A study of the Canadian banking system along the above lines will demonstrate clearly why it has been accorded such a high place among the banking systems of the world, not only on account of the equable distribution of loanable funds thru the branch system, but also on account of the absolute safety of the note issue and its elasticity in meeting every need of national life and commerce. The uniform reciprocal payment of each other's notes at par by the banks all over the Dominion, followed by prompt redemption, renders forced and unhealthy inflation an impossibility, while the automatic expansion of the circulation whenever required or called for by the exigencies of commerce and agriculture renders it peculiarly adapted to the needs of a young and growing country like Canada.
Dr. Joseph French Johnson sums up the main advantages of the Canadian system of branch banking as follows:
1. Large capital behind each institution. No matter how small the branch the customers share in the security which a large capital offers.
2. Unity of policy on the part of the leading banks during a stringency, in contrast to the playing at cross purposes which, in the panic of 1893, distinguished the action of the national banks in the central reserve cities of the United States against the smaller country banks. In 1907, if the country banks had been branches of the large city banks, they would not have withdrawn funds from those banks when they were so badly needed, and the crisis would not have been so severe.
3. Power to equip every branch with ample reserves for maintaining commercial credit by means of note issues. It is impossible in Canada for the business needs of any community, no matter how remote, to outstrip the banking facilities, as is often the case with us. The resources of the branch bank are quickly and indefinitely extended. Moreover, when the need for additional facilities has passed, the business of the bank can contract accordingly without loss to anyone.
4. Uniformity of interest rates thruout the whole country which do not vary more than one or two per cent between the large cities in the east and the newer towns and rapidly expanding cities of the west. In the absence of competition the necessity of depending upon small local banks for accommodation requires the business men of western towns in the United States to pay monopoly rates for the use of capital.
5. Expert supervision by the central office prevents bad banking. The boards of directors of the large banks are responsible for all the branches and they are therefore forced to put into practice a method of examination and supervision which is much more effective than government examination in the United States.
6. Branches can be maintained in localities where the profit of the business would not justify the establishment of a separate bank with independent capital. The city banks can establish branches without any investment in additional capital. Branches can be established where the business is so small as to justify simply the employment of a few clerks in a rented office.