Mr. ROBB:

My hon. friend must not run away with the idea that we did not have inspectors and confidential men to look over these banks long before Mr. Tompkins was appointed.

Mr. BENNETT:

That has been done for many years. The hon. member for Macleod seems to forget that within the last twenty-five years there has not been a time when the Department of Finance has not, through its agents, been inspecting the condition of the banks, not because it had any interest in the shareholders of the banks but because it was fearful that a crisis might be precipitated in connection with our financial situation owing to their not being able to meet the cheques the depositors would draw on their own money.

Mr. DUNNING:

Before my hon. friend

leaves that, there is a point that I would like him to elucidate in his very capable address. There apparently exists the idea that a system of inspection can prevent such a situation from occurring.

Mr. BENNETT:

The hon. member for

Macleod, who is an old banker, apparently suggests that the appointment of an inspector general might be able to obviate the difficulties to which allusion has been made. That is like locking the door after the horse has been stolen. The loan is made and it is when the inspector general discovers a situation that will precipitate a crisis that action is taken. That is his business. He cannot be in every place in Canada at once and watch every loan that is to be made for the purpose of examining whether it is a good loan or not. He cannot substitute his knowledge for that of the local man with relation to it. The inspector of the bank does one thing; he determines from a study of the securities of the bank and the deposits whether or not that equilibrium is maintained between time deposits and time loans and demand loans and demand deposits that is essential to maintaining the solvency of the bank. That is all he does, as I understand the matter at the present moment. A very undisceming electorate did not afford me that opportunity to continue to follow the matter up as I should have liked in 1926, and my hon. friend succeeded me without my having that personal knowledge of the transactions that I would have gained had I remained in that position a little longer.

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Mr. Bennett

At any rate I desire to point out that you will have to concede the first two of those premises: first, that the bank's capital, the

shareholders' capital, is not available for loans to its customers; and, second, that loans to customers depend entirely upon deposits

hat do deposits in a bank depend upon? They depend upon three things: first, competition. That is, if it is the only bank in the community, it receives all the deposits.

Mr. COOTE Hear, hear.

Mr. BENNETT:

I am glad to see my hon. friend is a monopolist in that particular. I assume he approved of that general doctrine in the community in which he directed a bank so successfully for a time, and we will pass to the next, point.

The first point is that of competition, location and matters of that kind. Then comes what is almost as vital a point, the question of management. Why is it that some managers draw large deposits and some less? That is where the personal factor enters into the business. There is always in business the personal factor that cannot be eliminated. The third point is what I am pleased to call the prestige of the bank. Given competition, given management, there are some banks that draw deposits more readily than others because of their prestige, because of their long known solvency, because of the confidence the people have in them for reasons that cannot be exactly described, but which may be called the franchise value of the bank. There are those three factors. Let me give this illustration to the house. A small bank comes into Alberta for the first time as one of the banks did a few years ago. It made loans to three of its customers in that province in Edmonton and Calgary and the sum total of the loans amounted to more than its rest or reserve. They were real estate loans. They wanted business. The result was that bank either had to go into the hands of a liquidator or the depositors had to be saved by that bank being taken over by another bank, and it was. The Minister of Finance knows the bank to which I refer.

What has happened with respect to every bank that has been merged or amalgamated with another ? What has happened has been that on analysis you found that bank either stagnant and not increasing its deposits or unable to meet the demands made upon it by its customers because of frozen assets or matters of that kind. Therefore it had to choose one of two things. The management had to decide whether or not they would be untrue to the confidence reposed in them by the public who put their money into the bank

and betray the depositors, or amalgamate that bank with some other bank. There was nothing else left for them to do. I put this to my hon. friends to the left who have talked so glibly about this question: Would you have the manager of the bank continue to keep the sign on the door until such time as it would be compelled to close by reason of its being unable to meet the cheques diawn upon it, or would you have them save the depositors through the joint action of the bank and the government, by amalgamation with another bank?

Mr. OOOTE:

Does my hon. friend mean to say to the house that in his opinion the great majority of the banks that have been merged since 1900 would have been forced to close their doors if they had not been merged?

Mr. BENNETT:

I would put it this way: To the extent of my knowledge and from what I have been able to learn from the Finance department in this country, I have no hesitation in saying that that would have been the result, perhaps soon, perhaps a little later, but ultimately the result. When a bank reaches the point where it can no longer attract deposits, that very moment that bank's life is through.

Mr. DUNNING:

It must contract its loans.

Mr. BENNETT:

I was just coming to

that. One of two things must happen: It must either get money from some other source, or it must call in its loans so that it will be in a position to meet the demands made upon it, and the worst feature of it all is this, which every thoughtful man must realize, that at the very moment when the bank most needs its money to meet the demands made upon it by its customers who have become apprehensive or suspicious because of the character of its loans, it cannot get its money, because its loans cannot be paid. That is the real reason we have bank mergers in this country. Mr. Reginald

McKenna came out to New York some years ago and made a speech, in the first paragraph of which he said, as I recall it: "The difference between us in Great Britain and you in the United States with respect to banks is that our banks are joint stock companies and are conducted as such, while yours are in an entirely different position." We in Canada do not run our banks as joint stock companies only because we have provided that the banks have power to issue paper money, and to that extent, because they have a franchise, we have exercised control and super-

Bank Act-Mr. Bennett

vision and regulation over their business. Now if you have followed me up to that point, you have your bank dependent for its very life upon the deposits which can be attracted to it. Its ability to attract deposits depends upon three factors: (a) competition; (b) management; and Oc) the prestige of the bank.

Now assume that you have increased competition. To that extent you have a diminution of the deposits of the bank at that point. If you have indifferent management, succeeding vigorous and excellent management, you have the same conditions, and if something happens, as the Finance Minister said a few moments ago, to touch the prestige of an old and established bank as it did in Toronto, you have the same result. You have the drying up of deposits by their withdrawal, and you have not that flow of new deposits that enables you to keep pace with the demands made upon you, because you have frozen credits in the way of loans that are not being paid, and which you cannot call in. Under those circumstances, what is a Finance minister to do? I read the newspapers, and I see that it has been suggested that the minister acted improperly. I have listened carefully to what the minister has said tonight. and he discharged his duty-he had nothing to do with the shareholders at all, not a thing in the world; this government has no interest in the shareholders of a bank -he discharged his duty to the depositors and to the treasury of this country, and if he had failed in either, he would have been derelict in his duty.

This bill of my hon. friend for Toronto Northwest (Mr. Church) would substitute parliament for the minister. Now I ask the house this one question: What would have happened had parliament been substituted for the minister when the Merchants' bank was in difficulties?

Mr. ADSHEAD:

May I ask, for information only, if it is not the case that when a bank takes over a smaller bank, it must use the money of its own depositors to meet the cheques of the bank that has closed its doors, and therefore it must consider that the assets of the bank that has closed its doors are greater than its liabilities? Is not that the case?

Mr. BENNETT:

I am glad that my hon.

friend mentioned that. For some years I was a director of a bank, and I am a very substantial shareholder in some of the banks yet. Do not have any misunderstanding about that. I say that perfectly frankly to this house,

because legislation that affects banks touches them all, and as I am not a shareholder in them all, I thought that I might retain my interest as a shareholder, occupying the position I did; but I terminated my directorship. I can answer the question of my hon. friend quite readily with reference to two, if not three, transactions. On investigation, the assets of at least two of the banks absorbed by larger institutions were believed to be less than their liabilities; that is, if the assets had to be realized on within one or two years, or perhaps three; but the banks believed that if they were given time they could work the situation out and make the assets meet the liabilities. I can give my hon. friend particulars of those transactions if he desires, because there are two or three instances of which I have particular knowledge.

That being the case, what must the minister do under those circumstances? I notice a lot of discussion in the newspapers about bank mergers, and I am going to discuss the question of credit in a moment. But- if I am right in my premises, the people of this country who deposit their money in the banks, control the banks, and if in community A, B or C, or in any province in this country, there is the fear that this or that bank is doing other than it should, the depositors withdraw their deposits and put their money in some other place.

Mr. ADSHEAD:

In the case mentioned

by my hon. friend the assets of the bank were equal to its liabilities, or would be in a year or twro; but would a bank be taken over if its assets could not eventually meet its liabilities?

Mr. BENNETT:

In two cases they were

because, as the Minister of Finance has himself said, he regarded it as the duty of the larger bank to take over the weaker one, believing that with its large resources it would be able to work out the situation in two or three years. They had a duty to Canada to prevent a disaster happening, and they acted accordingly.

Some of you may be greatly interested in reading the judgment of the Privy Council in connection with the old Ontario bank. The judgment was rendered by Lord Mac-Naughton, and the question was whether the Bank of Montreal had taken over a bank, or had merely put itself in a position where it became liable for certain obligations of that bank. Lord MacNaughton, in delivering judgment, eulogised the public spirit of that bank in taking hold of a situation that otherwise would have brought ruin on the community.

Bank Act-Mr. Bennett

In one village the bank put up a painted sign. "This bank has been taken over by the Bank of Montreal," and the run on the bank stopped and the depositors were saved from what might have been almost irretrievable ruin. Hon. gentlemen will find that judgment in the law reports. I shall be glad to give them the citation; I do not carry it in my head at the moment.

Some of the newspapers in this country have suggested tha large interests, whether on the government side or on the opposition side, see to it that opinions shall be expressed favourable to what the government and the minister have done with respect to bank mergers. Mr. Speaker, once more I assert, for the reasons I have indicated, that the minister has no concern about the shareholders whatever, except in so far as they have to vote to carry into effect the agreement between the two banks. His duty is to protect the depositors of the bank from what might be disaster. It may be that the disaster would not come this year or next year, and in one instance it might fairly be said that it would not have come for two or three years, but the second factor I mentioned with respect to deposits prevailed, the question of management. Men had said: "We feel we cannot longer carry on; we feel we have reached the point where we desire to surrender these duties and obligations. It is too great a burden for us," perhaps by reason of age or illness or matters of that kind. When you have that situation, you have a drying up of deposits. The situation is put frankly to the minister. I have seen the letters written in days gone by, and the minister has to do one of two things. He asks himself: Shall I permit these people to go

on or not? I know this. Differing with the Finance Minister as I do in his attitude toward most questions, I think every member of the house will agree with me that the Minister of Finance has approached and will continue to approach that problem with only one thought, and that is: What is necessary for me to do to save depositors from loss and the treasury of this country from being raided?

Now. sir, I .put this to you. If, having appointed an inspector general, and a bank met with disaster, would you not get exactly the statement made by the member for Macleod (Mr. Coote) to-night. He would say: Of course the country is responsible for this: they have to pay the depositors, because if you had an inspector general who was on his job this would not have happened. I say

to you to-night, if by a change of the wheel of fortune hon. gentlemen to my left should be in power, and one of them from Battle River (Mr. Spencer) were minister of finance, could he sleep at night if he refused to permit the fusion of two banks if he knew the depositors would meet with disaster as a result of his refusal. It is all right, Mr. Speaker, for my friends to go from one end of the country to the other and in jibing tones say: Of course the leader of the opposition

agrees with the Minister of Finance; he is a big interest man. But, sir, I feel that when the people intelligently grasp this problem their judgment will be sound, and therefore I support the Minister of Finance in the attitude he has taken with respect to this question.

The other day from inquiries I had made I learned that even where mergers had taken place, one of the big three or the big four that the member for Macleod referred to immediately opened in the towns where, before the merger, there was more than one bank.

Credit, about which we hear so much, depends upon many things. The Hate J. P. Morgan is supposed to have said that he regarded character as a more important factor in determining the credit to which a man was entitled than his assets. This is partly true. But wherever in remote western communities there is a bank, in not one instance-and I have acted for Canadian banks during part of my life in one capacity or another and have been .closely associated with them-I say there is not one of those banks that to my knowledge has not been ready and willing to give credit to any settler in the community, provided always, on an analysis of conditions, he possessed high .character. Sometimes a little security was desirable, but if a settler possessed high character the bank managers in their judgment believed they could safely lend him somebody else's money. Ah, Mr. Speaker, somebody else's money I Will the house please keep that in mind? Somebody else's money. And how often we are willing to be generous with other people's money! That is the basis of the whole problem. Credit, so far as the banks are concerned, consists of the determination of this single question of the management: Are we warranted in lending the savings of widows and orphans, mechanics, machinists and other workmen to the man who applies for a loan? That is the whole question in relation to the chartered banks of this country, and when

Bank Act-Mr. Bennett

the answer can be "yes" to that question, credit is as free as air. Always men build up their reputation for credit to enable them to get money. They 'build up their credit over a long series of years by the promptness with which they pay their debts, by their known habits of integrity and honour, and their general reputation in the community in which they live. Sometimes I have said to banks with which I was associated: You are warranted in lending this man any sum he wants to borrow, because he would not take other people's money if he felt he would not be able to repay it.

We have hedged our Bank Act around with many restrictions. We have limited the rate of interest, which is not always observed; we have limited the amount of loans that may be made to one class of customer to a certain percentage of the bank's capital; we have determined that banks may not lend money on real estate; that they may not make advances on the security of grain and other commodities except as specified. In the restrictions we have imposed with respect to the loans which may be made by banks we have to some extent actually invited mergers. Why? Because in these days of large accounts and great enterprises, if you go to one of the smaller banks and want to borrow a considerable sum of money, the management will say: We cannot do it; but if we are joined to another bank with its larger resources, then we shall be able to transact such business.

While I am on my feet there is just one other thing that I may deal with to-night, although I had not intended to, but it is somewhat related to- this matter. I have read that our banks aTe lending their money with great willingness in New York, and that it is hard to get loans in Canada. My friend from Wetaskiwin (Mr. Irvine) smiles; he has heard it so often, as have my friends to my left. Let us look at that for a moment. If the house has been good enough to follow me in my rambling observations, they will recall that the solvency of a bank depends on its ability to meet the cheques drawn upon their accounts by the people who deposit their money with it. This means that the bank must always keep in liquid form increasing sums of money, depending on the conditions of the times. If money lies idle in the bank it earns nothing, and of course you will get no interest then on your deposits. Banks must either employ their money or pay no interest on it. There is no large call loan market in Canada. So they loan this money on call in the city

where there is a large call loan market-the greatest in the world-where the loans by banks to brokers to-day are nearly six billion dollars. They lend this money because i.t is always available to meet the cheques drawn by depositors on their funds, and if they tied it up in long loans for three or four- months they would not be able to meet the demands made upon them by any depositor who drew his cheque against his account. That is the reason.

Mr. COOTE:

May I ask my hon. friend

a question before he sits down? I wonder if he would care to express an opinion as to how many bank mergers we should permit in Canada from now on.

Mr. BENNETT:

Now my friend from

Macleod has once more given evidence of his willingness to make that appeal to passion and to prejudice which is so essential for the carrying out of the propaganda in which he and others are engaged.

Mr. COOTE:

Not at all.

Mr. BENNETT:

When my friend talks

of how many bank mergers you will permit, he knows that first of all the shareholders themselves are the people who determine whether or not they want a merger, and that the Minister of Finance determines whether or not in the public interest and for the safety of the depositors permission for the merger should be granted. Those are the two things. First of all the body of shareholders, being the proprietors, must agree. The minister is not concerned with them. He is concerned about the depositors and the treasury. I am satisfied that I might ask my friend with equal force: How many people would you permit to grow wheat outside the pool? It is the same question. When you ask how many, you must always have regard to the responsibility that rests with governments and ministers. When I heard my hon. friend from St. Lawrence-St. George (Mr. Cahan) speak to-day as he did 1 realized that he was voicing a great truth. You can h-ave no progress if at every step and at every stage you are to say, "Men are actuated by wrong motives and by a desire to do the wrong thing for personal aggrandizement as against the public interest". When my hon. friend suggests that the time may come when the banks will have been reduced in number to one, I say that he shows little confidence, little faith in the integrity of the public men of this country in believing that

Bank Act-Mr. Spencer

there could ever sit in the great office of Minister of Finance any man who would countenance an amalgamation or a merger unless it were in the interests of the depositors and to prevent raids upon the public treasury.

Mr. H. E. SPENCER (Battle River):

The hon. member for West Calgary (Mr. Bennett) is not the only one who has come to the support of the Minister of Finance (Mr. Robb) in his decision to allow the last merger to take place. Although I am not in favour of mergers, at the same time I fully realize that they are in many instances, things which we cannot stop. We are passing through an age of mergers: we have the cement merger, which has gobbled up many small cement plants; we have the canners' merger, which put an end to the life of many a small canning factory; we have mergers all along the line. I cannot see that it is anything but a purely natural, evolutionary process, and it applies to bank mergers as well. I do not like to see them but I do not see how we can stop the process. I say candidly, in support of the action of the Minister of Finance, that I am quite sure he would not have stood for the merger had he not thought that it was in the very best interests of savings depositors. No doubt he supported it because he knows fully as well as I do the position of savings depositors in the case of the failure of a bank. I will not go into details; everyone can turn to the evidence which was given before the banking and commerce committee a year ago. The minister knows quite well that the savings depositor, in the case of a bank failure, stands a very small chance-and not the first chance by any means-of recouping himself 100 per cent. It did not surprise me to see the hon. member for West Calgary coming to the support of the Minister of Finance, and I congratulate the minister upon having obtained such support.

In what I am going to say on this subject, I intend to follow a very different line from that taken by the hon. member for West Calgary. A good many statements have been made with regard to depositors' money, and particularly the savings deposits of widows and orphans; and to my utter surprise the hon. member for West Calgary gave the house to understand that he believed that all loans were made from borrowed deposits. Furthermore, he rather intimated that most of these borrowed deposits were widows' and orphans' savings. It reminded me of a statement made in the banking and commerce committee by an hon. member of the house in 1923. Becoming rather tired of the tech-

nical discussion that had been going on, he said, " What is the good of our debating this question any longer? The fact of the matter is this: the banks have quantities of money in their safes. A man wants money and he goes and puts up some security; the banker then goes to the safe, gets an armful of money, brings it up and gives it to the customer." That gentleman spoke as though he belonged to the stone age.

I cannot appreciate the remarks of the hon. member for West Calgary to-night after the very able speech he made two years ago with regard to certain reforms which he recommended in connection with finance. Anyone who has given any study to this subject knows that we do not necessarily lend' deposits to those who want to have loans. I agree with a very able man who gave evidence before the banking and commerce committee in 1923, Major C. H. Douglas of London, England, who is recognized as one of the financial critics of to-day. He made the statement that it was not necessary for a banker to take deposits; he pointed out that deposits were taken as a smoke screen to cover up greater activities. I make this further statement, that a banker can take too many deposits. I will quote two other men to support my view that there is no necessity to take enough deposits to make all loans. You have only to refer to the statement made by Professor Adam Shortt to the Manitoba Agricultural College in 1919 with reference to the method by which loans were created. He told the students there that it was purely a matter of collateral being lodged with the banker. To-day we are in the checking period; cheques comprise 96 per cent of the medium of exchange. Professor Adam Shortt made the statement at that time that in the case of a government making a $15,000,000 loan through the bank, the promise of the government being a gilt-edged security, there was no draw on the deposits in the banks with which they dealt. You have only to turn to the other side of the Atlantic, to the Right Hon. Reginald McKenna, of the Midland bank, whom I was glad to hear the hon. member for West Calgary mention. That gentleman was quite open in the statement that the amount of money in circulation- and he referred to all mediums of exchange, including cheque money-was limited only by the wishes of the banks.

I should like to give an instance to show how money is created. A friend of mine wanted to buy some victory loan bonds in 1917. He had no cash but lots of security, and he put up twice as much security with the

Bank Act

Mr. Spencer

banker as he needed by way of loan. He was credited with the amount of the loan; and with its proceeds he bought a victory bond, and turned it in as extra collateral. His crops did not prove successful in the next year, and as he did not want to keep on paying interest on the loan, he sold the victory bonds, paid off his loan, and got his other security back. What was it that enabled him to buy the bonds? Nothing more or less than the security he had. Take another instance. One of our ex-ministers of finance, Sir Thomas White, once made the statement that one year during the war Canada not only surprised herself but surprised the world when she spent twice as much in victory bonds as all the money in Canada-and then, he might have added, we kept enough money to carry on all of our business, which was growing at that time.

It seems to me absurd to say that all the money we loan comprises savings deposits. When we give a bank a charter they have to have a capital of $500,000, of which $250,000 must be subscribed. As soon as the charter is given they are allowed to issue notes dollar for dollar, the only charge being the one per cent tax. Is it to be considered that until they begin to get savings deposits that is all the money they can loan? To me it seems absurd.

Mention was made of the Merchants' bank, that it was absolutely necessary to take over that bank. I well remember the matter coming up before the banking and commerce committee in 1923, and at that time bankers told us from the platform that there were enough assets to pay off all the debts of the bank with $1,500,000 to spare; I remember Sir John Aird and Sir Edmund Walker saying there had been too much hurry in taking over the Merchants' bank. I admit that banks have great privileges, and for that reason they should be responsible to the government. I do not know that the Minister of Finance can do anything else, or, that we could have these things settled in any better way between sessions, under present conditions, but the minister must be responsible to parliament for all details.

The banks have what is called a note privilege. A year ago the amount of government notes in the pockets of the people was about $41,000,000, while the bank notes in circulation amounted to about $184,000,000. I mention this fact because in case of a bank failure the notes outstanding of that bank are a first charge on its assets. Some hon. gentleman might say, "Oh well, that is taken care of by the double liability of the shareholders,"

but I want to say that that is not the case, because the shareholders do not always pay up. I found last year that the shareholders of the Home bank had not met more than fifty per cent of their liabilities. If we had, as I think we should have, a government monopoly of note issue, then we could dispense with the double liability, and the de1-positors would be in a much safer position. Of course we have a note circulation redemption fund, but this is more or less of a joke, because the amount obtainable from that fund if a bank fails is limited to the amount put in it by that particular bank. I have often thought, Mr. Speaker, that in our banking system there is room for something else, or someone else, in addition to the Minister of Finance and the work he does, and the inspector general of banks, and the work he does; we might have some sort of banking commission similar to the railway commission or the grain commission, to look after the peoples' interests.

I would like to draw attention to a matter which I had to take up with the Minister of Finance when Right Hon. W. S. Fielding occupied that position. I went to him because of the distress of a certain municipality in my constituency, at the request of the reeve, who wanted some money with which to operate their schools. They could not get credit from the banks; they had a large amount of money owing them from taxes, some $20,000, and they owed the banks some money, but not a great deal. They wanted to borrow enough to run their schools for that year and if they could not get it they would have to close their schools. They were refused credit; the schools remained closed and the reeve of the municipality wrote me. I took the matter up with the Minister of Finance, and he said to me, "Well, is that not purely a matter between the banks and their customers?" I consider that where municipalities or even individuals consider themselves ill treated by the banks they should have some body to which they can carry their grievances. Another case which comes to my mind happened in 1921, when orders came through from the east to shut down on all loans and to cut credit in half. I will admit that perhaps fifty per cent of the people in my district should not expect any more credit, but a large number of them had quantities of collateral and had an absolute right to credit. Because of the arbitrary rule made at that time by a far-off head office they had to cut down their business and make great sacrifices, all because there was not enough elasticity in our banking system.

Bank Act-Mr. Ladner

The hon. member for Macleod cited the very numerous mergers which have taken place, and the Minister of Finance claims it was necessary for these mergers to be permitted. I am not saying it was not necessary, but if it were, the system is not half so perfect as it is claimed to be by those who run it. I was sorry to hear the minister say that he would vote against this resolution; I would much prefer to see it go to the banking and commerce committee for discussion, because a valuable study might be made there. I only want to say again that I have every confidence in the action of the minister, and in the stand he has taken; I have not the slightest doubt but what he did the very best thing for the country under the circumstances, and, as he says, for the depositors, but the very fact that these institutions are continually asking for permission to merge seems to show me and should show this house and the people of Canada that something is wrong.

Mr. L. J. LADNER (Vancouver South):

I have only a few words to say on this question. in which I have taken a very keen interest for some years. In the first place I want to concur in the stand taken by the Minister of Finance (Mr. Robb) in refusing to adopt the suggestion that all mergers should receive the approval of parliament. The exigencies of the situation at a particular time may well demand immediate action on the part of the Minister of Finance, and to delay the matter for the consideration of parliament might bring ruin and destruction not only to the bank itself but to a great many people. I was very much interested in the frank statement by the minister as to the reasons why banks are forced to merge, and I was interested also in the fund of information brought to our attention in the very able speech of my leader (Mr. Bennett). There was one observation in particular in the remarks of my leader which caught my attention, that in many cases mergers are brought about owing to the fact that an improvident manager lends to his customers in a manner and for a length of time which makes it impossible for him to meet the demands of the people who are entitled to their money, when they make that demand upon the bank.

It occurred to me that some of the consideration we gave to this question in 1923 might be of value now, and one of the remedies that could be used in meeting this situation would be the establishment in this country of a central reserve bank of rediscount. This institution could take the prime paper of a bank which, in the aggregate of

its liabilities, was in difficulties but which had sufficient assets whereby, with the cooperation of a central reserve bank of rediscount or a federal bank, it could be saved.

The deposits of our banking institutions are the life-blood of the organization, and likewise the life-blood of the economic activities of the nation. I would like to place before the house some data I have gathered during the past few years, indicating a situation which will ultimately force consideration by both the government and the public of some remedy.

Out of 82,558,000,000 of deposits in the banks of this country, no less than $2,084,000.000 are in the hands of what is known as the big four. I am not saying there is anything particularly wrong about that at the present time. As my leader said, I believe the banks of this country are in a secure and sound condition, but when you look back upon the course of events during a period of thirty or forty years you will see a line of action which is bound to lead to the situation where there will only be two or three banks left. The public through their representatives will have to find some way to avoid that course.

In the year 1890, thirty per cent of the deposits of the people's money in this country was in the hands of the four large banks, and 70 per cent in the remaining banks. At that time we had forty banks in this country. In 1900, forty per cent of the total deposits were in the hands of the big four, and sixty per cent in the hands of the rest of the banks. In 1923-and I ask the Finance minister to pay attention to this- seventy per cent was in the possession of the big four and 30 per cent in the other banks. In 1928, as of the 30th of June, not 70 per cent but 81 i per cent of all deposits was in the hands of the big four and 18J per cent in the hands of the smaller banks.

Let me remark here that this does not mean that the smaller banks are becoming weaker or insecure. The security and soundness of a bank is the relationship between its liabalities to the public and its assets and the competent and provident manner in which the bank is managed. A small bank can be just as sound and safe as a larger bank. The point I wfish to draw to the attention of the house is the constant deflection of a great quantity of the deposits of the people's money into the hands of the four large institutions.

Let us test this course of events from another point of view. The number of banks in 1890 was forty, and the total capital of all the banks at that time was $60,000,000.

Bank Act-Mr. Evans

To-day we have ten banks and the total capital is $123,000,000. While the capital has increased twice in thirty years, the business done by our banks has increased nearly ten times.

There is something very significant in the manner in which the capital has been placed. Out of $123,000,000 of capital invested in all our banks, leaving aside the reserve which is used for certain contingencies, no less than $79,000,000 is locked up in 'frozen assets, mainly bank buildings, leaving a net liquid capital of $44,000,000. To get a proper perspective on this matter, which I think is rather important, you must visualize as an inverse pyramid the liabilities of the banks. The liabilities, including the liabilities to the public, amounted to $3,300,000,000 as of the 30th June, 1928. As of December 31 of last year, they amounted to $3,455,000,000. That inverse pyramid of liabilities amounting to $3,300,000,000 is resting upon a net liquid capital of $44,000,000.

Applying this analysis to the relationship of net liquid capital to all liabilities including liabilities to the public, we find that in 1900 for every dollar of net liquid capital there were liabilities, including liabilities to the public, of 6ix dollars. In 1910 the proportion was one to fourteen; in 1923, it was one to fifity-five and in 1928, the relationship was one to seventy-five.

The point I wish to make in this regard is that over a period of forty years there has been a clear, inevitable course of the centralization of our banking institutions. I believe that a country as vast as Canada, with such scattered settlement and such diversified interests in industry, should have the maximum freedom in banking. Our banking institutions are granted a monopoly of certain rights in the banking business, and properly so. In my judgment, parliament and the government, the media through which these privileges and rights have been granted, have a responsibility to the public. In the face of that certain course of events it is the duty of the Minister of Finance and the duty of the government to give consideration to these facts and to forestall a situation a few years hence when there will be only two or three banks left.

How is that to be done? In 1923 I suggested to the Minister of Finance and to this house, and I am here to suggest it again, that the government should appoint some commission which, along with the bankers' association, could study this question so that some solution might be found whereby this country could adopt some of the principles of the federal reserve bank of the United States, Which might be applicable to our system and some of the rediscount principles of the Bank of England and make them applicable tin a practical way to this country through a central reserve bank of rediscount. This method could be used as a means of stabilizing or maintaining the existence of the smaller institutions instead of allowing them to be merged and to dwindle out of existence, and thus eliminate the field of competition.

I do noit think the bill of my hon. friend from Toronto Northwest (Mr. Church), covering this question of mergers, is sound from a banking point of view, and in that respect I agree with the Minister of Finance. My purpose in rising was to point out, and I wish to repeat, that staring the public men of this country in the face is a course of events over a period of forty years as clear as day. The question is whether they will realize their present responsibilities and duties by endeavouring to avoid in the future complications which will not be in the best interests of the development of Canada.

Mr. JOHN EVANS (Rosetown):

Mr. Speaker, I think the demand contained in this bill is a reasonable one and I wish the Minister of Finance (Mr. Robb) would let the bill go to the committee. I have had some experience with banks and to-night I am not at all in agreement with the description of banking that the Minister of Finance or the leader of the opposition (Mr. Bennett) has given us. The banks are a public institution; banking is a public utility, and I have pretty nearly come to the point -where I believe very soon this country will have to consider public or government ownership or control of all public utilities. I do not believe we can go on very long with a tyrannical institution such as the banks have become in this country during the last few years. There is a tendency at present, not only in the banking business but in other things, to ignore the decisions and the power of parliament. I hate the concentration of power in any form and I think this bill should go to the committee. But whether mergers are to 'be stopped, whether they can be stopped by the government, some way will soon have to be found whereby control of credit and direction of industry will not be in the hands of a handful of men as is the case now. The greatest evil which I see in the concentration of wealth and industry in Canada to-day is the power of directing credit, capital and industry.

Indeed, to relate some of my own experiences, a few years ago I visited five banks in my city with a bill of lading in my hand for a car of wheat worth at least $800 or $900, and I asked for an advance of only

Bank Act-Mr. Evans

S300. No bank would give me that amount. I needed the money to meet an instalment of a mortgage on my homestead. I am one of those who have gone through pioneering days and I have found it my experience in banking that if I wanted money very badly I could not get it, but since I do not want it I can get all I like. This is not as it should be. Why could I not draw $300 by handing over those securities worth at least three times that amount? At the time there were two renegades, one in the banking business and one in the grain trade that had established themselves here in Canada. I refer to the Home bank and the Grain Growers' Grain Company, who were going hand in hand for credit and business. If it had been the will of the bankers' association, they could have taken over the Home bank when it was in difficulties and they could have saved the depositors, but they did not choose to do that. The fact of the matter is that the Home bank would have been out of business in the year 1906 had it not been for a concern in Britain, ;he Scottish Cooperative Wholesale Company, which was at that time seeking to establish j, line of elevators to gather its own wheat in western Canada. The Home bank had become .nvolved a little and the United Grain Growers, which was the Grain Growers' Grain Company then, because of advances that had been received by farmers from other banks, considered their money unsafe when a cargo of wheat loaded at Port Arthur was already coming this way. They put a sheriff on that wheat, to hold it in the hope, I believe, that the ice would simply gather around the vessel fast enough to hold it there until the following' spring when they expected to put those two renegades out of business.

In that year too, throughout western Canada, a farmer could not borrow any money; he could not secure an advance on his car of wheat, and at that time the banks, railways, and all the speculating fraternity in the grain trade at Winnipeg had combined in a united effort to compel the farmer to use the country elevator and not the loading platform. Had it not been for the banks the efforts of the other concerns would have been useless, but the fact of the matter is-and the situation is to-day as it was then-our bankers are our grain traders, our railway directors and our directors of industry in other lines as well. It is this concentration of power that I hate.

Again I want to ask the Minister of Finance since he is now so concerned about protecting the depositors of the banks-and this was his excuse for not preventing a merger from taking place just lately: why was it that the

government did not protect the depositors of the Home bank? It -was known in 1916 that that institution was tottering to its fall and the then Minister of Finance had no other excuse for letting it continue than that it would not. do to bring on a bank failure during war time because it would create a panic in Canada. But every one of his friends knew that the Home bank was tottering to its fall and they got out from under the load, while the poor depositors and some of the shareholders as well had to suffer.

Government control of banks in Canada has been a farce, just a false hope of the depositor. It has been no security to those who put their money into those institutions. The responsibility for the trail of tragedies across this Dominion can be traced to the action of the Department of Finance regarding the Home bank. Let me ask: Why, only a few years before that, were the depositors of the Farmers' bank not protected? If the government has control, why does it not exercise it? The leader of the opposition says: "What can the minister do? He cannot wait for parliament." I am inclined to make the remark that what he must do is only what he is allowed to do. It comes down to this, that power is being concentrated in the matter of credit and capital. I think this question should go to the committee and be threshed out there, with a view to finding some means for the decentralization of control.

Motion negatived.