Textbook Notes (369,205)
Canada (162,462)
York University (12,903)
ADMS 1010 (82)
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Case 1.docx

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Department
Administrative Studies
Course Code
ADMS 1010
Professor
Alison Kemper

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CASE 1 Origins of Financial Stability in Canada: The Bank Act of 1871 Issues faced by Sir John A. MacDonald (PM):  need for a more comprehensive act that would replace the existing bank charters in the 4 provinces since they would expire in 1871  ensure a national currency and coinage - national unity would be greatly enhanced by having a medium of exchange which was universally accepted and trusted throughout the Dominion The political goal was financial stability, and the managerial challenge was to create the institutional and regulatory framework to carry it out Banking in Early Canada: 1759–1817 1759 to 1763 - no financial system - large supply of paper currency in circulation in Lower Canada, issued by the French government but not regarded as a safe store of value by the Canadiens - thrifty and prudent farmers kept their savings in ‘specie,’ which consisted of gold and silver coins - paper money became worthless after the fall of Quebec in 1759 1770 - lack of money to carry on the ordinary business of life - reliable form of money – either for a means of payment or to store value, or even to help governments with their own finances – did not exist - two values existed for the pound in the same marketplace, resulting in ordinary citizens being short- changed when dealing with merchants who had the advantage of understanding the relative value of various coins - cost of transporting gold and silver coins, the risk of theft, and the long overseas shipping route without news all implied high risk, resulting in shortage of specie which led to various improvisations of paper money - lack of large-denomination money hampered foreign trade 1810 - merchants of Montreal had great difficulty in financing their exports of flour, potash, lumber, and fur to Britain, while paying for imports of clothing, sugar, salt, and farm tools - market developed in bills of exchange but a great distance and a time lapse of six months to two years between the transaction and the final payment meant neither side met their financial obligations - one of the chief functions of banks in providing credit to facilitate trade was to buy the bill of exchange at a discount First Bank of the US - opened in Philadelphia in 1791 - forerunner to and model for the Canadian banking system - charter authored by Alexander Hamilton, first secretary of the treasury during the First Congress in Philadelphia - modelled on the Bank of England, founded in 1694, with regards to providing a vehicle which the government could use as a safe depository for taxes and to provide loans to itself and keep the state- chartered banks in line - charter killed in Congress upon renewal in 1811 because a) it had been doing its job so well and b) much of the public issue of stock had been acquired by British investors, and war with Britain was imminent - charter revived in 1816 but allowed to lapse by Congress in 1836 for the same reasons as in 1811 - US never enjoyed a national banking system again Free banking - emerged in the United States after the demise of the Second Bank of the United States - licensing of banks fell back into the hands of the states - anyone with enough capital could open a local bank with no branches, causing numerous bank failures and a flood of fraudulent paper money The Earliest Banks in Canada Bank of New Brunswick - first bank to receive a provincial charter in 1820 - max voting rights of 10 shares - heavily influenced by the Massachusetts banking system - ‘double liability’ clause (shareholders of the bank were required to take up an amount of stock equal to what they already owned in the event of failure) to encourage prudent behaviour by the directors and shareholders in issuing bank notes Bank of Nova Scotia - first joi
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