NATURE OF BANK DEPOSITS IN CANADA
BY – KARTIKAY KHETARPAL VI SEMESTER BBA(HONS.) LLB(HONS.) NATIONAL LAW UNIVERSITY, JODHPUR
THE CANADIAN BANKING ENVIRONMENT
Canadian banking environment is relatively simpler and easier to understand. There are a small number of large banks that branch across the entire country and a company will typically have only one primary banking relationship. In Canada, the depository institutions or banks are divided into three categories: Schedule I, II, or III. Schedule I banks are Canadian-owned and are authorized to accept deposits and carry on a range of activities. There are currently 22 Schedule I banks in Canada, but they are dominated by the six largest with combined total assets of $1.8 trillion (USD) 1. The other types of banking institutions in Canada include 25-plus Schedule II banks, which are subsidiaries of foreign banks authorized to accept deposits and provide a ranges of services, and about 20 Schedule III banks that are branches of foreign banks with limitations on their activities. In Canada, the typical commercial bank account pays interest on positive balances, while charging interest on negative balances (overdraft banking). Canadian banking customers also have the ability to open accounts in currencies other than the Canadian dollar, which are known as foreign currency accounts. Moreover, central bank in Canada (the Bank of Canada) involves itself in the day-to-day activities of the chartered banks. While the roles of supervision and “lender of last resort” are similar to those of the Federal Reserve, the Bank of Canada does not participate in the operation of the payments system.2.
1 Canadian Bankers Association. Canadian Bankers Association, http://www.cba.ca/en/. 2 http://gbr.pepperdine.edu/2010/08/commercial-banking-in-the-u-s-versus-canada/#_edn10
Money placed into a banking institution for safekeeping. Bank deposits are made to deposit accounts at a banking institution, such as savings accounts, checking accounts and money market accounts. The account holder has the right to withdraw any deposited funds, as set forth in the terms and conditions of the account. The "deposit" itself is a liability owed by the bank to the depositor (the person or entity that made the deposit), and refers to this liability rather than to the actual funds that are deposited3. Thus, Bank deposits subject to check are the claims of the creditors of a bank against the bank, by virtue of which they may, on demand, draw by check specified sums of money from the bank. Since no other kind of bank deposits will be considered by us, we shall usually refer to "bank deposits subject to check" simply as "bank deposits." They are also called "circulating credit." Bank checks, as we have seen, are merely certificates of rights to draw, i.e. to transfer bank deposits. The checks themselves are not the currency; the bank deposits which they represent are the currency4.
CANADIAN MONETARY POLICY5
Monetary policy refers to any of a number of government measures undertaken to affect financial markets and credit conditions with the ultimate objective of influencing the overall behaviour of the economy. In Canada, monetary policy is the responsibility of the Bank of Canada, a federal crown corporation that implements its policy decisions largely through its ability to alter the Canadian money supply. The money supply is that portion of the financial wealth of Canadian households which has sufficient liquidity to be considered money. At the least it includes coin, currency, and chequing-account deposits in chartered banks, all of which have perfect liquidity in that they represent, at face value, an immediate means of 3< http://www.investopedia.com/terms/b/bank-deposits.asp#ixzz2LMfVGRIm> 4< http://www.econlib.org/library/YPDBooks/Fisher/fshPPM3.html> 5< http://www.thecanadianencyclopedia.com/articles/monetary-policy>
payment for purchases made. Some economists broaden the money-supply definition by including additional chartered-bank deposits (eg, savings accounts) or deposits in other financial institutions such as trust companies or credit unions.
A. Control of the money supply
The Bank of Canada is not able to control the money supply directly, because the deposit portion of the money supply results from decisions made within the private Banking system. By taking deposits from individual Canadian households and firms and then lending these funds, the commercial banks, in essence, "create" money because, in theory, the new funds...