This unsatisfactory situation was further complicated by independent ventures into the field of banking legislation by the Parliament itself, such as the "Free Banking Act" and the "Provincial Note Act." Fortunately, the British government was fully awake to the dangers of promiscuous banking, and even at the risk of having interference in these matters misconstrued, persisted in demanding that all legislation bearing on note issues, banking and the like, should receive the royal assent before going into effect. The young colony at first resented this restriction, but soon learned to appreciate the guidance of riper and more experienced judgment, and undoubtedly this wise action on the part of the Colonial Office saved Canada from being the exploiting ground of many unsound and dangerous banking theories. As it was, many vicissitudes were experienced, and in 1837, during the rebellion, a temporary suspension of specie payments occurred under permission of an order in council. The necessity for this, however, can hardly be considered a reflection on the banks, as it was due principally to similar tho more serious conditions which obtained at that time in the United States, Canada then as now being intimately concerned in the financial welfare of its neighbor to the South.
Considering the physical and other disabilities under which these early banks labored, their record is surprisingly creditable, and much of their experience and foresightedness is embodied in the present Bank Act. In fact, from 1829 to 1866, not one bank failed. True, trying times and heavy losses were met time and again, but with the exception of the authorized suspension in 1837, which was very reluctantly taken advantage of, the banks not only remained solvent, but maintained the redemption of their obligations in specie.
In July, 1867, the British North America Act was passed by the Imperial Parliament, under which the provinces of Canada were confederated into the Dominion of Canada. The framers of the Act, with creditable foresight, realized that the banks, like the railroads, in order to discharge most effectively their natural functions, must be national rather than provincial in character, and to this end vested in the parliament of the new Dominion the exclusive authority to legislate on all matters pertaining to banks and banking, currency and coinage, negotiable instruments and kindred matters. With the passing of the Act the existing banks came automatically under the new jurisdiction. Tentative legislation between 1867 and 1870 extended the powers of the banks previously incorporated by the provinces to the whole Dominion and unified the laws as far as practicable.
The first general bank act of the Dominion was passed in 1871. By this act the duration of a bank's charter was practically limited to ten years, and as the charters of the banks expired they were renewed until the following revision of the act. The renewals of the charters were thus made concurrent with decennial revisions of the act in 1880, 1890. 1900, and so on. Various amendments were made during the first few years, but since then, except at the regular revisions, changes have been infrequent, and have been made only to meet some contingency due to the rapid expansion of Canada, or to correct some omission or ambiguity overlooked in the previous revision.
The last revision should have been made in 1910, but owing to causes which it is not necessary to detail here, the charters of the banks were extended to 1913. The delay, however, was accompanied by little or no inconvenience to those concerned; the charters of the various banks were extended until the new act was finally passed. Changes that were imminently necessary were looked after by special amendments to the act of 1900.
In many ways the delay was not without its advan-tages. The tremendous expansion in the financial and commercial life of Canada demanded that the revision should be most carefully and presciently considered. During 1913, the banking system of Canada was freely discussed, both in the public press and in special committees appointed for the purpose.
It is notable that the revisions are made neither by theorists nor tainted with political expediency. The ablest men in the country, regardless of their politics, are consulted and give evidence before the parliamentary committee. Lawyers, merchants, farmers, bankers and others equally well qualified contribute their criticism and advice towards the advancement of the best interests of the country. The measures are then fully debated, and when finally passed, are acceptable to all interested.
This brief account of banking in Canada is given, not as a history, which would be without the scope of this volume, but in order to assist the reader in realizing that the growth of the banking system of Canada has been one of evolution rather than of expediency or hasty legislation, and that the machinery provided for the systematic and regular revision of the Bank Act is invaluable in meeting the tremendous expansion and constantly changing requirements of Canadian commerce and agriculture. This chapter, read in conjunction with the chapter on the Bank Act, and the explanation of the branch system and note circulation, should demonstrate clearly how far the functions performed by the banks in Canada respond to the requirements of a new country, as defined so lucidly by Sir Edmund Walker:
What is necessary in a banking system in order that it may answer the requirements of a rapidly growing country and yet be safe and profitable?
1. It should afford the greatest possible measure of safety to the depositor.
2. It should supply the legitimate wants of the borrower, not merely under ordinary circumstances, but in times of financial stress, at least without that curtailment which leads to abnormal rates of interest and to failures.
3. It should possess the machinery necessary to distribute money over the whole area of the country, so that the smallest possible inequalities in the rate of interest will result.
4. It should create a currency free from doubt as to value, readily convertible in specie, and answering in volume to the requirements of trade.
There should be as complete a relation as possible between the currency requirements of trade and the cause which issues paper money, and, as it is quite as necessary that no over-issue should be possible, and that the supply of currency should be adequate, there should be a similar relation between the requirements of trade and the cause which forces notes back for redemption.
Upon what fact should we lay particular stress in studying Canada's banking history?
What were the first steps taken by the British Government to place the finances of the colony on a stable foundation?
What is the duration of a bank's charter? Why is this desirable?
According to Sir Edmund Walker what should a banking system do to meet the requirements of a rapidly growing country?