Byron Edmund Walker , long-time president of The Canadian Bank of Commerce , circa 1907 .
The Honorable W . S . Fielding , Canadian Minister of Finance , 1896 – 1911 and 1921 – 1924 .
Library and Archives Canada / B-025973
Wilfrid Laurier declared , “ Let me tell you , my fellow countrymen … that the 20th century shall be the century of Canada .” Laurier declaimed that in a year when GDP per capita declined , but the next two years seemed to prove his prediction . Then came the Crisis of 1907 and the sharp economic contraction of 1908 .
The causes of the 1907 credit crisis were more varied in the United States than they were in Canada for several reasons . But what the two countries shared was a large Western grain sector . This was a problem because Western farmers needed credit in the spring to buy seed and equipment , but they didn ’ t have money until the fall when they sold their cash crops to line elevator companies . This created a liquidity crunch .
The liquidity crisis was THE problem in Canada as the result of the changes that occurred after 1896 , namely large-scale immigration accompanied by large-scale farming on the Western plains . Robert F . Bruner and Sean D . Carr , authors of The Panic of 1907 : Lessons Learned from the Market ’ s Perfect Storm , contend that a shock is required to trigger a crisis and imply that a liquidity crisis in the Western sector of the country is not a sufficient shock , nowhere equal to the 1906 San Francisco earthquake . Perhaps the shock to the Canadian system was a combination of the inevitable impact on Canada of financial problems in the United States , plus the significant increase in population in Canada in the period and the dramatic increase in GDP per capita . Combined with the Western liquidity issue , these may have been the “ shock ” that Bruner and Carr postulate as being necessary to cause a crisis .
The Solution in Canada
In the United States there was a largescale response to a large-scale problem . A National Monetary Commission was established , which did a thorough review of financial systems in Europe and Canada . The result of their deliberations was the establishment of the Federal Reserve System , America ’ s third national bank , in 1912 .
In Canada the response was not so dramatic , nor was a dramatic response required . Given the substantial growth that had occurred in total population , farm population and GDP in such a short time , it is not surprising that there was a liquidity crisis or , as it was called at the time , “ financial stringency .” And it was not the first time for Canada . The last time it had happened Canada was a province , not a nation , consisting of two parts — Canada East ( Quebec ) and Canada West ( Ontario ). In the early 1860s , there was an uproar in Canada West as the Bank of Montreal reduced credit and invested the money in gold in New York .
Four decades later , the “ western ” problem was 1,700 miles northwest on the Canadian Prairies . Canada ’ s large banks had followed the railways and the farmers west and had opened branches to serve their local customers . In just three years , between 1902 and 1905 , the branch bank network on the Prairies more than doubled , from 82 to 182 . A decade later , the number of branches on the Prairies would increase nearly five-fold . And Winnipeg , the largest city on the Prairies , had become not only the third most populous city in Canada , but also third in terms of financial clearing houses .
Canada ’ s banking system of large banks with head offices in Montreal or Toronto and branches in western Canada had careful senior managers — men like Byron Edmund Walker , the long-time president of the Canadian Bank of Commerce . As early as 1906 , in the second year of a spectacular boom , Walker expressed concerns about Europe bearing the costs of the South African War and the Russo- Japanese conflict , as well as the capital that had been destroyed by the “ unexampled scale by earthquakes , fires and other catastrophes .” The Commerce bank branches were instructed to pay close attention to credit risk going forward . Most other major banks had a similar policy . Consequently , when it came time for the 1907 Canadian harvest , Prairie farmers expressed concern about the lack of credit
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