May 20, 1913

CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. WHITE:

According to the evidence given in the committee, the Bank of Commerce has prohibited its managers from engaging in any kind of insurance business. I think that the banks of this country, making the money they do, might very well afford to put their bank managers in such a financial position by the salaries paid to them that it would not be necessary for them to engage in the business of insurance. The principle that underlies this subsection is, in my opinion, a sound one. In addition to what has been mentioned by my hon. friend from North Ontario (Mr. Sharpe), there is the further consideration that, in some districts in the West, the bank manager, as insurance agent, serves a very useful _ purpose to the community, because there is no one else engaged in the business within easy distance. Having regard to the fact that these branches have existed for many years, and that vested rights so to speak, although that is not a particularly happy expression, have been acquired in agencies of insurance by many (bank managers; having regard also to the amount of revenue which such an agency yieHs them, and to the other consequence which, as men-'

Mr. SHARPE (North Ontar-W

tioned by the hon. member for North Ontario, would flow from this legislation, I am of the opinion that this clause should be struck out of the Act. If we were commencing anew, that is to say, if there were no bank managers actually engaged in the business of insurance, I think this would be desirable legislation, but I have had representations made to me that it is going to work hardship. I would therefore suggest that the clause be struck out, and I will take up the matter with the Bankers' Association, and, so far as the future is concerned, see if they cannot adopt the policy, now adopted by some banks, of prohibiting their managers from engaging in fire or other insurance. That conclusion I have reached in view of the representations that have reached me from the outside, and from many hon. members of this House.

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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LIB

Frank Oliver

Liberal

Mr. OLIVER:

I would like to give my

view of the conditions in the West. However enterprising the banks have been in establishing branches in small places, I have not seen yet a place, having a bank branch where there was not somebody prepared to do insurance business outside of the bank. The insurance agent is just as pushing in the matter of business as a bank, perhaps a little more so, as he has not to carry so much baggage.

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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LIB

Frank Broadstreet Carvell

Liberal

Mr. CARVELL:

Before this clause is

voted out of existence, I should like to say a little more about it. It seems to me that the very fact that such pressure has been brought to bear upon the Minister of Finance, and evidently upon other members of the House, for I see that the hon. member for Gloucester (Mr. Turgeon) has fallen under this evil influence as well as the hon. member for North Ontario (Mr. Sharpe), indicates that the system must be *more prevalent than hon. members thought it was. I have been somewhat surprised at the correspondence I have received since the matter went through the committee. I am bound to say that my correspondence has been all on the other side; it has been congratulatory. I have had letters from the provinces of Quebec, Ontario, New Brunswick and Nova Scotia, congratulating me on the stand I have taken, and the only fault found with me in the letters is that I did not go far enough. One gentleman in the western portion of Ontario claims that a bank manager should be prohibited from going into the business of real estate. Another man writes to me that there is a bank in his town in which it is almost impossible to do business, because the manager is in the bank office all the time putting through real estate transactions, or something of that kind. In my own county, so far as I know, no bank has ever inter-

fered with the insurance business, but I do know of a place in New Biunswick where the thing has almost reached a scandal, that is about the mildest word with which I can characterize it. I know of cases where bank managers, who are insurance agents, are compelling people to insure for more than their properties are worth, or for more than it is necessary to carry under reasonable conditions. There is one estate, for which I am the solicitor, a lumber business, that has been insured almost out of existence, simply because the estate is unfortunate enough to owe the bank, and the bank manager runs the insurance end of it. It is a case of policy after policy without our consent or advice; we do not know anything about it, and we are paying thousands of dollars a year on insurance. That is a condition of affairs of which I know something. I do not want to take the bread out of any man's mouth; I would be the last man in the world to interfere with any man's legitimate business. I quite agree with what has been said by the Minister of Finance, it might be a hardship in many cases. But surely the great banking institutions of this country can affoTd to pay their managers a sufficient salary on which to live without taking away the legitimate business of other people, because every bank manager doing insurance business is taking away business from other men. It is just as necessary to have an insurance agent in the town as it is to have a bank; we cannot get along without insurance, and I think the legitimate insurance business should be encouraged, not only by everybody throughout the country but by Parliament as well. Our ordinary business intelligence teaches us that the bank manager carrying on insurance business has an enormous advantage over the other insurance agents in the town. I do not say that many of them carry it on to such an extent, but they can practically control the insurance business in the town, and force it into their own hands. Three or four banks acting as insurance agents in one town could absolutely corral all the insurance business of that town. However, I have not much feeling in regard to this matter, and I do not care personally whether the clause is stricken out or not. The matter was put up to me by the people from different provinces, and I thought it my duty to bring it before the committee, because it seemed, to me a reasonable proposition. It was so reasonable, that only three or four members of the committee voted against it, and the Minister of Finance was the strongest advocate of the amended ^clause. I see that the bank managers have been getting busy since.

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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LIB
LIB

Frank Broadstreet Carvell

Liberal

Mr. CARVELL:

Evidently they have been getting busy all round. They have not confined themselves to the Minister of Finance, they have been directing their energies to this side of the House as well as to the other. I will not feel it very badly if the proposed legislation is defeated, but I think it should not be defeated, because 1 think it is right in principle. I believe those bank managers should not be allowed to do insurance business, because they are taking away the business from other people who are entitled to it, and in several cases they are in a position to exercise an undue influence on the business affairs of the community. So far as I am concerned, I will vote for the retention of the sub-sec tion.

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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CON

William Folger Nickle

Conservative (1867-1942)

Mr. NICKLE:

When the hon. member

for Carleton introduced this amendment in the committee, I was particularly struck with the logic of his argument, and though I had no previous conviction in regard to the matter, the tendency I had, after the hon. member for Carleton, N.B., had spoken, was accentuated on my hearing the argument, of the Minister of Finance in favour of the insertion of this clause in the Bill. If, as the Minister of Finance says, the principle of this sub-section is right, I fail to see why we should hesitate to interfere with a so-called vested interest. If this committee and this House are going to take the stand that wherever a vested interest is affected, no matter what unfortunate situation might exist, we shall not pass any legislation at all, I think that Parliament might as well abrogate its functions. If I understand ,the functions of this House and of this committee, they are to remove an error if an error exists, and for that reason I am with the hon. member for Carleton in the opinion that this clause, inserted almost unanimously in the committee, should be retained.

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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LIB

Frank Oliver

Liberal

Mr. OLIVER:

The matter resolves itself into something like this, that the banks of Canada are able to relieve themselves of a portion of the proper charges of carrying on their business by the privilege given to their managers of entering into a side business. If the managers are prevented from doing outside business such as insurance, the banks will surely have to raise the salaries of those bank managers. There is no reason why the banking institutions of Canada should not pay a living wage to the men who are carrying on their business. This privilege relieves them of that responsibility, and I do not think the purpose of Parliament is fulfilled by that course.

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Subtopic:   BANKS AND BANKING.
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LIB

David Warnock

Liberal

Mr. WARNOCK:

Now that so much attention has been drawn to this matter, I

think that the banks themselves should take steps to stop the practice, because, undoubtedly, it is injurious to the business of the bank. I know many cases in the West where bank managers are interested in insurance business and I have often heard depositors and business men dealing with the bank say that if there were a competing bank they would transfer their business, because they were pestered by the bank managers asking them to withdraw their business from other insurance companies and to do business with the companies which they represented.

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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CON

Robert Laird Borden (Prime Minister; Secretary of State for External Affairs; President of the Privy Council)

Conservative (1867-1942)

Mr. BORDEN:

I think that in recent

years there has been a distinct change in policy on the part of banks in regard to such matters. My earliest recollection of the business of banking in Nova Scotia [DOT]is of a time when men did not devote their whole attention to the business of carrying on a branch or such agency of a bank. I can remember when a very prominent firm of solicitors in the western part of Nova Scotia were agents or managers of the Bank of Nova Scotia. They carried on their business as solicitors, and also managed an agency of the bank. If I am not mistaken, a very prominent firm of merchants in the county of Pictou also ' acted as managers for one of the banks. The policy of the banks in later years has been to do away with that system, and to have managers who entirely confine themselves to the actual duties of carrying on the banking business. Although that may not be so in all cases, it seems to me to be a matter for regulation by the banks 'themselves. The principle to which the Minister of Finance has alluded may be a very proper principle, [DOT]and I do not dispute it. But if you are going to regulate matters of this kind, it seems to me you should go further and prescribe the regulation of the duties of the manager of a bank in other matters than in respect to this particular business. Why should we set out in the Statutes of Canada that a bank manager shall not carry on a particular business so long as he is a bank manager, and leave it absolutely open to him to carry on every other kind of business? We ought to do either the one thing or the other; we. should say he shall not carry on any other business, or leave it entirely to the regulation of the banks themselves. It seems to me that it would be perfectly safe to leave a matter *of that kind to the regulation of the banks, because if we undertook to regulate the administration of a bank in respect to one matter, the result would necessarily be that we must undertake to regulate it in a great [DOT]many other respects.

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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LIB

Frank Oliver

Liberal

Mr. OLIVER:

I think perhaps that the parallel my right hon. friend suggests is hardly exact. There is a relationship between the proper business of a bank,

assuming it to be the loaning of money, and insurance, both life and fire, which possibly does not exist between the loaning of money and any other line of business. It is because the two work together so naturally and so conveniently that so many bank managers have gone into the insurance business. It is because they so naturally fall together that objections are raised to the condition, not- only by men who are competing in that line of business, but also by the customers of the banks, who think, perhaps, they are not getting a square deal in the matter of their banking business by reason of the pressure exercised upon them in respect to insurance,

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. WHITE:

As I stated before, the

principle underlying this clause is sound, but I think that legislators generally when introducing new legislation have regard to existing conditions and try, as far as possible, not to do any damage to those who, under preceding legislation, have built up their business. As I have stated, I think that the banks of Canada should pay their bank managers a sufficient salary to make it unnecessary for them to engage in any side line. At the same time it has been impressed upon me that to put through this legislation, in this particular shape, and at this particular time, would have a very serious effect upon a number of people. I think, therefore, that as the practice has been recognized by existing legislation, it would serve the purpose the committee had in view if I took the matter up with the different banks, or with the Bankers' Association, and stated to them that there was a general opinion in Parliament, and in the committee, that these insurance agencies were greatly to the disadvantage of other citizens of Canada, that it gave to the bank manager an advantage over them in obtaining business, and that it was a practice which should be stopped, at all events so far as the future is concerned. I thought, and I still think, that the banks should change their policy, and instruct their managers that in the future they are not to do business of this kind, and try to bring about a discontinuance of the practice within a reasonable time. That, it seems to me, would have this advantage, through the action of the -banks, it would ultimately bring about, what I take to be the desire of Parliament and of the committee in this matter, and at the same time have a reasonable regard for existing interests. In other words, we should do the minimum of damage, and at the same time accomplish within a reasonable time what we have in view.

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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LIB

Frank Oliver

Liberal

Mr. OLIVER:

I would agree with

my hon. friend in the desirability of not interfering with vested interests.

Mr. WARNOCK

No person wishes to do damage in dealing with this matter. What is wanted, I understand, is to do good. My hon. friend's proposition is a fair one. It is good as far as it goes, but let me point out that we are now providing legislation on the principle that it shall not be interfered with for ten years. We are passing legislation, and while Parliament, of course, will have the right to interfere with it, it is generally understood that it is for the good of business that, having once settled upon the provisions of the Bill governing the operations of banking, that legislation shall stand for ten years. It does not have to stand for ten years and Parliament can deal with the ' question whenever it wants to. Will my hon. friend agree to this proposition? When he discusses this matter with the banking interests, if they are unable or unwilling to come to the view which he has expressed and which he believes is in the mind of Parliament, might we expect then that at a later date, without waiting for the expiration of the ten years' term, he would be willing to make legislative provision for compelling the banks to do what they should do without being compelled and which we are very glad to leave to them to do so long as they do not need to be compelled to do it?

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. WHITE:

That strikes me as a fair

proposition. After I talk it over, as I intend to do, with the bankers, if they fail to carry out that policy, I think it would be very proper for me to introduce legislation which would compel its adoption.

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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LIB

James McCrie Douglas

Liberal

Mr. DOUGLAS:

There is one point that has not been mentioned and it is the fact that a man who borrows money from a bank, usually a business man, has to deposit his insurance policy with the bank manager. This gives the bank manager an undue knowledge of where this man is placing his insurance business. It gives the bank manager an advantage that he should not have because he is placed in a position to bring pressure upon that man to place his insurance with the companies represented by the bank manager. This is rather a serious question to a man who is borrowing money and depending on the good will of the bank manager to get that money. Therefore, this clause should remain in the Bank Act. Any reputable bank prohibits is employees from soliciting for insurance, dealing in real estate, or engaging in other speculative transactions, and if a bank is not sufficiently alive to its interests to force its managers to keep out of business that interferes with the business of its customers then Parliament should enact legislation compelling it to do so. ,

Amendment (Mr. Turgeon) agreed to: yeas, 41; nays, 17.

Section as amended agreed to.

On section 56-shareholders audit; selection of persons competent to be auditors:

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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LIB

Frank Oliver

Liberal

Mr. OLIVER:

I assume from the fact

that no amendment has, up to the moment, been offered to this section, that the Banking and Commerce Committee decided that it was satisfied with a shareholders audit rather than an audit on Government responsibility.

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. WHITE:

Yes, I believe that was so. Very full evidence was taken on that before the committee and I think it was shown that inspection by the government would be practically impossible in the case of a banking system such as Canada has with three thousand branches scattered over the continent and in various parts of the world unless that inspection were carried out as thoroughly in regard to all the offices of the several banks as the system in vogue and operation by the banks themselves. The main question then as to audit was how to qualify the auditor if he was appointed by the shareholders. My hon. friend will recollect that when the matter was in the House, and he will have observed also that when it was before the committee, it was pointed out that the directors might control the appointment of an auditor and that consequently his audit might not be thorough, especially if he fell under any evil influence from the board of directors or from the management. It was pointed out in evidence, I think by Mr. Clarkson, who was the liquidator of the Farmers' Bank, that if wa could be sure that the auditor was a man of high standing and integrity it would not make very much difference by whom he was appointed. In view of the evidence, especially of Mr. McLeod, late general manager of the Bank of Nova Scotia, who has given a very great deal of attention to this question and who was the first bank manager in Canada to introduce a system of audit, the conclusion was reached, fairly unanimously by this committee, that if the general managers of the several chartered banks in Canada acted together and by ballot, so as to 1 remove them from the possibility of mflu-' ence on the part of the association as an 1 association, the result would be the selec-' tion of a list of auditors from whom the ' shareholders might choose with a certainty : of getting reputable and trustworthy men.

' There is an amendment of a minor character suggested by the hon. member for : Kingston (Mr. Nickle) for the purpose of [DOT] particularizing the duties of the auditor.

E Mr. SHARPE (North Ontario): Can an t auditor be appointed year after year, as long as the bank so desires? It seems to . me it would be desirable to restrict his ' time as auditor to a term of years. Under this clause is the auditor restricted to auditing once a year at specified times,

or may he go into a bank at any time? During his investigation or audit, if he discovers any violation of the Act or any fraud, is it hi3 duty to report to the Minister of Finance and the shareholders at once?

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. WHITE:

It was thought inadvisable to limit the appointment of an auditor to a definite term of years because a man doing his duty faithfully for four or five years might find himself minus his position as auditor at the end of that time as some of the other banks might not select him. I have never known of any legislation that has gone the length of saying that an auditor should be appointed for only a limited time. The check is that in the event of any complaint as to the auditor, the shareholders need not appoint him, and in the second place the minister may disapprove of the appointment of an auditor at any time as to particular banks. What 1 had in view in that was, that a man] who had been many years an official of a particular bank might be an excellent auditor, but I should not like to see him. appointed for that bank, although he might be an excellent auditor for any other bank. This audit clause has been drafted having regard to the provisions of the English Act and to the decisions of the English courts as to the dutv of an auditor, and I am inclined to think it is as full as it can be made, if the principle of audit is adopted.

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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LIB

Frank Oliver

Liberal

Mr. OLIVER:

I do not wish to offer any amendment to tne clause at the moment. The Banking Committee has had the matter under full consideration and I am willing to leave the responsibility there. I am not sufficiently familiar with banking matters to offer any amendment or even any serious obiection, but it appears to me that the result of this provision as it is, while it may have some value and it may be the best way of getting at the conditions, yet, I see in this section, as in other sections of the Bill, an abdication of that right to control by the people through their Government that I think is absolutely necessary for the wellbeing of the state. I have nothing whatever to say against the principle of the banking law, but there is no doubt that our banking interests to-day have become a great power in the state. They have arrived at such a pitch of power that it seems to me it is necessary that the supremacy of the state, that the propriety of control by the state, that the authority of the state, should be asserted in this Act, The passing of the Acf, is an assertion of that authority, but the provisions of the Act one after the other as I read them are an abdication of that authority, so far as it can be abdicated. That is the criticism I desire to make. I am not in a position to make any suggestion contrary to the

Mr. SHARPE (North Ontario).

provision that is contained in this clause. But it seems to me that the matter of ensuring that the money of the people to the amount of over a billion dollars is being properly handled is a responsibility that, in the nature of things, should rest upon the government of the country. To abdicate that responsibility to any authority, and especially to that authority which has a private rather than a public interest in the matter, is not, on the face of it, such legislation as in these days we should look for. There have arisen in the commercial life of the world new conditions which require to be dealt with. There is legislation re-, quired to-day; there is assertion of public control or governmental authority required to-day that was not required in years gone by. I am sorry that in this revision of the Bank Act, which is supposed to stand for ten years, there is not that progress towards that assertion of control by the public through the Government, which I think would be for the good of the state, and which I do not think would be bad for commercial or financial interests immediately concerned in this Bill.

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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CON

William Thomas White (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. WHITE:

My hon. friend has hardly had his attention directed to certain sections of the Bill, or he would not say that substantial progress had not been made towards safeguarding, so far as legislative enactments can safeguard, the interests of depositors and others doing business with the chartered banks of Canada. Without going into the merits or demerits of inspection, I desire simply to say that this legislation is in advance of any legislation in the Empire to-day, so far as restriction upon the operation of banks is concerned.

I wish to say again, what I said in this House and in the committee, that in the last analysis, no matter what legislative enactments you may have, the safety of the public will depend upon the integrity and ability of the men who administer the banks. Unless the' Government actually takes over the business of the banks, so that it would be responsible for the making of the loans, it will not be in a position to guarantee the public that a bank is absolutely safe, because the question of whether loans are good or bad must depend upon the judgment of the directors and the managers of banks, and because, whether there will be fraud or not will depend in large measure on the integrity of the management. We have sought to embody in our legislation this principle that the Government should, to the best of its ability, safeguard the interests of the depositors by providing for external audit or inspection of banks by auditors occupying an independent position, not officials of the banks appointed by the proprietors for the shareholders. We have gone further

than that. Not only have we made audit compulsory; but we have provided that, in the event of shareholders representing one-third of the paid-up capital of a bank informing the minister that they are dissatisfied with an appointment made by a majority of the shareholders at an annual meeting, they:

May make application to the minister to have the person or persons so appointed superseded, and the minister may, after such inquiry as he may deem necessary, select an auditor or auditors instead of the auditor or auditors appointed at the annual general meeting, and the auditors so appointed shall thereupon cease to be the auditors of the bank

In addition to that, we have provided that the auditors shall be selected by the^men who are probably most interested in the safe and honourable conduct of banks in Canada, namely: the general managers of all the banks acting jointly. In addition to that, section 56-A, which is a very important one, and which goes a very long distance along the lines which my hon. friend has in view, says :

The minister may direct and require any auditor appointed under the next preceding section of this Act, or any other auditor whom he may select, to examine and inquire specially into any of the affairs or business of the bank, and the auditor so appointed or selected, as the ease may be, shall, at the conclusion of his examination and inquiry, report fully to the minister the results thereof.

That means that, upon the minister receiving notice that the business of a bank is being conducted improperly, he can ask the auditor appointed by the shareholders to make an investigation into the affairs of the bank and report to him. The reason why I introduced that clause was because it was brought to my attention that under the present Act, if a Minister of Finance had notice as to an irregularity in a bank, he was powerless to make any inquiry with regard to it. In 1891, an attempt was made to introduce an external audit; and, in response to the remonstrance of members on both sides of the House, it was dropped as being unfeasible. My predecessor thought it would be impracticable to introduce audit or inspection. When my hon. friend recalls these facts, he will agree that we have made very substantial progress. We all recognize that the banking organization of Canada is probably as important an organization as exists. We want to be fair to that organization and to the public, to safeguard its interests in every possible way. I think we have made a long step forward in that direction. More may be done in the future; but, for the present, the committee almost unanimously have reached the conclusion

that this legislation is as advanced as it can be at the present time, having regard to the distribution of the branches and offices of Canadian banks throughout this Dominion and other parts of the world.

Topic:   WINNIPEG WATER SUPPLY.
Subtopic:   BANKS AND BANKING.
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Section agreed to. On section 76-business and powers of bank:


May 20, 1913