CENTRAL BANK

Evening Post, Volume CXVI, Issue 145, 16 December 1933, Page 11

CENTRAL BANK

[THE CANADIAN VENTURE

OUTLINE OF PROPOSALS

XON-TEADING CONCERN-

(From "The Post's" Representative.) VANCOUVER, November 22. Canadians, who use their banks far more than do the people of other Dominions, or' of the Motherland, aro being prepared for a unique experiment in central banking, of which the capital stock "will be privately owned. In other-respects, the banking structure, ievised by the Macmillan Commission, .•will follow closely the lines of the first Central Bank established in the British Empire, the Commonwealth Bank of Australia. As in the case of the Australian precedent, twenty years ago, the chartered banks of Canada oppose the venture. It would, however, be interesting to foresee the attitude of our banks, twenty years hence. Will they change their attitude to one of benevolent neutrality, if not actual support, as banking opinion has changed in Australia? The Commission evidently comprehends such "an altered attitude, .as it recommends the Canadian institution to-absorb the powers of Federal banker and possibly provincial banker, just as the Australian unit has done. '. : The difference in the two structures will, of course, lie in private enterprise being given a chance in Canada to cqnduct the institution. The Government of the dajr would not have considered such a proposal in Australia, as State control was its public policy when it launched the genesis of the Commonwealth Bank: Canada is not a believer in State control where the financial structuro can be entrusted to private individuals, as throughout her history. For that reason the capitalisation is fixed at £1,000,000, compared with £5000 in the case of the Commonwealth Bank, The new bank will have the right of sole issue of, notes, and will redeem the commercial banks' issue over a specified period of years. The dividend will be limited to 5 per cent., or 6 per cent., cumulative, i Remainder of profit is to go to the Government, after provision for reserves. Each commercial bank will be required to maintain with the Central Bank a maximum deposit of 5 per cent, of its liabilities. The bank will take over the issue and management of the Federal public debt, and possibly of the provincial debts. The bank will buy and sell gold, silver, exchange, commercial and Government securities of Canada, the provinces, the United Kingdom, British Dominions, United States, and France. The bank will be prohibited from; engaging in trade, making unsecured loans, paying interest on deposits, or allowing renewal of bills. It will be authorised to concentrate the gold/holdings of the Dominion, and will be required to maintain 25 per cent, in gold against the outstanding note issue. It may; advance, to the Dominion Government up to 33 1-3 per cent, of anticipated income in any one year; 25 per cent, in the case of the provinces. The Commission sustains the Bank Act in its provision that the maximum rate of interest be 7 per cent. Nevertheless, the banks appear to have taken the view that, if a client agreed' to a higher rate, and actually pjiid'it, the transaction was legitimate. T'liiS Higher rate became common on the Prairie, where banks were driven 'to'that; contingency wheit the farmer:eliont was unknown to them, and had no previous transaction- with them- The campaign for a reduction in the interest rate bogan on the Prairie, and the demand for a Central Bank resulted from inability to secure a reduction. The Commission was frankly told by the banks, in evidence, that, if a maximum rate of interest were insisted on, many branches, •especially on the Prairie, would have,to be closed. Its insistence on. the 7 per cent, maximum is regarded as significant, as the Central Bank will be in a position to review all such transactions in the future.