During the harvest season heavy drafts are made upon the resources of the banks to provide for the movement of the grain crops of the West. In its advance of money for this purpose the law makes it possible for a bank always to have abundant security. Under section 88 of the Bank Act the buyer makes assignment to his bank of the grain purchased. When the grain is delivered to a railroad, the bill of lading becomes the property of the bank. When it reaches Port Arthur, or some other distributing point, and is stored in an elevator, the bank receives a warehouse receipt in exchange for the bill of lading; and when shipment is made to New York, to Montreal, or to Europe, the bank receives on surrendering the warehouse receipt the shipper's draft on the consignee, the bill of lading, and other documents. Throughout the entire transaction, from the purchase from the farmer to the final sale to the Eastern consumer, the bank practically has title to all agricultural products which are being moved by means of its funds.
Loans to Farmers
The branches of Canadian banks in agricultural districts quite commonly lend assistance to farmers. They do not make a practice of taking mortgages on farm property, but lend outright on the farmer's credit, depending for their security upon his character as a man and ability as a farmer, and often as well upon a neighbor's indorsement. Farmers' paper ranks high among the Canadian bankers and constitutes a considerable proportion of the assets of some of the banks. The banks, of course, do not undertake to supply the farmer with anything more than working capital. They do not help him pay for his land and buildings, but they do let him have at least part of the money he needs for tools, wages, seed, stock, etc. Despite the fact that these advances are unsecured by mortgage, the banks suffer very little loss on farm paper.
Call Loans in Canada and Elsewhere
After "current loans in Canada" the next largest item among the assets is "call and short loans elsewhere than in Canada." The call loans outside of Canada consist mainly of loans in the New York market and are as a rule secured by collateral easily convertible into cash. These loans are regarded by Canadian bankers as equivalent to cash and are figured by them as part of their reserve. Only the larger banks make a practice of loaning on call in New York.
The Banks as Financial Institutions
That the chartered banks of Canada are financial as well as commercial institutions is evidenced by their holdings of stocks and bonds. These securities represent partly an investment carried as a secondary reserve and partly a business carried on for the benefit of their customers. In Canada the demand for long-time investments is not large, but whatever market there is for securities is mainly in the hands of the chartered banks. An investor seeks the advice of a bank manager and often is able to obtain from him securities which satisfy his needs. The banks do not publish a list of their holdings, but it is generally taken for granted that they carry only gilt-edge securities. If a customer desires to obtain second or third rate securities, being eager for a high rate of return, a bank can accommodate him, not by selling him out of its own stock, but by negotiating the purchase of the desired securities in New York or London.
As the wealth in Canada increases and idle capital accumulates in excess of its immediate needs, this financial side of the business of Canadian banks will doubtless expand. It may, indeed, during the next generation or two greatly expand and become an important feature of the chartered banks. They are in a position to take care of the business as it develops and will doubtless be able to prevent the establishment of any purely financial banking houses in Canada.
The Revision of the Bank Act, 1913[148]
The Canadian Bank Act, as is well known, is subject to decennial revision. The last revision was due to take place in 1910; but owing to circumstances which it is not necessary here to describe, it was not until the present year that the work was finally undertaken. The leading features of the Canadian banking system are so well known that they may be passed over, and the nature and causes of the recent changes in the act alone described. There were many minor modifications, but the essential changes effected were: (1) provision for a shareholders' audit, (2) the creation of central gold reserves, and (3) the providing of additional facilities for making loans to farmers.