Only a passing mention need be made of the free banking law which, avowedly an imi tation of the free banking laws of the State of New York, was passed in 1850. By 1854 its failure was evident, the free banks gradually died out or obtained charters, and the act was repealed in 1866. The only vestige of it now to be found is the provision, revived in the Dominion Act of 1880, that notes issued by a bank should be the first charge upon its assets.
Up to 1859 banks had been prohibited from lending money upon the pledge of goods, but in that year an act was passed authorizing a bank to take bills of lading, warehouse receipts, etc., as collateral security for the payment of any bill or note discounted by it, providing the security was taken at the time the bill was negotiated.
Little need be said as to the banking history of the other provinces. The charters in the Maritime Provinces were very similar to those of Lower Canada, Manitoba had no existence as a province before it joined the Confedera tion, while British Columbia had passed no banking legislation, its only bank having been incorporated under an Imperial charter, which has now been surrendered.
At Confederation, in 1867, all right to legis late regarding banking was vested in the Fed eral government, but the initial task of fram ing a comprehensive banking law which should be uniform for the whole Dominion was by no means an easy one. Banking experiences during the previous two or three years had not, been altogether happy, very divergent views were held, and even among bankers there was a wide difference of opinion, a difference which to same extent followed geographical lines, the existing system being generally up held in Ontario, while in Quebec and the Maritime Provinces there was a widespread desire for a change. A system which in its main features would have followed pretty closely the banking practice of the United States was in 1869 proposed to Parliament by Mr. Rose, then Minister of Finance, and was strongly supported by representatives of the Bank of Montreal and the Bank of British North America. But determined opposition developed, and the proposals were withdrawn. A new Finance Minister, Sir Francis Hincics, having taken office, an act was passed in 1870, continuing many existing features and intro ducing some new ones. But the first really important Bank Act passed after Confedera tion was that of 1871 (34 Vict. Chap. V), which embodied all the provisions of any charter or general act then in force which it seemed desirable to perpetuate, making them applicable immediately to all new banks, and to all the existing banks as soon as their re spective charters expired. A few small banks in the Maritime Provinces continued for sev eral years under their old charters, the last one coming under the operation of the act on 1 March 1892. While each bank retained the
necessarily individual features of its own charter — those relating to its name, capital, chief place of business, etc.— and while it still remained necessary for every new bank to obtain a special act of incorporation (which it could do as a matter of course during any ses sion of Parliament, if it conformed to the prescribed conditions), the new act made all other regulations uniform, with some unimport ant exceptions in the case of the Bank of British North America, which was incorpo rated under an Imperial charter, and La Banque du Peuple, which has since passed out of existence. Except for the express right given to a bank to make advances on the stock of other banks (a most objectionable enact ment, repealed in 1879), no new features of special consequence were introduced. It pro vided that no bank should issue notes of less than $4 each, and that every bank should hold as nearly as practicable one-half, and never less than one-third, of its cash reserves in Dominion notes (both provisions designed to increase the issue of Dominion notes) : but the importance of the act rests on the fact that it firmly established in Canada a banking system based upon Canadian and British prin ciples, a system which, modified and improved from time to time, exists in Canada to-day. Its chief features are: large banks, the branch system, an elastic assets currency, no fixed re serves and the double liability of shareholders. In 1879 the Bank Act was revised, and. in 1890 it was revised and re-enacted, while an amend ing act (63, 64 Vict. Chap. 26) was duly passed in 1900, but only two new provisions require mention. Special powers were given in 1900 under which any bank might sell the whole or any portion of its assets to any other bank, and the Canadian Bankers' Association was formally recognized and given certain definite legal powers and duties. For a long time past it had been an established rule to enact the Bank Act for 10 yeats only, thus ensuring a periodical discussion of the whole theory and practice of banking, while during the 10-year intervals the banks could enjoy comparative peace. A revision of the act was accordingly due in 1910, but at that time the public mind was much disturbed over two or three recent bank failures, and it was therefore deemed best to postpone discussion and revision. But the act of 1900 would expireon 1 July 1911, so in order to keep the charters in force the Act was extended from year to year until 1913, when it was decided to deal with the matter.