Mr. COOTE:

The article continues:

Two "logical combinations at once suggest themselves. A "logical" combination is apparently one that will get by the Minister of Finance, who has declared himself as opposed to shifting the balance in banking as between Montreal and Toronto. Thus. Toronto banks may merge only with Toronto banks and Montreal banks with Montreal banks.

In Toronto the four banks that are left out of the seven after the Big Three-Montreal, Royal and Commerce-have been eliminated from discussion are the Nova Scotia, Dominion, Imperial and Toronto. A few years ago there was talk of a merger between the latter three. This has been revived, though probably to the embarrassment of the officers of these banks who declare that such a merger is purely hypothetical.

Such a merger would provide a bank with total assets of $400,000,000 as follows: Dominion, $151,000,000; Imperial, $147,000,000; Toronto, $142,000,000.

In Montreal there are only two banks outside of the Big Three, the Banque Canadienne Nationale and the Banque Provinciale du

Bank Act-Mr. Coote

Canada. A merger of these two has been, from time to time, discussed but again quite unofficially. It is not certain that either side wants it. But both banks are French Canadian in aspect. Their combined assets would total over $200,000,000. The figures follow: Canadienne Rationale. $119,000,000; Provineiale, $55,000,000: Total, $201,000,00.

Neither of these combinations would provide a bank to rank in size with the Big Three, although they would be substantial institutions for all that.

About the only way that a fourth large bank in the three-quarter billion dollar class could be set up by a merger of the present banks would be in the union of the Nova Scotia, Toronto, Dominion and Imperial. The combined assets of these four would be as follows: Nova Scotia, $260,000,000; Dominion, $151,000,000; Imperial, $147,000,000; Toronto, $142,000,000: Total, $700,000,000.

This would create a bank that would be practically neck and neck with the Commerce.

All four of the banks mentioned have their administrative head offices in Toronto.

If, as leading bankers say, Canada is to get down to a few large banks, it must be by merger of the existing banks and the mergers above discussed are the "logical" ones.

But several things stand in the way of their consumrhation. The shareholders and directors of the banks referred to may prefer to let each bank go its own gait, as they are doing very successfully right now. Or the government might not permit further mergers, although its policy in that regard seems to exist only for the breaking thereof. But what is more important, and probable, the public may have had its fill of mergers and refuse to accept any more such combinations without expressing its disapproval.

But as the Bank Act now stands how can the public prevent any further mergers? The matter is absolutely in the hands of the Minister of Finance once banks make up their minds to merge, and it does seem to me, sir, that the policy of the present minister is to approve all the mergers that are asked of him. He seems to be, as the good book says-

Mr. ROBB:

Will my hon. friend allow me to interrupt him right there? No, that is not my policy. My policy is to ensure such conditions that the treasury of Canada will not. again be called on to look after depositors as it was in the case of the Home bank.

Mr. COOTE:

On one occasion the Minister of Finance, Mr. Speaker, stated that the control of banking in this country rested in parliament. And yet we allowed the Home bank to get into a position where no other bank in Canada would take it over, even though considerable value might be placed on connections of the insolvent institution. It seems to me very strange if our policy of protecting our bank depositors relies on the absorption of the weak banks by the strong, because there fs only one end to that policy-elimination. Finally we shall come down to the point

where there are only two banks left. Should one of them get into difficulties, our only recourse will be to allow it to merge with the remaining bank. Then when that sole bank through bad management gets into difficulties, I should1 like to know who is going to take it over.

Mr. GARDINER:

The government.

Mr. COOTE:

I listened carefully to the Minister of Finance to-night and his sole objection to the bill which is proposed is that it removes from his hand the method which he uses, or which he used in the past, to protect depositors. The best safeguard for depositors is sane management of the banks, and the best way to secure sane management is to have some thorough outside inspection of the banks.

Outside or government inspection was urged by one of the most prominent bankers in Canada before the banking committee in 1913, but he was opposed by the majority of the members of the Canadian Bankers' Association. It was urged strongly in the year 1923 but was refused by the department and opposed by the bankers. It came in the year 1924 or 1925 as a result of the failure of the Home bank. I presume the bankers felt . that something was needed to allay the fears of the public, and to meet their demands government inspection of banks was granted. Now we have an inspector general of banks. Surely a gentleman with such a high sounding title, and with all the money with which the government in these prosperous times could furnish him to secure a good staff, could under the Minister of Finance, create a situation under which depositors would not all the time be facing this risk of loss about which the minister speaks when w'e suggest any amendment to the Bank Act. On almost every occasion the minister brings up that question. Why could we not have some security for deposit holders without losing the great majority of our banks? Now we are reduced to ten. This article in the Financial Post suggests the next logical merger, and if that takes place we shall lose three more banks and the total be reduced to seven. One of these banks is a small one in Saskatchewan, and two of them are also what the Minister of Finance would call small banks, located in the province of Quebec. Excepting these, we then have the big four. The big three at the present time control some 73 per cent of the assets of the banks of Canada. If we keep on with this process for another ten years we shall be reduced to

Bank Act-Mr. Coote

perhaps four banks, while it is quite possible that we may find ourselves down to three or even two.

We know that as a general rule there is one dominating personality in each bank; he dictates the policy of the bank; and if you have four big banks in Canada controlling over 90 per cent of the assets of the country- they do not own them, but simply control them-then these banks will have more control over the country than all the governments in Canada put together. They can absolutely dictate to the government. Finance is the life blood of a nation, and the control of finance is like the control of the heartbeat of the human body. There is absolutely no question about it. Business to-day is dependent upon credit. Any five men who control the finances of the country have complete control not only of the financial but of the industrial life of Canada.

I find, according to Hansard of last year, in a speech made by the horn. membeT for Winnipeg North Centre (Mr. Woodsworth), that at that time the president of one of our large banks was on the directorate of, I believe, 135 companies. There is no telling how many companies he is directing to-day; I am told it is over 200. That is just a slight indication of the situation which it seems to me is facing Canada.

The time-so far as we can see-is not very far distant when quite probably five men will be able to sit- down together and determine what the policy of Canada shall be. It is not improbable that five men will say, "There are certain industries which we will finance and others which we will not finance"; and what government then will be powerful enough to free us from such a combination?

I wish to give the Minister of Finance credit for the very best intentions, but it does seem to me that his policy in regard to bank mergers is no policy at all; it is just a matter of drifting along, and when some banker tells him that it is necessary in the interests of Iris bank that it be allowed to merge with some other bank he says, "All right; I must protect the interests of the depositor". But surely there must be an end to a policy of that kind. Are we going to allow the country to be governed by four banks? I presume someone will rise and say that this is what they have in Britain-that they have the big five there. Well, the big five may suit Britain, although I doubt it very much; I believe they would be much happier, they would be better off, with fifty. But Canada is distinctly a different sort of country from 78594-9J

Britain. We have a country four thousand miles across. The credit of almost every man, every corporation, every institution in Canada is really controlled, and their finances directed, from Montreal or Toronto. It is bad enough while we have ten banks, but it will be infinitely worse when we get down to three or four.

Canada, if we had had a natural growth in our banking system, would to-day have at least one hundred banks. We ought to have grown from thirty to a hundred; we have grown the wrong way, from thirty to ten. I should not feel quite so much concerned about this, if I could see that the government had any policy to prevent us from drifting 1o the point where we shall be reduced to two or three. Some people may say, "That is all right; we shall get to nationalization of the banking system all the sooner". It seems to me that this belief is almost like that of a miner whom I came across in the election of 1921. In one of the coal mining camps this man was electioneering in a hotel and he said, "Vote Conservative; that's the rottenest party there is, and if you put them into power there will be a revolution all the sooner". I do not believe in that sort of policy; I believe in tackling problems before they reach that stage. _

I do not wish to labour the point, but I would ask the Minister of Finance to consider seriously allowing the bill to go to the committee, and if the committee does not see fit to adopt it as it stands it might amend the bill in some way with a view to preventing further mergers and maintaining in Canada such splendid banks as for instance, the Bank 'of Toronto. I do not think the Bank of Toronto has ever swallowed another bank in its life. It is a fine bank; it has had a steady growth. None of the so-called big three has had a natural growth at all. These banks are like the big fish that swallowed the little fish; and sometimes the big fish had to strain very hard to swallow another almost as large as itself.

The Minister of Finance talks about the big bank being stronger. If he will look into the records, of the banking committee in 1923 he will find that Sir John Aird .made the statement that 'the big bank was not necessarily a bit safer than the small blank; it all depended on the management. I believe that a bank can become so big that there is danger for the depositors. We are creating a lot of super banks and I doubt whether we can find supermen to run them. It is much easier to create the super bank than to find the superman.

Bank Act-Mr. Irvine

I am going to appeal to the Minister of Finance to allow the bill to go to the committee. He need not necessarily approve the principle of the bill, but certainly he must feel in his heart that the policy which he has been pursuing will lead us into a situation which, I am sure, he realizes will not be a happy one for the country. There was an pld bard in Scotland who said that if he could write the songs of a nation he did not care who made the laws, but that was a long time ago. Many years afterwards the late

J. P. Morgan is said to have remarked that if he could control the finances of the nation he did not care who made the laws; he was of a much more practical turn of mind. We are rapidly approaching that position where a few men are going to control the finances of this country; it may be that one personality will dominate them all and become in effect a sort of financial Mussolini. This situation, I am satisfied, is utterly distasteful to a democratic people such as we have in Canada, and I am sure our people will not stand for it very much longer. Again I appeal to the Minister of Finance to allow this bill to be sent to committee.

Mr. WILLIAM IRVINE (Wetaskiwin):

I am sure the house listened with great interest to the very broad and important question opened up by the hon. member for Macleod (Mr. Coo'te), and I think I agree with the general principles held by the hon. member in regard to finance. At the same time I am not clear as to what real value would be gained by letting this bill go to committee unless the house authorized that committee to do very much more than is suggested in the present bill. If someone were to move an amendment, to the effect that the committee be instructed to investigate the whole question of bank mergers and make a recommendation to the house as to what might be done, then the committee woidd have a reference wide enough to permit it 'to go to work, but with the three clauses in the form in which they appear in the present bill I am not clear whether we would be any further ahead by sending the bill to committee.

In my opinion the Minister of Finance (Mr. Robb) probably has done all that could be done under the circumstances in respect to bank .mergers. He might have a much better policy in his head than the one he has been practising in respect to bank mergers, but circumstances would not permit him to follow it, and he has been practising the only one possible, in my opinion. It is not the policy of the Minister of Finance we must look at but the policy of the bankers, and IMr. Coote.l

their policy in turn is being determined by great forces which the bankers themselves are unable to control. The bankers are in the midst of a great, sweeping, evolving system which they must obey, and I do not believe that any legislation whatever can Stem the inevitable tendency towards mergers. I do not know that it would be safe to try it; I know that to-night I would not vote to ask the Minister of Finance to stop all mergers. I think it would have been much better if, for instance, a merger of the Home bank had taken place about five years before the smash came; that would have suited me a great deal better than what actually happened.

In making these remarks I am not taking issue with my hon. friend who has just taken his seat. I know he is trying to find -a solution for a great problem, but I merely observe that I do not believe that solution can be found in an attempt artifically to stem the tendencjr to mergers. I believe that tendency will grow; it is the spirit of the times; it is cooperation, if you like. These bankers are simply cooperating as such. Unfortunately when bankers cooperate we call it a merger, and when, we merge as farmers we call it cooperation. I believe the bankers are cooperating and I do not think we can stop them; I would not do so if I could. But I want to make a suggestion here which might go a long way towards doing something like wlhat the hon. member for Macleod has in mind, although I am not speaking for him because he has spoken well for himself. I believe that if we had a greater socialization of credit we would overcome much of the difficulty with which we are confronted at present.

You may ask what I mean by the socialization of credit; let me given an illustration. There are great industries in Canada to-day which, of course, find it necessary to use their credit to finance themselves, and they must go to banks to secure that credit. If the banks have not sufficient financial credit at hand they must repair to the Treasury board for support and the Finance Act will in that case be utilized to enable the banks to carry on and meet the obligations of the different financial institutions to serve industrial and commercial requirements. Then we have great organizations like the wheat pools of the west. The wheat of the west is credit, and the only way the wheat pools can finance at present is through the banks, which take the credit of the wheat pool to the Treasury board to secure the necessary finances to meet requirements. So I suggest to the Minister of Finance chat it might be possible for the wheat pool or any other organization or cprporation having

Bank Act-Mr. Bennett

sufficient credit to go direct to the Treasury board and secure for themselves the same credit under the Finance Act which the banks secure aid which the banks re-loan to these companies.

Mr. ROBB:

Does my hon. friend wish an answer now? If large organizations such as the wheat pool would encourage small banks such as the Standard bank perhaps we would not have the necessity for mergers.

Mr. IRVINE:

I will admit that that is nice advice, but it does not answer my question.

I still hope that the Minister of Finance will give consideration to that suggestion. Certainly it is not revolutionary; it is being done now, only it is being done through a second or third party. I cannot see why the wheat pool, having the greatest credit existing in Canada, cannot go direct to the Treasury board and use the very same act used by the bank from which they borrow, together with the same security used by the bankers, in order to get the necessary credit desired by the Bool. That could be done not only by the wheat pool but by other organizations or corporations having sufficient credit, and I think it would stem to some extent the tendency toward financial monopoly, which must result from continued mergers if nothing constructive is done. In this w'ay credit would be socialized to a very large degree, and while that would not prevent bank mergers it would prevent the centralization of financial control which :s feared by those who oppose the present tendency to bank mergers, and which is the sole danger of the present process.

Mr. JACOBS:

Does not the hon. gentleman agree with me that the business of a government is to govern, although sometimes they do not do it very well, and not to go into the banking business?

Mr. IRVINE:

That is a very glib phrase with which I have no hesitation in agreeing, but the problem arises of what we mean by governing. At present the financiers are doing the governing; they govern the government. If I were the Prime Minister they would be governing me and they would be governing my hon. friend too if he were in that position. It is not a matter of which party is in power or who is Minister of Finance; it is a maft.er of recognizing facts and facing them squarely. I do not blame the financiers for the present situation; I do not blame anyone any more than I blame myself and fellow citizens. It is our responsibility. Bankers were born under this system; they have lived under it and [DOT]have been a little more successful than I have been, perhaps because they were better

fitted to survive under the system. I am not disputing that, but I am disputing the system itself and suggesting what I believe to be a better one, and still I adhere to the principle referred to by my hon. friend opposite, namely, that it is the business of a government to govern. It would be governing to socialize credit and prevent monopoly of credit instruments, and it would be the business of the government so to do. At present it is the necessity of the government to do what the *real, invisible government tells them to do.

Hon. R. B. BENNETT (Leader of the Opposition):

The last observations of my

hon. friend from Wetaskiwin (Mr. Irvine) indicate how difficult it is for the best informed minds to accommodate themselves to the facts. To assert that there is an invisible government in Canada is to assert that the people themselves are invisible, which is not the fact. During my practice in western Canada for many years, nothing impressed me more than the willingness of the people, once they understood the situation, to realize the soundness of the Canadian banking system. When the hon. gentleman from Macleod (Mr. Coote) made the observation he did, I could not help but think that he knew better. I recall a constituent of his coming to my office on one occasion and complaining of the action of the banks. He said he could not get any money from the banks and he thought they should lend him some. I said to him, "Let us see what you mean. Where does the money come from?" He said, "They make it down east." I said, "Is that your view of it?", and he replied, "It is those rich men in Montreal and Toronto, and they will not lend it out here." I then said to him, "Let us investigate this. Do you realize that the capital of the bank, or the stock of the bank, is the money that certain people called shareholders have put into that bank? That money is never available for loaning purposes, it is all tied up in cash which must be available at any moment, or in bank premises and legal tender, which is the same as cash. The money they lend is the money their depositors lend to them. Now tell me what you offered as security." He told me he did not have anything, and I said to him, "Would you lend your money to any person who was situated as you are?" and he told me that he would not, and that he had never thought of the matter in that way.

Although it may seem a little tedious and unnecessary, and it would be under ordinary circumstances, I am going to point out to this house that the capital of a bank belongs to the shareholders. That capital is subscribed

Bank Act-Mr. Bennett

and paid under the provisions of a statute of this country called the Bank Act. I have in my hand a return for the month ending December, 1928, which gives full information as to the chartered banks. It will be observed from this return that, with the possible excerption of the Weyburn Security bank, in no instance is the cash on hand, legal tender and bank premises less than the paid up capital and reserve of the bank. For instance, the Bank of Montreal had on hand at that time $31,000,000 odd of current gold and subsidiary coin. It had on hand $54,700,000 of legal tender which it had bought and paid for, which, added to the previous amount, makes a total of $85,000,000. The paid up capital and rest of the bank were a little less than $60,000,000, and the bank premises were valued at $11,000,000. The total of the cash and bank premises is $96,000,000, which is more than shareholders' capital and reserves. If you will run through this return you will see the other banks are in the same position.

The banks have no shareholders' money to lend, and let us have no misunderstanding about that.^ It is wrong to attempt to inflame, by gibes and cheap sneers, the opinion of those who do not understand the fact, the class of people who say that they cannot get money and allege that certain rich men are doing so and so, because the truth is that the banks of Canada have in their treasuries, m current gold and silver coin and Dominion of Canada bank notes, and in their bank premises, more money than the paid up share capital and the reserve, which is mostly accumulated profits.

If that be so, on what does a bank live? It lives on one thing only, and that is its deposits, and not the shareholders' capital. Any man who has stood as I have, on a pay-day of the Canadian Pacific Railway Company, and watched the long file of men making small deposits of money, must realize the collective power of these savings. On these savings and on the free balances which they may have depend the ability of the bank to carry on its business.

Mr. WOODSWORTH:

Do I understand the hon. member for Calgary (Mr. Bennett) to say that all the money the banks lend is drawn from the deposits placed by the depositors in the savings department?

Mr. BENNETT:

I included the free

balances of those who utilize the banks for the purposes we all do. Then there are the deposits known as "notice deposits" which are not of quite the same character as savings.

The banks of 'this country are carrying on business with the deposits of the people of Canada, the money in the savings accounts, the open accounts and money held on deposit receipts.

What is the relation between the bank and its customer? The bank borrows money from the customer,, and every time I write a check I am giving effect to a contract between the bank and myself that whenever I make a demand upon my account the bank will honour that claim thus made upon it.

What is the business of a bank? The business of a bank is to maintain the proper equilibrium 'between what the bank borrows from the people and the'lendings of the bank to its customers. The science of banking is the maintenance of an equilibrium between time loans and time deposits, on the one hand, and demand loans and demand deposits on the other. That is the whole science of banking.

That being so, let us go a step farther and ask ourselves just what transpires in connection with matters of credit, to which attention has been drawn. A customer comes to the bank and asks for a loan. The bank asks him what security he can give for the loan, and his answer may or not be adequate. The banks are very particular because they are not lending their own money. These gentlemen suggest that the banks are lending the shareholders1 money down in Montreal or Toronto.

'Some hon. MEMBERS: No, no.

Mr. BENNETT:

That may not be the case here, but they do in other places. Whose money are they lending? They are lending the collective savings of the Canadian people and no banker has a right to lend money without taking adequate and proper steps to see that it is safeguarded and can be returned. If a banker is to carry out this obligation to his depositors, he must maintain a proper relation between time loans and time deposits and demand loans and demand deposits, otherwise the bank will be insolvent. That is the case, not because the bank is bankrupt, but because when my demand is made upon the bank in the form of a cheque, the bank cannot supply the money. Why? Because the improvident manager has lent it on a three or four months' note which has not been paid. When the Minister of Finance referred to some of the difficulties he experienced with the banks it was not that if time could have been given to those banks, the difficulty could not have been worked out, but because what happened in one case of

Bank Act-Mr. Bennett

which I have occasion to know-and I suppose I could mention it with great frankness as the minister has done to-night-was that one of the large banks in Montreal was due to close its doors on Monday morning and it was taken over by another bank because the department agreed. Why? Because on Monday there were outstanding cheques held by other banks amounting to several million dollars that would be presented to that bank at ten o'clock on Monday morning and the treasury of the bank was without money because the bank had lent its money to customers who could not repay in accordance with their promises and so there was no money to pay the cheques. In other words, to use a banking term, the bank's assets were frozen; they were tied up in notes that could not be paid, in demand loans that could not be met. The result was that the bank either had to close its doors on Monday morning or to be taken over by another bank. What did the government choose to do? Just what the Minister of Finance did, and I ask my hon. friends to the left: Is there anyone who would have 'done otherwise? Would anyone of the hon. gentlemen opposite; 'would the hon. member for Northwest Toronto (Mr. Church) for a single moment say he would have let a crisis be precipitated in this country by allowing one of the large banks which was unable to meet its obligations, close its doors, a crisis such as we have never before seen in this country, or say: Let the Bank of Montreal take over that bank?

Mr. COOTE:

Does my hon. friend know that since that time we have established in the government offices here an inspector general of banks to see that these banks do not get into such an improper position?

Mr. BENNETT:

That is not the fact. The fact is that when he finds such a situation exists, he makes his report to the minister, and it is because he did find that with respect to the Union bank that the minister went to Montreal. For what purpose? To save the depositors of the Union Bank of Canada.

Mr. COOTE:

He did not have any inspector at that time.

Mr. BENNETT:

Yes, he did. That was one of the first jobs the inspector did. He went out and found that bank in the position in which it was. If my memory serves me aright, I think this was just after his appointment.

Mr. ROBB:

I think my hon. friend is right, but I am not sure about the inspector. I know that we sent a man out there.

Mr. COOTE:

The condition which existed in the bank certainly occurred before we appointed the inspector. It may be that the inspector found it out.