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Fraser's Scottish Annual
Notes on Canadian Banking


BY D. R. WILKIE.
(General Manager Imperial Bank, Toronto.)

THE chartered banks of the Dominion of Canada are incorporated under 53 Victoria chapter 31, which came into force on the 1st July, 1891. The capital of any bank thereafter incorporated is fixed at a minimum of $500,000, with shares valued at $100 each.

Before commencing business $250,000 must be paid up in cash to the Minister of Finance, within one year of incorporation. Shareholders have power to fix within certain limits the number, qualification and remuneration of directors, and the maximum amount of loans and discounts which may be afforded directors, and other persons and companies. In the event of insolvency each shareholder is liable for the debts of the bank to an amount equal to the par value of the shares held by him, in addition to any amount not paid up on such shares. Directors are elected annually. Their stock qualification is fixed at a minimum of $3,000 to $5,000 dependent upon the amount of capital of the bank, but the minimum may be increased by a resolution of the shareholders. The capital stock may he increased from time to time subject to the approval of the Treasury Board of the Federal Government, and the additional capital carries with it the same privileges concerning note issues as does the original capital. Capital stock may he reduced by resolution of share-holders to an amount not below $250,000, with the consent of the Treasury Board. Shareholders, before being permitted to transfer their stock, may be compelled to liquidate any liability or debt to the bank which exceeds the value of their remaining shares. Purchasing, dealing in, or lending money upon the security or pledge of its own stock, or of the stock of any batik is strictly forbidden under penalty. Executors and trustees, where the nature of the trust is expressed, are not personally liable as shareholders for double liability upon shares standing in their name, but the estate and funds in their hands are liable. Dividends are limited to eight per cent. until the rest equals thirty per cent, of the paid-up capital, but the capital must not in any event he impaired by payment of a dividend or bonus. A regulation is in force by which banks are required to hold at least forty per cent., and as nearly as possible fifty per cent., of their cash reserves in government notes upon which no interest is paid.

The three objects aimed at in authorizing the issue of bank-notes are safety, convertibility and elasticity, the whole without monopoly. Under the Act of 1880 the note circulation of each bank was limited to the amount of the unimpaired paid-tip capital, and became in case of insolvency, a first charge upon the assets of the institution, and, if necessary, upon the double liability of shareholders. This worked well. Not a dollar was lost, but the basis of security has been further strengthened by establishing a ''Bank Circulation Redemption Fund," the amount payable for each bank to the fund to be adjusted annually, and to be, in all, five per cent. of the average circulation of such bank for the previous twelve months. Beginning in July, 1891, the fund, in July, 1897, amounted to $1,859,936, oil average circulation of $32,062,710, and varies, of course, from year. to year. The fund is held by the Finance Department at the credit of each bank contributing thereto, and bears interest at three per cent. per annum. The Act of 1891 ensures the circulation at par in every part of Canada of all notes issued or re-issued by a bank and intended for circulation, the effect being that notes issued by banks of one province are accepted without discount in the other provinces of the Dominion. So successful are the provisions for elasticity of note issues, and so well has the system worked, that during the movement of crops with calls from all parts of the Dominion for money, and more money, the Canadian banks are not only able to supply all legitimate demands without advancing the rate of interest by a fraction of one per cent., but are also able to lend very large amounts to the grain dealers of the United States. The banks have power to advance on bills of lading and warehouse receipts; to lend to manufacturers upon time security of goods; to lend to the purchaser or shipper of products of the field, forest, mine and waters; upon live stock and dead stock, and products thereof. Those engaged in legitimate business call reasonably count oil upon satisfactory security. The form of pledge is short, and the transaction itself does not require public, or, in fact, any registration, the object being to aid business to a reasonable extent on security and thus the operations of the Canadian banks are closely identified with the business development of Canada.


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