'HE BANKING OF CANADA as eonneeted with its TRADE AND COMMERCE. Hn Ebbress CELIVEIIED BEFOME THE oard of Trade of the City of Ottawa 31st MARCH, 1897, I By GEORGE HAGUE, Esquire. QENERAL MANAQEft THE MERCHANTS BANK OF CANADA. . Published by request <rf the Board. raM ^M^WI • TMoBtiKs & Co.^ pMiKTMbI AMD B«)«pi!m«R<' Bloin 8t., Oin-AW*' - T . i ' <■•: ;f % N^ ^ ,.:: -a* THE BANKING OF CANADA as connected with its TRADE AND COMMERCE. Hn Bbbress DELIVERED BEFORE THE ■ -1 ■ / "^ , ■' ' '' ' '■'"'• ■■■■'■' Board of Trade of the City of Ottawa 31st MARCH, 1897. GEORGE HAGUE, Esquire. GENERAL MANAGER THE MERCHANTS BANK OF CANADA. Published by request of the Board. It, . V 6 , <i - , .» ■ e o fc « «««•■• .»,i>«. '/ ••••'« •«.»•• *••♦•- • ••••tt o' ° i> ai«co T"> ««<■ >**•'■> • , • ) -i c \o' * » i • •••(•* J o» '• 1 ^ «ett>"oct> to" "' , ■< 2 > '. » ">+»» ». « V i " " • «••«•»»» f o '«.-•-■ * ■■ « p ' ThOBURN & Co., PrINTICBS and BOOKBINDKBS, Blqin St., Ottaw\ . •',. -M ' ft ■ ■' . . V • • • • « • • «•* ••««.•. • • • • • • • • • ,. . .•> • • • . • • ••• • .••• • • » •. • t • « • • • • * • • •* * • • • • • • • The Banking of Canada as connected with its Trade and Commerce. Mr. President, — ; : ' • Sir:— ' ' The last time I had the honor of addressing a Board ol Trade was nearly thirty years ago, and, singular to say, it was on the same subject that is to occupy our attention to-nifi;ht. The Board of Trade was that of the City of Toronto, I being then the General Manager of the Bank of Toronto. But my address was not a mere academic one, as this may be con- sidered to be— but v\'as directly concerned with legislation then betore Parliament, which I and others conceived to be seriously prejudical to the interests we represented, and still more prejudiced to the commercial interests of Canada. And as that legislation was intimately connected 'with some fundamental questions affecting both banking and trade to the present monient, I will refer to this matter somewhat at length — previously, however, giving you a slight sketch of the conditions of Banking in Canada up to that period. Up to the time I have referred to, the condition of the Joint Stock Banks of Canada might be described as follows :— Nearly all the Banks in Canada were large, or comparatively large, institutions, having numerous branches spread over all parts of the country. Each Bank was chartered by a separate Act of Parliament, which Acts, however, were the same in general substance, and were largely founded upon similar Acts in force in the United States. Banking legislation there was first initiated under an able and well known financier of the last century, Alexander Hamilton, and while many of its provisions indicated considerable financial knowledge, others exhibited a remarkable want of acquaintance with the function and scope of Joint Stock Banking. They indicated rather a "feeling after " what was desirable, than an acquaintance with what had been found to be sound and practicable Some of the most curious and crude provisions of this legislation were adopted into our Banking 57760 Charters, all indicating a great want ot acquaintance with Banking as it was carried on in countries where it had attained the highest development and was best understood, viz., England and Scotland., Under this general framework of legislative enactment various Banks had come into existence. But when we look at the mode in which their daily business was carried on, the scope of their operations, the manner in which they accommodated their customers, their mode of making advances, and especially at the all important matter of open- ing branches covering various districts of country — in all these respects, which are fundamental, the Canadian Banks gradually parted company with American ideas, and followed almost exactly those of Scotland or England. And they had very good reason for it. ' The Banking system of Scotland had been proved during many generations to afford the greatest possible advantage to tiade and in- dustry in a country resembling Canada in many respects ; and espec- ially in having a large lural population in scattered districts, remote from ordinary lines of communication, and where the establishment of independent Banks would have been quite impossible. Thus, it had come about, naturally, and experience proved it to be wise, that Banks of considerable magnitude were established in the great -Scottish centres, Edinburgh and Glasgow, which Banks had spread themselves by means of branches throughout the country, to its very remotest parts, serving the trade and commerce of Scotland, and developing it to a degree superior to that by which trade and commerce had been served f.nd developed in any country in the world — save and except some parts of England and Ireland. Now, knowing all this, the early merchants of Canada, who were largely, as is well known, from Scotland, although submitting to have their charters framed by lawyers and legislators on American models, when it came to the rea' working of the Banks, could scarcely help adopting Scotch methods and ideas. So it resulted that instead of Canada having a multitude of little Banks, with capitals of $20,000 to $40,000, with a few of $100,000 to $200,000 in large centres, a few large establishments were located in the chief cities, and branches of them planted in the smaller towns. The first of these was the Bank of Montreal, founded in 181 7, then came the Quebec Bank— after that, at a long interval, the Bank of British North America (at one time the most important of them all). Then (but I am not speaking chronologically) we have had the Bank of Upper Canada, the Commercial Rank of Kingston, and, still later, the Bank of Toronto, the Ontario Bank, the Canadian Bank of ('omnierce, the Molsons Hank and others *of a later dale. All these Banks were organized on the principle of large paid-up capital, and all spread themselves over large districts of country, even to remote places where business could be done, competing, in fact, with one another for business, and thus making it certain that the commercial men and manufacturers of the time could obtain from one or other of them the facilities to carry on their business. With Confederation also came to be included the Bank of Nova Scotia, the Merchants Bank cf Halifax, the Bank of New Brunswick and others, all of which Banks, with the exception of the last, (for the Bank of New Brunswick never had any branches) served large tracts of country, and spread themselves over the Maritime Provinces to their remotest bounds. <,.-.••. The old Banque du Peuplc of Montreal (now defunct) was on a different foundation altogether, and at the time spoken of had never gone beyond the limits of its head office. Neither, generally speaking, up to that time, had the other French Hanks, such as the Banque Nationale of Quebec and others . All these Banks were allowed to issue circulation to the amount of their capital, and also to the amount of the specie in their vaults. The last was not a wise provision, and it has since been abrogated. The Canadian Banks had thus come to differ very widely from the Banks of the United States. Having a large capital they could take up large accounts and carry them on through a whole year. Customers of Banks in the States doing a large business were con- stantly obliged (in fact, have been ever since) to seek accommodation from a number of Banks, and also to raise money by loans in New York, a very bad system in many ways. > ' American Banks were also as a rule excessively timid about the operations of foreign trade. The larger number of American Banks, even in the seaboard cities, never dealt in sterling exchange, and left it entirely to a class of dealers in foreign bills, like the house of Brown Brothers & Co , of New York. The Canadian Banks, on the other hand, all had their correspondents in Europe, and both bought and sold bills on England all the year round. This it was that led to the establishment in New York of the agencies of the Bank of Montreal, Bank of British North America, and afterwards the Merchants Bank of Canada and the Bank of Commerce. They had always been closely connected with Britain, had constantly been in the habit of dealing in British bills in their offices in Canada, and were naturally led to establish themselves for the same purpose in a great centre like New York. And thus it has come about that a very large amount of the bills representing the vast exports of the United States are now negotiated by Canadian bankers, who have their cus- tomers and connections all over the Southern and Western States, a fact which will explain what I once said in this City — that in a business tour through the Souih I seemed just as nr.uch at home in the business streets of Charleston, Savannah, New Orleans, or Memphis as in Montreal or Toronto. As to Liverpool, Glasgow, and London, these have long been familiar places to most Canadian bankers. Most of the characteristics that I have specified as prevailing up to thirty years ago have been preserved up to this day, and have been developed, extended and improved as opportunities offered. And, although one ot the number, I take leave to say that there has ;' never been in the world a more enterprising set of bankers than those who have had to do the business of Canada, and a body of men more : ready to lay themselves out and take risks to assist in developing the , commerce and manufactures of the country. In fact it is their enter- • prise and ambition to spread out mto new fields, and to undertake new operations, their readiness to assist men of similar enterprising character that has led the Banks of Canada into many of the disasters they have suffered — disasters which have, in some instances, resulted in the absolute wreck and ruin of the Bank, and in others, to enormous cutting down of capital and the curtailment of dividends, a fact sometimes lost sight of by those who are speaking of the average profit made by the Banks of Canada as a whole. But the banks now existing have learned lessons of practical wisdom from all this, and are never likely to forget them. Shortly before the period I speak of (about 30 years ago) the Gov- ernment, under the lead of Mr. Alex. T. Gait, their Finance Minister, had endeavored to act upon a theory which he had always entertained, that the circulation of the country should be wholly issued by the Gov- ernment. He brought in a measure for this purpose. Nearly all the Banks viewed this with serious alarm, for it would have involved such an enormous curtailment of their power to accommodate the commerce of the country, that untold disasters would undoubtedly have resulted. Foreseeing this, I came to Ottawa and spent much time in conference with Mr. Gait, pointing out these consequences to him, and suggesting 7 various ways in which the circulating notes of the Banks could be better secured than they were, while leaving us free to accommodate our tra- ding customers. . ♦ Others made similar representations, the effect of which was that the bill which was introduced was of an optional and not a compulsory character. This brings us down to the period of my address to the Toronto Board of Trade. It was in the year 1869 that the (Jovernment proposed to assimi- late the system of circulation in Canada to that of the United States, by requiring that all the circulating bills issued by the Banks (which, of necessity, carried with it that all the bills held in their coffers as well) should be secured by Government debentures. ' " i This proposal, while strenuously advocated by some Banks, «vas just as vigorously resisted by others, amongst which the Bank of To- ronto was prominent, so was the Bank of New Brunswick, and the Banks of the Maritime Provinces generally. I can speak with some authority as to what took place among the opposing Banks, for I acted as their Secretary for several years. The principal grounds on which we rested our opposition were the following : While we did not deny the importance of having the circulating notes of the country made safe, (for we were all interested in that) we were convinced that the proposed means for insuring safety would dam- age the trade of the country to an incalculable degree. It would have necessitated a curtailment of Bank discounts and advances to the ex- tent of about one-third, or equivalent to above sixty millioos at present, a measure which we contended could not possibly be carried out with- out inflicting serious loss and disaster upon the business community, the loss and disaster falling especially upon the Province of Ontario, the rural parts of the Province of Quebec, and the whole of the Maritime Provinces. We contended, also, that the passage of such a measure would ne- cessitate the closing of many of the smaller branches of the Banks in rural districts, where profits were principally derived from circulation. It would no longer pay the Banks to carry them on, and so would drive the whole business of these districts into the hands of private money lenders. We further pointed out that this system of circulation would inevitably have the effect of producing great fluctuations in the rates for money, with much higher rates in country districts than in the cities, and that a periodical scarcity would inevitably take place at the time when money is most wanted, viz. : when the crops are being moved and lumber and timber produced. " • ■ ' These arguments were duly presented in the Press and to Commit- tees of Parliament ; and the substance of them formed the staple of my address to the Toronto Board of Trade. - The American system at that time was in the highest possible 'favor, and extolled as the acme of financial wisdom. Some of us, even then, had to remind the people of Canada that the notes so secured were practically irredeemable, that they were only worth some 70 cents on the dollar, and '.^at the violent fluctuations in the" rates for money there, which have since become so common, had already begun to develop themselves. - The battle raged in our Parliament for more than one session, and created much excitement in the country, for the Bill was a Government measure and went to a second reading, the Government having a large majority. Sir John Macdonald being Premier, with Sir George Cartier as his colleague, and Mr. Rose, afterwards Sir John Rose, Finance Minister. But a change in the position of Finance Minister took place. Sir Francis Hincks assumed the reins, and after hearing and weighing all that was said on both sides, he finally concluded to accept our view of the position, and allow the Banks to retain their circulation, and this mainly on the ground that thereby they would be enabled to give larger accommodation to the Trade and Commerce of the country, and especially that such assistance could naturally and readily expand with the country's growth, an all-important matter. ■ ' • ' '■■\\ The only stipulation that Sir Francis made was, that the Banks should give up the circulation of one and two dollar notes. This they readily agreed to, as these notes formed a mere insignificant fraction of their circulation, and could be given up without any curtailment of the power to accommodate their customers. Safeguards were then introduced which have been since extended, especially the great safeguard of making the notes a first lien on all the assets of the Banks, at the instance and by the proposal of the Banks themselves. Ana the result is, that by our system of Bank circulation the whole movement of the crops in the Fall and Winter, and the vast movement of logs, lumber, and timber from the forest to the seaboard or the consumer in the United States, upon which two movements the whole machinery of Canadian trade depends, can be accomplished without the slightest disturbance to the general business of the country. Instead of a severe contraction, periodical scarcity,* and high rates for money, during every Fall and Winter, as would inevitably have been the case, the Banks pursue to this day, as you know, an uninterrupted course ot loaning and discounting, only governed by the ordinary exigencies of the money market from year to year. And instead of the rural districts of the country being left without the accommodation of joint stock institutions, it is a well known fact that the Banks have ever since found it their interest to push out their system of branches into the remotest parts of the country ; so that there is hardly a district where trade is carried on at alL that has not the services of some Banking institution at its command. And instead of rates in remote parts of the country being very largely in excess of what obtains in monetary centres, the difference between the rates in centres and small country towns is only a difference of one or two per cent, such as is rendered inevitable by the much greater expense of carrying on business in a small place as compared with a large one. These are notorious facts. Now, in these days, we are not so fond, as many people in Canada once were, of extolling everything in the United States to our own dis- paragement. But even now, comparisons are sometimes made, for which reason I take the liberty to give you a few present day facts, to show how much reason we in Canada have to be satisfied with our Banking system. ' •' COMPARISON WITH THE STATES. ' > •' The system of circulation in the United States, which is partly of Government notes, and partly of Bank notes secured by Government bonds, results in over accumulations of money in New York, at one time with a corresponding draining away of money from the centre to the interior of the country at another. Yet, as I will show you, there are vast and populous regions in the States to which this supply of money never penetrates at all. The Ranks in New York, Boston, and Chicago, unlike those of Canada, have no branches outside of themselves, and no connection whatever with Banks of the interior, beyond that of being their corres- pondents, :^'> . ■ • lo , ;'•• "■■-.'■''■ ■■ .-^' .■:' ■' Now, when the crops of grain in the West, of cotton in the South, and of lumber in the North, are unusually heavy, a larger amount of currency is required for the purpose of moving them than actually exists. And there is no power to create more on an emergency. The Banks have not a store of their own notes laid by for this emergency, as the Canadian Banks have, with power, in the aggregate, to issue a far greater amount if the exigencies of trade call for it. . :'; There is so much, and no more, in the country, and a large crop always means strong comi)etitive demand for money, and in many places great scarcity and very high rates. The Federal Government cannot pre- tend to lend money to all the Banks, or to all the traders ot the country, when there is an unusually large crop to be moved. Indeed, but for the assistance that we poor Canaaians have afforded to American mer- chants at such times, through branches in Chicago, and connections in the North West, (never to the detriment of our own borrowers) no one can tell what straits that country would have been put to, or what rates for money would have prevailed during certain years. ' ■•-• -- , •: There is no such thing there as Banks pushing out their circulation - — Banks being anxious to accommodate customers for the sake of circu- lation, or having it in their power to grant loans over wide rural districts in the shape of circulation. Such things are utterly unknown in the States. And over vast districts of the rural regions of the United States a scarcity of money exists at times, that we in Canada absolutely know nothing about, and can hardly form a conception of. About a year ago, I read in the London Times a communication from a correspondent in the far West, describing the extraordinary straits to which the people of the interior of nearly all the Western States were reduced by the almost entire absence of circulating notes ; or, in fact, of money in any shape. They had their land, and many of them had their produce, but in scores of places, where, under our Canadian system, there would have been a branch Bank, there was no Bank at all. For a National Bank would not pay, neither would a State Bank. Nothing existed in the shape of Banks but the offices of money-lenders and private bankers, whose rates were about double those of a Bank, and whose supplies of money were extremely small. I could hardly believe all that this writer said. The whole affair seemed one sided and exaggerated. But these views were confirmed quite recently in a very striking and unexpected manner. : . i. " II - ■ ■ ■ ;.'.. The last time I was in New York, about a month ago, a meeting was going on in the Chamber of Commerce, and the principal subject taken up was that of the currency, practically the supply of circulating notes for the country. Mr. Wm. E. Dodge (a gentleman whom many ot you, I dare say, know) a merchant of the highest reputation, a worthy son of a worthy father, then made some statements as to what he had seen during a recent extended visit west, as a member of a Committee of Enquiry into the subject. He said : — *■ - " I found that there were great sect'ons of the southern and western country " where there was absolutely no money at all ; where the most primitive forms of " barter obtained, and where everything was most disorganized. One gentleman " told me that in his county, which was quite a rich agricultural county, by some " happy accident a fifty dollar bank bill had come down into the county, and that " he had taken a horse and buggy and spent four days in visiting all the towns in the " county, striving to get it changed into smaller bills, but had been unable to do so, " There were Senators who told me that their constituents never saw a dollar of " money from the beginning of the year to the end. The local storekeepers received " their pay in kind. In fact everything was drifting back to the old times before " money was invented. And this was not in one section of the country only, but in *• large sections." He went on to say : — '" • " '* We can quite easily understand that where there is not sufficient money to ** establish a National Bank under the very onerous laws at present in force, that " there is nothing else to take their place." Thus far Mr. Dodge ; and bear in mind this was not the condition 50 years ago, or 100 years ago, but the condition this very fall and winter. Now, gentlemen, this is precisely what would have been the condi- tion of Canada at this very day, (and I will particularize the remote parts of the Ottawa Valley, Ontario, and the North West) if we had had a system, where, as it is nobody's business or interest to increase the amount of bills in circulation, there are in many places no bills in circu- lation at all, and people have to go without money altogether. • ; v ?■„ As it is, I venture to say that in the remotest lumber camp, right up the Kippewa and Temiscamingue, and all along the shores of the Nipissing and Georgian Bay, away up the shores of Lake Superior, bank bills having their credit centre in Montreal and Ottawa are to be found in abundance. As -to the North West, I know it to be a fact, that the competi- tion to supply the people with money has sometimes been carried by the •'■'■■-■• It Banks beyond the limits of safety and prudence. It is their interest to spread their bills out, and these bills are spread out all over the country, the bills being absolutely safe to those who take them, though I am sorry to say that the loans of which these notes are the medium turn out sometimes to be anything but safe. In the promotion of the settlement and trade of the vast regions of the North West, the Banks of Canada have lost millions of dollars. But the bills they have supplied have been as safe a currency as if they had been Bank of England notes. * . Let me here say that though I am freely criticizing the American banking system^ I have the highest respect for the large body of intelli- gent men who control the operations of the Banks there. With a few exceptions, and these connected with the very small class of rural Bai.ks, ihey understand their business well, they discuss it in their con- ventions and in their financial journals intelligently. Having addressed their annual gatherings repeatedly, on various subjects, I have always been received with the utmost courtesy, and any suggestions made (if I did make any) have been welcomed wirh the utmost respect and atten- tion. And my friend, Mr. Walker, of the Bank of Commerce, can say the same thing. It is the American banking legislation that is at fault, and particu- larly their system of circulating notes. Unfortunately, bankers have not been called in to consult and advise American legislators on financial subjects as a rule, or many evils under which the American public suffer severely would have been remedied long ago. American bankers know as well as we do that their system of circulation is defective, and that the defects of this system harass and restrict them, and trade and commerce with them, in many ways, to the disadvantage of the whole people. But even the National Banks of small places are, some of them very curious little affairs. You know very well that no matter how bmall -an office any of our Canadian Banks may have, say, in the small towns of the Ottawa Valley, or remote 'parts of Ontario, or the North West, if there is an office of a Bank at all, the whole credit and power of the parent Bank is there, and the whole of its resources are at the back of the persons who represent the Bank at that spot. The depositors in that little country Bank know that on any day that they choose to ask for their money, either in whole or in part, that the demand will be satisfied. And the traders and manufact Lirers of the place also know that if they have made arrangements with a Bank for a regular supply of money to carry on their business, such a supply of money, at that spot, can be depended on. For it is part of the daily care of a general manager, (and a heavy care it is, I assure you,) to see that this is the case at every point, no matter how far off, where his Bank carries on business. This matter of a supply of money in a multitude of places works so smoothly, almost automatically, that few can realize what carefully considered arrangements, and what constant watching are needed to accomplish it. But let me read you a few words from the address of a Banker from Georgia, at the meeting of the American Bankers Association last September. He is boasting that since the close of the war there has not been a failure of a country bank in the State of Georgia — certainly, a very creditable thing to say. But he goes on in the follow- ing strain, and I think it will amuse yo;i to listen to him as much it amused me. He says : — " Occasionally a young man writes his name over a grocery store and calls it a " Bank," (he could not do it in Canada) *'and starts with a few dollars made by the " sweat of some other man's brow. This is ihe sort of private Banking institution '* that goes under. But you take a Chartered Bank, a country Bank with a Board " of Directors, with a moderate capital of $25,000 and it is the safest Bank we have " in the country, because it is in an isolated community, where you can control all " the depositors, and if a man comes and wants his money you can tell him to just go " home ; that you will attend to it for him." Well, if the Banks can tell their depositors to " go home " when they want their money, instead of paying it to them, as we do, and that they will " attend to it '' for them — (some day) that is a style of bank- ing that may do very well in Georgia, but it would never do in Canada. Canadian people would never stand it. Certainly a Bank need never fail if, it can tell its customers to " go home "' when they ask for their money, and if the law will let them. However, this gentleman seemed to think it all right — and if the people of Georgia are satisfied with it, it is none of our business. But that is not the kind of Banking that our country customers want. But now, are not the merchants and men of business of Canada at a disadvantage as compared with those in the United States in the matter of the rates of discount? A fair question, and I will answer it. I have said to you — and it is perfectly provable — that one effect of our system is, that rates are free from extreme fluctuations, and, also, that as between city, town and country, the rates do not vary more than ■^ -,■< .' one or two per cent. But now, if these unvarying rates are on a higher scale than those prevailing to the south of us, there may be some reason for finding fault. I am, therefore, going to give ycu the exact facts. I have before me answers to questions I have recently put to parties in a position to know, viz : the parties who deal in such matters, with regard to the rate of interest charged to the bt^t commer cial borrowers in various parts of the country to the south of us during the last five years. . , -. • - V '^-■■^■v* >. ^ V In New York, which is, as you know, the great monetary centre of the Continent, to which, naturally, all the spare money of the country flows at one time, and from which it drains out at another, the fluctua tions are always the greatest. , ^,, The rates of the open market in 1892 were from 3)^ to 7%. ' In 1893 — 5 to 15%, and for months together, new money not to be had at any price. In 1894 — 3 to 7 /. ■• ■ In 1895— 2-}4 to 8%. ^ ^ .'■■•.-■ ■ ;. In 1896— 31^^ to 10%. ^ •. . .', ■■^;. .; V The rates in Boston followed very nearly those in New York, varying from 3 to 7%, 3 to 12 one year with another. And in 1893 for months together new money was hardly to be had at any price, and those who did get it had to pay from 15 to 20 p. c. In that year we had ourselves, and so had other Banks in Canada, the most urgent entreaties to lend money to manufacturers in New England, and New York State, for which they were willing to pay almost any rate we chose to ask. Our own Bank did not think it prudent to send any Canadian money away, for we concluded that the same scarcity might in turn come to us, and our supplies were, of course, primarily pledged to Canadians. ■ , . ,. . .' r -. ';^- .. i The conditions in Boston prevail generally in all the large cities of New England, But in the smaller cities and towns rates are generally more steady, and two or three per cent, higher than the average between the highest and the lowest. In Western New York the fluctuations were not so great. In Buffalo they varied from 6 to 8, with a preponderance of the larger amount during a good part of the last five years. The same has] been the case in Cleveland, Ohio, the rates never going below 6, o above 8. ! I 15 In Chicago the open market rates in 1892 were 4 to 8. In 1893 — 5 to 7, with a period when rates of 15 to 20 p. c. prevailed, and money to most people was not to be had at any price. In 1894-95—4 to 7. In 1896—5 to 7. ■ . • , . •/ This, was remember, in the great monetary centre of the West, and where a much higher class of security can be obtained than is gener- ally offered here. But in Chicago, as in New York, where merchants make arrangements for supplies of money all the year round, supplies they can depend on, they are very willing to pay a steady 6 p. c. . Northwest-wards in Minneapolis, the lates were: In 1892 — 6 to 8 p c In 1893 — 6 to 8, and higher during scarcity; with the same im- possibility of getting money before spoken of, at any price. In 1894—5 to 8 In 1895 — 4 to 8 . In 1896—5 to 8 The higher rates prevailing for the longer periods, beginning with the Fall and continuing till Spring. Duluth was from 1892 and '93 7 to 10 p. c. and upwards, 1894, 5 and 1896, 6 to 8 p. c, at which it has continued ever since. These rates I know to be true, for we have lent ourselves in the same district at various times more than a million of money in the aggregate, on the beot security, at the high rates quoted, all of which loans were promptly paid. This, of course, only being the spare money which our Canadian customers did not want. The rates in places more remote, such as Kansas City, the largest monetary centre of the South West, were : ' / In i892-'94 7 to 8 p. c. and much more in part of '93. •' , In i895-'6— 6 to 8 .. In Council Bluffs, Iowa, the rates have been, in 1892 — 6 to 8 p. c. In 1893 — 6 to 10 p. c. and upwards. < In 1894-95—6 to 8. In 1896 — 6 to 10. Coming to the smaller class of commercial centres and towns, we have rates in South Dakota of 6 to 10 p. c. from 1892 to 1896. North Dakota steadily about 9 to 12, where it remains up to the present. Now, taking the Pacific Coast, the large monetary centre of San Francisco, a city whose wealth and importance you are all acquainted >f )f y n with, in 1892-93 paid 7 to 8 p. c. witii, however, violent fluctuations for some months when rates ruled up to 15 and 20 p. c. Since then the rates have been steadily 6 to 8 p. c. The interior towns in the State of California have had rates of 9 to 10 p. c. steadily for lii? last five years, subject at times to the impossi- bility of getting new money at any price . / - '"' ' Portland, Oregon, a large and important city with double the popu- lation of Ottawa, had rates in 1892 of 8 to 10 p. c. :,. In 1893 — 7 to 10 p. c. and very much higher rates for a time, In 1894 and since then of 7 to 9 p, c. The busy and enterprising towns on the Pacific Coast, such as Tacoma and Seattle, which do a stirring business in lumber and other commodities along the seaboard, have had rates ruling steadily at 10 to 13 p, c. monotonously during the last five years. During all this time, corresponding Canadian towns of the same size, and in the same kind of district, have been obtaining money at rates from 2 to 3 per cent, lower. For example, North Dakota, with its rate of 9 to 12 per cent., may be contrasted with Manitoba, closely adjoining, with its rates of 6 to 8 per cent. , :. ■ - -wi ;• ? ; • Oregon and Washington, with their rate of 8 to 12 per cent, could similarly be contrasted with our British Columbia rates of 6 to 8 per cent. The rates in the South have not fluctuated to the extent that they have in great commercial centres, and have ranged from 7 to 8 per cent. But this is the rate at which business has been done in Savannah, Charleston, and Galveston for years. In New Orleans the rate has been 6 to 8 per cent. In the smaller towns in the interior the rates were steadily at 8 to 10 and 10 to 12 per cent. ....... These last were the rates charged by such Banks as those of our friend from Georgia, who could tell his depositors to " go home " when they asked for their own. ■ > ... , . •.;^- / . >ir ", I have now gone over the ground pretty thoroughly, and demon strated that in the same circumstances — in towns and places of the same population, with the same kind of trade to carry on, the rates which Canadians have to pay are, on an average, decidedly lower than in corresponding places in the United States. It is to no purpose whatever to quote newspaper rates of NewBu York, and compare with the rates, for example, of Montreal-^'for as lip have shown you, New York being a vast reservoir for all the superfluou«vv money of the continent, casual discounts may be had there for months together by firms of established wealth and credit at very cheap rates. Hut then, on the other hand, when this supply of money drains off, as it periodically does, those who have not permanent arrangements, but depend on the casual supply of the market, have to pay rates as far above Canadian ones as the others were below. • And I may tell you this, which I know for a fact in our own ex- perience, that the merchants of New York or Boston, whose business requires them to make arrangements that will last all the year around, arrangements that can be steadily depended upon — such as these are never charged the highest rates, nor do they ever pay the lowest ones. There is a steady average all the year round of 4J to 6 per cent — according to the quality of the account. But I may tell you that every customer who gets regular discounts, is expected to, and does, keep a considerable balance at his credit without interest — such balance being from 20 to 30 per cent, of his advances. How this tells upon the rate you can easily calculate. • • •. '; ■,"■;■ -^z : ,, ^^ ■ We have mercantile customers in New York ourselves, and they are well satisfied to pay a steady rate in consideration of their being able to get their supplies when required, no matter what trouble out- siders may have in financing over stringent times, paying 10 to 15 per cent, for moiiths together, while our customers pursue the even tenor of their way, paying 5 to 6 per cent. The truth is, and this is at the very root of the matter, that the rate to be paid for the use of money is regulated by a higher law than any law of Parliament or Congress, viz. : the fundamental law of supply anddemand. ' j ' .:- . v: •';A\^:;. V • ^'v > > ■'' So it is in Canada in its various parts. So it is in the various dis- tricts of the United States, and so it is in England, Scotland and Ire- land, always bearing in mind that the supply of money is not the same over a whole district of country, except as it may be promoted by just such arrangements as we have in Canada, which tend to equalize the [supply over large districts, and to keep rates steady. Where these do not exist, the great disparities that I have referred to must inevitably prevail. Now, what have been the rates for loans of money in Canada [under the operation of the law of supply and demand for some years past ? When the supply of money in the country was as limited as it Iwas thirty or forty years ago, the ordinary Bank rates for commercial fi transactions were from 8 to lo per cent. And this was cheerfully paid, for all the arrangements of trade were in harmony with it. This was the rate at which mortgages were negotiated, too. The rate, as you are well aware, has been steadily bearing down — the lo per cent, became 9, and the 9 became 8, and for the better class of borrowers the 8 became 7, and the 7 became 6, and there it has remained for several years, for the demand has kept pace with the supply. The rates paid by the Banks and by the Government for deposits have fluctuated in the same style, just as the rates fluctuated for money the Government had to borrow in England. I can remember a time when the Government could not borrow a pound in England at less than 6 per cent., and, indeed, when they could not borrow a pound in addition o what they had borrowed, at any price, and when a Finance Minister received snubbing letters from Glyn & Co., such as would make any of you angry if you received anything like them from a banker here. • Such was the condition of Canada forty years ago. We were very poor in Canada in those days. Money was very scarce, and we were accorded corresponding treatment by our London bankers, But our condition forty years ago, poor as we were, was a great advance upon the condition of thirty years before. At the first annual meeting of the Bank of Toronto in 1857 I well remember the Hon. Henry John Boulpn stating as a fact of his own knowledge that when an attempt was made to establish the Bank of Upper Canada, the amount fixed as the minimum to be paid up before commencing business was the modest sum of ten thousand pounds, Halifax currency, or forty thousand dollars. The amount to be subscribed was obtained readily enough, but when actual money had to be paid in, so poor was Canada at the time, that in the whole province of Ontario it was impossible to raise this forty thousand dol lars, and the projectors were about to abandon the enterprise in despair. The intervention of the Government was then sought, and the last ten thousand dollars obtained from the Military Chest, so enabling the Bank to commence business. This was no idle story, but a plain matter of fact statement, made by a gentleman who was there at the time and knew all about it. When the system of Government Savings Banks was first instituted the rate allowed to depositors was 5 p c, which was less than the Govern- ment could borrow in England for. I think I am not mistaken in this. Bank rates for deposits, naturally, had to be adjusted in harmony with V this. When the rates for Canadian loans in England came down, as a consequence of the greatly improved credit of Canada, naturally the rate paid by the Government came down too,first to 4>^ p. c, then to 4, until now it stands at 3^, which is, in my humble opinion, more than the Government need to pay, for the very good reason that it is more instead of less than the Government can borrow for in England And bear in mind that every additional half per cent, costs the country over $200,000 a year. (Since this address was delivered, the Government have advertised that the rate will shortly be reduced to three.) The Banks, of course, have reduced their rates also. As the lending rate came down, the deposit rate, of course, came down too, but not always in the same proportion. The rate paid by the Hanks for deposits is, in my humble judg- ment, kept up to an artificial level, and this inevitably reacts upon the trading community. • ; If it be pleaded that the poor are entitled to consideration, I am not aware that the people who, in the aggregate are worth nearly fifty millions of money, can be called the " poor " of Canada. I am not here, bear in mind, to decry thrift. I have said too much about the importance of thrift in various places, and have learned to practice it myself in early days, under the spur of the necessity for rigid economy. It is not for me, therefore, to be decrying its importance at this time of day. All I say is that we should proceed on natural, and not artificial lines, and allow those who have saved money a fair rate of interest for it. But I don't see that any man has a right to expect more, especially at the expense of the hard-working business men of the country. Now, a few words in conclusion to illustrate the exact connection between the trade and commerce of the country and its banking. The fundamental mistake with theorists on the subject of circula- tion, both in England and the United States, is, that they dissociate it entirely from the movements and requirements of trade. Sir Robert Peel's attempted legislation of 50 years ago ignored it, which was the reason that Scotland and the country Banks of England were determined to have his scheme modified. And they got it modified. The framers of the National Bank system of the United States ignored it, for their great thought was to get money to carry on the war. And our legislators of 1869 ignored it too. And when they attempted to bind the Banks in swaddling clothes, we strenuously 90 resisted, knowing well that it was not so much the Banks that would be bound as the traders and merchants of the country. Having shown how we succeeded in preventing commerce being clogged and impeded by a bad circulating system, I will now — in few words — tell yow what the nature and scope of the connection between Banking and the Trade of ihe country is. Joint Stock Hanks are corporations organized for the purpose of doing a remunerative busmess for their shareholders, who expect divi- dends. In other words, Banks are expected to make profits. The only way in which Banks can make profits is by lending the money at their command, and also by rendering service in the way of transmitting money from one point to another in Canada and other parts of the world. Now, with regard to lending money, they are subject to stringent regulations forbidding ihem altogether to lend money in certain directions- These prohibitions we find no fault with. They are founded upon ex- perience. It has been demonstrated by a long course of costly and sometimes ruinous experience, that the only proper sphere of a Banker in lending money is with the trading and commercial classes of the country, and the only proper use which can be made of money thus borrowed from a Bank is in furtherance of the trade and commerce of the country, including, of course, manufactures and production in all forms. This with few exceptions. There is another class of corporations who lend money and are allowed to do what Banks are forbidden to do. These render very great service to the country by lending money on fixed property, viz., lands, iarms, buildings, or factories. If then, a person comes to one of your Banking offices in Ottawa and says : •' I have got a fine row of houses, or stores. I want to build some more. Lend me $10,000 and I will give you a mortgage on the houses I have got." The Banker will be obliged to say " no " to that or any similar proposal — no matter from whom it may come. On the contrary, let a man come to a Banker here and say " I am worth so much money. I have built a saw mill, I have got so many miles of limits, all my capital is absorbed in these costly prerequisites. I want now to commence operations. I purpose taking out 30,000,000 feet of logs. To do this I must purchase supplies. I must pay wages for many months together. I must operate my mill for months before I can make a single thing that I can sell. I shall, therefore, need a large amount of money. Will you lend it me ? 3T The Hanker can receive a customer of that kind, and can deal with him. This is what the law allows him to do. This is what his corpor- ation is organized for. Of course the Hanker considers whether the loan will be safe, what security can be given for it, whether the party understands his business, whether his mill is a good one and well situated, whether the limits are good limits, easily supplied and the logs easily got out, and if they will produce good timber and deals. All these things a 1! inker (and in speaking of a Hanker bear in mind I include a Hoard of Directors) has to discuss, and does discuss, and must be able to discuss, if he is to carry on his business with intelligence. These preliminaries arranged, what is called a Bank Credit is established. The Bank agrees to lend so many thousands of dollars to carry on the business. And if the business is in your own city, you will bye and bye see the fruit of it in great stacks of lumber piled up and preparing for market. In fact, 'you may see such to-day. But the Hanker does far more than this. He will assist the manufacturer to send his lumber away to market, and although that lumber may not be paid for by the purchaser for months, the Hank will furnish cash to the lumberer on the mere written promise of pay, of people who live hundreds of miles off, in foreign cities, or in cities on the other side of the Atlantic. The transaction is never out of the H.inks' books until the whole reaches its destination, and is finally settled for by people in the United States, or Liverpool, or Glasgow, or London. To enable the Hanker to do this he must have his correspondents in all these places, and pay them for their trouble, directly or indirectly (though very often he does not get paid himself) that is, he must be in a posi- tion, as it is called, to negotiate Bills of Exchange, drawn upon Albany, or Boston, or New York, or Liverpool, Glasgow, London, or places on the Continent. The Banker's hand is upon this business from the first barrel of pork which is sent into the woods, to the last dollar received for the product, which may not be for two years afterwards. Now, this is a sample of the way in which Bankers deal with all parties in our vast exporting trade, whether it is in lumber, timber, grain, cheese, flour, cattle, manufactures, or what not. There is a kind of exports which I must confess to viewing with great jealousy and dislike, viz : the export of saw logs. All our logs ought to be cut up in own country. 'I'he funds of our Hanks are employed in these transactions from the beginning to the end. From the day when the first payment is made to the farmer for his grain, cheese or cattle, or advances made to the fishermen of Nova Scotia for his supplies, or the miner of British Columbia for his wages, to the day when in distant parts of our own country or of the United States, or of England, the final purchase money is received, every stage of the operation is represented by advances in one shape or another by the Banks of the country. . But another customer will come in and say I am an importer. I have a large warehouse suited to store the productions of many foreign countries, which the people of Canada want. A grocery merchant, for example, buys goods in the Mediterranean, the West Indies, in China and Japan. The Banker is glad to see him, and if his arrangements are satisfactory, what can the Banker do for him ? He can give him letters which will enable him to buy for cash at any port in the Mediterranean, at Palermo in Sicily, or Smyrna in Turkey, or in Yokohama in Japan, or Shanghai in China For Bankers form a great federation all over the world. They are known to one another, they are trusted by one another to inconceivable amounts, a trust which, to their honor be it said, is never betrayed. For whereas, the merchant in Shanghai or Yokohama would never take the risk of sending his goods all round the globe to a grocery merchant in Canada, trusting some day to get paid for them, he is quite glad to sell his goods to a man who can give the guarantee of a Canadian Bank that he will be paid. A large part of the productions that are sold in our grocery stores, and that are previously floatmg about the seas of the world, or stored in the great marts of the world, of these you will find a considerable part represented by entries in the books of Canadian Banks. But more than this : Another importer, we will say a dry goods dealer, sells his goods to people all over the Dominion on long credit, sadly too long in fact ! but, then, he cannot help it generally. He cannot possibly wait during all the long interval, 6 or 12 months, or longer, for his money. He could not possibly carry on his business if he had to do this, unless he had an immense capital. So his customers send him little slips of paper promising to pay their debts at certain times, which slips of paper, promissory notes or bills of exchange, he can turn into cash through his banker, and thus pay his own bills and meet his own engagments, the Banker waiting patiently, sometimes impatiently, until all this numerous array of promises is fulfilled. ■y:::-^.:. ■-/■■■■ , . 23 ' . .■■ .' .'■;■ ■•■;. This is the way in which the vast importing trade of the country is carried on. It is all represented in the books of the IJanks. Similarly with manufacturers. A woollen manufacturer only buys a part of his raw material in Canada — a good deal of it comes over the water from Australia or the Cape. • * •w^ Will an Australian wool merchant sell a Canadian manufacturer on credit and send his goods nearly all round the world in the hope of getting paid some day ? He will do nothing of the kind. He must have a Bank engagement to pay, and such engagements are constantly being given. But Bankers do not send supplies of money to Australia or to the Cape — they send their credit. The money is all settled for in that great clearing house of the world— the City of London. That is where the money is finally paid, for nearly all the transactions of Canada, and every other country on the face of the earth. So it comes about that every Canadian Bank must either have an office of its own in London, or have correspondents in London, who can receive and pay monies for it, and settle the numerous transactions which arise in connection with the foreign trade of Canada from day to day. That is, in brief, the connection between Canadian banking and the larger operations of Canadian trade and commerce. The connec- tion is inseparable. It is like that of the Siamese twins. The one can- not move without the other ; the one cannot prosper without the other ; the one cannot grow or decline without the other. We bankers have to keep in close touch with every department of trade if we are to carry on business intelligently. So much is this the case, that part of our own machinery is a regular weekly report from every one of our branches, of the movements of trade and commerce of that district, of the condition of the market for their commodities, and the drift of prices. These are carefully studied — studied, in fact, with as much care as the captain of a ship studies his compass. The vital connection between banking and the trade and com- merce of the country can be shown by a simple set of figures which I will now give you, which figures must be highly satisfactory to all that love Canada, who have watched her progress, who are proud of that progress, and who argue from past progress what may be the possibilities of the future. We have had banking statistics, first inaugurated under Mr. Hincks, as Inspector-general, for about fortyyears. Forty years ago the whole amount of the deposits in the Banks of Canada was about fifteen million of dollars. They are now $200,800,000 by our last return, besides the forty-seven millions held by the Government Savings Banks, and thirty-four millions deposited with Building or Loan Companies and others — more than $280,000,000 in all. But the record on the other side is equally remarkable, The deposits represent the saving of the people ; the loans and discounts of the Banks are an equally good index of the /fade and commerce of our people. The figures of the discount columns of the Bank state- ments are the totals of the advances made by the Banks, and almost wholly to the men who are carrying on trade and manufacturing. '''-• Now, the whole discounts of the Banks forty years ago amounted to about $30,000,000, while the last return showed them to be $213,- 000,00c. But you must double these figures to get the true index of the relation of Bank Discounts to the volume of trade ; for the trade transac- ;. tions of any one year, are at least double the total discounts, taken in any particular month. As our savings in forty years grew from 15 to 200 millions, so the - business of traders and merchants with the Banks grew from 60 to 430 millions. And to the last of these must be added very large sums, which, however, cannot be accurately estimated, representing the ster- t Ung bills negotiated by the Banks. . -• v- But take these two sets of figures as they are, and I ask — are they not a creditable record ? Some of you have seen all this with your own eyes, as I have, and I say there is no country in the world that can show a finer example of progress. Should any man, either an uninformed American or an unacquainted Englishman, ever talk unwisely about Canada being a slow and unpro gressive country, give him these figures as evidence of a growth that has all taken place in the last forty years. ' - '•'■ '^^ >- But it may be asked, have our Banks no dealings with Farmers ? Yes; they have. Thousands of Bank depositors are farmers. But in so far as farmers are traders, they are welcome discounting customers to a Bank. They can obtain money from a Bank, for instance, to represent the amount of their yearly production, and thou- sands of them do so. We have the names of large numbers of farmers on our discount books, and a good class of borrowers they are — if they do not borrow too much, and if they have cattle and grain to pay their indebtedness. But we have to be very careful not to lend a farmer what is represented by his land. That is the business of a Loan Company. There is, also, another class of borrowers from Banks, viz., the various Municipalities of the country, who may borrow pending the collection of taxes. But a Bank would be very unwise to lend a muni- cipality what is represented by fixed improvements. Such loans as that should always be in the shape of long debentures. I have thus endeavored, gentlemen, to give you an idea, and it is a very inadequate idea, in the brief space of time at my command, of what our Banking system in Canada is, and the methods by which we . carry it on, assisting to develop to the utmost of our power, the trade, commerce, and manufactures of the country. In doing this we are at times subjected to a great deal of criticism, both from oui* own custom- ers and from the public generally The customers of Banks, on the whole, I think, are well satisfied with the arrangements they have made, and even when Bankers have the disagreeable duty of saying " No," either when larger advances are wanted than is considered prudent, or are wanted for a purpose which the Banker considers unwise and dangerous, they generally come round in the end to acquiesce in the wisdom of our refusal. I have rnyself, and so probably has every other Banker, been thanked for the firmness with which we refused at times to lend money; — the customer came to see that if we had fallen in with his wishes he would have been ruined. The fact is, we Bankers of experience have seen so much, and cannot help knowing so much, that we have reason to exercise a con- serving, guiding, and sometimes, a restraining influence over the opera- tions of our customers. And you may depend upon it that any cus- tomer of a Bank will be wise to consult his Banker before embarking in any large new undertaking, or any large extension of one that he is aheady engaged in. For even if the manager of a local branch may be a young man, without much experience, he has at his command the experience of the men at headquarters, directors and general managers, whose range of view and breadth of experience is vastly greater than his own, but which is readily placed at the service of any customer, no matter where he may live or what operations he miy be carrying on. The Bankers of Jjte: ctni|itr| ^h^Vfe' prpvet^ tJifenlsfilVes, by a very long course of operatidQS,.'thb&the'<tru&st; fVteDdfi'ot.tbe« merchant and manufacturer, and th«y ,hayf^ sor^ rpa^^njlo |hii>k •thtart* they should **9 -•#»•• •••»••• •• ••*•• • / ■ •• •• •••• be trusted by an intelligent community like that of Canada, and not viewed with uspicion such as is entertained by the Populists and Socialists of the Western and South Western States of the Union. We have very onerous and responsible duties to discharge, and we . have reason to ask that we should be supported in the discharge of these weighty duties, not only by our customers and the public generally, but by the Government whose interests we serve in a thousand ways, by serving the interests of those from whom all Government revenue is derived. Only one word more. It is a fixed conviction of Bankers in Eng- land and Scotland that Canada is not as remunerative a field for Bank, ing as it ought to be, and there is some reason for their thinking so Bankers in England and Scotland, with the full consent and hearty cooperation of their customers, are remunerated for numbers of services that we perform for nothing. Whilst we make no complaint of the rate - of discount that we receive, which is equitable and fair, we have some reason to complain of the manner in whicti we have to handle and transmit enormous sums of money, hundreds of millions every year, from one part of the country to another, back and forth, to and from all parts of the United States to Canada, to and from PZngland and the Continent to Canada, all for a mere insignificant fraction, far less than such skilled and onerous service is worth. This I say to you without the slightest hesitation, and if you knew the facts lam certain every one of you would agree with me. We have to run very great risks in endeavoring to serve the interest of the trade of the country. In this very Ottawa Valley, the Banks have lost, I venture to say, millions of money while endeavoring to further the interests of those who have carried on its business. They are navi- gating a business sea in which there are many rocks and quicksands, on which many a gallant barque has been wrecked, such as demand the highest skill of the Banking Navigator to avoid. And you may depend upon it, that it would not be to the detriment of any party concerned, to act in a fair and reasonable spirit with those who have such vast responsibilities upon them, and who are endeavoring constantly to do business in such a manner that the best interests of all classes of the comm'unity, whether traders or manufacturers, shall be conserved and developed to'tJiefftjlPesl'fjc^.ijt*,! that ;this.Cana(ia of ours may continue to grow and prosper,'rfnd'beeome'"as rmporiant' a factor in the destinies of this North' 'Afrr,eVk5£Cn C{)nJi4fi^t. 'afs our pwn lietle British Islands are to the Contin^bf'of Bucdiiew'- •'. / ' • ' , 'r" \-, :