THE CHICAGO 'BAJVKE'R
Founded in 1898
Volume xxvii	CHICAGO, JULY 31, 1909	Numbers
Sidelights on Canadian Branch Banking
that branch system here—which, of course, we never can have—I still should want the local bank to exist, to encourage to the utmost the development of local industry.
Each branch manager in Canada is anxious to build up the community. He would like to help to develop every good enterprise in sight in order that he may get more business and get the credit for it at the home office. Still, if the manager of a small branch is going to loan you more than a thousand dollars, he must get the approval of those cold-blooded gentlemen in the head office, and they may not approve what he would like to see put through.
The quality of bankers’ credit in Canada, I am sorry to say, is a little better than it is in the United States. In those parts of the United States with which I am familiar, I think the quality of bank assets on account of the system of granting discounts, is poorer than in Canada. In Canada the business man deals with only one bank. He gets a line of credit at the beginning of the year. He is told that he may have $20,000, $30,000, $40,000, $100,000, or whatever his needs happen to be, depending, of course, upon the bank’s opinion of his credit. He knows what he can rely upon, but he must not sell paper on the street; he must not borrow from anybody else, but lean absolutely on his bank.
Then the law makes it remarkably easy for the bank to protect itself. Section 88 of the Bank Act has all the effect of a bill of sale. The bank practically owns the wholesaler’s stock or the manufacturer’s stock if it so chooses. In the United States, on the other hand, a great many business men borrow from different banks and in addition sell their paper on the street, so that no banker is ever quite sure of the quality of the assets in his portfolio.
Another phase of the Canadian system that interested me was the fact that the bank managers, men we would call presidents, did not own much bank stock. Some of them owned no stock at all. They were hired men, but they were trained men. I discovered in Canada what seemed to me the beginning of a profession for bankers. It ought to be a profession. It ought to rank with the learned professions. It is as much a profession as law, medicine, or engineering. We don’t find it so much of a profession in the United States, I am sorry to say, as it is in Canada. If I wanted to be a bank president in the United States, or if I had made up my mind to be in youth, I would not have studied the banking business. Knowing what I do know, I would not have gone in as a clerk in order that I might become paying teller, cashier and vice-president. I never would have gone through by that route. No. I would have gone into business—the manufacturing business, wholesale business, any kind of a business in which I could make money—and then have bought some stock and elected myself bank president. It is done that way a great deal in the United States. Nothing of the sort do you find in Canada. I have in mind a man whom I met in Winnipeg, he is about forty years old and holds a responsible position in one of the large banks. He has spent five years in the New York City branch of his bank and he knows as much about American banking as most American bankers do. He also has spent tw'o years in London, and he knows a lot about
By Joseph French Johnson
per cent. There is no one per cent a month in Canada. I think we must admit that the branch system of Canada does cause a more equal distribution of capital; therefore, a more uniform rate of interest throughout the country.
The bankers in Canada are a fine lot of men, thoroughly understanding their business, the men in Montreal and Toronto knowing all about Winnipeg, Alberta, Victoria, Vancouver, thoroughly in touch with business in all parts of the country. They were very courteous, and usually gave me all the information I asked for, but sometimes I was disappointed. Each bank renders a monthly statement to the government. These statements are interesting and valuable, but they do not show all that an American wants to know. They give totals for the entire country, and hence they give no clue to the growth of the banking business in the different provinces. “Where do your deposits come from? How much are your deposits in Alberta, in Saskatchewan and in Ontario, and how much are your loans and discounts, and how have these items varied in the last five or ten years?” I put that to every banker I met, but I could not get the information. A bank in Canada will have a branch in Quebec, or in one of the maritime provinces, where the deposits are one million and the loans only one hundred thousand dollars. Out in Manitoba a branch may be in the opposite condition, the loans a million, the deposits a hundred thousand dollars. The people down East have a suspicion that there money is sent out West and loaned there, but they are not quite so sure of it as they would be if the banks published the facts. I tried to convince the bankers that they would better adopt the American plan, which is not secrecy in corporate affairs, especially in banking, but publicity, and let the people know what might seem to be the worst and fight it out. That was a complaint which I heard before I went to Canada, from some of my friends in this country, about the branch banking system, that it w׳ould draw money away from the country towns. I put that criticism to several bankers, and, as a rule, they said; “Yes, we do that, and that is the advantage of our system. We take the money away from a community where they are saving, where they have deposits but where there is no business and no use for money; and we find employment for it, and we pay them three per cent for the money.” That is the current rate through Canada— three per cent on time deposits. A time deposit, by the way, is really a demand deposit, for the banks never yet have asked that notice be given before a time deposit be drawn, and some of the banks permit time deposits to be checked against.
I concluded, after my rather hasty study of the subject on the field, that this branch system really did work better for the country as a whole than our system, but that our system encouraged communities to develop more quickly than did the Canadian system. Sometimes we make mistakes and build shoe fac- -tories where there ought to be hat shops, and sometimes we locally invest money in enterprises which are almost certain to fail and which would not receive support from the head office of a Canadian bank. Nevertheless, my own conclusion is that, even though we had
I take it for granted that your readers know a good deal about the Canadian banking system; that there are thirty big banks up there, each bank, with power to have as many branches as it pleases. Now they have about 2,000 branches. No bank can get a charter from the Dominion Parliament until its organizers have placed half the capital stock ($250,-000.00) in legal tender money in the hands of the finance minister. A bank may issue notes up to the full amount of its paid-up capital without depositing any security therefor. Each bank must redeem its notes in the capital city of each province. Each bank deposits with the finance minister a sum of hard money equal to five per cent of its notes outstanding, thus constituting a safety or guaranty fund for use, if need be, in the redemption of the notes of a failed bank. That is the Canadian banking system in a nutshell. It has been in operation in its present form since 1890. It is an evolution in the way of banking as a result of the experience of bankers, yet the most peculiar thing about it is the fact that it is not Canadian at all. It is an American banking system. Every last feature of it was borrowed from the United States before the Civil War. It was conceived, in so far as anything of that kind can be conceived, in the brain of one man, Alexander Hamilton, away back in 1789, for the system in Canada almost exactly reproduces in each bank the plan which Alexander Hamilton outlined for the first bank of the United States. The redemption system keeps the notes always good. It is a copy of the old Suffolk banking system of New England. The safety fund system—that five per cent fund which makes each bank a joint guarantor of the notes of other banks—was borrowed from the state of New York, which tried it eighty years ago on deposits as well as on notes, but the guaranty on deposits was found altogether too heavy a burden and was dropped, as your western fashion of guaranteeing deposits may prove too heavy a burden and be dropped.
A second peculiarity of the system is the fact that' a Canadian bank does not do any banking business. The branches do it all. Business men never deal with the bank, but always with a branch. The bank of Montreal, for example, is merely a bookkeeping, overseeing and supervising office. A hundred or more branches in Montreal and elsewhere do the banking business. Some may recall the days when we had that kind of banking in this country. The Bank of Indiana simply was an office in Indianapolis. The banking business was done by branches. I hope I have made it clear that if the Canadian system is good, we can claim the credit. Every one knows all about the advantages of the Canadian system, the so-called advantages. I am not going to tell the old story about the elasticity of the currency; how the notes of the banks increase in the fall when more currency is wanted, and how they diminish in volume in the spring when business grows duller, or when less currency is in demand. Every banker is perfectly familiar with the fact that the rate of interest in Canada as between Alberta, Ontario and Nova Scotia does not vary very much—about one per cent. Merchants borrow in Montreal at five and one-half per cent, Ontario the same ; Winnipeg five and one-half and six per cent, and out in the wheat fields of Alberta seven