CONVENIENCE.

This intricate network of branches brings about a condition of affairs vastly different from that which prevails in this country, and consequently leads to the employment of methods unknown to our bankers.

It is perhaps in the matter of the distribution of loanable capital that the advantages of the branch system are most apparent. Through the various establishments of one of the larger banks the surplus capital of many scattered communities finds its way to a common reservoir, from which through the medium of other branches the most urgent demands of other localities are satisfied. Of the intensity of these demands and the relative standing of prospective borrowers each locality has its own close observer in the person of the manager of the local branch; and the General Manager is always in a position to direct an intelligent distribution of the loanable capital at his disposal, and in the existing organization of branches he finds ready facilities for accomplishing this. As a consequence, each borrower, whether situated in Toronto or in Vancouver, finds himself in direct communication with the idle funds of every part the Dominion; and so perfect is the organization and execution of the system at, instead of the conditions prevailing under our localized system, were the rate in the East is often 5 per cent, or even less while Western borrowers are paying 10 or 12 per cent., there is rarely a difference of more than one or two per cent. between the rate of interest paid by a merchant in Toronto or Montreal and that paid by any solvent farmer or merchant in the Northwest.

Each locality is thus better served than it could hope to be otherwise. There was a time, of which the "free banking" movement is perhaps an evidence, when there was a strong feeling manifested that it was better for each community to have its own local bank, conducted with capital furnished by local capitalists and managed by local officers and bankers. This, however, seems to have been mainly a matter of sentiment, which eventually gave way before the practical advantages of the existing system. Not only are the vast resources of one of the larger banks, when placed at the disposal of a small town, an element of strength and safety which no local institution could hope to rival, but the very magnitude of the institution and the work it has to do permit the employment of the very best banking talent and ability, ensuring the best possible administration; while the trained inspectors employed are able to guard the interests of the stockholders much more closely than they could do themselves even in a local institution.

In the matter of the distribution of reserves the practice followed by local banks in the United States of depositing a portion of their reserves in city banks, also involves some dangers from which the branch system is free. To be convinced of this it is necessary only to contrast the relation existing between a large deposit bank in New York and forty of its correspondents throughout the country with that existing between the head office and forty branches of a single institution. In the case of any stringency approaching a crisis or panic, such as that through which we passed in 1893, the country banks not only endeavor to increase their reserves by curtailing discounts at home, but also in the great majority of cases seek to withdraw as rapidly as possible their deposits from the city banks. The result is usually anything but an economical distribution of the funds available to meet the threat ening situation. In the case of a branch bank, however, the actual necessities of each branch receive due consideration and the funds available at any and all the offices are distributed throughout the system or concentrated at the cities in accordance with whatever policy shall promise most favorable results. There would thus be no occasion for that grab-all-you-can policy which, in the effort of each bank to "look out for No. 1," has been responsible for so many unnecessary commercial disasters.

In the handling of bank-note circulation the branch system can count another of its advantages. To secure prompt and adequate expansion of the currency just when and where the necessities of commerce require, it is not enough that there shall be large banks in the financial centers capable of increasing their circulation, and small ones in the agricultural districts also capable of adding somewhat to the circulation there. For the greatest need for additional currency is most likely to occur at a distance from the larger banks. But a well conducted system of branches insures to each locality the largest facilities for whatever expansion of the circulation it shall require; in other words, it enables the notes of each bank to be put in circulation just where they are most needed. For example, if occasion required, the local branch of the Bank of Montreal in any one of a dozen interior towns would be capable of increasing its circulation to the extent of several millions of dollars; while any such local bank as the place could support would be able to add at the most only a few thousands.

In the facility which widely scattered branches offer a bank in the way of getting its notes into circulation is found another incentive for their establishment. For where, as in Canada, each banker daily presents for redemption all other bank notes which may reach him, if the notes of a bank are put in circulation only at a single point, not only will the average period of circulation be brief, but the field of their employment must also necessarily be limited. But by the establishment of ten, twenty or thirty branches, it becomes an easy matter for a bank, by continually paying out its own notes in so many different places, not only to enlarge its field of circulation, but to increase the average life of the notes, thus contributing in two directions to increased profits.

The Head Office keeps each branch constantly supplied with notes signed ready for issue, which, except for the purpose of small change or occasional matters of accommodation, answer all the purposes of the teller. Whenever payments are made over the counter, these notes are the medium. This use of a bank's own notes as the ordinary till money throughout the whole system of branches has the very great advantage of costing no interest, the only expense being that of printing and preparing the notes for circulation. When it is noted that in some of the larger banks it requires some $2,000,000 to keep the tills of the Head Office and the various branches supplied with cash the importance of this saving can easily be appreciated. The matter has been so admirably summed up by one of the officers of a prominent Canadian bank that I quote his statement:

"In the Uni ed States it probably does not occur to the banker to make any distinction between the money in the teller's drawers or tills and the money kept in reserve in the safes, or, as we call them, "treasuries. In this country there is the greatest possible difference. All of the cash us d by a bank in the "United States is really money to the bank-that is, it costs the loss of interest to carry it idle. So far "as this idle cash is necessary as a reserve the loss of interest should be borne, but to the extent that it "is necessary only as machinery for paying checks or other change making purposes it is, in our opinion, "a wasteful and unscientific system. If you look at the figures of cash held by the Canadian banks the amount appears wretchedly small in proportion to the iabilities. But, as a matter of fact, the cash there "shown is only the gold and legal-tender reserves in the treasuries and the trifling amount of gold and "legal-tenders kept in the tills for the conveni nce of customers. The main business of making payments in money is done by the note issues of the bank."

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This advantage, however, is one that arises not so much from the system of branches as from the fact that the issues are secured by the general assets of the bank rather than by deposit of bonds or other special security-an arrangement which would require that capital should first have been invested in securities sufficient to cover not only the notes in actual circulation, from which a profit is being obtained, but also those in the tills of the bank and its branches, which are earning nothing.

SECURITY.

In addition to the business facilities especially increased by the system of branch banking, as contrasted with our present United States system of independent banks, each confined to a single locality, there is involved another equally important question—that of comparative security.

On the one hand it is evident that the system of branch banking involves an extraordinary amount of discretion and power in the hands of a single man-not on account of the enormous interests involved-for these are perhaps not larger than might be centered in the business of a single locality-but in the extent to which, as a necessity of the system, the administrative head must be left unguided and untrammeled by directorates or committees of stockholders. So long as interests, however great, are massed in a business concentrated at one point, a board of local directors is more or less familiar with the conditions, and can properly undertake the responsibility of correcting a too venturesome management. But when the business of a bank must be handled from a single center through numerous branches in every part of the country, it is absolutely impracticable either for the central board of directors to keep in touch with the conditions at each branch, or for numerous local boards to be so co-ordinated as to be relied upon to influence the central management. As a result, a great bank having numerous branches must of necessity be a great financial army, conducting its campaigns at once in the several quarters of the country, handled arbitrarily and summarily by a single head whose responsibility cannot be lightened or shared.

There results, therefore, on the one hand, an extraordinary administrative facility which may be of the utmost advantage to the institution—especially in enabling it promptly to adapt itself to rapidly changing conditions, whether general or local. On the other hand, the opportunities for malfeasance or, more often perhaps, imaginative finance, are greatly increased. It is perhaps hard to tell to which extreme the balance would tend-whether toward the advantage of giving

the greatest scope possible to the comparatively few born financiers that are ever available in any country, or in giving greater opportunity for evil to the " Napoleons of finance" with which any country is likely to be cursed.

In another direction, however-that of increased mutual support and insurance -the argument seems all on one side and highly favorable to the branch banking system. Under our United States system, which leaves each bank so largely dependent upon the fortunes of its locality, and the business of each locality so entirely dependent upon its local banks, nothing is more common than to see mutual ruin of banks and business in numerous widely scattered localities, while the business of the country has been as a whole sound. Such results are inconceivable in Canada. The widely extended system of each of the great banks, with its branches in every part of the country, constitutes a practical financial Lloyd's insurance, by which each helps to guarantee the soundness of all; while the congeries of the several systems interlocking at every town in the Dominion leave it simply impossible that any local point of the least importance should for a moment be lacking in the most complete discount, currency, and other banking facilities, so long as the whole business of the Dominion is not involved in commou ruin.

ELASTICITY.

The great importance of elasticity in any currency system needs no emphasis here; its special significance in relation to the business requirements of a country largely devoted to agricultural pursuits is admirably expressed by Secretary of the Treasury Windom, in his report for 1890, who says:

"In my judgment the gravest defect in our present financial system is its lack of elasticity. The demand for money in this country is so irregular, that an amount of circulation which will be ample during ten months of the year, will frequently prove so deficient during the other two months as to canse stringency and commercial disaster. The crops of the country have reached proportions so immense that their movement to market, in August and September, annually causes a dangerous absorption of money. The lack of a sufficient supply to meet the increased demands during those months may entail heavy losses upon the agricultural as well as upon other business interests.”

It is especially in this connection that the experience of Canada is likely to prove most interesting to our own financiers.

The table which follows shows the extent of the regularly recurring expansion and contraction of the Canadian bank currency in recent years:

The following table gives, in column I, the aggregate circulation of all the banks of Canada at the end of each month, from January, 1891, to the present time; in column II, for the purpose of comparison, the corresponding data as to the National Banks of the United States are given; while the accompanying chart presents the details of the past four years' experience in graphic form, the scale being such that the relative proportions are maintained :

May.

June

January.... $31,662,099 $32,705,400 $32,831,747 $30,571,375 $175,721,739 $173,205,496 $174,391,253 $207,862,107 February.. 31,925,749 32,711,015 32,978,840 30,603,267 173,663,374 172,621,875 175,422,388 207,479,520 March.. 33,020,661 32,483,965 33,430,883 30,702,607 April 30,904,096 31,496,369 32,633,073 29,996,472 80,917,215 31,383,218 31,927,342 28.467,718 81,379,968 32,614.699 33,483,414 30,254,159 July 30,579,968 32,488,718 33,573,468 29,801,772 August.. 32,012,196 32,646.187 33,308,967 30,270,366 September.. 34,083,051 34,927,615 35,128,926 33,355,156 October. 37,182,768 38,688.429 36,906,941 34,516,651 November.. 87,430,690 37.124,505 35,120,561 33,076,868 December.. 35,634,129 36,191,023 34,418,936 32,375,620 173,078,585 174,404,424 208,538,844 206,605,710

171,805,064 172,529,451 176,094.544 207,875,695 170,419,376 172,476,575 176,865,614 207.833,032 169,237,459 172,499,349 177,164,255 207,245,019 167,927,574 172,683,850 178.713,692 207,353,244 168,543 059 172,527,713 183,755,148 207,539,066 171,334,339 172.656,429 126,980,368 207,592,215 171,935,706 172,786,760 208,690,580 207,564,458 172,184,558 172,432,146 209,311,993 207,565,090 172,993,607 173,614,871 208,948,105 206,686,397

DIAGRAM C.

A COMPARISON OF THE CIRCULATION OF THE
CANADIAN BANKS WITH THAT OF THE
NATIONAL BANKING SYSTEM.

A comparison of the courses of the lines representing on the diagram the elasticity of the Canadian and United States National bank currency for the years 1891 to 1894, inclusive, is really a condensed historic statement, of which the story of delicate and constant adjustment of Canadian currency to Canadian wants is the most commonplace chapter. The record of real interest to us, that we read on the same page, is the story of speculative periods in the United States arising from superabundance of currency at low rates of interest which so accurately coincide with the periods during which, as noted on the diagram, the line indicating the sensitive course of Canadian currency falls below that representing the stolid persistence of nearly uniform volume with us; while our annual period of late summer and early autumn stringency, toward which every merchant and banker looks with concern, and which we have so long learned to describe as the time when so much currency is needed to "move the crops "-as though the Providence that gives us harvests was responsible for it, coincides in its turn with the period during which in each year the line representing the promptly responsive currency of Canada rises above the dead level which our own currency maintains. Looking back over the panic year, the current chapter adds a climax to the comparison. In both countries business has of late been depressed, though subject to the normal tendencies to increase or decrease with the seasons. In Canada the result has been, as is seen from the diagram, a practical repetition of the contraction and expansion of former years, except that the lines which indicate contraction have grown longer in proportion to those which indicate expansion, as the currency system of Canada has

adjusted itself to the lessened requirements; while in the United States the extraordinary increase of our circulating medium conjured up by the stringency of 1893, but coming too late to avoid its worst consequences, has continued to the present date, giving the country, just at the time when it needed least currency, by far the largest supply it has ever had, and leaving the banks, in default of even ordinary business demands, to become gorged with such an unheard of surplus of currency as has never before taxed the wits of financiers or disgraced the currency system of a civilized country.

Whatever else it may or may not be, the Canadian system certainly is elastic. As surely and as regularly as the autumn months come around and the inevitable accompanying demand for additional currency begins to manifest itself, does the circulation of the banks automatically respond; the expansion ordinarily continues until about November, when a maximum, some twenty per cent. in excess of the normal circulation during the summer months is reached. In consequence of this prompt and adequate response to every legitimate demand of commerce for more of the media of exchange the conditions in Canada are quite different from those to which we, in this country, are accustomed. As a prominent banker has recently stated it, "Panics for fear of stringency are thus unknown. The Canadians never know what it is to go through an American money squeeze in the autumn."

REDEMPTION FACILITIES.

But to secure real elasticity, it is not enough that the circulation should promptly expand when the necessities of commerce require more currency. It is just as essential that the circulation should automatically contract as soon as the necessity for its existence shall cease. Here, again, the experience of the Canadian banks seems all that could be desired. Beginning with November each year, the circulation is steadily withdrawn with no more of apparent effort or concern on the part of the bankers or financiers than attended its issue, and by the first of February the normal volume has been once more restored.

The business depression through which both Canada and the United States have continued to struggle through the present year has naturally been attended by a lessened demand for money. The circulation of our National banks shows no evidence of, or sympathetic connection with, the change that has thus taken place in the requirements of trade. On the contrary, though the recent unprecedented surplus reserves of the New York City banks most strongly attest the facts, the National bank circulation has remained practically stationary for more than a year. In Canada, however, the decreased demand for money was met by such a reduction of the outstanding circulation of the banks that on May 31st last their aggregate circulation was the least reported in ten years.

The questions that most naturally arise on noting the prompt and automatic withdrawal of notes from circulation the moment they become redundant, are as to the methods of redemption through which that result is brought about.

In enumerating the provisions of the present Act, attention has already been called to the fact that each bank is not only obliged to redeem its notes in coin or Dominion notes, when presented at its principal office or at any other places at which they may be specially designated as payable, but is compelled to receive them at par in payments to any of its branches, and in addition to maintain at least one agency for their redemption and payment in each of the cities of Halifax, St. John, Charlottetown, Montreal, Toronto, Winnipeg and Victoria :-i. e., in the principal city of each Province.

These provisions are sufficient to insure a banker in any part of Canada—withcut going to unusual trouble, and in general without being obliged to venture be yond the limits of his normal business methods or operations-to present for redemption the notes of such other banks as may come into his possession. It only remains to note that, as the only means by which the field can be kept clear for his own circulation, each banker follows just that course, and day by day sends in for settlement the notes of his neighbors, precisely as he does their checks. For, except in those rare cases where the legal limit of circulation has been reached, the paying out by a banker of the note of another bank where a note of his own might have been used would be the grossest disregard for business principles. The result of this universal attitude of the banks in seeking constant daily redemption of notes is that any issue beyond the current needs of commerce soon reaches the tills of a bank or one of its many branches, from which it is promptly presented for redemption a retired.

The object sought in the establishment of the redemption agencies in each of