The Canadian Banking System

/. U. Boyer

HE Canadian banking system has many geographically, that branch banking in T unique featmes that have grown up Canada has been extended so far. There in the century of development that lies now are 3,686 branches and subagencies behind it. 'l'oday, facing the second half in Canada's 10 provinces as well as 106 of the 20th century, it stands with a world- offices in foreign countries, mostly the wide reputation for strength and stability, United States, Britain, Central and South better equipped than ever to fill its role America. in the Canadian economy. ']'he Canadian banking system consists of the Bank of Canada, a government- II owned central bank, and 10 privately- owned commercial banks competing among ACH of the 10 chartered banks themselves for the domestic and foreign E started as a small institution. Their banking business of the Canadian people. growth from local to national scope· has The commercial banks, commonly called been comparatively rapid but was merely chartered banks, have branches across the reflection of the growth of Canada, Canada, offices in many foreign countries itself, developing into one of the great and banking correspondents throughout production countries of the world and the world. Because it is a branch bank third ranking trading nation. system, with every important trading area 'f he commercial banks are called chatt- having a branch of at least one bank, it is ered because they receive a charter or particularly suited to a country with a licence from the federal parliament. They big international trade. Branches scatter- operate under the Bank Act, which sets ed across Canada make it easy to gather forth what they can do and what they market information, arrange letters of cannot do, and is revised every 10 years credit and otherwise facilitate two-way by Parliament after public hearings by the trade. Banking and Commerce Committee of the Canadian banks have developed branch House of Commons. 'fhis decennial re- banking more than in any other country. vision of the basic banking law is unique '!'here are several reasons for that but and is done so that the banks will keep one is the immensity of Canada and its pace with the growing and expanding division into geographical areas, each with economy of the nation. The result is that its own special and seasonal interests. It banking in Canada never has been static was to meet the varying demands of in- or rigid but adaptable to new needs, safe- dustries, both primary and secondary, guards and economic conditions. The widely separated seasonally as well as last revision was in 1944. 34 PUBLIC AFFAIRS

The development and gTowth of the tions. At the end of 1950, they had com- Canadian banking system has been on bined assets of $9,495 million, demon- solid foundations and the confidence of strating their capacity to meet all require- the Canadian people has been retained. ments of the Canadian economy. There are many reasons for this but one is In few countries is banking competition the long series of decennial revisions of the so keen as in Canada. The banks compete Bank Act, dating back to 1871. In effect, among themselves for deposits, loans and the basic banking law is taken apart and banking services to customers and this put together again, after long public hear- competition extends even to branches of ings, with all sorts of opinions aired. The the same bank in the same community. result is that new features, based on new Competition also is evident in the opening conditions, have been added as required. of new branches, not only in big industrial And more than that, the Canadian people, centres but in newly-developed, frontier through Parliament and its banking com- areas. As a result of this competition, mittee, have been kept fully advised of there are in Canada more branch banks, banking conditions and banking laws. in relation to population, than in the United States or Britain.

III HE branch bank in Canada is a self- T contained unit. It operates under LTHOUGH the chartered banks are the general supervision of head office but A privately owned- there are 60,000 it has to offer a full range of banking ser- shareholders of the 10 institutions- they vices, whether located in a big city or a are not a law to themselves. First, they rural hamlet. Ninety percent of all loans operate within the limits of the Bank Act are made by branch bank managers with- which even sets maximum interest rates on out consultation with higher authority and, loans. The federal government, through in fact, only applications for big lines of the Minister of Finance and an official of credit are determined by head office. his department, the Inspector-General of Banks, receives detailed monthly state- ments of bank conditions. The Inspector- IV General is required to examine each bank at least once a year and he may examine HE biggest feature of Canadian bank- the books of any bank at any time. Atop T ing in th-e last 12 months was the this structure, the Bank of Canada wields freeing of the dollar on September 30, 1950 a potent influence in banking and mone- to find its own level in relation to the tary matters. American dollar. This was preceded by Although subject to regulatory influences an unprecedented inflow of American from Ottawa, the banks are supreme in speculative funds into Canada in the hope their day-to-day management. They set the Canadian dollar would be placed on a their own general policies, subject to vary- parity with the American dollar. ing degrees of supervision and checking The flow of American capital into Can- from Ottawa. But they are free from ada in the three months of July, August political intrusion in their general affairs. and September totalled $534 million. The Bank of Canada, a government- This movement was accelerating, with owned institution, is the nation's central $285 million in September. It hit Can- bank, charged with specific responsibili- ada at a time when the inflationary impli- ties of a monetary, fiscal and economic cations of stepped-up defence plans al- nature. It is not a commercial bank al- ready were noticeable and some form of though its subsidiary, the .Industrial De- restraining policy rapidly became neces- velopment Bank, operates in a limited sary. commercial field. What was done was first to use the The chartered banks occupy the com- government's bank balances and, when mercial field. They are strong institu- they ran down, to negotiate a net loan of THE CANADIAN BANKING SYSTEM 35

$200 million from the chartered banks. Canada's economic sheet-anchor, perhaps In addition, the Bank of Canada pur- the, greatest of any country in the world. chased. American funds- in large amounts in September- and, at the same time, sold securities in almost the same quantity to V prevent its pur~hases from increasing the cash reserves of the chartered banks and, ANKING in Canada has taken giant thereby, intensify the inflationary forces. B strides since 1900. There are fewer banks today, due to amalgamations and Although bank deposits increased, the failures, but the number of branches has monetary authorities succeeded, for a increased from 708 to 3,686. This has time, in neutralizing the expansive effect more than kept pace with the increase of these operations. But the inflow of in population, for the number of people American dollars continued at an acceler- served by each branch, on an average, ated rate, making it more and more diffi- has dropped from 7,500 in 1900 to 3,800 cult to prevent the inflationary threat. today. Finally, the fixed rate of exchange was The spectacular growth of Canadian abandoned and the dollar was permitted banking in the first half of the century to find its own level. In this way, the flow may be seen in two sets of figures. Current of capital could be checked and Canadian bank loans within Canada increased from initiative regained in monetary policy- $283 million in 1900 to $2,670 million to- assuming the Canadian dollar in the open day. In 1900 the total of deposits was market moved somewhere between the $275 million. It is now $7,300 million, former fixed note and parity. This prov- held in 8 million deposit accounts. This ed to be true. increase of 24 times in total deposits com- pares with a · population increase of two and a half times. I NCE then, the flow of American These figures demonstrate not only the speculative capital, as distinguished S remarkable growth of Canadian banking from genuine long-term investment capital in 50 years but are a reflection of the has been slowed, if not arrested. But the growth of the Canadian economy. The movement, one of the biggest financial increase in bank deposits and bank loans adventures in Canada's history, has left stems from many causes, among them the nation with one problem intensified- being the opening of the Canadian wes t, inflationary pressures on Canada's econ- the gradual industrialization of the coun- omy, arising out of the nation's produc- try, the discovery and development of min- tive total being diverted in part, away eral and forest wealth- all combining to from civilian goods to defence items. create jobs, attract immigrants, distribute Since then, the Canadian government has wealth and produce a standard of living stepped up its defence program and in- second only to the United States. flation remains Canada's number one fis- cal problem. OOKING ahead, we may expect to see The chartered banks have co-operated L steady, perhaps spectacular growth of with the Bank of Canada in agreeing to the Canadian economy. The oil fields of curtail bank loans and credit curbs have Alberta, titanium deposits in Quebec and been imposed on civilian buying. To the iron ore of Labrador and Ungava overcome inflation will mean sacrifices and are reminders that Canada still has great concerted action by all Canadians. If raw material resources to develop and turn strong, resolute policies are followed, I into jobs and wealth. have no doubt the situation will be met It should be borne in mind, however, because of the abundant wealth of this that Canadian prosperity depends to an nation, the vast resources only partly unusual extent on world markets and tapped or still to be developed. That is world conditions. Given peace and a 36 PUBLIC AFFAIRS measure of world prosperity, no country emergency, the expansion of the present will outspeed Canada in development and volume of bank credit. The Canadian wealth in the years ahead. chartered banks are foregoing some rich earning possibilities, in ranging themselves NE of the greatest factors in the free alongside the forces that aim to protect O nations' fight for continued freedom the purchasing power of the dollar in the is the waging of battle against inflation. hands of the Canadian consumer or in the The Canadian chartered banks have re- shopping-purse of his wife. It i$ a matter sponded willingly, and in the utmost co- of high government policy, suggested to operation with the Government and the us through the Bank of Canada, and neces- Bank of Canada, to the national need for sarily agreed to by the banks because they preventing as far as possible, in the current support the aim.

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