chapter
8 Pages

S YSTEM

The banking system in Canada has existed for more than 160 years. The banks are closely regulated by the federal government and operate under the provisions of the Bank Act. The first version of the Bank Act was adopted in 1871. This law is thoroughly revised every ten years by the Canadian Parliament to ensure that the Bank Act remains in tune with changes in public policy and economic conditions. In addition to conferring certain basic powers on banks, the Bank Act links the commercial banking system to the govern­ ment-owned Bank of Canada for monetary purposes and provides a direct link between the banking industry and the Minister of Finance through the Inspector General of Banks, who regularly monitors the banks. Since Confederation in 1867, some new banks have been estab­

lished; others have merged; and a few have failed. The last failure of a Canadian bank occurred in 1923. Prior to the last Bank Act re­ vision in 1980 there were 11 Canadian-owned chartered banks which were owned almost exclusively by people in the private sector, through widely held shares traded on stock exchanges. To ensure that banks were widely held the Bank Act prevented anyone interest from holding more than 10 per cent of the shares of any bank. The 1980 Bank Act provided for the establishment of "Schedule

B" banks, which are either subsidiaries of foreign banks, or banks owned by Canadians in which one party holds more than 1 0 per cent of the outstanding shares. As of 31 October 1982, which is the year end for Canadian banks, there were 12 Canadian-owned chartered banks ("Schedule A" banks), 1 Canadian-owned and 57 foreign­ owned "Schedule B" banks. The Canadian system is fundamentally different from that of

"unit" or state banking which has prevailed in the United States. The chartered banks nationwide system of branches is the most im­ portant and unique characteristic of Canada's banking business. In 1982 there were more than 7,100 branches in Canada serving 2,000 communities in all provinces and territories.