March 22, 1938

CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

This would mean an increase in bank deposits from the present level of about $2,387,000,000 to something like $6,000,000,000. If the banks used their increased cash in the normal way, as a basis for the extension of roughly ten times as much in loans to the public, or for the acquisition of ten times as much in investments, bank deposits would expand by approximately an equal amount-

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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

Yes.

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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

-until the cash ratio was brought down-

That is, the deposits, enabling ten times that loan to be made.

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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

No, no, no.

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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

Here are the words.

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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

The cash made it possible, not the deposits.

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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

The language of the

Minister of National Revenue was that loans create deposits. That is exactly what he said. Of course I do not know what he meant.

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LIB

James Lorimer Ilsley (Minister of National Revenue)

Liberal

Mr. ILSLEY:

I did not say that, but it

is true.

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?

Some hon. MEMBERS:

Oh, oh.

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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

I am quite accustomed

to hon. members laughing. That does not answer the question at all. There is the statement respecting " ten times," and what is more, the statement that bank deposits would expand by approximately an equal amount.

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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

Yes.

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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

That is, following the next figure, $3,500,000,000 which added to $2,387,000,000 would make something like $6,000,000,000.

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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

Yes.

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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

And now there follows

the observation of the Minister of National Revenue that every loan creates a deposit. Mr. McKenna, in one of his annual statements, said that every loan creates a deposit. That is true only to the extent to which the deposit may not either in whole or in part be withdrawn from the bank. That is, to the extent to which cash may be carried about or withdrawn and placed in a safety deposit box or elsewhere, that statement is not true. I may go to a bank to-51962-102

day and ask for a loan of a thousand dollars, and the bank may grant the loan. It places to my credit $1,000. Therefore a loan has created a deposit. But if I put $500 of it in my pocket, it has not created a loan for other than $500 because until such time as it again reaches a deposit in some institution, it is not a loan creating a deposit. That is so simple, it seems to me, as not to require any argument.

But let us see how far we may carry that statement. In days gone by I have heard it a great many times in this chamber from one of my friends who sat to my left, but who is not now in the house. I refer to Mr. Spencer. I wonder how many members of this house recall the story of the Merchants Bank of Canada, which negatives the whole statement that has thus been made. I wonder if they remember that the Merchants Bank of Canada was apparently one of the strong institutions of this country. It had a paid up capital of $10,500,000, with a rest fund of $9,450,000. It had a dividend rate of twelve per cent and the notes in circulation totalled $13,239,700. Deposits payable on demand totalled $38,345,152; those payable after notice, $88,087,635, and deposits elsewhere than in Canada, $3,204,602. The total liabilities of the institution were $161,507,349. On the asset side there was over $4,000,000 in gold, dominion notes amounting to $5,500,000 and $530,000 as security of its notes. There was $3,500,000 deposited in the central gold reserve, while dominion government and provincial government securities amounted to $14,000,000. Canadian municipal securities and British, foreign and colonial securities were valued at over $8,700,000, while railway and other bonds and debentures amounted to over $5,000,000. Call and short loans in Canada, not exceeding thirty days, amounted to over $7,000,000, while call and short loans outside Canada totalled over $4,700,000. Current loans and discounts in Canada amounted to $102,857,000, while those outside Canada totalled $1,110,000. Loans to provincial governments amounted to $205,000, and to cities, towns, municipalities and school districts, $3,800,000. The total assets were $182,004,625.

That was the condition of the bank as reported for November 30, in the Gazette of that year. On December 31 it was apparent that the deposits of the bank were falling away, and at that time we had to accept a very great responsibility. The Merchants Bank of Canada was failing. I use this illustration to bring home to my hon. friend this fact notwithstanding all that has been said and may be said, one fact remains us a

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EDITION


1010 COMMONS Use of Canada's Financial Resources grim reality about this business of banking. Here was this institution with its deposits, time and demand; with its loans; with its gold and with its securities, and there is the report as it stood at the end of November. At the end of December there had begun a shrinkage of deposits, and before the end of that month it is known to hon. gentlemen that the government of the day had to take the responsibility of either seeing the bank fail or permitting the Bank of Montreal to save it. I wonder if the efforts made by the Bank of Montreal to save the Ontario bank are known to hon. members of this house? I wonder if they appreciate the circumstances under which that was done? If the statement as indicated in the speech of the minister may be relied upon, this bank never should have failed.


LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

My statement had nothing to do with an individual bank; it referred to the whole chartered banking system in relation to the central bank. My right hon. friend knows that.

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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

I am dealing with exactly what the minister said applied to the banks about which he knows something. I refer to the Ontario bank; I refer to the Merchants Bank of Canada; I refer to the Northern Crown bank; I refer to the Union bank. Why did these banks fail? Why were they taken over by other institutions? That is the grim reality which we are now placing before the people of this country and which has not been placed before them in the statement. It is not sufficient to talk about every loan creating a deposit; for if every loan created a deposit, the Merchants Bank of Canada would have had deposits to meet anything.

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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

If my right hon. friend will permit me?

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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

Permit me to finish what I am doing.

Topic:   EDITION
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March 22, 1938