This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 559.— (1) Referring to sec. 64 of the Bank Act, may a Canadian bank legally lend money on the security of shares in an American bank?
(2) If not, and if such security were taken for an existing overdraft, would the security be released as soon as in the ordinary course of business the credits in the account aggregated the amount of the overdraft at the date upon which the security was taken,—notwithstanding that the debit entries during the same period were sufficient to keep_ the overdraft from being reduced ?
Answer.—We are of opinion that section 64 applies to the stock of a bank in the United States as well as to stock in Canadian banks, and that a bank here cannot lawfully lend money on the security of such stock. It can, of course, take security on bank stock, as on any other property, for an existing indebtedness.
(2) To what extent such security, if taken for an existing overdraft, would be affected by further transactions in the account would depend on the agreement between the parties, and would not be affected by the terms of the section of the Bank Act quoted above. Under the ordinary rules credits in an overdrawn account would be imputed to the earlier debits, so that the debt existing at any time might be wiped out by later deposits, and the later cheques would create a new debt. There is, however, nothing to prevent the bank having an agreement with the customer that moneys deposited to the credit of an overdrawn account shall not be imputed as a payment on an earlier debt, and this agreement may be express or may be implied from the course of dealing.