Volume 2 - ElectricCanadian.com

434 HISTORY OF THE BANKfor a general Bank Act embodying the provisions which hadbeen developed at first in a more or less experimental wayin individual charters, but which afterwards, when approvedThe mostin practice, were extended to the banks in general.critical problem in Canadian banking was the relation ofthe banks to the financial policy of the Government. Inmost respects the Government was inclined to leave banking todevelop naturally along the lines called for by trade andcommerce, so long as the general public were safeguarded intheir increasing dependence upon the credit and exchangefunctions of the banks. From time to time, however, thefinancial straits in which the Government found itself hadtempted it to interfere with this normal development inorder to divert to the financial benefit of the Governmentthose features of the banking system which seemed the easiestand most profitable to utilize in this manner. These were,on the one hand, the note issues, and on the other, the reserves,or that part of them which was usually invested infirst-class securities easily convertible into cash under allconditions. The chief drawback to this policy from thepoint of view of the Government was that when once theseresources had been thoroughly exploited there was littlefurther upon which to draw. Thereafter any financial embarrassmentof the Government tended to impair the credit of thecurrency as well as the market value of its securities. If theembarrassment continued, this naturally led, on the onehand, to a suspension of specie payments, followed by adverseforeign exchange rates, and on the other, to depreciationof the securities, first abroad and then at home.Reference has already been made to various attempts ofthis character either to substitute government notes for banknotes,or to induce or compel the banks to invest certainportions of their capital in governmentsecurities. In thefirst direction, owing to the resistance of the banks, supportedby influential public opinion, relatively small progress had yetbeen made in Canada. Much more had been accomplished in