1954-03-08

Hon. Brooke Claxton (Minister of National Defence):: Mr. Speaker, I think hon. members will be interested to learn that approval has been given for the immediate implementation of a new plan for the procurement and training of junior officers for the Royal Canadian Navy. Entitled the "Venture Plan", it offers a seven-year short service appointment to young men between 16 and 19 years of age possessing the necessary qualifications, including junior matriculation or the equivalent. Cadets who show a desire to make the navy their career may later obtain permanent commissions if they have the necessary qualifications. The plan has been devised to meet the continuing demand for officers for the Royal Canadian Navy. It does not replace any existing officers' entry plan, but is a supplement to them.
LLater:]
On the orders of the day:


Mr. G. R. Pearkes (Esquimalt-Saanich):: Mr. Speaker, may I direct a question to the Minister of National Defence arising out of the statement which he made in the house this afternoon. What is the degree of shortage of officers for the Royal Canadian Navy which has made it desirable to introduce this new plan for training naval cadets? Will this plan require a new establishment?


Brooke Claxton: Mr. Speaker, I have not the figures for the difference between the establishment and the present strength for officers of the navy, but it is quite a manageable figure and I will send it to the hon. member. This plan requires no new establishment.



BRITISH NORTH AMERICA ACT


Mr. F. S. Follwell (Hastings South) moved: for leave to introduce Bill No. 354, to amend the British North America Acts, 1867 to 1952, with respect to the tenure of place in the Senate.
83276-174J


Some hon. Members:: Explain.


Frank Sidney Follwell: I have always believed that the Senate should be reformed and this bill, if accepted by parliament, will bring about a measure of reform by amending the British North America Act so that senators will retire at the age of 75 years. This would bring them in line with judges who retire at the same age. When they get the bill hon. members will find that the second amendment which I propose will not apply to any person summoned to the Senate before the coming into force of the act.


Mr. Knowles:: Why spoil it?
Motion agreed to and bill read the first time.



PRIVATE BILL


[Stage Direction]
Bill No. 340, respecting Canadian Nurses' Association.-Mr. Stick.


Mr. Dinsdale:: 1.	What is the diversion charge made on grain moving through Port Churchill?
2.	What is the reason for this charge?
3.	Who pays the charge and who collects it?
4.	When did it first go into effect?
5.	How much has it amounted to for each year since it went into operation?
6.	Does the diversion charge have any effect on the price differential on grain sold through Port Churchill and grain sold through the head of the lakes?


Mr. Howe (Port Arthur):: 1.	1J cents per bushel.
2.	Revenue in lieu of terminal earnings.
3.	The Canadian wheat board pays the diversion charge on wheat which it orders shipped to Churchill. The diversion charge is paid to the elevator company originating the shipment.
4.	The diversion charge predates the operations of the Canadian wheat board and probably goes back to the first shipments to the port in 1931-32.
5.	The board has only paid the diversion charge in crop years when wheat was shipped from Churchill subsequent to date (September 27, 1943) when the board became the

Questions
sole agency to receive and market wheat. No wheat was shipped from Churchill between August 1, 1940 and July 31, 1946.
1946- 47)	No separate record in board
1947- 48)	accounts for Churchill diversion charges paid
1948- 49	 $ 83,041.37
1949-	50	
104,526.011950-	51	
100,219.901951-	52	
111,796.951952-	53	
123,862.116.	Not under present circumstances.


FRASERVIEW HOUSING PROJECTS
Mr. Diefenbaker:: 1.	Have any contracts been awarded since the 1st day of January. 1951, by Central Mortgage and Housing Corporation for the construction of houses etc., to the Vancouver Associated Contractors Limited for a project known as Fraserview housing projects?
2.	If so, what is the total amount of all such contracts?
3.	How much has been paid to date to the said company and how much is still due and owing?
4.	Did the corporation before making payment or payments under the said contracts to the said Vancouver Associated Contractors Limited require proof *hat subcontractors of the said company had been paid?
5.	What is the amount, if any, which the records of the Central Mortgage and Housing Corporation indicate said company is owing to such subcontractors?
6.	Does the Central Mortgage and Housing Corporation, as a regular procedure before making payment to contractors, require proof that subcontractors or suppliers of material have been paid? If not, why is such course not followed?


Mr. Bourgel:: 1. Contracts were awarded to Vancouver Associated Contractors Limited for the Fraserview housing project, as follows:
Contract	Number of
awarded	units
January 10, 1952 .... 66
February 13, 1952 

 62
June 12, 1952	 91
Contract
price

2.	Total amount of contracts, $1,694,638.74.
3.	$1,522,596.18 had been paid to the contractor as at February 16, 1954. At that date $88,988.20 was still due and owing on account of the contract and $56,724.56 on account of security deposit and interest thereon, making a total of $145,712.76.
4.	Statutory declarations by the contractor were obtained in the usual manner to the effect that accounts of subcontractors were paid.
5.	The corporation does not receive statements nor maintain records of amounts owing from time to time to subcontractors by its prime contractors save as mentioned in answer No. 6. In this case the corporation has been verbally advised by the Canadian Credit
[Mr. Howe (Port Arthur) .1
Men's Trust Association, who represent the contractor and the creditors, that the contractor's over-all debts are approximately $337,000.
6.	All construction contracts with Central Mortgage and Housing Corporation provide "before making any payment on any progress or final estimate, the corporation may require the contractor to furnish evidence as may be satisfactory to the engineer that all work performed and materials supplied and all structures built for which payment is being made are free and clear from all lawful claims or liens under any law for labour, workmanship, materials or otherwise." The evidence required is a statutory declaration by or on behalf of the contractor that he has paid all accounts for work included in progress claims up to and including the last one paid. Before final payment, the declaration is to the effect that all such claims have been paid. This evidence is required from all contractors. In addition, on all contracts where the holdback is calculated on a maximum of $250 per housing unit rather than the usual 10 per cent of progress payments, the subcontractors and principal suppliers of material furnish to the prime contractor signed forms to support each of his progress claims. These forms do not specify amounts but they contain an acknowledgment of payment in full for all work done or materials supplied up to and including the date of the prime contractor's last progress claim. The Vancouver Associated Contractors Limited were operating under this holdback arrangement and the required forms were furnished by the subcontractors and suppliers of material.



CHETICAMP, N.S., MARINE SLIP

Mr. Nowlan:: For each of the calendar years 1951, 1952 and 1953, what has been the total amount of money spent on the marine slip at Cheticamp, Inverness county, Nova Scotia, for (a) construction: (b) repairs; (c) maintenance?


Mr. Bourgel:: (b) and (c)
(a)	Repairs and
Construction Maintenance
1951	
$2,177.45	$ Nil1952	
Nil	1,400.131953	
Nil	796.76



KIPLING, SASK., PUBLIC BUILDING

Mr. McCullough (Moose Mounlain):: 1.	What was the cost of the surveys or survey taken by the Department of Public Works in the village of Kipling, during 1953 for a public building site?

2.	What type of public building was proposed to be constructed on this site?
3.	What portion of the $75,000 voted for a public building in Kipling, Saskatchewan, was spent during 1953-54?


Mr. Bourgel:: 1.	$300.
2.	No decision made.
3.	To date, $300 for survey work.



BOARD OP TRANSPORT COMMISSIONERS

Mr. Maclnnis:: 1.	Who is the present chairman of the board of transport commissioners?
2.	When was he appointed?
Questions
3.	What salary is he paid?
4.	When did he receive the last increase in salary and what was the amount of such increase?
5.	Who are the other members of the board of transport commissioners?
6.	When were they appointed?
7.	What salaries do they receive?
8.	When did they receive the last increase in salaries and what was the amount of that increase?


Mr. Chevrier:: 1.	Mr. Justice J. D. Kearney.
2.	November 1, 1951.
3.	Salary equal to the salary of the president of the exchequer court-$16,000.
4.	January 1, 1952-$1,000.
5.	6.	7.	8.	Hugh Wardrope- Assistant chief commissioner	.... 8 Nov. 1938	$14,000	$2,000-1 Jan.	1952A. Sylvestre- Deputy chief commissioner 	
18 Apr. 1945	13,000	3,000-1 Jan.	1952F. M. MacPherson- Commissioner	
21 Sept. 1939	12,000	2,000-1 Jan.	1952H. B. Chase- Commissioner	.... 27 July 1948	12,000	2,000-1 Jan.	1952O. A. Matthews- Commissioner	.... 1 Jan.1953	12,000	- -



SECURITY SCREENING


Mr. Fulton:: In arriving at their recommendations or decisions in security matters affecting individual government employees, do the security panel and/or the security officers of the various government departments and agencies concerned reject any conclusion based on the principle of guilt by association?


Mr. Howe (Port Arthur):: In reaching a decision as to whether a person should be given access to secret information, there is no question of guilt or innocence. The Prime Minister stated in this connection in the House of Commons on December 3, 1951:
The question at issue is not guilt or innocence of some particular charge. The sole question is whether a certain person can or cannot be entrusted with secret defence material. It would give a completely false atmosphere to the matter if it were assumed that reliability can somehow be put beyond doubt by meeting formal charges-or indeed, that reliability cannot be brought into doubt except on the basis of formal charges. Assessment of character may be the only consideration in some instances. That is not a matter of charges, or of trial or of proof. It is a matter of judgment.
These words were spoken by the Prime Minister in referring to security measures in industries engaged in defence production. They apply with equal force in the public service. Because a person is known to associate with communists does not establish that that person is a communist, nor is that assumed by those in charge of departments. However, in determining whether a person
is or is not suitable for employment in a particular job, a review is made not only of that person's professional qualifications and character but also, where access to secrets is involved, of all the available information bearing upon his reliability and the degree of confidence in which he can be held. If such a review establishes a history of communist associations, it is not assumed that that person is or is not a communist, but it may be decided that there is too much risk involved in allowing a person with such a background to have access to important secret information.
Because it is important to prevent any implication of guilt from attaching to these cases, such transfers and dismissals are dealt with in the same way as other transfers and dismissals, which is only proper since they are all subject essentially to the same criterion: does a given person possess all the qualifications required to fill a given position satisfactorily. The concept of guilt or innocence has no place in this process. The government, as an employer, is not a tribunal nor does it dictate to individuals what they must or must not think or with whom they may or may not associate; but, like any other employer, the government makes every effort to ensure that its employees are properly qualified for the work they have to do-and such qualifications must in some cases include a high standard of reliability.

Questions



WHEAT-SELLING PRICE

Mr. Argue:: 1.	Has the 7 cents per bushel drop In the price of wheat at Fort William-Port Arthur resulted in any reduction in the wheat board selling price at such marketing points as Winnipeg, Brandon, Regina, Moose Jaw, Saskatoon, Swift Current, Calgary or Edmonton?
2.	If so, what is the reduction per bushel at each point?


Mr. Howe (Port Arthur):: 1.	Yes.
2.	At each of these points the wheat board selling price for No. 1 northern has followed the price in store Fort William/Port Arthur.



FOOD AND DRUGS


Mr. MacLean:: 1.	Has the Department of National Health and Welfare, in the administration of the Food and Drugs Act, examined canned chicken imported from the United States into the maritime provinces, during the last four months?
2.	If so, was such canned chicken found to comply with the regulation of the Food and Drugs Act and, if not, in what way did it not conform and what action has been taken to prevent recurrence?


Mr. Robertson:: 1.	Yes.
2.	Two shipments of a brand of canned chicken not previously imported from the United States did not comply with the regulations under the Food and Drugs Act. The product was not properly labelled and the contents of some of the cans examined did not meet the food and drug standard in that they contained some bones and skin.
The manufacturers in the United States have been informed that no further shipments of their canned chicken will be allowed entry into Canada unless the product meets all requirements of the Food and Drugs Act and regulations.



CENTRAL MORTCAGE AND HOUSING


Mr. Nowlan:: 1.	In the calendar years (a) 1952; (b) 1953, did subcontractors notify Central Mortgage and Housing Corporation of claims outstanding against contractors engaged in construction for or on behalf of the said corporation?
2.	If so, on how many occasions in each of the said years?
3.	In how many of such instances did the subcontractors accept a compromise settlement of their claims?
4.	According to the files or information of the officials of Central Mortgage and Housing Corporation, what was the total amount of loss of subcontractors in each of such cases where compromise was effected?
5.	At the time of awarding any contracts in (1) above, did the corporation have information indicating that on previous occasions any such contractor had had difficulties in making payment to subcontractors?

6.	Have any contractors included in (1) above subsequently been awarded further or other contracts or been engaged to perform services for or on behalf of the corporation?


Mr. Winters:: This question in its present form involves the checking of every construction contract correspondence file held by the corporation in respect to all work under way. Because there is no privity of contract between Central Mortgage and the subcontractors, no record of moneys owing to subcontractors is kept by Central Mortgage.
I understand from a conversation I have had with the hon. member that he is interested in circumstances surrounding general contractors and subcontractors where financial difficulties have occurred. If he is agreeable to having the question answered accordingly, I shall be happy to do so at an early date.*


George Clyde Nowlan: The minister telephoned me with respect to this matter and I am prepared to accept the answer as suggested by him.


Mr. Speaker:: Answered.



SECURITY SCREENING


Edmund Davie Fulton: When a decision has been arrived at to release or transfer a government employee for security reasons, does the individual concerned in each case have an opportunity of learning the nature of the allegations or suspicions against him before being transferred or dismissed?


Clarence Decatur Howe: Under normal circumstances the information obtained about a person as a result of a security screening-and any consequent doubts as to the advisability of allowing him access to his country's secrets-are not discussed with a person who, as a result, may be subject to transfer or dismissal. There are cases where the circumstances do permit this to be done. Where a useful purpose could be served, and where security considerations permit, it is done, and an exception is made to normal practice.
The main security considerations necessitating this procedure were given in December, 1951, by the Prime Minister when he spoke in the House of Commons about a security case in defence industry. He said: "There is a further consideration of an entirely different order that is also relevant. It is that hearings could and probably would compromise our general security precautions. Some of the people about whose access to secret material we have to be most concerned operate in the interests of an organization that is skilfully and tightly bound together. This organization acts with a ruthlessness and a readiness to sacrifice its own followers, which we find it almost impossible to appreciate. It is only
*See also page 3290.

by careful, long continued and patient work that means have been established by our police forces of getting information about the operations of this organization. The organization would be more than ready to precipitate hearings involving their own followers, even if it meant the personal ruin of those individuals, if the hearings would lay bare the sources of information that the police have established. If hearings were held, the information as to the background or other considerations causing doubt about an individual would have to be revealed. I do not see how a "hearing" could be regarded as serving any purpose if they were not. More than that, it would be argued that the validity of such information or the grounds for doubt could not be assessed nor could any "charges" be properly refuted unless the kind and sources of information were disclosed, the informants questioned, and so forth. If that were done in even two or three instances, they might be sufficient to nullify, in very short order, such security defences as we have been able to build up after years of painstaking effort. The well-organized opponents of our way of life would be more than ready to sacrifice a good many of their supporters to gain the kind of information that hearings would inevitably reveal."
It follows logically that doubts or suspicions of a person's fitness to know his country's secrets cannot be conveyed to him if, in the public interest, the information which gives rise to those doubts must be withheld. There are cases where, for instance, human weaknesses are the cause for doubt of a person's reliability and in a number of these cases neither the information nor the source of the information may need protection. But in many such cases telling a person about these weaknesses will neither correct them nor remove the doubts which they cause. In the few cases where a purpose might be served and where it could be done safely, security officials are prepared to discuss the matter with the individual in question. But these few individual cases could not justify the application of such a procedure to security decisions in general.
A person who is denied access to secret information has been so treated because in the careful and considered opinion of reasonable men there is doubt as to his reliability. This is a matter of judgment. The Prime Minister spoke of this in his speech in December, 1951, and what he said with regard to defence industry then applies equally to the public service. He said on that occasion: "... we are not in the realm of what have
Orders for Returns
come to be called "human rights" and "fundamental freedoms". There is no human right or fundamental freedom involved. No person has a right of access to secret defence items and no man's freedom is infringed when he is denied such access".
The fact that under our present security system a person may have no knowledge of the reasons why he has been dismissed from or transferred within the public service as a result of a security screening places a very grave and unpleasant responsibility upon the government. The Prime Minister expressed the government's views about it in this way: This means, of course, that the responsibility of the government is the greater to see that every case is carefully assessed and that no decisions as to the reliability of an individual are lightly taken. They are not lightly taken. Moreover, the cases can always be re-examined and the government will have no reluctance about reversing an original decision if further review suggests that it can safely be reversed. This whole matter is, however, distorted and seen in a false light, if it is confused with loyalty and thought of in terms of specific, provable or disprovable charges. You can doubt the reliability of a man for the security of some vital defence matter without considering him to be disloyal. You can continue to doubt no matter how much he argues or protests. The problem that is thrust on the government of assessing the reliability of employees in defence industries, and occasionally of deciding in some cases that reliability is uncertain, is not a pleasant one. In the present state of things it is, however, an unavoidable one. It is the government itself which is and must be answerable for the security of our defence secrets. The government is, however, fully aware of the importance of ensuring in so far as possible that no injury is done to any individual through the decisions that must be taken. Security procedures are constantly under review and if they can be improved, the government will always be ready to make the improvements and will always welcome and seriously consider constructive suggestions to that end.



QUESTIONS PASSED AS ORDERS FOR RETURNS


Mr. Diefenbaker:: 1.	How many fires have occurred in defence establishments since January, 1952?
2.	Where did such fires occur and what was the amount of damages in each respective location?


FEDERAL UNIVERSITY GRANT, MANITOBA
Mr. Dinsdale:: 1.	How much is the federal university grant to the province of Manitoba?
2.	How is this grant distributed among the following institutions: (a) University of Manitoba; (b) Brandon College; (c) St. John's College; (d) St. Paul's College; (e) United College?
3.	Is federal financial assistance provided for any other educational institutions in Manitoba?
4.	If so, what are these institutions and how much do they receive?
5.	Is there a federal grant for adult education activities in the various provinces?
2748	HOUSE OF
Inquiries of the Ministry
6.	If so, (a) to what educational institutions in Manitoba are these grants paid; (b) what are the amounts of such grants in Manitoba; (c) what is the basis of payment of such federal grants for adult education?



POST OFFICE


Mr. Diefenbaker:: 1.	How many mail or pillar boxes, by provinces, has the Post Office Department in use?
2.	Of these, by provinces, how many of said mail or pillar boxes have the words "Royal Mail" or "Poste Royale" affixed, printed or lettered thereon?
3.	Have many mail trucks, carriers, automobiles or other vehicles are operated by or for the department of the Postmaster General?
4.	How many of such mail trucks, etc., have the words "Royal Mail" or "Poste Royale" affixed, printed or lettered thereon?



INCOME TAX ON INDIANS

Mr. Diefenbaker:: 1.	Are Indians residing on reserves being taxed on incomes?
2.	If so, have protests against such taxation been received from Indian organizations?
3.	Upon what legal basis is such taxation being levied?



POTATOES, IMPORTS AND EXPORTS

Mr. Kickham:: 1.	How many bushels of seed and table potatoes have been exported from Canada to the United States, during the past five years?
2.	What was the total value of the exports in each case?
3.	What is the total quantity, in bushels, of seed and table potatoes permitted to enter the United States under the reduced duty quota?
4.	How many bushels of seed and table potatoes have been imported from the United States during the past five years?
5.	What is the total value of each?
6.	What months in the year are potatoes allowed to enter Canada duty free?
7.	What is the duty imposed on American potatoes, both seed and table stock, for the remainder of the year?



SURPLUS AGRICULTURAL PRODUCTS


Mr. Argue:: 1.	Has research been undertaken during the last two years into new industrial uses for (a) surplus wheat; (b) any other agricultural products?
2.	If so, what is the nature of each such research undertaking and what were the findings in each case?
3.	What research projects in this field are presently in progress and what is the nature of each project?



EXTERNAL AFFAIRS ' RECOGNITION OF RED CHINA


[Stage Direction]
On the orders of the day:
Hon. George A. Drew (Leader of the Opposiiion):: Mr. Speaker, I would like to direct a question to the Acting Prime Minister. Does the statement of the Prime Minister yesterday, that the communist government of China must sooner or later be recognized, now represent settled government policy?


Clarence Decatur Howe: Mr. Speaker, I believe the Secretary of State for External Affairs (Mr. Pearson) has some information and I will ask him to reply.


Hon. L. B. Pearson (Secretary of State for External Affairs):: Mr. Speaker, we have been attempting to get confirmation of the report in question and until we receive the actual text of what the Prime Minister said I believe it would be unwise to make any further observations. I can however say this. The press report of the statement, as my hon. friend knows, reads:
We have got to be realistic. Sooner or later we would be bound to recognize the government that the people want.
That is a press quotation from the Prime Minister's statement in respect of the recognition of the communist government of China. In that connection, Mr. Speaker, the Prime Minister said almost exactly the same thing in Ottawa on June 12, 1953, when he spoke on the same subject. He said then:
We have got to be realistic on such problems and be prepared to deal with those who represent the nation over which they exercise authority.


George Alexander Drew: Mr. Speaker, I am directing this question to the Secretary of State for External Affairs because there is a very marked difference between the two statements. Does the Secretary of State for External Affairs believe that the people of China have had any opportunity to indicate whether they do or do not want the present government?


Mr. Speaker:: The hon. member for Cape Breton South (Mr. Gillis).


George Alexander Drew: Mr. Speaker, I have directed an appropriate question to the Secretary of State for External Affairs.


Lester Bowles Pearson: Mr. Speaker, my views on that matter are probably the same as those of the hon. gentleman.


George Alexander Drew: That is no answer.


Mr. Rowe:: It is obvious the minister cannot answer that question.


INTER-AMERICAN ASSOCIATION    QUESTION AS TO CANADIAN MEMBERSHIP
[Stage Direction]
On the orders of the day:
Mr. Paul E. Gagnon (Chicoutimi):: I should like to address a question to the Secretary of State for External Affairs. Would the minister care to say whether Canada has any intention of becoming a member of the inter-American association?

Inquiries of the Ministry


Lester Bowles Pearson: In reply to that question such arrangement has been made. I will I can only say that the necessity for making say, however, that steps have been taken to such a decision has not arisen because we safeguard the position of Canadian wheat have not received such an invitation.	anc* barley in the Japanese market for the
next two years.


PUBLIC WORKS
[Stage Direction]
On the orders of the day:
Mr. Clarence Gillis (Cape Breton South):: Mr. Speaker, I should like to direct a question to the Minister of Public Works. Has his attention been drawn to a recent press dispatch to the effect that German steel is being imported into Nova Scotia to be used on a federal government project?


Robert Henry Winters: Mr. Speaker, the hon. member was kind enough to indicate that he intended to ask this question designed to find out what we know about this steel and whether or not it was intended to use it in the construction of the proposed ferry terminal at Yarmouth. Tenders have not yet been asked for in respect to this construction, and we have no knowledge of any such shipment of steel for that purpose.


WHEAT AND BARLEY
[Stage Direction]
On the orders of the day:
Mr. H. R. Argue (Assiniboia):: Mr. Speaker, I would like to direct a question to the Minister of Trade and Commerce. Would the minister comment on a morning press dispatch to the effect that an agreement has been arrived at whereby the United States will make a gift of 500,000 tons of wheat and
100,000	tons of barley to Japan? Does this mean the loss of our second best wheat customer and our best barley customer?


Clarence Decatur Howe: Mr. Speaker, I heard two announcements on the radio this morning. The first announcement mentioned 500,000 tons of wheat and 100,000 tons of barley, and the second announcement mentioned 250,000 tons of wheat and 100,000 tons of barley. I asked our people to get in touch with Washington for confirmation or otherwise. Inquiries were made at the state department and also at the Department of Agriculture, 83276-175



TRANSPORTATION


[Stage Direction]
On the orders of the day:
Mr. H. W. Herridge (Kootenay West):: Mr. Speaker, I would like to direct a question to the Minister of Transport. I may say, if he will forgive a personal reference, that my doctors have told me I must keep cool, calm and collected, but some news I have received from my constituency has rather disturbed my normal composure. I trust the minister's answer will restore my circulatory equilibrium.
In view of the announcement by officials of the Canadian Pacific Railway that the company will withdraw all steamer service on the Arrow lakes on April 24 this year, and, in view of the serious loss and inconvenience this will cause residents of the Arrow lakes, will the minister have the present situation investigated to see if the service can be maintained until other means of transportation are available?


Hon. Lionel Chevrier (Minister of Transport):: Mr. Speaker, I have great concern for my hon. friend's health and I wish my answer might assure him perfect health in future. However, I am afraid I cannot go that far. My hon. friend sent me a copy of the question which he intimated he intended to ask and I received' it only a few moments ago. I have had an opportunity, however, to look into the position during that time. I am impressed by the question which reads as follows:
Will the minister have the present situation investigated to see if the service can be maintained until other means of transportation are available?
The only manner in which this service could be carried on would be by means of a subsidy. That is the only method which occurs to me at the moment, though there might be others. The government gave careful consideration to a subsidy in favour of the Canadian Pacific Railway in the amount of $60,000 some time ago and I am sorry to report it decided against it.

Inquiries of the Ministry * CANCER



RESEARCH INTO RELATION BETWEEN SMOKING AND LUNG CANCER

[Stage Direction]
On the orders of the day:
Stanley Howard Knowles: Mr. Speaker, may I direct a question to the Minister of National Health and Welfare. In view of news reports over the week end, will the minister make a further statement in reply to my question of about a month ago as to what the federal government is prepared to do in the matter of research into the relation between cigarette smoking and lung cancer?


Hon. Paul Martin (Minister of National Health and Welfare):: Mr. Speaker, when my hon. friend asked this question a few weeks ago I deliberately refrained from making a statement at that time because of the great importance of this subject. As the house knows, the Canadian cancer institute is the agency in Canada through which cancer research is directed, and through which moneys provided by the federal government in the field of cancer research are allocated. The Canadian cancer institute came into being as the result of an idea proposed by my colleague the Minister of National Defence (Mr. Claxton), then minister of national health and welfare.
A few weeks ago the officers of my department reviewed with the institute those research projects relating directly or indirectly to cancer of the lung, with special reference to the effects of tobacco and its products.
More recently I conferred with the director and certain officers of the institute regarding this matter. A liaison has been effected with research groups in the United States and in the United Kingdom through Dr. Hartcroft of the department of medical research of the University of Toronto who attended a meeting for this purpose a few days ago in the United States. Following the discussions I had with these officials of the cancer institute, I took occasion to suggest that the tobacco industry might be disposed to provide unconditional grants in addition to those provided by federal and provincial governments for research in lung cancer.
This suggestion has been unreservedly accepted by the industry and the president of the national cancer institute will announce some time today that the institute has received a donation of $100,000 from the Canadian tobacco industry for the support of such research. This fund will be administered at the discretion of the board of directors of the institute which, with the assistance


of their research advisers, is preparing an appropriate plan to encourage further investigation into this form of cancer.
Any grants made from this fund, or from the fund through which federal assistance has been given, will come under the same regulations as any grant in aid of research awarded by the national cancer institute of Canada. It is deemed desirable that I should add that the research program of the national cancer institute embraces a number of projects relating directly or indirectly to cancer of the lung. In addition to certain projects now under way new projects are under consideration at the moment specifically related to the effects of tobacco and its products on the lung and air passages. The statistical officer of the institute has been working on the problem of lung cancer for some time. He has the full co-operation and assistance of the vital statistics branch of the dominion bureau of statistics and of the principal treatment centres of Canada. He has already been of assistance to the department's Indian health services and is working closely with the Department of Veterans Affairs.
So far the clinical and statistical approach to the investigation of cancer is considered to be important. Possibly the largest group of people on whom there are very carefully kept records is the veterans group coming within the field of special interest of my colleague the Minister of Veterans Affairs (Mr. Lapointe). Officers of my department and of the Department of Veterans Affairs have been in consultation regarding cancer in general but more especially primary cancer of the lung. It is agreed by the experts that every effort should be made to derive all the information possible on this subject from the Department of Veterans Affairs records. The records of deaths from cancer to date are being searched for any indication which might help solve some of these problems. Furthermore, the system of recording will be reviewed for the purpose of ensuring that future compilations of statistics will include the necessary data on smoking habits.



PUBLIC SERVICE


[Stage Direction]
On the orders of the day:
Mr. Alistair Stewart (Winnipeg North):: should like to direct a question to the Minister of Public Works. What steps are being taken to ensure that members of the cleaning staffs in Winnipeg federal offices will not be required to double up on their duties as a result of summer holiday schedules?


Robert Henry Winters: For the male cleaning staff it has been the custom to provide two additional employees as holiday relief, and that custom will be continued. The question of holiday relief for the female cleaning staff is under consideration.



FISHERIES


[Stage Direction]
On the orders of the day:
Mr. Thomas M. Bell (Saint John-Albert):: I should like to ask the Minister of Fisheries a question. When can we expect a statement about the recent proposals made to the governments of the Atlantic provinces and Quebec concerning uniform salmon fishing regulations?


Hon. James Sinclair (Minister of Fisheries):: We had a conference up here with the provincial authorities concerned. As a result of that conference certain recommendations were made which have been taken up by the provincial governments concerned. When they have dealt with them, we will have a second conference and announce what agreement has been reached between the federal and provincial authorities.



CANADIAN NATIONAL RAILWAYS


[Stage Direction]
On the orders of the day:
Hon. George Prudham (Minister of Mines and Technical Surveys):: Mr. Speaker, on Friday last the hon. member for Pictou (Mr. McCulloch) asked a question relating to the supply of coal by the Drummond Coal Company at Westville, Nova Scotia, to the Canadian National Railways. That question was fully answered on February 25 by the Minister of Transport (Mr. Chevrier) in answer to a question asked by the hon. member for Cape Breton South (Mr. Gillis), as recorded at page 2427 of Hansard.



DISABLED PERSONS


[Stage Direction]
On the orders of the day:
Mr. F. S. Zaplitny (Dauphin):: I wish to direct a question to the Minister of National Health and Welfare. Can the minister give an approximate date at which he may be prepared to bring in legislation dealing with pensions for disabled persons?
Inquiries of the Ministry


Paul Joseph James Martin: I am sure the hon. member will appreciate the fact that I cannot give a precise date, but it will be this session.



INQUIRIES FOR RETURNS


[Stage Direction]
On the orders of the day:
Mr. Stanley Knowles (Winnipeg North
Centre): May I ask either the Secretary of State or the Minister of National Health and Welfare whether the house may expect soon the tabling of a return having to do with questions of mine relating to health insurance? The order of the house was passed on January 25 of this year.
Paul Joseph James Martin: Mr. Speaker, I am sure the Minister of National Health and Welfare is not guilty of delay and I am sure my colleague's department is not guilty of delay, so we shall have to confer in the matter.


Mrs. Ellen L. Fairclough (Hamilton West):: I should like to direct a question to the Acting Prime Minister. Can he tell me when 1 may expect an answer to questions which I placed on the order paper with reference to Harold C. Banks, for which a return was ordered on February 25?


Hon. W. E. Harris (Minister of Citizenship and Immigration):: Mr. Speaker, the question related to a considerable extent to the department over which I have the honour to preside at the moment. We have completed our inquiries and I think the return will be available later this week.



FRED ROSE


[Stage Direction]
On the orders of the day:
Mr. J. W. Dufresne (Quebec West):: I should like to direct a question to the Minister of Justice. I regret that I did not have time to give him notice of it. Is the minister aware that in Montreal rumours are persistent regarding the re-entry of Fred Rose into Canada?


Hon. Stuart S. Garson (Minister of Justice):: The answer is no.



NATIONAL HOUSING ACT


[Stage Direction]
The house resumed, from Friday, March 5, consideration in committee of Bill No. 102, to promote the construction of new houses, the
[Stage Direction]
National Housing Act
repair and modernization of existing houses, and the improvement of housing and building conditions-Mr. Winters-Mr. Robinson (Simcoe East) in the chair.
On clause 36-Federal-provincial projects.
The Chairman:: When the committee rose at its previous sitting, we were discussing clause 36. Shall the clause carry?


Mr. Fraser (Si. John's East):: Mr. Chairman, I rise to support the views expressed by the hon. member for Vancouver South last Friday just prior to the time of adjournment. Like the hon. member, I believe that this clause contains some valuable features of Bill 102. As hon. members know, clause 36 reproduces section 35 of the present act. I believe that section has great possibilities. In order to illustrate, I should like to show what has been done at St. John's, Newfoundland, under section 35 of the present act. I turn to pages 28 and 29 of the minutes of the committee on banking and commerce, table "A". There I find that out of a total of 1,712 federal-provincial projects of land assembly completed throughout the whole of Canada in the four years since the inception of the scheme, no fewer than 594 have been completed at St. John's, Newfoundland. That is more than one-third of the total for the whole country. At the same place in the minutes of proceedings and evidence of the banking and commerce committee we find that out of a total of 1,832 federal-provincial low rental housing units completed in the whole of Canada during the same four-year period, no fewer than 392 have been completed at St. John's, Newfoundland, more than 20 per cent of the total for the entire country.
The population of St. John's is a good deal less than one per cent of the aggregate population of all the incorporated cities, towns and villages in Canada. Four hundred federal-provincial low rental housing units have been completed in four years at St. John's, Newfoundland, and if a similar proportionate total had been achieved in the other municipalities 40,000 new low rental housing units would have been created under section 35 in four years. That, I submit, would be a not inconsiderable addition to the housing accommodation for those in low income brackets throughout this country.
There are two further points in connection with the experience in St. John's. First of all, I should like to point out that the scheme there has worked out very well. We have the testimony of Mr. Mansur, the president of Central Mortgage and Housing Corporation, for that. I turn now to page 124 of the minutes of proceedings and evidence

of the banking and commerce committee where Mr. Mansur describes the scheme at St. John's as highly successful and says:
I believe that the experience in St. John's has been excellent and it has fulfilled our highest expectations.
The second point is that, so far as the experience of St. John's at any rate is concerned, there need be no conflict between the construction of low rental housing and the expansion of home ownership and of economic rental housing. There has been an addition of at least one-third to the total housing units in St. John's over the past ten years and that, I submit, is a rate of growth little short of phenomenal in a city so venerable as St. John's, for ten years is but a brief period in the history of that city. Therefore may I say that I believe clause 36 of the bill provides a basis for a most fruitful partnership between federal, provincial and municipal authorities, and I trust that the municipalities and provinces throughout Canada will take full advantage of the generous offer of 75 per cent participation made by the federal government through Central Mortgage and Housing Corporation under this plan. We can see what can be done, and I hope that it will be done in the future.


Stanley Howard Knowles: Mr. Chairman, I am very
glad that the hon. member for St. John's East has placed on record his tribute as to what can be done in the matter of building low rental housing under the provisions of section 35 of the act as it now stands or clause 36 of the bill now before us. I must point out, however, that there are one or two shortcomings so far as this part of the legislation is concerned. In the main the difficulty is that it is possible for a provincial government which is not prepared to accept its full responsibility under this clause to shelve a part of that responsibility by trying to pass it on to a local municipality. When that happens, as it happened in my own city of Winnipeg last year, you come up against a very difficult situation. In Manitoba, as the minister and others know, the provincial government refused to put up the 25 per cent of the cost of a federal-provincial project for my city but contended rather that half of the provincial portion would have to be put up by the city of Winnipeg.
That made it necessary for a bylaw to be placed on the ballot at the last civic election, and according to the city charter that bylaw could be voted upon only by property holders in the city of Winnipeg. To the credit of the people of Winnipeg, there was a very large vote in favour of the bylaw but by no

means sufficient to carry it. When one realizes that the only people allowed to vote on the question were those who already owned property one realizes the significance of a fairly sizeable vote. But the plain fact of the matter is that if you have a provision in the act making it possible for a portion of the cost of a low rental housing project to be levied against existing real property in the form of a real estate tax you run up against a very real barrier.
In my view a provision such as this will only work if the provincial government accepts its share of the responsibility as set out in the act. If you have provincial governments that feel they cannot put up their 25 per cent, or that simply refuse to do so, that raises the question whether the federal government's proportion should not be increased. I believe that it should. I would say that you could separate the two elements referred to in subclause 2 of clause 36, namely, the capital cost and the profits or losses. I would say it is perfectly all right to expect a province to bear 25 per cent of the losses on any such project and that it is financially possible for a province to do that, but it is a different story for a province to find the amount of money involved in 25 per cent of the capital cost.
It looks very nice on paper. It looks as though the federal government is being generous in offering to put up 75 per cent as against 25 per cent on the part of a province, but anyone who thinks about it at all knows that it is easier for the federal government to find the money necessary for its 75 per cent than it is for the provinces to find the money necessary for the 25 per cent. In my view, as long as it is possible for a province such as Manitoba to crawl out from under its share of the burden and try to pass it on to municipalities, the only way a clause such as 36 will work is for the federal government to bear a larger portion of the capital cost. I hope that even yet we may get consideration by the government of that aspect of the clause.
I want to say a word now in reply to something said on Friday night just before we adjourned by the hon. member for Vancouver South. He rose and threw out a statement the like of which he might get away with in his newspaper column but which he can hardly expect to get away with in the house. He said, as recorded at page 2741 of Hansard:
Mr. Chairman, we have heard over and over again in this committee of the whole the contention that nothing has been done under this act for people with incomes of less than $3,800. That, of course, Is absolute nonsense, because one of the
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most important clauses in this bill has been carried over from the old act, and it provides very large sums of money indeed for the financing of low rental housing projects to be carried out between the federal government and the various provinces.
Now, Mr. Chairman, I am sure the hon. member for Vancouver South knows-if he did not realize it when he made that statement he should look back into Hansard and read it now-that those of us who were talking about the failure of this act to be of assistance to those whose incomes were less than $3,800 a year pointed out very clearly that the act does not make possible home ownership for people with incomes of less than that figure. It is true that there is a possibility, if the other levels of government participate, for some assistance to be rendered to people with low incomes under clause 36 of the bill, which has to do with low rental projects. He knows that what we were saying is not nonsense, as he termed it the other night, but the absolute truth, namely, so long as you have that $3,800 cut off point on housing loans, people with incomes less than that figure cannot get loans under this act for the purpose of owning their own homes.
I submit, Mr. Chairman, that is still an important matter with which this bill fails to deal. I was interested in reading only this morning an editorial in the Winnipeg Tribune from my own city which points out that with wages being what they are, this bill is still of no help to the great majority of people so far as home ownership is concerned. We now know that, with the bill as it now stands, one has to have about $76 per week in order to obtain a loan for a $10,000 home, or $90 per week to obtain a loan for a $12,000 home. Since the average weekly wage in the city of Winnipeg, according to recent statistics, is only $52.51 per week, one readily sees how this bill will fail to help the great majority of the workers in my city to obtain a home.
If one dared to hope that under clause 36, with which we are now dealing, we might get a low rental housing project in Winnipeg it would soften the blow a bit so far as the other parts of the bill are concerned. But so long as this legislation makes it possible for the government of Manitoba to pass on part of its responsibility to the city, and so long as the percentage the federal government will pay is only 75 per cent, there is not much hope of getting a project of this nature in the city of Winnipeg. Nevertheless, despite its shortcomings, I agree with those who contend that publicity should be given to what is possible under clause 36, and that there should be as much educational work

National Housing Act
as possible so that the people of the country will get the best they can out of this inadequate legislation.
A moment ago I mentioned having read an editorial in the Winnipeg Tribune. In addition I want to mention a news item which came to my attention last week. On Saturday evening at a quarter to seven I was across the hall in room 16 listening to and watching the television news. It so happens that included in the news at that time there was a brief shot of a Canadian soldier arriving from Korea by plane. I believe the picture was taken in Montreal where this soldier arrived after being flown back to this country. Why had he been flown back to Canada? Was it because of a tragedy on the field of battle? No, it was because he had lost a child who had been burned to death in his tar paper shack back here in Canada. I know the fuss that was raised in this house some weeks ago when one or two members of this group started talking about tar paper shacks. There are members on the other side who do not like references to that kind of housing. I suggest this house should take very seriously the fact that every year, every month, almost every week we see items in the news like the one to which I have just referred, where people lose their lives because of fires which take place because the houses in which they are living are fire traps that easily catch fire and burn down.
So far this clause, indeed this bill, does nothing to rectify that kind of situation. It does help to provide, sooner than otherwise would be the case, homes for certain people. But it does nothing for the group of people who really need homes, such as the soldier who had to leave his family in a tar paper shack with the result that one of his children was burned to death. Incidents such as that are a national scandal. There is no help in this clause or anywhere in this bill for such people. I submit that this parliament still has a long way to go in devising the kind of housing legislation that this country really needs.


[Stage Direction]
Clause agreed to.
On clause 37-Powers of corporation.
Mr. Cameron (Nanaimo):: This clause,
Mr. Chairman, represents the last possible opportunity, I suppose, of amending this bill in such a way as to make it serve the purposes that are described on the front of the bill. Without some amendment to this clause, replacing the provision in the old act by which the government entered the field of housing on a joint loan basis, I submit

that the act at present represents the clear withdrawal of the government of Canada from the housing problem of this country.
It is true that the other day in a discussion of clause 11 I secured a tacit agreement from the minister that the government, through Central Mortgage and Housing Corporation, would be entering the field under that clause by the purchase of mortgages issued by the chartered banks. Now that may be so, Mr. Chairman, but unfortunately the legal authority for doing so limits the participation to the sum of $30 million. I believe the minister will agree with me that the two sections referred to, the one in the Central Mortgage and Housing Corporation Act, and the other clause 22 of this bill, between them limit that participation to a total of $30 million.
I suggest that such participation is merely a drop in the bucket. I hope, before this bill is given third reading, the government will give serious consideration to the reenactment of that section of the old act under which the government really participated in the housing program in Canada. I want to point out that the figures presented to the banking and commerce committee showed that in the past the government's participation has been in the neighbourhood of $60 million under the joint loans program. There has been no definite statement from the government, and I am merely making an assumption since my suggestion was not denied on Friday, but I assume it is the government's intention to use clause 11 for this very minor feature of participation. I cannot put it more strongly than to say I feel the government has been disingenuous in the house here in the manner in which it has brought this legislation before parliament, which has resulted in a false impression in the public mind as to the purpose of this bill. Unless they are prepared to at least reinstate the provisions for participation, then I cannot see how this house can support such legislation, because it does not do what it purports to do on the front of the bill, that is, promote increased construction of houses in Canada.
The bill before us actually permits the government to withdraw from the very modest participation it had in the housing program of Canada, as set out in the old act. So I hope the government will see fit to maintain the very modest share it has taken in solving one of the important problems of this country.


[Stage Direction]
Clause agreed to.

On clause 38-Contracts for houses to be sold to prospective home owners.
Mr. Weaver:: Mr. Chairman, I should like to express my pleasure and satisfaction in the fact that this bill has come forward at this time, and is being dealt with so expeditiously. A very fruitful discussion took place in committee. In fact, the discussion that took place there was one of the most satisfactory I have ever seen.
I have one question to ask, and I believe that this is the proper clause on which to ask it. A year and a half ago a group of veterans in Flin Flon were desirous of building homes under the provisions of the Veterans Land Act, through the Department of Veterans Affairs. The understanding was that loans would be advanced by Central Mortgage and Housing Corporation. My information is that after agreeing to make the loans available it was decided finally that this was outside the scope of Central Mortgage and Housing Corporation. My question is this: what will the prospects now be, under Bill 102, of proceeding with such a project?


Robert Henry Winters: There are two avenues
through which the government can make loans for projects such as that envisaged by the hon. member for Churchill. One is under an arrangement with the Department of Veterans AfEairs, whereby they assist veterans who are interested in contributing toward the construction of their houses by providing labour content. Under that arrangement Central Mortgage, when a house is completed, can take over the mortgage and administer it from that point on. That is an arrangement that has worked out well to the extent that it has been applied thus far. I understand my colleague the Minister of Veterans Affairs feels the arrangement is one that can be continued.
The other arrangement, of course, is through a direct loan under clause 40 of this legislation. I would say, replying directly to the hon. member's question, that the prospects of having the project in Flin Flon continue on the basis of participation with the Department of Veterans Affairs would be quite good, if the Department of Veterans Affairs placed it before us.


[Stage Direction]
Clause agreed to.
Clause 39 agreed to.
On clause 40-Where loans not available corporation may lend.
Edmund Davie Fulton: Mr. Chairman, on Friday
evening the minister indicated that this would be the proper place to ask if he could give us information as to what the government has in mind for the smaller communities affected by this legislation.
National Housing Act
On January 28, in the debate on second reading, I drew attention to certain complaints I had had from one of the smaller communities in my constituency. It is, I understand, a complaint which is shared generally by other small centres.


Robert Henry Winters: Would the hon. member give me the name of that community?


Edmund Davie Fulton: Yes; I did refer to it on the earlier occasion. It is the village of Williams Lake. The discussion on the point is found at page 1559 of Hansard. It is my impression, based on conversations, although not officially, that the government or Central Mortgage and Housing Corporation has something in mind under this measure to meet the request from the smaller communities, which at the present time appear to find themselves handicapped in that the terms upon which loans are made available to them, with respect to the amount of down payment, and the like, are less advantageous than those given to larger centres.


Robert Henry Winters: Clause 40 in the bill is a reenactment of section 31A, which enables Central Mortgage and Housing Corporation to make loans to creditworthy borrowers in all those areas where lending institutions are not operating. There has been considerable activity under that section in the act. I have before me a table showing as of December 31, 1953, a total of 7,324 direct loans made by Central Mortgage and Housing Corporation, and also showing that 3,887 of them have been for private accommodation of the one-family type, in a great many communities. I see that five of them are in Williams Lake.


Edmund Davie Fulton: The minister is referring to five loans?


Robert Henry Winters: Yes, five loans in Williams Lake. And I find another interesting thing, that of 188 loans made in smaller communities in British Columbia during 1951, 1952 and 1953, there were 121 approved for the full amount requested. I find that 21 were approved in an amount between 97-5 and 100 per cent of the loans applied for.
So I think it is clear that Central Mortgage has been operating pretty effectively under the old section, and has been making loans close to the amount asked for in most instances.


Edmund Davie Fulton: What has the minister to say about the relationship of the problem of the approved lending value to this situation? It is Central Mortgage and Housing which, under this clause, would set the lending value. Our experience has been that there are centres in which Central Mortgage sets the lending value at very much less than the amount

National Housing Act
of the tender submitted by the contractor as the cost at which he will build a house. I am wondering whether that has some bearing on the matter.
It might be possible that the corporation would give an approved loan for the full amount applied for, but the amount applied for would have to have relation to the approved lending value. Has the minister anything to say on that?


Robert Henry Winters: It is possible that that is a factor. But it is also true that a large percentage of loans made under the old section last year were in the amounts requested and were, at the same time, the agreed sales prices of the houses.


Edmund Davie Fulton: Has the corporation a policy, in places where they think building costs are higher than they might be, of setting lending values at a smaller percentage of the actual cost of construction than would be set in other centres?


Robert Henry Winters: That is so, yes.


Edmund Davie Fulton: I can appreciate the corporation might wish to do what it can to keep building costs down. But surely the minister will agree with me that that inflicts a hardship upon those who live in those communities and wish to build houses there. The prospective borrower does not wish to have building costs higher than they should be, but he is there, and those are the figures submitted to him by the contractor.
I wonder whether the minister or the corporation would consider whether, after perhaps two or three years of trying to get building costs down by consistently making smaller approved lending values than the figures given in tenders, and when that policy appears to have failed, they would not consider bringing the approved lending value up to the same proportion of the actual cost of construction as applies in other communities?


Robert Henry Winters: In reply to that I can say that, rather than cause hardship, the whole purpose of the clause in the bill is to alleviate hardship. It is designed to enable the corporation to make direct loans where, otherwise, no loans of any kind would be made. So the extent to which the prospective borrower can get any amount of a loan is some alleviation of what otherwise would be perhaps a hardship. We do hope that under the present bill, with the banks in a position to lend through their many branches, there will be an extension of lending by lending institutions in the smaller communities. We will have to wait and see how this operates to determine to what extent this section must be applied.


Edmund Davie Fulton: In view of what the minister has said, I should like to ask him if in the course of the next few weeks he would please have the corporation look into the situation in Williams Lake in the light of the comments which I placed on the record at page 1559 of Hansard. Certainly there have been placed before me what are regarded as bona fide complaints or requests for alleviating action to be taken by the corporation.


Robert Henry Winters: I shall be pleased to bring that to the attention of the corporation.


Mr. Ellis:: What amount of money has the corporation available for loans under the provisions of this section?


Robert Henry Winters: The answer to that is $250 million.


Alfred Claude Ellis: Has the government ever made any loans under this section, or does it anticipate making any in areas where lending institutions for one reason or another will not make loans? I am thinking of sections of a city in which the established lending institutions will not make loans, and I am asking whether under those circumstances the government would consider that Central Mortgage should make loans under clause 40?


Robert Henry Winters: Mr. Chairman, we have gone pretty far in making this section operative. We have extended it to municipalities with a population of up to 55,000 or less as the lending institutions have withdrawn their own operations. The purpose of this section is to enable the corporation to make loans where the lending institutions are not operating. The government believes that there is a field for operation by lending institutions in large metropolitan areas and for that reason it has not been the practice of the corporation to make direct loans in large centres of population.


Alfred Claude Ellis: Simply because there are lending institutions in a community does not assure that persons in that community are going to be able to get any money. It has been pointed out by a number of hon. members that there are certain areas where loans are not available. I believe the hon. member for Burnaby-Coquitlam mentioned certain areas in his constituency where the lending institutions will not advance loans for building purposes. Under those circumstances the people living in those areas are in exactly the same position for all practical purposes as those residing in areas where there are no lending institutions.


Robert Henry Winters: We are hopeful that with the admission of banks as lenders under this act, the situation will be helped substantially.


Mr. Regier:: I should like to emphasize what has just been said by the hon. member for

Regina City. I feel that the government should give serious consideration in the regulations to making all the provisions of this act available to people in suburban areas. Although people living in suburban areas are actually living in metropolitan areas they are excluded from the benefits of this section. The lending institutions insist that they will have nothing to do with houses except those being built in exclusive areas.
I think there is a splendid opportunity for the government to make this provision available to suburban areas where lots can be purchased in the neighbourhood of $1,000 instead of the $3,000 or $4,000 which must be paid for a lot in certain exclusive areas. In many respects the lots in these suburban areas have just as good a future as those in some of the older areas.
I can think of a number of federal ridings in British Columbia which have received no help under the National Housing Act. However, I do want to compliment the minister on some things he has done. I have had something to do with many of the 188 houses which have been built in British Columbia under this section. Our experience has been that we were able to do business with Central Mortgage and Housing Corporation under this section much more easily than we could have operated under part I of the act. I think the government is to be complimented upon giving some assistance to those areas in British Columbia where because of administration costs it must be a losing proposition for the government.


Stanley Howard Knowles: May I put one question to the minister arising out of the discussion he and I had on Friday evening. If an individual in a city, like the city of Winnipeg, whose income is less than $3,800 applies to a bank for a loan and is turned down, and if the bank fails to initiate conversations with Central Mortgage and Housing Corporation as to whether the loan should be granted, could that individual make a direct application to Central Mortgage and Housing Corporation for a loan?


Robert Henry Winters: He can apply but whether he gets the loan is another consideration.


Stanley Howard Knowles: Have there been instances where such applications have been granted? My question, as to the past, would assume the substitution of life insurance companies for banks.


Robert Henry Winters: We have records of a number of instances where prospective borrowers were unable in their first approach to the lending institution to convince them they
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were good mortgage risks. After speaking to us, and we in turn have spoken to the lending institution, loans have been made.


Stanley Howard Knowles: By whom?


Robert Henry Winters: By the lending institution.


Stanley Howard Knowles: So it is possible for an individual who has been turned down by a lending institution to bring the matter to the attention of the corporation?


Robert Henry Winters: That is possible.


Mr. Macdonnell:: Is it possible that he might get a loan from the corporation in such event?


Robert Henry Winters: I think we covered that when we discussed the practice of Central Mortgage and Housing Corporation staying out of the field in which private lending institutions operate.


Mr. Noseworthy:: Why should the application of subsection 1 be limited to communities of a certain size? This reads:
Where in the opinion of the corporation a loan is not being made available to a person pursuant to part I or section 15, the corporation may make a loan to such person to assist in the construction of a house-
Why not administer the act as it is written instead of bringing in a provision saying that it will be applicable only in the case of certain smaller communities?


Robert Henry Winters: Mr. Chairman, this section of the act is being administered in accordance with parliament's intent. This was put on the statute books to enable the corporation to make direct loans in those areas where the lending institutions are not normally operating. It has been the practice for lending institutions to operate in the larger centres of population and for that reason Central Mortgage and Housing Corporation has not made a practice of making loans in those areas.


[Stage Direction]
Clause agreed to.
Clauses 41 and 42 agreed to.
On clause 43-Each part to come into force upon proclamation.
Stanley Howard Knowles: This section provides for the coming into force of the various parts of this bill. I should like to address a question to the minister with respect to what might be done before part I is brought into effect. The other night I asked the minister whether consideration would be given to making it possible for the substantial sums of money which are set aside in pension funds to be loaned on the basis of insured

National Housing Act
mortgages for the building of homes. I was pleased to have the minister's reply, as reported on page 2733 of Hansard of March 5, when he said in part:
-we are prepared to recommend that pension funds be made eligible to approved lenders, for the purpose of making insured loans.
It has been suggested to me that in some instances there are pension funds in the hands of trade union organizations where the rate of interest being earned is not quite as large as is expected to be the rate for loans under this legislation. It has been represented to me that some of these trade union pension funds might be available for housing at the same low interest rates which they are now earning, rather than at the maximum rate that could be allowed under this act. Will the minister consider permitting such trade union pension funds to lend money on the basis he announced the other night and to loan these funds at a rate of interest below what the banks are likely to charge, or in other words at a rate more in line with what they are now getting on these funds?


Robert Henry Winters: Yes, Mr. Chairman, that
would be a very pleasant development. Section 21 defines a lender as follows:
. . . insurance, trust or other company or corporation, trustee of trust funds,-
-and so on. That would qualify the pension fund to which my hon. friend has referred. Clause 4, subclause 2, provides that the rate of interest prescribed under subsection 1 shall not exceed the interest rate of longterm government bonds by more than the specified amount so there is no reason why the interest rate cannot be less than the maximum prescribed under the act.


Stanley Howard Knowles: Then perhaps the trade
unions might be in on the administration so they could encourage the banks to follow the same course.


[Stage Direction]
Clause agreed to.
Title agreed to.
Bill reported.
Robert Henry Winters: the third reading of the bill.


Joseph William Noseworthy: Mr. Speaker, before this bill is given third reading I would like to state that I regret very much I cannot support it in many respects. While it purports to give some advantages to those seeking to build homes, I believe those advantages will not transpire. In fact, I think they will prove to be mere illusions.
It is said, for example, that there will be an advantage in the lower down payment. It is true a few dollars will be saved on the down payment but the interest rate will be 
higher, and any benefit which might accrue from a saving on the down payment will be swallowed up in the increased rate of interest over the years. All this bill presents is a hope on the part of the government that the banks will be induced to put some money into house building to replace the money which the government formerly supplied under the joint loan system, and possibly to make up for the money which the lending institutions may not advance in the future.
There is a hope, but there is very little evidence that there is much ground for that hope, and there is very little assurance that the banks will be sufficiently interested to put a sizeable amount of money into house building. Certainly there is no assurance that the 25 per cent which the government formerly put in under the joint loan system will be made up through loans advanced by the banks, and there is considerable evidence that the lending institutions may make fewer loans available than in the past.
The bill does not solve our housing problem. It will be just as difficult for those in the lower income groups to get houses after this bill becomes law as it was under the old act. It will also be equally difficult to get the provinces and the municipalities to cooperate with the federal government in the provisions under clause 36 as regards low rental housing. Evidence was given before the committee to the effect that there is considerable public apathy towards clause 36, and that the municipalities are loath to take advantage of it. Recommendations were made suggesting ways in which the government could improve clause 36 whereby the provinces and the municipalities could be induced to enter into an agreement with the federal government for the provision of low rental housing.
For those who need the houses most, this bill will be a disappointment. It will offer them very little more than the bill which it is designed to replace. One feature which I believe is open to criticism is that no one knows at this stage what the interest rates will be on loans. When the minister was asked whether he would consider fixing a limit for the interest rate and, if necessary, introducing a subsidy, we were told that that would be determined by government policy. But if there is any place in which government policy should be considered it is in this house now, before this bill is given third reading.
The government should continue subsidizing the interest rate, as it has been doing all through the years under the joint loan arrangement. It can do so, and it can fix a limit above which the interest rate will not go, and if necessary subsidize that interest rate just as it has been doing over the years.

Before this bill is given third reading, Mr. Speaker, I wish to move, seconded by the hon. member for Winnipeg North Centre (Mr. Knowles):
That Bill No. 102 be not now read a third time but that it be referred back to the committee of the whole house for the purpose of amending it so as to provide a fixed limit as to the rate of interest to be charged on loans made under the provisions of the said act.
I know there will be criticism of this amendment on the ground that we are holding up an act which is necessary in order to enable us to get our spring building operations going; but this bill is going to determine the extent to which the people of Canada will be able to get houses not only this spring but next spring and possibly for years to come. Consequently, I suggest that we give this bill more consideration before it receives its third reading.


Mr. C. E. Johnston (Bow River):: Mr. Speaker, I should like to say a word on this amendment. I do not think there is anyone in the house who has put forth his views any more energetically than have we of the Social Credit party. I am in accord with what the amendment suggests in the matter of protesting to the government because they did not see fit to implement some of the suggestions we made. We think that had the government adopted some of the proposals which we have suggested in this debate they might have found them to be of a great deal of assistance. We suggested in this house that there should be a lowering of the interest rate. We went further than that. We pointed out how we thought this interest rate could be lowered, but the government has not seen fit to go as far as we should like them to go.
When I say that I intend to support the amendment, may I say that it is merely in protest because the government has not seen fit to go as far as we should like them to go. I want to say that, when the amendment is disposed of, we propose to support the bill because, in my judgment, it is better than the old bill. I think it will bring some assistance to those in the lower income groups. In the matter of home ownership it certainly does not assist those in the income groups below $3,000. We think there is a way to solve that problem whereby a great many people in the lower income group could be assisted. But even though the bill does not go as far as we should like it to go, we are going to support it because we think it is an improvement over the last one and will bring some assistance to the people of Canada. I would hate to place myself in the position
National Housing Act
of voting against the bill itself because its defeat would deprive many people of badly needed houses. We shall therefore support the bill although we do not think it goes as far as it should or as far as we should like to see it go.


Robert Henry Winters: Mr. Speaker, I just wish to say a brief word with regard to this amendment. In the first place, I believe its adoption would take much valuable time at this particular stage when we are heading into a construction season. The builders should have the act before them so as to know just exactly what are its provisions and what their operations will be under it. I think all hon. members would wish this bill to become law at the earliest possible date. If one can assess the feeling of the house, as judged by the recent debate on the employment situation, one would certainly arrive quickly at that conclusion.
As to the fixed limit for interest rates, the upper limit is now fixed in relation to long-term government bond rates. I therefore do not believe that the amendment would achieve anything of substance in that regard. After the committee was fully apprized of the reasons for having the interest rate formula in the bill in the manner it is, I recall that the hon. member for Eglin-ton (Mr. Fleming), speaking on behalf of the official opposition, said he was satisfied that it was in the public interest to have the interest rate flexible in the legislation so that the borrowing public could take advantage of any downward adjustment in the rate on long-term government bonds. The government feels it is in the public interest to have the interest rate determined as it is in the bill. I must therefore say that the government intends to oppose this amendment.


Stanley Howard Knowles: Mr. Speaker, may I say just one word in reply to the minister? Obviously I shall support the amendment. The minister suggests that one of the reasons he is opposed to the amendment is that it might take time to make this alteration in the bill. Surely he does not advance that argument seriously. I trust he realizes that the other place has recessed until Thursday so that, even if we pass the bill today or tomorrow, it cannot become law until some time after this coming Thursday.
Hon. George A. Drew (Leader of the
Opposition): Just before the vote is taken on the amendment, Mr. Speaker, without in any way questioning the interpretation of what has already been said on behalf of the opposition and on behalf of our party in connection

National Housing Act
with this matter, I should say that I believe this is a subject that is causing a great deal of concern. I have received a great many questions as to why it is that the interest rate is going to be so much higher than the amount that is paid by the government for money that is borrowed. The problem in regard to a flexible interest rate is one that presents a real question. However, I think a great deal more could be done to explain exactly why this course is being followed and why it is that the interest rate that will be charged here is substantially in excess of the interest payments that will be paid in connection with the money itself. I think the reasons are apparent why there are certain charges that must be borne in one way or another.
As to this amendment, I do not feel at this stage that I could support it. I must say that there have been given in support of it certain explanations with which I could not agree. However, that fact would not affect the matter if the wording were in itself not open to objection of any kind. But for the reasons which have been given by the hon. member for Eglinton (Mr. Fleming), subject to all of the weaknesses that have been pointed out, it is felt that this bill should now proceed and that the government should have an opportunity to make it work to the best advantage possible.


Mr. Speaker:: Is the house ready for the question?


Some hon. Members:: Question:


Alistair McLeod Stewart: The fact that the Liberal Senate will not be available until Thursday, Mr. Speaker, means that there is no great haste for getting this legislation through today, which gives

us another chance to have a look at it. The hon. member for Nanaimo (Mr. Cameron) said this afternoon that the government was withdrawing from the housing field. I am not sure if that was entirely correct. Certainly they are withdrawing so far as the quarter share of joint loans is concerned, but the government is not withdrawing from that area where guarantees have to be given to free enterprise before we can get homes. I suspect free enterprise never would work in any event were the government to refrain from giving it the guarantees which it has today.
The most serious omission in this legislation in our opinion is the withdrawal of the quarter share of the joint loan on the part of the government. The reason for it, I do not know. It may be that the government felt that the prospects were good for the building of 125,000 homes this year. Perhaps the government felt that would absorb the capacity of the industry. Again, I do not know. But I do know this, that the government is not thinking in terms of the very near future and I do not put that "near future" later than next year when there will be demands for homes which have been left unsatisfied.
The situation today is that the government is going to refrain from lending its quarter share under the joint loan scheme. The lending companies are not going to lend as much as in the past. We have no idea what the banks are going to lend, if anything at all. Since homes can only be constructed with the help of money or by credit resulting from such security, we fear that there are going to be less homes built under this legislation in the long run than might have been the case under the old legislation which is now going into limbo. The fact is that less money has become available, and by making less money available this government hopes more homes will become available. That is the logic of free enterprise to which we do not adhere.
Therefore, I move, seconded by the hon. member for Saskatoon (Mr. Knight):
That Bill No. 102 be not now read a third time but that it be referred back to the committee of the whole house for the purpose of amending it so as to provide for the reinstatement of participation by Central Mortgage and Housing Corporation in joint loans for the construction of new houses.


Mr. Speaker:: If an amendment to third reading of a bill must refer to provisions contained therein, it seems to me that to move the recommittal of a bill at this stage with instructions to insert a clause involving expenditures cannot be moved by a private
The Bank Act
member. Citation 710 of Beauchesne's third edition indicates the restrictions to amendments to third reading. It reads as follows:
The question for the third reading is put immediately after the report from the committee of the whole. All amendments which may be moved on the second reading of a bill may be moved on the third reading with the restriction that they cannot deal with any matter which is not contained in the bill.
The participation of Central Mortgage and Housing Corporation in joint loans was not included in the bill, and an amendment providing for it in committee would have to be moved by a minister. The minister sponsoring the measure has already declared his objection to the amendment proposed by the hon. member for Winnipeg North which, if adopted, would constitute a direct order to the government to do a thing which cannot be done without the expenditure of money. In view of these considerations and of citation 453 of Beauchesne's third edition, I cannot receive the amendment.
Is the house ready for the question?
Motion agreed to and bill read the third time and passed.



THE BANK ACT


Hon. Douglas Abbott (Minister of Finance) moved: the second reading of Bill No. 338, respecting banks and banking.
He said: Mr. Speaker, this bill provides for the revision and re-enactment of the Bank Act and for the renewal of existing bank charters for a further period of ten years. It is one of the most important items on the agenda of this session of parliament. At the same time I think it will be found that in its essential aspects it is a non-controversial bill. There will, of course, be differences of view on particular points, and various groups in the house will differ on the emphasis they place on certain parts of the bill. But if I gauge the sense of the house correctly there is general agreement that within the framework of our accepted economic structure our banking system is an excellent system; that it is efficient; it gives good service; it commands the confidence of the Canadian people; and it is highly regarded abroad.
I realize, of course, my hon. friends in the C.C.F. group believe that in due course, and as part of a general policy of socialization, the commercial banks should come under public ownership and operation. For those who accept their ultimate objective such a position is not illogical, but I take it

The Bank Act
that we are not at this time initiating a debate on socialism in general and that is why I suggest that in its essential aspects this is a non-controversial bill. It is nevertheless, as I have said, a very important bill.
I	hope, in fact, all interested members will consider it carefully and that it will receive careful and constructive scrutiny in the banking and commerce committee.
Before dealing with the bill itself, perhaps hon. members would be interested in a very brief statement on the history of banking in Canada. The first institution to offer full banking services in British North America was formed in 1817 in Montreal. The first Canadian bank to operate under a charter commenced business in Saint John, New Brunswick, in 1820.
At the time the first four provinces entered confederation, parliament endorsed and continued the charters of the provincially incorporated banks. At July 1, 1867, in the new Canada, there were 29 bank charters which were active or to become active. In addition there were three in Prince Edward Island and one in British Columbia.
Since confederation, 77 banks have obtained charters, of which 39 actually commenced business. The other 38 failed to open their doors to the public because, so far as can be ascertained, they were unable to raise sufficient capital.
In 1880 there were 36 banks in actual operation, 38 in 1890, 36 in 1900, 25 in 1913,
II	in 1923, 10 in 1934 and 1944, and at the present time there are 11.
Of the 72 banks which have operated under the Bank Act since confederation, 26 have failed and 35 have been absorbed by other banks. Of the 26 that failed, 13 were wound up without loss to noteholders or depositors. In the other 13 cases depositors suffered varying degrees of loss. While the losses suffered by the creditors and shareholders of some of the latter banks were unfortunate, they had a salutary effect. It compelled all other banks to strengthen their management and internal controls, and parliament from time to time passed legislation to improve the safeguards and protect the funds of depositors and shareholders. I should add that the last bank failure in Canada occurred more than 30 years ago. As hon. members know, our banking system weathered the economic storm of the 1930's in a manner of which we may well be proud.
The 11 banks which comprise our commercial banking system today have a combined age of almost 900 years, the oldest bank having been incorporated 136 years ago, and the youngest less than a year ago.

The latter incorporation was an important event in our banking history, as only one other bank-and that in 1929-has commenced business in Canada in over 40 years. With the exception of these two, each of our banks has been in business for over 80 years.
In 1871 the parliament of Canada passed its first bank act. One of its most important provisions was the extension of the charters for a period of ten years, and the consequential principle of a decennial revision of the Bank Act. It has been said that this period was chosen by agreement between the government and the bankers of the time, as both were of the opinion that there should be a periodic review of the legislation and of the manner in which the banking system was operating.
With the exception of four occasions, on which the charters were extended for one-year periods, because parliament wished to defer consideration of the act, there have been decennial extensions of charters ever since.
The principle of the decennial revision is an important one. It provides a good balance between stability and flexibility, between tradition and change. I am glad there is general agreement on this principle. Conditions in all countries change with the passage of time, and this is especially so in a rapidly expanding country like Canada.
In each decade as we review the Bank Act we ought to look both backward and forward; backward to see what weaknesses need to be remedied or what gaps need to be filled, and forward to make sure that our banking system has the capacity to meet the expanding needs and the changing circumstances of the future.
Ten years ago, in 1944, parliament gave careful study, not just to the Bank Act itself, but also to a group of related measures which, taken together, formed a coherent pattern for dealing with our expectations of the postwar period. In that year parliament not only revised the Bank Act, but it also created the industrial development bank, the Central Mortgage and Housing Corporation, the Export Credits Insurance Corporation and passed the Farm Improvement Loans Act.
Experience has shown that these were all good measures, and collectively they played a very large part in the relative smoothness of our post-war readjustments and in our progress and expansion since that time.
This year, in 1954, our legislative program in respect of banking is incorporated in four measures-the Bank of Canada Act amendments, the sections of the housing act relating to insured mortgages, the bill now before us,

and the act relating to the Quebec savings banks. The first two have already been approved in principle. I am now inviting the house to approve the third, and the last will be introduced shortly.
I thought we had a very useful discussion on the resolution preceding the introduction of this bill. I appreciated the thoughtful and moderate speech of the hon. member for Peace River (Mr. Low). He will not expect me to agree with all the implications of his remarks or with the precise balance of his emphasis. But I felt it was a good speech, that it recorded a useful degree of progress toward a mutual understanding of these matters, and I am glad to accept his invitation to deal briefly with the fundamental points he raised. He mentioned nine major factors which determine the course of economic progress and prosperity, and he concluded that they could be pretty well summed up in the dominant role of the regulation of the volume of bank deposits. The control of bank credit is, of course, a very important matter; but I would not be prepared to go as far as my friend from Peace River when he says, or implies, that if you look after bank deposits everything else will take care of itself.
It seems to me that steady and sustained economic progress depends upon two broad sets of factors. One is monetary, the other is non-monetary. The non-monetary factors include such basic things as the skill and efficiency of our people in applying their energies to our available resources. Constantly improving productivity is essential. Without it the most ingenious and efficient monetary arrangements will not get us very far. Skill, energy and efficiency together with confidence, integrity and a spirit of adventure-these are the foundations of economic progress.
But in a complex economic society sound monetary arrangements are also essential. I agree that the control and regulation of bank credit is important, but I would not assign it such an overriding importance as does the hon. member for Peace River. I prefer to think in terms of three related and interlocking factors: 1, the variation in cash reserves with its effects on bank credit and bank deposits; 2, the interest rate structure, with its effects on saving and spending and on the allocation of productive resources among the many competing claims; and 3, the effects of over-all fiscal policy. None of these are independent variables, each reacts upon the others; and the essential task of monetary and fiscal policy is to harmonize these several factors and use them to direct and encourage the economy as a whole in the right direction and at the most desirable pace. There are
The Bank Act
times and circumstances when major reliance should be placed upon fiscal policy; at other times the brakes should be applied or relaxed chiefly through variations in cash reserves; at still other times or places influencing the interest rate structure, as a whole or at some point, may be the most sensible approach. I do not think you can generalize for all times or for all circumstances.
In other words the administration of monetary policy requires a high degree of skill and good judgment. It requires selecting the right means or combination of means, and applying those means at the right time and place and in just about the right degree. For this, there is no simple formula.
One last point, before I leave these general considerations. There is a tendency in general monetary discussions to overlook the international elements in the problem. Too often the argument is developed in relation to what economists, I believe, call "a closed economy". Canada, of course, is almost the very opposite to a closed economy. We live by trade and are exposed to all the economic winds of the world around us. We cannot hope, indeed we should not wish, to insulate ourselves against the world.
This means two things. First, we can never expect to be free from a certain amount of economic ups and downs transmitted to us from abroad; and, second, for that very reason we should assist wherever possible in promoting sensible international trade and monetary co-operation, while at the same time keeping our own economy as efficient and as flexible as possible in both its physical and monetary aspects.
I turn now to the substance of the bill before us. I shall not attempt, nor would it be in accordance with the rules, to deal with all the numerous changes proposed. A great many of these are technical, some of them indeed purely verbal to improve the language or clarify the meaning. I shall deal first with changes of substance or principle which will affect the general public.
One of the most important amendments proposed is a change in the method of calculating the cash reserves of a bank and the minimum rate thereof. I referred to this change at some length when speaking on the amendments to the Bank of Canada Act, and I am sure it is not necessary to repeat all of the explanations which I gave at that time. The minimum cash reserve ratio is to be increased to 8 per cent of Canadian dollar deposit liabilities and, as hon. members will recall, there is an amendment proposed in the Bank of Canada Act to permit the Bank of Canada to vary that rate from time to time, within a range of 8 to 12 per cent. The basis

The Bank Act
of calculation is to be changed to a monthly average instead of the daily basis now in effect. This will permit much more flexibility, as a bank may allow its cash reserve ratio to fall below the minimum rate for several days to meet temporary emergencies, providing that it reaches the required average over the entire month.
Another important amendment relates to the power of banks to lend on insured mortgages. The first bank act of 1871 prohibited the banks from lending money on the security of mortgages on real or immovable property, and this prohibition has remained in subsequent acts. There is no doubt that during the early development stages of this country, with a high loss factor and the lack of liquidity of mortgage investments at certain periods, this was a wise provision and contributed greatly to the safety record of the banks. The Farm Improvement Loans Act in 1944 and the Veterans Business and Professional Loans Act in 1946 provided that, notwithstanding anything in the Bank Act, a bank was authorized, under certain circumstances, to make a guaranteed loan on the security of a mortgage. This house has just completed consideration of a revision of the National Housing Act, of which one of the principal features is authority to the banks to lend money for residential construction on the security of mortgages insured by a government agency.
This major change in bank legislation was given very careful consideration before it was proposed to parliament and it is believed that with the insurance, amortization requirements and other liquidity features, this type of mortgage lending will become a safe investment for a portion of the bank funds and will provide a useful additional source of funds for this very important sector of the economy of our country.
It has been suggested in some quarters that a limit should be placed upon the aggregate amount that a bank may lend on this type of security, but I am not in favour of a restriction of this kind. A limit established by legislation is likely to become a target, either for the lender or for those who wish more to be loaned. Conditions will alter from time to time as between one bank and another and for the system as a whole, and I prefer to leave this matter to the good judgment of those whose duty it is to invest wisely the funds entrusted to them.
For some years the banks, by means of loans, have been assisting materially in the development of the country's oil resources. When the act was drafted in 1944 this part of a bank's business was relatively unimportant, and the provisions relating to the

security which may be taken for such loans are not entirely satisfactory under present-day conditions. To permit the banks to give to this very important industry the measure of financial support which is required, a new section containing very extensive provisions has been inserted in the bill.
Section 88 of the Bank Act is a unique piece of banking legislation. Some of its provisions have a history in Canadian banking which commenced long before confederation. In changing form it has carried the same section number in each act since 1913. I believe that, for the most part, it has proven satisfactory in its present form and the only change I am proposing at this time in the lending provisions is authority to the banks to lend money to farmers for the purchase of seed potatoes. In the other provisions regarding notices of intention to give security, several changes have been made on the recommendations of the banks and Bank of Canada. These relate almost entirely to the routine of filing, registration, release and cancellation of such notices, and are intended to enable the Bank of Canada to dispose of obsolete records and notices.
The Bank Act of 1871 authorized the banks, with certain restrictions, to issue notes for circulation in Canada, and in 1897 authority was given for the issue of notes in any British possession outside Canada where the bank had a branch and where this was not contrary to the laws of the country. After the advent of the Bank of Canada in 1935 the chartered banks' note issues were gradually withdrawn. In January, 1950, the banks paid to the Bank of Canada approximately $13J million, an amount equal to their outstanding Canadian notes, and thereafter the Bank of Canada became liable to redeem the notes on presentation. With this payment the additional liability, often referred to as the "double liability", which formerly attached to a bank's shares in proportion to its outstanding note issue, was extinguished.
For many years the cost of foreign note issue including taxes has made this an unprofitable operation, and the banks have been reducing the outstanding amount as occasion has permitted. It is now approximately equivalent to $130,000. The bill before you provides that all note-issuing privileges of the banks shall cease and also for methods of retiring the foreign note circulation now outstanding.
I turn next to a group of amendments relating to the incorporation and the share capital of banks. I am proposing an amendment to provide that if parliament is not

sitting during the last month of the ten-year period for which this act authorizes the banks to carry on business the authority is extended until 60 days after the next session commences. This, of course, is meant solely as a safeguard in case parliament should rise before or during that last month without dealing with this act and thus leave the banks without authority to carry on.
Another amendment is to increase the amount of capital that a newly-incorporated bank must have before it commences business. The present requirements are a minimum subscribed capital of $500,000 and a minimum paid-up capital of $250,000. These requirements were established in 1890, and with the greatly increased costs likely to be incurred in bringing a bank into profitable operation under today's conditions a larger amount of initial capital is considered necessary. In this bill the minimum subscribed capital is stated at $1,000,000 and the minimum paid-up capital at $500,000.
With the rapid and very substantial growth in the assets of the banks during the past few years it has become desirable for some of them to obtain new capital. There are difficulties attached to making a new issue of capital stock under the provisions of the present act if the bank has shareholders resident in countries where considerable detailed information must be filed before the issue of capital stock by a foreign bank is approved. An amendment to the present procedure with respect to the allotment of new stock which will help to overcome this obstacle is proposed.
When there was additional liability attached to the bank shares for the purpose of protecting the note issue it was essential that the shares could be transferred only by registration on the books of the bank. This protection is no longer necessary, and a proposed amendment authorizes each bank, if it so wishes, to provide by bylaw for another method of share transfer.
The present act provides for the procedure when one bank purchases all or part of the assets of another bank. Because of legislation which imposes a tax on the undistributed income of a corporation when it is wound up, a bank which is solvent but recognizes that its future may be limited is, in effect, prevented from joining with another bank. Section 100 of this bill provides a procedure for the amalgamation of two banks and their continuance thereafter as a single entity. _
Hon. members will find in this bill several changes in the provisions relating to the financial statements and periodic returns made by the banks. These changes, intended
The Bank Act
to clarify and improve the information in the statements and returns, have been made after consideration of recommendations received from the banks and their auditors.
At present the banks are required to file an annual return of unclaimed deposits, drafts and accepted cheques after they have remained unpaid for a period of five years and each year thereafter until they are paid to the owner or to the Bank of Canada in trust. The returns now filed contain as many as
25.000	names. They require a substantial amount of work to prepare and, as far as can be ascertained, relatively few payments to creditors have resulted therefrom.
I am proposing in this bill that the returns contain only the details of amounts unclaimed for a period of over nine years, that is, one year before they are paid to the Bank of Canada in trust, if still unclaimed. The returns will then contain between 4,500 and
5.000	names, and it is provided that this information will be published in the Canada Gazette. It is hoped that publication will result in more amounts being returned to their rightful owners.
At the time of the 1944 revision of this act it was provided that the banks should make an annual return of earnings and expenses in a form which now appears in the act as schedule Q. A compilation for all banks of these returns and of the averages for 15 years has since been tabled annually in parliament and published in the Canada Gazette. Hon. members will, no doubt, have noticed the last statement in the Canada Gazette of February 13 of this year.
When the 15-year period was chosen for the return it was not considered sufficiently long to present a fair basis for average figures of earnings, expenses and losses, but as there was no relative information available with respect to the banks which ceased to operate during the twenties, this was the longest period for which reliable comparative figures could be obtained.
I am now proposing a change in schedule Q to lengthen the period of averages to 25 years, which is considered a more suitable basis for a report of this kind.
In that connection, I believe hon. members would be interested in a few comparative figures which indicate the growth of our banking system in the last quarter century. At the end of 1928 the banks reported total assets of approximately $3,470 million. At December 31, 1953, the reported assets had expanded almost threefold and amounted to $10,140 million.
The following figures give the distribution of profits for the average of the 25 financial years of the banks ending in 1953: Profits

The Bank Act
after taxes, but before losses and provision for losses on investments, loans, and other assets amounted to $36-6 million. That is dealt with in the following manner:
Dividends paid to shareholders, $14 million. Additions to profit and loss accounts and to rest accounts including amounts retransferred from contingency reserves, net, $3-5 million.
Losses and provision for losses on investments, loans and other assets, net, $12-4 million.
Additions to contingency reserves, net, $6-7 million.
It will be noted that the latter figure of $6-7 million is about 21- per cent of the $266-8 million average increase in assets for the same period.
As the house is aware, it is my responsibility under the Income Tax Act to inform the Minister of National Revenue (Mr. McCann) if, in my opinion, transfers in any year to the contingency reserves of a bank are excessive. There have been very few occasions in the past ten years when this has occurred. The total of such excess transfers for all banks in the fiscal years 1944 and 1945 amounted to $378,000, on which full taxes were paid. Subject to final audit of the reports for the fiscal years ending in 1953, no excess transfers have been made by the banks in any of the last eight years.
Finally, there are certain changes relating to the internal management of the banks' affairs which should be mentioned. The present act requires the pension funds of the banks to be invested in securities in which a trustee may invest under the Trust Companies Act. A bank pension fund is usually under the management of. a board consisting of the directors and members of the staff of the bank, and is maintained in part by contributions from the staff and to a greater extent by contributions from the bank. It is the practice to have an actuarial survey of the fund at least once in every five years, and for the bank to make up any deficiencies which occur because of changing rates of income and other factors. In my opinion the management of these funds should be left to those concerned, and I am recommending that the present investment restrictions be withdrawn with the exception that no contribution be permitted to a fund that invests in bank stocks.
There are changes also in the provisions relating to the bank auditors. It is now usual for bank auditors to act in an advisory capacity with respect to many matters outside the scope of a normal audit, such as income tax returns, capital stock issues and accounting methods and routines, and it is provided that they may be engaged for and remunerated for such special work, if it is approved by the directors of the bank.

In the 1944 act provision was made for destruction of bank records in which the entries had been made more than 30 years before. The accumulation and storage of a vast quantity of paid cheques and obsolete records has become a major problem with the banks, and it is now proposed to reduce to 20 years the period for which such documents are to be kept, with a provision that the signature cards and other identification records pertaining to an account transferred to the Bank of Canada in trust shall be kept as long as they are required.
There are a great number of changes from the 1944 act in this bill consequential upon some of those to which I have referred. In particular, the elimination of the provisions relating to note issues has meant a redrafting and redistribution of a great many of the sections in the act. None of these make any important changes of substance or of principle, and therefore require no explanation at this time. At the conclusion of this debate I propose to move that this bill be referred to the banking and commerce committee, where hon. members will be able to obtain all the detailed information and explanations they may require.
In conclusion, Mr. Speaker, I can sum up by saying that the only really important changes of principle in this decennial revision of the Bank Act relate to cash reserves and lending on insured mortgages. These changes themselves are not new or untried developments. They flow naturally from our own experience and from the experience of other reasonably comparable countries. They follow the precepts of "conservative innovation" and the "matching of new institutions to old" described nearly a century ago by that great authority on English banking, Walter Bagehot.
That the experience of the last ten years, which has included such confused, difficult and complex problems as well as such an unprecedented rate of Canadian growth and development, should require so few major changes is a tribute both to the wisdom of our predecessors in parliament and to the skill and integrity of those responsible for the operation of our banking system. Canada has been well served both by its central bank and by its chartered banks. Doubtless there have been faults in the past, and faults of degree or of timing can hardly be avoided in the future, for banking and monetary management will always be matters of skill and judgment and a careful assessment of risks.
Whether we look back 10, 50 or 80 years, I think we can be proud of the Canadian banking system which has developed with

the country, adapted itself to our own conditions, learned from its past mistakes, and steadily expanded in size, strength and flexibility, and in the confidence it commands both at home and abroad.


James MacKerras Macdonnell: Mr. Speaker, I am sure we all listened with great interest to the minister's review of the situation. We can agree fully with him as to the importance of this measure, and we can agree also with the wisdom of having this decennial review.
I understand it was established some short time after confederation when it was felt both by the government and the banks that it was well worth while to have this periodic review in order to assess what had been done, to take stock of the situation, and to see what changes required to be made.
The review of ten years ago contained a good deal of spirited argumentation not merely because there were some views from the gentlemen on my far left, but also because on the government side itself very strong views developed among some of its members as to the inexpediency of some of the provisions of the act.
I shall not deal at any length with what the minister said today. The points he raised will naturally come before the committee. I agree fully with what he said at the conclusion of his remarks, namely that the two important things in the bill are the cash reserves and the new powers to make mortgage loans. Without pursuing the matter further, may I say that I was struck with what seemed to me to be a superficial inconsistency. I stress the word "superficial", because it may be that in committee I shall be constrained to change my mind. I notice that the minister on the one hand said that he was not in favour of fixing any limit in connection with mortgage loans to be made by the banks. That emphasized what had been in my mind already, namely just why in the matter of the cash reserves it is felt necessary to become more rigid and mechanical. I raise the question as to the ratio of reserves which, through the practice of decades-one might almost say of centuries -has proved a satisfactory working arrangement. Why does this now need to be altered in the way proposed? But that is a matter for the committee.
Any temptation I might have had to indulge in a historical review I think has been entirely swept away, because the minister himself has given us a good many interesting points in connection with early banking. There is only one point I wish to make. Though in fact I think our banking system
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may be said, in the main, to follow the Scottish system, nevertheless I read to my interest in the Macmillan report:
It is generally agreed that the Canadian banking system is a direct descendant of the first bank of the United States . . .
I read that with interest. The report goes on to say that in the charter of the Bank of Montreal, which was the first charter, actually a considerable amount of wording from this United States bank charter was to be found. I mention that fact purely as a matter of interest.
The minister has also dealt with the disappearance of the double liability which used to be such a great feature of our banking system, and has explained that it has disappeared as the individual bank notes have disappeared. I recall one interesting historical point. When the banks were free to issue notes there was a special provision by which they could increase the note issue for the moving of the wheat crop, for which privilege, incidentally, they paid a special tax.
As we pause for a moment to reflect on our banking service, it seems to me to be worth while to remind ourselves what an amazing service it really is, if you take time to consider that we can send money almost anywhere in the world practically instantaneously, even by telegraph if we wish to do so, and that it costs us nothing but a four-cent stamp-no, I mean a five-cent stamp-to send a cheque, when we pay by cheque. It seems to me that the service is one that we have become so accustomed to that we forget actually what an amazing convenience it is that almost within a stone's throw of each of us we have a fully equipped banking service which can do business for us anywhere in the world.
In the second place I think we are fortunate to have 11 competing banks. The minister has already referred to the new bank that came in this year, namely the Mercantile Bank, with a Dutch background. I think we are fortunate to have this addition to our financial equipment, because actually they bring in a background of experience somewhat different from that of our own banks. Of course behind regulating, advising and sometimes virtually controlling the actions of the chartered banks, we have the Bank of Canada which has now been in existence for 20 years and which has rendered services that we all know about.
I want to say a word about one aspect of our banking system which I think is of vast importance, namely our branch system. We realize that it was a tremendous strength

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to us in the early thirties when United States banks were going down like ninepins. In our system of a small number of banks with a large number of branches we are really like an army with many divisions, with a general reserve available for all. Although legal arrangements have strengthened their position in the last few years, the United States banks at one time really had to carry their own reserves, with the results that we saw only too unhappily in 1932. Of course it was a well-known fact that many United States banks which then had to close their doors had plenty of assets but were not able to realize them quickly enough.
I now want to add a sentence or two about early banking in order to recall to our minds that in the beginning, banking really was just custody of property. Men of reputation and probity were asked to take care of the valuables of other people. That was the way it began. To deposit merely meant leaving valuables with a dependable person. Next came discount; that was the purpose of bills of exchange. Then last of all there was the question of issue, and along with it came the development of payment by cheque. All of this was completed by the end of the seventeenth century and that virtually set us up with banking as we know it today.
As I say, the business of banking began with deposits. The lifeblood of banks is deposits. We cannot walk a hundred yards in any of our cities without seeing advertisements urging us to deposit our money in banks. As we know, that raises questions which I do not propose to delve into here. I am not going to pronounce judgment as to whether we lend deposits or the proceeds of deposits. Those who have the time to read the proceedings of the banking and commerce committee of ten years ago will find that that was a question which was argued at that time. The one thing I wish to stress is that the conception we seem sometimes to run across, namely that the banks have piled up in a corner huge amounts of money that they might lend if they wished, is something we must get away from. We must try to clear our minds, at any rate, and to remember that deposits are liabilities of the bank.
If you take any bank statement, here is what you will find. I have here the statement of one of the larger banks. If you look at the asset side you will find first of all that there is some $600 million cash or its equivalent; then there are $1,700 million of government and other securities. Following that there are some $700 million of current loans. On the other side, the liability side, you will find a liability which overshadows all other

liabilities-indeed it is about nine-tenths of the whole of the liabilities-namely the deposits, amounting in this case to $2,527 million. I am just raising this point, Mr. Speaker, because it seems to me that we should try to have a clear view as to what is the situation when we talk about loans.
I want to say just one word about credit. Much excitement has been caused from time to time by misunderstanding of the banks' function of creating credit. Banks do create credit. I want to read a brief word on credit from the budget speech of Mr. Dunning in April of 1939. As reported at page 3144 of Hansard of that year he said:
The policy which has been followed has been one designed to expand money and credit as rapidly as the needs of the public require, but not so rapidly as to create an unhealthy, speculative expansion which would be bound to end in a serious depression.
What really happens is that when banks create credit, what they do is, as it were, to turn into money, in advance, goods which are going to be created. Let us consider the situation, for example, in the fall of 1939. We all remember what the position was then. There had been a good deal of unemployment. Then we ran into a situation where goods were needed, materials were available, labour was available and purchasers were available. Then what do we find? We find that in the autumn of 1939 Mr. Ilsley brought in a budget in which he indicated that there was going to be $156 million-I think that is the figure- of a deficit deliberately incurred because it was necessary to stimulate business and get things started.
Let me give a simple case. You have a man who owns a stone quarry. Nearby is a line of railway which needs rock ballast. The owner of the quarry goes to the bank and states his case. He has the material and he has the labour. Transportation is available, a market is available, and he wants to borrow $100,000. The bank examine the situation. They have expert, skilled people who are able to estimate potential value. Let us assume that the bank considers the potential new wealth sufficient for repayment and a loan is granted. What is the result? The result is that the bank's assets and liabilities are both increased by the amount of the loan. On the asset side is the borrower's note; on the liability side is the new deposit. If the stone quarry succeeds the note will be repaid, which means that the wealth which has been created has, so to speak, caught up with the credit which was created in order to enable it to be done. Always, of course, the bank

must have regard to its cash position, to its cash reserves held by itself and with the central bank.
There is another point I should like to make. The only way the banks have to earn money is to make loans. They are in business to lend as much as possible. That is the only source of their income. Sometimes people talk as if, somehow or other, the banks did not want to make loans, as if they were holding back and sitting on large sums of money which they did not want to lend. Of course that is absurd. The average bank manager wants to have his loans just as large as he safely can. The view is apparently held that in some way or other the banks can, by some magic process which I have never been able to understand, go ahead and really take the place of government. I want to read an extract from a speech made the other day by the hon. member for Winnipeg North Centre (Mr. Knowles) and also one from a speech made by the hon. member for Assiniboia (Mr. Argue), both of whom we often hear in the house. The hon. member for Winnipeg North Centre said, as recorded at page 2660 of Hansard for March 4:
. . . public ownership and control of the commercial banks is necessary if we are going to have complete control by the people over fiscal and monetary policies. We recognize and contend that those who control fiscal and monetary policies exercise tremendous control over the lives of our people.
The hon. member for Assiniboia said, as found at page 2661 of Hansard for March 4: . . . there is no assurance that when the nation is facing the possibility of a recession the chartered banks will do that which is in the interest of the nation at that time, namely, make the borrowing of money easier.
I want to make one or two comments on these statements because it seems to me they are all wrong, and that there is no justification for the views put forward. There is no justification for the view that the banks are going to hold back. But if I were the head of a bank I would not want to have to explain to the hon. member for Assiniboia, who is a big, strong fellow, that I had made so many bad loans I could not repay his deposit. In other words, when a banker is making a loan he has to have regard to his liabilities, particularly his cash, when he has a liability to a big, able-bodied man. I ask most seriously whether the hon. members to whom I have referred have thought this matter over in a really serious manner. I have tried to think it over, and I present my views for what they are worth.
I have tried to ask myself what would happen if the banks were nationalized. Let
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us imagine the banks nationalized. What happens the next day? You have the same men presumably, the same assets presumably, and very little change in personnel. The bank managers will be reporting to the same seniors to begin with, at any rate, but I submit that a change has taken place. I submit that we now have men who have become civil servants, who are subject to rigid legal requirements and strict regulations and are liable to criticism if they depart from them in any way. As far as these men are concerned, I suggest that actually it will probably not be easier but harder to get loans. I suggest there will be a new rigidity coming into the situation.
The other day I was struck by something said to me by a senior and very able official of one of the crown companies. He has come to his post from private business, and he said to me, "People come to me and want to make deals with me". He said, "They suggest to me that after all I need not be very tightly bound by legislation and that I could use my discretion". He said, "I cannot; I am bound by legislation". I think he was right.
In my own mind I was trying to compare his very senior position with that of the general manager of a chartered bank. He will have regulations to guide him, and of course he has a board of directors to whom he is responsible; but I suggest that he is a very much freer agent than my friend, the senior official of a crown company. I suggest that within a reasonable range he will be expected to use his discretion. Indeed, if he were tied and afraid ever to step a little to the right or to the left of strict regulation I suggest that his board of directors would tell him that he was not the man for their money at all. They would expect him to take responsibility and, as I say, to use his discretion.
That is the situation on the one side. Incidentally, so far as nationalizing the banks is concerned, I am going to point out in a moment that the socialists in England are apparently entirely cured of the desire, which I think they did have 20 years ago, to socialize the joint stock banks.
I want to come back to a second and what I think is a worse danger on the other side. I refer to the danger of political interference. Let us be candid and honest with each other. Let us assume there is a large company operating in a small town where it provides most of the employment. Let us suppose it has got into real difficulty and let us imagine the situation with the chartered banks as they are now and if you had them under government auspices.

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If you have proper management of the chartered banks, as we have now, what will you find? You will find that there is every desire to help that company if it can properly be done, but nevertheless you will find that in the last analysis the matter will be decided on sound business principles because the officials of the bank always have in the back of their minds the strong obligation they owe to the depositors whose money they have. Now let us assume that you have the banks nationalized and let us assume, as I say, that you have this business operating in a small community where it is vital to the lifeblood of the community. Am I being unfair, am I being cynical if I say it is just not possible that the local member of parliament will not be approached and pressured to see that that company gets its loan? As a result the transaction will not be carried out on the basis of strict business principles.
Therefore it is my feeling that you would have two undesirable factors. First of all you would have an area in which there is rigidity, and in which loans will perhaps not be made as freely as they are now. Second, you would have an area which politics would certainly try to invade. I need not say that if loans are made on political principles I would be prepared to predict disaster in the end.
Here I mention again the English socialists. The Bank of England was nationalized. I have no criticism to make of that. I think the control of credit should be, as is the case in Canada now, in national hands. But the Bank of England, just as the Bank of Canada, does not engage in the conduct of ordinary business. It leaves that to the joint stock banks of England. They are not interfered with in their ordinary operations by the Bank of England. The English socialists have accepted that. I was talking to a well-informed economist from England the other day, and he said he thought the English socialists believe it is a good thing to have competition among the joint stock banks.
I submit further that in those two extracts I read from the speeches of the hon. member for Assiniboia and the hon. member for Winnipeg North Centre what they really wanted, whether or not they intended it, was the chartered banks to step outside their own prerogatives and undertake what is the business of the government. If business has to be stimulated, if projects have to be carried on which will stimulate activity, that is a matter for the government and not for the chartered banks. The banks are there to safeguard the interests of their depositors and, within that proviso of course, to make loans just as freely as they possibly can.

I want to say a word or two about the conditions facing our banks today, because it seems to me that they may be in difficulty. We have had 15 years of boom. Prices have been going up. Nearly everybody has made money, although failures are beginning to show up now. The banks have had really a rather easy time, you might say. It is always easy when prices are going up, provided they are not soaring in a wild, crazy fashion. As I say, the banks have had a rather easy time. Whether or not it is going to continue to be so easy we are not so sure at the moment. There is hesitation today. There is fear of what might happen in the United States. In the United States it is being said that March is their deadline. The other day our own Acting Prime Minister (Mr. Howe) said this was an anxious time.
I want to take just a moment or two to indicate what I think are the processes of mind through which a banker goes when he is making a loan. He has, of course, to study the business. He must have a complete knowledge of the conditions affecting the borrower. I want to read just a word or two from an article appearing in the Globe and Mail of last Saturday by Wellington Jeffers pointing out, in what I thought was an interesting way, the extent to which the banks had organized themselves in connection with the new loans to which the minister referred this afternoon and to which section 82 will relate. He said:
Some of the main banks have developed complete organizations for geological and statistical study of every new field and of the operations of companies working in it. They have their own geologists and a banker on this sort of work soon becomes one of the chief experts. All this organization is to enable the banks in this booming but speculative business to decide where loans would be justified because of hopeful operations and for the protection of the money loaned.
Then he goes on to say:
The geologist of one of the great New York banks told me that this is one of the active lending sectors of United States banks and is based on geological studies which can now make clear in a proved, developing field how much oil or gas is below the ground just as much in many cases as though they were stored above ground.
This interested me, because it seemed to show at once the thoroughness and initiative which banks do show in helping the development of business in a country.
The banker must know, of course, in the case of a manufacturing business what is the productive capacity of the total industry in Canada, so as to be able to judge what competition his borrower is going to have. He must know something about the home

market, the export market and competitive conditions both at home and abroad. He will be concerned, for example, with a remark made by Mr. Muir of the Royal Bank the other day. He said:
Startling and unpleasant as it may be. however, there is evidence also that Canada is tending to become a high cost economy in which natural and artificial barriers prevent us from achieving the degree of flexibility and mobility required for orderly adjustment. One marked evidence of this inflexibility is to be found in the failure of retail prices to reflect the general fall, since 1951, in the prices of raw materials.
He will be concerned with another remark made by Mr. Muir to this effect:
It was with this possibility in mind that I felt obliged last year to voice some doubts about the permanence of a prosperity built so largely on the "treacherous sands of consumer credit".
I am just trying, Mr. Speaker, to indicate how, as I see it, the banker views his business and the extent to which he must be an expert in conditions today. When I say "banker" of course I am thinking not only of the branch manager but of the senior officials right to the top, where he gets the most expert assistance available.
He will also have particularly to consider conditions in the United States. Are our prices really higher than those in the United States? Is it true that United States tourists no longer buy our goods when they come here because the prices are so high? Then he would, of course, consider the question of the premium on our money; that is a problem. It is a problem which, of course, is costing our manufacturers and exporters a great deal. For example, the newsprint people get paid in United States dollars and then have to take a sizeable discount. The same condition applies to other industries as well. This condition curtails exports and stimulates imports. It flatters our ego, perhaps, but it picks our pockets a bit, too. It is brought about by the fact that the interest rate is lower in the United States, and that stimulates borrowing in New York. Competent people fear that this premium may stimulate borrowing causing it to go higher, and that would act as a brake on business.
I repeat that the stimulus about which we are talking, and about which the hon. member for Assiniboia (Mr. Argue) talked particularly, must come from the government and not from the banks. The banks have their proper duty to perform, but it is not that of a government. I want to say, too, a word about money management, though of course that is primarily the concern of the Bank of Canada. I do not believe it can be stressed too often that the only safeguard we have is the wisdom and foresight of the people in
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charge of the Bank of Canada and their power, if necessary, to withstand political pressure.
This raises the question I raised at the time we dealt with the Bank of Canada Act. It is a difficult and perplexing question, I admit, but could we have some kind of automatic check put in the Bank of Canada Act? There was such a check in the original act, but it has been nullified by subsequent legislation. Were we wrong when we put it in the Bank of Canada Act? Is it true that any check becomes meaningless when we go into the business of managing money?
I believe that it is a very important question for the committee to consider. Should there be some kind of check? Should there be some way by which the Bank of Canada, if it wished to take a stand against government policy, could do so? Let us assume that a time arises when the government is under great pressure, as the United States government has been. They started in with what they called a hard money policy, but they have taken flight from it so far as I can make out. They have had to put the shoe on the other foot. The Macmillan commission, composed of thoroughly able men, recommended a check. The question is whether the committee should come back with a recommendation that some check should be provided.
It is fair, I think, to remind ourselves that money management is a tricky business. We had a good deal of experience with it in 1946 and 1947, and later when we were managing our money to the extent of fixing the value of it rather than leaving it free. We remember that in 1946 the dollar was put back to par at a time when subsequent events showed it was not worth par. We remember that in 1947 we lost $1,150 million in reserves. We remember that in the autumn of that year drastic action was taken, what some of us called legislation by radio. We remember that a prohibition against certain imports was imposed, and I think it is fair to say also that these drastic restrictions gave an amount of protection far beyond any tariff. It was absolute protection, and it stimulated the development of certain industries in a rather extravagant fashion. It may be that, in the long run, it was not a very desirable thing. These restrictions were finally removed, but by that time we had these industries which had been built up under this absolute ban on imports.
There is one other thing to which I want to refer because it has always amazed me, having regard to the main concern, and that is that we went through a period here when there was a belief we could control interest

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rates. When I look back to the men concerned, for whom I have great respect, it is almost impossible for me to realize how they got themselves into that state of mind, but they did. I want to read briefly into the record a statement made in October, 1945, in connection with the sale of victory bonds:
Of course, when you buy victory bonds you don't know for sure just when you may need to turn them into cash. Perhaps you will wait until they mature.
I should say this statement from which I am reading was an official statement and has in it statements made by the then minister of finance and one of the senior officials of the finance department.
Perhaps you will wait until they mature. Perhaps you can't wait that long. What happens then?
Most Canadians know the answer to this question. They know victory bonds can be turned into cash at any time. To meet temporary needs for cash, they can be used, as security for a bank loan. To meet other needs, they can be sold through any bank, investment dealer, stock broker, or trust company. The current market value of the bonds, with interest up to the day of sale, is paid to you while you wait. It's as simple as that.
And then I shall read the statement from the bank, which says this:
Government bond prices reflect the level of interest rates. A decline in bond prices could happen only if interest rates were to rise. In my opinion, the needs of the future will require and enable the kind of monetary policy which has brought about the current level of interest rates. Continuance of this policy means stability in victory bond prices.
Having read that, hon. members will not be surprised to learn that many people went about saying the treasury had positively made the statement that 3 per cent bonds would not go below par. It was the easiest thing in the world for a salesman, in view of what I have just read, to go one-tenth of one per cent farther.
I think it was in January of 1947 when bonds were allowed to go down two or three points in price. They had been at 105, and they came down to around 102. I was travelling with a man who was quite well up in the bond business in Toronto. Referring to this drop in the price of bonds I said to him, "Is nature going to be allowed to take its course?" He said, "Perhaps; but of course, bonds cannot go below par." I said, "Why not?' He said, "Because Mr. Ilsley said they could not." I said, "I do not think you will find that Mr. Ilsley did say that." Here was a man with some competency in his profession who held that view.
I have said just a word about the minister's remarks on increased reserves. I think I should add no more on that. The matter will come before the committee in due course.
(Mr. Macdonnell.]
Another point we will have to discuss in committee is that of convertibility, and I think I need not add anything further on that point.
As to the new provisions concerning mortgage loans, I think that has been fully discussed and I shall say nothing further about it, except that it is so long since liquidity was considered a matter of any importance that I feel that, while we expect the banks to co-operate fully-and I am sure they will, so far as they can-on the other hand, simply because we have gone through so many years with liquidity, practically so remote that it was like a subject that is discussed only in textbooks, we should not allow ourselves to forget that the primary obligation of a bank is to be able to pay back its depositors. We must keep in mind that these restrictions were put on by men who were considered wise and prudent in their dealings, and that they have prevailed for many years.
The governor of the Bank of Canada said frankly the other day that for some time he had held the opinion that banks might be allowed to make mortgage loans. Nevertheless I hope we will never reach the point where pressure is put on the banks to go beyond that point which they themselves consider prudent.
Having said this I think, Mr. Speaker, that I shall permit the matter to go to the committee.


Mr. M. J. Coldwell (Roselown-Biggar):: Mr. Speaker, as has already been said, the decennial revision of the bank charters act and, of course, the motion now before us, together provide an opportunity for the house to make some review of the policies followed by the chartered banks and to suggest such improvements and changes as from the experience of members of the house and the country generally would seem to be desirable. That is the purpose of the decennial review of charters.
I am going to say at once that the Canadian banks have a very impressive record of efficient management, of safety and of profit to their shareholders. I shall offer some criticism of their operations in relation to the public and national interest, but I shall keep what I have just said in mind, because I think one should do so. In discussing this measure I shall not refer specifically to the criticism made of the hon. member for Winnipeg North Centre (Mr. Knowles) and the hon. member for Assiniboia (Mr. Argue)

by the hon. member lor Greenwood (Mr. Macdonnell). I think he will see in what I am about to say an inherent defence of what they said the other day.
Traditionally the concept of the responsibility of the commercial banker in this, as in other countries, has been a relatively simple one. That is, his responsibility can be considered to have been, in his view, a comparatively simple one. In the past it was generally recognized and widely accepted that the banker's responsibility was, first, to safeguard the interests of the depositors and of the institution itself. And this, I say at once, Canadian banks as a whole have done well. His second function, he considered, was to use the proceeds of the deposits to make loans and investments calculated to give the best results to the shareholders of the banks.
Hon. members will note that I said "to use the proceeds of the deposits", not necessarily the deposits. For I have in mind the undisputed fact-which I am sure the hon. member who has just taken his seat and the Minister of Finance (Mr. Abbott) will not dispute- that loans from banks, or a bank's ability to loan, to put it in perhaps a better way, are both only in part based upon deposits, and as well of course on the reserves of the bank, rather than on the actual amount of the deposits. That is, loans are not limited to the actual amounts on deposit in the keeping of the various banks. In other words, banks do create credit. I think that is generally agreed.
In modern times, then, banks have not loaned moneys actually deposited by the public; rather they have based the extent of their loans in relation to their deposits and reserves. In other words they have created credit and created new money several times in excess of the actual funds in their possession, if you consider credit to be a form of money, knowing that at no one time would all the depositors demand the repayment of all their deposits but only a fraction of them.
This bill, like the Bank of Canada Act we discussed a short time ago, restricts these privileges to a greater extent than heretofore under our legislation. As has already been said, the safety of the Canadian banking system has been largely due to the fact that it developed into a branch banking system with such risks as existed spread not over a single community, or even a single region, but spread over the whole country. I believe this is preferable to the United States system of setting up independent local banks. The safety that springs from the system in use in this country is, of course, the justification for the branch banking system.
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The twofold responsibility assumed by the commercial bank manager is still regarded as being the principal responsibility today. However, changes in economic conditions have imposed upon the banking system a much wider responsibility to the public than heretofore was dreamed possible.
The great depression of the 1930's concentrated public attention-and I believe for the first time to any extent-upon the importance of the monetary system and its effect upon the general economy. It is now recognized that the banking system has a major responsibility in regulating the flow and direction of the nation's credit. That is why Canada, in common with many other countries, established a central bank; to give some over-all control over the system.
Now, the failure to provide proper credit regulation can be reflected of course in the fluctuation of prices, in the general condition of industry, in the condition of employment, in agricultural production and so on. In short, there can be general economic instability if there is failure to provide proper credit regulation.
Before the Bank of Canada was established the government could make advances, as the minister stated this afternoon, under the finance acts of 1914 and 1923, to the chartered banks in the form of Dominion of Canada notes against deposits made by the banks with the minister of finance. I think that is largely the genesis of our central banking system. Those deposits were in the form of securities approved by the minister and, as the royal commission on banking and currency in Canada said in their report issued in 1933-and I quote their words-it was entirely a matter "left to the discretion of the banks as to what their cash reserves would be" in relation to this.
The result was that they extended their bases of credit-and this caused a great deal of discussion in the early thirties-in periods of inflation and contracted them when depressed conditions should have demanded an increase in credit facilities. This was demonstrated very clearly in Canada between, we will say, 1925 and 1935, when for a few years we experienced a boom when credit was pretty easy, followed by a depression when things tightened up drastically. That concentrated public attention upon this problem probably to a greater extent than anything else could have done.
Today the regulation of the ratio between a bank's cash reserves and its deposits or liabilities is controlled by the Bank of Canada, and thus bank credit, the instrument which carries out, as we said the other day,

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the monetary policy, is largely laid down and controlled by the federal government. So it is no longer regarded as a matter of concern only to the individual bank in relation to its obligations to its depositors or to its own shareholders; it is now a matter of national interest.
Let me repeat what I said when I discussed the Bank of Canada Act the other day. The banking system has become, through the Bank of Canada operations, the instrument of monetary policy decided upon by the government. I want to repeat that. Yet, and here is the paradox, the actual financial decisions which affect public welfare are still in the hands of the private chartered banks. They decide how they shall meet demands for credit made upon them by various sectors of the economy, or indeed if the demand which is made upon them shall be met at all. The final decision is with the chartered banks, not with a public authority.
Because of the nature of the Canadian economy, consisting as it does so largely of primary and seasonal industries, the requirements for credit make the consideration of both short-term and intermediate-term credit a matter of primary concern, particularly to our primary industries. Take agriculture and fishing as examples. The farmer or the fisherman is dependent most of the time upon bank credit to carry him until he can realize on the sale of his products. That is particularly true of the farmer.
This kind of credit, or the issue of it, the granting of it, is entirely in the hands of the chartered banks and is a matter for their sole decision and judgment. Only in the larger industries which are able to finance out of their accumulated reserves is there less need to depend upon the chartered banks. I believe there is abundant evidence over the years to prove that in time of special need the chartered banks have failed to meet the important credit needs of agriculture and other seasonal and primary industries. Yet these are of fundamental importance to the Canadian economy.
Mr. A. F. W. Plumptre, formerly professor of economics at the University of Toronto, and I believe later an adviser on finance in the Department of External Affairs-


Douglas Charles Abbott: And about to be an official of the Department of Finance.


Major James William Coldwell: About to be an official of the Department of Finance.


Stanley Howard Knowles: Is this a notice of his appointment?
[Mr. Coldwell.l


Major James William Coldwell: He stated in his discussion of central banking in Canada, at page 124: The most distinctive feature of the Canadian system is the relatively small extent to which the Canadian banks engage in agricultural finance. They have customarily left the field of long and intermediate credit in rural districts almost entirely to other financial institutions, and have themselves' provided little but the seasonal needs of their rural clients.
I think that is equally true of fishermen. The fact of the matter is that farmers have succeeded in obtaining anything close to their short-term credit requirements only after government guarantees against losses have from time to time been given to the banks. That is the point I want to emphasize. This was recognized when the Farm Improvement Loans Act was passed in 1944 to provide short and intermediate credit for farm improvement and development. The act, we were told, was designed for the purpose of assisting "the average farmer who ordinarily would not be able to obtain bank credit for these purposes," and here I quote what was said at the time.
Under that act the government guaranteed losses up to 10 per cent of the total of the loans made by the banks. From the time the act became operative until December 1, 1952, the losses on those loans was only -01 per cent. That is to say, there was a loss of $1 for every $1,000 loaned under the act. I think that is a very impressive record. Thus the government guarantee of 10 per cent of the total loan meant that there was very little likelihood of the banks losing one cent under the act.
The other primary industry I mentioned was fishing. The fishermen have been unable to obtain short or intermediate-term credit, either from banks or from mortgage institutions, mainly because they lacked the necessary collateral.
In 1944, section 88 of the Bank Act, to which the minister referred this afternoon, authorized the banks to lend money upon the security of fishing vessels, fishing equipment and even the catch itself. But the authorization to lend under the act is one thing and the making of the loan or the securing of a loan is quite another thing. Parliament may authorize, but the banks make the final decision in what they conceive to be the interests of the banks and their shareholders rather than of the industry.


Mr. Maclnnis:: And of the country.


Major James William Coldwell: And of the country. Mr. Ilsley, referring to the provision for such loans when it was brought up before the house, recognized this fact and I should like

to quote what he said, as reported on page 2560 of Hansard of 1944. He said that it would be necessary to-
-enact a companion measure somewhat similar to the Farm Improvement Loans Act-
I skip a few words.
-which will enable the government to give a limited guarantee in respect of loans made by chartered banks to fishermen.
He recognized that point. I do not know why, and I did not remember it until I began to prepare my notes for this discussion, but the suggestion of the minister of finance was never adopted by the house or by the government, with the result that the banks have not assumed the risk themselves of advancing necessary credit to this industry and the industry has had to go without necessary credit.
Generally speaking, these primary industries of farming and fishing have had to be assisted even in obtaining long-term credit through legislation and by government guarantees. The banks have not assumed the function which they should have assumed. I have in mind the Canadian Farm Loan Act and the Canadian Fisherman's Loan Act, both administered by the Canadian farm loan board. I am not criticizing the banks in this latter respect with regard to long-term loans because they have been prohibited by law from lending on long-term mortgages, as the minister said this afternoon, ever since the first bank act was adopted by this parliament in 1871. What I have been referring to was their failure to provide the most essential intermediate and short-term credit when it was required.
Let me give a further illustration of the point I am making that only one type of pressure was used on the banks to make them accept even effective government guarantees against the losses which might have arisen when they agreed to meet certain important credit needs. The example I have in mind is the Home Improvement Loans Guarantee Act of 1937, which was passed when the Minister of Finance (Mr. Abbott) and I were both new members in this house.
In 1944 the late Dr. Clark told the standing committee on banking and commerce, at the time of the last decennial revision, as reported at page 1366 of the proceedings, which I will summarize, that all the pressure possible had been used on the banks to make housing improvement loans and other loans to create employment, and that only because of this pressure did the banks make the loans that they would not normally have made.
It was clear from what Dr. Clark stated at that time that the banks yielded to this pressure because the act provided that the 83276-176i
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federal government would guarantee losses up to 10 per cent of the total amount of loans made by the banks. The banks incurred few if any losses, and such losses as did arise were covered by guarantees under the legislation. Dr. Clark's evidence can be found at page 1366 of the report of the committee's proceedings, and I would like to quote him directly from the record:
Our total losses up to date have been just a little over three-quarters of one per cent. I think the figure is -8 per cent. The loans are nearly all paid off. There is perhaps one or two million dollars of the principal still outstanding so even if all the rest of the loans were not recovered, if we did not recover a cent in respect of them, our total losses would be of the order of 2 or 2\ per cent, I believe. Actually we will recover a very substantial proportion of the amount of principal still outstanding so that the total loss ratio will be very low.
My purpose in referring to and reading this evidence is to show that without guarantees the banks would not advance credit to those people who were creditworthy, nor would they make loans to such people without specific government guarantees against loss.
We have often heard of private enterprise in connection with our banking system, but the banks required government guarantees against loss, thus eliminating the risks we are told the bankers take in making loans. Indeed, throughout the period under discussion at the moment the banks failed to meet the credit needs of the country or to take the risks they formerly undertook without guarantee.


James MacKerras Macdonnell: Would my hon. friend permit me?


Major James William Coldwell: Yes.


James MacKerras Macdonnell: Would he agree that in the years preceding these measures he refers to very heavy losses were incurred in that respect?


Major James William Coldwell: Yes, there were some heavy losses incurred during the early depression years, but may I just add that these losses were in no small measure due to lack of control through legislation over the chartered banks. I believe the inquiry into the chartered banks of Canada undertaken by both a royal commission and at the decennial revision of the Bank Act of 1934 will clearly indicate that.
As I said, however, I am not criticizing this feature. At one stage the government of Mr. R. B. Bennett, by means of a secret order in council-and the hon. member for Quebec South and the late minister of finance, Mr. Ilsley, were both members of the opposition which dragged it into the open to the surprise of this house and the

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country-allowed the banks, because of the position in which they had landed themselves in 1930, to value their securities at an unwarranted high level in order to prevent a run on one or two of the major banks. That was the value of the securities prior to a drastic drop in their value.


Douglas Charles Abbott: I think the hon. member will agree in all fairness that conditions during the thirties were partly the result of world conditions, and did not reflect conditions in Canada only.


Stanley Howard Knowles: Does that justify a secret order in council?


Douglas Charles Abbott: I was not referring to that.


Mr. Deputy Speaker:: Order.


Major James William Coldwell: It is interesting to hear the minister say that. I read the debates which took place during that period from 1930 to 1935-


An hon. Member:: He was not here then.


Douglas Charles Abbott: That was before my time.


Major James William Coldwell: I was not here either. I was referring to the legislation which provided these guarantees. One outstanding example during the period to which I am referring was the $60 million loan made by eight chartered banks to the Canadian Pacific Railway in, I believe, 1933. Hon. members will recall the circumstances and will agree that this was done, as the hon. member for Dufferin-Simcoe (Mr. Rowe) I think will confirm, in order to prevent widespread unemployment at the Angus railway shops at Montreal and in other sectors in Canada. That entire loan was guaranteed by the federal government in 1933.
Again, because of the failure of our banking system in respect to certain phases of industrial development, this house had to take the initiative, and we passed an act placing the government in the banking business when we set up the industrial development bank. It was set up as a subsidiary of the Bank of Canada, which was authorized to buy the securities of the industrial development bank. Why was that done? The government explained very clearly at the time. The minister said it was necessary to supplement the banking system by extending to small and medium-size industrial enterprises the credits they were-and I	quote-"unable to obtain from the
chartered banks".


Douglas Charles Abbott: Because of limitations on the granting of credit.


Major James William Coldwell: Yes, partly; but what I am getting at is that we saw fit to set up a bank

of our own to do what it was generally believed the banks were doing. Here was an admission that either the chartered banks were unable or were not permitted to fulfil the function for which they were brought into existence.


Douglas Charles Abbott: In all fairness I think it should be pointed out-and I conducted the debate -that it was set up in order to supplement the facilities which were provided by the chartered banks on the basis of long-term credits which were available to large concerns but which were not available to the smaller ones, and which were not provided through the banking system at all but through investments.


Major James William Coldwell: That does not upset what I have said.


Douglas Charles Abbott: But we are talking about commercial banking now.


Major James William Coldwell: These facilities should be available to the smaller industries as well as to the large ones-


Douglas Charles Abbott: It was not-


Major James William Coldwell: -and the very fact that the banking system failed to function as it should have functioned-


Douglas Charles Abbott: It was not set up to provide that kind of banking accommodation at all.


Major James William Coldwell: -demonstrates that there was no justification for this particular move at all, if the banks functioned satisfactorily.
But I wish to pass on to another point. I want to suggest to the committee that there is another phase of this whole lending problem which should be given a thorough investigation, and I hope some means will be found of doing that. The banks have failed to meet the needs of the community; therefore we have small loan companies springing up all over Canada, opening up branches in almost every city and larger town in the country. They charge a rate of interest of 2 per cent per month. That is quite legal. They have been doing a huge business in Canada in the past few years. That indicates, I believe, that the chartered banks have not met the credit needs of the public.
One method of meeting the needs of the public would have been through credit unions, but unfortunately the spread of co-operative education and the organization of credit unions has so far failed to fill the gap. However, with more adequate educational efforts and encouragement on the part of governments, I think they could do so to a large extent.

In 1939 the Small Loans Act was passed. This act authorized small loan companies and personal money-lenders to make small and personal instalment loans "on the basis of a charge for interest and other costs of 2 per cent per month for loans extended up to 15 months". The reason the act was introduced, of course-and I say this immediately in fairness-was that it was necessary to regulate a widespread practice whereby money-lenders evaded existing laws relating to interest and usury. As early as 1936, however, one of the Canadian banks, namely the Canadian Bank of Commerce, organized a personal loan department to make loans to wage earners and others who could not qualify for such loans in the ordinary way of business. I often think that if the Bank of Commerce or the other chartered banks doing this sort of business would publicize to a greater extent the facilities they offer, many people who now go to these loan sharks and pay 2 per cent per month would be able to get some help at least from the banks, although the banks do not meet the need that exists.
What was the experience of this new department of the Canadian Bank of Commerce? Mr. Stewart, the assistant general manager of the bank, appeared before the banking and commerce committee in 1944. He showed that loans were made at, I think, an effective interest rate of about 11-78 per cent. Again, the hon. minister's predecessor, Mr. Ilsley, proposed an amendment to the Bank Act to regularize these bank loans with an effective interest rate not to exceed 9| per cent. That proposal was dropped. I think it would be well for the committee to question the banks carefully as to their experience with loans of this description, particularly with a view to curtailing or, better still, eliminating the operations of the small loan companies with their extortionate if legal rate of interest. It might inquire into that matter, for I do not remember why the proposal Mr. Ilsley brought in for an effective rate of interest of 9f per cent was dropped. I do not remember it, and I could not find the reason for dropping it in my search of the records.
The committee should also consider how the rapid development of credit unions could be promoted, because they operate in a quite different way. They operate among people whom they know and to those who need them they are able to provide loans more on the basis of personal integrity and character than on the possession of collateral which the banks and indeed the loan companies demand. Under a branch banking system I suppose the branch managers are obliged to do this.
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Hon. members might look at page 300 of the report of the last banking and commerce committee. I was going to make some quotations from it but I cannot do that. There they will find a fairly complete record of the operations of the personal loan department of the Canadian Bank of Commerce. In the first seven and a half years of operation- that is, up to 1944-Mr. Stewart testified that only one-quarter of one per cent of the loans had to be repaid by the guarantors of personal loans made by the Canadian Bank of Commerce. I believe that bank required two guarantors in connection with these loans. From the reading of the evidence it would appear that up to that time at least the bank really lost nothing under the arrangement.
That the banks are unwilling to extend credit facilities to meet national problems was clearly stated again recently by Mr. T. H. Atkinson, president of the Canadian Bankers Association, before the banking and commerce committee when it was discussing the housing bill to which we gave third reading this afternoon. He replied to a question relating to the financing of housing in these words:
Such a move would not. I think, have been sought by the banks-particularly at the present time when the chartered banks in Canada are relatively "fully loaned".
If time permits, I should like to say a little bit later something about that statement to the effect that the banks are fully loaned. In his capacity as general manager of the Royal Bank he added, "Certainly in our own case it would not".
I am not going into the question of housing finance under the proposed new housing act, but it should be noted that bank credit facilities to meet this public need are only being reluctantly extended in consideration of the banks receiving ironclad guarantees against any losses under this act. Why is it that the banks have never made any serious effort to meet outstanding credit needs of the country? First, the banks have always raised the question of liquidity when it has been suggested that they are not fulfilling their obligation to the nation. In other words this objection underlines the conflict, which I noted in the discussion of the Bank of Canada Act, between on the one hand the private banks and their admitted obligations to the depositors-shareholders and, on the other hand, what I conceive to be the obligations of the banking system to the public as a whole.


An hon. Member:: Six o'clock.

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Major James William Coldwell: Mr. Speaker, I have not finished, but this is a good place to break off.
At six o'clock the house took recess.


[Stage Direction]
AFTER RECESS

The house resumed at eight o'clock.
Major James William Coldwell: Mr. Speaker, lest I forget or go over my time a moment or two, I am going to move now the amendment that we have in mind. I move, seconded by the hon. member for Kootenay West (Mr. Herridge):
That Bill No. 338 be not now read a second time but that it be resolved that in the opinion of this house consideration should be given to the national ownership and public control of the chartered banks.
Before dinner I was remarking that there appeared to be a conflict between the interests of the public and the interests of the banks when we consider the matter of making loans and providing the necessary credit to the community. Of course it would be foolish for me or for anyone else to deny that there is some validity in the argument that the banks must be in a position at all times to fulfil the demands of their depositors for the withdrawal of their funds immediately or on short notice. The banks must have liquid reserves sufficient to meet such demands whenever they arise. However, the liquidity of the banks has for a long time exceeded anything the most conservative banker of other times ever anticipated.
The reason for this is the long-term decline in the relative importance of bank lending. It is only in the last few years that some recovery has been made, but the ratio of bank loans to total bank assets is still far lower than it was in the earlier part of this century. I say that statement is beyond dispute, as I think I can show.
Today bank loans constitute as little as 35 per cent of total bank assets, while before the first world war bank loans constituted over 60 per cent of total bank assets. This is confirmed by the monthly review of the Bank of Nova Scotia in its September and October, 1953, issues. In the latest annual report of the Royal Bank of Canada the general manager, Mr. Atkinson, after analysing their call loans, government and municipal bonds and holdings of other securities, together with cash on hand, had this to say:
This amount represents what is normally referred to as the liquid assets of the bank and equals 65-42 per cent of the bank's liabilities to the public.
But even this does not tell the whole story of the Royal Bank's liquid position-I selected the Royal Bank only because its general
[Mr. Coldwell. 1
manager appeared before the committee the other day-for it has in addition a reserve fund of $70 million which is twice as large as its total paid-up capital. Then, of course, before net profits are declared appropriations are made by the banks to cover their so-called contingencies. These can be used against bad or doubtful debts and to provide additional working capital for the bank.
Of course it would be absurd even to discuss this matter except that the banks' liquidity is always raised when they are required to undertake certain lending activities. If a bank finds itself embarrassed it can of course always fall back on the rediscounting facilities provided by parliament through the Bank of Canada. The fact that these facilities have very seldom been used is additional proof of the excellent liquid position of the chartered banks.
Throughout the war bank investments in government securities were unusually high. This was because they were used to assist our financing of the war. Since the war bank holdings of government securities have declined. It is difficult, however, to reconcile the facts of the case with Mr. Atkinson's statement that the banks are "fully loaned". I am not naive enough to expect that privately-owned banks will meet all the public needs which I have discussed, when they consider that their own interests must be their first consideration.
The banks are profit-motivated institutions. Their lending activities and investments, if they coincide with the public welfare, do so rather by accident than by deliberate planning. If it is more profitable and safer to invest in government securities than it is to undertake loans to fishermen, farmers or individual Canadians, then the banks will invest in government securities.
Let us take a look at their net profits for a moment. Their net profits indicate that they have followed principles in accordance with their business instincts. In 1945 the net profits of the Canadian banks were $12,541,408. By 1950 they had risen to $23,429,363. In 1951 there was a slight decline to $22,743,225, but in 1953 they had risen again to $30,386,000.


Mr. Harkness:: Is this before income tax?


Major James William Coldwell: No, after. I was about to say that it should be noted that these profits are after full provision has been made for contingency reserves, depreciation and income tax. If we take their percentage of net profits to their paid-up capital, according to the latest figures, which were placed on Hansard last Friday, I believe, we find that the percentage of net profits to the paid-up

capital of the three largest Canadian banks, the Royal Bank, the Bank of Montreal and the Canadian Bank of Commerce in 1953 was 24-67 per cent, 19-56 per cent and 19-30 per cent respectively.
The point of my argument is this, that as long as the banks continue to be privately owned their managing officers must inevitably and quite properly continue to give priority to their obligations to their shareholders rather than to the credit needs of the Canadian people. This is the paradoxical position of our banking system. It is expected on the one hand to regulate and provide money and credit to maintain the economic welfare of the nation, and on the other hand its obligations to its shareholders demand that it be operated with the object of producing the highest possible profits. We believe this conflict can only be resolved by bringing the banking system under public ownership. Let me quote from a memorandum submitted to the banking and commerce committee in 1944 by the United Farmers of Canada, Saskatchewan section. They said:
We consider that as the money and credit system of Canada is actually the heart which must regularly and evenly pulsate to keep the economic body properly functioning, it is therefore too important to the very life and well-being of the nation to be entrusted to private corporations.
Of course it was said this afternoon that a publicly-owned system would perhaps lead to political interference. I think one of my colleagues may discuss, either here or in the banking and commerce committee, the record of that great publicly-owned institution in the Commonwealth of Australia, the Commonwealth Bank, one of the great commercial and now central banks of the world today.
May I conclude by summarizing the concessions the banks have received over the years in order to show that the risk has been taken out of banking, that wherever there was risk the government stepped in and guaranteed them against that risk. First of all we have the finance acts of 1914 and 1923. That was the beginning. They allowed the banks to obtain dominion notes against deposits of their securities with the finance minister. Then of course there was the very valuable privilege allowing them to create all the credits they cared to create without limitation, until the Bank of Canada was established in 1935.
In 1933, as I remarked this afternoon, we had the C.P.R. loan of $60 million by eight banks which was guaranteed in full by order in council. This afternoon I mentioned the fact that when the banks were in a difficult position in the early 1930's another and secret
The Bank Act
order in council was passed so that the real position of one or two of the banks at least would not be known to the Canadian people.
I am not saying I am critical of that, because had there been a run on those banks there might have been something of a financial panic in the country. In 1937 we had the Home Improvement Loans Guarantee Act, under which loans were guaranteed up to 10 per cent of the total loans made. In 1944 there was the farm loans act which guaranteed against losses up to 10 per cent of the total loans.
May I just remark, because I did not do so this afternoon when I was mentioning this, that it was suggested, as I recall it, by Mr. Ilsley that we should have a fisherman's loan act somewhat similar. I had forgotten that the present Minister of Fisheries (Mr. Sinclair) made a similar proposal in May, I think it was, of last year. This year again, 1954, we have the housing act under which we guarantee 98 per cent of the loans and the provision that the banks can sell their mortgages to the central bank, and I think they hope to sell some housing mortgages to the public. I recall that in 1944, though I could not put my hand on the quotation, Mr. Graham Towers told the banking and commerce committee that in his 25 years of experience in banking, which covered the depression period, the losses of the banks were not more than f of 1 per cent. If my recollection does not play me false he also remarked he had heard bankers say that over the period of Canadian banking the losses of the banks would not be more than j of 1 per cent.
My point is this. We guarantee the banks against losses: we eliminate their risks; we allow them to take all the profits that are in the banking business, and we in this parliament take all the risks. Where is there private enterprise in a banking system of that description? Is it not time we took the profits for the people of Canada as well as the risks?


Mr. Solon E. Low (Peace River):: Mr. Speaker, I should like to say at once that we will not be able to support the amendment moved by the hon. member for Rosetown-Biggar (Mr. Coldwell), chiefly because we feel that it is not in the best interests of the country to nationalize the banks.
When I spoke at the committee stage of this bill I believe I said that I never did take very seriously those declarations that are frequently made that such and such a party would nationalize the banks. The fact is we have heard declarations of that kind for many years in many places. The socialist party have been famous for saying that they would nationalize the chartered banks. They

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got themselves in a position to do so in Britain, and backed away from it. They got themselves in a position to do so in Australia, and backed clear away from it. I do not know any place where they have done so.
All down the years, as a matter of fact, so far as I can recall, they have been among the chief supporters of the system of finance that has controlled the banking system, which in turn has controlled the industrial system, in the various countries. The hon. member mentioned the Commonwealth Bank of Australia, and stated that during the proceedings of the banking and commerce committee one of his colleagues would outline the great record of that institution. Well, everyone knows that is not a chartered bank but a central bank. We have one, too.


Major James William Coldwell: It is a commercial bank with branches.


Solon Earl Low: It is a central bank just like the Bank of Canada.


Douglas Charles Abbott: It is a hybrid. It is both a commercial bank and a central bank. It is unique.


Solon Earl Low: It is not to be compared with the chartered banks of this country. There would have to be more than a delineation of the record of the Commonwealth Bank to prove that nationalization of the banks would be in the interests of the people.
In any event, Mr. Speaker, what difference would nationalization make? It is not the ownership of the bank that counts but the policy that is followed. In this country we have what is purported to be public control of the chartered banks; that is why the Bank of Canada was set up in 1934. Through it can be exercised any amount of public control to which the government is prepared to agree. The whole thing resolves itself down to a question of government policy, and how far that policy is prepared to go in the control of currency and credit.
I am much more concerned about government policy than I am about the ownership of the banks. Let me say, though, that if at any time the government laid down a specific, comprehensive policy for the control of currency and credit in the public interest, and the chartered banks refused to cooperate in the administration of that policy, then of course it might be necessary to consider nationalization. I cannot imagine that situation would ever arise in Canada. Until it does, then I would not take very seriously the question of nationalization of the banks.
The legislation now before parliament is of greater importance to the Canadian people, in our judgment, than almost any legislation that is ever brought before us. Because they

touch so intimately the lives and interests of every Canadian; because the welfare, the security and freedoms of all our people depend so much upon what is provided in the Bank Act and its companion piece the Bank of Canada Act, I believe every member of this house should be sufficiently interested to make a thorough and detailed study of the acts themselves as well as of banking practices and procedure. A thorough study should be made of government financial and economic policy, which must go along with those acts.
Now, those three things, the Bank Act, the Bank of Canada Act and government financial policy, are so closely related, in my judgment, they cannot be separated in any attempt to study the impact of finance upon the Canadian economy and upon the lives and fortunes of our people. I suggest that the success of our work in connection with these important measures this year will depend to a great extent on our approach to them. We shall not get far, nor will we do much of a job for the people who sent us here, if we take for granted that finance is a mystery that no layman can understand, or if we are too ready to believe that we have a perfect banking system.
Let me say right here that I believe we have a strong banking system, and an efficient one and a good one. If we believe for one moment, however, it is perfect we are not going to do much of a job in connection with the consideration of the Bank Act. If we believe that Adam Smith and John Stuart Mill, and perhaps other economists, enunciated immutable economic laws with which our banking and financial policies are in complete harmony, we shall get no place. We are likely to get some place if we approach our studies of these two bills with the assurance that finance is no mystery, except as it is made to appear so by those pundits. If we approach the study believing that there are weaknesses in our banking system that have to be corrected, and if we approach our study from the point of view that the economic laws enunciated by Adam Smith and John Stuart Mill are only economic practices and conventions operating in certain periods of economic development, which are being constantly outmoded by the march of events and the tempo of human progress, then we shall get some place.
Now, when the Bank Act and the Bank of Canada Act are before the banking and commerce committee we intend to give them the most searching study of which we are capable, and a full inquiry, no matter how long it may take. I do not wish to go deeply into the history of banking at this time, but I have

a purpose in wanting to make a very brief, historical statement of the reasons we Social Crediters are so deeply interested in the subject of finance and banks.
The industrial revolution brought about great struggles between nations for markets. During these struggles the internal economies of the nations involved were undergoing tremendous change. The individual industrialists began to find that unrestricted competition among themselves was often a form of business suicide. It was better, they thought, to avoid such competition by amalgamating their common interests, and so monopolies were born. This, in turn, demanded larger and ever larger issues of capital and evergrowing recourse to overdrafts with the banks for working expenses.
The powers of the banks which alone had the right to create financial credit grew rapidly with this change in the internal economy, and became the dominating factor in business everywhere. Industrial capitalism gave way to finance capitalism, and this is now universal in all democratic countries.
It was recognized quite early by great financiers and bankers that the control of industry and of the nation itself resided in the banking system, and that the power of creating, regulating and controlling bank credit made them, in a way, a hidden government, practically overriding and controlling every activity of the national life.
This great fact, with its wide implications and effects, was kept as secret as possible from the public for many years and was, for quite obvious reasons, denied by the banks themselves. Most economists and politicians do not seem to have discovered it to this day. And, except for monetary reformers, -and we include ourselves in monetary reformers-it is still more or less a secret.
With the growth of trade between nations and the need for adjusting the necessary means of exchange, banking became international in its operations, and the great banks of the world became related organizations, functioning to their mutual advantage. This international co-operation of the banks had a parallel influence on the monopolies they controlled through overdrafts and interlocking directorates. These industrial monopolies became international also, and are one of the features of today-the giant cartels and combines appearing in the industries of all countries, and of course levying tribute in peace and war from both friend and enemy.
Canada is within the ambit of these industrial and financial forces, and it seems to me we would be very blind if we did not see these operations around us everywhere. The 8327&-177
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system I have been describing is often spoken of as the system of private enterprise or capitalism.
This is not, of course, the place to discuss the merits and demerits of the system. But arising out of it are certain manifestations that cannot be disregarded by any red-blooded man who is anxious for the welfare and future of his country. The disparity between the great wealth of the industrial capitalists and the appalling poverty among all the workers in the industrial system some years ago became quite obvious to a large number of people, and gave rise to bitter and, I suppose, in a measure justifiable discontent.
Exploitation of men, women and children in the early stages of the industrial period makes one of the blackest pages in history. No one can read history without being convinced of that. From the humanitarian point of view the system known in that day as capitalism-and I am speaking of the day of the industrial revolution-stood condemned, and there was much revolt against its economic effects on a large proportion of the people.
Out of the revolt that took place against it arose the trade union movement in Great Britain, the regulation of child labour, the factory acts, the fixing of hours and wages and, on the intellectual side, the theories of socialism and the gospel of Karl Marx. These interests got into war with one another, and they have never been reconciled to this day. So even now we stand in a world of economic conflict in which the contending forces of capitalism and communism are striving for mastery.
From the Social Credit point of view it would be tragedy for either side to conquer. We believe that salvation for human beings lies along the middle road that we are following, the road to Social Credit. That is our deep conviction, when we realize that the age of abundance has in reality arrived, providing plenty for everybody. We know that we can have economic security with freedom, which is the first step along the road to the new era of abundance which we seek. We can secure that first step, not by revolution and force but by a new financial concept, the central point of which is making money and credit the true reflection of material facts, and using them and controlling them for the benefit of the whole community.
Now, we think nothing-and I am speaking generally of people in this day-of controlling public utilities such as the supply of gas, the milk supply, electricity, railroads,

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and all that sort of thing. We never think of dictatorship or slavery or anything of that kind when we lay down laws and policies to control these things. People today justify themselves by saying that these things touch the lives of the people so closely and affect them so intimately that they have to be controlled in the interests of all the people.
Well, I ask hon. members, what greater utility is there than the supply of money and credit? But when some of us advocate nonpolitical money management in the interests of all the people in the country, there are certain people who jump at the chance to charge us with wanting dictatorship. Actually what we want to do is relieve the people from the great dictatorship under which they have suffered for years.
Sometimes the term "money management" is misunderstood

and I am saying this for the benefit of the hon. member for Greenwood (Mr. Macdonnell). He is a good friend of mine, whose opinion I respect. But I say that sometimes the term "money management" is misunderstood, and perhaps in some quarters deliberately so. I will not say that in connection with the hon. member, because I believe he really believes what he says. I wish to pay him that compliment. However, in order to illustrate what I mean let me point out that Abraham Lincoln is credited with having made this statement:
The government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers. This is the government's greatest creative opportunity.
In that quotation from Lincoln the word "government" needs some amplification. It is not necessary-in fact it may not even be desirable-that government, in the narrow sense of that word, should do the regulating. The point, so far as we Social Crediters view it, is that it must be done by a responsible body of men on the strength of accurate federal statistical information, and it must not be left to chance.
It does not matter, as I say, whether it is done by this body or by that body, so long as it is a responsible body of men. And that could mean the government. It could be carried out by the Bank of Canada, by a special committee appointed by industry, agriculture, banking and government known as, let us say, a permanent monetary commission; or it could even be done by a national banking association under a policy carefully and specifically laid down for it by the government. And in all those cases it would be government-controlled, as we view it.
When it is said that such a task allotted to the government would give it too great

powers and perhaps admit of too much political interference, I say that is not true, especially when it is reviewed in the light of the explanation I have just given. The government has greater and more dangerous powers today than that, by far. And for all practical purposes the government can raise all the money it finds necessary for its activities at the present time, mainly by expropriating it through taxation. It can do that through the Minister of Finance (Mr. Abbott).
Surely that is not to be compared with what we have suggested by way of money management. Under the Social Credit proposals, even if the powers were allotted to the government in its narrowest sense-the government being those on the front benches over here, of whom my genial friend the Minister of Finance is a leading member- it would be allowed to create money only corresponding to the power of production, which at any time can be determined with about 90 per cent accuracy by our bureau of statistics.
Whether Abraham Lincoln realized fully the implication of his words I do not know, but they mean in terms of our present sciences that the sum total of money creation must not surpass the sum strictly needed to ensure buying the goods that may be produced and are wanted at any given time. The spending power of the government and the buying power of the consumer strictly limit the powers of government if they take the controlling power. Anything in excess of that would mean inflation. On the other hand, insufficiency would mean deflation and eventual depression and starvation which would require a war to get out of. We do not want that sort of thing.
The bill we are considering is not merely a simple amending bill; it is a revision of the whole Bank Act. Consequently there are many clauses which relate to routine matters of procedure to which I suppose we will not pay too much attention because they have been in operation for many years and have proved to operate and function smoothly. However, there are a few sections which are of particular concern and interest to the country at this time. Mr. Speaker, I hasten to assure you that I am not going to deal with specific sections, except to name the clause and speak of the principle.
Section 75 provides authority for the chartered banks to make loans in connection with housing on the security of insured mortgages. The government expects the banks to put up a good share of the mortgage money which the government has put up in recent

years under the joint loan arrangements with the Central Mortgage and Housing Corporation. As far as I can tell, the banks are not enthusiastic about this authority. Unless they become more socially-minded than they appear to be at the present time they will not be making up the 25 per cent of the mortgage money which the government put up last year. That is my guess. They may do it, and if they do I shall be the first to compliment them. But from what I have seen I would not think that will happen.
There must be additional cash reserves provided to the banks if they are to be able to make any reasonable contribution to housing in the years ahead. How are those cash reserves to be provided? We have suggested already to the banking and commerce committee the way in which those reserves can be provided, and at the same time a fund for low-income housing by which municipalities could service land for housing and build houses at an interest rate of from 2 to 3 per cent. This could be done under some such arrangement as the Municipal Improvements Assistance Act. The only argument against our proposal that we have heard thus far is that it was not government policy. We knew that, but we would like to have someone come to grips with it and show why it would not be good government policy.
Section 82 of the Bank Act authorizes the banks to make loans to oil companies for oil development, taking various kinds of securities including the security of the oil pool away down under the earth. That is quite a departure. In my judgment this provision will go a long way to help oil development in the prairie provinces. I think it is a splendid idea. I wonder why it was not done long before. I had thought it might be due to the fact that we were finding it difficult to get working capital in some places. In my judgment this provision will be of great help.
In the past oil companies with the most excellent prospects have been forced to seek capital in the United States or some other country because of a lack of operating credit here. There has been altogether too much of that sort of thing, but it was inevitable if development were to take place. We should be supplying much more of our own capital for Canadian development-just as much as we possibly can, as a matter of fact. Otherwise foreign control begins to extend itself, and in my judgment that is not good for the country. In fact it contains elements of danger. For that reason among others we welcome this particular change in the Bank Act.
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Clause 6 provides for a revision of the Bank Act in 1964. Somehow or other we have got into the habit of thinking that the act should not come before parliament oftener than every ten years. That was answered only partially today when it was said that the balance should be established between stability on the one hand, I think the minister said, and flexibility on the other. I agree that that is desirable, but I cannot see that there is any connection between that desirable balance and having the Bank Act come up for revision only every ten years. I doubt that there is. It is just that we have got in the habit of thinking there is. I think that ten years, which covers the life of almost three parliaments, is too long. Just think of it, it covers most of the life of three parliaments. If we continue with our present practice of a decennial revision, the idea is bound to grow up that the Bank Act and our financial policy are somewhat sacrosanct, or untouchable. I am afraid there is that feeling now in some quarters.
We suggest that the annual statements of the chartered banks and the annual report of the Bank of Canada be referred to the banking and commerce committee at least once during each parliament, and that on each of those occasions a complete review be made before that committee by the governor of the Bank of Canada. In my judgment such a procedure would bring parliament in much closer touch with financial policy than has been the case in the past. I believe the more you think of that suggestion the more it will appeal to your judgment.
At the same time we also press for the setting up of a committee similar to the reconstruction committee which was established by parliament about ten years ago. That reconstruction committee did a good job, and some of its recommendations have been approved by the government. If it were reconstituted it could make an annual or biennial review of the economic situation in Canada. It could make recommendations to parliament, and those recommendations could be related closely to the financial considerations and recommendations of the banking and commerce committee. I believe those are things which we should think of.
Perhaps a most far-reaching change in the Bank Act is made in section 71, which introduces the variable reserve principle. This section must be considered in conjunction with section 18 (1) (o) of the Bank of Canada Act. Section 71 of the bill now before us specifies a floor of 8 per cent on cash reserve requirements, but it does not specify a ceiling. That is interesting. The Bank of Canada Act sets a ceiling at 12 per cent.
83276-177J

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We believe that this variability of cash reserve requirements is a step in the right direction, but we think the act should provide for a much higher ceiling. Not that we think we should jump immediately to a much higher cash reserve requirement, not at all; but if the mechanism is there it will prove mighty useful when it is needed. We think that by so doing the Bank of Canada can provide purchasing power to the government of the country with which the government can buy new business activities for the country when they are needed, business activities in the form of housing, highways or slum-pardon me, I must not say "slum clearance" since last week -for substandard housing clearance and so on, to the extent that ordinary commercial channels do not keep economic activities at the highest possible level.
Those who have studied this idea know that such a provision of purchasing power to the government by the Bank of Canada would mean no additional expense to the nation at all. On the contrary, it would save expenses, and particularly taxes.
The two acts now before parliament, taken together and viewed in the light of government policy, have, in my judgment, two serious weaknesses. The first of these is that government policy continues to accept the fallacy that for the goods produced somehow or somewhere enough purchasing power will be brought into existence which will enable these goods to reach the hands of the consumers. But that just is not so. That is a delusion. Under our wages system of distribution of purchasing power, and under the peculiar way in which we finance capital development and expansion, a shortage of purchasing power is always generated in times of peace. It may not occur in times of war because then we give away the top third or approximately 40 per cent of what we produce. It is largely because of the failure of our present system to distribute mass-consumer purchasing power in sufficient quantities to make it possible for people to buy back what they produce that periodically we find our country as a whole with what we call large surpluses of production with consequent unemployment, recession and possibly depression.
There are many authorities today to testify to the truth of that statement. I shall not spend time quoting all of them, but I would like to quote one who spent 18 years as head of the economics department of one of the great universities in the United States,

the University of Texas. At page 33 of his book "The Divine Right of Capital" he said, speaking of our economy:
It fails to distribute mass-consumer purchasing power in sufficient quantity to permit the entire product of industry to be purchased. This failure exists at all times under capitalism and is noxious at all times.
That is a quotation from Professor C. E. Ayres, who as I have already said was head of the economics department of the University of Texas. He is only one of many who have testified to the shortage of purchasing power generated under our present system, and if we look around and take cognizance of our economic history we will observe over the years a succession of booms and slumps in times of peace which, in time of war, disappear because we are giving away the top third of all our products. Perhaps instead of saying it has disappeared I should say it is negatived, because it is generated in wartime as well as in peacetime although we do not see it in wartime because we give away part of that production.
When we go into a slump the one way to get out of it short of war is to increase the mass-consumer purchasing power in the country. No other factor will accomplish this task, as far as I can see. There cannot possibly be real security with freedom for all our people, no matter how great our Canadian productive capacity may become, unless and until government financial policy recognizes the shortage of purchasing power generated under our present system of distributing that purchasing power and financing plant expansion and renewal of heavy industry.
Before I deal with the second weakness to which I have referred I would like to say a word about the minister's speech this afternoon. I wish to thank him for the attention he obviously paid to what I said on March 4. The minister observed that while he did not agree with the emphasis I placed on fiscal means, yet he found what I said of some interest. I thank the minister for that. Perhaps I did not make myself quite clear the other day, but I certainly meant at any rate to recognize, and I do recognize, a number of non-monetary factors as well as monetary ones which do have an effect upon our economy. I believe the one factor which to some degree influences all the other factors is the regulation of the volume of deposit money. As I said during that speech on March 4, and I quote from page 2556 of Hansard:
Of late years many outstanding authorities have come to believe that eight of these factors can be influenced by regulating the volume of deposit

money In this country. The chartered banks are almost if not completely in control of deposit money. It is within their sole discretion to grant or refuse loans, which is the means, of course, by which deposit money is brought into existence.
I believe that is what the minister is referring to, and I quite agree with him. I would like it definitely known here that I recognize there are non-monetary factors which affect our economy, and there are certainly monetary factors which also affect the economy. I believe the minister will agree with me that the one which exercises some influence over all the others is the regulation of the cash reserves of the chartered banks which, of course, regulate in turn the volume of deposit money.
I placed emphasis on one of these factors while at the same time recognizing that there are others. I would like the minister to note that I believe perhaps one of the most important of the non-fiscal means of affecting our economy is taxation, which does have a profound effect on the economy. There are things he could accomplish by lowering taxes which could perhaps be accomplished just as well by increasing the volume of purchasing power.
Let me deal with the second weakness to which I referred in the government's financial policy. This second weakness is one which I mentioned at the committee stage of the resolution. I refer to the lack of an efficient mechanism by which the government and the Bank of Canada can quickly and successfully halt at the point of equilibrium a deflationary operation brought on by the Bank of Canada when it uses its powers to decrease the cash reserves of the chartered banks.
I hope that when we get into committee the minister will join hands with the governor of the Bank of Canada and permit us to examine that point. I do not believe they have the answer, nor do I believe they have the mechanism, and I am satisfied in my own mind that when the cash reserves are decreased as a means of halting an inflationary tendency or an inflation, then the banks must reduce their deposit liabilities by calling in loans. When the downward trend is started it is like a chain reaction carried along by its own momentum. It will not stop itself short of recession or depression, unless some way is provided of quickly putting purchasing power into the hands of consumers so they can put on the brakes and ease off the accelerator by buying the surpluses of available goods and taking them off the market.
That is the only way I can see of doing it, and the minister has not shown me that there is an alternative brake to halt the
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downward movement. A softening up or lending policy will not do the job, because no bank will be prepared to make loans to producers to produce more of the things which already cannot be sold. A deflationary movement makes the borrowers uncreditworthy, when before they have been looked upon as good risks. What is needed is a means by which the Bank of Canada can make available to the government enough credit to balance the effective demand with the available goods and services in the country to make up the deficiency of purchasing power and to halt the downward trend.
A start in the direction of getting such a mechanism was made when the variable reserve principle was injected into the Bank Act and the Bank of Canada Act. The government could use that principle to make it possible for the Bank of Canada to provide the government with national credits on the basis of government deposit certificates lodged, with the bank. But if such a thing is to be of real value, the ceiling on cash reserve requirements will have to be raised considerably above the 12 per cent limit imposed by paragraph (o) of subsection 1 of section 18 of the Bank of Canada Act.
In conclusion, Mr. Speaker-I see that my time has elapsed-may I say that our concern in connection with financial policy is that every possible scientific fiscal means be included in our government's policy to ensure freedom from inflation on the one hand and freedom from depression or recession on the other. We are anxious about the lack of an effective brake and accelerator in the government's money management machinery. We want the optimum development of our country's resources and the most equitable possible distribution of the goods and services that our country can produce.
When the bills are before the committee we shall put forward specific proposals that will strengthen our financial policy and make it effective in insulating our country against inflation, and in guaranteeing our people economic security with freedom.


Mr. R. E. Anderson (Norfolk):: Mr. Speaker, I should like to deal on Bill No. 338 with one or two matters pursuant to section 88 of the Bank Act as it applies to farmer-producers and their produce. It seems to me that, when companies go into bankruptcy, everybody is on the preferred list but primary producers who provide the raw materials without which the companies could not operate. I think there should be more

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protection for primary producers when companies fail, and more protection to farmer-producers and producers who ship on consignment.
In 1951 I had on the order paper a resolution dealing with this same matter. This matter came up for discussion on February 26, 1951 and was recorded at page 667 of Hansard of that year, and then on pages 777 and 781. The subject matter placed on Hansard for those dates is still relevant and of vital concern to all primary producers. Mr. Speaker, I feel that there should be no preferred list, and that every creditor should share equally in case a company is forced into bankruptcy.


Mr. Speaker:: Is the house ready for the question?


Mr. Rodney Adamson (York West):: No, Mr. Speaker. I thought there were to be several other speakers. I had no idea that the debate would reach this stage so soon. Perhaps it is a good thing, and shows what an admirable presentation the minister made today.
There are, however, one or two points I should like to mention about what he said today, and I think I had better start off with this one. I was not able to hear the entire speech of the leader of the C.C.F. group, but in reply to the plea for nationalization of the banks, I think I should first of all say that the banks are the people. I do not know how many millions of people are depositors in the banks today, but a huge majority of the Canadian people are depositors in and Users of the banks. Not only that, but the banks through their shareholders are owned by a great number of Canadians across Canada, the average shareholder having only comparatively few shares. Therefore I think one of the great assets in our Canadian banking system is that it is used by a large number of Canadians, who own it either through deposits or through their ownership of shares. It is a truly national system now.
The minister today made a point having to do with the alteration of the type of bank share. I do not know whether or not the banks are going to accept that alteration, but I want to make this suggestion. At the present time the banks have what is known as book stock. The stock is, as the name implies, only transferrable on the books of the various chartered banks. It is not good collateral at the banks. I think that is a useful quality of bank stock. I say this because, during the depression, one of the types of security which maintained its price, its equity and its income better than any except gold shares was bank stock. One

of the banks-I think it was the Bank of Toronto-in its annual report after the depression made a special point of saying how few shareholders of the bank had to liquidate their stocks for various reasons.
I think the fact that the bank stocks today are not good collateral is one of their most valuable features. I would hate to see the bank stocks become negotiable securities, like common stock certificates. If the bank issues scrip stock which is transferable merely by signing on the back, and which can be used as collateral either to protect a broker's loan or to protect a loan at the bank, it becomes like any other stock. Human nature being what it is, I am afraid that when a loan needs more collateral or a broker needs more margin, it is only natural to put up the good stocks. Then if things go from bad to worse the real assets will be lost. I think that was one of the great assets of our type of bank stocks during the depression.
In the bill I notice that there is nothing to suggest that a savings bank or any type of corporation such as the savings and loans associations in the United States are contemplated. I am not a professional banker, but certainly the savings and loans associations in the United States, together with the mutual savings banks, have assets of some $43 billion dollars, which represents about half the time deposits in the United States-a useful source of mortgage money, to say the least. The figure for demand loans in the United States at November 25, 1953 was $100 billion and for time loans $69 billion. Of that $69 billion, about $43 billion was in the form of assets of savings banks and trust and loans associations. As I say, I am not putting forward my opinion that this is something that should be in the act, but I certainly feel that here is an opportunity for study with a view to the raising of funds for real estate mortgages and other purposes under the housing act we have just passed.
There is one other point I should like to bring out. The banks are to be asked to provide funds for housing loans. The evidence we have had shows that their reluctance is not based on the use of their capital, assets and deposits, but is based on a lack of knowledge of the housing and mortgage business. They are afraid of being forced into a business which up to this time has been specifically proscribed by the act, and now they find that the situation is turned about and they are being put directly into the mortgage business. It is my opinion that possibly the banks will want to form an organization which will act for the chartered

banks as a group, so that instead of having eleven mortgage and loan associations there will be one association which will do the actual technical work of providing mortgages, servicing loans and performing the other work which is not done by Central Mortgage and Housing Corporation at the present time.
When the bill goes to the committee I hope, if the banks should consider it desirable to enter into such an arrangement, some agreement can be reached so the banks will not be contravening the combines act. Here we have an entirely new situation, one in which the banks may really wish to co-operate. Because of their lack of knowledge of the mortgage business they will be hesitant to embark upon the lending of money on mortgages. The evidence before the banking and commerce committee showed very clearly that it is not a case of unwillingness to act on the part of the banks, but rather a lack of knowledge that inhibits them at the present time.
I would also hope that in the not too distant future the banks will again be allowed to have gold as part of their assets. I believe that the right of our chartered and commercial banks to use gold as part of their reserves should be restored to them. I feel that the issuing of gold certificates by the chartered banks could be a very useful form of assistance in facilitating international trade.
I merely make these few suggestions because I do not want to hold up the bill, and because they were not mentioned by the minister when he introduced the measure this afternoon.


Colin Cameron: Mr. Speaker, I suppose there are very few subjects, with the possible exception of the sort of witchcraft upon which the Minister of Justice (Mr. Garson) frowns, that are surrounded with quite so much mythology and superstition as the subject we are discussing tonight. I have always been entertained to note that only within the last 20 or 30 years those who are in control of the temples of finance have been prepared to admit truths that were enunciated almost 300 years ago by, as one would guess, a gentleman of the same racial origin as myself. He was the father of modern banking, a man called Paterson, who sold a very smart idea to King William III in Great Britain when, in return for the privilege of issuing the then newly developing paper currency, he provided King William III with funds to fight some of his continental wars. Mr. Paterson had no illusions at all about the sort of business he was engaged in or about the realities of that business, but it is only within comparatively
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recent years that we have had fairly clear recognition of these same principles on which Mr. Paterson worked 300 years ago.
I was very interested in reading not long ago a book by the eminent Australian economist, L. F. Giblin, on the affairs of the Commonwealth Bank of Australia. Professor Giblin has some rather satirical comments to make on the curious myths and illusions which those who were in charge of banking and financial matters in Australia about 30 years ago held with regard to the realities of their business. I noted in this book that it took experience to convince those gentlemen that they were really living in a world in which the basis of a financial system is trust and confidence, shall we say, rather than a more solid, metallic basis. These myths and folklores of course have been very useful to those who control the financial system, just as the myths and folklores of the old priests of Egypt used to delude the people of that country.
Earlier today the leader of this group gave an account of the very profitable operations of the chartered banks of Canada, and I do not believe I need to go into that. I do not think, at any rate, that the actual fact of the really exorbitant profits, and they are exorbitant, which the chartered banks of Canada have made over the years is a very important point. I think the important point made by the leader of this group was that the government had repeatedly not merely come to the rescue of the banks but had been obliged to protect the banking system of this country by legislation from every possibility of danger and disaster-and quite rightly, too. It is important to us that the financial system of the country should operate smoothly and efficiently, without danger of breakdowns, just as it is that our transmission lines should continue to supply electric power and that our water mains should supply water for the consumption of the urban population. As I say, it was quite necessary that they should do so.
However, that raises this point, Mr. Speaker. A sector of our economy that is so essential that our government must at all costs make sure there shall be no shadow of danger attending its operations is far too important to be left in private hands. In fact it seems to me there is no moral justification for leaving in private hands a sector of the economy that must at all times be supported by the people and by the government of this country; which must be rescued if at any time it has taken some injudicious action, and that must always be, in the final resort, able to come back on the government of Canada. I believe

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that is the first point we should bear in mind in considering the proposals made by this group for the public ownership of the banking system.
Only today in this chamber we concluded the discussion of a piece of legislation that is an example of the government's inability to direct the operations of our financial system in the way in which this government considers it should be directed for the welfare of the people of Canada. There can be no doubt that the government takes the position, and quite rightly, that housing is an important matter to the Canadian people. It requires the investment of the savings of the Canadian people to provide that housing. We have to hold out inducements, and hope that the people who own this particular sector of our economy will co-operate with us and do what we, as the people's representatives, consider should be done with the savings of the people of Canada. We have no guarantee that they are going to do it. In fact there is every indication that they are not going to do it. There is every indication that the inducements-and there have been very tasty inducements-are going to fail. I believe that is another important consideration in dealing with the proposal for public ownership of the banking system of Canada.
As I said earlier there is a lot of mythology concerning the banking system, and one of the most persistent myths about the present banking system in Canada is that there is danger to the liquidity of the banks' assets.
I believe my leader pointed out this afternoon that in actual fact the proportion of quickly realizable assets in the banks' portfolios has increased tremendously in recent years. From that point of view there is no danger of the banks getting into difficulty through lack of liquidity of their assets.
There is another much more important consideration, and I suggest it is this. Every one of us knows that since the failure of the Home Bank no government in Canada could possibly allow any bank to fail. There is no possibility of it failing at all. The banks will be protected from that danger. As I say, the government has it in hand, and quite rightly, because it is essential that the financial system should be protected from every one of these dangers. I would suggest that the proper way to regard our banking system is as perhaps our most important public utility. Not so many years ago there were people who were quite sure we were on the high road to bolshevism when we so much as took over a lighting system and operated it municipally, but today we find on all sides those who are firm advocates of public ownership for the provision of essential public 
services. I suggest to you, sir, that there is no more essential public service than that of looking after the savings of the people, and of placing them in proper investments for the social welfare of the people.
Earlier this evening the hon. member for Peace River (Mr. Low) had something to say about the Commonwealth Bank of Australia. I was very interested in his remarks because I happened to have with me the latest report of that bank. Before dealing with that, I might spend a moment or two discussing the history of that bank, because it has considerable interest to us as Canadians. This bank was established largely through the efforts of a Canadian, a rather famous character in Australian history, known as King O'Malley.


Douglas Charles Abbott: Born in the eastern townships.


Colin Cameron: The Bank Act
their job; they would be faithless to their trust if at all times they did not safeguard the interests of their shareholders. And when those interests come in conflict with the public interest, then if the directors are to be faithful to their trust they must abandon the public interest. I suggest, Mr. Speaker, you cannot marry publicly-controlled financial systems to a private profit motive, because the marriage just will not last.
My hon. friend from Peace River asked what greater public utility there could be than money and credit. I quite agree with him; there is no greater public utility than money and credit. But that has been the burden of the song of socialists all along with respect to the financial system, that it is the most important public utility and for that reason must be removed from private hands where, perforce, it must serve private interests before public interests. Just as today no one would suggest that our highway system should be returned to private ownership, where at one time it was controlled; just as ill people would insist that our highways should be kept open and operating at all times, and that they should not be endangered by floods or disaster of any kind, so should the highways of commerce, as represented by the banking system, be brought under public control for precisely the same reason.
I suggest to hon. members that, although today the vast majority of members in the House of Commons will, without thought, vote against the proposition put forward by this group, it will not be many years before even many of those members now sitting in the house will accept as a matter of course the principle that the banking system should be publicly owned.
Professor Giblin in his book has something to say with regard to the attitude of a very famous financier in Great Britain, Mr. Montagu Norman, who had considerable to do with the original work of setting up the Commonwealth Bank as a central bank. One of the things that gave Mr. Norman pause with regard to establishing a publicly-owned commonwealth bank as a central bank was the fact that it was publicly-owned. He is quoted in this book as saying that he was unable to see how a publicly-owned institution could possibly operate as a central bank. That happened not very many years ago; in fact it was only 30 years ago. At that time Mr. Montagu Norman was the voice of orthodox finance throughout the world; his word was gospel. Yet he was unable to see how a publicly-owned institution could function as a central bank.

Not long after that the Bank of Canada was established. The same idea that apparently had been in Mr. Norman's mind was still in the minds of those who established the Bank of Canada in its original form. The result was that it was set up as a curious hybrid, publicly-owned and privately-owned. But it was not very long before the logic of events decided what should be done with the Bank of Canada, and no one today would suggest it should be returned to private hands. No one, I think, would suggest it has not been possible for the publicly-owned institution, the Bank of Canada, to function effectively as the controlling agency of currency in the Dominion of Canada.
While I know hon. members will throw out the suggestion we have made, I hope the time is not far distant when many of them will accept as a matter of course the principle that this vital necessity in the heart of our society should be brought under public control. The major argument I have heard advanced against the scheme has always been that there might be political influence in connection with loans made by that institution. I asked the gentleman to whom I referred a short time ago that very question, when I was speaking about the Commonwealth Bank. He told me there had never been even the slightest suspicion in Australia that political influence had in any way affected the bank's lending habits or their attitude in granting loans, so I think we can dismiss that as being purely a chimera of the imagination. But I suggest that you had better keep on thinking about it; you had better marshal some facts as argument against it in the years to come, because 1 am quite sure you are going to need them to stem the tide of public opinion that is going to sweep us into a position of public ownership of the financial system of Canada.


Mr. H. P. Cavers (Lincoln):: Mr. Speaker, I rise at this time to support the submission made by the hon. member for Norfolk (Mr. Anderson) with regard to the amendment of section 88 of the bill we have before us. I am sure that many fruit and vegetable growers in the Niagara area will be grateful to the hon. member for Norfolk for bringing this matter to the attention of hon. members, first in 1951 when he introduced it as a private member's bill and again when speaking in this debate.
The hon. member for Norfolk has proposed that any reservation as to security under the provisions of section 88 should be eliminated. I suggest that some security should be given to the grower by creating a reservation under

the operations of section 88 of the bill. Under the provisions of section 88 a bank is permitted to take additional security by way of a warehouse receipt or a notice of intention under the provisions of the section. This document gives the bank precedence over all claims except those of wage earners as covered by the provisions of subsection 5.
I assume this protection has been given to the banks because of the fact that the possession of property raises a certain presumption of ownership by the possessor. Thus the bank is provided with ample security through knowing that their customers have in their hands a tangible product on which a loan can be made. It is quite satisfactory when considered from that side of the picture.
But on the other side of the picture we find that the fruit and vegetable growers and other primary producers have put forth hard work and sustained effort in the development of their products. There is altogether too little profit for the primary producer in the first place. The fruit and vegetable producer is required to deliver his produce to the canner. After strict scrutiny and examination the canner accepts the natural products which have been delivered to him. The grower has actually provided the raw material which is the essence of the business itself.
In the last four years three canners in our particular area have made assignments in bankruptcy. They were well stocked with natural products which had been processed by them. These assignments have brought about a resultant loss of over $1 million to the growers in the area. This loss is spread over the four counties of Wentworth, Haldi-mand, Welland and Lincoln. The loss is quite heavy, and these people who have been obliged to accept the burden cannot afford to bear it.
An individual may make an assignment in bankruptcy and then commence business again under his wife's name; as an incorporated company, or in the name of some other relative. The whole process is started over again. I think some protection must be given to the primary producer who produces the actual product. I appreciate the fact that a bank must look to a manufacturer for some security before it provides a line of credit, but the provision of this additional priority to the grower may cause the bank to exercise greater care before making a loan, and they might become a bit more selective as to the type of client or customer to whom a loan would be made.
I think the amendment suggested by the hon. member to delete the priority provision
The Bank Act
altogether probably would not be a safe thing to do. I do urge the Minister of Finance (Mr. Abbott) to give serious consideration to providing a priority similar to the one given by subsection 5 of section 88. This could be done by adding a subsection to provide that the products of the soil shall be given a similar priority when delivered to a processor.


Mr. Victor Quelch (Acadia):: Mr. Speaker, the two main amendments to the Bank Act relate, first, to long-term loans being made under the National Housing Act and, second, to changes in the cash reserve requirements of the chartered banks. In so far as the first of those is concerned, I think it is a debatable point. Many feel that it will be a mistake for the chartered banks to go into the field of long-term loans on real estate, but personally I believe it would permit them to perform a worth-while service by working under this formula.
The second amendment provides that the minimum cash reserve requirement be raised from 5 per cent to 8 per cent and be made variable upward to 12 per cent at the discretion of the Bank of Canada. As I pointed out when I spoke on the amendment to the Bank of Canada Act, this is definitely a step in the right direction, but we feel that the limit of 12 per cent is too restrictive, that it should be at least 16 per cent, and it might be well worth while to make it higher to meet future needs.
The hon. member for Rosetown-Biggar (Mr. Coldwell) pointed out that while the Bank of Canada can take steps to increase or decrease the cash reserve of the chartered banks, the final decision rests with the chartered banks as to whether or not they will make loans. I would say it is not really as simple as that. I would say that the final decision really rests with the government, because it all depends on the type of policy we have in operation as to whether or not chartered banks can expand their loans.
For instance, if you have a situation where our production is at a very high level, where inventories are accumulating, where unemployment is increasing, where industry is beginning to curtail production because it cannot sell its goods, it would be questionable whether it would be wise for the chartered banks to expand loans to industry which cannot sell its existing supplies of goods. We face that situation in a depression. So I would think that in that regard the decision rests not so much with the chartered banks but with the government adopting a type of policy which makes it possible for us to maintain production at a high level. If we create a condition where industry is able to expand production on a profitable

The Bank Act
to build houses, it will have to be a different type of action to achieve that objective. To try to do so by expanding taxation or by borrowing the savings of the people would certainly not increase the purchasing power of the people. On the other hand, the government may decide upon a policy of expanding the money supply by borrowing from the chartered banks.
At this point I want to examine briefly the financial machinery we have at our disposal, and the division of responsibility as among the chartered banks, the Bank of Canada and the Department of Finance. When I refer to the chartered banks, I want to deal with them collectively, as one body. The chartered banks are responsible for making loans to industry; and of course loans can be reallocated as between industries on the basis of existing cash reserves. The expansion, of course, depends to a large extent upon the action the Bank of Canada may take. Hence action of the chartered banks in expanding or contracting loans will depend upon action of the Bank of Canada.
However, a situation such as we had in the 1930's or the situation that may well develop at the present time, if it continues to deteriorate, cannot be met by that means alone. Industry cannot expand without markets. If we are going to have an expansion of industry, we will first of all have to provide for expanding markets; and expanding markets, of course, depend upon maintaining an effective demand. Therefore
if we are going to bring about a situation where there can be an adequate supply of purchasing power, it will require action by the federal government in order to expand the purchasing power of the people either by capital projects, by social services or by reduction of taxation, or by a combination of all three.
I want to point out that it is quite evident that we cannot hope to expand the purchasing power of the people by obtaining money through an expansion of taxation, especially the sales tax or taxation of people in the lower income groups. Neither can we hope to expand the purchasing power of the people by expanding borrowings from their savings. Therefore, in a situation such as we had in the thirties, or a situation that may develop at the present time, it is necessary to have an expansion of credit and we insist that should be by using the Bank of Canada rather than the chartered banks.
Mr. Speaker, I move the adjournment of the debate.
On motion of Mr. Quelch the debate was adjourned.



BUSINESS OF THE HOUSE

Walter Edward Harris: After we conclude this debate tomorrow we shall take the Criminal Code and shall continue with it on Wednesday.


[Stage Direction]
At ten o'clock the house adjourned, without question put, pursuant to standing order.﻿2795
[Stage Direction]
Tuesday, March 9, 1954