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Tous les autres exemplaires originaux sont film6s en commenpant par la premiere page qui comporte une empreinte d'impression ou d'illustration et en terminant par la dernlAre page qui comporte une telle empreinte. Un des symboles suivants apparaftra sur la ' derniire image de cheque microfiche, selon le cas: le symbols — ^ signifie "A SUIVRE", le symbols V signifie "FIN". Les cartes, plenches, tableaux, etc., peuvent dtre filmte d des taux de reduction diff^rents. Lorsque le document est trop grand pour dtre reproduit en un seul cliche, il est filmi A partir de I'angle supArieur gauche, de gauche i droite, et de haut en bas, en prenant le nombre d'images n6cessaire. Les diagrammes suivants illustrent la mAthode. 1 2 3 1 2 3 4 5 6 ^.1 fx^l. THOUGHTS on THE BANKING SYSTEM OF T r wips>:ii:sa ©^M^iDj^a AM> 01T THE PRESENT CRISIS. •vv\ vw >/:. tS^V" TORONTO! PRINTED FOR THE AUTHOR. 1837. '♦'■ ^ TO THE HONORABLE THE LEGISLATIVE COUNCIL AND HOUSE OF ASSEMBLY OF UPPER CANADA. These observations on the important subject upon which they are about to Legislate ARE RESPECTFULLY INSCRIBED By their most obedient Servant, THE AUTHOR. m ' THOUGHTS ON THE BANKING SYSTEM, &c; In times like the present when the deepest anxiety prevailsj timongst all classes of the community, as to the result of the approaching Session oi Parliament, which has been called in respondeuce to simultaneous addresses from all parts of the Province, we shall perhaps not be considered obtrusive in oiFering a few observations to the public^ We believe that the opinions which we shall advance, will harmonize with the admitted truths of Political Economy, but are at the same time convinced that they will be at variance with the views of those who, being directly interested in opposing them^ have unfortunately but too much influence in doing so with effect. We shall be happy indeed if our opponents will discuss the question in a spirit of candour and forbearance* and the result, we feel assured, will be that the great mass of the community will be much better informed on the important subjects on which we shall treat than they have hitherto been. AVe candidly admit, at the outset, that having been always an advocate for free trade to the most unlimited extent, we see no reason to depart from our general principles, as far as Banking is concerned. We are then for perfect freedom in Banking, but let it not be supposed, that we object to proper restrictions, not inconsistent with that perfect freedom which we advocate. We do not object to Companies associating for Banking purposes, being obliged to register the names of their partners, to their declaring their nominal capital, and the amount paid in, to their making returns of their liabilities to the public at stated intervals, nay, we should not object to their being obliged to give security for their issues, provided all other Com" panics were obliged to do the same ; but while chartered Companies^ wholly irresponsible, ore allowed to issue paper, we cannot lee any 4 propriety in calling on Companies whose partners are fully responsible, for any furlhrr security than their genetal liabilities for all the engagements of the Company to which they belong. Our arguments in favour of Free Banks are— 1st. That we believe the security to the public is greater than under any other system, and consequently that there will be more confidence in Joint Stock Banks than in any other, in times of difficulty. 2nd. We are against all monopolies. We can see no reason, why the privilege of issuing paper, intended to pass as money and which is the representative of gold and silver, should \ie extended to one individual, or one corporation, more than to another. 3rd. We believe that a Free Banking system woutd have the effect of bringing British Capital into the Province. We hare heard from the highest authority, of the " redundant wealth of the Mother Country." We cannot say we have yet heard of the redundant wealth oi Upper Canada. We believe that the true method of "attracting" that wealth to Upper Canada, would be to do away with the Usury laws and to allow perfect freedom of trade in Banking. We know that Banking Corporations divide 12 per cent per annum and yet no individual is allowed to take more than 6 per cent. Had we perfect free trade in money, capital would flow here as long as it would bring 7 or 8 per cent. We have heard it repeatedly stated that there are Banks enough ii) the" Province and that the more there are the more difficult it is to get accommodation. We cannot perceive the truth of the assertion. We know there ii abundance of good paper in the best of times which the Banks cannot discount, and we cannot admit there is too much Banking capital until wo find the Banks seeking foi paper to discount and the rate of interest coming down as it does in England, when- money is plenty. We confess we should wish to see the mercan- tile community more independent of the Banks than they are. We should like to see the latter made to feel the value of a good ac' count, and the merchants able to demand, aye, to insist upon that accommodation which they have a right to expect. We think theee results would be produced by competition and we would not check that competition. We proceed to consider the leading objections to Free Banking, & 1st. The grand one which is in the mouths of all its 6pi)on«nts— namely, that the best guarantee to the public is a paid up Capital and that responsibility is of secondary consequence. We shall perhaps destroy this argument most effectually, by admit- ting its truth. We deny that the supporters of Joint Stock Banks here or elsewhere inculcate any such notion, or that their Constitu- tions " frrdain any sitcJi absurdity" as that a paid up Ccpital is ijot requisite. We defy any person practically acquainted with Banking in Upper Canada, to assert that it is possible to carry on Banking here except on the basis of a bona fide Capital, the business to be in proportion to such Capital. We know that in England, Banking is carried on with a merely nominal Capital, but the rea- son is obvious. The security of the Joint Stock Banks is consider- ed so good by Capitalists that in ordinary times they can borrow as much money at 3 per cent per annum as they can lend at 4 or 5. Thus they want no Capital, they re-discount the bills in London Mrhich they discount in the country at a profit of 1 or 2 per cent; and are thus enabled to make large profits with a small paid up Capital, and this has been the cause of great overtrading in all branches of business. Business of this description is unknown here —we have no re discounting. The Banks do not, I believe, take short paper from one another in payment of balances, added to which, payments are more irregular than in England, so that the Banks are even restricted within what might be considered the legitimate bounds of their business. We presume our opponents are not yet aniicipating the time when money shall be so plenty here as to enable Banks to do a similar business. When it is, it may be necessary to place some restrictions upon them. We must keep in mind however, that chartered Banks can do such a business as welV as priva';e ones, unless their irresponsibility should prevent their getting ihe same credit. 2ndly. We are told that it should be insisted upon that the whole Capital of these Banks should be paid up. We should be tempted to ask an extensive importing merchant, who frequently urges this restriction — whether he would prevent a customer of his with a Capital of dfilOOO, from doing any business, because he an- ticipated in a few years getting oClO.OOO mrre Capital, ard in the liieantime could not make the large importations which the eminent ^ merchant alluded to is in the habit of making ? f1' e As well might he prevent this man from commencing business till he had all his Capital on hand, as say, that a private Bank oom- j)osed of persons associating together I'or Banking purposes should have the whole Capital paid up before commencing. We shall illustrate our argument by a case in point. The Capital of the Farmers' Joint Stock Banking Company at the outset was ^£500,000. Had this been- all taken up, they would now have paid in a larger Capital than any Bank in the province; but the intelli- gent gentleman referred to would no doubt say, you must do no business until every dollar is paid up. We contend that upon the very principle laid down by our opponents, that of paid up Capital, the People's Bank, whose liabilities to the public are probably not a shilling for every pound of the Upper Canada and Commercial Banks, is as saie as those great Institutions, while the additional guarantee is afforded of the responsibility of the Shareholders. 3rd. We are told that in times of difficulty and embarrassment the small Banks as they are called are obliged to sacrifice their cus- tomers in order to protect themselves, and are quite unable to meet any commercial revulsion such as has lately unhappily taken place on this continent. Also that in times of prosperity these institutions are a check upon the larger ones and prevent their issues being as large as they otherwise would be. We must again repeat that if a Bank trade upon its hona fide capital, it cannot make any difference to the public whether that capital is large or small. If the capital is too small to pay the ne- cessary expenses of the business and yield a fair profit to the share- holders they will have no object in carrying it on ; and in Joint Stock Banks where all the partners are liable for the engagements of the Bank there is little probability of the Directors engaging in wild speculations or trading beyond their means, because the extra profits can be of little consequence compared with the risk incurred. Not so we believe with chartered Banks, the Directors know they cannot lose more than their paid up capital, which is in many cases merely nominal, and they are therefore more likely to run great risks for the purpose of obtaining large dividends. We contend therefore that a revulsion in business cannot embar- rass a small bank one jot more than a large one: we deem it next to- impossible that any Banks can sacrifice the interests of the commeF-' cla! body more than the Chartered Banks have done in this Prov- ince. We may also observe that during the present panic it does not appear that the Joint Slock Banks have been less able to meet these distressing times than the chartered ones. With regard to the objection that in times of prosperity a number of Banks havo the effect of checking issues, this complaint generally comes from the advocates of one Mammoth Institution, and of course applies equally to chartered and to Joint Slock Banks, and it has been a strong objection made by the advocates of such a Bank against the charters of small Banks throughout the Province. Now with re- gard to this objection we hold it as an axiom that every Bank will be anxious to keep up as large a circulation as it can with safety. It is not therefore likely that in times of prosperity the legitimate issues of any Bank will be materially checked by rival institutions ; but it is of the utmost importance to the public safety that over issues by any Bank should be promptly checked, and to do this the salutary control of other Banks has always been found the most effectual remedy. The very existence of Banking Institutions depends on the public confidence, and every Bank is interested in having the business safely and prudently conducted by other institutions. Finally, we have heard it charged, and we know it is done by those connected with the Chartered Banks, that the Joint Stock Banks had no specie but what they obtained from the other Banks, & they would therefore we presume imply that they had no capital at all. We feel almost repugnant to use argument with people guilty of the absurdity contained in this charge ; but it is such a favourite oxie that we are compelled to notice it, This charge was first brought against Messrs. Truscott, Green & Co. on their commenc- ing their Bank in Toronto, by the friends of the Bank of U. C, and a moment's consideration must convince every one of its absurdity. That wealth consists of such commodities asareuseful — thatis, neces- sary or agreeable to mankind — is one of the first truths of poli- tical economy. The man who imports dClOO of British Broad Cloths brings as much wealth as he who brings <£100 of British silver coin. If then Messrs. Truscott, Green & Co. sold Bills of Exchange to Merchants to pay for their cloths and flannels, they • brought as much wealth to Upper Canada as if they had brought it ia the 9bape of silver — they were paid for their bills in Bank paper, f mm MP M ( & or tha representative of gold and silver, and were then abased for demanding payment of those bills. In like manner the Stock of the Farmers* and People's Banks was paid in and continues to be paid in in paper of different Banks. Surely it is unreasonable in these Banks to complain that their notes are taken and held as silver, as were they not it would be because they were not considered to be convertible into specie on demand. We shall illustrate our po« sitJon by supposing that an individual in England with <£1000 in gold should come to U. C. and invest saiu sum in gold in the Farm* crs' Bank. Ii would not be denied by any one that this was so much bona fide specie paid in ; but let us alter the case, the gentle- man paid his gold to Thomas Wilson & Co. for the credit of the Bank of Upper Canada. He arrives out, lets his money lie a few months, and then buys Farmers' Stock. He goes to the Bunk of U. C. to draw his deposit, who pay him in their bills, which he takes to the Farmers' Bank and they of course convert them into spe- cie. This however is no capital at all according to our logicians, whose argument however only tends to depreciate their own paper. We must however attend to the course pursued by the other Banks, the Gore for instance. We have no means of knowing how the Gore Bank got its specie, but we must assume that its capital was paid in other Bank notes. We know its Cashier professed his un- willingness to draw specie from any Bank. He must therefore have got drafts on some place where he could procure it, say New York. Now if these drafts were given him at par when they were really worth 2 percent, we think theBank giving them must have been badly provided with silver, for funds in New York are in all ordina- ry times considered better than silver, inasmuch as they command a premium varying from 2 to 4 per cent. If on the contrary the Gore Bank paid the ^>remium for the draft, and also paid the expenses (A importing the silver we are free to admit they carried their courtesy to a great extent in paying 3 per cent for what they had a right to get at par ; and we think they were scarcely warranted in subject- ing their shareholders to such heavy loss; We admit, however, SDch courtesy may have a good effect, and we believe the sftir<« course has been pursued by the Bank of British North America at great loss to themselves. They are importing their silver though they coitkl import their capita) as well by selling exchairge. Ex- ased for Stock of SB to be nable in as silver, Jered to I our po- ElOOO in le Fartn* s was so e genlle- it of the lie a few Bunk of which he into spe- logicians, jfii paper, ar Banks, how the pital was d his un- therefore say Kew hey were have been ill ordina- smmand a T the Gore tpenses of r courtesy a right to in subject- however, the 96.tr^ America At /er though nge. Ex- thango Is now worth 15 per cent, so that a bill for i£100 sterling at 60 days' sight would give them here in cash ^£127 15 6 currency, while cClOO of British silver would commanded 125, from which deduct foroxpenscs, including interest of money, insurance, frelght,&c. at least 3 per cent, and we find they lose c£5 15 6 currency on every cClOO sterling they import of silver, so that they have commenced their operations by making a present of cC2000 or so, probably more, to the other Banks, for which we hope they will bo excused any cen- sure when hereafter in selling exchange the balances turn in their favour. We trust we have made it apparent that when capital is invested in Banking and paid up it makes no real difFerenoe whether thespecie is imported fromEngland or New York, or brought through the medium of Bills of Exchange, or taken from other Banks by sending them in their bills. Wo are not aware of any common objections made to Joint Stock Banking which we have left unnoticed, and shall conclude this part of our subject by expressing our surprise that the Banking Institutions of this Province should be modelled after those existing in the United States, instead of those in Great Britain and Ireland j and although we admit, as before stated, that in England over- trading has existed to a great extent, we deny that in Scotland or the North of Ireland any charge has been made against the man- agement of the Banks, and we feel satisfied that should any im- provement be made in the system in England, the principle of full responsibility on the part of the Shareholders will not be given up, nor will it ever be required of persons wishing to associate for Banking purposes to apply to Parliament for a special charter. Having freely stated our opinions on the subject of Free Bank- ing, we proceed to offer a few observations on the present position of the different Banks in Upper Canada. We must premise that during the last Session of the Legislature a Restraining Law was passed, preventing any association of per- sons or individuals from hereafter issuing paper, intended to circu- late as money. Five Banks were excepted from the provisions of this Act — four Joint Stock Companies, viz., the Bank of B. N. America, thd Farmers* Bank, the Bank of the People, and the Niagara S. B. Bank^ and one private Bank, Messrs. Truscott, Green & Co^ f 10 These Banks Iiad all gone into operation and the Shareliolders of course had been at considerable expense in establishing them, so that it was we presume considered, to be no more than just to allow them to continue to hold the position which they had previously done. Of the 5 Banks above mentioned the Branch of the Bank of British North America, here, has not yet got into operation^ The public attention has been so long anxiously directed to tlie state of the money market in the United States, that we need only remind our readers that after a complete prostration of individual credit in the atlantic ciiies, such as has perhaps, never been before experienced, the Banks in New York and subsequently all through- out the United States, were obliged to suspend specie payments early in May. The panic consequent on this act soon spread to the Canadas, and was in this Province materially assisted by articles published in the Constitution newspaper of this City, in whiclT the public were warned of the doubtful solvency of the Banks and urged to turn their notes into specie without loss of lin^e. "We are aware that during this run, a feeling of hostility has sprung up between the Joint Stock Banks and the Bank of Upper Canada, which certainly never before existed on the part of ther former, and we are not aware that it did so on the part of the lat'cer. We proceed to consider the cause of this hostility, and to shew that if it docs exist, the Joint Stock Banks have neither wilfully provoked it, nor have they ever been anxious to keep it up. The custom with Banks everywhere, is to exchange their paper at stated intervals and to settle the balances either in specie or by drafts at sight on some place where it suits the receiving party to place funds —there is usually an agreement subsisting to this effect. This is the way the chartered Banks settle their balances, and the Joint Stock Banks and Messrs. Truscott, Green & Co., have settled with one another on the same terms, usually however, paying balances in notes of Uie chartered Banks which they . ?2c^ ;ved and held as- specie. It would have been perhaps better had these Banks come at once to an understanding with the Bank of Upper Canada, whose paper was generally held, as being most easily converted, and bad their balances settled weekly* 11 It was, however, no gain to them to hold the paper, and they re- frained from asking a settlement solely from an unwillingness to give any cause of offence. The Bank of Upper Canada must, how- ever, have been aware that both the Farmers' and People's Bank held balances against them for the past year, and had they made enquiry they would no doubt have been informed of the amount. Had they wished for a settlement, they might have proposed some plan for settling balances which we feel satisfied would have been ac- ceded to by the others. We are sure no friend of the Upper Canada Bank will assert that that Institution would have held over paper of the Joint Stock Banks for months, the balance on the two Institu- tions varying from aC5000 to ^15,000, and if not why are the Joint Stock Banks to be blamed for asking a settlement which would have been rigidly exacted from them. The truth, however is, that before any demand for silver to any extent was made upon the chartered Banks, the Upper Canada and Commercial Banks, simultaneously sent instructions to their agents to refuse the notes of the private Banks. This we assert, was the first act of hostility. In an official letter the Bank of Upper Canada say, that this order arose " from the unprecedented demand for silver, and was ■** not intended to convey any insinuation of the stability of other ** monied Institutions." It is also well known that for several months back, they have made a difference of 1 or 2 per cent be- tween their own notes and those of other Banks in selling silver or drafts on New York. The avowed object of this policy was to re- duce their circulation. Now we appeal to every intell-gent man in the comm^^nity, whether the proper way to attain this object would not have been, to have received the paper of the Banks holding the balance against tliem on the same terms as their own, both in Toronto and at the agencies, which would have had the Bame effect in reducing their circulation and would at the same time have induced the balance held by the other Banks. Instead of pu'-guing this straightforward course, the Bank of Upper Canada took every means to increase the balance held by the Joint Stock Banks, by ordering their agents not to take their notes and a 'g 2 per cent more for changing their notes than their own. 1» tr: ).':: h ( ^f It must be obvious to every one that the effect of refusing the notes of the Joint Stock Banks at the agencies of the chartered ones must in such times as the present have had the effect of creating a distrust of those Banks. This they say was not the intention, but surely it would have been but common courtesy to have ap- prized these Banks that such a course was about being pursued. It must likewise be recollected that the suspension of specie pay- ments was generally spoken of, and it was publicly rumoured that the Executive of the Province had it in consideration whether such a course should not be sanctioned. Under all these circumstances we ask every impartial man in the community, was it to be expected that the Joint Stock Banks should hold the notes of the Bank of U. C. as specie 1 and yet their sending these notes in for payment is the only act of hostility which can be charged against them. On the other hand we charge upon the officers of the Bank of U. C. that they first issued instructions to refuse paper which they had been in the habit of taking without notice, & without any sufficient reason, and also that they trealed with marked disrespect those per- sons sent on behalf of the Joint Stock Banks to obtain payment of their balances, and even went so far as on one occasion to refuse their own paper in exchange from the Farmers' Bank. We must con- clude this justification of the Joint Stock Banks during the late panic with disclaiming on their part and their friends the slightest wish to provoke hostility, or to act in any way calculated to give offence. We ask for them fair play and no more, and we trust we shall not in vain appeal to Britons for simple justice. '• We now approach the most important part of our subject, namely, the consideration of the course which ought to be pursued by the Legislature during the ensuing session. We hold our opinions on this subject with great diffidence, and can ha-dly help admit- ting that we almost yield our judgment to the general wish of the community. We deem it to be beyond dispute that the demand for silver for exportation must have the effect of withdrawing from circulation a large amount of the notes of our Banks. We are pro- bably not far astray in estimating the circulation of the different Banks at about oCSOO.OOO. Now if this should bo in a few months reduced tu one half, the Banks must curtail their discoants ce250,Q00 ■ • < ...:« 13 )g the ?d ones reating ention, ve ap- arsued. e pay- id that er such stances Kpccted. kof U. ment is m. On if U. C. ey had ufticient ose per- ment of use their ust con- the late slightest to give trust we , namely, i by the nions on n admit- sh of the demand ing from 3 are pro- different V months «250,Q00 and the effect of this would, we believe, be that a number of :at we have heard it suggested that the government should issue debentures for small •mounts, say as low as four or five dollars, not bearing interest, which should be a legal tender. This proposition would in some respects answer better than allowing any description of Bank paper to be a legal tender, as such debentures would command greater confidence in the country, and it is therefore well worthy the serious consider^ ation of the Legislature*- !i 16 We hold it to be tlie duty of the government to provide a sound currency for the country if it is necessary to restrain the Banks from paying in specie. The reason we would at all admit the propriety of making the Chartered Bank paper a legal tender, is that those Banks have already been taken under the protection of the government. His Excellency the Lieutenant Governor has authorized all pub- lic officers to take their notes, and has used all his influence to assist them. We assume therefore that the government have means of knowing the perfect solvency of these Banks, and that therefore the Legislatnre may fairly consider the Executive responsible that; their paper if legalized will prove a sound currency. Holding these views then we refrain from giving any decided opinion as fo whether Government Debentures, U. C Bank paper, or the notes of all the Chartered Banks should be legalized as a ten- der ; but we feel satisfied that the interests of the country require that one of the three courses should be followed, if it is thought necessary that there should be a suspension of specie payments at all. We conclude our observations, trusting we have written nothing calculated to give offence to those who differ from us, of whom we adroit there are many whose opinions we highly respect. We leave the subject in the hands of the Legislature who will we trust weigh well every argument which can be adduced on both sides, and we trust that an over-ruling providence may guide them to a wise legislation on this all important subject. -'ijiSinpsy- 1 'i-. ;. C 'V}h- ■■iPipvippiP I Bound Banks mit the ', is that I of the all pub- to assist leans of tierefore ible that. decided k paper, as a ten- require I thought )ayment8 \ nothing vhom we We leave ist weigh J, and we to a wise jf. »rn'^i ^f-i' ■>