April 14, 1926

CON
PRO

Edward Joseph Garland

Progressive

Mr. GARLAND (Bow River):

So the banks for private profit very cleverly use their power under this vast monopoly to defeat the intention and spirit of the act itself. Is that fair or right?

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Subtopic:   NATIONAL SYSTEM OF BANKING
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LIB

Thomas McMillan

Liberal

Mr. McMILLAN:

That is what the banks try to do here, but we will not pay the interest in advance.

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Subtopic:   NATIONAL SYSTEM OF BANKING
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PRO

Edward Joseph Garland

Progressive

Mr. GARLAND (Bow River):

There you see . the spirit which is being developed as a result of this oppressive action by the banks. That spirit will grow more and more among business men and manufacturing interests as [DOT]they feel the steadily growing pressure of this practice. The great industrialists are begin-ing to realize it. There was a time, you know, when the captains of industry-they were called capitalists-exercised great control over money and industry, but to-day that power has passed beyond them to a few men. Financial power, concentrated and tremendously effective, controls industry itself, and rapidly our business men are realizing that to-day. The interest rate is practically in the hands of the bankers themselves. It is wrong that that should be so. It is wrong that they should be charging to us in western Canada as high as ten per cent on renewal loans in bad years. Therefore I urge the establishment of some central co-ordinating agency which by competition would prevent any further exploitation of our people in that way. It has been completely successful in Australia, where the Commonwealth Bank has succeeded in reducing the general level of the rate of bank interest.

I simply cite these cases in passing, not urging upon the House, or the committee subsequently, the adoption of any one of these specific plans. I do not like the federal reserve system of the United States any more than other members here do. My chief objection to it is that, although it appears to be sound, it is a bankers' reserve system and is not for the people. There is no doubt that a central bank or some central co-ordinating agency, call it what you may, having the state's interest at heart will have a greater

and wider outlook upon the prosperity and development of this country than have our chartered banks, and would be in a much better position to meet the necessary credit requirements in any district.

Let me ask hon. gentlemen this question In western Canada, particularly the province from which my distinguished friend from East Edmonton (Mr. Bury) comes, we have vast resources available for the development of industry; we have markets for that industry close at hand-we are close to the Pacific seaboard, we are close to the vast market along the western coast of America and in the Orient; we have right under our feet coal in tremendous quantities, we have petroleum, we have gas, we have wood. Why has industrial development not taken place out there to a greater extent? This question I know the hon. member for East Edmonton has asked himself repeatedly. It is natural he should do so. I also have pondered the question. Why has not industrial development been more rapid in those prairie provinces? There are just two reasons: one is, the recent industrial development of eastern Canada; the other is, the banking system of this country. These two factors with their interlocking directorates have resulted in the concentration in two provinces of the Dominion of the vast power of industry and the vast power of finance, with the result that just as soon as a little plant or manufacturing concern starts up in a place like Medicine Hat or Calgary or Edmonton, that industry if not absolutely natural to the district itself, and frequently even if it is, is quickly crushed out by the contraction of credit.

Now, M'r. Speaker, if there is one thing that offends my sense of justice more than another it is that those vast resources which are lying there available to the people of this country are to remain dormant, undeveloped, unprogressive, and we unprosperous, simply because of the concentrated control, under our branch bank system, of that vast power in Toronto and Montreal. The sooner we get away from that the better. The other day we had an excellent debate, and I congratulate hon. members from the Maritimes on their militant, logical and powerful arguments. But they perhaps overlooked this aspect of the matter; the Hon. F. B. McCurdy did not overlook it. The fact of the matter is that in the Maritime provinces just as in the west, their condition to-day is unquestionably very largely due to the fact that they are longdistance customers of our bankers. Let me quote from Mr. McCurdy's pamphlet:

When even the wealthiest banking customer in Nova Scotia to-day applies for a loan, even though fortified

National Banking System

by ample collateral, he is politely apprised that in the ordinary course of the hank's routine his application will be submitted for adjudication to an office several thousand miles away.

Now, is that not enough to arrest the development of any province? The same thing exactly obtains in western Canada. The branch bank managers in Nova Scotia, Prince Edward Island or New Brunswick have a certain discretionary limit, just as they have in the prairie provinces and British Columbia, a discretionary limit within the jurisdiction of gentlemen in Toronto and Montreal. I have a branch bank manager in my own little town, and two years ago he had a discretionary limit of $300. Could anything be more absurd?

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Subtopic:   NATIONAL SYSTEM OF BANKING
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CON

Hugh Alexander Stewart

Conservative (1867-1942)

Mr. STEWART (Leeds):

Does not the

hon. gentleman know that the same limit applies in Ontario?

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PRO

Edward Joseph Garland

Progressive

Mr. GARLAND (Bow River):

Yes, but

you are in a different situation, you have the head office immediately at your hand; we have not. You have the personal contact of the head offices in Toronto and Montreal with the individual requirements of industry in Quebec and Ontario, but if you are separated by vast miles of rocks and Christmas trees as we are in the prairies, or by a vast stretch of territory as you are in the Mari times, what is to be done with the situation? The fact of the matter is that the present branch bank system is successful in crushing out individual initiative-that very thing which the hon. member for Fort William spoke of-initiative of men who would gladly take up the banking business in districts like Nova Scotia, New Brunswick, Prince Edward Island and the western provinces. The sooner we recognize these facts the better it is going to be for the country.

The hour is getting late and I know the hon. member for St. Lawrence-St. George (Mr. Cahan) has something to say. I have many other arguments I could use, but I do not wish to inflict them all on the hon. member; I want to see him contribute his quota to the debate. But may I say this in conclusion? Should we in our wisdom reach the stage where we decide that some national banking institution is necessary, the question will at once arise in our minds, what about capital? I made inquiry the other day, and I find that we would have instantly available for the use of any national bank which might be established not only those privileges of

note issue and other matters which are now exploited by the present system, but also some $97,710,189, made up as follows:

Post office savings bank deposits, 1924.. $24,330,486

Dominion government savings 9,185,377

Other savings banks 64,194,32$

In addition to that there would be the' provincial government business and that of' the municipalities, which would make an: enormous amount of business for such a bank.

In conclusion let me suggest that at present we have a Department of Finance which receives from the banks annual and semiannual statements. These annual statements have not served any good purpose as yet. The Department of Finance was aware for eight years that the Home Bank, for example, was in an insolvent condition; they had reports to that effect, yet they took no action. Then we have a central gold reserve, which is under the direction of four trustees-and here again we see the control of the banks. One trustee is appointed by the government and the other three are appointed by the Canadian Bankers' Association. We then have the Finance Act, which was probably the most evolutionary and best development which has taken place in our banking system over a period of years. Unfortunately that act was brought in by a Conservative government in an entirely illegal manner. I think they were justified in so doing under those conditions, but the fact should be borne in mind that the very verboten, autocratic and bureaucratic methods condemned by the hon. member for Fort William were used most effectively by a minister of his own government. This is an act for the bankers only; it allows discount privileges to no one else, and should be-amended. We will discuss that question, however, at greater length on a future occasion.

Then we have a treasury board, consisting of the five Privy Councillors, which for some time set an inflexible rate of interest of 5 per cent. A peculiar situation developed then, by which we were paying to the bankers 5J per cent for the money we had borrowed, but we were lending them money at 5 per cent. That was an amazing situation which, I am glad to say, no longer exists. We have also a bankers' association, incorporated by the Dominion and possessing certain supervisory powers, and lastly that new institution whose functions have not yet been examined thoroughly and whose usefulness has not been properly determined, the Inspector of Banking.

National Banking System

My suggestion at this moment is that we should consider the grouping together of these separate functions under the control of a single commission or board, completely free from political influence. The board should be appointed for a number of years and should be enabled to hold office irrespective of what political party may be in power. If that suggestion is followed there is no danger of political interference in this most important matter. That method has been followed succesfully in Australia whei'e, although there have been four changes of government, practically no change in policy has taken place. In the meantime it was found in Australia that the system did not lend itself to proper commercial loans, with the result that they have adopted the idea of the advisory board.

Let me in closing, Mr. Speaker, say that I hope the words of the late Mr. Woodrow Wilson, ex-president of the United States, will be borne in mind by hon. members in discussing this question. Writing in the New Freedom, after relinquishing the presidency, Woodrow Wilson said:

Seme of the biggest men -in the United States, in the fields of commence and -manulfaotnre, are afraid of somebody, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so pervasive, -tha-t they had better not speak above their breath when they speak in condemnation. The "control of credit'' has -become dangerously centralized. It is the mere truth to say that the financial resources of this country are not at the command of those who do not submit to the dictation and domination of small groups of capitalists. The great monopoly in this country is -the monopoly of "big credits."

Mr. C. -H. CAHAN (St. Lawrence-St. George): At this Late hour Mr. Speaker, as it is impossible for this motion to be voted upon, I will not press so strongly as I otherwise intended that the Minister of Finance (Mr. Robb) should not refer it under present conditions to the committee on Ranking and Commerce. We have this session a number of very important measures coming before the House, to which we believe -we can devote a great deal of time and attention in order to expedite the work of the session and secure prorogation at an early date, but I suggest that there is no real reason why this motion should be referred to the com-mitte on Banking and Commerce, and compel us there to listen to such wild and irrelevant propaganda as we have heard this afternoon in this House.

If you will dissect the statements ol alleged fact presented by hon. members you will find that they are very partial and incomplete, or entirely erroneous. Let us take, for example, the federal reserve bank system of the United States. I have had, both in my professional and in a business capacity, to study that system. It is not a national banking system any more than the banking system of Canada is a national system. It is a national banking system simply because its constitution depends upon the legislation of the congress of the United States.

Topic:   QUESTIONS
Subtopic:   NATIONAL SYSTEM OF BANKING
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LAB
CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

I have only three minutes

left; please let me finish.

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Subtopic:   NATIONAL SYSTEM OF BANKING
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LAB

James Shaver Woodsworth

Labour

Mr. WOODSWORTH:

I did not suggest

that it was a national banking system.

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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

I have heard it suggested in the House that it was a national banking system and according to my notes, the hon. member suggested that that was one of the objects we ought to attain by legislation which might be introduced under the terms of this resolution. The federal reserve boards of the United States are constituted by federal legislation; the banks of Canada are constituted and organized under federal legislation. But every dollar of the capital of the federal banks of the United States is advanced by the banks which have membership in that system. The entire banking capital is provided from private sources.

Then. I think the Federal Reserve Board, appointed as my hon. friend suggested, is a board of supervision; it has no administrative capacity whatsoever and is simply a federal authority supervising the federal system, to see that the federal reserve acts are strictly complied with. As to the boards of the various districts, they are also nominated and appointed, in the majority, by the different banks of the United States. That system has advantages in that country to the south of us where there are some tens of thousands of state banks, and national banks, to the number of thousands.

The resources, on February 1st last, of the federal reserve banking system were SI 18,250,000 of capital paid in, but all privately owned, and it had deposits amounting to $2,270,000,000, but they were all the deposits of the member banks. The United States government, as a government, did not

Questions

own or control a single dollar of those deposits, with the exception of the fact that the United States government temporarily had on deposit $30,000,000 of that $2270,-

000.000 of deposits held by the member banks.

Hon. gentlemen have referred to the Finance Act as if that act, under present conditions, conferred great advantages upon the banking system of Canada. It does in a crisis, but under present conditions there is no lack of credit in Canada. According to the last return of the chartered banks of Canada, dated February 27, 1926, the entire eleven banks of Canada had only $2,000,000 of loans from the government under the Finance Act, $1,000,000 by one bank which I need not name, and $1,000,000 by another bank, two of the smaller banks of the country. But there was no need for larger loans.

Furthermore, hon. gentlemen say that because the banks have the right to issue their own notes, therefore there is a clear gain of the interest upon the entire amount of notes issued by the banks of Canada.

Topic:   QUESTIONS
Subtopic:   NATIONAL SYSTEM OF BANKING
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PRO

Edward Joseph Garland

Progressive

Mr. GARLAND (Bow River):

We did not say any such thing.

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Subtopic:   NATIONAL SYSTEM OF BANKING
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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

Not the hon. member, but

the hon. member who sat beside him, the hon. member for Battle River (Mr. Spencer), suggested in his argument that the act conferred upon the banks of Canada the right to issue money on which they did not pay one cent of interest.

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Subtopic:   NATIONAL SYSTEM OF BANKING
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PRO

Edward Joseph Garland

Progressive

Mr. GARLAND (Bow River):

Oh no, one per cent per annum is paid.

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Subtopic:   NATIONAL SYSTEM OF BANKING
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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

I am not referring to what

the hon. member for Bow River said, but to the argument of the hon. member for Battle River.

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Subtopic:   NATIONAL SYSTEM OF BANKING
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PRO

Edward Joseph Garland

Progressive

Mr. GARLAND (Bow River):

I do not

think he said that; he knows much better.

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Subtopic:   NATIONAL SYSTEM OF BANKING
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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

I should think hon. gentlemen would have known very much better than to have said many of the things which they have said this afternoon, but there is no limit sometimes to ignorance.

The total amount of notes in circulation by the banks in Canada, according to the return of February 27, 1926, was $163,617,467, but at the same time the banks of Canada held of Dominion legal notes, upon which they were receiving no interest whatever,

$164,023,820. Where in that situation do the banks of Canada receive a great advantage by the issuance of their own notes, when at the same time for carrying on their business they have to hold in hand an equal amount practically, within a few dollars, of Dominion legals on which they receive no interest whatever.

As it is six o'clock, Mr. Speaker, I would move the adjournment of the debate.

Motion agreed to and debate adjourned.

At six o'clock the House adjourned, without question being put, pursuant to rule.

Thursday, April 15, 1926.

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Subtopic:   NATIONAL SYSTEM OF BANKING
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April 14, 1926