May 11, 1944

LIB

Thomas Vien (Speaker of the Senate)

Liberal

Mr. SPEAKER:

With the consent of the house.

Topic:   BANK ACT AMENDMENT
Subtopic:   CONDITIONS GOVERNING TEN-YEAR EXTENSION OF BANK CHARTERS
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CCF

Major James William Coldwell

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

Mr. COLDWELL:

I think the minister is tired, as is everybody else.

Topic:   BANK ACT AMENDMENT
Subtopic:   CONDITIONS GOVERNING TEN-YEAR EXTENSION OF BANK CHARTERS
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NAT

Gordon Graydon (Leader of the Official Opposition)

National Government

Mr. GRAYDON:

Leave it to the minister to say whether he wants to go on.

Topic:   BANK ACT AMENDMENT
Subtopic:   CONDITIONS GOVERNING TEN-YEAR EXTENSION OF BANK CHARTERS
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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

I would prefer to wind it up to-night if I can have unanimous consent. I shall have to keep within my forty minutes. Reference was made to the small loan business by the hon. member for Vancouver-Burrard (Mr. McGeer), who indicated that he would

Bank Act-Mr. Ilsley

fight hard against this bill in the banking and commerce committee because it increased the rate from seven per cent to 9J per cent to small borrowers. That is not the effect of this bill. The present rate paid by borrowers for small loans on the instalment plan is up to twenty-four per cent. That is what they pay when they borrow from the small loan companies. We thought that the banks should be empowered to make this class of loan, but that there should be a limitation placed upon the rate of interest they could charge, and this has been put at 9| per cent. We have put it in the form of a five per cent discount, but it really amounts to 9J per cent. This is a special and unsecured instalment type of loan, but it is being made available at a much cheaper rate than is now being paid by the people of this country. I believe this to be one of the most constructive proposals in the bill. It fills a current need.

If the measure comes out of the committee with the borrowings limited to a rate at which they cannot carry on the business in any volume, then I am not sure but that it would be my duty as head of the department of insurance to issue licences to additional small loan companies. If I did not do that and there were no regulated facilities, these people would be driven to note-shavers and loan sharks, as was the case some years ago. I consider this to be one of the most constructive provisions in the banking bill. For two or three years now I have been turning down applications by small loan companies for licences.

Topic:   BANK ACT AMENDMENT
Subtopic:   CONDITIONS GOVERNING TEN-YEAR EXTENSION OF BANK CHARTERS
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SC

Victor Quelch

Social Credit

Mr. QUELCH:

Is the bank of Commerce not making small loans?

Topic:   BANK ACT AMENDMENT
Subtopic:   CONDITIONS GOVERNING TEN-YEAR EXTENSION OF BANK CHARTERS
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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

Yes, but at rates higher than 9J per cent.

Topic:   BANK ACT AMENDMENT
Subtopic:   CONDITIONS GOVERNING TEN-YEAR EXTENSION OF BANK CHARTERS
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SC

Victor Quelch

Social Credit

Mr. QUELCH:

But less than twenty-four per cent.

Topic:   BANK ACT AMENDMENT
Subtopic:   CONDITIONS GOVERNING TEN-YEAR EXTENSION OF BANK CHARTERS
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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

But higher than the limitation provided by this bill.

I think that is all I can say about that part of the measure because I must hurry along. Perhaps before I get too far along in my time I should say something about the speech of the hon. member for Parry Sound (Mr. Slaght). The hon. member made an astonishing speech. He used the word "monopoly" in a sense which it does not have. He talked about the monopoly which the banks of Canada have. He used the word in the sense of a holder of a franchise. Apparently it did not make any difference to him whether there was one holder, two holders, ten holders or, as in the case in the United

States several thousand holders of the franchise. He used the word in a sense which would make the banks of the United States or the banks of any country a monopoly simply because they were empowered to carry on the business of banking. I think I dealt with the question of monopoly by the banking system of Canada in my first speech.

In dealing with the profit of the private banks the hon. member for Parry Sound denied that the shareholder's equity was the proper basis. The hon. member for Rosetown-Biggar denies that also, as well as other members of the house. They have said that in working out what would be a fair return to the shareholders of a bank we should take into account the original paid-in capital and nothing else. Let me put this to hon. members. If a farmer as a result of his operations is able to save some money and he buys another farm next to his original farm, would it be fair if we were asked to set a fair return on his farm to take the value of both farms or of the first farm only?

Topic:   BANK ACT AMENDMENT
Subtopic:   CONDITIONS GOVERNING TEN-YEAR EXTENSION OF BANK CHARTERS
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?

Mr. COLD WELL@

The example is not comparable.

Topic:   BANK ACT AMENDMENT
Subtopic:   CONDITIONS GOVERNING TEN-YEAR EXTENSION OF BANK CHARTERS
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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

It is comparable. What does a shareholder's equity consist of. Do hon. gentlemen know? It consists of paid-up capital, reserve funds and undivided profits. I believe that one of these banks has been in existence for 125 years, while other banks have been in existence for many decades. It would be most unfair to take the original investment only, made perhaps half a century ago, and say that it is only on that original investment that the present owners of the bank are entitled to a return. Most of the owners of banks have obtained their shares in more recent years and have paid, not $100 but $150, $200, $250 and sometimes more per share. If they are to be paid a return only on the original investment it would mean the immediate reduction of the shares to something approximating their par value, which would be entirely unfair. The shareholders' equity is the proper basis, and what was their rate? Six per cent. All those great figures we heard, $47,000,000 including tax, sixteen per cent, twelve per cent, ten per cent and so on, all come down to this, that in the year 1943, which was a good year for the banks, when they did far better than the average for the fifteen previous years, for which I have also given the figures, they earned-they did not get by way of dividends, but their net earnings amounted to 6-03 per cent of the shareholders' equity.

Bank Act-Mr. Ilsley

The hon. member for Parry Sound says, just as the Social Credit party says, that the borrowing should be done from the Bank of Canada. He recognizes, and I am glad that at last after two or three years apparently he has come to recognize that that would be very inflationary without some change in the ratio provision. Therefore he suggested a change from five to 100 per cent in section 59 of the act. He says that the banks have two billion dollars worth of bonds they should not have. If we were to repossess those bonds and turn them over to the Bank of Canada and borrow another billion from the banks, that would make three billion dollars we would borrow from the Bank of Canada this year. If we did that, it would increase the deposits of the chartered banks by three billion dollars. That is certain. The banks, in order to carry that three billion dollars would have to pay interest on a very considerable part of it, and on all of it they would have other substantial carrying charges. Our best estimate of what the total marginal cost would be, the additional cost by reason of the banks having to carry that amount of deposits under conditions like this, is three-quarters of one per cent. If that three billion dollars were borrowed from the Bank of Canada and we had a 100 per cent ratio provision so that against the three billion dollars of deposits in the chartered banks they would have to keep an equivalent deposit in the Bank of Canada, we would impose an additional charge of 822,500,000 a year on the chartered banks. That is precisely nothing more or less than a tax on the banks. Would anybody in his senses propose a tax of 822,500,000 on the chartered banks in addition to the present taxation? The banks would not take it themselves. They would either liquidate or they would pass it on, and, as I said, there are only four classes to whom they can pass it on-to their depositors. to their borrowers, to their shareholders, or to their employees. They certainly would try to pass it on to one or more of these classes, and would do so. By our borrowing from the Bank of Canada instead of from the chartered banks we would have simply imposed a tax of 822,500.000 or more on some or all of these classes. That is all we would have done. This is a budgetary proposition. It is not nearly as much a banking proposition as a budgetary proposition.

Will it be argued that that is a fair tax, that it is a better tax than the income tax? At last the issue is out in the open. It is not hidden somewhere. It is not on a basis of getting something for nothing or on the basis of the banks getting enormous profits which must be taken away from them. Do we or do

we not want an additional enormous tax placed on the depositors, or the shareholders, or the borrowers, or the employees of the banks? That is the issue. I think we should know exactly what we are facing, and that is all it is, because as the hon. member for St. Antoine-Westmount (Mr. Abbott) said the other night, you cannot get something for nothing. I do not believe we should do that, not for one moment. I think there is no sense in that tax. I think it is unscientific, illogical, unjust and a bad tax. I think our present system of taxation has much more regard for ability to pay than that kind of taxation would have.

I do not know that there is very' much more I have to say. A great many things have been said in this debate which ought to be replied to if one were doing a complete job, and which ought to be replied to sooner or later, but I have not the time in the forty minutes which are allotted to me.

In my opening speech-and I mentioned it this afternoon at the time the hon. member for Vegreville (Mr. Hlynka) was speaking-_ quoted two professors of economics in the United States about the years of prosperity and the years of depression in Canada, and that has been mentioned several times. But as I explained this afternoon the impression given by what I said is probably not the impression that should have been given because these professors divided the business cycle into four phases: depression years, revival years, prosperity years and recession years, and in the figures I used they were only comparing the years of high prosperity, coming toward the peak of the boom, with the years of depression. The period covered was not recent. It was from 1888 to 1924. Between 1921 and 1936 twenty-three central banks were established in twenty-three countries of the world. It is only recently that central banks have been established in practically all countries or that central banks have developed a technique to help control swings from prosperity to depression. It would be folly to deny that there are business cycles, that business is better at times than at some other times, and that certainly would be true under a socialist dispensation. Anybody who thinks that by changing the ownership and operation of industry from private to government hands you are going to do away with business cycles or that times are not going to be better sometimes than at other times is very much mistaken.

I am sure I have forgotten some of the things I should have said, but my time has expired and I am therefore concluding the

Members' Accounts and King's Printer__

debate on this motion. I am sure that in the banking and commerce committee we shall have a discussion which will be vigorous at least, if not enlightening, and probably it will be enlightening as well. I really think the legislation we are proposing this session is the legislation best suited to conditions as they exist at the present time and to the decade which lies ahead.

Topic:   BANK ACT AMENDMENT
Subtopic:   CONDITIONS GOVERNING TEN-YEAR EXTENSION OF BANK CHARTERS
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Motion agreed to, on division, bill read the second time and referred to the standing committee on banking and commerce. On motion of Mr. Ralston the house adjourned at 11.20 p.m. Friday, May 12, 1944


May 11, 1944