Mr. HANNA:

Did it not have that effect ' directly in this case?

Mr. MACLEAN:

I doubt it very much indeed. It has been urged, Mr. Speaker, that the department did not exercise the necessary caution and supervision of the representations or allegations made on behalf of the bank by Mr. Travers when making his application for the certificate, and that, it is owing to this failure to make a very careful supervision of the statements made to the Treasury Board that the failure of the bank ensued. I take this ground in respect to this contention, that it was not the proximate or effective cause of the bank failure. That is the finding of the commissioner. The depositors, I say, did not extend credit to the bank upon the ground that it had or had not the Government certificate. The people of Canada know that there is no Government guarantee against loss by a bank's operations except as to note issue. I say that the Government can produce no depositor of the late Farmers' Bank who will say that he or she was induced to make a deposit owing to the fact that the bank received the certificate from the Treasury Board. Their mind was not influenced one way or the other by this fact.

Let us see what was the scope of the reference to the commissioner in respect of the Farmers Bank. It was read by the Minister of Finance and consequently I need not read it at length. But one of the matters which the commissioner was directed to investigate was the conduct and operation of the business of the bank, the amount of capital subscribed and paid up, the causes of the suspension and failure, and the extent of the liabilities, and the value of the assets thereon. On page 10 of the commissioner's report we find the reasons which he gives for the failure of the bank. Let me read them:

Notwithstanding the irregularities on the part of Travers and his misconduct in connection with the application for the certificate, which 1 have mentioned, the evidence satisfies me that if the bank had been prudently and honestly managed there is no reason why it should not

have succeeded. The promissory notes that had been given by subscribers were for the most part good and were subsequently paid, and while it is true that if the certificate of the Treasury Board had not been granted the money of the shareholders and depositors would not have been lost, the efficient cause of that loss was the recklessness and fraud of those entrusted with the management of the bank, and not the granting of the certificate.

Now, the Government of this country asked the commissioner to make a finding as to the cause of the failure of the Farmers Bank, and he makes the direct and specific finding that it was due to the recklessness and fraud of those entrusted with the management of the bank, and not to the granting of the certificate. And still the Government asks us to support legislation upon the assumption that the Department of Finance was responsible for the [DOT] failure of the bank, and that consequently the Government should repay the losses sustained by the depositors of the bank. I submit that in that finding which I have just given to the House there is no justification for the position taken by the Minister of Finance this evening, and no justification whatever for the legislation we are now considering.

Mr. SAM. SHARPE: Might I ask another question? Does the hon. gentleman agree with the finding of the commisH sinner on page 8, that it was ' incumbent ' on the Treasury Board to prosecute the inquiry because of the information which they had received?

Mr. MACLEAN:

That portion of the

commissioner's report was read by the Finance Minister, but the commissioner himself says that, notwithstanding that finding, the efficient cause of that loss was the ' recklessness and fraud of those entrusted with the management of the bank and not the granting of the certificate. Surely the hon. gentleman can appreciate the force of that portion of the finding of the commissioner which I have just read. I am finding no fault whatever with that portion of the finding of the commission to which the hon. member refers, but I want to point out again that the commissioner, notwithstanding his finding upon that point says that the failure of the bank was due not to the issuance of the certificate but to the reckless and fraudulent management of the hank.

The hon. Minister of Finance has urged that the capital required under the Bank Act, $500,000, had not been subscribed prior to the request for the issuance of the Treasury Board certificate. I say that

that statement is open to grave doubt. I think that substantially Mr. Travers complied with this portion of the Act; if he did not, the degree of failure was not very serious. I am sure that hon. gentlemen on both sides of the House will agree with me that the degree of failure was not sufficiently large to justify this legislation. At any rate, there came a time in the history of the Farmers' Bank when this defect was cured; when the whole 5500,000 was fully subscribed and paid. Hon. gentlemen opposite also seek to justify this legislation upon the ground that promissory notes were taken from subscribers, some of which were discounted and the proceeds constituted a part of the 1250,000 deposited with the Receiver General. It may or may not have been proper for the provisional directors to accept promissory notes from subscribers; I doubt, however, whether there is any legal objection to doing so. Mr. Travers was advised by a reputable legal firm in the city of Toronto that he might accept notes from subscribers; that has been the practice in this country, I understand.

Mr. McKENZIE; The commissioner never questioned the legality of that procedure.

Mr. MACLEAN:

No, it was never questioned; there was no legal objection to accepting the written obligations of stock subscribers. But admitting that the provisional directors of the bank were in error in accepting from subscribers promissory notes in payment of subscriptions, still then there came & time when every note which was received was liquidated by the promisors. The commissioner finds that in May, 1907, promissory notes amounting in the aggregate to $59,110 for stock subscriptions were still unpaid and he finds that these were subsequently paid. I say therefore that the failure of the provisional directors of the Farmers Bank to comply with the requirements of the Bank Act in these two respects was subsequently cured. If, owing to the reckless and fraudulent mismanagement of the bank subsequent to that, losses occurred to the shareholders and depositors, it is unfair and untenable to attribute it to other causes.

Mr. BLAIN:

What ie my hon. friend's opinion of having notes discounted in that way for that purpose?

Mr. MACLEAN:

I do not think it is a desirable practice in connection with the IMr- A. K. Maclean.]

organization of a new bank, but it is a practice which everybody in this country knows has long prevailed.

Mr. BLAIN:

Is it not contrary to the

Bank Act?

Mr. MACLEAN:

I do not think it is

contrary to the Bank Act to accept notes from subscribers; it may be contrary to the Bank Act to discount these notes and to use the proceeds towards constituting the $250,000 to be deposited with the Receiver General to secure the issuance of the certificate. I have pointed out that in May, 1907, the full amount of notes given by shareholders for stock and outstanding was $59,110. At that time, December 31, 1907, the Farmers Bank had deposits payable after notice to the amount of $445,465. So, therefore, I say that there did come a time when every defect or irregularity which was in existence at the time the bank applied for the certificate was cured.

Mr. THORNTON:

Does the hon. member mean to say that the defect complained of by Leighton McCarthy was remedied? If he will read page 8 of the report he will find that the commissioner says that it was not cured, and that the Department of Finance erred.

Mr. MACLEAN:

I am attempting to

show that there came a time in the history of the Farmers' Bank when every irregularity alleged to have existed at the time of the application for certificate was cured.

Mr. THORNTON:

How do you know?

Air. MACLEAN:

I know it from the finding of the commissioner. Will my hon. friend tell me what he knows to the contrary? [DOT]

Mr. CURRIE:

Where does the commissioner say that?

Mr. MACLEAN:

The commissioner finds as follows:

The promissory notes that have been given by the subscribers were for the most part good and were subsequently paid.

As a matter of fact they were all paid. If the depositors of date December 31, 1907, have any moral claim against the Government for the loss sustained by them by reason of these inrregularities, surely the persons who became depositors after that date when the irregularities were cured have no claim against the Government.

Mr. CURRIE:

Does the hon. gentleman say that all these notes were paid? Is it not a fact that a number of these notes have not been paid and never will be?

Mr. MACLEAN:

I think it is a fact that all were paid long ago; at least, that is the finding of the commissioner and I am disposed to take his finding in preference to the statement of hon. gentlemen because I feel that they are not likely to have sufficient knowledge to justify them in making assertions to the contrary. I assume that the commissioner, having heard all the evidence that could be given in connection with this fact, was justified in making the findings he did.

Mr. MORPHY:

The hon. gentleman

seems to base his argument largely on the report of the commissioner. Will he admit or deny that long before the commission was entered upon or completed he, in this House, without having the evidence before him, placed himself on record as against the relief of these depositors?

Mr. MACLEAN:

When?

Mr. MORPHY:

At the end of March two years ago. Is the hon. member's memory defective? The hon. member said that the Government would be foolish, I think he said silly, to give any relief to these depositors.

Mr. MACLEAN:

That shows that my

opinion was justified and has been sustained by a gentleman in whom the Government had sufficient confidence to appoint a commissioner to investigate this very important matter. I do not think that is, after all, very important. The Minister of Finance argued this evening that if at the time of the application for their certificate an inquiry had been instituted respecting the statements made in the petition for the certificate, errors and misstatements would have been discovered which would have led to the knowledge that Mr. Travers was an undesirable person to become the manager of the Farmers Bank, and while the bank might have eventually come into existence and gone into business, still, with anybody else but Travers at its head, it would probably have been successful. I fail to see that the Minister of Finance can from such a series of hypothetical facts draw the conclusion that the Government is morally responsible for the failure to institute such an inquiry. If the irregularities which are made the basis of the legislation had been discovered

prior to the issuance of the certificate and the facts of these irregularities called to the attention of Travers at the time, I have no doubt that he was a sufficiently able man to have ' cured and remedied these irregularities, and that is public opinion upon the point. It has been stated in many newspapers in this country during the last two or three weeks that if these defects had been detected prior to the issuance of the certificate they would have been cured by Travers, and that doubtless he would have been permitted to do so by the Treasury Board.

Now, it i3 only natural that we should ask ourselves what is the relation between a bank and a depositor. That is very important indeed. I submit that it is the relation of borrower and lender. It has long been established that the man who deposits money in a bank is, in his relation to that bank, a lender of money, and the bank is a borrower. In the event of failure the depositor will always be considered a voluntary creditor. It was never the purpose of the Canadian banking laws to guarantee depositors in our banks against loss. That idea was suggested in the Committee on Banking and Commerce last year when it had under consideration the revision of the Bank Act and the suggestion received very little if any support from members of that committee. The suggestion was opposed by the Minister of Finance himself. Now the relation between the depositor and the bank being that of lender and borrower-and I do not think any one can dispute that-I ask, upon iwhat principle can you justify the proposal of the Government to indemnify the losers, the lenders in this case, who were the depositors of the Farmers Bank? You cannot justify this legislation upon any sound principle. You have as much right to indemnify against losses made by any lender of money. The relationship is exactly the same, that of borrower and lender.

I wish to deal with another aspect of this case presented by the Minister of Finance this evening. He urged very earnestly that the information which was conveyed to the Department of Finance by the member for Halton, by the member for West Toronto, and by Mr. Leighton McCarthy, the solicitor for certain subscribers to the stock of the bank who had initiated an action against the provisional directors, was of such a character that the Department of Finance should have pursued a further inquiry into all the facts relating to the application

of the -bank for the certificate, and having failed to take notice of this information were guilty of such negligence as to make the Government responsible for the loss. I wish to refer to information claimed to have been given to the Minister of Finance by the hon. member for Halton (Mr. Henderson), and the hon. member for West Toronto (Sir Edmund Osier). Any information given by the hon. member for Halton to Mr. Fielding, was not of such a character as to justify any particular attention being given to the same by the Minister of Finance. They were not in the nature of a protest against the issuance of the certificate. They were but expression of fears. He was clearly very timid of opposition at the time the incorporators were asking for their charter.