paid-up capital. It shall not hypothecate its notes. It shall not buy and sell goods, nor shall it make advances upon real property as security. It may acquire title to real estate and other immovable property, but can not hold such property for a period exceeding seven years, except that which is needed for its own business.

A CUSTOMER'S LINE OF CREDIT.

These legal safeguards are not the most important sources of strength to the assets of a Canadian bank. No matter how carefully a law may be framed, it can not prevent bad banking if the system under which the law is applied is unscientific or if the bankers themselves are not keenly alive to all the risks inherent in their business. In Canada the banks are managed by men whose long experience in the business has taught them to avoid certain banking practices that are in vogue in other countries. Realizing how important is the relation between a bank and its customer, they believe that this relation should be made as intimate and helpful as possible. Among Canadian bankers, therefore, it is part of the law and gospel of banking that a bank is entitled to full knowledge of the financial condition and business operations and prospects of its customers. Hence a bank insists that its customers shall rely entirely upon itself, that they shall make a full statement of their affairs at least once a year, and that they shall begin each year with a clean slate.

As a result of this policy a business man in Canada deals exclusively with one bank. Once a year he arranges with his bank for a line of credit and learns exactly the amount of paper he will be able to discount. If he happens to

need less than he anticipated, he will not exhaust the credit allowed by the bank and will pay interest, of course, only upon such portion of the bank's funds as he actually utilizes. If, on the other hand, his business is unexpectedly large, giving opportunity to make bigger profits and creating the need for more capital, he will find the bank ready to increase his line of credit, provided the manager is satisfied that business conditions and prospects warrant expansion. Under no circumstances, however, must the customer of a bank seek to raise funds elsewhere unless he first gets the consent of his bank. If he sells his notes in the open market, he must do it with the full knowledge of his bank or run the risk of being placed upon the "black list."

THE ONE-BANK POLICY.

This "one-bank" policy is so thoroughly a part of the Canadian system that a merchant would find it very difficult, having exhausted his credit at one institution, to get a favorable hearing at another. The very first question put to him would be, "Where have you been keeping an account, and why do you wish to make a change?" If his answers were not satisfactory, the manager of the second bank would either decline outright to help him or get in touch with officers of the bank with which he had been doing business."

a A general manager of a large bank gave his views of the one-bank policy as follows: "In the States the banks are not large enough to furnish all the credit accommodations needed by the larger firms and corporations. So such concerns are forced to raise funds by selling their commercial paper through note brokers. This paper must be paid when due, and in panicky times, there being less demand for the paper, the concerns are denied credit when they need it the worst. Consequently solvent firms

The effect of this policy upon the quality of the bank assets is undeniable. The bulk of the paper held by Canadian banks bears the signatures of men whose business affairs and financial status and general credit have long been well known to the managers. They feel morally certain that the same signatures are not in the portfolios of other banks. The manager of a bank knows the extent to which each borrower's credit has been extended. He knows not merely what his assets and liabilities were when he made application for credit, but has every reason to believe that he knows all the obligations he has assumed since that date.

As one would naturally expect, there is very little commercial paper floating about in the Canadian money market. The bill broker is unknown. Wholesalers and manufacturers, unless shipping to foreign countries, do not draw upon their customers. If credit is granted, it takes the form of a book account or of a promissory

note.

The promissory notes received by a manufacturer or wholesaler are deposited with his bank. The book accounts under ordinary conditions remain entirely at the disposal of the business, but in extraordinary cases,

have been pushed to the wall. In Canada it would be a disgrace to a bank if it should force a creditor into an assignment just because he happened at the time to be hard up, through a panic or otherwise, and then have it proved that the firm was really solvent all the time.

"When a firm does all of its banking business with one bank or, if it is a very large firm, with two or more banks who work in harmony, the bank or banks will not allow a line of credit which will make the firm insolvent in case of an ordinary depreciation of values or partial failure of some new expansion.

"By having all of a firm's business we can and do safely make loans that would make the hair of a banker across the line stand on end."

when the situation is not satisfactory, or if additional credit at the bank is desired, an assignment of the book accounts to the bank may be required."

During the harvest season heavy drafts are made upon the resources of the banks to provide for the movement of the grain crops of the West. In its advances of money for this purpose the law makes it possible for a bank always to have abundant security. Under

a The head of a large wholesale house in Montreal talked as follows about his firm's dealings with the banks: "We, like many other firms, have two lines of credit. One is our single-name paper up to a certain amount. All in excess of that is secured by trade paper. By the bank's getting so much of this trade paper and of the drafts, it can keep in close touch with a firm's business, not only with ours, but with our customers' as well. We discount a customer's paper. He also has the paper discounted which he gives to other wholesalers and manufacturers. If he is straining his credit, the bank is in a good position to know it and to warn us.

"The accounts of some of the largest firms or corporations are often divided between two banks. In this case the two banks work in harmony and they keep in touch with the total debts of the firm by working together. "Some of our merchants and manufacturers thought at the time of the panic of 1907 that the banks were too severe on them, but looking backward they all now think that in view of the extent of the panic and the conditions that followed, the banks gave them all the assistance they could have expected.

"In our line of business we draw drafts on our customers for from thirty to one hundred and thirty days. These we discount at our bank and deposit as cash. The bank then forwards drafts through its branches, and after they have been accepted by the customers, holds them for maturity. In this way the bank has both us and the customer on the paper, although they have to be vigilant in the matter of presenting for acceptance and for collection at maturity.

"Our business a few years ago was conducted more on a credit basis than it is now. We then gave two to six months. However, as the banking facilities have increased throughout the country, commercial credit has been contracting.

"Our business is facilitated because warehouse receipts may be given on material in the borrower's own yard, which may be put up as collateral. If the note is not paid at maturity the material back of the receipt may be taken as easily by the bank as though the warehouse receipt was from one of the public warehouses in the States."

section 88 of the bank act the buyer makes assignment to his bank of the grain purchased. When the grain is delivered to a railroad, the bill of lading becomes the property of the bank. When it reaches Port Arthur, or some other distributing point, and is stored in an elevator, the bank receives a warehouse receipt in exchange for the bill of lading; and when shipment is made to New York, to Montreal, or to Europe, the bank receives on surrendering the warehouse receipt the shipper's draft on the consignee, the bill of lading, and other documents. Throughout the entire transaction, from the purchase from the farmer to the final sale to the eastern consumer, the bank practically has title to all agricultural products which are being moved by means of its funds.

LOANS TO FARMERS.

The branches of Canadian banks in agricultural districts quite commonly lend assistance to farmers. They do not make a practice of taking mortgages on farm property, but lend outright on the farmer's credit, depending for their security upon his character as a man and ability as a farmer, and often as well upon a neighbor's indorsement. Farmers' paper ranks high among the Canadian bankers and constitutes a considerable proportion of the assets of some of the banks. The banks, of course, do not undertake to supply the farmer with anything more than working capital. They do not help him pay for his land and buildings, but they do let him have at least part of the money he needs for tools, wages, seed, stock, etc. Despite the fact that these advances are unsecured by mortgage, the banks suffer very little loss on farm paper.