The Regulation of Banks and Banking in Canada
| Author | M.H. Ogilvie |
| Profession | Professor of Law, Carleton University |
| Pages | 37-82 |
37
CHAP TER 3
THE REGULATION OF
BANKS AND BANKING
IN CANADA
A. INTRODUCTION
Historically, the Bank Act has b een the primar y regulatory mechanism
by which Parliament has e xercised its jurisdiction under section 91(15)
over banks and banking in Canada. However, since the mid-twentieth
century, Parliament has expa nded its governance of the bank ing sector
as well as the federal financial institutions sector generally by enacting
legislation regulating particular aspects of banking t hat relate either to
the security and solvency of the national economy or to the safety and
security of customers’ deposits and other retail transactions. Oversight
is exercised either di rectly through the Minister of Finance or indi rectly
through various corporat ions or arms length government agencies with
statutory authority over specific aspects of ba nking busine ss, which
in turn report to Parliament through the Minister of Fin ance. When
conducting their day-to-day business, consumers of bank ing services
are generally not aware of the significant role these organizat ions play
in ensuring t he security of the fin ancial services sector. Nevertheless,
the nature of this oversight and the roles these organi zations play en-
sure the safe, secure, and efficient completion of those millions of daily
transactions.
BANK AND C USTOMER LAW IN C ANADA38
B. BANK OF CANADA
The Bank of Canada ca me into existence as t he central ban k on 11 March
1935.1 In contrast to other common law countr ies, the creation of a central
bank was relatively late in Canadian economic history, probably because
many central bank functions had been accommodated w ithin the char-
tered banks over the course of t he nineteenth century. The existence of
national banks of significant commercial sophistication meant that one,
the Bank of Montreal, could car ry out some of the functions of a central
bank, part icularly the man agement of the federal government account.
A national branch bank clearing system obv iated the clearing problems
experienced, for example, in the United St ates prior to the establi shment
of the Federal Reserve System and senior ban kers advised and cooper-
ated with the government. Such cooperation was evident during the First
World War, when the Department of Finance was formed and relied on the
banking communit y for advice when it performed some of the functions of
a central bank such as holdi ng reserves and supervising bank notes.
The economic boom of the 1920s and the economic bust of the early
1930s, together with the problem of settling bal ances between Can ada
and London once the United Kingdom abandoned the gold standard i n
1931, prompted discussion of the need for a central bank to regulate
monetary policy and settle international accounts. In 1933, the British
Law Lord, Lord Macmill an, who had recently chaired a U.K. commission
on financial matters, agreed to chair the Royal Commission on Banking
and Currency in Canada which recommended the establishment of a
central bank. The Bank of Canada began operations in March 1935.
The functions of the Bank of Canad a are set out in the preamble to
its Act:
… to regulate credit and c urrency in the best interest s of the econom-
ic life of the nation, to control and prote ct the extern al value of the
national monetary unit and to m itigate by its influen ce fluctuations in
the general level of product ion, trade, prices an d employment, so far
as may be pos sible within the scope of monetar y action, and generally
to promote the economic and financ ial welfare of Ca nada.2
1 For a history of ea rly origins, see George S. Watts, T he Bank of Canada: Origins
and Early History (Ottaw a: Carleton University Pre ss, 1993), which incorporat es
articles publ ished earlier in the Bank of Canada Review (May 1972) 14; (August
1972) 12; (November 1972) 6; (April 1973) 2; (November 1973) 2; (November
1974) 2; (Ja nuary 1976) 2.
2Bank of Canada Act, R.S.C. 1985, c. B-2 as am. For cur rent information, see
online: www.bankofcanada.ca.
The Regulation of B anks and Banking i n Canada 39
The Bank of Canada is a cor poration3 est ablished by le gislat ion,
not a Crown corporation, department, or agency of the federal govern-
ment. Its head office is in Ottawa, but it may establish other branches
and agencies within Ca nada and abroad.4 It is managed by a boa rd of
directors composed of the Governor, a Deputy Governor and twelve
directors, together with the Deputy Mi nister of Finance, who does not
have the right to vote.5
The Governor and Deputy Governor of the Bank are appointed by
the board with the approval of the Governor in Council6 for renewable
seven-year terms.7 They are to have proven financial experience,8 be
Canadian cit izens under seventy-five years of age, and not be employed
by any other government agency or have associ ations with any other
organization of a related nature.9 Additional Deputy Governors may be
appointed by the board.10 The Governor is the chief executive officer of
the Bank.11
The directors are appointed by the Mini ster of Finance with the
approval of the Governor in Council for renewable three-yea r terms.12
A director must be a Canadi an citizen ordinarily resident in Can ada,
under seventy-five years of age, and not employed by any other gov-
ernment agency or have associations w ith any other organization of
a related nature.13 Directors are subject to statutory d isclosure of con-
flict rules14 and are entitled to directors’ fees for attendance at directors’
meetings.15 The Governor is t he chair of the board of directors.16
The Act provides that it is an offence for a Governor, Deputy Gov-
ernor, or director to hold or continue in office knowing of his or her in-
eligibility. The penalties are on summ ary conviction a fine of not more
3 Ibid., s. 3. Bain v. Bank of Canada, [1935] 4 D.L.R. 112 (B.C.C.A.); Walsh Adver-
tising Co. v. R., [1962] Ex. C.R. 115; Kawneer Co. of Canada Ltd . v. Bank of Can-
ada (1975), 60 D.L.R. (3d) 636 (Ont. H.C.J.); Bank of Canada v. Bank of Montreal
(1977), 76 D.L.R. (3d) 385 (S.C.C.).
4 Ibid., ss. 4(1) & (2).
5 Ibid., ss. 5(1) & (2).
6 Ibid., s. 6(1).
7 Ibid., s. 6(3).
8 Ibid., s. 6 (2).
9 Ibid., s. 6(4). See s. 6(4) for particul ar details.
10 Ibid., ss. 7(1) & (2).
11 Ibid., s. 8.
12 Ibid., s. 9.
13 Ibid., s. 10. See s. 10 for partic ular details.
14 Ibid., s. 10.1.
15 Ibid., s. 11.
16 Ibid., s. 12. For the executive committee of t he board, see s. 13.
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