No abstract included. / Arts, Faculty of / Vancouver School of Economics / Graduate

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In conjunction with the recent interest in the liquidity preferences of commercial banks, which is itself part of a new supply theory of money, this thesis investigates the reserve behaviour of Canadian commercial banks from 1920-1939. Several models of bank reserve behaviour are presented including the one to be tested in this thesis. This model differs from the others in that it will be tested with monthly data on individual banks (and hence can explain differences among banks as to the holding of reserves) whereas the others were tested with annual data for a group of banks or a banking system. Since there was no required reserve in Canada prior to March, 1935, there was also no definition of what constituted reserves. This problem had to be investigated before any reserve ratios could be calculated. After calculating some reserve ratios, several interesting observations can be made. The hypothesis that Canadian, commercial banks adhered to a ten per cent required reserve ratio through a gentlemen's agreement within the Canadian Bankers Association was clearly refuted. Also the effect of the establishment of the .Bank of Canada on reserve holdings was noticed. Furthermore, the evidence cast some doubt on the conclusions of George Morrison in his book, Liquidity Preferences of Commercial Banks. The model presented previously was then tested both with monthly data for individual banks and with monthly data for the banking system as a whole. The tests using monthly data for the individual banks indicated the need for further refinement of the model although considering the number of observations and the diversity among banks perhaps the R² was not that bad.. The R² was much improved when monthly data for the banking system was used. This is to be expected as aggregations over banks hides much detail which, thus, does not have to be explained. / Arts, Faculty of / Vancouver School of Economics / Graduate

The Finance Act (1914-34) provided the chartered banks with rediscounting facilities. During World War I, these facilities became part of the banks' regular means of cash adjustment. Subsequently, a controversy arose whether or not the chartered banks rediscounted for private gain. In defence of the banks, Sir Thomas White stated that the banks always borrowed sparingly because of the wish neither to incur the cost involved nor to be heavily indebted to the Treasury. The purpose with the thesis is to test Sir Thomas’ hypothesis. In order to do so, the hypothesis had to be revised; that is, the difference between the rate charged for advances and the cost of alternative means of adjustment (the least-cost spread) was substituted in the hypothesis for the simple cost determinant. By the use of indifference curve analysis, certain criteria for testing the hypothesis were developed and used in testing data for borrowing by the aggregate as well as the individual banks. The evidence showed that the revised hypothesis was overgeneralized both in its description of the banks’ use of the Act and in its explanation of the causal relationships. Thus, in terms of both volume and duration of borrowing, the facilities of the Act were used extensively by several banks. Both the least cost spread and the aversion to be indebted appeared to be crucial determinants of borrowing. The strength of the relationships, however, varied significantly among the banks. In particular, for the more conservative banks, the aversion to borrowing was strong at any level of indebtedness. For the other banks, the aversion was apparent only at levels of heavy indebtedness. / Arts, Faculty of / Vancouver School of Economics / Graduate

The objective of this study was to explore the historical expansion of the international operations of the Canadian chartered banks; to compare and contrast the exhibited growth pattern with that of the major commercial banks of the United States; to draw implications for the future pattern of world banking; and to see the role of the Canadian banks in that pattern. The analysis was limited largely to the post-World War II era and was conducted primarily in terms of the operating forms employed in other countries by the banks. The foreign-based vehicles described were the representative office, agency, branch, wholly-owned subsidiary, affiliate and multinational joint venture. The approach was essentially qualitative in character with a number of hypotheses introduced to explain the findings but with no effort made to statistically test these hypotheses. Specifically, hypotheses were tendered to account for the exhibited increasing internationalization of the banks; to explain why they go abroad to set up foreign "offices"; to explain why they might choose a particular country or area; and to account for the selection of a particular operating form for this location. The study relied upon several principal sources of information in order to develop the hypotheses offered. Standard governmental publications and the annual reports of the selected Canadian and U.S. banks were significant data sources and a number of articles from various periodicals were found to be especially relevant. Vital information was acquired by correspondence with the selected banks of each country and through personal interviews with executives in the International Divisions of these institutions. To facilitate the investigation of overseas involvement, and to enable more effective comparisons and contrasts to be developed the world was divided into seven geographic regions. It was found that the banks of both countries have experienced increasing internationalization of activity during the past 25 years with the U.S. banks enjoying more extensive "office" representation in other countries. The findings indicated that the greater number of U.S. customers abroad, measured in terms of U.S. foreign direct investment abroad, may be the most important contributory factor. The chartered banks, on the other hand, generally appeared to be motivated more by the volume and direction of Canadian external trade and the value and sources of foreign investment in Canada as the prime forces behind their increasingly "international flavour" and movement into certain countries or areas. The study indicated that bank policy was a pervasive, universal force influencing the exhibited extent of internationalization of the number and variety of "offices" abroad of the individual banks, particularly in terms of the variety of vehicles employed and the locations selected as a base of operations. On the other hand, it was indicated that restrictive Canadian banking legislation may be a force limiting the banking activity of the chartered banks in certain areas while New York and California state legislation has facilitated the overseas expansion of the U.S. banks. The respondents were asked to name the principal persistent problems which their banks experienced during the conduct of their international operations. On the basis of these perceived difficulties and from the findings of the study to that stage implications were drawn concerning the future pattern of international banking particularly as it pertained to the chartered banks. The findings indicated that the trend toward increasing internationalization could be expected to continue for the banks of both countries with the U.S. institutions continuing to be more intensively represented on a wider scale geographically. The range of operating vehicles is not expected to increase but it appears that the affiliate and multinational joint venture may become relatively more important. Significant changes in international operating methods and management techniques are expected to be forthcoming from the increased application of computer technology, especially through the centralization of information. On the other hand, the future can be expected to bring greater decentralization of authority through expanded regional organization. / Business, Sauder School of / Graduate

This thesis is concerned with a discussion of banking clearing gains and losses. Background material covers the history of deposit banking in general and in Canada, a discussion of deposit expansion for a one and a multi-bank system, and the clearing system in use today by the Canadian Chartered Banks. The background material continues with a discussion of the reserve rate in Canada, the rates of the deposit liability of the Canadian Chartered Banks and the method used to determine the required primary reserve each bank must maintain with the Bank of Canada. In respect to the clearing gain or loss figure for any bank, examples are given to show how the net clearing gain or loss for any bank in the short run can be influenced by the spending habits of the banks' customers, the money market transactions of the bank and its customers, the action of the Bank of Canada and the rate of investment growth for any one bank relative to other banks. In the long run customers loyalty is deemed to be the sole factor having effect upon the net clearing gain and loss figures for any one bank. The conclusion states the following two hypotheses. 1. In the short run, clearing gains and losses for any one bank are a function of: the spending habits of the bank's customers; the money market transactions of the bank and its customers; the action of the Bank of Canada; and, the relative rate of investment growth. 2. In the long run clearing gains and losses are a factor of the customers loyalty enjoyed by each bank. An Appendix explains why these hypotheses were not tested and lists the information that would be needed to test them. J. N. Bray. / Business, Sauder School of / Graduate

The objective of this thesis is to examine the potential ramifications of allowing Canadian chartered A banks to invest in domestic common equities in excess of current regulations. The need for these investments has been born through attempts by companies to seek new common equity so that they may avoid financial catastrophe. However, as time goes on, it is a practice which can be expected to widen in popularity as chartered banks adjust to their new role as venture-capitalists. We begin our analysis by examining the impact of common equity investments on the financial performance of the chartered banks. Our approach is to conduct simulation studies of chartered bank performance using the Toronto Stock Exchange 300 index as a proxy for common equity behaviour. By adjusting bank financial statements to reflect assumed equity investment levels, we are able to demonstrate the probable impact on a bank's profitability, liquidity, and solvency. The above is followed by an examination of the potential impact of bank common equity holdings on the existing financial markets. In particular, we seek to examine the probable effect on the cost and availability of funds within the debt and equity markets. Finally, we strive to evaluate the public policy issues which are associated with bank common equity investments. These range from fears of potential power abuses derived from the corporate voting-power of common equity, to the impact on corporate bankruptcy costs. Our evaluation is based on a combination of traditional economic theory, along with drawing heavily from the West German experience where bank ownership of common equity has deep historical roots. In general, our findings indicate that chartered bank ownership of common equities should be encouraged subject to several limitations. These limitations are designed to ensure banking system financial stability, as well as to minimize any potential power abuses. In addition, any movement towards bank ownership of common equities should be accompanied by deregulation of traditional banking services so as to ensure minimal disruption to existing markets and services. / Business, Sauder School of / Graduate

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