While these eight institutions are primarily engaged in commercial banking, they are also promoters on a large scale of German industry and commerce, both at home and abroad. Through interlocking directorates, stock ownership, and in other ways, they are closely allied with the leading industrial and transportation interests of the Empire, and they have been and are leaders in the promotion of these interests in other parts of the world, notably in the Orient, South America, and Africa. They are, therefore, leaders on the stock as well as the discount markets of the country, and are widely influential in investment as well as commercial banking affairs.
These, as well as the other commercial banks, consisting for the most part of local institutions and those catering to special interests, use the Imperial Bank for rediscounts, for transfers of funds between different parts of the country, and as a depository for surplus funds. They do not normally keep on hand more cash than is needed for till purposes. Being in easy reach of an office of the Imperial Bank, supplies can be obtained at any time by checks drawn against credit balances or through rediscounts of commercial bills. Special accounts are carried for transfer purposes and are used even in the transfer of funds between different offices of the same institution.
On account of its right to issue notes against commercial securities, the Imperial Bank has the power to meet the demands made upon it and to supply the country with an elastic medium of exchange. The levy of a tax upon the excess of the issues above a prescribed maximum prevents perfect elasticity, unless this maximum be kept above the highest point which the circulation would normally reach, since the actual levy of the tax forces the rate of discount to such a point as to seriously restrict commercial operations. However, since the line between commercial and investment banking is not drawn by the great Berlin banks with the care that is desirable, and since they have been able at times, especially on account of their foreign connections, to embarrass the Imperial Bank in its efforts to maintain adequate specie reserves, such a tax is probably a desirable safeguard against over-expansion of credit.
5. The Canadian System
In important respects the Canadian banking system differs from those of the European countries which have been described and from that of the United States. It consists of a varying number of relatively large institutions, each with several offices administered from a common center, but without a central bank. For some time the total number has decreased, since 1900 from thirty-six to twenty-seven, in spite of the fact that the Canadian law, like that of the United States, provides for the formation of new banks at any time, on compliance with certain prescribed conditions, including a subscribed capital of at least $500,000 and a paid-up capital of at least $250,000. The number of branches, however, has increased rapidly, much more rapidly than the population.
The most noteworthy legal provisions pertaining to the banking business in Canada concern note issues and loans and discounts. Regarding the establishment of branches, the amount, and, with one exception, the composition of the reserves, and many other matters carefully regulated by law in the United States, Canadian bankers are left free to follow their own judgment. Neither is there public examination of banks in Canada. Reports must be regularly made to the Minister of Finance, and he may call for special reports whenever he desires so to do; but neither he nor any other public officer has the right to examine a bank's books or to quiz its officers or directors. In contrast with banking legislation in the United States, another peculiar feature of Canadian law is the incorporation of the Canadian Bankers' Association, an organization resembling in essentials the American Bankers' Association, and the assignment to it of important functions connected with the issue of notes and the winding up of the affairs of failed banks.
Regarding note issues, the chief provisions of the Canadian law are as follows: Each bank is permitted at any time to issue circulating notes to the amount of its capital stock, and between October 1 and January 1 an additional amount, equal to fifteen per cent of its combined capital and surplus, may be issued on payment of a tax to be assessed by the Governor in Council, not to exceed five per cent per annum. The notes are a first lien on all the assets of the bank that issued them, and must be redeemed on demand at the head office and at such other places as are designated by a committee of public officials known as the Treasury Board. As such redemption centers, this board has named Toronto, Montreal, Halifax, Winnipeg, Victoria, St. John, and Charlottetown. Each bank must also deposit with the Minister of Finance a sum of money equal to five per cent of its average circulation. The aggregate of the amounts thus deposited by all the banks is known as the "circulation redemption fund," and may be used in the redemption of the notes of a failed bank. In case the fund is so used, and the liquidated assets of the bank prove to be inadequate for its complete replenishment, a tax sufficient to meet the deficit is levied on the solvent banks in proportion to their circulation.
Regarding loans and discounts, the law aims rather to protect than to restrict the operations of the banks. They may "deal in, discount, and lend money, and make advances upon the security of, and may take as collateral security for any loans, ... bills of exchange, promissory notes, and other negotiable securities, or the stocks, bonds, debentures, and obligations of municipal and other corporations, whether secured by mortgage or otherwise, or Dominion, provincial, British, foreign, and other public securities." The only important restriction placed upon their loaning activities is the prohibition of making advances on the security of landed or other immovable property.
In making loans to wholesale dealers and shippers of produce, the law safeguards the banks by allowing them to take a blanket lien on the goods dealt in by the borrower. This lien applies not only to the goods in possession at the date of making the loan, but to any others which may be substituted for them or manufactured out of them. This lien is prior to that of any other unpaid vendor, except one acquired before the bank's lien was established.
The chief officers of a Canadian bank are the general manager, the chief accountant, the superintendent of branches, the inspector, and the secretary, all connected with the head office, and the managers of the branches.