47. BANKING SYSTEM. The first bank ing establishment in Canada was a private bank founded in Montreal in 1792, under the name of the Canada Banking Company, and evidently intended to be modeled after the English pri vate banks. It opened for business and issued notes, but its life was very short. In 1807-08 an unsuccessful attempt was made to obtain from the legislature of Lower Canada a char ter for the Bank of Canada, which would have been a semi-government bank, resembling in many respects the first Bank of the United States, though naturally on a much smaller scale. In 1817 the Bank' began business in Montreal as a private partnership, this being the origin of the Bank of Montreal, which was for many years, and still in some respect remains, the most important bank on the continent, while from its *Articles of Asso ciation* there has been developed, with steady continuity, the scientific system of banking law which exists in Canada to-day. In the follow ing year two similar associations— the Quebec Bank and the Bank of Canada — were formed, on almost identical lines, and in 1822 all three obtained legislative charters of incorporation, valid for 10 years, which followed the articles of association in almost every important par ticular. They differed very considerably, how ever, from the abortive bill of 1808. Framed to give legal recognition to associations of merchants already actively engaged in com mercial banking, they were throughout de signed to meet ordinary commercial require ments, and although they are perhaps more remarkable for what they omitted than for what they included, most of their provisions were sound. They confined the bank's business to legitimate lines, they prohibited lending upon the pledge of goods or upon mortgage, or deal ing in real estate, and they provided that all notes issued were to be redeemable on demand in specie. Power to open branches was not expressly given, but as it was not denied, its existence was assumed, and the banks did, as a matter of fact, open branches or agencies in both Lower and Upper Canada. The English private banks and the Scottish chartered banks were the joint parents of these Lower Canadian charters, and of the Canadian banking system which has sprung from'them. Various changes and additions were made to suit Canadian re quirements, while in the phraseology used, as well as in some of the internal regulation', the influence of the chartered banks in the United States may be seen, but it may safely be said that practically everything which has proved of permanent value was derived from English, Scotch or native sources.
In Upper Canada the earliest banking legis lation was on political, rather than commercial, lines, and the first charter, that of the Bank of Upper Canada, granted in 1821-22, followed the Lower Canadian bill of 1808 rather than the articles of association of the °Montreal Bank.' The plan as first adopted was not sound, and as it had little permanent influence upon later legislation no description of it is necessary. The Imperial authorities, by pres sure persistently exerted, succeeded in securing the adoption of two important amendments which are still part of Canadian banking law. In 1832 banks were prohibited from holding, or lending on, their own stock, while in the char ter of the Gore Bank, granted in_1835, it was provided that the shareholders should be in dividually liable for the debts of- the bank to an amount equal to their respective holdings of subscribed stock. The'prohibition of the lend ing of money on mortgage, which from the first had been embodied in Lower Canadian charters, was never adopted in Upper Canada, although strongly urged by the Colonial Office.
The Union of the two Canadas took place in 1840, and at its first session in 1841 the legislature of the province of Canada adopted the report of a select committee, favoring a uniform system of banking, and approving a number of important regulations emanating from the Colonial Office, some of which already existed in individual charters. All notes were to be payable on demand in specie,• they were not to be issued to an amount exceeding the bank's paid-up capital, and suspension of specie payments for a given number of days in any case exceeding 60), either consecutively or at intervals within any one year, was to forfeit the charter. The bank was not to hold its own stock, or to make advances against it, nor was it to lend money on security of lands or houses, or ships, or on pledge of merchandise. These and a few less important regulations were incorporated in every new and renewal bank charter thereafter granted, the double liability clause was made applicable to every bank, and one bank was prohibited from holding stock in another, except such as might be taken for bona fide debts, contracted in the usual course of business. In this act we have the first attempt to deal with banking in a systematic way and to lay down general rules to which all banks must conform.