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:
“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.