June 2, 1936


The house resumed from Monday, June 1, consideration in committee of the following proposed resolution-Mr. Dunning-Mr. Sanderson in the chair. That it is expedient to bring in a measure to amend the Bank of Canada Act so as to increase the capital stock of the bank, to provide that certain shares thereof shall be purchased by the Minister of Finance out of the consolidated revenue fund in order to assure ownership of a majority of the shares by the government, to increase the number of directors, and to provide for election and appointment of directors in such manner as to assure voting control of the board by directors appointed by the government.


CCF

James Samuel Taylor

Co-operative Commonwealth Federation (C.C.F.)

Mr. J. S. TAYLOR (Nanaimo):

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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CCF

James Samuel Taylor

Co-operative Commonwealth Federation (C.C.F.)

Mr. TAYLOR (Nanaimo):

The authorized capital.

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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CCF

James Samuel Taylor

Co-operative Commonwealth Federation (C.C.F.)

Mr. TAYLOR (Nanaimo):

I should like to have it read in view of the fact that this refers to 1912, when the Commonwealth bank was established.

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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CCF

James Samuel Taylor

Co-operative Commonwealth Federation (C.C.F.)

Mr. TAYLOR (Nanaimo):

I do not think I am drawing any incorrect conclusion. The last paragraph I read affects the condition of the bank up to June, 1933, and it is from that statement that I am quoting.

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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CCF

James Samuel Taylor

Co-operative Commonwealth Federation (C.C.F.)

Mr. TAYLOR (Nanaimo):

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

Oh.

Bank oj Canada

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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CCF

James Samuel Taylor

Co-operative Commonwealth Federation (C.C.F.)

Mr. TAYLOR (Nanaimo):

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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CON

Richard Smeaton White

Conservative (1867-1942)

Mr. R. S. WHITE (St. Amtoine-West-mount):

As one who is open to reproach from some quarters as being orthodox in money matters I desire to say a few words respecting the resolution now under consideration. I do not intend to touch at all the point made by the hon. member for South York yesterday, namely, the apparent inconsistency of the government in the legislation which it is proposed to have passed. That is a matter which the father of the Liberal party, the Prime Minister of Canada, can settle with his own family. My own view is that the proposal of the government is worthy of commendation, and I for one give it my hearty approval.

I have not been a devotee of a central bank in Canada. Many a time in Montreal I have spoken publicly against the setting up of such an institution. I am not yet convinced that it is required in this country at this time. But I cannot fail to recognize the fact that the parliament of Canada has placed on the statute books a law setting up a central bank, that it is there for good or for ill, and that no hostile words or attitude on my part can in the slightest degree affect the situation. If hon. gentlemen who prate about the importance of complete ownership by the government of a national bank or central bank will reflect for a moment or two, I am satisfied they possess sufficient logical powers to realize that this very resolution, with the bill about to be introduced, gives the government of the country, not absolute ownership, it is true, but absolute control of that bank to as great a degree as if every share in it were the property of the crown. I am satisfied that the view taken by the electors of this country during the last two or three or more years when this matter has been under discussion was that the central bank would be a bank of discount, a bank to which individuals, business firms, commercial corporations could go and borrow money; in other words, a bank that would discharge the ordinary func-

Bank of Canada

tions of a commercial bank. No advantage I can conceive of will accrue or could accrue to the people from the total possession of the share capital by the crown, that will not be extended by the measure now under consideration. I have always thought, and I always will believe, that most grave danger to the financial stability and the credit of this country would be caused if the central bank became a bank of ordinary commercial discount. It is said of Blucher after Waterloo, Mr. Chairman, as you will remember, that when visiting London and looking about, he exclaimed, "What a city to sack!" If we had in this country a central bank under the control-of the government, engaged in the making of loans upon such paper as the manager might think sufficiently secure for the purpose of the loan, well might the politicians supporting the ministry of the day exclaim on the eve of an election, "What a magnificent bank to loot!"

A good deal has been said of a condemnatory character in criticism of our chartered banks. I am not here to defend them or to say other than that they have served this country well. Representations have been made that the chartered banks are or have been sweating the blood out of the people, that they have been making exorbitant profits by high rates of interest. Is it known to hon. gentlemen that the leading bank and the largest in this country, to wit the Bank of Montreal, in its last financial year, 1935. earned a bare four per cent upon the capital investment of the shareholders? I submit that no one can possibly claim that four per cent profit is an exorbitant rate for a bank to earn and pay its shareholders upon their invested capital.

The policy of the banks is said to have caused the debacle of 1929 and subsequent years. If any will take the trouble to look at the figures they will find that the decline in prices and the recession in trade preceded the reduction in loans, and that the revival in trade that has occurred in the last three years-not it is true to a very great extent, yet more or less substantial renewal-has occurred in the face of a further reduction in the commercial loans of the chartered banks. So I contend it is impossible to attribute to the withdrawal of credit by the banks the debacle in business, and certainly it cannot be contended that a revival of trade has been in any way retarded by lack of commercial credit extended by the banks. Certain members of the house, namely the group in the left corner, trot out from time to time, as a convincing argument for something, a statement said to have been made on one occasion 12739-212

by the Right Hon. Reginald McKenna, an eminent public man in Great Britain in his day, and a very prominent banker whose opinion I dare not think is worthy of other than great respect, the statement of Mr. McKenna being that every loan is followed by or coincident with a deposit. A more unfounded statement than that could not possibly be made. I venture to say there is not an hon. member who is unaware of the fact that the proceeds of many loans obtained from banks on the discount of paper are carried out by the borrowers in their pockets, and never appear as deposits at all. Again-[DOT] and see the absurdity of Mr. McKenna's statement-when you borrow from a bank you pay five per cent, six per cent or, as the rate was at one time, seven per cent. Call it five per cent, if you like.

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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LIB

Gerald Grattan McGeer

Liberal

Mr. McGEER:

Why not call it twenty

per cent?

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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CON

Richard Smeaton White

Conservative (1867-1942)

Mr. WHITE:

All right; call it twenty per cent. Is anyone idiot enough to deposit the proceeds of a note, upon which twenty per cent interest has been paid, in a bank that will give him three per cent interest? On its very face the thing is utterly ridiculous. Starting yesterday, as hon. gentlemen know, the rate of interest on deposits in chartered banks was reduced to li per cent, a rate so low as to be unprecedented in this country.

There is no lack of bank funds. Revival of trade is not being halted through lack of credit or money in this country. The difficulty the banks encounter, and have encountered for the last three, four or five years, is a plethora of money for which they can find no profitable use, and that is why the rate of interest on deposits has been reduced to li per cent. If hon. members will look at bank statements of recent months, they will find that the banks have invested in government bonds about a billion and a quarter dollars, obtaining on their investment a low rate of interest. But that is the only use to which they can put their surplus money. As of April 30 of this year, or about a month ago, the chartered banks had $2,157,927,000 of public deposits, and at the same time their commercial loans amounted to only $725,484,000. In other words they had nearly $1,400,000,000 of deposits in excess of their commercial loans. The difficulty, as I have said, is that the banks cannot find borrowers. It is true that there are thousands upon thousands of people in this dominion who are ready to walk into banks, give their notes of hand and take as much money as they can possibly get, but they have no

Bank oj Canada

security to back their notes. It is a trite saying, but it must be remembered that these deposits are not the property of the shareholders of the banks; not a dollar of the deposits is represented by the capital investment of shareholders. The banks are trustees for their depositors, and as trustees the banks must exercise the greatest care and the closest scrutiny in making loans. There is a new cult abroad in the land; I am not sure that I have not heard its echo within these walls. It holds that the borrower, rather than the lender, should determine the security. If credit is required to put this country on its feet in respect of its business-and we are moving forward; let no mistake be made about that-it is in the banks, available. All that is necessary is for the would-be borrower to go there with security that will warrant the trustees of the depositors in advancing the money to him.

I am afraid, Mr. Chairman, that I am to some extent wandering from the subject matter of the resolution. In indicating some of the provisions of the bill to be based upon this resolution the Minister of Finance stated that one of the sections would provide for bilingual currency. Again, personally I approve that. At the present time we have bilingual postage stamps in Canada, though I dioubt whether more than one penson in fifty thousand in this country is aware of that fact. More than eighty years ago we had in the then province of Upper Canada notes issued in both English and French by the commonwealth at Kingston, and no one suffered. If there be a sound objection to the recognition of dual languages in connection with any documents of any kind issued by the government, that objection seems to me to weigh as strongly against bills printed some in French and some in English. We have them circulating to-day pretty much throughout the country. You may get one bill wholly in French; the next time you ask for money from a bank you may be handed a bill wholly in English. The dual bills involve added cost. What practical difference can it make to the individual if the two languages are on the one bill, and a saving made? More than that, how many people are there in this house or in this country who read either the lettering or the wording of the bank note.

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

Just the figures.

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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CON

Richard Smeaton White

Conservative (1867-1942)

Mr. WHITE:

That is all they are concerned with, nothing but the numerals. They want to know whether it is a one or a ten, and they are praying heaven it may be a ten. But beyond the numerals they do not

give a hoot what appears on the bill, as long as they are satisfied that it is a bona fide bank note.

In connection with the setting up of the Bank of Canada, our central bank, it is of the highest consequence that that institution should continue to be a banker's bank and not a public bank. The credit of Canada is high, but it has recently had one or two shocks. Daniel Webster, speaking in the American senate eighty odd years ago in eulogy of that eminent American financier, Alexander Hamilton, one time secretary of the United States treasury, and father, I think, of the banking system as originally founded in the United States, said of Inm, "He laid his hand upon the dead corpse of public credit and it sprang upon its feet." There are dangers in this country through repudiation of contracts, through violation of solemn compacts. Instances have occurred in two provinces. If we are not careful we may find that not provinces only, but even the parliament of Canada, by misguided financial legislation, have laid their hand upon the public credit and the public credit has crumpled under its touch.

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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SC

René-Antoine Pelletier

Social Credit

Mr. R. A. PELLETIER (Peace River):

Mr. Chairman, it was once my pleasure to tell the hon. member who has just sat down that I would listen very carefully to advice which he might give me from time to time. But I regret to say on this matter I hold views exactly opposite to his. The resolution which is now before the committee is of such great importance to Canada that I feel it my duty to express my views. It is proposed to change the present set-up of the Bank of Canada. There must be a fundamental reason for desiring this change. It is realized that the functions of money affect fundamentally the life of every individual, because individuals must have money in order to survive, since money today means purchasing power, a claim on all and everything. Some say that we are here to govern the country; but that is not enough; it is not a common ground, since others will immediately reply that some of us serve only a portion of the country, namely finance, and attempt to govern the rest. There must be another'reason, more basic than all others, which has brought us here. And there is. Within the breast of every living thing there is a common desire, a desire greater than all else, an instinct, an urge, that compels us to fight to the last breath, to cling to life. It is the desire to survive. A man will rob his neighbour; he will place the blood and flesh of his body in bondage; he

Bank of Canada

will sell his immortal soul; he will grasp the last straw and cling to life until the last gasp. That desire may not always be floating on the surface of man's multitude of emotions where it is constantly in view, but no one will dare to deny that it is there. With this desire uppermost people become uneasy as they see and read of conditions existing not only round them but throughout the world, and all agree that money is the factor which is causing most of the trouble. They see a world filled with the necessities of life that they cannot obtain. Such a representative and reliable body as the London Chamber of Commerce had the following to say about our gold standard. I quote from the Times of Saturday, December 24, 1932, which printed the new monetary policy of the London Chamber of Commerce, and I refer particularly to the part entitled: Gold as a Regulator : .

It is incredible that in a scientific age the nations should so long have been content to rely upon the fortuitous arrival and disappearance of gold as the regulator to determine when the currency should be expanded or contracted. Not only had this gold movement little if any connection with business activity within the country, but the methods employed to put additional currency into circulation and to withdraw it, were calculated to do the maximum amount of injury to the trade and industry of the country by causing wide fluctuations in the price level. To cause such fluctuations and consequent disorders was in fact a necessary feature of the system. Additional currency was not called out as required by industry and commerce; it suddenly became available owing to a fortuitous acquisition of gold by the Rank of England. As the joint stock banks could find, at that moment, no outlet in industry for the additional credit made available by the broadening of their cash base, it found its way into speculation in the stock and raw material markets. A boom having thus been created in these markets, industry began to feel the benefit of an increased demand for its products. The advances which had, in the first place, been made for speculative purposes, were then withdrawn by the banks in order to finance the industrial boom, so that before this was well under way a slump in stock and raw material markets had begun. This is the phenomenon spoken of as the "trade cycle"-

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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LIB

Frederick George Sanderson (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

The CHAIRMAN:

Order.

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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LIB

Ross Wilfred Gray

Liberal

Mr. GRAY:

What is the hon. gentleman quoting?

Topic:   BANK OF CANADA
Subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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June 2, 1936