Financial History Issue 124 (Winter 2018) | Page 37

Canadian Banks, 1841–67 Number of banks Currency Capital stock paid up [000] Liabilities Promissory non-interest bearing notes Cash deposits bearing interest Cash deposits not bearing interest Balances due other banks Net profits or contingent funds Dividends unpaid Total other than stock Assets Notes and bills discounted Coins, bullion and provincial notes Balances due from other banks   and foreign agencies Other debts due to the bank   not included elsewhere Government securities Landed or other property of the bank Promissory notes or bills of other banks Total 1841 1851 1861 1871 9 £ 8 £ 16 $ 19 $ 2,276.7 2,897.6 24,411.0 26.618.7 919.0 54.9 786.5 340.8 146.4 21.0 2,268.6 1,623.4 565.3 1,623.4 271.6 59.8 0.9 3,647.5 11,780.4 9,545.3 9,176.0 444.1 0 0 30,945.8 8,312.4 14,765.9 13,938.4 2,771.9 0 0 39,788.6 3,282.2 392.5 5,574.0 413.4 39,588.8 4,960.4 48,158.4 7,384.2 203.6 218.5 4,157.3 5,068.6 0 24.7 46.1 148.3 4,097.4 0 43.8 135.3 144.4 6,529.4 4,064.4 2,736.0 1,429.3 1,136.2 58,072.4 2,297.4 6,142.6 1,510.6 1,651.8 72,213.6 Source: Breckenridge, page 85 Adam Shortt argues that the bank’s restriction of operations may have done more damage than a temporary suspen- sion of payments would have because it brought legitimate trade to a standstill, preventing a recovery. He contrasts this with the United States banks, which sus- pended payments but managed to facili- tate a recovery under normal trade con- ditions without abnormal restrictions of their discounts. The Panic of 1857 is cited as the beginning of the end for the Bank of Upper Canada, the oldest bank in Ontario, which failed in 1866. The Canadian banking system grew and prospered in spite of the panics. While there were no new banks until the mid-1850s, by 1867 there were twice as many banks as there had been a quarter century earlier. In 1868, the Commercial Bank was absorbed by the Merchants Bank, and there were a number of other smaller failures, including: the Zimmer- man Bank; the Bank of Western Canada, which was wound up in 1860; the Bank of Brantford, withdrawing from business in 1863; and the short-lived International and Colonial Banks in 1859. All of these failures were caused more by “mistakes and misapprehensions, peculiar to the institutions directly involved” rather than to “world-wide…financial and speculative upheavals.” The accompanying table provides a picture of Canadian banking progress between 1841 and 1867. The dramatic growth as evidenced by the increase in paid up capital stock is striking. A notable feature is the shift from British pounds (£) to Canadian dollars ($). On the liability side, what is most striking is the dramatic increase in deposits, particularly those bearing interest. On the asset side, what is noticeable is the increased diversification. While discounted notes and bills are still the major asset class, there has also been terrific growth in government securities. What is less obvious is the need for flex- ibility in notes because of the highly-cycli- cal nature of the economy with demand peaking in September and October and the trough typically occurring in May. Another feature to note is the dramatic increase in government securities, often to support railway enterprises. Another notable feature was the dra- matic increase in bank branches from just a handful in 1840 to well over 100 in 1867. Most of the branches were in Ontario with less than a dozen in Quebec, nine in the Maritimes and two in British Columbia, which was not yet part of Canada. The Bank of Montreal alone accounted for over one-third of all branches — primarily in Ontario, but by 1867 in Atlantic Can- ada, including St. John’s and Halifax.  The late Christopher Kobrak was the first Wilson/Currie Chair of Canadian Business and Financial History at the Rotman School of Management at the University of Toronto and a professor of finance at ESCP Europe, Paris. An inter- national fellow at the Centre for Corpo- rate Reputation, Oxford University, he served on the editorial boards of several business history journals. Joe Martin, formerly the partner in charge of a large Canadian management consulting firm, is the director of the Canadian Business & Financial History Initiative at the Rotman School of Man- agement at the University of Toronto and president emeritus of Canada’s History Society. He currently serves as the found- ing president of the Canadian Business History Association. This article was adapted from the forth- coming book, From Wall Street to Bay Street: The Origins and Evolution of American and Canadian Finance, by Joe Martin and Chris Kobrak (Rotman-Utp Publishing, May 2018). Editor’s Note: For more on Canadian banking, see Bank of Montreal Bicenten- nial (FH #120, Winter 2017) and Profit From Prudence: How Canadian Banks Avoided the Recent Finance Crisis (FH #106, Spring 2013). www.MoAF.org  |  Winter 2018  |  FINANCIAL HISTORY  35