posal make no distinction between the funds received from the different classes of depositors. Every depositor's money goes into the bank's general fund, most of which is loaned on short-time paper to merchants and manufacturers. Thus in October, 1909, when the deposits payable on demand amounted to only $251,000,000, the current loans stood at $580,000,000.

A thorough reorganization of the savings departments of the chartered banks, to equip them for the real business of a savings bank, would not be possible without an amendment of the bank act, which now prohibits them from loaning money upon real estate or upon the security of real-estate mortgages. It is generally believed that this prohibition is commonly evaded by the banks through the acceptance of such mortgages as "additional security" after loans have been made. A savings bank, of course, must have the legal right to accept such security."

NO BANKERS' BANK.

The indebtedness of banks to banks is not large in Canada. The branch system makes it unnecessary for banks to carry balances in other institutions located in the financial centers. Nearly every bank has a branch in either Montreal or Toronto and in these branches carries the major proportion of its cash reserve, so that branches in the far west or in the maritime provinces are always able to sell ex

a The government savings institutions, although paying the same rate of interest, are in no sense competitors of the chartered banks. The latter pay the depositor on demand; whereas the depositor can get money from the government only after several days' notice. Some of the loan companies accept savings deposits and pay interest at from 3 to 4 per cent per annum, permitting also a limited use of the check book. The total of such deposits in loan companies in 1909 was $22,000,000.

change on Montreal or Toronto. Canada has no bankers' bank. The Bank of Montreal, which is the largest bank in the Dominion, its assets being equal to about 25 per cent of the total, is often spoken of as the government bank because it is the largest government depositary, yet it holds a very small amount of funds belonging to other banks. In the statement of October, 1909, the balances due to other banks in Canada amounted to only $5,269,216. Of this sum the Bank of Montreal held $1,395,935, and the Merchants' Bank, $1,309,008.

Chart III on the opposite page shows the changes in time and demand deposits during 1906-1909. It is interesting to note that demand deposits fell off much more than time deposits during the panic year 1907, and that both greatly increased during the two following years. The growth of deposits during 1909 was generally regarded in Canada as a most encouraging sign.

ISSUE AND REDEMPTION OF NOTES.

While the amount of notes that the chartered banks may issue is limited by the bank act to the amount of their paid-up capital," experience has proved that this legal limitation is only nominal and that the real and effective limit is imposed unconsciously and automatically by their customers and themselves. Each constantly seeks to increase its issue of notes to the legal limit, yet the combined efforts of all are never able to force into circulation more notes than the people need.

a The only exception is the Bank of British North America. It operates under an old charter from Great Britain and its head office is in London.' The stockholders are not subject to a double liability, and the bank can issue notes only to the extent of 75 per cent of its paid-up capital. It may exceed this limit by depositing gold or government bonds, and frequently does so.

The reason why an excessive issue of bank notes in Canada is impossible is found in the two following facts: 1. Every bank must redeem its notes on demand in commercial centers in different parts of the

Dominion.

2. The monetary circulation of Canada, exclusive of $1 and $2 bills, consists entirely of bank notes.

The redemption system is an automatic and effectual check against inflation. It is easier to get notes redeemed in Canada than it is to secure the payment of checks in the United States, for the notes are redeemable at different points throughout the Dominion and no exchange is ever charged. If a country merchant accumulates more currency than he desires to keep on hand, he deposits it, together with his checks and drafts, in the local branch of his bank. This branch immediately sorts out the notes of other banks and treats them as it does checks and drafts upon other banks, either sending them to the nearest redemption agency or using them as an offset in the local clearing house if the issuing banks have branches in the locality. The branches of a bank are not obliged to redeem the notes of the parent bank, but must accept them at par in the payment of all dues. Thus each bank is doing its utmost to bring about the redemption of the notes of other banks. At the same time it is paying out its own notes to all customers who ask for cash, seeking to bring its circulation up to the limit. As a result of these operations, two powerful forces are constantly at work, one putting notes into circulation, the other retiring them, and the people of Canada always have on hand just the amount of currency they need and no more. It is the people, not the