THE CHICAGO 'BANK.E'R
Founded in 1898
Number 4
CHICAGO, JULY 25, 1908
Volume xxv
E. D. Hulbert on Our Banking Syste
territory is not capable of much development, it is astonishing how slowly the best parts of it have developed; and I believe that this inferiority as compared with the United States is largely attributable to the difference in banking methods.
In Canada there is a rigid system, to which every community, big and little, must adjust itself in the best way it can; in the United States we have an elastic banking system that adjusts itself to the needs of each community.
In Canada no bank can be incorporated with less than $500,000 capital. In the United States the policy is to let the banking capital be adjusted to the needs of each community. In some of our Western states banks can be incorporated in small places with a capital of $5,000, and the national bank act permits the organization of national banks with a capital of $25,000. The part these small banks play in the growth and development of the whole country has not received the attention it deserves.
It has been the custom of our government to give land to actual settlers for nothing; but of what value is land to a man who hasn’t enough money to work it? He must have money to build a house and a barn and to buy implements and seed and stock, and this is where the pioneer banker comes in. When the territory of Dakota, for example, was first opened for settlement, the local bankers used to loan settlers money to work their farms. They charged 3 per cent a month, 36 per cent a year, and took not only a mortgage on the farm but a chattel mortgage on any crops that might be raised in three years. If the farmer had stock, the banker took a chattel mortgage on that and on any increase that might come in three years. The laws of the territory at that time wisely permitted that kind of banking. Some people cried out against the usurer and the Shylock, but thousands of the best citizens in the West to-day owe their start in life to that kind of banking. When a man goes out on the prairie with nothing but his bare hands, and when some one makes it possible for him to elevate himself from a peasant to the proud position of a freeholder, with comfort and independence practically assured to himself and his posterity, why shouldn’t he pay 36 per cent per annum for the chance?
When the time came that this kind of banking was no longer needed the people changed the laws.
While the aid of the banks in the development of the country is more conspicuous in the early stages, it is none the less important at every period of growth. Almost every town and village has one or more incorporated banks, either state or national, capitalized with local capital, officered and directed by local men, thoroughly in touch with local needs and conditions. The interests of these banks are all with the home town. They are a part of the flesh and bone of the community, and are vitally interested in the upbuilding of their own locality. They are always the largest tax
Branch banking as it really is, in Canada, contrasted with our own, and progress made under the two systems compared—Mr. Hulbert makes one of the truly great financial addresses of the year in his heart-to-heart talk to the Junior Bankers at the Providence Convention of the Associated Chapters A. I. B. ::	::	::
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E. D. HULBERT
Chicago
The total of all the demand deposits held by the Canadian banks subject to check, is less than the demand deposits held by either the National Bank of Commerce or the National City Bank of New York. It is not surprising that these banks have no great difficulty in meeting the demands of their depositors in times of panic.
While a considerable part of the Canadian
For one reason or another, whenever a man rises up to defend our banking system, he is very likely to point to the system of Canada, much as the picture of an angel is pointed out to a bad boy.
Indeed, there is much in the branch banking system that appeals to the imagination. It has all the showy advantage that goes with concentrated power. It is an impressive picture — that of the great bank at the financial center, with its able and powerful management, extending its branches into every part of the country: giving the small community not only the safety of a great bank as a place of deposit, but placing at the disposal of that community resources and loanable funds that it could never hope to have under a system of independent banks.
Instead of the local bank managed by men who have picked up their banking knowledge more or less at random, there is brought into every banking community the trained manager. a man versed in the highest development of the banking art. In times of panic or financial disturbance, instead of a multitude of scattered and disconnected banks, more or less distrustful of each other and fighting among themselves for the money supplies of the country, we have the banking machinery controlled by great central banks, ready to co-operate with each other and with the government, if necessary. Finally, and what is the most important of all, the branch system permits the issue of assets currency, automatically expanding and contracting with the needs of business.
I believe this in brief to be a fair statement of the advantages claimed for the branch system. The test of the soundness of these claims should be the practical working of the system where it is in operation. No one will deny that the financial system of a country must have a great influence upon its growth and prosperity. If the Canadian system is really better than ours, the superiority ought to manifest itself somewhere, either in the superior growth and prosperity of communities in Canada having resources and natural advantages similar to ours, or in the greater prosperity of the banks. I believe that the contrary is the fact. I believe that, almost without exception, Canadian towns outside of the financial centers have shown development and prosperity inferior to towns with similar natural advantages in this country.
The Dominion of Canada has an area nearly equal to the combined area of the United States and Alaska, with a total population a little greater that that of the city of New York. The total deposits of all the Canadian banks, including the government postal savings banks, are less than the total deposits in the city of Chicago, and not much more than one-fourth of the deposits of New York City. The clearings of the Chicago banks will ordinarily equal in two days the total clearings of Canada for a week, and the clearings of New York City in two weeks will ordinarily exceed the clearings of Canada for a year.