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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