^^ /->*>'. •>vd"'- f rv- ^ ail Wm ?^^ I^Tu m: m^' .- ^^ ;^ E CUI^ENC^ y>' ' OF CANADA THE CURRENCY AND THE BANKING LAW OF THE DOMINION OF CANADA CONSIDERED WITH REFERENCE TO CURRENCY REFORM IN THE UNITED STATES BY WILLIAM C. CORNWELL Or UNivr G. P. PUTNAM'S SONS ^^^^ ^'^•^'^ LONDON .7 WEST rWE,^V-T„..0 STK..T ,, 3EDPORO STRKCT. STR^V^O ^he ^nithtrbochtr tlrtss 1895 *0': ,. Copyright, 1S94 BY WILLIAM C. CORNWELL Electrotyped, Printed and Bound by "Cbc TknichcrbocScr Ipress, IRcw IL'orft G. P. Putnam's Sons NOTE. THE substance of the matter included under the head of the "Canadian Banking System — Its Growth and Present Operation " in the following pages was embodied in an address delivered at the American Bankers' Convention, New Orleans, on November 12, 1891. The situation in the United States, then portrayed, still continues, except that the repeal of the purchase clause has since been accom- plished. The forecast of danger, made at that time, was realized during 1893. The attention of the whole country is now centred upon the struggle for currency reform. The Banking Act of Canada is given entire in the second part of the book. The clauses and sections of especial interest, in view of reforms proposed, are printed in heavy-faced type. lOoUh:; CONTENTS. PACE The Canadian Banking System — Its Growth and Operations 3 Conditions in the United States before Repeal of the Silver-Purchase Clause 3 American Experience with Bank Notes .... 4 Growth of the Canadian System 6 Canadian Bank Act of To-Day 11 Branch Banking 14 Security 19 Elasticity 21 The Banking Act of the Dominion of Canada, 1891 . . 30 Application of Act 31 Incorporation and Organization of Banks . ... S3 Internal Regulations 36 Capital Stock 41 Shares and Calls 43 Transfer and Transmission of Shares 45 Annual Statement and Inspection 49 Dividends 50 Reserves 51 Note Issue 52 Business and Powers of the Bank 61 Returns by the Bank 71 Insolvency 74 CONTENTS. Offences and Penalties Public Notices . . . _ Dominion Government Cheques Commencement of Act and Repeal Schedules Memoranda . 77 78 78 78 79 H THE CANADIAN BANKING SYSTEM— ITS GROWTH AND PRESENT OPERATION. THE CANADIAN BANKING SYSTEM— ITS GROWTH AND PRESENT OPERATION. INTRODUCTION, WRITTEN IN t891-CONDITIONS IN THE UNITED STATES BEFORE REPEAL OF THE SILVER-PURCHASE CLAUSE. THIS country is practically at sea on the currency ques- tion. We are pounding along like a great ship on the ocean, with the engines at their utmost, politics at the wheel, ignorant of our bearings, and liable at any ^^^ panic moment to collision and disaster ; for, what with predicted. an unpliable, inelastic circulating medium, much of it base in value and ground out mechanically and without scientific control, at the rate of four and a half millions per month, no one can say what the outcome will be. At such times wise men glance abroad and backward to get, if possible, some light upon the dark waters from the past and present experiences of other nations, looking for I desire in this paper to call the attention of such men to the experiences of our sister nation, Canada, on the grounds that, while being nearest to us geographi- cally and physically, her conditions are the most closely allied to our own of any community that we know of. 4 THE CURRENCY AND THE Canada has, for many years, existed under a banking law wh,ch, with additions and in,provements from time to aoeqSItb '""'=■ ''^' ^'^'=" '^'^^ ^ circulating medium fully bank.no meetmg all the requirements of every season both as to elasticity and safety, and to-day, with the .mprovement brought about by the amended law ^oing mto effect last July, she has, I believe, for her needs the most perfect currency system of any nation in the world except, perhaps, that of Scotland, after whose system her's IS closely modelled. In fact, the Canadian partakes, in its character, of the sterling qualities of the Scotch system just as the Canadians themselves possess many of the admirable characteristics of that grand people from whom they are largely descended or made up. AMERICAN EXPERIENCE WITH BANK NOTES. Before entering upon the subject proper, it may be well to refer to the period of bank-note issues in the United A PREJUDICE. ^"'"''' previous to the inauguration of our national system, as the disasters of that time and the wild and exciting incidents attending the progress explosions, and final suppression of the State-bank issues seem to have planted a prejudice in the minds of Americans against any kind of individual bank issues without dis- crimination, notwithstanding that in several of the States the business was conducted with the utmost honor and com- BANKING LA W OF CANADA. 5 plete success. I may say that the prejudice was planted even farther back in the history of America by the burnt- child experience with the old Continental notes which were a dead loss to the enormous amount at that time of $196,000,000. This was along in the latter part of the last century. Just before the final collapse, a desperate effort was made to hold up the currency, but notwithstanding all that the Government, aided by the leading men of that period, could do, a dozen eggs sold for $5000 in Continental paper money, and a silk hat of the period, which continental would be worth about $7.00, cost $140,000 in Continental currency. The word was burned into the language, and then, as now, utter worthlessness of a thing was conveyed by the expression, "it is not worth a con- tinental." To many of you, the older members of this association, the fiery destruction of the State Bank-note era, in the South and West, the Wild-Cat period, as it is ^ WILD-CAT. called, is still vivid. Those were times when the contents of a man's pocket-book would slowly burn to ashes through the failure of a dozen banks of issue in an hour, or, when the farther one went from home, the ereatcr became the discount on the notes he carried with him, par- ented, as they were, by banks of no reputation beyond the town line where they happened to be situated. Even in those uncertain days the humor of the American ^ THE CURRENCY AND THE gave rise to that venerable story of the man who had started NO B,..s on a journey, and after he had proceeded about three miles, heard that a bank near by had failed. He ran all the way home to see if he had any bills on that bank and when he got there found that he had any bills on that bank, or on any other bank Th,s was the time of the " Red Dog" bills, as they were called. Banks would locate temporarily in a place and issue RED DOG. '^'"=- ihen, when they had exhausted the re sources of that community, would move over- n-ght to a distant town and there, instead of having new bills pnn «f, wou a use the old ones, simply stamping ^he nam nteRerDor''""^^^'' '''■'' '"^^'''"^- "^^ *<= No wonder that after experiences of this kind, a nation should come to regard the very principle of State issue with '^ISSi^ ''"'y ''°''™'-' ^"d should embrace the opposite ex- treme of a national and over-secured currency as an unalloyed blessing, refusing to consider anythin. else on P""'\''^"^'^'^ °f 'he system, as far as circulation is ::rvir:L:.^°"^^'^"^^--------"^ GROWTH OF THE CANADIAN SYSTEM. I propose now to sketch briefly the growth of the Cana d.an system, to show how it develope^d gradually out o; BAXKING LA W OF CANADA. 7 experience, guided by wisdom, avoiding the growth of . THE CANA- dangerous fungus growths always ready to spring dian system. up in the hot earth of financial legislation, and has come to be a sturdy and fruitful tree. In the old Province of Canada, before the formation of the Dominion, banking was done in a cautious and tentative way, and the skeleton structure for the present system was erected. For a long time previous to 1866, banks under royal charter issued their own notes, to the amount of their paid- up capital, but these were fully secured by a deposit of pub- lic or government securities. This, you will perceive, is what is called specially secured circulation, and specially 1 • • 1 r >T • 1 T^ 1 • secured IS the prmciple of our National Bank-note issue, circulation. It is well to observe that this experiment was tried by Canada long ago and formed a step toward the better plan of general security. In 1866 a national currency was inaugurated and an at- tempt made to provide for a surrender by the banks of their right to issue. Fortunately, this did not succeed. national . • 1 ^ r CURRENCY National currency was issued, $8,000,000 at first, demanded. running up to $20,000,000 in 18S0, secured by a 25 % re- serve, but the banks not only held on to their rights, but procured an extension of them. They were allowed to issue notes to the amount of their unimpaired paid-up capital, luithotU deposit of securities. The tax on circulation, which had been one per cent., was removed. Other wise provisions were made, PROGRESS. 8 THE CURRENCY AND THE and, as they still exist, I shall speak of them later on. Stock- holders were held doubly liable. In the year 1880 it became necessary to act upon the question of the renewal, or not, of bank charters which ex- pired in 1 88 1. It was a year which, in Canadian politics, AN AMERICAN ^ore ucarly resembled an American situation SITUATION. ^}-^^j^ ^j^y -which that country has perhaps ever experienced. The fanatical element was partially unleashed, and was baying at the moon in that wild and deep-toned howl that we are so familiar with in this country. Tariff reform had won a victory, and the excitement of the contest extended into an agitation for a national currency. The agitation grew, and developed finally into a furor for " rag money," and a stampede against bank privileges. If this is not an American situation, it will be hard to find one. Nevertheless, the very exigencies of the contest brought to the front the very best in the opposition, and the bankers and leading financial minds of the Dominion wrested from the fiery struggle a still more perfect bank act, which renewed charters for ten years more. The crowning achievement at this time was the formula- tion of that clause in the act which, for the first time, made ^^^ bank notes a prior lien on the assets of the acS^ve'!'' bank— a first charge before all others. This was MENT. ^^ rinorinor stroke, which drove home, once for all, the question of security, and made it sure. Some minor changes were made at this time. BANKING LAW OF CANADA. 9 This was the Bank Act of 1880. Ten years later charters were to expire and a new act would be necessary. You will see how, step by step, the system was being im- proved. There was no wild rush from one new scheme to another. Beginning on a sure foundation, with deliberation, determination, and aided by the best and most thoroughly trained ability, the structure was growing steadily and solidly. And now the year 1890 once more reopened the question. This time there was no such outburst of the fanatical spirit manifested by the opposition ten years before. Some dangerous measures, to be sure, were proposed by the Government, but upon full explanation by the bankers of what the outcome would be these were abandoned. I quote now from the able address of Mr. George Hague, General Manager of the Merchants Bank of Canada, at the annual meeting of that institution last year, soon after the passage of the act. He says, in speaking of the conference between the Government and the bankers : " The representations of the banks were received with all possible consideration by the Government, courtesies and their recommendations were o^enerally by the 1,1 o J GOVERNMENT. adopted. " The Government, however, had views of their own upon several matters which they courteously communicated for consideration. Some of these were con- dangerous sidered so objectionable that we felt constrained proposals. to oppose them, not only in your interest, but in the public interest. 10 THE CURRENCY AND THE "The proposal to compel the holding of a fixed reserve of money in proportion to their liabilities was demurred to FIXED RE- by a large majority. It was pointed out that to SERVE insist upon the banks keeping locked up in their UNWISE. safes at all times any fixed sum of money would interfere with the rights of creditors, to meet whose demands all the banker's cash is held. It was shown that such a measure had never been tried in practice except in the United States, and that there, when banks attempted to keep the law, violent fluctuations in the rate of interest ensued. And, further, that circumstances occurred nearly every year that compelled them to disregard the law altogether. " The proposal was withdrawn "During the progress of the bill through the House a POLITICAL remarkable absence of political feeling was mani- FEELiNG fest. Members of both parties gave themselves to the work of considering how to make the act as nearly perfect as possible." I refer fully to these matters to show how differently financial legislation is conducted in Canada. It does seem TRUE METH- as tfiough this idea of legislation was the proper ODS OF LAW . 11 . f 1 • 1 MAKING. one — that is, to call in lor advisement, when a subject is under consideration, the very highest authorities on that subject — in other words, the men whose experience, day by day for years, and whose thorough training entitles them to speak for this or that industry or profession. How different, perhaps, in the United States would be the condi- tion of our own currency, if during past years the leading financiers and economists of the nation had had a prevailing voice in the matter. BANKING LAW OF CANADA. ii CANADIAN BANK ACT OF TO-DAY. I come now to the Canadian Bank Act as it stands. It is a comprehensive piece of legislation, containing over one hundred clauses. Under its provisions, the the bank act banking of Canada is going on to-day in an even, effective manner, and the full requirements of business in the way of currency are met. I shall mention only the lead- ing features, some of which have already been referred to. First of all, banks of issue, the joint stock banks, and these are the only ones of which we are treating (there are, of course, in Canada, private banks and savino-s •^ CAPITAL. banks), must obtain their charters from Parlia- ment, and must have a subscribed capital of $500,000, with at least $250,000 paid up. The shareholders in these banks are doubly liable. That is, they can be called upon, in case of failure and double deficit, for an amount in addition, equal to what they have already invested in the shares fully paid up. No dividend is allowed which will impair the capital of the bank, and no dividend hic^her than 8 per „^^^„,^^^^ & i RESTRICTED cent, per annum, until a surplus or rest has been dividends. built up of at least 30 per cent. Monthly statements giving full particulars are to be fur- nished to the Government, and these are published in the daily papers, and, I need not say, scrutinized _ ^ STATEMENTS. with much intelligence and interest by share- holders, depositors, and Canadian business men generally. 12 THE CURRENCY AND THE An annual statement is furnished, with full details of profit and loss, to the yearly meeting of shareholders, and at these meetings the general manager usually delivers an address, and there is a common interchange of views. In the interest of the Government, and in order to keep the Dominion notes in use, 40 per cent, of the reserve held by DOMINION the banks is required to be so held in Dominion notes ; and any bank making a payment up to $100 must, if so requested, pay in Dominion notes. {No torn or defaced notes of any kind, either Govern77ient or ba7ik, are allowed to be paid out.) There are wise restrictions as to loans on real estate, etc., and regulations as to boards of directors. A bank has prior lien on warehouse merchandise, and on stocks and bonds, etc., and is given other privileges. Employees are PENSION not forgotten, authority being given to establish guarantee and pension funds out of the bank's holdings, for faithful servants. Examinations are not conducted by the Government, but under the branch system each bank has its Inspector General, who is a man of marked ability and skill, a thor- ough banker by education, advanced from the lowest round, a man who ranks next to the General Manager, and fully EXAMiNA- competent to take the latter's place. With ex- aminations conducted by such men, the Canadian bank shareholders and depositors may well feel assured. I fear our National and State bank examinations would suffer by comparison. BANKING LA W OF CANADA. 13 And now we come to the important provisions regarding note issues. The amount of notes to be issued must never exceed the amount of unimpaired paid-up capital. note issues. They are a first Hen upon the assets of the bank, taking precedence even of Government claims. The double liability of stockholders is a last resort to the bank itself in case all the other assets are not sufficient to pay the note holders. But a new and additional security for notes was intro- duced in 1890, known as " The Bank Circulation Redemp- tion Fund." This fund is made up of a contri- 1 • f /- 1 111 1 SECURITY. bution ot nve per cent, by each bank on the amount of its own notes in circulation for the twelve months previous to July first of each year (adjusted annually). The fund is deposited with the Government (which allows upon it to the banks three per cent, per annum in- terest), and is for the special purpose of redeeming the notes of any suspended bank. In case of suspension, notes of the suspended bank begin at once to draw interest at six per cent, until redeemed by the receiver of the failed bank. If not re- suspended ' .... NOTES DRAW deemed m two months in this way, the notes, interest. with interest, are paid out of the redemption fund, which is reimbursed by the failed bank as soon as possible. In case of depletion of the fund it is to be made up again by con- tributions yearly of one per cent, of its past year's circula- tion by each bank. This interest bearing quality after 14 THE CURRENCY AND THE suspension, imparts an investment value to the notes of broken banks, as, being absolutely secure, they would be eagerly cashed by banks desiring to earn the six per cent. Such notes might bear a premium, but they could not possi- bly fall to a discount. There is no tax upon circulation. Each bank is required to appoint agencies for the re- demption of its notes in the principal cities of Canada, REDEMPTION coveHug all territory from one end of the Do- agencies. . . , , ry,, . 1 .11 mmion to the other. 1 his does away with the old condition which forced notes of far-off banks to a dis- count, making the currency National — a brilliant quality of our own national bank notes, imparted, however, in a dif- ferent manner. I have thus briefly enumerated the main features of this admirable system of banking and note issues. In order to fully appreciate its workings it must be understood that the branch system is a very necessary part of its operations, and that the notes of all the banks are sent in and redeemed daily, like checks. The branch system of banking has received little atten- tion in the United States. Its effective operation in Canada BRANCH is worthy of attention. And the conditions are so similar to our own that the study becomes an important one. The great advantages of the system are now universally recognized among the people. ITS GROWTH. BANKING LA W OF CANADA. 15 " There was a time in Canada, about twenty years ago," says Mr. B. E. Walker, General Manager of the Canadian Bank of Commerce, " when some people thought that in every town a bank, no matter how small, provided it had no branches and had its owners resident in the neighborhood, was a greater help to the town than the branch of a large and powerful bank. In those days, perhaps, the great banks were too autocratic, and had not been taught by competition to respect fully the wants of each community. If this feeling ever existed to any ex- tent, it has passed away. I do not know any country in the world so well supplied with banking facilities as Canada. The branch system not only enables every town of one thou- sand or twelve hundred people to have a joint stock bank, but to have a bank with a power behind it generally twenty to fifty times greater than a small bank would have." It is true that here is an element of danger — the danger of more credit to a small community than it can stand, and consequent ruin. Rare wisdom and firmness, ^ ... DANGERS. and especially thorough training in the profes- sion, are required to counteract this danger. But so convinced of the superior value of the branch system are the Canadians, that there are only seven banks which have no branches. The other 38 control about 4(X) bank offices. These great banks of Canada each, with from ten to fifty branches, gather up the money lying idle in one locality and transmit it automatically to another locality . . , ADVANTAGES. which has enterprise enough to use it. It must be admitted that this is what the banks in our own country i6 THE CURRENCY AND THE do not do. There is no systematic distribution of money here. The consequence is that rates of interest may be four to six per cent, in the extreme East, and twelve to twenty per cent, in the West. This is not so in Canada. From one end of their broad domain to the other, from Quebec, Montreal, Toronto, Halifax to far Manitoba, the extreme variation in rates is not over two per cent. On this part of the subject Mr. Walker says : "In Canada we see the deposits of the saving classes applied directly to the country's new enterprises in a man- ner nearly perfect. The Bank of Montreal borrows money from depositors at Halifax and many points in the Maritime Provinces, where the savings largely exceed the new enter- prises, and it lends money in Vancouver or in the North- west, where the new enterprises far exceed the people's DISTRIBUTION, savlngs. In what other country is such a splen- ' did development of banking to be seen as that involved in transferring the idle money of the Atlantic towns and cities to the new centres of enterprise on the Pacific. My own bank in the same manner gathers deposits in the quiet, unenterprising parts of Ontario, and lends the money in the enterprising localities, the whole result being that thirty-eight business centres, in no case having an exact equilibrium of deposits and loans, are able to balance the excess or deficiency of capital, economizing every dollar, the depositor obtaining a large rate of interest, and the borrower obtaining^ money at a lower rate than LOW RATES. 1 . ? 1 1 • r /-- n • • borrowers m any of the colonies of Great Britam, and a lower rate than in the United States, except in the very great cities in the East. " In Canada capital marches automatically across the con- tinent to find the borrower, and the extra interest obtained BANKING LAW OF CANADA. 17 scarcely pays the loss of time it would take to send it so far, were the machinery not so perfect." In this way the interests of one part of the community are interwoven with those of another far away. The bank fulfils its proper function of carefully conserving the credit of the whole country and distributing it to the most worthy in the most economical manner possible. The national ^ CHARACTER interests of the bank are not local, but wide- imparted. spread. Its character becomes essentially and truly National. The system resembles a great centralizing reservoir, con- densing the moisture from the vast areas where it exists in redundant quantities and dispersing it gently like summer rain over the arid plains. This is the fulfilment of one of the great fundamental ideas of modern banking. What was begun to be done away back in the seventeenth century by the goldsmiths of London is perfected in the branch system of banking in Canada to-day. We come now in our investigation of the workings of the Canadian bank-note system to the important relation between the branch system and the note issues. branches AND THE The Canadian banks have a right to issue bank note issue. notes, as we have seen, to the extent of their unimpaired paid-up capital ; but this right would be of little value if these notes could not be gotten into general circulation. And if each bank had but its one head office, little headway could be made in this direction, as the notes are subject to daily redemption, and, in order to keep afloat as much as i8 THE CURRENCY AND THE possible of its own issue, each bank sends in daily, for re- demption, all the notes of other banks which come into it. But, under the branch system, the head office supplies its branches with all the till or teller's money thev TILL MONEY. ■' ^ may need — money for the payment of local checks, pay-rolls, etc., etc. — by sending out to it notes of its own issue. The advantage of all this is that the till money, the cash reserve of the branches costs no interest, and is a source of large profit to the bank of issue. And here is the inducement for the formation of branches, and without which the growth of the branch system would be much stunted. You will see at once that all this is rendered pos- sible by the fact that the bank-note issue is secured by the general assets of the bank, and costs no interest. Whereas, GENERAL VER- if Specially secured, as are our own national SUS SPECIAL SECURITY. bank notes, it would take actual capital to buy the securities, and at the present low rate of governments would be unprofitable. This point is so important that I desire to make it very clear. A correspondent in Canada writes : " In the United States it probably does not occur to the banker to make any distinction between the money in the teller's drawers or tills and the money kept in reserve in the safes, or, as we call them, treasuries. In this country there is the greatest possible difference. All of the INTEREST. cash used by a bank in the United States is really money to the bank — that is, it costs the loss of interest to carry it idle. So far as this idle cash is BANKIISfG LAW OF CANADA. 19 necessary as a reserve the loss of interest should be borne, but to the extent that it is necessary only as machinery for paying cheques or other change-making purposes, it is, in our opinion, a wasteful and unscientific system. If you look at the figures of cash held by the Canadian banks, the amount appears wretchedly small in proportion to the lia- bilities. But, as a matter of fact, the cash there shown is only the gold and legal-tender reserves in the treasuries and the trifling amount of gold and legal tenders kept in the tills for the convenience of customers. The main business of making payments in money is done by the note issues of the bank. I notice that it takes from about $1,500,000 to $2,000,000 of our notes to keep ofthe^note the tills of all the branch offices filled with cash, issues at the This has the advantage of costing no interest, branches. and, inasmuch as it does not represent a liability of the bank until actually issued, it does not show in our published statements. If it were a specially secured currency, we would at the moment appear as having issued about the $4,000,000 we are entitled to under law, and as holding $1,500,000 to $2,000,000 of this same money in cash in our tills." SECURITY. I desire now to dwell for a moment, and in conclusion, upon the two most important features of any currency, namely: the features of Security and of Elas- twoimpor- , , TANT FEAT- ticity ; and to see how tar and how perfectly ures. they exist in the Canadian system. We have found that for security the Canadian bank note has, first, the entire amount of the assets of the bank ; second, the double liability of the stockholder ; and, third, the Bank Circulation Redemption 20 THE CURRENCY AND THE Fund. This redemption fund will average something be- tween a million and a half and two million dollars. It is sufficient to say that in no failure which Canada SECURITY. has ever had under the present system, would one dollar of this fund have been touched. In a letter to me on this subject, Mr. George Hague writes : " The provision making notes a preferential claim against all assets came into force some years ago, and it has proved itself capable of standing the strongest strain that has been put upon it. The test of a measure like this is, of course, to be found when a bank which has been ex- ceptionally badly managed stops payment. Now, we have had three instances of the kind during the last AND^TESTsi^^ tcn years. In each of these there had been the most scandalous mismanagement conceiva- ble, with not a little of the element of fraud. Yet, in every instance, the notes had been redeemed in full. The only loss being the holding of them for a shorter or longer time. In two instances the notes were redeemed within one or two months. In the other instance, which was by far the worst of the three, a longer delay took place. " In amending the Bank Act recently, the banks volun- tarily proposed, in order to meet any possible objection, and to make assurance doubly sure, to provide a safety fund to be contributed to by all the banks and held by the Govern- REDEMPTioN "^^"t' ^o apply to the redemption of notes. The FUND NOT greater part of the banking fraternity considered NECESSARY, this entirely unuccessary. That is my own view. But we were willing to go as far as possible, to meet any possible objection to the continuance of our circulation on its present basis." BANKING LAW OF CANADA. 21 And going back into the other security — the Assets ; on the 30th of September of this year, when the latest returns of the Canadian Chartered Banks was published, the latter had assets with the double liability added of $334,384,438 to take care of $34,083,051 circulation, which means an average of $9.80 for every dollar of ^ startling circulation, or taking the case of the lowest fact. individual percentage, of assets to circulation, $5.00 back of every one dollar in notes. Let this be written in large letters : EVERY DOLLAR IN CANADIAN BANK NOTES HAS OVER NINE DOLLARS (on the average) IN SECURITY BACK OF IT TO MAKE IT GOOD. AikI yet along the border, two or three years ago, an over-zealous revenue organization succeeded in twisting the ten per cent, penalty of the National Bank Act against these same Canadian notes, giving a meaning to the law which it has been conclusively proved it never was intended to have by the broad and intelligent framers of that act, practically banishing the Canadian bills from the useful position which they had occupied as furnishing a convenient and absolutely safe medium of exchange at the border between two friendly nations. ELASTICITY. I think we have thoroughly settled the question of SECURITY. But let a currency be ever so secure, if it does not meet the requirements of trade, if it has no elasticity. NATIONAL CURRENCY A WAR MEASURE. 22 THE CURRENCY AND THE it is a comparatively dead factor. That, unfortunately, Is the condition to-day of our own national bank cur- rency. Its issue was a war measure, adopted for the purpose of placing Government loans, which were badly needed, and paid for at high interest. It did certainly once for all wipe out the wide-spread evil of the wild-cat issue ; but it was a war measure, born out of the smoke of battle, and birth-marked by the abnormal pressure of the times. It fought well, it did its duty grandly, but what wonder that when the smoke cleared away and the piping times of peace came again and we looked at it with calm, deliberate eye, it turned out to be a dwarfed and twisted creature, unfit for any work but that of war, and shrinking away into uselessness in the sunlight of the eternal fitness of things. The national bank currency was absolutely secure. It was profit- able to the banks with Government bonds at a high rate of interest. But it had no elasticity. Its tendency, because of the great profit in it, and because the country was off the specie payment basis, and there was no pressure to redeem, was towards inflation, and a limit had to be put upon it. Then came the decrease in Government interest rates, and currency issue became unprofitable. Shrinkage followed. From the highest point of $360,000,000, towards which it ranged, it has shrunken down now in the last ten years to $120,000,000, and left a great gap which has, in turn, opened the way to a great danger. SHRINKAGE. BANKING LA W OF CANADA. 23 How has the great gap left by the shrinkage of the National Currency in the last ten years from $360,000,000 to $120,000,000 been filled ? How has this great shrinkage been met when the currency requirements of trade have yearly been growing greater ? Not by bringing , , . - . " HOW MET. to bear upon the question the greatest wisdom and skill of trained financiers, not with a deliberate con- sideration of how to promote the best interests of commerce on a scientific basis. It has been met by Politics and not by Science. It has been met with an eye to ^„^„^, ..^ •' •' THr* POLITI- votes and the spoils and much indifference as to ^^^^ ^ g'JJ^'^"^ what might be the greatest good to the greatest miner. number. It has been met by the Silver Miner, who has hoisted his pickaxe upon his shoulder and marched to Washington with a great and uproarious following of rag- money shouters and currency doctors and misguided western farmers, and many honest people besides, who, knowing that the country needed currency, and with half-formed ideas of bi-metallism, have with the others and A PALPABLE altogether between them plunged the country difference. in the last few years into a wretched slough of silver — a morass of three hundred and fifty millions of tokens worth seventy-five cents on the dollar ; and they are still clamor- ing for free coinage, and after that they will want free 7)ioncy. And so nobody claims that the National Bank currency possesses or ever did possess the feature of elasticity. It ELASTICITY. 24 THE CURRENCY AND THE was an expedient, brilliant, but not intended to be scientific, hastening towards inflation at one time, excited by a relish for profit, and only controlled by an arbitrary act of Con- gress, and then, with the profit struck out of it, it shrank away steadily without any reference to trade requirements at all. We have left a splendid organization under efficient con- trol, ready for a NEW SYSTEM. On the other hand, let us turn to our calm friends, the Canadians, and see how the test of elasticity is met by their note-issues. The scientific basis of elasticity is this : There must be some iiiducement or force for issue which will operate when trade requires the bank notes, and ceasing to operate when the trade requirement ceases, will extinguish the notes. In the Canadian system the inducing force is the profit on notes issued, and the extinguishing power is the desire of each bank to float its own issues. Here let me once more refer to Mr. Walker's argument for a concise statement of the conditions in his country. He says : "In Canada, bank notes are secured by a first lien upon the entire assets in the bank, including the double liability, the security being general and not special, not by the deposit of Government bonds, for instance. Therefore, it is clear that it will always pay Canadian banks to issue currency when trade demands it. Because bank notes in Canada are issued against the general estate of the bank, they are sub- ject to daily, actual redemption ; and no bank dares to issue EBB AND notes without reference to its power to redeem, FLOW. any more than a solvent merchant dares to give promissory notes without reference to his ability to pay. BANKING LA W OF CANADA. 25 The presentation for actual redemption of every note not required for purposes of trade, is assured by the fact that every bank seeks, by the activity of its own business, to keep out its own notes and, therefore, sends back daily for redemption the notes of all other banks. This great feature in our system is generally overlooked, but it is daily because of this daily actual redemption that we redemption. have never had any serious inflation of our currency, if indeed there ever has been any inflation at all. Trade, of course, becomes inflated, and the currency will follow trade, but that is a very different thing from the existence in a country of a great volume of paper money not required by trade. . . . In Canada it is not enough that the volume of currency should rise and fall from year to year ; it must also, for about eight months in each year, keep at a mini- mum (excluding the legal tenders) of about $30,000,000, and for about two months of the remaining four sudden reach $36,000,000 or $37,000,000, a sudden ad-'^^^J['^j^^!J° vance of 20 per cent, followed after a few weeks be met. by as sudden a decline." And quoting again from Mr. Hague's letter on the sub- ject of whether in Canada the currency is always sufficient to care for the Autumnal Drain, he writes : " With regard to the matter of our Canadian circulation, experience has proven that the feature of elasticity is com- pletely provided for and that our currency during past years has shown itself capable of expansion sufficient for the largest demands that could be made upon it. The capital of some of the banks is so large that they have never circu- lated to anything near the amount that they were authorized by law. The reserve of circulation power in the banks unitedly is, therefore, considerably in excess of any demand made upon it. For example : 26 THE CURRENCY AND THE The total capital of the banks is $60,740,000 The highest circulation ever reached was .... 38,000,000 The highest expansion during any fall season was . . . 7,000,000 So you will see it has never been necessary to issue more than about 60 per cent, of the amount of bank notes author- THE AUTUMN ized by law. Panics for fear of stringency are SQUEEZE. thus unknown. The Canadians never know what it is to go through an American money-squeeze in the autumn. So much for the feature of ELASTICITY. I have endeavored to show how scientific, how com- pletely filling all the requirements of the community in which it exists and flourishes, is the Canadian bank and note system, and now, naturally, you ask me whether I advocate the adoption of this system in the United States. I have simply to say in reply that I am not here to advocate any system. Every thinking' banker who has paid any CONCLUSION. ^ . attention to the subject, knows that our present system of currency is inadequate, and our condition in this regard very unsatisfactory, uncomfortable, and I think I may say dangerous. I believe it to be a time for reconstruction, not by politicians, but by the most skilled economic wisdom which we can call to our aid. In such a time, a deliberate consideration of the better systems in operation should do some good. I think I have shown that such a system, and one of the best in the world, is in successful operation very near us, under conditions very nearly resembling our own. BANKING LAW OF CANADA. 27 its arteries stretching over a vast country and carrying the life blood of commerce to hamlet and town and metropolis, building- up worthy enterprises, and furthering and sustain- ing a healthy prosperity among the sturdy people of our sister nation, Canada. THE BANKING ACT OF THE DOMINION OF CANADA, 1891, 29 THE BANKING ACT OF THE DOMINION OF CANADA. 1891. 53 VICTORIA. CHAP. 31. An Act respecting Banks and Banking. {^Assented to i6th May, iSpo.] TLT ER Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows : SHORT TITLE. SHORT TITLE. L This Act may be cited as " T/ie Bank Act." INTERPRETATION. iNTERPRETA- ^* ^"^ ^^^'^ h.Q.\., unless the context otherwise re- TiON. quires, — (a.) The expression " the bank " means any bank to which this " THE BANK." Act appHcs ; {b^ The expression " Treasury Board " means the board pro- " TREASURY vidcd for by section nine of chapter twenty-eight of BOARD." |-j^g Revised Statutes of Canada, or any Act in amend- ment thereof or substitution therefor ; 30 BANKING LAW OF CANADA. 31 (r.) The expression " goods, wares and merchandise " includes, in addition to the things usually understood thereby, tim- "goods, ber, deals, boards, staves, saw-logs and other lumber, merchan- petroleum, crude oil, and all agricultural produce and uise." other articles of commerce ; (^,) The expression " warehouse receipt " means any receipt given by any person for any goods, wares, or merchandise, in his actual, visible and continued possession, as bailee ,. ,,., ,x.fi-- i. "VVAREHOUSE thereof, m good faith, and not as of his own property, receipt." and includes receipts given by any person who is the owner or keeper of a harbor, cove, pond, wharf, yard, warehouse, shed, storehouse or other place for the storage of goods, wares or merchandise, for goods, wares and merchandise delivered to him as bailee and actually in the place, or in one or more of the places owned or kept by him, whether such person is engaged in other business or not ; (r.) The expression " bill of lading " includes all receipts for goods, wares or merchandise, accompanied by an undertaking to transport the same from the place where they were • 1 .1 1 1 i.1- u 1 J "BILLOFLAD- received to some other place, whether by land or jj^.q,, water, or partly by land and partly by water, and by any mode of carriage whatever ; (/.) The word " manufacturer " includes maltsters, distillers, brewers, refiners and producers of petroleum, tanners, curers, packers, canners of meat, pork, fish, fruit or vegetables, and any manufac- person who produces by hand, art, process or mechani- turer. cal means any goods, wares or merchandise.^ Ari'LICATION OF ACT. 3. The provisions of this Act apply to the several banks enu- merated in Schedule A to this Act, and to every bank incorporated after the first day of January, in the year one thousand eight hundred and ninety, whether this Act is spe- Ji?^^"^!E o -^ ' ^ BANkSTHEACT cially mentioned in its Act of incorporation or not, but applies. not to any other bank, except as hereinafter specially provided. 32 THE CURRENCY AND THE 4. The charters or Acts of incorporation, and any Acts in amend- ment thereof, of the several banks enumerated in Schedule A to this Act are continued in force, so far as regards the incor- CHARTERSCON-pQi-ation and corporate name, the amount of capital JULY, 1901. ' stock, the amount of each share of such stock and the chief place of business of each bank, until the first day of July, in the year one thousand nine hundred and one, subject to the right of each bank to increase or reduce its capital stock in the manner hereinafter provided ; and as to all other par- PARTicuLARS ticulars this Act shall form and be the charter of each of the said banks until the said first day of July, in the year one thousand nine hundred and one, — subject in the case of La Banque du Peuple to the provisions hereinafter made in respect to that bank : Provided always, that the said charters forfSture^^^'' ^^'^^ °^ incorporation are hereby continued in force only in so far as they, or any of them, are not forfeited or rendered void under the terms thereof, or of this Act, or of any other Act passed or to be passed, by reason of the non-performance of the conditions thereof, or by insolvency, or otherwise. 5. All the provisions of this Act, except those contained in sections three, six to seventeen (both inclusive), nine- sioNs shaS!" teen to twenty-seven (both inclusive), thirty-three, forty- APPLY TO LA five, and eighty-nine to ninety-six (both inclusive), peuplS °^ ^PPly to La Banque du Peuple : Provided, that wher- ever the word " directors " is used in any of the sections which apply to the said bank, it shall be read and construed as PROVISO: AS TO meaning the principal partners or members of the cor- DiRECTORS. poration of the said bank; and so much of the Act incorporating the said bank, or of any Act amending or continuing it, as is inconsistent with any section of this Act apply- iNCONSiSTENT j^g to the Said bank, or which makes any provision in ENACTMENTS ^ • , , r , 1 .-..1.^1. REPEALED. any matter provided for by such sections other than such as is hereby made, is hereby repealed ; otherwise the said Acts are continued in force, subject to the proviso contained in section four of this Act. BANKING LAW OF CANADA. 33 6. The provisions contained in sections two, seven, thirty-seven, forty-seven to eighty-eight (both inclusive), and ninety- what provi- seven to one hundred and four (both inclusive), apply apply to"the to the Bank of British North America and the Bank of banks of T> ... , ^ , , . ,. , , . 1 • • BRITISH NORTH British Columbia respectively ; and the provisions con- America and tained in the other sections of this Act do not apply to of b. c. the said banks. 7. For the purposes of the several sections of this Act made applicable to the Bank of British North America and the Bank of British Columbia, the chief ofifice of the Bank of British North America shall be the of^ce of the bank at Mon- business of treal, in the Province of Quebec, and the chief ofifice of the said banks the Bank of British Columbia shall be the office of the bank at Victoria, in the Province of British Columbia. 8. The provisions of this Act may be extended to the Mer- chants' Bank of Prince Edward Island by the Treasury Board, upon the application of the directors of the said bank, before the expiration of the present charter of the said bank ; chants'' b^ank and upon publication in the Canada Gazette of the ofp. e. i. mav resolution of the directors applying hereunder, and of this act. the minute of the Treasury Board thereon allowing such application, the provisions of this Act shall, from the time named in such minute, or if there is no time named therein, from the date of the publication thereof in the Canada Gazette, apply to the said bank ; and its charter and Act of incorporation, and any Acts in amendment thereof, shall thereupon be extended for the same time and to the extent as if the name of the said bank had been included in Schedule A to this Act. INCORPORATION AND ORGANIZATION OF BANKS. 9. The capital stock of every bank hereafter incorporated, the name of the bank, the place where its chief office is matters to to be situate, and the name of the provisional direc- ^^ provided FOR I\ SPK- tors shall be declared in the Act of incorporation of cial act, every such bank : 34 THE CURRENCY AND THE 2. An Act of incorporation of a bank in the form set forth in FORM OF ACT Schcdule B to this Act shall be construed to confer OF iNCORPO- upon the. bank thereby incorporated all the powers, privileges and immunities, and to subject it to all the liabilities and provisions set forth in this Act. 10. The capital stock of any bank hereafter incorporated CAPITAL shall be not less than five hundred thousand dollars, STOCK AND SHARES. and shall be divided into shares of one hundred dollars each. 11. The number of provisional directors shall be not less than PROVISIONAL f^ve nor more than ten, and they shall hold office until DIRECTORS, directors are elected by the subscribers to the stock, as hereinafter provided. 12. For the purpose of organizing the bank, the provisional directors may cause stock books to be opened, after giving public OPENING OF notice thereof, — upon which stock books shall be re- STOCK BOOKS, cordcd the subscriptions of such persons as desire to become shareholders in the bank ; and such books shall be opened at the place where the chief office of the bank is to be situate, and elsewhere, in the discretion of the provisional directors, and may be kept open for such time as they deem necessary. 13. So soon as a sum not less than five hundred thousand dollars of the capital stock of the bank has been bond fide subscribed, ^^„^^.„„_ and a sum not less than two hundred and fifty thou- iNG OF SUB- sand dollars thereof has been paid to the Minister scRiBERS. q£ Finance and Receiver General, the provisional directors may, by public notice, published for at least four weeks, call a meeting of the subscribers to the said stock, to NOTICE be held in the place named in the Act of incorporation as the chief place of business of the bank, at such time and at such place therein as set forth in the said notice ; at which meeting the subscribers shall determine the day upon which the annual general ELECTION OF meeting of the bank is to be held, and shall elect such DIRECTORS. number of directors, duly qualified under this Act, BANKING LAW OF CANADA. 35 not less than five nor more than ten, as they think necessary, who shall hold office until the annual general meeting in the year next succeeding their election ; and upon the election of directors as aforesaid the functions of the provisional directors shall cease. 14. The bank shall not issue notes nor commence the business of banking until it has obtained from the Treasury Board a certifi- cate permitting it to do so, and no application for such conditions certificate shall be made until directors have been previous to , , , , ., , , • , commencing elected by the subscribers to the stock in the manner business by hereinbefore provided ; and every director, provisional ^^^ banks. director, or other person, issuing or authorizing the issue of the notes of such bank or transacting or authorizing the transaction of any business in connection with such bank, except such as is hereinbefore provided, before the obtaining of the certificate from the Treasury Board, shall be guilty of an offence against this Act. 15. No certificate shall be given by the Treasury Board until it has been shown to the satisfaction of the Board, by affidavit or otherwise, that all the requirements of this Act and of ,,,„^,,, ^t-t,-,.,,. WritN CERT IF- the special Act of incorporation of the bank, as to the icate may payment required 'to be made to the Minister of ^e granted. Finance and Receiver General, the election of directors, deposit for security for note issue, or otherwise, have been complied with, and that the sum so paid was then held by the Minister of Finance and Receiver General ; and no certificate as aforesaid shall be given except within one year from the passing of the Act of incorpora- tion of the bank applying for the said certificate. 16. In the event of the bank not obtaining a certificate from the Treasury Board within one year from the time of the passing of its Act of incorporation, all the rights, powers and jp certifi- privileges conferred on such bank by its Act of incor- c.\te is not poration shall thereupon cease and determine and be granted. of no force and effect whatever. 17- Upon the issue of the certificate in manner hereinbefore provided, the Minister of Finance and Receiver General shall forth- S6 THE CURRENCY AND THE with pay to the bank the amount of money so de- AMOUNT^DE> posited with him as aforesaid, without interest, after POSITED WITH deducting therefrom the amount required to be de- FiNANCE posited under section fifty-four of this Act ; and in case no certificate is issued by the Treasury Board within the time Hmited for the issue thereof, the amount so de- posited shall be returned to the person depositing the same ; but in no case shall the Minister of Finance and Receiver General be under any obligation to see to the proper apphcation of the same in anyway. INTERNAL REGULATIONS. l8. The shareholders of the bank (or, in the case of La Banque du Peuple, the principal partners or members of the corporation BY-LAWS MAY thcrcof,) may regulate, by by-law, the following matters BE MADE. incident to the management and administration of the affairs of the bank, that is to say : The day upon which the annual general meeting of the shareholders for the election of directors shall be held ; the record to be kept of proxies, and the time, not exceeding thirty days, within which proxies must be produced and recorded prior to a meeting in order to entitle the hplder to vote thereon ; the number of the directors, which shall not be less than five and not more than ten, and the quorum thereof, which shall not be less than three ; their qualification, subject to the pro- visions hereinafter made ; the method of filling vacancies in the board of directors whenever the same occur during each year, and the time and proceedings for the election of directors, in case of a failure of any election on the day appointed for 'it ; the remunera- tion of the president, vice-president and other directors; and the amount of discounts or loans which may be made to directors, either jointly or severally, or to any one firm or person, or to any shareholder, or to corporations : 2. The shareholders may authorize the directors to establish GUARANTEE guarantee and pension funds for the officers and AND PENSION employces of the bank and their families, and to FUNDS contribute thereto out of the funds of the bank : BANKING LA W OF CANADA. 37 3. Until it is otherwise prescribed by by-law under this section, the by-laws of the bank on any matter which may be regulated by by-laws under this section shall remain in force, except certain by- as to any provision fixing the qualification of direc- lawscon- tors at an amount less than that prescribed by this Act ; and no person shall be elected or continue to be a director unless he holds stock paid up to the amount required by this Act, or such greater amount as is required by any by-law in that behalf : 4. The foregoing provisions of this section, touching directors, shall not apply to La Banque du Peuple, which shall banquedu in these matters be governed by the provisions of its ^^^epted' charter. 19. The stock, property, affairs and concerns of the bank shall be managed by a board of directors, who shall be elected board of annually in manner hereinafter provided, and shall be directors. eligible for re-election : 2. Each director shall hold capital stock of the bank as follows : — When the paid-up capital stock is one million dollars or less, each director shall hold stock on which not less than three qualifica- thousand dollars has been paid up ; when the paid-up tion. capital stock is over one million dollars and does not exceed three million dollars, each director shall hold stock on which not less than four thousand dollars has been paid up ; and when the paid-up capi- tal stock exceeds three million dollars, each director shall hold stock on which not less than five thousand dollars has been paid up : x. A majority of the directors shall be natural-born m.\jority to ,• , . • f TT ti;t • BE BRITISH or naturalized subjects of Her Majesty. subjects. 4. The directors shall be elected by the shareholders on such day in each year as is appointed by the charter or by any by-law of the bank, and such election shall take place at the , /v- ,,,, ,. r ^ ■, 1 election. head office of the bank at such time of the day as the directors appoint ; and public notice thereof shall be given by the directors, by publishing the same for at least four . , . ,, , ,. , , . . notice. weeks previous to the time of holding such election, in a newspaper published at the place where the said head oflficc is situate : 38 THE CURRENCY AND THE 5. The persons, to the number authorized to be elected, who WHO SHALL have the greatest number of votes at any election, shall BE DIREC- ... TORS. be directors : 6. If it happens at any election that two oi" more persons have PROVISION IN ^'^ equal number of votes and the election or non-elec- CASE OF tion of one or more of such persons as a director or VOTES. directors depends on such equality, then the directors who have a greater number, or the majority of them, shall determine which of the said persons so having an equal num- ELECTioN OF ^^'' ^^ votes shall be the director or directors, so as to PRESIDENT, complete the full number ; and the said directors, as ^'^'^' soon as may be, after the said election, shall proceed to elect, by ballot, two of their number to be president and vice- president respectively : 7. If a vacancy occurs in the board of directors, such vacancy shall be filled in the manner provided by the by-laws ; but the non- filling of the vacancy shall not vitiate the acts of a HOW^FiLLED quorum of the remaining directors ; and if the vacancy so created is in the office of the president or vice-presi- dent, the directors shall, from among themselves, elect a president or vice-president, who shall continue in office for the remainder of the year. 20. If an election of directors is not made on the day ap- pointed for that purpose, such election of directors PROVISION IN .L 1 1 i-l J J- .t ^1 CASE OF FAIL- "^sy take place on any other day, according to the URE OF by-laws made by the shareholders in that behalf ; and the directors then in ofifice shall remain in office until a new election is made. 21. At all meetings of the directors, the president, or in his ab- sence the vice-president, or in the absence of both of Dnm:TORS°^ them, one of the directors present, chosen to act pro tempore, shall preside ; and the president, vice-presi- CASTiNG VOTE dent, or president /;'i'0 rata to the amount contributed by each : Provided always, that each of such other banks shall only be called upon to make good to the said fund its share of such excess, in payments not exceeding in any one year one per cent, of the average amount of its notes in circulation,— such circulation to be ascertained in such manner as the Minister of Finance and Receiver General decides ; and his decision shall be final : 9. In the event of the winding up of the business of a bank by reason of insolvency or otherwise, the Treasury Board may, on the application of the directors, or of the liquida- repayment tor, receiver, assignee or other proper official, and on of amount if being satisfied that proper arrangements have been woundVp^ made for the payment of the notes of the bank and any interest thereon, pay over to such directors, liquidator, r^- 58 THE CURRENCY AND THE ceiver, assignee or other proper official, the amount at the credit of the bank, or such portion thereof as it thinks expedient : 10. The Treasury Board may make all such rules and regula- tions as it thinks expedient with reference to the payment of any moneys out of the said fund, and the manner, BOARDMAY pl^cc aud tlmc of such payments, the collection of REGULATE all amouuts due to the said fund, all accounts to be OF FUN™^^^ kept in connection therewith, and generally the management of the said fund and all matters relat- ing thereto : 11. The Minister of Finance and Receiver General may, in ENFORCE- ^^^ official name, by action in the Exchequer Court MENT OF PAY- of Canada enforce payment (with costs of action) MENT. q£ g^jjy gyj^ jjyg ^j^^^ p ay ab 1 6 by any bank under the provisions of this section. 55. The bank shall make such arrangements as are neces- sary to ensure the circulation at par in any and every part of Canada of all notes issued or reissued by it and BANK To^BE intended for circulation ; and towards this purpose PAYABLE AT the bauk shall establish agencies for the redemption OUT cInada""^"^ payment of its notes at the cities of Halifax, St. John, Charlottetown, Montreal, Toronto, Winnipeg and Victoria, and at such other places as are, from time to time, designated by the Treasury Board. 56. The bank shall always receive in payment ^^^™^"°^ its own notes at par at any of its offices, and OF N01Jti.b. whether they are made payable there or not : PAYABLE AT '^' '^^^ chief place of business of the bank shall CHIEF PLACE always be one of the places at which its notes are made payable. OF BUSINESS. 57. The bank, when making any payment, shall, on the request of the person to whom the payment is to be made, pay the same, or such part thereof, not exceeding one PAYMENTS IN t-jjjii l i_- tn • DOMINION hundred dollars, as such person requests, m Domm- NOTEs. ion notes for one, two, or four dollars each, at the BANKING LA \V OF CANADA. 59 Option of such person : Provided always, tliat no payment, whether in Dominion notes or bank notes, torn or de- , ,, . . . , .,, ^. ^ ^ 1.- 11 J FACED NOTES. shall be made m bills that are torn or partially de- faced by excessive handling. 58. The bonds, obligations and bills, obligatory or of credit, of the bank under its corporate seal, and signed by the president or vice-president, and countersigned by a cashier or assist- , . ... J ui ^ BONDS, NOTES, ant cashier, which are made payable to any person, ^.^^ „Q^y ^^-^ shall be assignable by indorsement thereon ; and bills by whom to , , , , . , , ,, • , ^ • BE SIGNED. or notes of the bank signed by the president, vice- president, cashier or other officer appointed by the directors of the bank to sign the same, promising the payment of money to any person or to his order, or to the bearer, though not under the cor- porate seal of the bank, shall be binding and obligatory on it in like manner and with the like force and effect as they would be upon any private person, if issued by him in his private or natural capac- ity, and shall be assignable in like manner as if they were so issued by a private person in his natural capacity: Provided always, that the directors of the bank may, from time pqwer^m^av to time, authorize, or depute any cashier, assistant be deputed cashier, or officer of the bank, or any director other than the president or vice-president, or any cashier, manager or local director of any branch or oflRce of discount and deposit of the bank, to sign the notes of the bank intended for circulation. 59. All bank notes and bills of the bank whereon the name of any person intrusted or authorized to sign such notes or bills on behalf of the bank is impressed by machinery provided ^^^^^ maybe for that purpose, by or with the authority of the bank, signed by shall be good and valid to all intents and purposes ^'^chinery. as if such notes and bills had been subscribed in the proper hand- writing of the person intrusted or authorized by the bank to sign the same respectively, and shall be bank notes and bills ^^^ sign\ within the meaning of all laws and statutes whatever, ture must be and may be described as bank notes or bills in all in- ^^ kitten. dictmcnts and civil or criminal proceedings whatsoever : Provided 6o THE CURRENCY AND THE always, that at least one signature to each note or bill must be in the actual handwriting of a person authorized to sign such note or bill.' 60. Every person, except a bank to which this Act applies, who issues or reissues, makes, draws, or endorses any bill, bond, note, cheque or other instrument, intended to circulate as UNAUTHOR?^ money, or to be used as a substitute for money, for ED ISSUE OF any amount whatsoever, shall incur a penalty of four CIRCULATION, hundred dollars, which shall be recoverable with costs, in any court of competent jurisdiction, by any person who sues for the same ; and a moiety of such penalty shall belong to the person suing for the same, and the other moiety to Her Majesty for the public uses of Canada: 2. The intention to pass any such instrument as money shall be presumed, if it is made for the payment of a less sum fhan twenty dollars, and is payable either in form or in fact to the WHAT SHALL bearer thereof, or at sight, or on demand, or at less BE DEEMED ' , . . . SUCH NOTES, than thirty days thereafter, or is overdue, or is in any way calculated or designed for circulation, or as a sub- stitute for money ; unless such instrument is a cheque on some char- tered bank paid by the maker directly to his immediate creditor, or a promissory note, bill of exchange, bond or other undertaking for the payment of money, paid or delivered by the maker thereof to his immediate creditor, and is not designed to circulate as money or as a substitute for money. 61. Every person who in any way defaces any Dominion or Provincial note, or bank note, whether by writing", OF NOTEs^^^ printing, drawing or stamping thereon, or by at- taching or affixing thereto, anything in the nature PENALTY. or form of an advertisement, shall be liable to a penalty not exceeding twenty dollars. 62. Every officer charged with the receipt or disbursement of COUNTERFEIT public moneys, and every officer of any bank, and AND FRAUDU- . 1 j 1 1 1 LENT NOTES cvcry persou acting as or employed by any banker, TO BE shall stamp or write in plain letters the word " counter- STAMPED AS ,.,,„, ,,, ,, „ SUCH feit, altered, or " worthless, upon every counter- BANKING LAW OF CANADA. 6i fcit or fraudulent note issued in the form of a Dominion or bank note, and intended to circulate as money, which is presented to him at his place of business ; and if such officer or person wrong- fully stamps any genuine note he shall, upon presentation, redeem it at the face value thereof. 63. Every person who designs, engraves, prints or in any man- ner makes, executes, utters, issues, distributes, circulates or uses any business or professional card, notice, placard, cir- cular, hand-bill or advertisement in the likeness or^j°j.J°^|f^'^'^^ similitude of any Dominion or bank note, or any ob- be issued in 1- .- -i. r r' i. f u 1 THEFORMOFA ligation or security of any Lrovernment, or of any bank, note is liable to a penalty of one hundred dollars or to three months' imprisonment, or to both. BUSINESS AND POWERS OF THE BANK. 64. The bank may open branches, agencies and offices, and may engage in and carry on business as a dealer in gold and silver coin and bullion, and it may deal in, dis- count, and lend money and make advances upon branches i.u -^ r J i. 1 11 i. 1 -i. ANDAGENCIES. the security of, and may take as collateral security for any loan made by it, bills of exchange, promis- general pow- ERS OF BANK. sory notes and other negotiable securities, or the stock, bonds, debentures and obligations of municipal and other corporations, whether secured by mortgage or otherwise, or Dominion, Provincial, British, foreign and other public se- curities, and it may engage in and carry on such business gen- erally as appertains to the business of banking; but, except as authorized by this Act, it shall not, either di- certain busi- rectly or indirectly, deal in the buying, or selling, ^^'^^^ ^^■'^^ ^'9^ or bartering of goods, wares and merchandise, or acted by the engage or be engaged in any trade or business rank. whatsoever ; and it shall not, either directly or indirectly, pur- chase, or deal in, or lend money, or make advances upon the security or pledge of any share of its own capital stock, or of the capital stock of any bank ; and it shall not, either directly or indirectly, lend money or make advances upon the security, mortgage, or hypothecation of any land, tenements, or immov- 62 THE CURRENCY AND THE able property, or of any ships or other vessels, or upon the security of any goods, wares and merchandise. 65. The bank shall have a privileged lien, for any debt or liabil- ity for any debt to the bank, on the shares of its own BANK TO HAVE capital stock and on any unpaid dividends of the debtor LIENONDEBT- i- 11 1 j l- i. 11 ^ r OR's SHARES, or pcrson liable, and may decline to allow any transfer of the shares of such debtor or person until such debt is paid ; and the bank shall, within twelve months after such debt has accrued and become payable, sell such shares, and SHARES. notice shall be given to the holder thereof of the in- tention of the bank to sell the same, by mailing such notice in the post office to the last known address of such holder, at least thirty days prior to such sale ; and upon such sale being made the president, vice-president, manager ^fi^if ^^^^AT^ or cashier shall execute a transfer of such shares to the purchaser thereof in the usual transfer book of the bank, which transfer shall vest in such purchaser all the rights in or to such shares which were possessed by the holder thereof, with the same obligation of warranty on his part as if he were the vendor thereof, but without any warranty from the bank or by the officer of the bank executing such transfer. 66. The stock, bonds, debentures or securities, acquired and held by the bank as collateral security, may, in case of default to pay the COLLATERAL <^et)t, for sccuring which they were so acquired and SECURITIES held, be dealt with, sold and conveyed either in like LARLY DEALT manner and subject to the same restrictions as are WITH. herein provided in respect of stock of the bank on which it has acquired a lien under this Act, or in like manner as and subject to the restrictions under which a private individual might in like circumstances deal with, sell and convey the same, but without obligation to sell the same within twelve months : 2. The right so to deal with and dispose of such stock, bonds, debentures or securities in manner aforesaid may be waived or RIGHT TO DO varied by any agreement between the bank and the fxpAil^X,^^ owner of such stock, bonds, debentures or securities, WAIVED. ' ' BANKING LAW OF CANADA. 63 made at the time at which such debt was incurred, or if the time of payment of such debt has been extended, then by an agreement made at the time of such extension. 67. The bank may acquire and hold real and immovable property for its actual use and occupation and the kk\lkstate management of its business, and may sell or dis- foroccupa- pose of the same, and acquire other property in its tion. stead for the same purpose. 68. The bank may take, hold and dispose of mortgages and h If pot Ju'( J ues u^on real or personal, immovable or movable property, by way of additional security for debts „^ ,.,,,.,., J. . , . MORTGAGES contracted to the bank m the course of its busi- asaddi- ness ; and the rights, powers and privileges which tignal se- the bank is by this Act declared to have or to have had in respect of real or immovable property mortgaged to it, shall be held and possessed by it in respect of any personal or movable property which is mortgaged or hypothecated to it. 69. The bank may purchase any lands or real or immovable prop- erty offered for sale under execution, or in insolvency, or under the order or decree of a court, as belonging to any debtor to the bank, or offered for sale by a mortgagee or other land under encumbrancer having priority over a mortgage or execution, other encumbrance held by the bank or offered for sale by the bank under a power of sale given to it for that pur- pose, in cases in which, under similar circumstances, an individual could so purchase, without any restriction as to the value of the property which it may so purchase, and may acquire a title thereto as any individual purchasing at sheriff's sale, or under a power of sale, in like circumstances, could do, and may take, have, hold and dispose of the same at pleasure. 70. The bank may acquire and hold an absolute title in or to real or immovable property mortgaged to it as security for a debt due or owing to it, either by obtaining a re- absolute lease of the equity of redemption in the mortgaged title may be property, or by procuring a foreclosure, or by other acquired. means whereby, as between individuals, an equity of redemp- 64 THE CURRENCY AND THE tion can, by law, be barred, and may purchase and acquire any prior mortgage or charge on such property : Provided always, PROVISO • SALE ^^^^*^ no bank shall hold any real or immovable OF PROPERTY property, howsoever acquired, except such as is so ACQUIRED, j-gquircd for its own use, for any period exceeding seven years from the date of the acquisition thereof. 71. Nothing in any charter, Act or law shall be construed as ever having prevented or as preventing the bank from acquiring TITLE TO and holding an absolute title to and in any such mort- ACOumED • §^to^<^ ^^^^ o*" immovable property, whatever the value POWER OF ' thereof is, or from exercising or acting upon any power SALE, Etc. ^|- ^^j^ contained in any mortgage given to it or held by it, authorizing or enabling it to sell or convey away any property so mortgaged. 72. Every bank advancing money in aid of the building of any ship or vessel shall have the same right of acquiring and holding ASTOADVAN- sccurity upon such ship or vessel, while building and CES FOR BuiLD-when completed, either by way of mortgage, hypotheque, iNG SHIPS. hypothecation, privilege, or lien thereon, or purchase or transfer thereof, as individuals have in the Province wherein such ship or vessel is being built, and for that purpose may avail itself of all such rights and means of obtaining and enforcing such se- curity, and shall be subject to all such obligations, limitations and conditions as are, by the law of such Province, conferred or im- posed upon individuals making such advances. 73. The bank may acquire and hold any warehouse receipt or bill of lading as collateral security for the payment of any debt in- WAREHOUSE currcd in its favor in the course of its banking busi- BE TAKEN As^ "^^^ ' ^^^ ^^^ warchousc receipt or bill of lading so COLLATERAL acqulrcd shall vest in the bank, from the date of the SECURITY. acquisition thereof, all the right and title of the previ- ous holder or owner thereof, or of the person from whom such goods, wares and merchandise were received or acquired by the bank, if the warehouse receipt or bill of lading is made directly in favor of the BANKING LAW OF CANADA. 65 bank, instead of to the previous holder or owner of such goods, wares and merchandise : 2. If the previous holder of such warehouse receipt or bill of lading is the agent of the owner of the goods, wares and mer- chandise mentioned therein, the bank shall be vested whenprevi- with all the right and title of the owner thereof, sub- ous holder ject to his right to have the same re-transferred to him, ^' ^ ^^^' if the debt, as security for which they are held by the bank, is paid : 3. In this section the expression " agent " means any person in- trusted with the possession of goods, wares and merchandise, or to whom the same are consigned, or who is possessed of ixterpreta- any bill of lading, receipt, order, or other document tionof used in the course of business as proof of the posses- sion or control of goods, wares and merchandise, or authorizing or purporting to authorize, either by indorsement or by delivery, the possessor of such document to transfer or receive the goods, wares and merchandise thereby represented ; and such person shall be deemed the possessor of such goods, wares and merchandise, bill of lading, receipt, order, or other document as aforesaid, as well if the same are held by any person for him or subject to his control as if he is in actual possession thereof. 74. The bank may lend money to any person engaged in busi- ness as a wholesale manufacturer of any goods, wares loans to and merchandise, upon the security of the goods, wares ^^man?faJ and merchandise manufactured by him or procured for turers. such manufacture : 2. The bank may also lend money to any wholesale purchaser or shipper of products of agriculture, the forest and mine, J. 11 J • ^ 111 LOANS TO CER- or the sea, lakes and rivers, or to any wholesale pur- tain whole- chaser or shipper of live stock or dead stock, and the ^^^-^ pur- , .1 , , • , , , chasers or products thereof, upon the security of such products, shippers. or of such live stock or dead stock, and the products thereof : 3. Such security may be given by the owner and may be taken 66 THE CURRENCY AND THE in the form set forth in Schedule C to this Act, or to the like effect ; FORM OF and by virtue of such security, the bank shall acquire SECURITY. tj^g same rights and powers in respect to the goods, wares and merchandise, stock or products covered thereby, as if it had acquired the same by virtue of a warehouse receipt. 75. The bank shall not acquire or hold any warehouse receipt or bill of lading or security under the next preceding section to secure WHEN SUCH ^^^ payment of any bill, note or debt, unless such bill, SECURITY MAY note or debt is negotiated or contracted at the time of BE ACQUIRED. ^^^ acquisition thereof by the bank, or upon the written promise or agreement that such warehouse receipt or bill of lad- ing or security would be given to the bank ; but such bill, note or debt maybe renewed, or the time for the payment thereof extended, without affecting any such security : 2. The bank may, on shipment of any goods, wares and mer- chandise for which it holds a warehouse receipt, or security as afore- EXCHANGE OF ^^^^' Surrender such receipt or security and receive a WAREHOUSE bill of lading in exchange therefor, or, on the receipt BiLL^OF^Ai? of ^'^y goods, warcs and merchandise for which it holds iNGANDz-zv^ a bill of lading or security, as aforesaid, it may sur- ^^^''"' render such bill of lading or security, store such goods, wares and merchandise, and take a warehouse receipt therefor, or may ship them, or part of them, and take another bill of lading therefor : 3. Every one is guilty of a misdemeanor and liable to imprison- PENALTY FOR "^^nt for a term not exceeding two years who wilfully MAKING FALSE makes any false statement in any warehouse receipt, STATEMENT, ^j^j ^^ \^.^\n^ OX sccurity, as aforesaid. 4. Every one is guilty of a misdemeanor and liable to imprison- ment for a term not exceeding two years, who, having possession or control of any goods, wares and merchandise covered PENALTY FOR , / '^ . ^ , ... . , i- ALIENATING by any warehouse receipt, bill of lading or security as GOODS so aforesaid, and having knowledge of such receipt, bill of SECURED. , , . . ^ , . , r . 1 , 1 • lading or security, and without consent 01 the bank, in w riting and before the advance, bill, note or debt thereby secured BANKING LAW OF CANADA. 67 has been fully paid, wilfully alienates or parts with any such goods, wares, or merchandise, or wilfully withholds from the bank posses- sion thereof upon demand after default in payment of such advance, bill, note or debt. 76. If goods, wares and merchandise are manufactured or pro- duced from the goods, wares and merchandise, or any of them, in- cluded in or covered by any warehouse receipt, or ^s to goods security given under section seventy-four of this Act, manufac- , ., , , , , 1 , ,. , 1 TURED FROM while so covered, the bank holdmg such warehouse re- articles ceipt or security shall hold or continue to hold such pledged. goods, wares and merchandise, during the process and after the com- pletion of such manufacture or production, with the same right and title and for the same purposes and upon the same conditions as it held or could have held the original goods, wares and merchandise. 77' All advances made on the security of any bill of lading or warehouse receipt, or security given under section seventy-four of this Act, shall give to the bank making such advances prior claim a claim for the repayment of such advances on the qver unpaid goods, wares and merchandise therein mentioned, or vendor. into which they have been converted, prior to and by preference over the claim of any unpaid vendor ; but such preference shall not be given over the claim of any unpaid vendor who had a lien upon such goods, wares and merchandise at the time of the acquisition by the bank of such warehouse receipt, bill of lading, or security, unless the same was acquired without knowledge on the part of the bank of such lien. 78. In the event of the non-payment at maturity of any debt secured by a warehouse receipt or bill of lading, or security given under section seventy-four of this Act, the bank rnayg^j^^. ^p goods sell the goods, wares and merchandise mentioned on non-pay- therein, or so much thereof as will suffice to pay guch^'^^^*'^^^^^' debt with interest and expenses, returning the overplus, if any, to the person from whom such warehouse receipt, or bill of lading, or security, or the goods, wares and merchandise mentioned therein, 68 THE CURRENCY AND THE as the case may be, were acquired ; but such power of sale shall be subject to the following provisions, namely: 2. No sale without the consent in writing of the owner of any timber, boards, deals, staves, saw-logs or other lumber, shall be made under this Act until notice of the time and place NOTICE TO BE GIVEN BEFORE of such salc has been given by a registered letter, mailed SALE OF GOODSjj^ ^-j-^g pQg^- ofifice to the last known address of the pledger PLEDGED. thereof, at least thirty days prior to the sale thereof ; and no goods, wares and merchandise, other than timber, boards, deals, staves, saw-logs or other lumber, shall be sold by the bank under this Act without the consent of the owner, until notice of the time and place of sale has been given by a registered letter, mailed in the post office to the last known address of the pledger thereof, at least ten days prior to the sale thereof : 3. Every such sale of any article mentioned in this section, without the consent of the owner, shall be made by public auction, SALE BY AUG- ^^'^^^ ^ notice thereof by advertisement, stating the TioN AFTER time and place thereof, in at least two newspapers pub- NOTiCE. lished in or nearest to the place where the sale is to be made ; and if such sale is in the Province of Quebec, then at least one of such newspapers shall be a newspaper published in the Eng- lish language, and one other such newspaper shall be a newspaper published in the French language. 79. Every bank which violates any provision contained in any of PENALTY FOR ^^^ scctions numbered sixty-four to seventy-eight (both coNTRAVEN- inclusivc) shall incur for each violation thereof a pen- ^^ ^' alty not exceeding five hundred dollars. 80. The bank shall not be liable to incur any penalty or for- feiture for usury, and may stipulate for, take, reserve or exact NO PENALTY auy ratc of interest or discount not exceeding seven FOR USURY. pgj. cent, per annum, and may receive and take in advance any such rate, but no higher rate of interest shall be WHAT INTER- Tecoverable by the bank ; and the bank may allow EST MAY BE any rate of interest whatever upon money deposited ALLOWED. ^-^^ it^ BANKING LA W OF CANADA, 69 81. No promissory note, bill of exchange or other negoti- able security, discounted by or indorsed or otherwise assigned to the bank, shall be held to be void, usurious or NO INSTRU- tainted by usury, as regards such bank, or any AfENTTOBE maker, drawer, acceptor, indorser, or indorsee void on thereof, or other party thereto, or hond p-,r WV #> V^\ ^^^^m^. ■^s^^ Mm THIS BOOK IS DUE ON THE LAST DATE STAMPED BELOW ?)j^m. ^:m ^'■-Li: AN INITIAL FINE OF 25 CENTS WILL BE ASSESSED FOR FAILURE TO RETURN THIS BOOK ON THE DATE DUE. THE PENALTY WILL INCREASE TO 50 CENTS ON THE FOURTH DAY AND TO $1.00 ON THE SEVENTH DAY OVERDUE. OCT 6 1933 OCT 1^ m^^ HOV 4 1933 :-??. 'H ^ s M WM$ / .5:: / ; : MGc^^705 ' C7 io;U)hi! ^^^3f[) 05603 t^r vtp^^:-:-. ^r^-- W^> s?, '(f\