CANADA’S BIG BANKS
There are more than eight thousand national banks in the United States,
but Canada has only sixteen. While new ones are organized in our
country every month, the number in Canada tends constantly to grow
less, and to-day is not half what it was twenty years ago. The banking
system of the Dominion is patterned somewhat after the Scotch, and was
worked out largely by men of that shrewd, hard-headed race. The people
think it suits their conditions better than any other. Certainly it
is true that while Canada has had its ups and downs, the people have
suffered far less than we from bank failures and panics.
One might think that with all the banking business of Canada
monopolized by only sixteen institutions, they might make fabulous
profits. However, such is not the case. I have before me the current
monthly statement which the government publishes regarding the
condition and operation of each bank. This shows that all are making
money, but their dividends range from six to sixteen per cent., and the
Bank of Nova Scotia is the only one that paid the highest rate. Nine of
the banks paid twelve per cent. on their capital stock last year, while
the shareholders of five got less than ten per cent.
In the United States a handful of business men can start a bank on a
few thousand dollars. Here it is not so easy a matter. Canadian law
requires a minimum capital of five hundred thousand dollars, half of
which must be paid in, before a bank can be chartered, and there are
other conditions to be met that make the establishment of a new bank a
big undertaking. The smallest bank in Canada, at Weyburn, Saskatchewan,
is the only one with a capital of less than one million dollars, while
the largest, the Bank of Montreal, has paid-up stock amounting to
twenty-seven and one quarter millions. The total combined capital of
all the banks is one hundred and twenty-three millions.
The great banks extend their service throughout the Dominion by means
of branches. These now number nearly five thousand, and new ones
are being constantly added. The branch plan is the most striking
difference between Canada’s banking system and ours, which prohibits
the establishment of branches except within a bank’s home city, and,
under certain regulations, in foreign countries. The larger Canadian
banks are represented by their own branches in every city, from coast
to coast, while the Bank of Montreal alone has more than six hundred
agencies. Nearly all the banks have their head offices in Eastern
Canada. Six of them are located in the province of Quebec, seven in
Ontario, and one each in Nova Scotia, Manitoba, and Saskatchewan. Three
of the banks in Quebec are controlled by the French Canadians. Their
combined capital is just under nine million dollars, or not quite half
that of the Royal Bank of Canada, the second largest in the Dominion.
An official of the Canadian Bankers’ Association has explained to me
some of the advantages of this system. He said:
[Illustration: When the discoverers sailed up the St. Lawrence to what
is now Montreal they thought these rapids just above the city blocked
their passage to China, and so named them “La Chine.”]
[Illustration: Montreal’s rise as a great port began a century ago when
the Lachine Canal was built around the rapids, and gave the city a
water passage to the upper St. Lawrence and the Great Lakes.]
[Illustration: Many homes have the Rideau Canal and its fringe of park
at their front door. Built originally for military reasons, the canal
now makes possible a boat trip through the Rideau Lakes to the St.
Lawrence.]
“Our plan of branch banks is based partly on the principle that there
is more strength in a bundle of fagots joined together than there is
in the same number of sticks taken separately. Poor management or bad
times, under your system, may bring disaster to a single bank, whereas
with us losses in any branch would be easily absorbed in a great volume
of business covering the whole country, and the shock hardly felt at
all. Under our system it is a simple matter for a bank to concentrate
its funds in the districts where they are most needed, and money flows
easily into the channels where there is the greatest demand. This is
of the utmost importance to Canada, for we have limited capital, and
therefore must keep it liquid at all times.
“Canada is still a young country, not yet done with pioneering, and
its banks must lend a hand in promoting its development. When a branch
bank is opened in a tent or shack in a new mining camp, the people know
that the manager is there to give them service, and that he represents
a strong institution with millions in assets. A remote fishing village
or new paper-mill town is thus provided with banking facilities quite
as effective as those of Montreal or Toronto. The difference in rates
of interest charged is never more than two per cent., no matter how
remote from the money centre a branch bank may be. The only reason
it is ever higher is that where the operations of a branch bank are
small, the overhead expenses are proportionately greater, and must be
compensated for by the bank’s customers. In recent years our wheat
farmers of southern Saskatchewan have been getting money cheaper than
have the farmers of your North Dakota, just over the border. The banks
represented in our three prairie provinces frequently have more money
on loan in that territory than the sum total of the deposits in all
their branches in the same area.”
The banks of Canada all obtain their charters from the Dominion
government, and their operations are strictly defined by law. This
law, known as the Canadian Banking Act, dates from 1870, and it
automatically comes up in Parliament for revision every ten years.
Under the act, the banks are permitted to issue paper money, which
ordinarily must not exceed the amount of their capital. Shareholders
are made liable for the redemption of bank notes up to the amount
of twice the value of the capital stock. In addition, each bank is
required to keep on deposit with the government a sum equal to five
per cent. of its note circulation. This goes into what is called the
redemption fund, which was created to make it absolutely certain that
in case of the failure of a bank, all its notes will be redeemed at
face value. During the period from September to February, when the
crops are moving to market, the banks may issue notes to fifteen per
cent. in excess of their capital, but must pay a tax of five per cent.
on all such extra circulation.
Canada’s banks are not audited by government examiners, as with us,
but each bank must submit a monthly statement of its condition to the
Minister of Finance. These reports are more detailed than our bank
statements and are regularly published by the government. They show,
among other things, the amount each bank has loaned to members of its
board of directors, or to firms in which they are partners. The banks
are not allowed to lend money on real estate; this service is confined
to loan and mortgage companies. Nearly all the chartered banks of
Canada conduct savings banks and many of them also operate trust
companies. The activities of the latter are almost exclusively confined
to acting as trustees and as administrators of estates.
In the relations between the banks and the government, the Canadian
Bankers’ Association plays an important part. It has a semi-official
status, in that it was incorporated by special act of Parliament, and
is recognized as the joint representative of all the chartered banks.
It establishes clearing houses, supervises the issues of bank notes,
and manages the central gold reserves. The chief executive officers of
the Association are frequently consulted by the government on financial
questions.
During my stay in Montreal I had an interview with Sir Frederick
Williams-Taylor, president of the Association and general manager of
the Bank of Montreal, the oldest and largest financial institution in
Canada. In the Dominion, the chief executive of a bank is called the
manager. While the president occupies an important position as chairman
of the board of directors, he has not the same relation to the daily
transaction of business as is usually the case with us. Canada’s banks
are likewise distinguished for the long service of the men in charge of
their affairs. At the Bank of Montreal, for example, the president and
manager have put in, between them, nearly one hundred years with the
one institution. In all the banks, as a rule, the men in authority have
risen from the ranks to their present positions.
The Bank of Montreal is one of the great banks of the world. It was
founded more than one hundred years ago, about the time that James
Monroe was beginning his first term as President of the United States.
In those days, there was still fresh in the minds of the Canadians
knowledge of disastrous financial methods that had been common in
both the American colonies and Canada. In the time of the French, for
example, one of the governors, not receiving funds expected from home,
cut playing cards into small pieces, and wrote thereon the government’s
promises to pay. These he distributed among his unpaid soldiers, and
“card money,” as it was called, continued to circulate for a great many
years. Our own colony of Massachusetts, learning of this easy method
of “making” money, produced a similar currency which later led to the
phrase “not worth a continental.” Even after banks were established
in Canada, their notes had different values in various parts of the
country.
The home of the Bank of Montreal in St. James Street faces the old
Place d’Armes, a large square where formerly stood the stockade built
for protection against the Indians. Now it is the centre of the
financial district of Montreal, and, indeed, of all Canada. Of the
total capital of Canada’s banks, considerably more than half is held by
institutions having their main offices in this city.
When I went to call upon Sir Frederick, I passed through a doorway
supported by huge Corinthian pillars. Once inside, I found a banking
room larger than any I have ever seen in the United States. Its great
size, and the rows of counters and wicket windows reminded me somewhat
of the New York railroad stations and their batteries of ticket
offices. The roof, more than one hundred feet above the floor, is
supported by columns of black granite from Vermont, each as big around
as a flour barrel and as bright as polished jet. The building has not
the shine and new look of some of our great banks, but everything
about it is stately, and the servants are as imposing as those of the
Bank of England. A sleek, black-haired attendant, who looked like Jerry
Cruncher, wearing a blue suit trimmed with red and a bright red vest
with brass buttons, ushered me into Sir Frederick’s office.
In speaking about Canadian banking, Sir Frederick said:
“By means of our branches in all parts of Canada we have our hand
on the pulse of the whole country. Every one of the great banks
receives constantly from its own representatives accurate information
of the state of business in his locality. We do not have to depend
upon friendly correspondents or outside agencies, but know promptly
and at first hand just what is going on. In this way we can always
anticipate the needs of a particular section, and act accordingly. We
can see the signs of any trouble ahead, and adopt measures to prevent
disaster. The managers of our branches are responsible directly to us,
and are therefore not likely to be influenced so much by purely local
considerations as might be the case under a different system. On the
other hand, it is our practice to include in our board of directors men
who reside in western and central Canada, and are therefore in close
touch with conditions in those sections.”
“With such sources of information,” I said, “you should be in a
position to judge of the condition of Canada as a whole. I wish you
would tell me, Sir Frederick, just how you see her situation?”
“Canada is suffering from three great disadvantages,” he replied. “I
don’t wish to emphasize our troubles, but there is no country without
them, and we have our share, just as does the United States. Our
handicaps are the high cost of living, high taxation, and loss of
population.”
“But is Canada losing population?” I asked.
“I have mentioned these difficulties in the inverse order of their
importance,” said Sir Frederick. “Our loss of population is not only
the most serious problem, but it grows out of the other two. Here we
are, a nation of some eight million people. To the south of us is your
country, with a population twelve times as great. You are the richest
country in the world to-day. Canada occupies the north end of the
continent, and while she is larger than the United States in area, and
can match you in some of her natural resources, there are some things
that we lack. For example, we cannot grow cotton. We have no hard coal.
Most of our soft coal lies on our coasts, while a great part of our
industry and population is located in the eastern and central sections
of the country. This year, I believe, our bill for coal from the United
States will be something like one hundred and twenty-five million
dollars, or nearly thirteen dollars per capita of our total population.
“We used to be a country of low costs and low taxes,” continued Sir
Frederick. “Now we are nearly up to you with regard to both the cost of
living and high taxes. On the other hand, you have created a partial
vacuum in the United States by your restrictions on immigration. These
do not, however, apply to Canadians. Just as great bodies exercise a
certain power of attraction upon smaller ones, so your one hundred and
ten millions draw upon our eight millions. You are admitting fewer
immigrants than your country could easily absorb, with the result that
you afford opportunities to our people to better their condition.
Strange as it may seem to you, there are many of us who prefer, no
matter what happens, to live our lives under the British flag, but
there are also others to whom this does not seem so important. It is
they who drift over to you.”
While Sir Frederick thus outlined the problems confronting his country,
his further remarks made it quite clear that he firmly believes in her
future and is proud that he has a part in her development.
In talking with business men, I find that they consider that Canada
has been especially fortunate in the extension of her banks abroad.
The Royal Bank of Canada and others have branches in the United States
and Great Britain, as well as in France and Spain. The branch banks of
Canada furnish the entire banking system of Newfoundland, and I have
myself done business with their branches in the course of my travels
in South and Central America, the British and other European West
Indies, Cuba, and Mexico. Canada’s branch banks have gone to those
countries with which the Dominion has the largest foreign trade, and
are an important factor in promoting Canadian business abroad. They
furnish Canadian exporters with first hand data on markets, tariffs,
and credits in foreign countries. They help to finance exports and also
aid the importers to secure materials they need from other lands. An
American banking expert has made the statement that with the exception
of Great Britain, Canada has the best banking facilities for foreign
trade of any country in the world.
I find that the Dominion is gaining in financial strength. In the last
ten years the assets of her banks have increased seventy per cent., and
the bank deposits have practically doubled. At the same time the value
of her production, both in agriculture and industry, has mounted far
above what it was before the World War. There is much evidence to show
that the people themselves are better off than they used to be. For one
thing, they have nearly two thousand million dollars on deposit in the
chartered banks, an average of one hundred and eighty-eight dollars per
person. They are buying more life insurance than ever before, the total
value of the policies now in force in Canada amounting to over three
thousand five hundred millions of dollars. If they continue to increase
at the present rate, by 1947 the lives of Canadians will be insured
to the amount of more than twelve thousand millions. This insurance
represents a sum that will be sufficient to buy three million homes,
to keep in comfort sixteen hundred and eighty thousand people, or to
educate about four million Canadian children.
[Illustration: “From my window overlooking the wooded ravine through
which the Rideau Canal descends in locks to the Ottawa River. I can see
the towers of the university-like quadrangle of government buildings.”]
[Illustration: The library of Parliament stands on the high bank of the
Ottawa River, a bit of old England in the Canadian capital. It survived
the fire that destroyed the House and Senate chambers.]