Very heavy fines are imposed in the case of over-issue, these fines varying from the amount of the excess circulation, if the ex cess is not over $1,000, up to $100,000, if the excess is over $200,000. • The security behind the total bank issue is shown by the following figures: The bank's unissued notes cost it nothing, except for paper, printing and transmission, and it is thus enabled to keep at each of its branches a sufficient supply of currency for ordinary requirements, without any loss of interest except on a trifling amount of change making currency. This has an important bearing upon the cost of establishing and con ducting small branches. As the note issue is a source of profit, each bank pays out within its limit only its own notes and sends in for redemption the notes of other banks which it receives. Daily exchanges are made at every point where two or more banks are represented, each bank sending in to the other all the notes issued by the other bank which it received the previous day. The resulting balances are set tled at the smaller places by drafts on the Clear ing-House centres. In this way an automat ically elastic currency is obtained, and the banks are enabled, up to the extreme limit of their issuing power, to meet the annual demand for currency to the crops"— a demand which in an agricultural country like Canada is very urgent — while at the same time the daily re demption provides that the extra supply of notes will be forced out of circulation as soon as the need of them has passed. The elasticity of the note issue is shown by the following table: In the course of each bank's daily business, it receives notes issued by other banks, which are not sent in for redemption until the follow ing day, at the earliest — sometimes not for two or three days. A certain proportion, therefore, of the total note issue is always in the hands of the banks themselves, and of total notes in circulation on 31 Dec. 1917 of $192,923,824, the amount thus held was $24, 078,909, or about 12.5 per cent of the total out standing, leaving $168,844,917, or about 87.5 per cent actually in the hands of the public.
The Canadian Bankers' Association is by statute charged with the duty of supervising and controlling all details connected with the issue of notes. The merits of the Canadian bank note may be thus summed up: First, it is safe; nothing but national insolvency could make its ultimate redemption doubtful. Second, it is redeemable on demand in specie or Dominion notes; if suspension of payment occurs, the note bears interest at 5 per cent until it is redeemed, and if not redeemed by the bank within two months, it will be paid out of the Redemption Fund. Third, it passes at par from one end of Canada to the other. Fourth, the amount in circulation always tends to he the exact amount demanded by the industrial activity of the country. The bank is obliged to confine its business within the limits which are almost universally assigned to the banker. Speaking generally, it may not deal in merchandise, or be engaged in any trade; it may not lend money upon the security of goods, or ships, or lands, and other immov able property, nor may it advance against its own stock, or the stock of any other bank, but it may lend against or take as security bonds of an incorporated company, even though the bonds are secured by mortgage on real estate. It may, however, under certain conditions, lend money to wholesale manufac turers, and to wholesale purchasers, shippers of or dealers in various products, on the secu rity of the goods they manufacture or deal in, and it may lend to any person on the security of a bill of lading or of a warehouse receipt.
It may also lend money on the security of standing timber, and may make advances for shipbuilding, taking security on the ship. As additional collateral to a debt already con tracted it may take security of almost any kind, except goods or documents represpnting goods, and it has a first lien on its own stock for any liability due to it by a stockholder. It cannot recover by process of law any interest in ex cess of 7 per cent, but no penalties for usury now exist.
In addition to carrying on the ordinary business of a commercial bank, the Canadian banks receive money on deposit at interest, the prevailing rate at present being 3 per cent. Probably about 60 per cent of their total de posits would in the United States be deposits in savings banks. No securities are specially set aside against any deposits. Deposits due to the Dominion government are a second charge on all the assets of the bank (the notes being the first), and those to any provincial government are a third charge. One bank may sell but all its assets to another bank, proper provision being made for the assump tion of the liabilities of the selling bank. The purchase price may be in stock of the pur chasing bank, or in such other form as may be arranged. No agreement to sell, however, may be made unless and until the Minister of Finance, in writing, gives his consent. In at least one recent instance the Minister has, on grounds of public policy, withheld his con sent. In the event of a bank suspending pay ment, it is taken in charge by a curator ap pointed by the Canadian Bankers' Association, who controls and supervises it until it either resumes payment or goes into liquidation. Sus pension for 90 days, consecutively or at in tervals within 12 consecutive months, consti tutes the bank insolvent. If it becomes in solvent the shareholders are each individually liable for an amount equal to the amount of their respective holdings of subscribed stock in addition to any amount not paid up on such stock. This double liability did not exist in the case of the Bank of British North Amer ica (now incorporated in the Bank of Mon treal), and its ordinary note issue was therefore confined to 75 per cent of its paid-up capital. Against any portion of the other 25 per cent which it might desire to issue, it had to make a special deposit with the government.
The giving of a fraudulent preference to any creditor, the corrupt acceptance of a gift, commission or other consideration in respect of dealing with the bank's affairs, or the mak ing of false returns, etc., on the part of any director or officer of a bank, is punishable by heavy fines or by terms of imprisonment, or both. Since Confederation 25 banks working under Federal laws have gone into liquidation, their paid-up capital at the time of suspersion aggregating some $17,000,000, and their total liabilities about $62,500,000. At least 14 of these paid noteholders and depositors in full, and all those chartered since Confederation paid their noteholders in full. Three, which failed before notes were made a first charge on assets, paid neither in full, but varying per centages to depositors, while one of these was a fraudulent affair, which was only in operation for a few months.