June 11, 1936

LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

As a matter of fact no question of policy at all is involved in the repeal of the section. The lawyers of the Department of Justice indicated to the Department of Finance that the section was no longer necessary, and for that reason it is being removed. They did suggest, and we have already passed a provision back on page 2 of the bill, that "The bank is and shall continue to be a body politic and corporate." The advice I have from the legal advisers, to whom I must listen, is that that section is no longer required. My right hon. friend may be right, but when I come to a bill amending another act and have advice from the law officers of the crown that a section of the original act is entirely unnecessary, I follow that advice. That is the reason and the only reason why it is taken out.

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

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

There is just one question that my hon. friend from St. Lawrence-St. George (Mr. Cahan) has put to me. What authority is there in this act to carry on business at all?

Topic:   QUESTIONS
Subtopic:   BANK OF CANADA
Sub-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:

"The bank is and shall continue to be a body politic and corporate."

Topic:   QUESTIONS
Subtopic:   BANK OF CANADA
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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

That does not answer the question.

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Subtopic:   BANK OF CANADA
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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

And the remaining

powers of the bank are stated in various sections.

Topic:   QUESTIONS
Subtopic:   BANK OF CANADA
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CON

Richard Smeaton White

Conservative (1867-1942)

Mr. WHITE:

What harm will be done by leaving section 20 in the act?

Topic:   QUESTIONS
Subtopic:   BANK OF CANADA
Sub-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:

I do not wish to get into a legal argument. The Minister of Justice (Mr. Lapointe) is my legal adviser; he can handle it.

Topic:   QUESTIONS
Subtopic:   BANK OF CANADA
Sub-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:

Is the section carried?

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

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

I protest against this being repealed.

Topic:   QUESTIONS
Subtopic:   BANK OF CANADA
Sub-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:

Why not leave it in? No harm will be done.

Topic:   QUESTIONS
Subtopic:   BANK OF CANADA
Sub-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:

There is no harm in it any way.

Topic:   QUESTIONS
Subtopic:   BANK OF CANADA
Sub-subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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Section agreed to. Bank of Canada On section 13-Exchange.


REC

Henry Herbert Stevens

Reconstruction

Mr. STEVENS:

I have been waiting

patiently until we should come to section 13, which is, if I may use the expression, the operative clause of the act. I have not been very much concerned about the change in the set-up of t'he bank, for the very simple reason that the directorate, whether it consists of seven or fifteen or any other number, amounts to very little because no action of the directors can override the decision and the will of the governor or, in his absence, the deputy governor; and that is virtually the situation. I mention that because I was not much concerned about this discussion as to the change in the set-up of the bank. I do not think very much change has been made, except in form. What does concern me was contained in a question asked a few moments ago by the hon. member for Acadia (Mr. Quelch), regarding the matter of policy. The minister replied that in his opinion it would be inimical to the best interests of the bank and the country for him to enlarge in a statement on what the policy of the government or of the newly government-controlled organization, the Bank of Canada, would be.

I asked the minister when we were on the resolution-I think, in ample time-if on the second reading of the bill he would be prepared to make a statement with respect to that matter. No statement was made on the second reading, and no discussion at all occurred. Now, while I respect the delicacy of the situation, and, perhaps, the difficulty the minister finds himself in, I submit to him and to the committee that if we are sincere in what we are doing to give effect to what was said regarding this matter in the speech from the throne, and if we are to have confidence in the declarations of members of the government, including the Prime Minister and the Minister of Finance, who have spoken on this matter, we must recognize that the government is taking new and definite control of this bank. That is the only excuse for the presence of the bill. I still question the adequacy, shall I say, of the method, but that has been adopted by a majority of the house, and I bow to the will of the majority. If therefore the government is stepping into this picture in a new way, exercising what it claims to be adequate authority, and, as the speech from the throne says, taking effective control of the bank, I submit the committee is certainly entitled to a larger measure of confidence from the government as to its intentions in the future. In his reply to the hon. member for Acadia the minister used an adjective with which I agree; he said he would not make any statement regarding the "day to day" operations of the bank. It

would be ridiculous to suggest that the minister or any officer of the bank or other person should make a public statement as to the detailed or day to day routine operations of the bank. Now on the question of broad policy-

Topic:   QUESTIONS
Subtopic:   BANK OF CANADA
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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

What phase of it?

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REC

Henry Herbert Stevens

Reconstruction

Mr. STEVENS:

That is the object of my remarks, though perhaps it will take a few paragraphs to state it; as to the broad policy of the bank I think the committee is entitled to a greater measure of confidence from the government.

In order that I may not be considered presumptuous in making the suggestion I shall read a few extracts from the speech of the governor at the first annual meeting, on February 25, 1936, of the shareholders of the Bank of Canada. I pause to make the statement that the country and the bank are fortunate in having as governor and deputy governor of the bank two gentlemen who without question are clothed with ability and experience quite adequate for the positions they hold, and it is my opinion that during the time the bank has been in operation, within the limits of their powers, and, I might add, the policy behind the bank's operations, these gentlemen have discharged their duties in a manner commendable to themselves and commensurate with the task they undertook. Further, the bank has been in operation only a little more than a year, so that I am not expecting to see any very startling results up to the present. I think the experience we have had indicates that the central bank in its initial stages has been reasonably satisfactory, but I also believe, as the government, too, must have in mind, that we have now come to a stage in the development of the central bank where a larger measure of public interest in the institution should obtain. It is upon that assumption that I proceed with my remarks, and quote from the address of the governor. I hope the minister will note the language, in view of the fact that we are requesting him to give us some information as to the government's attitude and. policy. The governor says:

A policy of cheap and abundant money is the orthodox contribution of a banking system toward recovery from a depression. '

That is a very singular statement. We are still in a depression. Unemployment is still rampant throughout the country. We are still confronted with many problems

fundamental problems, in my opinion-regarding the causes of the depression, and I submit we have not yet directed sufficient attention to the removal of those fundamental causes. So that when the governor of the Bank of Canada makes a

Bank of Canada

statement of that kind, parliament at least should take more than ordinary notice of it. I repeat it:

A policy of cheap and abundant money is the orthodox contribution of a banking system towards recovery from a depression. Such a policy undoubtedly contributes, firstly, to a relaxation of the pressure to liquidate and, secondly, to a recovery of business and to the reestablishment of government finances, which are sure to be adversely affected at such times through relief expenditures and other unavoidable commitments; but if the policy is pursued too far the situation may become unmanageable when a revival develops.

Without indulging for the moment in any speculation as to what should be done or to what extent the government should use the resources and services of the bank in a contribution towards recovery from the depression, I cite this paragraph as indicative of what must have been in the mind of the governor of the bank, and it is more or less a challenge at this time for a statement by the government of the country, which is now assuming control of the bank, as to what is its attitude. I know of no place, Mr. Chairman, where this should be stated other than in this house; this is the place.

Topic:   QUESTIONS
Subtopic:   BANK OF CANADA
Sub-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:

I thought I said it a

few minutes ago.

Topic:   QUESTIONS
Subtopic:   BANK OF CANADA
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REC

Henry Herbert Stevens

Reconstruction

Mr. STEVENS:

While I recognize that

the minister feels he is in a delicate position, that delicate position cannot excuse him from taking the house into his confidence to the fullest extent possible, if necessary even to the point of having a private session of the house, which has been done under conditions not more serious than those obtaining in Canada at the present time. Since I have been a member of the house we have had on at least two occasions, I think, secret sessions. I am not suggesting that this should be done; I am prepared to have any discussion of this kind wide open, but I do say the minister cannot shield himself behind the statement that if he were to make any declaration on the subject it might prejudice the interests of the bank or of the country.

That is one statement I wish to direct to his attention. Then on the next page the governor makes a further statement, referring to advisory functions. I pause at this point to suggest that apparently the governor considered his duties largely advisory, but it must be remembered that this assumption was based upon the act as it was originally passed and the bank as it was originally organized. According to the speech from the throne and the declarations of the Prime Minister, however, we are making a change in that situation, and the government now

is to control the bank. In other words all the statements made by members of the government during the election campaign and in their criticisms of the original act two years ago, as well as the inference contained in the speech from the throne, indicate that they were not satisfied with the organization as it was originally introduced. Therefore I am justified in assuming that while the governor may have taken the position that his chief function was an advisory one in his relation to the government, if we are to be logical something must be added to this advisory function now. In that respect the governor has this to say:

Nevertheless, we have every inducement to be impartial. Advice must often, perhaps usually, be the chief form of assistance which we can render to the governments of Canada, inasmuch as our necessary concern for the cash basis does not permit us to make large advances of a kind which we cannot offset if that policy were requisite. It should not be inferred, however, that we are unable to furnish temporary accommodation at appropriate times.

The suggestion that occurs to me, from the language I have just quoted, is that under the old organization the governor of the bank considered that it was his duty to be extremely careful as to the extent he might go in regard to advances to the government or, as he says, in furnishing temporary accommodation; that he must be restricted because under the old set-up he conceived his duty to be largely of an advisory character.

Now I turn to another more practical and to my mind very much more vital part of the address, which I think is peculiarly appropriate to this particular section. Before I read it I will invite the committee to observe that section 13 amends the original provision that gave the bank power to do certain things, or in other words very largely defined the functions of the bank. I am not going into a detailed analysis of those functions; I merely invite the committee to consider the facts as they are outlined in that section. It will serve my purpose to cite just a few of these clauses. Paragraph (d) indicates that the bank may buy and sell securities issued or guaranteed by the Dominion of Canada, and now an amendment has been introduced changing the former limitation.

Topic:   QUESTIONS
Subtopic:   BANK OF CANADA
Sub-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:

Expanding it.

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Subtopic:   BANK OF CANADA
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REC

Henry Herbert Stevens

Reconstruction

Mr. STEVENS:

... buy and sell or rediscount bills of exchange and promissory notes endorsed by a chartered bank drawn or issued in connection with the production or marketing of goods, wares and merchandise as defined in The Bank Act, excepting those mentioned in paragraph (h) of this subsection, and having a maturity not exceeding ninety days, excluding days of grace, from the date of acquisition by the bank.

Before that paragraph passes I think the committee should consider whether sufficient latitude is permitted to the Bank of Canada in the powers of rediscount therein granted. Again I say it is a question of opinion, but I invite the minister and the committee to give consideration to that feature, because this is one of the powers which will enable the bank to enhance greatly the powers of the chartered banks in the discount market.

I wish now to read what the governor of the bank had to say on the subject to which that subparagraph relates. I quote from his speech of February 25. The heading is "Treasury Bill Market."

It is universally recognized that a central bank is hampered in its operations where an active bill market does not exist. Few countries, however, have the bill market they would like. Under present conditions a fairly satisfactory market can be established, if there is a sufficient volume of treasury bills, if there is a good institutional distribution of these, *md, in particular, if it is the commercial banks policy to hold treasury bills as their secondary reserve. The mere existence of a central bank at once widens and strengthens the market for first class bills, since the central bank itself will be a large holder and will 9nSage in purchases and sales in pursuance of its open market policy, and for other reasons. In so doing, it is likely to have the effect of

Bank of Canada

steadying the rate. The Bank of Canada can, I feel, claim that it has been of assistance in both these respects.

Canada has been handicapped, as the governor points out, by the absence of a fairly extensive bill market. We have not and cannot expect to have a bill market such as they have in London or New York, but the government can greatly assist if its policy is gradually to extend the bill market in Canada. The government could very well declare, without in the slightest degree impairing the present banking situation, or without any danger of encouraging wild speculation, as the minister puts it, that its policy will be not only to encourage the establishment of a bill market but to do everything in its power in cooperation with the Bank of Canada to secure the use of all the facilities that can exist in Canada for the encouragement of the buying and selling of bills. I shall not go into an analysis of the practice elsewhere, but I assume it is known to all that, for instance, in London a bill of sixty days or three or four months may pass through a dozen different hands during the period of its currency. I have seen bills that were endorsed so often that they had to stick on additional paper on which to write the endorsements. That is an active bill market; and a very small margin of profit, running to three or four decimals, is sufficient for the purposes of such a market. Nothing of the kind exists in Canada, but I can readily see how there could be built up in Canada an active bill market not only for government bills but also for commercial bills such as those indicated here. That leads me to suggest that possibly it might have been better if in this section the term of maturity had been made four months instead of ninety days.

Topic:   QUESTIONS
Subtopic:   BANK OF CANADA
Sub-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:

The next section covers

certain classes.

Topic:   QUESTIONS
Subtopic:   BANK OF CANADA
Sub-subtopic:   MAJORITY CONTROL BY GOVERNMENT OF CAPITAL STOCK AND BOARD OF DIRECTORS
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June 11, 1936