which $250,000 must be actually paid in in cash and temporarily lodged with the Minister of Finance until a certificate is obtained from the Treasury Board. Dividends must not impair the paid up capital, nor can a dividend of more than 8 per cent. per annum be declared until the surplus reserve fund shall equal 30 per cent. of the paid up capital.

Reserves. The ratio that reserves shall bear to liabilities is not prescribed in any way. It is, however, provided that 40 per cent. of such reserves as shall be held must be in the form of Dominion notes.

Shareholder's liability is for an amount equal to the stock subscribed, in addition to any portion not fully paid up.

Note Issues. With but two exceptions notes may be issued up to the paid up capital. The exceptions are The British Bank of North America and La Banque du Peuple neither of which is permitted to issue circulating notes to an amount greater than 75 per cent. of its paid up capital without depositing with the Minister of Finance either cash or bonds of the Dominion of Canada as a security for all issues above the 75 per cent. limit. The issue of bank notes under $5 is prohibited. Penalties for excessive issues have been provided as follows:

In 1883 money penalties were first substituted for forfeiture of charter which had previously been the penalty for over-issue. But the fines then imposed were much lighter than the present ones, so light in fact that the profit to be derived from the use of notes above the legal limit in certain cases might more than compensate the bank for the penalty. For example, the fine for an over-issue of $20,000 had been only $100—just 1⁄2 of 1 per cent. However, the aggregate issues of all the banks in the system has never approached the legal limit, and the official returns show but few cases in which this point was availed of by banks desiring to increase their issues under an emergency.

Security.-Notes are a first charge against all the assets of the issuing bank, including the double liability of stockholders. No deposit of bonds as special security is required, except in the case of the two banks mentioned above, for any issues in excess of 75 per cent. of their capital stock.

"Bank Circulation Redemption Fund.”—Each bank is obliged to keep on deposit with the Minister of Finance a sum of money equal to five per cent. of its average circulation for the previous fiscal year, which deposit bears interest at the rate of three per cent. In case of the suspension of any bank, its notes shall draw interest at the rate of six per cent. from the date of suspension until such date as is named by the Directors for their redemption. If the bank fails to make provision for the payment of its notes with accrued interest within two months from date of suspension, the Minister of Finance shall appoint a day upon which he will redeem such notes with interest from the "Redemption Fund," and upon such day they shall cease to bear interest.

The amount thus paid from this fund in the redemption of the notes of a suspended bank in excess of the contribution of that bank to the fund, with whatever interest may have accrued, shall be ultimately recovered from the assets of the bank in question if its assets are sufficient. But pending such reimbursement the other banks shall be called upon to make good the amounts by which their contributions shall have been reduced below the 5 per cent. limit; but such calls upon them shall not exceed one per cent. in any one year.

Redemption Agencies.—Each bank “shall make such regulations as are necessary to ensure the circulation at par in any and every part of Canada" of all its notes; "and towards this purpose the bank shall establish agencies for the redemption and payment of its notes at the cities of Halifax, St. John, Charlottetown, Montreal, Toronto, Winnipeg and Victoria, and at such other places as are, from time to time, designated by the Treasury Board." Each bank shall alsc receive its own notes at par at each of its branches, but is not obliged to redeem them in coin or Dominion notes except at agencies as noted above and at such of its offices as shall be especially designated as places of payment, including always the head office.

Monthly returns of the condition of each bank are required to be made to the Minister of Finance.

Taxation.-There is now no tax on the circulation of these banks.

SPECIAL FEATURES.

The Act of 1890 extended for a further period of ten years the charters of 36 banks, in addition to regulating the issues of two institutions acting under Royal charters; while since its passage the Merchants' Bank of Prince Edward Island has also entered the system, thus raising the number of chartered banks to 39, one of which, however (the Commercial Bank of Manitoba), is now in process of liquidation. It must be remembered, however, that these 39 banks are mainly large institutions, each with many branches, in the aggregate corresponding to 460 local banks such as we have in the United States.

PROPORTION OF CIRCULATION TO CAPITAL.

The following table showing capital stock and volume of outstanding notes for the past fifteen years will serve to indicate the comparatively steady course of recent banking in Canada, as well as facilitate comparison with the experience of our National Bank system:

COMPARISON OF THE CANADIAN AND UNITED STATES NATIONAL BANKING SYSTEMS AS TO NOTE CIRCULATION AND CAPITAL STOCK.

The most noticeable feature of the showing thus made is that while Canadian bank capital and volume of circulation have remained practically unchanged for a considerable period, the capital invested in National banks has largely increased contemporaneously with a very marked falling off in their circulation. The cause of this latter phenomenon it is unnecessary to discuss here.

In relation to the possibilities for further expansion, if required, it is noteworthy that in Canada since 1882 the volume of notes in circulation has generally varied little from 50 per cent. of the capital stock-one-half the amount allowed. Even at the highest point reached the proportion was less than 65 per cent. But while as a whole the Canadian banks have never approached their legal limit so closely as to cause any apprehension of reaching a point where further expansion must cease, this point has frequently been reached in the case of individual banks. At such times the situation is carefully watched from the Head Office, and further issues at all the branches immediately stopped by telegram the moment the legal limit is reached.

EMERGENCY EXPEDIENTS.

If, as is usual in such cases, the opportunity for the use of additional circulation is of short duration, the necessities of the various branches are met by paying out whatever comes into their tills, e. g., the notes of other banks, which under other circumstances are always sorted out and presented for redemption. But if the demand for additional circulation seems comparatively urgent and likely to continue for some time, resort is most often had to a loan from some bank whose circulation is some distance within the limit. This loan is, of course, made in the notes of the second bank, which are thereupon paid out by the first in the same way as it would use its own notes were it possible to issue more without incurring the penalties. The usual practice is either to postpone repayment of the loan for two weeks or to waive the current interest for that period. As the average life of a note is not far from four weeks, the transaction thus resolves itself into an ingenious method of escaping the fine for over-issue, by combining the business of one bank with the notes of another, and dividing evenly between the two whatever circulation profit there may be.

PROCEDURE IN CASE OF FAILED BANKS.

Reference has already been made to the failure of the Commercial Bank of Manitoba, at Winnipeg. As this is the only bark that has failed since 1888, the details of its experience will prove of special interest as being the only case in which the operation of the new provisions of the Act of 1890 are involved."

The bank was incorporated in 1884 with an authorized capital of $1,000,000, $500,000 of which was subscribed, but only $100,700 paid up. The authorized capital was afterwards increased to $2,000,000, of which at the time of the failure $740,700 had been subscribed, $552,600 paid up. Its management seems never to have been regarded as especially sound and at no time did it enjoy the best of credit.

The bank suspended July 3d, 1893, at which time its notes in circulation amounted to $419,135, deposits, $633,058.87, other liabilities, $292,075.59, total liabilities, $1,344,269.46. The nominal value of the assets at the same time was $1,954,167.98, of which $1,636,260.58 was in the form of current loans. The amount of coin and Dominion notes held was but $4,130.26.

At the time of the failure, so far as the bills of the bank were concerned, here was not the slightest uneasiness or disturbance in business or banking circles. The notes were readily accepted by all the other banks, as there was no question about the certainty of their ultimate payment, and, since they bore interest at six per cent. from date of suspension until redeemed, they were regarded by bankers in general as a rather favorable investment. In this way the larger part of the circulation was soon removed from the hands of the general public. At the expiration of two months-the time at which the law provides that the Minister of Finance may make arrangements for the payment of the notes from the Redemption Fund-the receivers found themselves in a position to redeem any of the notes likely to be presented by the public, but unable at once to redeem all those held by the banks. Rather than incur the annoyance and expense which the resulting assessment upon the several banks would have caused, if the notes were to be redeemed from the Redemption Fund, the banks agreed to hold those in their possession until the receivers should be able to provide for their payment, interest upon them in the meantime to continue. The authorities in the Finance Department, however, were inclined to insist upon the immediate payment of these notes out of the Redemption Fund, or, in case any other practice were followed, to insist upon the banks holding them without interest. The wishes of the bankers, however, by virtue of their arrangement with

the receivers, finally prevailed, and though the Minister of Finance promptly announced that the notes of the insolvent bank would be redeemed from the "Bank Circulation Redemption Fund," none were presented to him. This arrangement was of special advantage in that it did away with the necessity for the payment of small contributions from each of the remaining 38 banks in the system, which the redemption of these notes from the fund would have caused-contributions which it would have been necessary to repay to the contributing banks in the course of a few months at most, when the liquidation of the bank's assets had so far progressed as to enable the receiver to redeem the notes thus passing into the hands of the Minister of Finance.

Thus the knowledge of the existence of the two important "safety" provisions-notes as a first charge, and the Redemption Fund-was sufficient in itself to prevent any depreciation or other evidence of discrimination against the notes of the suspended bank, and actual resort to the Redemption Fund, as contemplated by the law, was found in this case to be unnecessary.

By the end of October, 1893, not quite four months from the date of suspension, the circulation had been reduced to $83,000, since which time the notes have been redeemed as fast as presented. There are still outstanding some $10,000. At the expiration of a year from the date of suspension, in addition to the notes thus redeemed, $84,000 of Provincial deposits--another preferred charge upon the assetshad been repaid, and the remaining liabilities reduced by the payment of about $290,000 out of a total of $840,000. Competent bankers, conversant with the affairs of the institution, express little doubt but that all creditors will eventually be paid in full.

BRANCH BANKING.

Prominent among the features of the Canadian system, of special interest to students of banking in the United States, is the practice of "branch banking;" not because it is by any means rare in banking experience elsewhere, but because here in the United States we have been so long accustomed to localized banking that not only are the methods of conducting business through the medium of branches not generally understood, but the whole field is one which seems to have received little attention at the hands of the average American banker. Yet the system has for many years been in successful operation just across our northern border, and is at present such an important factor in the Canadian system that any treatment is inadequate that fails to bring out and emphasize its details.

A prerequisite to any extended use of branches in conducting a banking business is that large capitals shall be concentrated in the hands of single institutions. So long as the capital of a bank is no larger than can be economically employed in its immediate vicinity, there is no inducement for the establishment of branches elsewhere; and conversely, where there is no opportunity for the establishment of branches, there can be little inducement for the massing of large capitals-with occasional possible exceptions in our most important financial centers. But whatever may be the causal relation, the fact remains that the Canadian banks are mainly institutions possessing many times the capital of any of our own banks situated in cities no larger than Montreal or Toronto. There, however, the location of the head office is not necessarily the seat of the main operations of the bank; it is more often merely the center of a vast system of branches, extending from Halifax on the East to Vancouver on the West, each presided over by a trained banker and the whole system directed by a competent General Manager. In this way the local interests of each branch are merged into a single organism whose interests are national and whose opportunities for the widespread employment of capital are unexcelled.

In the diagram on the opposite page an attempt is made roughly to show the extent of the practical interdependence of the subsystems represented by the great Canadian Banks, by the interlocking rather than by the aggregation of which is made up the general system. In such a diagram it has been possible only roughly to indicate the relations of the several banking centers to each other and their relative importance. In a general way, however, the whole field has been covered, so that not only is the situation suggested of each of the 337 branches of the sixteen leading banks especially noted, but there have been also approximately located— under a common symbol (·)-the 123 offices of the remaining 22 Banks of Canada; so that in a way the diagram may be considered complete.