BOOK I.

BANKING AND THE BANK ACT.

CHAPTER I.

REVIEW OF BANKING LEGISLATION.

The statutory banking law of Canada, notwithstanding the important changes which have taken place since 1867, is, in the main, the result of the continuation and development of the policy of the statutes relating to the subject of banking in force in Upper and Lower Canada at the time of the confederation of the provinces. It may therefore be useful to refer to some of the statutes of the late province of Canada as an aid to the understanding of the present Bank Act, and then to review briefly the banking legislation of Parliament since the formation of the Dominion.

Legislation of 1841.

The earliest legislation to which reference need be made is that of 1841. Prior to that date a number of banks were in operation, with power to issue bank notes under individual charters granted by the legislatures of Upper and Lower Canada before the Union of 1840. Some of them were at this time asking for power to increase their capital. At its first session the legislature of the united province rejected a proposal made by Lord Sydenham to establish a provincial bank of issue, and as a fiscal measure, partly in lieu of the rejected proposal, imposed upon the bank notes issued and circulating in the province a duty of one per cent. per annum calculated on the average monthly circulation as shewn by semi-annual statements furnished to the Receiver-General (4 & 5 Vict. c. 29). A Select Committee on Banking and Currency reported in favour of adopting some uniform system of banking in the province, and

1-BANK ACT.

of granting the request of the banks for an increase in capital subject to certain restrictions, most of which had been recommended in a circular despatch dated the 4th of May, 1840, issued under the signature of Lord John Russell, Principal Secretary of State for the Colonies.

By chapter 99 of the same session the banks previously chartered by either of the provinces were authorized to carry on their business throughout the new province.

Acts were also passed in the same year and in 1842 renewing until 1862 the charters of various banks, and authorizing certain increases of capital. Although each of these acts referred to only a single bank, they all contained the restrictions recommended by the Select Committee, so that an approach was thus made to a general banking act.

In 1846 another circular despatch, dated 30th May of that year, was issued by the Colonial Office containing a series of "Revised Regulations" which were recommended to be introduced into any bills for the incorporation of banking companies in the colonies. These regulations, with the restrictions recommended by the select committee of 1841, formed the basis of the subsequent general banking legislation.

Legislation of 1850.

A general act of 1850 (13 & 14 Vict. c. 22) authorized the chartered banks to take, hold and dispose of mortgages of real and personal property by way of additional security for debts contracted to them in the course of their business and conferred certain ancillary rights upon the banks in regard to property mortgaged to them, etc.

The same year was marked by the passing of the "Act to establish Freedom of Banking" (13 & 14 Vict. c. 21). This act forbade the issue of circulating notes under the value of five shillings. Notes for five shillings or over might be issued, as theretofore, by the chartered banks, but not by other persons except as specially authorized by the act. The most significant feature of the act was the liberty it gave to individuals or general partners to establish banks, and to persons to form joint stock companies to carry on the business of banking, each with a single office in one place, and with a minimum capital of £25,000. Banking institutions under this act were permitted to

issue registered notes secured by, and to an amount not exceeding, a deposit of provincial securities with the Receiver-General. These notes were exempted from the payment of the one per cent. tax levied upon the circulation of the chartered banks. The chartered banks were at liberty to surrender their rights of. issuing notes against assets and to obtain registered notes against deposits of securities.

In 1851 an amendment was passed requiring monthly instead of semi-annual returns from the "free banks" (14 & 15 Vict. c. 69). In the same year an act was passed "to encourage the chartered banks to adopt, as far as conveniently practicable, the principles of the general banking act in regard to the securing of the redemption of their bank notes" (14 & 15 Vict. c. 70), and a further act was passed for the same purpose in 1853 (16 Vict. c. 62). The chartered banks, as a rule, rejected the encouragement offered by the legislation just referred to, as their own system of note issue gave greater opportunity for banking profit. Not many new banks were established under the provisions of the Free Banking Act, and those that did not cease to do business subsequently applied for and obtained charters. The act was finally repealed by the Provincial Note Act of 1866 (29 & 30 Vict. c. 10). In the meantime most of the existing chartered banks had obtained by statute further additions to their capital.

In 1858 penalties and forfeiture for usury were abolished. In 1859 another act of general application to the chartered banks was passed, being the first step in the legislation permitting banks to take warehouse receipts and bills of lading as security for advances. In the latter year a select committee of the legislature was struck, and in the evidence reported by this committee and chiefly obtained from the leading bankers, there was much pointed criticism of the existing banking system. No general legislation, however, resulted at this time, and in the years from 1858 to 1866 a number of new charters were granted subject to the general regulations and restrictions referred to above.

Dominion Act of 1867.

By section 91 of the British North America Act, 1867, exclusive legislative authority was given to the Parliament of the new Dominion of Canada created by the act in regard to: