Right Hon. R. B. BENNETT (Prime Minister) moved:

That for the remainder of the session all private bills when presented be read a first and second time and referred forthwith, and that standing order 105, respecting the posting of private bills, be suspended.

Mr. R. B. HANSON (York-Sunbury):

Mr. Speaker, I beg to move that the eighth report of the select standing committee on banking and commerce be concurred in. It will be recalled that this report was presented on Thursday last. Unanimous consent not having been given at that time the matter stood as a notice of giotion. I now desire to make the

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motion for concurrence, chiefly for the purpose of having approval of the house so that the proceedings may be printed.

Mr. G. G. COOTE (Macleod):

Mr. Speaker, I have no objection to anything contained in the report of the banking and commerce committee. I believe the committee did its work most diligently on the two bills which formed the greater part of their activities, namely Bill No. 18 respecting banks and banking and Bill No. 19, to incorporate the Bank of Canada.

There were two matters dealt with by the committee which I believe were not considered as fully as they should have been. The first is the preamble to Bill No. 19. That preamble states the purpose for which the bank is set up, and I believe greater consideration should be given to it. When I make this statement I am not criticizing the committee in any way. The time at the disposal of the committee was limited, and I know there was a feeling that these bills should be put through the committee stage in good time so as to enable consideration by the house and by the Senate.

As is stated in the report in which concurrence is now moved certain other matters were considered by the committee, namely, the resolution by Major Power asking for an investigation into certain specified items. The last one, particularly, was not given the consideration which I am sure it deserved. This item asked for an investigation into the relationship between the banks, or any of them, and the pulp and paper industry and the extent to which the uncontrolled extension of credit brought about over-capitalization and over-expansion and the subsequent disorganization and near bankruptcy of an industry dealing in some of the most valuable of our natural resources. Then it goes on to ask that certain witnesses be called, and asks that counsel learned in the law should be secured by the committee to assist in the investigation into this particular matter. If I remember correctly the house authorized the committee to employ counsel, but the committee did not see fit to do so when the matter was further considered.

I feel that this matter is a very important one and deserving of further investigation. I should like to urge upon the house that the committee be instructed to give further consideration to it. I know there is a disposition on the part of some hon. members to say that we should not attempt even to suggest to a committee which might sit next year anything as to the nature of tl*e work in

which it should engage, but if the committee of this session feel it has not thoroughly investigated the matter, and that it is worthy of further investigation. I believe we would be failing in our duty if we did not state our opinion to the house for the benefit of the committee next year. Without taking up further time of the house I wish to move:

That the eighth report of the select standing committee on banking and commerce be not now concurred in but that it be recommitted to the said standing committee with instructions that they have power to amend the same so as to recommend:

That at the next session of parliament the said committee be empowered to consider the degree to which the extension of credit by the Canadian chartered banks brought about overcapitalization and over-expansion in major Canadian industries involving the most valuable of Canada's natural resources; to investigate the role played in that disorganization by the overzealous salesmanship of self-styled investment bankers; to investigate any other matters relating to the capitalization or financing of these major industries; to consider the regulation of credit and currency, the control and protection of the external value of the national monetary unit and' the basis, if any, which should underlie that unit, the influences which cause fluctuations in the general level of production, trade, prices and employment and the proper monetary action necessary to mitigate those fluctuations and, generally, the promotion of the economic and financial welfare of the people of the Dominion of Canada; with power to send for persons, papers and records and with instructions to report from time to time to the House of Commons any recommendations which, if parliament should so decide, should be referred to the executive committee and/or the board of the Bank of Canada for consideration and such action, as in the premises, might be deemed necessary to attain the objects set out in the preamble of the act to incorporate the Bank of Canada; and with instructions that counsel learned in the law and such other persons as the said committee may designate be appointed to assist the committee in the above inquiries.

. Mr. SPEAKER: In my opinion, the amendment moved by the hon. member for Macleod (Mr. Coote) is not in order as this house cannot direct what shall be done by the house at the next or any future session of parliament. The question is on the main motion.

Mr. JEAN FRANCOIS POULIOT (Temis-couata):

Speaking to the motion, Mr. Speaker, may I quote paragraph 2 of the motion moved in the banking and commerce committee by my hon. friend from Quebec South (Mr. Power), that the committee inquire into;

The general policies adopted by the chartered banks to combat the effects of the depression, and to what extent the said banks are responsible for the drastic deflation from which the country suffered and is still suffering.

Banking and Commerce Report

Last year the rate of interest paid by the banks to depositors was decreased by one-half of one per cent. In return the banks were supposed to decrease the rate of interest to be paid by municipalities on the loans advanced to them by the banks, but before that happened, the banks raised their rate of interest to the municipalities by one-half of one per cent, and then later removed that one-half of one per cent, with the result that the municipalities are paying exactly the same rate of interest as they did before, and the reduction of one-half of one per cent paid by the banks to depositors has served only to cover the losses sustained by the banks. So by paying less interest to the depositors it is now the privilege of the banks to increase their reserve funds and to cover their losses. If banking matters are still to be studied by the banking committee until the end of this session I take the liberty of drawing the attention of the members of that committee to that very important fact.

Hon. IAN MACKENZIE (Vancouver Centre):

As a member of the committee

who asked for delay when the report was first submitted by the hon. member for York-Sunbury (Mr. Hanson) I desire to state my own personal position.

I am quite in sympathy with the sense of the amendment that has just been moved by the hon. member for Macleod (Mr. Coote), but I quite agree with Your Honour's ruling that it is possibly out of order. At the same time I desire to state that if at another session I am in my place, I certainly intend to move that an investigation be pursued along the lines contained in the amendment of the hon. member for Macleod.

The first point raised by him was a discussion of the preamble of Bill No. 19. I maintain that we are still entitled when Bill No. 19 comes before the house, to-morrow possibly, to discuss that preamble both in principle and in detail.

The second point raised by the hon. member was the resolution that was moved in the committee on banking and commerce by my hon. friend from Quebec South (Mr. Power). I do submit that the committee was handicapped and hampered in its investigations of the six subclauses of that resolution by the unwillingness, if I may use that polite word, of the committee to grant us counsel as we requested on the first day of that investigation. I do still think that the amendment that was moved by the hon. member for Cartier (Mr. Jacobs) to have other industries added was very much in order and very much required by the sentiment of the country at

the present time. I agree that possibly it may be more in order to move at the next session of parliament that this investigation be pursued.

I must express my own personal disappointment at the receptton given by the banking committee to some of the suggestions that were made from the minority groups in that committee. At the same time I wish to express here my sense of appreciation of the fairness and the ability and the courtesy of the chairman of that committee during its recent deliberations.

Mr. C. G. POWER (Quebec South):

Mr. Speaker, I only wish to add a word to what has been said by my hon. friend from Vancouver Centre (Mr. Mackenzie) and to take a somewhat similar attitude to that which he has taken. May I also join with him in paying a tribute to the ability and courtesy and fairness of our hon. friend from York-Sun-bury (Mr. Hanson) who so ably presided over the deliberations of that committee.

Mr. DUFF:

Beware of the Greeks bearing gifts!

Mr. POWER:

Personally I must add to

what has been said by the hon. member for Vancouver Centre that I regret that the members of the committee did not consider it advisable to provide the committee with counsel in order to inquire further into matters which were the subject of the resolution which I proposed in the committee. It is not for me I suppose to apologize for the manner in which the inquiry was conducted, but may I say that from the very moment that it became clear that counsel was not to be permitted, this investigation no longer became an investigation but a polite discussion as between the bankers and some members of the committee. It was obviously impossible for one who is not familiar with all the phases of the banking situation and whose profession does not lend itself to a thorough study of financial conditions in this country to examine or cross-examine leaders of industry and finance in this country with any degree of knowledge. We did the best that we could under the circumstances, and if more information of value to the public and to the committee in its deliberations was not made available, it is due I think largely to the fact that we were not assisted by counsel, accountants and others who would have been able to make a more searching investigation. I should say that in my opinion which may not perhaps be shared by other members of the committee, we did at least bring to light certain facts which were in the

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public interest and show that though perhaps the professional bankers who appeared before us are men of high standing and character and have carried on their duties as bankers conspicuously well, there are still some defects, if I may use that term, in our banking system and those defects should be studied by those interested in the finances and the financial and economic welfare of this country in order that sooner or later- preferably sooner-they may be remedied.

As to some of the other questions which were brought to our attention and which were studied, mainly the question of interlocking directorates, I have only to point to the admission of the bankers themselves. Both Sir Charles Gordon and Sir Herbert Holt stated that if the power which they had in their hands were in the hands of someone else who in their opinion was less desirous of consulting only the public weal and not their own selfishness, that power would be a very dangerous one. This admission, or statement if you like, was made by Sir Charles Gordon and was confirmed by Sir Herbert Holt. I think this goes a long way towards justifying those who stated in this house that one of the dangers to the body politic was the great control, power and influence which certain prominent industrialists had over the financial and economic welfare of the country.

Hon. PETER VENIOT (Gloucester):

Mr. Speaker, before this report is adopted I should like to know if it is the last report of the committee?

Mr. HANSON (York-Sunbury):

Yes.

Mr. VENIOT:

I desire to take advantage of this occasion to refer to ah incident which took place before the subcommittee of the banking committee which sat in Montreal. As I read the report a reference was made by Sir Herbert Holt to the development of horse power and the building of newsprint and pulp mills in New Brunswick. He made a statement with reference to Fraser Companies Limited and the premier of New Brunswick. He did not name the premier but I happened to be premier from 1923 to 1925 and had considerable to do with the initiating of the development of water power in that province, especially at Grand Falls. While Sir Herbert Holt was not definite in the statement he made, if he had in mind the connecting of myself as premier of the province with any transactions of Fraser Companies Limited in the development of horse power, I desire to dissociate myself from that reference. So far as Fraser Companies Limited and myself as premier of New Brunswick at that time are

concerned, they had nothing to do with the action I was prompted to take in connection with the development at Grand Falls at that time.

Mr. R. B. HANSON (York-Sunbury):

Mr. Speaker, I have just one word to say in reply. I should like to take advantage of this opportunity to thank the hon. member for Quebec South (Mr. Power) and the hon. ' member for Vancouver Centre (Mr. Mackenzie) for their kind expressions with reference to myself. I should like to say also that the subject matter of the amendment moved by the hon. member for Macleod (Mr. Coote) was considered very fully by the committee. While there was no unanimity, I think I am within the judgment of the members of the committee when I say that it was considered very fully. The members of the committee thought that no useful purpose would be served by adding a rider of that character. The hon. members for Macleod, Vancouver Centre and Quebec South have referred also to the failure of the committee to implement the authority given by the house to employ counsel. May I say to the house and to the country that this matter was considered very fully and the decision arrived at was that considering in a committee of fifty there were twenty-two members who were lawyers of high standing and with considerable knowledge of public business, the employment of counsel was unnecessary. I think it is the considered judgment of the committee that by this action we saved the taxpayers of this country a large sum of money. One word more. I did not understand that Sir Herbert Holt had any reference to the hon. member for Gloucester (Mr. Veniot) in the statement he made.

Motion agreed to on division.

Right Hon. R. B. BENNETT (Prime Minister):

Mr. Speaker, I propose to ask leave to introduce a bill to amend the Dominion Notes Act. I gave notice yesterday to have this placed on the order paper for to-day. This notice appears in votes and proceedings and I should like to make this motion and give a short explanation before moving the resolution which stands in the name of the Minister of Public Works (Mr. Stewart). These two matters are related. With the consent of the house, I should like to move for leave to introduce a bill to amend the Dominion Notes Act.

Mr. LAPOINTE:

Explain.

Dominion Notes Act-Mr. Bennett

Mr. BENNETT:

Mr. Speaker, in view of the pending establishment of the Bank of Canada which will take over the dominion note issue, it is necessary to introduce in this house a bill which will repeal the present Dominion Notes Act and provide for a strictly limited interim elasticity in the note issue, the necessity for which occurs out of circumstances surrounding this period of transitional issiue and the neiw conditions incident to the establishment of the Bank of Canada. Section one of the proposed bill will provide that

8120,000,000 of dominion notes may be issued with twenty-five per cent gold coverage and that any issue in excess of that shall be covered to the extent of one hundred cents on the dollar.

Possibly the house may be interested in knowing something of the present condition of our note issue legislation. I had occasion during the session briefly to direct attention to this and I do not propose to review this matter in full. Under the Dominion Notes Act, which is chapter 41 of the Revised Statutes of Canada, 1927, dominion notes may be issued against a twenty-five per cent gold coverage or backing. Above this amount dollar for dollar in gold is required to be held by the Minister of Finance as security for the redemption of these dominion notes. It will be observed that the amendment substitutes 8120,000,000 for $50,000,000. In addition to that we have the Finance Act which provides, as is known, for advances of dominion notes being made to the chartered banks on the strength of such approved securities as may be deposited with the Minister of Finance. The Finance Act, as is well known, is chapter 70 of the revised statutes of 1927. Then, in 1915, by chapter 4 authority was given for the issue of $26,000,000 of dominion notes. These notes have been issued and are outstanding; 816,000,000 of them are issued against certain railway securities, and the balance of $10,000,000 has been issued without any specific security.

On the basis of the legal provisions, the dominion's note circulation on May 31, 1934, showed outstanding dominion notes amounting in the aggregate to $171,110,949.69, issued as follows: Under chapter 4 of the statutes

of 1915, to which I have just referred, covered by railway securities to the extent of $16,000,000, and not specifically secured as to $10,000,000-826,000,000. Under the Finance Act, being chapter 70 of the Revised Statutes of Canada of 1927, an issue of $38,444,000; advances made to the banks, secured by deposit of approved securities and under the Dominion Notes Act, being the chapter with which we are now dealing, chapter 41 of the

revised statutes of 1927, there was outstanding, May 31, notes to the amount of 8106,666.949.69, making a total issue of $171,110,949.69, as I have just indicated.

On the same date, the gold held by the Minister of Finance was reported as follows: Against notes as required by the Dominion Notes Act, chapter 41 of the revised statutes, .$69,166.949.69; in excess of the statutory requirements to which I have just referred, $371,002.46-1 will not repeat the statutory requirements-and the gold to which I referred yesterday, held in reserve as security for the deposits in the post office savings banks. $2,294,958.85, the statutory requirement being that 10 per cent of gold should be held against such deposits. That makes the total gold held, $71,832,911. If we eliminate the gold that is held for the savings bank deposits, we have a percentage of gold against paper issue of 40^ per cent; that is, for every dollar of outstanding notes at the end of May, the country held 40xh cents in gold.

Now, the most important change to which I am directing attention this afternoon is to authorize the issue of $120,000,000 of notes instead of $50,000,000 as now authorized. The $120,000,000 will be covered by 25 per cent of gold, and above this amount the 100 per cent provision will still apply. In this connection I will trespass upon the time of the house to read again the resolution which was adopted last year at London by the World Monetary and Economic conference. On the recommendation of the subcommittee on technical monetary problems, the conference of sixty-four nations unanimously adopted the following resolution relating to gold reserves to be held by the central banks-D in the report:

That in order to improve the working of a future gold standard greater elasticity should be given to central bank legal cover provisions; for instance, in so far as the system of percentage gold cover is applied a minimum ratio of not more than 25 per cent should be considered as sufficient; similar elasticity should be achieved' by appropriate measures where other systems are applied. However, such changes must not be taken as an excuse for unduly building up a larger superstructure of notes and credits; in other words, the effect of this resolution should be to increase the free reserve of central banks and thereby to strengthen their position.

That is the end of the quotation. It will thus be seen that the proposal I have just suggested to the house, which the proposed legislation enacts, is in accordance with the prudent recommendations of the world conference. In fact, we are providing a margin of reserve in excess of that deemed sufficient by the conference. I offer this comment in advance to dispel any possible doubt in the

Dominion Notes Act-Mr. Bennett

minds of those who may regard the proposed action as unorthodox or as a departure from the accepted canons of sound monetary practice. Now I shall give the particulars to the house.

The gold coverage under the old and new proposed arrangements is to be calculated as follows: Total dominion notes outstanding on May 31, 1934, as I have already indicated, $174,110,949. Gold held against the notes at S20.67 per ounce, that is, at the statutory figure-