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Volume 2 - ElectricCanadian.com

Volume 2 - ElectricCanadian.com

Volume 2 - ElectricCanadian.com

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DEVELOPMENT OF CANADIAN BANKING 455delay in the redemption of the notes which took place betweenthe date of the suspension of a bank and the time when itsassets were ultimately realized. Thirdly, associated with theforegoing evil was a growing uneasiness in the public mind asto the soundness of individual banks. Public confidence hadbeen considerably shaken as the result of certain disastrousbank failures between Confederation and 1889, for not onlylittle or no indication ofhad the official bank returns giventhe actual condition of these banks, but subsequent investigationhad revealed the most disquieting evidences of in<strong>com</strong>petenceand even fraud on the part of the management. Theseconditions had caused a growing demand for more stringentmeasures to safeguard the public interest.The most talked-of remedy to meet the first two of thesedefects was the adoption of the American system for securingthe note issues. It was argued that if all the note issuesof the banks were based upon public securities deposited withthe Dominion Treasury, the bank-note currency would be<strong>com</strong>ea truly national one. If to this were added the requirementthat the banks should hold in reserve a very considerablefixed percentage of their total liabilities in ready money, that is,in specie and Dominion notes, not only the ultimate but theimmediate redemption of the notes would be guaranteed, whilethe other liabilities of the banks would be relatively moresecure.Some advocated the adoption of both these features ofthe American system, while others considered that the fixing ofa sufficiently high minimum of cash reserves would, with thedouble liability of the shareholders, provide the safeguardnecessary. To remedy the third defect, in addition to theabove requirements, a <strong>com</strong>pulsory independent audit of thebank's books was suggested.In view of the many expressions of public opinion in favourof these proposals, it was only natural that they should beadopted by the Minister of Finance when he came to preparefor the revision of the Bank Act in 1890. In the main he wassupported in this by the executive of the Bank of Montreal.

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