The Fractional Reserve

The Fractional Reserve

Most of the income taxes that we pay as individuals now goes straight into the hands of the bankers, just to pay off the interest alone, with no hope of ever paying off the principle. Our children will be forced into servitude.

You say, "This is terrible!" Yes, it is, but we have shown only part of the sordid story. Under the FRACTIONAL RESERVE SYSTEM, the private banks can now take the GOVERNMENT BOND that that they have bought by creating a deposit and use it as reserve to create more bank deposits.

How much can they create?

Under the 1967 Bank Act they could create 16 times the amount of their reserve.

On page 10 of the book called "HOW THE CANADIAN MONEY SUPPLY IS AFFECTED BY VARIOUS BANKING AND FINANCIAL TRANSACTIONS" published by the Royal Bank of Canada, they themselves show how this is done.

Imagine what this means. It means that with one dollar of reserve with the Bank of Canada, the private bank can loan out $15 dollars of cheque book money and collect the interest on the loan. At 15%, this gives them $2.25 of interest on every dollar they hold in reserve.

This is still not all!

On November 19, 1980, BILL C-6 was passed in the Canadian House of Commons, which gave a further concession to the private banks. WHEREAS, the 1967 BANK ACT required a reserve of 4% on notice deposits and 12% on demand deposits:

BILL C-6 reads as follows:

208. (1) A bank shall maintain a primary reserve in the form of:

	(a) coins with a face value of two dollars or less that are current under the Currency and Exchange Act
	(b) Bank of Canada notes, or
	(c) deposits in Canadian currency, with the Bank of Canada, and such reserve shall not be less on the average during any month than an amount equal to the aggregate of
	(d) ten per cent of such of its deposit liabilities as are Canadian currency demand deposit liabilities,
	(e) two per cent of such of its deposit liabilities as are Canadian currency notice deposit liabilities.

This reduction in reserves will enable the private banks to issue from 20 to 25 times their reserves rather than the 16 times - the amount they could under the 1967 BANK ACT.

This lowering of the reserves will mean that the banks can issue at least 25% more money than they were able to issue under the 1967 BANK ACT. This increase will be needed to replace the money withdrawn by ever increasing interest, repayment of loans and to make up for the extra money needed because of inflation. This of course will increase bank profits.

You may ask why the banks do not show more profits if it is such a lucratif business. Of course they do show tremendous profits year after year. They have been showing an increase of profits of anywhere from 20 to 35% for a number of years. But not all of the profits of banks are reported.

AS FAR BACK AS 1934 BANKS WERE HIDING RESERVES.

Hiding of Bank Reserves -

The following excerpt is from the COMMITTEE ON BANKING AND COMERCE, April 19, 1934:
(before they were on their guard):

Evidence of Mr. Jackson Dodds of the Bank of Montreal and President of the Bankers' Association, (at the time), appearing before the COMMITTEE ON BANKING AND COMERCE:

Question to Mr Dodds:	What other controlled companies are there?
Mr. Dodds:	We have the St. James Land Company Limited with a capital $200,000, owned entirely by the Bank of Montreal and carried at $1.00. The officers are officers of the bank. The company was incorporated by the Molsons Bank, which deeded over to it that portion of their property known as Lot "B", corner of St. Peter and Notre Dame streets, Montreal.

The CHAIRMAN:	The bank owned the stock?
WITNESS:	Yes.

Mr. Power:	I suppose the Molsons Bank had a controlled company to look after its real estate?
WITNESS:	Yes, the property being the head office of the bank.

Mr. Power:	They only had one property?
WITNESS:	Yes.

Mr. Power:	That is now owned and controlled by the Bank of Montreal?
WITNESS:	Owned and controlled by the Bank of Montreal.

Mr. Power:	The directors are the directors of the Bank?
WITNESS:	No. The directors are officers of the bank. The secretary of the bank is the president.

Mr. Power:	Who has the stock?
WITNESS:	The bank owns the whole of the stock, which is only $200,000 and is carried on the books at $1

Bookkeeping entries -

Evidence of Mr. Graham Towers: Governor of the Bank of Canada, (at the time), appearing in 1939, before the COMMITTEE ON BANKING AND COMERCE: - Government Printing Bureau, Ottawa -

Question to Mr Towers:	Nintey-five percent of all our volume of business is being done with what we call exchange of bank deposits - that is. simply bookkeeping entries in banks against which people write cheques?
Mr. Towers:	I think that is a fair statement. (p.223)

Issue Of Currency -

Question to Mr Towers:	Twelve percent of the money in use in Canada is issued by the Government through the Mint and the Bank of Canada, and 88 percent in issued by the merchant banks of Canada on the reserves issued by the Bank of Canada??
Mr. Towers:	Yes.

Question to Mr Towers:	But if the issue of currency and money is a high prerogative of government, then that high prerogative has been transfered to the extent of 88% from the Government to the merchant banking sysstem?
Mr. Towers:	Yes.

How Governments Get Money -

Question to Mr Towers:	How do governments get money ?
Mr. Towers:	A government can find money in three ways: by taxation, or they might find it by borrowing the savings of the people, or they might find it by actions which is allied with an expansive monetary policy, that is borrowing which creates additional money in the process. (p.29)

Purchase Of Government Bonds By Banks -

Question to Mr Towers:	A banker can purchase a Dominion Government Bond by accepting from the government, we will say, a bond for $1000 and giving to the Government a deposit in the Bank for $1000?
Mr. Towers:	Yes.

Question to Mr Towers:	...what the Government receives is a credit entry in the banker's book, showing the banker as a creditor to the Government to the extent of $1000
Mr. Towers:	Yes.

Question to Mr Towers:	And, in law, all that the bank has to hold in the way of cash to issue that deposit is 5%?
Mr. Towers:	Yes. (p.76)

Power To Change The Banking System -

Question to Mr Towers:	Will you tell me why a government with the power to create money should give that power away to a private monopoly and then borrow that which parliament can create itself, back at interest, to the point of national bankruptcy?
Mr. Towers:	We realize, of course, that the amount which is paid provides part of the operating costs of the banks and some interest on deposit. Now, if parliament wants to change the form of operating the banking system, then certainly that is within the powers of parliament. (p.394)