5. Expert supervision by the central office pfevents bad banking. The boards of directors of the large banks are responsible for aII the branches and they are therefore forced to put into practice a method of examination and supervision which is much more effective than government examination in the United States.
6. Branches can be maintained in localities where the profit of the business would not justify the establishment of a separate bank with independent capital. The city banks can establish branches with a small outlay of additional capital. Branches can be established where the business is so small as to justify simply the employment of a few clerks in a rented office.
The objection is sometimes made that the managers sent out from a central institution are not sympathetic with local conditions. This disadvantage is more than offset by the advantages just enumerated.
9. The line of large capital of the Canadian banks, averaging over $5,000,000 each, enables them, singly, to take care of almost any busi ness that can come to them. In fact, the practice is to discourage a man from doing business with more than one bank. In the United States, a man may not be able to borrow all that he needs from one bank. He may have to go to several. This results sometimes in his borrowing more than he can repay, without any one of the creditor banks knowing that he has over stepped the limits of safety. In Canada, a man is supposed to stick to one bank until he has a good rea son for changing, such as removal to another locality where his bank does not have a branch. One bank will not accept the customer of another until it is satisfied that he has a good reason for making the change. The bank, on its part, is able to assure the customer that he will be able to borrow all that his business justifies. What the bank does is to extend a line of credit, as it is called. At the beginning of the season the customer estimates about how much ac commodation he will need, to carry him thru. He talks this over with his banker and, if his calculations seem reasonable and conservative, the bank will agree to advance that amount to him as he needs it in the course of business. The amount is placed to his credit at the bank and he checks on it as he needs funds. Interest is paid only on the sum which is actually placed at his disposal. As the customer checks on his account, he sends to the bank collateral security in the form of warehouse receipts, bills of lading, and the other documents that are ordinarily obtained in the course of trade. The customer has the great advan
tage of beginning the season with the knowledge that he can secure the credit he needs. With this knowl edge he can go about his business without worry.
The system develops an intimate relationship of sympathy and confidence between the banker and the business man to the great advantage of both. The Scotch have a somewhat similar system which they call "cash credits." 10. Loans on warehouse on ware house receipts and bills of lading are made by Cana dian bankers to any person just as they are by bankers in the United States. So long as the security repre sents a bona fide deposit or shipment of goods and so long as the warehouse or carrier is a reputable con cern, this sort of loan is simple. Something remains to be done in both countries in the way of standard izing certain kinds of goods for warehouse purposes. English bankers still force our bankers to assume all risks incident to the correctness of bills of lading on certain classes of exports, especially of cotton, be cause of frauds committed in the past. Our bankers also assume the risk on bills drawn against goods im ported from England.
11. Loans on assignments.—Canadian bankers have a unique method of making loans on assignments. The matter is too Technical to be described here in de tail, but it is worth while to know the general outline of the plan. This kind of loan can be made only to certain classes of wholesale dealers, shippers and manufacturers. An illustration from the lumber in dustry will explain the most important points in volved.
Suppose the Spruce Lumber Company, engaged in cutting timber, logging, sawing, and manufacturing furniture for sale to dealers, wishes to make sure of sufficient working capital to carry it thru the season. Assume that the bank agrees to furnish the sum de sired. The company wishes to give as security the goods produced thru the use of the borrowed funds. These goods will not be in existence until work is ac tually begun. Before any advance is made the com pany hands to the bank a written "promise" to give security. It is also customary for the bank to obtain an "undertaking" from the customer regarding in surance of the goods in question. Pledges or assign ments of goods are then made as soon as they are pro duced and can be described and located. Of course a part of the loan may be secured by an assignment of certain goods in existence at the time of the original contract.