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1
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1 2 3
4 5 6
A HISTORY OF
BANKING IN CANADA
-iiv —
H. E. WALKER
CioNER.u, Manager oi iiiic Canaijian Ua.nk oi- Commkkck
Reprinted from "A History of Hanking in All Nations," l.y
permission of the i.ul,lish.,rs, TIr- Journal of Comuicrc'c
and Commercial Bulletin, New ^•„|k.
Toronto, Canada
1899
hi GX'lo^
UJ
n
t. i
1 7 8 7 n n
C/ 'vf
AUTHOR'S PREFACE
TTLTHOUGH it is only since the customary decennial
r\ revision of the Bank Act in 1S90 that the Canadian
system of banking can be .aid to have been a subject of
interest to any but the citizens of that country, the history of
currency and banking in Canada i? of considerable anticjuity,
dating as it does from the early part of the seventeenth cen-
tury. And from the point of view of development, it has the
advantage of beginning with the simplest conditions of barter,
followed by a currency limited to moose and beaver skins, and
passing by intelligible stages to a condition of sufficient perfec-
tion to be worthy of consideration as one of the half-dozen
best systems in the world.
But the total wealth involved in Canadian banking is only
about $320,000,000, a sum very small when compared with
the great trading nations, such as Great Britain, France, Ger-
many and the United States. In its early stages, indeed, the
actual money involved was so trifling that it seems scarcely
worth while to record such facts in history. Principles, how-
ever, are more important than the range of their application,
and in the history of the development of Canada, whether we
consider banking, or representative government, or any other
important branch of society, its people have always shown a
strong disposition to discuss the reasons of things, whether the
application at the moment was important or not. If there are
any general principles lying at the foundation of banking they
will assert themselves as well in a small volume of business as
in the transactions of a great nation.
In attempting to set forth the history of the currency and
banking of Canada, up to the last revision of the Bank Act
the facts fall naturally into the following groups :
1608-1760, New France. Card money and other paper
issues--i685-i7i9 1729-1749, and 1750-1760.
AUTHOR'S PREFACE
1760-1791, British occupation. Country without paper
money. Coins of several countries a legal tender.
1791-1812, Representative government established in
1791, but atit-mpts to obtain charters for banks of issue
unsuccessful.
1812-1817, Paper money issued by the Army-bill Office.
181 7-1867, Joint-stock banks under provincial charters.
1 867- 1 890, Dominion of Canada. Charters issued by
the Federal instead of Provincial Government.
The writer has endeavored to deal with these periods as
succinctly as possible in order that he might write more fully
regarding the nature of the act now in fo.-ce.
The space at disposal does not permit of the present
work being more than a study of the development and princi-
ples of Canadian banking, but care has been taken to make
such references as may enable the reader to obtain access to
histories which deal fully with the various periods, and present
in detail all important incidents. The writer has also been
careful to avoid ihe mention by name of banks or individuals,
excepting so far as such a course was necessary in writing a
mere history of development.
A HISTORY OF
BANKING IN CANADA
CHAPTER I
CURRENCY EXPEDIENTS
•608-.760, CARD MOXEY OF NEW FRANCE; ,760^.8,2
RESORT TO FOREIGN COIN; ,S,.-,8,7,
ARMY-BILL ISSUES
O theory supported the issue in 1685 of the
first paper money in Canada. The little
communities at Quebec, Three Rivers, and
Montreal had existed for three-quarters of
a century, presenting the strange contrast to
their present industrial habits of a distinctly
medLTval civilization, at war, externally, with the savage Indian
and the prmiaival condition of nature, and-when for a moment
the Iroquois had disappeared-internally, about petty questions
of political and social precedence ; as to whether brandy
should be sold to the friendly Indians who had furs to
exchange ; to what extent the unhappy colonist should be
bled by the so-called Trading Company, to which an ignorant
king had given a monopoly of both export and import trade
and by priests illegally trading in furs, etc. While religious
zealots in France saw only the opportunity to convert Indians
for the glory of God, civil and military servants in the colony
and the Government in France actually exacted tribute from
New France. But had there been before the colonists merelv
the problems of food and clothing and such public improve-
ments as necessity demanded, they would doubtless have been
i
■'t
A HISTOR Y OF
unable, as all new countries now are, to export enough to pay
for their imports. And so, such coined money as came to
the colony, chiefly for military and civil expenditure by the
(jovfrnment, cjuickly returned, and for many years beaver-
skins, the most important product, served as tlie chief money,
other furs being also either recognized standards of value or
readily exchangeable by barter, while a decree was not neces-
sary to make brandy a most satisfactory medium of exchange
with the Indians.
i
KARLIEST MONETARV EXPEDIENTS
The difficulty was not always, however, with the trapper
and agriculturist in finding a satisfactory exchange for the
imported goods sold by the merchant. The colony was so poor
that the products often had to be exported to France and sold
before the necessary supplies could be sent in return. To
enable trade to be carried on with some degree of comfort, the
French West Indies Company, which had the control of the
trade of Canada in 1670, brought about the issue of a coinage
of subsidiary silver and copper for use in the French colonies ;
but even these change-making coins returned at once to
France.
I'he next expedient was a decree, in 1672, for the avowed
purpose of keeping coined money in Canada, according to
which the coinage of the colonies and of France was to be
taken at one-third more than the face value. This did no
good whativer, and in addition to enabling the Trading Com-
pany to exact unfair profits, it created two species of money,
the French standard (monnoye de france or livre iournois) and
the colonial standard (monnoye du pays). In 1674 another
decree annulled the action of 1672 regarding the difference
between the face value and the value in trade of the coinage,
but the custom of paying for furs and similar merchandise by
giving twenty-five per cent, less in coined money remained
until 1 7 19.
All expedients having failed to retain the one satisfactory
kind of currency, in 1679 the farmers who were now evidently
making themselves felt politically, were permitted, for a period
BANKING IN CANADA
of three months, to pay their debts in wheat at the fixed rate of
four livres jjcr minot (three Freneh bushels). And, in hke
manner, about 1684, moose-skins were a legal tender in paying
debts already incurred, at rates named by the autliorities.
CARD MONEY
For a few years previous to 1685, the Government of
France had supplied in advance the money and goods neces-
sary for the support of their civil and military estabhshments in
Canada, but fur this year these failed to arrive. The Inten-
dant, Jacques de Meuilles, evidently more fertile in resource
than his predecessors, after having spent all the money he
had or could borrow, resorted to the following expedient :
Instead of silver he paid soldiers by notes made cf playing-cards
cut in four pieces. The denominations of these were four
francs, forty sols, and fifteen sols, with which three kinds he
could pay a soldier's monthly wages. He ordered the people
to accept, and personally undertook to redeem them * They
are said to have borne simply the written amount of their
value in monnoye du pays, the signatures of the Intendant
and the Clerk of the Treasury, and the crowned fleur-de-lis
imi)ressed in wax. The new currency must have solved many
of the difficulties of trade, and we are not surprised to learn
that thereafter France made no effort to send i;upplies a year in
advance, while resort to this monnoye de carte became the
recognized means of carrying the debts of the Colonial Govern-
ment over the year, or until the ships arrived in the autumn
from France. Subsequent issues appear to have been very
carefully gi:arded. The Governor and the Intendant, for
their respective disbursements, might employ tiie aid of card
money, and the notes, therefore, bore the signature of the
Governor, the Intendant, and the Clerk of the Treasury.
After the necessary decree establishing the legal-tender quality
of each issue, the Clerk of the Treasury receipted for them
in the same manner as for actual remittances from France.
Until 1 709 the cards for the year were redeemed in specie when
the ships arrived, or, if preferred by the holder, drafts on the
'The liistoric.-il stMtementU true.
RETURN TO COIN MONEY — THEN A RELAPSE TO CARDS
By 1719 the redemption of the card money was accom-
plished, and for about ten years, during which period there were
many unsuccessful efforts to interfere by decrees with the natural
course of things, coined money was the only currency — always
scarce, and with a persistent tendency to return to old France.
By 1728, we find the Governor suggesting a new issue of card
money as the only relief, and early in 1729 the King, by
ordinance and in accordance with the wish of the colonists,
created again for Canada a card currency. The new cards
were limited to 400,000 livres, were issued in seven convenient
denominations, were a legal tender, receivable for all goods sold
m
A
A HISTOR Y OF
French Treasury could be obtained at any time during the year.
The success of the cx[)cdient, thus far, was not unmerited, and
the currency cannot be regarded as entirely unsound, siiiceit was
merely a series of issues limited to the amount of the annual
remittance and redeemed in specie on arrival.
In 1 709, however, in consequence of the bankrupt condition
of France, owing to European wars, drafts already given in
exchange for the cards were refused and the regular remittances
discontinued. The legitimate basis of the card money was now
gone, while the necessity for its issue was greatly increased.
Instead of issues restricted to the amount of a year's expen-
diture, the unredeemed cards of one year were succeeded
by those of ar.jther until the volume increased fourfold, the
total outstanding in 17 r4 being computed at 2,120,000 livres,
while the population was only 19,000. At this time it was
decided to redeem them gradually at one-half, and during the
ensuing three years bills of exchange were drawn on the
French Treasury for five-sevenths of the above amount. But
the French Treasury did not resume remittances for current
expenditures, and for this purpose new issues were necess.^ry,
so that by 171 7 the total outstanding was 1,730,000 livres.
In this year, however, arrangements were made not only for
the redemption of all cards at one-half, but for the cessation
of future issues, and the return to the currency standard of old
France in exchange for the monnoye du pays.
BANKING IN CANADA
by Government, and were redeemable by drafts on the French
Treasury. This issue was thus surrounded by careful regula-
tions, but was distinctly a yfa/ currency, to be reissued as soon
as redeemed — a permanent loan to the Ciovernment. It was
not actually redeemable in specie, although as long ?s the
volume was restricted, redemption by drafts on the French
Treasury was practically quite as satisfactory. But the popu-
lation had increased to 30,000, and the volume of currency
being deemed quite insufficient, the King, who now controlled
the issue, was induced in 1733 to increase the limit to 600,000
livres. In 1742 it was again increased to 720,000 livres, and
in 1 749 to 1,000,000 livres. Thus far the issues were promptly
redeemed by drafts on the French Treasury, and from history
we do nol learn that anything but good arose from this reason-
able use of paper money.
From this time until the capitulation in 17C0, the colony
WaS constantly increasing its expenditures in order to carry on
its struggle with the English colonies. The annual expendi-
ture, which in .,49 was less than 2,000,000 livres, by 1758
reached nearly 28,000,000 livres, and during the seven years
1749 to 1755 inclusive, the exports did not amount to thirty
per cent, of the imports. The receipts of money from France
were quite insufficient for such unusual expenditure, and, to
the high prices attendant upon the over-issue of paper money
to which we are about to refer, there was added the cost to the
Public Treas.ury of the corrupt extravagance of the Intendant
Bigot.
bigot'.s due-bill currency (ordonnances)
The limit of 1,000,000 livres being too small and the issue
of cards being illegal, unless sanctioned by the King, Bigot
resorted to a new species of currency. He issued printed due-
bills called ordonnances for even sums from 20 sols to 100
livres. The notes were signed by the Intendant only, and
there was practically no limit except the ability of the
community to absorb such issues. They were not
redeemable in specie, but were redeemable in card money
under certain circumstances. In the autumn the moneys and
A HISTOR Y OF'
credit supplied by the French Treasury were available to
redeem the authorized card money. This card money, being
reissuable as long as the limit of 1,000,000 livrts was noi
exceeded, was used to redeem as far as it would go the ordon-
nances of Bigot, and for such j/ortion as could not be redeemed
by card money a third species jf obligation was issued in
the shape of bjnds of the Canadian Treasury, payable in one
year in card money.
A disparity in value was thus ceated between the card
money and the ordonnances, and in 1 754 this was removed by
taking away from the formeiany priority in the conversion in.o
bills of exchange on the French Treasury, both cards and ordon-
nances being redeemed on the same level, as far as redemp-
tion was effected at all. Instead of raising the ordonnances to
the level of the cards, this measure reduced the latter to the
level of the former. In 1756 an attempt was made to fix at
twenty-five per cent, the depreciation of the paper currency
relatively to specie. But the pressure of war upon France
in several parts of the world made financial leform impossible,
and matters grew steadily worse, little restraint thereafter being
attempted in the volume of paper money emitted. The drafts
on the French Treasury for 1758 and 1759 were not paid,
and cards and ordonnances fell to a discount of sixty to
seventy per cent. At the capitulation in 1760, there were
outstanding 34,000,000 livres of ordonnanc»"= and 7,000,000
livres of cards and Treasury bonds, while other evidences of
debt brought the total liability of the Canadian colony up to
80,000,000 livres.
The new British rulers insisted upon a settlement by
France of such evidences of debt as were 1 eld by the
Canadian people, and notv/ithstanding the bankrupt condition
of France, this was brought about by a convention, signed in
1766, under which bills of exchange and anything subject to
redemption in them were paid at fifty per cent, of ^he face
value, while ordonnances and other forms of debt were paid
at twer'iy-five per cent., and there was added to this a bonus
on the whole settlement of 3,000,000 livres. Payment was
made, however, in French
publi
BANKING IN CANADA
1766, sold as low as 74, and which rapidly declined in a few
years until they became almost completely worthless.*
CURRENCY UNDER BRITISH RULE
One of the first acts of the new British Governor was
to warn the people not to take the paper issues of the old
regime, and as early as 1764 we find importations of Mexican
dollars with which to pay the troops. At the same time gold
and silver coins of England, Spain, Portugal, France and
Germany were in circulation, and these miscellaneous coins
furnished the only currency. It was thought necessar/ that
the money of account should now bear English names in
addit'on to French, but with as little alteration in the actual
significance as possible. It w.is therefore decided that from
and after January i, 1765, the livre should be estimated at
the same value as a shilling of the new Canadian currency,
-nd that six livres or shillings should be the equivalent of a
dollar. Accounts were to be kept in pounds, shillings, and
pence, Canada currency (not sterlin;;), and the same law
made legal tender, and settled the value in pounds, shillings,
and pence, Canada cui-ency, <,f the various gold, silver, and
copper coins already referred to, which formed the actual
currency. In 1777, a new law was passed changing all these
values on the basis of five Canadian shillings instead of six for
the Spanish or Mexican silver dollar, and this established the
Canadian currency which existed until the decimal system,
expressed in dollars and cents, was adopted.
But the silver coins of the various countries were, because
of their worn condition and for other reasons, unsuitable for
shl-Tient abroad, and tnerefore gold coins were sought for this
purpose, and complaints as to the unsatisfactory state of the
currency were still frequent. In 1791, constitutional govern-
ment, instead of governmert by a Governor and Council of
Sute, was conferred on Canada, the country being divided
is thJof fh".'lT."Vf fi'.''«'," "'"'^■-"■''."l^ncy m Engrland with which I .nm .icqu^r^ca
r..,,L rr ■ .Z n" Stevenson. "Currency, wflh Keference to C.-.rd Money in
C.inada nur.ng the French Domination,' Tmns.ictions Literary .ind Historical
V^^ilf.^l^y':- c'""- A ^'""'' ""bJ-n.-d .1 copy of the convention of .ytifor ifc
L'n^.rLt" L . M^^i'* x'i-''P«'' T""'"JV A much more exhaustive monograph
appeared m.H.,., by Mr RMBreckenrulpe. entitled ••Th,.p
Frr.^ch .nd Fn."l- h "'"' '■i"r"'y- .^'"^-'(fo. In it I ^fcn'nces are m.nde to all
rr'..nch and Lntflish source* of information.
10
A HISTORY OF
into Upper Canada (now Ontario) and Lower Canada
(Quebec). The Parliament of Quebec in 1795 passed an act
increasing the value of the gold coins which were a legal tender,
hoping thereby to prevent their export, and requiring pay-
ments in excess of ;i{^5o to be made in gold. The new law
also declared that the new American dollar should be counted
like the ^oanish and Mexican, at five shillings, and all other
silver coins likewise remained unchanged. In 1796 Upper
Canada passed a similar act. Another act was passed in 1808
still further enhancing the value of some of the foreign gold
pieces ; but, without a coined currency or a banking system,
no satisfactory solution could be found.
Joint-stock banks of the modern type — that is banks of
issue, deposit and discount — had been established in the United
States, despite the bankruptcy of all legal-tender issues, colonial
and "Continental." In 1781, the Bank of North America of
Philaddphia, still flourishing, was chartered. In 1784, Massa-
chusetts chartered a bank. In 1 791, the first United States Bank
began its career, and thereafter many banks sprang into
existence.
INTRODUCTION OF BANKING
The merchants of Canada were not blind to what was
going on elsewhere. Montreal had already become more
irr.nortant commercially than Quebec, and on October 18,
1792, the "'Official Gazette" contained an announcement
looking to the establishment in the former city of a bank
under the name of the "Canada Banking Company." It was
proposed that the Company should transact the business
"usually done by similar establishments," viz., to receive
deposits, issue notes, discount bills, and keep cash accounts
with customers. It was further proposed to open branches —
" to extend the operations of the bank to every part of the two
provinces where an agent may be judged necessary." The
scheme, alth* igh supported by the leading merchants, failed
in its main p rpose ; the result being a private bank without
the legislati\ >. authority to issue notes.* Canada was enjoying
"As a matter of fact it liid issue notes, specimens of which the writer has seen,
but thi'V doubtless had a very limited use.
BANKING IN CANADA
II
its first year of constitutional government, and although the
author has seen no record of Parliamentary debate, we must
suppose that such an important proposal was fully discussed in
one way or another before it was abandoned. One able
writer has attributed the lack of success to the disturbed state
of Europe and political apprehension of trcable; but we must
remember that in 1792 there were many living who had per-
sonally experienced loss by the repudiated paper currency of
the old regime, while opponents of the plan might cite the
universal bankruptcy at the time of the revolution of all paper
issues in the United States. It was therefore only natural that
the right of issue should have been withheld. The merchant
of Canada at that time suffered greatly through the confusion
arising from a currency consisting of the coins of other
countries, but he hesitated to abandon this position of com-
parative safety for one which must have seemed to him to be
full of known as well as unknown dangers. The effort to
issue bank notes was not renewed until 1807, this time at
Quebec, but again without success.
In 1808, citizens of both Montreal and Quebec asked
Parliament to grant a charter for the "Canada Rank," and
after reference to a committee a bill was introduced. The
capital of the bank was to be ;/j25o,ooo currency ($1,000,000),
divided in shares of ^25 currency ($100). There were to
be twenty-four directors elected by the shareholders, one-half
to attend to the affairs of the bank at Montreal, and the other
half at Quebec, these being the two most important offices.
The directors were to elect the president and vice-president.
But the charter was refused. In the Legislature it was argued
that the creation of a bank with power of issue would drive
out all specie, would foster speculation founded on imaginary
capital, that the people were too ignorant to undeistand the
denominations of notes or guard against counterfeits, etc.
RESORT TO ARMY BILLS AS CURRENCY
In 181 2 Canada was suddenly \ lunged into war with the
United States. War was declared on the 29th of June, and
on July 1 6th the Parliament of Lower Canada met and
*
12
A HISTOR Y OF
remained in session until August ist. During this time they
passed an act to meet the financial requirements of the army.
It was very elaborate in details and bore evidence of a strong
desire to preserve the rights of the public as far as compatible
with the object of the issue. The features important from our
point of view are :
I. The Governor, as Commander of the Army, was
authorized to issue bills in suitable denominations, to be called
" Army Bills," and to be limited in the aggregate to ;^2 50,000
currency. 2. Bills of $25 each and upwards to bear interest
at four pence per hundred pounds per diem. 3. The prin-
cipal of bills of $25 each and upwards to be payable, at the
option of the Commander, in cash, or Government bills of
exchange on London, at thirty days' sight, at the current rate
of exchange. Upon such payment of principal the interest to
be payable, at the option of the holder, in cash or army bills.
4. Within the prescribed limit of ;!^2 50,000 currency, the
Commander was empowered also to issue bills of $4 each, to
be payable to the holder in cash on demand, and therefore not
to bear interest. 5. All army bills to be issued as cash, /. *.,
not sold at a discount or premium. 6. The current rate
of exchange for bills on London to be established by a
conimittee of five, named by the Governor, and to be advertised
fortnightly. 7. No army bills to be reissued except those of
$4 each. 8. The revenues of the province were pledged, in
preference to all other claims, for the interest on the army bills.
9. Army bills, with interest accrued, were receivable by all
collectors of Government dues. 10. Various regulations
referring to arrest for debt, attachment, capias, etc., had the
effect of making the army bills practically a legal tender.
II. On fourteen days' notice by authorities bills became
redeemable and interest ceased. 12. At expiration of five
years all notes became due and payable in cash out of
moneys in the hands of the Receiver-General of the province.
If such moneys were not sufficient, then out of first moneys
received thereafter. Payment might be had at any time by
bills of exchange on London, but this provision was made to
enable the army bills to be held by Canadians as an investment.
BANKING IN CANADA
13
13. During this period of five years no gold, silver, or
copper coin, or " molten gold or silver in any shape or shapes
whatever," were to be exported under penalty of forfeiture of
the whole, and also of a fine levied upon the exporter of ^200
currency, and double the value of the coin or metal exported.
Permission to carry on the person ^10, or a larger amount if
authorized by the Governor.
On the passage of the act and the opening of the Army Bill
Office, bills were issued of the denominations of $25, $50, $100
and $400, and evidently of $4 also. These were readily
accepted by the people, and the issue was not only successful
as an expedient of war finance, but was a boon to the com-
merce of the country, which had been struggling along with
the mixed currency of foreign coins already mentioned. After
the manner of war expenditures, however, the amount was
insufficient, and another bill was passed at the next session of
Parliament and assented to February 15, 1813, under which
the aggregate of the issue was raised to ^500,000 currency.
Denominations of i, 2, 8, 10, 12, 16 and 20 dollars were
added to those already authorized, to be non- interest-bearing,
in accordance with the provision of the first act. The total of
non-interest-bearing notes, i.e.^ notes of denominations smaller
than $25, was, however, limited to ^50,000 currency.
But the war did not come to an end, and in 1814 a third
act was passed enlarging the limit to ;^i, 500,000 currency.
The only new provision of importance rearranged the issue of
small notes in denominations of i, 2, 3, 5 and 10 dollars non-
interest-bearing, but payable like the larger denominations, by
exchange on London, and required that as much as ;i^2oo,ooo
currency and not more than ;^"5oo,ooo currency of the entire
issue should be in these denominations. ^^ of these
smaller denominations could exchange them t-bearing
issues. In the second and third acts the prox.^.Oiio cited in
paragraphs 9 and 13 of the abstract of the first act were
not extended to any issues beyond the first ;^25o,ooo
currency. In February, 1815, the Parliament was about to
pass another bill increasing the limit to ^2,000,000 currency,
when news arrived announcing the t'-caty of peace between
14
BANKING IN CANADA
Great Britain and the United States signed at Ghent, Decem-
ber 24, 1814.
The public accounts show that on March 27, 181 5, the
entire amount of army bills outstanding was j^i, 249,906
currency. By December 4, 1815, this had been reduced
to ^396,778 currency, and by April 22, 1816, to ;;^i97,974
currency. The time originally set for the retirement of all
army bills was August, 181 7, but by various orders this was
extended until December 24, iSrro, at which time the Army Bill
Office was closed, the entire issue of notes having been practi-
cally redeemed. Of the ;^i, 300,000, or thereabouts, out-
standing in i3i5, only about ;^8oo,ooo was in interest-bearini;
notes, while as much as ^^500,000 was in notes of changt-
making denominations not bearing interest. In view of this fat t
much credit was taken by the army officials for the low rate cf
interest which the issue, as a whole, cost the Home Governmen :.
The elaborate nature of the various Army-bill Acts, the
intelligent discussion at the time they were passed, and the
criticisms in the press regarding the effect of the issues 01
the trade of the country, all show that the Canadian people
held sound views on currency questions and were very mucii
more intelligent than fifty years previously when the Frtncli
card money was being redeemed. The provision by which
the public could exchange notes of large denominations
bearing interest for notes of small denominations not bearing
interest, ensured a sufficient amount of currency for the trade
of the country ; while on the other hand, the reverse condition,
under which non-interest-bearing notes could be exchanged
for interest-bearing notes, enrured the redemption of all
currency not required for trade purposes, by its con^•ersion
into what was practically an investment security. This
quality of elasticity in the currency is very distinctly referred
to in the contemporaneous discussions.*
'Readers desirous of studying more exhaustively the period during; which the
country was without p.iper money and the i-oins of several foreign countries wc.-e a
legal tender should consult the second monogr.iph by the late James Stevenson, entitled
" The Currency of Canad:i after the Capitulation," Transactions of the Literary and
Historical Society of Quebec, 1877 ; and for the .irmv-hill issues the third historical
monograph by the same gentleman, entitled "The W;ir of i8ia in Connection with
the Army-bill Act," published by W. Foster Brown & Co., Montreal, 1893.
CHAPTER II
1817-1841
BANKING UNDER JOINT-STOCK
CHARTERS
LEGISLATION BY THE PROVINCES
EXPERIENCE OF TREASURY NOTES
jE are now approaching the period of joint-
stock banking, and it will have been
noticed that we have dealt with the
currency history of only one portion of
the present Dominion of Canada, that
now known as the province of Quebec.
In considering the conditions of banking preceding the
confederation of the British North American provinces and
territories, which took place in 1S67, we shall have to deal
with the portions of the present Dominion now known as
Quebec, Ontario, No\'a Scotia and New Brunswick, but
before doing this it is necessary to refer briefly to the early
conditions in Nova Scotia.
In 1 80 1 an attempt was made in that province to obtain
the monopoly of banking for a proposed company with a
capital of ^50,000 currency, but without success; and in
1 8 1 1 an effort by the Halifa.x Committee cf Trade to found a
bank also failed. In 18 12 the Treasury, however, made an
issue of p{^i 2,000 currency of notes bearing interest at six per
cent, and no^ reissuable. This was a simple and apparently
harmless borrowing expedient, but, perhaps because of the
absence of a sound bank of issue, the province went early
astray. This issue was redeemed, but in 1813 it was followed
by :in issue of ^20,000 currency not bearing interest and
F'
i6
A HISTOR Y OF
reissuable. From this year until confederation, in 1867, Nova
Scotia never ceased to issue currency, and when its delits wore
assumed by the Dominion the total outstanding in this form
amounted to ^605,859. After 18 12 the notes were not
redeemable in gold unless it suited the Treasury, the option of
funding them in interest-bearing notes being the alternative,
and a date was fixed, generally three years from the date of
the notes, before which redemption in any form could not
be exacted.
In 1819 the Government tried the experiment, though in
a very cautious manner, of lending on land through loan com-
missioners. Loans were not to exceed ;^20o currency on real
estate supposed to be worth three tini'js us much, repayable
in three, six and nine years, with six per cent, per annum
interest.
In 1826 the Government took a further downward step by
providing that notes must be received by the public in pay-
ment of warrants on the Treasury, whenever the Treasury was
not in possession of coin with which to make such payments.
The next step, naturally, was to require the Treasury to retain
all coin in order to make payments in connection with the
funded del)t, and this was soon followed by the recjuirenient
that the public must pay customs duties in coin. In 1834,
the latter provision was somewhat ameliorated by permission
to pay in Treasury notes — the pound in paper money being
reckoned at sixteen shillings for customs payments. Various
efforts at reform were made, and by 1846 customs duties were
payable in coin and Treasury notes, but not in bank notes ;
and in order to aid in floating the Treasury issues, banks were
not allowed to issue notes smaller than ;£^ currency ($20).
The remaining evil features were not removed by the legisla-
tion of 1846, and practically continued until the redemption of
the whole by the Dominion Government, beginning in 1867.
CREATION OF B.\NKS IN LOWER CANADA
Returning to the province now called Quebec, it will be
remembered that from 1S15 to 1820 the army bill issues were
being retired. The people had experienced the benefits of
BANKING IN CANADA
»7
a well-rcgulatod and elastic paper currency, but it was based
upon the war requirements of the Government, and not upon
the requirements of trade ; these war requirements being at an
end, trade must get along once more with the miscellaneous
coinage of foreign countries, unless a basis for paper money
issues could be found. The outcome of this fact was the
Bank of Montreal, now j^ossessing a capital and surplus of
$18,000,000, and enjoying the distinction of being the most
important monetary institution in North America. Without
awaiting the consent of Parliament, articles of association
were signed June 23, 181 7, under which the caj)ital was to be
limited to ;^25o,ooo currency. In August, the Bank com-
menced business, and at the next session of the Legislature,
an act incorporating it was passed, but was withheld by the
Governor in order to obtain the royal assent. This was
refused. In Quebec (city) another bank was founded bn
June 9, 1818, called the Quebec Bank, which is still doing a
large business. Itscapital was limited to ^75,000 currency. It
also began as a private bank, applied for incorporation in 18 19,
and, like the Bank of Montreal, failed to obtain it. A third
bank, not now in existence, was established in Montreal in
1818, called the Bank of Canada, which also failed at this
time to obtain incorporation. Its capital was limited to
;^200,ooo currency.
During the session of 1820-21, however, the Legislature
was again -i.sked to grant charters to these three banks in con-
formity with their articles of association, and with such further
regulations as Parliament might impose. The application was
successful, and charters were granted by the Legislature in
1821, but did not receive the royal assent until 1822.
CHARTERS GRANTED TO THREE BANKS — THEIR PROVISIONS
As regards the development of banking, what we are most
interested in at the present time is the nature of the charters
granted to these three banks. They were all practically alike,
and that granted to the Barik of Montreal may be taken as the
type. It may safely be said that these first charters are the
substructure on which all subser]uent improvements have been
1'^
i8
A HISTORY OF
built, and that no very radical changes have been at any time
necessary. Indeed, there are very many provisions in these
charters which were subsequently included, almost unchanged,
in the general Banking Act. Among the provisions, which are
not essentially different in principle from the present act, are
the following :
1. The charter was to continue for ten years.
2. The directors were to be British subjects. The
qualification in stockholding was quite small, viz., four shares
of;^5o currency each, or $800 par value. The directors were
not to act as private bankers. They were to be remunerated
only by compensation voted by shareholders at an annual
meeting.
3. The directors were to appoint the orificers of the bank
and to take surety bonds for faithful performance of duties.
They were to declare dividends, when profits were earned, as
often as half-yearly. They must not, in paying dividends,
encroach upon the capital. They must keep proper stock-
books. They had the right to inspect all books, correspond-
ence, and funds of the bank. They were obliged to submit a
clear annual statement of the bank's position to the share-
holders at the annual meeting.
4. The bank might receive deposits, deal in bills of
exchange, discount notes, buy gold and silver coin and
bullion, etc., but might not* engage in business other than
banking.
5. It could not lend money directly upon real property.
It could, however, take such as further security for loans
already made. It was not permitted to lend money to a
foreign country.
6. It could issue notes to circulate as money, but with
no limit other than the general limit for all obligations.
7. The Government might require at any time, for the
protection of the public, a statement, undor oath, of the
position of the bank.
8. Transfers of shares in the bank were not valid unless
registered in the stock-book of the bank, and the bank had a
prior lien on the stock for ordinary debts due by the holder.
BANKING IN CANADA
«9
The following regulations, on the other hand, are different
in principle from the general act now in force :
1. The total liabilities were not to exceed three times
the capital stock actually paid in, and directors were
personally liable if they permitted such excess. Any director
might save himself by publicly protesting within eight days
after the transactions causing the excess took place.
2. The shareholders were exempt from any liability
except that of payment for the stock for which they had
subscribed, with a penalty of five per cent, for non-payment
after installments matured.
3. Voting by shareholders was not, as now, in exact
proportion to shares held, the number of votes diminishing by
a scale as the holdings increased ; so that while one share
gave one vote, ten shares gave only five, and thirty shares
only ten. No holding gave more than twenty votes.
The banks soon opened branches and agencies, and,
imperfect in detail as it was at this time, the present system of
banking began its career. From the first the banks exercised,
under the scrutiny of (".overnment and press, the great franchise
of note issues unsecured by any special pledge ; they possessed
the identity given by separate charters and clearly distinguish-
ing titles ; they opened branches and assumed the widest
functions of banking without discussing the precise powers
accorded by these charters. Possessing capital quite as large
relatively to the community as they have now, they assumed,
without hesitation, a national position as clearing-houses for
the exchange of the country's products.
BANKS FOUNDED IN UPPER CANAD.A.
Leaving the province of Lower Canada (Quebec) and
turning to Upper Canada (Ontario), we find that the people
clearly saw the benefits of the paper issues of the War of 181 2,
and were strongly influenced by the growth of banking in Great
Britain and the United States. In March, 18 17, the House
of Assembly was asked by the business men of Kingston to
incorporate the Bank of Upper Canada ; so that the people of
this province were not behind those of Lower Canada in
ao
A HISTOR Y OF
seeking such privileges. The act was passed by the Provincial
Parliament, but was reserved by ihe Lieutenant-dovernor in
order to obtain royal assent. This was not granted until April
2 1, 1 82 1. Because of this delay the people of Kingston asked
in June, 18 19, for the incorporation of the Bank of Kingston,
which was granted so far as the Provincial Parliament was
concerned ; and the people of what is now Toronto, in July,
1819, asked for the incorporation of the Upper Canada Bank-
ing Company, which was granted but reserved for royal asst.nt.
The delay still continuing, the House of Assembly, on April 5,
182 1, passed resolutions looking to the establishment of a
Provincial Bank ; but the assent to the charter of the Bank
of Upper Canada being proclaimed on the 21st of that month,
no further action was necessary. In the nature of its charter,
the Bank of Upper Canada did not differ materially from the
banks of Lower Canada. Its capital was, after some discussion,
settled, in 1823, at ;^i 00,000 currency, of which only a small
proportion was actually paid in specie. Its head office was to
be established at the seat of government, and the power to
establish branches was directly stated. It became a semi-State
institution by the fact that the Government subscribed for 2,000
shares {£,\2 los. od. currency each), thus owning one-fourth of
the stock, and was allowed to name four of the fifteen
directors. The bank could buy real estate only for its own
use, whereas in Lower Canada there was only a provision as to
the annual value of real estate held by a bank. Inability to
pay its notes in specie involved stoppage of business or
forfeiture of charter until payments were resumed. The return
to the Government was periodic instead of occasional, but
was required only once a year. The charter extended to
Tune I, 1848.
In 18 18, apparently, while awaiiing a charter for the Bank
of Upper Canada, the promoters in Kingston established a
private bank under that name, as had been done by the
originators of the Bank of Montreal and the Quebec Bank.
When the charter was finall) granted, the Provincial Govern-
ment had subscribed for shares, and other changes had taken
place, so that the chartered ir\stitution did not take over the
BANKIXG ly CAXADA
ai
business of the private hank, and the latter has, for this
reason, been called the "pretended" liunk of Upper Canada.
These two ventures are all, however, that resulted at the
moment from the desire on the part of the people of Upper
Canada for bank accommodation.
BANKS Kf.TABLISHED IN NO . A SCOTIA
Eorly in 1820, royal assent was given to a charter for the
Bank of New Urunsvick at St. John, with a capital of
;^5o,ooo currency. In Nova .Scotia, although there had been,
as we have said, agitation for a bank early in the century,
the issue since 181 2 of a (lovernnient currency acted as a
deterrent, and it was not until 1825 that the Halifax Banking
Company commenced business. It did so as a private bank,
although since 1872 it has been a regularly chartered body,
and it was not until 1832 that the first joint-stock bank, the
Bank of Nov.'. Scotia, was chartered. The capital of this bank
was to be ;^ 1 00,000 currency, of which ^^50,000 was to be paid
in in specie or Treasury notes before it commenced business.
The important feature in which its charter varied from those
granted in Lower and Upper Canada was in the introduction
of the double liability of shareholders, or the liability in the
event of failure, to pay assessments sufficient, after exhausting
the ordinary assets, to meet all liabilities, provided such calls
in the aggregate did not exceed the original amount of capital
paid in. It was prohibited from issuing notes under 26
shillings, in order to preserve to the Government the exclusive
issue of its notes for denominations from $5 downward.
We have now referred to three banks chartered in Lower
Canada, one private and one chartered bank in Upper Canada,
one chartered bank in New Brunswick, and one private and
one chartered bank in Nova Scotia — in all, six chartered and
two private banks. Of these several ventures, two, the Bank of
Canada in Lower Canada, and the [)rivate or " pretended "
Bank of Upper Canada, passed out of existence in a few years,
so that banking in the various provinces now merged in the
Dominion was practically inaugurated by the following instit'i-
lions : The Bank of Montreal, the Quebec Bank, the Bank
If 1
23
A HISTOR V OF
of Upper Canada, the Bank of New Brunswick, the Halifax
Banking Company, and the B;ink of Nova Scotia, and these
are ah successful institutions to-day exce|)t the Bank of U[)per
Canada, the failure of which in 1866, after a career of half a
century, is the most serious calamity in the history of banking
in Canada.
When we look at the map, the extent of country to be
served by these six banks seems very great, but when vft\
consider the population and the nature of th» commerce, it is
difficult to understand how they managed to survive. A scanty
po{)ulation settled here and there at seaside ports and on the
shores of rivers and lakes, without means of communication
worthy the name, without manufactures, with agriculture so
little advanced that the products of the chase and the forest
were still more important as exports than the results of farming,
there was but little basis for sound banking, and its deve!o|)ment
lacked interest until many yc rs after this period. In Lower
Canada the volume of business consideraoly more than doubled,
apparent! v. between 1820 and 1830, but in the latter year the
figures, exclusiv ; of the Bank of Canada, which was almost
liquidatetl, were very triuing. The resources were as follows ;
Capital, ;^304,ooo ; notes in circulation, ;^2 17,000; deposits,
^163,000, while other items made the aggregate a little more
than ;^7oo,ooo currency. The assets to represent this were
loans, ^602, coo, and cash, ;^ 103,000. In the same year a return
of the one bank in Upper Canada '^hows resources as follows:
Capital, ;^77,ooo; notes in circulation, ;^i 56,000; deposits and
other debts due, ;^38,ooo, making an aggregate of less than
;^2 75,ooo currency. This was represented by loans of
,-^214,000, cash ;^23,coo, and other assets of about ^30,000.
GROWTH OK BANKING IN THE VARIOUS PROVINCES
We will now make a rapid survey of the growth of banking
in the various provinces, pausing only to note the additions to
the principles of banking, which were gradually being built up
by ex{)erience. We havo referred to the creation in 1820 of the
Bank of New Brunswick , in that province the next charter was
granted in 1825, to the Charlotte County Bank at St. Andrew's,
BANKING IN CANADA
23
with a capital of ;^i 5,000 currency. These charters were
for twenty years, and the total liabilities were restricted to
twice the paid-up capital, instead of three times, as in the other
provinces. Otherwise they did not differ materially from those
granted elsewhere. In 1834, the Central Bank of New Bruns-
wick, at Fredericton, obtained a charter which contained the
following conditions, resulting, apjjarently, from the recom-
mendations of the Committee for Trade of His Majesty's Privy
Council for 1830 and 1833 :
1. No bank notes to be issued until one-half of the
authorized capital stock was paid in (in the case of this bank
this amounted to only ^^7,500 at first, the capital being but
^15,000, but in 1836 the capital was increased to ;^5o,ooo).
2. Public commissioners to count the cash in the vaults
and ascertain that it was actual capital paid in.
3. The principle of double liability of stockholders,
which had already been introduced in i-Iova Scotia.
4. Loans on pledge of Bank's own stock forbidden.
5. Liabilities of directors, directly or as sureties, limited
to one-third of the paid-in capital
6. Semi-annual returns to the Government.
7. No bill offered for discount to be refu.sed by vote of
a single director — a very doubtful provision.
8. A director with debts in default 1:0 Bank not to attend
board meetings.
While these were very considerable changes from the
charters previously granted in New Brunswick, they did not
materially advance the principles of banking, as most of these
conditions already existed in one form or another in other
provinces. In the same year, the Commercial Bank of New
Brunswick, and in 1836 the St. Stephen's Bank, were created.
In the charter of the latter it is provided that no stockholder
should own more than twenty per cent, of the capital stock,
and that the lien for a debt due the Bank upon shares in the
Bank owned by the debtor shall not have priority to that of a
creditor who seizes and sells under execution. The limitations
as to projjortion of the aggregate of debts to capital were
mateHally altered by excluding deposits from the liabilities to
24
A HISTOR V OF
be considered. In the same year authority was granted to the
City Bank, with a head office at St. John, and a capital of
;^ 1 00,000, but it merged, in 1839, with the Bank of New
Brunswick, which in 1837 had doubled its capital.
From this time until confederation, in 1867, the banking
legislation of New Brunswick has little interest for us. Exist-
ing banks renewed their charters, accepting the new provisions,
and sometimes increasing their capital ; new banks were
authorized, few of which actually began business. The result
was that in 1867, when the province gave up its power to legis-
late regarding banking, there were in existence four banks,
while there were five available charters not put in actual
operation.
The history of banking in Nova Scotia prior to confeder-
ation is even more barrer» of incident than that of New
Brunswick, but it is interesting because of the interference by
Government in the business of banking in order to keep in
circulation the Government issues already referred to, and the
development of private banking, owing, doubtless, partly to
the restrictions imposed by the Government in granting charters.
Except that, in 1837 and 1838, the Bank of British North
America, to be referred to hereafter, obtained permission to do
business in New Brunswick and Nova Scotia, respectively, the
latter province for many years depended for banking on the
Bank of Nova Scotia and the private banks, and for currency
on the issues of the Government, the Bank, and the private
bankers. The private bankers were apparently only restricted
in issuing notes by the condition that no note should be for
less than ;^5 currency, which restriction was created by a
statute of 1834 and also applied to the Bank of Nova Scotia.
From 1841 to 1847, the charter of the Bank of Nova Scotia
was several times exteiided for periods of one or two years at a
time, and in 1847 it was renewed for len years, the main
addition being the penalty of loss of charter tor an issue of
bank notes causing the liabilities to exceed the legal limit of
three times the paid-up capital. In 1856, it was again renewed
for fifteen years and the authorized capital increased to
^{^400,000 currency. Between this year and confederation,
BANKING IN CANADA
several charters were granted, but as they did not difTcr in
principle from that of the Bank of Nova Scotia we need n( )t
refer further to them. At the time of confederation (1867)
th ire were five banks doing business under charters from the
province, and one charter not yet in use.
It will have been observed that there was during the
period of provincial charters very litde growth in bankir,!^
principles in these two provinces, and it will not be necessary
in a mere history jf development to refer to ihem again.
NEW LEGISLATION RELATING TO NOTE ISSUES
In 1841, the provinces of Lower and U])per Canada
(Quebec and Ontario) were united in the Province of Canada ;
but before considering the growth of banking under the
legislation of that province, we must refer to facts of consider-
able importance which took place from about 1830 to 1841
in the two old provinces.
In Lower Canada, in 1830, an act was passed prohibiting,
under forfeiture of the amount involved, the issue or use in
payment of any note payable to bearer or for less than five
dollars, except by a chartered bank. In renewing the charter
of the Bank of Montreal in this year, which was only extended
to 1837, there were also some interesting additional provisions.
No notes were to be issued of less denomination :han
five shillings ($1), and the total of notes for smaller denomi-
nations than ;£\ 5s. od. currency ($5), w<re not to exceed one-
fifth of the cajjital stock. The Legislature might also at any
time further restrict the issue of these small notes or suppress
them entirely. The penalty for violating these two restrictions
was forfeiture of charter. Improvements were made in the
form of the return to Government, and in order that the
province might not be left with a chartered institution enjoy-
ing the monopoly of banking, it was provided that in the
event of the chartL-r of liie Quebec Bank not being renewed,
the charter of the Bank of Montreal should also cease. These
were somewhat illiberal provisions, and not very creditable to
the legislators who imposed them. In 1831, the charter of the
Quebec Bank was renewed until i"36, and later this was
26
A HISTOR Y OF
extended to the same day in 1837, on which that of the Bank
of Montreal expired. The new provisions in the charter of
the latter bank were also added, and it may be well to notice
here that thus early there is the tendency to make all charters
of banks expire at the same time — a feature, whether wise or
not, which is very conspicuous in the present system.
Thus far, while the Bank of Montreal had a branch in
Quebec, the Quebec Bank had no branch in Montreal, and in
order to avoid monopoly, in 1831 a charter was asked for the
City Bank. From the date of the founding of the original
banks until Lower and Upper Canada merged in the Province
of Canada, in 1841, this was the onh' proposal to establish a
new chartered bank in Lower Canada, and yet it met with
opposition, almost strong enough to defeat it, from the French
members of the House of Assembly, whose naturally conserva-
tive instincts were still strongly averse to banks of issue. For
reasons not material to our subject, royal assent was not granted
until 1833, and the charter was to expire on the same day as
those alre;-.dy granted — June i, 1837. The conditions only
differed from previous charters regarding the manner of paying
in the capital, the two banks in existence having commenced
as private ventures. The capital was to be ^^200,000 currency,
and before commencing business must all be subscribed and
;^4o,ooo currency be paid up and actually in possession of the
bank in current coin of the province. The whole capital must
be paid within four years.
Owing to the Rebellion of 1S37, there was created a
body known as the " Special Council of the Province of Lower
Canada," which, ir the time being, governed the country.
There was therefore no Parliament in 1837 to renew the three
charters. The diflSculty was got over by the Bank of Montreal
continuing for a short time without incorporation and then
having its charter extended for four years by this Special
Council, while the other two banks secured royal letters patent,
which continued their existence until one year after the next
session of Parliament. The Quebec Bank subsequently
obtained from the Special Council an express extension of its
charter until 1842.
BANKING IN CANADA
27
It will be remembered fhat private bankers, of whom there
weie doubtless many of one kind or another by this time, were
forbidden to issue notes in Lower Canada intended for u;ie as
money. But the disorganized state of trade and finance,
consequent upon the rebellion, had, notwithstanding the
penalty, caused a flood of paper issues by private bankers and
merchants, and the Special Council endeavored to improve the
situation temporarily by granting licenses to issue such notes,
for one year, to private bankers who complied with certain
regulations. The issue of such illegitimate currency and the
susj)ension of specie payments at this time, which will be
referred to elsewhere, are, I believe, the only evideni ;'s which
cr^n be quoted of foilure on the part of the bank note issues,
taken as a whole, to provide adequately for the currency
requirements of the country, and these defects were entirely
the result of the disorganization growing out of the rebellion.
B.\NKS WITH EXCEPTIONAL CHARTER?
We have next to refer to the creation of two institutions
with charters possessing unusual features. When a general
banking act was considered by the Dominion Government
after confederation, these banks were the subject of various
exemptions and requirements, because of the peculiar nature
of the privileges they had already obtained. In 1835 a private
banking firm was formed called Viger, DeWitt et Cie., also
known as " La Banque du Peuple." It was simply a partner-
ship of a kind frequently found in Europe. The twelve
principal partners, who alone were to manage the business,
were subject to the unlimited liability of ordinary partners in
any firm, but they could have an indefinite number of special
partners, or "commanditaires," whose liability ended with the
payment of whatever shares in the venture they subscribed or
accepted by transfer. This institution eventually became one
of the chartered banks, but, as we have indicated, without
losing its peculiar features. The " twelve principal partners "
became practically the directors, retaining their unlimited
liability, and the "commanditaires" became shareholders,
without the double liability which inhered to stock held in
I ^lll
28
A HISTOR V OF
othi.r banks chartered by the Canadian Parliament. After a
carctT of sixty years, this bank suspended in July, 1895, and
having practically retired its note issues is, at the moment,
Lndcavoring to arrange with its depositors to form a small
bank of the ordinary character, thus removing from our
system one of the few remaining anomalous features inherited
from the legislation preceding confederation. In 1836 a bank
was formed in England to do business through branches in
the various North American provinces, a thing not done at the
moment and which would require legislation in f.ach of the
provinces. Partly in order to avoid this, it secured a royal
charter and thereafter obtained whatever local legislation was
at the time necessary, and began business as the Bank of
British North America, with a nominal capital ol" ^1,000,000
sterling, which was eventually paid up in full, but without
double liability of shareholders, and with power to issue no
notes smaller than j[^\ currency.
BANKING PROGRESS IN UPPER CANADA
In Upper Canada we have to deal with very different
conditions and a different people. At present the wealthiest
of the provinces, it was at the time of the founding of the Bank
of Upper Canada little more than a prima2\al forest, broken
along the lakes and rivers by a few communities where the
people struggled bravely for a livelihood, for the most part
without the aid of roads or any public improvements. They
were not, like their French-Canadian brothers, unwilling to try
joint-stock banking ; they were only too williiig to try anything
which promised to oil the wheels of trade, [n this spirit they
began in 1825 the building of that series of canals which aided
so much in making the lakes continuously navigable, and while
they h;.d to wait many years for the realization of their schemes,
the expenditure of so much money and the immigration which
at this time flowed in from Great Britain gave a great impetus
to the development of the province. As might be expected, ft
was the day of strong rather than of scrvipulous men. The
government was in the hands of a powerful clique bent on
controlling the religion, education, and the settlement as well
BANKING IN CANADA
29
as the legislation of the country. V/ith this body the Bank of
Upper Canada was closely allied, and, whether justly or not,
was accused of using its power in politics. Be this as it may,
in 1830-31 a bill for the creation of a bank was rejected b^' the
Legislative Council, which is said to have been controlled by this
clique, and in 1833 two bills were also rejected after having been
passed by the Assembly. But the paid-up capital of the Bank
of Upper Canada, which in 1823 was only ;^io,64o currency,
had been increased until in 1830 it had reached the limit of
;^ 1 00, 000 currency. It had paid dividends at eight per cent,
per annum and had twice paid bonuses of six per cent. While
the Legislative Council refused charters to new corporations,
this one bank was permitted in 1831-32 to increase its capital
by another ;^ioo,ooo currency. At the same time one of the
bills referred to above as having been rejected was passed,
creating the Commercial Bank of the Midland District, with
its head office at Kingston and an authorized capital of
;^i 00,000 currency. The improvements in principle in the
bills passed at this time, regarding the two banks, were not
very important. They were forbidden to lend on their own
stock on penalty of forfeiting their charters, and more elaborate
returns to Government were required than hitherto. So ready
were the people to aid in extending banking that the subscrip-
tions for the ;^ 1 00,000 currency of new stock of the Bank of
Upper Canada, the books being open for but one day and no
subscription permitted for more than eighty shares (;^i 2 los. od.
currency, or $50 each), amounted to ;^320,987 los. od.
currency. The premium received was sufficient to enable
a bonus to be paid to original shareholders of eighteen per
cent, in addition to the ordinary dividend of eight per cent.
We have already referred in dealing with New Brunswick
to certain recommendations of rhe Committee for Trade of the
Privy Council made as early as 1830, regarding colonial bank
charters. These had not been considered in the recent bank
legislation of Upper Canada, and there was in consequence a
threat of royal disallowance unless the proposed conditions
were added. But the banks had acted for a year under the
new legislation and had already as many as fifteen or sixteen
3°
A HISTOR Y OF
branches or agencies, with discounts amounting to ^^450,000
currency and notes in circulation of about ;;^30o,ooo currency,
so that the mere possibility of disallowance caused financial
trouble. The people protested and petitioned the King, and
in the end a compromise was reached. The recommendations,
mostly excellent in themselves, were in substance as follows :
1. Bank charters to be forfeited by suspension for sixty
days consecutively, or during a year.
2. Note issues to be dated where issued and to be
redeemed in specie there and at head ofifice. No branch need
redeem notes issued at another branch or at head office.
3. One-half of capital to be paid in at commencement,
the remainder at discretion.
4. The directors not to become liable on obligations to
bank exceeding one-third of the total discounts of bank.
5. Bank not to hold its own stock or lend money thereon.
6. Half-yearly statements to Clovernment of average assets
and liabilities made from weekly balance-sheets, with particu-
lars of dividends and reserved profits. Special returns might
be called for and must be verified under oath if required.
7. Shareholders subject to double liability.
8. Banks not to lend on real estate.
These were referred to a special committee of the Upper
Canada House of Assembly, who heard bankers and merchants
in evidence and eventually reported strongly against the
interference, particularly against the ist, 2nd and 6th of the
recommendations. On the 7th they did not agree, and the 8th
was already incorporated in existing charters, while the
3rd, 4th and 5th were admitted in principle and acted upon.
With the concurrence of the new Commercial Bank, a bill was
reported adding to its charter the 3rd, 4ih, 5th and 7th
provisions, but at the same time an address to the King was
prepared deploring the royal veto and praying that the new
provisions be not required. As the address passed by a vote
of thirty-one to one, action was delayed on the bill amending
the Commercial Bank charter, and in consequence of the
feeling aroused, the original legislation was not disallowed.
What is noticeable at this time is not the rejection by the
BANKING IN CANADA
31
Upper Canadians of recommendations good enough in them-
selves, but their intelligent appreciation of the value of banks
and their determination to manage their own affairs.
In 1835, the Gore Bank was incorporated, with its head
office at Hamilton, and an authorized capital of ;^ioo,ooo
currency. In its charter the 2nd, 5th, 7th and 8th of the
recommendations were included, and royal assent was
promptly given. In the same year the Commerical Bank
increased its authorized capital from ^100,000 currency to
p^2oo,ooo currency, and the 4th and 5th recommendations
were added to its charter, the 8th already being included.
The others were not included, yet the legislation was not
disallowed.
These evidences of growth do not represent fully the
desires of the people at this time, but rather the meagre extent
to which a powerfully intrenched government chose to meet
the public demands. The opposition apparently clamored for
legislation to make banking "fre^,-." In 1831, 1831-32, 1833-34,
1835 and 1836, measures were proposed looking toward
uniformity in the system of banking and freedom to all to
engage in the business who should conform to the proposed
laws. But it was still quite easy to establish a private bank
which might issue notes, no act prohibiting private issues being
yet in force in Upper Canada. Aided by this fact, in 1835
soma politicians opposed to the present banking system
organized, by a deed of settlement, a private bank known as
the Farmers' Joint Stock Banking Company, with a capital not
larger than ;^5o,ooo currency ; and later, in the same year,
the Bank of the People, which, in the course of a year, got
together a capital of about ;^i3,ooo currency, began business.
At the same time some Americans opened the Niagara
Suspension Bridge Bank, with an agency at Lockport, N.Y.,
and one in Canada, at Chippewa, and with even less capital
than the last-named concern. Messrs. Truscott & Green also
began business as the Agricultural Bank. Very naturally, this
brought forward for prompt consideration the question of
private note issues, and in 1837 legislation was obtained
prohibiting the issue without legislative authority of notes
32
A HISTOR Y OF
intended to pass as money. It was found expedient, however,
to make an exception in favor of the four private banks
above referred to.
I>UBLIC CLAMOR FOR MORE HANKS — RESTRAINT FROM
THE COLONIAI, OFFICE
Tlie people of the province were in many ways contribu-
ting towards the creation of the commercial panic of 1837,
which left its mark for many years on the trade of North
America. They were .speculating in land, making public
improvements on an ambitious scale, attempting to manu-
facture a few articles, and trading general'v much beyond their
financial capacity. They were, therefore, in the state of min(i
which has so often characterized American communities when
deeply in debt — they wanted banks, because they thought that
the creation of such institutions would make i' easier to
borrow, and they wanted paper money, of any sort, for equally
unsound reasons. During the ten years preceding the union
of Lower and Upper Canada, in 1841, there were about
twenty-five public bills in Upper Canada on the subject of
banking and currency which did not pass, while in 1833 the
Assembly did pass a bill authorizing the Receiver-General to
issue currency, and in 1835 a committee reported favorably on
a plan for a provincial bank, which was to issue notes based
on the public debt and use its profits to pay the interest on
the same. Fortunately, these schemes did not become law.
In 1836-37, bills were passed which, if assented to, would have
increased the banking capital from ;^5oo,ooo currency to
;^4,59o,ooo currency, and have added nine new banks to the
number doing business in a province which contained only
about 400,000 people. The province did not as yet enjoy the
benefits of home rule, and consequently resisted bitterly all
interference on the part of the Colonial Office in England, but
every intelligent Canadian must now sse quite clearly that had
we been allowed our own way in banking and currency
legislation at this time, we should doubtless have tried, one
after the other, the entire round of unsound experiments, and
would to-day be perhaps not very anxious to discuss the
■I !
! ^11 I
:!ll iljii
BANKING IN CANADA
33
soundness of our banking system When bills were passed in
the various provinces they wt t given the force of law
by the Lieutenant-Governor, without waiting to ascertain
whether or not they were to meet the fate of royal dis-
allowance, and, consetiuently, contracts having been entered
into on the faith of the legislation, it was found impracticable,
or at all events unwise, to insist on disallowance. To avoid
this difficulty the Colonial Office, in 1836, succeeded in having
instructions sent out to the Lieutenant-Ciovernor not to permit
legislation bearing upon any kind of notes intended to pass as
money to go into effect without first receiving the royal assent.
The House of Assembly, of course, resisted, and the home
authorities were very conscious of the danger of interference ;
but any student of joint-stock banking in England will under-
stand how honestly alarmed the British authorities must have
been at the wild pace of joint-stock banking throughout North
America at this time. The Colonial Office therefore persisted
in demanding a reference of such measures for royal allowance
before legislation was put in force, and as a result, the
extraordinary acts of 1836-37 were not allowed, but were
referred back for further consideration by the Upper Canadian
authorities. None of the bills were again approved in Canada,
the period of inflation having passed its nieridian. The
Government of Upper Canada having refused to be guided by
the series of recommendations by the Committee for Trade (of
which an abstract has already been given), and being deeply
irritated by the instructions to refer all currency measures for
royal allowance before putting such legislation in force, the Secre-
tary of State for the Colonies forwarded a second series of recom-
mendations by the Committee for Trade, upon the observance of
which by the Canadian Parliament reference for royal assent in
advance of action upon legislation became no longer necessary.
UNSOUND BANKING
There is little to be learned by a study of the kind of
business transacted by the banks of Ui)per Canada at this
time. In the nature of things, it was not very sound banking.
The people were chiefly concerned in actually clearing up the
34
A HISTORY OF
forest or in improving the first rude conditions of settlement.
Therefore, the results were apt to show mainly in connection
with real property, and there were not only too many loans
asked and granted where there was no intention of creating or
moving merchantable products with the money, but there must
have been a constant tendency for loans made on the basis jf
creating or moving merchantable products to drift into loans
resting on real property. Still the fact remains that there- had
not been, nor was there destined to be for many years to come,
a failure of a joint-stock bank in this province. The system
was in many respects bad, but there must have been more good
than bad in an actual practice of banking which, for the first
forty years of its history, escapea the disgrace of failure. That
this was j)artly due to the hgh credit enjoyed by the few joint-
stock institutions, especially when compared with the private
concerns, there is little doubt. The volume of business in 1837
was as follows : Capita' stock paid up of the three chartered
banks, ;i^476,978 ; of the four private banks, _;^98,o23 ; notes
in circulation respectively, ;;^3i9,244 and ;^7i,i48; 'leposits,
^204,571 and ;^i2,328; specie, ^78,884 ami ^^14,457 ; loans
and discounts, ^895,039 and ;^i43,7i8. If we multiply the
paid-up capital of the three chartered banks by three, we find
the aggregate of their permissible liabilities to be ;;^ 1,430, 934,
and as their deposits amounted to only ;;^2C4,57i, there was
left the sum of ;^i, 226,363 to cover debts due to foreign
correspondents and notes in circulation. Their debts to
foreign correspondents, if any, were inconsiderable, and, there-
fore, while they had legal po\\> r to circulate notes to the extent
of _;^i, 000,000 to ;^i,25o,oo'j currency, they had notes
outstanding for only ;^3i9,2.:4. In 1826 the Bank of Upper
Canada was able to keep out notes to the extent of two and
a half times its capital; by 1831 this had fallen to one and
seven-eighths, and by 1837, because of the competition of other
banks, and doubtless also because of better means of commu-
nication, all of the banks circulated much less than the amount
of paid-up capital. None of the banks issued notes payable
.at any point except at the head office, but there were seven
!)ranches in existence performing the same functions as
ii
Ik IX KING AV CANAD.!
35
branches do now, while there were agencies with limited
functions numbering at least twelve, and probably several
more. These were all connected with the Hank of Upper
Canada an' the Commercial Hank, the (lore Bank having as
yet opened no branches or agencies.
THE PANIC OK 1 837
This was the condition of banking in Jpper Canada when
it was called upon, in common with Lower Canada, to meet
the financial troubles arisini; from the rebellion at home and
the business panic in the United States in 1837. Early in
May, 1837, there was a g(;neral suspension of spec-'* payments
in the United States, and, within a week, the banks in Lower
Canada also suspended payments in specie. There had been
a great expansion of credit throughout North America, and
now that the inevitat)le contraction had set in, gold was recjuired
for export. Canada already made a large proportion of its
sterling purchases and other money settlements in New York,
and was at once affected by the collapse of credit and
consequent suspension of payments in exportable money.
But in Upper Canada, whether from ignorance, sentiment, or
intelligent courage, the banks continued to redeem. By the
middle of June the circulation of the three chartered and four
private banks had fallen from ;!^5o8,896 on May 15th, to
^390,392, while in the same month the specie fell from
^120,789 to ;^93,34 1, although the Bank of Upper Canada
had imported ;^4o,ooo. At this time, the public, suffering
from two bad harvests, unable to obtain any discounts from the
banks, or advances on products shipped to Lower Canada,
were in a bad way ; and to add to their troubles, the fiscal
agents in England of the province failed. On the 19th of
June a special meeting of the Legislature was held because of
the financial situation. Sir Francis Bond Head, the Lieutenant-
Governor, urged that the banks pay in specie until forced to
stop. He begged them not to yield to what he believed to be
dishonorable and a breach of contract. But the Legislature,
by the nth of July, passed a measure of relief for the entire
seven banks, chartered and private. On procuring from the
36
BANKING IN CANADA
Governor-in-Council an order of authority, a bank was relieved
from the necessity of closing its doors on refusing to redeem
its notes. The bank might be forced to expose fully to
Government the state of its affairs, and special conditions
might be imposed in the discretion of the Lieutenant-Governor.
The suspension might last until the end of the next session of
Parliamt;nt, and during this period banks were not to issue
notes beycjnd the amount of paid-up capital, ard were to use
all specie in their possession for purposes of redemption except-
ing only what might be necessary for change-making purposes.
SUSPENSION OF HANKS AND POPULAR REBELLION
But the bank, did not hasten to take advantage of the
offered relief, and it is evident that they intended to pull
through, if at all possible, without discredit. In September,
however, the Commercial Bank took advantage of the act and
was permitted to suspend payments in specie. In November,
tiie private bank of Truscott, Green & Co., known as the
Agricultural Bank, failed, the partners leaving the country.
Later m the year, the Farmers' Bank suspended for about two
months. The Bank of Uppei Canada and the Gore Bank
still continued to pay, although the notes of the former in
circulation fell from ^^2 12,000 in May to ;^8o,'::oo in
December. Apparently, they were now anxious to suspend,
but the Lieutenant-Governor wus obstinate regarding the Bank
of Upper Canada, claiming that it was, in a sense, a Govern-
ment bank, and the Gore Bank desired to act in harmony
with its more important neighbor in that part of Upper Canada.
In November there was actual armed rebellion in Lower
Canada, which, however, was put down by the middle of
December. Early in December there was similar trouble in
Upper Canada, which lasted only a few days. This was
followed by an invasion by Americans, also of small propor-
tions, but sufficient to cause the Government to require large
advances from the Bank of Upper Canada. The Bank s:ood
up for a time against the strain, but early in March, 1838, it
received permission to suspend specie payments, in which it
was immediately followed by the Gore Bank. At the same
BANKING IN CANADA
37
time an act was passed extending the limit of note issues to
twice the paid-up capital and permitting the disposal of specie
for other purposes than the redemption of notes.
RESUMPTION OF PAYMENTS
By June, 1838, the banks in the United States and in
Lower Canada, generally, resumed specie payments, but the
Bank of Upper Canada objected to such an early resumption
in the province of Upper Canada. By November there was
another rebellion in Lower Canada, necessitating another
suspension there. After much discussion resumption was
effected in Lower Canada in June, 1839, and in Upper
Canada in November of that year. During the periods of
suspension there was evidently considerable practical redemp-
tion by the sale of bills of exchange on England, although the
rate charged amounted to redemption at a discount of one to
two per cent, and for some months at three to eight per cent.,
and while discounts were by some banks much restricted, the
business interests of the country were at no time actually
paralyzed, and the banks continued to earn handsome divi-
dends. Nevertheless, all the usual facts concurrent with
rebellion and panic had to be borne, such as a general decline
in exports, a fall in prices, stoppage of immigration, etc.
During 1838, the Bank of Montreal, at this time legally
incapable of doing business in the province of Upper Canada,
purchased the private bank known as the Bank of the People,
and thus began the enormous business now done by the former
bank in the province now called Ontario.
The Government was not altogether free from the desire
to issue paper currency during this trying period, but, owing to
the determination of the home authorities, such proposals failed
to obtain royal assent and no such issues were made. I'he
(rovernment was obliged during this ()eriod to borrow on its
stock in the Bank of Upper Canada, and in 1840 the Receiver-
General was authorized to sell the stock, thus ending the
connection of the Government with the Bank so far as holding
stock is concerned. In February, 1841, the provinces of Lower
and Upper Canada were united in the " Province of Canada."
CHAPTER III
1841-1867
BANKING IN OLD CANADA
STEPS TOWARD UNIFORM REGULATION OF BANKING
iHE first Governor-General of the new
province was Lord Sydenham, who held the
same currency views as Lord Overstone,
and the time was that in which the con-
troversies were being carried on which
resulted in England in the Bank Act of
1844. Lord Sydenham favored for Canada a provincial
bank of issue, and he outlined a scheme under which he
proposed to cancel the right of issue by the chartered banks,
remunerating them therefor ; and by giving it to this institu-
tion, which was not to do a general banking business, he
hoped to make a large profit for the Government. He
proposed a gold reserve of one-fourth of the issue, to which a
maximum was fixed, with Government bonds for the balance,
and he claimed that such a system would ensure ready
convertibility. But the Canadian people were intelligent
enough to see the defects of such a system, and, apart from
other faults, the lack of elasticity alone condemned it. It was
opposed, of course, by the banks, but also on many grounds
by the general public, and did not become law. The
Legislature, however, took advantage of the opportunity to
impose a tax on bank notes of one per cent, per annum on the
average in circulation.
The union of the two provinces emphasized the importance
of uniformity in banking, and a committee on banking and
currency, after considering the recommendations of the Home
Government, contained in the dispatch of Lord Russell of
BANKING IN CANADA
39
May 4, 1840, already referred to, reported in favor of the
following restrictions :
ist. The amount of capital of the company to be fixed ; and
the whole of such fixed amount to be subscribed for within a limited
period, not exceeding eighteen months from the date of the charter
or Act of Incorporation.
2nd. The bank not to commence business until the whole of the
capital is subscribed, and a moiety at lea^t of the subscription
paid up.
3rd. The amount of the capital to be paid up within a given time
from the date of the charter or Act of Incorporation, such period,
unless under particular circumstances, not to exceed two years.
4th. The debts and engagements of the company, on promissory
notes or otherwise, not to exceed at any time thrice the amount of
the paid-up capital, with the addition of the amount of such deposits
as may be made with the company's establishment by individuals in
specie or Government paper.
5th. All promissory notes of the company, whether issued from
the principal establishment or from che branch banks, are to bear
date at the place of issue, and to be payable on demand in specie
ut the place of date.
6th. Suspension of specie payments on demand at any of the
company's establishments, for a given number of days (not in any
case exceeding sixty) within any one year, either consecutively or
at intervals, to forfeit the charter.
7th. The company shall nut hold shares in its own stock, nor
make advances on the security of their own sihares.
8ih. The company shall not advance money on security of
lands, or houses, or ships, or on pledge of merchandise, nor hold
lands or houses, except for the transaction of its business ; nor own
ships or be engaged in trade, except as dealers in bullion or bills of
exchange ; but shall confine its transactions to discounting com-
mercial paper and negotiable securities and other legitimate banking
business.
9th. The dividends to shareholders are to be made out of
profits only, and not out of the capital of the company.
loth. The company to make up and publish periodical state-
ments of its assets and liabilities (half-yearly or yearly), showing,
under the heads specified in the annexed form, the average of the
amount of its notes in circulation, and other liabilities at the
termination of each week or month, during the period to which the
statement refers, and the average amount of specie or othei assets
that were available to meet the same. Copies of these statements
are to be submitted to the Provincial Government, and the company
be prepared, if called upon, to verify such statements, by the
40
A HTSTOR Y OF
ii
production, as confidential documents, of the weekly or monthly
balance sheets from which the same are compiled. And also to be
prepared upon requisition from the Lords Commissioners of Her
Majesty's Treasury, to furnish in like manner such further informa-
tion respecting the state or proceedings of its banking establishments
as their Lordships may see fit to call for.
i.lh. No by-law of the company shall be repugnant to the
conditions of the charter or Act of Incorporation, or the statutes .of
the province.
1 2th. As the insertion in charters or Acts of Incorporation of
provisions relating to the detailed management of the business of
the corporation has, in several instances, been found to render the
documents complicated and unintelligible, and has been productive
of great inconvenience, it is desirable that such insertion should be
avoided, and that the provisions of such charters or Acts of
Incorporation should be conflned, as far as practicable, to the
special powers and privileges to be conferred on the company, and
the conditions to be observed by the company, and to such general
regulations relating to the nomination and powers of the directors,
the institution of by-laws, or other proceedings of the company, as
may be necessary, with a view to public convenience and security.
13th. No company to be allowed to issue its promissory notes
payable on demand, to an amount greater than its paid-up capital.
FORM OF RETURN RBFERRED TO IN REGULATION 10
Return of the average amount of Liabilities and Assets of the
Bank of during the period from (ist January) to (30th June)
184—.
Promissory notes in circulation not bearing interest . C
Bills of exchange in circulation not bearing interest . ^" —
Bills and notes in circulation bearing interest. , . .£j
Balances due to other banks £
Cash deposits not bearing interest £,
" " bearing interest £,
Total average liabilities £
Coin and bullion £,
Landed or other property of the corporation ^"
Government securities £
Promissory notes or bills of other banks .£
Balances due from other banks £
Notes and bills discounted or other debts due to
the corporation not included under the foregoing
heads £
Total average assets £
BANKING IN CANADA
41
In the renewal by the new province of Canada of the
charters granted by the old provinces of Lower and Upper
Canada, these restrictions, in addition to most of the provisions
to protect the public already mentioned, were observed, and
thus the provision for the double liability of shareholders in the
event of failure was imposed for the first time on the banks of
Lower Canada.
Once more, by a dispatch dated 30th May, 1846, the
home authorities furnished " Revised Regulations to bo
Observed in Incorporating Banking Companies in the Colonies."
In this dispatch, after ineffectually urging, as in 1840, the
abolition of the notes of smaller denominations than J[^\,
twenty new regulations were proposed. Although eventually
the banking system conformed to most of these regulations,
they were not of sufficient importance to be noticed here.
We have now ascertained the principles at the base of
banking in tho old province of Canada, and which eventually
made the foundation of the banking legislation of the confedera-
tion of the British North American provinces brought about in
1867. There were, however, two aberrations from sound
principles to which I must refer, one of which was of short
duration, while the other still exists as the one serious blot on
our currency system.
"free banking act ok 1850"
The first of these aberrations was the so-called " Free
Banking Act of 1850." Anyone having the opportunity to
examine the correspondence of a Canadian bank at this time
would at once reali/-e how close were the trading and financial
relations of Upper Canada and New York State, relations
relatively much more important than now. The leading
'jankers of many of the large cities of the State were well-
"nown individually to leading bankers in Upper Canada, and,
apart from the mere routine of business, an extensive corres-
pondence was carried on. In Canada, the experiment was
being tried of bar-ks specially chartered, with large capital, and
branches, and with a circulation not specially secured. The
banks had come through the trying times of 1847-48 without
K!
42
A HISTOR V OF
lliili
suspension or failure, but they did not open branches fast
enough to satisfy the most enterprising of the business
community ; the Provincial Government was straitened
financially, and the people had the common delusion that there
was not enough money in circulation. In New York State,
the opposite policy of banks with small capital, no branches,
and a specially secured circulation was on trial ; but the people
of that State were so much more prosperous than the people of
Canada, that it is not strange that many desired to try the
banking system which had apparently contributed toward
such good results. In consequence, a measure was passed
entitled "An Act to E.stablish Freedom of Banking in this
Province, etc.," having for its object the creation, under a
general act and not by special charter, of small banks without
branches, with a circulation based upon the securities of the
province. It was hoped that this would have the effect of creating
a market for such securities. Such privileges as still existed
under which in lower Canada private bankers might issue notes
were repealed, and any existing chartered bank might, in part
or as a whole, surrender circulation under the unsecured
system and issue under the secured system, thus escaping the
tax of one per cent, per annum from which the secured notes
were exempt. Indeed, by subsequent amendments stronger
inducements were offered. Of the chartered banks, the Bank
of British North America alone made use of the new act, and
only because of a special disability under which it labored.
Being established by royal charter, and the British authorities
having been at all times opposed to notes of smaller denomi-
nations than j£i currency ($4), it had not, in common with the
other banks whose charters were Canadian in origin, the right
to issue notes of as low a denomination as five shillings
currency ($1). It; was accordingly benefited by taking
advantage of the new act to the extent of the notes of small
denominations required in its business. Altogether, only five
banks with these limited privileges came into existence under
this act. The minimum capital required was ^25,000 currency
($100,000), and at the highest point the circulation in notes of
small denominations by the Bank of British North America was
BANKING IN CANADA
43
greater than the entire circulation of the five free banks, while
the total was only a little over ^^300,000 currency. In ten
years, the system had practically come to an end, the only bank
continuing to issue notes being the Bank of British North
America, which, because of the disability already mentioned,
issued its small notes under the free banking act until 1870,
when the Dominion Government took from all banks the right
to issue notes of less denomination than $4, and subsequently
all smaller than $5, reserving the privilege for its own issues.
Of the five banks thus created, two retired their notes and
other obligations and went out of business, and three obtained
charters, and were thus enabled to issue notes not specially
secured. No attempt is here made to explain in detail the free
banking system, because in Canada it left practically no
enduring result of its former existence, and the reader can study
it to better advantage in its origin and development in the
United States. A very full account of the Canadian experi-
ment will be found, however, in the first volume, page 154, of
the "Journal of the Canadian Bankers' Association. 18133-94."
u
INCREASE OF BANK CAPITAL AUTHORIZED
Although the free banking experiment did not actually
end until some years later, its failure, as early as 1854, was
clearly apparent and the demand for increased banking capital
had not been satisfied. The Legislature, therefore, relaxing
somewhat the conditions hitherto imposed, granted permission
to six existing banks to increase capital in the aggregate to the
extent of about ;^2, 000,000 currency, requiring them, how-
ever, to invest one-tenth of the paid-up capital in securities of
the province. From this time there has, indeed, always been a
disposition, although not to a serious extent, to make the
banks, in exchange for their franchise, carry a portion of the
public debt. In the same year the treaty for reciprocal
relations in trade between Canada and the United States was
passed, and the great impetus given thereby to business was
naturally accompanied by the granting of several new bank
charters. From 1855 to 1866, inclusive, more than twenty-five
charters were granted, including the three free banks, which
r^.
44
A HISTOR y OF
m i
11
had decided to come under the ordinary system, and of these
about fifteen banks actually came into existence. Two or
three of them failed or were wound up voluntarily within a few
years, and one was absorbed by amalgamation, but the remain-
ing institutions, with two exceptions, are in existence at the
present time.
The few years preceding 1857 had been in Canada as
elsewhere years of great expansion in trade, while the building
of Government-aided railroads and speculation in real estate
were carried on at a pace of feverish excitement hitherto
unknown in this country of moderate development. The
Bank of Upper Canada was still the leading bank in that
western portion of the province of Canada which before the
Union had been known as Upper Canada. Down to 1857 it
had paid large dividends and had apparently enjoyed great
prosperity. O Through the financial trouble of 1857 the
Canadian banks were successful in preserving the strong credit
which had always characterized them — they did not suspend
specie payments — but the seeds had been sown for trouble of a
more momentous nature than any previous experience, or any
which Canadian banks have been called upon to suffer since
that period. The area served by the Bank of Upper Canada
and its branches was the most daring in its enterprise of any
portion of Canada. There the railroad-building assumed
greatest proportions and land speculation reached its craziest
extremes. The Bank of Upper Canada had too freely aided
new enterprises and had built up a capital of over $3,000,000,*
on which even in 1858 it paid a dividend of eight per cent.
By 1 86 1 some of its errors had been realized and there was a
change of administration in the Bank, in consequence of which
the capital was cut down to $1,900,000. At this time the
business of the Government, which it had for many years
enjoyed, was transferred to the Bank of Montreal. After these
events the Bank of Upper Canada enjoyed still a large measure
of respect because of its past history, but maintained only a
waning existence. In 1866 it failed. The failure was not
*In 1857 the decimal currency was adopted in Canada, and hereafter sums of
Canadian money arc expressed in d^'llars.
BANKING IN CANADA
45
only disastrous, but the winding up of the bank was involved
to a certain extent in mystery. The Government, for reasons
not very apparent, did not press the collection of the double
liability from the shareholders and paid off creditors at seventy-
five cents on the dollar, losing, it is believed, all of its
own claim of over a million of dollars. But, although the
winding up of the Bank was conducted in a manner which
would be impossible now, the rude shock to the confidence of
the public in banks was sufficiently effective ; and this first
great disaster was not an unmixed evil.
A GOVERNMENT BANK OF ISSUE PROPOSED
We now come to the second aberration from the path of
virtue in finance to which reference has been made. In 1859,
the Minister of Finance, professing concern regarding the
security for bank note issues and the general conduct of bank-
ing, but perhaps having quite as much in mind his own
difficulties in carrying on provincial finances, instituted an
inquiry through a committee on banking and currency, and
followed this up by proposing in i860 the establisl nent of a
provincial bank of issue not unlike that proposed by Lord
Sydenham. The issue by the Government of legal-tender
notes would create a currency the prompt payment of which
on demand, it was pretended, would be more assured than if
issued by the banks. He was, however, unsuccessful, his
proposal not being acceptable to the Legislature. But in 1 866
the needs of the province were of such a nature that a some-
what similar proposal was brought forward, and this time with
at least partial success. The Minister did not dare to press
strongly for the entire separation of note-issuing from the other
functions of banking and the assumption of this particular
function by the Government through a mere bank of issue,
because it was evident the people were not prepared for such
A change. The Government had a floating debt, however, of
about $5,000,000, nearly half of which was owed to its
Canadian banker, the Bank of Montreal. The balance, doubt-
less, was largely due in England and might have to be provided
from Canada. Its debentures were at a discount of about
f
p
46
A HISTOR V OF
fifteen per cent, and it could not afford to consider the principles
of finance too closely. The Minister, in language often heard
before and since, talked of resuming some of the privileges
hitherto deputed to others and of paying the debts of the
country with the currency which it had the right to issue, etc.,
but the condition of the provincial finances was the strongest
argument. As a result, power was obtained to issue notes
payable in specie at Montreal and Toronto which should be
a legal tender. The amount was to be fixed from time to time
by authority of the Governor-in-Council, but the maximum was
not to exceed $8,000,000.
Instead of directly forcing the banks to retire their notes
in circulation, inducements were ofTered to cover the period
until their charters expired, the intention being to take away
the privilege when charters were renewed. To any bank
voluntarily resigning its right to circulate notes, the Government
offered to pay five per cent, per annum on the amount of its
notes outstanding on April 30, 1866, until the date of the
expiry of its charter, and the bank was to be allowed until
January i, 1868, to complete the withdrawal of its notes. For
the issue and redemption of the Government notes which these
banks would use in place of their own, the Government agreed
to pay one-quarter of one per cent, every three months on the
average amount kept in circulation. Finally, banks giving up
their privilege of circulating notes were to be relieved from the
requirement, already referred to, of investing ten per cent, of
their capital in provincial bonds, and were at liberty to exchange
them for the new provincial notes. The reserve to be held by
the Government for its outstanding note issues was as follows :
Until the issues exceeded $5,000,000, twenty per cent, in specie,
and the balance in bonds of the province. For circulation in
excess of $5,000,000, the specie reserve to be twenty-five per
cent., with a corresponding reduction in the provincial bonds
held for the remainder.
The total circulation of all Canadian banks at this time
was about $10,000,000, of which the Bank of Montreal enjoyed
over thirty per cent. As we have already stated, the Govern-
ment was in debt to the Bank for over $2,000,000 at this time,
BANKING IN CANADA
47
and the bank was by law required to hold ten per cent, of its
capital in provincial bonds, so that it must have owned at
least $600,000 in these bonds, its capital being at this time
$6,000,000. Had it been practicable for the remaining
Canadian banks, and had they been willing, to retire their
circulation and accept the commuted profit, the effect upon the
finances and trade of the country of the withdrawal of so much
capital could only have been general bankruptcy. But the
Bank of Montreal was in a position to retire its circulation with-
out disturbing its advances to the public, inasmuch as it would
receive from the Government in exchange for the debt due the
Bank, and for the provincial bonds it held, an amount of the
new provincial currency in excess of any possible contraction
of its own issues for some years to come. It therefore readily
accepted the new conditions, while the other banks did not
The Bank of Montreal, already the bankers and now the note-
issuing agency of the Government, was thus almost placed
in the position of a State bank, and, rightly or wrongly,
there was apparently a division of interest between it and
the other banks which led to unfortunate results. The
country was again experiencing a period of inflation, the
circulation of the banks, in consequence, rapidly expanding ;
and it must have been a source of irritation to the Government
and the Bank of Montreal that the aggregate of circulation in
1867 by the remaining banks was about $1,700,000 higher
than in 1866, while that of the Government in actual circula-
tion, added to such notes of the Bank of Montreal as were yet
unredeemed, made a total considerably less than the circula-
tion of the Bank of Montreal before the change. On the other
hand, the banks circulating their own notes were at a
disadvantage at the various points where settlements had to be
made with the Bank of Montreal. The former would generally
be the debtors, because of the volume of their notes falling into
the hands of the Bank of Montreal, and not offset by similar
notes of that bank coming into their hands. The Bank of
Montreal could demand payment in gold or in the new legal
tenders instead of the ordinary method of settlement by draft
on some commercial centre. To get over this difiSculty the
48
BANKING IN CANADA
various banks appear to have agreed with the Bank of Montreal
to hold at the minimum a certain amount of the new legal
tenders, the aggregate of the minima of all the banks being
$1,000,000.
To add to other causes of irritation between the Bank of
Montreal and its weaker brethren, a financial panic was brought
aboi:'i. uy the suspension of one of the most important banks in
the western part of Canada, caused by large advances to a
railroad company. The bank eventually was amalgamated
with another, the shareholders saving a portion of their invest-
ment; but, owing to differences of interest and opinion between
the Bank of Montreal and the others as to the assistance to be
rendered to the institution in trouble, delay and doubt caused
runs upon other western banks. The bank which suspended
had a capital of $4,000,000, and being undoubtedly solvent,
should not have been allowed to suspend if it had been at all
possible, by harmonious action, to have liquidated its debts
with open doors. The failure of the Bank of Upper Canada
had caused the public to be extremely sensitive, and had there
been unanimity of interest, the suspension of a second large
bank, followed by a panic regarding other institutions, would
doubtless have been averted.
Without entering into the question of the extent to which
the unsound.legislation contained in the Provincial Note Act
contributed to the disasters of 1867, its passage certainly
darkened the general cloud which hung over the history of
Canadian finances at this moment. On July i, 1867, a few
months before the suspension of the bank which caused the
panic, the Provincial Government of Canada came to an end,
merging into that of the present Dominion of Canada.
NoTB. — The histor\- of joint-ctock banking in the provinces previous toconfcdera-
tion, contained in chapters 2 and 3, has been compressed as much as possible, not only
because the space at the command of the writer is limited, but because the present
sketch purports to be a history of development and principles rather than of the
incidents of Canadian banking. In the chapter to follow, the writer deals with what
has happened in his own time and experience, but for the facts dealt with in chapters a
and 3 he is almost entirely indebted to the very comprehensive history by Dr. Brecken-
ridgc, entitled "The Canadian Banking System," and published in the second volume
of the "Journal of the Canadian Bankers' Association, 1894-95." T''" reader who
desires ampler information is referred to that excellent work.
CHAPTER IV
BANKING UNDER IHE DOMINION
THE PRESENT ACT
>N 1S67, the rarl'ament of Great Britain, by
a measure known as the liritish Xorth
America Act, empowered the various political
divisions of British North America, or such
of them as chose to do so, to confederate
uni I the title of the Dominion of Canada.
The province of Canada, which had been formed out of the
older provinces of Lower and L'[)pcr Canada, was again
divided into the present provinces of Quebec (Lower Canada)
and Ontario (Upper Canada), and to these the maritime
provinces of Nova Scotia and New Brunswick were added.
Additions were rapidly made until the Dominion was formed
as it now exists. It comprises the provinces of Quebec,
Ontario, Nova Scotia, New Brunswick, Prince Edward Island,
Manitoba and British Columbia, and the Northwest Terri-
tories, which are divided into five districts.
Under the British North America Act, the Federal
Government (the Government of the Dominion as distinguished
from those of the various provinces) alone possesses the power
of legislating as to coinage, currency and banking. The
situation as to banking which had to be considered by the new
government, although rendered serious by the bank failures,
was not very complicated. The two mnritime provinces were
not in their financial ideas very materially out of harmony w th
old Canada, and instead of being called upon to uproot the
pernicious legal-tender system of Nova Scotia, the Dominion
Government was, because of the recent act of old Canada, only
too likely to continue the policy of borrowing money in such
w
HB
50
A HISTOR V OF
irl,
X'm' J
an easy manner. The hanking acts passed in 1867, 1868 and
1869 need not detain us. They were in the main merely
measures to continue under the authority of the Dominion and
extend to its larger area the powers already enjoyed, harmonizing
ix few incrc.sistencies, extending until 1870 any charters which
were at the point of expiry, and adopting on behalf of the
Dominion the terms, with little alteration, of the Provincial Note
Act. But although the author of the IVovincial Note Act had
found it necessary to resign because of its unpopularity and what
was deemed to be his share in the bank failures, his successor
was evidently possessed with the same mania. Early in 1868,
he proposed to the House of Commons the creation of a Com-
mittee on Banking and Currency, and he, evidently with the
aid of the Government's bankers, strove hard to create a public
opinion in (livor of a system not essenti„ily different from the
old free banking system and its powerful and ai that time
apparently successful offspring, the National Banking System
of the United States. The Committee on Banking and Cur-
rency obtained evidence from a large number of bankers and
business men, the most valuable result being the recommenda-
tions made by them for the improvement of the then existing
system, and not the evidence for or against the proposed
scheme. And although the Minister of iMnance oftered his
measure in Parliament, the opposition was of such a character
that it was not thought expedient to press the n:atter at that
time. Within a few months the new Minister of Finance also
resigned.
The task of framing a general bank act for the Dominion
now fell to a Minister who, although he had strong predilections
in favor of the English Bank Act of 1844, was wise enough to
realize that the practical bankers of the country, in their desire
to curb their own weaker members, if for no other reason, were
probably the best guides as to the wisest cours' to be followed.
Conferences were held with them, and in the Minister's remarks
in introducing and debating the measure which he finally pro-
posed, he admitted the inexpediency of adopting eifhor the
United States National Banking System or the older idea of a
Ciovernment bank of issue ; and in doing so he also admitted
BANKING IN CANADA
51
that the system of note issues not specially secured must he
continued. But the act for the issuance of Government notes
through banks, whose profits on their own issues, thus
relin([uished, had heen replaced by a sum paid periodically by
the (lovernment in commutation thereof, created a difficulty
which must first be disposed of The Government's bankers
had alone been willing to enter into this arrangement, and it was
therefore now terminated by a compromise. The banks were
thereafter prohibited iVom issuing notes smaller than $4 (sub-
sequently fixed at $5), being at the same time released from the
tax on circulation of one per cent. [)er annum, and the attempt
was made to force them to hold a minimum cash reserve
against their liabilities, of which a certain percentage must be
in legal-tender notes. The principle of a fixed reserve could
not be carried, but the banks wen; reciuired thereafter to hold
in legal tenders a certain percentage of whatever reserve they
did maintain.
With the power to provide all of the change-making notes
of the country, and with the conviction that the banks
must steadily hold in their reserves a considerable proportion
of the issue, the (lovernment felt safe in fixing the maximum
of legal tenders, for the time being, at $9, 000,000 — -an increase
of $1,000,000 over the old provincial issue. 'I'he regulations
with regard to reserves to be held by the Government were
slightly altered. The portion covered by del)entures was not
to exceed eighty per cent., and specie must be held to cover
the balance, with a provision that the pro])ortion of specie
must not go below fifteen per cent. Issues above $y,ooo,ooo
were to be covered entirely by specie.
There were other important discussions and some minor
changes in principle, but, in the main, the way was paved for
the adoption, pretty much as they stood, of the body of banking
laws hitherto in force in the old province of Canada. In 1870,
such an act was pas.sed, but permitting the charter of a bank
to be renewed by the Governor-in-Council on a report from
the Minister of Justice and the Treasury Board assenting
thereto. This was not regarded favorably by the banks, who
preferred that Parliament should deal with the renewals a'>
IIP
I!
Bi
■
52
A HIS TOR y OF
well as with the granting of charters. They also desired that
regulations for the internal management of banks should he
made uniform, and the Act of 187 1, covering and thus
extending the Act of 1870, was the result. It provided that
all banks working under provincial charters might, v.hen such
charters expired, come under the Dominion Act, and that all
charters under the Dominion Act should expire in 1S81.
Several special provisions had to be made to cover the few
banks whose constitutions were not in accord with tho majority
of the provincial banks, but, as far as possible, an harmonious
system was established The practice was thus fairly settled,
although not, we believe, asserted as a principle, of a decennial
revision of the Bank Act accompanying decennial renewals of
charters, and in 1880 and 1890 these revisions have taken
place. In the interval. Parliament has made such changes as
seemed expedient, although the implied agreement with the
banks may be presumed to be that no radical changes will be
made except at these decennial revisions.
Hitherto it has been convenient to follow events pretty
much in their chronological sequence. But, since confedera-
tion in 1S67, the growth of banking in volume, and the
incidents of success and failure connected therewith, are not
only (juite beyond the scope of the {)resent history, but have no
special relation to its purpose, except in so far as they affect
the principles with which it deals. The simplest plan, and
tliat, we think, most agreeable to the reader, will tlierefore
be to direct, without further remarks, his careful attention to
the subjoined abstract of the present Dominion Bank Act, that
of 1890. Every effort has been made to condense the matter
and to avoid technical language, and it is hoped that, in
connection with the explanatory pages which follow, it will
set forth the [principles of the act more clearly than a direct
' xamination of the act itself.
BANKING IN CANADA
53
ABSTRACT OF THE BANK ACT
53 Victoria, Chapter 31, Assented to May 16, 1890, to Come in
Force July 1, 1891
STATUTE OF DOMINION OF CANADA
Sections i, 2. title and interpretation clauses
application of act
Sees. 3, 4. Apply to thirty-six banks enumerated in Schedule A,
and any banks incorporated in future, continuing all s\n.h charters
until July i, 1901, subject to provisions of this General Rank Act.
Sees. 5 6, 7, 8. Special provisions for three banks, included in
the thirty-six, whose charters differ materially from all other
Canadian banks, and for one not included 1:5 the thirt)-six, the pro-
vincial charter of which granted before confederation, had «ot at
this time expired. (This bank is now working under the act.)
incorporation and organization
Sec. 9. Act of Incorporation, for which form is supplied
(Schedule B), must declare the name of bank, capital stock, place
of chief office, and names of provisional directors.
Sec. 10. The capital stock of any bank hereafter must be not
less than $500,000, with shares divided into $100 each.
Sec. II. There must be not less than five nor more than ten
provisional directors, who are to hold office until subscribers elect
directors in accordance with act.
Sec. 12. Provisii lal directors may, after public notice, open
stock-books for subscription of shares.
Sec. 13. When $500,000 has been bona fide subscribed, and not
less than $250,000 actually paid to the Minister of Finance and
Receiver-General, the provisional directors may, after four weeks'
public notice, hold first meeting of subscribers, at which meeting
the subscribers shall elect qualified directors to the number of not
less than five nor more than ten, replacing provisional directors,
and name the date of annual meetings.
Sec. 14. Nothing in the nature of the business of banking shall
be transacted until the regular board of directors shall have applied
for and obtained a certificate from the Treasury lioard permitting
the bank to commence business. Broach of this constitutes an
offence against the act. (See later as to punishment for offences
against the act.)
Sees. 15, 16. Treasury Board shall not issue such certificate
until all requirements of this act, and the special Act of Incorpora-
tion, have been fulfilled, especially as to the deposit of actual cash,
to an amount not less than $250,000, having been made and still
54
A HISTOR Y OF
I; '
being in the hands of the Minister of Finance and Receiver-General.
If certificate not issued before one year after passing' of Act of
Incorporation, all rights lapse.
Sec. 17. Upon issue of certificate, Minister of Finance and
Receiver-General pays back all moneys deposited.
INTERNAL REGULATIONS
Sec. 18. The shareholders may (instead of the directors) pass
by-laws regarding the following matters :
Date of Annual General Meeting at which shareholders elect
directors.
Regulations (subject to limitations mentioned in act) as to proxies,
number, quorum, qualification, remuneration, etc., of directors.
Limit of loans or discounts to directors, or to any one person,
firm, corporation, or to shareholders.
Authority to establish and contribute to guarantee and pension
funds.
Sees. 19, 20. Affairs of bank intrusted to board of directors,
eligible for re-election, who are elected annually by shareholders,
subject to provisions regarding the minimum qualification in stock-
holding, the proportion to be British subjects and the manner of
election.
Sees. 21, 22, 23. Provide for chairmanship of board, bj'-laws by
directors, employment of bank officers, and that these shall give
security for faithful performance of duties.
Sec. 24. Provides for special general meetings, removal of
president or director, etc.
Sec. 25. As to manner of voting by shareholders.
CAPITAL STOCK
Sees. 26, 27, Manner of increasing capital stock and allotting
shares.
Sec. 28. Manner of reducing capital stock.
Sees. 29 to 34, inclusive. Manner of subscribing for shares,
making calls thereupon, etc.
Sees. 35 to 44, inclusive. Manner of transfer and transmission
of shares.
ANNUAL STATEMENT
Sec. 45. At annual meeting directors must submit clear and full
statement of affairs (see act for details).
See. 46. Books, correspondence, funds, etc., at all times subject
to inspection by directors.
DIVIDENDS (profits)
Sec. 47. Dividends, unless not earned, to be declared not less
often than half-yearly.
BANKING IN CANADA
55
Sec. 48. Directors who knowingly join in declaring' dividend or
bonus which impairs paid-up capital shall be jointly and severally
liable therefor.
If capital is impaired, directors shall make calls upon share-
holders to make good such impairment. Net profits must be
applied for same purpose.
Sec. 49. No dividend or bonus, or both combined, exceeding
eight per cent, per annum shall be paid unless the net rest fund, or
surplus profit reserved, exceeds thirty per cent, of the paid-up
capital.
RESERVES
Sec. 50. Of the cash reserves held by a bank (the proportion of
such reserves to liabilities being entirely at the bank's discretion)
not less than forty per cent, shall be in legal-tender notes of the
Dominion of Canada. Penalty for non-compliance $500 for each
violation.
NOTE ISSUES
Sec. 51. Banks may issue notes payable to bearer, on demand,
and intended for circulation. No note smaller than $5, and all notes
to be multiples of $5. Total issue shall not exceed the unimpaiied
paivl-up capital. (A sub-section further limits the issues of two of
the banks referred to in Sections 5 to 8 Inclusive.)
The following are the penalties for issues in excess of the
amount authorized by this act :
Excess not over $1,000. Penalty equal to excess.
Over $ 1,000 but not over $ 20,000. Penalty $ 1,000.
" 20,000 '* " " 100,000. " 10,000.
" 100,000 " " " 200,000. " 50,000.
" 200,000 " ioo,coo.
Sec. 52. Bank shall not pledge its notes, and no loan thereon
shall be recoverable from a bank. Any director or officer con-
cerned in the pledging of a bank's notes, and any person receiving
such notes as security, shall be liable to fine, not less than $400 nor
more than $2,000, or imprisonment for not more than two years, or
both.
Similar clause regarding fraudulent issue of notes, penalty
being imprisonment for term not exceeding seven years, or fine not
exceeding $.;,ooo, or both.
Sec. 53. Note issues are a first charge on the assets of the bank in
case of insolvency; any debt due to the Dominion Government a
second charge ; anj any debt to the Government of any province a
third charge. Any debi due the Dominion Government at the time
ot insolvency for penalties under the act not payable until all other
liabilities arc paid.
56
A HISTOR V OF
THE BANK. CIRCULATION REDEMPTION FUND
Sec. 54. Each bsnk shall maintain with the Minister of Finance
and Receiver-Generil a deposit " equal to five per cent, of the
average amount of its notes in circulation " for the twelve months
prior to the preceding ist July.
Tiiese deposits shall constitute " The Bank Circulation Re-
demption Fund," which shall be held only for the purpose of redeem-
ing the notes of banks which fail to redeem their issues in specie or
legal tenders, and any interest due thereon. For all notes so
redeemed the fund shall have the same rights against tht; estate of
the failed bank as any other holder. The Government shall allow
interest on the fund at three per cent, per annum. (A sub-section
provides the manner of ascertaining the average circulation of each
bank.)
If a bank suspends payment of its notes, interest accrues there-
after at six per cent, per anruin, until a day named for their redemp-
tion, of which pulilic notice must be given by the liquidator or other
officer in charge ; after which, so long as redemption of all issues
presented is maintained, further interest on notes outstanding
ceasrs. If, after the expiration of two months from datr of
suspension, the liquic!ator is not prepared to redeem, the Minister of
Finance and Receivei'-General may redeem out of the fund, after
notice .vhercupon interest ceases.
It payments made from the fund exceed the contributions of the
particjiar bank whose notes are so redeemed, the remaining con-
tributors shall recoup the fund pro rata to the amount at credit of
each with the fund, for such excess, recoveries from the estate of
the failed bank being of course distributed among such contributors
in like proportion. Provided that no bank shall be required to pay
in any one year more than one per cent, calculated on its average
circulation.
In the winding up of a bank and upon satisfactory arrange-
ments be'ng made for the redemption of all outstanding notes with
interest, the Treasury Board may return the sum at credit of the
bank with the fund, or such part of it as may seem expedient.
The Treasury Board may make rules and regulations for the
management of the fund.
The Minister of Finance and Receiver- General may take legal
action to enforce payinent of any sum due by a bank under this
section.
Sec. 55. Banks are required to ensure the circulation of their
notes at par in every part of Canada, This is at present effected by
requiring each bank to have known redemption agents in the cities
of chief commercial importance in each province, of which seven
are named in the act.
BANKING IN CANADA
57
Sec. 56. Although the notes of a bank are almost invariably
payable only at its head office, its notes must be received in payment
of debts at any of its establishments.
Sec. 57. In making a payment, a bank must, if required, provide
Dominion legal tenders in denominations of one, two and four
dollars, not exceeding one hundred dollars in any one payment.
No payment in legal tender or bank notes shall be made in lorn ur
partially defaced notes.
Sec. 58. Provides that obligations under seal of the bank may
be assignable by the indorsement of the person to whom made pay-
able. Notes of issue to be binding without the seal of the bank, and
may be assigned without indorsement. Proviso as to who may be
authorized to sign notes of issue for the directors.
Sec. 59. Authorizes engraved signatures, provided there is at
least one authorized written signature on each note.
Sec. 60, Penalty for istue of notes to pass as money except by
a bank, and as to what shall be deemed such notes.
Sec. 61. Penalty for defacing legal tenders or bank notes.
Sec. 62. Instructions to officers receiving public moneys and to
'lank officers and bankers' employees to stamp or write on fraudu-
lent legal tenders or bank notes, such words as '' counterfeit,"
"altered," or " worthless," in accordance with the fact.
Sec. 63. Penalty for issuing advertisements in the form of legal
tenders or bank notes.
BUSIMESS AND POWERS OF THE BANK
Sec. 64. The bank may open branches, agencies and offices, and
may engage in and carry on business as a dealer in gold and silver
coin and bullion, and it may deal in, discount and lend money and
make advances upon the security of, and may take as collateral
security for any loan made by it, bills of exchange, promissory
notes and other negotiable securities, or the stock, bonds,
debentures and obligations of municipal and other corporations,
whether secured by mortgage or otherwise, or Dominion, Pro-
vincial, British, foreign and other public securities, and it may
engage in and carry on such business generally as appertains to the
business of banking ; but, except as authorized by this act, it shall
not, either directly or indirectly, deal in the buying or selling, or
bartering of goods, wares and merchandise, or engage or be
engaged in any trade or business whatsoever ; and it shall not,
either directly or indirectly, purchase, or deal in, or lend money, or
make advances upon the security or pknige of any share of its own
capital stock, or of the capital stock of any bank; and it shall not,
either directly or indirectly, lend money or make advances upon the
security, mortgage or hypothecation of any land, tenements or
't
58
A HISTOR Y OF
ifi!
immovable property, or of any ships or other vessels, or upon the
security of any goods, wares and merchandise. (Quoted in full.)
Sec, 65. A bank has a privileged lien on shares of i's own stock
held by a debtor, or on dividends thereon, for any debt or liability
of stiareholder. Provision as to when ba>ik may sell after default,
and how to transfer title.
Sec. 66. Similar provision for sale of collateral securities when
no agreement as to power of sale has been made.
Sec. 67. Bank may hold real property for its own u:;e and
occupation.
Sec. 68. Bank may take for a debt already contracted addi-
tional security by mortgage on real or personal property.
Sec. 69. Bank may purchase real property sold under execution,
etc., provided it already has a lien thereon as security for a debt.
Sec. 70. Bank may acquire title to real property on which it
has a lien as security, by acquiring equity or by foreclosure. But no
bank shall hold real property, except for its own use and occupation,
longer than seven years.
Sec. 71. General clause confirming right of banks to hold real
properly and to convey same.
Sec. 72. Gives power to advance money for building ships and
to take such security thereon as private individuals are permitted to
take.
Sec. 73. Gives power to advance on ordinary warehouse receipts
and bills of lading.
Sec. 74. (i) The bank may lend money to any person engaged
in business as a wholesale manufacturer of any goods, wares and
merchandise upon the security of the goods, wares and merchandise
manufactured by him or procured for such manufacture ;
(2) The bank may also lend money to any wholesale purchaser
or shipper of products of agriculture, the forest and mine, or the sea,
lakes and rivers, or to any wholesale purchaser or shipper of live
slock or dead stock, and the products thereof, upon the security of
such product. J, or of such live stock or dead stock, and the products
thereof;
(3) Such security may be given by the owner and may be taken
in the form set forth in Schedule C to this act, or to the like effect ;
and by virtue of such security, the bank shall acquire the .same
rights and powers in respect to the goods, wares and merchandise,
stock or products covered thereby, as if it had acquired the same
by virtue of a warehouse receipt. (Quoted in full.)
Sec. 75. Bank may not hold warehouse receipt or bill of lading
under Section 73, or pledge under Section 74, unless acquired at
time of making loan, or unless a promise to give same was acquired
or held at time of making loan. May exchange warehouse receipt.
BANKING IN CANADA
59
bill of lading or pledge for any other form of lien on the same goods
Penalty for false statement in warehouse receipt, bill t f lading or
pledge, or for alienating or removing goods covered by warehouse
receipt, bill of lading or pledge, imprisonment not exceeding two
years.
Sec. 76. Material or goods on which bank has a lien by ware-
house receipt or pledge may be converted by manufacture without
the bank losing its lien.
Sec. 77. All advances so secured under Sections 73 and 74 shaP
have priority to the claim of an unpaid vendor, unless he had a lien
on such goods of which the bank was aware.
Sec. 78. How power of sale, in case of default, shall be
exercised.
Sec. 79. Penalty to a bank violating any of Sections 64 to 78
inclusive, a sum not exceeding $503.
Sec. 80. Bank not liable to any penalty or forfeiture for usury.
May stipulate for and recover, or may take in advance, any rate not
over seven per cent.
Sec. 8i. No negotiable instrument to be void on ground of usury.
Sec. 82. Bank in discounting bills payable at its own branches
may not take commission in addition to interest beyond the following
rates : Bills under thirty days, one-eighth of one per cent. ; thirty or
over, but under sixty, one-fourth of one per cent. ; sixty or over, but
under ninety, three-eighths of one per cent. ; ninety days and over,
one-half of one per cent.
Sec. 83. Bank in discounting bills payable at points where it has
no branches may charge a commissio.:, not exceeding in any case
one-half of one per cent.
Sec. 84. Bank may receive deposits from any person, whether
qualified by law to contract or not, and may repay unless the money
is lawfully claimed by another. Proviso that deposits under this
authority shall not in any one case exceed $500.
Bank shall not be bound to see to the execution of any trust in
relation to such deposits.
RETURNS BY BA.NKS TO GOVERNMENT
Sec. 85. Monthly Returns : Banks must send to the Minister of
Finance and Receiver-General a statement to the clcae of each
month. (This return, the form of which will be found at Schedule D
of the act, covers a very full statement of assets and liabilities under
uniform headings, and is published in the Government Gazette.)
Penalty, $50 per day for each day's delay after 15th of subsequent
month.
Sec. 85. Special Returns : The Minister of Finance and Receiver-
General may call for special returns at any time. Penalty, after
1.1
6o
A HISTOR Y OF
thirty days, $500 per day, unless the Minister of Finance extends the
time.
Sec. 87. List of Shareholders : At the close of the calendar year
each bank must supply to the Minister of Finance and Receiver-
General a list of shareholders, with addresses and number of shares
held. Penalty, $50 a day after twenty days.
Sec. 83. Unclaimed Moneys : At the close of the calendar year
banks must make to the Minister of Finance and Receiver-General
a statement of dividends and all other amounts which have been
unclaimed, ur regarding which there have been no transactions for
five years, giving names and addresses in full. Penalty, $50 per day
after twenty days.
The liquidator of a bank, after three years, shall pay over to the
Minister of Finance and Receiver-General all such amounti remain-
ing unclaimed, together with all interest due, and the Government
shall hold these in trust for the owners, continuing interest, where
this was contracted for by the bank, at three per cent, per annum.
The liquidator of a bank shall, also, after three years, pay to
the Minister of Finance and Receiver-General an amount equal to
the outstanding circulation to be held by the Government intrust for
the holders of such notes.
INSOLVENCY
.Sec. 89. If the assets are insufficient to meet the liabilities,
shareholders, in addition to their liability upon unpaid shares, are
liable for further payments to an amount equal to the par value of
shares held.
Sec. 90. The liability of a bank for any moneys deposited, 01-
dividends declared, continues notwithstanding any statute of
limitations.
Sec. 91. Suspension for ninety days, either consecutively or at
intervals during twelve months, constitutes insolvency, and forfeits
charter, except for purposes of liquidation.
Sees. 92, 93 and 9^. Manner of making and enforcing calls
authorized by Section 89.
Sec. 95. As to liabilities of directors in event of failure.
Sec. 96. Shareholders do not escape liability undfjr Section 89,
unless shares transferred more than sixty days prior to suspension
of payment.
OFFENCES AND PENALTIES
Sec. 97. Any director or officer giving undue preference in any
manner to any creditor of a bank is subject to imprisonment for
term not exceeding two years.
Sec. 98. All penalties collected for violation of this act shall be
for public uses of Canada, with power to Governor-in-Council to
make exceptions.
BANKING IN CANADA
6i
Sec. 99. Any director or officer willfully making or signing a
false return or statement of bank's affairs is subject to imprisonment
for term not exceeding five years, unless the offence is more serious
than a misdemeanor under the act.
Sec. loo. Forbidding the use of the title "bank, " "banking
company," "banking house," "banking association," or " banking
institution," unless authorized by this act.
Sec. lOi. Everything declared to be an "offence against this
act "liable to fine not exceeding $ 1,000, or imprisonment not exceed-
ing five years, or both.
PUBLIC NOTICES
Sec. 102. All public notices required by act shall, unless other-
wise specified, be advertised in one or more newspapers where head
office is situated, and in "Canada Gazette."
Sec. 103 Banks must cash at par all official cheques of any
department of the Dominion Government.
Sec. 104. Declares that act shall come into force July i, 1S91,
and repeals other acts.
Schedule A. Names of thirty six banks whose charters are
continued.
" L. Form of Act of Incorporation of new banks.
" C. " Security under Section 74.
" D. •* Monthly return to Government.
CHAPTER V
SCOPE OF EXISTING LAWS
11;
til ill
TERM OF CHARTER— INTERNAL REGULATIONS-CIRCU-
LATION-BUSINESS AND POWERS-
PENALTIES, ETC.
Y Section 4 of the Banking Act, the charters ol
all banks existing at the time of its enactment
are extended for ten years, or until July i,
1 901, while the charter of any new bank
created during the period expires at the same
time. Thus the life of a bank, apparently, is
only ten years, and as all charters come to an end at the same
time, it might be possible for the country to be suddenly left
without any authorized banks. Practically, the results are in
every way beneficial. Bankers, as a rule, think the period too
short ; and now that the principles of Canadian banking appear
to be firmly settled, the period might reasonably be extended
to twenty years. It is the effect -f all charters expiring
together to which the reader's attention is asked. This arrange-
ment ensures a complete review of the principles underlying
the act, and of the details connected with the working of it,
once in ten years. In the interval the banks are almost free
from attempts by demagogues or ambitious but ill-informed
legislators to interfere with the details of the system ; but
during the session of Parliament preceding the date of the
expiry of the charters they must defend the system against the
demagogue, the bank-hater, the honest but inexperienced
citizen who writes letters to the press, sometimes the press
itself— indeed, against all the kinds of attack to which institu-
tions possessing a franchise granted by the people are subject
when they come before the public to answer for their steward-
ship. But while resisting the attacks of ignorance, they are,
UK ti'lllf!
ijr/fr'lf
BANKING IN CANADA
63
of course, called upon to answer such just criticism as may
arise from the existence of defects in their system made evident
by the experiences of time. Or, perhaps, as when the act
was under discussion in 1890, they may see the defects even
more clearly than the public, and may themselves suggest the
remedies. Whatever may be said for or against these decennial
contests, the product of each discussion is a banking act
improved in many respects by the exchange of opinion between
the bankers and the public. The banking system is thus
brought at each period of renewal to a higher degree of per-
fection through having been subjected to unsparing analysis
by an unusually enlightened people — perhaps too democratic
in tendency and too jealous of every privilege granted, but
anxious to build rather than to destroy.
INCORPORATION
There is a peculiar charm in the ownership of a corpora-
tion which owes its existence and its privileges to a special
Act of Legislature, and if its privileges cover anything in
the nature of a monopoly the charm is heightened. In
Canada, we have had one section of the people who have been
so enamored of freedom that they have desired to see banking
as well as other privileges reduced to the mere necessity of
applying for incorporation under a general act, together with
the subscription of the smallest amount of capital which it
seemed possible to propose. But, as a rule, people of British
origin want merely all the liberty which is compatible with
freedom from license. So that while, in the main, Parliament
has clung to its prerogative of refusing a charter if it chose to
do so, during fifty years at least, it would not have dared to
exercise the power except in the event of a clearly fraudulent
applic.ition for a charter. Nor would it dare, although it has
the power, to give special privileges to any one bank. In the
United States, a certain number of individuals having com-
plied with certain requirements — more numerous and compli-
cated, by the way, than the Canadian requirements — become
thereby an incorporated bank, if we regard the consent of the
Comptroller of Currency as a matter of form. In Canada,
ip^
64
A HISTOR Y OF
when a certain number of individuals have complied with
certain requirements, they are supposed to have applied for a
charter, which Parliament theoretically might refuse, but which,
as a matter of fact, would not be refused unless doubt existed
as to the bona fide character of the proposed bank. Then, as
in the United States, on complying with certain other rec[uiro-
ments and obtaining consent of the Treasury Board (perform-
ing in this case the same function as the Comptroller of
Currency in the United States), the bank is reddy for business.
What has given Canadians more concern than the manner
of incorporation is the means of deterinining that each pro-
posed bank is a genuine business venture, with enough capital
at the back of it to ensure this fact, and to warrant the exten-
sion to it of the franchise of issuing notes against its general
estate. As early as 1834, a New liiunswick act, adopting the
recommendations of the Committee for Trade, already referred
to, required that public commissioners should count the cash
in the possession of a proposed bank in order to ascertain if
the actual capital had been paid in, and that no notes should
be issued until one-half of the capital was actually paid in.
But there was no requirement as to a minimum capital, and in
the case of the particular bank to which the act applied the
amount paid up was very small indeed. Nor was there any
time fixed for the payment of the remainder of the subscribed
capital. In the report of the first committee on banking and
currency appointed after the union of Lower and Upper
Canada in 1841, it was recommended that the amount of
capital be fixed (Parliament presumably to judge in each case
as to what was sufficient), and the whole to be subscribed
within eighteen months from the date of the charter ; the
bank was not to begin business until the whole was subscribed
and one-half paid up, and the whole must be paid up within
two years from date of charter. In the year after con-
federation, that is, in 1868, the committee on banking and
currency received, it will be remembered, certain advice from
prominent bankers and others. One of the recommendations
was that a minimum of capital to be subscribed be named,
and that whatever portion had by law to be paid up before
n :
ill!
BANKING IN CANADA
65
husiness was commenced should be certified to by a Govern-
ment official as held in specie. When in 1870 the first
-iiscussion of the principles of an act took place, the Minister
of Finance wished this minimum to be placed at $1,000,000,
with at least $200,000 paid in before business was transacted,
the balance to be paid at the rate of twenty percent, each year.'
After discussion the minimum was fixed at $500,000, of which
$2co,ooo should be paid before business was transacted. But
this was modified next year to a requirement that only $100,000
be paid up at the commencement and another $100,000
within two years. It was about this time that the three largest
banks increased their capital to $12,000,000, $9,000,000 and
$6,000,000, respectively ; and while these were figures cjuite
unnecessarily large, the contrast with some of the banks, which
had been allowed to come into existence under provincial
charters with a capital of $100,000 or $200,000, was very great
indeed. It will be seen that in the Act of 1890 (Sections 10,
13, 15 and 16) the conditions are more stringent than at any
previous time ; and notwithstanding the rapid growth of demo-
cratic sentiment, the disposition of the country appears to be
now pretty much settled against the creation of small banks.
The bona fide subscription of $500,000 of stock must be secured,
and of this $250,000 must be at once paid up, and the actual
cash placed temporarily with the Minister of Finance and
Receiver-(}eneral, before the final certificate is obtained to the
effect that all the conditions recjuired by law have been complied
with. In the history of Canada, as in other new countries, the
placing of the capital stock of new banks has been accompanied
by all sorts of abuses. The so-called "cash" with which a bank
has begun business has sometimes turned out to be largely
composed of shareholders' notes of hand, or any one of many
other devices has been resorted to to make a " brave outside "
for the public to look at. No restrictions will altogether
prevent the occurrence of some form of deception; but.
without doubt, the present conditions are most carefully
devised in order that it may be reasonably certain that each
new bank authorized by Parliament will be an honest business
veiiture.
m§
66
A HISTOR V OF
ll"
INTERNAL REGULATIONS
The regulations concerning the relations between the
shareholders and the directors set forth in Sections i8 to 25,
inclusive, are, wich a few exceptions, such as might be adopted
in the management of any large corporation, and have there-
fore little value in connection with a study of the practice of
banking. That thv"^ directors should not have power to remun-
erate themselves, except under authority of the shareholders
(Sec. 18), was a provi jion of the earliest chatter in old Canada —
that granted to the Eank of Montreal in 182 1, several years
after it commenced business. That the directors, or a majority,
shall be British subjcL'ts (Sec. 19), and that directors shall be
responsible for the employment of bank officers, and shall
require them to give security for faithful service (Sec. 23), were
also features of the same charter. The matter of loans to
directors has always been, and still is, a difficult question, for
which no more satisfactory solution has been found than to
permit comparative freedom, except that in the monthly return
the aggregate of loans to directors must be shown. In the
recommendations of the Committee for Trade, it was provided
that directors were not to borrow more than one-third of the
total amount lent by the bank. This was adopted by New
Brunswick as early as 1834, with the proportion applied to the
capital of the bank instead of to the total amount lent. But
as one bank has $12,000,000 of capital while another may have
$500,000, such an attempt at limitation would now be worse
than useless. We have not got further than to empower
shareholders, by passing a by-law to such effect, to restrain the
board of directors to the extent that they see fit in making
such loans. Two points in this connection are clear. If a
bank has a board consisting entirely ci directors who do not
borrow, it runs great risk of not being in touch with the active
business community ; because until Canada is a much richer
country, the business men still in the prime of life are likely to
be borrowers. On the other hand, as long as directors are
allowed to borrow from the bank at whose board they have a
seat, there will be losses, and, occasionally, losses not
justifiable.
BANKING IN CANADA
Under Section i8, banks may establish and contribute to
funds in order to insure the fidelity and provide for the super-
annuation of their officers, or otherwise assist the families of
their officers. In the majority of banks, officers are no longer
permitted to secure their fidelity by bonds of private individuals,
and instead of purchasing insurance from the ordinary fidelity or
guarantee companies, several banks have funds of their own,
created by contributions from botli bank and officers. This
might not be practicable in a very small bank, but it has proved
absolutely successful for many years past in some of the large
banks. Pension funds, based generally upon the system in
use in the British and Canadian Civil Services, are in operation
in several banks.
Section 19 opens by stating that "The stock, property,
affairs and concerns of the bank shall be managed by a board
of directors, etc." Management "by a board of directors" is, of
course, a phrase of very variable meaning ; and in Canada it
ranges from the practice of a large English or Scotch bank,
where the oversight of the board is very general indeed, to that
of some American banks where the board really may be said
to manage the bank directly and where the president is actually
the chief executive officer. There are no longer in Canada
special "discount days" on which the board sits and discusses
the bills offered. It is necessary now to empower the agent at
the smallest branch, by instructions given in advance, to transact
the business of his established customers. New customers, if
proposin,. important business, must await the decision
of the board, but old ones, if in good standing, are not
usually willing to do so. The board, as a rule, sits once a
week, and is asked to approve of the more important lines of
credit. The president may be in such close touch that he
knows the business almost as well as the general manager ;
but this, as a rule, he cannot be, and the latter is the real chief
executive officer. The president, however, is in daily contact
with the general management, and is fully able to judge as to
whether the bank is being soundly and honestly managed,
while the board, by the nature of the business discussed even,
week, should also be in a position to know whether the affairs
is^arrrp
68
A HISTOR Y OF
of the bank are prospering or not. More than this is
impossible on the part of a board of directors in the present
complicated nature of the business of a large bank.
Section 25 contains six sub-sections covering elaborate
provisions as to voting at shareholders' meetings, for informa-
tion regarding which we must refer readers to the actual text of
the act. In the earliest acts, voting was arranged by a scale,
so that while one share gave one vote, ten shares gave only
five and thirty shares only ten, while no holding gave more
than twenty votes. This practice was considered fair, and was
followed in many charters ; but in granting new charters in
1855, the Legislature of old Canada changed this to the practice
which has been followed since — of one vote for each share.
II v\
iii
Ml
CAPITAL STOCK
Sections 26 and 27 deal with the manner of increasing and
allotting capital stock, and 28 with the reduction of capital.
The capital caii neither be increased nor decreased except by
the consent of a majority of the shareholders, obtained at an
annual or special meeting, and the subsequent consent of the
Treasury Board. New or unsubscribed stock (Sec. 27) must
be allotted /rtf rata, and any premium fixed thereon must not
exceed the percentage which the reserve fund (surplus) bears
to the paid-up capital stock. The consent of the Treasury
Board cannot be obtained to a reduction of the capital until
statements of the condition of the bank setting forth "the
reasons and causes why such reduction is sought" are sub-
mitted. I'he reduction of the capital stock in the manner
indicated does not diminish the liability of the shareholders
to the creditors of the bank existing before such reduction is
formally legalized. The capital stock cannot be reduced, if
the bank remains in business, below the sum of $250,000.
Sections 29 to 4.,, inclusive, deal with the following
subjects : subscription for shares (29) ; payment of calls on
new shares (30 and 31) ; enforcement of same (32, 33 and
34) ; conditions under which shares may be transferred (35) ;
provision that a list of transfers sha'l be made daily and
exhibiied for information of shareholders (36) ; provision to
BANKING IN CANADA
69
prevent the selling of stock by others than the actual owners
such as the sale of shares not owned, with the expectation of
purchasing later at a lower price (37) ; manner of transferring
shares sold und.^r execution (38); in cases of death, bankruptcy
insolvency, or marriage of female shareholder (39, 40, 41 and
42) ; provision that bank is not bound to see to the execution
of trusts (43) ; provision that executors a-d trustees shall not
when the real owner is indicated in the books of the bank be
subject personally to liability on the shares so standing in their
names as executors or trustees- if the actual owner is livin-
and competent, he is liable as if the shares stood in his name!
and if dead or incompetent, his estate is liable (44). The six-
teen sections here referred to are very lengthy and are
elaborately worked out, but have little to do with the study of
banking. One provision, however, may interest bankers in the
United States. It is imperative, under Section 3?, that the
transferee of shares shall actually accept the same on the
books of the bank, in person or by attorney, and thus formally
admit his double liability.
ANNUAL STATEMENT— DIVIDENDS
Tlie very natural provisions in Sections 45 to 49, inclusive,
call for little comment. Sections 45, 46, 47 and 48 were sub-
stantially included in the first charter granted (182,), while
the principle of Section 49 was covered by the recommen-
dations of the bankers made to the committee on banking
and currency (1868-69).
CASH RESERVES
^^'hen the Government abandoned hope of creating a
bank of issue or a national currency, it imposed, as will be
remembered, upon the banks the condition that they must
carry in their reserves a certain percentage of legal-tender notes
of the Dominion. This is a distinct blot upon the Banking
Act ; but as the banks carry much more than the percentage
required, it probably might now be removed from the act
without causing the Government inconvenience. In its early
years, the Dominion had its credit to establish, and was called
f I
|n:l
70
A HISTOR Y OF
upon to make expenditures in public works, at a very heavy cost,
for a new and sparsely settled country, and it was obliged to
resort to several financial expedients which with its present high
credit would be not only unnecessary but very unwise.
It will also be remembered that, in proposing this feature,
the Minister of Finance coupled with it the requirement that
banks should hold a minimum cash reserve against all liabilities.
This was strenuously objected to by the bankers and was not
insisted upon. In the revision of the act in 1890, the Govern-
ment again proposed the principle of a minimum reserve, and
again the bankers were able by their arguments to demonstrate
the unsoundness of such a requirement.
The mere statement of the reserve in cash held by a
particular bank, or the average held by the banks of an
entire country, conveys little idea as to whether prudence
is observed or not. In Canada, the average, for some years,
of actual cash held in gold and legal tenders as against all
liabilities to the public, is about ten per cent. But, owing
to the system of bank note issues, very little of this is required
for daily use, the tills of bank offices being filled with the
bank's own notes, which do not appear in its statements as
cash because they are not in circulation. Practicaly, the
business across the counter, when not transacted with other
paper instruments, is served by this till money ; the settle-
ments of balances with other banks are made in legal tenders,
or by drafts on the chief commercial centres ; while the
main reserve may be, in the case of small banks, represented
by theii loans at call or short date on stocks and bonds and
by their balances in the hands of correspondents at Montreal
and New York. In addition to such sources of strength, the
more important banks have agencies in the United States, and
the bulk of the capital employed there can be made available
without any delay, while practically all can be liquidated within
a few months at most.
The Canadian bankers have always been ready to discuss
the relative merits of a minimum reserve fixed by law as
against perfect freedom to banks in the management of their
reserves, the overwhelming majority being in favor of the
BANKING IN CANADA
71
latter course as the only practicable system if stringency and
|.anic are to be averted.
NOTE ISSUES
To the foreign reader, Sections 51 to 63, inclusive, are,
doubtless, the most interesting in the act. In Canada, we
began with the very simple and obvious theory that, without
the existence of laws to the contrary, an individual had the
right to issue his promise to pay in any form, the only deterrent
to the exercise of such a luxury being the difficulty of inducing
anyone to accept it in payment. We have seen that, for a
considerable period, the law did not interfere with the exercise
of this power, and in collections devoted to historical objects
many curious specimens of money issued by private busi-
ness as well as private banking firms may be found. Indeed
in refusing for such a long time to grant the privilege to aii
mcorporated bank, the first Legislature of Lower Canada
was, doubtless, moved only by the fear that, because of the
express authority of law, the bank might be able to float an
undue amount of such money. In the present act, the mere
right, apart from subsequent qualifications, is expressed in a
few simple words: "The bank may issue and reissue notes
payable to bearer on demand and intended for circulation "
(Sec. 51).
The first qualification (Sec. 5i)is that it must not issue
notes of smaller denominations than five dollars, and must
issue all notes in multiples of five dollars. The history of
this restriction has been given. The Government desired to
provide, out of its legal-tender issues, the entire change-
making paper currency of the country, and first fixed the
lowest note issuable by a bank at $4 (the old currency pound),
and subsequently at $5.
Section SI also provides that the entire circulation of a
bank shall not exceed its unimpaired paid-up capital, imposmg
enormous fines for breaches of the provision; and further
limiting to seventy-five per cent, of the capital the notes of
two banks having special charters, because in both cases the
shareholders are not subject to the double liability. These
ill
1i
72
A HISTOR y OF
i HI
banks may issue up to the full unimpaired paid-up capital
by depositing cash or Government bonds for the amount
issued over the seventy-five per cent. In the early banking of
a new country, few deposits can be obtained, and the main
object of organizing a bank is to secure the privilege of note-
issuing, the profit on lending the capital, plus the notes in
circulation, being at such a time a sufficient inducement.
The first charter (1821), so often referred to, contained no
other restriction upon the volume of note issues than that the
total of all liabilities to the public must not exceed three times
the capital stock actually paid in, the directors being person-
ally liable if they permitted an excess. For many years, this
was the general principle followed, although it was varied
somewhat in its application and modified in some of the
provinces as time went on. We find the bankers who offered
suggestions to the banking and currency committee of 1868-69,
■asking that the power to issue be limited to the paid-up
capital, plus Government securities and specie held, but in
the legislation which followed it was limited as in Section 51 ;
no limit being placed, however, upon the total liabilities of a
bank.
Section 53 makes the note issues a prior lien upon the
estate of the bank, prior even to a debt due to the Crown. This
was one of the recommendations of the bankers to the bank-
ing and currency committee of 1868-69, ^"d it is very much
to be regretted that it was not embodied in the first general
bank act of the Dominion. B-it the Minister of Finance
failed to recognize the difference between an involuntary
holder receiving a note in the course of business and a
depositor who selecfts a particular bank to which he gives
credit in the form of his deposit. Between 1874 and 1879
there were serious bank troubles, in some cases ending in
failure, and in one case, a particularly discreditable failure,
the creditors — note-holdera as well as depositors — recovering,
after exhausting the double liability, only fifty-seven and one-
half cents in the dollar. The bank was of little importance
directly, having few notes in circulation, but the result of the
liquidation was a great shock. As a consequence, at the
BANKING IN CANADA
I J
revision of 1880 the principle of Section 53 found a place in
the act. Thus, while it will always be a matter of regret that
any note issued under the laws of the Dominion should not
have been eventually paid in full, it is to be remembered that
if the views of the bankers expressed in 1869 had been
acceded to, the record today would show that, without
further security than that of being a prior lien upon the
general estate, the note issues had been always redeemed in full.
But there were still two minor though serious defects in
the system. It was frequently alleged by those who admired
the National Bank Act of the United States, that while the
currency created by it might not be clastic, the notes could
not for any reason fail to be paid in full, and to circulate
throughout the entire area of the United States, while in
Canada no similar boast could be made. The area of Canada
is enormous relatively to population, and the notes of banks
in one province certainly passed at a discount in some of the
others, a recurrence in a less aggravated form of the defect
in the old State-bank issues of the United States. And while
it might be confidently asserted that all bank issues secured
by being a first lien on the estate of the banks would be
eventually paid in full, it was nevertheless true that because of
doubt and delay the notes of a suspended bank always fell to
a discount for the time being. To meet these two defects, the
bankers, in the revision of 1890, proposed the principles set
forth in Sections 54 and 55, borrowing their ideas once more
from the larger experience of banking in the United States.
'I'he distinctive features, therefore, of the bank note issues
of Canada are : They are not secured by the pledge or special
deposit with the Government of bonds or other securities, but
are simply credit instruments based upon the general assets of
the bank issuing them. But in order that they may be not
less secure than notes issued against bonds deposited with the
Government, they are made a first charge upon the assets
(Sec. 53).
To avoid discount at the moment of the suspension of a
bank, either because of delay in payment of note issues by the
liquidator cr of doubt as to ultimate payment, each bank is
u H ■
II
■i^i
itiiiiim/mmm
74
A HISTORY OF
obliged to kcc[) in the hands of tlic Government a deposit
equal to five per cent, on its average circulation, the average
being taken from the maximum circulation of each bank in
each month of the year. This is called the Bank Circulation
Redemption Fund, and should any liquidator fail to redeem
the note of a failed bank, recourse may be had to the entire
fund if necessary. As a matter of fact, liquidators are almost
invariably able to redeem the note issues as they are presented,
but in order that all solvent banks may accept without loss the
notes of an insolvent bank, these notes bear six per cent,
interest from the date of suspension to the date of the liqui-
dator's announcement that he is ready to redeem (Sec. 54).
To avoid discount, for geographical reasons each bank is
obliged to arrange for the redemption of its notes in the
commercial centres throughout the Dominion (Sec. 55).
The remaining sections, 52 and " to 63, inclusive,
require no comment.
BUSINESS AND POWERS OF THE BANK
Under this heading there are twenty-one sections in the
act, containing about 330 lines, as compared with a few lines
in the first charter. The disposition of Canadian bankers in
earlier times w.is to assume that they had power to do anything
in the nature of banking not prohibited by their charter or by
the general Bank Act, if there was one. _ Now, however, ttie
act is broad enough to leave no doubt. In Section 64 it
expressly permits branches and agencies, without ^ny condition
as to whether they are to be confined tu Canada or not, and
while it tries to describe fully the business of banking, it ends
the description with a phrase wide enough to include any
species of banking not directly prohibited in the act itself.
The section covers three prohibitions, two of which appear in
the first charter (1821). A bank must not engage in any
species of business except banking, and it must not lend
money on the security of real estate or other real property.
The third provision, to the effect that a bank must not lend
on its own stock, was one of the recommendations of the
Committee for Trade, and was adopted by New Brunswick in
(■hi a
BANKING IN CANADA
o
a charter granted in - '^^^2. For a few years, this provision was
relaxed under Dominion le^iislation, but it was again enforced,
and is now regarded as a principle firmly fxed in the act.
Section 65 gives a bank a first lien on shares of its own
stock, or any dividend due thereon, when tho stock is owned
by a debtor. This also appeared in the first charter (1821).
With the system of transferring shares in the United States
such a lien might work unjustly, but in Canada it is a very
natural provision which cannot operate unfairly to any third
party. No stock certificate, as the jihrase is un<lerstood in the
United States, is ever given by a bank. A holder may obt.iin,
if he so desires, a certificate which isg, nerally called a "stock
certificate," but which simply asserts that he owns so many
shares transferable only on the books of the bank. Under no
circumstance is he called upon to return this document. It is a
mere letter of advice upon which no one would lend anything.
Section 67 contains the usual provision that a bank may
hold real property for its own use ; and 68, that although it
cannot lend on real property, it may take such to secure a debt
already cfjntracted. It cannot, however, through the medium
of Section 78, practically secure real estate for a new advance,
the decisions being quite clear that there must have been no
agreement or understanding when the loan was made that the
real estate was to be given as security for it.
Sections 66, 69, 70 and 71 merely enable hanks to realize
on securities pledged to them or to complete their title to same.
Section 72 came into operation at a time when it was
thought desirable to facilitate ship-building, but to the writer
it seems very doubtful banking. In any event, it is probably
not of much avail in these days, iron ship-building having
nearly ended wooden ship-building in our maritime provinces.
Section 73 confers the ordinary power of lending on
warehouse receipts and bills of lading. A warehouse receij)!
upon which a bank in Canada is allowed to lend money, must
be given by someone other than the owner > >f the goods.
Sections 74 to 79, inclusive, give facilities to banks not
enjoyed by private money-lenders. In early days, when banks
were called upon to lend large sums for the moving to market
If^
76
A HISTOR V OF
I
of raw products, the manufacture of lumber, etc., it was
strongly felt that there was the need of some simple means hy
which the title in the property thus purchased or manufactured
with its money could be held by the bank. In 1859, in old
Canada, a banking bill was passed mainly to facilitate com-
mercial transactions and giving the powers indicated above.
While the principle has been extended since, the main
features of the present act are not essentially different. The
courts having decided that the warehouseman giving a
receipt upon which a bank might lend money must be a bailee
and not the owner of the goods warehoused, the principle was
extended in 1861 s>. as to cover certain ca.ses in which the
warehouseman was also the owner. The Dominion Ai t
adopted this legislation with little change, but the last act, that
of 1890, . Iters the form of procedure when advances are being
made upon the security of goods in the owner's possession,
and banks are given power in such cases to take a direct
pledge upon raw and manufactured products to the e.xtent set
forth in Section 74., which is cjuoted without abbreviation.
The reader who desires to study fully these sections is
referred to a paper entitled " Warehouse Receipts, Bills of
Lading, and Securities under Section 74 of the Bank Act,"
read by Mr. Z. A. I^sh, counsel for the Canadian Bankers'
Association, at its annual meeting in 1894, and published in
the journal of the Association, volume ii, page 54.
Sections 80 to 8.^, inclusive, are certainly not very
creditable. Prior to 1858, usury laws existed in Canada, and
these sections are an inheritance from that period. For all
I)ractical purposes, they might as well be stricken from the
act. In 185;;, while the law only permitted the collection of
six per cent, per annum interest, the penalty for receiving
more was removed ; but this did not apply to banks or land
mortgage companies. In 1858, the right to contract for any
rate was given, but again not to banks, except that they might
take seven instead of six per cent., with such provisions as are
indicated in Sections 82 and 83 as to commissions.
The Dominion Act repeats these provisions with litde
change, except the important one that all banks are now free
BANKING IN CANADA
77
from penalty fur usury (Sees. 80 and 81). For fuller in-
formation regarding the history of Canadian usury laws and
of the present legal rate of interest where no contract has
been made, the reader is referred to an article in the third
volume of the " Journal of the Canadian Bankers' Association,"
page 277, entitled "The Legal Rate of Interest."
STATEMENTS BY lUNKS TO (iOVERNMENT
From the simple provision in the first charter that the
Government might at any time reijuire for the protection of
the pu!)lic a statement under oath of the position of a bank to
the last revision in 1890, there has been a steady amplifi-
cation of the information given by banks to the public. The
nature of the present monthly returns (Sec. 85) cannot he
better indicated than by the subjoined list giving the forms of
the headings of the various columns ;
ASSETS
Specie.
Dominion Notes.
Deposits with Dominion Govern-
ment for security of note
circulation.
Notes of and cheques on other
banks.
Loans to other banks in Canada,
secured.
Deposits, payable on demand or
after notice, or on a fixed day,
made with other banks in
Canada.
Balances due from other banks
in Canada in daily exchanges.
Balances due from agencies of
the bank, or from other banks
or agencies in foreign
countries.
Balances due from agencies of
the bank, or from other banks
or agencies in the United
Kingdom.
Dominion Government deben-
tures or stocks.
LIABILITIES
To the Public
Notes in circulation.
Balance due to Dominion
Government, after deducting
advances for credits, pay lists,
etc.
Balance due to provincial gov-
ernments.
Deposits by the public, payable
on demand.
Deposits by the public, payable
after notice or on a fixed day.
Loans from other banks in Can-
ada, secured.
I-
I
•tff
78
A HISTORY OF
STATEMENTS liY BANKS . > GOVERNMENT— Co»/««««</
ASbETS — Continueil
Canadian municipal securities,
and British, provincial, or
foreign, or colonial, pubnc
securities (other than Dom-
inion).
Canadian, British, and other
railway securities.
Call loans on bonds and stocks.
Current loans.
Loans to the Government of Can-
ada.
Loansto provincial governments.
Overdue debts.
Real estate, the property of the
bank (other than the bank
premises).
Mortgages on real estate sold
by the bank.
Bank premises.
Other assets not included under
the foregoing heads.
Aggregate amount of loans to
directors und firms of which
they are partners.
Average amouiu of specie held
during the month.
Average amount of Dominion
notes held during the month.
Greatttst amount of notes in
circulation at any time during
the month.
LIABILITIES — Continued
To the Public
Deposits, payable on demand or
after notice, or on a fixed day,
made by other banks in
j Canada.
I
Balances due to other banks in
Canada in daily exchanges.
Balances due to agencies of the
bank, or -> other banks or
agencies in foreign countries.
Balances due to agencies of the
bnnk, or to other banks or
agencies <a United Kingdom.
Liabilities not included under
foregoing heads.
To the Shareholders
Capital authorized.
Capital subscribed.
Capital paid up.
Amount of rest or reserve fund.
Rate per cent, of last dividend
declared.
The publication of the statement fi-st appears in the
official gazette and it is immediately thereafter republished, in
whole or in part, by almost all the financial journals, while the
changes inaicating the conditions of finance and trade are
commented on by all important daily newspapers. As the
banks are few in number and possess extended interests both
as to geographical territory ind capital employed, they live at
all times in the keen sunlight of publicity. In any event, with
the information given in such a manner that comparison
BANKING IN CANADA
79
between one bank and another may be made without effort, it
would be hopeless to expect to conceal general weakness, 'no
matter ho^> much it might be concealed in detail.
Under Section 86 the Minister of Finance is given wide
powers in order that he may obtain any information !- desires
from a bank should he suspect weakness in its position or
inaccuracy in its monthly returns.
The list of shareholders required under Section 87 is not
by any means a p-rfnnctory matter. The information when
obtamed from all banks is published in a blue-book ana is at
least examined by nany investc-s who try to judge by the
changes from year to year as to the estimation in which
certain banks arc held.
In accordance with a policy gradually being recognized
throughout the world, an addition was made in the act of
1890 by which banks are required to report to (Government
the unclaimed moneys in their hands (Section 88). These
statements also appear in a blue-book for the information
of the public.
INSOLVENCY OF BANKS
The first of the insolvency clauses is that fixii. ^he double
liability (Section 89), while Sections 92, 93, 94 and 96 are
devoted to elaborate provisions lor enforcing it. It will be
remembered that the early banks in old Canada had no
provision for a double liability of shareholders, but thit the
charter of the Bank of Nova Scotia (1832) contained the
provision, while the Committee for Trade recommended its
adoption by old Canada, and long before confederation (1867)
it was recognized as a principle.
There was a time when many doubted the practical value
of the power to call on shareholders in the event of failure for
a second payment to the extent of the face value of tlicir
shares. Questionable things were done without hesitation
to avoid paying, and many in eailier days could not pay.
Shares were transferred by the knowing ones just before failure
to others who were, perhaps, incompetent to contract or
from whom money could not be collected. Or it was found
that the real holder was already a debtor to the bunk and could
I
IS
80
A HISTOR Y OF
not meet this in addition to his other liabilities. But \vl' have,
of late years, had failures in which every species of bad
management and misrepresentation has occurred, yet the per-
centage of the double liabiliiy collected has prevented the
creditors from suffering. Indeed the conditions laid down by
the act make it almost impossible to avoid payment for any
reason except inability. Suction 90 was inserted in the act of
1890 in order to make it clear that the statute of limitation
doe'i not run in favor of a bank in the matter of dividends and
deposits. The principle of Section 9 1 was suggested by the
Committee for I'rade owinj, to the difficulty of determining
what constituted insolvency in a bank ; otherwise, a briik might
remain for an indefinite time in the stat^, of suspension.
OF! r.NCES AND PENALTIES
A careful perusal of the actual tc ct of the act will show
that it bristles wiih penalties, both in the shape of ines and
imprisonment. In enforcing promptitude in making returns
they are certainly effective, and the enormous fines under
Section 51 for over-issues of circulation will doubtless be
sufficient for the purjiose.
Section 100, the principle of which was introduced in
1880, is intended to prevent private bankers from using titles
which might convey the idea of incorporation. In common
with many other details of the act, it was borrowed from the
United Slates. The remaining section" of the act are likely to
be without interest to the reader.
GENERAL REMARKS ON THE ACT
In dealing with the features of the act which are not
disclosed in merely commentirg upo>i its main sections, the
Author feels that he cannot do belter than repeat, with little
alteration, portions of an address ty the Congress of Bankers
at Chicago, delivered in June, 1893 ; which was itself based
largely upon a pamphlet by the writer, published in 1890, as a
defence of the Canadian banking system, regarding which it
was fea;ed attempts would be made to assimilate it to the
National Banking System of the United States.
\
B
BANKING IN CANADA
8i
What is necessary in a banking system in order that it
may answer the requirements of a rapidly growing country and
yet be safe and profitable ?
1. It should create a currency free from doubt as to value,
readily convertible into specie, and answering in volume to the
requirements of trade.
2. It should possess the machinery necessary to distribute
money over the whole area oi" the country, so that the smallest
possible inequalities in the rate of interest may be the result.
3. It should supply the legitimate wants of the borrower,
not merely under ordinary circumstances, but in times ff
financial stress, at least without that curtailment which leads to
abnormal rates of interest and to failures.
4- It should afford the greatest possible measure of safety
to the depositor.
xoTK issuns
III Canada, as in the United States, the resulting
difference in business transactions, after cheques and all other
modern instruments of credit have been used, is almost entirely
paid in paiKT money. It is therefore of the greatest importance
that the amount of this paper money existing at any one time
shall be as nearly as possible just sufficient for the purpose.
That is, th.at there shall be a power to issue such money when
it is required, and also a power to force it back for redemption
when it is not rcijuired.
It may therefore, we think, be safely asserted that: (i)
There should be as complete a relation as possible between the
currency reciuirements of trade and whatever are the causes
which bring about the issue of paper money ; (2) and, as it is
quite as necessary that no overissue should be possible as that
the supply of currency should be adequate, there should be a
similar relauon between the requirements of trade and the
causes ^\\\c\\ force notes back for redemption.
Now, crtainly, one of the causes of the issue of bank notes
is the profit to be derived therefrom, and it is clear that an
amoimt sufficient for the needs of trade will not be issued
unless it is profitable to issue. Likewise it is clear that it
'tl
8:
A niSTOR Y OF
should not be possible to keep notes out for the sake of the
profit if they are not needed.
In Canada, bank notes, as we have seen, are secured by a
first lien upon the entire assets of the bank, including the
double liability, the security being general and not special — not,
for instance, by the deposit of (lovernment bonds. Therefore
it is clear that it will always pay Canadian banks to issue
currency when trade demands it. Because bank notes in
Canada are issued against the general estate of the bank, they
are subject to actual daily redemption ; and no bank dares to
issue notes without reference to its pov.er to redeem, any more
than a solvent merchant dares to give promissory notes without
reference to his ability to pay. The presentation for actual
redemption of every note not required for purposes of trade is
assured by the fact that every bank seeks by the activity of its
own business to keep out its own notes, and therefore sends
back daily for redemption the notes of all ether bank" Ti,;.-;
great feature in the Canadian system, as compared . t'l the
National Banking System, is generally overlooked, but it is
because of this actual daily redemption that there has never
been any serious inflation of the currency, if indeed there has
ever been inflation at all. Trade, of course, becomes inflated,
and the curreacy will follow trade, bat that is a very diflerent
thing from the existence in a country of a great volume of paper
money not required by trade. It is hardly necessary to discuss
at length this quality of elasticity in the system, because it is
generally admitted. But some critic may endeavor to show
that a similar quality might be given to a currency secured by
Government bonds, and it may be well to make it clear that
such elasticity as is refiuired in North America is impossible
with a currency secured by Covernment bonds, In the older
countries of the world it may be sufficient if the volume of
currency rises and falls with the general course of trade over a
series of years, and without reference to the fluctuations within
the twelve months of the year. In North America it is not
enough that the volume of currency shijuld rise and fall from
year to year. In Canada we find *:hat beivvoen the low average
of the circulation during about eight months of each year and
BANKING IN CANADA
83
the maximum attained at the busiest period of the autumn and
winter there is a difference of twenty per cent., the movement
upward in the autumn and downward in the spring being so
sudden, that without the power in the banlcs to issue, in the
autumn serious stringency must result, and without the force
which brings about redemption in the spring there must be
plethora. As a matter of fact, it works automatically, and
there is always enough and never too much.
If the currency were secured by Government bonds, the
volume in existence at any one time would be determined by
the profit to be gained by the issue of such bond-secured
currency. It would, therefore, be necessary to fix a maximum
beyond which no currency could be issued, but as such an
arbitrary limit would be mere legislative gucoS-work, it would
be productive of the evils incident to a. efforts to curb natural
laws by legislation. As we know, when the National Bank
cliarters were offered by the Pederal Government to the State
banks, the bonds of the United States bore five to six per cent,
interest, and the business of issuing currency against such
bonds was so profitable that a maximum such as that referred
to was fixed, with an elaborate provision stating how the bank-
ing charters were to be distributei^i as to area, in order that
each State or section of country might have a fair share.
This was followed by several adjustments, the last limit fixed
was $354,000,000, all who wished the privilege were dissatisfied
with the limitation of issues, and the cry of monopoly was
frequently heard. Subsequently the attempt to fix a maximum
was abandoned ; indeed, the business of issuing notes against
Government bonds had become unprofitable, and there was
no longer any fear of inflation.
The condition in the United States under which the issue
of currency was unduly profitable, and the fear of inflation was
present, did not actually last many yerrs, but it lasted long
enough to create in the people a hatred of banks which does
not seem yet to have j)assed away. The condition which
followed showed conclusively, it seems to us, the unsoundness
of the system in the matter of providing an elastic currency —a
currency at all times adequate in volume, 'ihe currency want-
Hi
r?"'
Hi
lis
iii
84
A HISTOR V OF
of the country increased with the great increase in business
and population, but the volume of National Bank currency
decreased, because by the repayment of the national ilebt and
ihe improvement in the national credit the bonds which
remained outstanding yielded so low a rate of interest as to
make the issue of National Bank notes unprofitable.
The writer hopes he has made it clear that if the business
of issuing currency against Government bonds were profitable,
too much currency would be the result; and if it were unprofit-
able, too little would be issued. We would require to have a
condition of things under which the jjrofit of issuing notes
would at all times bear an exact relation to the amount of
currency required by the country, the profit therefore changing
not only as the currency rises and falls over a series of years,
but at the time of the siiarp fi,. -^tuations within e.ich year,
already referred to. No such relation, however, could very
well exist with an issue based upon Government bonds.
The next quality in a currency to be considered is that it
should be readily convertible into specie. We do not propose
to discuss thi.s at length. The assurance of convertibility lies
in the actual daily redemption to which we have referred.
This is the best possible safeguard against suspension of specie
payments.
THE BORROWER AND THE HRANCH SYSTEM
In the banking systems of older countries, the borrower is
not often considered. Men must borrow where and how they
can, and pay as much or as little for the money as circum-
stances require. We believe too strongly in the necessity for
an absolute performance of engagements to think it iweessary
that any banking system should render the jvith of the debtor
easy. But in America the debtor class is apt to make itself
heard, and the writer wishes to show what the branch system,
as compared with the United States National Ruiking S\^?em,
does f<.)r the worthy borrower.
T-. a country where the money accumulated each year b\
the people's savings does not excev-d the money K-quired tor
new busiivss ventures, it is plain that that >vstem of Ixmking
BANKING IN CANADA
IS the best which most completely gathers up these savings and
places them at the disposal of the horrower. This practically
means that the savings of slow-going communities are applied
to other communities where the enterprise is out of proportion
to the money at their own command. In Canada, with its
banks with forty and fifty branches, we see the deposits of the
saving communities applied directly to the country's new
enterprises, in a manner nearly perfect. One bank borrows
money from depositors at Halifax and many points in the
maritime provinces, where the savings largely exceed the new
enterprises, and it lends money in Vancouver or in the
Northwest, where the new enterprises far exceed the savings.
Another in the same manner gathers deposits in the unenter-
prising parts of Ontario, and lends the money in the enterprising
localities of the same. The result is that forty or fifty business
centres, in no case having an exact equilibrium of deposits and
loans, are able to adjust the excess or deficiency of capital, the
depositor obtaining a fair rate of interest, and the borrower
obtaining money at a lower rate than borrowers in any of the
colonies of Great Britain, and a lower average rate than in the
United States, except in the very great cities in the East. So
perfectly is this distribution of capital made, that as between
the highest class borrower in Montreal or Toronto and the
merchant in the Northwest, the difference in interest paid is
not more than one to two per cent.
In the United States, banks have no branches. There
are banks in New York and the East seeking investment for
their money, and refusing to allow any interest because there
are not sufficient borrowers to take up their deposits; and there
are banks in the \Vest and South which cannot begin to supply
their borrowing customers, because they have only the money
of the immediate locality at their command, antl have no direct
access to the money in the East. '1 o avoid a difficulty which
would otherwise be unbearable, the ^^'estern and Southern
banks sometimes rediscount their customers' notes with banks
in the East, while many of their customers, wA being able to
rely upon them for assistance, are forced to float paper tlutjugh
Eastern note-brokers. But the Western and Southern banks
%
86
A HISTOR Y OF
wanting money, and the Eastern banks having it, cannot come
together by chance, and there is no satisfactory machinery for
bringing them together. So it follows that a Boston bank
may be anxiously looking for investments at four or five per
cent., while in some rich Western State ten and even twelve
per cent, is being paid. These are extreme cases, but we have
quoted an extreme case in Canada, where the capital marches
automatically across the Continent to find the borrower, and
the extra interest obtained scarcely pays the loss of time it
would take to send it so far were the machinery not so perfect.
As we have indicated, it should be the object of every
country to so distribute loanable capital that every borrower
with adequate security can be reached by someone able to
lend, and the machinery for doing this has always been recog-
nized in the banks. That is surely not a good system of
banking under which the surplus money in every unenterprising
community has a tendency to stay there, while the surplus
money required by an enterprising community lias to be
sought at a distance. If by paying a higher rate of interest,
and seeking diligently, it could always be found, the position
would not !>e so bad. Tlie fact is that when it is most wanted,
distrust is at its h' ight, and the cautious banker buttons up
his pocket. When there is no inducement to avert trouble to
a community by supplying its wants in time of financial stress,
there is no inclination to do so. Banks with small capital and
no branches are not apt to have a \'ry large sense of responsi-
bility for the welfare of the country as a whole, or for any
considerable portion of it. But the banks in Canada, with
thirty, forty, or fifty branches, with interests which it is no
exaggeration to describe as national, cannot be idle or indiffer-
ent in time of trouble, cannot turn a deaf ear to the legitimate
wants of the farmer in the prairie provinces, any more than to
the wealthy merchant or manufacturer in the East. Their
business is to gather up the wealth of a nation, not of a town
or city, and to supply the borrowing wants of a nati n.
There was a time in Canada, about twenty years ago,
when some people thought that in every town, a bank, no
matter how small, provided it had no branches, and had its
BANKING IN CANADA
87
owners resident in the neighborhood, was a greater help to the
town than the branch of a large and powerful bank. In those
days, perhaps, the great banks were too autocratic, had not
been taught by competition to respect fully the wants of each
community. If this feeling existed to any extent, it has passed
away. We are, in fact, in danger of the results of over-
competition. There are, indeed, few countries in the world so
well supplied with banking facilities as Canada. The branch
system not only enables every town of 1,000 or 1,200 people to
have a joint-stock bank, but to have a bank with a power
behind it generally twenty to fifty times greater Uian a bank
would have such as is found in towns of similar size in the
United States.
THE DEPOSITOR
The legal position of the depositor is about the same in
Canada as it is in the United States. The note-holder's claim
is i)referred to his. AVe must not, however, expect that any
government will relieve a depositor from the necessity of using
discretion as to where he places his money. Governments
never have done and never can do that. Men must use their
intelligence, and after measuring the security offered, judge
where they should intrust their money. It is perhaps easier
for a man with limited intelligence to make a selection if the
banks have large capital and are of semi-national importance,
provided, of course, the basis of the system is not unsound, as
it is, for example, in Italy and Australia. In Canada, we do
not obtain dt posits frcm abroad, although we might not object
to do so if noney could be obtained at low enough rates of
interest ; and we do not lend on real estate, as banks do in
Australia. The Government statement of March 31, 1896,
shows that before depositors having claims amounting to
$187,000,000 can suffer, shareholders must lose in paid-up
stock and double liability as much as $125,000,000, and
$26,000,000 of surplus funds; in all, $151,000,000. There
are probably few countries in the world where greater security
is offered to depositors.
When the bank charters were under discussion in i8()o,
the writer had occasion to make publicly a statement which,
88
A HISTOR Y OF
in view of the several failures of branch banks in Australia
since, might now excite more criticism than it did then. In
making a comparison between individual banks with small
capital and banks with branches and large capital, it was
urged that " the probability of loss to the depositors in one
bank with several millions of capital is less than the probability
of loss to some of the depositors in ten or twenty small banks
having in the aggregate the same capital and deposits as the
large bank."
The retort will be quickly made, " But if the large bank
failF, the ruin wi!', be just so much the more widespread."
This is quite true, but it is not an answer to the point,
althoucrh it may appear to be .so. If the conditions of two
countries are about the same, and the ability of the bankers
and the principles of tho banking system are in other respects
equally excellent, it must still re main true that the probability
of loss to some of the depositors in the ten or t\venty small
banks is greater than the probability of loss to any of the
depositors in the one large bank.
In the closing chapter, a statement of the failures of banks
in Canada since confederation in 1867 is given, and from this
the loss to depositors may be estimated.
BANK INSPECTION
We have in Canada no public bank examiner as in the
United States, nor are the annual statements of banks audited
as in Australia. When the audit system was proposed by the
Government, the bankers resisted because they felt that it
pretended to protect the shareholders and creditors, but did
not really do so. If an audit would not really protect the
shareholders and creditors, it seemed better that they should
not be lulled by imaginary safeguardsj, but be kept alert by
the constant exercise of their own judgment. So far as the
bankers have ever discussed with the Government the question
of public bank examiners, they have confined their arguments
to pointing out the impracticability when banks have many
branches. This may, in the minds of some, constitute an
argument against branch banking. We simply state the facts.
!ANKn\G IN CANADA
89
But bankers say that while it might be very well to have public
examiners for the protection of the people — if it really would
less, n bank failures— it is much more necessary with bramh
banking to have bank examiners, or, as they are called,
inspectors, on behalf of the executive of the bank. When it
comes to the quality of the work done by such trained
inspectors, it would not be too much to assert that it is almost
certain to be better than that of a public official. In the
larger banks the inspection staff consists of several men who
are actively engaged for the whole year in completing one tour
of the branches. Some of these officers devote themselves
to the routine of the branches, verifying the ca.sh, securities,
bills, accounts, etc., testing the compliance of officers with the
regulations of the bank, reporting on the skill and character of
officers, etc., while the chiefs devote themselves to the higher
matters, such as the quality of the bills under discount, loans
against securities— indeed, the quality and value of fvery asset
at the branch. They also deal with the growth and profitable-
ness of the branch, its prospects, etc. These matters have
already passed the judgment of the branch manager, and the
more important ha\c [)een referred to and approved by the
executive, so that it may be said that three different judgments
are passed upon the business of the branch. But it will be
said that the chief inspector may be under the swav of the
executive and his reports a mere echo of the opinion of the
latter. This is quite true— the reports may be dishonest.
Our bankers do not tell the public that the inspector is
specially employed for its protection. He, like the t,'eneral
manager, is merely a part of the bank's machinery for conduct-
ing its business, and the public is left to judge of the bank by
its chief officers, its record in the past, its entourage.
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CHAPTER VI
LAND BANKS— LOAN COMPANIES
SAVINGS-BANKS— DOMINION NOTES— BANK FAILURES
O account of the joint-stock banks alone would
constitute an adequate study of the banking
of a country, yet it is impossible in this work
to make more than the briefest mention
of the land banks or building and loan
companies and the savings banks of Canada.
A Very complete account has, however, just been published in
the third volume of the "Journal of the Canadian Bankers'
Association," page 227, entitled "The Land Mortgage Com-
panies, Government Savmgs-Banks, and Private Bankers of
Canada," by Massey Morris. From this we learn that the
total banking assets of Canada, excluding private bankeis, at
the nearesi date convenient for Mr. Morris' purposes, were as
follows :
Chartered banks— Total assets (1893) $304,363,580
Loan companies — Total assets (1893) 133,250,285
Covernment — Legal-tender notes in ' ^
circulation $18,448,494
Government — Savings-bank deposits 41,849,658
60,298,152
Quebec savings-banks — Total assets (April, 1S95) 15,307,637
Total $513,219,654
LAND MORTGAGE COMPANIES
The history of land mortgajre companies in Canada dates
back a little more than fifty years, the first legislation occurring
apparently in Upper Canada (Ontario), in which province
BANKING IN CANADA
91
alone the system has largely developed. It is, however, clearly
destined to have a large develojmient in the new provinces 01"
the Northwest. That the growth of this form of money-lend-
ing has been rapid is indicated hv the fact that while the total
loans in 1874 were only about $15,000,000, in 1893 they had
reached $115,000,000. By a .statement given later it will b-j
seen that this growth is almost entirely in Ontario. Unfortun-
ately, there is no general act, as in commercial banking, to
which all must conform, and no single .source of authority.
Charters are granted both by the Dominion and Provincial
Governments, while there are five companies working under
Imperial charters, there being nothing to prevent foreign cor-
porations from doing business in the country. As a con-
sequence, complete statements are not yet placed before the
public, although great efforts are made by the Dominion
Government and that of the province of Ontario to obtain
returns showing the operations of the companies. When Mr.
Morris wrote the article referred to, he had before him a return
to the Dominion Government covering the names of eighty-
two companies, while another to the province of Ontario
covered eighty-six. There are doubtless altogether not as
many as one hundred companies, counting every variety, doing
business in the Dominion. For the reasons given, there is
considerable incongruity in the powers accorded to the various
companies, and it is not ea.sy to state the principles which
actuated the different governments in granting charters. A
few leading features, however, may be indicated. Loans must
be confined to real property and bonds, stock.s, and similar
collaterals. There is a limit in proportion to capital to the
amount of liability which may b..- incurred, although no .settled
rule prevails. There is no double liability resting upon the
stockholders. The weakest feature is the [jermission to many
companies to accept deposits which are practically repayable
on demand. It must be clear that if a commercial bank
whose deposits are repayable on demand, or on short notice, is
restrained by law from lending on real proiJcrty, a company
lending on real pro[)erty should be restrained from accepting
deposits repayable on demand. Public opinion is moving
i
I
92
BANKING IN CANADA
rapidly in this direction, and many companies have as a matter
of policy and wisdom withdrawn from acquiring deposits
except in exchange for the time debentures of the company.
Thus far, the record of the land mortgage companies in
Canada is excellent. Very few have failed, and in no instance
have the creditors not been paid in full.
A .statement taken from the article referred to is
appended, to show the volume of business as far as it is
disclosed by the imperfect returns at the Author's disposal.
The reader's attention is drawn to the fact that while the
deposits of Canadian banks are all practically made by
Canadians, the land mortgage companies have, out of deposits
amounting to about $80,000,000, borrowed about $50,000,000
in foreign countries, which, in the main, means Scotland.
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BANKING IN CANADA
95
SAVINGS-BANKS
In considering the savings-banks of Canada it is first
necessary to bear in mind that they represent the savings to a
moderate extent only of those who have money upon which
they desire to earn interest, but which they prefer to intrust to a
bank rather than invest in a specific security ; in other words,
the savings-bank class of c'epositors. Upon deposits of this
class, no matter how small in amount, the ordinary Canadian
banks are prepared to pay interest, and the banks, with few
exceptions have what are called savings-bank departments.
\\'ithout estimating what proportion of the total deposits in
the ordinary banks is of this character, it would be impossible to
make use of the figures as evidence of the saving habits of the
people.
Before confederation there were a few incorporated
savings-banks in Lower Canada (Quebec) and Ui)pcr Canada
(Ontario), but in the maritime provinces Government savings-
banks had been established ; not, however, on the plan of the
post-office savings-banks of Great Britain. When the first
Finance Ministers of the new Dominion came to face their
financial difficulties, one of the expedients resorted to, in
addition to the issue of legal tenders, was the establishment of
post-office savings-banks, in the main following the plan in
force in Great Britain. The Government also took over the
provincial savings-banks already in operation in the maritime
provinces, and it still carries on the two systems of savings-
banks, although they are gradually being merged into a uniform
post-office system. The incorporated savings-banks in the
meantime have either taken oi. the powers of land mortgage
banks or have practically disappeared, with the exception of
two powerful institutions in Quebec, one at Montreal and one
at Quebec City. We append a table taken fron^ Mr. Morris'
article, which shows at once the growth since confederation
and the division between the three classes of savings-banks.
The third column consists almost entirely of the deposits of
i; I
^i
96
A HISTOR Y OF
the two incorporated savings-banks in the proviuce of Quebec
already mentioned :
Year Ended
June 30th.
1 80S..
1869..
1870. .
1871 .
1872,.
>87.r.
1874
I87.S..
1876..
1877..
1878..
1879. •
1880..
I88I..
1882.
1883..
1884..
1881;..
1886..
1887..
1888..
1889..
1890..
I89I..
1892. .
1893..
n . /c Other
Post-office I Government
Saving»-bank.. SavinKs-banks.
Special
Saviiigs-banlcs.
Totals,
$
I,
2,
3
3
3
2,
2,
2,
3
3.
6,
9.
II.
13
«5.
17,
19,
20,
23.
21,
21,
22,
24
204,589
856,814
588,849
497.260
096, 500
207,052
204,965
926,090
740,952
639.937
754.484
105,191
945,669
208,227
473,661
976.237
245.553
090,540
"59.372
497.750
689,033
011,423
990,653
738,648
298,402
153.194
$1,683,219
1.694.525
1,822,570
2,072,037
2.154.233
2,958,170
4,005,296
4,245,091
4,303,166
4,830,694
5,742.529
6,102,492
7,107,287
9,628,445
12,295,001
14,242,870
15.971.9S3
17,888,536
20,014,442
21.334.525
20,682,025
19.944.934
19,021,812
17,661,378
17,231,146
17,696,464
$3,369,799
3,960,818
5.369,103
5,766,712
5,557,126
6,768,662
6,811,009
6,611,416
6,519,229
6,054,456
5.63'. 172
5,494,164
6,681.025
7.685.888
8,658,43s
8,791,045
8,851,142
9,191,89s
9.J77.I32
10,092,143
10,475,292
10,761,061
I g, 908, 987
10,982,232
12,236,100
12,823,836
$5,057,607
6.412,157
8,780,522
10,336,009
10,807,859
'^9.S3,884
14,021,270
13.782,579
"3,563.347
13,525.087
14.128,185
14,701,847
'7,733,981
23,522,560
30,427,096
35,oio,»52
38,068,679
42,170,971
46,350,946
50,924,418
51,846,350
53,717,419
5',92i,452
50,382,258
51,765,648
S4.673.494
Whether the plan is destined to be permanent which was
first adopted in Great Britain, and which has now spread to so
many countries, of the Government taking the money of the
people and allowing interest thereon, is beyond the scope of
our in(iui*ry. It has involved Great Britain in many very
serious difficulties, and it cannot fail to cause considerable
trouble to any government which endeavors by such means to
occupy the place of bankers. But in Canada the reason
moving the Finance Minister in 1867 was not philanthropical —
he merely wanted money — and for many years it was a means
of borrowing from the people — the rate of interest being higher
than first-class banks could afford to pay. Even now, the rate
paid is three and a half per cent, per annum, which is higher
j :
BANKING W CANADA
97
than the rate ordinarily paid by banks. For this rate no
justification can be found. The Government is now in the
highest grade of credit among British dependencies, and only
two or three nations in the world can borrow at lower rates of
interest, so that when to three and a half per cent, per annum
is added the cost of maintaining about forty special offices and
of gathering money at over 700 post-offices, the rate cannot be
justified by any argument based upon the mere value of mon^y.
Theoretically, the intelligent and well-to-do are nut supposed
to take advantage of this species of public bonus given to
encourage habits of saving, and of this paternal care intended
to avert loss to depositors who lack intelligence. Therefore
there is a limit ($1000) to the amount to be deposited in any
single year, and another limit ($3000) to the total, which rnr.y
stand at the credit of any one name. When this maximum is
reached, however, if the depositor is not clever enough to
adopt expedients for depositing his money in the name of
another, he can convert his dei)0sit into some other form of
Government obligation, such as inscribed stock, and begin to
deposit in the savings-bank again.
DOMINION NOTE ISSUES
It will be remembered that when legal-tender notes were
authorized, under the Dominion Note Act, to replace those
formerly issued under the Provincial Note Act, the limit was
placed at $9,000,000, issues in excess being permitted if an
equal amount of gold was reserved. From time to time,
however, the Government extended the limit of these notesi
secured only in part by gold (with a minimum requirement of
fifteen per cent, and Government bonds for the balance), until
it was fixed at $20,000,000. But while these later issues were
partly the result of the increase of the requirements of the
country in change-making notes (those of smaller denominations
than five dollars), they were mainly caused by the requirements
of the banks in notes of large denominations used for making
settlements, and therefore the Government found it expedien"
to keep much larger gold reserves than those named in the act.
Now that the issues are likely to exceed considerably the limit
98
A HJSTOR V OF
of $20,000,000, the act has been amended and the Govern-
ment has definitely avowed its purpose of keeping an e([ual
amount of gold for all issues in excess of the limit named.
With the growth of the change-making notes, which cannot
well be presented for redemption on the one hand, and the
increasing stock of gold as the issues reach higher figures,
almost all danger from this bad system of financing will pass
away, and Section 50 will, we hope, some day be removed
from the Bank Act.
The statement below shows the amount of notes in
circulation at the close of each of the months ending with
March 31, 1896. It will be observed that about two-thirds of
the entire issue is in large notes used almost alone by banks for
settlement purposes. At the request of the banks the Govern-
ment has consented to issue a special form of legal-tender note,
negotiable only between chartered banks, in order to lessen
the risk of loss by carrying large amounts to and from the
clearing-houses or from bank to bank, and the danger of
robbery or fraud in any other manner, always incident to notes
payable to bearer. If, as it is hoped by many, this results in
the conversion of the major part of the notes of high denomina-
tions now payable to bearer into notes only negotiable between
banks, it will be made evident to all that the functions of :he
Dominion Note Act are sharply separated under two heads.
I St. To provide for the community, including the banks,
the change-making notes required for the transaction of the
business operations of the country, of which at any one time
no considerable proportion could be presented for redemption.
2nd. To issue notes of large denominations, almost all
of which are held by the banks.
BANKING IN CANADA
99
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S-9
BANKING IN CANADA
lOI
BANK FAILURES
Although we have not been able to follow in detail the
incidents showing the growth md fortunes of banking since
confederation, we present in the preceding table a statement of
the bank failures during the period 1867 to 1896.
Leaving out of consideration the Bank of Prince Edward
Island, the provincial charter of which had not expired when it
suspended, and which was not therefore a bank doing business
under the Dominion Act, we find that out of fifteen failures,
nine banks paid both note-holders and ordinary creditors in
full, and four more paid note-holders in full. Of the four who
paid note-holders in full, but not ordinary creditors, one, the
Commercial Bank of Manitoba, has paid eighty per cent, to
ordinary creditors, and is still in process of liquidation.
Another, the Central Bank of Canada, paid to ordinary
CI editors all but one-third of one cent in the dollar, and would
certainly have paid all claims in full had not the liiiuidators
been allowed quite too large fees for their serv'ices. A third,
the Banque du Peuple, is now being liquidated, and it would
not be proper for the writer to express at the present time an
opinio-i .13 to the dividend the ordinary e.editors are likely to
receive. The point to be observed is, that it is a bank with
an abnormal charter, under which there is no double liabilliy
on the part of the stockholders, although there is an unlim'ted
liability on the part of the directors, and the results of its
failure do not concern us in estimating the value of the
present system. The remaining bank, which paid its note-
holders but not its ordinary creditors, was the Maritime Bank
of St. John, N. B. Its record is very bad. The claims of the
Dominion and Provincial Governments, which rank next to
the note-holders', were paid in full, but the ordinary creditors
received only 10.60 per cent, of their claims. The double
liability failed to produce one-half of the face value of the
shares at the time of suspension.
We have now left for consideration two banks which have
paid neither note-holders nor ordinary creditors in full, and
the fact that note-holders were not paid is, of course, of prime
importance. \Miatever care it may be possible for the State
I02
A HISTOR Y OF
mi
to take for the protection of depositors, no system, so far as
the v/riter is aware, professes to do so absolutely, wnile it may
be asserted that no system approaches perfection which does
not absolutely protect the note-holder. The two failures
referred tO took place at a time when the notes were not a hrst
lien on the estate of the bank, although it will be remembered
that the bankers had suggested that the law be so made.
When the Mjchanics' Bank was wound up, only fifty-seven
and one-h.'iif per cent, was paid to note-holders and other
creditors, and at the next revision of the act the change
referred to was made. The other, the Bank of Acadia, has
been described as a fraudulent affair, and it stands out
conspicuously as an evidence of the value of two features of
the present act — that a new bank shall have a sufficiently
large capital to make it reasonably clear that it is a dona fide
venture, and that the capital in actual cash shall be paid into
the ofnce of the Finance Minister before permission to begin
business is granted. This bank hr.d nominally a capital of
$500,000 subscribed, and $100,000 paid ap, but there appears
to have been no real capital, or practically none. It existed
for four or five months, paying a commission to floit its notes,
and then failed. Its notes had been redeemed by a bank
correspondent, but to what extent they were in circulation at
the moment of failure, or whether any dividend was paid, the
writer, after several efforts, cannot learn.
To sum up the evidence from the foregoing facts, it
appears that if the Bank Act had assumed iis ])rcsent shape at
the time of confederation no holder of a Canadian l)ank note
would have suft'ered loss.
RETURNS TO GOVERNMENT
We will now close this study of Canadia.i Banking by
appending a copy of the latest Government return, in the form
in which it is condensed for the readers of the "Journal of
the Canadian Bankers' Association." The writer once more
expresses the hope that the comparatively unimportant scope
of Canadian banking will not cause any reader to lay less
stre-^o upon the principles set forth. It dors not, however,
BANKING IN CANADA 103
follow that a system of banking which suits admirably the
environment in which it is placed can be transplanted. In
banking, the most cherished dogma of one country may be
rank heresy in another. The main point is that the Canadian
banker has spent his energy to make perfect that which he
had, rather than to
" Seek painted triiies and fantastic toys,
And eagerly pursue imaginary joys,"
and that the people of Canada are satisfied that the result is
good.
Statement of Banks Acting Under Dominion Government Charter for the
Month ending March j/, tSgb.
LIABILITIES
March, 1895 March, 1896
Capital authorized $ 73,458.685 $ 73.4S8.6«S
Capital paid up 61,688,839 62,196,536
Reserve fund 27,350,674 26,458,799
Notes in circuUtion $ 29,414,796 $ 30,789,457
Dominion and Provincial Go' ernment
''«P°s''^ 9,543.430 6,316,801
Public deposits on demand 63,452,044 59,874,493
Public deposits after notice 114,417,688 120,699,562
Bank loans or deposits from other
banks, secured 80,153 20,500
Bank loans or deposits from other
banks, unsecured 2,791,222 2,502,104
Due other banks in Canada in daily
exchanges 180,815 83,321
Due other banks in foreign countries.. 167,965 135.S17
Due other banks in Great Britain 4,1:7,789 5,052,394
Other liabilities 366,165 596,296
TotalliabilJties $224,552,151* $;26,o7o,832
*In this statement the cents are omitted.
I04
BANKING IN CANADA
ASSETS
SP"'"= $ 8,058,599 $ 7.797,099
Dominion notes 15,071,091 12,737,996
Deposits to secure note circulation. . . 1,810,736 1,816,011
Notes and cheques of other banks 6,056,477 6,341,636
Loans to other banks, secured 80, 1 53 15, 500
Deposits made with other banks 3,284,390 3,273,695
Due from other banks in foreign
countries 21,214,061 16,400,267
Due from other banks in Great Britain 4,113,422 4,417,380
Dominion Government debentures or
*'""^'' 2.685,139 2,991,549
Public, municipal, and railway
securities 18,736,605 19,877,893
Call loans on bonds and stocks 17,279,287 13,849,628
Loans to Dominion and Provincial
Governments 1,479.932 462,743
Current loans and discounts 199,086,112 211,603,718
Due from other banks in Canada in
daily exchanges 136,754 I07,IS3
Overdue debts 3,042,985 4,344,192
Real estate 1,062,473 1,485,358
Mortgages on real estate sold 560,788 582,288
Bank premises 5,510,838 5,655,524
Other assets 2,019,553 1,931,452
Total assets $311,289,599 $315,691,276
Average amount of specie held during
the month $8,050,859 $7,780,843
Average Dominion notes held during
the month 15,296,161 12,787,159
Loans to directors or their firms 7,653,882 7,936,789
Greatest amount of notes in circulation
during month 30,312,847 31,521,232
INDEX
Accounts, 9.
Advances, 36, 39, 48, 59, 74-76.
Advertisements in guise of bank
notes, 57.
Agents and agencies, 10, 19,
30, 31. 35. 56, 67, 70, 74, 77,
78.
Agricultural Bank, 31, 36.
Agriculture, 4, 22, 33, 34, 35, 58,
86.
Allotment of shares, 68.
Appreciation of coin, 4.
Army bills, 11-14, )l6.
Arrest for oebt, 12.
Assessments, 21.
Assignment bv indorsement, 56,
. 57-
Auditors, 88, 89.
Australia, 87, 88.
Balance-sheets, 30, 40.
Bank: accounts, 88,89;assets, 21,
22, 30, 39, 40, 54. 55. 59. 60, 73,
77, 7S, 82, 89, 90, 94, 100, 104 ;
books, iS, 54, 69, 75, 88, 89;
buildings, 78, 104; business, 22,
34. 55. 57-59. 74; capital, 11,15-
24, 26, 28-31, 34, 36, 37, 39, 40,
42-44, 46-48, 53-55, 64-66, 68,
70-72, 78, 86, 88, 91, 93, 100,
102, 103; charters, 10, 11, 17-
31. 38-43. 50- 52- 53. 60-66, 68,
71, 72, 74.75.79,83, 87,91, 100,
103 ; commission, 59 ; commis-
sioners, 23, 64 ; debts, 23 ;
failures, 22, 34, 43, 14, 49, 50,
55. 56, 60, 72, 79, 80, 88-90, lOG-
102 ; inspection, 88, 89 ; liabili-
ties, 19, 21, 23, 30, 34, 39-41, 55,
59. 60, 77,78, 93, 100, 103; notes,
10, U, 16, 18-25, 27,28, 30-34,
38-43, 45-4S, 55-57, 64, 70-74,
77- 78, 81-84, 97, 98, 101-104 ;
organization and manage-
ment, II, 17-21, 23, 24, 39-41,
4J, 45, 51-61,64-68, 76; regu-
lations antl by-laws, 39-41,
51-57, 66-68, 89; reports and
returns to Government, i8, 20,
23, 25, 29, 30, 36. 39, 40, 54, 59-
61, 66-69, 7^-^, 88, 89, 102, 103;
reserve, 51, 55, 69, 70,78, 93,
97, 103 ; rest, 55, 78 ; share;,
and shareholders, see Sharks;
surplus, 17, 68, 87 ; taxation,
38. 42, S'-
Bank Act of 1844 (England), 34,
50-
Bank Circulation Redemption
Fund, 56, 74, 100.
Banking : legislation, see Finan-
cial Legislation ; systems
and principles, 10, 22-25, 5'.
33, 34, 38-43. 46,49, 5'. 52, 62,
63, So, 81, 86-8S, 91, 102, 103.
Banking Act of 189a, ^qetteg.
Banking and Currency Com-
mittee, 72.
Bank of Acadia, 100, 102.
Bank of British North America,
24, 28, 42, 43.
Bank of Canada, 17, 21, 22.
Bank of Kingston, 20.
Bank of Liverpool, N.S., 100.
Bank of London in Canada, 100.
Bank of Montreal, 17, 20, 21, 25,
26, 37, 45-4S, 66.
Bank of New Brunswick, 2-23.
Bank of North America, 10.
Bank of Nova Scotia, 21, 22, 24,
25, 79-
Bank of Prince Edward Island,
100, lOI.
Bank of the People, 31, 37.
Bank of Upf er Canada, 19-22,
28, 29, 34-37, 44, 45, 4S.
Bankruptcy of France, 6, 8.
Banks : ot deposit, 10 ; of dis-
count, 10 ; of issue, 10, 26, 27,
38, 45, 48, 51.
Br.nque du Peuple, 27, 100, loi.
Barter, 4.
Bearer notes, 25, 55, 71, 98.
Bigot, Intendant, 7.
io6
INDEX
Bills: of exchange, 6, 8, 12, 18,
Commercial Bank of the Midland
37, 39, 40, 57 ; of lading, 57,
District, 29-31, 35, 36.
76.
Committee for Trade, 33, 64, 66,
Bonds, 8, 18, 38, 46, 47, 70, 73,
74, 79. 80.
78. 82-84, 9«.
Committee for Banking and
Bonuses, S, 29.
Currency, 50, 64, 69
Bookkeeping, 18.
Competition, 87.
Borrower and lender, 84-86.
Confidence, 86.
Branch banks, 10, 19, 20, 26, 28,
Congress of Bankers at Chicago,
30. 34. 35, 39, 41, 42, 44, 57,
80.
S9, 67, 74, 84-89.
Consolidated Bank, 100.
Brandy as currency, 3.
Consolidation and absorption of
Breckenridge, R.M., 9, 48.
banks, 44, 100.
British Columbia, 49.
Constitutional government, 9,11.
British North America Act, 49.
Continental money, 10.
British possession, 8.
Contingent fund, 93.
Building companies, 90.
Contraction: of credit, 34 » of
Bullion, 18, 40, 57.
issues, 46.
Bullion-dealers, 39.
Copper and copper coin, 4, 9,
By-laws. See Bank Regula-
»3-
tions.
Counterfeit money, 11, 57.
Credit, 34, 35, 44, 67, 69, 7.3, 81,
Call loans, 78, 104.
97-
Calls, 21, 54, 60, 68, 79.
Currency, 3-17,21,24-27, 31-33,
Canada Bank, 11.
41, 45, 46,49, 71, 72,8i-84(See
Canada Banking Company, 10.
also Monetary Circulation);
Canadian Treasury bonds, 8.
pound, 71; system, 9.
Canals, 28.
Customs duties, 16.
Capital, 40, 47, 85, 86.
Card money, 5-8.
Debentures, 51, 77, 92-94, 99,
Cash accounts, 10.
104.
Cattle, 58.
Debtor and creditor, 23.
Central Bank of Canada, 100,
Decimal currency, 9, 44.
Id.
Defacement of notes, 57.
Central Bank of New Brunswick,
Demand notes, 39, 40, 45, 55, 71.
23-
Denominations of money, 5, 6,
Charlotte County Bank, 22.
12-14, 21, 25, 41-43, 51, 55, 57,
Charlottetown, P. E. I., 99, 100.
71.97-99-
Cheques, 61, 77, 81, 104.
Deposits and Depositors, 10, 18,
Chicago Congress of Bankers,
22, 23, 28, 34, 39, 40, 59, 72, 73,
80.
77, So, Si, 85, 87, 88, 90-93, 95-
Chippewa, Ont., 31.
97, 100, 102-104.
City Bank, 24, 26, 100.
Depreciation: of French securi-
Clearing-houses, 19.
ties, 8, 9; of paper money, 7-9;
Coin and coinage, 4-6, 9-13, 16-
of prices, 37.
18, 40, 49, 57.
Discount: banks, 10; days, 67; on
Collateral security, 57, 58, 91.
bank notes, 73.
Colonial indebtedness, 8.
Discounting, 10, 1 8, 23, 30, 34,
Colonial office, 32, 33.
35, 37, 39. 40, 54, 57, 59, 67, 85,
Commandit aires, 27.
89, 104.
Commerce, 13, 14, 17, 22, 44, 84.
Dividends, 18, 29, 30, 37, 39, 44,
Commercial: crises, 81, 86;
54, 55, 58, 60, 69, 75, 78, 80, 93,
panics, 32, 35; paper, 39.
100-102.
Commercial Bank of Manitoba,
Dollar, 9, 10.
100, lOI.
Dominion of Canada, 1 5, 48, 49.
Commercial Bank of New Bruns-
Dominion notes, 77, 78, 90, 97,
wick, 23, 100.
99, 104.
INDEX
107
Drafts, 5-7, 47, 70.
Due-bill currency, 7.
England, 9, 28, 37, 45.
Exchange, 12, 13,
Exchange Bank of Canada, 100.
Executors and trustees, 69.
Expansion of credit, 35.
Expiration of charters, 26.
Exports, 3, 4, 7. 22, 37; of
gold, 9, 10, 13, 35; of silver, 9,
«3-
Farmers' Bank, 36.
Farmers' Joint-Stock Banking
Co., 31.
Federal Bank of Canada, too-
Fiat currency, 7.
Fidelity bonds, 67.
Financial: legislation, 4, 10-14,
16-20, 24, 25-33, 35, 36, 41-43.
49-65, 69-71, 74, 75, 90; reform,
8, 16.
Foreign: corporations, 92 ;
money, n, 13, 17.
Forfeiture of charters, 20, 24, 25,
29. 30, 39. 59, 60.
Fractional currency, 99.
France, 3-8.
Fraudulent issues, 55, 57.
Fredericton, N. \S., 23.
Free banking, 31, 50, 63, 64.
Free Banking Act of 1850, 41-43.
French securities, 9.
French West Indies Company, 5.
Funded debt, 16.
Fur trade, 3, 4, 5.
General Bank Act, 50.
Germany. 9.
Ghent, Treaty of, 13.
Gold: coin, etc., 8, 9. 10, 13, 15,
16, »7. 34, 38. 48. 56, 70; reserve,
38.
Gore Bank, 30, 35, 36.
Government: bonds, 38, 72, 82,
84, 97 ; credit, 70 ; debt, 46,
47, 72; deposits, 103; dues, 12;
inquiries, 45 ; interest in and
control over banks, 20, 2r, 23,
24, 37; issues, 15, 21, 24, 37, 39,
43, 45-47, 50, 51, 69 ; loans, 77,
78, 104 ; securities, 40, 42, 43,
77, 94. 97- 104-
Great Britain, 14, 19, 28, 49. 95,
96, 104.
Halifax, 85, 99.
Halifax Banking Company, 21,
22.
Halifax Committee of Trade, 15.
Hamilton, Ont., 30.
Harvests, 36.
Head, Sir F. B,, 36.
Home rule, 32.
Illegitimate currency, 27.
Immigration, 28, 37.
Impairment of capital, 55.
Imports, 3, 4, 5, 7 ! of gold, 35 ;
of silver, 9.
Inability to pay notes, 20.
Increase of capital, 23, 24, 29, ,31,
43, 54, 65, 68.
Indorsement, 57.
Inflation: of currency, 82, 83; of
issues, 2,2,, 47; of trade, 82.
Insolvency, 55, 60, 79, So.
Insolvent banks, 100.
Inspection of banks, 88.
Interest, 12-17, 32, 40, 56, 59, 60,
74, 76, 77-81, 83.86, 93, 05, 96.
Interest-bearing: deposits, 40 ;
issues, 12, 15, 40, 74.
Investments, 12, 14, 44, 46, 85,
86.
Italy, 87.
Joint-stock Ba^ks, "io, 15, 20,
27/ 33. 34, 47. 87. 93.
Kingston, 19, 20, 29.
Land. See Real Estate.
Land hanks, 90.
Land mortgage companies, 76,
90, or, 95.
Lash, Z. A., 76.
Legal tender, 5, 6, 9, 10, 13, 14.
4S-S', 55-57. 69-7 », 90, 95, 97.
98.
Liability: of directors, 19, 23, 27,
30, 55,60,61, 72, loi; of private
bankt ■•'' "7 ; of shareholders,
2; n, 41, 45, 55, 60, 68,
6 J, 87, 91, 101.
Lier 58, 72, 75, 82, 102.
Limitation : of banks' debts, 39 ;
of deposits, 96; of discounts,
54; of issues, 6, 7, 12, 13, 17, 21,
23, 24,28,36, 39. 5'. 55. 7', 8.:;,
97; of liabilities, 23; of loans,
54, 66, 74 ; of powers of banks,
58.
io8
INDEX
Liquidation, 60, 72, 73, 100, loi.
50, 73, 80-85; credit, 84; cur-
Liverpool, N. S., 100.
rency, 69; debt, 84.
Livre, 8, 9,
Navigation, 28.
Livre tournois, 4.
New Brunswick, 15, 21-24, 29,
Loan: commisbioners, 16; com-
49, 64, 66, 74.
panies, 90.
New York (City), 33, 70, 85;
Loans, 7, 16, 18, 22, 23, 29, 30,
(State), 41, 42.
34. 37, 53-58, 66, 70, 71, 74.7S,
Niagara Suspension Bridge Bank,
84-92, 94, 103, 104.
3'.
Lockport, N. Y., 31,
Non-interest-bearing: bills, 12-14;
London, Eng:,, 12, 13.
deposits, 40; notes, 40.
London, Ont., loo.
North West Territory, 49, 85, 91.
Lower Canada. See Quebec.
Note brokers, 86.
Lumber, 58, 76.
Nova Scotia, 15, 21-24, 49, 93-
Manitoba, 49.
Ontario, 10, 15, 19-22, 25-29,32-
Manufacturers, 22, 32.
37, 4'. 44. 49,' 64, 85, 90-93.
Maritime Bank of St. John, loi.
OrJonnaiues, 7, 8.
Maritime Bank of the Dominion
Over-issues, 7, 72, 80, Si, 97.
of Canada, ico.
Overslone, Lord, jS.
Maritime Provinces, 49, 74, 85,
95-
Paper Monf.y, 3-11, 15, 17, 19,
Massachusetts, 10.
27. 3=. 37, 7', 7-'. 81, 82.
Mechanics' Bank, 100, 102.
Payments, 57.
Merchandise, 457, 458.
Pawn or pledge, 39, 55, 57, 75,
Metallic reserve, 38.
76.
Metropolitan Bank, 100,
Peace of 1814, 13.
Meuilles, Jacques de, 5«
Penalties, 60.
Mexican dollars, 9, 10.
Pension funds, 54, 67.
Military and naval expenses, 3,
Personal property, 58.
4. 9. '», »3-
Philadelphia, 10.
Minerals, 58.
Pictou Bank, 100.
Minister of Finance, 45, 50, 53,
Playing-cards as money, .1;.
54, 55. 59, 60, 65, 69, 72, 79, 96,
Political: intrigues, 29;squabbles,
102.
3.
Monetary: circulation, 9, 18, 22,
Population, 6, 7, 22, 32, 73, 84.
23, 26, 29, 35, 36, 38-42, 46-48,
Portugal, 9.
50, 56, 70-74, 77, 80, 82, 90, 98,
Post-office savings-banks, 95, 96.
100, 103, 104; crises. 44, 48, 81,
Pound currency, 9, 16, 71.
86 ; panics, 35, 37. 48-
Power of sale, 59.
Money : 5, 6, 70, 85 ; brokers.
Preferences to creditors, 60.
.19 ; lenders, 75 ; of account.
Premium on shares, 29,68.
9-
«« Pretended" Bank of Upper
Monnoye : de carte, 5 (See also
Canada, 21.
Card Money); de France, 4;
Priests, 3.
du pays, 4, 5.
Prince Edward Island, 49, 100,
Monopoly, 3, 15, 25, 26, 63,
Private : banks, 10, 17, 20-27,
83.
32, 35, 36, 42, 70, 90 ; issues.
Montreal, 3, 10, 11, 17, 46, 70,
31.
85. 95, 99. >oo.
Privy Council, 23, 29.
Morris, Massey, 90, 91, 95.
Profits, 18, 30, 31, 38, 39, 54, 55,
Mortgages, 58, 90, 104.
72, 82, 83, 93-
Municipal securities, 57, 78, 94,
Promises to pay, 71.
104.
Promissory notes, 39, 40.
Province of Canada, 25, 26, 37,
National: bankingsystemof the
41, 48, 49, 64.
United States, 50, So; banks,
Provincial Bank, 19.
INDEX
109
Provincial: banks, .31, 38, 44,
52 ; currency, 46 ; notes, 46,
99-
Provincial Note Act, 48, 50.
Public: confidence, 45; debt, 32,
43; improvements, 32; notices,
6 1 ; securities, 58, 77 ; works
70.
QiTEBEC (City). 3, 10, II, 16, 17,
20, 26, 95, 100; (province), 10,
II, 15-22, 25, 26, 32,35-37,41,
42, 49, 64, 66, 95.
Quebec Bank, 17, 20, 21, 25, 26.
Railroads, 44, 48.
Railway securities, 78, 104.
Rate of discount, 37.
Ratio of paper to specie, 7.
Real estate, i6, 17, 18, 20,30-33,
39-40,44, 58. 74-78, 91, 94, 104.
Rebellion : of 1837, 26, 27, 35; of
1838, 37.
Reciprocity between the United
States and Canada, 43.
Redemption: agents 56; fund, 56;
in specie, 36; of army bills, 12-
14, 16; of bank notes, 30, 34,
36, 57, 74, 82-85, 98, 100-102;
of due-bills, 7; of Treasury
bills, 15; of card money, 6, 7;
of Government notes, 15, 46.
Rediscounting, 86.
Reduction of capital, 44, 54, 68,
69.
Registration of shares, 18.
Reissuable notes, 16.
Reissue of army bills, 13.
Renewal of charters, 24-25, 41,
46, 51, 61, 62,
Repudiated currency, li.
Reserve, 46.
Restriction of discounts, 37.
Resumption of specie payments,
37-
Revenues, 12.
Revision of Bank Act, 52.
Ris:ht of issue, 10, 11, 38, 42, 46,
64, 70, 71,
Royal: charters, 26, 42; letters
patent, 26.
Royal Canadian Bank, 100.
Runs upon banks, 48.
Russell, Lord John, 38.
St. Andrew's N. B., 22.
St. John, N. B., 21, 24, 99, 100.
St. Stephen s Rank, 23.
Savings, 85, 95.
Savings-banks, 90, 95, 96.
Scotland, 92.
Shares and shareholders, 11, 18-
21, 27, 28, 38. 39, 45, 48, 53, 54,
58, 59, 66-69, 71, 74, 77. 78, 87,
88, 94, loi.
Shilling, 9.
Shipping, 39, 58, 75.
Silver and silver coin, 4, 9, 10,13,
18, 57.
Skins .Ts currency, 45.
Spain, 9.
Spanish dollars, 9, 10.
Special: charters, 71; partners,
27; reports, 30, 61, 79,
Specie, 5, II, 20, 30, 34, 35, 39,
46, 51, 56, 6s, 72. 77, 81, 84. 99,
104; reserve, 46.
Speculation, 11, 32, 44.
Stadacona Bank, 100.
Standards of value, 4.
State Bank issues, United States,
73-
State banks, 47, 83.
Statute of limitations, 60, 80.
Stevenson, James, 9, 14.
Stock certificates, 75.
Subscriptions, 19, 29, 38, 39, 53,
54, 64, 68.
Subsidiary coinage, 4.
Subsidized railroads, 44.
Superior Bank of Canada, 100.
Suspensions : of banks, 28, 36;
of payments, 20, 30, 35, 36, 48,
56, 60, 74, So, 85, 100, 101 ;
of specie payment, 27; 35,
39-
Sydenham, Lord, 38, 45.
Taxbs, 38, 42, SI,
Theory of currency, 38.
Three Rivers, 3.
Torn and defaced notes, 57.
Toronto, 20, 46, 85, 99, 100.
Trading Company, the, 3, 4.
Transfer of shares, 18, 54, 60, 68,
75. 79-
Treasury (Canada), 8, 16, 51, 53,
56, 64, 68; (France), 5-8;
(England), 40.
Treasury : drafts, 5-8 ; notes,
16, 21; warrants, 16.
Treaty of Ghent, 13.
Truscott, Green & Co., 31, 36.
Trusts, 59, 69.
no
INDEX
Unclaimed moneys, 6o, 79.
United States, 10, 14, 19, 35-37.
43. SO. 63, 67-70, 73. 80-89 ;
bonds, 83; currency, 10, 11 ;
national banks. 73, 84.
United States Bank, 10.
Unlawful use of banking titles,
61, 80.
Upper Canada. See Ontario.
Upper Canada Banking Com-
pany, 20.
Usury, 59, 77"
Vancouver, 85.
Victoria, B. C, 99.
Viger, DeWitt et Cie.
27-
War, 6, 7, 13, 17 ; between
Canada and United States, 11;
of 1812, II, i3i 19.
Warehouse receipts, 58, 75, 76.
Wear of coin, 9.
Wheat as currency, 5.
Winnipeg, 99.