To prevent the charging of discount on notes in case of suspension, notes of failed banks bear interest at the rate of five per cent per annum from the date of suspension until redeemed either by the liquidator or by the government, and each bank is obliged to keep a deposit with the government for this purpose equal to five per cent of its average circulation. This is called the Bank Circulation Redemption Fund, and should it ever happen that the assets of a failed bank are insufficient to redeem the notes outstanding at the time of failure, the entire fund is liable for the deficiency and the other banks have to bear the loss pro rata. This fund was established in 1890 at the suggestion of the banks themselves.

The note holder is amply protected, first, by the total assets of the bank; second, by the double liability of the shareholders; and third, by the entire redemption fund. The amount of circulation outstanding at the end of June, 1913, was, in round numbers, $106,-000,000 for the whole of Canada, and to meet this the banks could show total assets of $1,521,000,000 (including five per cent redemption fund, $7,500,000), and double liability $116,000,000, or nearly $78 assets for every five-dollar note issued. Then also penalties for over-issue are extremely heavy.

It may be noted that only three banks have a circulation that much exceeds the total redemption fund.

The question may perhaps be raised, why should all this care be taken to protect the note holder against the principal creditor of the bank, the depositor, but it must be recognized that there is an essential difference between a note holder and a depositor, the former being an involuntary creditor and the latter a voluntary one. The depositor becomes a creditor of his own free will and for his own benefit, and exercises his own choice in the selection of a bank. The holder of a note, however, receives it in good faith in payment for labor or merchandise and should be fully protected. A note issue, to fulfill its best and most useful function, must be absolutely and without question as good as gold. One of the strongest elements of security, however, is the fact that the notes are sub-jected to daily redemption. A Canadian bank is prohibited by law from pledging or assigning its own notes, consequently the only way it is able to put them into circulation is to pay them out over the counter. It would be fatal for a bank to issue notes except with due regard to its ability to redeem them. It is seldom in the interest of any bank to hold or pay out the notes of other banks; as soon as a bill has done its work in the hands of the public and has been paid into another bank it is promptly presented for payment.