bank act of 1934 at the height of the great depression why? 2

Bank Act of 1934 at the height of the Great Depression

Why?

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To stabilize the Canadian economy & provide security for the banking system

Prevent the previous mistakes and instill confidence

Began as private corporation

1938 – PM Mackenzie King bought all shares (Crown corporation)

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Opposition from the chartered banks

- Manipulation by the government was feared

- Banks notes in danger?

- March 11, 1935 – Dominion notes replaced with currency

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The bank was expected to “regulate credit and currency in the best interests of the economic life of the nation, to control and protect the external value of the national monetary unit (the Canadian dollar) and to mitigate (reduce) by its influence fluctuations in the general level of production, trade, prices and employment”

- The Canadian Bank Act, 1934, Chapter B-2

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1934 – lowest levels of Canadian production, foreign trade, prices and employment of the century

Much faith was placed in the new central bank

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Director of monetary policy

Controls the growth of the money supply by:

- regulating interest rates

- regulating credit

- Regulating currency

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Banker to the chartered banks

- Chartered banks have deposit accounts with the Bank

- Bank lends $ to chartered banks for investments (short term)

- Cash advances for support

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Banker to the federal government

- deposits are made to the Bank and chartered banks

- Buys and sells federal government bonds, makes interest payments to bondholders

- Handles foreign exchange reserves

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Issuer of Currency

Paper currency

- design

- gauges amount required @ certain times of the year (Christmas & summer)

- tries to eliminate counterfeiting

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Run by a board of directors appointed by the government

- Governor & deputy-governor appointed for 7 year-term

- Must have approval of federal government

- Cannot be removed without special acts of Parliament passed by both House of Commons & the Senate

- Signatures are on every bank note

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Finance minister meets regularly with governor (Mark Carney) to discuss economy

Disagreement arises, a directive is issued by government

Published for the general public and must be brought before Parliament within 15 days

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Resignation or revision of the Bank Act?

Serious matter for a country

- Confidence shaken in the banking system and currency both at home and abroad

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Federal government has the ultimate power

Governor of the Bank of Canada is ultimately an instrument of the government

Arguably can be considered the most influential person in the Canadian economy

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