In the assignment, a sweeping and detailed de scription is made of all goods that are expected to come into the company's possession as a result of the loan and, perhaps, otherwise. The pledge then covers the wood from the time it is cut, thru all the processes of manufacture, until it leaves the possession of the company in the form of furniture.
Ordinarily the advance is a demand loan. The bank can call for payment if at any time it appears that its interests are being endangered by dishonest or unwise management. If default is made on pay ment when demanded, the bank is impowered to sell the goods at public auction, after due notice to the borrower and to the public. The bank becomes the adviser and friend of the company and to all practical purposes a silent partner in the business. It may not be so silent if things begin to go wrong.
The law in reference to this kind of loan is highly technical, and as a result, the banks must be extremely careful to comply in detail. Loans on assignment are rarely made to firms of doubtful credit, for the law is comparatively new and untried in the courts and there are various ways of evading the contract if the bank does not proceed with care. Most of the loans of this kind that have been made have proved successful.
12. law authorizes a bank to permit the removal of pledged goods and the substi tution of other goods for them. This is avoided by the banks whenever possible because of the danger of loss, but it is impossible to escape it when loans are made to active trading concerns. The claim to sub stituted goods depends upon the assignnient of the goods removed. For this reason, the bank keeps all assignments until all advances arranged for are taken care of. When pledged goods are removed without the bank's permission, the validity of the security is not affected. In order to prevent embarrassment and trouble the bank is always careful to have a definite understanding with the borrower that goods will not be removed without its consent. Of course, there will be no objection to the removal of the goods when the proceeds of the sale are applied directly toward re ducing the loan.
13. Call loans.—Call loans in Canada differ some what from loans of that kind in other countries. They are made on the security of stocks and bonds, and a margin is required as elsewhere, but Canadian call loans are not really call loans at all, in the strict mean ing of the term. The securities given as collateral
have only a local market. They are not traded in on the exchanges at New York, London and other financial centers. A single bank may be able to re duce its call loans at a particular time for its own purposes as the brokers would borrow from other banks to meet the call. A general reduction of call loans by all the banks, however, would be almost im possible unless the brokers had their affairs in an extremely liquid state. In case of a general call, securities would be thrown upon the market in huge quantities, and the local market would have the whole strain to bear as there would be no market for the securities abroad.
Because of this condition, the rate on call loans in Canada is usually higher than in other countries. It seldom falls below five per cent. In normal times, it is slightly below the rate on commercial loans. In times of stringency it usually runs far above the com mercial rate, which is fairly stable.
It may be noted that brokers customarily borrow from several banks at the same time in contrast to the practice of commercial borrowers, who follow the "one bank" idea. It is recognized that they must be per mitted to get their funds wherever they can. Bank ers take care of their regular commercial customers first and the brokers get what is left.
The real call loans of Canadian banks are made in New York and in London and other financial centers abroad.
14. Bank Canada, the govern ment exercises little supervision over banking. This seems surprising when we consider the elaborate sys tem of reports and official inspection that has been developed in the United States. The idea of inde pendence of government control is handed down from the Scotch system from which the Canadian system is patterned in many respects. At various times, pro posals for government supervision have been brought before Parliament only to be voted down by sympa thizers of the banks. The argument is advanced that government inspectors could not ascertain ac curately the real character of banking assets, and that the fact of government inspection would mislead the public into a confidence which might sometime prove to be misplaced. Examination by the Canadian Bankers' Association has been objected to on the same grounds.