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M 
 
 ON BANKS AND BANKING IN 
 
 CANADA: 
 
 A STUDY OF THE BANK RE I'URNS WITH REFERENCE TO 
 PROPOSED CHANGES IN THE BANK ACT. 
 
 Il'vciitlsc: 
 
 "^^BY J. //. MW^IEjS, KC.7I. 
 
 O 
 
 WHH PAPKRS IN RKl'LY BY 
 
 ^n. GEORGE HAGUE, GENERAL liJANAGER I^ERCHANTS BANK OF CANADA, 
 
 AND OIHKRS. 
 
 RKAl) liKKORt; IHK 
 
 ^notitutc of <ShartcrcD ^fccoiintanf© of ©ntario, 
 
 PRICE TWENTY-FIVE CENTS. 
 
 \ ' - TORONTO : 
 
 r \ WILLIAMSON AND COMPANY 
 
 MONTREAL: 
 DAWSON H ROT HERS. 
 
 
 MAIL JOU PRINT 
 
 r 
 
 C 
 
 I 
 
c~ 
 
 // 
 
 ^ J\^ 
 
 
 
 
 
• 
 
/■ 
 
 ox BANKS AND BANKINC IN 
 
 CANADA: 
 
 A srri»\' oi niK hank ki:TrRNs wiiii ni i iki:n( i: lo 
 
 I'ROl'OSKI) CHANOKS IN Till: i;\NK ACT. 
 
 i'vcatisc : 
 
 Willi l'\!-|U'- IN kl I'l \ BN 
 
 P GEORGE HAGUE, GENERAL I^ANAGER I^ERCHANTS BANK OF CANADA, 
 
 AND iilMKKS. 
 
 RK.VK HI.K)I<K II IK 
 
 '^n&titiit*? of (Shartcreil '?l'iccoimtante of ^ntciiio, 
 
 T" r I^ ^ IT T C 2.-: -A. ■jr :l r t l- =\. r- ii. Z. — r. f\. , - O G G . 
 
 TORONTO: 
 W I I, L I A M SON AND C O M I' A N N 
 
 MONTKKAL: 
 DAWSON 11 KOI II K K S. 
 
 IV\% 
 

 Entered ac.r li,„ ,., Act ,., .,.. ,.,.,i,„.,., .., e,„^,,,_ „^ „^^ ^^.^^ _^^^ 
 Nr. .(. .\kM..es. It the- Department „i AKricuIture. 
 
INSTITUTE 
 
 - (.1 — 
 
 Chartered Accountants of Ontario. 
 
 In otf'iiaUd I'V S'atiitt- of Oiita>i,<. j(> I'i,., Ci/-. h^. 
 
 /Iiumitiin. 
 
 /'tVOIlfO. 
 
 I oroiito. 
 
 
 OKI I( I.K>. 
 
 \V. F. I'iNhi w, l-.C.A., AccDiintatit 
 
 II. \V. IIkhis, F'".C. A., Accountant 
 
 J. T. Mdokk, I-'.C.A., Manaj^lni; l)lrL-cl)r Saskaichcw.in I.an.l and il(.nusiei)cl 
 Company 
 
 (OINCIL: 
 
 Wii.i.iAM McCaiu:, K.C'.A., I'.I.A., I-.S.S., Knjj., Manajjinj; Direct. .r Nurtli 
 
 American Life Assurance Co 
 
 E. K. C. <■ I. A KKsoN, I.e. A., Accountant 
 
 S. H. Makman, !".C.A., D.C.L , City Treasurer 
 
 K. T. CoAiiv, K.C.A., Assistant ( ity Treasurer 
 
 W. II. Cross, I'.C.A., Mercliant 
 
 H<iN. S. C. Wood, Manager l-'rcehold Loan ami Savinj^s Co 
 
 K. 11. ToMi.isso.N, .Man.ager British Canadian Loan and Inve>lnitnt Co •• 
 
 I'. (J. Koi Til, Accountant " 
 
 llticii .Scori, Insurance Underwriter " 
 
 K. Jknkins, Accountant •• 
 
 W. I'ouis, F.C.A., .Accountant " 
 
 J. J. Mason, F.C. A., Accountant Hamilicu. 
 
 A. (). Kamsay, K.L.\., Kng., Managing I)ir(.-(tor CMunda Life In^. Co " . 
 
 K. L. (Ji'NN, Accountant , " 
 
 (\. V, Jkuki.i., F.C. a., Accountant I.otidon. 
 
 J. W. Johnson, K.C.A., Principal Ontario Husincss Collfge Helleville. 
 
 Ilv. LvF., Accountant and Fire Adjuster Cobou>«. 
 
 C. A. Ki.kmim;, Principal Northern Business College (hceu Sound. 
 
 ACDITOKS: 
 j. McArtiu'k (Jrii I nil, T. II. Monk. 
 
 SIXKKTAKY AND TRKASURKK: 
 I. IL Mk.nzies, F.C. a., Accountant 'Joton/o. 
 
Qn I^cinks and J^ankinn in Canaihi. 
 
 r 
 
 'HI'. ACCOM TAN YIN'Ci Analysis* embraces :iil the moiv important 
 features of the Returns furnished to (lovemment hy the hanks. The 
 fullowin{4 ohservations on the purport of its ne\erai columns are 
 offered as a contribution towards the ehu idation oi a subjetl of interest not 
 merely to baniters and bank stockholders, but to every < onunercial man in 
 the country ; for no business is (]uite independent of the banking system. 
 
 Financial cjuestions are the practical issues of the day : and it behooves 
 those who are com|)eteni to ileal with them, (jr with any branch of them, to 
 give the country any advantage their special knowledge may be worth. In 
 this view the present paper has been written. It iloes not pretend to exhaust 
 the subject, but merely to furnish some material for discussing it understand- 
 ingly, in order i)Ossil)ly to the removal of any defe<ts and the after-construc- 
 tion of a perfect banking practice. 
 
 COLUMN ()NK of the .\nalysis shows the extent to which the banks 
 approach the limit of issue ($100 for every $ioq of paid up Cajtital) 
 allowed I)y the Hank Act. 
 
 B.vsis oi Ciki 11 A HON. 
 
 'I'nK Si AM'roKV limitation of the Circulation of the banks to the amount of 
 their unimi)aired paid-up Capital is a purely arbitrary one, apparently 
 grounded on no appro])riate principle. It is attempted to justify it on the 
 principle, sound in itself, that C'redit should be based on Capital. But while 
 credit taken by the banks in the form of Circulation is so limited in amount, 
 
 * At page 44. In general, the references are to ihe January Returns of the Canadian hanks. .Analyses 
 of the Returns for FeUruary anil March are adde;l ; and also for comparison in some particulars a similar 
 Analysis of th"! Returns of a group of Knglish banks — all the l.onilnn Joint Stock hanks furnishing sulVu i>-tit 
 <.lata for the purpose, whose combined paid-up capital approximates to that uf the Canadian lanks. 
 
notwiihsli'ndiiiL; that paMiit u is guar;intcc(l hy a first lien on the assets, no 
 liniitalion is set to the ainoiinl of Deposits — that other form ot trcdit taken 
 hv the hinks without any such guarantee, \vhi( h is the source from which all 
 legitimate Circulation llows as a stream tlows from an iii)i)cr lake. Thus the 
 reservoir may without (heck l>e filled to oveitlowinu, while the caiarity of the 
 ronduit is to he regulated, and wholly without resi)ect to the volume to be 
 discharged through it. But a hank is authorised to issue ("ir( ulation, not l)\ 
 any means because it has an amoiuit in\ested as bank Capital (for that would 
 warrant the establishment of pure ba.iks of issue, and indtJeii involves the 
 'concession to ( iovernment of a right to monopolise the currenf y, but lor the 
 piupose of su]>i)lying the country with a suitable currem y. The Ciniilaiion 
 of a bank is connected, not with the amount of its paid up Capital, but with 
 the amount (^f I )eposits it holds. A Circulation is created naturally oi.ly 
 through the activity of the Deposit accoimt ; and the greater the amount of 
 Deposits, es])ecially Deposits made up of the proceeds of discounts ami of 
 business balances, the greater will be the normal Circulation. 
 
 In an essay recently ])ublished by Mr. \V. ^\'. Klannagan. Cashier ot ihe 
 Commercial National Bank, New York, on T/if Xcicssi/y /<>>■<} /uiii/s('ifrit/n/ii'!i, 
 banks and bankers are most aptly styled "dealers in credits.' "They 
 handle money as well."' says Mr. l-lannagan, "but the oi)erati()ns in credits 
 form such a large proportion of the business of banking that it is strictly 
 accurate to say they are dealers in credits ; the money handled being only 
 the reserve or foundation on which the business is < onducted. What is 
 classified in a bank statement as 'Dei)osits' does not necessarily mean 
 money therein deposited. On the contrary, a very small proportion of 
 'I)ej)osits' represents money dejiosited. A deposit often is, and usually 
 arises from a mere exchange of credits ; this exchange may [)e by checks or 
 drafts on some other banker, or it may be in the nature of a discount, as 
 when the banker takes the ' [)romise to pay ' of his customer which he lists 
 among his assets as ' Bills Discounted,' and gives in exchange therefor his 
 ' jiromise to ])ay' which he classes among his liabilities as ' Deposits.' 
 The result is the exchange of one credit payable in the future for another 
 payal)le on demand. I'his 'promise to pay' or credit, or deposit, when put 
 into negotiable form so as to pass by delivery without endorsement, is called 
 b.ink Circulation. It requires no argument to show, for it is a|)parent in 
 the mere assertion, that Circulation being one form of credit, and bank 
 Deposits another, the demand for the negotiable form, Circulation, will 
 
 increase //v rata with the amount in the form of Deposits Hank 
 
 credits put into the shape of checks and drafts constitute tlie great bulk of 
 the c-irculating medium of the country, but the minor operations of trade 
 must necessarily be done with money or bank credits in the form of money 
 (Clirculation), and these minor operations keep/z'v' rata pace with the larger 
 
■' assets, no 
 -redit taken 
 n which all 
 Thus ihc 
 ;if'ity of th<.> 
 
 I unit' to \)c 
 Jcn, n(j[ In 
 tliat would 
 ivolves the 
 hut for the 
 'i'< ulation 
 
 Inii with 
 rally otjy 
 •inount iti 
 ts ami of 
 
 <-■'■ ot I he 
 
 >'ii(hUii>!i, 
 
 " 'I'hey 
 
 II credits 
 s strictly 
 
 ng only 
 What is 
 ■ mean 
 tion of 
 usually 
 ecks or 
 :)unt, as 
 he lists 
 for his 
 posits.' 
 nother 
 en put 
 called 
 ent in 
 >ank 
 1, will 
 liank 
 ilk of 
 trade 
 loney 
 arger 
 
 transactions. .So tint to the extent that Deposits in l)anks increase, to the 
 same extent is there a correspondinij deinaiul for Circulatioii."'* 
 
 While a bank may have a Circulation in due proportion to its Deposits, 
 and only adetpiate to the currency needs of its ( ustomcrs, the amount may yet 
 f.ir exceed wliai is allowed hy the Hank .\( t. If the I)eposits in the ("an.i- 
 dian banks were as large in proportion to the ("ajiital as are the Deposits in 
 the I'Jiglish and .Australian banks (to he referred to later), a limitation of 
 the amount of hank Circulation to the amount of paid up Capital would be 
 altogether inadecjuaie to the currency needs of the (ountry. in default 
 of gold and silver coin : as Deposits grow with llie development of the 
 resources of the country, Circulation will grow /<//■/ /'./>>//. .Aiul from this 
 it would appear that C'apital alone may not be the i>ropcr standani t(} regu 
 late (.'irculation by ; it might be better, as it would be according to a truer 
 jirinciple, that the legal limit of Circulation should bear a certain proportion 
 also to the amount of Deposits. L'nder eijually good manaijement and in 
 like circumstances, all banks show a pretty uniform pro|iorii(!n of Deposits 
 to Capital, and the Circulation being naturally in />/>■ viita proportion to 
 Deposits, it follows ultimately that Circulation also bears a regular proportion 
 to (Japital ; and so an objection to the present preferential lien of note- 
 holders, that in case of failure it may absorb an altogether undue prop(;rtion 
 of the assets, is obviated. 
 
 An indispensable condition should be that adequate Reserves be kept 
 against (Circulation as well as Deposits. That would lend suj'port to both, 
 and on such a [)asis a bank might safely hold any reasonable amount of 
 Deposits with a corresponding Circulation, while restraint would be put on 
 inflation generally, and especially woukl intlation of Circulation by tlie 
 discount of bills in order to increase the Deposit account be prevented. 
 With legitimate business methods, the resources ol a bank in si)ecie and 
 marketable securities ought to keep pace with the growth of De|)osits, and 
 
 ■ The liank liilU tnainliiineil in (.'irculation in ( anaiia arc mainly in tin- hands nf (i| Farmers and luni- 
 liermen. and <lealcrs in auricullural and dllicr natural prodints: Ki\ Kmploycrs I'f iai'or on maniilai-tiires, 
 and industrial employer^ ^jftierally : (il Sh ipk-eepcis ; .iiid (4! 1 !ie well t'l do clas-cs. 
 
 AH these except the last two clasi'- Rii the liank lidl^ direitly or iiulirettly from the liaiiks, generally 
 1>V w.iy of advani cs or discounts, sometiuKs asdrafts on ai tual deposits ; the wtU-to-d" classes get them as 
 drafts on similar deposits, or if in hiisiness, alsn liy way uf discounts : city shopkee|)ers. who liold a very larjie 
 Mini in the aggrejjale (this in the ni.iin is the I'lrcuialion ireateil l^y iiiaiiiifactiirers and importers), get 
 Ihein from workpeople and from the welltndo classes : country shopkeepers ^i-t them from farmer?. 
 
 It is the aggre^ateof these sums, kept llo^.titm at an averaue iiUMunt liy the aiti\itics cjf husiness, 
 operating through the Deposit account of liie hanks, that constitutes tlie hank Cirrulation. 
 
 I'he Deposit account consists of fixed ileposils, the proceeds and halances of proceeds of di-i ■niiils, aii'l 
 current deposits. 
 
 .Ml these constitute the fund from which the hanks make advances to the puhlii for use in the domestic 
 tra<le of the country ; and these advances, wiili the drafts .if the owners of actual deposits, are paid III In 
 I heipies to pav meri'antile indehtedne^s ; (.•! la hmk hills ami ch.in;;e ( Dominion notes .uid silvei), to pay 
 l.ihjr in factories, shops, and for industrial dislnir- -nients generally ; for purchases of .igricultiiral ,ind other 
 n.itiiral products ; and for pocket money. 
 
 Hink hills , ire reill y change for. and convenient her.iiise divisible substitutes for, cheques, iiist as the 
 smaller Dominion notes and silver is change for bank bills, 
 
 Manifestly the volu iie of C'irculalion 1! spends altogether on the activity o' the I leposit account, through 
 which the fund of tivcd ileposits is m.idc llii'^nt. with the other deposits, thiefly by the granting uf loans as 
 advances and disc ounts. 
 
10 
 
 therefore ol Circulation. And as the credit that attracts Deposits is usually 
 l)etter founded than that which floats currency, the Circulation, while 
 bearing a due projiortion to the Deposits, would generally correspond 
 in some measure to the standing of the bank of issue ; and fluctuating with 
 the Deposits as the public gained or lost confidence in the institution, the 
 amount at risk by noteholders would in normal circumstances be automatic- 
 ally adjusted to the degree of credit enjoyed by the bank. 
 
 The purpose of Mr. I'lannagans paper is to show that the financial 
 stringency in the States is due, not exclusively or even puncipally to an 
 excessive Treasury surplus, as is generally supposed, but in a greater mea- 
 sure to a contraction of bank Circulation the commercial interest of the 
 country bemg for( ed under the National bank system to base its medium 
 of exchange, not on the necessities of trade, but on the amount of the de- 
 creasing National Debt. And the theory as to the close connexion 
 between Deposits and (Circulation appears to be confirmed by a comparison of 
 the figures of tiie Canadian bank Deposits and Circulation, which since 
 < onfederation have shown — save in the years of financial inflation and dis 
 turbance, 1871-74 a toleiably uniform proportion the one to the other, as 
 may be seen by the following table, prei)ared from the Covernment Returns 
 as given in The Statistical Abstract and Record, 1S86 : 
 
 Percentage of Circulation to Deposits. 
 
 June 30, 1 868.... 25. 3 June 30, 1875 J7.8 June 30, 1S82 .... 28.3 
 
 " 18O9 20.8 " 1876 27.2 " 1883 30. 
 
 " 1870 28. " 1877 25.6 '• 1884 27.8 
 
 " 1871.... 32.9 " 1878 27. " 1S85... 28.4 
 
 " 1872.... 38.7 " 1879 25.3 " 1886.... 25.8 
 
 " 1873 42.8 " 1880 23.8 " 1887 26.6 
 
 " 1874... 33.7 " 1881 27.7 Mch. 31, 1888 28. 
 
 Daring this period, 1868-1888, the Deposits increased from $32,808, 103 
 to $1 1 3,938, 206, an increase of 248 per cent. ; while the Circulation increased 
 concurrently from $8,307,079 to $31,985,285, an mcrease of 2S4 per 
 cent. It appears to be a fair conclusion, therefore, that the normal bank 
 Circulation will in general bear a regular proportion to the amount of 
 the Deposits ; and in the annexed analysis of the February and March ]iank 
 Statements I have given the percentage of the one to the other shown by 
 the Returns of the several Canadian banks. This additional column, which 
 I consider the better test of the position of the banks in respect of Circula 
 tion, will be found a useful corrective to the one now under notice, whose 
 figures might otherwise, in some cases, convey an erroneous impression ot 
 undue inflation of Circulation. 
 
1 1 
 
 • .\o. 
 ■ .27..S 
 2H.4 
 
 ■ -'5-« 
 . 26.6 
 
 . .'8. 
 
 COLUMN TWO shows the i)ro|)ortion of Rest to Capiial. Ihis 
 column should be read in connexion with Column One. A high per- 
 centage of Circulation as compared with Capital ought in general, for 
 legal requirements, to be arcompanied by a high peicentage of Rest. 
 -Manifestly, where there is little or no Rest, it is impossible, in view ot the 
 probable extent of the bank's investments in trade discounts and advances, 
 to ^rm tl.at the Capital is unimpaired, unless it is known for certain that all 
 depreciation has been written off ; and there-tore in such a case of doubt 
 the legal limit of Circulation ought not to be approached very near, lest the 
 liank Act be contravened. 
 
 Resi'.s. 
 Thk vai.uk of the Rests of Canadian banks depends largely upon the value 
 of the discounted bills, and this it is diflicult, perhaps impossible, for one 
 not familiar with the condition and circumstances of each individual 
 dis<:ount account to ascertain. 
 
 A genuine Rest is usually of slow growth, the result of a cautious and 
 prudent policy steadily pursued ; and its function is to su])plenient deficient 
 dividends in times of bad business, so as to insure a regular rate of interest 
 to stockholders. To fulfil this purpose properly, however, a bank Rest 
 should be invested, perhaps sjiecifically, in securities other than discounted 
 bills and trade advances : where the nrofits reserved as Rests are re|)resented 
 by securities of so doubtful a value, they are for the most part but a.ssumed 
 profits, liable to disappear just when a Reserve fund is most needed. In 
 l)resent conditions, indeed, a Canadian bank Rest may usually, to the extent 
 of a 'certain percentage of the discounted bills, be pioperly considered as 
 a doubtful surplus reserved against possible bad debts. 
 
 The Rest, when realised, if invested as suggested and represented 
 on the other side of the account by an indisputably good asset, might also [)e 
 made/rr? /<?«A> a guarantee to the stockholders against the possibility m case 
 of disaster of being called upon to pay the amount of th,ir double liability. 
 The double liability is a Reserve of Capital, kept beyond the control of the 
 Management, though not of the bank's creditors, that might be provided 
 against by a special investment ; and if the Rest, in whole cr in part, as it 
 accumulated, instead of being divided among the stockholders, as might be 
 done if it were a realised surplus, were invested by statutory authority — vested 
 in trustees, perhaps— for the security and benefit of the stockholders, without 
 depriving the bank of its use in certain investments, of the revenue earned 
 by it, or of any prestige the accumulation of such a fimd might afford, such 
 investment, a more tangible security than the double liability resource, being 
 also beyond the control of the Management would be available at need, 
 without further call on the stockholders, to satisfy the double liability claim. 
 
13 
 
 So sure a provision against the hazard of this contingent liability might he 
 expected by attracting investors to have a steadying and most beneficial effect 
 on the price of bank stocks ; and, as I shall i)resently show, a Rest so in- 
 vested may be a vastly better security to the creditors of the banks than the 
 double liability fund. 
 
 Dori'.i.K l.iAiiii I rv. ^ 
 
 It ^^.\^ be doubted whether the security afforded to creditors by subjecting 
 bank stockholders to a double liability is at all commensurate with the injury 
 lo the public interest caused by what is also a discouragement to investments 
 in bank stocks. The United States ("omiHroller of the Currency states in 
 his Report for nSS;, that the total assessments made in respect of insolvent 
 banks, under the double liability clause, since the institution of the National 
 bank system, have produced only about 47 per cent, gross, the net amount 
 realised to creditors havmg been under rather than over 40 per cent. It 
 is probable, therefore, that in Canada, where are a much similar body of bank 
 shareholders, the double liability security cannot be counted on as worth 
 on the average more than 40 cents on the dollar, instead of the assumed 100. 
 Unquestionably, that often calamitous contingent liability strongly 
 repels investors, and is probably a main reason why so much bank stock 
 floats unabsorbed about our stock markets. It certainly is not that more 
 capital stock has been issued than the needs of the country warrant : but, 
 rather, more has been issued than the investing public will absorb. .And 
 until it be absorbed, it cannot be kept off the Stock Exchange, and stock- 
 brokers cannot be prevented from using it for purposes of speculation : often, 
 possibly, in times of distrust, to the injury of the banks themselves ; at any 
 rate, to the injury oi bona fide investors, the value of whose property fluctuates 
 with the price of this floating surplus. 
 
 COLU.MN THRKE shows the extent of depreciation in the value of the 
 discounted bills that would absorb the Rest. 
 This column obviously is one of great importance in estimating 
 the condition of the banks ; but all that can be prudendy said about it is 
 said under appropriate headings elsewhere. 
 
 /^Ol.UMN FOUR shows the extent of depreciation in the value of the 
 I discounted bills that would absorb the Capital as well as the Rest. 
 
 ^"^ If the volume of the discounted bills bore a regular proportion to 
 
 the other assets throughout the series of banks (which, however, it does not, 
 according to Column Six), this column would indicate also the earning 
 power of each bank. To ascertain this, Column Six must be taken into 
 
13 
 
 ' might he 
 ficial effect 
 <est so in- 
 :s than the 
 
 subjecting 
 the injury 
 vestments 
 ■ states in 
 
 insolvent 
 
 National 
 !t amount 
 cent. It 
 y of bank 
 
 as worth 
 lied loo. 
 
 strongly 
 nk stock 
 lat more 
 nt ; but. 
 And 
 stock- 
 often, 
 at any 
 ictuates 
 
 ' of the 
 
 niatmg 
 
 Ut It IS 
 
 of the 
 t. 
 
 ion to 
 s not, 
 irning 
 into 
 
 account with this column. Obviously the larger the amount of business a 
 l)ank can safely do in proportion to the amount of paid-up C'apital and Rest, 
 the better the result to the shareholders. 
 
 C 
 
 OF-UMN FIVE shows the proportion of the working resources of the 
 banks supplied respectively by the stockholders and by the noteholders 
 and the depositors. 
 
 EAKNINt; I'OWKR. 
 
 A CoMP.xRisoN of the figures of the (Canadian and the l''.nglish l)anks dealt 
 with in the Analyses exhibits the vastly greater earning power enjoyed by the 
 latter. While the paid-up Capital of the Canadian banks is eiiual to five- 
 sixths the amount of that of the English banks, the Deposits of the Canadian 
 banks amount to little more than one-sixth of the sum held by the English 
 banks. While, too, more than one-half the Deposits in the Canadian banks 
 bear interest, fully two-thirds, in some cases three-fourths, of the Deposits in 
 the i^nglish banks are free of interest, l-'or example, in the case of the London 
 and County l>ank, having a paid-up Capital of ^,"2,000,000 stg., the Deposits 
 amount to over ^"39,000,000, at least ^,'20,000,000 of which is non interest- 
 bearing ; and thus every rate of one per cent, per annum earned by employ- 
 in j this enormous fund yields a dividend of ten per cent, on the paid-up 
 Capital of the Bank. It must be noted, however, that the expenses of such 
 a bank, with its many branches, are proportionately great, amounting in the 
 present case to nearly as much as the dividend paid — 20 per cent, per 
 annum ; so that to pay that dividend the Hank must earn a gross profit of 
 near 40 per cent, on its paid-up Capital. 
 
 As a partial offset to this advantage of large free Dejjosits in the ICnglish 
 banks, the (Janadian banks have a Circulation amounting at jnesent to .^2 
 million dollars, which sum, however, added to the amount of their Deposits, 
 still leaves the balance of advantage in favor of tlie ICnglish banks as nearly 
 four to one. In these favorable circumstances the l^nglish hanks can well 
 afford to dispense with the profit of a Circulation, especially as they are 
 thereby free from the obligations it might entail. 
 
 Owing to the great multitude of the hanks in the United States, and the 
 different and differing banking systems there in vogue, we are prevented from 
 drawing any close comparison between the condition of the banks of the two 
 countries in this particular of Deposits: Mr. I'lannagan, however, informs 
 us that in August, 1887, the National hanks, in number about three thousand 
 (about one-ihird of the total number of banks in the country), with a paid up 
 Capital of $572,000,000, held Deposits to the amount of $1,285,000,000. 
 To compare the banks of a comparatively new and poor country like Canada 
 
 . 
 
M 
 
 with those of an old and rich one like England, is to com|)are the affairs of 
 an old-established merchant with the affairs of a new-beginner. And if we 
 turn to our only important sister-colony, Australia, in the endeavor to draw 
 a more t'(|ual com])arisun, we turn to even a richer country than England : 
 where, so grea. is the realised wealth, that banks fre(|uently show Deposits 
 to twelve or fifteen- fold the amount of their paid-up ('apital. During the 
 past year the bank Deposits there were increased by 38 million dollars, the 
 amount standing to-day at about 470 million, with a pojuilation of two and 
 a halt million, against our Deposits of 110 million dollars, with a population 
 nearly double that of Australia. 
 
 Such differences illustrate the enormous disadvantages that Canadian 
 banking labors under — a state that would not be improved by an increase of 
 banking capital. 
 
 C^OI.l'MX SIX shows the proportion of the total resources of the banks 
 employed in discounting bills and in trade advances, thus indicating 
 the relation that mode of investment bears in the practice of the anks 
 to other more readily convertible investments. 
 
 It is desirable that the amount of trade discounts and advances should 
 not be in excessive proi)ortion to other investments, nor of course should it 
 exceed the retpiircments of a healthy state of trade. 
 
 C'^O^U.\iN SI'IN'EN is a measure of the gold-paying ability of the banks, 
 showing the extent of their resources in specie and its equivalents, in 
 funds held abroad, and in securities convertible into gold, available 
 against the possible demands of noteholders and depositors.* 
 
 ■ In proiluciiig tiie rigure> of tlii'. column there have been con-.iileic(l, on liie one h.iiid — 
 Circulation, 
 
 Other Deposits payiilile on dem.ind .iiul after notice. 
 Less Note< and cheilites of oilier hanks. 
 
 Balances due froMi other hanks in Canada. 
 
 Less Balances due to other banks in Canada. 
 I>oMiinion (loverrnnent Deposits payable on demand and alter nulice. 
 
 I^exs Loans to Dominion Covernincnt. 
 Provincial Ciovernment Deposits payable on demand and after nolii e. 
 
 I.is$ Loans to Provincial tlovernments. 
 Loans from or Deposits made by other banks in Canada, unsecured. 
 
 /.CSS Loans to and Deposits made in other hanks in Canada, unsecureil. 
 And on the other hand — 
 
 Specie and Dominion notes. 
 
 Balances due from Agencies or other banks in foreign countries. 
 
 Less Balances due to .\geiicies or other banks in foreign countries. 
 Balances due from .Agencies or other banks in the United Kingdom, 
 
 Less Balances due to .Agencies or other banks in the United Kingdom. 
 Dominion Government Debentures or Slock. 
 
 Provincial, British, Foreign, or Colonial Public Securities other than Canadian, 
 
 Loanp, Discounts, or Advances for which stock, bonds, or debentures of Municipal or other Corporations, 
 or Dominion, Provincial, British, or other Public Securities other than Canadian, are held as collateral 
 security. 
 
15 
 
 porations. 
 collateral 
 
 On March 31. the Canadian banks altogether held, as far as is visible 
 
 from the Returns, 34. S per cent, of such resources against their lia[)ilities tor 
 
 I )ei)osits and Circulation. 
 
 Rkskrves. 
 
 'I'lii'. Canadian banking system is peculiarly an edifice of credit, the mctallir 
 base en which it rests - the reserve of specie held by the banks in general 
 bearing but a trifling proportion to the liabilities, while other Reserve 
 securities are not in plenty. 
 
 While an adequate reserve of gold and equivalent securities is the very 
 corner-stone of safe banking, and the obligation to maintain it must he kept 
 in view constantly, it would yet be a waste for a bank in the circumstances 
 prevailing in Canada to hold in its vaults an excessive amount of specie or 
 bullion, the surpliis of which might be invested in interest-bearing securities 
 readily enough available if need should arise. 
 
 It is interesting to note how in the practice of commercial peo[)les the use 
 of credit-money is superseding the use of coin and bullion. Mr. John 
 Thompson, Vice-President of the Chase National Bank. New Vork, tells us, 
 in a pamphlet lately issued, that (what he ap])ropriately calls 1 token 
 money, that is, drafts, checks, letters of credit, etc., now constitutes nineteen- 
 twentieths of business transactions in the States ; and Mr. (iairdner, (ieneral 
 Manager of the Union Hank of Scotland, recently pointed out in a paper 
 read before the economic section of the Clasgow Philoso])hical Society that 
 the Reserves in coin and bullion held by all the banks in the L'nited Kmg- 
 dom, against liabilities amounting to ^^613 million sterling, amounted to 
 only ^,27 million — or about 4'.- per cent, of the liabilities. This sum was 
 all that was available to meet demands for inland coin circulation, foreign 
 exchange, and private hoarding. Hut there was also held by the banks docu- 
 ments representing commodities and securities to the value of ^£"586 million 
 sterling, which would readily enable the banks to increase their stock of gold 
 if need were. So we see that British banking is also in a way no less an 
 edifice of credit. Credit, indeed, and not gold and silver, is the true 
 Reserve of civilisation. 
 
 Among the assets of most Canadian banks, it is proper to observe, are 
 considerable amounts of Call Loans and loans at short notice, usually amply 
 secured by convertible securities, part of w^hich, being t'rom lack of dis- 
 crimination buried in the discounted bills account, are not disclosed by the 
 Returns, but which, nevertheless, ought to be reckoned as readily available 
 against the demands of noteholders and depositors, and added to the percent- 
 age of resources shown in Column Seven. 
 
 The specie held by all the Canadian banks amounts to six million dollars, 
 and Dominion notes, ten million (out of a total issue of sixteen million, the 
 
i6 
 
 balance being all the legal tender notes in actual circulation). A net sum of 
 about twelve million dollars is due from agencies in the United States, where 
 that fund is usually em|)loyed securely as well as profitably, and a further net 
 lour million is due from agencies in the United Kingdom. The total of 
 such resources so far as visible is $32,356,000 ; the English banks under 
 notice hold of cash $71,500,000, and Money at Call and short notice 
 $77,000,000 — a total of $148,500,000. 
 
 Of investments in (Government and Public Securities, available in any 
 condition of affairs, the Canadian banks hold to the value of about $6,000,000, 
 the English banks $132,500,000 ; which large holding in this case is partly 
 due to the increasing scarcity of trade bills in England (the plethora of 
 money there telling strongly of late in favor of cash transactions or short 
 credits I, and to the prevailing low rates of interest. In these circumstances 
 investments in high class securities are found to prove more jjrohtable than 
 trade advances ; and hence we see that while the discounts and advances of 
 all sorts made by the Canadian briiks to the public amount to $167,759,000, 
 these ICnglish banks, with their vastly greaterresources,showonly $418,000,000 
 of such advances. 
 
 Thk Banks a\d rHK Prkvailing Commkrciai. Svsik.m. 
 
 Ai'ARi" from Call and Short Loans and bills representing produce and 
 raw materials, the greater portion of the discounted bills held by the Cana- 
 dian banks may be assumed to be paper rei)resenting imports of manufac- 
 tured goods, and home manufactures. Largely in the purchase of foreign 
 manufactured goods — still more largely in the em[)loyment of labor at home 
 and in fostering home industries, has gone the Capital of the banks and the 
 contributions to their resources made by the public by way of Circulation 
 and I )eposits; and but a part of this investment is now producible as a lic[uid 
 asset. L'nciuestionably, however, property representing it is here in a multiform 
 variety of imports and home manufactures, but not in a shape to be readily 
 converted into gold, to increase the Reserves, except in so far as the goods 
 or representative securities, being still within the control of the banks, may 
 be marketable abroad. 
 
 The production of a greater surplus of commodities — of home manufac- 
 tures and natural products for export, with the open foreign markets our 
 connexion with Eiigland may give us, seems to afford the best means of increas- 
 ing the present bank reserves of gold and equivalent securities. However 
 words may be multiplied theorising about the effect of the Balance of Trade, 
 the elementary truth subsists that a continual excess of Canadian imports 
 over exports certainly tends, Canada being a comparatively poor country 
 with a hv\iit' foreign indebtedness, to drain the country of gold ; and this is evi- 
 
sum of 
 i, where 
 ther net 
 
 total of 
 s under 
 : notice 
 
 e in any 
 
 000,000, 
 is partly 
 jthora of 
 or shcn 
 instances 
 able than 
 vances ot 
 ,759,000, 
 5,000,000 
 
 luce and 
 the Cana- 
 manufac- 
 f foreign 
 r at home 
 s and the 
 irculation 
 s alitiuid 
 multiform 
 [be readily 
 [the goods 
 nks, may 
 
 manufac- 
 rkets our 
 f increas- 
 However 
 I of Trade, 
 imports 
 r country 
 his is evi- 
 
 dent from the condition of the (Canadian hank Reserves as compared with the 
 Reserves of the ICnglish banks. And one effect of this condition is, that pre- 
 cisely when ampler accommodation is re(iuired from the Canadian l)anks to 
 pay for these excessive im])orts — which in default of exports has to be done 
 in gold — and to meet the other demands of a .eemingly tlourishinu stale of 
 trade, the resources of the banks being diminibhed they arc com[ic(led to 
 curtail their advances, and the Circulation shrinks correspondingly. The 
 excessive imports of i<S7o-3, for instance, were followed in the next few years 
 by an absolute decrease in the amount of bank Circulation of 40 per cent. 
 
 An apparent illustration of this disabling effect is brouLjht out by ccm- 
 l)aring the rates of excess of Canadian imports over exports for the jieriod 
 since Confederation, with the Circulation of the banks for the same period. 
 'I'aking the figures of the (lovernmcnt Returns, as given in Tlw Statistical 
 jlhstract before (pioted, and assuming, as from a consideration of the 
 general course of trade I think we are fairly entitled to do, that such an 
 effect on the business of the banks as I have indicated would not in the 
 nature of things show itself till about the second year after the cause — the 
 over-importation — had come into oi)eration, we find that in every year, save 
 one — 1SS4, when no marked change took place, the effect perhaps not ap- 
 pearing till the next year— an increase or decrease in the excess per head 
 of population of imports over exports — in other words, a worsening or better- 
 ing of the balance of foreign trade — has been invariably followed by a more 
 or less corresponding decrease or increase in the (Circulation of the banks, as 
 compared with the Capital.* 
 
 As comi:)ared with the Deposits it will be seen that there are exceptions 
 to this rule at three periods — in 1873, when an increase of Circulation took 
 place, notwithstanding an increase in the rate of excess of imports the 
 previous two years, which was doubtless due to the great inflation of busi- 
 ness that prevailed at that time ; in 18S0, when the contrary i)rocess took 
 place, the Circulation decreasing with a decrease in the rate of excess of 
 imports the previous two years, which may fairly be attributed to the depres- 
 sion in business that reached its height at that date ; and in 18S3-5-6, when 
 it is probable the normal Circulation was affected without much respect to 
 the amount of Deposits in the banks by the vast extra expenditures attend- 
 ing the railway works in progress and finishing about that time. It will be 
 
 It is not the volume of imports tliat is detrimental, but a continual and great Excess of imports over 
 exports, which must be paid for in gold or by contracting foreign deot. lo be profitable to both parties 
 there should be no great dissimilarity in the nominal value of imports over exports. I he larger the volume 
 of exports, the larger, naturally, will be the volume of imports, and the richer will the country grow by such 
 activity of trade. And the fiscal efiect of the volume of exports cannot be considered alone without reference 
 to the volume of imports, nor vice versa ; for they are iiitcr-dependent, iniiuattly to-related, and exercise a 
 trong reciprocal influence the one upon the other. 
 
i8 
 
 observed, however, that since 1S75, the end of a period of financial disturb- 
 ance, the percentage of Circulation to Deposits has been much more uniform 
 the one being in closer agreement with the other, than the percentage of 
 Circulation to Cap.tal. 
 
 I'oUowing is th^ table of calculations exhibiting this assumed cause 
 and effect, whose showing certainly does not bear the appearance of a mere 
 coincidence of figures : 
 
 YKAir. 
 
 K^te^•• of 
 1 III pons over 
 
 K<(|>orts. I 
 F'er Heail of 
 Population. 
 
 I'kki KNiAi.E (II Dank 
 
 ClMCLLATION 
 
 Capital. 
 
 I lepositK. 
 
 27, 
 26, 
 
 fun( 
 
 30, 
 
 1868 
 
 $ 4 
 
 7' 
 
 44 
 
 t 4 
 
 1 869 
 
 2 
 
 9' 
 
 50 
 
 f • 
 
 1870 
 
 
 37 
 
 55 
 
 
 1871 
 
 
 
 23 
 
 53 
 
 
 1872 
 
 7 
 
 98 
 
 44 
 
 
 •■^73 
 
 10 
 
 41 
 
 ?,?, 
 
 
 1874 
 
 10 
 
 16 
 
 30 
 
 
 1S75 
 
 1 1 
 
 62 
 
 28 
 
 
 1876 
 
 3 
 
 10 
 
 30 
 
 
 1877 
 
 5 
 
 85 
 
 28 
 
 
 1878 
 
 1 
 
 .> 
 
 3« 
 
 33 
 
 
 1879 
 
 -> 
 
 53 
 
 44 
 
 
 1880 
 
 
 
 3'* 
 
 54 
 
 
 1 88 1 
 
 I 
 
 62 
 
 52 
 
 
 188:; 
 
 3 
 
 90 
 
 4^ 
 
 
 1883 
 
 7 
 
 57 
 
 48 
 
 
 1884 
 
 5 
 
 43 '■ 
 
 47 
 
 
 1 885 
 
 4 
 
 20 
 
 50 
 
 
 1 886 
 
 4 
 
 00 
 
 53 
 
 -3-3 
 
 20.8 
 28. 
 
 329 
 
 387 
 42.8 
 
 >}>■) • 7 
 27.8 
 27 . 2 
 25.6 
 
 27- 
 
 25-3 
 23.8 
 
 27.7 
 
 28.3 
 
 30- 
 27.8 
 
 28.4 
 
 25.8 
 
 26.6 
 
 28. 
 
 
 
 
 VKAR. 
 
 1 868. 
 
 June 30 
 
 1869 
 
 It 
 
 1870 
 
 u 
 
 1871 
 
 • i 
 
 1872 
 
 l( 
 
 1873 
 1874 
 1875 
 
 1876 
 
 1877 
 
 1878 
 1879 
 18S0 
 
 i88[ 
 1882 
 1883 
 1S84 
 1885 
 1886 
 18S7 
 188S 
 
 u 
 t( 
 11 
 u 
 1( 
 u 
 11 
 11 
 1( 
 (I 
 
 Maich 31 
 
 ' Ivxcess of Ivxports. 
 
 A consideration of the large place occupied by trade discounts and ad- 
 vances among the assets of the Canadian banks, of the state of affairs in 
 general produced by the prevailing commercial system, and a referf nee to 
 Columns Three ^nd Four of our Analysis, which show in what a degree the 
 maintenance of the Rest and the non-impairment of the Capital of the banks is 
 dependent on the non-depreciation in value of the trade securities they hold, 
 ought to make hesitate those among us who are agitating for a sudden 
 reversal of our present commercial policy, a change which, if effected with- 
 out due preparation extending over years, must, in throwing down a barrier 
 
•9 
 
 31 
 
 lind ad- 
 Efairs in 
 Ince to 
 ree the 
 lanks is 
 hold, 
 ludden 
 with- 
 harrier 
 
 against the inllow of foreign manufactures and natural products, administer 
 a check to the growth of many Canadian industries. However beneficial to 
 Canada as developing her great natural resources might be the effect of 
 reciprocal Free-trade with the States in the natural products of each 
 country — and that it would ultimately be beneficial is not denied,- no 
 one of experience in business affairs ran doubt that the oj^ening of the 
 Canadian markets to the free sale of Anifican manutactures and imports 
 — to the suri)luses of goods that American manufacturers and importers, 
 supplying sixty million consumers, could usually afford to sell much 
 below cost abroad, if by that means they could maintain the price of 
 the bulk in the home market, securing besides a convenient outlet 
 in a near foreign market for all such surpluses, — would, to say 
 the least, disturl) commercial values here and endanger investments in 
 factories and plants. And if any depreciation in the values of commodities or 
 fixed investments -however partial its scope or brief its duration— should 
 take place, the shock to general credit, for the effect could not be confined 
 to the particular interests involved, would be so heavy, that, from the nature 
 and extent of the interest of the banks, enormous and in some cases per- 
 haps irreparable injury must inevitably result to them. 
 
 A SkCURED ClRCn.ATION'. 
 
 IT is difficult to see how, in view of the small proportion of the assets of 
 the Canadian banks held in investment securities, a natural condition 
 in a young commercial country, they can be reciuired, as is sometimes 
 suggested, to deposit (lovernment bonds as security for the redemption of 
 their Circulation. For they have no funds available for investment in bonds. 
 In most cases no part of the Reserves could be spared ; the only source from 
 which the funds could possibly be provided are the Loans and Discounts to 
 Municipal and other Corporations (amounting to 19 million dollars), Call 
 and Short Loans, and other Loans and Discounts to the public. But is it 
 advisable, supposing it possible, to withdraw the large sum necessary to cover 
 the Circulation with Coverninent from municii)al uses and the commerce of 
 the country ? 
 
 The idea of a Government Bond security for Circulation is borrowed 
 from the National bank system of the United States, in which it is inherent. 
 But the National bank system is a peculiarity — distinctly a product of the 
 financial necessities of the civil war, just as the establishment throughout the 
 whole Western world of a mono-metallic standard was a war measure of Lord 
 Liverpool's. The purpose of the provision requiring National banks to 
 deposit Government bonds to cover their Circulation was, not to provide a 
 guarantee for the redemption of the Circulation, but to provide a market for 
 
ao 
 
 (i(n'ernn)ent hnids. It was a measure passed in ihe stress of war. to sell 
 tie l)r)iuls of the (l.)vernment, not to secure the Circiilatum of the hanks; 
 and periiaps its sole effect for <^ood has heen that, on the strength of the 
 se( urity afforded, the National bank notes arc current at a uniform value 
 throuj^hout all the States. 
 
 .\nother effect of this particular fealuie of the National bank system 
 has been what might have been expected from acting on the principle of 
 regulating the amount of credit Circulation — purely an affair of trade — by so 
 unconnected a thing as the volume of the National l)v.bt; for that is what 
 the Act does. No inconvenience was felt at first, while the Debt was suflici 
 ently large to afford a satisfactory basis for the amount of bank Circulation 
 needed in trade ; but as the Debt diminished and bonds were redeemed, the 
 horizon of the banking world grew dark and troublous; and Mr. Flannagan 
 tells us in his pajjcr, that, whereas in iS66 the amount of bank Circulation 
 was $215 million dollars (and in 1.S79, ^00 million), in 1S87, by reason of 
 the reduction of the Debt, the Circulation had been reduced to 169 million : 
 while, on the other hand, the Deposits had increased since 1.S66 by 150 per 
 cent. 
 
 With the reiluction of the Debt, indeed, the bank Circulation has come 
 to occupy a (piite subordinate place in the national currency ; and but a very 
 insufficient substitute for it has been su|)plied in a larger store of 
 gold and silver bullion, whose use, however, as a distinct retrogression, is 
 ijuite unsuited to the habits of the American })eopie : and this is clearly shown, 
 while the truth of Mr. l'"lannagan's contention that the diminished (juantity of 
 bank Circulation is not sufficient for the business requirements of the country 
 is incidentally proved, by the singular eagerness with which an issue of silver 
 certificates has been absorbed by the public — 52 million dollars worth 1 in 
 ones, twos, and fives) having gone into circulation within 17 months. 
 
 With the extinction of the Debt, the rnisoii d'itrc of this security provi- 
 sion, as indeed of the National bank system itself, will cease. It is question- 
 able if the National bank system, at least in its present sha])e, will survive 
 the Debt. Already the older and freer system of State banks (whose Circu- 
 lation has been taxed out of existence in order to foster the National bank 
 system), being more accordant with the genius and political habit of the 
 American people, is reviving and making its way again in the world, not- 
 withstanding the disadvantages of mere local credit and difficulty in ex- 
 changes that must necessarily attend the operations of the banks of thirty- 
 eight several States mostly dissimilar in laws. 
 
 An attempt may be made to preserve the security feature of the National 
 bank system by permitting the substitution of other securities for Government 
 bonds : but it is doubtful if that be feasible or if it would be convenient and 
 
•, tl) sell 
 
 hanks ; 
 
 I uf the 
 
 n value 
 
 syslciii 
 iciple Of 
 : — by so 
 t is what 
 ,s sutlici- 
 culation 
 iiied, the 
 annaijan 
 rculalion 
 eason of 
 million : 
 
 150 i.cr 
 
 has come 
 ut a very 
 
 store of 
 :ssion, is 
 
 y shown. 
 
 antity of 
 roimtry 
 
 of silver 
 
 [worth I in 
 
 |ty provi- 
 juestion- 
 il survive 
 ;e Circu- 
 lal bank 
 It of the 
 irld, not- 
 |y in ex- 
 »f thirly- 
 
 lational 
 Jernment 
 lient and 
 
 ai 
 
 sufticienl ; for it were a troublesome ta^k to both banks and (lnvernmcrt 
 to keep the new securities, of many descriptions and tlucluatmi^ values, ni( ely 
 adjusted si) as to cover, and not more than cover, the amount re([uired by 
 law. 
 
 The Circulation of the (Canadian banks is already \erv well secured by 
 beinj; made a preferential charge on all the assets ; and ro loss can now 
 likely accrue to any noteholder by failure, unless he be rompeiletl by neces- 
 sity to part with his notes before sufticienl assets can be realised to redeem 
 them. 'I'hat has been felt as a hardship ; and if it be thouglii nt;ce>sary and a 
 point of good policy to prevent it, this may |)erhaps be done without dis 
 turbance to the existing system by some such means as the taking l)y ( lov- 
 eminent of a statutory lien on the first realised assets, on the investments 
 representing Rest, if separate, on the security attaching to the i »ouble i.in 
 bility. or on any similar resources; and then, on the failure of a bank, 
 redeeming its Circulation forthwith. The (lovernment would thus be aiii|)I\ 
 se( ured, and much suffering might be spared innocent noteholilers : but the 
 elitliculty here is that some reserve fund must be provided, available ai slDit 
 notice, to meet any such contingent demand. 
 
 ( )n the whole, there seems to be no inducement to transplani this evoti( 
 of a National bank system into Canada ; and to engraft its secuiity feature 
 — ^a matter of mere local expediency on the (.'anadian system, would be 
 both inexpedient and without reason, for the circumstances of banking in 
 Canada are quite different. 
 
 (loVKKNMKNT OR BaNK ClRRI.N(\ ? , 
 
 T T 7 ]"'. hear it proposed that the Canadian banks shall be deprived ot the 
 XIXj right to issue Circulation ; that the right of issue shall be vested 
 in Ciovernment alone, who shall issue a "National"' currency in ex 
 change for and interchangeable with (lovernment bonds, or in payment for 
 public works as they progress, or on some such basis. lint for any (lovern 
 ment to attempt to so monopolise the currency of a country b\ a purely 
 Government paper issue, in an arbitrary volimie, at the will or according to 
 the needs of (iovernment and without respect to the needs of commerce, 
 would be to mistake the functions of (lovernment : what might come of it may 
 be seen in the case of the Russian i)aper rouble, which, partly it is true from 
 the fall in the price of silver, but chiefly from having been over-issued by 
 way of (iovernment loans, is to-day worth little more than one third its 
 nominal amount. Such errors in finance must always end in mischief or dis- 
 aster. That was the case in I'rance with her (jss/'xfmfs, and in the United 
 States with their continental money. A vast amount of Debt for which no 
 value was given was incurred during the four years of the American civil 
 
^m^mm 
 
 32 
 
 war, atii] great disturbance of values took place, owing to the depreciation 
 of the greenbacks issued by the (iovernment after the suspension of specie 
 l)ayments in 1861 ; which, liecause issued in quantity necessary to carry on 
 the war without respect to the commercial needs of the country, rapidly de- 
 clined in purchasing power, prices of everything (lovernment had to buy, 
 including gold, as rapidly rising. (Government issues, indeed, while arbitrary 
 in volume cannot be suitable to the requirements of commerce : in the most 
 favorable circumstances they \n ill be rigid in amount where they ought to be 
 expansive, and usually will exceed or fall short of the (juantity actually 
 needed. 
 
 In general, it may be said, the less legal-tender money there is, with a 
 forced circulation, the better. A commercial ])eople requires an expansive 
 credit-money, flowing naturally and as a consequence from commercial trans- 
 actions and circulating by the free will of the people, and while not abso- 
 lutely ecjuivalent to gold yet sufficiently supported by a gold reserve. l'"or 
 gold must for safety sake be behind every paper currency as well as ulti- 
 mately behind every bargain in trade. Su^h and so supported is our present 
 bank Circulation ; which, moreover, in point of elasticity is a highly efficient 
 commercial currency, i)artaking more of the nature of bills of exchange, or 
 the cheques of individuals, than of legal-tender money. On the other hand, 
 the futility of attempting to circulate Government legal-tender paper money 
 in a commercial country, otherwise than to meet the demands of commerce 
 and through the proper commercial channels, may be seen by the fate of the 
 Dominion note issue, two-thirds of which is constantly helj by tlie banks in 
 their vaults as Reserves. As Reserves these notes are an eminent success, 
 supplying the ])lace of gold to the banks and saving by their use the interest 
 on so much gold to the country. But they fail as a currency, except as 
 resi)ects the small notes used as change, — a failure that, however, is only in 
 obedience to the natural law under which a cheap money always drives a 
 dearer one out of use, and a credit-paper money drives out coin. 
 
 "A Government ' promise to pay,' as Mr. Flannagan says, "may and has 
 been unconstitutionally given the function of money [in the States] by being 
 clothed by statute with the legal-tender quality ;" but any such issue, there or 
 here, being based, not on any form of property, but by a strange anomaly 
 on a National Debt, and not receiving currency through the natural channel 
 of the banks, must be entirely inadequate to the purposes of a commercial 
 cutrency, and should be limited in amount so as to be only subsidiary to the 
 Circulation proper — that sup])lied by the banks. The National bank Circu- 
 lation being issued only against the deposit of Government bonds, although 
 not leg?l-tender, is essentially a Government currency. It is in consecjuence 
 wanting in fluent ([uality and adaptability to local requirements. Lately, 
 
23 
 
 in parts of United States territory contiguous to the Canadian border, 
 especially in Maine, the notes of Canadian banks have been a chief circula- 
 ting medium, because by the operation of the National bank system an excess 
 of currency is caused in the neighborhood of cities where banks are clustered 
 in plenty, and a deficiency where they are few or of small capital — as in these 
 border districts, which naturally need more instead of less currency than 
 city neighborhoods on account of the lack of facilities for doing business by 
 means of token-money — checks, drafts, etc. Hence the late attempted taxa- 
 tion of Canadian bank notes, notwithstanding that manifestly the National 
 bank Circulation is inadequate to the business done in such districts as these. 
 
 (iovernment being outside of and unconnected with the sphere of com- 
 merce, cannot with advantage to commerce assume one of the functions of 
 banking unless it assumes all. This was clearly recognised many years ago 
 by both British and American Commissions on the currency. The Hon. 
 Willis S. Paine, Superintendent of the lianking Department of the State of New 
 York, says in his report for last year :— "The advocates of a fixed (iovern- 
 mental issue of circulating notes in preference to that of banks seem to forget 
 that as the business of the {Government is distinct from that of the mercantile 
 community, it cannot well carry on that portion of the business of banking 
 unless it undertakes all of that business, for the reason that Circulation is 
 needed in proportion to the amount of credit reciuired ; circulating notes are 
 simply credits in a negotiable form." "A bank circulation is a necessity," 
 says Mr. l-'lannagan further, " unless the Government undertakes, either 
 thiough a Government bank, or by some other mode yet to be ascertained, 
 to grant commercial credits. The r.^lation l^etween the Circulation and 
 commercial credits is so intimate that if the Government assumes such con- 
 trol of the former as to practically prohibit its issue, it necessarily limits tiie 
 latter." The main stream of Circulation must, in fact, in any commercial 
 country tlow from the public Dej^osits, making current so much of their 
 amount as is needed to carry on the minor operations of business. 'I'hai 
 practically is what takes place in the great monetary centres of Europe. The 
 French and the German Governments, it is true, control the ])aper Circula- 
 tion of France and of Germany, but they do it only through the Banks of 
 France and (Germany, which each grants credits and issues notes, not at the 
 will of the Government, but in response to the demands of commerce. 'I'he 
 Bank of England does the same, maintaining the most intimate terms with 
 the commercial world ; and though part of its note Circulation, being issued 
 against Debt due to the Bank by Government, may be considered a (Govern- 
 ment currency. Government is kept at arm's length by the whole currency 
 being dealt with through a separate Issue Department. 
 
 Apart from th? objection that all plans for a Government currency in 
 
^4 
 
 ^i! i 
 
 (Janada take little or no account of the true principle — the supply of a com- 
 mercial demand — on which alone a paper currency should be issued, it is 
 difficult again to see how, things being as they are, the Canadian banks can 
 be recjuired to withdraw their discounts and advances to the public to so 
 great an extent as the amount of their present Circulation. That is what such 
 proposals involve, and the thing is ([uite impossible in the circumstances; 
 while, on the other hand, in putting into circulation, as the banks do, as much 
 of their Deposits as is re(iuired for the acconiuiodaiion of trade, they but 
 fulfil a legitimate function of banking, that ought not lobe interfered with by 
 (iovernment. Government has alreadx invaded one province ot banking, 
 and so sensibly contributed to the high rates of interest prevailing, m estab- 
 lishing the Post-office and Ciovernment Savings Banks, through which the 
 large sum of 40 Uiillion dollars ot the working capital of a comparatively poor 
 commercial peoi)le — ccjual to more than one-third the total Deposits held by 
 the bariks — has been injuriously diverted from commerce, from .aiding in de- 
 veloping the resource.s of the country, lint suf h a violation of economic prin 
 ciple, tolerated though it may be in England, where is an over-abundance ol 
 realised wealth, is not to be excused, much less extended in practice, in 
 Canada, where more, not less, capital than we have is needed in commerce. 
 
 The Canadian bank Circulation is practically the whole paper currency ol 
 the country (the Dominion notes current, to the amount of about 5 million 
 dollars in small denominations, being used only as change): and this state ol 
 the currency, sanctioned by long usage, is a natural circumstance of the con- 
 dition of the country, the course of whose fiscal policy and development of 
 whose banking system has not, like that of the States, been disturbed by the 
 necessities of a nation at war. That this Circulation is and has been a 
 suitable one and of very great utility, free as a whole from the tamt of inila 
 tion, which, indeed, is imjjossible with it as a whole, is clearly shown by tlie 
 absence of any violent spasms or crises in the home money market, or marked 
 fluctuations in the prices of commodities, and the generally uniform rates of 
 interest ; for if the rate of interest has at times been high, that has been 
 caused, in its origin, by over-importations and a consequent low state of the 
 Reserves, a scarcity resultmg of course in dearness of money. 
 
 There is no better banking system than the Scotch — a system that has 
 aided immensely in the development of the agricultural and mercantile in- 
 terests of Scotland, while the banks themselves have benefited etiually, 
 through being constantly ada])ted to local and contemporaneous circum- 
 stances. A distinguishing feature of that system has always been the 
 granting of cash-credits, resting on bank Circulation, without which indeed 
 the credits would have been im|)ossible in the poor circumstances of the 
 country ; and to this is directly due so flourishing a state of Scotch industries 
 
25 
 
 jf a corn- 
 sued, it is 
 tanks can 
 )lic to so 
 what such 
 iistances ; 
 ), as much 
 they but 
 id with by 
 banking, 
 m cstab 
 vhich the 
 vely ]j001 
 ;s held 1)\ 
 ing in de- 
 )mic ]mn 
 fidance of 
 ictice. in 
 Dmnierce. 
 
 irrency ot 
 
 5 million 
 
 s slate ot 
 
 thu ron- 
 
 jment of 
 
 d by the 
 
 been a 
 
 of inila 
 
 n by the 
 
 marked 
 
 rates of 
 
 las been 
 
 e of the 
 
 that has 
 ntile in- 
 eriually, 
 
 circum- 
 een the 
 
 indeed 
 i of the 
 dustries 
 
 and so great a development of the resources of the country, that the prin- 
 ciple involved in Sir Robert Peel's Acts of 1S44-5, the substitution of the 
 legal-tender issue of the 15ank of Imgland and of specie tor the present 
 bank ( "irculation, is now regarded as adoptable, or at any rate as the de- 
 velopment towards which Scotch banking must api)roach when it next 
 moves. But without the beneficial nursing the industries and resources of 
 Scotland have enjoyed for a hundred and sixty years by means of these 
 bank credits affortled by the use of bank Circulation — the only vay, I repeat, 
 such aid could have been rendered— no such progress could have been 
 made, and no such end would be in sight. 
 
 Such an end i- to be kei)t in sight in Canada also ; but Canada is to-day 
 .It much the same stage of fiscal and industrial development that Scotland 
 wis in the earlier days of her banking system, when, like Canada now, she 
 most needed its aid ; and it can only be after a similar nursing of (Canadian 
 resources under a native banking system, that has its counter|)art to the Scotch 
 cash-vTedits in the lines of discount granted to traders, with the use of an 
 elastic bank Circulation, that Canada can hope to reach an etjually good 
 [wsition 
 
 ThF, RiVAI, MoNKTARV ST.WDAiaiS. 
 
 ^L THOUCH a consideration of the universal standard question df)es 
 not properly lie within the scope of this paper, yet perhaps it may be 
 useful to trace its salient features in rough outline, in order that tlie 
 ])osition of Canada in the currency question may be the better understood. 
 
 A- 
 
 In brief, then, we have before us a world whose ancient and customary 
 currency, as far as civilisation has extended, has always been silver. lUit in 
 the early part of this century, that condition was disturbed by England, who 
 then, for the first time in history, set up gold as the Western standard of value ; 
 and this measure being followed by a policy of ]'ree-trade, which gave her 
 the advantage of a start in business over every other nation, all of whom she 
 forestalled by investing largely in foreign markets when stocks were cheap, Eng- 
 land soon became the banker of modern I'.urope, reaping an enormous harvest 
 from her investments, as the first in the field usually does, and becoming the 
 creditor-nation of the whole world. I'he debts due her being stipulated to 
 be paid in gold, it has fallen out that this one of the precious metals, a 
 commodity that England owns most of, alone of all commodities in general 
 use has not depreciated in value, doubtless chiefly because it cannot be 
 produced in any considerable quantity or by cheajier methods— a circum- 
 stance that, with its convenient r)ulk, gives it an unrivalled utility as a perma- 
 nent debt-paying instrument — and in part perhajjs through having been 
 
given an added importance by being made a i)rincipal standard of value. 
 So that, while during the past few years all other commodities, includ- 
 ing the other precious metal, silver, have from a cheapening in cost 
 of production (in the case of silver from having been demonetised 
 also) depreciated some 30 per cent, in value, gold has if anything rather 
 appreciated ; and thus the hundreds of millions of foreign gold-bonds owned 
 by England have had near a third added to their value, while the thousands 
 of millions of gold securities owned by the great army of mortgagees, bond- 
 holders, debenture-holders, bank, loan, and insurance company shareholders, 
 have increased by as much, in as far at least as their funds have been kept 
 invested in gold securities. And on the other hand the debtor classes — the 
 people who owe this money, the landlords, the farmers, the manufacturers, 
 in England, as well as the wheat, beef, cotton, and produce grower abroad, 
 have to give one-third more of their produce than they did fifteen years ago, 
 to iiquida e an equal amount of indebtedness for principal or interest. 
 
 Still, this disturbance is only local to the Western world. In the far East, 
 where the improve nents in methods of production and distribution that 
 have revolutionised prices in the West are for the most i^art yet unheard of, 
 the old range of prices still prevails in all domestic trade, and silver seienely 
 reigns supreme, its purchasing power quite iin^fTected by the fall in its price 
 elsewhere. And the reason is, because, great as has been its production in the 
 West, suffi:ient to force down its price there, where it is merely a commodity, 
 it has not yet been and ])robably never can be imported into India, China, 
 and the Ivast generally, where ii is not merely a commodity, but the currency 
 in use by Soo million people, in (juantity sufficient to api)recial)ly disturb 
 current values. If, indeed, silver were poured into these countries (which 
 could only be done, however, in exchange for exjjortable commodities, a 
 process to which there is a visible limit), the people would grow richer of 
 course, but not much effect would jirobably be produced on the currency : 
 for, following the habit engendered by centuries :f insecurity, the extra 
 wealth would be hoarded. No serious monetary disturbance, indeed, is 
 likely to take place in the ICast unless silver should be ])roduced in such 
 over-abundance as to cause a dislocation of its value there and the value of 
 other commodities, similar in extent, though reverse in direction, to the dis- 
 location in the relative values of gold and other commodities in the West. It 
 is only when silver has to be exported from the East to pay gold debts in 
 luirope that this currency experiences a depreciation : Indian civil servants 
 and other luiropeans paid in silver who have to remit money to Europe 
 lose a third of their income in doing so ; and so with gold investments in 
 banks and commercial establishments in the East, in as far as their invest- 
 ments are now represented by securities payable in the currency of the 
 
i of value. 
 3s, includ- 
 ig in cost 
 ^monetised 
 ing rather 
 nds owned 
 thousands 
 ;ees, bond- 
 ireholders, 
 been kept 
 asses — the 
 ufacturers, 
 er abroad, 
 years ago, 
 rest. 
 
 e far Ivast, 
 
 Lition that 
 
 nheard of, 
 
 r seienely 
 
 n its i^rice 
 
 tionin the 
 
 •nimodity, 
 
 ia, China, 
 
 currency 
 
 disturb 
 
 s (which 
 
 odities, a 
 
 richer of 
 
 urrency : 
 
 the extra 
 
 ndced, is 
 
 i in sucli 
 
 value of 
 
 ^ the dis- 
 
 iVcst. It 
 
 debts in 
 
 servants 
 
 l^urope 
 
 ments in 
 
 r invest - 
 
 of the 
 
 27 
 
 East they have depreciated in value, to the European owner, to the same 
 extent. 
 
 But, on the other hand, the depreciation of silver in tlie West with increased 
 transit facilities and cheaper ocean freight have vastly stimulated ICastern 
 foreign trade, because the lower prices obtained for produce in the P^uroptan 
 markets are compensated for by a corresi)ondingly increased (juantity of 
 silver obtained in exchange ; so that practically the East, while using a 
 silver currency maintaining its value for internal trade and yet at a discount 
 abroad, does not suffer from the prevailing low range of produce prices. 
 
 Very different, however, is it with this continent. Here the domestic 
 currency is on a gold basis ; and the agricultural producer is not enabled, 
 like the Asiatic, to obtain an increased quantity of currency to compensate 
 him for the fall in the value of his produce. He sells for gold at the reduced 
 jj.ices prevailing, and no comi)ensating source of profit being available, he 
 has to give an increased (luantity of produce to liciuidate his indebtedness to 
 the creditor-classes — the moneyed institutions of the Eastern States chiefly, 
 which as gold owners occupy much the same position towards this continent 
 that England does towards the world. Nevertheless, despite this disadvantage 
 as compared with the Indian wheat-grower, the American agriculturist is able 
 to m.ike headway, because from the extension of railway facilities, the cheapen- 
 ing of freights, and the improvements in agricultural implements and labor- 
 saving methods, the saving effected of late years in the cost of American 
 wheat laid down in England is greater than the total amount of the depreci- 
 ation in price, enormous as that has been. 
 
 Thus we see the Ivastern world se])arated from the Western — ^and as 
 respects India, the iiritish Empire cut in twain — by a line of fiscal cleavage 
 of Iiritain's own creation. Through this, however, the trade and productive 
 resources of India have been developed enormously of late ; wliile, on the 
 other hand, it is doubtful if the check that would be administered to the 
 industrial prog-^ss of the East by the reverse step of remonetising silver in 
 the West, wor.ld at all correspondingly benefit the agricultural interest of this 
 continent. l''or though with the appreciation of silver the present premium to 
 Indian exporters would disappear, all that could be gained by the American 
 exporter would be the disappearance of one competitor out of several in the 
 British markets ; and that competition had better be met by further impro\ed 
 business methods. 
 
 But as respects Canada particularly — who is interested in this silver 
 question, not like the United States as a i)roducer or a user of silver, but 
 only as an agricultural country and another competitor in wheat-growing 
 with India, — it is certain that, occupying a quite subordinate place in the 
 
28 
 
 finaiK^ial world, no other course is open to her than to follow others, iiiakuig 
 the best of the situation she finds herself in, while going whither she is led. 
 There is no panacea at hand for the trouble of low prices : seventy cents 
 worth of either wheat or silver cannot be made worth a dollar by simply 
 marking it as worth that. But a manifest duty that lies at our statesmen's 
 hands is, besides promoting every means of cheap transport to enable 
 Canada to compete successfully with India in the l.nglish markets, 
 to maimnin the currency on so sound a basis as not at any rate 
 to impede the develojjment of trade. .And that end will not be at- 
 tained by a forced issue of (lovernmeni paper, or by hami)ering the 
 banks and the romnit-Tce of the country by causing the withdrawal 
 of a further thirty milHon dollars from trade for investment in (iovern- 
 ment bonds. I'o i;-.<Tease the volume of ("anadian exports, it cannor 
 be too strongly urged, is an end to be kept steadily in view : our exports 
 must be piade to rovei our imports; and this can be done best with an 
 elastic I'urrency free from redundancy on the one hand, which tends to 
 artihcially raise prices above the exp~>rting point, or from deficiency on the 
 other, which ei|ually disturbs trade by lowering prices and so discouraging 
 s|.)eculation. 
 
 1-or near twenty years, I'.ngiand, while engaged in her terrible struggle 
 with Napoleon, carried on all he home Industrie? successfully on a paper 
 currency, producing sufficient to pay for all her imports and to yield a balance 
 of gold in her favor ; and the attainment ot a sirnila*- '•esult in Canada, while 
 ail-imporiant in the struggle with competition, it bUiely as possible in our 
 circumstances. It is essential, however; that perfeci •' onfidence be felt in the 
 currency — a good, probably the sole good, that would be conferred with the 
 legal-tendei quality. It is also desirat>le that it pass current without dis- 
 count everywhere in Canada: bur this advantage, though urged as a principal 
 reason for a national currency, is hardly of sufficient weight to counter- 
 balance the consideration that legal- tender money is generally unsuitable to 
 a commercial people : while neither clicques and other bills of exchange, nor 
 gold and silver coin, can be sent free of exi)ense from one end of Canada to 
 t"' ^ ' r, why should the currency, which is simply one of the convenient 
 •lU'.SLi.M ■■ lor coin ? 
 
 Sno'-' . currency, I conclude, bearing a constant ratio in volume to the 
 volij iv - 1 'ide, can best be procured by the natural process of issuing it 
 through the banks; and only, I am ptrsuaded, through the export trade that 
 will be fostered by a suitable currency can the fund of bank Deposits be 
 largely increased, the investments already made in Canadian industries be 
 strengthened, and a solid available Reserve of gold equivalents be accumulated 
 in greater abundance in our banks. 
 
rs, making 
 
 she is led. 
 
 enty cents 
 
 by simply 
 talesmen's 
 to enable 
 
 markets, 
 
 any rate 
 lot be at- 
 )ering the 
 ^•ithdrawal 
 I Ciovern- 
 it cannor 
 ur exports 
 t with an 
 
 tends to 
 icy on the 
 con raging 
 
 : struggle 
 1 a paper 
 a balance 
 ida, while 
 le in our 
 "elt in the 
 
 with the 
 :hout dis- 
 principal 
 
 counter- 
 litable to 
 inge, nor 
 Canada to 
 mvenient 
 
 ne to the 
 issuing it 
 rade that 
 )osits be 
 stries be 
 imulated 
 
 A^ 
 
 29 
 
 (JovKkNMKM 15ank InsI'KC mon. 
 
 S banks of issue supplying ])ractically the sole cu.rency in use by the 
 people, who thus become from habit often involuntarily, and indeed 
 unknowingly, creditors of the banks whose bills they receive, the 
 Canadian banks might reasonably, i)crhaps, be required to submit to some 
 degree of (lovernment supervision in resi)ect of their Circulation, liut full 
 Ciovernment inspection, as generally understood and occasionally advocated 
 in Canada, is again an idea taken from the States, where it was instituted 
 with the establishment of the National bank system, not, however, in order 
 that a Government supervision over the general business of the banks should 
 be exercised, but to ensure the carrying out of certain provisions of the Bank 
 Act— respecting the holding of real estate, loans on which, as in Canada, are 
 prohibited: the limitation of the amount of loans to any one borrower ; and 
 the keeping of a sufficient Reserve. Afterward, this inspection, apparently 
 proving a useful check, grew into favor, until the public, coming in time to 
 regard the National banks as in some sort (lovernment institutions, national 
 in everything as well as in name, came also to look to Government to su])er- 
 vise and control the conduct and policy of the bank officials ; which it did : 
 and so well did the performance of this extra function recommend it, that a 
 similar provision has been adopted by a few of the States in respect of State 
 banks, mortgage, loan, and guarantee companies, and other private corjjora- 
 tions, together with the county treasuries and other public offices, all of whose 
 accounts are regularly inspected by State examiners. 
 
 Doubtless, owing to the great number of banks in the States, where a 
 bank may be organised and set in operation onacapital of a fewthousand dollars 
 only, some degree of Government supervision is there necessary. Possibly 
 also, the United States system of bank inspection may have done good : 
 the knowledge that speedy exposure must follow wrong-doing might some- 
 times act as a wholesome deterrent, i)reventing wrong-doing : though from 
 the many banks that have failed disastrously soon after undergoing successfully 
 the ordeal of an examination, it is evident this safeguard is very inefficient. 
 13ut however that be, is it advisable to transplant the system here, where the 
 conditions of banking are very different, and where its chief function as now 
 understood, to ensure the proper conduct of the affairs of private corpora- 
 tions, is not usually considered the business of Government ? This function 
 surely savors too much of paternal Government, and can be little agreeable to 
 the taste and habits of our people, who usually wish above all things for free- 
 dom from (iovernnient interference in private trading. The complaint is not 
 unheard in the States that appointments to the office of bank examiner are 
 made sometimes— rarely, it is to be hoped— not because the appointees are 
 competent bank examiners and accountants, but because they have been useful 
 
30 
 
 politicians; \vhi( li is a danger not to be lost sight of even in Canada. It can- 
 not he considered the duly of (lovernnient to prevent dishonesty among bank 
 ofticials ; tliat, according to Canadian ideas, is the duty of the Directors. 
 Moreover, a (lovernment guardianship is apt to lull those concerned into a 
 security that can safely be indulged in only in reward for the constant exer- 
 cise of individual caution and watchfulness, and may thus work positive harm 
 instead of gooil, if it cause shareholders to cease to maintain the lively inter- 
 est in their affairs essential to continued success. And, finally, if (lovern- 
 ment Hank Inspection be introduced into Canada, it must be after the pattern 
 of the State laws, not the National bank Acts, so as to include in its opera- 
 tion every loan or other company receiving Deposits ; for otherwise the osten- 
 sible purpose of protecting the people will not be fulfilled. 
 
 There is reason, no doubt, in the contention that (lovernment should 
 have power to satisfy itself that the provision of the Bank Act sanctioning 
 the issue of Circulation has not been contravened by over-issues, that the 
 Capital of the banks has not been imi)aired by bad investments, in order to 
 assure the noteholders. JJut this result may be attained otherwise than by 
 so radical a measure as (lovernment bank inspection : if (lovernment 
 required Bank Returns and Statements to be certified by professional 
 auditors, a sufficient assurance would be afforded noteholders. As between the 
 banks and their depositors no good reason can be given for (lovernment 
 intervention : depositors entrust their money to the banks voluntarily, in open 
 day ; it is a mutually free transaction between both parties ; and therefore 
 with that Government has no right to interfere. And it surely is not the 
 business of (lovernment to interfere between the shareholders and their exe- 
 cutive officers, which appears to be the sole other possible ground for 
 action. 
 
 Professionai. Aldit. 
 
 ^'^HE system of inspection now in use in Canadian banks serves merely 
 I as a check by the Management on the internal economy of the 
 banks and the operations of the branches. It leaves the operations of 
 the Management itself untouched, and affords no assurance whatever to the 
 shareholders or the public that the affairs of the bank as a whole are properly 
 conducted. In every one of the more important cases of bank mismanage- 
 ment or failure that have occurred in Canada of late years, while the busi- 
 ness was shown to have been regularly inspected by the appointed officials, 
 little or nothing of the trouble was in any case divulged outside the bank 
 walls— till disaster did it. 
 
 In view of this repeated warning, it is somewhat remarkable that bank 
 shareholders, partners in the most considerable business concerns of the 
 
\l 
 
 country, have not long ago jierceived the necessity and advantage of apply- 
 ing to those concerns a rule that I suppose every one among them of any 
 business exjierience applies to the ])ettiesl of other corporate affairs he has to 
 do with. From these, as a matter of course, he recjuires the assurance of 
 the true condition of their affairs afforded by an audit independent of the 
 Management: then why not the same from banks ? If when the Management 
 and the Directorate rendered an account of their stewardship to the 
 shareholders, these received it through one — whether appointed by Man- 
 agement, Directorate, or Shareholders, is not important— whose particular 
 business it was to deal with accounts, and whose duty it was as Auditor to 
 "listen," as it has been happily expressed, not with the ears of the Manage- 
 ment or of the Directorate, but of the Shareholders, an assurance would be 
 conveyed of the correctness of the accounts that is wholly lacking now. 
 
 There is no real obstacle to a sufficient audit of the affairs of a bank. The 
 number of the branches in most cases may be thought to be one : in the 
 States, banks have no branches, each bank's business being contained within 
 its four walls, which is held to account for the feasibility of Government 
 hank inspection there, and, by parity of reasoning, to show that where the 
 business is spread among many branches Inspection or Audit is ditticult or 
 impossible. But auditing is universally practised in England, by statutory 
 requirement, and there several of the banks have many more branches than 
 have Canadian banks. The London and County Bank, for instance, has 
 167 ; yet we find the annual statement of its affairs to be certified by two 
 professional auditors, who declare that they have " examined the balance- 
 sheet and profit and loss account, and verified the cash balance at the Bank 
 of England, the stocks there registered, and the other investments of the 
 Bank." They have also " examined the several books and vouchers showing 
 the cash balances, bills, and other amounts set forth," the whole of which 
 they declare are correctly stated ; and they are of opinion that the balance- 
 sheet and profit and loss account "are full and fair, properly drawn up, and 
 exhibit a true and correct view of the Company's affairs as shown by the 
 books of the Company." The last t^uoted clause is the auditor's certificate 
 required under "The Companies' Act 1879 ; " and surely as much as that at 
 least could be required in Canada. 
 
 In Australia also, where the banks have also many more branches than 
 the Canadian banks, professional auditors are employed ; we find the 
 annual report of the Commercial Banking Company of Sydney certified to by 
 two auditors, who say thsy have " examined the securities, compared the 
 balances, and counted the coin," which they find as specified on the balance- 
 sheet. And in China even, a similar practice is in use; the last statement 
 of the Hong Kong and Shanghai Banking Corporation has appended the 
 
certificate of two auditors, who say they have "compared the above state- 
 ments with the books, vouchors, and securities at the head office, and with 
 the returns from the various branches and aj^encies," finding all correct. 
 
 ^Vhat is being done elsewhere may be done in Canada. Unquestionably, 
 a bank statement, ecjually with a statement of the afifairs of any other cor- 
 poration, ought to be attes; d by a competent auditor, one in this case 
 familiar with the theory and ractice of banking, besides being an exi)ert 
 accountant, who would be ii lependent of the bank, and whose profes- 
 sional reputation would be at stake in his work. A competent and discreet 
 man so ciualified, knowing exactly what particulars of the business were 
 essential to a sufficient audit, would be able to select these for examination 
 without needless intrusion elsewhere. An audit though partial may be per- 
 fect so far as it goes, and fully answer the i)urpose intended. The auditor 
 need not necessarily go mmutely into every detail of the business : there 
 must be a limit to investigation if practical work is to go on. An accountant 
 cannot be [ierj)etually testing the accuracy of his Interest Tables : he must, 
 if he is to get his work done, place some degree of faith in their statements : 
 and in like manner an auditor, when he examines the accounts of a factory 
 or a warehouse does not usually '* take stock " himself, but is content to 
 rely on the correctness of the stock-sheets signed by the persons in charge or 
 cognizant of the facts. Surely he can put the same measure of faith in a 
 banker or a merchant that he puts m a mechanic ; and '^o in a bank audit he 
 may usually rely for much on certificates or statements signed by more 
 than one officer or a committee of Directors. 
 
 Me might also be able to render good service to the institution by direct- 
 ing attention to any dangerous, yet unsuspected, tendencies in practice, 
 which a trained and fresh mind i"rom outside would be ([uick to perceive : 
 and a more ostensible advantage of his employment would be that by it much 
 current hostile criticism would be disarmed, and the popular feeling that 
 seems always to run against banks might be stemmed. This feeling, some- 
 times righteous perhaps in its origin, though unreasoning in its application, 
 cannot otherwise fail in the long run to be prejudicial to every bank : it is the 
 root of the cry for Clovernment Bank Inspection and Government Security 
 — ^demands the like of which are far from men's thoughts in England be- 
 cause auditing has been there brought to so great perfection and its practice 
 is so general, that no other safeguard is felt to be needed, 
 
 A professional audit, indeed, on a clear survey of the whole field we 
 have traversed forcibly suggests itself as a chief thing wanting in the 
 Canadian banking system — a desideratum that, if adopted, would, as nothing 
 else could, convince the public that whatever might be amiss in that system 
 would be rectified, and ensure that the practice of Canadian banking should 
 always be equal to the really great goodness of its theory. 
 
.■>.> 
 
 IHAX'E done. If I cannot say also c'cst Jini—'\i my undertaking cannot 
 be considered as al all a finished performance, even within its limits, I 
 beg it to be remembered that the subject is a wide one, on which few 
 perhaps could say the last word as well as the first. At any rate, all cannot 
 well be said at once. What I have been able to accomplish, however, I now- 
 most willingly submit to the criticism of the profession, of bankers, and 
 of publicists, that it may receive the correction and enlargement^ the im- 
 provement and fuller illustration, that the product of any one mind cannot 
 fail to receive from the richer and more varied experiences of many others. 
 My desire has been to arrive at the truth — not to urge any particular theory or 
 view of my own. I have endeavored to state the case plainly and as con- 
 cisely as possible, in a business-like way and without rhetoric — a mode of 
 treatment which may sometimes have the appearance of dogmatism ; but I 
 have no wish to speak dogmatically ; on the contrary, I invite criticism and 
 correction, and shall be grateful for any such furtherance to the common 
 object we all have in view. 
 
 There are aspects of the subject with which I have not dealt : upon such 
 points of the Returns, for instance, as lay outside the scope of my argument, 
 or that I thought called for no comment, I have made none. So far as 1 
 have gone, however, I trust I have treated the subject with candor and 
 without prejudice : my concern has been with a system, not with particular 
 instances of its operation ; and while pointing out the purport, as it ap- 
 peared to me, of the several features of the Returns, I have, as will have 
 been observed, carefully refrained from applying any of the tests supplied by 
 the Analysis, it might be invidiously, to any particular institution. That I 
 consider outside the province of this paper. 
 
 I had no purpose to serve in undertaking this task beyond the ascertain- 
 ment of the fitness of the principles that seem to lie at the foundation 
 of the Canadian banking system, and the illumination of a subject that is 
 evidently obscure to many people. In dealing with it, however, I venture 
 to think that I have been able to furnish a something that may at least serve 
 as a help to a more scientific framing of the Bank Returns, for the better 
 information of the public ; and perhaps as material for the amendment of 
 the Bank Act in the direction of a new constructive policy in some depart- 
 ments of banking. 
 
 The Canadian banking system has been developed to its present stage 
 by progressive changes in the commercial condition of the country, growing 
 with the growth of the country, and being constantly adapted to new wants 
 as they arose. In this lies its great strength and value, that it is not a symmetri- 
 cally finished system incapable of alterat'.on, imposed from without, but a 
 native of the soil, capable of further growth in any direction it may be 
 
desired lo train it. Upon Parliament rests the duty of periodically recon- 
 sidering the condition of this system — of seeing that it keeps i)ace in de- 
 velojiment with the progress of the country, and is constantly kept adjusted 
 to all new needs of a growing commerce. And it is of the utmost importance 
 that all changes made shall be in accordance with sound economic 
 principles. 
 
 Regard should he had by our legislators rather to the example set by Eng- 
 lish banking legislation than by American, notwithstanding that the American 
 system may be thought to be more akin to our own. ]*"or in the United 
 States, from the day when (leneral Jackson marred an otherwise successful 
 career by his vengeful and disastrous treatment of the Bank of the United 
 States, with but few intervals of better treatment the (lovernment has gen- 
 erally failed in its banking legislation, because sound princijile has usually 
 been made to give way, in that as 'p, other legislation, to political expediency. 
 ^Vhilc, on the other ' md, in ICngland, the reitiarkable success that attended 
 the introduction and after-development of all Sir Robert Peel's fiscal policy, 
 due to his grounding it on the best theoretical knowledge of his day, is 
 eminently consi)icuous in the enduring character of his banking legislation, 
 which has successfully passed through the trying ordeal of a sheer revolution 
 in values and busmess methods — not confined to one country but world- 
 wide — brought about by improvements in methods of production and in- 
 creased facilities of distribution and business communication. And it is 
 hard to conceive of higher i)raise of any fiscal policy than the praise that may 
 be justly accorded to this, which in the midst of so shifting a scene, has stood 
 firm for more than forty years, scarcely needing the smallest revision. 
 
 Let us hope Canadian statesmen, building upon an equally sure founda- 
 tion, may be able to carry the structure of Canadian banking to as high a 
 l)itch of excellence. 
 
MKMORANDA 
 
 WITH hk(;ai;|) to mi;, mknziks i'apki: on iianks 
 
 AM) HAM<IN(i. 
 
 N<'II - I hr |>.i|ii.-r'> In tins .ipprMilix vM-ri- uiittcii In r* iu\ i.' ihf r'tr^l tir.ift *>t tlir trtati^'; vtlihli v\,is r«\i<>e*l .tin! die 
 
 .ir^'iiniiMit .ini|ilih>'>l hrfiTi' I'Cint; tr.i'l, 
 
 (I.) In the optMiini: |)arai.'r;iiih reference is made to i/('. /<;/ kiioicl<'tii;e of the sul)jt('t. 
 This is most pertinent. There is nn .suliject in which a want of special knowiedfje is more 
 likely to lead a person astray. Special knowleoj;e should be not merely of sets of timires, 
 luit of what lies heliind the lij;iires, in the complicated masses of business which they 
 represent. 
 
 (2.) It is Stated tliat the limitation ol Circulation to(.'apital is appareiul\' grounded on no 
 principle. This remark is incorrect. Circulation is Credit, taken hy a lianker, ami j;iven 
 to him by the pul)lic. It is a universal principle, well justified by h^np, experience, that 
 C;'a//V should be based on Capital. To base the circulation of Hanks on their cn])ilai is 
 therefore rational, and in accordance with the teachinjjs of experience. 
 
 (3.) The relations of (Jirculation to Deposits are evidently entirely misunilerstood, both 
 by the writer and by the New \'ork authority whom he quotes. The latter has evidently had 
 no ]irac 'cal experience of Circulation, and neither understands how it arises nor on wlial it 
 rests. This is not remarkable, seeing that New \'ork Hankers have no experience, properly 
 speaking, of Circulation at all. The Hankers there do not redeem their own notes. Kr- 
 denij)tion is the keynote of the whole system of a projier Circulation. It is only by the 
 function of redcemiitg notes, day by day, and seeing that other I'anks redeem them, that 
 any practical experience in Circulation can be had. 
 
 This gentleman apparently knows nothing of the distinction between lixed Deposits 
 and floating Deposits. He evidently does not see also that Circulation and Deposits arc 
 rather antagonistic than co-related. 
 
 When 15ank notes are paid in, Circulation decreases and Deposits increase. When a 
 Deposit is withdrawn, it is withdrawn generally in notes; then Circulation increases but 
 Deposits decrease. ^Ioreover, a large amount of Dejiositsare \a a fixed character. What- 
 ever their origin, they remain stationary, and have no influence whatever \ii)<)n the moving 
 tide of Circulation, either outward or inward. 
 
 (4.) The proposal to base the Circulntion on Deposits is unsound in thcoiy, and would 
 be unworkable in practice. Deposits are the debts of a Hanker; so are his Circulating notes. 
 To propose that because he is in delit in one direction, therefore he is to get into debt in 
 another direction, without any regard to his cajiital, is manifestly unsound, 
 
 (5.) The Banking Act very properly requires a considerable cajii'al to be paid up, before 
 Circulation can be issued at all. Any person can take Deposits, if the public will trust him : 
 but to issue Circulating bills is a function rerpnring a careful foundation, strict limifatiors, 
 and the imposition of reasonable safeguards. Kxperience tends in the direction of refpiir- 
 ing a far larger amount of capital to be paid up, before circulating notes can be issued. 
 This is my own opinion. Otherwise a Hank with a small paid-up capital, say $50,000, 
 might attract twenty times that amount of Deposits by offering high rates of interest. If, 
 then, it could issue a circulation c( one-half or ore-third of its Deposits, a superstructure of 
 credit would be raised which the least breath would topple over. 
 
 Rut such a proposal would be unworkable in practice. The whole of the current 
 Deposits of a Canadian Bank are the sums flowing out and in, at from ten to thirty places 
 over the whole extent of the Dominion : and the amount is beyornl the Banker's control. 
 It would be utterly impossible for him to keep Circulation, which is itself a fluctuating 
 
<|iuintily, in regular correspondence with another fluctuating ([uantity. Such a proposal 
 could only by any possibility be carried out, where the whole business of a Bank was done 
 in one Office. 
 
 (6.) With regard to the Rest. The proposal to insist upon Hanks investing the amount 
 of their Rest in other securities than discounted bills and trade advances, sounds well, but 
 it is not practical. 
 
 A Banker has always out a large line of liabilities which are payable on demand, and 
 D'.hers payable at a very short notice. The payment of his liabilities on demand is the foun- 
 dation i)rinciple of his l)usiness. The moment that is impaired, a Bank ceases to exist as an 
 active institution. Everv consideration, therefore, shows that in any investing or disposing 
 of his assets, the first and fundamental principle to be kept in view is the i)eing able to 
 command resources wherewith to meet h.is liabilities. If then the Rest were by statutory 
 authority placed beyond his disposal, his power to meet his obligations daily would be 
 imperilled — a position which no lianker would consent to. 
 
 'I'he proposal to place such enormous sums of money as are represented by Bank 
 Rests, in the hands of jjersons outside the Banks, is really so unbusinesslike that it can 
 hardly be treated seriously. Who are to be the tri?stees for the Seventeen Millions of 
 money re])resented bv the " Rests '' of the Canadian I'anks ? Is it possil)le to suppose 
 that the Bank of Montreal would trust any person outside its own circle with the sum of 
 •Six Millions ; or that the Merciiants Bank of Canadri. would trust any such person with 
 nearly Two Millions; or the Bunk of Toronto One and a Half Millions? The idea is 
 absurd . 
 
 {7.) Douiii.K LiAr.ii.iTV.— The author of this paper is constantly quoting United 
 States authorities. They have really scarcely any bearing on the Canadian position. 
 Banks there are radically different institutions, founded on different principles, governed 
 by (lilferent methods, in many respects far behind the advanceil and improved methods 
 current in England, Scotland, and Canada. The little petty institutions, scattered all 
 over the country, dignified by the name of lianks, would not be endured for one moment 
 in Canada. 
 
 As to the contingent liability repelling investors, I am not aware that any enc|uiries 
 have ever been inaile on the subject. The opinion of the writer is, therefore, basetl on no 
 f(Hindation . 
 
 The writer remarks that Column 3 shows the extent of depreciation in the value of 
 discounted i)ills that would absorb the Rest. 
 
 A practical man — a man with "special knowledge" — would have dwelt largely upon 
 this. In the absence of special knowledge remarks would be dangerous. But it is in one 
 respect the most important column of all. 
 
 (8J E.\KN1N<; PowKK. — The writer's remarks with regard to the Deposits of English 
 and Canadian Banks respectively are worthy of note. But — 
 
 1. These remarks ha'e been made repeatedly for the last 20 years in the financial 
 journals, and number- of illustraiions thereof given. 
 
 2. The writer does not seem to know the difference between London Banks, which 
 have not and never had circulation, and the Scotch and Irish Banks, which have a 
 circulation, as well as nur .oers of the Country 15anks of England itself. That the Scotch 
 and English Banks value their circulation is evidenced by the strenuous fight they made for 
 it at the time when Sir Robert Peel proposed to deprive them of it. 
 
 3. The statement that the Australian Ban'.cs commonly show Deposits of twelve or 
 fifteen-fold the amount of their paid-up capital is a little exaggerated ; but the writer is 
 apparently not aware that many of these Australian Banks have their head office in 
 London, England, and receive Deposits there, attracting them by offering higher rates of 
 interest than are current with the purely London Banks. 
 
 These Banks will often offer 2 per cent, more for money in London for a time 
 Deposit than a London I5ank will. Moreover, the Governments of Australasia are not 
 competitors in the Banking field. It is perfectly true, however, and it has often been 
 referred to in our financial journals, that Australia has vastly more money on Deposit than 
 Canada has. 
 
 {9.) The Canadian Banking system, it is said, is peculiarly an edifice of Credit. Why 
 peculiarly? This remark not only fails to be true, but it is the exact opposite of the truth ; 
 for the author has just been showing that the Canadian Banks take far less Credit from the 
 public than almost any other Banks in the world. In no country in the world is there more 
 JJanking capital in proportion to Banking credit than in Canada. 
 
 The note under the head of Column 7 is a peculiar instance of the want of special 
 
37 
 
 knowledge. Every Brink has arrangements with regard to certain of its resources, which 
 are an essential element in considering its position. A calculation of these resource- 
 would, in some cases, make the Reserves stronger, in others not so good. 
 
 (lo.) The author is in error in stating that Call Loans, and Loans at short notice, are 
 buried in the Discounted Hills Returns of the Canadian Banks. The greater part of them 
 is under the head of Loans on Stocks and Bonds. 
 
 (II.) The author constantly uses tlie term, "The English Banks" do this, or th.it, 
 when comparing them with the Canadian Banks- a most misleading use of language, fur 
 the English Banks referred to are only the thirteen Joint Stock Banks of London, not 
 including the Bank of England. 
 
 Even in London there are large and powerful Banking firms, whose credit and business 
 are on a par with that of the Joint Slock Banks. Moreover, the Bank of England is en- 
 tirely omitted — a huge omission, certainly — and the whole mass of ]5anks throughout all 
 England, except London, and the Banks in Scotland and Ireland. These also are not taken 
 into account. 
 
 To say, therefore, that the English llanks 'nve Loans of $418,000,000, against 
 Canadian $167,000,000, is so grossly inaccurate i-iut it is astonishing that any sensible 
 man could commit himself to it. 
 
 (12.) .Some of the remarks under the heading of "The Prevailing Commercial 
 System " show a certain want of acquaintance with the subject. There are times during 
 every year when the remarks of the writer are true and pertinent. There are other periods 
 of the year, and of every year, in which such remarks are entirely beside the mark, as the 
 vast amount of funds advanced by the Banks are in steady process of realization day by 
 day, and in that very liquid shape which the author denies them to be. 
 
 Thir remarks as to the connection between the balance of trade and the Circulation are 
 really only to be compared to the sage observation that the tendency of rivers is to run 
 past great cities. When there is a heavy production of exportable commodities, Bank 
 Circulation flows out in the country and backwoods districts in the purchase of them. 
 
 The importing business of a country, immense as it is, gives rise to no Circulation at 
 all. The manulacturing business gives rise to very little. It is the jnirchase of agricultural 
 and other natural products that gives rise to large Circulation. When these articles go 
 abroad they tend to create a balance in favor of Canada. Whether imports come in, or 
 do not come in as a consequence, has little effect upon Banking Circulation. If the next 
 year'- production is large, Circulation will still keep up ; if it is small, it will undoubtedly 
 go down, and so it will go on year after year. The table given under this head is a very 
 striking example of non siujiiittir. 
 
 (13.) The remarks as to a reversal of our present commercial [lolicy are sound and 
 judicious. 
 
 (14.) .So also are the general remarks on a secured Circulation. But it is not very 
 likely that Government would consent to become a Trustee for note-holders in the manner 
 proposed. 
 
 (15.) GOVKRNMF.NT CURRENCY. — The remarks of the author under this head are 
 generally sound and judicious : but they have been broui^ht befori' the public on more th.nn 
 one previous occasion, and notably in the replies of Hankers to the questions of a Com- 
 mittee of Parliament, previoiis to the renewal of Bank Charters in 1S71, when the whole 
 suliject was exhaustively discussed. 
 
 What is said as to the disadvantage of (Jovernment Currency is highly appropriate, 
 There are some points of detail, however, which re(|uire correction. It is stated that the 
 British, French, and Ci'-rman Goveinments control the Paper Circulation, by the Banks of 
 England, F"rance, and (Germany. 
 
 The luiglish Government has no more control over the Bank of England than it has 
 over any other Bank. The limit of the Bank of England Circulation, and every other 
 Bank in Great Britain, is fixed by Act of Parliament. .So is the limit of Canadian B".nk 
 Circulation. 
 
 It is constantly overlooked by those who have no special knowledge of this matter 
 that the whole of the Banks of .Scotland have a Circulation ; so have the whole of the 
 Banks of Ireland, and a large number of the Banks of England and Wales. 
 
 (16.) The remarks made with regard to (jovernment Savings Banks are most sound 
 and judicious, though both these and the following part of the Treatise are marred by the 
 reference again to the unreasonable idea that Circulation should be regulated by Deposits. 
 
3« 
 
 (17.) Rival Monktaky Si andakiis.— A discussion on this point is interesting in 
 theory, but it has no practical bearing on the Canadian position, so far as legislation is 
 concerned. 
 
 Canada has always been on a Ciold basis, and it will be a pitiful descent indeed if she 
 ever ad(jpts any oiiier. The United States are indeed in jireat danfjer of faliinp to a Silver 
 Standard, and Canadian lianks require to keep this constantly in view. In fact they do 
 so, often making special arrangements that any Loans or liills domiciled in the United 
 Stales shall bi payable in gold and not in Currency. 
 
 (18.) GovKKNMKNT BANK Insi'KC I'lON. — The remarks here are also pertinent, and 
 the danger and imperfection of (iovernment Inspection well pointed out. 
 
 The difficulty of keeping such a system pure and free from partisan influences would 
 be almost insurmountable. It is not, however, pointed out, as it should be, that the 
 advantages sujiposed to be secured in the United States by a system of Bank examiners are 
 much exaggerateil. It is known that these examinations are olten <>{ a |)erfunctory kind. 
 Re|)eated instances have shown that a Bank may be in a rotten condition and yet pass an 
 examination, failing disastrously within a few weeks after being certified to as sound and 
 correct by the Government itself. But it is well observed tha^ all arguments drawn from 
 Inspection by Government officials in the United States are entirely inapplicable to 
 Canada, owing to our diversified system of Branches. 
 
 (19.I l'm)KKSsiON'Al. .VUDU'.— It is evident that the writer has in view that kind of 
 [)':rfunctory examin:ition of a Bank statement which could be had by examining in the 
 Head Oltice the general Balance .Slieet of a B.xnk, and checking it by Returns furnished by 
 the Hraaches. lie ajipirently perceives clearly enough that no other audit is possible. 
 That this is neither aa Inspection nor a proper Audit goes without saying. It would 
 amount to nothing except to lull stockholders into a fancied security which really did not 
 exist. 
 
 It is generally forgotten by persons unfamiliar with the subject, that a constant audit 
 of a really effjctive character is going on all the year round in every Canadian Bank, and 
 that the elaborate Returns furnished to the Government have all been prepared on models, 
 the result of years of discussion and experience and that they are examined in a Depart- 
 ment of the Government. It is sometimes forgnten, too, that no persons are so deeply 
 iiii.ereste.l in the correctness of Bank Returns and Statements as the Directors of a Bank, 
 who, by their very office, must be large stockholders, liut most of all it is forgotten that 
 any audit of a Canadian Bank, to be really efficient, must be of a vastly more compre- 
 hensive and expensive character than is imagined. 
 
 A complete and efficient audit of the position of the Bank of Montreal alone would 
 re(juire the services of > staff of experienced officials, who could not possibly finish the 
 work under six or eight months ; indeed, it would be more correct to say, under twelve 
 months, which is as much as to say that it should be perpetual. This staff would recpiire 
 to be within the walls of the B.inking Office of the Bank itself during the whole of this 
 lime, which is obviously impracticable. 
 
 Any other audit than this would, and must, be of a perfunctory character. It would 
 amount to nothing ; it would prevent no disaster; it would expose no wrong doing. A 
 Bank could be rotten to the core, yet such an audit would not reveal it, just as examinations 
 in the United States have failed to reveal rottenness. And if the idea of wrong doing and 
 fraud entered into the minds of the higher officers of the Bank, and they desired to conceal 
 the true position, they would smile at the idea of outside jirofessional auditors finding out 
 what was going on, notwithstanding their efforts to conceal it. 
 
 The author unconsciously admits the impracticability of a really efficient audit, by 
 stating that in such a one as he proposed he must rely very much on certificates or state- 
 ments signed by more than one officer, or a committee of Directors. This gives away the 
 whole case. It must necessarily be so indeed. But this is exactly what the public have at 
 present, under the terms of the Banking Act. 
 
 G. IIAGUF. 
 
 Montreal, Muy r^lh, rSSS. 
 
OBSERVATIONS BY MR. CROSS. 
 
 and 
 
 I have had the privilege of watching the growth of this Kssay from week to week, and 
 know something of the labor and care bestowed upon it. The attempt is made to deal 
 with princi| ''-'s, and to this end facts have been carefidly collected, and their important and 
 necessary features have been faithfully stated ; the conclusions ofTerod are confined to tliose 
 statements. The best feature of the work consists in the honesty which has led the writer 
 to sacrifice his preconcejftions when facts have opposed them. This method is entitled to 
 the support of this Institute. We may each find something to dissent from perhaps, but 
 we are placed under an obligation to clearly reveal the grounds upon which we base our 
 •dissent, and any additional matter should have the same support. It is not enough that 
 this subject should be understood by Bankers ; the more thoroughly the principles are under- 
 stood by the general public, the better for all concerned. Mystery and ignorance are the 
 only conditions that render panics possible. To no single person is the Canadian public 
 more indebted for his efforts to spread accurate information in this department of National 
 Economy, than to Mr. George Hague. He has often treated the subject as a publicist as 
 well as from a mere Banker's point of view, and upon this account his comments are 
 entitled to all the respectful consideration which they have received. 
 
 The proposal to base Circulation on Deposits is doubtless an unworkable one, and Mr. 
 Menzies has not succeeded in showing that it is sountl in theory, neither has Mr. Hague 
 shown its unsoundness ; there is little diftererce between fixed and floating Deposits from 
 the moment the former are made active, and the proceeds of the bills discounted are credited 
 to a "floating" account. This money of' accouut is the principal medium by which 
 Exchangesaremade, and our three classes of Circulation proper are becoming; to an ever in- 
 creasing extent of lesser importance, in fact they acrpure their own currency chiefly as 
 change for cheques which themselves are only one form of inotiev of anounl. Many of .Mr. 
 Hague's subsequent objections seem to show that the views given are bounded by personal 
 •experience, and they illustrate the difference between ihe Arts and the Sciences, l-lxperi- 
 ence is indispensably necessary to success in the Art of Banking, not so a thorough know- 
 ledge of the principles that underlie the Art. The .Science of Banking rests upon a broail 
 consideration of the necessities which keep it in existence as an implement of civilization, 
 and the mere experience of any individual cannot furnish these. Indeed the duties of a 
 great trust make such claims upon time and attention that they tend to convert one who 
 woukl otherwise be an impartial observer into an advocate. This tendency explains the 
 advantage enjoyed by a Board of Directors who are not Bankers in dealing with large 
 questions of policy, though they rarely have the Banking experience of those whom they 
 direct. It has been said that if a proposition in Kuclid happened to lie adverse to the interests 
 or cherished speculations of a class, arguments would be invented either to confute or to 
 show its inexpediency. If Mr. Hague could sjiare a little atientinn to the Scottish or 
 Australian Bank returns, it is probable that he would revise much that he has said, and 
 it may be, withdraw some of the objections made. 
 
 The Union Bank of Australia, one of six larger Banks, in I.S76 had a reserve oi 
 two millions m dollars, and paid a 16"; dividend. In iS.Sj it paid iS°^, and had a reserve 
 of over four and a half millions. This reserve having increased at a smaller ratio last 
 year, only 13% dividend was paid. It is obvious that had a 10",, divitlend been paid during 
 these dozen years and the remainder invested in (jovernment securities, and these dejiosited 
 with an appropriate State Officer, there would have been a fund in reserve against Share- 
 holders' liability of some five millions of dollars, and the active resources of the Bank 
 would be just what they are lo-day. 
 
 The Commercial of Sydney, dating from 1834 (three years earlier than, and having 
 only two-fifths the amount of paid-up capital of, the last named), pays 25",, on three 
 millions of capital. It has a circulation of nearly five millions and discounts of more than 
 forty millions, yet it has stood the ups and downs of fifty years without "toppling over." 
 It has a reserve one and a cpiarter times greater than its capital, and holds twelve and 
 ii half millions in coin and Government securities. It owes the public sixteen times the 
 amount of its Capital. 
 
40 
 
 A still smaller institution, only 25 years old, The Australian Joint Stock Hank, owes 
 the public fourteen times the amount of its capital. It holds nearly lour millions in coin 
 ami bullion alone, and over five millions, still speakin.; in dollars, of convertible securities, 
 piys lai-^Vo dividend, and its rest is nearly 70"o of its capital. 
 
 Owing to the peculiar position of Canada in being directly connected with two great 
 rtnancial centres, ours cannot, like the Scotch, Irish or Australian Hanks, take their cue 
 from London only ; due regard must be, and always has been, had to what is going on in 
 New Vork. Large metallic reserves are less needed by us, for it is certain that Exchange 
 on those two cities will alone keep our currency on a par with gold so long as the Govern- 
 ment shall refrain from competing with the Banking trade. There are many reasons why 
 it should step aside, and it is satisfactory to find from the Finance Minister's remarks on 
 the Savings i'anks in his budget speech on 27th ult, that the Government is not unconscious 
 of some of them. It is to be regretted that no data are before us showing the effect of the 
 legal tender issue. The ten millions held by the Banks is made to do national clearing 
 house work on inter-bank settling days, and if it has the effect of saving the country the 
 expense of a gold coinage it is economically expedient that it should be continued. The 
 sm illness of the issue has certainly prevented it from interfering with the condition des- 
 criiie 1 in that well established axiom of political economists, that "a circulation should 
 vary in amount and value exactly as the currency would do were it metallic." 
 
 Sir Rol)irt Peel's Acts, referred to in the final paragraph with approval, h.ad the merits 
 of carefully guarding all existing rights and privileges, and whilst permitting entirely free 
 banking of^ framing a few easily understood jirovisions, affecting Banks of issue. The Act 
 of iS\\ liinite I [hs privileiTo of issuing not»s to those who then possessed it. That of 1S45 
 enacted that all issues beyond the average about that time must be suppoited by a reserve 
 of gold coin equal in amount. The minting arrangements were left untouched, otherwise 
 the control of the Circulation was exclusively confirmed to the Banks. Should it appear that 
 ojr existing biuks cm do the work, those Acts furnish a precedent for confining the 
 privilege to them. Should provision be made for the deposit with the Auditor or Receiver 
 (jineral of Government Securities for future reserves or any jjortion th^^reof as a security 
 in lieu to that extent against double liability, the right of issue should be by that amount 
 enlarged, antl in this way a provision would be made for future expansion should its 
 necessity "rise. 
 
 As the existing Rests it is obviously unwise that their present employment should be 
 disturhsd, but a sug'^estion founded on the new departure of the present (Government with 
 regird to the people's savings may be hazarded. Since the fust Act establishing Savings 
 Banks passed the British Parliament in 1817, it has been recognized that such institutions 
 shodd not be reijarded as depositories for ;ifr/«.z«6"«/ investments. The State undertakes, 
 on the ground of good policy, to receive the savings of the working classes and to return 
 money on ilemand. The only Chancellor of the Exchequer who ever attempted to depart 
 from this was Mr. I^owe and his proposals were withdrawn. In England, as has been the 
 case in Canada, the State made large losses in interest, but when the Post Office Savings 
 p'an wis ado;)teil the rate of interest from the first was fixed at 2 'a percent. Our Govern- 
 ment have it in their ])jwer to make two sound departures simultaneously. They could 
 deposit with each Bank such a p:)rtion of these moneys as equalled its actual rest and 
 oblige the Bank to hold Dominion bonds to the amount thereof. This would be more than 
 a mere matter of book-keeping. It would place the onus of providing money for with- 
 drawals up^n thoie whose business it is, and upon whom it would actually devolve were 
 the withdrawals at once large and sudden, 
 
 W. II. CROSS, F.C.A. 
 Toronto, 23nd May, rSSS, 
 
REPLY IN SO FAR AS THE PAPER REFERS TO THE 
 
 ISSUE OF CURRENCY. 
 
 Under the heading " Basis of Circulation " our worthy friend states that " the 
 statutory limitation of the Circulation of the banks, to the amount of their unimpaired 
 paid-up Capital, is a purely arbitrary one, apjiarently grounded on no principle." 
 
 I think that there is a i)rinciple involved, and a very important one, and that the 
 restriction by law is a very wise one. 
 
 If — and I would very strongly emphasize that if— the banks are to be allowed to con- 
 tinue to be banks of issue, they should certainly be restricted in the exercise of this 
 privilege, and I cannot conceive of any index as to the extent of this limitation on any 
 sound principle other than in direct proportion to unimpaired paid-up or accumulated 
 Capital. Surely a bank having an unimpaired paid-up Capital of $i0,cx)O,oc)O may be 
 allowed an issue of ten times that of one with only $1,000,000 of Capital. The business 
 done, and the nature of it, will be the measure of the capacity of any bank to exercise 
 this privilege conferred upon it. No bank, however, any more than any other public com- 
 pany or any private individual, should be able to obtain credit in ]iroportion to the business 
 it wishes to do, or its customers want it to do, without regard to its own Capital invested 
 in the business. 
 
 The public have confidence in becoming the creditors of the banks, as holders of the 
 bills in circulation, because of the limitation imposed in restricting issues in proportion to 
 Capital. 
 
 If the Capital, Rest, Cash Deposits, and authorized Ciiculation together fall short of 
 supplying funds for the legitimate wants of the customers of any bank, the same course is 
 open as in the case of other monetary or commercial enterprises, viz., to increase the 
 Capital. If this be not done, the ordinary course of events is that more banks are 
 organized. 
 
 The lending of money, especially on personal security, is attended with risk of loss. 
 It is well, therefore, in the interest of the shareholders as well as the public at large, that 
 the expansion of business by way of the issue of currency should be restricted in proportion 
 to Capital. 
 
 If this country has not enough of circulating currency it certainly cannot be owing to 
 over-restriction of the issue of the banks by legislation, for we find that the larger banks 
 have not half the issue in circulation which the law allows them, and that of the existing 
 Government issue a large proportion is not in circulaticm. 
 
 As regards, therefore, the amount of the Circulation, there can be only one or other 
 of two conclusions, either we have under the present restriction as much currency as is 
 nfeeded, or else that as yet the source of the issue of our currency is not such as meets the 
 true objects of a circulating me<iium in providing the true ideal of a thorough and elastic 
 means of substitute for barter. 
 
 I have come to the latter conclusion in my mind, whether right or wrong. I am con- 
 vinced that the Government of a country should take the matter of the issue of currency 
 entirely into its own hands, under wise an<l comprehensive legislation, 
 
 I shall not stop to discuss whether the issue of currency by the (iovernment, instead of 
 banks, would or would not increase the Circulation. I shall not even deal with the question 
 as to whether a larger Circulation is needed in the country or not. I desire rather to point 
 out a system of currency, which, in my o|)inion, would adjust itself, in an elastic way, to 
 the wants of the people, and solve, in its operation, many vexed fjuestions, which other- 
 wise may well puzzle the most astute and the most experienced to come to any intelligent 
 conclusion. 
 
 I am indebted to Mr. Buchanan, of the Dominion Lands' Department at Ottawa, for 
 the suggestion that legal-tender notes issued by the Government to replace bank issues be 
 redeemable on demand in interest-bearing Consols of the Dominion. That these Consols 
 be redeemable on demand in legal-tender currency. The Circuli.tion would thus never be 
 arbitrary in volume but would be perfectly elastic and adjust itself to the requirements of 
 the public. 
 
42 
 
 As regards the details involved in placing such a currency in circulation, it would not 
 1)0 difficult to adjust a suitable scheme. 
 
 Of course the banks should be duly considered, and a period of ten or more years 
 given them for the gradual withdrawal of their issues or the equivalent by way of interest 
 paid them by the Ciovernment in the event of the immediate assumption by the Govern- 
 ment of the entire Circidation. 
 
 It is only necessary for the present argument to mention two ways in which the Gov- 
 ernment could effect such an issue of currency. It might simply supply the banks with all 
 the currency needed under suitable restrictions regarding the respective banks, or it might 
 issue directly a currency in payment for products of the country exporting the same and 
 obtaining gol<l for it. I am in favor of the latter. 
 
 We nave a vast wheat-growing district in the North- West. The producers the'^re labor 
 under great disadvantages in disposing of their crops. If the Government of the Dominion 
 should contract for the purchase of the bulk of the wheat grown there, and shiji to a foreign 
 market by the Canadian Pacific Railway and its connecting lines, paying therefor both the 
 price and the freight in a new issue of le^al-tender Dominion notes, obtaining gold fur the 
 products purchased, this might he 'i< v >i.r after year until the bank Ciiculation were 
 entirely replaced. The debentui ■ de' .1" Dominion could be redeemed to the amount 
 
 of such issue, the interest being savei' ■■.1 , linion. Hj' redeeming the Circ\ilation by 
 Consols, and redeeming Consols b}- r.i\,u,aiu.i, the (Government would always save the 
 interest on the amount actually needed in Circulation, but no more and no less. The time 
 would not be far distant when the " almce of the Dominion debt, outside of circulatini; 
 currency, would be owing almost en irely ^ ban' . d others in the Dominion, and the 
 demand would be such that our Consols couki reid'ly he snVl for foreign exchange or in a 
 foreign market at par or its equivalent. 
 
 I conce-ve it to be within the true functions of a Government to encourage in every 
 way practicable the development of the resources of the country. Obviously, if from any 
 cause the banks curtail the advances made to producers or middlemen, the producing or 
 purchasing power in the country is lessenetl. This may happen concurrently with a good 
 demand in some foreign country for the very commodity sought to be produced or moved. 
 A Government purchasing products of any kind to meet the launching of a direct issue 
 of Government currency would naturally and necessarily be guided by foreign markets 
 as to the nature and extent of such purchases. This power wisely exercised would give a 
 stimulus to the production in the Dominion of commodities in active demand in various 
 parts of the world. 
 
 Under the system I have indicated, the amount issued for payment of products need 
 not be restricted to the amounts of the curtailment of bank issues, because, directly the Cir- 
 culation became inflated beyond need, holders couid invest in National funds. On the 
 other hand, if the opportunities of purchase of products did not admit of getting into 
 circulation as much as was needed to replace bank issue, the Government could deposit 
 with (he banks the required amount of currency to bear interest at the same rate as was paid 
 on Government Consols. 
 
 The instances cited by Mr. Menzies of the issue of National currency have no bearing 
 whatever upon the (juestion of a Dominion of Canada currency such as I have suggested. 
 It would be fruitless to discuss them. 
 
 Mr. Menzies' allusion to the existing Government issue is wide of the mark ; the fact is, 
 that these notes i)eing equal to specie in Canada are principally held as such by the banks. 
 If the circulation used by the banks was all of the same nature, a certain amount would 
 naturally be held in the same way. 
 
 That the withdrawal of the bank Circulation would be an inconvenience to the public, 
 because of the curtailed power of the banks to make advances, assumes that it is impossible 
 to multiply the numbers of banks, or to increase the capital of those existing, a fallacy 
 which needs no remarks. 
 
 In conclusion I would say that if the banks be deprived of their present privilege of 
 issuing circulating currency, the imposition of double liability of stockholders could be 
 abolished as there could then be no jiretext for such a law. 
 
 I would remark incidentally that if it be deemed expedient to require that bank ac- 
 counts be audited, the auditors should in my opinion be appointed by the stockholders 
 and not by the Government. 
 
 I have endeavored to be very brief in my remarks, but I trust that I have said enough 
 to open up a discussion on one branch of the subject of Mr. Menzies' paper. 
 
 WM. POVVIS, F.C.A. 
 
 Toronto, isth May, iSSS. 
 
POSTSCRIPT BY THE AUTHOR. 
 
 On the eve of pul)lication I have received the Hanking Supplement issued with the 
 London Economist of May 19, from which I learn that eijjhteen banks in Kngland and 
 Wales, one in the Isle of Man, two in Ireland, and two in Australia hold their Rests, or 
 «' Reserves," invested specifically, separate from their other assets. These Rests aggregate 
 28 million dollars. Chief among the banks so dealing with their Rests are the— 
 
 Bank of Ireland $5, 170,000 
 
 Union B. of London 4,250,000 
 
 •Union B. of Australia 4,287,000 
 
 B. of Australasia 2,500,000 
 
 Birmingham Joint Stock B 2, 149,000 
 
 Wilts and Dorset B. Co 2,000,000 
 
 London and Provincial B 1,548,000 
 
 National B. of Ireland 1,157,000 
 
 Birmingham B. Co 1, 146,000 
 
 The amount of bank Capital paid up in the United Kingdom is ^70 million sterling ; 
 its market value £\<^o million. The balance of Capital subscribed, callable and reserved, 
 amounts to ^170 million; the Reserve fund, dividends, and undivided profits amount to 
 £li,' million. The total amount of Deposits held by all the banks in the United King- 
 dom, private as well as joint stock, is estimated to be ;^57o to ;^58o million. 
 
 Of the sixteen Australasian banks, three show Deposits to twelve-fold the amount of 
 their Capital, one to thirteen-fold, and one to fifteen-fold. 
 
44 
 
 ANALYSIS OF BANK STATEMENTS, 31st JANUARY, 1888. 
 
 BANKS. 
 
 (In order of atiioiiiit of paid-up 
 
 Caiiital.) 
 
 Montreal 44-^ 
 
 Commerce 4'-3 
 
 Merchants' ' 53' 
 
 British N. America , 21.9 
 
 (2uebec 27.2 
 
 Toronto 57-^^ 
 
 Molson's I «7-6 
 
 Nationale 24.6 
 
 British Columbia ! 38.5 
 
 Dominion ' 86.9 
 
 Imperial 81.6 
 
 Ontario 65.4 
 
 Eastern Townships 56.9 
 
 Du Peuple 64.8 
 
 Union of Canada 70.7 
 
 Nova Scotia ; loo.i 
 
 Standard ! 65.3 
 
 Hamilton i 03.8 
 
 Ottawa 
 
 Merchants' of Halifax 
 
 Hochelaga 
 
 People's of Halifax.... 
 
 Traders' 
 
 New Brunswick 
 
 Jacques Cartier 
 
 Halifax Banking Co... 
 
 Union of Halifax j 29.7 
 
 Ville Marie 
 
 Western 
 
 Yarmouth 
 
 Commercial of Manitoba 
 
 St. Hyacinthe 
 
 Comm'l of Windsor, N.S 
 Exchange of Yarmouth... 
 
 St. Jean .••• 
 
 St Stephen's 
 
45 
 
 LONDON JOINT-STOCK BANK STATEMENTS, 31st DECEMBER, 1887. 
 
 BANKS. 
 
 PKRCKNTAGE OF 
 
 Capital and 
 Rost to 
 
 Caviital and 
 
 Rest to 
 
 Deposits. 
 
 Cash. Monev 
 
 at Call, anil 
 
 Investiiifnta 
 
 to 
 
 Deposits. 
 
 London & Westminster... 
 
 London Joint Stock 
 
 Vnion 
 
 (ilyn, Mills, Cunie,& Co..! 
 
 I 
 
 City 
 
 Imperial 
 
 Alliance 
 
 ■Consolidated 
 
 Central 
 
 London & South-Western. 
 
 London & County 
 
 Lloyds, Barnetts, & Co... 
 London & Provincial.... 
 
 MEMORANDUM OF TOTALS. 
 
 BANKS. 
 
 Capital 
 Paid-up. 
 
 Rest. 
 
 Deposits. 
 
 Cash. 
 
 I Advances 
 Securities, i and 
 
 ! Discounts. 
 
 36 Canad'n 
 Banks ... 
 
 13 London 
 Banks ... 
 
 $58,865,000!$ 1 7,649,000 $1 10,5 13,000 $ 32,356,000 $ 5,960,000 $167,752,000 
 
 I 1 ! 
 
 7o,5oo,oooi 34,ooo,oooi 612,000,000 148,500,000 132,500,000 418,000,000 
 
46 
 
 ANALYSIS OF BANK STATEMENTS, 29th FEBRUARY, 1888. 
 
 BANKS. 
 
 (In order of ainoiiiit of paid-up 
 
 Capital. J 
 
 PERCENTAGE OF 
 
 Cir- 
 culation 
 
 to 
 Capital. 
 
 Montreal > 
 
 Commerce 
 
 Merchants' 
 
 Uritish N. America 
 
 Quebec 
 
 Toronto 
 
 Molson's 
 
 Nationale 
 
 Uritish Columbia 
 
 Dominion 
 
 Imperial 
 
 Ontario 
 
 Eastern Townships 
 
 l)u I'euple 
 
 Union of Canada 
 
 Nova Scotia 
 
 Standard 
 
 Hamilton 
 
 Ottawa 
 
 Merchants' of Halifax .... 
 
 Hochelaga 
 
 People's of Halifax 
 
 Traders' 
 
 New Brunswick 
 
 Jacciues Cartier 
 
 Halifax Banking Co 
 
 Union of Halifax 
 
 Ville Marie 
 
 Western 
 
 Yarmouth 
 
 Commercial of Manitoba. 
 
 St. Hyacinthe 
 
 Comm'l of Windsor, N.S.. 
 Exchange of Yarmouth.... 
 
 St. Jean 
 
 St Stephen's 
 
 Circulation 
 
 to 
 Deposits. 
 
 454 
 39.8 
 53-2 
 22.4 
 26.2 
 59.8 
 85.5 
 25.6 
 
 35-9 
 86.2 
 79.6 
 68.1* 
 57.2 
 66.8 
 
 72-3 
 94.6 
 
 62.5 
 
 88.9 
 
 77- 
 
 93-2 
 
 76.2 
 
 22.1 
 
 90.7 
 
 84.9 
 81.8 
 
 923 
 
 28.7 
 
 86. 
 
 87.1 
 
 20.5 
 
 99 I 
 68.7 
 21. 1 
 
 14.1 
 
 27.1 
 83.6 
 
 27. 
 23.1 
 37.9 
 17.4 
 
 15-3 
 
 22.7 
 
 26.8 
 
 33-1 
 
 27.8 
 
 18.1 
 
 22.4 
 
 22. 
 
 38.1 
 
 24.9 
 
 454 
 25.6 
 
 18.7 
 37-2 
 39- 1 
 37.8 
 54.8 
 
 27-3 
 53-8 
 327 
 35-3 
 34-1 
 26.5 
 
 53-7 
 42. 
 18.5 
 64.8 
 
 35-6 
 
 27.2 
 
 62.7 
 
 134.2 
 
 1 19.6 
 
 Rest 
 
 to 
 Capital. 
 
 Rest 
 
 to 
 
 Disc'nts. 
 
 Capital 
 
 and 
 
 Rest 
 
 to 
 
 Disc'nts. 
 
 Cash and 
 Convertible 
 Securities 
 
 :o 
 Cirrui.ition 
 
 and 
 Deposits. 
 
 50- 
 
 8.3 
 293 
 24.1 
 
 '3- 
 62.5 
 
 437 
 
 26.7 
 
 71.3 
 36.7 
 
 35- 
 29. 
 
 25. 
 
 4.2 
 
 35-9 
 
 34. 
 
 34- 
 
 3J- 
 
 16. 
 
 14.1 
 
 7-5 
 
 70. j 
 
 28. j 
 20. 
 
 8. 
 
 4.2 I 
 
 10.6 I 
 
 10. I 
 
 7-2 : 
 
 ! 
 
 25- I 
 12.2 
 
 44 
 12.5 
 
 35.9 
 
 37 
 
 13.3 
 
 15- 
 6.1 
 16.6 
 10.4 
 
 40.2 
 
 15-5 
 II. 7 
 102 
 1 1.6 
 7.2 
 
 1.4 
 12. 1 
 
 99 
 10. 1 
 11.6 
 
 5.8 
 5.6 
 
 5- 
 7 
 
 22,7 
 12. 
 
 5' 
 
 57 
 1.9 
 
 37 
 5.8 
 
 3- 
 
 18.5 
 
 1 1.9 
 
 3.9 
 
 5-5 
 
 107.8 
 48.5 
 58.6 
 
 77-3 
 527 
 43-1 
 34-1 
 66.8 
 190.8 
 37-2 
 43-5 
 39-3 
 52. 
 36.2 
 
 357 
 45-9 
 39-2 
 
 397 
 48.8 
 42.1 
 
 45.1 
 71.8 
 33-8 
 
 55.1 
 54.8 
 
 30.5 
 76.6 
 48. 
 
 38.3 
 64. 
 
 443 
 37.2 
 
 927 
 
 109.5 
 
 91.2 
 
 49.9 
 
 63.5 
 297 
 3'-5 
 43-2 
 
 23.5 
 30.2 
 
 16.8 
 
 21.3 
 
 48.2 
 40.4 
 
 40.3- 
 28.5 
 15.2 
 24.6 
 7-3 
 39-9 
 
 33- 
 iS. 
 22 8 
 42. 
 
 23. 
 50.5 
 15 I 
 56.4 
 22.9 
 10.3 
 67.1 
 12 9 
 9.8 
 
 274 
 26.8 
 
 9-3 
 129 
 
 72.7 
 
 22. 
 
 10.6 
 
47 
 
 ANALYSIS OF BANK STATEMENTS, 31st MARCH, 1888. 
 
 HANKS. 
 
 (In Older of amount of paid-up 
 
 Capital,) 
 
 PKKCENTAGE OF 
 
 Montreal 
 
 Commerce 
 
 Merchants' 
 
 Hritish N. America 
 
 Quebec 
 
 Toronto 
 
 Molson's 
 
 Nationale 
 
 British Columbia 
 
 Dominion 
 
 Imperial 
 
 Ontario 
 
 Eastern Townships 
 
 Du Peuple 
 
 Union of Canada 
 
 Nova Scotia 
 
 Standard 
 
 Hamilton 
 
 Ottawa 
 
 Merchants' of Halifax ... 
 
 Hochelaga 
 
 People's of Halifax 
 
 Traders' 
 
 New Brunswick , 
 
 Jacques Cartier 
 
 Halifax Banking Co 
 
 Union of Halifax 
 
 Ville Marie 
 
 Western 
 
 Yarmouth 
 
 Commercial of Manitoba. 
 
 St. Hyacinthe 
 
 Comm'l of Windsor, N.S.. 
 Exchange of Yarmouth.... 
 
 St. Jean 
 
 St Stephen's 
 
 Cir- 
 culation 
 
 to 
 Capital. 
 
 46.2 
 40. 8 
 53-8 
 
 23-3 
 
 2S.7 
 5S.2 
 
 «2.5 
 
 25.2 
 26.9 
 86.6 
 
 79-9 
 
 72.2 
 
 57.7 
 
 79.8 
 
 72.5 
 
 97.1 
 
 61.7 
 
 87.0 
 
 83.6 
 
 95.6 
 
 85.9 
 
 22.3 
 
 87.6 
 
 95- 
 95.1 
 
 88. 
 
 30.4 
 91. 
 83.2 
 24.1 
 
 934 
 74- 
 
 22. Q 
 14.2 
 24.9 
 84.2 
 
 Circulation Rest 
 
 to to 
 
 Deposits. , Capital. 
 
 .L 
 
 27.8 
 233 
 
 ! 387 
 I '8.3 
 
 I '5-7 
 i 21.8 
 25.3 
 27.9 
 27.9 
 18.2 
 22.7 
 
 23-5 
 39-6 
 
 30-4 
 40. 
 27.5 
 18.8 
 
 37-3 
 42.6 
 38.8 
 56.9 
 30.6 
 
 499 
 40.7 
 40.9 
 
 3^-7 
 28.3 
 
 56.8 
 40.9 
 19.2 
 
 57.1 
 
 36.6 
 
 29.8 
 
 60.5 
 121. 6 
 144.9 
 
 1 50. 
 
 8.3 
 1 29.3 
 I 24.1 
 
 I '3- 
 j 62.5 
 
 437 
 
 20. 
 
 7t.3 
 367 
 35- 
 28.9 
 
 25- 
 
 4.2 
 35-9 
 34. 
 34- 
 31- 
 16. 
 14.1 
 
 7-5 
 
 2. 
 70. 
 28. 
 20. 
 
 8. 
 
 4.2 
 15.2 
 10. 
 
 7.2 
 
 25- 
 12.2 
 
 44 
 
 12.5 
 
 K.'st 
 to 
 
 Capital 
 and 
 Kest 
 
 Casli and 
 Convertible 
 Securities 
 
 to 
 
 Disc'nts. 
 
 to 
 Uisc'nts. 
 
 Cirt ulation 
 aiiil 
 
 
 
 Deposits, 
 
 354 
 3-6 
 
 I 13-5 
 14.8 
 
 59 
 
 I 15.6 
 
 10.2 
 
 38.9 
 '57 
 
 113 
 
 9.9 
 
 ".5 
 7.1 
 14 
 
 II. 2 
 
 9.6 
 9.9 ' 
 10.8 
 5.6 I 
 
 5.3 I 
 
 4-9 
 
 7 
 21.7 
 
 II. 5 
 
 5-2 
 
 5-2 
 
 1.9 
 
 5.2 
 
 5.8 
 
 J' 
 
 177 
 II.4 
 
 3.6 
 
 ^•6 
 
 106. 1 
 46.6 
 
 597 
 76.2 
 51.2 
 40.5 
 
 I 334 
 
 i 65. 
 
 2337 
 I 377 
 I 42.1 
 
 38. 
 
 5'i 
 
 35-3 
 
 35-6 
 
 42.4 
 
 38. 
 
 39- 
 
 45-5 
 
 40.7 
 
 42.8 
 
 70.8 
 
 35- 
 52.8 
 
 527 
 311 
 
 70.7 
 
 47.3 
 
 39-3 
 64. 
 
 44-5 
 35-1 
 88.4 
 104.7 
 86.2 , 
 51- 
 
 59-5 
 
 3!. 
 
 32.1 
 
 44-5 
 25.4 
 
 25.6 
 
 16.6 
 
 22.8 
 
 44-9 
 
 41. 
 
 38.8 
 
 27.5 
 14.2 
 24. 
 
 17. 
 
 35-9 
 30.2 
 14.6 
 22.3 
 
 39-5 
 23.2 
 
 40.6 
 22.1 
 50.4 
 20.1 
 11.7 
 
 51-5 
 n.9 
 
 '93 
 32.8 
 
 247 
 10. 
 12.8 
 67.1 
 
 177 
 8.5