c b^ wood, of thoae day., went on con.lantly incrcaalng, until fte b«k could carry them no longer, and fell buried, » to .peak, under .heir ruin.." ~^Il .«»• hard to r«ll«. and mm' f a.«.ed Incrrflbl. to on. "»' ''"l^ U, !uh th. »r.y hlotory ,. th. countrv. •;-■ •■"• '".'''"h.nh. wir««S Willi a rMUent of Toronto who r«n.mb.red th« llm. whon th. wcai. .ir..™ SECURITY ANO SECURITIES IX GENERAL. tirj Yrl, Hcurltlfi on real nUte h«ve their use to ■ banker whu knowi bow to uae them, and hare Mved tOMnj an account from degrnerating Into a bad debt. For although real property it a bad foondatlon for a bankiBf loan, when it i* the onljr fonndaUon, It la a itrong I'lpport to a merer tile account whoae main lecnrttj ia of a commercial character. It cnab.. a banker to nurte a cnatomer through bad timet with eon- fldenca when othcrwiae he would be obliged to allow him to iuocnmb. Thli la ao well understood in England that a lien upon a coatomer's property la conaidered one of a banker'a atrongeat aafegnarda, and aa the law allowa a lien to be created by the simple deposit of title deeda with a memorandum describing the purpose, such a bold npon % custom- er's real property is very common. In Canada, however, no such castoa eilsts. A bankrr's lien cannot be established without a regular mort- gage, duly registered, and this n'ust be after the inception of a loan, not at the time. The temi Real Estate, though definite enough in law, is so Indefinite in fact that some bankers hare almost prohibited the use of It in corre- spondence with their branches. >Vhen the manager of a country branch, for example, writing of a somewhat doubtful account, Informa the board that it is secured by "real estate," he will certainly be asked for t- "^ definite Information; and very properly, for real estate is of so ran. a character that unlraa specific information is given, the word conreya no practical meaning, so far as actual security is concerned. It id dcsirnble then to cunsidrr real estate from a banking point of view, and to point out what propcrtj is desirable and raluable in that connection, and what is undesirable or worthless. Real property in Canada may be clused under the following heads: (1) Farms. (2) I.and capable of being made into farms. (S) Stores or dwellings in towns, cities or villages. (4) Vacant lots in towns, cities or villages. Factories, saw mills, tanneries, etc. Timbered lands, when owned as a freehold and used for lum- (3) (6) bering. (7) Mines. Any one or more of these descriptions of real property may be offered to a banker as security for an existing debt, and it is certainly the business of a well-informed banker to make himself sufficiently ac- quainted with them all to be able to judge what value to attach to the of country between that city and Lake Hnrnn was almost unbroken forest. ' '.y thrM settler* had penetrated Into its vast BoIItuden, Ajhtlnj their way throufll bu»h snd awamp and slowly making clearings. In a region entirely destitute of roada. br!d«p» or dwelllnea :— then given up to bears, wolves, and Indians, but now full of iiroaperous towns and dttes, Tt W3g anma tlmo aflrr this that thn Rank of TTpper Canada was e5tab»shed: but Its early days were passed when forests covered most of Ontario and tht town* and cities of ths present day were mere hamlets. 14 tin ' :i I „„ BANKING AND COMMERCE. totelligenl n,.n.ger of a »"'"'^ ,''" "^^o™ property, In hi. di- with the condition, and -'"1 »' /'™J™ ." LL. be nddin^ to -^-;:rt^"edrr^;^^^ would Uke »ny .eeurity *= -" *^,^, / ;,^,;r,„ „Lin a»urance that none) not .erntini«n^ .t very ""'"" v"7„, „., ,„.,e i. .omelime. the taking of it involve, no '"P°"»^'"''7-^yf^J' ' ^ p„,iUon, it being offered by a debtor who .. m a '"'^^"'''"2Mrlir.>«=i, «!•»' '1"= perfectly -■'-'oo*' ;>;7f^, l^.i^w 1 Te iL. eLeting and n,ore L-Cnt irMit^Tenfof'tU reeonlt. And thi, he n.ay be in v.nou. "'^'hen .eeurity i. taken under '>■"=';-— "^'Ka'ttaLlhl naturally, to ..gin f^r:Z':L:::tZutZ:Lr, whether th. property i. »> .county; whrre »'"»'™' , „( encumbruice. eeurity until it i. cleared, otherw..e he may^find h.™^^^^ ^^ to a troublcome law.u.t But »"''JJ°f ^ ,,^ ^Ue cleared. Thi. will do well to insi.t on ''J ^';;=Xker ^m -' have to con.ider the prelin>inary >«'"« "»"«''',V''" ^^ " ." » encumbrance at all, the ca.. quction of encumbrance. ' '"■"«'' "" ,^^ ny will accrue to will be sinmle. Whatever value there 1. in tne prop , , , . j^.. will be sm pic. n„t if there is an encumbrance, a banker . Jung the banker', benefit. But .f there « .^ ^^_^,.__^ ^^^ ^ ment and experience require ° h^'"";" ^" , ^ .^er of bu.ine.., on en- No Muc man would ever '"'' """f^' " ■ j ^rfl to lend at all, he cumbered property: or, at ""^/.t' -'J^l^fge »"* " ""^ *" "'" would lend enough to pay off the fi«t ^tgage^ ^^ ^^ ^^ worth a banker, while to g. •"""'J. Vrte »mo.-< of th. encim- cumbered property. Everything depend, onjhe '^^^ ^^^ „,„„,,, „ brance. If that amount ■' " ' ^™baWlity T. that a .econd mortgage „.e..ed value of the P-Perty, the P«'»^^,„„,, .„„™u to half would yield him ."methmg BirtJ th nc ^^ ^ .^ ^^^^_,^_,_ the value of the property, the «»'^> °' „ . „, .fc, i„tere.t atical. The valuation may be to. '''«*'• "J^f^a^wA a, an addition .f the first '^^^^^^''-^J':Z^^:^^Z^.^..r.,.^^^^'- SliUo^edT'e!— y interest in a valuable property. ..k- ing the .econd mortgage worth nothing. SECURITY AND SECURITIKS IX GENERAL. '2l\ There are tiier cjiisidrral^'H's also. Before anything can be re- covered from . second moriftai^i » banker will 6nd it ncccsiarjr to pay off thc.tirst. I'i- t;;i.s mJiIs •nn^-- ■ lo nn alrfady fxistinji il»-l>t. Yrt. wlicn property conies tu hv sold, the .'act that a bank holds it has a depreciat- ing tendency, as all expernjr. e proves. A banker, therefore, may have the mortification of finding that a property, when he has t?ie whole benefit of it, will not yield him as much as he paid for the first mort- gage; making it apparent that lie would have been in a better position if he had never tr.ken n second security at all. A banker, too, has to consider also that while he must disburse cask in paying ofT a first mort- gage, it is almost an iinpossihiit} to sell without accepting a mortgage for a large part of the purchase money. He thus finds tliat to the original debt, which was more or less of a lock-up, he has added another, which being in the shape of a mortgage, is practically, a lock-up also. The question of encumbrances deserves especial care when the prop- erty is connected with a manufacturing business. If the business is un- successful, the propert}' will depreciate by an amount that would seem incredible to any but one who has had e:^periencc. It has sometimes happened to a banker to have the mortification of finding that, when he has paid off an encumbrance of only one-quarter of the estimated value of manufacturing property, the sale has not realized even half of this paltry sum. The best form of rjal estate security, generally speaking, is that on shops and offices in one of the main streets of a commercial city. The very worst, as a rule, is a mill, a factory, or a tannery. A banker will find it prudent, as a rule, though he may take such a security, never so to rely upon it as to be more indulgent either as to time, rate, or amount than he would be had he no such security at all. And this more par- ticularly if the property is encumbered, no matter how small the en- cumbrance may seem. The securities that bankers may take in the active prosecution of their business are so fully opened up in the chapters on Loans that it is needless to refer lo them again. The only additional remark needed is to state that a merchant, sometimes, instead of discounting a certain amount of trade bills will obtain an advance, pledging the bills as secur- ity. This may he a more economical process in case he only requires the loan for a shorter time than the bills, on an average, hare to run. CHAPTER XXril- BANKINO AMD OOMMBBOIAL LOSSES. VAB.OU, SOBRC. ov Lo..-Pa,t.cu..a» In.tanc. C,t.»-C.tv 0, Glaboow Bank CoitApii. THESE ,re coupled together in thi. tre.tUe for the re«on Uul there i. generally . very elo.e conHecUon between them. A bank cannot lo.c money by a commercial '" -"""^ ^^ curtomer, except in the ca«. of deliberate fraud l"" l""'" ^^^l^^^l Td is unable To pay hi, debt,. It i. al,o not .eldom «.e »jj*f " ™^ chant fails by reason of the lo,K, he, .n hi, turn, .ustam, by *u "Tmay indeed, .specially in .ome '>-t\°^lt;n''"Thtr. of a heavy fall in the price of some commodity he deal. in. IBU ■• • contin^neVtllat every'wi.e merchant will take special mean. .. pr- '"■ xlfn "here are the losses that a merchant may suffer by .peculation T tre are not legitimate lo.,e,. They ought not to «=cur ^ all But thev d^oceur in Sufficient number, to make it neccary for a banker '•t^tXkinVanT'commercial lo„e. are much inSueneed by .b. c Jl or.h'e1rade of the di.rict in "--'^J J-'^pU^uUr" dUt^^ ,!,„ by times of prosperity or depression, either in a particul " '«t, ttrptr W..11 known that failure, are much more common U, new «untrie, than in old; and in the newer part,, let u, say, of United State, and Canada than '" *'"""■ ,, .^„g.. „,en Thev are also more common, other thing, neing enu. , than": mLtnirfhe latter in .•"-f/^rV"- P"*- ""S "i he incur, *'f " 't'doThi.'™::«'hr mpoS^:™ to'him of care in banker is rarely able to do ">■,, b"-" '"« „„tini.ing business biU. ». having loan, adequately »«'="''^ ' •'"° °/ '""^tg taken under that „ to guard against mere »'="""'^'«°"J2; oughf in the reason of ^Ue. With ™ch P--«-;'„t:l.r;t irhtc:,.omer. faU, the thing,, to lake, it should be the rule, inai <: .ecrity should be capable of ^^'f Xc^atronT r?.-^^^^^^^^^ « i. other. BANKING AND COMMERCIAL LOSSES. Particular Instancrh ov Losses. The most t-fffctive way of doing this, and it will add point to all observations on the subject, will be to cite particular inttancet of loties. Most of these have come under the author's own observation, and have made an indelible impression on his memory. The rest were well known at the time to the commercial and banking world. Names, dates, and places will, of course, not always be given, for it would not be proper to do it; but the cases cited may be relied upon as narratives of actual events; every one of them conveying some practical lesson for future guidance. More than fifty years ago no goods in a certain line of English man- ufacture were of higher finish or more beautiful design than those made in the great tslnblishment of B. & Co., in Yorkshire. The firm had a warehouse in London,, and a large part of the goods they produced were sent there, and sold to wealthy residents of the capital, or distributed throughout the Kingdom from that centre. The leading noblemen of Eng- land were their customers; and on one occasion they manufactured a magnificent set of goods for the King. The members of thf ^rm Wvcd in expensive style, and took the lead in the fashionable society of the neighborhood. But to the bankers of the district, they came, in course of time, to be known as continually short of money. They were, however, the kind of people sometimes called "clever financiers," and having »< vcral banking towns within easy distance, they managed for a considerable time to get cash for checks, by drawing ■ometimet on one bank and somet'mes on another, varying the operation by drafts upon their house in London; that house rtpeating the opera- tion conversely. But as time went on these I.ondon drafts occasionally went to pro- test. Bankers in the neighborhood got mort and more shy, and at length refused to cash their checks or bills at all. Finally, the firm came to a stop, and went into bankruptcy. When the accounts in bankruptcy were presented, the •creditors were astonished to find that a large landowner in the neighborhood, to whom their works belonged, was a creditor for a sum representing the accumu- lated rental of some twenty years, or about £20,000 and interest ! Thli rent, his steward (with his own good-natured concurrence) had allowed to run on year after year without pressing for payment, largely out of consideration for the workmen employed in the establishment. The estate paid practically nothing. The works were never re- opened. Thu family disappeared from the district. Many local credi- tors sufl'ered losses they could ill aff'ord, but the bankers spoken of had been wise enough to act npon indications of weakness; and, having taken measures in timr, lost practically nothing. The cause of this collapse might be largely traced to the good nmtare m „,1 BANKING AND COMMERCE. of the lan.llord; for il cnronrngcd Ih. firm in ™ recHe>. .tyle of doing ''""or»rti8lic l».to» thrn«rlve., »nd fond of new de.igns, Ihey wtre conlinuallv brinpng out rare .nd cpen.ive ,tyl« of good.; concerned oT-i,h- keeping up .h.ir rcpn.a.io, , carelc. whether they ---''- i„g profit, or not. They «erc in rc«Uty living upon th"""""°'/ ^ in« alt the vear. ot <1.e bu«ne«: and he, of coarse, wa, the ch.ef .uf- fcfcr bv the failure. If he had done hi. duty to himself and h,> estate, thev w,;uld have been compelled to manage their busines, so -s no on y to m-.ke b.autiful goods, but to make profits (or retire); and m.ght have beele a wealthy 'and prosperous concern, - . — ^"' . "' f "^J^,"; facturers in that district had done and are do.ng at th.s day. But the gcod nature of th.ir landlord was their ruin. And .t has to be added Lt too ,a,y a supply of money has paved the way to ru.n ol many ° Xn: "ftc- these events the -mereial community^ of Live.^ ■ pool ,.as Startled to 'earn that one of the leading banks of the c.ty w« fn difficulties, and had been compelled to apply to the Bank of En^and for assistance. They were still more surprised to earn the "-"f *« embarrassment, which proved to be wholly owing to .aorrf-»."'»*• ""^ " 7°' ,td^„" tte communicate with him. The second officer and fte -J'-t"" J''',^,.";' * nerve and did not care to take ti„ responsibility, of compelhng the goods advanced on to be sold, but wen', on makin, "dvaiios, hoping for fturn of the tide which would save t.ie house from ruin, and the bank from loss. 4?r,nr.nn rl fi'-it. went on Thus the advances, which were unV iome£o 0.000 r,t ^-'^' that w:.s steadily going down in value ^^ TI.e situation was Vk ni'Tung terrilil.x si nous, i <■ ^ i HAXKIXG AND COMMERCIAL LOSSES. ing loss on other customcra. Under the circumstances the Acting Man- ager and tlir Dirt-i'tdrs Inriinic utterly dcniornlized. So all drifted on together^ the advances of the bank mounting up week after wtek until they reached the enormous sum of £730,000. Then the crisis came. The resources of the bank were exhausted. The Bank of England, which had sometimes made advances to the bank (as is often the case in Englan-l) in the ordinary course of business, was mad'-- t.^quainted with the condition of affairs, but refused to in- tervene. Tlie bank perforce stopped payment. An enormous loss re- •altcd in the realiz -tion of the warehoused goods. The mercantile firm went into bankruptcy; but scarcely anyone was interested in the firm except the bank, which, b> its culpable weakness and mismanagement, had absorbed the whole affairs of the firm into its own hands. The house disappeared from the seaport. And though the bank resumed business in a reduced form, it never recovered its credit and prestige and was finally wound up, its business being passed over to another institution. The bank was the Royal Bank of Liverpool, and the time 1847- These disastrous consequinces all ensued, first, from the folly of « mercantile house accepting too heavily against merchandise, and allow- ing it to accumulate instead of bringing it to sale; then, and onward con- currently in the bank's making advances to an unreasonable amount against the same merchana.de, and failing in the courage required to face the situation and vompel sales; until finally all control was lost, and the bank and mercantile firm together drifted into a position from which there was no recovery. The whole story is fiaught with striking lessons to both merchants and bankers. There was noi, however, a suspicion of wron^r-doing or fraud by either party. All that could be alleged was a terrible deficiency of good judgment and nerve. City of Gr.Ascow Bwk Cot-lai'se. This, however, could not be said of the frightful collapse of certain mercantile firms and the City of Glasgow Bank which occurred some years affetrwarJ. That collapse .. ai a case of mercantile ambition grad- ually developing operations spread over nearly all the markets of the world, partly legitimate, but in the end grossly illegitimate; also of banking ambition, aiming to carry larger accounts than any bank in the country; both finally ending in the most astounding financial frauds and disasters of the nineteenth century. Of these operations at first there was nothing worse to be said than that they were far too extended for the capital of the firms interested, and far too extended for the bank itself to encourage by advances. After the operations of the firms be- came manifestly unprof.table, the bank might have brought the whole to a close with a loss of £50,000 or £100,000 at most. But this the directors i ''usrd to face, and went on making advances, hoping for tl« BANKING AND COMMERCE. s turn in the tide which never came. Beiideg thia, the accounts of the finni (there were four in all) were highly profitable, owing to the mul- tiplicity of exchange operation! connected with them, and the immenie amount of interest they carried. So the advances went on increasing, until they amounted to sums far beyond what had ever been heard of in Scotch banking. Hod tlicir opcrnlious. ivin tlitn, been all bnsrd i n merchandise, they might pof silly have been wound up with no worse result than the bankruptcy of the firms, and the loss of part of the capital of the bank. There were four firms interested In these operations, differing only in nanit . for they were so interlact-d as to be practically one concern. And the time came at length when they launched into great operations in real estate, and bought not merchandise only, but the land, buildings, and plant by which the merchandise was produced, and this in many eountriet, and to fabulous amounts. By this time their operations had taken the shape known in com- mercial circles as "plunging;" that is, buying heavily and selling as heavily, entirely regardless of the condition and prospects of any mar- ket in any part of the world. The natural consequences ensued in the shape of losses to enormoua amounts. The hank, however, as in the former case, was under weak management, and became so hopelessly entangled in the operations of the firms that they had to "sink or swim" with their customers. Then when the purchases of property by the firms necessitated ad- vance! of an unpncedented amount, which were inevitably of the nature of a "lock-up," the bank fell into a terrible snare proposed by the aatute senior partner of one of the firms, and became parties to the manufacture and ntgotiation ol what were practically fraudulent bills. Facilu detcmuM Avemi. The downward road is only loo easy. Once embarked in such lines of operation it became impossible to draw back, and the authorities of the bank drifted helplessly on. Yet they were well aware that the bank was "on the road to ruin," unless indeed by some almost miraculous turn of affairs, and that in various parts of the world, these properties could be sold for suflicitnt to retire the debts of their customers and enable the fraudulent bills to be withdrawn. But the fortunate turn of affairs never came. The ma!*s of bills that had been set afloat bearing the bank's name were constantly falling dne in London. To enable them to be met, other bills were drawn purporting to be for difl'erent transactions of an origi- nal character, but which were nothing more than fraudulent renewals. The firms, as is the manner of men who have embarked on such desperate enterprises, cntcrtd npon other engagemenU, purchased other properties up and down the world, (for the irhole world was the theatre of their operations), made contracts for other masses of merchandise, all of which necessitated the Seating of other masses of bills, the bank being of necessity a party to the whole wretched business. BANKING AND COMMERCIAI, LOSSES. «17 The volume of bill) therefore went on eonrtantW increaling; nnd u these nil (iniill.v had their domicile in London, the banker! aud bill broken of the eity, in aplte of skillful device, kept in oneration to deceive Ih-m, b gnu to be »uipiclon«, and to confer with each other "There are too many of theie Titv of Glasgow Bank bills floating about," they said; nnd the general feeling was that the lolume should be curtailed. But none of the parties dreamed of the appalling sum to which the total amounted. The Bank of England, the great joint stock banks, nnd the discount houses then began to "diicrimmale ngninst" the bills, as the current London phraac is. The signs of constant renewals b.cnme more and more evident, and they refused to increase the "lines" they held. But the plungers were men of resource; and by this lime lind Income utterly unscrupulous, both in what they said and what they did. False statements were made in confidential interviews. Many of the opera- tions were transfirred to other linnncinl centres. More nnd more in- geniously contrived hntches of bills were set nHoat, the nnme or guaran- tee of the bnnk being attached to all of them. And as it was known that the bank was on the principle of "unlimited liability" with a circle of stockholders whose wealth in the aggregate was immense, the money markets of the world absorbed them. By such means the inevitable crisit was deferred month after month. All this while the ordinary business of the bank at its numerous branches went on as usual, and was eon- ducted with the usual pndence of Scotch banking. At length, however, the long-dreaded day arrived, nnd it came about thus. Some little time before the collapse, the older banks of Scotland liad been approached with a view to obtaining "temporary assistance," as is customary in such cases. These banks, however, had for some time entertained a suspicion that something wrong waa transpiring, thougb none of them had the remotest idea of its real character, and still lest of its enormous extent. When, then, assistance was asked, they naturally (and as is custom- ary) stipulated that an examination of the condition of the bank should be made. Before the examination had proceeded far, sufficient was revealed to eauie the older banka to refuse assistance. This was the .nd. The Glasgow Bank stopped payment immediately. So did the circle of dependent firms. And very shortly Scotland was convulsed by the astounding revelations that were maje of fraud and falsehood on t scale never before drenmed of. Week by week enormous masses of maturing bills were protested ; and as the full extent of the affair begu to be revealed, London itself stood aghast at the masses of fraud that its banks and bill-discoimters had been supporting. For a time almost everything emanating from Scotland was clouded with suspicion. Strong and solvent firms, and banks that had not the remotest con- ■ : :- * .-1' 1 i P ii „g BANKING AND COMMERCE. neclion with the firms thai h«d carried on theie ipeculatlon., were «* pectrd. It appeared likely, indeed, that a general banking panic and con..quent "nin" upon all the hank. »o>.ld .pread over Scotland. But the rest of the hnnka m>t the ailnntion with a high degree of „i.dom and courage. They determined to act in concert and announced that thev would pav the note, of the d.funct bank. Thi. .topped the incipient panic. And a. it came to be realised what an enonnou. finan- cial .trcngth rculted from the whole body of .tockholder. being l.ab e to the whole extint of their uu-us, the public excitcmeul uradunllv siiliHiclt'd. , But the alarm of the unfortunate .tockholder. went on increa.ing, and when the report of the committee of inve.ligation wa. received, an- nouncing that the whole of the capital and the reaerve f und wa. lo.t, and that the .hareholder. would have to pay in addition the unheard of .urn of £5,900,000 .terling to the creditor, of the bank, an unparalleled Knaation wa. CR-aled, not in Scotland only, h«t throughout the banking ""xhe -eport of the committee of inveatigation having made it clear that there hod boon gro.. fraud and miareprcentation on the part of the directors, and certain officials of the bank, tl>c Directors, .Manager, and .ecretary were apprehended and brought to trial. The aecreta.-y, however, wa. accepted as a witnes., a. his plea of aetmg under con- rtiaint, and bv order of hi. .uperior officer., wa. allowed. The trial laated eleven day., and it. revelation, were another lllu. tration of the ..ying that "Truth i. atranger than fie n." No romancer or noveli.t in the wildcat of hi. imagination. ^"W "" kr; """"'le ,uch a .erie. of event, a. that trial brought forth. They filW he whole banking and commercial world with cMitemenl, and oauaed the eipe- rienced men of the London money market almoat to hold up their hand, in horror at the operation, to which they had unwittingly been P'rtiea. The merewitile failure, were on a Kale of almost unprecedented magnitude for that time; the liabilities of Ja,. Morton & Co. being £sToO,000, of Smith, Fleming & Co., £1,600,000, of Matthew Bu- fhaZ «. Co., £1.810.000, of Jame. Wright & Co., £750.000, beaid-^ other, of .mJler amounts. The total liabilitie. of the circle amoun ed to nearly £6,500,0001 The a..eta were a mere nothmg, and almort the whole loss fell upon the bank and it. unfortunate stockholder.. For them, indeed, the c.U.trophe brought about mi.fortune. ftat till then were unparalleled. Suicide, and madnes. en.ued Number, of re.pectable familie. were reduced to poverty, and to .uch an extent did thi. prevail that a public .ub«ription, which re.ulted in a very large amount of money being raiaed, wa. «t on foot for their relief. Thu. It came about that number, of pemona throughout Scotland, who would but a .hort time before have abhorred the idea of receiving aid from without, fomid themKlvo. compelled by the prcMure of poverty to .ccepl the benevolence of the public. BANKING AND COMMERCIAL LOSSES. 219 One very extraordinary contingency happened in connection with the liquldntion, which up to that time could not have bien conceived poMlble. The <^jledoniHn Bank, a well-managed institution with head- quarters in Inverness, had taken as security from one of its debtor* four Mkaret >f ^10,' each in tht- City of Glasgow Bank, The shares at the time wen' wril quoted, and considered good property. The name of the Caledonian Bank was therefore on the Glasgow Bank's register at the time of failure, and thus this bank was liable to the extent of it*« whole capital for tlie Glasgow Bank's debts. It was therefore included amongst the "wealthy stockholders" who were expected to contribute large sums to make up the deficiencies of other stockholders who were reduced to poverty. The knowledge of this^ produced great excitement in the North of Scotland, especially amongst the bank's depositors and shareholders. A "nm" set in. The bank struggled bravely for a time, but eventually was compelled to suspend payment. Its doors remain* d closed for some months. Meanwhile a large guarantee fund was raised, negotiations for settlement were entered upon with the liquidators of the bank, and ultimately .£11,000 was accepted in disehargi' of the liability. It seems incredible that this immense sum had to be paid as the result of taking the Glasgow Bank's shares to secure a trifling debt of £\0Q. But so it was. The bank resumed busi- ness with the universal good-will of the people of Scotland, and of the otlhT b.nnks. and has continued in a prosperous condition ever since. But it had the misfortune to furnish this severe object-lesson of the danger of taking unlimited bank shares as security. The danger is not so great since the gene 1 adoption of the principle of limited liability; but even now, the large amount of uncalled capital general in English banks might be a cause of serious loss if a similar cTise arose. An embarrassing question connected with the disaster was the lia- bility of persons who were simply shareholders as trustees or executors. The liquidators announced their intention to hold all these as liable in their personal estates; a demand which spread consternation over a wide circle. Executors and trustees naturally contended that the liability attached solely to the assets of the estates they administered; a severe liability indeed in many e.ises, and inflicting untold misery upon widows and children who were dependent on the provisions of wills made in their behalf. But that there should exist, over and above this, a personal liability of tlie trustie himself to the extent of his whole fortune, was deemed incredible. It seemed utterly inequitable. Litigation therefore ensued, and n test case bring carried to the highest court in the realm, the Judicial Committee of the Privy Council, that court decided that the trustees were personally liable. The judgment was considered by numbers of people, probably the majority, as contrary to -cnson and equi'.y, but the decision of the court conveyed by the Chancellor was deemed a masterpiece of legal acumen and subtle reasoning. NeedlcH BANKING AND COMMERCE. if he would roon- than double hii money ; but, as is generally the caie, the bubble bunt juat at the ■peculation wai maturing. Every man engaged in It waa ruined, he himielf Included. He made all the reparation in liii power. He had no oth.r creditor than lii» liankir«. .uul In lliii" he gnvi- n niiirtgngr on nil the pniperty he iKnai'ssi'd. including i Imndsonie rmidrnci-. Shortly iiflon him at short sijjht with bills of lading attached. The bank could have udvanc •dv«ncei did not turn out well. It WM, howerer, ntctujrj to go on; for If itoppage had enlued. all partlea would have been left with that moat undeairable of all aaaete, an unfinlihed pUe of bulldlnga. At they atood, they had already c«M more than three timea aa much ai It wai auppoaed would be tulSdent to finiib them. But many thontanda of doUara were itUl required before they could be ready for the plant, machinery and power. The bulldlnp however, were flnlthed at laat. But the projector'i calculation! aa to the coat of the plant were juat aa crroneout aa they had been with regard to the bulldlnea. But plant and machinery mual be procured and placed: after which there might be n poiaiUlity of the advancca being In aome way recouped. At all eventa the buaineaa might begin to earn money. So' advance, went on, and an apparently (inely-eqnipped establiahment itood on the ground. But no money could be borrowed on It unUl it had proved lUelf capable of making profit for Ita ownen By thli time it became evident that the bank practically owned the concern The advancea were repreaented by notea that were far Indeed beyond the ability of the partlea to pay, and the only hope of good reiulta waa in the carrring on of the buaineaa. The unfortunate manager therefore begird the" head office to allow htei to adrance more money to buy ilock. and' with a deapiiring aort of hoping agalnat hope, thia waa coniented to. Thia atock waa not only a atock of raw material!, but of animala to conaume the refuae. Manufacturing then began, but the product waa not aatiafactory. Conalderahle amonnta of the gooda were returned by purchaaera, or heavy reducUona required from involcea. The promoter, who maintained hit iheerfolneaa, even under theae clrcumatoncea, now anggetted that certain alteraUona be made In the machinery, and managed to perauade the bank to increaae ita advance! for the pnrpoac. Thua matter! went on for about a year. The concern never made a doUar of profit. The burden of intereat on the huge advancea ground tlie buainett tlowly down, and cauted the advancea to go alowly op. Finally the bank authoritiea determined to bring the affair to a atop. h wat Impoaalble tell the eaUblUhment; for, notwithatanding the money tpenl upon u, it had not been weU planned and never could have made money. The ttock of raw material waa worked up, the product aold off, ao were the animala, everything wat realiaed on, and the place finallT diaroantled, to remain to thU day an object leaaon to paaten-by of the folly of projecting a great enterprite without meana, and of lending huge auma of money without tangible aecurity. But when the tloppage Iranapircd, a very ainguhir circumttonce came to light. rj)ng before the final caUttrophe the wrath of the bank aothoritiet had burtt on the head of the unfortunate manager, and It waa Intimated IX)RSES IN* OTHER UNES OF Bl'SINFSS. S95 that unlcft he could grt the awounl Hcurrd he wouM lote hii puiition. Upon thta he Hinght an Intcrrlew with hii frienda, who romprtaed nearly everj nan of poaltion in the town, and hta Influence was lo great that many of them were perinaded to annme a ahare of the aecuritj for the debt. Some of thetn endorsed for 99*000; aome for more (large auma tn that locillty) and thua ammed obligatloni thej could 111 afford to meet But they had to pny the whole amount, and aome of thrm were im- poreriihed for yean thereby. The loai to the bank waa ronilderably rrduccd by the aevere meaaurei taken; but it was atill rnormout, conaidertng the amount of buiineii to he done in the town. Indeed It waa ratimated that the profits of ten or twelve good years of the branch would be swnllowrd up by it. As for the parties themselves, the prime mover came out ni he went In, except that in addition to being worth nothing, a heavy and uncol- lectible load of debt was registered against him. His relatives had loft all they had lent him; and the endorsers lost all they had put their names to. He could not. of course, remain in a town where every aecond man he met had lost money by him. He therefore took a situation in a dis- tant town, and passed into obscurity. The contractors were hopel'-ssly ruined ; a hard fate for men who had always maintained an ur blem- ished reputation, ijnd who, previous to that affair, had practically retired with a competency. The bank manager was well on in years at the time of this fiasco, and only retained his position fur a short time afterwards. He also left the town, and never again held up his head in banking circles. As to the bank, It waa doing so well on the whole that even a loia of this kind could be written off without attracting notice. FAIt-rRES AND I.OflVES IN THE LuMBER AND TlHBER TrADES Many year* ago it was nmon for the exporters of heavy timber from Quebec to procure >. .f es of certain kinds of hard wood from the forests of Michigan and Ohio. This business was one calling for «)nsiderable bank advances spread over many months of time. It was a highly remunerative one in good seasons, and no ''lan had succeeded better than a certain Ontario manufacturer who ^/bb well-known in Quebec as a heavy producer of timber, and esteemed- as a man of sterl Ing integrity. In a certain year, however, he concluded to vary his operations, while still looking to Michigan for his supplies, to export timber in a manufactured condition; that is in the shape of deals. He was in high credit with his bankers and in the trade, and had no difficulty in making contracts for large amonnta with many of the sawmills of the State. In fact, the contracts were on a scale far beyond anything that had been attempted before; based on the idea of continued pros- perity in the business and of large profits that awaited the conclusion of tM BANKIXO ANn COMMF.IlCE. Uw fntrrpriHr. Biit. nt hnt brrn obien-pd, \hc lumber ami timbrr biui- nm it tiibjtTt to rrcurring cjtcIm of fJtpanilon and drprtHion; the drprriilon nt tlnwi bring to Kim •■ not only to rrndrr It Impoialble to nwki! prodt, but impoiilble to avoid hravy lou, evfn with the rioirat numanrmml. It wai while Iheie operationa were in an early itafc that a period of hearr deprewlon let In. Prieea fell enntinuouily month after monlli; indeed, lo leTereljr did the renibion preM upon expi'Ptera that enrfpi after eargo wai at that time lent abroad fmnl Quebec which ■rarerly realiird more than freight and chargrl, leaving the whole eo« of the article al « loii. Belter would it have been In lome eaaea, ai a merchant once told me, to have iunk the whole cargo In the St. I,awrenre. Thli hod come to he the condition of the trade at the time now iprken of. It wnl, however, impoiiiblr to atop oprratloni when once begun. Numcroui gangs of min were out In the woodi; the contract! revered the operatlona of many milli! dellveriea were conatanlly going on rail- way and ocean freight! had been engaged both from Canadian and American jiort!. Bank advance! had alao been arranged for. But the full exirnt of the operation! had not been di!elo!ed. TheT had only been !pokeu of in general term!. But al week! pa!!ed on It became evident that to carry Iheae operation! through a far larger amount of money would be required than had been apoken of. It !Cerocd an abaolute neee!ilty to make further advance! on a very large acale, in fact to an amount altogether unprecedented. There wai not, on the part of the bank, aueh a atrict «tyle of dealing with the account a! Itl magni- tude called for. In fact, the glamour of the cnatomer'i former loc ce!ae! lomcwhat blinded the bank*! judgment Malten, therefore, went on. Till advance! nituinl«l up to hundred! of llioujomls. Tiir eontrmls were finished and a prodisioni* aceumulalinn of exporlaltlc uHTciiandise giithrred together. It was then moved forward to tide water. Ocean siiip- minli btgnn. Sniea took place in Liverpool nnd otlii r British liorts. But the unwonted supply still further depressed the market; aud finally the affair was wound up. leaving the party, after all the merehaudise had been realiied, indebted to the bank lome hundred! of thomand! of dollar!. Many other portiei were involved, directly or indirectly, in theie or lub!idiary operation!, and the downfall of the firm brought many men to ruin who hod hitherto been regarded ai men of !ub!tance. The cataatrophe wa! the heaviest that ever transpired in the trade; more than one bank was involved in heavy loss; and the leauin! are not likely to be forgotten in thi! generation at least. It may be reasonably asked, how it could come about that a trader who had been uniformly ineeesiful in limber operation! !hould have made luch a prodigious fiasco in a line of business so nearly related, even if a lime of depression had set in. To this the answer muat primarily be that the trader had entered upon operations that were iraiaeBSely beyond anything he had attempted before, and for which his capital wa! ab- LOSSES IX OTHER USES OF BUSINESS. «S7 wrdlj InadrqiintF. But in addllian to lliii, tWr 0|K»tloi» wtn (uch H he had hml no riiwrli-nce In. He wal an e«|KTt In timber. : 'nnt DOlhlnK, iirarlirally. of deali. For, althongh the buiinew l .11.: n( Umber and niannfaetnrinR drill both arifinate in the fora.1, there b an abaoliitr dilTerrnre In tlie aia life. In neither of the foregoing cases did the frauds result in any benefit to the bank officer who commit. ed them. A case is now to be related in which gam was the object and in which measures were so cunningly con* trived that success for a short time was attained. Iti a certain bank ofRce, in one of the smaller towns of Canada, ■ manager many years ago was performing his duties, on the whole, in sncb a manner as to give satisfaction. He made mistakes, at times, ai other men do, in like positions and was sometimes reprimanded by his superior officers on account thereof. But he stood well on the whole, and would doubtless, in time, have been promoted to a higher position. The ordinary course of the business of his office was quiet and un- eventful; hut on a certain day, in the midst of a winter season, a rather singular event occured. As is the case in oil bank offices, the keys of the se.fe and its inner compartments are divided between the manager and one or two other officers, the presence of all being necessary before the safe and its compartments can be opened. On the day referred to, the uianager told the accountant that it would be needful for him and the "teller" to come to the bank rather late in the evening, as a person with whom he had had some correspondence had business to transact and would arrive by a late train and muf t leave by an early train in the morning. This man, m the event proved, was o confederate in a contemplated scheme to defraud the bank. Yet he was a well-known merchant in a FRAUDS, FORGERIES AND DEFALCATIONS. US ~rt.in lino of bu.i„c.. of which there «,., a good deal in the neighbor- nmr^''^"-f''J"'^'"'^ "' ' '"''" "■"»"<•«»" «'"• thi. man, in which the ^nge, the manager had the ..fe opened, and a c„n.iderable .um of money p.,d over to him. The eonfederale left the town the next nTorn IbfrJof'tr".'*"'-, *■"'"* "" .oeuuntant, a. eu-tomary, in tempor.rr eharge of the br.neh went to Toronto the next evening, .lating that he ™.L Itth *'"^"/,"''^«''"P"- n,...age from a di.tant ei , r^I Z,^ .f «" P'<;"-"'l'd business transaction was a fr.nd. On reeeint of th,., the hrst thought of the aeeountant w„, that the manager hid been v,et,m.zedi for that he, the manage, him.elf, eould be a partf o l^ fraud wa. almost unthinkable. However, the authorities of the bank who fraud hrdT""""'"";^ 'f'' """ '^"°"' ^°""""^ "«" « «>"»•'" fraud had been perpetrated, and that the whole proceeding, had bee^ part of a prearranged plot to deceive the bank. The appeafanc of t^ •tranger at the tm,e, the haggling about eoramissions, the journey of th. D.'X MUh" .^"IV"""^"' ''''""f. ■"■• "■" —"ling the amount of th. p..l-d„e b.H the following day, all were seen to be cunning contrivance, by wh.eh ,u>p,eio„ was lulled .uffieiently long to enable the manager atd h- eonfederate to place themselve. a. far beyond discovery as ^„ibt The most energetic measure, were taken immediately. The most skillful of the m«iy law officer, connected with the bank were set to work, rinkerton . Detective Agency wa, employed, and hundred, of telegraphic message, were sent to all part, of the United Slates; for thither" of «.ur.e, the fugitive, would be .ore to proceed. The fir.1 trace of th. delinquent, appeared in the .hape of a parcel of the notes of the bank branch of the bank. These, on examination, were found to be a ..ortion of the stolen money. Thi. wa. the first clue, and with the assistance of the detec ,« lawyer., and officer, of the bank, it wa. ,o well foUowed up that the fugitive, were both di»»vered in their remote hiding-place, and the larger part of the spoil recovered. The story of their pursuit i. a .ingnlar one. The fir.t person to be communicated with wa. the private banker in New York Sl^e who had forwarded the note.. In an.wer to enquirie,, he Mid that two men had come into hi. office .onie day. before, and deposited a large amount ..f money in Canadian bank bills, staling that they were in the eaWe trade and had come over to buy cattle in the slate of New York; a likely enough ,tory Then, that they had drawn out the money the day after in American bills, to make payments, as they said, for the cattle they had bcnght The two men were evidently the bank manager and hii con- tederate D-leetive. followed „p the elue and aKcrtaincd that the two men had proeetded to the station of the New York Central Railroad where one had bought a ticket for New York and the other for Chicago :'H ^ ■ i BANKING AND COMMERCE. 844 Th. man.ger h.d gone to New York, .• w« .appoied he ^^^' 'J^ .tr.nge « it m.y .ppe.r, he .pent . d.y or two qo.etly "•* "8 W* •««' .t the very lime deleetivc. were Kouring the e.ly in .careh of him. But the .e.rch being eonlinued. the drtectlve. found tr.ee. of a ^^'«^ bling the manoger a. having left New York en route fo"•-^S°»?■• «« of the highe- offieer. of the bank, who wa. well acquainted with the man- ager and Iii. ha.-,dwtiling. wa. in.tantly deapotched to aeeompany a de- irelive i', purauit. The «r.t certain trace wa. found in a .oulhern hotel, on e:>a..iii.ing the r.gi.ter of which a name wa. found to 1-ve been en- lered two d.v. before in the manager', handwriting! under another name of cour.0. They were now on the track of the fugitive. TmeUing miftlv thev followed op trace, from city to city, by mean, of hi. hand- "i ng. Pa..ing on fiom South Carolina, they tr.ver.ed the .tate. of Georgfa. Florida! Alabama, Loui.iana. Mi..i..ippi, Texa. -i Arkan.... All the trace, were followed up with the keenne.. of a jl™**"""^' ^«' the fugitive wa. alway. a day ahead of hi. pur.uer.. He did not know exacUy what wa. being done, but he wa. v.^ ■"« that he «. teing do^v puraued. Thi. conviction led him to betake himaelf. -.t iMt, to the m-o.t remote and leart frequented part, of the immen^ region, he w« traveraing. The .ame cunning he had manifeated in ^-iing the plot enabled him, after a day or two of flight, to dev,« ■""'"'"J-^ r*''^ ™ p„r.uer, would be completely baffled. And baffled, at len^h, they wer^ men thev reached the fartheat ,H.rtion. of Arkan... »"f -« "" *' border ofthe Indian Territory, they l„.t theclue comp etelv to their peat vexation. The fugitive had evidently e«.ped for the time. The ^uiiuer. returned and the bank re.igned ilaelf to the po..ibility of a con- •"" ™!: Ii^^ever, wa. not to be. A few month. t™.Pired and nojhing wa. hea d of the mi«ing man, until one day the «.bc,tor of *e bariUn New York received a letter from him dated from an otacore •«<= t?""' taTne of the far Weatem .tate., .tating that he .UU had nearly half he lun money in hi. po..e..ion, that he felt >■>">->' '° 'j'.^^J '^^. hare that would certainly be run down .ome day, "-at hfe had be«.m. nerfectly intolerable to him; that he could neither reat by day, nor .leep Ty ^sM; and Anally, olTering to make all the '"^-}^\"' ^''^^'^ The bani left the matter in the hand, of their «,icitor ■■■ Ne^J"*: and the greater part of the money in the fugitive'. po..e..lon wa. re "vered. Twa. evident, at the time the re.lor.tion of the money wa. WgW about, that the man wa. utterly broken both in body and mind, and he died a. hort time afterward.. „l.„ .flwded Meanwhile, energetic .tep. had been taken to follow the due a^orded W the ticket to Chicago to track the confederate. He iiad come ro Xioal thI wa, pro,cd. But whither he had gone wa. the difficult S ;i:'t ae . a. ae're were d„.en. of direction. "'•• >f tlTfl o'ft ./place., in ^^\^^^^::^irT.i:^:::;,j: ^^^.^ix FRAUDS, FORGERIES AND DEFALCATIONS, ai3 iBg on L«ke Superior, where lumbering operationa were then being c»r- ried on. It wu wirier and there would be nnmben of lumbering campi in the wooda. In aonie of theie campi tidings might poMibly be heard of him. Purauing thi« idea, detective! were lent in aearch. The localities were very remote, the area covered by the camps vai hundred! of square mile! in extent, and covered by den!e fore!t. The chance seemed very remote i but detective! !eem almo!t able to work miracles in the way of investigation, and at length, in one of these camps, in a very remote re- gion, they heard that a stranger had laUly made hi! appearance, appar- ently a Canadian and a lumberer, who had come professedly to look after timber lands. The detectives were now convinced that their man was in sight. Soon afterwords they found him and telegraphed to the kwyer of the bank who hod the matter in charge. He came up and found that the confederate had the larger part of the stolen money upon him, and so managed matters that most of it was given up. I''L'nTllBR iNfaTANCKS OP FrAUD ANO FoROBRY. Although the instance! of defalcations and forgery are repeated one after another in these chapter!, it ii not intended to convey the ini- prei!ion that soeli crime! against commercial honor are common events. This is so far from being the eaie that of the millions of money that pass through the hands ot bank officers in the course of their bu!ine.!, not one in a million probably i! abstracted or improperly dealt with. Of the millions of dollars of commercial bills drawn during any given year, it is safe to say that not one in a million is forged. A striking instance of the absence of defalcation and the prevalance of commercial honor dur- ing a long course of years is fumUhed in the history of the Bank of New York. This bank has put on record that dnring the first forty years of its eiistence no bonds of suretyship were taken from its officers, and that during the whole of that period not a ri»gU defalcation occnrrtd. Times and circumitances have changed materially since the period re- ferred to, and all banks and corporations now find it pmdent to take such bonds. Yet, even now, frauds and forgeries are rare evenU. But when they do occur they are not seldom of so striking a character as to furnish object lessons to banks and every description of corporations. At a certain period in the history of the New England States, few bank officers were more prominent and respected than the cashier of a certain bank in one of their principal cities. He was known all over his own state and highly esteemed as a man of honor and ability. He took a prominent part in the afi'airs of the city in which the bank was situ- ated. And if, at any time, a di!cu!!ion had ariaen al to the poasibilitka of fraud in the banks of New England, his would have been the last name thought of. But one day there began to be rumored about the city, to the astonishmer of the community, that there wai something wrong Tvith the .ipcount of the Cashier of the bank. At first nobody credited Hie rnmor, unless it might be a few cynics of the class that have a "bad opinion of everybody in general." But ai 246 BANKING AND COMMERCE. the dayi went on the rtimor gathered itrength and took a more definite •hape. A defalcation had certainly been diicoverrd. The amount, aa la invariably the caie, was exaggerated by rumor; but at length the arreat and prosrcution of the caihier placed the matter beyond doubt. The event gave a shock to the banking and commercial community of the whole state, and even beyond its borders. Numbers of people felt of if the vi'ry foundations were giving away, when such a man as he wan supposed to be could be guilty of crime. If such men as he could not be trusted, who was worthy of confidence? Many hoped that after all he might bo able to clear himself. The hope, however, proved fallacious. The arrest was followed by trial; the evidence could not be controverted, and he was found guilty by the jury, regretfully enough. A long course of honorable dealing could only be pleaded in mitigation of sentenct. This was doubtless taken into consideration by the judge, but the sentence imposed was severe, namely, imprisonment for ten years in the .St;ite p'.^nitentiary. When the cause of this sad downfall was inquired into, it was found that stock speculating lind been carried on by the cashier for some time back, and that the funds of the bank had been used for the purpose. These speculations were sometimes very profitable; at other times not But at length a period of steady losses set in; calls for margins could not be responded to, and the defalcations could no longer be covered up. Then came the inevitable discovery. But there \/aa something behind the stock speculation. The promi- nence of this cashier, in the community and the state, had gradually led him into a style of living that was far beyond his Income. It was doubtless for the purpose of adding to his income, so as to enable him to keep up this style, that stock speculation was first resorted to. That step onee taken, the path diverged further and further from safety and honor, and ended in the catastrophe that has been narrated. In this case the directors of the bank can hardly be absolved from blame. The style in which the cashier lived was perfectly ap-, «: t'nt. The very house he lived in gave evidence of it, and they could not fail to know that such a style could not be supported by the salary he was receiving. It was, doubtless, their duty to interfere, before wrong-doing had been develop- ed. Had tliey done so, they would have saved the bank from loss and their cashier from niin and disgrace. The Danobk From Foroert. Of all the dangers that arise in the conduct of bank business, forgery ii perhaps- ihe most difficult to guard against. The danger especially arises from the fact that it is often committed by persons of good stand- ing, who by a course of honorable dealing have established themselves in the confidence of the community. There are, in every large commer cial centre men in business whose reputation is so bad that they could not pass a forged bill if they tried. It is the men of good reputation and antecedento who astonish the world at times by falling into the pit FRAUDS, FORGERIES AND DEFALCATIONS. s»7 of dlihonor, nnd offering forp-d billi and documrnU to . bank Of thii • few inrtanen will he givni. '"" «f .f ^ ".','■'". '■"'':?■ '" ""• ''"'"'■ °f ""= °f "«= K"»> "«Pl« trade. of tlie Continent, no firm stood higher than that of * Co The head of the home belonged to one of the be.t fao,ilie. in the eountry, •nd the name «.elf ,„. „ ,v„„„ym for all that wa. honorable and respectable. They earried on bu.ine«i in more than one eentre of trade and were known a. ,„,„„g,l ,hc largeat exporter, of the eommodily Ihejr d«lt .n Ihey wm bona-fide merehant., who aetmUly handlrf Ih. good, they exponed; not mere «hemer., who lived by .peeulation and engineered eorner. in the trade. Thi. «rm, like other firm., had it. good and bad year.. Bnl If any one had made a gue.. a. to the p„..l. blhty of any hou.e on Change doing anything di.honor.ble, thi. firm would have been ruled out of the .uppa.ition at once One day in the mid.t of a bu.y .e..on, the head of thi. hou.e pre- Kned. hipping document, to a bank with whom they dealt; that I., biU. of lading and policie. of in.arance, for a large amount of merchandiw to be .hipped. An advance wa. made upon them with the u.ual margin A day or two afterward, the city wa. .tartled by the new. that thi. firm had .topped paj-menl. The new. did not particularly disturb th= bank for their advance w»i apparently well covered by .ecuritie.. The only irregular feature wa. that the bill, of exchange, which should naturaUy have been drawn against the merehandiK .hipped, had not been brought in a. customary. The bank had bill, of lading however. Thi. would keep them ,afe. The idea of the bill, of lading brought in by such a firm being forged wa. inconceivable. But thi. proved to be the can The whole of the document, were forgerie., bill, of lading and policie^ of in.urance together, skillfully contrived by the head of the firm, In order to prcKnt a perfectly genuine appearance. He was the guiltr party, and was arrested at once. Trial, of course, followed. The faci were indi.put.ble, and the only plea put in was iuMnity— a plea that might well carry .ome weight in such extraordinary circumatances. For thongh such a firm might possibly faU. the failure would not have been an extraordinary matter in that trade, in „ time of falling marketa. And T. • f'""" ''™M ""T no "tain ,n „nal dishonor compared with that wbieh would ariK from the commiasion of a crime. It might well be called an act of moral insanity for a man to perpetrate such a deed on the eve of insolvency; for it. effect was merely that Kime one or more of his creditors would be paid in full, while another creditor would be created to an equal amount. It wa. not moral Insanity, however, that was pleaded; but actual insanity: such insanity a. would make the party Irresponsible for his actions, and jurtify hi. Incarceration in a lunaUc asylum. The plea carried weight to thi. extent, that the jndf^ who tried the caM ordered that the prisoner be committed to the rtate Innatie asylum, for the purpo« of testing whether he were inune or not. Meanwhile the affair, of the firm were placed in the hand, of an auignee, and the naual course in such can. wa. followed. Scared/ :' vHl (41 BANKING AND COMMERCK. enough, howrver. w.. rralUrd lo p.y the »•!• of lll)uid.Uon, ...J Ih. bonk conciTl.. J loit Ih. wholr mmoml of lU .dvM.cc. The head of th* Cm remained in the Mjlnm for * time, >nd wu then relegated to th. cnrtodT of the oSccM of the Uw, no dcSnite dedilon having been reached. Strong Inflocncrt were brought to bear, and the court faaUy aUowcd the priwnrr hli liberty, under an engagement of reappeaianet A« time -cut on, the caK and iU clrcumaUncci and all concerned ta 11 were forgotten, in the ruih of new event.. The alTair Mnk into oMWm. .ml ha. .o remained to thi. day w far a. the public are ™"«n>«d Th. director, and officer, of the bank, however, are not very likely to forget 11. The ca.c ii one of the moit .Ingular development, of human nature, and human folly, that ever aroae in banking annal.. ,....,. The oniT comment that can be made upon the action of the bank In the c..e i. "that they .hould have noticed that the .pplic»tlon wa. for a loan on bill, of lading, in.te.d of for the negotiation of a bill or bill, of eiehange, with the bill, of lading attached. Enquiry might have been made why the u.ual cour«> wa. not followed. Any departure from the ordinary coor.e of thing, may naturally, at any ttoe, «!«''•««' enoulrv. In fact, it .hould alway. do .o, a. .uch a departure I., at time., an indication of a more grave Irregularity than a ■«''■"•"" "' ['T: In thI. C.K It I., at lea.t, p««lble that enquiry might have r«ealrf «m.ethlng that wonld have put the b«4er on hi. guard. Some he.lt.- tlon to manner might have been apparent, «». '"'''wardn«. te er platolng the re.«.n why bill, were not offered, .ome contr.dirtion to Lement, that might have led to a requcat for tta. to "n-ider the mltter, 4lch con.ideratlon might have led to farther enquiry, wh,ch would have expo«d the contemplated fraud. And though .t 1. e«y^ b. "wlK after the event," there can be no doubt that a con.lder.ble part of the mo.t valuable experience that a l"*" P^"*"" '" * We« " recollection of ju.t .uch ««urrene« » are noticed in ^''f/^'P^-^ Of a very different de«riptlon 1. the c.« now .bout to be PJ^*^ In a certato dirtrlct of the northern p.rt of IhU conHnent, fewmen had a higher repuUtion «>mc year, ago than the »«'"";'', °^7*t'" „ttry m*unlc.p.Htle.. who united to put ^^^^^f^^^ ^'^^ '^ J^ keeptag. HI. account w.. with on. of th. bank, of the d*"^ 'nd for iTe tfme had been carried on «tl.faetorlly The« "■""'^'P'""^^,^ to the habit of borrowing «.m. in .ntidpaUon of ta«. to 1» ~'1«^> which loan, were upon ceHiHed reflation, of the "»"",'?!«",„'? onTday a rumor .pread abroad that thl. gentlem«. hi|d dlMPP"/^' h», following upon' thl. that he had large amount. »' *'J™^ '/ ^ munlcipalitle. in hi. poMcwlon. Enquiry of "'■"'- ^"""'f,.! ™ then dUcovered that «)me of the document, on which "•«""•"«' ™ obtained money were fbrgeri.., the re.ult of cour«, being that *. mmUcipalitie. were not r..pon.ible. Detective. w«. .et «° "A-^ the manager of th. bank wa. anthori.ed to foUow the f-IP*-". «^ p«icd by a local conrtable who knew him. Trace, were found her. and Lre, at poinU further and further «nth, and It b«ame evident at FRAUDS, FORGERIES AND DEFALCATIONS. 24p length that he was on bii wny to Mexico. He eroned the Rio Orande and then luppoied he wai perfectly lafe, there being no extradition treat/ between Mexico and Great Britain, However, the manager who waa a wan of energy and dr termination, decided to continue the punutt, and confront the forger, if he could find him. He followed him to the City of Mexico, obtained the aid of the British Ambaaiador, found the man, and at length luccredcd in having him taken to Vera Crua and pat on board a British iteamer bound for the Weat Indies. He was now in safe custody. The manager and the constable kept their prisoner in charge and had htm transferred to a West Indian steamer sailing to Liverpool. From thence the parties proceeded back again across the Atlantic, landed v-. British ground, thence proceeding half way acroia the continent until they arrived at the city where the fraud had been committed. Thus, after a journey of nearly twenty-thousand miles, the criminal was brought baek, much to the astonishment of the community where he had lived, and especially of the people of the country munici- palities, whose names he had fraudulently used. He was tried, . ^n- ▼Icted and sentenced to a long term of imprisonment In the penitentiary. The energetic action of the bank in following this man over such eno^ moos distances produced such an impression upon that communis that though some fifteen years have elapsed since those occurrences, no serloua case of forgery has since transpired in the city. In this case, It does not seem that any want of care could be imputed to the bank, in their dealings with this man. But as it Is not the only instance, either in Canada or the United States, where treasurers of municipalities, and even of churches and missionary societies, have com- mitted fraud in their dealings with ^anks, it does seem desirable, and necessary, for bankers to take special care in regard to such acrounta, and to insist upon snch cheeks, by continuous audit, or otherwise, as would put efficient obstacles in the way of wrong-doing, on the part of treasurers. The next rnse cited ts of a totally different character from any of the preceding. One of the most remarkable cases of forgery that have transpired within the last quarter of a century was that of a prominent merchant In a large seaport of Great Britain, where an extensive trade wa.« f>arried on in the raw material of the manufactures of the district. T .' was a man of great energy and ability, not a native of the place, but one of that large class of foreigners who have established tiiemselves in the centres of trade of these times. His business was that of an importer, and that on a large scale. His customers were the manufacturers of the district. They settled their accounts by acceptances or promissory notes. The "paper" was of that class which bankers always consider with high favor; and very naturally, being founded, when genuine, upon bona-fide transactions, and both names to every bill being generally of a high class. Suddenly, however, an event happened — for such events always happen suddenly—which was the beginning of a revelation that !: -11 fM BANKING ANI> COMMERCE. utoniihcd the bank and At whole dltlrkl. Om of the biU« win re- tnmnl protntcd for non-p«)-mrn« ; Iht: bank at whteh It wai payable having no advlci, and no funda. The dliconnting bank natnially thought that tome clerical irregularity had tranipired, wme letter had been mia- poated, iome remittance gone aitrav, and notified the aceepton at once, expecting a check In pnyment bjr return mall. Initead of thU cawc the alarming announcement that the drawee! had never accepted iuch a bill at all. Recoune waa inaUntlj made to the merchant, who had, in the ordinary way, been notited of the diahonor of the bill. But hia place of bualneu waa cloaed that morning, and he himaelf, had left the eilj. Then gradually came a full revelation of the whole extent of the T-rong- dolng. Bill after bill came back under proteit, one houae after another wrote in the laue term! ai the flrat, namely, that they had never aigned auch billi. U waa like a lucceiaion of thondcr-clapa to, the bank, for nearly all the biUa were of large amount, running Into thouaanda of pounda. Finally, the whole extent of the fraud waa reallied, the loM being aerioui enough to require to be charged to the aurplua fund of the bank. The fund, however, wai well able to auatain it, and the bank went on with tta boaineaa aa uiual. In thii eaae, the general impreaalon among bankera and merchanta in the diitrict waa, that no blajie could be attached to the bank; or that any imputation of Ucht; or negligence, could lie agalnat the managers. The fraud! had been carried on with extraordinary ingenuity; the forger even had printed or engraved eopiea made of the forma nted by the drawees of billi, for coneipondence, promlMory notea, and acceptance of billa, when acceptance waa made by a aUmp. And the forger having a good repuUtion, eiUblUhed trade, and good connections both at home and abroad, there was everything in the circumsUnces to inspire cond- dence. But, as haa been observed. It Is generally only in circumsUnces like thii that forgeries of any extent can be carried out at all. There is this, however, finally, to be said, that in most cases of fraud and forgery, there arlae little drcumstancci, which if noticed at the time, might be foUowed up, and lead to increaaed watchfulness as to other circumstances, which course In some caaea would lead to a dis- covery In the early stages of wrong-doing, and prevent loss later on. For in all cases of fraud the tendency la to grow worse and worae, the amount becoming larger and larger unUl discovery puU a stop to the whole affair. The sum of the whole matter is this, as respecU employes: whenever a bank olBcer or confidential employe of a mercantile house Is known, or suspected with good cause, to be living beyond his means, or to be gambling, or Indulging in betting, or keeping company with gambling or betting men, or apKoIating in atocha— the sooner the matter Is taken in hand the better. For delays in such matters are always dangerous. VltiPTEH XXXL A BAKXBUPTCY LAW. Bakkem Intehkstcd i.v the Sl i: j, i i - Omen ai. f.Aw Aro*r riioM SurrsiiiNni or iMpiitioNti- 1>i:nTo>it— < unhni id roR VAiiiovf RiAioMi, TiiouQii lupKiwN .i.: . \m):.i«nED -El i\i:- or Dmr.iuiiat ClAI'II — (JMKAT AbUUS rii.Yi.LOPt:ti — \l I AET AsOl.-IIID. IT should be stated at tlic ati, ' thnt tl tt laL'^Ivcnc vt banka i^ dealt with in ipeclal claiun '.f tin- 'rsn.',(li..ii UiuLinfj; \,t. In spite of the •..mtion with t-Iik,'i Lh^ir b'iiii;eu U conducted, and the seruritlei they take, imnkcrs and ut^rdiants inuii-tlmca find them* iclvei confronted with that U|fly ..ptcti >, tlie htinhruptcg of their cni- toncri. This if eipt^ially the cost- in I'^om- diif^oult timet, which, as all experience ihowi, are sure to recur ^ttl< >: iii'- ctmrarrcial pendulum swinfi from prosperity to adversity. The imiulvcncy of an important ciutonwr In a large centre may bring a number of other insolvencies in its train so that a banker who has discounted a considerable amount of bills fnr a wholesale merchant who has failed may find himself, bj that oj ^ failure, a creditor of a dosen or more bankrupt estates in addition. The subject Is one with which all bankers of long experience becou. . unpleasantly familiar: dealing, as they do, with all sorts and conditioi.<^ of debtors In all sorts of times. They can speak, therefore, with somii measure of authority on the subject. For this reason, whenever ParH >. ment hat taken the matter seriously in hand, and an important bankrupic; law has been submitted to it, bankers, as well as merchants, havR been inrited to state their viewt to the tpecial committee in charge of the subject. There are many causei for insolvency; some of them involving morff or lets of culpability on the part of the insolvent. Such, for example, as entering on business without experience or sufficient capital ; careless ness in carrying on business; neglecting to insure; neglecting to keep books; foolishness in giving credit; Idleness; neglect of business for politics or pleasure; extravagance; speculation in outside matters, becom- ing guarantee for others, and so on. Nine out of ten of the insolvencies that occur are traceable to one or the other of the above causes ; and clearly put upon a creditor the respon* dbllity of enquiry as to the cause, whenever an insolvent debtor seeks to be released without paying his debts in full. If a trader becomes unable to meet his obligations there is nothing in either Jaw or custom to prevent him approaching one or more of his creditors, and asking them either for simple dcUy^ for s formal exten- «k>n. or for a release on terms submitted. No law is needed to enable MS BANKING AND COMMERCE. the application to be made and dealt with. The matter >• purely one for private negoUationi ; with this condition, however, that no engage- ment with one creditor will bind any other. Nor will an agreement of a majority of creditors, in meeting assembled, bind any of the reit. unless under the provisions of an Act of Parliament. And here we toucb the. fringe of that complicated and diiEcult subject of a Bankruptcjf Law. which has so often baffled the wisdom of legislatures to settle on equitable terms. It is well known that Canada as a whole, after having experienced the working of more than one general Insolvency Law during a course of years, finally allowed the last of them to lapse, and has never enacted another. But as there arc some undoubted disadvantages in thin lack of a general law, it is desirable, in a work like this, to consider the general principles on which such a law should rest, in ease it occupie* Uie attention of Parliament again; and while doing so, io consider how far certain laws of the several provinces fulfill the requirements of the ease. In order to deal with this matter it will be needful to "begin at the beginning," and consider the relations of debtor and creditor as they are affected by the ordinary operation of law. Remedies .\oainbt Debtors. When a debtor neglects or refuses to satisfy U^'. creditor, the latter can invoke the power of the law to compel him to fulfill his contract. Every debt is the result of a contract. It is prima facie the province of law to enforce the fulfillment of contracts; hence a creditor can call his debtor before a court, state his claim, prove it by evidence If he can, and ask for judgment. The debtor can also plead; but unless he can prove that the claim is unjust, either as to time, or amount, or in tome other way, judgment: will be given against him. It is needful to note that the powers of a court extend simply to the determination of the amount due, the time when due, and to the enforcing of payment. An ordinary court can neither grant time, nor abatement, nor release. Following upon judgment, it the seizure of the debtor's property by an officer of law, its sale, and the payment over of proceeds to the creditor. If the proceeds are sufficient and the debt paid, there is an end of the matter. The law has fulfilled its object, and the creditor is satisfied. But If the officer of law cannot find any property of the debtot, or if such property does not realise enough to pay the debt, what thenf As the law now generally exists, and has done for some time past, it can do nothing more. But under the old administration of law not only could the debtor's property be seised, hut hit pfnon. The operation of law was, until i recent period, exactly as It was 1,800 years ago, as described in a graphic passage in the Sermon on the Mount. Counsel is there given to a debtor •• follows, Agree with thine adrer$arif qnichl}i. wkiUt thou art in ih* mag with him; leat at anif time the advertarii deliver thee to the Jmdge. A BANKRUPTCY LAW. H58 and the Judge deliver thee to the officer, and thou he out into prutm. VerUtf, I Majf unto thee thou thalt by no meant come out thence until thou hatt paid the utmoat farthing. This has a wonderfully modem sound, for it exactly describes what would have taken place in England nearly up to the middle of the nineteenth century. The debtor could be put in prisonj not, as in criminal matters, for a week, a month, or a ycnr, but until the debt was paid. The difference between the criminal law and that respecting debtors was remarkable enough. The criminal, at the expiration of His term, was a free man and discharged of all obligation. His ImpriHonment constituted a sort of claim to discharge; but with the debtor, imprison- ment operated in no degree towards his discharge. Unless the creditor consented, in prison he must remain for the whole of his natural life. Numerous cases of this kind did actually occur. The term "rot in priaon" has become incorporated into our language, and expresses exactly what occurred in many cases under the ordinary law. English literature tells only too truly the stories of suffering endured by insolvent debtors in I.ondon prisons; for one singular feature of this matter is, that while the Government was obliged to support ihieres and burglars while in prison, no support whatever was provided for the Imprisoned debtor. Origin of Insolvency Laws. It was under these circumstances that the first movement for an insol- vcncy law began. The object was primarily the releate of impritoned debtors; and the title of early acts of Parliament on the subject wa« "An act for the relief of insolvent debtors; the relief being, not to provide them with necessary food and comfort, but to give them a dis- charge from prison and from their debts. Such a law, of course, would only be needed to compel unwilling creditors to be satisfied with what the ordinary course of law had failed to give them. Thus, in its very inception, an insolvency act contradicts and traverses the ordinary operation of law. The law is to give effect to contracts, but the effect of an insolvency law is to break them. But the cases of hardship, and even of cruelty, were so undeniable that the force of public opinion became strong enough at length 1o insist upon a way of legal r?lief being opened. It was in these circumstances that the first not for the Relief of Insolvent Debtors was passed. That act provided for the constitution of a special conrt, whose functions were to be the exact opposite of an ordinary one. The ordinary court was for the administration of justice: this was for the administration of mercif. And to it the unfortunate and impecunious (but presumably honest) debtor was allowed to appeal and plead for hfs release from prison. His creditors, as a matter of course, were allowed to appear also, and to show cause to the contrary, If they were able. If the creditor could prove that his debtor was keeping back money 954 BANKING AND COMMERCE. or cffectH, or tlint there was an element of fraud in hJi conduct, or that hii itatementB had been characterized by lying or deceit, the court had little mercy to show him. It was not for biich as he that the court was cieated. On the other hand, if the debtor could prove that he had don< what he could, or that he had no friends upon whom he could cnll for Klief, that there was no fraud or misrepresentation in his dealings, and particularly that he was suffering in body and mind by continued impris- onment, the court would, in many cases, open the prison doors and allow him to go out free. But if nny of the jolly fellows of the *'Jingle" or "Smonglc" sort had the impudence to apply to the court, they would be laughed out of it and sent back to confinement. In prison they deserved to be; and in prison they must remain. Such wns the general idea embodied in the iirst insolvency legislation. It was for the administration of mercy. It was n matter of course that a class of attorneys would devote themselves to cases of this kind, and be known as men who coitld get debtort out by passing them tlirongh "the court." The ways of this class and the incidrnta arising out of their profession are accurately and humorously dealt with in the pages of many of our novelists. In course of time a class of houses of temporary detention arose, called "sponging- ' houses," where a debtor nnder arrest was allowed to remain, under strict con6nement for a few days, to give him oppor' unity of effecting a com- promise with his detaining creditor, or calling upon his friends to help him with money. It cannot be too emphatically noted that the whole tauon d'etre of the law for the discharge of debtors against the will of their cri-ditors,. was this very power of impritonment. But for that it ia very doubtful if such a law would ever have been enacted. Thus, when imprisonment for debt wns abolished, it might n-iturally be supposed that insolvency laws would be abolished with it. But in the complicated circumstances under which credit is given in moderi' trading and banking, it was still deemed desirable to retain some Other mode of settling affairs between debtor and creditor than the ordinary process of law afforded. The dominant idea of this, however, had reference to a class of evils that scarcely existed in former days. For example, it was sometimes the case that a debtor who had many creditors would treat some of them unfairly; giving a preference to one or more when he knew himself to be insolvent, or paying one Ui full, and leaving the rest to scramble for the balance of his estate Thf ordinary machinery of law might itself be abused to this end ; for on becoming embarrassr'd, and several creditors suing a debtor, he coul'* defend one action, and allow judgment to be entered f"r another. For this the law afforded no redress. In other cases, a trader, knowing himself to be unablr to pay hi* debts in full, might fro on trading at a Iosb, wasting morr and more of his estate (or perhaps secreting money), until it was wasted entirely A BANKRUPTCY LAW. «\Tay; leaving nothing for his creditors to realise upon. Here, again, the law afforded no means of redress. All that any creditor could do was to refuse to sell the party more goods, and to sue for balance due. But the process of ordinary suits affords so many opportunities of delay, that a whole estate might be wasted during the progress of one of them. On the other hand, a creditor might under some circumstances obtain what is known as a "snap" judgment against a debtor, who would be compelled to submit to the sale of his goods at a sacrifice by one creditor, leaving him indebted to many more, while the means of paymrnl had been taken away. For these and for other reasons, there arose a desire on thn part of creditors for the enactment of a law which would prevent these evils, and ensure, first, an equitable division of an insolvent estate; i^ccond, the power of stopping an insolvent debtor from wasting his estate ; third, the prevention of unjust preferences; fourth, the punishment of fraud- ulent debtors. These were the primary objects thought of when the subject of insoK venry legislation was broached as applied to debtors who were person* ally free. But though no act could now properly be styled "An dct for tlie relief of Insolvent Debtors;" that is, by releasing them from prison, no sooner was insolvency legislation broached, mainly in the interest of creditors, than pleas began to be put in on behalf of the debtor. There were, it was alleged, other forms of relief that were needful. Thus, it was urged, why should a man not be relieved from the burden of his debts when he had become unable to pay them and surrendered his assets? What equity was there in taking forcible possession of a trader's effects and dividing them amongst his creditors, unless he were discharged from his debts? And why should a man be forcibly pre* vented from carrying on his business, when the ordinary courts had not been appealed to for redress? These and other pleas for the debtor were put forth for considerar tion whenever it was proposed to protect the creditor by a bankruptcy law. Indeed, it was held by some that an insolvency law was nn insol- vency law st all if it did not provide on some terms for an insolvent's ditcharge. They argued that the very groundwork of such legislation was to relieve ike inaolrent, not to assist the creiiitor. The creditor is sufficiently protected, it was ar^nied, by his power to get judgment and seize his debtor's goods; why, then, consider him alone in the matter? To which the obvious reply was. that former acts for the relief of the insolvent debtor had relation to different circumstances. It was to prevent cruelty nnd oppression, snd had always been preceded by the obtaining an ordinary judgment at Inw, and the declaration that the debtor had no seisable goods. But to discharge a debtor against the will of his creditors, or any of them, and while he was perfectly at liberty, personally, wa» contrary to thf first principles of justice. Even to enable his property tn be seised and divided amongst his creditors was no vnlid ground for «56 BANKING AND COMMERCE. claiming a discharge; for his property, if he w&s insolvent, really belonged to his creditors in any case. It was further argued, that the reasonable course for a debtor to pursue when he could not pay his debts, was to approach his creditors singly, or call a meeting of them, and offer to pay what he could, and ask for a discharge. They would be acquainted with his affairs and with himself, i oaving done business with him, and might be trusted to act reasonably according to circumstances. And the necessity for obtaining the consent of each of his creditors would be an effectual checlc upon that scheming to effect an unjust settlement which was so great a temptation when diacbai-ge could be granted without that consent. Principles op Isbolvencv Legislation. Such were the arguments, pro and con, that arose at the outset of any proposal for insolvency legislation. Yet there was much on which all parties were agreed. Thus, ull were agreed that a law should be passed to prevent or nullify preferences; and all were agreed to what necessarily followed, viz., that if a person were really insolvent and his effects were divided amongst his creditors, they should be divided pro rata. But there was division of opinion as to the advisability of stopping ■ person who was carrying on his business when a suspicion arose that he was wasting his estate; also as to whether the law should undertakr to discharge a debtor at all if any of his creditors objected. If the principle of a discharge were agreed to, there was great diversity of opinion as to its terms, one class of legislators leaning towards the debtor, and desiring his "relief;" the other contending for the claims of the creditor, and that strict justice should he the object aimed at. Another point of division was as to creditors holding security. The questions as to this were found to be numerous and of an intricat<: char- acter; secured creditors naturally pressing their claims for whit they considered to be equitable, against the views of others who were disin- clined to give secured creditors any consideration. The most diflficult question under this head arose in connection with baniters who were claiming on the estate of a wholesale merchant, for whom thev had disconnted the bills of nuuierons customers. So long »s the merchant was solvent, the bank hod no correspondence with his cus- tomers. But the mmnrnt he went into insolvency it became nece&sary to deol directly with thr parties to this discounted paper. There might be fifty of tbem; there imght be one or two hundred; and those living in all parts of thr Doniiuon or elsewhere. As a nrnle, many of them would be dependent imen iht principal house, and soiv of these would go into insolvency alsa. TIwb the bank would find tnelf a creditor ot many subsidiary inaolnst eMates; while a certain proffsrtion of the rest would be cmbarr^iBsed by the demand of payiw^ts at maturity, and lequest time, pmsihiy aUo offering tfmrity by way of second mortrf^e or A BANKRUPTCY LAW. «37 mdonement With auch an eitr.ordin»ry mui of compliMUon. nrUing out of the fmUore of a aingle wholnale home, the winding up of it> affair! would aometimea occupy yean; and what would be the banker'a final claim upon the bankrupt eatale of hia cuatomer, it would be impoa- aible to aay. Under the conunon law bankera had a right to claim upon erery aingle bankrupt estate for the fuU amount of ita diacounted paper, and to collect from it all that waa poaalble, claiming upon one eatate after another, until the entire masa of paper waa paid in full. ,Vnd if it waa claimed that in all equity a bank should value ita aecurities and claim for the balance, the bank could point out that while it waa compara- tively eaay to value a aingle mortgage or even a aingle endoraement, it would be pra-ticaUy impoaaible to value aecurity conaiating of claima upon numbers of other people, some of them already inaolvent, and aome who might posaibly become ao. The whole subject of insolvency briatlea with difficulUea; but not- withatanding thia, more than one strong Government in Canada, and alMl in England and the United Statea, haa taken up the aubject and carried through bankruptcy bills. But the last of such bills in Canada came to an end about fifteen yeara ago, and although atrenuoua endeavora have been made to carry others through Parliament, no Government haa bad the courage to take the matter up and carry a biU through as a Oovemmenl measure. For thia inacUvity varioua reasons have been assigned. The iiuMt im- portant of theae was the undoubted fact that in actual operation the former bill came to be looked on, pracUcaUy, aa a bUl for the promotion of into(eencjr. A claaa of men waa developed in connecUon with it, as under other inaolvent acts, who made a .special business of assisting em- barrassed debtors to obtain a discharge. That there is l legitimate field for acconntanta and commercial lawyers in connection with insolvent estates, there can be no manner of doubt, whether under an insolvent law or without it. But under the last act abuses crept in, and it came to be generally known, that by such and such intervenUon, debtors could obtain « discharge, with the least tronble, the least expense, in the shortest time, and without interruption to their business. Above all, the prospect was held out that after a discharge was oblain-d the debtor would have a auhstantlal capital left, and be enabled to ca,ry on hia huaineas in com- fort and security. In the opinion of many obsorvers, the root of the mis chief was in the fact that a discharge could be obtained under the act if a de'jtor's estate yielded only fifty cents in the dollar. The operation of this clause, it was said, waa to «i a atandard. The law of th< land under it recognised that fifty cenU in the dollar was a reaaonable amount for a debtor to pay. If he offered that, he might be recognised aa an honor- able man. If a creditor was not satisfied, and demurred or opposed a dis- charge, the low could override his opinion, and compel acquiescence, un- leaa, indeed, actual fraud was proved. An anomaloua condition indeed for the law to c.eate; and it ia well to note how it came about; alao how It came to be to generally abuaed. d58 BANKING AND COMMERCE. When thii diacturge clause wu under consideration by a parliavenUry committee, and it wai contended that fifty cents was too little, the reply was, that there were so many expenses connected with insolvency, and so serious a depreciation when goods and property were sold by an ansignee, that iifty cents in the dollar was a fair residuum, and proved the failure to be honest. The ar^ment was plausible, and the fifty cents clause was adopted. But it was also provided that if the debtor, after surrcrdering his estate (which he cniild do without stopping his business) succeeded in inducing a certain porrion of his creditors in number and amount *o con- sent to a compromise and accept fifty cents, a discharge could be obtained in spite of the opposition of the rest. Abuses ARisiNa Under the Law. Here it was that the root of the ensuing mifchief lay. For the idea speedily hefcan to prevail that there was no dishonor or discredit to a man who had failed, if he had only paid fifty cents in the dollar. And this was specially the case when difiicult times supervened, and bad debts rose above the average. Under these circumstances many traders who were in temporary straits, but were perfectly solvent, began to see an easy way out of their difficulties, not by making an assignment and allowing their sto^fc to be sold and their accounts collected by an assignee, but by th* much easier and economical process of offering a compoiilion of fifty cents or more, under the act. Thus, a large expense would be saitd, and the business could go on in the meantime. The assignee or accountant would receive his commission, and act as the insolvent's friend in per- suading the requiwte number and amount of creditors to consent. It was not difficult in ordinary cases for this to be secured, for the alternative was that a large additional expense would be incurred, much time lost, and goods slaughtered, with the doubt whether some jMirtion of the estate could not be concealed, and as a final result a smalli^r divi- dend than fifty cents declared. The result generally was, that the insolvent who had got his stock into his hands by paying fifty cents in the dollar for it, was able to undersell his nelghtmrs who had hitherto paid their debts in f.ill- A further result then followed, vir., that some of his neighbors, whosp trade was interfered with, began to think of passing through the same process themselves. This they not seldom did, for money was to be made by it; moreover, less and less discredit came to be attached to it, until in time the idea of discredit had almost passed away. Thus, the virus of mischief spread until the trading community was honeycombed with it; and a wholesale merchant couid nev^r be sure which of his customers would approadi him next with an offer of com- promise. What an opportunity this condition of things aff"orded to the debtot whose sense of honiMr was not of the strongest, it is needleu to point out. Suffice to say, that between the weak-kneed debtor who was temporarily cnbarrassedi i»t could and would h&vt paid his debts but for induce- A BANKRUPTCY LAW. gjj mtnU to compromi.c and the fraudnfcnt debtor who laid hlnuelf out deliberiilely to felpi embarruMment md plunder hU crediton, the mer- cuitile eommunitT bceanie lo dilgiiited with the operation of the act that a iinivenal lenie of relief wni fell when it wai abolilhed. DirFicuLTiM 1.N Framing a Bankruptcy Law. It ha. been .talrd that it i. extremely difBcult to frame an equiUble and aeriiceablc bankruptcy law. The difficulUea may be atated aa foUowa Firit, to avoid making bankruptcy so ea.y aa to tempt unicmpulou. men to embrace it who are able to pay their debt.. For thia reaion it i. that the diacharge clauac is the one which, more than nil the re.t, require* conaideration. ^ Second, to avoid making the administration of a bankrupt estate av eipensive aa to damage both the debtor iind his creditors. Third, to deal with the question of the security given to a creditor previous to bankruptcy so as to avoid doing injustice on the one hand to the general body of creditors, or on the other to the secured creditor him- Mlf. In this case the difficult question is whether the consideration given for tlie security was equitable and reaaonable. Fourth, the mode of adjusting the ranking of creditors holding secur- ity requires special care and some technical knowledge. Fifth, it is found difficult in practice to frame a bankruptcy law which has not the effect of creating a class of persona whose interest is to promote insolvency, and suggest it. Silth, it is also difficult to frame penally clauses which will not bear too severely on those who have done wrong through carelessness or inad- vertence, and not severely enough upon traders who have knowingly and deliberately been guilty of actual fraud. The great objects to be obtained by a bankruptcv law have been treated in the foregoing pages, but may be brieHy snmmariaed in this, via.- (1) To prevent preferences being given to one or more creditors at th^ expense of the rest. (2) To prevent debtor, wasting or making away with their estate when getting into difficulties, and apparenUy becoming unable to pay their debts. Here a distinction should be made between being unable to meet engagements at the) become due, and inability to pay debU in full at all. It was a great error in some former proposed bankruptcy acU in Canada to declare that a man was insolvent if he could not pav his debts OS thet/ became due. (3) To insure equitable and economical distribution of bankrupt!' estates; and (4) To enable discharge of competent and worthv debtors to be hail on .uch terms as will not on the one hand encourage idleness, extrava- gance, and bad business conduct on the part of the debtor; and, on the otter hand, will prevent harshness and cruelly on the part of one, or a •mall number of creditors. .\ discharge clause should be so framed alas too BANKING AND COMMERCE. u ret l« make It >n object for a trader to fall and make money oat at If a Unkrnptcy law il ever iubmitted to a Legiilatare In Canada, lu memben will, of conne, comider the former lawl on the iubject, thdr eicelleneiei and defccli, and why they were .offered to eome to an end! uid alio the bankraptey lawi of other commerelal countrlei, and partir nlarlT of Great Britain and the United State., a«!ertoinlng whether .och haveworked wtUfoctorily, and are aceomplLhing the end aimed at It would be w, 11 al.o to eontider whether a bankropt law of limited ,eope might not he .' rable; .uch, for example, a. one «•«« """" pre- Tent preference., , ,l.h fraud, .lop waate, make equitable d-tnbution, but not give a 'V. . ,.ge; leaving that for «*Uement between the debto. and hi. creditoa., i i _ It might be worthv of con.ider.tion also whether a bankruptcy law might not be paMcd with a limitation of time, an idea that haa com- mended it.elf to vorlou. legLlalor.. SoMMAHV or Tin Amcbicah BANKaorrcY Law. Thi. law i. a general one for the whole Union. It i. comprehen.lre, „d fairly cover, oil the point, to be con.ldered. It i. prec« in regard to matter'. wlUch were not clearly de... with in former Canadian law.. It cmplia.i.f. in wme of 11. clauae. the important di.linction between tolmtar) and inrolaatarsr bankruptcy. But the dirtinction ia not .ufficiently prcerved throughout the act, u will be apparent to any one who carefully read. it. Amongjrt the numerou. provi.ion. of thi. act, the following are the taoat noticeable: rub (I) The orrfinorv coarl. are given juri.dlction in ca.e. of bank- mptev, and no .peciil court for dealing with them i. er,«led by the Mt li) The word, bankrupt and bankruptcy are u.ed throughout, ana not in«.lvent and ln«>lvency. There are good reawn. for thi.. (S) Former, and wage-earner, cannot be made involunUry bank- rupts; though they may be embraced within the proviaion. of the law, if they arc willing .0 to be. . (4) A bankrupt may offer a compoaition only after a meeting of creditors, or examination in open court. (5) A di«harge may be agreed to, if accepted by a simple m.ijority of his creditor., both in number and amount. No maximum i. n,med of either as necessary; and no minimum of the amount to be paid or reali.ed. But no discharge can be confirmed unle« the amount of the con-PO''"?" fnd all prefer«d daim, and charge, .hall have b'en orla^J, po.rf «^ This is an important point, and differ, from what l.a. hitherto prevailed ("eTThe judge 1. required to confirm a dlKharge, 'f "«■*"*' (^ a„t « i. for the Lt mSert of the creditor.; (2) th.t no f r.»l ha. been Emitted, or duty owing to them neglected; (S) that the offer and it. A BANKRUPTCY LAW. gffi •eeepUnce hare bcm made in good failh, and not procured bj improna nam. r r— (7) But a compotllion may be Kt ailde upon application of intcntlad parti« within ill monthi, if it con be made apparent that fraud waa uaed b the procuring of it, and that certain Itnowledge hai come to the peti- tioner! after the confirmation of the diicharj(e. (8) If a perion who haa been proceeded againat in bankruptcT denies that he ii inaolient, he ii entitled to have a Mai bf juri) ai to whether he ii 30 or not. Thii ii a provialon we have never had In Canadian law, Ita wHdom ii qmntionable, conildering how triala by jury In civil caaM often work. (9) The qucition of prcferencet and lecuritici is fully and equiUblr dealt with. \mor,7«t other clauaei relating thereto are the following: (o) The claimi of enxHton who have received preferrneei shall not be allowed unless such creditors shall surrender their preferences. (6) If a creditor has received preference within four monthi of bankruptcy, and hod reason to believe that it was inlcnJed as a prefer- ence, it shall he voidoble, and the amount may be recovered. But if ■ creditor has been preferred, and afterwards" in good faith gives the debtor further credit, this new credit may be set off against the amount recoverable. (<■) .Secured ereditor» eon only elnim after deducting wh;it the loiirj may consider the value of their security. Clauaes follow as to the mode in which the value of such security if to be determined. (10) The administration of estates is to be by olRciall of two claisea; namely, truatett and refereet. These correspond somewhat to the liquidators and inipeetori under former Canadian acts; but they apenr to constitute in b^ilh caiei an official clan who give lecurity to the court before entering npon their dnlies. These duties arc minutely set forth in the act. But there is a lingular wont of preciseness in the directions how on estate is to be realized. The general underlying principle seems to be that the trustees shall have the actual handiing of the property constituting the estate; while the referees are an advisory and directing body, for the purpose of being a cheek upon the actions of trustees. It is made the duty of the referee to declare dividends, and to deliver the dividend sheets to trustees; also •• examine all the schedules of the property of bankrupts together with lists of creditors. (n) The compensation to the various classes of oScers Is precisely defined. Economy is evidently aimed at. (IS) The first dividend Is to be declared within thirty days if the net money on hand amounts to five per cent, of the allowed claima. Subse- quent dividends shall be declared upon like terma, and as often as the 262 BANKING AND COMMERCE. •niount ilull equal («■ ptr mhI. Bat thej inajr be decUrrd oftener, u4 in •inillei ptoportloiu, It' the judge ahall lo order. (IS) Offence* are »erjr earefully ict out, and apply to the oSeialt and colluiive crrditon ai well ai to bankrupti themaelvei. Altogether the act ii one which e»ldence« much care and thought to ill compilation, and ia well worthy of ttudy if the goTcmment of Cauda at any time ihould attempt lo pan a general law upon the nbjaot It! principal defect, and a very leriouJ one It ii, lice In the facllitiet It affordf for a debtor obtaining an easy diacharge. When euch a diacharge can be granted on the conaent of a bare ma- jority in number and amount of creditora, and without any limiUtlon aa to the amount of the conipoailion or dividenda declared, the door la open to aerioua abiiae, eapecially aa it la provided that a diacharge may be con- firmed bv the ii>t of a aingle judge. The act ia alao aomewhat defective in not maintaining throughout all its dauaea the neceaaary diatinction of procedure and adminiatratton in the caae of volunUry and involuntary bankrupta. Thia act ia atated by men of experience to work well on the whole, Ihough it ia not economical in ita operation. The following general auggeallona on the aubject are the result of experience and may be found worthy of conaideratlon. (I) If legialation ia attempted, it will be well to conaider from inkom the prmure for i( originatea; what claaa in the community ia calling for it! what claaa ia auffcring by reaaon of the want of It. Ia it the debtor class; or ia it the creditor claaa? And what haa each of them to aay on the aubject? A aettlement of auch qneationa will determine much of the general character of the bill. Beaidea thia, it ahould be considered, aa preparation proceeds, what dangers msT arise from any unwise and ineautioua provUiona of the act! and what were the reaaona for former legialation having been abrogated? (S) The general framework of a Bankrupt Law might be on the following lines: I._The words should be fcaaimpt and brnkruftc). and not intolvnt and iasoleeacjr. II.— A clear distinction should be made throughout between the pro- cerdinga in tlie caae .-f voluntary aaaignmenta and compoaitions by honest deblora; and the forcible meaaurea neceaaary In dealing with a debtor who ia wasting Ha ealate, giving preferencea, accreting hU effecta, or committing franda, aingly or in collusion. in. The procedure throughout ahould alwaya keep in view one or other of the objecta aimed at; that ia, either to afford facilitiea for a competent and honeat debtor lo continue in buaineaa after dealing equit- ably with hia creditora; in which caae he might retain practical poaaeaalon of hia catate, or that the law ahould aim at forcibly depriving a diahoneat and incompetent peraon of hia estate; realiaing it economically, distrib- uting it equiUbly, and closing out the business altogether. IV.— Administration In bankruptcy should be by the ordinary courU; A BANKRtPTCY LAW. 863 kit provltkni to be in>de for iptcUl ttHingt .1 dtlaite tima for dealuic with lUCA CAMt. v.— A claM of oSclali to d»l. with bankruptcr "«. ihould not be CKated by law. VI.— Liqulditon, in ill cam, thould gin utiaftctory iKutitT Their reninaeraUon tboold be itrictly defined, and power giren to the court u d' il with colliuive or unrraionable rhargei. ^"•~" • compoiition contalni preference claiuei, it ihoold, ipn fmcio, be thrown out, and the attempt dealt with ai a ■peeiei of fraud. VIII.— Securitiea ihould be accurately deflned; and procedure with mpect to them let out with clearnrH and preeiflon, yet wltliout haraaa- lag unnaionably thoie who have an equitable claim to Ihem. On the other hand, it ihould compel lurrender of tuch ai have been acquired Improperly. IX.— DiJcharge ihould In no eaie be granted nnlcai concurred in by •t leait a majority of threc-fourthl In number and amount of creditor., and a net reault of MTenty-five per cent to the creditor! hai been realiied. X-— PenalUei to be preclie, applicable to deflnite acta of wrong- doing, and aevere enough to be deterrent In conaidering the queition of diieharge, too much weight ihould not be giTen to the plea that if a man cannot get a releaae from hil debta, the community wlU loae the benefit of auch aerricei a> he might render to it aa a trader. For the very fact of the deblar'i failure prorea that hitherto he haa not rendered the lenrice to the community that ii deair- able. And eiperience prorea that the beat iervice that many men can render U ai employea of otheri, and not aa traderi on their own account There la no object, therefore, to be gained by granting a dlacharge that may be diaapprored by a number of credltora in order that the debtor may be able to contract new obligations. X'- — The full amount of the composition should be paid in or secured before discharge; or, as an altematiTe, the business of the bankrupt should be carried on under a controlling inapection, until the amount is fully realised. An act framed in accordance with theae suggestions would be found •ervicenble alike to the reasonable orrditor and the honest debtor, and would be free from the drawbacks and disadrantages which led to the repeal of former laws on the subject. i MKROCOrv nSOLUTION TBT OURT (ANS< and ISO TEST CHART No. 2) 1.0 I.I 1^ |2j an Ufi M^mm u I& ■ 2.2 att ISA ■■■ IB U 1* H la |Z0 Im }A 1 WI.6 A /^PPUEDJWMGE lesj Em thim strt*) Rochnltf. Ntv rorii r no re- demption of notes. This has come about most naturally froi . the cir- eumstances under which they are issued, for all are secured by deposit of Government bonds of the same quality, all therefore are nearly equal in credit and value. Hence they are all Ireoted by the banks as money of a common stock. Many of the banks have issued all they have the power to issue. Redemption therefore answers no particular object and is never carried out. Law or Fixko Resmves— Examinations. But the two most striking features of American ban' ing, next to tt« secured but inelastic circulation, are the requirements b law of a fixed minimum of reserve of cash or its equivalent, to be kept on hand, and next the system of bank examination by Government officials. With re- gard to the former it must be said that while it has a great attraction for those whose knowledge of banking is only theoretical, its benefits are il- lusory in practice. The system indeed has two fundamental drawback!. It is calculated to aggravate banking difficulties in time of cmbarrasa- AMERICAN BANKING. mrnt. and when tlirpi- is ii uiircity of nioniy, Iht very ncceuily of the cue leadi to ita |ipovislon» king violuttd. In all lound banking the keiping of ndrc|iinl<- nurv.-s of ovailnblc fundi ii dwmed a matter of vital importance, it In ing of the (s»tncc of a banker'a buiineii to be able to meit, at once, under all circunistuncM, every demand made upon him. To every prudent banker, therefore, the amount of caih retcrvei he hu 01. hand ia a matter of daily allenlion; and the watching of iti ebb and (low, and the repleniahing of Ins resources when the demands of busineu cause them to run down, a never-ceasing occupation. But a small ron- lideration will show that it is a matter of imperative necessity, not only that he shall have an ample stock of lawful money by him, but that he shall have command of the rvhole of that ttort at all timet. If, out of this store of legol-lendep money, there is a certain amount ho cannot touch, it is evident that for purposes of meeting demands upon him thil particular amount might as well be non-existent. It is as if on some par- ticular day he had locked up a large amount of reserve money in hli safe and handed the key to the Government. No matter how much money he might have there, he might be compelled to stop payment and be ruined, because he could not meet demands out of the remainder. This i« exactly the position in which the American system places every bank. It ordains that a certain percentage of the liabilities of the bank must be kept in cash, or in the equivalent of cash. This legal percentage is undoubtedly a reasonable amount; such, in fact, as prudent bankers would seek to have on hand in the ordinary course of business. But it ia evident that, when the law orders a banker to keep this amount of money by him, that amount is withdrawn from his use for meeting demandi upon him. No matter what demands are made upon 'im in the course of a day's business, he cannot, if he obeys the law, touch that portion of his cash reserves to meet them. It is as if, in military matters, the law or- dained that every general must keep twenty per cent, of his army in re- fcrve, and forbade him to use that part of his force when a battle is going on. But no General, if the exigencies of an engagement were imminent, could help bringing his reserves into play to prevent defeat. Self-preser- vation is the first law of nature. No statute law can override it. The position of a banker under a law of this description is of a similar char- acter. In the demands of his customers he has a daily battle with cir- cumstances. These demands must be met with money on the spot, or he is defeated and disgraced as a banker. Thus, then it has come to pass, under the pressure of circumstances, in times of monetary scarcity, that American bankers have found them- selves face to face with the problem, shall iI.-t* use their monetary re- serve to fulfill the contracts made with their . osiomers, or shall they comply strictly with the law and refuse to pay their customers the money demanded. It is evident th.it when in this position the banker is in the presence of two conflicting laws. On the one hand is the law whicb " , f i^til BANKINO AND COMMERCE. obligei him to fulfill the contract made with ciutomerf, on the other ii tht ttntutory rcquirt-QH-nt thnf forbidi him to touch hi* atore of money when it haa run down to a ccrt.tin lum. Placed thua between two contradictory requiremcnta, it doea not need much penetration to aee what a banker'i chuicr will be. The law of aelf-pr nervation, combined with the fondm- mental law of the inviolnbility of contracti, will lead him to paj the de- mand! of the cuftomeri, though by lo doing he violstea tlie proriiiona of the atatute law of banking. This forecait of what would be likely to he done has been demon- •trated to be correct by experience. Again and again have American banks kept on fulfilling their contract* with depositors, although the store of money required by law has gone below the limit. In such a pub- lie manner has this been done that it has been regulirly published In financial journals. When these papers are publishing the condition, aay, of t' -^ banka of New York city, they are in the habit of giving the fig- ures of the monetary reaerre as being up to legnl requlremtiits, or abott them, or belonr them. Now, in the latter case they publish the fad th&t the banka have violated the law. This has repeatedly been done during the last thirty years, yet neither the Government, nor the public, nor banka in dealing with one another, have taken the least notice of it, ex- cept as an indication that money is scarce. It is for these reasons that Canadian bankers have Invariably resisted any attempt to incorp- ate inch a provision in the banking law of the Dominion, although, under pressure from doctrinaires and theorists, the Government has sometimes endeavored to effect it when the renewal of charters was under coniidera- tion. Closely allied with the requirement of a minimum money reserve, It tnat of a system of Bank Examination. This system probably had for its foundation not so much the determination whether a bank's businesa was being conducted safely, as whether it was complying with the law in the matter of reserves. This necessitates on inspection somewhat of the tame character as is given to the branches of banks in Canada, via., a verification of the liabilities and assets of the office, not merely by a balancing of books, but by an actual counting of money and examination of bills and documents. The examination of an American bank, however, especially in large cities. Is now carried beyond this, and embraces patt- ing judgment upon the loans and discounts of the office. And when the examiner is a man of capacity, and has learned by practice how to bring his experience to bear upon current transactions, his visit is often found to be highly beneficial. But experience has proved that the examination it In some cases of a perfunctory nature, doing neither good nor harm. There have l«en instances in which, only a short time after an examiner's verification, a bank hat been found to be utterly bankrupt. Further, when the examiner wat a strong-headed, opinionated man, whose knowl- edge of busineti wos in inverse proportion to his conceit, his visit would AMERICAN HANKING. br productlvf of lianu. For he would And fault with tniiuclloni thit were lound, and pan by otIiTi that were dangeraui. The eiaminatloni of j. Ii ,iiki in the large cltiei, in New York eipec- Inll.v, are well and carefully done, aa a rule. Though the poit ii a politi- cal one. and therefore llnble lo change!, the Government, ai a rule, take* core that men of intelligence and experience are appointed. An Intelli- gtnt examiner will give the banker the benelit of h'l judgment ai to the •oundnrii of hii diacoutiti, and lometlmei a hint that the paper of iuch mid lucli a Ikiiisi wn» tii lu- fciiind in iillicr bnlili». tliiis |iiitting n |>ri sidint or e/nliiiT on his gimrd. The is.iiiiiii r'» duty alio miliraii's llu nupdiie loans and billi of the office, with the ircuritiei held therefor ! and it it hit buaineii to lec that proper proviiion ii made for such M are doubtful, and that «uch as arc bad are written off. Seeuritio :n the shape of mortgages, properties, i.id claims, also bonds, slocks and guaranteei arc examined with a view to nsci-rtain whether they stand ol a proper a. .nt in the bank's books. And when the examination is completed, a report is made to the Ccmptroller of the Currency in Washington, who passes the whole under review, and sometimes corres|>onds with the banks on points that seem to require it. This examination of the American banks is another of the polr.ti sometimes out forward by theorists as desirable to be applied to Canada. But this is in evident ignorance of the d' ice in circumstances. To examine properly a single large olSce of a Canadian bank, doinj a large business, Is a laborious matter, occupying the time of several officials for three or four weeks, and entailing in addition n large amount of supple- mental office work to bring all the threads to a point. But when a bank has brancher, as nearly every Canadian bank has, the examination of any one of its offices is not on examination of the bank, f^T the bank exists with all its powers of creati ' liabilities and investing in assets, in ten, twenty, or even a hundred placn, at once ; all of whic*. must be examined on the very samo day, if the truth of its published statement is to be veri- fied. For example, the first column in the monthly statement made by Canadian banks to the Government gives the amount of thtir note cir- culation. This amount is ascertained by deducting the total of its own notes held by a bank on a given day from the total that has been signed and entered in its books. But those notes are held in forty, fifty or more separate offices, and tl i amount varies every day. They must be counted simultaneously therefo.j at the close of the same day, in every one of the 'Offices. To do this so as to make a complete check wou' ' require the em- ployment of a hundred men at least. But this would oe only the begin- ning. The whole of the rest of the cash would require to be counted on the same day, and on the same day also the vast volume of bills dis- counted wculd require to be examined at every one of ti;- offices. The deposit ledger must alio be simultaneously balanced, the general ledger •Iso, the bills for collection verified, the accounts with other bonks >t home and abroad checked over, and an enormous mass of verifying cor- m tu BANKING AND COMMERCE. rnpondrncc mlirrd upon, the rciulli of which would rrqulre to bo w«ited fur Uforr the .-i.mln.tlon could b. Mid to be complete. To »"7 "* all Ihii rdirlcntlv In the cn.e of nny one of the large linnka two hundred men at leait would be required. Yet the examination even then would only have embraced one bank. Now, conildering the number of b«nk» In the Dominion, and the number of their branchel, Mme of them In the United Slatrt, the Welt Indiei and Great Britain, It U not too much to ■ar thai to do the work effectually would require the creation of an eii'onnou. Oovrmmenl department with at le.it a thouMnd trained of- fleer.. To do er come b. .-c the general public. The annual meeting of the .toikholder. of one of the larger bank. In Great Britain or Canada I. an event of intere.t to the whole community. Reporter, are generally preaent, remark, and comment, are made by the prMldent, and often by the chief executive officer, in which there i. .ometime. a review not only of the buaine.. of the bank, but of the financial and commercial po.ltloD of the country. ThI. i. specially the ca.e in Canada. QuMtlon. are asked bv .toekholder. a. to point. In the annual .tatement, or a. to profit, or lo..e'., and it i. common both in Great Britain and Canada for stock- holder, to make remark, and critlcl.m.. And when legLlatlon 1. being brought forward on the .ubjeet, either in the Provincial or Dominion legislatures, the opinions jf banker, are generally a.ked for and great weight attached to their answer.. But a. a rule nothing of the kind 1. known in the United State.. Un- 1,,. .omelhing extraordinary 1. taking place, the newapaper. take no notice of the annual meeting, of bank., and a. to admitting reporter., they would as soon be allowed to attend the weekly meetings of the board of directors. The banks are looked upon almoit a. private partnership., .o far a. their individual action Is concerned! the only notice taken of them is In their associated capacity, when their pubUc statement, are noted and commented upon purely In their bearing m the money market As to their action a. bearing on trade or commerce U Is rarely thought of. Nor is It as bearing upon legislation. The Annual Meetings of the Bankers' Associations, both of the sepa- riite Stales, and of the country as i whole, arc the only occasions on which the larger questions are di.eu.sed which are common to all banks and which relate to banking as a profcion. There, however, they are dl«- cu.sed with marked abUity. The pnrely local character even of the larg- AMKRH'AX BAXKIXCl. ■i7: fit Atiiiriiin bniiki li dmililliat llir rinn(i in Urtnt Dritnin ami (aimda. Tho tiio^t iniportniit of tliisr i. in Ilir position ntciiplrd liy thr prmiiient. The prr<>iilrnt of an Amtrirnn Iwink '.n. nn n iiinltrr of foiirnr. a nmnlH-r of tlir lionril of dinrtorx and unl.jc.l Ijki tin tv%\ to an annual diclion. And hr in. liy the v. ry tiirc of liis offir* . tli,- t-lialnnnn of tlir Itnard. nnt in addition to this. lie, in ninny rases, is tlir ninnaftrr and fhi.f v\* rctitivi- offictT of tin- corporation, nnil as such givra daily ntt« ndani-. . r*'- fiivrs nstonirrs. nrranftt« loans, disrounls bills. op» iih or i-lo-i. s .ic- counts, nnd ap)>ointH nnd siiprrvisrs the staff of the Kink. lie h.M liad iilninat invnrinlily a lrftinin« in the business of bnnkinfr frnm tlir outsit. He is thus abh' to prrforni with iiitill nee nil the functions of the grncrnl inana^-r of an F.nfiHsli or ('nnr i bank. In the smaller banki of the I'nited States, the duties of evei. .i Canadian brnnrh manager ap- ptrtnin to him. There arc undotibtrdly some advantages in this system, for the president King the chairman of the board of directors is able with perfect l.nowledgc and with the weight of nuthorit- »o carry out their policy in tlie banks daily administration. This ensures that there sliill \w no conflict between the ' ' f executive officer and the board, nnd that, in case of difference of opinion, the vicwi of directors »lmll prevail. It carries also the great advantage that in the board itself there shall lie one who is perfectly conversant with mnttert from a banking point of view : a professionnl banker, in fact, whose in- formation is varied, and hia judgment sharpened by daily contact with customers and the )iubIio. ReaNons like these have prevailed when on sev- eral occasions the general manager of n Cnnadinn bank has been elected to the oflicc of president, continuing ncvertlicless to exercise the same functions as before. There arc, however, disadvantages in the system. It is undoubtedly desirable tlint the chairman of the board of directors nnd the principal person amongst them, should be a man of wealth and importance in th« community, apart from his connection with the bank. This il is scarcely likely that any officer of a bank could be. Moreover, it is certainly unde- sirable that the principal executive officer of a bank should be subject to an annual election, the continuity of the same person In such an officr being a matter of imporUnce. The carrying out of this system of mak- ing the president the chief executive officer involves also the making the office of cashier a position of secondary importance. He therefore hai duties which though important are subordinate. His poiition in effect ■ m.: 276 BANKING AND COMMERCE. is analogous to that of aHisbint manager in an English or Canadian bank." Certification of Chicks. Another peculiarity of American banking, especially in the large cities, is the function exercised by the paying teller of certifying checki as "good." The exercise of this function by an officer who does not keep the accounts of customers, and does not charge such checks to account when certifying them, is somewhat of an anomaly, and seems to open the way to constant mistaken For in a bank with a large number of acconnti it seems impossible for a teller to recollect with sufficient accuracy the position of every account to make it safe for him to certify that checks are good. Experience, however, seems to justify the practice, and it li well known that the tellers of many English banks pay checks across t^e counter without any certification at all. Some banks in the North of England have adopted the practice of certification. But in their case the certifying officer is the person who keeps t!.^ account in the ledger, which is the more reasonable and safe practice. This is the case in Canada, and it is carried out with accuracy and precision there by charg- ing the account of a customer with every check that is certified. Altogether the system of banking carried out in the States is evi- dently adapted to the requirements of the country. The division into national banks and state banks arises naturally from the circumstance! under which the states of the Union came to be at once separate and united. Both classes of banks are precisely the same in their internal economy. The want of elasticity, however, is a great drawback to the national currency, as has been observed, and efforts have been made at various limes to cure this defect, which could be accomplished by the adoption of a system analogous to that of Canada. But the jealousy of banking corporations entertained by large multitudes of the people, es- peciallv of the Western States, has hitherto prevented any legislation In that direction; in fact, instead of turning their attention to such a prac- tical matter as this, multitudes of the people have been misled into the advocacv of such a will-o'-the-wisp as the establishment of tilver on an utterly "impracticable and dishonest basis. This dangerous delusion has only been dispelled by the setting in, of late years, of a tide of prosperity over every part of the country and of every interest in it. The interference by government in such a delicate matter of bank ad- ministration as the monetary reserve, and also the system of bank exami- nations under the supervision of a government bureau, are instances of li In the early days of Canadian banking and there U a aiirvlval of thla ■yatem yet tn nome quarters, the chief executive officer of the bank, even when It had many branches, was called "cashier," Instead ef manager or »eneral inanaKer. But his functlMis were the same sa those of the president of an Amerlonn hank, and not of Ita cashier. The title of "cashier" Is also used of the chief executive officer In some Scotch banks, as Is the case also In the Bank of Ensland. It Is well known also that the officer* who are called "tellers" In ■cotland, are called "cashiers" In Bntland. AMKRICAN BANKING. ,77 »h.t ii a remarkable feature in adminiatratian In the United SUtea Tiz the ejtent to which the powen of government are atretihed. Snch »»" ernniental mlerferenee ia entirely unknown in the hanka of England and Scotland, and it would never be tolerated If attempted. The lame remark may also be applied to Canada. One Unal word may be said as to the manner in which the Aasociated banka of New ^ork are accuatomed to act together for mntnal protection ■n timea of financial .treaa. Again and again, they have combined their reserve., the strong protecting the weak, and thia with ao much wiadom that no danger has been incurred, and no undesirable conaequeneea have followed. The Clearing-Houic of New York, which ha. aupplied the machinery for this united action, ia beyond doubt one of the best, if not the best, managed institutions of the kind in the world. CHAPTER XXXir. VAEI0TJ8 THBOEIES OF NOTE OIECULATION. AMOVGST th. vario- theorie. that have prevailed on thU topor- A t-tVub ect. the following have been "-e mo't impo^nt^ ri„,._Th.t all promissory notes designed f P»" " ™"^ .hould be issued by the Government of the eountry n, wh.eh they are ''t'o'L!^ltat-all eireulating note, .hall be issued under Government .upfrvision, and be, strietly --ed by G^vernmen h„nd.^ ^^^^^^^ . Ji;:^^::":'3 :reI^tZtu^ u^er authority o. e„r^rath?i;Ve.o.usJdea^ngs.^^^^^^^^^^^ paid-up oaWlal; such notes being by law a first hen yn all the assets L resources of the bank, and further secured by depos.t. of money ''"•:^?r ^: z: ^t^r^i^tt. . ^ ^ « . b;pti^i:^er:fv::ir:^rir;sx;it '""if is proposed to consider these systems in their order. GonnKUiNT Noti Issom. The first theory, namely, that the Government of the C"™*^ *''^* be the oni; m^ium^'for the issue of circulating note, wa. thoroughly di.- VARIOUS THEORIES OF NOTE CIRCULATION. 279 cuued in Canada both by the press and In Parliament about the year 1866, when, under the auspices of the Finance Minister of the day, it was proposed to abolish the issue of notes by the banks and to labstitute for them the notes of the Government. The banks of the country, with one exception, were opposed to the Goremment assuming this function. Amongst other things, they stated tbat it would be impossible to put an efficient check upon over>issnei by the Government, should pressing necessities arise, for with every Govern- ment the law of self-preservation is paramount, and would override all other considerations. Second, that such issues, if continued, would inevitably depreciate the value of the bills and unsettle every financial interest of the country. At the very time when this theory was propounded in Canada, the notes of the Government of the United States were at a heavy discount. (It may be added that eleven years elapsed before they were worth par.) It was pointed out that repeated experience had shown that there was no limit to the depreciation of Government notes; that every Government currency then circulating in the world was at a discount, Italy and Russia being cited as examples; that such currencies in former days, though issued by governments which had proved perfectly stable in other re- spects, had fallen to such a discount as to be practically worthless. Finally, the broad ground was taken that, though it was the un- doubted function of the Government to stamp coin, and give authority to issue notes, the function of redemption was one that peculiarly per- tained to bankers ; that nothing is more easy than to issue bills ; nothing more difficult than to maintain constant redemption of them. Moreover, the issuing of circulating bills sliould be, and would be, if healthy, closely connected with the daily operations of commerce, which is not in the sphere of government but of banking. It was pointed out that a government as a borrower of money is, in many respects, in the same position as an individual, or an ordinary corporation; that there is no charm about the organization called a government to make it safe under all circumstances; that a government may fail to meet its obligations, may compound with its creditors, and may actually compound on the composition, as Spain has done. A government, it was said, may re- pudiate its obligations altogether (as has been actually the case), and may have its obligations protested by millions, and not make the slightest effort to pay them. Such were the reasons which had weight with the bankers and people of Canada at the time named, and induced them to organise opposition to the project of having all circulating bills issued by the Government of the day. It is true that subsequently in Canada an act of Parliament was passed, authorizing the Government to issue one and two dollar bills for circulation, and also bills of large denominations not for circulation, but for the convenience of the banks in making settlements with each other; k CM BANKING AND COMMERCE. one provision of the »et being Ih.l the bank, .hould hold « «rt«ln p«- lt.ge of their e».h re.erve, in these note.. To thi. they .ubn-itt^ Heinf that the aet required the Government to hold a large pe'«ntago of i", issue, in .etna, gold, and, in addition, to hoU •'"hor..ed deben u™ for the balanee. This .y.tem i. preei.ely that of the Bank of EngUni And to .ay truth, none of the danger, whieh .ere eons,dered to b. bo^^d „D with issues of the Government have transpired .o far. Re.pee'Jng thisrhowever, t,o observations have to be made: first, that the .y.tem of Go4rnment i,.ue. in Canada for cireul.tion i. only a very P"H«1 ->"«. and seeondlv, that at times when large note, were pre.ented for redemp- Hon hv banks'that needed gold for e.port, the banker, of the Gov'^nent were Willing to a,si.t in meeting the demand. The .y.tem, mdeed ha. never been very severely tried. w j <• » .!,.> .Ikm With regard to the United State., it i. an undoubted faet that .InM the Federal Government re.umed payment in .pecie-and it ™ ">»« han twelve year, after the war terminated that they did .o-none of the evil. fore.hIdowed in Canada a. a eon.eq«enee of Government .s.ue. have transpired. But it has to be said again, that the .y.tem of Govern- ment i..ues sinee the war ha. never been severe^ t«ted, «"d al»» *' the Government, during the whole period, ha. been .t. own b"*", J- way. having .tore, of gold in po..e.,ion, the prodoet of over-.uffielent "^Moreover, whatever evil, might Iw developed by a .ystem under whieh the Government would be the sole i..uer of eirculating note., wch would, even under pre..ure, be mueh le..ened when '"PP^mented by . .ystem of bank i..ues, a. :.a. been the caK in the Umted State.. Had the agitation for a silver basi. for Government i..ue. bee" .uc- cessful (and thi. momentou. question, at one time, wholly ^'P™f J^* J" the uneertain issue of a Presidential eleetion) it i. eertam th«t 'n .udh an event gold would have gone to » eon.ider.ble premium, and the not« of the Government to a heavy diaeount. The trend of opinion, even in the United State., i. in the direction of graduaUy withdrawing Govern^ ment note, from aelual eirculauon, and eonfining them to the i..ue of .ueh gold certi/Scale. a. are in u,e now in the larger eentre. exehange. able for gold at the pleaanre of the holder. But the idea of the whole i.,ue. of a eounlry being that of the Government lo.e. favor when ex- .mined in the light of event.; and for thi. reason e.peeially, if none other, eould be alleged, .ueh issue, cannot nossibly eorre.pond to the movement, and requirement, of commerce. Bank Notb. Sectoid bt Goternmikt BoNns. The second theory is that whieh prevail, in the United SUle. under the National B.nk Aet. Under thi. system .11 bank issue, are .ecured by Government bond.. They are ah-olutely restricted to . certain per- cent.ge of the capital of each issuing bank, the total amount cannot be increased except by the e.tabli.hment of new bank., there being no in- VARIOUS THEORIES OF NOTE CIRCULATION. 281 duccDient for existing banlcs to increase their capital for the purpose of increased circulation. Under this system, while the notes are perfectly secure so long as the bonds of the Government are good, they would depreciate if the bonds depreciated. Moriover, this system, like that of Government notes, has no correspondence with the inflowing and outflowing movements of com- merce. The notes are never presented for redemption. They are far in eicess of ordinary reqiiinments at one time, and far below such require- ments at another; the result being those heavy fluctuationa in the rate of interest which have always distinguished the New York money market, and which bring aljout periodically severe financial crises. The system, in its practic.il worliing, often leads to such a scarcity of currency in rural districts that business is almost reduced to a condi- tion of barter. Moved by conditions such as these, strenuous endeavors have been made in the United States to bring about such modifications of the system as would ensure elasticity as well as security. The third system prevailed in the United States before the establish- ment of the national bank system; but its defects were so great, and its .ibuses so constant, that it was abolished at the beginning of the Civil War withoi'' ji.;- resistance, and has never since sought to he re- habilitated. Issues op the Bank of England. The fourtli is the system of the Bank of England. The notes of the Bank of England are legal tenders everywhere in England ex- cept at the counter, of the Bank, where they are interchangeable for gold. For many generations, and up to the passing of Sir Robert Peel's Act, there was no statutory limit to the issue of the Bank of Eng- land notes. But there was a constant and never-ceasing restriction upon such issues by the necessity of redeeming them in gold. This restriction, however, ceased to operate during the period of the Frenth Revolntion- ary War. Specie payments were then suspended and not resumed nntil some years after the war had closed. At that time, as might be expected, gold went to a premium, which premium was disguised under the price per ounce of gold bullion; which was much higher when paid for in Bank of England notes than in gold coin. The discussions that look place in Parliament at this period with regard to the Bank of England issues and the price of gold dis- play a most remarkable want of apprehension of the real bearings of the question on the part of eminent statesmen and members of Parliament Although for years it was patent that a certain number of pounds of Bank of England notes would not buy nearly the same amount of commodities .IS the same amount of money in gold coin, it was strenuously denied by certain thinkers that the notes were at a discount. This might be deemed incredible, if the fact were not so well established. The premium, indeed, was never high; not more thiin fifteen or sixteen per cent., but guineas, which were the standard gold coin at the time, were perfectly i S,5 BANKING AND COMMERCE. well known to b. worth .boot th.t much b.yond Bank of EngUnd .h.t gold w.. in .bnonn.1 dr'"^/;;;;;^ ," pcrfeoUy evld«.t „,(* the ordim.r!) operat«,« of *™'ff """"'• "^^ during the '"""This wa, th. truth, however, that had to be learned by "perieoee; for •"'Caftr the great panie of 1S.5 ^^'""^^^^^ ^^^^^^^ quent event. d™™f' "^- ^' t^ Peel, k^lati»n w.. carried mind that at length, under Sir Robert reel, leg nte!bI^roTsrB2"'p:ef-and the party that acted with hnu wa, to awilh .11 i..ue. throughout *= ^^f «*™;«f j^Vof" Enjw Bank of England; and further *f ' '^^.^^.^^ tr .-/ fivl^-'^ z:;^ ^^p^J'-Z"! ':b;hr rn-otn^ttrai'S-,: "Timet." VARIOL'S THEORIES OF NOTE CIRCUrATIOX. 283 and did not see that if tliis tlirory were thoroiighlv carried out it would be far better not to have any bank notes at all. Why should any cor- poration, or even any f^overnment, go to the expense of printing bank notes and incur the risk of paying forged ones, if for every note issued ther^ must be a corresponding amount of gold in the till? In that case, why not pay out the gold at once? Why not have a simple gold currency, and save the risk nnd expense of paper notes? Under suth n theory there is no possible object to be gained by is- suing paper money; and it would be obviously more profitable not to use it. It never seems to have dawned upon these theorists that the very foundation and raiaon d'etre of paper money it to economise the ute of gold. Against this reasoning it may be urged that the bankers who were in fnvor of this currency measure were not mere theorists, but mostly Lon- don bankers of large experience, who thoroughly understood the subject they were treating of. This, however, is a mistake. London bankers they were, certainly, and men of the largest experience truly in some departments of banking. But it is a simple fact, that in the matter of the issue and redemption of circulation, they had no experience what- ever. London bankers had given up issuing their own notes for nearly fifty years. Not one of them knew anything of the subject by his own practical experience; for not one of them in his lifetime had ever issued or redeemed a single note of his own. In no dcpnrtmenl of finance is the mnxim "experientia docet" more upplioable tlinn to that of circulation. Their answers, therefore, to the voluminous series of questions put to them were all the speculations of impractical theorists. But e\-en with these, when the idea was proposed to be applied to the Bank of England, and to require that the Bank should hold gold for every note it issued, an enormous, and what proved to be an iniurmomit- able obstacle, loomed up. There was not enough gold in the countrr to meet this requirement. If even an attempt had been made to put it in operation, a tremendous disturbance of business and unparalled tight- ness of money would have ensued. In order to get such an amount of gold as that into the Bank of England, it would have been necessary to appeal to foreign countries; for it certainly could not have been spared in England. But it could not have been taken from foreign countries by force, it could only be got by selling abnormal amounts of consols abroad; or by making forced sales of British goods. But even these resources would not have availed to a sufficient ex- tent; for foreign governments would soon have put a stop to the drain of gold when they saw what was going on. It was an absolute necessity, therefore, for Sir Robert Peel to modify his theory to a large extent The idea of compelling the Bank to hold gold for every note it issued was abandoned; and, as the Act finally passed, the govemort were al- lowed to issue notes against the debt owing to them by the Oovemment. '1 i If M t»t BANKINO AND COMMERCE. A coniidoMlJc part of Itf Imum, therefore, have never been repreientcd by gold nt nil ; nnd tlir curiinrv thiory lirokc down from thi' very momcnf 11 WM otlcmpled to carty It Into practice. But wilu regard to the remainder of iti l»ue>, Sir Robert thought be coold contrive a machine which would work automatically and eniure the convertibility of the rcit of the notea into gold under all circnm- itances; for under iti operation the circulation would flow out and In exactly as if it were metallic. Thia machine wa« the celebrated device of the leparation of the l»- ■uing department of the Bank from the banking department. All the notrs of the Bank were to be iuned by the iuuing depart- ment, and only in exchange for gold. Gold wa«, of courac, to be given for notes when demanded. The banking department could not get notes to do business with except by handing gold to the issuing department. Under this system it was concluded that there could be no possibility of an overisine, and that for the future there would be no more gnancial panics and revulsions. But the Act went much further than to deal simply with the circula- tion of the Bank of England. There were large numbers of banks in England that regularly issued circulating notes. Some of these were private banks, some of them joint stock. It was intended by Sir Robert Peel to abolish the circulation of all these banks; for they, like the Bank of England, were blamed, though without reason, for overissuing, and thus assisting to bring about panics. But these banks of the country made sneh a strenuous resistance to the abolition of their notes that Sir Robert was compelled .o consent to a modification of his scheme. After considerable discussion, which indicated on the part of Peel and hii Government a singular want of apprehension of the real bearings of tht subject (as contrasted with the views of practical men like the country bankers), a basis of restriction was agreed upon. The average circu- lation of the preceding three years waa taken, which amount being duly registered, was fixed as the limit beyond which the country banks were not to extend their issues in future. Returns of the circulation of these banks were hereafter to be published in the "Gaiette," and so they have been ever since, as well as in the London "Bankers' Magaaine." It was provided also that in case a bank discontinued business, its circulating powers must lapse to the Bank of England. The Scotch banks made even a more strenuous resistance than the country banks of England, and by their compactness and unity of action were able to bring strong pressure to bear upon the Government. It waa finally agreed and embodied in law that the Scotch banks should continue to circulate bills as before to the extent of the average of the three pre- ceding years; but with this hnportant proviso, that they might circulate to any amount beyond that, provided they held gold to cover the extra amount. On this basis the issues of the banks m Scotland have con- tinued ever since. VARIOUS THEORIES OF NOTE CIRCULATION. S89 In Srotland. ai in Cnnada, there if always an expantion of circula- tion during acvrral monthi of the year. At that time it hni been tbe custom of the Scotch banks to augment their s^ock of gold by the amount calculnted to be required. Boxes of gold are regularly sent down fron IiOndon to Scotland for the purpose; but It is a well known fact in bank- ing circles that the boxes are, as a rule, never oprned, and are returned to London exactly as they cnme when the period of expansion doses. It should be remembered, moreover, that the circulation of notes is very much larger in Scotland than in England owing to the I'act that banks Imiii' one pound notraJ' All this legislation took place in the year 1844, or soon afterwards; and upon this basis the circulation of notes in England and Scotland has continued ever since. The notes of the Bank of England are issued to the extent of its holding of Government bonds and of its gold In possession. The English banks (thot-e that circulate at all) issue up to the amount established by law. The Scotch banks to this latter amount with the addition of gv.ld in hand to the exceat. But it is to be noted that the question of ieeuring note issues seems to have been considered quite subordinate in importance to that of pre- venting what were thought to be overissues. As a matter of fact, the only notes of the Bank of Englond that are absolutely secured are those against which gold is held by the issue department. Government bonds are liable to heavy depreciation whenever war supervenes. For notes Issued by English banks nu special security is held at all. Note holders and depositors stand on precisely the same footing in respect of their claim upon the assets of the banks. In the cane of the Scotch banks there is even n more striking anomaly; for while supplies of gold are sent up to Scotland as a baiU for extended issues, the gold is not constituted a special security for their extended issues. It forms a part of the general assets of the bark, and the de- positors have just the same claim to it as these very notes. But in fact the Act all throughout as respects Scotland is most in- consequent. To carry it to a logical conclusion, special issues of notes ought to have been directed for the excess; each of them stamped with the words "this note is secured by specfal deposit of gold." But the bankers of Scotland, shrewd men as they are, would never have consented to luch discrimination nuninst their ordinary issues.'"' But the important question remains, viz., has that Act, or has it not, fulfilled one great purpose of its enactment, namely, the placing of the 75 Onp of the fnnclw! of thP currency theorists had t>een that what they called the overiaaue of the Bank of England had arUen from Its power to Issue one pound notes. They were, therefore. alxiUshed. very un«l.-ely. One of the most singular features of the lonf discussion that took place at that period was that scarcely a single reference was made to the example of Scotland. 78 In making these observations It Is not Intunded to cast the slightest doubt upon the security of bank notes In Great Britain/ The notes are abundantly se- cure. But they are not sMurs by reason of the provisions of Sir Robert Peel's Act. ill t:6 B.-.N'KIVC AM) COMMERCE. 0iuncei of country, ni rrprctt-ntt'd nnd cotitrullcd by bnnki, upon lucb ■ bfliii aa would ritlur pn-vint financial pAnici in the future, or> if they ibould rrcur, cniurc that thry should be of very limited extent? A general Idea prevniled that It would; which idea wai founded ui>on a eertnin theory (which theory had the support of many eminent namei) vii., that all panics being due to overtradinft and speculation (as wa«< universally acknowledned) nnd such overtrndinft and speculation being largely fostered, and helped (as they supposed) by the overissues of banks, If overissuing was stopped, overtrading and speculation must, per- ft .T, i/C prevented or confined within such narrow limits that panics and revulsions would ct-nac to trouble the land. But ains for the vanity of human cxpectrttioni! Within three years from the passing of the Act, a wave of panic swept over the country once more. And strange to say, it was found that the effect of the Act was to inteniiify the severity of the panic, nnd that the only recourse avnil.ible to prevent the Htoppnge of the Bank of England itself, and with it n condition of iiniverani bankruptcy, was to tuapend the operation of the Act! When the alternative became pressing, shall the Bank Act be suK))ended, or shall the Bank of England itself suspend, theory gave wny and commnn sense asserted Itself. The Act ttaa suspended by order in Council, and the wave of panic began to subside Immediately. Within a few months a normal condition of finance prevailed. But so inveterate is the force of tradition in English legislation that no thought seems to have arisen of revising the provisions of the Act. It came into force again; and again it was fondly hoped that peace and security would prevail. But the hopes of the theortsta were again and again disappointed. After the lapse of ten years another period of over- trading :n: I speculation set In, not in England only; and again it was evident that the Bank Act aggravated the pressure. The operation of the Act was accordingly suspended again; an experience that was re- peated once more about twelve years afterwards. All this demonstrated the truth of what the opponents of the Act contended, viz., that panics arise from other causes than overissues, that overissues, sn-called, do not originate or help them, and that restricting issues will not prevent them; and that Sir Robert Peel's Act was nothing but a "fair weather" Act which would always have to be set aside when a storm arose. The fact is undoubted that after the Act waji passed the course of commercial and financial affairs, and especially the waves of inflation and speculation, the fortunes and misfortunes of commercial houses and banks, prf>cecded exactly as they did before. The Basis of Note Circulation in Canada. The seventh of the systems of circulotion named above is that which now prevails In Canada. ' It is the final result of the long process of what may be called financial evolution. The distinguishing features of this sTstem are as follows : VAHIOUS THEORIES . NOTE CIRCULATION. i87 Firtt. — That thr right to istue nolft for drculution ihall be eonllned to corporattoni that are rrgtttcrrd under the proviilona of the Banking Act. Scroll''. — That no lurh bnnk ihall iuue notei until It has • mininum of five hundred thouiand capital lubicribed, and of two hundred and fifty ». 4iand paid up. Third.— Thnt the .imount of luch latuca ahall be kept within the limit of the paid up capital. Fourth. — And Ihnt nil inch nntm Hhall rnnatitute, in cnnv nf failure of the bank iwuing them, a firat lien upon all itf otteti, and upon th» double liabilitg of the aioekholdert in addition. For Rome years after iti enaetmrnt, thia Important provision, which is the keynote and distinguishing feature of ihe note circulation of Can- ada, stood alone. But to mnke assurance doubly sure, there was added to it after u time ■ system of contribution by each bank of a certain sum, proportioned to its circulation, to constitute a guarantee redemption fund, which fund is deposited with, and is at the disposal of the Government, for the re- demption of the notes of any insolvent bank, should the provision pre- viously named prove insufficient. And should this fund, under any con- junction of circumstances, prove also insufficient, provision is ip Je for futher contributions, until the redemption of every note is actually ac- compllshed. The eiTect of this is very far-reaching; for it assures that every possible asset of every bank in the country, including the double liability of them all, is pledged for the redemption of the notes of any single insolvent bank. The whole of the banka of Canada arc therefore pledged for one another in the matter of the ultimate redemption of tu-lr circulating notes, affording a security for the issues much beyond any- thing existing in the world. It is, however, interesting to note that the provision by which notes are made a first Hen in case of a bank'i failure has invariably proved sufficient for the redemption of its whole Issue. In no one inttance haa it been necessary to fall back upon the redemption fund; even though, as it has happened In more than one case during a number of years, the issuing bank has been grossly mismanaged. Even when In a certain bnnk, by means of frnud and concealment, a large issue was effected be- yond the statutory requirement, the whole of them were redeemed out of the assets of the bank itself. Thus the security by first lien has stood the severest tests to which any system could be exposed. But with the redemption fund behind it, the tafeiji of Canadian bank note issues ii guarded beyond any possibility of failure. How Elasticity Is Secured. Yet with all this there has been ample provision made for the impor- tant matter of elaaticity. This feature of note issues is that which makes them correspond with the movements of commerce from season to season, and from year to year. I MS BANKING AND COMMERCE. CoaiiEera bcfiu *« Ibc point when pradnetioB to latokcd. Wkaa Ikt huTdt of u atrteiUtiinl caaiitrjr like Cuuda to icadj for uk, Iha nwrclunt ttcpi In with olTcn to psrchaic It. Bat experlenn ku d m on •trated that ponhMM of onrlcnltunl pradtm on only ho curled od by the nnplojmcnl of raimit monej. The lu u it i iieB l e of eoameice In towns and citia eon he and are almool wholly effected bf eheekl, hUlt, and promlMorjr notcf. Bot for parchaee of agrlcnltii.'al prodocta from the prodncer In conntry dlitrleti nothing will aniwer but cnrrent moneyi eoln for imall change, and notea for larger Irsnuctlona. When, there- fore, the time of harreit conci ronnd and pnrchsin begin to be aetire, an Immenie demand for notei icta in; an immenae outflow of notei takca place, which continuei Incrcuing until the larger part of the harreat panes into the hands of the merchant. Thto great annual outHow of oionej (the ssme that prdrails also In the United States, in Scothuid, and the agricultural parts of England) necessitates that there shall be powers of Issue with the banks orer and abore the ordinary requirements. This power of eitra Issue In Scotland is prorided by (he holding of gold: not at all an economical process. It Is prorided In Canada by the uited capital of the banks being always kept at a point far higher than that to which circulation erer rises at its highest lerel. Thus the power of the honks to provide for the largest outflow of notes is eronomicaUir For a long period previous to the derelopment of the great whea^ (rowing regions of the Northwest the circulation of the Canadian banks, as a whole, at its highest point year by year was far below their united capital; that Is, far below their circulating power. But in the year 1901 •0 vast was the harreat of the Northwest that this highest point ap- proarhcd so near to the united capital, before the reflex ware set in, that the banks came io a general eonclualon to increase their capital. F .ch one acted for itself, on its own judgment in the matter, and according to its special necessity, in order to provide for the expansion in future years. Capital, therefore, has been Increased and the great outflow fully provided fcr. This will undoubtedly continue to be the case if necesatty arises again. Thus, then, there to always a reserve of circulating power in the country; for when the reflex wave sets In, notes return to the banks, and there accnmnlate until a vast store lies ready In the safes of the banks waiting for the great demand to act in for the movement of the crops in the autumn. Let it be noted that by this method the utmost economy of flnance has been secured; for the capital of the banks that has been paid up to avail- able for commercial purposes as well aa the store of notes that a^c based upon it when wanted. The notes that lie in the bankers* safes ready for the great outflow dtoplace nothing. Thus it to that the diiScnlt problem of combining absolute safety with perf' et elaeticity has been solved. As to the saftiy, it has been shown to VABIOUS THEOBIES OF NOTE CIHCL'LATION. tM k. of u „„ hlfhn depee than thit of lh« !»»« of the Buk of Ev iT'tZ. """•"•»•' ''»'•• •' "« United St.t«, while Ito tUMMIr opcMon .nd Ih.. In . ™anl,y where the purwlt. „f .^caltur. .nd loFMlrj- fumiih • very Lrge pri|»r«lon of It. .nniul production." tmoiii,de in snch a form as to be understood by all classes of the eommunilv. For all classes are interested in banks, whether they desireTo n„,, i„,,„„eh as the bulk of the notes circulating as n,„ney are .sued bv them. Whether a n,an has money to deposit or not, whether "not he needs money to carry on his business he must '" «>' "ature o thin« 'f he lives in Canada at all, sometimes have the notes of a tana di n*bank in hi, possession and carry them a. his risk. But the prov,. ions of the Act are of interest to other, besides Canadians, for .t .s on. versallv admitted to he of high eicellenee. ri„„l,tion The power to establish banks that can issue notes for e.rculat on should reasonably be considered in relation to the general -f-'^f^ communitv. That should be well understood; ""•"R"' '"^'^'^^f; '' '' ^^ times lost sight of. Banks do not receive powers for the.r °"" -';'';^^J for the advantage of the people. It is the represen afves of '^^ P™Pl' ,° Parliament that g.ant these powers; and when it is considered that no prof ill bankerlias ever sat in Parliament, and only few, eompara- «velv, of the class of bank directors or presidents, .t become, appar nt that'bank legislation must have been considered m .ts relat.on to he country at large, .and not simply in its bearing upon the .nterests of a ■"'"Ttrctadian Bank -Vc, is the fruit of many years of discussion^ during which it ha, been repeatedly considered by committees ot t.» Ho se of Commons and the Senate, who have had before them yrommen me hers of the mercantile community, as well as professional banker, of experience. The Act its.lf is a consolidation of many separate act. formerly enacted by Canadian legislatures, under which charter, to carry en the business of banking wore conferred on certain corporations The provisions of these early charier, were largely framed upon 'h°»e P'f" vailing in the United .States, with modifications suited to the circumstance. °' B'uTso'on after the Province, of Canada were confederated, the gen- ial s„l,j,.et of hank charter, was taken up in Parliament with . view to BANKING ACT OF CANADA. jp, Ac. ™der which b-nkii, haten cTrfied onT r' ""' °"' »"'"•' ever since 1871. At intervnl, „f J„ ,^^ " '"<^'"P°'"cd bank, e,.ti„„ of ,he Act) it" p „ L„„. h" r" ^'"l."* "" ""'" °' "« -P" ha„.,ivcdi.c„«i„„/a„dvarir,:rX„,''''r t" '"' '"''J^'' °' '- in, .11 desired for the bettr„Ml , *." *"'" '"""P^^'t'i lhe«- nole tl... ,t whole of the!! P'"'"""" "^ "><= P-Wic It i, worthy of the ha„., .heltst rver:Z,°;rrt r '"^"-''^ ^' time,, hy far the largest holder" of 'sf. '. '^" ""^ '""'" "'• »* •" fore be the heavier .o/^reatl^h' ""'"• '^'"'^ """^ «««- tion. «"«-",„ ease there were any fail„„ „f „j,„p. ViKioLg Ci..u,n» OP THE Act. which may be summarized as follows ' '"'*'"« f"'"" "^ Isl.-Cl.uses which concern the e.;„W;.i„,„( „f „ fc„„^. 2d.-C auses relating ,o the „oH- and .=' --^e C "he'ban., to 7th.~CIauses rel.ting to insahtnci,; 8lh.— Clauses imposing penallici. tbes'e' 3:-°"' '" "-" '""P'" "> "'- " •>*' 'y-opsi, of the .4ct under Of the Est..„l.,„„e.vt .,xo Inco„p„„„,o.v or a B,.vk. No hank can be established unless an Act of P»rli.™ , • i for the purpose, setting forth: P.ri>.ment „ obtained ( 1 ) The proposed name; (2) The ropiVn; to be suliscribcd; (3) The hcalltg of the head office; (i) The names of provithml dirtciort To such a bank all the provisions of the Bank Act must apply. be §^60,000 pa,d tp before bnsiness can be commenced No bu.,„e«, shall be entered upon „„ul a Certificate has been given !l BANKING AND COMMERCE. 29« pUed with, and this within one year of the paMing l-- '"TrC«,ui«n,ent .. to e.pit.l w.s in view of the power of i..u- ing notes which the Act confers. C..X>.E. E.L.,T.»a TO th.'sh*«s and Sha«ho«».. (1) Share, umst be »f °"»'^ »' ,'ke"' place each share shall count (2) At aU meetings where voting talces place eaiii for one vote. „ , officer of the bank Jtl !X^Z ;Z;:Z^^;Z.. ^t-L renewed ever, two '■'"W The names of shareholders must be registered in books kept for the purpose by the bank. ^^^ ^^^^^ ^te^d . .Sitr UT:rer°'of'rs:res is the person whose name " "(stForCdeb. to the bank incurred by a shareholder the bank (7) They shall have power to P»» ^^ "^'J^ „f f„i„, the num- --^^-SSH?i:f^eibo— ' *"rsrrLtr."Xt air;ctors to establish guarantee ""ira"diitio'nt the foregoing are clauses relating to the following »at. *"'m The pavment of calls and penalty for neglect. r.; Lists of transfers to l«e.hiHtednh.^,^^^^^^^^^ ^^^^^ ^^ ^ __ -„.^ .*«rrtMi very Important functions in the ton p«rllani™t. f~'- »• /^"j"; ,'J^^„ „ follow.; , victoria cap. U and '■■'"■"'■■*""• ^j. Tr.a.ury Board coa.l.tln. of th. ,. Th,r. .1.11 1» a Board '» *" «^'^', ™™ ^lon»ln, to .h. (3««n'. Prlv, ^ro« /or "i":;.^' to-rn'or..":.''^" «- .» «-». « >- o-™" "■ <=°"°- n.llo d.partm.nt, or oHlcr, or oiM, p.r.on. BANKING ACT OF CANADA. igg bwik ihall not hr bound to >ee to the eiecntion of •ny trust to which ihares in its stock arc subject. In addition to the above provisions, the Banli Act contains the fol- lowing relating to the capital us a whole: (1) The co|)ital may be increased or decreased by a by-law passed by shareholders at the annual meeting, or at a meeting called for the purpose, to any amount that may be determined, provided only that the capital paid up shall not be reduced below $250,000. (2) But no such addition or reduction shall take effect unless a certificate approving thereof has been issued by the Treasury Board. (3) Increased stock shall first be offered to the shareholders pro rata at such a rale as may be fixed by the directors. But no rate shall be fixed which will make the premium, if any, on such new stock, exceed the percentage which the existing reserve fund bears to the existing cap- ital of the bank. "^ Clauses Relating to Directors. (1) Each director must hold stock paid up as follows, at least: When the whole paid up capital is $1,000,000 or „ '"' $3,000 From $1,000,000 to $3,000,000 4 ooo Exceeding |3,000,000 3000 B -i^} A majority of the directors must be naiuraVborn or naturalised British subjects. (3) The whole of the directors shall be elected annually (1) Vacancies during the bank year to be filled up according to provisions of by-laws. * (3) The capital and all the affairs and concerns .: the bank to be managed by the directors. (6) They shall have power to make by-laws as follows: (o) As to the management of the business generally. (b) As to the duties'and conduct of officers. (7) They may appoint such officers as they consider necessary, and remunerate them a, they think fit. But they must allow no officer to enter on his duties until he has given satisfactory security. (8) They shall submit to the shareholders at the annual meeting a full statement of the affairs and condition of the bank and also such special statement as may be called for in any by-law duly passed by the shareholders either in annual meeting or at a meeting called for the (9) They shall declare dividends half-yearly or quarterly out of the profits of the bank. But such dividends shall not be such as to impair the paid-up capital. If any such dividend is declared the direct- ors who concur therein shall be jointly and severally liable therefor. (10) If any part of the capital is lost, the directors shall cause the same to be made good by the shareholders. 1 ,g4 BANKING AND COMMERCE. (II) They shall not decUre anjr dividend beyond eight per cent per .nnum unlrti the rc«l or roerve fund amounts to «t least thirty per cent, of the paid-up capital. Clao.., Heiatino to th« Imu. and BroEMPTioM or Notes Fon CiaCOI-ATION. (I) The bank may issue notes payable on demand to an amount not exceeding its paid-up capital. . , . ,i .j _„f„ (S) No note shall be o{ lesser amount than five doUars-and notes in excess shall be for -.omc multiple of five dollar.. (g) All lac* note, thall coKiUMe a PHErxaENTiAi, iiEN on M the melt of the bank in the enni of tn»olcenej|. (4) The payme.n of such notes is further secured by a specW Eedemption Fund, to which all banks shall contribute P" "'« *» «?• lount of their average circulation year by year. The .a>d f ""* to ta held by the Government under the name of "Bank Circulation Redemp- Uon Fund," and to be used for no other purpose than the redempfon of the notes of any insolvent bank. „ .j u. On the amount contributed by each bank, interest to be •Uowed by the Government. The total amount to be contributed by each bank to said fund shall be five per cent, on its average n«»l« '»»■ " P»^ ^.ts are required to be made from the fund, they shaU be m^ pro „,. from the amount of each existing bank. Banks to make good the deficiency so caused, but only by payments not exceeding one per cent. ""'rsrin case of insolvency the notes of a suspended bank shaU bear interest at the rate of five per cent, per annum, until not.ce has been given bv the Government of its readiness to redeem them. («) No bank ShaU pledge or hypothecate it. note, for a loan, and no loan so m«le shall be recoverable from the asjet. of the bank. If the total circulation at any time exceed, the capital of the bank, the bank .hall incur the foUowing penaltie., vis.: If 'h^"-;• ^ ""» ""d $1000 the penalty .hall be the amount of the excess; .f over SIOOO and Tover $20,000, the penalty to be *1000; if over $20,000 and not over $100,000, a penally of $10,000: if the amount of «>«««« is over $10c;000 and not over $200,000, a penalty of Sf-OOO, and if the amouft of such excess i. over *MO,000, a penalty of $100,000. "~;jTh..e peraltle.. and the Utter on. <»P«"'«>'. »'» ■"'';* ";j.™h.''b.°ni'. .coaimel with the .uhjeot " h.ln, u,,r,..on.Wy '""■•«'"' IJ^J '„;'," .r-Cnaaa ar. '""'"^'J"^' V^y"' « '".5 ^S.lr' ^nr.'".™ u°u;»U.T«i r n/^.rrr™''/, z^lx ^.^ w.,h -n..rou. h„„eh« ™.r^r :ir.;::.»rrr.hrp"7.rr:.fhr;3;f.'r^2^r^ r£":=r,:^^".rrhr,rr"=^r."t-^j^Lr' BANKING ACT OF CANADA. *9S At the rcTiiion of the bank charten whieh came into force in 1 901 u additional aafegiiard wai inipoied by placing the whole jupervialon of the manufacture, diilributlon and iisue of circulating notea of the banki under the .upenislon of the Banker.' AMOcialion, upon whom wa. also placed the rciponsibilitj- of leeing that the deatniction of can- celled notea was carried out in a proper manner. The Association had previously been consliluled an incorporated body largely with a view to the exercise of these functions. The banks are thereby, as a body, constituted guardians of their mutual interests; than which nothing can be more reasonable, seeing that by the operation of fte bank note redemptiVn fund they are made ultimately liable for each others' issues. PoWias WITH RlGAHD TO THE LlNDINO OF Mo.VEV AND OTHCa Ub» OF THi Funds or tiif; Bank, Also with KEOAao TO Deposits and Reserves. (1) The bank may lend money on bills of eiehange, bonds, stocka, debentures and standing timber; may discount bills, and carry on such business as generally appertains to banking. But it shall not lend money on real estate or other immovable property, or ships. Yet it may Uke and hold any of these as additional security for debts already con- tracted. (a) But it shall not hold real property more than seven years without p:rmission of the Treasury Board, and then only for five years longer. * ' (3) The hank shall only lend money on merchandise when the same is pledged to it at the lime the loan is made, and then only on a ware- house receipt, pledge, or bill of lading, which warehouse receipt or pledge in certain specified cases may be given by the owners of the goods. It shaU have the power to sell the goods after notice. Elaborate provisions are contained in the Act respecting these powers to loan on lnercha.idise, all being designed to safeguard the rights of ordinary creditors. ' (4) There are also provisions respecting property which the bank may acquire, whether movable or immovable, also as to its power of sale and realisation. (5) Anv pe'son making a false statement is to the goods pledged by a wnrehous. receipt or bill of lading, or who removes any goods pledged to a bank without its consent, or withholds them when demanded, is liable to imprisonment for a term not exceeding two years. (6) For all advances made upon warehouse receipts or bills of lad- ing the bank shall hold a preferenUal lien upon the goods prior to the claim of a non-paid vendor, if such there be. And if such vendor have a lien upon the goods at the time the advance was made, preference of the bank will sHU hold good, unless it had knowledse of the prior lien. ■r. !• : 1! i|. tge BANKING AND COMMERCE. (7) The bank th.ll not be liable to penalty or forfeiture for Oiaryl bnt it ihall not be able to recover by action at law more than leven per eent. per annum. Dbpositi. (8) The bank can receive deposit, from any peraon and repay them to the aame peraonj iubjeet, however, to any law of any of the provineea of Canada impoiing dUability on certain clawea of per«)M. Pro- vided always that from iuch peraon. depoalts may be received and re- naid up to five hundred dollars. The bank rflall not be bound to see to the .leeuUon of any trust, whether expressed or implied, to which any deposit may be subject, or to the application of the money paid on such deposit. If a deposit is made in the name of two person, the receipt of one shall be a sufficient discharge; or, if in the name of more than two, the receipt of the majority. j ., , Money of a deceased depositor can only be drawn by production of a notarial copy of will, or copy of probate or letters of administration by a competent court. RiaiinTis. The bank shall always hold, as part of its reserve" of cash on hand, not less than fort) per cent, thereof in the legal-tender note, of the Dominion; and the Finance Mini.ter shall always deliver such note, in eichange for .peeie at the oiBces where legal-tender notes «« «^«"'- able, which places, inlQOI, were Montreal, Toronto, Halifal, Ottawa, St. John, N. B., Winnipeg, Charlottetown and Victoria, B. C. ■ CLiUSIS RiLATINO TO STATEMENTS TO THE GOVERNMENT. These return., which are sent monthly, and are summariied and published in the "Canada Gaiette," were formerly much ampler than they were subsequently made, and in their present form are .o detailed and elaborate that none but enpert. can properly appreciate them. The points upon which information is desirable are of interest, partly to the geueral public, partly to bank stockholders and investors, and partly to other bankers and the Government. The public are interested in knowing how the bunks as a whole are progressing, a. to the total amount of their circulation, deposit, and discounts. All these are indices of the growth or otherwise of the business and wealth of the country at large. But the public have litUe or no interest in knowing the amount of overdue bills, or what amount of the banks' funds are invested in bonds and slocks, or in what partic- ular form its reserve ol cash is maintained. But bank stockholders and other banks are interested in knowing what cash reserves or available resources the individual banks are keeping, also what amount of its funds each bank employs from time to time in so But IBfre Is no pro-lslon as to the toUl amoum ot sucll iMene. BANKING ACT OF CANADA. ggj diwounting biUi >nd trade .dv.ncn, .nd how much In itock exchange 'oani and defaentuni, .].o how much re>I eitate . b>nk hw acquired and whether any bank ii borrowing from another bank. In fact bankeri and itoekholden are all 'ntereiled in leeing whether any tadli-ldual b«.k i. .t«!tr!,.ng out it. bu.ine.. beyond .af, boundi, and thereby jeopardizing it. ; ition. A. for the Government, it. main coneen, i. to .oe whether tl.. bank', circulation i. within the author fted limit, and whether in the ca.h rcMrve there i. held the preMribed proportion of legal-lender note.. prcKirinea It i. alio of inlere.t that it .hould be generally known what are the total advance, to director., inn.mueh a. in.tance. have occurred in bank, fag where the po,iti„n ha. been .eriou.ly jeop.rdi.ed by .uch advance, being allowed an undue amount. The Monthly Return, as now prescribed by law, i« ai follows: Capital authorised g Capital subscribed Capital paid up Amount of Rest [ Rate per cent, of last dividend , ..].., LiabilitieM. (1) Xotes in circulation «^ (2) Balance due to Dominion Govt ]"" (3) Balance due to Provincial Govts *. . * (4) Deposits by the pul'ic in Canada pay- able on demand (5) Deposits in Canada payable after n(^ tice (6) Deposits not in Canada (7) Loans and rediscounts from other banks (8) Deposits by other banks in Canada, including balances due (9) Due to agencies of the bank, or to other banks in the United Kingdom (10) Due to agencies or banks elsewhere. (n) Other liabilities '.'.'.'.'..'. Total liabilities Asaett. (1) Spcric ^ (9) Dominion notes (3) Deposit to secure circulation (4) Notes and ch-eks of other banks (5) Loans to other banks secured, includ- ing hills rediseounted I *9» BANKING AND COMMEBCE. (6) Doe from othrr Ivinki l» Cinada. ..... m D« from »g«cl« of the tajA or other "' bonk, in Ih. United Kingdom. .... (8) B.l.n«. doe from .genele. of the ton^ ^ ' or other b.nl« or .genele. eUewhete Lnln C.n.d. o, the UnUed King- dom . (9) Dominion and Provinelol Government •ecoritiet ••• ". (10) C»n«dl.n municip.1 «™f " . ™ BrilUh. foreign or colonial pnbUe ie- eoritie. other than Canadian^. . . .^. („) Bailway and other bond., debeutnre. and .lock. ••• ", (13) Call and .hort loan, on .loek. and bonds in Canada. ....••••••■••• •• (,SJ Call and .hort loan. eUewhere than in Canada • (■141 Corrent loan, in Canada •■••■■ J Current loan, el.ewhere than In Canada. .... • (16) Loan, to the Government of Canada (17) Loan, to Provincial Government. ^;^^ r^atflJh;; tha;;h.nkpre^;.. : (20) Mortgage, on real r.tate .old by the bank (21) Bank premise. ■,'■.■",' ilj (SS) Other ..sets, not already meliided _•■■■ . t Total asset. ^ Aggregate amount of loan, to director, and * (inn. of which they are partners. ... » Average I^ount of specie held during the Average" mini of Dominion note, held dor- inff the month * Greatest amount of notes in circulation at any time during the month This return, it will he seen, is in X^^'^^^ ■!::^^tt *:i?::tfgh- bankers -'••^Trf "c^o^n »" mrin^st to them. But it i, bor. are do.ng. This, °\'^7"' ' - _,ii„„ might not be .ommar.sed r^.trfr::^'i^~i-£cs.nrr; BANKING ACT OK CANADA. fW Hon that then rcturni m effrctual for that purpoK. Clai'ih Relating to Inioltinct notp:;xlLVpTr:Lt;\-,-r"" " '•^-"' " ,„f"' ■■'■''•'"""".f" »•■«' P"'°d co„.titot« th. bank l„«,Iv«t and tT^rf L .1 '°''"'"'%°' "• '•''"'♦.■': which charter, however, i. Tn- tmued for the pnrpoie of winding up the Unk. Banl,' ".' ''°''""' P"^"'"' """ if "V bank .uapend. payment the «Mn'„ll . , ..^ ■"■ ''"'■'' '° °"'"' "• "« «"' P''«. «' needful arrangemcn for the p.yn,enf of the note, of the bank, ^,.„ ..,en for protecting the right, and intere,t. of the creditor, generally ThI :^z t rii-e^ Br;:." """"""" " •-'-'"'^^ *° -- -p '^^ '»^* If. after .u.penaion for ninety day., no proceedinm are taken .oh ^nk Stockholder, who have Iran.ferred their .ha™ within .ixty dayt PlNALTIEf. The act impose, ,„ndry ponaltie, for violation of ita provision. :" • (1) lor neglectmg to pay call, when due, ten per cent •- or the director, may declare such share, to be forfeited. a. .Innlarty ll.bl, to abM, Tl the hUrlf , ^f. ''"' ""■"" "" ""••".r action* of a totally dltferent *.iin™«.o^ i, '"'''"-'"*"• t^overin^ a crcat number of tompllo..^ pi^vi-loB, rrtali M . , , Mnaltle, a lar« „„„b.r or .^... o. ».„,„„.. ho,;;r.„'.' ra.Thi%."4s:L:'r„";^.:,'zu:".?/hv°! ;f* soo BANKING AND COMMEBCE. (9) For hulding !»• tlian forty prr cent, of caih retcrvci In Do- minion notrt, five hundml dolUrt prr day. (fl) For an over-iitue of circulating notci. (These pcnaltica have already been referred to.) (4) For violating any of the pro.isionf of the Act relating to the leeurltirs on which money can be lent, or to real property acquired, or mortgngei thereon, for each violation a penalty of five hundred dollars. (.t) For not tending monthly returns in proper time, fifty dollars per day. (6) For not sending any special returns required by the Minister of Finance, five hundred dollars per day. (7) For not sending li^t of shareholders annually at the time ap- pointed, fifty dollars per day. (8) For not sending list of unpaid dividends, unpaid balances and unpaid drafts, fifty dollars per day. The two clauses which follow impose penalties upon directors or officers of the bank. (9) For declaring any dividend which impairs the paid-up cap- ital of the bank; all directors who knowingly concur therein shall be jointly and severally liable therefor as a debt due to the bank. (10) For giving a fraudulent or unfair preference to a creditor, or for wilfully making any false return or statement of the affairs of the bank, the parties who have prepared or signed such statement shall be liable to imprisonment for a term not exceeding five years, and shall pothec* of varloiuly described artlcl«a of merchandlav, rtipecllna the Interpre- tation of which lawyer* and Judfee have held and are likely to co-itlnue to hold different opinions. It la to be noted that the actions hedsed round by tuuh ex :raordlnary pro- vlaoi and penaltlea are such aa muat ooeur repeatedly In any rlnile day'a bual- neaa, when the movement of the crops la actually Kolnv on. Tet the penalty 1» for each separate act, which. It has Iwen contended, meana the payment of eucb check. The whole aplrit of theae clausea would Imply that the Undine of money for the purchase of agricultural produce la a very auaplcloua bUBiaeea. fraucht with danger to the community, and to be Jealously watched by the Oovernment. It may be aald, and probably haa been aald, and will be again, that a banker can eaally keep himself aafa by not lending money under these clauaes; In fact, he need not lend money to move the crops at all unless he pleases. Thia Is easy to say; but In so saying It la forgotten that the warehousing clausea of the Bank Act were devlaed by Parliament for the very purpose of facilitating theae operations of commerce which, more than any others, promote the prosperity of the coun- try; viz.. the marketing, transporting, and exporting of Ita crops and produc- tions. The "moving of the crops" aa It Is technically termed. Including the productlor. of the forest, sef. and mine. Is universally recognised aa the foun* datlon of t... the other Industries of Canada. Now, if the clauses of the Bank Act that were expressly framed to enable the banks to promote this are so hedged about by provlaoa and penalties, that bankers cannot act upon them without great risk of being heavily lined, it is lAvlous that both clauses and penalties need reconsideration. There Is the more reason for the latter in the fact that all the dubious clauses relate to the se- curity for loans of money, a violation of which carries Ita own penalty In ths forfeiture of the security. Thia forfeiture can be enforced by ordinary process of law, and rendera ar-r special penalty unneceaaary. BANKING ACT OK CANADA. ggi |«J.plbk for .„ a.«.,„ .u.u.n,d b, .„, p.«„ .. „^„^ „.,J'" '*?"' '^"*"'" "' •" "PP""'''. to . b.nk in iU corporate «- tlM.ppllMblr tooircnoM by othrr ptrioin, thin> »'!»■■« fonrLd"d'dlV"' '"" " "■"' '"""''"^""' "«"'•" •• -'^ (i) For Ming tbc im, of b.nk, or b.„king comp.ny (or the like corporate »;ordi), withoirt ,„|hority from thii Act . S„. „f .1. cxc^lgTwetyToLr "°""'"'°" "' """'""" """ ' ■-"""r »". Such i» the Banking Art of C.nodo, which, though not without H. mittod to do, or to be prohibited from doing P""""" 'o l>e per on ;!r .r,r:,::prr rTiXTo rx-riX"-; r-^;:::i-;Set^-':,{-^£f^^tu' ':":icZt''T:'i i "'^"'•' ''- •"^"rri^rd^rrr.rn; ■X ,1: i ciiAPTEii xxxn. raiAHOIAL PAMlOi AHD UVULUOm III KHOiAMD AHD TBI urnno nATH. P^KIC OF USi m ENOLA!ID-BttlI."0> OF 1 »3«-3i)-C.l.l. OF U»7- F.n'kc.al Cou,.f.. of .H37-PAN.C OF im .N E»aLAN..-Ur ■aX> TO ■■ LlARKID, FEW event! .« .1 the Mini tin,, more dl.l.irblnj, to rr.d of .nd yet nx.re In.lroetive than the nnrrntive ot the ponle. «nd re- vuUlon. .hleh during the h.t eentory IroobM the fln,meM world. They ore worthy of enr.ful .tody for two r.o«,n.; «" ' '' °"' hand to re.tr.in the .rdent and «ngulne-lempered from proceeding far in a eoor,- which will inevitably end in dliaater; and on the other to prevent the n.en who are pe..in,i.tie.lly Inclined from "'"'■J""* >-"^°« ctood, of trooble for .ueh .ymptom. of di.turhanee .. u.he n a «nan eiol .torm. It i. by carefully noting the.e event, of the part 'h»» " "•» of (inancial re.,H.n;ibility can .teer a .«fe coi,r«. m the preKnt and avoid cither raihncaa or pessimiini. ^ y t -i.. „«,. In Ihi. chapter a brief .ummnry will be given of k-vcm' of .'e more important of the« rcver«., con.ideratlon of which ...1 well "-P'.- j1™»' even now. For if we go back a. far .. the year 18i5, we .hall «nd ooi- X. in a condition of thing, remarkably like wha ha. P'^-ded in Ut« time.: and the warning Icon, of thi. panic will be found pcrtl- "™* nVawinT^mcw'h^t on the aeeonnt given o^'h' — " /"f™* "^ occo "panving the,e panic, by authoritie. like Gilbert and McLeod and to .ome Extent from my own knowledge, we will begin with a notable panic in England. Thi Panic of 183.5 i.v Enolasd. «ler .everal vear. of proaperity, clearly indicated by the nmplilode of thV.toek of billion in the Bank of England, the Government de- termined upon the red«tion of the inte,e,l upon nearly » /H0,00O,OOO of Brillih capital waa placed in Melieo and South America, much of which waa loit. The tpeeulatlon in mines ■peedll.T d-veloped into ii mania, and let It he noted that thoae were all in a trar Atlantic country, leading to immenu eiporti, the grealtr '""ii'/ '«''' "" """ '*''' '*"■• '" •" ""■"■ •P«»l"ni only a imall InilaUnent, uldom eiceeding Ave per cent., wai paid at Ant m thai a very modenle rlur in the price of the .htroi produced a large profit on the lum actually invc.lcd. All the gambling pr.,pen.itlo. of human nature were therefore urgid Into action, and erowdi of indivlduala of etery dcwripllon haclened to venture tone portion of thilr property (by way of margin) In nchemri of which icarcclr anything w/i> known eicept the name Aa a natural coniequence Ih, price, of naa^ oiker commodi- liei donhltH tnd triplrd. Thia it a nio«> lignilicnnt point, for It li a fact that there ii never •o much buoyancy, and luch mutual congratulation, at in the period be- fore the hunting of financial itorau. The •peculatlve fever waa at its height in the Unl months of 1833 But the enormous almrption of capital that had taken place had made money scarce and dear. And that ominous symptom, the stcadv decline- in the bullion In the Bank of England, had begun to be apiiarent. In January, 1884, it amounted to i:i t,500,0()0. In July to ill], 800 000 By January. 18!!3, it had fallen to f 9,300,000. Yet even the Bank of England Itself failed to read the signs of the times, and went on dis- countinu Hs oMial, It was not until the bullion wa, reduced to ilfi ,500 000 that it took measures to stop the drain by uriailing Its discounts. Biit it was too late. That measure ought to have been taken six months earlier. As it was, enormous commitments and engagements, made in the lime of inHalion, had to be carried out. The drain, therefore, went on In July the Unk had only X 1,1 70,000 of bullion wherewith to meet all the engagements to note-holders and deiiosltors. This was reduced to X3,1SO,000 in October and to .f 3,01 2,000 in November. Then the storm burst. Thfrc con be no wonder that a panic prevailed, for the drain had gone on until there was nctually less than .£1 ,,500,000 of specie left in the Bank. A few days more, and the Bank itself must have suspended payments in specie. Gold would then have gone to a premium, as it had done during the wan with Napoleon, and a univenal dislocation of busi- ness and general insolvency hove ensued. The one marked feature of this crisis was the large number of Banlwg f.iilures that it brought .ibout. First came the stoppage of a great bank in Plymnnlh. Then followed a greater collopse »"n.s which had taken place had important consequence, one of Ihich was the stopping of all further issues »/ °";-I»™d "ote bv the B.-.nfc of England; and another the beginning of the agitation tor the akililion of its banking monopoly, and the establishment of Joint- Sock Brinks The first measure was founded upon a delusion a, might hive be"n s en had men east their eyes towards Scotland There had tin no yrand .evulsion there, nor any circumstancs W-ng up to it Yet one-pound notes were the universal medium of issue, as tliey have been eveVsinee. And although there have been two failures of im mense m.;;itude amongst Scotch hanks since '^en, n ne.ther case w the iisaster attributable to the note issues. In both cases, in the spnere *W one pound notes are most in evidence as f^'^'^^J^:i"^^'- that is, in the country branches, the business of both banks was in '"ems, however, to have entirely forgotten this in subsequent years. Panic or 1838-39. The r»vulsion of 1838-39 may be passed by briefly, as it presented feati,Tes%n no essentia, re,p«tdifferi.g^^^^^ ""!? '"Z :^len° Tfliie peric^ le d^'g i^tj^tlfe p««ng of ™i«io.. ifT^utT^^^X'ol. "-'/or™', yeildiSg no remuneration for many of flooltng o" : ^^j continuous dram of years. It was P'«;*^* as ^Tsnlk held of bullion £9,790,000. In gold. In December, 1838, '>'^„""™^„'"i„ j„,^ ,„ £2,980,000, and in ^'"■.;,ita^to '^r/orl Yef ; cirXly L credited that up to ^itTh^Banktrriking advances as if matter, were in a normal ""-S- revulsion however, I p... ^^.^^r.^lr^trlT^l Is-r "i:? ^alXd thc^orlt^^^^^^^^^^^^^ of our own time., and therefore carry more pregnant le..on.. The C«isi« or 1817. Though thi. crl.i. acted 'f^^'^ll^f !,%']'; ^"c'l^d!™ «,ncerned, « ™ J"! J™"^ ^i„„„, rfict. on Canada. Suflicient fp"&;tor p';;^a::«on hS'not been given. It wa. largely owing PANICS IN ENGLAND AND THE UNITED STATES. S03 to this that the crisis of 1847 was so severely fell. Montreal was pros- trate under the he..-, [,; ms ipflicteil on her prosperity. Banks made heavy losses. Th Jank of :,.V,n' , ,1 lost all its resened fund. AU Canada was more ...■ l.-.s „ffcc(eH. '„t it was in the eoinmercial capital that closed warehv y.n :.nd quut T.l.arves testified for vears how severe Dad been the blow. The panic of 18*7 came „!;;., I in England in this wise. During the yean 18t.5-46, a perfect fever of Railwav construction had been de- veloped all over Great Britain, and the amount of monev drawn for this purpose from the floating funds of banks and the community gradually mounted up to enormous sums. Railwavs were supposed to hove within tlieinselves a certain guarantee of inexhaustible future wealth, and Parlia- ment was besieged with applications for new schemes. Prices of shares were continually on Ihe rise, and for a time evervthing was on the ascendant. Mercantile business became inflated, fo'r evervbody found them.selves rapidly getting rich. And many bankers were "carried away with the excitement and fostered it by free discounting. A high style of Uving was entered upon by many people, and establishments created; a perfect type of which was found in the career of George Hudson, the great railway promrter and operator of those times. A few vears be- fore he had been pursuing a quiet business as a draper in the city of York, and living in a style corresponding to the position of a shopkeeper. But in 1816 we find him a railway magnate, occupying a splendid man- sion overlooking Hyde Park in London, and entertaining the nobility of the land. All this was based upon the rise in railway shares and was kept afloat by mosses of bills incautiously discounted by bankers and discount houses. All commercial transactions become infected with un- soundness and an extraordinary number of persons became entangled in obligations of which there was no prospect of their ever working free. These were the conditions precedent to the great collapse; and I know they are correctly described, for I was in England at the time and an eye-witness of them all. The first Sign of the break-up occurred in the grain trade. In the month of August, 1817, great houses in this line of business began to fail. The first had liabilities of £300,000. Other firms followed; some failing for £S00,000, some for £400,000. One failure resulted in another, and by the end of the third week the failures amounted to £3,020,000. The circle of disaster now widened and spread through all branches of business, until the total amount within a few months reached the enor- mous sum of £15,000,000, a sum fully equivalent to twice as much at the piesent day. So far with regard to merchants. Then came the turn of the bill discounters and the banks. In was in September that the first note was struck by the failure of a large firm of bill discounters in London. Early in October the Royal Bank of Liverpool succumbed, amidst tremendous excitement. The failure of the Royal Bank was fol- lowed by the stoppage of the North and South Wales Bank. (This Bank resumed business, and is in high credit now.) The Liverpool Banking Company and the Union Bank of Newcastle then followed. Heavy runs to I: ,06 BANKING AND COMMERCE. .1.0 look pl.ce on other b.i.k,, le.dtag to f.ilure. in M.ncherter Mid In *' The IflT'of 1ngl.nd h.d rendered ...i.t.nce during .hi, perUjd of .S, noTwi.h.Undfng the f.et .h.t it, .upply "' t"'""" ^Jjf^ ^, iting drained off. But the time w.. eoming when .t w« -•'«""y/°' tti gre.t Bank to look .fter it,elf. By the operation of the *'">'""■ .large p.rt of the gold owned by the B.nk w.. loeked »P '" *! '■'" decent. -. -eeurUy for it, note,, and w.. -«"'y »-:"^'' ? /"^.'^^ el-im, of depo,itor, .nd diMounting cu.ton.er,. O'^"""'? '^%™'„ h.d rbund.nt re«,urcc, in bullion for all banking purpo.e,, 1-'. / " 7« A.n . vear back it, bullion had been steadily decrea.ing. By the ena of ?.^ober it hSd been reduced to ,uch an amount a, to render .t .mpo.- h^l::^^^;^ rc=u^!:tnXr;f^ "? crlLtance. compelled the Government t" , ■>»f »* '^„', ^'^ »"a^ .How note, to be issued (they were legal tender, let .t be borne in mind, '^''"CnThfreLtnt intervened, the p.nic p.„ed away .. h^_ that of 1825 for the ..me rcas..,.. Bu.ine„ gr.duJly re,umed .t, ord - nary CO, r.e. But one of the most important eon«quence, of he revul- sion w^ to di„ip»te the idea th.t the act of 1811 could be «hed "n to Slon ™ "O 1 , J b,„|,i„. interest of the country, with few L«%nrb.d ,h^.«d"thf deTusivelde., and -ducjed their operation. rSSnt'cIn p'evt^iontinted vioJion of ,ound b.nking rule, from '"'■•'Buf oth:J're\u*rn'."were to happen before a right unaer.t.nding w., ."ived .1, with reg.rd to bank issue.; .nd nothmg i. more r^ TrkZ .h.^ .he misconception that perv.ded even the mercantile .nd b.nking world of London with reg.rd to thi, matter. Tkr Revulsion of 1857. The event, of thi, terrible financial revulsion came very oloK home to u. on thlsside of the AtUntic, for, as some now living «.n "■nern^r tt Z^pt l«.e . lom.do over the United St.tes, and passed ., . de.dly '•"netXg'"En';C tTcrh.d',.'rf' he.vy war expenditure in llespecting r. n ■ development of extravagant living IhcX it i ^-/I'Tpirit' of huoy.ney pervaded the cjimmunity^ attending K.«g- F ^^, ^^^^„ ,„j „^^ pe, cent., . >,- b ,.t for EngW. An eiormon, .mount of .ceommod.tion PANICS IN ENGLAND AND THE UNITED STATES. »07 had gon, down from £l7,roo,000 to ,«10,300,000j and there were .ign. of the time, wh.ch sage financiers were earefully noting from day to day and from week to week. The bullion in the Bank was only of moderate amoun at best Dnring the period of extravagant living, there had been heavy importahon. of Eastern luxuries as well as an immense increase in ordinary .mportation, from thenee. These caused an abnormal aceumula- t.on of debt to that quarter, which could only be satisfied by shipment, of •pecc. Accordingly, a Million pound, sterling was taken from the re- serve of the Bank for shipment to the East. This was the b,.gi„„ing of the d,u,nuti„n „ the Bank's stock of banking specie which went on untU it waa nearly all exhausted. Unite^Sta^s" "°"' '"'' '°"'" °' disturbance, however, was in the l.,„t"7 '"'T' ^°°^ ""7"'' ""'' i"™e"«e railroad development, largely financed on money borrowed from abroad, but partly on di.- ZZ1, °"' *f."ril'" °' «"-»ga»t expenditure. £t ij Follow- ind Cntl'Th ^ ^f '■•"■e«t >vhich prevailed over the United State. Ohio ° '""' °' ' *'" 'member, came from On August 2Jth the f.nio Life and Trust Company with deposit, to he amount of «^00,000 stopped payment. This creaied a panfc which rapidly spread throughout the Union. Discount rose to eighteen and wenty-four per cent. The extraordinary numl,er of 130 bank, in Penn- Ortooer l.tth a general run took pl,ce on the New York banks. Eighteen maTntSV '■'"?•• ""^ """• "''"""d'. »>« "f sixty-three, only one maintained payment in specie. n.,^.^ P"'™' "alanehe of mercantile failures resulted from these stop- page, and other cause, and for months together several columns of the rupt Nothing like ,t had been known before; nothing like it has trans- pired since. We used to read these list, in Canada with very seriou. ourTxTrt; fV ?"' "^V'"= °" """""'"y Treaty was in fLe, and ^n IWcH V. * T ""t?"J" 'T'^ '•'S' ■"•»" "f •""» »° l»= drawn matter of daily anxiety to Canadian exporters and their bankers The depre.s,on continued for two or three years, during which there was the severest weeding out of weak firms and weak banks that had ever been known; accompanied also by an exerci,e of personal and domestic economy ,o general as to produce a heavy diminution of import,, and a restoration of «>und methods of giving and taking credit. marisrfls"^';',!" ^'"*''"''' "" ""™ "' •'"" '""' •« •"-"^ ""- (1) The event, in the United States first reacted upon Liverpool «^. xf V !"' %"T ''""' ""^ '■'""■'^ ™""""^ ^"h American firms The We. em Bank of Scotland failed, naturally enough, for it also °;^^"^'"''«lously mismanaged. The Borough Bank of Liverpool The City of Glasgow Bank .upended temporarily, but was able to 308 BA\KIN"G AND COMMERCE. reiume; the most remtrkable Ihinfi; about which is that its Directors were blind to this sharp lesson, and twenty years afterwards perpetrated the most astounding series of follies and frauds ever bean, of in the history of banking. (3) London was first disturbed by the tremendous depreciation in American securities of nil kinds, but particularly Railways. These had been carrying on an cKtrnvagant style of management, for years; and p&yi::g dividends. — practicnlly, — out of capital. Some eighty millions sterling of American r-jilrond stock was held in England, and the effect of depreciation was far-reaching. (3) In October failures began to i.icreasc in the country. Alarm spread in .ill directions when it was announced that the great mercantile house of Dennistoun and Co. of London bad succumbed, followed a few days after by the failurt (for the second time) of one of the largest dis- counting houses of London, Sanderson & Co. AH this time the bullion in the banking department of the Bank of England was draining off", and it went down until on November 12 the amount of gold held by the banking department was only £358,000. The whole of the remaindt'" was locked up in the issue department and held for the notes. Yet, bo ding only this sum of less than XtOO.OOO against the maps of its deposits, the Bank was struggling on from hour to hour. The London banks alone, at that date, had balances in the Bank of Eng- land of more than five millions, and could have closed it np at once bad they pleased. Of course, it would have been madness to do it. But tbey themselves might have been compelled any day by the claims of their country correspondents to draw out the whole of the gold in the vaults of the Bank."" It is well known that this panic was stopped, by the si'.spension nf the Act of 1844: the second demonstration of the unwisdom of the idea that the Act would bring about n wiser course of financing and prevent panics altogether. - Turning now to Canada, we are confronted with a condition and development of a high degree of instructive interest. (The descriptioa which follows is from my own knowledge.) During 1855 and 1856, the country had enjoyed a period of remarkable development, in two ways: the harvest of both years had been singularly abundant; and the price, owing to the Crimean War, phenomenally high: wheat having been worth from a dollar and a half to two dollars a bushel. The total value of each of those harvests wa» equal to three or four average ones The con- sequence was a phenomenal expenditure upon land, in the shape of new clearings, buildings, barns and improvements. This was accompanied by a heavy rise in the nominal value of lamia, both cleared and wild. Nat- urally following npon this, was an eitrao -dinary impetus to the trade of the towns, and a heivy rise in the value of to>"n, city ond village property. Along with this, came the immense expenditures connected with the bnilding of the Crand Trunk Railway. Kcv. r had such an onlpoaring of money been kn^jwn in the quiet country towns and cities of Western Can- 82 One ',t the most noticeable things In the menaaement of the Bank of Eng- land at Ihl.t time Is on apparent obllvlou.ne.s to the claim, of acpo.ltori. If any ,u..lk.n aro.e. It .a. stay. ibis-Have y,™ .n^ngh n>onoy to go or die- counting? never— Have you enough to pay demands of deposltorsT PAV.CS ,.V EXO,...VD ..X„ THK VSn,0 STATES. 30. Inl'i "11 with tl„ i, "of an Z ; '„""' ""' '"'" "™". •■"■d buiS town of five ll,u,„„„d, ,. dtv I? fiftv ,1 °..'°"" "^ "=" "">"'and; the ■n.p.t,„ „„, ^i,.,, ,„ ,„ "■;»,;"•' f»»">"g New York, A „„,il„ every cross-road, in H,e eountrv of'.' ■„. K 1" '"'■'^-for "l »lraosl "."de for „ f„t„re t„™ „r c t^ „ T„'' '.'""^ i",'"' »""''.'» h"-! been l«nd, ,h,re these f„t„re eitic were to^^. 7 ,"i*'" ■' '"'" ""-^ '■'''i of decornted with ,,),,„, „„d pfctir;, otlZt' "'T''"" """» being rr<-""«k«tores„„d..ffiees_r,//„'''3^ Halls, Bank,, ^J had heen „,r,-ej.ed for streets and ol, ,17,^ ''"r;'" '" """'■ "'"»= »"■» f«bul„„s. The farmer was te„„ted to e,rihe"T '^ """^ ""' "-P'y * «t » pnee that yielded him a little forle Bt ,7''°'' '"/"""^ 'l^'''"'"'" he farm would gel a thousand lo s ont^'f if " »P'-<-"l«tor on dividing ."g to sell for a hundred dollar, Theslsale^ T f""''' ""= ""' »"'- over ten years of limr ; mortgages "nd rrl' """'" °" ""^'^ 'P'^""! represent the debt. B;il the puTe Lsel'lf TT; "S'? ^'""^ ""'" *« they sold them again; a fresh cron of . '"'' ""' "»"' 'bem; being the reMdt at lUgher«g!.esZil „,*"«'' ""'' P'°-ni«"rv note, "The Simple hundred 'a tsC".oT" '"?' 'i'" "'»"""='» "•• anee, and promissory note, havj el",stered rol?"/".". '"'' ''"'^'' ""'^y- eonvey i„g j,, ^^_.^__^ than 1^1? 1 ' 'M "" '"■" '''"t of •■Carry this over a wide area .n^l . ? "'""^ "' "» '»■")• in the Western Province of rSa'^n^e; ° f™^ '"''"' "'^ «"■' tillage with the same inft.tion, °f an "norinl" ":' '7 °' f" '•"'i""' i"feetfd manner of extravagane;, ; of p'on™ he^e r/,1 '""'i'"* "" "^'"' « »" 'O rieh a, to make preparation for retfrin^ t p" ',""7'"^ themselves tion,^^:^";;^^^:,:- ri^i-^ -= -^ eonsiderah. por- enormous importations ha'd' trbe^^-d f "Z' v" """^ '""^ '° "P°"' •"' grew suspicious. Lots ceased to be i„ demand '' ^""'Z "'«'"• ^'"^' could hardly realize it. Jlen c un/w»h , ' """'"'' """»' «"d ■»" what might- transpire in mereantin , r:"'! '° t '■"" "■'" "•> ™»" "'Veri i':t,t 'rt' »' 9'Xnerth: sir"-" "> 11 of i/;i,T«° .SS' flo^'^rfritTh""""*'' "■' '■"" -" »' ■»'7. •nd more numerous. Men that haTfouZ' ■""" '"'i"'" '""^''"'^ ™« " X-r ..d ,S,S were -PeUe'^^^le^a^ -^^f"-.^-^ j,0 BANKING ANn COMMERCE. ini for TMM « load of obligatloni. There were, indeed, iiMtancei where f"unre ultlLtely overtook men » late ..;863 and 1864, the .eed. of which were sown in the revoliion of 1837. ,.,.„,i .-J "If a man had been away from the country during the interval and returned he could not fail to be .truck with an extraordinary change. Numcroua shop, are el„,ed. Number, of empty h->u.e. are to be ««^ New.paper. are full of notice, of .ale. of land, for laxe.. If ^J^ a friend of former Tear., whom he knew a. a .oceef.ful 'Pf''l'»°'jJ™ Wn. to «r., ». before of land, and lof. he find, it to be a taboorf "Sect Hi. old friend ha. gone through terrible experience.. He ha. „i and" d; and ha, found that while liabilitle. are tang.ble "alitfe.. ...et. in the .hape of in.talment. on land p«rch..e., were a ""'"''■■Si."mort"if he foreclosed, left him only the owner of thon- .and. of acre. ?f bu.h and .wamp; un.aleable, yet liable to be Uxed. He had brought number, of .nit., but got practically nothing. »"' "J'" had ..ued *™; and taken hi. hou.e, hi. furniture, hi. bank .tock, and aU ^e had in he world. Worse than thi., he had involved hi. fnend. and «l.tve. in the ..me misfortune, and had alienated, »; .■n•d^«"'■»^» »' [hem all They had endorsed hi. paper, had been .ued in their turn, had vaWy endeavored to put off the evil day, but finally had to ocumb to the aU-devouring « fa of the .heriff, and the hammer of the auctioneer This papWc description of the rcvul.ion of 1857, .n Canada .^ the inflation that precedrf it, ha. been quoted for the reawn that bo* ore W^cT What took place in Ontario took place in Ohm and Illmo..." And what took place in ,836 to I860, ha. been "P"''"' -"'"f,- »« ta the developments of .ub.eq«ent year.. Every feature »' >»" '° '"^^ wa. repealed in the great boom that swept over Manitoba, m 1881 and tt. ™n.™e" .ub.«iuerl ve.r.; and on a more limited scale .everal time. "n«'n omfof^our principal cities. The only *f-nce between the.e and 1857, wa. that the area of disturbance wa. confined to one c.ty or di.trict. Panic of 1866 in Enoi.and. It miaht be .opposed that after .uch .evere experience, a whole „ncr"tioufa least, wo'^ld pas. before ano-her .uch period could tranapire ySrSghted men, within a year or two after were anticipating that -SI. .a. --.---' ;~"r„r,o"r arr." srs^r.™ iru'e-cS ^^^-a ?:^r „riirrrr. r.,:;;i: r:L!?'sro:ir £S.^~ =";^er«r j:=: jou have .hi. r>o4 w«rehou.« tor notiuni. Tl... ij *">""•, ttmujl "bu. I^«.. « much »"" »"• "'•'' '»"'* '" »»"'»«' PANICS JN ENGLAND AND THE UNITED STATES. iH Ih. horde of iprculator. who hoT« .bout financial centre, would And •ome nsnna or other of bringing about another era of inflation. But it 7" ^°*, "!'"' '»««-«•* «"■" «l>e.v found their opportunity The law of Um.ted liabilltj had ju.t been p.,.,d (a high./£nc«cial law when „.ed «o« fJr th'ei "» J" °'"""°" '"""""'y '"'^'"•'•d opportunitie. Srf .„H IL,.^ * """. "P'P/"''-"- L'p to March, isfiirtwo hun- dred and .ixty-threc companie. had been formed with a nominal capital of .eyentjr-eight mdhon. .lerling. In conntelion with the.e, va.t sum. V r r." ",' '*°°' r"* diKo-nted by Unancial houae. like OTcrend TI, -.l, '"/"■"■• 'f®'' I"" "" °' ^''"™"' "«• ""'.v "•ree per cent. Then the great operation, began which culminated in the paniVof the followmg year. The Finance and DLcounl Companie, did an enonnou. bu.inc,, ,„ l«in. and bdl., finding thu. the mean, for the promotion of cred.1 entcrpri«, by which fabulou. .um. of money were locked up, and much of it Iwt. *^ •n J'''', ""?. *■?!'"'"« """P'^ "f «>= operation, then indulged in: IBe London Credit Company ha. a capital of a million and deno.it. of two mJIion.. With .uch mean, at command, it uke. five lhou.and iliare. m the Financial Asraciation of Pari., (which A.wciation ha. operation, going on ir. Egypt, Turkey, and Hu..ia) ; it loans a large .um to a company to build dock, at Mar.eille.; undertake, the con.lruclion of a railway on the Danube, and finally ha. to take the railway itaelf in payment; put. £800,000 into the building of a public hall in Milan; undertake, work, of drainage in Belgium; contracU for the improre- ment of dock, on the Thame.; •ub.cribe. for 1,000 .harea in the Bank of China and Japan; and take, half a million of a loan to the Sultan of Turkey. Another company of a .imilar kind goe. more into Central and South American .ecuritie., and ha. money invcted in Hondura., Guate- mala, Vene.uela, ChUi, and Braiil. Another fancie. Shipping i id Steamship line.. And here it wa. that the great house of Overend, Gumey & Co. met with the Io..e. that ruined them. By forty year." patient iHeiition to bu.ine.«, a capital of manv million, had been 'accu- mulated by the hou.e. They were Quaker, of the very crrme dt la crime of the financial world, and their credit was unlimited. Their bu.ineH wa. OS large a. that of all the banks of Canada put together. Yet in two or three yean, under the enterprising management of younger mem- bers of the house, their immense fortune was dissipated in worthlen loan.." There never wa. such a sensation as that which shook the Unancial world on the announcement of the failure of Overend & Co., Limited. Their liabilitle. were over £10,000,000. The ramification, of their busincM extended all over the world, and the day the failure wa. made known will long be remembered in London as Black Friday. After this, bank after bank, and company aft'r company, came toppling down. A tremendous drain took place on the bullion of the Bank of England, and had it continued for two day. longer the great eatablishment mu.t have doMd it. doors. Numbers -of financial corporation., however, did U Th« Mme condlUon of things transpired twenty years afterwards with ths house o( Barlnf. It had Uken half a century to build the drm up. It only took three years for the younier veneration to pull It down. lit BANKING AND COMMERCE. .upend ...d w«e wonnd up. And .|t9in |h, f.mou. Bank Act had to br Ksp^nded lo prevent the Bank of England from .lopping payment. Such are the principal p.inlc. and revnUion. that have .wept over England, the United State, and Canada, during the la.t century. T.1.H0N. TO Be LsARNcn. And now, it may be ..ked, what i. the moral of it all? ^'J'fJ'' i. it for the prnent generation to dwell upon the record of 'he follie. „f the pa.t, and their punishment? There arc var.ou. rea.on.: but the principa'^i one i., that what h«, happened before i, undoubtedly liable to TapTn ,g,in. I. i- true that we have not had for thWy >-" P«f' -^ .lupendouD eata.lrophi« over „ wide area a, lho.e of 182.1 <•' 'J^"' but we have had collap.c, and rever.e. quite a. severe m a more limited rohere The Blark Fridav of Wall Street, when Jay Cooke & Co. u.p™ded wa. quite a. .harp a eri.i. a, that wWeh fd^lowed the ™- pen,™n of Overeud & Co., in Lombard Street, and we have i where the banker'i nower h.. i . He ho d. the key r,f the portion. The final ]„„„ „,e with hta: ,od i ire ^i h? """'^ •" ""■" ""* «,'''P""'> "Pon banker, alone whet^^r there ore In he any ninre panie, and revulnioni. h,™-^*"".' fu'' "'"■ "?;"■■' '° '•""''"». ""d the banking interest But tummg to the great public who are apt ,o be earried away in the,e time, of exeite„,ent. here ean be no doubt that the event, recorded tnth" chapter are well worthy of con.ideralion by them Thev are full „f Important eon.ideration, especially for a ,v„„Vr g^eJaZ. o7 /.".L. Toll ";j "A' Y,"""^ "P '" ""' P«?"""' """•nee of the X *o. C o w pi n y. IM to IM. Whh B«ik of Toronto u ■ccouataM «mI — igr UM lo Hit. G«Mral ftbnaavr of tlw MMchaati Ihiak of Canada. W7 to HO. EXrEHlENCM or HAMKIh'J l.Tfc )N BNMLA.ND tsr«...j,,,,„, ,v,„ ll,,xK,.,„ r„M- I,... . . ,,,„ (•,„„,. yrtii.Mi.t II. ,!■;., ,,,11 T«..... H;,. .... •.. r,i. »T. -T,..!<.i., r„ ir, n (>r.M ■ «,• .■ ■. 'tiMt 11 vV INii «(i,T 1„. .h..„ ,rBMj.-tsi(«.,v.>,M„.;, I .. .rltlm.m il M. t. ,■,:,, i.lM,,.. ,. »9> |.-o„|..il' ,( ll-nkin .li....ldk i„T.. .., .1,,.., .1, :if.- I ■■„•, r..l. Ihfr, r.ir- . , l,,„k.iir ..It,. ,• ,., \ ..rk.lii'r.. I . \ ,.,!. »: I'.. ■>!!•■ pf lillr.n. b. .f,;.- d.,i> inj. ,it.,r,,l r.y ,!,.r,l, „-. .-hiph i I,.m„.i ii:j»,ir I,. „.ri,- ,iiii«,.hii> «,.a t'.Mi.iii.iv ,„.t.: i „ii,„„.,i u,, ,.. ,- iv..„i, „,„■. Ti,r i,,„u „„., ,,„„,, „,.,^,. , .„,_,,,_, ,, „^^ ^ n..„,„i,»T„ IU.,-u-l,. „,■„ tl., .S1,..|I,M lUnUnf .„.„,,„„ ,„ ,„.l„m ,,,;„„ ;„„„ tl,r.«-p„„.„.; |i„. Iw.1 » ,...„„„„„,,, .„ ,t,., ,,,i,,..„„r-ill.,„.,,r,„,„l. III.' i-li.i.ru.nn .if fhr b...,r ..f hnnk.ii*. «»,., I,«l I ;^.,i .►,.,rn i tfnf., ..■• n^l.T-' 1 .ui.!-.! ni.i. I, di,.t..,w I,, i^.iii, ,: ,.,,,„„„,»„ .v„j i.j^,„ ^^;,^ A.,i,-,,.,.,. .„(, ,,,„, „,. , 1^,,^ „, .|ir«U-rt .a,, - „., ,f li;)jh »t,indli.,i ;.; .!,r l..«ri, „v.i ,, i\„ ■„ .„ „.,i., t.-, , , ,. ,,, ,■, , ., | ■" ''7' '"•'"■• '•'" ""-^ I '■■ > "' »•'..* -« . '.•,..„., . ,,,, ,.f .-..n.i.l. rub,,. u„.„„,. „ „iii (»■ „.,„ I„t..r ,„. ,(,,„.. ,|,.|,„g„i,|„,,] ,„,, .".>■. ......rl), „.„,„„.„. ,,„i ,„^,|, ;,.,,.;.^.,.,„, ,„,,„„,„,,, ,,, ,,,„ ^.^ ___. j^ "nt.c. ..,, I, l,„„. A,.,„li,r J!„aor .„, il,,- h«,i .„ ,!,, ^.Miknn.,, |i„. ... ,l»s,,,l. Il„,|g,,, ,„,, s„„,,, ,|„ „„». ,„H,^ .„,„,, ,rt„rr„ II.. l.„„k ... „,„. „, „,„ ,,H,„, „fo„ . ,,„, .,,„|. ,„„k. ,,,„ ,j ill.T til.- t.i>..i.i|,..iv „i tbr H.inl of Kiiali,,,; « v. , ir.k-. T!,f l„.,n,M ..I j„.,„ «„.k ,,„„i,,„^, ,., Kr,s!»„d w„ ,1.,-. „. ,.. ,. I..,,,-.- \,., ,.,„.h..„J,n« K.„„.., i„.„ ,„ .,„.,„„„,,-,,. , ,, iMigHii,!. whun- '.,,r,j,<„,„ a„ri iiutl^fc ,, „ „„._,.. ■. nio,l.l. ;,, .,„_,- rrbt-. '.■ m»lii.ii.,,.i Tb, .1.)h,-,w. b^k. in rngl«..ii h»J thfrrri,rr «, „.,i ,(^, ,. 5iich \vJv „[ I „,,,,,! „„„,,j,„ ,,„,,,, „,„,,, ).r...<-i,f ,t,y N.nrly .11 n.^'Mnkw, ,.t r.-s....... . j^ ,", ..I hnjl.„,l ,:„lf. „„,, ,„ ,1,^ ,,,„„ „,- ,^,^j_ j^^ ___ _ _ ^ ^^^ of , m,,r,„,n,. .,ubli,hm„,, ..,.1 ^'^^i.%.^Z.'l!^ ^S«--'}3 t>^ 1^ »f ^ ^ ? y : ■■JcV - >-=■ CHAPTER I. EXPERIENOKS 07 BANKINa LIFE IN KNOLAin). Inthoddction into Bankiho — Early ExrimiKcia — Caik CuiDiTt— MrTHOD OP DiALINO WITH TkADI BiLLI TlOUBUtOHI AcCODNTt — Thanifir TO Head Office — Withdrawal from Bahrino for A TlHI. TJAVING when a boy shown considerable aptitude for arithmetical X X calculations, it was decided that Banking should be my occupation in life. I entered, therefore, a banking office in Yorkshire, England, at the age of fifteen, being duly indentured by deed, in which I bound myself to serve diligently and faithfully until I attained the age of twenty-one. The bank into whose seniee I entered, at their Rotherham Branch, was the Sheffield Banking Company, an institution which from the beginning has had a continuance of able and successful management The chairman of the board was a gentleman of independent means, much given to studies in political economy; weU versed in the history and principles of banking, who had himself wriHen a treatise on "Value;" a subject much discussed by political economists from Adam Smith downwards. Associated with him was a board of directors composed of men of high standing in the town, most of them in active business in the steel or iron trades. The most prominent of these was a Quaker, a man of considerable means, as will be seen later on, whose distinguished pres- ence, courtly manners, and high intelligence impressed all who came in contact with him. Another director was the head of the well-known firm of Joseph Rodgera and Sons, the great cuUery manufacturers. The bank was one of the earliest of the joint-stock banks established after the monopoly of the Bank of England was broken. The business of joint-slock banking in England was then in its in- fancy. Not much could be learned from the eiperience of the Bank of England, whose foundation and methods were unsuitable to be taken as models by anj ordinary institution. The directors of the newly-formed banks in England had therefore to "feel their way" somewhat; for no such body of trained managers eiUted as are to be found there at the present day. Nearly .11 the hanking of England, apart from the Bank of England it«^lf, was in the hands of private firms; but their methods were not altogether suitable for a joint-stock bank. The partners in these firms gave dally attendance at the bank, a. if they were the heads of a mercantile establishment; and in charge of the office was simply . Ill 916 BANKING AND COMMERCE. head clerk, who snt with the rest of the employees. This latter feature, in fact, survived after entirely different conditions were established; and, in some instances, survives to this day. But this head clerk had as a rule no nianaginj? powers such as ap- pertain to the modern manager. One of the partners generally signed the name of the Hrm to all drafts, bills, letters, and documents, and transacted business just as a merchant would in his own counting-house. But no board of directors could be expected to carry on the business of a joint-stock bank in this fashion. There was necessity, therefore, to appoint a Manager with signing powers, and also much of the dis- cretion which a managing partner would exercise. And as the chief banks of Scotland were joint-stock companies, and, unlike the Bank of England, were transacting the cunnuercial business of the country, it naturally came about that their methods were adopted by this new style of banks in England, with modifications according to circumstances. The joint-stock banks of England, therefore, having no trained body of experts to draw upon, and no accumulated stores of experience for their guidance, had each of them to carry on the business in the best war they could. Their success or failure, therefore, largely depended upon the personnel of the directors; and some of them made lamentable fail- ures. Among the most prominent of these were the Bank of Manchester, the Royal Bank of Liverpool, the Yorkshire District Bank and the West- ern Bank of England; all large and important institutions in their own locality, and all of whose failures were attributable to violations of rules now universally established in banking, but which were then only be- ginning to be evolved from the chaos of ideas on the subject. Others of them, being in the hands of men who had made a study of the principles of banking, gradually established themselves in public confidence, grew with the growth of the community and the development of its trade, and are strong and prosperous institutions to this day. Of this latter class the Sheffield Banking Company was one. But it is only right to say that a large measure of this success has been due to the singularly able man- agement of a man, who, entering the bank in a subordinate position, rapidly rose to the highest place, which he retained until his death lifty years afterwards. He became known in time all over England as one of the prominent bankers of the day, and closed his career of exceptional success only a few months before these pages were written. Such was the bank into which I was introduced at its Rotherham Branch, as a raw youth at the age of fifteen. This old Yorkshire town was partly manufacturing, and partly agricultural. With its suburbs it bad a population of about ten thousand (now increased to fifty thousand) and was the seat of iron and steel works, rolling mills and foundries, all of which in a former generation had belonged to one great firm, whose business had been developed from the smallest beginnings, its founder EXPERIENCES OF BANKING LIFE IN ENGLAND. 317 fccing > limplr bladoniilh. They becnme in time, bankers u well ai manufacturers, but their banking business was ultimately converted into a joint-stock company in which form it still continues as one of the most prosperous institutions in the North of England. The hfada of the great firm all accumulated fortunes, gradually drew out of the business, and became country gentlemen or partners in London banks, their foundries and rolling mills passing into the hands of men, si.me of whom had been foremen in their shops, and others clerks in their offices. These men, in their turn, rose to n higher position, and for the most part became the heads of flourishing estiblishments. The l-anking business of these concerns was divided between the two banks of the town, of which ours was one; and during the eleven years of my connection with the bank, not one of our manufacturing custom- ers failed. * The town, however, had a fine farming district round about it, and many wealthy landowners and prosperous farmers. One of the largest cattle markets in the North of Enjland was held in it weekly. It had also a considerable corn and cheese trade, as wi as flour mills, malt- houses, and breweries. The bank therefore had a miscellaneous range of accounts, and dur- ing the period of my clerkship there, I came into contact with men of various occupations, .and laid the foundation of experiences which sto P'ivate room. But if he required to have a eon- S « u ""u ° "'"'°"'"' ""^ ^"^ "»■" <" ■>» »"" P"'" ™ "t h.nd_ Seldom however, was there any use of this room (apart from board days) unless when an account was working irregularlv. Then the manager Mould desire an inteniew with a customer for the purpo«: of conversing with liim. On the result of this conversation woiJd depend whether his checks were to be honored or not; in fact, it might be, whether he was to continue in business or not. (See note at the end of .his chapter.)' Hence the riKim came to he known a, the ".weating- room. When then on a busy Saturday it was intimated to «>me ci«- 1 It must be rememberM that no bank note, were l..„.a below l!v, potinda «18 BANKING AND COMMERCE. tomer nt the counter that the mnnager "would like to lee him in hi* room," we clerks knew very well what wag awaiting him. Advances by Cash CitEDiTa. The modua operandi of the business wns largely founded on Scotch methods. Every customer who desired regular advances applied for a cash credit. This, if granted, was worked exactly as in Scotland by over- draft on current account. With regard to these credits, three fixed rule* were observed. The first, that they should not exceed in amount one- tentti of the annual turnover of the account. The second, that they should be entirely cleared off nt least once in ench year. The third, that they should be (granted exclusively by the board, and on proper security. The manager could grant no such credit on his own responsibi!:ty; though he conld discount trade bills. His business was to see that the advances were kept within the amount of the credit. He could certainly exercise a discretion as to -rSethcT cheeks, which would overdraw it temporarily, were to be hon- .Tfi; but this he did on his own responsibility. But any customer whose •', , ount was invariably up to the limit and tending to rise beyond it, was lU&de to feel that his business was undesirable. We charged a uniform rate of five per cent, on advances and dis- counts, and a quarter of one per cent, in addition on the debit side of the account. Divided accounts were unknown. Such a thing as obtaining a cash credit at more than one hank was unheard of; and, if attempted^ «ould have been met at once with a request to close the account. Sometimes^ however, a casual discount, or the cashing of a check would be offered by the customer of another bank at a distance, and some of the troublesome transactions of the Rotherham Branch oc- curred in this way. There was a manufacturing village about four miles otf. In thi? vil- lage were situated the great works of a firm in the porcelain trade. Sometimes the dstute heads of this cc icern beguiled our branch manager into cashing a check on their London bankers, which check would some- times be refused. And well do I remember being sent over to see these people (living in great style) on one winter's morning before breakfast, to endeavor to obtain payment of a dishonored check, being expected to be back by the time the bank opened. I did not get the money. And aa I had to walk there and back, it was a pretty severe experience. In the same village a general store business wns carried on by a very clever man who had more ambition than capital; and had creat-d quite a sensation by purchasing the fine residence and grounds of the Squire, and turning the front of the house into a store. This step, however, proved his ruin. His business expeniies were now larger; so were those of his family; and he was constantly short of money. He kept his account in the York- shire District Bank, at Donca^ter; but he would occasionally drive over EXPEHIEN'CES OF BANKING LIFE IN ENGLAND. Sl» to oar town (which ».. much nearer) to get . check e..hed. Thi. the ^XtoZtT. R r "J- ^'■"'-''•''™«<-»llyp.id,Ietth.t iTe hV.7« .J' ." "/ """"* "" "'"""' "-tantly ovcrdr.™. »«r .t iofr, 11'' "u" "■"»"'"»""B ''I««tedly with «hc n..„- formidable .nrtrument called, I think, a Cognotil, by which they were ^.rrhad'" tT "'"''^' '" *e' ■-"'""-■ *'■ ■■" "<^^ in t": and™ !rith ,t r . T""*"' '"'■''"« "■"'""» *•■=«= peremptory order., he me the unfortunate storekeeper, who wa. driving over to Doncler o .ee h,m to beg for time to arrange hi, ..fair,. The manager, on meX pur^rtof^h^ """"''"■.''''' *"""■" °*"" "f "« "-"k. l«™ed the a ruined man hia rtore closed up, and an officer in poMCIon The .1 i "^ i ^ "' """ ' ''"* f" ■""« '"enty pound, (iao) bat the ividend wa, .mall, and we lo.t the greater part of It. '' never f , "'""J ''°"°"' '""" P"P'' '" ">« neighborhood; but never f™m people in the town. All their dealing, with n. were in the itSlv """"•.■^"'•^ •"'■•"""' '■•^ "■' '-"«'' ■»■• ■«°™<- B»t "c^.- d °^f " "^""^ '? "^ "^" "'"' '*''' ""* ""^ "«^" 'd'"ce., would drop ,n and ..k for an advance of fifty pound, or «, on . proiK^ry ory becau.e of hi, invariable habit of letting hi. bill, be protested But he ju.t a. invariably took then, up .oon afte^ard.. He J^. one of thoL odditie^ «, common in England, of whom Dickens', page, are full and I remember once, on the manager reminding him that^iThaWt of Jtfng hta bill, go to protest mu.l cost him a good deal of money, hi. replying* hut B < r "''"•""•P''- ' *«•' *«P »«* particular account of L h,lh. But T*,. /»,y „„ pro(e.(erf, / Hon. I have to pan them." Method of Dkalino with Trioe Biil.. c^Ih '^Tl 'l"!"''^ """*' '''"' "'" ^'•" ""h wa. diametrically Tbi : t T^ r""" °" ""' ""' »' **' Atlantic. Inatead if "f whtV t'.!'" ""=""■"«" "' ">' "-'rf f»' examination, K^me of which might be pa„ed, and some thrown out, they were aU p«...ed to the credit of the customer by the teller, just as if thTy we„ 11^1, f?.' \:7 "ri ""^' "' ^-'"8 ""'"•"'> tat it was, in f«t° nothing of the kind. And for thi, reason: all the bill, paid in to a ^ i BANKING AND COMMEUCE. SiO tomer'i credit were irndc pnynWr in London, nnd .tnt np to our tanktrl for cuUcction. Hnrely. indeed, wer? .ny of theK .enl b.ck proteited; for, if nny onrtomeri bill, came b«ek often, he wai taken .horply to task, or desired to close his account. As to nnr applications for renewals of trade bills, they were never heard of. If such an application had been made it would have dam- aired the credit of the applicant beyond redemption. The truth was, that the bank would keep an account with no man unless his bills were good enough to pass without In-ing first submitted to the manager. Not that thev were never scrutinized: for they were examined most carefully as to their legality, the sufficiency of the stamps, the regularity of endorse- ments, and so on. , . Another fundamental point of difference was, that ordinarily no limit was placed upon the amount of trade bills discounted for '"^■'•»°">"- One reason for this was, not only the uniformly high quality of the bilU themselves, hut for the facility of rediscounling in the London money market. Hediseounting is almost unknown on this side the Atlantic; but it was. at that time, quite common for even the best banks of England to send batches of bills to the great discount houses of London and have the proceeds placed to credit with their own bankers. There was, there- fore; no special reason to imp.«e limits to the trade bills. But very care- ful and exact limits were imposed oii the loans. The svstem worked well, and the high quality of the business done may be gathered from the fact that the losses of the whole bank rarely amounted to over five hundred pounds a year. I well remember the chief m.an.ger once writing me, after 1 had come to Canada (for I correspond- ed with him until his death), in a vein of low spirits over the bad times thev were passing through, and his expressing the fear that the !<»■« of the vear would amount to a thousand pounds! Yet the bank did the leading business in one of the largest manufacturing districts of England. The majoritv of the accou-nts in the branch where I scried my ap- prenticeship ga^e very little trout!-. Trade was quiet but prosperous, and a failure was a rarity. During the six years I passed m the branch I do not think (here were six failures in the whole circle of our custom- ers The popuLition and wealth of the town have increased enormously sine- then. Gas-lighted streets now extend over the suburban country- lanes of mv carlv davs. But the characteristic of safe banking still adheres to "it. o'nlv a few years ago, I was once again in the office where mv carlv vears were passed, and the manager told me he had not lost i:00 a vear' for seven years back, and had never had a past-due bill in his wallet for more tlion a rrerk during the whole of that time. Yet the branch hod done a very large business, and must have had credits out at all times of hundreds of thousands of |ioimds. EXPERIENCES OF BANKING LIFE FN ENGLAND. TrOL'BLCIOME AtCOl'NTi. ,:J' Y' - "7"' ■*"""" "'•'■ "°" ° f'" tro„ble,om« thing, lo d«l forn.,d.bl, document, of srcurily „lre„dy mentioned, »nd .l,o long Ii,l. of the chattel, of . eu,tomer, who,e ,took we had taken po„e„ron of he .to«i at the counter when 'hard up" .„d begged the n>.n.ger to allow h,m t„ .xeecd h„ credit. But he had to fail at la,t, and we to re.u" of thcT father, b„,i„e„, built up one of the largc.t manufacturing concern, ,n the district, and became pro,perou, and wealthy me" witS handsome villa, in the brce.y suburb, j„,t mentioned. « e had during that ,ix year, two ca,e, of forgery. One wa, of a ra,ua eu,.„mer for whom we had di,eoun,ed a fL ™„„ biU, ,1: leman half-man of bu,in«,, of whom we used to have manv repreL- CiZ 'I ::"•' ■'«." of Canada, and .ome of whom , "after^, had to deal with in one of the branches of the Bank of Toronto They were a, a rule, highly honorable men, but given to live'bevond .he,r mean,. Bu, forgery wa, about the last thing to^suspect thL of no.iH^l 7?- ''"r"' ''''° ""-J -'"■ • "idowed mother, „ ladv of g«xl po.,hon, had fallen into the terrible temptation to forge bill, ;• and w^ inX^^' u """"""""^ "f "- f»-".v when ft was diseo.Jed tvnie T '"""""■"•^ """™" (I dwell on these because they we« ^I^ r"i "1 °V" '""""" ^'- '»"'«■" "".-here) w„, a l.r« tmber merchant, with a good business, very loisely managed H^ a lowed h,, cu.tome„, far too much latitude, and gradually got^^ boot filled wth what we would call a ma,s of ■lock-up,." T he Mnsequ^M «a, he wa. alway, short of money. I well remember one dTTw^' 11 LM""'"i "■"' *" ""^ '° *""• '»"'' " ■""«'. begging for money beyond h,. cred.t On the manager positively refusing,*" puUed u of h,s p^ke. a handsome gold watch, and begged for an advance on hat. let he hved m good style, and occupied one of the handsomest 1 tt'" rt "?'«'''^"'°'^-. '^'■" ">''^ "f "-ing, of course, came to end at last. The banlc demanded payment of hi, acenunt, and notified hi. guarantor,, who were wealthy relative,. They disputed the correctne.. of our account demanded proof, and well do I remember the long .earch over stack, of voucher,, which had been filed awav for year., in order to prove the correctness of the final balance wc rc^juired them to pay. We e,tabl„hed our ca,e at length and got our money. He di,- appeared from the ,cene, and hi, busines, wa, taken up bv the manager of h» yard a prudent and economical man, who built up a splendid con- nection and fortune for himself out of it. But the long search for these vouchers impressed me strongly with ?r^ ,32 BANKING AND COJIMERCE. MIC of tlie drawbucki to the lyilem of «dTance« by overdraft on current occount. . •, • Such were «omc of my early hanking eiperiencM, out of which grew object IcMoM well remembered in after life when I came myielf to occupy the position of manager in that far-diitant country of Canada to which I had, at that time, ai little proipect of going, ai I had of being tranaported to the moon. Transfrr to Head Otttct. A change came at length. I was transferred to the head office in Sheffield, and bade adieu to the branch and its associations with little regret; for I wis to enter upon a scene of greater activity in an office with an immensely larger number of accounts, where opportunities of gathering eipcriencc would be much increased. Besides this, all the life and bustle of a big manufacturing town would be before me every day. In that office I spent the neit five years, and came into direct contact with the Chief Manager, of whom I have already spoken, together with a number of men who were my superiors in ability and position. There were three cashiers (or tellers) at the counter, and on busy days foui. Wc had about a thousand active business accounts In the ledgers ai well as a considerable number of fixed deposits. The business was active and dourishing even then (though it has immensely increased alnce), and altogether the change was, at first, decidedly agreeable. My work, howe.er, was much more monotonous. In the branch I had to take a hand in evcrj-thing, except waiting at the counter. In a small way the whole experience of a banking office came before me; and, although I did not actually perform the duty of teller, I had plenty of practice in assisting the manager to sort notes, count gold and silver, arrange checks and drafU, conduct correspondence, and handle and examine trade bills. The names on some of these I remember to this day. But in the head office there was a thorough subdivision of work, and each man did one thing only. I was little better than a junior In age, but was put in charge of one of the current account ledgers, which post I retained until I left the bank. It was monotonous work, and at times I fretted over it a good deaL But there was a most important education in handling these ledgers, for they contained the whole of the cath adranca of the customers of the bink. )l was there I learned the position of all the manufacturing houses who did business with us. .Many of the names were known aU over the world, and are to this day, in the United States and Canada as well as elsewhere. Some of them were wealthy and strong beyond ques- tion, and kept far within the line of credit allowed them. Most of the others were in good position, doing a thriving business on adequate " But there were a few— a very few, considering the number of the EXPERIKXCES OF BANKING LIFE IN ENGLAND, ij, doing The.. c„.t<.,„„, wr„ .lw..v., «„.„ci.lly .p„kl„. .^ "v" w", edfre- of ,hHr credit, often ..„ti„g ,„ J,X.. .««, ."k n^ we i'^ZlL™ °' ■""'■'"* '*'"''• ■■«°°''-" *"• '" ^l"" i" 'he town; bnt Tfler .k, h ,■ "'"• "" '"" """''' '"■= l'>'l• f'om memory, „nd I think I eo-M During the time I wa. in the head office of the b.nlc the terrible p.n.c or 18,7 tr.„.p,red. The ,re,t feature, of thi. p.nt .^ tr^.tea «L„ l"""; ' ''"'"'V *"" " " "•"■"'"''I'^ ho- little it affected Se ta.no..I .nd eommcrei.! p«.iti„n of Sheffield. No great failure tr.n- by the bank wa. o i™.'. ,*, ,i„, „f .fce trade bill, di««unted. Yet London wa. convulsed with agitation. Great ho„«., were failing every l.!d* 7, " ''""'°"' """ '° '™ P" ~"'- '-f"" ">e panic abated. Our manager wa. one of the country banker, who had .tren uo„.ly opposed Sir HobeM Peel'. curr«,cy legSa.ion ofM« a. Ltlrf Me. thatlirh . T.- ^""^ ,°' "" """"^ '^^"' '■•'' "*™M tS. dea that .uch legislation would put an end to panic, and their eon tention wa. ju.tificd by the event. Another event of importance wa. the failure of the leading private p nic""*Th"" V" T;-, '^"' ■"•""■"' ''«' ^ -nn-tion wUh the panic. The partner, h.d long been the leading people of the neighbor! hood; the head of the firm being a Member of ^ariiament, and "ht^ at one time, had ne.rly nil the business of the district. But it did bu.!- nes. ,n . generou,, old-fashioned .tyle, and go, it. book, full of iX up. and uncolleetable debt,. It, downf.Il waTinevit.We when tim ^of competition set in; yet the people of Sheifield had great confidence n t and It, deposit, and circulation we«. large. The failure produced i,^ mcnse exctement^ But there wa, no run on the other b^nk,. uZ tit """ ""'/.' ''° ""' "■"'™'"'' •"" I ■J" """ect that we got . large acccum of depositing cu.tomer. and the account, of public Zi^ and .!.„ a few desirable account, of manufacturer, and merchan.r ' The railway to .M.,n<-herter wa, wider construction at that time It wa. a mere railway from one town to another, a, nearly all the railway, in England were in their origin. The great combination, which now I BANKING AND COMMERCE. 3i* 1, now . p.rt of a grrnt ■■'•"""/^'f';'"'' „ „„ .„ ,„„n»ou. .mount But It w.. pl-nncd « . P»«lr '«•' "jf,; 1~„, H.rdly » n-il. of of money, .. It p..«a '*" "«j^„:,^rt,on Ll-''"' •» inordln.t. numb.. « «„ on l.vd ground. I .- ""'™f 7tl.rion«.t tunnel, in th. world of bridge, ond '-^.nkjnent., .nd one of «;°"«^ ^ ^ .^^ „ ^r- „, needed to en.ble the ro.d to ^'T^'^J^^^ j,Jn„. „f people in ,.nd. that «P""«' ^"Vo/L .«W who couW not .fford to t.ke money transpired during the whole period "f ;>.>' ^ "'';^;P- ,„ ,^, ^.nk varied fL ye.r. of my life thu. p»..ed. .^ > [f;„ ^ „f .„ .eeountont, „„le. yet I wo. daily beeoming more "P""" ^•; ;^«^' ,^,„ .ith and forming habit, of 'h"°"«''"7/"t°'r"';'"' AndTw.. learning to the power of long and -""f™ --^J / ™, ,ZJL, and to under- di«rimin.te •-""■'" ''".''."h bank w" re made, and how it. lo..e. were atand how the proHt, of the .^""^"^ ™„ ' f„,„„ eareer. I w.. abided: all whieh .tood me n good """'" ™^ ,„ „f „„,t of the ^eoming too, ^^ toVh^ 1 td" M ilnd' — " England and leading bank, .n the Northern bu.ine... The great bankmg heard di,eu..ion. on the r '^^'^^^^X^Z"' well af the di«ount fim. of London were «l«o ""-'»"''y ^^^^^^^^ ^„„,h ;„ M«.ehe.ter we hou.e. and the »-\»f ttdl'l^fmeltr the in.cre.t with whieh on n,ed to oorre.pond. And we -l" ' '"» „^ Lombard Street, the oeeasion of a holiday v,.,t to London. >•'"«'' P j.^, ^ and went into «.me of the h.rger '«"^';X^:ge,ne., their erowded Smith, Payne and Smi h ., « '^-«,„^^*' :rfamiliar 1 . counter, and rn.hing ''""7' ;'"';/ „'"„Tefy different eapaeity. with Lombard Street a a future day, m a very ^ ^^^^ ^^^ Though the Sheffield °»""f °''""" ^f ,Vw co.fe'P^d™" with th. United S'-'e. I do not -emUrJhat w^ ^ e-^J^, j_,.„,^, any bank, there. /•°'' "^ '^''./'"""^'.t lirm of Brown, Shipley «. Co., rriltrnTnlM^fd'eX\X^e. Of Canada I knew .b,olutely nothing. TiMPoR.Miv Withuhawal fbom Bankiso. .u 4 „f «ve vear. circu ustonce. aro.e which made an But at the -/ °^«; ,/;V;a;.a; „„d a, there wa. little pro,peet increase of meome »'*''"7'' ", °' ' „ ^eing impaired by close con- „f it in the »>-"j^j„t:d -rrZti ; ^."uon I whieh I had not L— olT^le .teZn of income, bu^ much employment in the "^"ht, for a time I left banking altogether, having had before m. KXPKRIENCES OF BANKING LIFE IN ENGLAND, tat Iht invalunblc Iriuin of an Itiititutiim rondiiilrd on ■uund and wrll-n>n- •idfwd prinrlpin, whirh Ud it to a high plon.- of •ucru; which did in tact, furniih me In after dnja with a mode] towardi which, when th« rcsponiibllitles of management were placed upon rac, I itrnvc to mould the lmiinc» with which I had been entru.trd in the far-olT countrj where my future lot wa> caat. Inlo ■laor 2 Rtf.rrln. to the Ouak.r (cnilrmnn nnm.J In an ,o,iy „„ , „, „,|, ,.,,.„. fr,;,^r„r.:"'„:'„':- " • """'""' -""" - ^""■*"" •-" «"--'' of ,t*h?v7o'i"™TK'" "" ""'" ''^'' "■<•" "•"" >.Ty .mo)> b.,looi„,. „he ft..d in II. own nn« or bii.m..... Tli« toondor of .l,r mm Had .fiuaalnl lo . y™r. to ilv« hli Hon. . a,x„l oducllnn; and ih,y. In dor Mmi' ".r^ t.,l<,.„ Sf"?h»r'„ ,"■ ■^l'* ;'"'■•.', "' """ "■" ' """ "' """'loou ln,;ui,.n™ „nd f^^, .; ? J^ '."" »"••'■''• «•« oonllnnally oiamiKd for mon,y. In M:..}^,'^,, '.J'.'"" '" "" ■""" •" "'•"■■""a th- "nanre, of the hu.ln,.. one «rt.h,r"'V,"""' •"'""°" -"^ n.»n,.f.cl,„ln,. ThHr acoonnt w.. .ta',. l" »arlab)y overdrawn: and I l»ve tr„iufntly .,.,n thi. I™dln, partner w™t°n. .t :o\"",arc:i:; r,Lr°" " —' "•""" "■« -^-^ He'b."d™;„T':'a..:; .rab;^%r;dT:.'.::re„rof'';r;'i-;.;r' '"-"' '"- "' -'""*■"'■ """-■ wy tb.r^;: 1" t Vr" ""'■ '•"■""»''<■"■> »- S-onl»>- .ftemoon; :„d t! tavln. f^r .o™ ,1 ^ neoe..lty. o„ „„, partloolar Saturday, th, aooonnt e?or h, Z^^l "" ■?'" """ "" •-""Wl"'^ "tnl'. the beod of the hou.a (for he had become .uch by thia tlmel appeared at the counter a. u.,!.. and proaentet, . check wblcb would .we,, .1,1, ™ re ,.r.e',y 't'he .Tre^d; o" rdTwIn "a"c' th. mn'oe^Thirh'Td' "•"^•""-'- <"" '"o P»rty replied that he mu.t hav. i™'',;L•a."'e",L''■thr;■„rra'na"b^^^'e''d"■ •"""-"• '" """"■ "' -'* - E;'^HH'~ — -• '"™^ - ^^^-' - £;r^ rnrry;:.r";j:r^";ij>^;hr;;.:r'::"Ln;^^ xrr; «,™''!I,!;"J^"°"'";' "■• "'""' '"'">".. and 1>« M; ■hap. -I a On. puMlc P«'k. • y"'"^iZw. HI. maMlon I. »"• »' >»• «•„, r-ldrac W "»!,':';' "UrfMlh, , hoi. oommu„U. and ha. Wt a nr-'MriTu „■::.'".: '.or^n z .».:. -» •• »- ■ »- -' ^"m. nam. wa. no. William Thomp«». CHAPTER 11. MY ixrauuiou OP BAmuHo a oanada. PilUMiKAiiv— FiMT Ar«iAi»T«Kci With CAx.nuN B.xkixo— E«- PtovjiD nv Till Bank or To.onti.— STiiAiniiiiMso Out a Bhavch — Revi-lhiom or 18.17. AFTER loning Uir .S1„'K.I,I Bmikinn < oniponv, I .ntrrrd Iht ™- -1 ». ploy of n Inr^e flour mllhr iit r,,hicr and lrin.ll,.r. Tli>- pro- prlrtor had formrrlr l«in „ railwn.T conlrnctor. fpoiu wliicli biial- oni he had rrllred with a coiiip. trncy. But while cnrrving ,.n hi, flour mi 1, he entered tlie field of railway conHtrwtion on 'lhl> »ide of the Atlantic; undertaking e.ten.ive operalloni in eonnectloii with hii partners In New Bruniwick and lower Tanada. I had charge of the financial department both of hi. millinft huaincM and of the contract! : and wai ultimately >ent out to Montreal, in con- nection with the latter. I now had the opportunity of .eelng .omething of the Lnited Statn for the fint time, and wai aitoninhed to lee luch dtlM as New York, Boston, Albany, etc., of which, with the usual insular ignorance of a young Englishman. I had formed such inadequate ideas. In Montreal I remained until his death bv shipwreck brought the whole business to a close. During this four years' ei|>crience I learned invalu- able lessons, such as I could scarcely have learned in any banking oAice, no matter how extensive its business might be. First Acgi'AiNTAKci With Canadian Bankixo. It was while conducting the financial alTairs of this firm in Montreal that I came into contact for the first lime with Caaa in after yi-ars aa manager of a bank. The head of the firm, however, was lost on the steamship "Arctic. His partners found it impossible to raise the capital for carrying on. the great contracts that had been entered on, the Crimean War being then in full progress, and the money market of England clouded over with npprehcnsion. The construction of roads was, therefore, stopped, and a large number of officers of various grades, of whom I was one, were thrown out of employment.* I was, of course, by that time well known in Montreal. We had kept our account, and a very large one it was, with the Bank of British North America. .\s the financial manager of the firm, I had become acquainted with men whose names afterwards became prominent in the banking sphere, not only of Canada but of the United States. The assistant manager was Mr. Charles F. Smithers, afterwards well known as Agent of the Bank of Montreal in New York, and subsequently •« its General Manager. The chief accountant was Mr. E. H. King, who was even then displaying those eltraordinary talents for calculation which afterwards distinguished hira in the higher sphere of General Manager. Little did I dream at that time how closely I should be asso- ciated with these gentlemen in after life; and especially that it should b- my lot to take part, as manager of another bank, in a determined opposition to Mr. Kings policy of revolutionizing the currency system of Canada, some twelve years afterwards. When the affairs of the contracting firm were wound up, and being out of emplovment, my natural resource was to fall back upon my own profession, and seek a position in a bank. My first application was to Mr. Davidson, who had by this time become General Manager of the Bank of Montreal, and had taken over with him Mr. Smithers and Mr. King. He, however, gave me no encouragement. The bank was rather restricting than extending its business in consequence of the monetary cloud caused bv the Russian War. I had obtained an introduction to the President of the Commercial Bank in Kingston, a bank which then stood almost on an equality with the Bank of Montreal in the value of its stock and the business of some of its branches. Well do I remember calling at the bank to present my letter. The bank occupied a splendid building, and all its appointments were very fine. I was courteously received by the President, a distingnished-looking gentleman of the old school; but he gave me the reply, which I subsequently gave myself to dozens of ap- plicants, that they had no vacancy at present, but would place my letter on file and give it attention when circumstances called for it. Of thil 3 In vl»w ot .ubsMuent developments It 1. Intfie.llng to notice what these conlmcT. were. Several ot mem were tor line, that ultimately formed part ot tn. Canada Pacino or the Grand Trunk Sv.tem. but. >ln,..l.r to ..y. the """''•;'« tered Into a con.tH.t to construct a wa»on roed, and .ub.equently a railroad. acroli the lethmus ot Tehmntepec In Mejloo. .tartlri (Tom Vera Cru». and baa sent out a party of surveyori to lay out the line. MY EXPERIENCES OF BANKING IN CANADA. 3i9 bank I thall hnve somethinft to My later on; meanwhile will obieno, al an illuatration of the changes time bring! on, that in that vcrv room where I had rtood as nn applicant for the positim- of clerk, I stood twenty years afterwards as the General Manager of a bank that had sncceeded to its whole business. EMPLOVRn BV THE BaNK OF ToRONTO. Meantime I had obtained employment of another character, and the bnsiness I had in hand look me to Toronto. Al that lime there was only one bank that had its headquarters there. I had no introduction to any of its officials, and knew nothing of them; in fact, by this time I had given up the idea of banking altogether. My re-entrance into it was determined by one of those accidental circumstances which, apparently of the most trifling character, sometimes determine a man's whole future career. Talking one day with a friend, he incidentally referred to a neiti bank about to be established in the eily, and asked whether it would not be well for me to seek a position in it. He knew some of its promoters, and offered »o give me a letter of introduction to one of them. I fell in with the proposal. The letter was given. The party to whom it was addressed, a respectable merchant in the flour trade, referred me to the gentleman who was, lie s.iid, to lake charge of the bank when it was established. This gentleman was the second oflicer of the Bank of Montreal in the city. I waited on him. He, however, gave me litUe encouragement; said the alTair was a mere project at present; that cer- tainly a Charter had been got, and subscription books opened in various places. But they were proceeding slowly; very little money was coming in. and he rather doubted whether the project would ever take practical shape. He said all this to me, of course, "in confidence"; for my letter of introduction put me on a confidential footing; besides which! gave him as references the n.imes of first-rate people in Montreal whom he knew. ^ Moreover, he said in the usual way, that he would "bear it m wind." I called agaiu, with the same result, which confirmed me in the idea of abandoning banking altogether. A short time afterwards, however, having finished my business in Toronto, I was preparing to leave the next morning, when it suddenly occurred to me (little did I think that that accidental thought would in- fluence my whole future life) that I might as well go to the Bank of Montreal and see this gentleman again. To my surprise I found hii tone wholly changed. He told me that matters had considcrobly pro- gressed lately; that a provisional committee had been appointed, that they had leased an office for business; that he could offer me the position of accountant, provisionally, and that I might proceed to the office and open the first books at once. The salary offered was moderate enough, as might be expected, far below what I had had in Montreal; but I ac- cepted it as a beginning. A few days afterwards I entered the ofice I- MO BANKING AND COMMERCE. Ill which the bu.inM. of tht Bank of Toronto wm carried on during the fint eight years of iti eiistence. And thoj in very humble fajhion did I eonimence my banking life in Canada. In the Bank of Toronto I continued twenty yean, in the MerchanU Bank of Canada twenty-five years more, thus making with my eleven yeara in the Sheffield Banking Company, a banking life of fifty-lil yean before I finally retired. ., , . j .1. a_» It was on the twcntv-third of March, 1856, that I opened the fint book of the bank by entering up the sum. received to that date from subscriber, to the stock. The whole amount was only some «*™»r«« thouHind dollars. We could do no banking husinew until ore hundred thou..nd dollar, wa. paid in; and at the rate at which .ubscription. were being paid, it seemed a. if a very long lime most lapse before we could commence banking. I was for several month, alone in the office, con- ducting, however, a large correapoidence with subscribers or inquiren, the former being mostly request, for instalments to he paid up aa speett- ily as possible. Once or twice I visited localitie. where .ubaeriber. re- sided, verv much a. a commercial traveller would do, for 'he Pur^« of collecting instalments. One day when I was sitting alone m the office, my good wife called for me. I.ooking round upon the quiet place wth no .igns of business visible, she said with true wifely anxiety / am a^roid thi. will »r«r be a bank!" And I more than once thought «> myself. When a voung man in England, a play by one of Dickens s associates was running its course, entitled "Time Work. fToaJer./ Jh«Y««' wa. a more perfect illustration of it than the career of 'I"" /r"^ *^°' " I revise these lines there lies on my table the statement of the bank for the year 1908 which read, as follows: Capital paid up ^^'"^ Rest (accumulated reserve fund) 4,500,000 Total assets ^00,000 From this it appears that its deposit, are $86,800,000 and its circu- lation of notes neorly four millions more. . . .1. , Who could dream that I, as accountant, was ever employed m tnot very bank, slowlv entering moneys paid in on Capital Account, wluch amounted at that" time (1S56) after month, of labor, to no more than thirty thousand dollars, and .ilmost despairing that the sum would ever reach one hundred thousand dollars. Time has certainly worked won- ders" in this ca.e, and illustrated the truth that "Great oak. from httle acorn, grow": and also that men .hould never de.pi.e the days of .mall thing*.* n^ MV EXPERIENCES OF BANKING IN CANADA. S3I Subscriptions continued to come in slowly, but townrds the middle of suniDier, strenuous measures were taken by the Provisional Commit- tee to worli up the amount paid in to #100.0(K) so as to enable the bank to commence business before the great crop movement of the fall season began. Their efforts were successful. The required amount was ob- tained, and llie bank was in a position lo open for bi-siness. Previously to this, however, n very important step had been taken by the gentleman chosen as the future casliiir. To understand the bear- ing of this, however, it is necessary to go back a little. The project of the bank originated with a few mt n in Toronto and the neighborhood, all of whom wire millers or in the grain trade, who took the step because of the utter indisposition of tlie Bank of Upper Canada to afford facilities for moving the crops and purchasing grain. TJie branches of the .Montreal banks were not well affected to this line of business either. They preferred the accounts of wholesale importers. These millers were men of sufficient standing lo secure a Charter and •tart subscriptions. They determined, however, to keep the control of the future bank in their own hands. A well-known and prominent miller "«n° ^ '■"■"''''"'■ " *"• '" <■"'. "ffn popularly spoken of as the Millers Bank."- But when overtures were made b> the officer of the Bank of Montreal before mentioned, he demurred to this feature of the business, and finally stipulated for two things: first, that the President inust be a man of independent means and out of business; and, second, that half the remainder of the board should be men connected n,ith gen- eral mercantile bntineii and not with the grain trade. The suggestions created considerable commotion amongst the original promoters, for it was evident that some of them, who were looking to be directors, must be passed by. There was, however, no alternative. A president was sought and found of the character described, and several mercantile men of good standing agreed to accept positions ort the board when It was constituted. So, then, when the required capital was paid in, a meeting* of shareholders was held, n board and president were elected, the casnier formally appointed, and the bank in July, 1836, opened iU doors for business. The bank being now ready for business something must be said of the men who had to carry it on, both at the head office and the branches. The president, as has been said, was a gentleman of independent panle. (which did not thsn exl.t), amount! now. oc^ordlni lo published rdurns to mer six hundred millions! In fact, the depo.U. ot the Bank or Toronlo alone ^u^^.'JZ'.t"! n'' °T"°' '" """' """ """' •" "■« «"°" »' "■• "•"l" 0< "•• country put toKether when It commenced biwIneM. t™«^' 'J!!' ^"""J * '"'■'' "■"""" ""I"""" ««» nude bj- an old resident o» .1™ ?■ ,h , .■. "P' ■'°''" '^"''™- »l»»' recollecllon went back 10 the ii ,1 .M^. """,'."•. °' "" '^"'' "' ^'■"'•'' f •»•*■• "• "■I" "»• the Charter ,i bank provided that llfty thouMnd pound, currency IBOO.OOOl muat b. !?i -b^i r* .T,"'"""* ""•""•'■■ 'f' •>>« «"°unt bad been sub.crlb^l, .b.n u ~ . t„i:.:°'' °°'"'° """"' '"PIWIIW the project; but that When It came to THE PATINO IN OF MONET It was Impclble after the i."t •trenuou. e.ertten, EXTENDINO OVEn TIIE WHOLE ST HrPKR (^ANADA BANKING ANB COMMERCE. I . "ver * sure it wo„ld h.ve gone down in the general wreck th.t en.ued •" riuT^':'' -d With ,eg»rd to t,.e n,e„ who were pUced in =r::xeX ^:^^r;: ::^ tt^i:i.t^:; ttr;i- ^ui^dTLr:;:/:^;:. . ... h.n. „ it c.n,e about that .11 the k""*^ --^/'J ;";^^Lent lawyer, ^.:i-r:j::i"on:et«Ln:ieX^^ man, and a fourth a prominent grain merehant. ^ . ™„i,a. (1160 (»0> iin.l Ihul e balance lud to acts wne alike. «"« ""■'■ '"■"•I'' "T.tl-lrTl.l" to the rarrful elaboration ot m.'e ot NOW York. (The^ >-" ""^''."^.^i'^Se H.mlltoa.) Many o. th. ,h.t mo.t able of all Am.rle.o ""'"'^^^/^^^'^^ „a ,„ tb. pre.ent -Baaka. provUlon. ot th«» .epara'e act. »""?"„„, amerenee : that, itamely. wWob Aol; but In one point tber. " », '"""f";".', „„» ,h,„ .a. no wearily tor previa- tor eeearln, the elreula Ion- At that tm ^^ ^^^^^^ ^^^ ^^„,j dreulatlon at all. the only '^'ll"'"" ^^^^ "oln o' hand. The la.l proyl-lo" ;^:.r»e''„Sr«rrn«..rLThr.r holder. ».. no better Caln, .-, » than the d*po«itor«. MY EXPERIENCES OF BAXKIXG IN CANADA. MS Ihi. point tell of the ex|KTki,ce we Imd with them. The kwver w» « jJ.o.t rcp^etaW.. „,„n „„H .,«.edily «„,l,..r.J „ ^^ eonnection „b„„l h.. br„„eh. B„l ,„ I... ,h,„ .i, „„.t ,eturn.-„, we c.ll the .t»teu,ent. .ent hy br.nehe. to the head offiee-<«„t.i„ed ,„ „„„v mi,. t.kei that the ea,hier sent n>e up one «fternoon to examine hi, book,. They were ,n a iH-rfeot la^gle. and it t™,!. „,e all night, literallv, to .lr..ghten them o„t. It wa, about ,ix „'el«.k in the morning befor'e the l..k wa, «n„hed, and I had to leave at .even to return to town. The agent, "■ cour,,., wa, ebangrd at eu-T; but a, lawyer, he eontinued to be our eonhdintial „dvi,er in the town, and rendered most valuable .erviee to the bank. Our exiKrienee with the ,heriir wa, of a somewhat ,imilar ehar- acter. but on a far more extended ,eale. He had gathered quite a good bo,me., about the oftiee, and hi, return, and statement, were aut order, ,o far a, outward appearance. Vent. But at the end of a year It wa, deemed desirable to have the braneh in,peeted. The work "wa, undertaken by the president, who took me with him a, an aeeountant to examine the book, and ea.h. while he attended to the di«x.unt, and loan, Ihe ca,h appeared to be all right; but the book, did not bnlanee. I ■pent the day in vainly endeavoring to find a plaee where a eorreet bal- ance could be ,truek, but could find none. It wa, now evident that a eon- ..derable amount of examination wa, before me, and the pnsident re- turned home. The upshot of the affair wa, that it took me ,ix week, of con muous labor, both in bank hour, and long after, before the book, eoud be ,tra,gl,tened out, some of them having practically to be re- written from the beginning. Of co„r,e the ag.nt wa, changed at once, and the braneh placed m charge of a young man recen.lv arrived from Scotland He had a good bank training there, and wa, altogether one of the elevcrest men I ever met in the hanking sphere In the branch of which the agent was a merchant it wa, found that large advance, were being made to hi, own firm, a state of thing, that It wa, utterly impossible to continue. Business bv that time had become very cloudy oM difficult everywhere; and it wa, thought on the whole lie«t to close this branch altogether. SrR.iioinEKiKo OtT A BH^Nrn. The branch placed under the charge of a eountrv gentleman very speedily did a flourishing hu.sine,s; and as he had had some commercial education, there was never anything wrong with hi, books or cash He wa. a man of popular mai..ier,, of the "Hail fellow, well-met" style ready and willing to accommodate borrower, of all ,ort, and conditioM* and speedily did by for the largest bu,ine„ of any of our branelie. He' made large profits, and for a time it seemed as if we were to be con- gratulated on having secured so active and enterprising a manager But after a year or two, the fears of Ihe cashier were aroused bv the BANKING AND COMMERCE. S34 „t«o«iin.,y nun,be, of renew,,, '-;»' ^ P-'^f .'^ti^" Tt. Corre.ponde„ec followed, and «"° "^ '"^^ "«™'.,„^^^^^^^^ fell to sent t„ .ueeeed hin,, and .g.m »"°'h" '" J "' ' a3 ,hi. I »v .ome- „.y lot, not of book. thi. time >-»' °"'-' ^'^ „ f^^'^^, «uh .he ,e- rj iLe,::: ;:rof^!;:::M:i:3: ... .u- «. m, .... ™.hier rapidly de>..oped. W^,^;";'^ .."^dmonTfew aeeo„L „e„ in the grain, «°"; •"\"^':, 'if ;J"„f the largest of .he,c al»> of importing merehan... A »l>are o ^^ ^^^ fell to our lot: and wa. very P'°«'°"" /° ''Xkholder,. and deelared end of whieh we reported good profit, to the .loonnoia „ good dividend. ,857 1 another step wa. taken. There had But at .hi. mee..ng CJu'.v.' 8' '■)»"»" V ^^^ ^^^ _^,^ been a good deal of frie.ion .n '^''^■'^^^^'^"^„„, de.ern>ined .0 ,„e„... And .he lal.er, who had .he l^'-'; °' ^ ^, ,„., ^,,„,. put an end to it by dropping o„t ^"' J' '^ ,°V;,„ J„ember what . ?-he proposal -"te* 'm-n-e ^^m^^^^^^^^ ^^ ^^^ ,,.„,, stormy meeting ensued. Bf ''^ P™„^ , ,„„d by ot .er. that had Lru.°;ttd::irtt.r;:::t;ro.pe^t.v - «- ban. Bevbuuon op 1857. Shortl. after this the revulsion of ,«57« tran.pired in Canada, «^- Canada, and pro.lrel.d '>"'°«••'^„^'•I ,;,,„„ of a Trust Compam'. Cl.ioa.o : j^r^.rro,;rTra.o°tn^"^'rx ., ,.. »... «. ..»- .■■2 ""1, .a. whUe .W. period »' ""'7'°" T*.' ^.^7 r^Iri^'no^ac?™™.. ■■.™all Pl.ce. a (e« "."" *•""■* "/fiS', „p"n a branch t»«.. .nd that he ,h.l the b«nk would P"''"'"'' *"" ' 'L^„?„ ,,.. o( ooome. merely entered ,o.ld\lv. me ohnrse ot It. ,™1. """^"""w"",., I would like to tran.poct Zi^to'^.lve m. an "PP""""''/./!;^ «l,n a- «'"«"'* ""° ""; "I T Sir mV-elf and tamlly to ,uoh a '";»"*'' "'„ „„. owlnt to the «««'""'''' £-: z"p.rr.Ct t.rs.:;w::£ t:%^„^TJ'.zT.r^T::t: H^r:r^er^-.^^f~S"v^-.s?'-H«»i.T£D Sn«.iFF— An Ihwltemt Tbaoip _ApFO.NTED CA.H.W OF TH. B*N« OF To,0«TO. •■cl.„ni.h" feeling .n.ong,t thorn ^hey .^-"od P«^ ,„„„rtion. of ..,.do«cd freely for »»«»"»*'■"• J^'h*,"." everybody in the town '■■" ^^'"■- ""liVrpl'^r To%"t"„ hTb::*! of .uch l ....of en. «« on ''"y^^'/'^lJXlti plodded on, week .fter week, .nd laiiglements Kemed hol^leM, but I p _ weeding a .„o„th after month, like » --'^^; "^^ "^ 'TJ,^ p'^lUng up .ny good chokod-up garden. My chief «""«y ™ y, ^ b„.i„e« in the plant, along with the weed., ^" '^"J^^^Z. really the re.pon.ible office. The <^'' '^^:'il;;/".rd who Iw .cknowjge hi. obligation --;;.-tf:t=^t.™..rof^,nj^^^^ '^'.Sedrh rire.r::at:: t. ... uj^ ^ -«. Orioin of 4 L.nN. Let the foUowing be taken a. a .anjple of --"^^'^f ^n^dt oi the „mcc. A note '"^^'.^ll^'^J'^^rJ.^ZuUt^i. (aU I r\J^nirt^::^.^v^g^:£j^ aay I wa. very ha.^ nj.. »"" -^j/ -^k: ^l u-ineyF' "WelV dot tt-'^He-tnj::^ trwe'U,fgned the notc^I brought it^ fheTni got it dLcountcd, and we divided the money between n.^ Thai wa. tte orSn of the note, and w. have been carrying it on ever .ince. MY EXPERIKNCES AS A BRANCH MANAGER. 3.17 Of luch notu the bill caie of the office .»» full. There miiit h.ve been mm, if not hundred! of them: >nd the t»>k of inlerriewing the lartiei, correiponding with thtir, in m.ny raiei viing «nd getting judg- ment agoinit them, wai weariwnic beyond description. For manv of the partiei to the notes defended the suits for time, and put us to heavy ripensc for law costs. A KiNft-Hr.tRTRD SHEnirF. A singular discount account was that ctirriid on by the shcrilT (not the gentleman mentioned in the last chapter) a most respectable man, and, though a sheriff, one of the kindest-hearted men I ever knew. In the bad years succeeding 1837 he had had numerous judgments to en- force ag.iinst fanners in the district. Relucl.int to sell out these jiartiei, he had, in many cases, taken their notes, got them discounted at the bank, and so nude his returns to the Court, holding the judgment as his own security. On taking charge of the branch, I found the sheriff's account to be as large as a wholesale merchant's who bad discounted the notes of his customers. What the sheriff was doing with all these discounts, I could not, at first, imagine, for I had never seen anrthing of the hind be- fore, nor have I indeed since. However, 1 insisted'npon a liquidation of the account. Fortunately, the times had begun to improve; farmers once more had good crops and were able to pay their indebtedness and release the judgments hanging over them. The sheriff's discounts were there- fore all closed put without loss. An Insolvent Ta.tDEn. I at different, however, was our experience in another ease. A few miles from the town a manufacturing firm was carrying on an extensive business. The members of the firm were of the class de- scribed in the last chapter. But instead of half-gentlcman and half- man-of-business, they could belter be described as three-parts-gentle- man and one-part raan-of-bnsincss. The principal partner was of such aristocratic manners thai he was often spoken of in the town as the Duke. He had. however, some little knowledge of business. The other partner was a younger man. a member ood countv family in Eng- land, who had come out to Canada, as niun> others had in that "neighbor- hood, largely to spend his time in fishing and shooting. He had no knowledge of business whatever. 1'he firm kept their account in the branch, ond had large advances. They had also some trade bills, drawn against consignments; their method of business being to ship off on consignment nearly everything they manufactured, drawing against it as much as they were allowed to do, and trust to Providence, that account sales would Straighten matters out. Meantime, they had a good-natured banker to deal with, who never enqmred particidnrly wh.it .idv-nwrs wrre wanlol for, or what tliev rested on. Accordingly, they made up deficiencies by continually obtain- 3,a BASKING AND COMMERCE. lag further »«"• °'"'";',^^ ducing Aem. Thee wa. certainly a ve,y heavy lo.. before u. If they .,"pp?a. But I wa, convinced that to let them go on would make ma. er. Mor.e. It »., not the «.rt of account to be 'nur^d." The foundafon of any rational nur.ing p~ce.. i. confidence 'nthe bu. ne.. abd.ty of th. men; «.d of thl, I had none. They .topped thcefoee. \\e were p,.cticcllv their only creditor., and made the be.t of the,, •»"•• »"* fhe n^.olt wa. a lo.. .ufficiently la,ge to wipe out not only all the p^fit. we h.d made out of Ibcl, account, but a la,ge part of ^e Pro«, -ad. out of all the re.t of the bu.lne,. from the opening of the branch, a never-to-be-forgotten Icon of the con.enuenee, of a good-natured and ■o-colled ente,p,i.ing .trie of conducting bank bu.lne„. Among,t othe, advance, at the b,.nch I ound .ome of con»'de,»bk amount, that had been made on account of a local ,a.lway.' The,e were ~17. «,,„e«io„ with m. r.ii-.y *'""■••■,'-"' ';;!T"ru: t""hr'"."5 bidder; of course, at a conBlderable Iob*. MY EXPEBIEXCKS AS A BRANCH MASAGEB. .,,9 town. But ., wr h.d the .,m. n.mr. in ,hH, own .oconnl., o, l„ b. «™„nt. of o„.„ p„„„., ™„„^. .. „ „n.lLr„ S! l,.„;^,7/.r m"" "","'°"'J' '" 'in-'dnK' the acco™., which fo.^ lun,„ly hey wcr. .bl= to do. And Ihi. I „„., „y, ,h„ , „ ,,„ .Jj honorable n>™," not l„ M»,k Antony'. ..„.,, b„t In W.illy. ^ Vamt or SiroxD MonroAon. ■Bortg-gc. ThI. we did, .dding thn. to onr .dv.nce.. ' Bnt when we brought the property to ..le, we ™„ld «.,cely gel . b.d at «ny price. It w« withdrawn. Put „p a„,i„ ,h. S-fkiJ time I had become sick of tbe whole buaine.. of winding op the Ln'. e.tate, and concluded to let the saw-mill go .ecurlty'Ttln."' ""' "' ""'"■' '"'' '^" """" "-^ " « ''"'' '•"-" "" A JuDGMiNT-Paoor Endo«b««. Another les,„„ The man above named, I have said, was dishonest ~rb m "tT """' "* 1 "'""^ '" "'"''■ - determined to eirC 1^7' ^\"",'"'" ''"' " daylight. Hi. counsel, a very £^^ ^ ^^iir^^-^Xrt^^:.^';:.:^.. :^ ^9^jritnr::;^'rT^?rz;£s'rr^ r,f;' o-f^irhea?;^. '°""'' "■' -" ""' -«'- •"" - "•■' "' county. He was represented to be abund.ntlv good for the amoCt h! Arf!™- 7. , . ! '" "" •"°""' P"!")- At length, however I iZ7TJ.: ,' ""; ^-I"-' ■■'" '-I'-" Getting no answeTi: my Irtte,., I one day went over to hi. farm, . con.ld«.Me dlst«.« ot; MO BANKING AND COMUEBCE. found him, . mu well on In ye.n, tlttlnK comfoFUMy i. Ih. ll»ta» tdooi of the fom-honfr, which wm • very (ood one. The f.n« WM m« of the Mrt Ihnt «bonndf in th.» pnrt of Ontario, rle.n, cle.t, well fene«l, well eulti..ted, worth . good de.l of moncT. He reeeKed me »efy coolly, .nd in .niwer lo my qnery when he w>i goinR to Uke up the note. „n.we«d th.t he w«. not (oing lo Uk. it „p .t .11. , "" .^ "^♦'""J' ^ this due f»nn of hi..-he »id it w». not hi> »l .11. It' *•"•'•» being .udicient. Our Kcorily, therefore, turned out to be worth nothing. Thi. ««• mndc . deep imprcMlon on me in rcUtion to the v.lde lo be attached to endortrmrnti in plain figure.. , , , ,_, By the time th.t two ye.r. h»d el.p«d. I h.d got the bmiincM into . f.irlv ..t;.f«tory .h.pe. I h.d been .cut to get payment of • »«|'- ber of" the dl«-ounl .econnt. and had done it; making raywlf during the p«H^.. very unpopular with a large .eetion of the •TT'^^^LJS*^ tried to be reawnably courteou. during the whole of thi. proceeding, con.idering the work lo be done, but .1 time, ".v P-'i'-r^ ""• , " tried. On one occa.ion » money-lender whom we dealt with, on my re- fu.lng to renew ,o,ne paper for him, told me that -e mr,»l coHcrl .1 .1 „.r /ei«r,.' "Very good." «id I; "my Iei.ure i. (.re.l,-(».' *"«';;• " you do not pav bv thi. time to-morrow, you will have to look out. Me did pay up. fo'r he knew very well he could not afford to be .ued. AppoiNTin C.KUmn ol the Bask op Tobokto. Affr clearing out the ruhbUh, there w.. . con.ider.hle «•"»""-"' «iti,factorv bu.ine.. at the branch; and I .ettled down to make the be.t of it, quite expecting to .pend the re.t of n.y day. there. For of pro- motion at that lime there appeared little '■'','"•«■ .^^^^ '"''!" '"fc* vounger man than my«-lf, with apparently a long life b'fo" W">- Jh. "manager of the Montreal Branch, (for we had by Ih.. time opened In Montreal, and hi. po.itlon wa. a .uperior one to mine) wa. al» a younger man To be tran.ferred to any other branch than Montreal would be no promotion ol .11. The way, therefore, «xmed blocked. However, we were rcMonablv comfori.ble at home; .nd I remember once mJcmg . c.lcul.tion, that in the qnlet w,y in which we were Imng I could .ave enough J. /^e»(, year., at any rate, to "keep the wolf from the door for the remainder of my life. witM- three But bow lillle can we Ke the progre.. of event.! W.thin thr« monU,. of u.y making thi, calculation a circ„m.lan« »"""P";jf "k^* Muenced my whole fulore. Our much deemrf Prddent d.ed ,^- denly: rapected by .11 who had ever known h.m. It wa. then con- MV EXPERIEMES AS A BHANCH MANAGER. 3ti hl.Tw« .„!, ,7 'J"""-' '•'"•) ' '""■••d 'o n,.v ,.lo„i.l„.,.„, »p to Toronto ,ml „,„r„ ,„h u™ „l«,„t b„.l„c... I w,„t „p. Hr^ down for the purp.»,. And on l..>,„^ ,„ .pi^ ,„ ,,,. „„,„•„, „ ""! Inrily I had iiiciirrrd, » hand*,.,., nr, „, Uii„„ „l „l,i, ...T.V . by «., cn.,„™„.. w„eh u „„ .,,, „.>.i, ,H :; .i„r t "• """ '- " i:^n.'oJ':rr:d:^"i,;'::vr:rt,';; ;'-.'"r*= -"-" »«•!.. and qxlck,«„d, a. I ^, , «i,h i„ ,,,. part „f „.y ,,.„king ^L, CHAPTER ir. BXPMIENOBB IH HEAD OFFICE MAHAOBMEHT « TOKOHTO. Banking. TVyf Y .ppoint^ent to th. office of Chier of the B»k of To«mto ^^TTti^:^^^^^ -c. of .t.e^,»--'":^ ^trc:^::rf::r^;^^r^;-^ whol...le hou«.i and the.e, in the.r turn cou.d J.. bu.,n«. «.th ^'2e=r£rSei^arnr^ ,t .„ --;e»r, however before I^^^^^^^^^^ ^ „, „ ;^;;^:r,s:::;fo^r3.e^;:-i rrf.r.r;'rHr:^:uih^^^^^^^^^^ .» tho. th. w...- 34: HEAD OFFICE MANAGEMENT IN TORONTO. .■)»3 ErrccT. OF thi Wak is thi Cxited Statm— P.iaaM ox Gold. Mjr narrative must now go back a little. While branch manager I had once been unexpectedly .ummoned to lake the ca.hier . duties whilst he went over to Scotland for a holiday A few month, before this, the war between the North and South had broken out, and Gold had shown signs of going to a premium. Thi, wa, a »eriou, matter for ,„; as we, like other Canadian bankers, eould not dVo.d keeping considerable balances of money in New York, which of course, formed part of our reserve cash. The premium on gold, Ihere- nV^J,t " ™' "°"" -'■'"> ° l™ of "'"t amount, in case we distttd h^T^V ^^,"''""' ''»•■""• <•" «°ing ""ay was not much disturbed about th,, L,ke most other person, in Canada and the North, u. supposed that the war would soon be over, and American currencv -^>ert to .ts natural position. Gold might go to four or five per eeni last lo";^.'- ' *^'"' *""''' '" ""^ "°" "' "• And it iould not , net^T'f r"" "Ji'"-"™' •>■' «»'e me for management in his absence, Zr^ ■»■"' not disturb myself about this premium on gold, ta let the balance ,n New ^ork go on accumulating, ere,. ,/■ ,kepr/„^„ '0.. ,0 (ea per ce»(.» It was under these circumstances I took chTr^ o. ou" ruLrca.'.o::,?-.'„ro';' a' ,.""•: sir'.'','r"r"r r* ■" "■- "—«">" or aallr l„,.r..t| .„a ,„ „„. the .v,m. Sat rnnSenl, 7 T "m " ™"" ... <.,»n.j n. New rcrk, opera,,,™ .„ 1, .„„ b«.°?1,e.;, trlt""!^'" erallon. but .peculation., a. ,. h.d ,ood r...on iK^r^^rZic S^™ , "'" °''" our omcer. became ertargled In them. Everv "peratlm I, ih ' '" °"' "" •ith «,e keeae-t Interest ,„ Wall 8tr"e, Jnr.t^ct," ea ^Z Wh'er^'v"'"' suffered a reverse, told went un- if thlnn «-„™ .... , "^" *'"* ^orth wen. down; and -o ™^:rLTn.'L,;''t'b"r'?,,:h"•u.• i"e'e„TA".t'temof r'' '"i" by Conarem in 1S81 to atop thi. .peculation and an Lt ... ""'"■" """ "»'''' ILLEQAI, ,0 deal In ,old Thi, ... on ih^ ijnr r S"'"' "»""« " - — t""- '°'^"" ••- ' •»- wr.hirte°n' z: ,j:^.:^'^^^ rea,rj.7„'„r'"rrnnirbrn?e."*;-r:,\^^°l^°Ur.n?r.d"' ^'-'^'^ '• 116. In (Wober It ... 137, 1„ March i;" After twi ,h.V ' ? "" '"" "' no„. uhtl, the b.ttl. Of O.,t,-.bor,!' ind thlJar. "„rvS„'r;; ^"7-, Grant on the same day. the fourth of July. U63 ?hl. .ra ,h. I.!, '"^ "'"•'"' 126. B« It ro.e .».1„. untl, In October It i-., 158, It.l.^TJ^ttXLJ" '° Itiued with fluctuation., until the April tolldna. U ,a, then 70 ,„ S"' I!«l, It ro.e to 1B3, in June to 200 Then the .ct m.tl.t i, m ," "'"■ •Old .. .1. ,.. p...ed. within ,en da "•,;t"e'r.art."", "';'». "^'''.'n'S'o "the^mb of July It touched the hl,he„ point du.lna the war. n.mrlv .," A,t,, lljl her. were heavy fluctuation.. In September It w.. down ," M „ VcvemLr ,!^ to !67, But .M thi. time General (3rant «a. maklna hi. wav tbro^,.h ,h . "^ rible battle, of th. TVUderneu, In ,pl,e of ihr" obborn ,e.l.,.„° . ,T '"; L.,, until ,. became apparent that fe would .oo^ be a "e to pif.mhif fo^*e7To the .outh of Richmond, So In the month of J.,r,.,ary. IMS. »oW droppedTo 1»« and In Match to in. Rlchm.ind wo, taken on the 3d or inrii °'"*' '° "'• ... .«. Oene„l Lee .urreodered on the Sthr b':t'th'f. t;Tl:r,''^Z>Z "b^'e" BANKING AND COMMERCE. S44 .„d « conferred . «ood deal "l""' ^'J"'^;; „'^ ^ ^Ttro-lble „«,- ,hc same opinion a, the "'••■"= »;f/',:^^„l,rtro..hled n,y.elf, for .. „lve. much abont it. I w... ho»e,er »" """^ ' „„ ,^-.1 „e should Vork and invesU^a.,- the matter on he 'P-^ ^/"^^ent Wreeia- Ihere wa, any "»'"'"' '""'''° ,7;j'war >Jent on, «a, not gold likely to tion of our An.er.can funds. If the war , ^__^ j^^^, c„n.in..e .0 rise, and our balance .n N;' ^"'"^ '» *' "one wa, naturally 1 concluded to eon.ult two persons on "^«^- „„ ,„„„„t, .H able -<• --".^r.Tc:r ::^: Ih^her Z Mr. Charh, i?.'s"th!rs:l had then left the Ban. '^ ^^j:^:-"^^ „,„ for himself a^ a pnvate^ ^»nj«; >^ -^'^ I ^,^ ^„„„, „, gold; answer. He sa.d, ^ou want to ^^^^ ^^ ,__^^^^^ and whether the pren... n. s hkely to .ner ^^__^^ ____^ _ to if the war goes on? I m.ght 'n'""' ' . ^ j speaking he can give you a, good an opm.on as l^J^'^tor us iew York :^r irs::t:/:^^ "^X'^-^t::^- - - -■ - a„.„ -n.ea, tor JOM only '«■•<"»„ ,t« TM. WM .1.. ">•>"•' P"'"'- "'"' " "f: „,»i..l»alrf. wMch »enl BoM "P *° ""■ ' ^^ „„ „,, over. But m»nr '•>"* ise9. .».. terriwo -Black >"■">">:. "''"''I' .oX tof. PRICE OPENMNO AT 150, RISINO AT KOO> TO ISS, »''•","'„ ml„„.™, Attrr IM.. >■«• »'■" MIU.10XS. ana the price fw;""^, ,'„'„' i",,",;' „„ „„,., rtropp.c. to lOKC I. y,.r. the prlre BcHom varied ""' """„■" '"^^ ,s72. And thu. It went .n. Lcemhe,. .871. .nd rfln, lo 115 4 "' f P .™'';',; '„.,, „„,„ ,„e end; Ite.vj ,„ln, nnd Wllln,. """"J ,7 ,72 „ ," eo",e "ef ' polltlo.1 or natlenal even., .peeulntloni Bolrnr on all .he time «. .n. .u ^ ^^ ^^_^ ^^^ ^^^^^ ^^^, ^j, ,„ „;^. were ndverse or o.her.l.e, T^*"'' "'" , „„„ exel.lnf eour.e ot » deprecl- Th„. however. •»' '^ '•'' '"."T,;" 'XZ' ?».tn .o U«, and .hence 1, .te.d- „ed c.rrency. In .he *'"""."','..", „„^f „„re re.umed, lly here down on.ll specie paymen.. »"' ""'^ er.l.odee In modern llnonce. dor- '^ Thu. ended one o( the n,o.. „.r»..rdln.ri "•''•""^'^ ';,„,,, „„„ ,n,„ flue, in, .he -hole o( which C.n.d. remained fm ■ " » ««'° , ^ „m m ."".lon. ..rected .he hank Into who., eervl . I .">■, ou.n y the nex. chapter. HEAD OFFICE MANAGEMENT IN TORONTO. 343 lliJt ii perltctly clear; but what the coiine of gold will be, no mortal men can tell." While I waa speaking with Mr. Vail, General Anderson, who had so well defended Fort Sumter, eame in, and Mr. Vail introduced me to him. I appreciated this, for I had sympathiaed with the North from the beginning. I next went over to Mr. Smlthers. I could talk freely with him, as he was a Canadian, and could look at the matter from OUT point of view. My principal question to him was not so much what he thought gold might rise to, but whether there was any limit to the me a( allf We both knew very well, there tvat such a limit in the case of sterling exclmnge; that is, when dealt with on a gold basis. Was there any such limit in the case of gold.^ He said he could see no such limit. 1 returned to Toronto, communicated what I had heard in New York, and strongly recommended that we should convert a considerable part of our balance into gold, for fear of worse happening. It would cost us a good deal of money, but there was no sign of the war abating, but e-ery prospect of its going on for some time; and if the war went on, it was certain that gold would continue to rise. I think one or two members of the board considered me rather presumptuous in giving them advice on the subject, for I was only a branch manager, of second rank, in temporary charge there. The president, I think, agreed with me, and after a thorough discussion it was determined to convert one-half of our currency balance into gold, and leave the rest to the course of events. It cost us a large amount of money, but at any rate, we had got a consider- able sum safe "out of the fire" and available, if we wanted it. We placed the gold tu the credit of our Gold Account; for gold accounts had then become common between Canadian banks and New York, and our deal- ings thereafter with the Bank of Commerce were in this gold account. The currency balance remaining, we held on to, until the resumption of specie payments brought matters round many long years afterward. But to resume; My position at head office being a subordinate one, 1 continued dis- charging tliis kind of duty for several years. The Bonk of Toronto was prospering, and no events worth recording transpired unUl the long sickness and death of the cashier placed upon mc a much larger shaii of actual management than before. His dealli indeed was a serious loss. He occupied by his mairiage a very high social position; he was a thoroughly trained banker, energetic in character, rather sanguine in temperameul; -nore ready to undertake risks than I ever was, but with n most remarkable foculty of making the best of doubtful and difficult accounts. I remember saying to the presi- dent afterwards, that I could not pretend to such abilitv as the late cashier had of fellinf o„( of trouble; all I could lay claim to. possibly, was the faculty of not griling info i(. When he had passed away, I fell like a son who :ud lost a father; for though he was younger than I in years, I always looked upon him as far beyond me in bankiiif; ability. BASKING AND COMMERCE. S46 To .>.<-ceod hin. .. pre.i" ..- Tl...,, navy. Am.- "^ "°""°^^^ ? K^ SoTto sail a ship, bi-t i-li. be HTS'dEr^TS^AN^No ABorr srcH MATTr:B. a. rHESE:- HEAD OFnCE MANAGESfE.NT IX TORONTO. 3,7 .hort time „fter J „„„„„.H oh.rgo in T„ro.,ta, „„ i„ .ending an in.pector 1 J"," I'Tu "'" """"'"■' -■' '""■ "' '*'■«»"«' '-f-i"« to receive of 183, the Governmen »re„„nl «,» rcnoved. Thi, ,erio„,lv alTeeled he pre..,^. „f ,l,e bank, „„d injured i„ eredit. It ,., known ,7^ henvly ,n del.t l„ it. „g.,„« i„ I.,„J„„, „„d ,h„. „j , i„" i"i"j'°„'^ ehange o. „,„n„genH.nt. B„t »„• hank was too' f„ ^ ,„ ^rettore^ to .oundne,, by any cl.ange wbat.ver; >„ af,,., „ ,Vw Tj, o( ttnittk « Of the,., the Bank of Toronto had beeome one of the ^o^ rojn „'' and quite a heavy r„„ by holder, of .mall note, took plaee Our eounter wa, thronged all da, long, for several dav,. bv ,.eo„l,- presenting note, for redemption ; mostly small notes. We met th . 'iT 1 usua way by piling up g„,d on the eounter. and detailing TspLtl tel to attend to the applieants. M„„y „f ,he,e, when Ihev «w tTp le, o" go d. went away satisfied: other, presented their nolej. and go. q k^v paid. The distnrbanee abated in a dav or two, no deposit, wer^luh drawn, j ,^ ^„,, „„„„„, „^ ^,_, ^^ ■ ^''^Jl^'^^;^ many of our ei«tomers eould have drawn out bv a single eheek The The affair, of the defunet hank proved to l,e in verv bod shape The whole eapital wa, l„,t and in addition a good deal of loss wa, 'ujed by depositor, and noteholders. A eertain portion of the Ia,l fell ,1.™, H,e 'rre'ne;'"',!"'^"""' '"' ""'"'" r" "' "" "''""'™ '"' '>.° -."n;Tf .urrenej. the eousequenee, of whieh survive to thi, day." Stoppacf or- riir Commekci.m B.ink. The next affair to whieh I will revert was t,.e stoppage of the Com- mereial Bank of Canada. Thi, institution wa, i„ farltU-r ,haA tZ the^regoing; for on being wound i,p it paid i„ noteholder, and de- ver,v crumy to ouUtlderft; but "Hall fellow «-p11 ™.,- , . V , **■ ^^ *"" the.,. . „i,.kn„,„ a„„„ ,„ Vh, 01 ".M to'hta ol i '™"1«". One o( w." ». .1,0 tank „™,r. •■TOM.^'i-' S^KT TOU 8FI ^ ^^tl"'; r"""" AND [lORSES. AND PAT TOIR DEBTS^ ■'''' ^ "'" '^'^"Rt.U-.E f„ BANKING AND COMMERCE. ,M,.it<.r. in full, »na returned one-third of the e»pit.l to it. .tockholderi. But it l.."d „nfortn„.tely got it«lf entangled in he.vy "d.»nee. 'o the De r , .nd Milw.nl.ee H.ilw.y C„n,p„ny and aft.r « jerd.^ h d be» i„j :. .,t the end of n protracted and eoslly litigation. IM ?::d; r » IpaLd'tl-at » dmln'of depo.it, set in. whiel. at length Ipelled it to cLe it, d.«.r,. Tin, even, ere.led ">>»;;"- ™''™"*' far exeeeding that of l.> fomer oeea,ion. It developed, .ndeed, .n.o . n^kte panic. For one or two day, our -""ter in Toronto w.,b^ ™e«d a, tfore, but by a n,ore exeitable crowd, and what wa, far jnor. r^u.. a eon,id rahle drain of dcpo,it, .ct in. Any one of ''--«»"« ake „"ore out of tl,e bank in a minute than the who c exe.ted crowd of :':hoM:.r. wouW in an hour. While the panic prevailed, '-;-/' danncr of one or two other bank, closing their door,. «t were in « ."rr;;,i.ion onr»elve,, and determined to make coinnioi, eau.c with these weaker banks, a, wc knew they were ,o..nd. «e theretorc kept tppjng then, with gold, a, these exciting day, ;.a.sed on, "''"'Zu arT npplics bv special messenger from Montreal, niglit after nigh . A larii p^rt of the 'gold -c paid away went into the Dank "f M°"""'; a, did a^ most of the money withdrawn from the other banks. The F nance 1^nr..er in Ottawa was appealed to, but he refused to intervene; ler which a telegram arrived from some friends of the .^""J;;"* '"^/'^ in Montreal, advising the Toronto banks to suspend specie payment, A eonsoTation of bank director, wa. held in the mid.t of the excitement, o o^rid r thi, pro,«.al. I wa, not present at the con,ult.tion, being only a c^mp'ralivelv young banker, but when informed by the president of ^hTwa goini on, I protcted and remon.trated in the ,tronge.t man- :'r aga nst'^ufh a step : and declared that rather than do that, w. ought Z pav out the la.t dollar of gold we had. The next day was Sunday whreh" afforded a breathing time; and on Monday morning, to onr great Tel ef, we learned that the Premier, Sir John M.edonald, overriding the advic^ of his Finance Minialer, had determined to intervene, «■>* P"' « ttp to the panic. He gave orders that every C-'"- House and Po. Office in Ontario ,hould he telegraphed to. directing them to take the note, of .all the bank, whose door, were open. On this becoming known "he panic ceased a. once; and. politic, apart, I have always considered that the country owed a deep debt of gratitude to Sir John for hi, conduct on tliat occasion. This excitement over, matter, liegan to punuc t icr usual ™"">- T^^ eountrv wa, p,os,a:rou. ■, and business on the whole, socnd The hank. I whom we had loaned the gold, «Hm repaid it, and our bu.inc.s went on a. ouietlv a, ever. A, to the Commercial Bank, alter ,orae excited nueUnSroi- ..ockholder.. pro,»,al, were made by two of the Montreal bank, for the purchase of its whole assets. A sort of rivalry arose be- iween the Bank of Montreal and the Merchant,' Bank on Ihi, occasion. One bid after another was made, and finally the offer of the Merchant, „„„|. „...,, ai«.p;e,i This offer was to assume all the liabilities of the HEAD OFFICE MANAGEMENT IV TORONTO. Slj) Commercinl Bunk, and to pay the jtorkholdcrs 33 1-3 per cent, of their Bhnres in the utock of the Merchnntu' Bnnk. It would hove lieen f.nr bet- ter for the stoekliolders of the Commereiiil Bank to have taken the offer of the Bank of Montreal: and I lulieve it would have been better for the Merchants' Bank to have lind nothing to do with it. For nubaequent in- «ide experience led me to the eonehision that the Merchants' Bank lost a (rood deal of money by it. But the |iiircliase enabled that bank, which then had no branches at nil, to establish itself with a business ready-made to ts hand, in numbers of towns and cities in Ontario ; and laid the founda- tion of that widely citended husi...-»s with which I had to deal in sub- tequenl years. The liquidation of the old assets of the Conmiercial Bank caused a prodigious amount of labor to fall ulwn the officers of the Mer- chants' Bank : and along with a considerable accession of good business it also .acquired a large amoimt that turned out doubtful and bad, partly it may he said, by reason of the "hard times' that subsequently followed. Oroani7.\tion of Xkw Banks. During the period of my service in Toronto, and while gold was at » premium, the General Manager of the Bnnk of Montreal, for reasons of haulr finance, determined on a (wlicy of eontroction of discounts among all its Ontario offices. The hank transferred the money to New York, and made large profits out of it. The pressure was severely fell for a time, but it resulted in the ottering to the Bank of Toronto of n large amount of new business. Most of the accounts olfercd were ac- cepted; and we thereby took our share in relieving the pressure upon the commercial community. This policy had. however, verv important con- sequences, such as could scarcely have been foreseen. The Bank of Montreal, in its Toronto office, was under the local direction of a very prominent memWr of the mercantile community. When a policy of contraction was determined upon and continued, he con- ceived the idea of obtaining n Charter for a new hank. He had no difficulty in carrying out the idea, as he was inflnential in Parlia- ment, as well as in banking. The charter was obtained, the stock sub- scribed, an iuHuential board of directors formed, and thus was launched into being The Canadian Bsnk of Commeb. k. This hank in the course of a few years became the largist bank in Ontario in respect to both eapitol and business. It also .ibsorhed after a lime one of the older bunks in Ontario, the Gore Bank in Hamilton. During the last few years it has still further enlarged its operations bv lahingovcr the Bank of British Columbia with its branches on the P.acific coast from Victoria to San Iraucisco, and als,i one of the hanks of the Maritime Provinces with lis headquarters in Halifax, and branches extending all oier Nova Scotia. It had not been long established when it opened an office in J.ondon, F.ngland. and al«> in New \ „rk. The London office ceased to do business (or some yejirs. hut as the Bank of British Columbia had it. ISO BANKING AND COMMERCE. bcadqnartrrt in London, the Bink of Commerce astumed iti buiineti there, and ha« t'vcr since hern represented In the MetropolU. After some time it was rumored that the vice-president of the Bank of Commerre was ;i!so about to apply to Parliament for a charter, and eatablisli another bais'c Me was also n man of wealth and position, and easily obtained n clixer, ami lubsoriptions of a sufficient amount. A body of influential -.i''- • j(athered around him. and thus was launched the Dominion Bank. M known to be one of the most successful and pros- perous of Cnnadiait banking institutitwis. Another director of the Bank of Commerce followed upon the same path but in a somewhat different luannrr. There had long existed in St. Catherines, a prosperous town iit the Niagara District of Ontario, a bank called the Niugwra District Bank. It had been on the whole well man- aged. Its directors were influential men. It had brnnehefl in the western peninsula of Ontario. Sonic conferences and consultations took place between its directors and certain men of wealth in Toronto, which re- sulted in the establishment of the Imperial Bank, with its headquarters in that city. This bank absorbed the business and branches of the Niagara District Bank; and the St. Catherines office, after being the head ofKce of the former bank, beeanie a brnneh of the Imperial Bank. This bank bI«o has hnd a career of uninterrupted prosperity, and after pay-' ing continuously good dividends has accumulated, like the last, a rest nearly equal to its capital. There thus sprang out of this policy of con- traction on the part of the Bank of Montreal three of the most pros- perous and flourishing of the hanks of Canada. A similar career of success, however, did not attend another institt:- tion established about the same time. The Federal Bank, after a check- ered career, finally ceased to exist, but wound up its affairs without loss. Most of its Inisiness was taken over by a new organisation called the Trader's Bank which has been doing a quiet business for many years. Another of the banks which obtained charters at the time when charters were so readily granted by Parliament, was originally named the St. Lawrence Bank. It was net, however, well managed in the first instauec, and was nearly coming to a stop. It was then taken up by an able officer of another bank; a man who had been well trained in banking; and under another name, that of the Standard, it hns had a prosperous career ever since. I was cashier of the Bank of Toronto, while all these changes were going on, quietly pursuing my own business and maintaining friendly relations with the managers and directors of these institutions. Unfortunate SpEcri.ATioNs of a Manager. During tho time thnt the war before referred to was going on, we had a very unpleasant experience with one of nnr managers, whs had nnfortu- HEAD OFFICE MANAGEMENT IN TORONTO. aai nntciy horofiK connectrd with a number of Southern gentlemen, nnd hnd imbibed their viewa tin to the cniine of (fold. They were fully pcrvuaded that ((old would rise to a fnr higher figure than it had ever attaiutd. He M-aa induced to jniir in n little speculation; and nn in often the vnnc, this wai the beginning of n troublous eoune which finally nided in liin ruin. Speculationi went on increming. A broker wan concerned in them aUo. Lftrge advances came to be made, but they wt.-re ko cnrried on as to be concealed for a tinu-. At length, however, the great cventi which brought the war to a clost took place. Oold rajiidly fell. It soon becaim- cxident that the r; .If wJis up. Tin- eonctahnent could be carried on no longer. It fell to my lot to handle this unpleasant busineim, and I procetded to Montreal for the purpose. Investigation speedily revealed the slate of matters. This was followed by the manager's resignation and with- drawal from the service. I remained in Montreal some time to attend to the winding up of the affair, taking actual charge of the branch, until a new manager was appointed, becoming thereby very familiar with the bniinesi of Montreal and acquiring in experirnce in exchange operations ifuch At was not to be had in Toronto. RrriREHENT FROM BaN'KINO. After the agitation to preserve the circulation of the bank (sec next chapter), I felt a great reaction setting in. And a conviction grew upon me that I ought in the course of a few years to devote the rest of ray life to other than monetary pursuits. I had been active for years in the work of the Church to which I belonged, and also in the vm k of the Young Men's Christian Association, and looked forward to a time when the burden of the bank could be laid down and my whole time given to such work as this. It was many years before the opportunity came, but it did come, or seemed to come, some years afterwards. In the year 1871 a period of depression set in over the tinancial world, and the full force cf it was felt in Canada. The lumber and timber interests were affected most severely; and the dcpreskion in this line continued year after year, as is common in a trade where businesv moves in cycles. Still the busi- ness rf the bank went on with a fair amount of prosperity. The average of losses increased, but with the vigilance and co-operation of a good staff of managers, we were able to prevent anything really serious de- veloping. The times, however, were depressing, and the pressure on my own mind was constautly increasing. At length about the middle of 1876 I conceived that I might honorably lay the burden down by the end of the year. In fact, I began to feel that I was getting on in years, and ought to relinqi'ish the charge of the bank to a younger man. At that lime, 80 fj-r as personal feelirg goes, it seemed to me that I was older than J was when I retired from, the Merchants' Bank twentv-five veartf afterwards. The board allowed me to retire when they saw that my mind was Mt BANKING AND COMMERCE. made up. though I belicre thej thought I would hare done wifely to fttick to my own batlnew. But thrr presented me with a terrice of plate, on which lorae wordi were engrarnl, which I have alwajri eatremed tenfold more than the iiWcr itself, valuable though it was. After speaking of the serrices I had rtnderrd to the bank, during my tenure of office, they went on to say that the presentatitm was made : "To give them alao the opportunity of referring to the prominent and active part he hae taken in the tegi»fation reapeeiing Banking, and to record their opinion that to him the Bankt onre eeveral of their moat valuable privilege*." The last words are perhaps too flattering, inasmuch as others took a very influential part in the work; but there was undoubtedly, at one time, a crisis, as is related In the next chapter, when the action I took probably siiTed the whole position. CHAPTER r. nooTUTiom with thi aoTBamaiiT KKmoniro OIBODLATION. Cmci'MsTAXCKi or the CavMw— Orru.iTiax to Goteknuikt Paf.« Mo!t,T-P«opo.Ai TO Sicru Bank .\ot.i .v Govmniunt Boxoi — Sucirie OijicTloKi— Niw Law RuifECTixo Cibcuiation— Guat Sahtt or THE Ban* Xorti. 'T'HIS experimot it rd.ltd In r.thn full drtail, ., It concern, the M. development of that C.nndi.n M-.tem of circul.llon which l> admitted to be one of the bnt in the world. It al«> traci-i the origin of the prnent Canadian Banking Act. By far the nHMt Important evcnU that traniplred daring the |>eriod referred to In the last chapter were negotlatloni with the Omemment respecting the circulation of the hanks. It has already been stated that a certain loss had fallen upon all the holders of Bank of Upper Canada note., at the time of its failure The lo.s to any individual or firm was of no great importance, but it was suBcient to create a desire for a belter secured currenev. The Finance Minister of the day, .Mr. Gait, afterwards Sir Alexonde; Gait and High Commi,.ioner of Canada to England, had long held, a. a matter of theory, that all circulating note, of any country .hoold he i..oed by the Government. This theory was held hy a certain school of pol'itlcJ economists, of whom he was one. and the failure of the I'pper Canada Bank seemed to afford a favorable opportunitv for pulling the theory into practice He matured, therefore, an elaborate .chemc for the .ul^ stitutlon of Government note, for the circulating note, of the bank, of tanada. This was before the Confederation of the Province. The Canada of that lime con.i.led .imply of the Province, of Ontario «.d Quebec, bat then called Upper and Lower Canada. Mr. Galf. scheme «a. approved by hi. colleague., but bifore bringing in a bill lo give .1 effect, he consulted variou. memher. of the banking inlereat ivilh regard to it. " CinerMSTANCKS OF THK Coi'XTRV. To enable the reader lo understand the bearing of such a measure on the finance, of the Government, the circumstance, of the country wlU need lo be considered. Canada, at thai lime (about 1865) wa. .till feei- ng the effect of the terrible revuNion of 1857. I had alwavs thought that It would lake from eight to ten year, for the country 'to recover MKIOCOPr nSOUITION TflST cHAirr (ANSI and ISO TEST CHAKT No. 2) 1.0 I.I ifi ■a la 12.2 12.0 /APPLIED HVHGE In. 716) 4B1 - 0300 - Pnent 3,1 BASKING AND COMMERCE. lated to make patriotic ears tmgle ».th » •»"^- f" ^""^.^ . t.„k Sr'; °a/pr.ct»u7in,po..ible to place any -- ^"t ttemtt t Finance Minister ™.M date '"Z^' . J' T^.' 'l';„t «ith it. Canadian wmmm "ok c ^t^l or thereabo'ut,, wa, lent to the Governu,ent; not a bad a ooint when it wa. not convenient for the bank to inereaje .t. advance. Such were "he condition, prevailing at the time when the "heme wa. ^bmitTed by which bank circulation would be aboli.hed, and replaced by the note, of the Government. OpPOtlTION TO GOVKBNMKNT P»«H MoNIT. The Bank of Montreal gave in it, adhcion at once a. might be expected The adoption of the .cheme would not neccita e any ma- terW change in the cour.e of it. bu.ine,., and the very able financer I" „ atTt. head, ,.w, in it. working, large -Pf-'^f ' °^ '""Ttl! the profit, of the bank. But it wa. far otherwi.e wrth the Te.t of the bankl and particularly with tho,e carrying on the ^^^••"^^^^l Canada I gave careful .tudy to the .cheme a, it would affect the Bank ^f To^nto. and became convinced that to adopt it wouU compel u, to make Tuch a curtailment of our di«ount., a. would cau.e .er,„u. ■ Iturbance and emb.rr„,mcnt to the whole circle of our eu,t^n,e,.^ And not onlv thi,; it would «riou.ly cripple our power of .....t,ng in fw movement of the crop, which wa. then, even more than now, th. 'olauon " .omuch of t'he b„.inc„ of Canada. The Bank of Toronto NEGOTIATIONS nESPECTING CIRCULATION-. 333 had then I think, a I»rgcr share of the grain and lumber burine,. of Ontario, than any other bank; and I wa. filled with alarm at the eon- scqucnce, of ,„cl. an Ael to us. if adopted by Parliament. Having be- conje thus eomineed, I obtained penni^ion from the board to go down In Ottawa to confer with the Finanee Minister on the subjert. Mr Gall received mc «ry courteously, for he well knew the position of the bank I represented. I carefully abstained from any discussion of the o ttlliL T"r"uV'""""'' '" "■•■ """ ''"°"'"« *''at in a matter of that k.nd I should be no match for a man of Mr. Galfs capacity. He w,->s, perhaps, the most brilliant of our many able Finance Ministeri; .nd almost the equal of Gladstone in the ability with which he discussed hnanca questions m the House. I, therefore, confined mvself purely iterests of .°. "" 7' '1° """""' °'' "" »«"-""'»' "d Inhering uteres s of the country. I pointed out that the measure would also of Upper Canada: that such curtailment would inevitably bring about embarrassment, and failures; that the country was onlv just "covering from the shock of the revulsion of .837 and could not -bear any f ur ief d s urbance. I further said that quite apart from the immediL effe of the measure, .t would cripple for all time the power of the bank, to provide the mean, of moving the crop, in the fall, and carrying lumLring operations through the winter. }"gium"-^ '- ^^.^>^>o/:r:i The final point to which I directed our conversation wa, a stnin, appeal 10 make the measure optional and not compulsory ' I have no doubt that other Western bankers l„.n.,.i,f ■ a bear on Mr. Gait (though I never met any of themfn awr/" .V en the bill was brought before P.rliament'we fid to 0?,;^'.' I" (.faction, that thi, pn,vision wa. expressly included The only bank that fell in with the measure wa. the Bank of relinquished. For several year,, it i..„ed Government notes exclusively S5G BANKING AND COMMERCE. Tlie bill provided for considerable reseri'es of gold to be kept again§t these notes, nnd Comniissioners were appointed, of whom I was one, to make periodical examinations of the gold on hand. The reser^T in Toronto was in the vaults of the Bank of Montreal; and, odd as it seemed, another bank manager and myself visited the bank monthly, entered the safe, overhauled and counted the gold exactly as one of their own inspectors would have done. The Western banks did not like these Government nott-s, though they M-ere legal tender. But Mr. King wiieing a man of much intellectual force, he carried great weight in the conferences we had on the subject. But ]iis especial forte was in interviewing Members of Parliament, a faculty that I could lay little pretention to. 1 could, and did, write in the press, and address meetings and conferences. But when it came to interviewing private individuals, my tongue usutilly failed me. The President of the Tiank of New Brunswick, afterwards raised to the Senate as the Hon. Mr. Lewin, a man of great influence in the city of St. John, N, B., was also active iTi our canwe, and rendered most valuable service. We all had our duties as managers or directors to attend to, and the business of the banks was then just as engrossing as it is now. It was SEGOTIATIOXS RESPECTING C IBCLLATIOX. 339 only snalchea of time, sn to uppok, lliat practical lunken could give to the agitation of thii quest-'^n. Very little waa said al jut it at our hoard meetingj, and even when ub«cnt in Ottawa, as I frequently was, I took care to keep firm hold of the bukiness of the bank by corres|>ondenee. Fortunately for us, the Government also had other things to attend to, as well as this currency measure. To Sir .lohn Macdimald. it was practically a side-issue in the great currtnt of political events. There was no political principle in- volved in it. as he knew verj wrll. And when one and another of his supporters took a different view from the Finance .Minister, it did not greatly trouble him. He had acted inde|>endently of his Finance Min- ister nnce lyfore, and we knew very will lie would do so again, if circum- stances called for it. He would not, therefore, let Icm much of the time of Parliament be taken up with this measure. It »a.» not therefore pressed through as a great |iolitical measure would have been. We, therefore, had breathing lime, and op|iortunity of pursuing our object in our own way. Not that we were allowed to do this uninterruptedly. The able and astute General Manager of the Ban!: of .Montreal was then at the height of h.a great fame. He was a perfect genius in finance, and was man- aging the bank magnificently, making immense profits, paying large divi- dends, adding heavy sums to the rest, and increasing the power and in- duencc of the bonk day by d,ay. And an inlluential board of directors was with him. He had studied the measure as carefully as we had; indeed, there was no doubt the Fin.ance Minister had consulted him in preparing it; «• was natural he should, the bunk of Montreal being the bankers of the Government. The measure, had it passed, would have had great ad- advantages for the Bunk of .Montreal, both present and prospective. It •would have compelled many merchants and men of business to apply for accommodation to the bank, and to transfer their accounts to it. In fact, it would have gone further. The banks themselves would, in many instances, have been put into such a position, that they could not carry through their fall and winter business without rediscounting. And that must be largely with the Bank of Montreal. This would have raised the bank in many respects to the position occupied by the Bank of Eng- land in England. It cannot be wondered nl then that Mr. King lent his utmost influ- ence to the side of the Government, and moved all the force at the com- mand of the gn atest bank in the country to enable the bill to be passed. And as we were endeavoring to influence individual members of Parlia- ment, so did he. Very much cou'd be said on this subject, especially that it would en- sure an absolutely safe currency for the country. And if the necessary contraction of discounts by the other banks was referred to, it waa easv to say that merchants or their bankers might come to the Bank of «60 BANKING AND COMMERCE. Montrenl and get nil the diKount they wanted, If tecuritjr were offered. Some might rejoin that one bank eould not carry all the bnsineH of the country, when the reply would be to quote the example of England, and »'"• I "«" could .pe.k with -.-"'ffl^^o n di duil.. o, .„ n .n-U nun,ber. The n,ee.ing «"«' ^ ""'!". '^ Th. .ion to c«.e from .gitoting the n»llcr, to accept the principle of Bill, and to relv on mokinn amendmenti In detail. ThU w... to me, a matter of great mortification, and I went home J „rd,„,e.«.d for I well knew that to accept the principle of the X to Xld etr "hing. The net day, however, having «cove«d ! .lirit. and feci! « nuirc than ever the momenton. i«uc. involved, L tha detite cria' had arrived. 1 told the pre.ldcnt, « " J-»^ J do to accept the conduaion. of that conference. The paM.g. of that bdl ij J„ .h. Rank of Toronto more harm than any bank in the country. «> tt o ng t ;., thcTaV part of the grai. and l-be' J;^^- If tlT, Weatem country, and it wa. there where the Wll would rtrike. 1 Su?^-::eS^;^=fp^^{H5HJ s^^ri^r ^wa:^^^.'^ r ^ f 5^5; »™^Vo take-to n.t myelf in oppoaition to the coneluaion of nearly all ft^bank P^d^nt. of Ontario, but I knew, a. a profeaaional banker, the " tu^of the i..ne. involved better than any of theae ««f '™"' "f Srte^ined that the con,«t .hould not be given up wrthout another "'Twcnt down to Montreal and ..w the men I had propo«d to meet. Theyler^ all of the -ame mind with myaelf, we "■«".""'■»« J"-^ ~^^ teat to .he end; it w«. «.ele« to t.lk ">""' '"^''^'J'^ Im Uv ^ <• of the bill, a, wa. ,ugge.ted in Toronto. The .tmg of the bill lay .a .(. «r.n<..i>ie and that principle wc would fight to the end. '"itZL. of the' Government were di,po,ed t-^-de^- "^ fn.*. "What i. the good," .aid they, "of a parcel of .mall bank. Ktting he™elvXn option to a .trong Government like our., and to he two ,7r onge.t Jnk. in the country?" We were, however, not fnght- ted at^l'talk a. thi,, for we knew well that ^^'2^^^^^'^- fluencing vot.. in the Hou.e of Commons, a numter of .mall bank. «*ng l;r'::n do more than any ,ingle bank, no matter how powerful. Thu., then, we determined to per.evere. NEGOTIATIONS RESPF.CTIXO CIRCULATION. 36) The .onion of P.rll.mml dofrd without .nothing bring donr. .nd wf hud nnotlit-r brratliing ipaor. Before thr next unr oprncd. n vrr.v linportnnt change had taken plwe. The Hnanee Minl.t-r. Sir .lohn B.,,e, had resigned and gone to England to found the financial lo warmly espoused our cau.e. He Introduced me to Sir Francis, and informed him that I could give him full inforu'ation respecting the controversy, a. Weatern bankers viewed it. We talked for Mme time, he manifesting great in'r- Mt, and evidently taking in the position a. -sented to him. He then went into the city to see other banker., wme of vhem old political frimd. ond with whom he had further conference.. He remained a day or two in the We.t, and on leaving for Ottawa promiKd to give careful attention to the representation, we had made. He had, of course, heard the other side from members of the Govern- ment, and from the Bank of Montreal. But it wa, ,«,n made evident that he would think the matter out for hinuielf, and take hi. own course no mitter what name, were quoted > Influence him. I have no doubt after leaving Toronto he also saw bankers from Quebec and the M.riti- e Provinces. Some time now elapsed and the period wa. one of alternate hope, and fears. But at last we were su.ymoned to meet bin. in Ottawa. A full representation from the We.t, the East, and the Maritime Prov- ince, gathered In the capital, and to this conference Sir Francis an nounced the conclusion, he had arrived at. These in substance were a. follows : M4 BANKING AND COMMKBCK. N»./ I.AW BmfKcTiNn Cii-crLAiioK. (1) Tliiil th. b«i.k« .hoiiW rrtnln thrir ciriulnllon, with Ihc ewtptloB of the not.-, of one and two dollar.. Th...- to be l..o«l by th.' Oo«ni- """(2) Tho bank, to W under no ol.ll|i..li.>n to eover their elrclUtlon by Government .ecnrllle,. B.rt no. to iMoe l~-yond their pnid -op e»p.t. . CO \n A.t to !»■ p...ed erecting .n i..ne of Government leg.l- tender not.-, for the p»r,K«e of „-lllem,n. t«tM-.-e„ b»nk,. The e„.h re- .,-rve. of the bank, at all thne. to con.l.l partly ot ...eh note.. ,ay, to the extent of two-fifth, of the whole, whatever ...eh re.er,e. mljH< b« from t .ne to lime. For lho.e h.al-te„d. r note. «,.ld to be h.-^d by th. GoTernment t. an e.t.-nt to W agreed „p.m. The balanee '"•-•-;;;* bv Government .eeuritie, h.-ld in the Trea.,.ry, of whieh l-n ,»Mr eent wonld iK- goaranteed by the Imperial Government, fhu. all o^.nary ,..„e. wonld be eovered either by g..ld or Oov.rnmen. .eenr, i. Beyond .hi. amount all Government note, to l.e .ee„r.-.l by gold »";'»'^;^;'*'^ ^ Some other p.ovl.io„. for .eenri.y were added, mo, °f ''h.oh had Wen ...■rg.-.led bv our,elve,, but the foregoing were the tundamenUl '"Twiin^ ■pe'^r.^^i^d at once that thi. eoneeded praetiea.ly all we had eontenl d for. The .nrrendering of one and two dollar note, .mounted Tno hing. We were not „.rry to get rid of them, for in the run.^^ .ome of n. had p...ed through, the bulk of the people that crowd«l round o.,r eounter. had pre.ented only thi. ela.. of not-.^ The obligation to hold forty per cent, of our ea.h "«"« '" ^»"" ,„ent note., wa, «.mewhat di.ta»teful, for we had a ■>• h''* ™' T''"'' oTh re.erve in gold; and «.me feared that it. adopt.on might d.'turb th. .: id ba.i. 0,. wmel, o,.r currency and 6nancial .y.tem re.tcd. But •«„ »1 the prono.al could 1»- adopted wltho..l practical .neonven.cnce or S";«r ?o7 Ur note. themK-lve. re.tcd on gold and -"""" "•■"'^^ coTnible into gold. And the i..ue. of the «"vernn,eM apart from h^ .mall not... wo.dd not enter into circulation at all, being .11 l.rg. ■"T'wtTim.nen.e relief to u. when the Finance Mini.ter announced ,.^:„e.u,ion^a.whe„w.^.«^^^ TmlX t c'm:." L-ue had been agreed to, and .11 d^ared their C. .ndgTeat ..ti.f.ction wa. »pre..ed at the happy re.ult of .0 long •"'.rr oXrained to embody the.c conc,u.ion. in legi.lation. And here we come to the origin of "The Canadian Bank.ng .Act. «"thTg.^ to the proposed i....e of Govern.„ent note, .t wa. com- paratively e'a.y to frame an Act embracing the point, agreed upon. Th.. XEOOTIATIOXS nF.SPF.CTlXO CIRCULATIO.V. 36, •». donr ,„„1 it ..,1.1, ,,^Hny a. tbr Dominion Xol.- Aot, Irnvne rr- 11. pro vi,i„n. .„ „H..., fh. „p„n.l„n of Ihr bti.ln,... of the ronnlrv. n l,„„„.nl. In ,1,,.,, „,„!„ ,„„,,.ion, „«„, „f ,(,, „,,„,„; ,„, „,n . llul ,n ..■v..r„I .„„, ,1,, ,,,„„i,„,i„„ „„,, pHvllr,.. „f thr bank wrrr on . d,(r..r,.„t 1,„.M Iron, ,|,.. „,,. Tl,n.r ml. h.d b,™ p,,...^ .t difr.-r.nt |«r..d.. nnc .•onl„i„...l „ „„n,l.-r of n.inor provi.i,,, ,ii,r„i„g f„„, „„, «n ,Horl .l,„„|d l». m„d,. to frmn,- on.. p.n.„l .,.(. r„,lH«l,in, ll,r m„.t .'"'I""""'" l;""'« »'• ""• II. •.-•.. >l..r with ,l,„„. iJu'd ZZZ ^Z T "■ '"• :'": <"»••.'"•"••"'■ ■ '«■•' NX-I n,i„.l. in P„,li„n,™, ».r, ll,.-„ conv,-n..d, m oonjnnrlion ,ill, the Finnnoe Miniiler, to fr,m, and , on., of tl,. „,.„ |„„.„ «,,, ,,„^„ ,,y hi,„ ^^„ ^^_, ,_J ^.^__ ^^^.^ ' n th. lat.. ..ontrov.r.y »,.r... invit.d to ,n..rl in ()t,„w„ on„. ,„orr, and D>n Zrr"" "'•' ,'"•■;';'" "' """ "W»tion. Xh.. <.on,n,i.teo the Bnnk of .Monlnal; for now tinil ll,e grrnt |)oinl f di«r,cn« had bcrn ...„.d. . c inter..,., of all the bank, wrre alik.-. Hepr..en,»t"e. of bank, from oil pari, of the oounlry, therefore, .at in conferenee day by day d.«.„.„ng the e a„.e. of the pr„p„.cd „, one by one, and none rendered more valuable «■■ 'ee than our lale formidable antagoni.t, wh ..t w,tl, u. the whole lime, and brought to lx.ar upon the matter all tho., quahfe. ol .onnd jodgm.nt and keen p.,eeplion whieh di.tingni.het ri.-n ' !i '" ""■■/' "" ™""»»'" '«""» of 'I'c Hou,e, and di,eu.,ed the b, 1 with a eon,iderable ,en.e of re,p„n.lbilily, being well aware not only that our eonelu.ion, would aflVct the whole banking intere.t. of the country, but every other interest, eomm.reial, manufacturing, and in- du.trial. not to ipiak of the inler.-st. of the (iovemment iHelf Many of the director, of the bank, and .cveral of their prwident. were Member, of Parliament ; ,on,e in the Senate, .ome in the Hon.e of lommon,. The.e, of course, .at with u. from time to lime, ,o that, though not formally constituted a, .neli, we rcallv were, in effect a joint eommiltie of Parliament and of bankers. I have always considered that this gave our Banking Act its peculiar value, in that it expressed the matured judgment, shar|»ned bv «- periene.. of the foremost men in banking, commercial, and political life. Atler all this preliminary work, in which members of both political par- lie. loincd. it may be imagined that the bill passed through Parliament With little criticism and no op))05ition. II bear, marks to thi. day of being an amalgamating act, with ei- eeptions here and there, in minor features, but bringing every b .nk i* Uie country under the same gfueral law in regard to essentials. " tM BANKING AND COMMERCE. The durntion of the art ■«■«• for ten yeiir«, and it hm been the in^ JMt of careful connidcralion and diwUMion at every decennUl period .ince 1871. It ba> been amended and improved in important particnlan after pawing, however, through the some proces. that it pawed through at firrt, vil.: long conferences between the Finance Miniiter, or hu Deputy, and hauliers. Safety of Bank Notes Fdbther AsstnEn. By far the most important of these amendments was that which pro- vides for bank notes to be a Firsi Charge on M the «,el. of a hank. and as snb.idi.rv to that, the foundation 01 a Redemption Fund, the far- reaching effect of which has been or^ncd up elsewhere. Both these were proposed by the banker, themselves; the first in response to a renewed proposal to revive the act compelling a ™vering by Government ecu^ flies That, howeve , wss not a serio,.» eflort, and the Mm.stcr readily gave way to our proposed substitute of a first charge. I have thus de«:ribed in detail the various steps of the proces, by which Canada came to posses, a general Banking Act, wlueh ha. proved itself satisfactory in the highest degree in its pract.cal »;«""»' "^ under which a system of bank circulation ha. been esUbh.hed wU^ combines in an emment degree the qualities of '«f'*y' f "f ^ "f adaptability to the varying requirement, of commerce, jmd by '•« »^ tion of which the financial affair, of the country h.ve been P«»«7* »» a more stable equilibrium than in «.y other part of thl. continent, uid perhaps of the world. CHAPTER yi. MT EXPEBIENCX AS OENSXAL HANAOES IN HONTSEAL. OrOLUDIRO BEFESEN0E8 TO BUSINEaB IN NEW YORK, OHIOAOO, BmWAUKEE, AND TO THE BABINa 0BI8I8. EutAROED Hesponhbiutiib— Shabeholdbbs' Annuai. Mektixo— Bank FailCRE, ,n M0NT«I»L-0l.R BUHNE., IN N,w YoHK— JoURNET TO THE Sooth— Silver Aoitation— Vi.its to Commercial Cen- ter. IN Enolano-The Barino C»i,i^Chicaoo and Minneaf- OLii^\ i,iT to Manitora— The Manitoba Boom— The Bankeri' AI.OCIATION— Renewal or Banr Charter, and the Securino or Circulation by a Fir,t Lien on Amet,-F,nal Retirement rROM Banking. AFTER I left the Bonk of Toronto, I still continued to keep in J- ». touch with hanking and finiiuciol movements. It was agreed that I should do so for about twelve month, after my reUrement, and give the bank the benefit of any information at my command. Moreover. I .till contuined to write for the pro on financial subjecta. This wa. in January, 1877. . J*!.' 1'"^' *^' """^ '^" ^^ '" ■"■"'•' "■«<= y""- They continued to be bad. Business was difficult, and failure, incrcasinglv nomerous. It wa. known in banking circle, that one of the leading bank, of the country, the Merchants' Bank of Canada, was meeting with severe loMc; and in such time, a, were tl.en p.,sing over us, it wa. with no •nrprise that the public learned that an uneosv feeling wa, developing amongrt the stockholder, and creditor, of the bank. In the,e circum- rtance. a movement was made by a number of stockholders looking to the retirement of the president and general manager, which ilnallv resulted m tht resignation of both. A new president and vice-p,e.ldent were at once elected. But the office of general manager wa, vacant. Enlarged Rehfonsirilities. I .l" H? f*^"' '""^ ™'''*'' "*■ Frtruary, only si, week, after I had, a. I thought bade farewell to banking for life, lliat it wa. intimated to me. by a banking friend, that the director, of the Mew^hant," B«,k were thmkmg of offering the position of general manager to me. I .miled «.d said the rumor wa, ab,u«l. I had given up banking and wa. "out of S6« BANKING AND COMMEBCE. the ninning." However, he persUlcd that he h«d the infonuaaon from a reliable source. Thi> proved correct; for In the course of a day or two, during which I had been able to think over the matter, a genUeman from Montreal waited upon me to ask whether it would be possible for me to take charge of the Merchants' Bank, in the present emergency. I asked him at once whether he represented the directors. He assured me that he did. He added that he was authorised to say that in the event of my giving consent, everything in the way of support and assistance from the board would be rendered me; that the late president was still retained as director; that he could give me all necessary information about the affairs of the bonk. (This was the late Sir Hugh Allan, whom I knew well. Of his high position I need not speak.) The late general manager, he added, was still in charge, and would render every assist- ance. The responsibility of taking charge of a bank, under the circum- stances, was a serious one, for two reasons. It had been attempted once before in the case of the Bank of Upper Canada, but the attempt had entirely failed ; yet the gentleman who undertook the task was of much greater experience and much higher banking position than I could pre- tend to; besides this, the times were very difficidt; there had been three years of depression, and it was feared there would be more, a fore- cost which proved only too true, for the succeeding years were worse than those that had gone before. Insolvencies were increasing year By year, and a settled gloom was prevailing in the commercial community, so that, instead of the usual query on 'Change, and at the clubs, "How is business?" the question was, "Who is going to fail next?" In the im- porting trade, bad debts were swoUowing up all the profits and more. There was no proKt in manufacturing, but very much the reverse. The great lumber .md timber interest wm in one of the deepest sloughs of de- pression into which it has ever been plunged. Such was the condition of things when I was asked to assume charge of the Jlerchants' Bonk. I knew something of this, from my experience in Toronto, but I did not know alL If I hod, it is doubtful whether I would have hud the couroge to undertake the heavy task of rescuing the bank from its difficulties and placing it on a sound footing. There was, however, one great diU'ercnce between the case of the Bank of Upper Can- ada and this, via.: in the composition of the board. The board of the former bank I have characterised already. That of the MerchanU' Bank W.1B a complete contrast to it in every respect, consisting as it did of some of the wealthiest and most experienced business men of the com- munity. Yet, able and important as they were, they were willing to give nie a jjcrfectly free hand in the work of reorganisation, and to co-operate in any suggestions I made for improvement. The two leading banks had offered to render assistance, and very politic it was in them so to do; for if the Merchants' Bank, with its multifarious business and branches spread all over Canada, and its AS GENERAL MANAGER IX MONTREAL. 369 agencies in NeM' York and London, had stopped payment, it is certain that a condition of panic would have superseded, such at to shake the credit of the country to its foundations. Their willingness to aid saved Canada from this disaster. They .i^reed at once to advance the sum I named as necessary; and a very large sum it was. But the security was unquestionable. The ^board and the managers co-operated heartily in the work of reconstruction ; but the task proved far more difficult than I could have anticipated. Not only were there masses of Canadian accounts to deal with, of the same kind that 1 had had to deal with before, but on a more extended scale; there were in addition immense operations being carried on in New York and London, of a different kind alto- gether. The former I cut short at once, severe as the loss was, and it was well! did; for had the operations been let alone, the loss would have doubled. With regard to the latter, I accepted a favorable proposal made by the General Manager of the Bank of Montreal, whom I had consulted on the subject. There was going on at this time, indeed, what seemed like a certain amount of cargo being thrown overboard to save the ship. But save the ship we did, and steered her at last out of the stormy waters in a sound condition, and well found in every respect, by the blessing of God. And so she has continued ever since; and I don't think what was thrown overboard was of any permanent value; indeed, I told the stockholders afterwards, that during this terrible period, though we had to wade through and settle up masses of insolvencies, we had not lost a single valuable account. But with me, it was night and day work for more than three years; and my banking hours, during this period, might be said to have been from nine in the morning till eleven at night. Annual Meetino. The time came at length for holding the annual meeting, and a very important occasion it was. It was not without apprehension that we had looked forward to it, for it had begun to be rumored in the city that an attempt would he made to hold some of the directors personally re- sponsible for the losses. The meeting therefore needed to be very care- fully handled. As the report of the directors was read, and it was stated that .■> reduction of capital of more than two millions would be necessary, a condition of suppressed excitement arose in the meeting. I was aware that explanations would be asked from myself, and had considered carefully what remarks to make. The directors, I was con- vinced, were not so much to blame as was generally supposed. I there- fore began by reminding the stockholders that the directors were very heavy holders of the slock; that none were so interested in the welfare of the hank as they were; that they would be the heaviest sufferers by the reduction; that the times had been very difficult for several years; «4 ,.^0 BANKING AND COMMERCE. lh.t .11 bank. h.d .ufferrf Io..«; th,l if th. director. h.d ™^< "■>- take., thty h.d Mknowlcdged then., .nd .gr«d readily l" "y '"^f " Hon. for improvement; that the wiK and practical coar« for them a. men of bu.ine,. wa. to mJce the bert of the .ituation, ju.t a. m«. had to do at time, in conducting their own bn.ine... I told them that the bank had a large «notmt of good basine.. left, and .ii m.llion. of cap- ital after reduction; that upon Ihi. new foundation a good future might be developed; and that if the reduction of the "P''»' J""' .""™ °"'' there could be little doubt that .teady dividend, could be paid in future. What the dividend, wonld be would depend upon the general cour.e ot affair, in the country, but that the bank had considerable earning capacity there could be no doubt. .1 j „ »„„ Mv object, a. will be .een, wa. to pour oil on the troubled water, and ti turn the thought, of malcontent, into another channel from what they had been dwelling upon. ■ The vice-pre.ident made .ome very pertinent remark., much to the •""it'rr object of mine to ca,t blame on 0^0!^.; but thi. I had to do to «me extent, but cautiou,ly and guardedly. When I ••'J-™ »« or two of the .toekholder. a.ked quettion,. evidently IP'«P«'f ^f""" hand, a. to the re.pon.ibUity of the director., and what w« to be done in viU of it. I had, however, no difhcully in nnsweriug them Mi a. to prevent tLt kind of r«n.rk being ca^ed further. The laU pr«^dent with hi. usual ..gacity, »t perfectly .ilent during the "■«'■»«. *«»«^ mo.t of the ."«wed f "m them, .tiU, however, keeping good reserve.. We were al.o r»l .ing d.W dend from in«.lvent estate., «.d the proceeds of properties we were bringing to .ale from month to month. And a. on. knotty po.nt after anXr was ettled, and one wave of difficulty •"''«.■. *« ™ •»- mounted, I become more .nd more hopeful of the ultimate ■-•'•»"» rexp«ied development, occaaionally tried my patience almort beyond """wf ^11, however, bad one more ordeal to pass through namely, t. get a WU through P.rliament authorising the reduction of stock. AlPLICATIOM TO PiKLlAMENT. The firrt year had pa.«d away. We were ■"'kto* • '«" P"^' "J of our good Line.., taT could distribute nothing until the capital w« AS GENERAL MANAGER IN MONTREAL. 371 adjusted on a new bails. But the timtrs were inereailngly. difficult. De- pression became deeper and deeper, and by the time that Parliament opened, and we had to make our application, it became evident that the reduction would need to be larger than the stockholders had voted for. I was certain of this, owing to the number of new failures that had trans- pired and the unsatisfactory result of many insolvent estates. It was therefore with a heavy heart I proceeded once more to Ottawa and traversed the familiar halls and corridors of former years. The able and experienced Solicitor of the Bank, the Hon. John Abbott, accompanied me; perhaps it might be put that I accompanied him; for of course, as our Advocate, he would have the task of present- ing the case to the Banking and Commerce Committee of Parliament. He was a member of Parliament himself, and some years after became Prime Minister. The Finance Minister of that time had somewhat of a reputation for impressing upon deputations that he knew their affairs better than they did Uiemselves. In some cases this might be true. This disposition of mind on his part, however, was of very great service in our interviews with him. I was convinced, and had so informed the board and Mr. Abbott, that unless we got the capital reduced by thirty-three per cent., instead of twenty-five, it woult^ be difficult to carry on business satis- factorily. The difference would be some $700,000; and we needed it all^ if we were to start on our new career with any sort of a reser\'e fund. But it was difficult to express this to the Parliamentary Committee, for our mandate from the stockholders was to ask for a reduction of only twenty-five. But to my surprise and great satisfaction the Finance Minister himself began to suggest doubts whether a reduction of twenty- five per cent, would be sufficient. This was exactly the line we wanted him to take, though we did not give him to understand it in so many words. He had formerly been a director of the Commercial Bank, whose business we had purchased, and knew very well what the purchase of that business had involved. And he was well aware of the depression of business that prevailed in the country. The discussion was joined in by another member of the Cabinet, a very influential Montreal gentleman, who said that he had also about made up his mind that a greater reduc- f jn than twenty-five per cent, would be necessary. In fact, he thought it would be better to make the reduction thirty-three per cent This was an immense relief. 1 doubt much whether we could have secured such a reduction :f we had pressed for it ourselves, but when the Finance Min- ister announced this as a decision, it was accepted with a satisfaction I did not care to show. On this basis then a bill was brought into Parlia- ment. There was no opposition. The bill passed without difficulty, and received the Royal assent. When this bill was passed I felt that, at last, we had got down to A Solid basil. The credit of the bank was restored, we had a good circle of valuable customers and numerous paying branches. Our officers were 378 BANKING AND COMMERCE. ,.. „K,re than three ^e"- ^o- « '^'^ ' j ^^ ^^ .„^ felt more and more conlidrnt tnat we i-uuiu !L.„,rt,ble Je hoped in time might amount to Mtj per cent, of the capital. Bank Failbum is Mo«t««al. About the end of tin, long P^''-^^ ,f /"T^^Vlf balTad" n" began to be exhibited by acveral .mail """"-^j, J^=;^;^:tf' manage- brfnches, their >-'"- '-'»|/"'f -^^rm-nage of on" of them wa. of ment had never inapired confidence. Th« "»"'8" °^^^^^ .ecuatomed ;:t;;hrtrrj^nhf;itr;rrrrx^^^^^^ :.:f and their mode, of d«.g^^.in.. ..."-- - ^^ - .Mceptible of change from changing '■""■ J],^ J^J" H, f„, ...iat- *!,— fri.i« Knnlc woald Kct into dimculties, ana appi; day or other this bank woaia g« „ j^^t,. Bank took part in con- r:::.ntl»m-:o«r^i.:r^.a^ ,uch accurilv a. the bank was able to offer ua in», no a , ^ which inv«led finaneml and bu..ne.. "« "'^.»^" ,„ ^^ .bout re.p«=t- (,8T9) '"-"'^^r/^h SligWrymp^m. of a run were m..u- tag the po,.t.on of other bank^ °''f„,f,i^,ed thi., and .trengthened feated in .ome quarter.. I had '", •f"'^ ^^^ meet it witlwut our cash rcjcr,.., .„ '^''^'X^tr^^;L7.n.r wa. there any difficulty. However, nothing of »h« »'"° j^ \ \ 454 feel the con- „riou. demand -*«»P°%*^°tpre:lnted number of commercial tinuou, wearing anxiety of 'h' ™f rt„ four time. a. many a, they l-r." ":: ::^ra=r:nrCa - the time when the cloud, would break." ~^„, deep the a.pr.»l»n •><»•" ^!'^„Z"oZ"-^'^'' mT.'o"'l»T 18"' fact IMt B.nk ot Montreal .lock '"'',''"'" "T„k „r Toronto from n« W ,S77 to 10. in 187.. Th. C'""''"" '^"^"^.'^it .«.r borrowing .11 U could nnanclal po.ltlon, wa. tnen In .UOB •«""• ™' ^ promlMory note., which "„„ It. banker. ,1 .a. "'"'"f.^r^ . hw^T^^-nt' I n...r .0« arrangement, but It enabled ui to keep our hold upon New York. It would keep our officera 111 touch with the market, and in practice. We therefore gave up our own office in Wall Street (aaving a heavy bill of eipenie thereby), and entered on the new arrangement on a very economical scale. This continued for a year. We did a quiet, safe busincM, having tbo advantage of the eieellent judgment of one of the partners of the firm in the critical business of buying bills. We made no bad debts, and lost nothing, somewhat of a contrast to our former Wall Street eiperience. But on the other hand we matle nothing. Our relations with the firm were always satisfactory; but at the end of a year our managers thought we might make the experiment of opening an office of our own. Our credit had gradually become re-esUblished, and we were beginning to have once more some disposable funds. I therefore recommended opening. The hoard coincided. We rented a very unpretentious office in Exchange Place, at a very moderate rent, and commenced business on the new foundation. And as we had an un- impaired capital of six millions, with the nucleus of a rest in addition, we considered that we had a fair chance of success. We soon found that we could sell our sterling bills at fair rates, drawn as they were on a Scotch bank of undoubted strength. We pro- ceeded very cautiously in the matter of issuing commercial credits, how- ever, for the business has risks peculiar to itself. Before long we were able to spare funds for loaning on slocks. Thus between the sterling business and the interest on our stock loans, we did a fairly profitable business in the first year. At the time of the boom in Winnipeg, as will be seen later on, we had enormous deposits at that branch. It would have been madness to employ them in discounting, and not prudent at that time to place theui out in stock loans in Canada. We therefore transferred almost the whole amount to New York, and placed it out on eaU loans tllere. Our New York business now assumed respectable proportions. The brokers included us in their daily round of calls, and we took our place once more amongst the Canadian banking institutions which have played -och a prominent part in Wall Street for the last generation. In the second year we made very considerable profits. But a cloud was still hanging over the commercial position. Stocks were heavily depressed. 874 BANKING AND COMAfERCE. Much buiincM in the Unltrd Stntei wai carried on without profit. Bui Wall Street wai free from spasuu, our ciutomrri were nmongit the belt of the city broken, nnd every one tliat knows New York knowf what a highly reipectnblr clait of men, ai a rule, they are. (I stay my hand here, for n moment, to say that of the hundreds of millions of money we loaned to brokers in New York during the twenty-five years of my ad- mi niiitratlon. we nt^ver lost a dollar. We did lose, however, once, by dealing with principals.) As time went on, our managers came to have a more Intimate acquaint- ance with the range of stock and bond securities, and as one of them had been brought up In New York, we came to feel more confidence at headquarters in their judgment. We still, however, bad to test by ei- perienc?, what the effect of a §harp break in stocks might be. It came at length, and to my gr>Mt satisfaetion we passed throuj^ it safely. Some premonitory vvniptoms had appeared, and caused us uneasiness in Mont- leal. On the day when the heavy all-round break took place, we had advices as the day went on ; and at the close, I took the night train for New York, to scan the position for myself. To my great satisfaction, on entering our office early nest morning, I found our managers per- fectly comfortable and satisfied. The brokers bad responded bravely to our calls for margin. We never called for jMgment in a single instance, nor were we ever near the point of considering whether a stock should be sold out. Matters quieted down in a day or two, and this experience gave us great confidenire in lending money on stocks in New York. And this has been our experience on every occasion of a similar kind since then. Our customers amongst the brokers have never failed us. We have passed through several crises, when the whole market went down an average of twenty-five per cent; some stocks, of course, falling far more. Yet, at the close of the day, our loans were as well margined as before. But on occasions, we have been approached by principals, with pro- posals for time loans, and by one of these, we made a considerable loss. The loan was desired by a man in good commercial standing, on a stock quoted above par. The margin offered was ample, larger than usual, as the loan was to be on time. But this lending on time to a principal proved a great mistake. The party proved to be the promoter of the eh- terprise, and the largest owner of the stock. It had formidable competitors, and the stock, while in our hands, began to fall. We called for more margin, and for a time he responded. The price still fell, and our call was repeated. But this time he failed to respond. The stock went down until it reached so low a figure that the promoter was ruined, the enterprise absorbed by its opponents, while we made a considerable loss. This sharp lesson taught us the im- portanc'j! of confining our business to brokers, who always have a prin- cipal behind them, and who exercise their own judgment on a stock be- fore presenting it to oi. AS GENERAL MANAO'iH IN MONTREAL. 375 With comnwrclal cndil. our upcrirncc hai not bcfn fortunate We have never done a large buiine.. In thl. line, but the average of loM hai been high. The wont waa the caae of a credit granted to a couple of young Enghahnien of the half-gentleman clai.a that I have referral to */. Jr'„ ■**"• '■''"'' ''°"""' "■' '" "Parting grain. What they did in thi. line wa. perfectly Mti.factory. But on one occaaion they took a fancy to dabble in the ImportaUon of .teel ralU, which they thought were likely to advance heavily. A small clique of fellow, of the ume CI.M a. themKlve. were in thii venture. We gave them a credit to import a thouaind tons, a great mi.take aa it proved, for thev were not in the boainen; and the price initt:ad of advancing, fell heavily. By this and •imilar operation, the iirni wa. rained. Some circumaUncc. tr.n.plred in our caw which created a .uaplcion of fraud, and we pro.ecuted one of the partie., but got no aatUf action. We did, however, get judgment .galnat each of them individually. The younger of the (irm went home to hi. father, a country genUeman in the We.t of England. We Knt the judgment to London for Mecntion, but the yoong fellow wa. alway. kept out of the way. The neit time I went to England I thought well to «> down to .ee the father and endcavo' to elTecl a compromise. But he flatly refuied to .ec me, and uon afterward, he sent hi. son out to In- di.;. Many years afterwards we heard that he had relumed, and that he was about to be married. This, we kw, was our chance. We threatened to put our judgment into execution. An olfer of compromise wa, made at once. We refused to take it. The offer thereupon was doubled, and after consultation with our agents in England, we concluded to settle on tliese term,. And thu, ended this disagreeable busints,. Only on one or two occasion, during a long course of heavy business m New ^ork have we suffered by actual fraud. We have bought million, of pounds of sterling bills, evfry year, and made loans on stocks aggre- gating as has been said, hundreds of millions, but have never had a forged bill of exchange on our bands, nor a fraudulent certificate of stock. But we were victimi,ed on one occasion by the presentation of forged bill, of lading under circumstances more remarkable than anything in my long banking experience, or perhaps in the experience of New York Itself. It wa, a sad case, and one would willingly draw the veil of .ilence over it. But a, thc,e reminlKence, are written a. Icon, of in- ttruction, I cannot pass it by. Moreover, the transactions were all made public through the courts. We had much business, both in Chicago and New York, with an ex- porting firm of the highest standing, whose very name carried an assur- ance of respectability and honor. For many years nothing could be more satisfactory. On one occasion, however, they departed from the Mual course and inrtead of offering bills of exchange with document, they presented the documenU themselves, and desired a temporary loan m B/«NKINO AND COMMERCE. upon Ihcm— Ihr bilU to be brought in rabfequcntl^. The tnmacUim trrroed rfaionabU, althoufih a little out of coune, and the loan waa made, which wai of coii.;derable anxranl. One or two dayi paaied. The bilb were not brought In. The PradiKe Elchange was neit itnrtled to hear that the (Imi hail failed. But inlnitelj wone than this waa the diaeorery that the doenmenti were forgerlea. It wai incredible. Sneh a tim might ^»il, but Forgtr) war unthinkable. It waa, howcrer, only too true. Apprehcniion and trial followed. A plea of inunitj waa put in, but nothing retulted. The eatate barely paid the eipenie of the liqoidatloa, and the bank loat t'l - wL jle amount of the loan. It waa a heavy blow. But we could hardly blame the managen under •uch cireunutancei, and we bore the rererac with the philoaophy which all banks have to excrciae at timea, when some unforeseen trouble be- falls them. Jot'RIlBY TO THK SoCTK. Our general sterling business was, on the whole, most satisfactory, and in connection with the moat important branch of it, the purchase of cotton bills from the Sooth, we had not a single casualty, large as the annual turn-over was. It is a good rule for a banker to have personal acquaintance with thoae he deals with, and in furtherance of thia idea, I proposed to one of our New York managers that we should take a journey down South to- gether, and make the acquaintance of the firma whose bills we had bought in the aggregate for so many millions. We therefore made the journey, visiting Charleston, Savannah, Pensacola (to see a timber firm there whose business was in charge of a young man who had been one of our clerka). New Orleans and Memphis. At each place we called upon mer- chants and bankers, discussing with them the prospects of trade and movementa of businesa and finance. It was one of the most Interesting journeys of my life. The bankera were Ihorooghly modern in ideas and methods, and the merchants were men of more than average intelligence, some of them sent out from Liverpool to represent great cotton hoosca of that city, and being in the habit of paying periodical visits to Eng- land, France, and other cotton-consuming countries. And it surprised me to learn what a large portion of the crop was sent to Continental conn- tries. Silver Agitation. Daring the great Presidential Campaign of that time, under Bryan as a candidate, we were in constant anxiety as the phases of the contest unfolded themselves. All our loans, whether on call or on time, were made payable In gold, but we were very certain that if the Bryan policy prevailed, gold would go to a premium. There would be a natural limit to this; depending on the ratio that was fixed. But the premium would certainly be enough to make it citremely dilBcuU for brokers to fulfil their contracts. It would therefore Inevitably bring serious elements of AS GENERAI, MANAGER IN J .aTREAL. srr dIffeuIlT '•■xl d»ngrr into • buiinru wlikh hnil alwayi brtn rminrnllT ulUfartory. Fwwrlnii IhU wr iruliMlljr riirtallrd our loam, and by thf lime of khr rlration lind rrdumj tb«n to a v«y trlAInf amounl. But the food HnK' of the Anwrlran prople oner more prevailed. Tlic eriill »•■ Mfeljr pawd. BntineM reaumed iti ordinary eonrae and we looa pal out mom la larir an ratent aa utiinl. But there wn< a time during thii .igilatlon when (old did became dillienlt to obtain, and we unee actually paid a premium for a coniiderable amount we deiired to tranafer to Montreal." Vum TO CoHMtaciAi. CiNTau i.x Exoi.tNr— Thi Baaiiaa C«n ;. In connection with our itrrling buaineii, both in New York and Montreal, I paid periodical viiita lo England, and ipent much time in the great centrea acquiring information. Thia I could caaily do, through our banking correipondenta in London, Liverpool, Glaagow and Briatol, from whom I received much of what may be called imult information, that eonid never have been obtained otherwiae. Thia we uaed for the guidance of our iterling operationa in New York and Montreal. Aa a •pecimcn of the kind of information given to me, I will mention aeveral initancea, withholding namea of courae. They occurred many ycari ago. In one of the above-named centrea, a commercial firm had for yeara maintained the higheit itanding. and waa marked with the higheit markt in Reference Booka. Bills apon thii< houae it waa generally conaidered •afe to Uke to any amount. But while in that city I waa conAdcntially In- formed that the senior partner, to whom nearly all the capital belonged, had retired from the firm about a year before. Thia waa not generally known. The name waa reUined; ao waa the raCng in reference booka, and the buainess waa going on aa uaoal. But the strength of the Urm wal so diminished that it waa practically a dilfercnt concern. I therefore ad- vised New York ofiice to have all billa upon that (inn in fnturc accom- panied by documents. In the same city, with regard to another firm, and in a dilfcrent branch of business, I learned other particniara which I deemed impcrUnt enough to cable out at once. I always carried « special cipher with me in these visits abroad. The cable cost about five dollars, but it was worth ten thousand; for the firm foiled shortly after- wards. Ths Barino Crisis. All the world knows now of what was impending some years ago ove» the great house of Bcritig, and how under the lead of the Bank of Eng- land the resources of all the banks in the country were skillfully com- 13 1 had read a pap«r b«ror« the Atnerfcan Bankers Association at Chicago soma time previously, on this sUver question, taking of course the view entpr. Uined In New Tork and the East. It was i»elved with general favor, escept hy a gentleman who was not a banker at all. «n BANKING AND COMMERCE. f.a«l..l.n. .11 .v„ th, world. > '" '\^"" .'XTST-t ^ the bill, to . modcMt. .am. Tbi. «. ou, po iry, .nd wbn. tbr emu .,,p.n^n«i It would .»t h.v. ou,tt««l m»lr,l.lly even If .n «to.l .fp- page had t ''n plaee. CiilcAoa AKD Mm*"'"".- About tb. y«r U79 we opened .n oBce In Chle.»o. M'>"'''«J"»^ rl.ir.«. .K clotelT eonnected In tr«ie. One of our l«p.l c».tomen T.VJ^^A"'^' wine- tbe., .nd «.n. of o„, d>ee.on we^ well .equ«lnted with the mereintUe people of tb. f' ^ 7'" "^^ p„.ldeT. .oe^nponled n« to look over the , round '"f '°f *'J J' '^ Tervlewed » number of n«. In th. »r.ln nnd P'";"'™ 'f^' . ^.^fj^^^ „ eon.ider.ble eneou,.gen.«.t, .nd our report to tb. '«'J ™ J.",;".'; depo. U, .nd ta tln« to h.v. th. .ccunt. of Interior *•"■"• "1^'^ £rn7rr;::!::t.t:N^«^^ - -"4£t^^^^ „.IW eluWe on . .te.dily higher r.te of lntere.t, we found .t the e.d Sr»^':ei;ro:^^:^-^T""^Ht^ "' ?;f :i^,.,";"Jw:::r. h.v. renamed m Chle^, but th.t one oMh. receipt.. For »bree d.y. « !"" ^ ^ ih.i ti„„;, howner, our eu.ton.er. could .tend the .h«k or »«■ ? ,„ton.er, wet. jthtkrd -'^-.'^-pp-r^'t'JdtMl we"7.r'tit .Tu"^ AS GENERAL MANAGER IN MONTREAL. S7» and which wrrr fully rrroiipn] bjr Ihr rnluiimil ruluc of Ihc Boird of Trade irat held hf mir inanngrr. Out Chkafo pipcrlrncr, hawevrr, '«« not throwD awajr, ai II cnablnl ua, with more intrlllfrenri' iiiid.ronAdfnrf. to parry those loaiit on firaln In Oululh and .MlnneapoIU, which were ao prontaient a feature of our builncii Ionic nun afterwnrHa. The Mlnn-'upolii loam, however, I may •ay, were nNn.ri (jtiaranlM-d by a Iwnli, and were done at a allghtly lower rate of Intemt on that account. Tl;c Uuluth loana were made direct, but undiT the lupcrrlninn of a fomiir oAcrr of a Canadian bank, whom we could Implieilly triul. While In Dniuth on one occaalon In connection with our loniM Ihi-e I miidc n thorouf[h examination of the lyatem under which warehouar recelplir for grain were granted and cancelled. A per- fect •yntctn of registration wa« kept up, and Irregularillca rendered almost Imimssible. I have often wished that some system of tin' same kind was In force in Montreal, All these loans were mode on what are known as Term.,'-(«» rf«,.. Noticing that the p«ke^ wa. damp, the manager a.k the me.Kngcr what wa. the reason. He r^ ^li d tha? he could not always keep the packet out of the -ter whence wa. fording the river.. The place i. now a pro.perou, town w.thm lixteen hours of Winnipeg. .... „.„ ,.ll«l We had some customer, in a village about sixty m-k" «'"y' ""=J Portage LaPrairie, at the extremity of settlement and eiv.hxation, and being deairou, to see the interior for my«:lf , the manager made arrM^ menu for a journey there. The first fifteen mile, was through scattered ^L.«U along the Assiniboine Bivcr. We then struck out, acros. the uninhabited prairie, and in about an hour were fairly ""' -' '«^^ land" so to speak. Not . .ingle thing -a. in sight but the ««■" •««° like cxp.n«!, .11 around u., and a. we drove »long hour after hour, I could not help thinking what would happen if we lo* he "«■'. '"^^ found our«.lve, .lone in a tr«^kle,. wildemcs,. A «nall speck app^red after a time upon the hori«,n. The speck enlarged until ■' b"*"^" « tarm-house, standing alone, in the great expand. We passed through the farm-yard, and then .truck out once more into the open prairie., arriving, after p..,ing a few farms, at Portage LaPr.ine m the after- noon. In the sixty mile., which we then tr.ver.ed, there are now five .tation. of the Canadian Pacific Railway, and the la.t ten mile, of our journey now form part of one of the find whct-gnlwing 'fPon. of he continent. Portage LaPrairie. now .uch . prosperous and thrivmg town, with three or four bank., and great mUl. and "'"f'"". '" ">'» a dirty little village.'* the only "hotel- being a ml«raWc little tavern, something like the Eagle Hotel in the story of "Davul Har^m. AS GENERAL MANAGER IN MONTREAL. i 3 :« "■<' """O «nd in little p|„e. „f fitw7r\ hunl!^*^! '^" ""' """d »'»"*. -gine.. ™ight g„,„ to .ow:,.°„'/ei,e" t^;:'""'""' T"'" P"P>' n for the po,„,,i„n of the land, rom,H >./"""■' "^ ^'""'^ «* te be eovered with .tree.,, 1,7, ™S jw ,r' ""'IL^-. ''y -d by, Ontario in 1856 wa. repeated Tneven a ^Ire f ' ^'" "^""•"' "^ ■«ud. of people »ent in b„yl„,Td J ."'""K""' f"™. Thou- fidenee „,alci„g pa.™,,,, down with IhetTeT" "'"■ "" """°" ™- tbemMlve, with mortgage obli^H™. !" '' """"^- ""^ entangling -liing when the.v couM^^o" f;,""." 'coTtTn ,?'" ',""« ''™' ■>' '»"' •«n.e longtenn, and never drel"ta^ „T»h ^ '"''"""^ P"'" °» «« which were to drag then, do^ .r*,;' ""^ "■""''"" "" "'eir mortgage. Meanwhile the bn,ine™ of our Winni.,,^ u ,. "■r P^Portion.. Depo,it, inerea :d t ^Wrf rr *™"'"« '■■ ™'- •ction, pawing through the offi™ !? , ^'" "■"°°"« "' '™>ii- thronged fro„^„,n4\^"*«/" 'credible. ■^'«= «>™'" w^T door, of an Opera Honfe when ,le e^ talT " T '"""-^ " «■« ■"«. A .tranger would have ,„Z!e7 that ''T' ^'""" " ^'^""^ Pl.«; but it wa, j„,t the op J«e Vol! /?r '"'"^ ™" "" »«ki«g Po.it n.one.v, or to put in drL7^ for 111"/ "-\Pe°Pl<= "anted to d' forring money to Winnipeg. The ^',1^°"/" *'""' P°"""' "«"- while thi. toon, wa, at iCLgh, a^d »w " ,1 "'TJ' '""«' '•"■■"°'» During thi, inflation, a, f, alwaV, L ""' """ '-'•'■»■ l"i"g prevailed whieh « all reaaola de« ""' "x,"^'' °' «"-.g«.t for people to eat, drink or w™r Th ''°"""« ™ too «od "d coniforUble'ehurehe" lu^h a, wel'TLw'^ '"" """• "^ town, were replaeed by eo.tly ereetiom iani- toba in the way of business, failed in after years owing to their specula- tions in the time of this land boom. As to our customers in Manitoba itself, only a few of them survived. We had made very heavy profits during the time of the inflation^ but with all our care, and the constant directions given to our managers, they could not help their judgment being b'aaed as to the character of the transactions offered them. Masses of landed property came into our hands, formerly belonging to our customers, and held by them at inflated prices ; also endless claims against traders, customers of our customers, scattered over distant parts of the immense interior. To deal with these I organized a separate depart* ment of the office in Winnipeg, and it was only after many yean that it* functions ceased. We wrote off large sums for losses year after year, but I fancy other banks (for by this time there were others in the Province) had at least as severe an experience as ourselves proportionally, and one of them (not now in existence) a far worse. For our profit! exceeded our losses considerably. The Bankers' Association. The general managers of the banks had met, as usual, in Ottawa in 1881 for the purfiose of conferring with the Finance Minister, and on the journey home the suggestion was made, I think, by Mr. F. W. 384 BANKING AND COMMERCE. ; , 7^ «"« iUficnhr w„ to settle iT °°"'' " « *«" government of ,t member* should be ^L-f " ™ P'-'W^-l that . euLTf ™«.on h.d no, p,ooeeded far W^^'' "^ "' '""' "■'"■'>">• Di^- cear ,0 „. all that of .,.,„„, po;e, X L°"- J" ''"''■ '"'™ « t*-'"" •". It was. however, felt thaVit 1„ H t'"" """ "-reise none at ""»■" ^ -""^""ed in »n,e confid'ntiri ^"'''"«' ">"' ">« "•tier "nd a friendly i„tin„tion in the „n" !^ ,T°""'' "' "«= A«>d«Mo«' concerned. Tbi, wa,, bowever a ^Z f ™" """"f'^ •» 'h" bri "°'<;?':i:i°i" T '"' '^"- ™";'n"' '"''"■' ''="-^' -i r^^ Win. ^^:: n^r r^fe'reTrr? nr Vr '«' - ~ .re.r i"sr«ri -"-^^^^^^^^ e:-- enee at O^^^^TJ!^ ."^^IZZf!" :l l^ '»"^"-' -^inlt: |»« Act were dcirable. The M™ had V '"'' ""■"«"" '■" "« "'"^ charge on ,11 the ..«t. if bank. 1^. J- I*" "* '" "'"'« «■«», a «„t Jodera. It wa, perfect." reLtlblcthf."'' ''™"' """ility of ,^. Wder. of notealere inXTv crcdt^''^' t"" "^ "' '"""-h " Oovemmenl .ecnrltie. met with .frenm, ! '"°P°"' '" "ver b, Weatem Bank,, and in conf ren"™^ .heT °°' ^'^'""^ '"^ '*« AS GENEHAI, MANAGER IN MONTREAL. 185 olterMlivc proposal. This had .i viry simpk look on paper, and only a few lines in the Bunking Act were required to make it law. But it had a very far-reaching aspect, .ind has proved in practice sufficient to make the notes safe, even when a bank his been scandalously or even fraud- ulently mismanaged. M the next renewal of the charters, stiU further safeguards were introduced in the shape of a Redemption Fund, which, however, it has never been necessary to put into operation, though there is held by the Government a large sum available for the purpose, con- tributed by the banks in a fined ratio to their circulation. The charters of the bunks were again under review in I89I and the Association acteil with considerable edict in preventing what would have been an undesirable .-.dditio.i to the Act. It is casv for doctrinaires to frame theories: it is only practical men who can judge of their effect. On this occasion, as once before, it was proposed to introduce a promi- nent feature of the American system, viz. : the compelling by law of a fixed minimum of reserves to be held by the hanks. Against this we were a unit, for good reasons. We argued the case with the Finance Minister, but like most doctrinaires he was fixed in his opinion, and insisted on its being mide law. We then took the strong step of appealing to the whole Cabinet. The Prime i.inister (Sir John Macdonald) was again in power, and a hearing was courteously conceded to us, a very rare favor. We stated our case; some four or five speaking, the most prominent being the General Manager of the Bank of Commerce, who h,id formerly been manager in New York, and could speak from practical experience. At the close of the inteniew the Premier desired us to put our views into writing, which was done, and we heard shortly after that the Jause had been ab-indoned. Thus for the second time. Sir John overruled his Finance Minister in a matter that concerned the banks. It was on this occasion that the fur- ther step was taken in the way of making bank circulation secure by the formation of Redemption Fund under the auspices of the Government to which all the banks contribute. I always had the impression that the making notes a first charge would render any further assurance un- necessary i and events have so proved it. The fund, however, was formed, and when its provisions can to be understood, it was found that under them the whole of the banks were practically guarantors of each other's notes. This was never intended by its promoters, but it is now the law and under it we may safely assert that the bank circulation of Canada is far better secured than that of any circulation in the world. Before the decennial period of 1901 was reached, some scandalous revelations took place with regard to the overissue of notes by a bank that had failed in Montreal. This circumstance gave rise to a good deal of discussion, and to suggestions with regard to giving the Government increased powers of supervision over the banks. Impracticable ideas Here again ventilated and discussed. At length it was determined that as none were so much interested in the matter as the banks themielves (86 BANKIXG AND COMMEHCE. Plw'd upon ,h™,, „j ,j .peS ' o,,l i^ ."* ""^ »"' "" -ote. 10 be ,ig„,d ,h., have not b^"r„ -«»" which .n E„gli.h b.nker, weH quXd ,1 ' T" ""•"'"« °" ' J""™"! n.o,e .b,y eondueted .h.n the BTS^r.^^:' :rLrn°"""'' '° "^ HUTIIUMBNT MOM BiJlKINo. P^'^i'a.'t^JrotlCr LTiZ^°^"°* "^ "■'"'P"«J- I had vigorous health, I n„ .nZntlZ^J"^ *'"■ ^'^*' "'■'"8'' '«" i" tlu>t the Wide and diversified" to„,.r„f?hTT'.'''"°"" ^ ■"-»' « "■■iy failu«: of bodily „, menl7v^ .1. I '"'"'' '^"^^ "<>» '"f" by -"Iv^leing year,, ^he S aZLe/ 1°"''' '"""""^ ''«™P«"7 with a eo-djntor of «p„"noe X.^-. ' *^""°""'' '"""'"d ■»» burden of aotive n-ana^e". unUl T T" '"'" " ''"«' ?"* »' '"e «™lly to part With the e^re. aid Ifl ieu „' T^""' " i™*"" '" ™ « «.plc aUowance into the co.pr.tl:^ ^^tXtllire "*'" ""■ for those who are still be.r/the bZen f L"'' °' '*'""" '» "•"> i'.nlJng sphere of this eonl'nent """^ '"" °' "« "'J' '« 'be MoNTMjL, October, ]908. GlOROE HlODI. regola- to the rhe re- >:it wu ■e par- ITertl™ ing no lepart- dellb- nk di; cation lurnol lobe : had ill in le ao r by pany I me 'the me ■rith the