CANADIAN BANKING SYSTEM 1. Banks and the government.—The Canadian banking system is generally recognized as one of the best in the world, if not the very best. It is so often held up as a model for the United States to follow that every student of banking in this country should be conversant with the principal features of the sys tem.
In 1916, there were twenty-two large joint stock banks, privately owned and managed, but working under a uniform law. The banks were taken from provincial control and placed under the Dominion government in 1867, when the.British North America Act was passed by the Imperial Parliament to weld the provinces into the Dominion of Canada.
No bank is chartered with less than $500,000 capital and one-half of this must be paid in before business is begun. Rigid examination is made into all appli cations for new bank charters, and there is a rule that a majority of the directors in every bank must be British subjects living in Canada. It is difficult for new banks to be established unless they are sure of a great volume of business from the start. Banking facilities are extended, not by establishing new banks, but by increasing the number of branches and by add ing to the capital and surplus of the parent banks already established. There are over three thousand branches scattered thruout Canada and a few in other countries. Canadian banks have been particularly active in the West Indies. The tendency since 1894 has been to decrease the number of parent banks thru consolidation and otherwise. In that year, there were thirty-nine banks. In 1908, there were thirty; and in [916, twenty-two. The Canadian Banking Act is re vised every ten years and all charters are renewed at this time with such changes as may seem desirable. The last revision was due in 1910, but for certain rea sons it was delayed and the most urgent needs were taken care of by amendments to the Act of 1901: Revision was finally made in 1913 and one or two important changes were made.
2. Note chartered banks have the ex clusive privilege of issuing bank notes. The denomi
nations are $5 and multiples thereof.
The greatest virtue of the Canadian bank note cur rency is elasticity. It adapts itself easily to the needs of business. Any bank may issue notes in exchange for commercial paper or any proper banking asset, up to the amount of its paid-up and unimpaired capital stock. This provides for easy expansion. Bank notes are sent thru the clearing houses of Canada just as checks are sent thru in the United States. This means that, as soon as a note is no longer needed for business and is deposited, it goes back immediately to the issuing bank for redemption. This secures the highly desirable feature of contractibility to meet de creasing demands of trade. Canada is an agricul tural country and it is subject to the same seasonal fluctuations in the need for currency that are exper ienced in the United States.
3. Emergency times, the limitation of the total volume of notes to the amount of the capital stock has been found embarrassing. Accord ingly, the Bank Act was amended in 1908 so as to permit the issue of an emergency circulation in excess of the capital during the crop moving season ( Sep tember 1 to the end of February) . This emergency circulation is subject to a tax not exceeding five per cent, which insures that it will be retired as soon as possible. The amount of emergency circulation issued by any one bank cannot exceed fifteen per cent of its combined paid-up and unimpaired capital and surplus or "rest," as it is called in Canada.
On the thirty-first day of July, 1913, the paid-up capital of Canadian banks amounted to slightly over $116,500,000. This was the upper limit of the ordi nary circulation. Of course, a single bank might reach its limit long before the total of all banks amounted to $116,500,000. The total surplus was nearly $109,000,000. Fifteen per cent of capital and surplus would allow for an emergency issue of slightly over $33,800,000. Regular circulation passed $108, 000,000 in July, when no emergency notes could be issued. Some of the banks were crowding the limit.