NORTHWESTERN
UNIVERSITY
LIBRARY
EVANSTON
ILLINOIS
THE
EARLY HISTORY OF CANADIAN BANKING
Origin of the Canadian Banking System
by
ADAM SHORTT, M.A.
Queen's University,
Kingston
'°[n\
S^SIe
THE EARLY HISTORY OF CANADIAN BANKING
ORIGIN OF THE CANADIAN BANKING SYSTEM
HE history of banking in Canada, as in other countries, is
but one phase of the general economic history of the people.
Banking operations are so wholly dependent upon the commer¬
cial habits and ideas of the people, the character of their busi¬
ness and the nature of their occupations, that they cannot be
studied with much certainty or profit apart from the general
economic atmosphere in which they are carried on. It will be
my purpose in these articles to set forth, as fully and as accur¬
ately as the material which I have been able to gather will per¬
mit, the origin of the Canadian banking system, the early
history of the first banks, particularly those of Upper Canada,
and their relations to the economic condition of the country at
the period of their introduction.
The present article deals with the origin of the Canadian
banking system.
In treating of banking in Canada little attention has
.hitherto been given to the question of its origin. So far as it
has been looked upon as other than a native growth, Scotland
has commonly been credited with its parentage. At first sight
this conclusion seems so natural and obvious as to be hardly
worth questioning. From the very infancy of Canadian bank¬
ing Scottish names have been chiefly associated with its growth
and expansion. Moreover, prominent external resemblances,
particularly in the feature of branch banks, seem to closely relate
the two systems on the one hand, while distinguishing them from
their nearer neighbors on the other. Closer inspection, how¬
ever, and especially a slight acquaintance with the history of
the two systems, soon show us that the resemblance is merely
accidental, or at the best only to be attributed, in the course of
their development, to a community of national temperament in
2
EARLY HISTORY OF CANADIAN BANKING
the persons of the most influential managers. Evidence of the
most direct kind shows that the Canadian system was derived
from quite another source. But since its origin has been attri¬
buted to Scotland, it may be as well to make a few observations
on the negative side.
Though the Canadian system was established largely
through the influence, and under the direction of persons of
Scottish nationality, yet it does not follow that these persons
were prejudiced in favor of Scottish examples. The richest
national individuality is that which is capable of absorbing the
widest range of foreign experience without losing its character¬
istics. It is matter of common observation that the pro¬
nounced individuality of the Scotchman is almost invariably
accompanied by the widest cosmopolitanism. The Scotch¬
man's capacity, in every region of the world, to adapt himself
to circumstances, or more often to induce them to meet him
half way, is proverbial, and mainly because m so doing he only
intensifies his national identity. The Scotchmen who were so
prominent in the early days of Canadian commerce, did not
attain to that position by any special adherence to Scottish
experience. Few of them had much occasion to be familiar
with the mechanism of exchange before leaving their native
country, otherwise Canada had never known them. Their com¬
mercial experience was gained on this side of the Atlantic.
Even after they became extensive traders, there were few occa¬
sions in which they had any direct intercourse with their coun¬
trymen in Scotland. The Canadian trade was almost wholly
confined to New York and the New England States, and the
West Indies, on this side the Atlantic, and London, with a few
other English towns, on the other. So late as 1823 the ship¬
ping lists show only rare arrivals from any Scottish port.
But even had the Canadians been familiar with Scottish
banking, at the time they were forming their own ideas on the
subject, they would hardly have been likely to take the Scottish
banking of that time as a model. That was the period of the
great struggle with France, from 1793 to 1815, during which
both English and Scottish banking were in a most unstable
condition and subject to frequent crises. In 1797 the
Bank of England suspended cash payments, followed imme-
EARLY HISTORY OF CANADIAN BANKING 3
diately by the Scottish banks, and did not resume until 1821.
During this period banking in Scotland was carried on by two
chartered banks,—the Bank of Scotland and the Royal Bank,
each with a branch in Glasgow,—and a multitude of small
private banking corporations with little community of system
and no branches. It was only after 1816, and mainly through
the action and example of the National Bank of Scotland,
started in 1824, that the transition was gradually made to the
present system of a few large banks with numerous branches.
But before this experience was available the Canadian system
had been already determined.
Turning to the positive side of the subject, I may state
categorically that the Canadian banking system was derived in
a very direct and literal manner from the United States. The
more one becomes acquainted with the economic condition and
commercial relations of Canada, during the last quarter of the
eighteenth and first quarter of the nineteenth century, the more
one recognizes that this was no accident, but quite inevitable.
It was equally inevitable that the currency of Canada should
assimilate itself to that of the United States, despite the rela¬
tively large sums in English currency which were continually
coming to the country, and despite also the laws, regulations,
and bonuses intended to maintain the English system and ex¬
clude the American.
The father of the Canadian banking system was Alexander
Hamilton, the first Secretary of the Treasury uiider the present
constitution of the United States. Hamilton had given much
attention to economic, and especially to financial questions,
long before he was called upon to lay the financial foundations
of the young republic. The ability and thoroughness with
which he studied questions of banking and general finance are
shown in the radical changes which his own ideas underwent,
and the frankness with which he afterwards exposed the fallacy
of ideas which he had earnestly supported at earlier stages of
his own progress. It is quite true that several of his ideas
afterwards proved to be inadequate or erroneous, but, compar¬
ing them with the best ideas then current on the subjects of
paper money, credit and banking, we have to admit that Ham¬
ilton was singularly sane and practical in the principles which
4
EARLY HISTORY OF CANADIAN BANKING
he laid down. In his work on the History of Banking in the
United States, Professor Sumner is inclined to be rather severe
in his criticism of Hamilton, but the force of his criticism falls
not so much on Hamilton as on those who achieved disastrous
results by a one-sided and often deliberately perverse develop¬
ment of certain of Hamilton's ideas. It could be pointed out
also that these ideas, and others of a similar nature, in the
hands of different men, did not have the same evil consequences
in Canada or in Scotland. However, this is merely by the way.
Our present task is to show what were Hamilton's principles and
how they came to be adopted in Canada.
Politically, we find that the English traditions of the
Colonies were faithfully reflected by the founders of the Ameri¬
can Republic in their federal constitution. The singular
stability of the American constitution, and its capacity to serve
with efficiency for so long a period of rapid growth and enor¬
mous expansion, are undoubtedly due to the conservative reso¬
lution of its framers to try no novel political experiments, but
to rely on the experience of their own colonial condition, and of
their mother country. Financially the same spirit showed
itself. English precedent and English experience were closely
followed by Hamilton and his associates in laying the founda¬
tions of the public credit.
During the trying and uncertain period when the colonies
were struggling for their freedom, Mr. Robert Morris, the finan¬
cial agent of the colonial government, managed to obtain in the
Bank of North America a financial instrument which, with the
help of silver specie supplied by France, was of the greatest
assistance to the struggling government, being a bond of union
between itself and the commerce of the country. After the
restoration of peace its position became rather uncertain, espe¬
cially as it received and acted upon a new charter from the
State of Pennsylvania. With the establishment of the Republic
on a new and firmer foundation in 1789, Hamilton, who
became the first Secretary of the Treasury, desired to find a
financial agent for the government which would be more dis¬
tinctly national, and on a more definite basis than the Bank of
North America. He therefore drew up and presented to Con¬
gress, as part of his report on the establishment of the public
EARLY HISTORY OF CANADIAN BANKING 5
credit, his plan for the formation of a National Bank. The
greater part of the report consists of a statement of his views
on the nature of credit, the uses and limitations of paper
money, the functions of banks, and the relation in which the
government should stand to the national mechanism of
exchange.
It was obviously Hamilton's intention that the proposed
National Bank should stand to the United States Government
in practically the same relation as the Bank of England stood
to the British Government. It should rest largely upon the
national debt, and should be at once the channel through which
the government collects revenue and makes payments, the
custodian of the surplus cash of the treasury and the money¬
lender from whom the government might obtain temporary
advances in time of need. But, as in the case of the Bank of
England, it must be essentially a free and independent corpor¬
ation, consisting of private individuals and corporate bodies
seeking by every legitimate means, in connection with the trade
and commerce of the country, to further their own joint inter¬
ests. Only on this basis could the bank be itself a prosperous
institution, in normal and intimate connection with the econo¬
mic life and strength of the nation, and therefore capable of
being an effective aid to the government in time of need. It is
to be the medium through which the government may, when
necessary, find an immediate access to the resources of the
country in a fluid shape. Were the institution simply a depart¬
ment of the government, or controlled and managed by the
government, it would be of little assistance to it when most re¬
quired : for, instead of the government being able to depend
upon-the bank in time of need, it would simply find the bank an
additional burden to carry.
Hamilton saw also that such an institution, from its finan¬
cial connection with the government, would, under all normal
political conditions, derive stability, and inspire confidence and
respect both at home and abroad. This would enable it to
maintain stable and uniform conditions in the interstate
exchanges, as well as to carry on with confidence and dignity
the international exchanges of the country.
The latter part of the report contains the draft of a plan
6
EARLY HISTORY OF CANADIAN BANKING
for the constitution of a National Bank, followed by explana¬
tions of its leading features. On the lines of this plan a bill
was framed by Hamilton and introduced to Congress for the
incorporation of the Bank of the United States. After con¬
siderable discussion the bill was passed on March 2nd, 1791.
The bank was soon in operation, and from the first achieved a
marked success ; its stock soon passed to a premium, which
amounted at one time to fifty per cent.
In order to bring out the connection of the more essential
banking features of the Act with the Canadian system, I shall
give some of these sections in full, together with the correspond¬
ing sections of the Canadian bill. A skeleton of the other
interesting features of the Act may be given as follows : The
capital stock is placed at $10,000,000 in 25,000 shares of $400
each. Any person, corporation, or body politic may subscribe,
under certain limitations as to the number of shares to be taken
by each. The government of the United States is permitted
to take stock in the bank to the extent of $2,000,000. The
government subscribed for the whole of this amount. The
instalments on the stock are to be paid, one fourth in gold and
silver and three fourths in the public debt of the United States.
The corporation was given the customary legal powers and was
chartered for twenty years.
The very success of this bank was the chief cause of its
downfall, through its failure to obtain a renewal of its charter.
Its stability and credit became so great, both at home and
abroad, that its power and precedence in the American commer¬
cial world were very marked, giving rise to much jealousy, and
causing it to be attacked on the ground of its aristocratic and
un-American tendencies. These attacks received justification,
in the eyes of many, from the very respect which the bank com¬
manded abroad. Its shares were readily bought up in Europe,
and especially in England ; yet no stockholder residing abroad
was permitttd to vote, and none but citizens of the United
States were eligible as directors. Finally about 18,000 shares
were held abroad and only 7,000 in the United States : still
these 7,000 shares elected the directors and controlled the whole
institution. When, in 1811, the period of the charter came to
an end, the friction between the United States and England
EARLY HISTORY OF CANADIAN BANKING
7
afforded the opponents of the bank an excellent basis for attack.
The bank was represented as an engine of the British Govern¬
ment planted in their midst, capable at any time of working, in
some mysterious way, untold destruction. The demagogues
prevailed and the bank was forced to wind up its affairs. Had
England any desire to be revenged on the United States, it
should surely be satisfied by the injuries wrought to the country
through its Anglophobic element, in the name of frustrating
English designs.
During the existence of the first Bank of the United States,
the principles embodied in its charter naturally shared in the
respect and credit of the institution itself ; hence its charter was
taken as a model for very many of the new banks which came
into existence during that period.
As already noted, the commerce of Canada at this time,
which was mainly in the hands of the English element, was
closely connected with the United States. Quite a number of
the merchants in the lower province had come from the Ameri¬
can colonies before the separation from England ; many others
came after that separation. However their views as to British
connection might differ from those of their brethren in the
United States, there was little change in the social, economic
and municipal ideas in which they had been trained. These
ideas were not affected by their political allegiance, and were as
well suited to the natural conditions of Canada as they were to
those of the United States. Those who came directly from
Britain found their circumstances so completely altered that
they naturally laid aside most of their old ideas and adopted
others better suited to the customs and conditions of a new
country. For a considerable time, following the independence
of the American colonies, trade was practically free between
the two countries, and even after restrictions were prescribed
they were but very laxly enforced. The physical condition of
the interior of the country made it necessary that certain por¬
tions of the United States should find an outlet through Canada,
and some parts of Canada an outlet through the United States.
Thus Montreal became the natural port of entry and outlet for
Vermont and north-eastern New York; and before the opening
of the Erie Canal, much of the trade of the western portion of
8
EARLY HISTORY OF CANADIAN BANKING
New York State, and of all the trading posts in the territory
bordering on the lakes and as far west as the Mississippi River,
found its natural outlet through the Detroit, Niagara and
Kingston route, finally centering at Montreal. Montreal was
thus the Canadian city which had most constant and intimate
relations with the American Republic. It was here that the
first definite ideas on banking in Canada found expression, here
the first effort was made to establish a bank in Canada, and
here the first bank was afterward established.
In 1792, just after the successful launching of the Bank of
the United States, we find the leading Montreal firms connected
with the export and import trade of the country, attempting to
establish a bank in Montreal with prospective branches in other
parts of the country, as in the case of the Bank of the United
States. As the constitution of this proposed bank does not
seem to have survived in any form, we are unable to say defi¬
nitely how closely it was related to Hamilton's plan. But in
1808, while the same firms were still the leading trading houses
of Montreal, we find the renewal of the attempt to form a bank,
this time with the co-operation of Quebec merchants. A bill to
give effect to their petition was introduced in the Legislature of
Lower Canada. The bill failed to pass, but it had been printed
by order of the Legislature. Doubtless several copies are still
in existence; one, at least, survives in the collection of Mr.
Neilson, at that time proprietor of the Quebec Gazette. Through
the kindness of its present owner. Surgeon-Major Neilson, I
have been able to examine it and compare it with the charter
of the Bank of the United States. Allowing for the necessary
changes required to adapt the American charter to Canadian
conditions, the bill reproduces in a very literal manner every
essential feature of the American Act. It contains several ad¬
ditional clauses, only one of which is of any special importance.
The bank provided for in the bill was naturally on a smaller
scale than that of the United States. The stock, outside of the
contribution of the Provincial Government, was limited to
;¿'25o,ooo, or $1,000,000, in shares of £2^, or $100 each. Fol¬
lowing the example of the Bank of the United States, provision
was made for a Government subscription to the stock of the
bank, not to exceed £¿0,000. This feature, though necessarily
EARLY HISTORY OF CANADIAN BANKING
9
dropped in the articles of association of the private banks,
which were the first to go into actual operation in Canada, was
revived and included in the first charter granted in Upper
Canada, that of the Bank of Upper Canada. Following
the American model, again, the bill provided for sub¬
scriptions to the stock, not only by the Provincial Gov¬
ernment, but by any corporation or bôdy politic. As Lower
Canada, unlike the United States, was not an independent
nation, and had no regular national debt, freely selling on the
market, in which subscriptions might be made, the instalments
on the stock were to be paid in gold and silver only. Never¬
theless the Provincial Government itself was privileged to
create and contribute provincial debt, by paying its subscrip¬
tions to the stock in its own notes, bearing interest at six per
cent., the interest to be paid half-yearly. Even the name of the
bank was obtained by substituting the words ' Lower Canada '
for the words ' the United States.' The bank might elect directors
and commence operations after ;^io,ooo in gold and silver had
been actually paid in. Offices were to be opened in both Mon¬
treal and Quebec, and there were to be twenty-four directors,
twelve for Montreal and twelve for Quebec. In connection with
the directorate the Canadians made a slight innovation. The
American Act makes no special provision for government
representation on the board of directors, but the Canadian bill
provides that if the Government shall subscribe not less than
;^25,ooo to the stock of the bank, then instead of this stock
being employed in the usual way in voting for the election of
directors, the Government should appoint two directors, one for
Montreal, and one for Quebec. This feature also re-appears,
slightly modified, in the first bank charter in Upper Canada.
The only other new feature of importance appearing in the
Canadian bill is the clause which provides "that no stockholder
or stockholders shall be answerable in his, her or their private
capacity or capacities, for the debts of the said corporation,"
with the exception of the directors who should overstep the
limits of the debt which the corporation is permitted to con¬
tract. This clause, when reproduced in the articles of the
private banks, gave rise to much hostile criticism.
I shall now give some of the corresponding sections of the
I o EARLY mSTORY OF CANADIAN BANKING
American Act and of the Canadian Bill in which some of the
more important details of Hamilton's banking regulations are
expressed. Incidentally these sections will show how completely
the Canadian Bill absorbs the American Act, and also what
changes and additions were thought to be necessary in adapting
it to Canada.
The numbers attached to the different clauses follow the
order of the sub-sections of section 7 of the American Act.
The same numbers are given to the corresponding Canadian
clauses, although in the Canadian Bill there are a few variations
from this order.
Charter of the Bank of the United
States
I. The number of votes to which
each stockholder shall be entitled,
shall be according to the number of
shares he shall hold, in the propor¬
tions following, that is to say : For
one share and not more than two
shares, one vote ; for every two shares
above two, and not exceeding ten,
one vote ; for every four shares above
ten, and not exceeding thirty, one
vote ; for every six shares above
thirty, and not exceeding sixty, one
vote ; for every eight shares above
sixty, and not exceeding one hundred,
one vote : and for every ten shares
above one hundred, one vote. But
no person, co-partnership, or body
politic, shall be entitled to a greater
number than thirty votes. And after
the first election, no share or shares
shall confer a right of suffrage, which
shall not have been holden three cal¬
endar months previous to the day of
election. Stockholders actually resi¬
dent within the United States, and
none other, may vote in elections by
proxy.
Proposed Charter of the Bank of
Lower Canada.
I. The number of votes to which
each stockholder or stockholders,
body politic or corporate, holding
stock in the said corporation, shall be
entitled on every occasion when in
conformity to the provisions and re¬
quirements of this Act, the votes
thereof are to be given shall be in
proportion following, that is to say :
For one share and not more than
two, one vote ; for every two shares
above two, and not exceeding ten,
one vole, making five votes for ten
shares ; for every four shares above
fen and not exceeding thirty, one
vote, making ten votes for thirty
shares; for every six shares above
thirty and not exceeding sixty, one
vote, making fifteen votes for sixty
shares ; for every eight shares above
sixty and not exceeding one hundred,
one vote, making twenty votes for one
hundred shares; and for every ten
shares above one hundred, one vote,
making thirty votes for two hundred
shares ; but no person or persons,
body politic or corporate, shall be en¬
titled to a greater number than thirty
votes. And all stockholders resident
within this province or elsewhere,
may vote by proxy, if he, she or they
shall see fit, provided always, that
such proxy shall be one of His
Majesty's subjects, as hereafter desig¬
nated, and do produce a sufficient
authority from his constituent or con¬
stituents for so representing and vot¬
ing for him, her or them. Provided
EARLY HISTORY OF CANADIAN BANKING
II
2. Not more than three-fourths
of the directors in office, exclusive of
the President, shall be eligible for the
next succeeding year. But the direc¬
tor who shall be president at the
time of an election may always be
re-elected
3. None but a stockholder,
being a citizen of the United States,
shall be eligible as a director.
4. No director shall be entitled
to any emolument, unless the same
shall have been allowed by the stock¬
holders, at a general meeting. The
stockholders shall make such com¬
pensation to the President, for his
extraordinary attendance at the bank,
as shall appear to them reasonable.
5. Not less than seven direc¬
tors shall constitute a board for thé
transaction of business, of whom the
president shall always be ' one, except
in case of sickness, or necessary
absence: in which case'his'place
may be supplied by any other di¬
rector whom he, by writing under his
hand, shall nominate for the purpose!
also that after the first election of
directors, no share or shares of the
capital stock of the corporation shall
confer a right of voting, either in per¬
son or by proxy, which shall not have
been holden during three calendar
months, at the least, prior to the day
of election or of the general meeting
where the votes of the stockholders
are to be given.
2. Not more than nine (exclu¬
sive of the president or vice-presi¬
dent) of the directors in office, at
each of the cities of Quebec and
Montreal, shall be eligible for the
next succeeding twelve months : but
the directors who are president and
vice-president at the time of an
election, may always be re-elected.
3. None but a stockholder ac¬
tually resident in this province and
holding at least twenty shares in the
capital stock, and being a natural
born subject of His Majesty, or a
subject of Hia Majesty naturalized
by Act of the British Parliament, or
a subject of His Majesty's having
become such by the conquest and
cession of this province, shall be
capable of being elected or chosen a
director of the said corporation, or
shall serve as such.
4. No director shall be entitled
to any salary or emolument uniess
the same shall have been allowed to
him by a general meeting ôf the
stockholders ; but the stockholders
shall make such compensation to the
president and vice-president for their
extraordinary attendance at the bank
as shall appear to them reasonable
and proper.
5. Not less than five directors
shall constitute a Board for the
transaction of business at each of the
branches of the Bank at Quebec and
Montreal, whereof the President or
Vice-President shall always be one,
except in case of sickness and neces¬
sary absence, in which case their
places may be supplied by any other
directors whom the President or
Vice-President so absent, shall re¬
spectively by "writing under their
hands, appoint for that purpose. The
President atad Vice-President shall
vote at their respective Boards as
12
EARLY HISTORY OF CANADIAN BANKING
6. Any number of stockholders,
not less than sixty, who together,
shall be proprietors of two hundred
shares or upwards, shall have power,
at any time, to call a general meeting
of the stockholders, for purposes
relative to the institution, giving at
least ten weeks notice, in two public
gazettes of the place where the bank
is kept, and specifying, in such
notice, the object, or objects, of such
meeting.
7. Every cashier or treasurer,
before he enters upon the duties of
his office, shall be required to give
bond, with two or more sureties, to
the satisfaction of the directors, in a
sum not less than fifty thousand dol¬
lars, with condition for his good be¬
havior.
8. The lands, tenements and
hereditaments, which it shall belawful
For the said corporation to hold, shall
be only such as shall be requisite for
directors, and in case of there being
an equal number of votes for and
against any question before them,
they respectively shall have a casting
vote.
6. Any number of stockholders
not less than , who together
shall be proprietors of shares,
or upwards, shall have power at My
time, by themselves or their proxies,
to call a general meeting of the
stockholders for purposes relative to
the corporation, giving at least six
weeks notice thereof in at least one
of the newspapers published at Que¬
bec and at Montreal respectively, and
specifying in such notice the time
and place of such meeting, with the
object or objects thereof ; and the said
directors or any seven of them shall
have the like power at any time
(upon observing the like formalities)
to call a general meeting as above
said, and if the object for which any
general meeting called either by
stockholders or directors as above-
said, shall be to consider of a pro¬
posal for the removal of the Presi¬
dent, Vice-President or other director
or directors for maladministration,
then and in such case the person or
persons so proposed to be removed
shall from the day on which such
notice shall first be published, be
suspended from the execution of the
duties of his or their office : and if
he be the President or Vice-Presi¬
dent, his place shall be filled up by
the remaining directors, to serve
during the time of such suspension.
7. Every cashier and every
agent and clerk of the bank, before
he enters upon the duties of his
office, shall give bond, with two or
more sureties, to the satisfaction of
the directors, that is to say, every
cashier in a sum not less than
thousand pounds, with conditions for
his good and faithful behavior, and
every agent and clerk with the like
condition and sureties in such sum as
the directors shall consider adequate
to the trust to be reposed in him.
8. The lands and tenements
which it shall be lawful for the cor¬
poration to hold shall be such only
as are hereinbefore prescribed and
EARLY HISTORY OF CANADIAN BANKING
13
its immediate accommodation, in re¬
lation to the convenient transacting
of its business, and such as shall
have been bona fide mortgaged to it
by way of security, or conveyed to it
in satisfaction of debts, previously
contracted in the course of its deal¬
ings, or purchased at sales upon judg¬
ments which shall have been ob¬
tained for such debts.
9. The total amount of the
debts which the said Corporation
shall, at any time, owe, whether by
bond, bill, note, or other contract,
shall not exceed the sum of ten mil¬
lions of dollars, over and above the
moneys then actually deposited in
the bank for safe keeping, unless the
contracting of any greater debt shall
have been previously authorized by a
law of the United States. In case
of excess, the directors, under whose
administration it shall happen, shall
be liable fgr the same in their
natural and private capacities; and
an action of debt may, in such cases,
be brought against them, or any of
them, their, or any of their heirs,
executors or administrators, in any
court of record of the United States,
or either of them, by any creditor or
creditors, of the said Corporation,
and may be prosecuted to judgment
and execution ; any condition, cove¬
nant or agreement to the contrary
notwithstanding. But this shall not
be construed to exempt the said Cor¬
poration, or the lands, tenements,
goods or chattels of the same, from
being also liable for and, charge¬
able with, the said excess. Such of
the said directors who may have been
absent when the said excess was con-
limited. Provided always that the
corporation may hold mortgages or
hypothecations on all kinds of pro¬
perty which can by law be mortgaged
or hypothecated, by way of security
for debts contracted with the corpor¬
ation in the course of its dealings,
and also may hold such lands and
tenements as shall be purchased at
sales made upon judgments and exe¬
cutions, which shall have been ob¬
tained at the suit of the corporation
for debts so contracted ; or where the
corporation, for debts so contracted,
shall be an intervening party in any
suit brought by any other person or
persons ; or where for such debts the
corporation shall lodge an opposition
with the sheriff afin de conserver ;
but in all such cases of purchase, the
corporation shall be bound to sell the
lands and tenements within
years after the date of the purchase
respectively so made by the corpor¬
ation.
9. The total amount of the
debts which the said Corporation
shall at any time owe, whether by
obligation, bond, bill or note, or
other contract whatsoever, shall not
exceed treble the amount of gold and
silver actually in the bank arising
from their capital stock (but exclu¬
sive of a sum equal in amount to that
of the gold and silver actually in the
bank arising from other sources than
the said stock, as also exclusive of a
sum equal in amount to the notes of
the Government of this province,
held by the Corporation as part of
the general stock), unless thereunto
authorized by an Act of the Legis¬
lature of this province ; and in case
of excess the directors under whose
administration it shall happen, shall
be liable for the same in their private
capacities (unless such excess shall
have arisen in consequence of any of
the agents hereafter mentioned hav¬
ing acted contrary to the regulations
and instructions of the directors), and
an action of debt in every such case
may be brought against them, or any
of them, their heirs, executors,
administrators, and curators, and be
prosecuted to judgment and execu¬
tion, according to the laws of this
province. But this shall not exempt
H
EARLY HISTORY OF CANADIAN BANKING
tracted, or created, or who may have
dissented from the resolution or act,
whereby the same was so contracted
or created, may, respectively, exon¬
erate themselves from being so liable,
by forthwith giving notice of the
fact, and of their absence or dissent,
to the President of the United
States, and to the stockholders at a
general meeting which they shall
have power to call for that purpose.
10. The said Corporation may
sell any part of the public debt
whereof its stock shall be composed,
but shall not be at liberty to pur¬
chase any public debt whatsoever ;
nor shall, directly or indirectly, deal
or trade in anything, except bills of
exchange, gold or silver bullion, or in
the sale of goods, really and truly
pledged for money lent, and not
redeemed in due time ; or of goods
which shall be the produce of its
lands. Neither shall the said cor¬
poration take more than at the rate
of six per centum per annum, for or
upon its loans or discounts.
11. No loan shall be made by
the said Corporation for the use, or
on account, of the government of the
United States, to an amount exceed¬
ing one hundred thousand dollars, or
of any particular State, to an amount
exceeding fifty thousand dollars, or of
any foreign prince or state, unless
previously authorized by a law of
the United States.
12. The stock of the said Cor¬
poration shall be assignable and
transferable, according to such rules
as shall be instituted in that behalf,
by the laws and ordinances of the
same.
the said corporation, or the lands,
tenements, goods or chattels thereof,
from being also liable for such
excess. Such directors, however, as
shall have been absent when the said
excess was contracted, or shall have
entered their protest against it upon
the records of the Corporation, may
respectively exonerate and discharge
themselves therefrom, by pleading
and proving such absence or showing
such record.
10. The said Corporation shall
not directly or indirectly deal in any¬
thing excepting bills of exchange,
gold or silver bullion, or in the sale
of goods really and truly pledged for
money lent, and not redeemed in
due time, or in the sale of stock
pledged for money lent, and not so
redeemed : which said goods and
stock so pledged and not so redeemed
may be sold by the said Corporation
at any time not less than ten days
after the period for redemption with¬
out judgment first obtained, any law
or usage to the contrary notwith¬
standing; and if upon such sale of
goods or stock there shall be a
surplus (after deducting the expenses
of sale) over the payment of the
money, such surplus shall be paid to
the proprietors thereof respectively.
Neither shall the said Corporation
take at the rate of more than six
per centum per annum for or upon
its loans or discounts.
11. The corporation is hereby
empowered to make any loan or loans
for the use or on account of this pro¬
vince that shall be previously author¬
ized by a law or laws of the Provin¬
cial Parliament.
12. The stock of the said Cor¬
poration shall be assignable and
transferrable according to such rules
and forms as shall be established in
that behalf by the by-laws, ordin¬
ances and regulations of the same,
but no assignment or transfer shall
be valid or effectual unless such
assignment or transfer shall be en¬
tered or registered in a book or books
EARLY HISTORY OF CANADIAN BANKING
13. The bills obligatory, and of
credit, under the seal of the said
Corporation, which shall be made to
any person, or persons, shall be
assignable, by endorsement there¬
upon, under the hand or hands of
such person or persons, and of his,
her, or their assignee, or assignees,
and so as absolutely to transfer and
vest the property thereof in each
and every assignee, or assignees,
successively, and to enable such
assignee, or assignees, to bring and
maintain an action thereupon, in his,
her, or their own name, or names.
And bills or notes which may be
issued by order of the said Corpora¬
tion, signed by the President, and
countersigned by the principal
cashier, or treasurer, thereof, prom¬
ising the payment of money to any
person, or persons, his, her or their
order, or to bearer, though not under
the seal of the said Corporation,
shall be binding and obligatory upon
the same, in the like manner and with
the like force and effect, as upon any
private person or persons, if issued
by him or them in his, her or their
private or natural capacity, or capa¬
cities ; and shall be assignable or
negotiable, in like manner, as if they
were so issued by such private per¬
son or persons ; that is to say, those
which shall be payable to any
person or persons, his, her, or their
order, shall be assignable by endorse¬
ment in like manner, and with the
like effect, as foreign bills of ex¬
change now are ; and those which
are payable to bearer shall be nego¬
tiable and assignable by delivery
only.
to be kept by the directors for that
purpose, nor until the person or per¬
sons making the same shall previously
discharge all debts due by him, her
or them to the said Corporation,
which may exceed in amount the
remaining stock belonging to such
person or persons, and in no case
shall any fractional part of a share
or other than a complete share or
shares be assignable or transferable.
13. Bank obligations, bank
bonds, bank bills, obligatory and of
credit under the common seal of the
said Corporation, signed by the Pre¬
sident or Vice-President, and coun¬
tersigned by a cashier which shall be
made to any person or persons, shall
be assignable by indorsements there¬
upon without signification thereof,
any law or usage to the contrary
notwithstanding. And bank bills or
bank notes which shall be issued by
order of the said Corporation, signed
and countersigned as above said,
promising the payment of money to
any person or persons, his, her or
their order, or to bearer, although
not under the seal of the Corporation,
shall be binding and obligatory upon
the same, and shall be assignable and
negotiable in like manner as if they
were issued by private persons ; that
is to say those which shall be pay¬
able to any person or persons, his,
her or their order shall be assignable
by indorsement in like manner and
with the like effect as foreign bills of
exchange now are ; and those which
shall be payable to bearer shall he
negotiable by delivery only.
i6
EARLY HISTORY OF CANADIAN BANKING
14. Half-yearly dividends shall
be made of so much of the profits of
the bank as shall appear to the direc¬
tors advisable ; and once in every
three years the directors shall lay
before the stockholders, at a general
meeting, for their information, an
exact and particular statement of the
debts which shall have remained
upaid after the expiration of the orig¬
inal credit, for a period of treble the
term of that credit ; and of the sur¬
plus of profit, if any, after deducting
losses and dividends. If there shall
be a failure in the payment of any
part of any sum subscribed by any
person, co-partnership, or body poli¬
tic, the party failing shall lose the
benefit of any dividend which may
have accrued prior to the time for
making such payment, and during
the delay of the same.
15. It shall be lawful for the
directors aforesaid toestablish offices
wheresoever they shall think fit.
within the United States, for the
purposes of discount and deposit
only, and upon the same terms, and
in the same manner, as shall be
practised at the bank ; and to com¬
mit the management of the said
offices, and the making of the said
discounts, to such persons, under
such agreements, and subject to such
regulations, as they shall deem pro¬
per ; not being contrary to law, or to
the constitution of the bank.
14. Half yearly dividends shall
be made of so much of the profits of
the bank as shall appear to the
directors advisable, and shall be pay¬
able at such place or places as the
directors shall appoint, of which they
shall give public notice in a Quebec
and Montreal newspaper at least four
weeks before ; and the directors shall
every year at the general meeting for
election thereof lay before the stock¬
holders for their information, an
exact and particular statement of the
debts due to and by the bank, speci¬
fying the amount of bank notes then
in circulation, and such debts as in
their opinion are bad or doubtful, as
also stating the surplus of profit if
any remaining after deduction of
losses and provision for dividends:
If there shall be a failure in pay¬
ment of any part of the sum or shares
subscribed by any person or persons,
body politic or corporate, the party
or parties failing in paying the first
instalment of ten per centum suc¬
ceeding the deposit of ten per centum
hereinbefore required to be made at
the time of subscribing, shall respect¬
ively forfeit the said deposit, to and
for the use of the said corporation,
and on failure of paying the other
instalments or any of them, the party
or parties failing therein shall lose
the benefit of dividends (as well on
the deposit as on the instalments
paid by him, her or them) which
shall have accrued prior to the time
for making such payment and during
the delay of the same, but shall not
forfeit the principal sum of the said
deposit excepting in the instance
above said.
15. It shall be lawful for the
directors of the bank to establish
offices, for the purpose of deposit
and discount only, in such places in
the provinces of Lower and Upper
Canada as they shall think advis¬
able, upon the same terms and in the
same manner as shall be practised at
the bank, and to commit the manage¬
ment thereof to such agents under
such agreements and subject to such
regulations as the directors shall
deem proper, the same not being
contrary to the constitution or laws
of this province, or to this Act.
EARLY HISTORY OF CANADIAN BANKING
17
16. The ofiBcer at the head of
the treasury department of the
United States shall be furnished,
from time to time, as often as he
may require, not exceeding once a
week, with statements of the amount
of the capital stock of the said
Corporation, and of the debts due
to the same ; and shall have a
right to inspect such general ac¬
counts in the books of the bank
as shall relate to the said statements ;
Provided, that this shall not be con¬
strued to imply a right of inspecting
the account of any private indi¬
vidual, or individuals, with the bank.
16. And be it further enacted
by the authority aforesaid that the
Governor, Lieutenant-Governor, or
person administering the Govern¬
ment of this province for the time
being, shall be furnished (at such
times as he shall require the same)
with statements of the amount of the
capital stock of the Corporation, of
the amount of debts due to and by
the same, of the amount of monies
deposited therein, of the amount of
notes in circulation, and of monies
on hand belonging to the said Cor¬
poration : and shall have authority
himself, or by a person or persons for
that purpose by him authorized and
appointed, under his hand and Seal at
Arms, to inspect the general accounts
of the bank ; provided that such
inspection shall not extend to any
right or authority to inspect the
account of any individual or indi¬
viduals with the bank.
The reasons for the failure of the Canadian bill to pass the
Legislature need not be given here. What we are concerned
with at present is the fact that the Canadian bill is a copy,
somewhat extended in parts, of the American Act. It shows
that the Canadians, at this time at least, were quite under the
influence of the American ideas as expressed in Hamilton's
plan. The only question which remains to be considered is
whether the Canadians had really adopted these principles or
had merely come under their influence temporarily. The subse¬
quent history of Canadian banking shows clearly that these
ideas were permanently adopted. They became the basis of
the Canadian system, and all its after history reveals a gradual
development, not without blunders, it is true, from these funda¬
mental principles. In 1816, when the mistake of destroying
the first Bank of the United States had been recognized, the
second bank of that name was established, with much the same
charter as the first. The following year the Bank of Montreal
came into existence as an unchartered corporation. Its articles
of association were published in the Montreal Herald in the
latter part of May, 1817, and in several subsequent issues. Not¬
withstanding much search and many enquiries in likely quar¬
ters, I have, so far, been unable to find any copy of the Herald
18 EARLY HISTORY OF CANADIAN BANKING
of that time. However, we know as accurately as need be for
our purpose, what these articles were. The following year,
iSiS, three other unchartered banks were started, following
closely the example of the Bank of Montreal. These were the
Quebec Bank at Quebec, the Bank of Canada at Montreal,
and the Bank of Upper Canada at Kingston. These likewise
published their articles of association in the newspapers, and I
have been fortunate enough to obtain a copy of each of
them. On comparing them we find that, allowing for a few
necessary verbal variations, they are almost identical.
From what we know of the substance of the articles of
association of the Bank of Montreal from contemporary
references to them, we recognize that the articles of the
other banks were simply copied from them. On compar¬
ing the articles of these private banks with the bill for
establishing the Bank of Lower Canada, we find that these
articles closely reproduce that bill, allowing for the omission
of all that was specially required in a government charter,
and the insertion of what was needed to give them the form
of private corporations. This proves that the adoption of
the principles embodied in that bill was not a temporary
expedient, but undertaken with mature deliberation and recog¬
nized as expressing the intelligent convictions of the Canadian
merchants on the subject. When, after several ineffectual
attempts, the Bank of Montreal was at length successful in
obtaining a charter, it was in accordance with their petition that it
should be as nearly as possible in harmony with their articles of
association. Here we have the beginning of that series of Acts
which renewed from time, with such modifications and additions
as were deemed necessary, the charters of the various banks,
at first individually, and now collectively under the general
Bank Act. In our present Bank Act we may still recognize
many features of Hamilton's first charter of the Bank of the
United States. Indeed we may say that the present Canadian
banking system is a much more direct and legitimate descendant
from the plan drawn up by Hamilton than is the present
banking system of the United States.
Adam Shortt
Queen's University, Kingston
THE EARLY HISTORY OF CANADIAN BANKING
II
CURRENCY AND EXCHANGE AFTER THE CONQUEST
TT AVING seen, in the case of our banking system, whence
^ ^ came the sapling which has grown into the present wide-
spreading tree, we have next to enquire as to the nature of the
soil into which it was transplanted, the streams of commerce
which were to water it, and the social and political atmosphere
in which it was to flourish. Especially do we require to know
in what manner and to what extent the services rendered by
banks had been performed before their introduction. Banking
facilities do not burst upon the business community as a quite
new and developed service ; they simply afford an easier, more
effective and generally less costly manner of rendering ser¬
vices which are already performed in more or less primitive
fashions.
The period between the Conquest and the appearance of
the first banks in Canada has been, from an economic stand¬
point, the most obscure in the history of the country. To the
student of economic history it is almost entirely virgin ground.
It is only, indeed, since the valuable collection of documents
and papers brought together in the Canadian Archives Office
has been made available to the student of our country's history,
that a continuous and sure-footed narrative in this department
has been at all possible. The other sources of information,
valuable though they are on many points, are yet very frag¬
mentary, and require for their full understanding the light
which these voluminous records throw upon them. I may be
pardoned, therefore, if, in this new field, I give in some detail
the prevailing ideas, methods and conditions of exchange which
preceded and prepared the way for the introduction of banking.
Practically all of the Canadian trade with the outside
2
EARLY HISTORY OF CANADIAN BANKING
world, being mainly that with old and new England, and much
the greater part of the wholesale domestic trade as well, passed,
at the time of the Conquest, into the hands of the English traders.
It thus took on quite a different complexion, and was conducted
on quite different principles from those which prevailed under
the French regime. Hence, though the monetary and general
economic experience of the French Canadians under French
rule, naturally continued to have much influence upon their
economic habits, as well as upon their attitude towards the
English methods of trade and exchange, yet it is not necessary
to go behind the period of the Conquest in seeking a starting
point for our narrative.
The chief feature of interest to us in connection with the
passing of French power in Canada, was the enormous issue
of paper currency during the closing years of French rule.
The magnificent scale upon which corruption flourished in that
small community, and the exhaustion of the French treasury,
left an immense amount of paper currency, or bills of exchange
obtained for it, unpaid, and the cession of the colony to Britain
left little hope of the paper being redeemed. For some time
before the Conquest, practically nothing but paper currency
was in circulation ; while after the Conquest, and before the
extracting of a promise from France to make a partial redemp¬
tion of its obligations, the paper money was almost worthless,
and was not receivable in trade by the British merchants. It
might seem at first sight, then, that the new British adminis¬
tration found in Canada a country almost entirely without a
circulating medium. When, however, we look into the matter
more closely, we find that when the last great issue of paper
money began, though the metallic money in circulation rapidly
vanished, yet very little of it left the country. It simply
disappeared into the stockings and strong boxes which were
kept by the people, even in the narrowest of circumstances, in
accordance with a well known national characteristic of French¬
men. The same fate befell the considerable quantities of specie
which accompanied the officers and troops coming to Canada
under Montcalm. Soon after their arrival they complained
that nothing but paper money was to be found in circulation.
When, therefore, the paper money suddenly became practically
EARLY HISTORY OF CANADIAN BANKING J
worthless at the Conquest, though of course many of its posses¬
sors were greatly impoverished, yet the people generally were
not entirely ruined, nor was the country quite deprived of a cir¬
culating medium. Metallic money began to come out of hid¬
ing, and the English merchants drove quite a brisk trade, even
though they declined to take the paper money until there was
some prospect of its being of value.
That the people of Canada were in possession of a large
quantity of metallic money immediately after the ceding of the
country to Britain, and that the money was French, and not
British, is evident from the two first ordinances passed by the
British government for the regulation of the Canadian cur¬
rency. The first was passed in 1764 and the second in 1766 ;
in both the Louis d'ors and the French crowns are rated some¬
what above their normal value, with the express intention of
retaining them in the colony as the chief features of its cur¬
rency. That the French population generally still retained
under British rule their characteristic habit of hoarding specie,
is shown in an account of the colony given by an observant
American revolutionist, Charles Carroll, who was in Canada in
1775-6. Speaking of the French Canadian farmers he says :
" It is conjectured that the farmers in Canada cannot be pos-
" sessed of less than one million pounds sterling in specie ; they
" hoard up their money to portion their children ; they neither
" let it out at interest nor expend it in the purchase of lands."
This peculiarity of the French Canadian is well worthy of
note, as it had a marked influence upon the whole economic
character of Lower Canada, and was a very important factor
in connection with the beginning of Canadian banking.
We pass over the whole of the interesting negotiations and
regulations connected with the collection, registration, long
delayed, and in the end very partial redemption of the French
paper money, which, as necessitated by the conditions of pay¬
ment, at once passed out of circulation in the colony.
Among those who were the chief sufferers from the vanish¬
ing value of the paper money, were the Canadian noblesse, or
seigneurs, and the leading French merchants, or purveyors for
the troops. The aristocracy had also suffered from the curtail¬
ment of their feudal privileges, and the loss of the numerous
4 EARLY HISTORY OF CANADIAN BANKING
offices and perquisites which they enjoyed under the French
government, and which caused the maintenance of the colony
to be such a heavy drain upon France. This aristocratic ele¬
ment was, naturally enough, the class with which the English
governors almost exclusively associated, and from whom they
obtained their ideas of the country, the people, and the proper
administration of the colony. How fatally mistaken these ideas
were, after events clearly proved.
The English element which followed the Conquest con¬
sisted almost entirely of traders or merchants, mainly from the
other English colonies to the south, though many of them were
originally from Britain, several of them from that Highland
enqgration to America which followed the disaster of Culloden.
These men were not slothful in business, but fervent in spirit^
mainly serving themselves. The slipshod, easy-going, anti¬
quated business methods and corresponding law of the French
Canadians did not suit these men who naturally believed, and
with reason as the future was to prove, that the advantages of
English commerce could only be secured under English methods
and English laws. They were not by any means all of one
class, for while some were certainly not over-scrupulous as to
their methods, others were exceptionally able and upright men.
Unfortunately for themselves, they were all more or less tainted
with the spirit of British freedom and independence, and had
an obstinate conviction that the British system of law and
government was in every respect superior to all others, and
was the proper system to be introduced into British dominions,
taking little account of any practical difficulties in the way.
These ideas did not accord well with the opinions of men of
purely military training and experience, suddenly converted
into civil governors. The governors had to admit, indeed, that
the Canadian colony owed its rapid recovery and flourishing
trade almost entirely to the English merchants, yet they found
them extremely troublesome to get on with, as they were
always pestering the government for innovations and improve¬
ments in the administration. How much more attractive, to
governors with military and aristocratic leanings, were the
Canadian noblesse, with their polite flattery, their military
training, and their feudal abhorrence of trade, enterprise, popu-
EARLY HISTORY OF CANADIAN BANKING
5
3ar freedom and independence. How extremely natural that
eighteenth century English governors should gravitate to the
side of the Frenchmen, with their admirable tastes, and their
highly proper ideas of the majesty of the governor. Such
men were surely to be encouraged and supported. Did not, in
fact, a dignified and well ordered government owe them a
living ?
On June 7th, 1762, while Canada was still under military
rule, and its ultimate possession, though fairly certain, yet still
unfixed, Governor Murray sends to Egremont, the Secretary
of State, a lengthy report on the state of the countr}', which is
of considerable interest for our present inquiry, on account of
the plan for a provincial currency which it contains, and which
incidentally throws considerable light on several associated
points.
The Canadians, he says, labor under difficulties for want of
cash, and hence the English merchants find some difficulty in
disposing of their goods. He wishes some means could be de¬
vised for obtaining a circulating medium to enable the Canadians
to stock their lands, and the English merchants to dispose of
their goods. It would be a very good thing for both Canada
and Britain. It will be observed that the governor is quite un¬
conscious of the radical difference between capital and a circu¬
lating medium. With this end in view he has a plan to submit.
He proposes to put in circulation a certain sum in paper bills,
say ;¿'ioo,ooo to start with. However, as the Canadians are
naturally rather shy of paper bills, after their late experience, it
will be necessary to adopt special measures to get them into
circulation, and to this end he would suggest :
First. That his scheme should receive the sanction of the
home Government.
Second. As it would be a popular act to assist the people
in rebuilding their church, the first paper issued might be used
for this purpose. This would enlist the interest of the clergy
and give credit to the bills. Then some of the bills might be
used as loans to the people of Quebec, to assist them in rebuilding
their houses and improving their lands, security being taken.
Third. The British merchants should be got to consent to
receive this money in return for their goods, and for this pur-
6
EARLY HISTORY OF CANADIAN BANKING
pose the duties on imports should be made receivable in this
paper, either in whole or in part.
Fourth. A tax should be levied and the proceeds set apart
for the gradual redemption of the paper money. This might
take the form of a tax of half a dollar upon each house in the
province, while the houses of the seigneurs, gentry, merchants
and publicans, and all those in the towns, might be taxed one
dollar each. The revenue to be thus derived he estimates at
£z.,ooo annually, reckoning the dollar at five shillings. After
a time the tax might be increased or some other taxes added.
As soon as this currency is well established it might be
used for every purpose of government, such as repairing old
and making new fortifications, etc. Thus, he concludes, sur¬
veying his plan with sprightly confidence, Canada could be
made to flourish without any aid from the mother country such
as the other colonies in America constantly require.
No one, I fancy, with any sense of humor would have the
temerity to attempt a criticism of such a financial work of art
as this.
The following year, 1763, when the fate of the country was
settled and there was some prospect of a partial redemption of
the Canadian paper money, Murray again brings forward his
self-acting scheme for Canadian prosperity. Now, however,
the new issue of paper money is to be given to the holders of the
old paper money, at a certain proportion of its face value. A
general tax is still to be levied in order to provide a sinking
fund to retire the paper in time, though fresh paper is to be
immediately issued to replace the old, in its joint function of
circulating medium and working capital. In these schemes the
simple directness of the relation of means and end, the delight¬
ful inconsequence between the objects for which the money was
to be issued and the sources from which the redemption fund
was to be drawn, are strongly suggestive of the turn of mind
and financial experience of a military man or a populist.
Nevertheless, it is quite evident that Murray was consider¬
ably influenced in his views as to the necessity for the govern¬
ment coming to the assistance of the needy French Canadians,
by his intercourse with the Canadian aristocracy. As I have
already indicated, it was the most natural thing in the world.
EARLY HISTORY OF CANADIAN BANKING /
considering their historic traditions and personal experience,
that the distressed Canadian nobility, and the governors on
their behalf, should be most anxious to induce the British gov¬
ernment to provide a sufficient number of offices, military if
possible, which they might fill with becoming dignity to the
government and profit to themselves. As a sample of their
views on this subject we may take the memoir dated May ist,
1765, prepared by the principal French citizens, setting forth
the present state and abilities of the province. They contrast
the flourishing state of the colony under French rule, from 1749
to 1755, with the disastrous condition of the country since the
peace. They attribute this decline to the lack of sufficiently
large expenditure in the colony by the British government.
The remedy proposed for this dangerous state of things consists
of two alternatives, namely, that Britain should either support
a sufficiently large standing army in Canada, or build frigates
and other vessels at an annual outlay of 3,000,000 livres, to be
issued in bills or paper money on the credit of the government,
and payable in London. In other words, they advocate a com¬
plete restoration of the French system of administering the
colony. The first alternative was evidently the one most to
their liking, and many representations in its favor were for¬
warded to the home government by Murray and Carleton, and
we know how the latter employed it in connection with the
Quebec Act, and how, when the critical moment arrived, he
found himself, to his great astonishment, with a fine staff of
officers and no men.
At the same time that this memoir appeared, representing
the decaying state of the province from the point of view of
the French Canadian aristocracy, other observers were con¬
firming it, in a manner, by contrasting the rapidly improving
condition of the French Canadian farmers, with the poverty and
declining state of the Canadian seigneurs. The statistics of the
colonial exports for this period also indicate a great improve¬
ment in the condition of the common people.
The British government at this time was too much occu¬
pied in its struggle with " Wilkes and liberty," and in laying
the foundation for future discontents at home and abroad, to
give much heed to the condition of the distressed nobility of
Canada, or paper money schemes for their relief.
8
EARLY HISTORY OF CANADIAN BANKING
After Murray's departure, in June, 1766, to answer the
charges preferred against him, chiefly by merchants of London
and Quebec, the command devolved on P. ^Emilius Irving,
pending the arrival of Sir Guy Carleton. One of his first
duties was the framing of a new ordinance on the currency, in
which, as he observes in his report to the Board of Trade, the
Louis d'ors and the French crowns are still overrated in order
to retain them in the country as has hitherto been found suc¬
cessful. He adds that it is now desirable that a quantity of
small currency should be sent into the province.
The reason for the scarcity of the small currency is not far
to seek. The overrating of the larger French coins already in
the province, and of the Portuguese Johannes and moidores,
which formed the chief elements of the specie introduced by
the agents of the British government, caused values to adjust
themselves to their standard. This resulted in a corresponding
underrating of the smaller silver coins, which, in consequence,
gradually disappeared from the country. When, owing to the
great scarcity of fractional silver and even of copper, the mer¬
chants found themselves unable to make change for their cus¬
tomers, some of them resorted to the plan of issuing small
paper'due-bills which were to be received in future purchases
of goods at their shops. Once established in this usage, the
due-bills began to pass from hand to hand in other exchanges,
and thus they afforded practical relief from the difficulties of
the situation. The right to issue this fractional paper not being
confined to any one in particular, it was issued by any merchant
or trader whose credit would enable him to do so, and much
confusion must have resulted. Still, it became a firmly estab¬
lished factor in the exchange mechanism of the country, and,
in various forms, it survived for many years both in Lower and
Upper Canada. The range of circulation and the credit of the
bills depended entirely upon the reputed credit of the person
issuing them. From the fact that they originated in Lower
Canada, and that they were generally introduced with the
words, " Bon pour," etc., they came to be universally desig¬
nated bons. We shall have frequent occasion to note their
appearance and influence in the course of the development of
our subject. Here we may simply observe that the use of the
EARLY HISTORY OF CANADIAN BANKING
9
bons tended to prepare the country people for the appearance
of bank notes ; at the same time the inevitable difficulties con¬
nected with them afforded a basis for several sharp criticisms
upon the issues of the first banks.
The scarcity of change continuing, and the system of bons
becoming general, with obvious advantage to the merchants, it
occurred to an enterprising auctioneer of Quebec, named
William Titchbourne, that a fortune awaited the man who
could obtain a monopoly of the right to issue these small
promises to pay. No doubt the general advantage which would
result from uniformity of issue, and the consequent avoidance
of confusion, seemed to him a strong argument in favour of his
scheme. At any rate he decided to apply to the governor-in-
council for an exclusive charter. Thus we find in the minutes
of Council of August 27th, 1767, a record to the effect that
there was read the petition of William Titchbourne, auctioneer,
praying for the exclusive privilege to issue promissory notes for
small sums by way of change for silver and to supply the want
of copper coins. This is undoubtedly the first attempt to
obtain a bank charter in Canada. The council, however, dis¬
missed the petition ; it was, indeed, beyond their authority to
grant it. It was, strictly speaking, the duty of the civil govern¬
ment to put a stop to the circulation of the paper then in use.
But experience was showing that the laws and special ordi¬
nances then in force for the regulation of the currency, and which
had been mostly determined in Britain, were not workable.
On August 17th, 1772, Gramahé, who was administering
the government in the absence of Carleton, sends to Hills¬
borough quite a full and interesting report on the subject of the
currency. He confesses that he had found it necessary, in the
end, to leave the adjustment of the values of the different
larger coins, especially the Portuguese Joes and half-Joes, as
they were called, to be settled by the Quebec and Montreal
merchants between themselves. The Montreal merchants, we
find, were able to turn the scale in favor of their usage, which,
in turn, was determined by that of the English colonies to the
south, with which the Montreal merchants were always most
intimately connected, and from whence both the government
and the merchants of Canada obtained their supplies of specie.
lo EARLY HISTORY OF CANADIAN BANKING
In the same despatch Gramahé refers to the continued high
price of silver, which, as it circulated in Canada by tale and
not by weight, and was underrated as compared with the gold
coins, was still the more profitable metal to export to the other
colonies in payment for supplies. Referring to the lack of
small silver for change, he says, " It is so very scarce that
" government has been under the necessity of winking at
" every little retailer's circulating paper bills of his own, some,,
" if not much of which must fail a dead loss to the public,
" whenever they are cried down, or the issuers come to wind
" up their affairs." He hopes that when the government here
is fixed upon a permanent basis some method will be found to
correct these evils. On Nov. 4th, Dartmouth, on behalf of the
Board of Trade, replies to Gramahé, admitting that his leaving
the determination of the values of the Portuguese coins to the
practical arrangements of the Quebec and Montreal merchants,
was the wisest thing to do under the circumstances. With
reference to the scarcity of the silver coins, he says it is a diffi¬
culty to which Quebec, in its present commercial condition,
must continue to be exposed ; but nothing can be done until
the colony has a more permanent constitution. Till then the
circulation of foreign silver coin must be regulated by the pro¬
visions of the statute of Queen Anne.
Thus were the currency difficulties of the colony left for
the present to the practical adjustment of circumstances, and
the colonial administration was virtuallj' authorized to con¬
tinue winking, with as little loss of dignity as possible, at the
circulation of the bons until the government of the colony
should be settled. The measure which was to have that seda¬
tive effect was the noted Quebec Act of 1774. But, much to
the chagrin of its authors, that unfortunate measure had the
very opposite result. It was the attempt to enforce this Act
which revealed the utter misconception of the real condition of
the country, and the needs and attitude of the general popula¬
tion, which Carleton, like his predecessor, had obtained from
his almost exclusive association with the Canadian aristocracy,
and his reliance upon their statements. This Act, also, by its
intended effect upon the refractory colonies to the south,
destroyed the last hope of reconciliation, and précipitât the
EARL Y HISTORY OF CANADIAN BANKING 11
general revolution. Instead, therefore, of the Canadian govern¬
ment proceeding to deal with such details as the currency, it
found its hands full of quite other work. In 1775 communica¬
tion with the southern colonies was cut off by a revolutionary
army sent to intercept the expected invasion from Canada
which Carleton and the English government had planned to
follow the Quebec Act, and the anticipated enthusiasm which
would be roused among the people of that province, on account
of the restoration of the French system of government and
civil law. But there was no invasion from Canada. The
Quebec Act had indeed secured the enthusiastic support of the
distressed nobility of that country, and the higher function¬
aries of the Church, but it had alienated the great mass of the
French Canadian people, who regarded themselves as cruelly
duped in being thrust back once more under the feudal power
of their old oppressors. Hence, to his amazement, Carleton,
instead of raising an enthusiastic army of French Canadians
with which to suppress the rising in the English colonies, found
himself unable to muster, with the utmost efforts of persuasion,
threats, or inducements, a sufficient number to properly garri¬
son the towns. Learning that Carleton was thus in process of
being hoist with his own petard, the colonial efforts were changed
from the defensive to the offensive. Canada was invaded and
almost despaired of before the arrival of the English troops.
Thus for a time was the prosperity of Canada checked.
But on this, as on several other occasions afterwards, the dis¬
tress of England was to be the joy of Canada, until the Can¬
adians came to be credited with including in their prayers joint
petitions for a bountiful harvest, and a bloody war. Canada
soon became the base of operations of a large British force, and
the region from which supplies were drawn both for the forces
in the country and for those engaged in the revolted colonies,
as well as for the Indians of the west. It can easily be imagined
then, that, with an excellent local market for almost everything
which the country could produce, prosperity in its brightest
form was once more smiling upon the province, and the French
Canadian, as he stored away the precious coins, forgot the
relapse from liberty which he and his country had suffered,
and while for the most part himself refusing to fight, he was
eager enough—for a consideration—to feed those who would.
12 EARLY HISTORY OF CANADIAN BANKING
During the period of interrupted intercourse with the other
•colonies, one of Carleton's despatches to Dartmouth, from
Montreal, dated 7th June, 1776, throws considerable light on
the intimate commercial and financial relations which normally
existed with the southern colonies. After dealing with other
interesting matters, he refers to the condition of the money
supply. " Our communications with the other provinces being
" entirely stopped, we run the risk of being at a great loss for
" money, to defray the ordinary and extraordinary expenses the
" service here must be attended with, the money contractors as
" well as trade, at this time of the year, being used to procure
" large supplies of cash from New York and Philadelphia, with
" which places we have at present no intercourse ; if £\f¡,ooo or
^"20,000 were sent here as soon as possible, it would be of great
■" use to government, which must lose considerably by the present
" low course of exchange, likely to fall every day ; could it be
" procured in dollars, and some part in small silver, the same
•" would prove highly beneficial to this country, where that species
has become extremely scarce."
Here, among other things, we have an indication of that
three-cornered system of exchange, which, beginning immedi¬
ately after the Conquest, has prevailed with modifications down
to the present time. The form in which it existed at that time
may be briefly sketched.
The general income of Canada was derived from two
sources, namely, the exports to England or the other colonies,
and the expenditure of the British government in the country.
This was only partially offset by direct imports from England.
A very large proportion of the Canadian imports came from the
other colonies, being partly the product of these colonies, and
partly imports from Britain or the East and West Indies. The
Canadian claims on Britain were drawn in bills of exchange on
London—those for exports by the merchants, those for govern¬
ment expenditure either by the governor or his representative,
or, more commonly, by the resident agent of the money con¬
tractors, who were London bankers or brokers. After paying
for the direct imports from England, the balance of the bills
-were sent to the colonial centres, such as Boston, New York
and Philadelphia, partly to offset the imports from those and
EARLY HISTORY OF CANADIAN BANKING
neighboring places, and partly in exchange for specie, which
was returned to Canada, usually by way of the Champlain route
to Montreal. A great part of the specie so obtained again
flowed back in small streams to the northern fringe of colonies
from which the Canadians received many supplies, as well as
produce for export by the St. Lawrence route. A certain
amount of this specie continued to pass, in prosperous times, into
the small hoards of the French Canadians, who managed ta
make up by thrift for their lack of economic enterprise.
Such being the normal circulating system of trade and
exchange, when the connection with the American colonies was
temporarily broken off, the bills of exchange on England found
a very narrow market, the price fell, and the government suf¬
fered loss and inconvenience. Carleton therefore recommends-
the sending of specie, and asks that it be sent in dollars, to
which the Canadians were now quite ascustomed. The further
request that a considerable quantity of small silver be in¬
cluded indicates the persistent scarcity of fractional currency,
and the continued use of hons. After several urgent calls for
specie the home government began to send some. But the
troops accumulated in the province, increasing supplies were
required for the swarms of Indian retainers of the west and
north-west, and some of the troops in the revolted colonies had
also to be supplied ; thus the expenditure of the government in
Canada increased enormously, and with it the need for a corres¬
ponding expansion in the medium of exchange. The special
situation of the country caused the amount of circulating
medium required to be unusually large. Canada being frozen
off from the rest of the world for about one half of the year,
bills on Britain were saleable there during a very limited por¬
tion of the year. It would require, therefore, an enormous
amount of ready money in the hands of the merchants to
enable them to purchase all the bills of exchange in the autumn,
and before they had well begun to dispose of their yearly sup¬
ply of goods. On the other hand, the same system involved
the holding of a very large sum of idle money in the military
chest or provincial treasury during a considerable part of the
year. If the agent of the money contractors would consent to
forego,the immediate delivery of specie at the close of naviga-
14 EARLY HISTORY OF CANADIAN BANKING
tion, when the bills were purchased and sent off, and would per¬
mit the merchants to deliver it during the winter and spring in
proportion as they disposed of their goods, then a better price
might be obtained for the bills, and a smaller amount of cur¬
rency would answer the needs of the country. Haldimand,
then in command in Canada, joined his voice to that of the
merchants in urging this concession. The agent gave way;
bills on the money contractors in London were disposed of on
credit, which, coming to the ears of the contractors, brought
forth a strong rebuke to the agent and a peremptory refusal to
take any such risks for the future. This precipitated trouble in
the colony, and a sort of financial crisis ensued, the particulars
of which, however, do not belong to our subject. After this, for
a time, the government continued to send large quantities of
specie to Canada, until there was a plethora of it, and a corre¬
sponding scarcity of bills of exchange. About 1783 the Cana¬
dian merchants found it necessary to send a petition to the
Treasury, praying that no more specie be sent to Canada, as
the merchants there could supply all that was wanted in ex¬
change for bills on the Treasury.
Many Canadians during this period accumulated consider¬
able fortunes. The prodigal expenditure in the western parts
of the country in particular, enabled quite a number of Mont¬
real merchants to lay broad and deep the foundations of an
extended trade with the western fur country and the newly
established settlements in Upper Canada. The more prosper¬
ous French Canadians, in virtue of good prices and abundance
of specie, converted considerable quantities of their private
hoards into family plate, a steady source of pride and satisfac¬
tion while it continued in that shape, and a visible insurance
against any future day of need. Much of this old plate is still
to be found in Quebec province ; the people of Britain have a
souvenir of it also in the shape of a considerable fraction of
their national debt.
During the revolutionary war English specie came to
Canada for the first time in any quantity. The currency of the
colony then consisted of three distinct elements—the French
coins left in the colony at the Conquest, the Portuguese and
Spanish coins introduced from the English colonies, and the
EARL Y HISTORY OF CANADIAN BANKING 15
British coins brought directly from England when the southern
supply was shut off. These different coins were also of vary¬
ing values, according to the wear, mutilation, or sweating,
which they had undergone. A good idea of the miscellaneous
state of the currency may be gathered from the following
extract from the report of the merchants of Montreal to
Carleton in 1787, on the question submitted to them as to
whether it would be advisable to attempt to bring all the gold
coin of the country to a certain weight : " By the present laws
" respecting gold coin we pay considerably more than the mint
" price for all Portugal gold, all guineas and French Louis
"d'ors, and considerably less on Spanish and some kinds of
" French gold, yet we apprehend that the loss occasioned by
" this difference is not so great as the inconvenience would be
" of altering the present rate. We are of opinion that guineas
" should not be taken at 23s. 4d. unless they weigh fully 5 dwts.
" 8 grs., because they are at that rate about is. per oz. higher
"than in England, and to take them at a less rate would
" heighten the difference and likewise encourage the sweating
" and clipping that is already too much practised. We pre-
" sume that to recommend plugging coin is encouraging that
" fraudulent practice of taking out good, and inserting false
" plugs, and that the attempt to bring gold coin to a certain
" weight would be attended with bad consequence and loss to
" the province."
With such a plethora of specie in the colony we may natur¬
ally expect to hear little for some time of the necessity for paper
money either in the shape of government issues, bank notes, or
even bons. Indeed, had it not been for the retrogade political
and commercial movement introduced by the Quebec Act, Can¬
ada might at this time have entered upon a period of unusual
prosperity. It was the only colony in America, except perhaps
Vermont, which was intimately associated with it in commerce,
which had emerged from the revolutionary struggle without
debt, and in a rich and prosperous condition. Chief Justice
Hey, of Quebec, who was at first inclined to favor the general
scheme of the Quebec Act, after observing the practical effects
upon the colony, reports to the Lord Chancellor that Carleton
had been most injudicious in his concessions to the seigneurs.
16 EARLY HISTORY OF CANADIAN BANKING
whose elation at the restoration of their old privileges " has given
" just offence to their own people, and to the English merchants ;
" they insist that there be no alteration in the ancient laws, par-
" ticularly in the article of commerce, the whole of which is in
" the hand of English merchants, without whom there was not,
" and will not be, any trade." While the Act remained in force
there continued to be much trouble, confusion, and impediment
in legal and commercial affairs. The French Canadian mercan¬
tile law was so antiquated and obstructive that business was
immensely hampered, enterprise stifled, and the merchants dis¬
couraged. Even the remedy afforded by the new constitution
of 1791 was very partial. Still that constitution by its permis¬
sive clauses brought liberty to the new settlements in Upper
Canada, and as Montreal existed mainly by its trade with the
northern States, the new settlements in Upper Canada and the
north-west fur country, it did not suffer severely from the
shackles which continued to bind the province in which it was
situated. It also communicated considerable life to the city of
Quebec, which, being the chief seaport of the country, likewise
derived considerable advantage for a time from the timber and
ship building industry which connected it with the outer world.
However, as the Constitutional Act of 1791, and the begin¬
ning of the settlements in the western country, bring us toa
new point of departure in the history of Canada, we may
reserve our considerations of the currency and exchange fea¬
tures of that period for the next article.
Adah Shortt
Queen's University, Kingston
THE EARLY HISTORY OF CANADIAN BANKING
III
FROM I79I TO 1812
7ITH the restoration of peace at the close of the Revolution-
"" ary War, the settlement of the Loyalists in Canada, and
the revival of the north-west fur trade, agriculture and com¬
merce resumed the quiet tenor of their way. The changes,
however, which had taken place as the result of the struggle
soon brought about an alteration in the country's economic and
political centre of gravity. The new settlements in their forma¬
tion made considerable demands upon the Government for sup¬
plies, and, in providing these, good local markets were afforded
the earliest settlers. When the western districts began to pro¬
duce a surplus it naturally found its outlet through Montreal,
which was also the great distributing centre of imports from the
west and north-west. Montreal thus became more than ever
the emporium of Canadian trade.
In considering the economic future of Canada we must not
forget that however devoted the Loyalists were to British con¬
nection, yet in their economic methods, their social habits
and their municipal politics, they were thoroughly American,
and brought with them to Canada the prevailing American
ideas in these matters.
This is not the place for an analysis of the character and
capacity of the Loyalists, but it is essential to note that they
were far from being of one uniform type. Few more miscellaneous
collections of people have ever been found. Their education,
character and motives ranged from the highest to the lowest
types which the colonies afforded. Most of them had a very
high ideal of the British Government's obligations towards
themselves, and their settlement in their new homes was not
effected without a great deal of grumbling and friction with
Government officials.
2
EARLY HISTORY OF CANADIAN BANKING
The initial troubles of settlement safely over, they soon
joined with the English element already in the country in re¬
newing the agitation for the repeal of the unfortunate Quebec
Act. In this they were soon successful, at least as far as Upper
Canada was concerned, for the Constitutional Act of 179^ P®i''
mitted the Upper Province to re-establish the English law as it
was known in the colonies from which the Loyalists came.
The large sums of money which the Revolutionary War
had brought to Canada were not of course in the hands of the
Loyalists, most of whom came to the country with very limited
means or none at all. When the direct Government support
of the first few years was withdrawn, and the people were left
to provide for themselves, they had neither a great deal of
ready money, nor the means of procuring it. There were several
military establishments in the western settlements, and others
at the Indian trading posts, all of which required considerable
supplies, so that there was for a time quite a flourishing
local market for the surplus provisions of the more thrifty
settlers. It was estimated that the British Government spent,
in the early nineties, about ;^20o,ooo on the military and Indian
establishments in Canada. It also supported the greater part
of the civil administration, and supplied a number of pensions.
The Honorable Richard Cartwright, one of the most intel¬
ligent, shrewd, and far-sighted of the early settlers, in a letter,
in 1792, to Mr. Isaac Todd, his friend and business corre¬
spondent in Montreal, has this to say of the condition of the
country at that time :—" To what is to be ascribed the present
" state of improvement and population of this country ? Cer-
" tainly not to its natural advantages, but to the liberality
" which Government has shown towards the Loyalists who
" first settled it ; to the money spent by the numerous garri-
" sons and public departments established amongst us ; and
" the demand for our produce which so many unproductive
" consumers occasion on the spot. As long as the British
" Government shall think proper to hire people to come over to
" eat our flour, we shall do very well, and continue to make a
" figure, but when once we come to export our produce, the dis-
" advantages of our remote inland situation will operate in
" their full force, and the very large portion of the price of our
EARLY HISTORY OF CANADIAN BANKING
3
" produce that must be absorbed by the expense of transport-
" ing it to a place of exportation, and the enhanced value that
" the same cause must add to every article of European manu-
" facture, will give an effectual check to the improvement of
" the country beyond a certain extent."
Even at this time, though not to the same degree as after¬
wards, there was considerable difficulty felt from the want of a
sufficient circulating medium, especially in the settlements to
the west of Montreal.
In those days, and for a long time afterwards, the Cana¬
dians depended for their news from the outside world mainly
upon the newspapers of the United States. They were thus
incidentally well supplied with the news of the United States
itself. The recently established Bank of the United States
and its rapid success, was observed with close attention in that
country, and was attracting very material interest in England.
It was evidently the success of that institution which suggested
to some associated London and Montreal merchants the feasi¬
bility of establishing a like institution, though on a private
basis, in Canada. The late Mr. Stevenson, in his paper on
" The Currency of Canada after the Capitulation," published
in the Transactions of the Literary and Historical Society of
Quebec, has drawn attention to this movement, and quotes
from a notice of it which appeared in the Quebec Gazette of
1792. As he has made a few errors in connection with the
matter, which have been somewhat exaggerated by those who
have followed him, I shall give the extract in full :
" The undersigned having experienced great inconvenience
" in Canada from the deficiency of specie, or some other medium
" to represent the increasing circulation of the country, as well
" as from the variety of the money now current ; and knowing
" the frequent loss and general difficulty and trouble attending
" receipts and payments, have formed the resolution of
" establishing a bank at Montreal, under the name of the
" Canada Banking Company.
" The establishment of banks has found favor in the most
" intelligent commercial countries, and from the experience of
" ages, there does not now exist a doubt of their utility and of the
" consequent increase of the trade and industries of the coun-
4 EARLY HISTORY OF CANADIAN BANKING
*' tries, wherever they have been promoted and wisely con-
*' ducted. The operations of the present establishment will be
" confined solely to the business usually done by the most re-
" spectable banking houses in other countries, and the parties
" interested are restricted by agreement from using any part of
" the funds appropriated to this concern for any other purpose
" whatever, and are jointly and severally responsible for the
" faithful performance of their engagements.
" The business proposed by the Canada Banking Company
*' and usually done by similar establishments is,
" to receive deposits of cash,
" to issue notes in exchange for such deposits,
" to discount bills and notes of hand, and
" to facilitate business by keeping cash accounts with those
" who choose to employ the medium of the bank in their
" receipts and payments.
" It is proposed also to extend the operations of the bank
" to every part of the two provinces where an agent may be
" judged necessary, and it is presumed that the institution will
" be particularly beneficial to the commerce of, and intercourse
^ " with, the upper province.
" The concerned hope the public will judge with candor
" of the motives for this establishment, and of the credit and
" respectability of the parties ; and they beg leave to add that
" they are determined to conduct every part of the business
" with the punctuality necessary to promote the credit and suc-
" cess of the undertaking, and with due regard to the conveni-
" ence and safety of the public.
(Signed) " Phyn, Ellice & Inglis
" Todd, McGill & Co.
" Forsyth, Richardson & Co.
" Dated in London, 17th March, 1792 "
Mr. Stevenson gives the date of its appearance in the
Quebec Gazette as i8th October, 1792, but it first appeared on
August the 9th. The idea of the bank is commonly supposed to
have been originated and worked up in Montreal, by Montreal mer¬
chants. But, as will appear from the document itself, wherever
the idea originated it was formulated in London in March,
EARLY HISTORY OF CANADIAN BANKING
5
1792, and a London firm, Messrs. Phyn, Ellice & Inglis, took
the lead in the matter. The other two firms are Montreal mer¬
chants, customers of the London firm, and enjoying a large
share of the trade with the settlements in Upper Canada. We
learn from a list of arrivals from London appearing in the
Quebec Gazette some time after this, that Mr. John Forsyth had
been in England ; and there came over with him Mr. Geo.
Phyn,jun., of London, and Mr. and Mrs. Ellice, of London.
No doubt these gentlemen came over to assist in launching the
bank in Canada. Possibly a member of the firm of Todd,
McGill & Co. was also in London when the articles of agree¬
ment were drawn up, and the above announcement prepared.
The bank was a purely private one, and no effort seems to have
been made to secure a charter for it, as some have supposed. It
was evidently intended to gradually cover the whole Canadian
field by a system of branches, as in the case of the Bank of
the United States.
Canada at that time was hardly ripe for such an institution.
In the lower province there was no need for the issue of a
paper currency sufficiently urgent to overcome the prejudices of
the French-Canadians towards that kind of money. In the
English settlements of the west, while there was a real
need for a medium of exchange, yet it was almost entirely of a
local nature, and those settlements were not sufficiently stable
and advanced in their trade to permit of discounting bills or
establishing any general currency from a Montreal basis. What
the western country stood in need of was capital rather than
currency. In Lower Canada, where there was considerable
capital, enterprise was lacking. The French who had money
to deposit would not trust it out of their own possession, while
the English had no idle money to deposit, those who possessed
wealth having it all employed in business, under a system
which combined the deposit and exchange functions of our pre¬
sent banks with the ordinary business of trade.
Under these conditions the proposed bank was found to be
somewhat in advance of the times. The notice which I have
quoted, after appearing in the Gazette at intervals for several
months, disappeared, and no further mention of the bank suc¬
ceeded it. Mr. Stevenson says, though not mentioning the
6 EARLY HISTORY OF CANADIAN BANKING
source of his information, that the promoters succeeded in
forming a private bank of deposit. Mr. Walker, in his account
of Canadian Banking in Vol. Ill of " A History of Banking in
all Nations," says : " As a matter of fact it did issue notes,
specimens of which the writer has seen, but they doubtless had
a very limited use."
Already the leading Montreal merchants having dealings
with the western territory, practically conducted private banking
operations along with their wholesale business. This phase
became ever more extensive and highly developed between this
period and the time of the war of 1812. The conditions of the
colony were becoming more stable, and its surplus products
stimulated a regular export trade, requiring the development of
a mechanism of exchange much more complex than that which
satisñed local needs.
Owing to the nature of the physical and geographical con¬
ditions of the first settlers in Upper Canada, the means of com¬
munication being very imperfect, the settlers had little or no
choice as to the places in which they might purchase supplies
or dispose of their products. Even though there had been an
abundance of circulating medium, their trade would still have
been essentially one of barter, an exchange of their surplus
products with the nearest merchant for a limited range of goods.
Many functions were united in one person in those days.
All kinds of goods were supplied by one merchant ; all kinds of
surplus products were purchased and exported by the same mer¬
chant. Where mills were erected the leading merchants com¬
monly owned them. In many places in Upper Canada, during
this period, a typical trading centre consisted of a flour mill,
still, saw-mill, general store, tavern and blacksmith shop. In
more important places a woollen mill or at least a carding
machine was added. Very often all these were owned by one
man. Typical representatives of such establishments were the
Napanee Mills in the east, and the Albion Mills near Ancaster
in the west.
Even in the earliest stages of the settlements the importer
was also the exporter, and barter the natural system of trade.
Supplies were required by the settlers throughout the year,,
while their products came in for sale mainly in the autnmr..
EARLY HISTORY OF CANADIAN BANKING
7
hence to equalize matters it was customary for the merchants,
on the one hand, to give credit for supplies, to be paid for in
products later on, or on the other hand, in the case of those
who brought products in advance, to issue due-bills or hons, to
be ultimately redeemed in goods, or partly in goods and partly
in cash. These hons were usually made payable on demand,
though not necessarily payable in cash. Together with ordin¬
ary promissory notes, which enjoyed a considerable local circu¬
lation, they supplemented the metallic money in the settle¬
ments, and, under the circumstances of the time, furnished a
fairly effective medium of exchange. All things considered, we
cannot but admit that in the early years of the upper province
these local media of exchange were much more manageable, if
not more secure, than any bank notes could have been.
The merchants, for their part, in obtaining their goods and
disposing of their accumulated products, usually dealt with a
few large importers at such places as Queenstown and King¬
ston. The merchants in these places also acted as bankers and
bill brokers for the local merchants, receiving deposits, obtain¬
ing from their customers orders drawn upon various persons,
and permitting their customers to draw orders upon them.
These wholesale merchants sold as much as possible of the
produce sent to them, to the Government agents for the supply
of the military and Indian posts, exporting the remainder to
^Montreal, and importing from Montreal the supplies with which
they furnished the local merchants. As the imports were
greater than the exports, the balance was met by bills of ex¬
change on London from the commissariat officers, vouchers for
pensions, and other miscellaneous bills coming from all parts of
the province. The large importers in Montreal acted also as
bankers for the wholesale men in the upper province, receiving
deposits, making payments to order, and not infrequently
advancing loans or credits to be met later on by produce, ex¬
changes, or cash, though we find very little of the latter passing.
The data from which this outline sketch is drawn come
from many sources, chief of which are the letter books of the
Hon. Richard Cartwright. This gentleman was from 1785 to
1815 the leading wholesale merchant and forwarder of Upper
Canada. He had constant relations with the chief Montreal
8
EARLY HISTORY OF CANADIAN BANKING
and Quebec merchants on the one hand, and a great number of
local merchants in all parts of Upper Canada, on the other. As
a forwarder he acted for the North-west Fur Company and the
other wholesale merchants in Western Canada. His business
letter books are thus a perfect mine of information on all matters
relating to trade and exchange during this period. I have also
had access to many other business letters from the Bay of
Quinte and the Niagara districts, throwing further light on the
subject from the point of view of the local merchants. Lastly,
the official reports from the Governors of the period, to be
found in the Dominion archives, give us information from still
another point of view.
As bearing particularly on the subject we have in hand,
Governor Simcoe's report to the Lords of Trade on the condi¬
tion of Upper Canada in 1794, is most interesting. In this
report, as in many other ways, Simcoe exhibits at once his dis¬
interested anxiety to promote the prosperity of the province,
and his very imperfect acquaintance with the economic and
social forces which were acting within his jurisdiction.
In that part of his report which refers to the conditions of
exchange, he says that it should be a special object of the Gov¬
ernment to supply the people of Upper Canada with sufficient
cash, or other proper medium, to remove the difficulties which
occur in bartering the products of the land for the manufactured
goods of Great Britain, in which the trade of the country
wholly consists. The staple product of Upper Canada must be
wheat, and it will be the basis of exchange, as is evident from
the present commerce of the country. Much attention has
been lately given to the question as to how the Government
might purchase its necessary supplies directly from the people,
in order to promote the general agriculture of the colony. He
complains that the system which prevails of purchasing
supplies in large quantities from the merchants who undertake
the Government contracts, has limited the market for the
people. What he means, as we gather from other parts of the
report, is that the farmers do not get as much for their grain as
the contractors do. His analysis of the difficulty may be given
in his own words : " The grievances consist in the universal
" necessity of barter, having introduced among the merchants
EARLY HISTORY OF CANADIAN BANKING
9
" the custom of their issuing their own notes ; and by the direct
and indirect means by which these gentlemen obtain the sup-
" plying of the garrisons, they will receive no flour but in such
" quantities as they chose from their own customers and debt-
" ors, paying them for it in goods, to which they affix the price,
" or in their own notes, payable only on the loth of October.
" Hence the flour merchant stipulated to the farmer the
" price which he should receive for his flour, and that which he
" should give for the goods which he was compelled to take in
" barter.
" The necessity of a paper currency, where there is not
" sufficient gold or silver, is most obvious, but the American
" colonies having misused such a medium of commerce, and
" converted what might have been a general benefit into public
" injury, by an Act of Parliament at present binding on the
" province of Upper Canada, no emission of this kind can be
" legally made."
Here we have a simple and direct statement of the ex¬
change mechanism of the time, mingling with an inconsequent
and mistaken theory as to the grievances which resulted from
its operation. That there were certain grievances is true, but
they were mainly due to quite other causes than the exchange
system. Even had the people obtained gold and silver for their
products, they would still have had to sell them in the nearest
market, and obtain from the same merchants their goods in
exchange for their money. The merchants would thus have had
practically the same advantage as under the system of barter.
Under the conditions of the time whatever competition there
was operated through the system of barter and bons quite as
well as under a system of cash sales. The grievances arose
mainly from the limited surplus products of the country, and the
difficulties and cost of transportation. Under limited competi¬
tion a monopoly of the export and import trade was also pos¬
sible in the local centres, although this grievance was not so
realas was commonly supposed. That it was not the exchange
system, but these other difficulties which were really troubling
Simcoe, is evident from the following extract from his report :—
" It appears, therefore, that to preclude the advantages
" derived from the purchase of flour for the King's forces or
lo EARLY HISTORY OF CANADIAN BANKING
" garrisons becoming a monopoly of the merchants, who also
" are millers,land-owners, mortgagees and retailers; to obtain
" a circulating medium in money or its value, and to reduce the
" transport on the St. Lawrence, may be reckoned as three dis-
" tinct and important objects in which the welfare of every in-
" dividual of the province of Upper Canada is particularly
" concerned, on which its general prosperity depends, and
" with which, viewed in its political relations with Great Britain,
" are connected the welfare and strength of the Empire beyond
" all powers of calculation."
The upshot of the whole matter is that Simcoe has a
scheme to propose which will, he is sure, not only remove all
existing difficulties, but bring indefinite prosperity to Canada
and through it to the whole empire. The suggestion for this
scheme, he tells the Lords of Trade, was obtained while he was
stationed in Virginia during the Revolutionary War, where he
observed that notes, issued on the receipt of tobacco, were em¬
ployed as a circulating medium in the colony. This was,
indeed, practically the same system, in a more developed
colony, as that of which he complains in Upper Canada. How¬
ever, starting from this suggestion, he has worked out quite an
elaborate state scheme, which may best be given in his own
words :—
" It is proposed that the province of Upper Canada
" should be furnished with a certain sum of money for the pur-
" poses hereafter specified. That this sum should be replaced
" to Great Britain, if thought expedient, by the produce of the
" sale of part of the lands bordering Lake Erie ; that the sum
" of money so to be raised should be vested in certain trustees.
" That these trustees should be members of the Executive, or
" Legislative Councils, and other of the principal inhabitants.
•' That under the superintendence of the trustees, regula-
" tions and rules should be formed for the improvement of the
" manufacture of flour, the staple commodity of His Majesty's
" province of Upper Canada.
" That so soon as circumstances shall admit no other flour
" shall be purchased by the agent or commissaries but such as
" shall be manufactured agreeably to the above mentioned re-
" gulations and rules.
EARLY HISTORY OF CANADIAN BANKING II
" That in order to facilitate the exportation of flour a prin-
" cipal store-house shall be built at the rapids of the town of
" Montreal, and other receiving houses at the termination of the
" navigation of the several lakes and communications. That a
" principal flour inspector shall reside at Montreal with an ade-
" quate salary ; that inferior inspectors shall be appointed at
" the other posts ; that these inspectors be duly sworn, after pro-
" per examination, to admit or condemn any flour that may be
" offered to them. That the flour be transported across the
" lakes in the King's vessels, in preference to all merchandise,
" at a given price, the average of which must fall on the owner,
" in proportion to the distance of transport.
■' That for every flour barrel received at the store, a note
" be issued payable in gold or silver on demand at stated
" periods. That these notes be made a legal tender in all
" taxes. . . .
" The result will be as formerly has been shown, of infinite
" importance to the colony, first in providing for the consump-
" tion of its staple, secondly in giving it a certain medium of
" exchange instead of the merchants' notes whose excess can-
" not be regulated, or regulate itself, whose modes of payment
" are not unconditional, diminishing at once the security of the
" public, and contributing to private extortion. And third, by
" the means of possessing back carriage, it will lessen the incon-
" venience of its remote situation from the ocean, and it is pro-
" bable that the proposed company may find it their interest to
" augment their batteaux so as to lower the price of freight on
" the importations from Montreal to Kingston."
He then proceeds to detail the unparalleled prosperity
which will result alike for Canada, the West Indies, and Britain.
This remarkable anticipation of the recent Farmers'
Alliance or Populist Sub-Treasury Scheme is quite evidently
beyond serious criticism. Its whole character betrays the man
of military training, but quite lacking the information and ex¬
perience which are needed in civil administration. While the
Lords of Trade might be imposed upon by other proposals
relating to a country of which they had no direct knowledge,
yet they were hardly the persons to be seduced by any " wild-
eyed finance," and Simcoe's elaborate scheme was quietly
12 EARLY HISTORY OF CANADIAN BANKING
pigeon-holed. The more's the pity that the same fate had not
befallen several of his other equally well meant schemes.
With the gradual settlement and progress of the colony the
conditions of exchange which I have already sketched became
more pronounced. The merchants more extensively performed
all the essential functions of banking, except the regular issue
of notes.
American paper money circulated to a certain extent in
Canada during this period. That it did not become more gen¬
eral was evidently due to the fact that until 1810 there was no
law in Canada to prevent the counterfeiting of foreign bank
notes or other exchange documents. As a consequence of this
Canada became the asylum and base of operations for the
majority of American counterfeiters. This unwise policy was
found, in the long run, to be more disastrous to Canada than to
the United States, hence an Act was passed in Upper Canada
in 1810 making the counterfeiting of foreign notes, etc., illegal.
From that time American bank notes circulated more freely
along the borders of Upper Canada at least. An attempt was
made to pass a similar Act in Lower Canada the same year, but
the bill did not get beyond its second reading.
In my last article I referred to the three-cornered system of
exchange which had already grown up between Canada, Eng¬
land and the American colonies. When commercial relations
were resumed after the peace, and especially when great free¬
dom of trade was secured by the Treaty of Commerce of 1795,
the Canadian trade with the United States developed rapidly.
The United States being a neutral nation during the French
Revolutionary War, and the subsequent Napoleonic wars, it was
possible for Canada to obtain many of its English supplies, and
especially its East Indian goods, cheaper through the United
States than directly from Britain. On the other hand
the export of much American produce by way of the Cham-
plain, western lakes and St. Lawrence routes, and the local
consumption of considerable American produce in Canada,
made a very large import trade from the United States. The
regular exports of Canada to England in furs, American and
Canadian products, and the support of extensive military gar¬
risons and Indian pensioners at the expense of England,
EARLY HISTORY OF CAS ADIAN BANKING
13
without a corresponding import of goods from England, led to
a very considerable balance of exchange in favor of Canada. As
between the United States and Canada the exchange was
against Canada, and as between the United States and Eng¬
land, the exchange was against the United States. The pay¬
ments for American produce coming into Canada being made
in small amounts, were usually in cash, neither the local instru¬
ments of exchange nor the larger English bills being admissible
in that trade. The general result was that, about the beginning
of the century, Canada found its metallic currency rapidly
draining off to the border States. As a consequence of this
and of the superfluity of sterling bills, the sterling bills fell
below par in Canada, sometimes going so low that £\oo sterling
were offered for ;^ioo currency. At the same time sterling bills
were at a premium in New York and Boston. This led eventually
to the bringing in of large quantities of cash from these cities
for the purchase of sterling bills in Canada ; thus a general
equilibrium was once more established. These operations are
indicated in the Cartwright letters, and Mr. Hugh Gray, in his
Letters from Canada in 1806-7-8, gives a very clear and full
account of the process by which the balance was restored,
allowance being made for the cost of transporting specie.
The intimate trade and exchange relations with the United
States, the continued success of the Bank of the United States,
and the growing need for a more perfect circulating medium than
that miscellaneous local currency of hons and promissory notes,
which the more developed parts of the country were now out¬
growing, led to a general movement among the merchants of
Lower Canada for the establishment of a provincial bank in
that province.
In the Quebec Gazette of March 5th, 1807, appears the fol¬
lowing advertisement : " Notice—The attendance of the inhabi-
" tants of Quebec is requested at the Union Hotel on Friday
" next, the 6th inst., at one o'clock p.m., to consult on the pro-
'• per measures to be taken for the establishment of a bank in
" this province. Quebec, 4th March, 1807." As a result of
this and a similar movement in Montreal, a petition was drawn
up and presented to the Legislature of Lower Canada, praying
for the establishment of a bank in the cities of Quebec and
14 EARLY HISTORY OF CAHADIAH BANKING
Montreal. But owing to the fact that it was sent in just at the
close of the session no notice was taken of it. The following
year, on the 22nd of February, a petition was presented to the
House of Assembly of Lower Canada, which is as follows;—"The
" commerce and agriculture of this province labor under many
•'inco iveniences and discouragements from the quantity of
" specie in circulation being greatly inadequate to its necessi-
" ties and increasing population ; from thence enterprise and
" industry languish, and the natural advantages arising from a
" fertile soil, large and navigable rivers, and most valuable and
" extensive fisheries, in the river, bays and Gulf of the Saint
•' Lawrence, remain almost dormant and unimproved.
" The petitioners therefore beg leave to represent to the
" House that in the present situation of the province, nothing
'• could have so great and immediate tendency to advance the
" commerce, agriculture, wealth and prosperity of the province,
" as the establishment of a bank. Time and experience have
•' incontestably proved the utility and security of banks. They
•' have been a safe and convenient substitute for gold and silver,
" and have increased the industry and wealth of every country
" in which they have been established.
" The petitioners therefore most humbly pray that they
" may be incorporated into a body politic, by the name, of the
•' Bank of Canada, to be established in the cities of Quebec
" and Montreal, with all the privileges and immunities usually
•' granted to such corporations ; and subject to such limitations
" and restrictions as the House in its wisdom may think best."
The petition of the previous year was also presented once
more. Both petitions were referred to a committee of the
House to examine and report upon them. On the 4th of March
the committee reported as follows :
" To prove the allegations of the petitions, a member in-
" formed the committee that the balance of trade between this
" province and the United States by inland navigation, being
•' greatly against us, a constant drain of specie from this coun-
" try was thereby occasioned, which can be replaced only by im-
•' portations thereof from Great Britain, or by sending down
" sterling bills to the States, and bringing back their proceeds
" in gold and silver coin. That the former has not yet been
EARLY HISTORY OF CANADIAN BANKING 15
" resorted to, excepting by Government, and is not likely to be
" attempted by individuals, and the latter (bringing money
" from the States) is attended with considerable loss, expense,
" and great risk.
" That specie is very sensibly decreasing in this province,
" and some safe substitute would be greatly desirable and tend
" to facilitate the trade of the province, particularly the export
" trade, which is often cramped by the heavy loss on bills of ex-
" change, consequent upon the disproportion between the
" amount of them for sale, and the circulating coin. He there-
" fore was of opinion that the institution of a bank would have
" a tendency to remove, at least in part, the inconvenience at
" present felt from the scarcity of the circulating medium, and
" be otherwise beneficial to the province. That such institu-
" tions had been useful in other countries, and though there
•' might be difficulties here to encounter, in a matter so new to
" the bulk of the inhabitants, yet that he thought it would
" finally surmount these difficulties, and at all events merited
" fair trial."
Here we find further corroboration of the facts of exchange
already described. But while the need for currency was
undoubted, the arguments used in favor of the bank are not
altogether sound. Obviously the issue of a redeemable paper
money by a bank would not check the export of cash from the
country if its trade continued to require it. The notes would
simply be exchanged at the bank for cash, and the cash ex¬
ported. Neither would the issue of bank notes improve the
sale of bills of exchange in Canada, since they would not alter
the advantages from purchasing goods from the United States
rather than directly from Britain. The bank notes could only
improve the internal exchange mechanism of the country, they
could not alter the character of the foreign exchanges.
The report was received and a bill brought in, which got
as far as being ordered to be printed before going to the Com¬
mittee of the whole House on its second reading. This is the
bill from which I gave extracts in my first article, to show that
it was copied from the charter of the Bank of the United States.
The growing need for a regular currency was felt by the
more advanced settlements in Upper Canada, quite as much as
l6 EARLY HISTORY OF CANADIAN BANKING
by the English element and more enterprising French merchants
of Lower Canada. Hence, notwithstanding the failure of the
attempt in Lower Canada, the question of a provincial bank
began to be agitated in the upper province. In 1810 the pro¬
posal to establish a bank in Upper Canada took definite shape
at Kingston, the most important commercial centre of the pro¬
vince. The subject had been canvassed in a private way for
some time, when the establishment of the first newspaper in
Kingston, in September, 1810, gave an opportunity for public
discussion of the matter. The first communication on the sub¬
ject appears in the issue of 4th December, 1810, and indicates
the chief points, for and against the proposed bank, which had
emerged in the discussion. On the ist of December there had
been a public meeting " to take into consideration the expe-
" diency of establishing a bank in the town of Kingston, and of
" applying to the Legislature for an Act of incorporation." This
meeting was in favor of the project. The writer of the first
article in the Kingston Gazette was in favor of the bank. He
admits that the bank would have to encounter some difficulties.
Some of the objections raised against the proposal were : That it
would lead to a counterfeiting of the notes (" bills " as they
were called in those days) ; it would be impossible to give the
notes sufficient credit to ensure their circulation ; the Montreal
merchants would be opposed to the bank and would refuse to
receive the notes ; a bank had already been attempted in Mon¬
treal and was found impracticable. In answer to these
objections the writer points to the benefits which have resulted
from the establishment of banks in Europe, and especially in
the United States. He goes into the United States bank
question at some length, pointing out in particular that the first
banks in the United States were very successful, but their suc¬
cess developed competition, resulting in a war of the banks with
one another, and the consequent destruction of some. If, how¬
ever, a regular chartered bank could be obtained in this pro¬
vince, being the only one in the two provinces, it would have
none of these evils to contend with. The recent Act against
counterfeiting, which has broken up the nest of counterfeiters of
American notes in Canada, will protect the bank from that
danger.
EARLY HISTORY OF CA.VAD/AX BANKING
17
In the following number of the Gazette appeared two letters
on the subject, the one in opposition to the bank and the other
in support of it. The writer of the first is evidently not very
well versed in banking, but his attitude is interesting. He
thinks a bank would be disastrous to the district. First of all
where is the capital to come from ? The town, he says, would
be puzzled to raise ;^i,ooo in specie. But even could they
obtain ^"20,000 to £^0,000, how could the capital be profitably
employed ? The discount business would be very small, and
even if people did come to the bank for loans, what sort of busi¬
ness could they invest in that would leave them any profit, after
paying the bank fifteen to eighteen per cent, interest ? These
figures tie gets by calculating the sixty and thirty day rates of
discount for a whole year. His real difficulty, however, is
reached when he sees in it the possibility of freeing the farmers
and others from the necessity of bringing in their products to
barter them at the stores of the Kingston merchants. He be¬
lieves that if the people are possessed of money it will simply
increase the number of peddlers, or itinerant merchants, in this
province, " and God knows they already sufficiently abound."
As these peddlers come chiefly from New York or Albany, they
will simply gather in the paper money, convert it into specie at
the bank, and take it to the United States to get new supplies of
goods, and repeat the operation.
The second letter, which is in favor of the bank, claims
that sufficient capital has already been promised to ensure its
stability. After giving some interesting information as to the
nature and working of banks, he refers to the meeting to be held
that evening, " to prepare and sign a petition to the Legislature
" for an Act of incorporation, to draw up articles of co-partner-
" ship, which in case the charter should be refused will prevent
" the defeat of the scheme ; to agree on the form of a circular
*' letter inviting the inhabitants of the province to support the
" institution, and finally to take such other steps as may be
" necessary to carry it into effect with the least possible delay."
The meeting referred to is thus advertised : " Bank of
" Upper Canada. The subscribers to the stock of the above
" bank, together with such other of the inhabitants as are in
" favor of its establishment, are requested to attend a meeting,
18 EARLY HISTORY OF CANADIAH BASKING
" on business of importance, at Walker's Hotel, this evening, at
" seven o'clock, December nth."
Letters and discussions about the bank continued to appear
almost every week until February, iSii. From these we learn
that even the opponents of the bank admit that those who are
promoting it are sound business men. We learn also that the
shares of the proposed bank were to be fifty dollars each, that
there was great scarcity of specie in the province, and that the
notes of neighboring banks in New York State were circulating
in Canada.
The petition of the Kingston merchants was no doubt pre¬
sented to the Legislature of Upper Canada, but while that body
was in session the United States Congress destroyed the Bank of
the United States, and the rapid development of friction between
the United States and England introduced an element of uncer¬
tainty into all Canadian trade and exchange, putting an end, for
the present, to such a new venture as that of banking. The
beginning of the war of 1812-15 brought to a close another
epoch in the history of Canadian trade, introducing a new set of
conditions, and during its progress deeply affecting, by the
employment of the Army bills, the future character of Canadian
exchange.
Adam Shortt
Queen's University, Kingston
THE EARLY HISTORY OF CANADIAN BANKING
IV
THE FIRST BANKS IN LOWER CANADA
\1 7E have already observed that just before the outbreak of the
* * war of 1812, Canada was suffering from the lack of a cir¬
culating medium, and that attempts were being made to establish
banks in both provinces, with the expectation of relieving the
stringency. The real difficulty, however, was a more serious
one than the mere lack of currency.
The French Canadians, from their past experience, had
acquired the capacity to live a very frugal and self-contained life.
They did not, in proportion to their numbers, furnish a great
deal for export, but they required even less in imports, and,
though their trade was expanding under British rule, yet, as a
body, they were but slightly affected by the commercial uncer¬
tainties of the Napoleonic era. The English element, around
Montreal and in Upper Canada, were much more enterprising,
though, perhaps, not more industrious than the French, but, as
a class, they were very far from being so self-dependent. Most
of them had been settled by the government on an artificial
basis. As public aid was gradually withdrawn, and they were
left to depend upon their own efforts, they found it difficult to
adjust themselves to the new circumstances, especially under
the fluctuating condition of values during the few years preced¬
ing 1812. The time had arrived, as Cartwright foretold, when,
in the export of their produce, the disadvantages of their inland
situation were operating in their full force, and much of the
return was absorbed in the cost of transportation and exchange.
In addition to these ordinary difficulties, there were many
changes and uncertainties in the commerce and carrying trade
of Canada, owing to the English orders-in-council, the retalia¬
tory decrees of Napoleon, and the non-intercourse Act of the
United States. Marine insurance was also very high. To
2 EARLY HISTORY OF CANADIAN BANKING
crown all, the seasons in Europe were very irregular, with cor¬
responding uncertainty in the prices of provisions. Owing to their
remoteness, the Canadians were prevented, on the one hand, from
avoiding a ruinously low market, or on the other, from taking
advantage of an unusually high one. The difficulty in making
nice adjustments between income and outlay may be indicated
from the fact, taken from the Cartwright letters, that returns
for flour and potash sent to England in 1810 and 1811, were
being received in 1813.
Another feature of the situation worthy of note, was the
fact that, while the country was being drained of specie, bills of
exchange on England continued to steadily decline. This was
naturally attributed to the scarcity of a circulating medium.
Why, then, it might be asked, were not bills of exchange
exported instead of specie ? For the reason, already indicated,
that the exports went to England, while the imports came
largely from the United States in small quantities not payable
in bills of exchange. This indicates that the greatest service
which a banking institution could have rendered to the country
at that time would have been to undertake a more economic
adjustment of the country's foreign exchanges. That it would
have been a very profitable undertaking, if conducted upon a
sufficiently large scale, is evident from a comparison of the prices
of bills in the American and Canadian markets. When ulti¬
mately established the banks found the exchange business to be
more profitable than any other, and through their action the
exchanges were brought to a more stable equilibrium, although
the banks were severely criticized for their influence by those
who required cheap bills.
While, then, the apparent and growing difficulty of the
country before the war, was a scarcity of the circulating
medium, the real difficulties were uncertainty in the marketsfor
exports with no prompt knowledge of their changes, cost and
delay in transportation and severe loss in effecting exchanges
owing to the lack of any special organs for properly under¬
standing and effecting them.
Having thus summarized the situation, we are perhaps
better able to understand the nature and effects of the army
bills, which began to be issued in 1812. It is not necessary to
EARLY HISTORY OF CANADIAN BANKING 3
our present purpose to give any special account of the mechan¬
ism and working of the army bill system. However interesting
in itself, it had no special connection with the development of
Canadian currency and banking. The system was in essence,
if not in name, simply a mechanism enabling the British
government to carry on the war without sending money to the
country, by issuing orders which were chiefly to be paid in
British goods, any surplus to be paid in specie to be sent when
convenient, or as occasion required. Had there been sufficient
available specie in the country, the usual method of selling bills
of exchange on London would have been adopted ; but there
being so little available money the bills were certain to be
sacrificed. It was therefore proposed to issue a form of
government paper money bearing interest on all bills of twenty-
five dollars and upwards ; the principal to be paid by the home
government and the interest by the Canadian government.
They were made convertible on demand into bills of exchange
on England, the smaller bills bearing no interest, being payable
on demand in specie.
While the mechanism of the army bill office was a tempor¬
ary and isolated fact, the circulation of the bills produced a
permanent effect upon Canadian currency and exchange,
especially through their influence on the ideas of the people as
to the capacities of paper money.
The army bills were first issued in Lower Canada in July,
1812. The French-Canadian populace were for a time very
suspicious of them, always preferring metallic money, often
refusing any other, and when taken the bills were converted into
specie as soon as possible. As usual, a good deal of the latter
went into their private hoards. Governor Prévost reporting to
Bathurst, March loth, 1814, complains of the difficulties in
which he is placed for want of specie : " The paper currency
has as yet proved itself an indifferent substitute to bullion, in
consequence of the inveterate prejudices against it in the minds
of the Canadians, and the frequent attempts made by the
enemy to imitate it."
Among the English section of Lower Canada and in the
Upper Province the bills circulated very freely.
Inasmuch as the issue of the army bills was followed by a
4 EARLY HISTORY OF CANADIAN BANKING
period of increasing prosperity, the people naturally attributed
it to the supply of a circulating medium, and were confirmed in
their opinion that what the country had been suffering from was
simply lack of money. Had the Canadian government issued
paper money in a similar manner, there would have been
afforded just as great a supply of circulating medium, but not
being available for purchase of imports, it must have rapidly
depreciated, as neither goods nor specie could be obtained for
it. To supply a circulating medium was really the least of the
functions of the army bills, and a mere incidental one. They
were mainly instruments of an enormous positive increase to
the wealth of the country and the possibilities for consumption.
Their over-issue was hardly possible.
As a matter of fact, the war proved a veritable godsend to
the people of Canada. A few of the militia were killed, and
some of those in the track of the invading enemy suffered loss
of property, but in most cases this was afterwards more than
made good. People generally, however, enjoyed an era of pros¬
perity unknown since the similar conditions of the revolutionary
war, and they were now in a better position to appreciate it.
French Canadians replenished and added to their hoards, the
merchants gathered in their large outstanding debts, and greatly
profited by the new trade. The settlers were offered war prices
for more provisions than they could furnish. After the first
alarm was over, the greater part of the country engaged in
making money and enjoying life. The long and difficult system
of transportation from Kingston to Montreal, which it was ex¬
pected the enemy would at once close, remained open, much to
the joy and surprise of the people, during the greater part of the
period. Little passed down the river save bills of exchange,
army bills and latterly specie, but everything came up from ships
of war for the lakes to many forms of luxury hitherto unknown
in the woods of Canada.
In consequence of all this an important change came over
the economic life and habits of the people of Canada, except
the rural French element. The system of barter was broken
up, as also that close interdependence of the settlers which had
prevailed up to this time. Everywhere the more flexible cash
nexus was being introduced. People became accustomed to the
EARLY HISTORY OF CANADIAN BANKING
5
use of paper money, and not recognizing the radical difference
between the army bills and bank notes, when the bills were with¬
drawn and banks were organized, they experienced no great diffi¬
culty in circulating their notes among the English element at
least. Fortunately, before they had gone very far, experience
served to modify the erroneous ideas under which the banks were
established, and the country was saved from certain disaster.
Some of the peculiar conditions which existed under the
army bill issue are worthy of note, on account of the impres¬
sions which they left upon the country as to the virtues of a
paper currency. It was confidently expected by the merchants
who had bills of exchange to sell, that when the army bills were
in circulation, the currency of the country being increased, there
would be a considerable rise in the value of the bills, the pre¬
vious low price being attributed to the scarcity of currency.
The army bills, however, were themselves convertible into bills
of exchange on England, and hence were not to any great extent
available for the purchase of bills from other sources. It is true
that bills drawn against exports were greatly diminished, practi¬
cally stopped altogether from the upper province, but bills for
pensions, salaries, and the procuring of specie for situations in
which army bills would not answer, continued to increase. In¬
tercourse with the United States being nominally shut off, outlet
there was discouraged. As a consequence, instead of bills of
exchange rising in value with the increase of a circulating
medium, they continued to decline. In July, 1814, Mr. Cart-
wright makes special reference to the very low rate of exchange,
and mentions the fact that he has purchased a sterling bill of
£bi 2s. 2d. for /'55 currency. This should have brought about
£-]^ currency if there had been an equilibrium of exchange.
Had the army bills been a provincial issue the very opposite
would have been the result.
It is difficult to say how low the bills of exchange might
have gone, had not the insulation between Canada and the
United States given way under the pressure of self interest. I
have referred to the period of unusual prosperity enjoyed by the
United States in its neutral position during the long term of the
Revolutionary and Napoleonic wars. When, however, the
English ships blockaded the American coast and largely shut off
6
EARLY HISTORY OF CANADIAN BANKING
their bulky export trade, they were compelled to meet their
foreign obligations in specie and bills on Europe. Bills, being
safer, rose to a premium just when in Canada they were sinking
to a low discount. There was therefore a very unusual profit
in selling Canadian bills in the United States. This traffic,
once opened, was carried on through many different channels,
and a large quantity of specie was introduced into Canada in
this manner. The American side of the story is given by Mr.
Albert Gallatin, a distinguished secretary of the United States
Treasury, in a work entitled, " Considerations on the Currency
and Banking System of the United States" : Phila., 1831. The
Canadian side is taken from letters and accounts of the time,
showing that even during the period of the greatest expansion
of the army bills, in 1814, large amounts of specie were in
circulation in Canada.
That specie should have been most plentiful at the same time
that the army bills were at their height is a circumstance which
could not have occurred in the case of any large issue of govern¬
ment paper money, and is a further indication that the experi¬
ence of Canada with these bills was entirely unusual and quite
unsafe as a guide for future experiments in the issue of paper
currency. Nevertheless, the experience with the army bills was
very impressive, and paper money came to be regarded not
merely as a circulating medium but as capital to develop the
resources of the country.
The army bill act was still in full operation, the bills at
the height of their circulation being about /'1,500,00o, and the
issue of the war still unsettled when the next move was made
for the establishing of a bank in Lower Canada. We find,
from the journals of the Assembly, that on the 8th of February,
1815, a motion was introduced by Mr. Cuvillier, seconded by
Mr. Taschereau, that on Monday next the house should resolve
itself into a committee of the whole "to consider the expediency
of establishing a bank in this Province." The matter, however,
was postponed till February 24th, when it was taken up and
discussed, but that is the last we hear of it. This indicates
that the merchants of Canada did not wait for the withdrawal of
the army bills before renewing the agitation for a bank. From
this time on the question was a very live one.
BARLY HISTORY OF CANADIAN BANKING
7
At the next session of the Legislature on February 6th,
there was presented, by Mr. Cuvillier, a petition of divers
merchants and other inhabitants of the city of Montreal, setting
forth that the commerce and agriculture of the provinces of
Upper and Lower Canada have of late years considerably
increased, and, now that the war is over, if cherished and stimu¬
lated, may be productive of most beneficial and permanent
results to both Canada and the mother country. The lack of a
circulating medium may impede this development, hence they
consider it desirable that a bank should be established to aid
the commercial and agriculture pursuits, and to furnish a
circulating medium as a substitute for the precious metals, and
to give that range and facility to commerce which can alone
render it safe and lucrative. As Canada has attained to the
position of requiring the establishment of a bank, they pray the
legislature to grant them incorporation as a banking company.
The petition was referred to a committee of five, with power
to send for persons and papers, and to report either by bill or
ptherwise. The report of the committee was handed in on the
8th of February, and is a very considerable and interesting docu"
ment, giving, as it does, the ideas as to banking, and the capa¬
bilities of a paper money, which prevailed among even the best
informed men in the country.
Mr. Woolsey, afterwards first president of the Quebec Bank,
gave it as his opinion that the establishment of a bank in the
province would greatly encourage its agriculture and commerce.
Both these industries suffer from a continual drain of specie to
the United States and the mother country, and from the want
of a circulating medium to take the place of the precious metals.'
Mr. Stewart also favored the bank, especially an incor¬
porated bank ; the present circulating medium is inadequate to
the needs of the two provinces and the States in their immediate
neighborhood. A bank would keep the trade up to its present
level, and would afford the only means of causing it to increase.
Mr. Mure referred to the great increase in the commerce of
the country, and though now checked by the peace and the con¬
sequent diminution of public expenditure, it will no doubt
revive with growth of population, and greater attention to agri¬
culture. Most of the specie in circulation is in silver, and is
8
EARLY HISTORY OF CANADIAN BANKING
both inconvenient and risky. He fears that the amount of cur¬
rency will not long be sufficient for the commerce of the country,
especially as the rate of exchange with the United States gives
promise of turning so as to draw off specie from Canada. He
thinks a bank would do much to supply the deficiency. The
experience of the use of army bills in late years " has proved the
great advantage of a paper medium on a solid basis, and given
a confidence to the inhabitants of the country which in my
opinion, will induce many of them to become shareholders in the
bank, and make the interest in it become so general that it
can hardly fail to succeed."
Mr. Lymburner, referring to the obvious benefits of banks,
said that their note issue " by displacing an equal amount of
the precious metals, creates a new capital, and in English
countries where capital is the grand desideratum, ... it
may in this way give an incalculable strength to industry in
all its branches. The experience of many commercial
countries places this in a striking point of view." He refers to
the prudence and skill required in the safe management of
banking establishments, to guard against unwise advances and
the over-issue of paper. To regulate the issue the notes should
be made unconditionally payable in specie on demand. He thinks
bank notes would now circulate freely in Canada, as the old pre¬
judices against paper money have been weakened by the late army
bill currency, and bank notes will be found to be much more con¬
venient than gold and silver, and in every respect equal to them.
Mr. Symes said the notes would facilitate the transaction of
business by giving a method of paying and receiving money
with less trouble, and would permit persons to obtain advances
without such sacrifices as before.
It was suggested by others that bank notes would facilitate
the conveying of money between Montreal and Quebec, as also
through other parts of the province.
Here we observe a general tendency to confuse capital and
circulating medium, as well as a failure to observe that it is
impossible to enlarge the sphere of redeemable paper money to
take the place of specie which is leaving the country. When
specie is being exported, either the bank must curtail its circula-
supend the redemption of its notes.
EARLY HISTORY OF CANADIAN BANKING
9
Along with the report Mr. Cuvillier presented a bill to give
effect to its recommendatons. The bill was passed through the
various preliminary stages without any trouble, and was referred
to a committee of the whole house to be taken up on the 27th
of February. But the very next day, the House having entered
upon forbidden ground, in the assertion of its right to impeach
the Judges Sewell and Monk, Sir Gordon Drummond suddenly
dissolved the Legislature, declaring his intention to take the
sense of the country. Thus the bank bill, along with several
others, came to an untimely end. There seems no doubt that
the bill would have passed the legislature had time permitted.
Early in the following session, a new legislature having been
elected and Sir John Coape Sherbrooke having succeeded as
Governor, Mr. Cuvillier once more presented his bank bill, on
the 31st of January, 1817. Again it passed through the various
stages, as the business of the house permitted. On February
5th, it was read a second time and referred to a committee, it
being ordered that one hundred copies of the bill be printed for
the use of members of the house. Possibly one or two of these
may have survived, though I have not yet been able to discover
any. This committee reported favorably and the bill got as far
as a first discussion in committee of the whole house, when
once more the Legislature was suddenly prorogued. Sherbrooke
had reported to Bathurst on February ist, that the new house
was evidently intending to follow the course of the last one in
taking up the impeachment of the judges, but he had succeeded
in getting them to first take up urgent public business. When
this was fairly well through, he adroitly prorogued the house,
reporting to Bathurst that the discussion on the impeachment
had been staved off for another session. Thus a second time
the bank bill was snuffed out before any final settlement of it
could be made, but without any indication that there was any
regular opposition to it.
By this time the greater part of the army bills was re¬
deemed, only some £y^,ooo remaining in circulation, and there
was beginning to be a real need for an addition to the currency
of the country. The merchants of Montreal, who had been
chiefly interested in the attempts to get a bank charter, feeling^
no doubt, that the sympathy of the business community was
lo EARLY HISTORY OF CANADIAN BANKING
with them, and that it would be a pity to lose another year with
no more certainty of success, the political conflict still raging,
decided to start the bank without a charter. Accordingly, on
May 19th, 1817, the articles of association of the Bank of
Montreal were adopted, and the corporation proceeded to organ¬
ize. The articles of association were published in the Montreal
Herald, May 22nd, but I have not been able to discover any
issue of the paper for that period. The Quebec Gazette, of May
29th, copies the following item from the Herald : " In the first
page of this paper the articles of the Montreal Bank Associa¬
tion are laid before the public. Such an establishment has al¬
ways been a favorite with this journal, and we cannot but con¬
gratulate the community on the prospect of a wonderful change
for the better in the agricultural and mercantile pursuits of
this province. The articles of this most laudable association,
so far as we are enabled to judge from practical experience in
our younger years, and from much reading, are drawn up with
great judgment and wisdom, and seem extremely well cal¬
culated for our local position. We forbear making any re¬
marks on the subject for the present, further than that we wish
the establishment the utmost success in all its bearings."
From contemporary references to the bank and its articles of
association, as well as from other evidence, as pointed out in the
first of this series, the articles of association were without doubt
adapted from the bill of 1808, which was copied from the Act
establishing the Bank of the United States. On the other hand,
the articles of the Montreal Bank were accepted with very
slight changes by each of the three other banks started the fol¬
lowing year.
At this time the second Bank of the United States was
in operation, having been organized in January, 1817. That
the promoters of the Montreal Bank still looked to the United
States for guidance is evident from the fact that one of its offi¬
cers was sent to New York to study the system and methods of
the Bank of the United States, and one, if not more, of its first
officers was an American who had had experience in American
banking. From the United States also came the first notes and
plates for pri iting them. The bank was opened for organization
and the receipt of instalments on the shares subscribed, in
EARLY HISTORY OF CANADIAN BANKIR G II
August, 1817, but did not begin the regular business of banking
before November. It appears that the bank depended largely
for its supply of specie upon the hoards of the more wealthy
French Canadians, which, as usual, had been industriously replen¬
ished during the prosperous period of the war. Some coaxing
was required to induce them to part with the specie for Bank of
Montreal stock, and the army bill experience was the best argu¬
ment employed. As the Montreal Herald remarks in an edi¬
torial, in August, 1818, public opinion has undergone a very
great change within the last four years. Formerly banks were
spoken of with contempt, but now the Bank of Montreal has
been firmly established, and three others are in process of organ¬
ization in Quebec, Montreal and Kingston. We find, however,
that the country people still retained much of their prejudice,
the result no longer of personal experience, but of historic con¬
viction. It was, perhaps, as well for the banks of Lower
Canada that this was so, for when their notes came into the
hands of the French Canadians they steadily converted them
into specie on the first opportunity, and thus tended to prevent
the banks from over-issuing until they had gained experience
and corrected their first large ideas about the capacities of paper
money. This was an advantage which the first banks in Upper
Canada did not enjoy, and for lack of which they suffered.
The first officers of the Bank of Montreal were, President,
John Gray; Cashier, Robert Griffin; Accountant, H. Dupuy ;
first Teller, Mr. Stone, an American gentleman. The names of
the Directors appointed the first year after organization were as
follows:—John Gray, George Garden, John Forsyth, Horatio
Gates, James Leslie, George Moffat, F. W. Ermatinger, David
David, Austin Cuvillier, John MoTavish, George Piatt, Hiram
Nichols, Charles Bancroft. These names show that the institu¬
tion was identified with the best commercial interests of the
country.
Although the bank was established and went into opera¬
tion as a private corporation, its promoters did not give up the
idea of obtaining for it a provincial charter. Accordingly, at
the next session of the legislature, Mr. Cuvillier, on January the
23rd, 1818, once more presents a bill to incorporate certain per¬
sons therein mentioned under the name of the Montreal Bank.
12 EARLY HISTORY OF CANADIAN BANKING
After going through the usual process, and being slightly
amended, first in general committee, and afterwards in the Legis¬
lative Council, it managed to reach the end of its parliamentary
career before the proroguing of the legislature. When, how¬
ever, the bills came up for the Governor's signature, the bank
bill, together with the bills for incorporating fire insurance com¬
panies in Quebec and Montreal, were reserved for the expres¬
sion of His Majesty's pleasure.
In the meantime, stimulated by the example of the Montreal
Bank, two other banks in Lower Canada were being organized, the
Quebec Bank, at Quebec, and the Bank of Canada, at Montreal.
The first effort to establish a bank in Lower Canada was
the result of a joint movement on the part of the Quebec and
Montreal merchants. But now that the Montreal people had
established a bank of their own, the Quebec merchants resolved
to do the same for their city. The first public intimation of the
movement is the following advertisement which appeared in the
Quebec Gazette of February 2nd, 1818 : " Notice. The mer¬
chants, proprietors and others, concerned in the agriculture,
trade, and general interests of the Province, are requested to
attend a public meeting to be held at the Union Hotel, on
Thursday next, the 5th inst., at twelve o'clock, to take into con¬
sideration the expediency of establishing a bank in this city,
and name a committee to digest the articles of association
thereof, etc."
The meeting was duly held, at which the following resolu¬
tions were passed :—" Resolved, that the establishment of a
bank in the city of Quebec is an object of the highest import¬
ance to the community at large, should materially assist the
agricultural interest of the district and afford great relief to the
commerce of the country, so much depressed at this moment.
" Resolved, that the said establishment of a bank on prin¬
ciples of solid capital and integrity is immediately and urgently
required by all classes of the citizens of Quebec ; and more
particularly so as the actual quantity of gold and silver is, as
a circulating medium, inadequate to the wants of this district,
and subject to perpetual fluctuations.
" Resolved, that a bank should be established in the city of
Quebec to be entitled the Quebec Bank ; and that at such
EARLY HISTORY OF CANADIAN BANKING 13
future period as may be thought advisable, a memorial be
presented to the legislature, praying that an act may be passed
to incorporate the same.
" Resolved, that experience has proved that a bank may be
established and operated, on principles of the most solid and
perfect security, both to the individual stockholders and also
to the public at large, without any charter of incorporation.
That this meeting do approve of the schedule now submitted
as the basis of a contract of mutual association, for the
establishment of a bank in this city."
These resolutions were referred to a committee, which was
requested to consider the provisional articles submitted, and to
draw up final articles to be submitted at the next meeting to be
held on the i6th inst.
At the meeting on the i6th of February the report of the
committee on the articles of association was received, and the
articles ordered to be printed for the information of the public.
Amendments and suggestions were to be received till March
17th, when a meeting would be held to finally ratify them.
In the meantime, as the legislature was in session, those
promoting the bank resolved to apply for a charter. Accord¬
ingly a bill was introduced on February 27th, which got as far as
being read the second time and referred to a committee of the
whole house on March 19th. However, without waiting for a
decision on their bill, the meeting, called for the 17th of March,
ratified the articles of association, and next day the books were
opened to receive subscriptions to the stock. Thus the failure
to get their bill through the house before the close of the session,
which was probably expected, did not prevent the progress of
the bank. Delay, however, came from another quarter.
It appears that in the succeeding few months some efforts
were made to secure the amalgamation of the Quebec enterprise
with the Montreal Bank, but the negotiations failed, and in the
Gazette of July 9th, we find the following item : — " At a meeting
of the merchants and others interested in the establishment of
the bank, held at the Exchange yesterday, we understand it
was resolved to establish a bank in this city, independent of
any other establishment. A branch of the Montreal bank, we
find, is also to be opened in this city."
14 EARLY HISTORY OF CANADIAN BANKING
Up to the end of July only one-third of the stock of the
Quebec Bank had been subscribed for, and the remaining two
thousand shares were again offered to the public on August ist.
By the 24th of August other two hundred shares had been taken
up, and it was resolved to call a meeting for the 17th of Sep¬
tember, at the Exchange coffee house, to proceed to the election
of directors. At that meeting the following gentlemen were
elected directors:—^John M. Woolsey, Philip A. De Gaspé,
James McCallum, sr., Benjamin Tremain, John Jones, jr., W.
G. Sheppard, Charles Smith, Thomas White, Louis Massue,
John Goudie, Jean Langevin, E. C. Lagueux, Henry Black.
The directors elected J. W. Woolsey as president, and Thomas
White as vice-president. Mr. Noah Freer was appointed the
first cashier. The first instalment on the stock was called for
on October the 6ih, and the bank was in operation by the end
of October, as would appear from the following :—" Quebec
Bank. Director for the present week, John Jones, jr., Esq.
Days of discount, Monday and Thursday. Notes offered for
discount should be inclosed to the cashier and given in before
the day of discount. Hours for public business at the bank,
from 10 a.m. to 3 p.m. Noah Freer, Cashier.
" No. 5 Sault-au-Matelot St. 28th October, 1818."
The other bank, known as the Bank of Canada, was a
direct rival to the Bank of Montreal, and was established in the
city of Montreal by a number of speculative Americans,
attracted to the country by the prosperity of the war period.
They, too, adopted the articles of association of the Montreal
Bank. There were twenty-five of these articles, the whole of
which were adopted by the Quebec Bank, but the fifth and
ninth articles were dropped by the Bank of Canada for obvious
reasons. The fifth article imposed limitations on the number of
shares for which a single individual might subscribe at any
given stage in the organization of the bank. The ninth article
limited the choice of directors to persons who were either
natural born, or naturalized subjects of His Majesty, or had
resided seven years in the province. There were a few other
minor changes. The articles of association were adopted on
May 7th, 1818, and the book for stock subscriptions was opened
at the same time, at the office of James McDonall. The stock
EARLY HISTORY OF CANADIAN BANKING I5
was taken up by a limited number of persons, and the stock¬
holders were summoned to meet on May the 27th, at the City
Tavern, to elect directors. On June 6th the bank advertised for
a cashier, and Robert Armour received the appointment. On
July i8th, a call was made for the first instalment of fifteen per
cent, on the stock subscribed, to be paid on or before the 24th
of August. On the 22nd of August the directors announced
that the bank would commence business on Tuesday the 25th.
The Bank of Canada was the most ambitious bank of the three,
starting with a capital stock of ;^30o,ooo, the Montreal bank
having ;¿"250,000, and the Quebec Bank £1^0,000. From the
nature of it the Bank of Canada was not very firmly rooted in
the stable financial interests of the province, depending appar¬
ently on the exchange business with the United States. It soon
found it expedient to reduce its stock to ;¿'200,ooo, and,
although apparently honestly managed, when the severe depres¬
sion of the early twenties was experienced, it found it necessary
to wind up its affairs, in which it was assisted by the Bank of
Montreal, which took over its business. Considerable loss was
sustained by the stockholders, but the customers of the bank did
not suffer.
As we have seen, the bill to incorporate the Bank of Mon¬
treal, which passed in 1818, was reserved, while the Quebec
Bank bill did not reach any conclusion. When the next session
of the legislature opened in January, 1819, it was not known
whether the Montreal Bank bill had been sanctioned or not,
hence the Montreal people made no further effort at that session.
The Quebec Bank, however, once more applied for a charter.
Their petition, presented by Mr. Vanfelson, sets forth the need
for a bank, long felt by the business men of the city. The cir¬
cumstances attending the establishment of the bank, in 1818,
are given ; mention is made of the fact that the whole of the
stock, ;^i50,ooo, has now been subscribed. But, while the bank
is successfully in operation, its full benefits cannot be realized,
and great inconvenience in the conduct of its business must be
experienced unless it obtains legal incorporation. Hence, they
apply for an act of incorporation on terms as nearly as possible
in accordance with their articles of association. The petition
was referred to a committee, who reported with a bill which
16 EARLY HISTORY OF CANADIAN BANKING
successfully passed through all the stages of the lower house,
and was sent up to the Legislative Council, from which it never
emerged. Doubtless the Council was waiting to see what treat¬
ment would be accorded the Montreal bill, before passing any
others.
Whether or not anything was ever heard of the reserved
bill of 1818 to incorporate the Montreal Bank, I have not been
able to discover. It would appear to have been wholly over¬
looked or forgotten. At any rate, the Montreal people gave it
up for lost, and at the next session of the legislature, extending
from 14th December, 1820, to 17th March, 1821, all three banks
presented petitions setting forth their claims, and praying for
incorporation. The three bills successfully passed both houses,
but were all reserved for the expression of the King's pleasure.
More than a year after being passed they seem to have
been brought to the notice of the Home Government, doubtless
by the agent of the province in London. On May i8th, 1822,
the royal assent was given to the bill to incorporate the Bank
of Montreal, and it was proclaimed in Canada on July 22nd in
the same year. Not till September i6th were the bills to
incorporate the Quebec Bank and the Bank of Canada assented
to, and it was the last day of November, 1822, before their pro¬
clamation in Canada. Thus did the first banks in Lower
Canada pass through the initial stages of their career.
The banks did not escape without criticism. Much of it
was due to short-sighted self-interest ; a few, however, judged
them by higher standards. The first considerable public criti¬
cism with which I have met, appears in the shape of a pamphlet
published in Quebec in 1820, and entitled, "An inquiry into
the origin and present system of Colonial banks and their dan¬
gerous effects ; with a proposal for a national bank." This is,
of course, a criticism of the banks in their unchartered condi¬
tion. The writer is evidently a man of intelligence, and well
acquainted with the facts. He first points out that in their
bases and methods, the banks in Canada are wholly unlike those
in Britain, where they would be considered quite contrary to
law. He outlines the condition of the country before, during,
and after the war. War, he says, which in most countries
brings with it poverty and devastation, brought prosperity to
EARLY HISTORY OF CANADIAN BANKING
17
Canada, and, by flooding the country with money, changed the
character of its business. After the peace, at which few people
in Canada rejoiced, sufficient retrenchment did not follow, the
balance of trade changed, and specie began to disappear. Efforts
were made to sustain the prosperity by artificial means. Capi¬
tal accumulated during the war period was freely invested. So
many people had been diverted from agriculture by opportuni¬
ties for profitable government employment, that after the peace
the cities and towns largely depended upon the United
States for the necessaries of life, for which, too, specie was
being exported.
Not perceiving the true cause of the growing difficulties,
the merchants and others sought to establish a bank. The
apparent success attending the first bank has given encouragement
to others, and there is no telling where it will end. But the
success of the banks, so far, is a measure, not of the prosperity,
but of the financial difficulties of the country. He refers to
the unbounded confidence which the tradesmen have in the
banks, and the ready currency which they give to their notes.
So far, he admits, the banks have been able to combine private
advantage with public confidence, but he fears for the future.
He criticises, particularly, the limited liability clause in the arti¬
cles of association, the essential part of which, as expressed in
the articles of each of the banks, was as follows :—" It is hereby
"expressly and explicitly declared to be the object and inten-
" tion of the persons who associate themselves under the style
" or firm of that the joint stock or property of the said
" company (exclusive of dividends to be made in the manner
" hereinafter mentioned) shall alone be responsible for the debts
" and engagements of the said company." He points out that
as these institutions are private corporations, no amount of
advertising of their limited liability can free them from the
unlimited obligations resting upon private persons. Confidence
in the honor and prudence of the directors may do much to
lessen distress, but it cannot do away with the danger. He
then proceeds to state some very sound principles with reference
to credit and banking. He doubts whether the whole of Canada
can support more than one bank ; and at that time there cer¬
tainly did seem to be danger of overdoing the business in Lower
18 EARLY HISTORY OF CANADIAN BANKING
Canada, while Nova Scotia and Upper Canada were going into
banking at the same period. After pointing out various liabili¬
ties to loss and collapse, he urges that the House of Assembly
should appoint a committee to investigate the condition of the
banks and define the responsibility of the directors and stock¬
holders. His constructive idea isthat the issue of paper money
should be confined to government, and that a national bank
should be established by the government, the profits from which
to be applied in improving navigation. His constructive scheme,
however, is not so good as his criticism of the loose and mis¬
taken ideas on the subject of paper money which were current
in the business community. The events of a few years later
amply justified his warning. Other criticisms of less note
appeared from time to time. At length, on the 30th of December,
1823, the matter was brought up in the legislature of Lower
Canada, and a committee was appointed to enquire, " If any,
" and what inconveniences have resulted from the establishment
" of banks in this Province." On the 28th February, 1824, the
report of this committee was presented, and though it formu¬
lated nothing, yet the evidence presented is full of interesting
detail. Among those examined were the president and cashier of
the Quebec branch of the Bank of Montreal, the cashier of the
Quebec Bank, the agent of the Canada Bank in Quebec, and
several merchants of Quebec and Montreal.
It appears that there was very considerable jealousy as to
the political influence, and consequent opportunities for profit,
enjoyed by the Bank of Montreal. It was favored with the
custody of a large amount of government money, upon which
cheques were drawn, and these were commonly paid out in the
notes of the bank. The government patronage, which the Bank
of Montreal enjoyed both in Lower and Upper Canada, was
indeed an immense advantage to any bank in those days, owing
to the command of specie which it thus obtained. The import¬
ing merchants seem to have been convinced that the banks
were chiefly responsible for the high price of exchange. The
larger quantity of bills on Britain, and especially those of short
date, were issued by the Commissariat Department, from which
the banks were supposed to purchase them, and afterwards sell
them at a higher rate to the merchants. When we consider
EARLY HISTORY OF CANADIAN BANKING
19
that within ten years bills of exchange on England had passed
from a very considerable discount to a premium of eight or ten
per cent., and that within that time the banks had developed
their business, we are able to understand, if not to appreciate,
the feelings of the merchants. The officers of the Montreal
Bank were able to deny that they bought bills from the Com¬
missary-General which they afterwards sold to the merchants at
a higher rate, because the bank always sold its own bills of
exchange. However, the banks were not to blame for the con¬
dition of exchange ; on the contrary, they were able to claim,
with reason, that the operations of the banks greatly steadied
the rate of exchange, and were highly beneficial to the country
in general.
Favoritism in the discounting of bills was also charged
against the banks. Whether the grievance was a very
real one or not in the cases mentioned, yet it is apparent from
the general evidence and from the partial admissions of the bank
officers, that the public were not treated with perfect imparti¬
ality in the matter of loans. The interests of the banks and of
the merchants who held their stocks were still too closely con¬
nected to admit of a perfect separation of their interests. The
rivalry between the business men of Quebec and Montreal crops
up very strongly in this evidence. The deposits received at
the Quebec branch of the Bank of Montreal were said to be
only partially loaned in Quebec, the rest being sent to Montreal
for the use of the friends of the bank there, and to the advantage
of Montreal generally. The Quebec Bank, it appears, did not
deal in foreign exchanges, but it was a considerable part of the
business of the others. The Bank of Canada no doubt had
chiefly in view, at the time of its establishment, the American
exchange business, which was then very brisk, but which fell
off in the early twenties owing to the financial distress in that
country. This may no doubt explain in large measure the
decline in the business of the Bank of Canada. The Bank of
Montreal, however, was the great exchange bank even in those
days. It soon established an agent at New York, and from the
time of organization of exchanges with the United States after
the peace the Canadian rates of exchange were determined by
New York. Any legal prohibition of the banks from dealing in
20
EARLY HISTORY OF CANADIAN BANKING
exchanges, as was advocated by many merchants, would not
have affected the price of exchange, but would simply have
introduced agents of American banks as purchasers of the
Commissary-General's bills.
As I have said, the evidence taken afforded no specific basis
for report, but it shed a good deal of light upon some points
and cleared the political and economic atmosphere of much
misconception with reference to the business of the banks.
The Bank of Montreal and the Bank of Canada, which were
both doing business at Quebec, had also established agencies at
Kingston, but I shall consider these in connection with the first
actually established banks in Upper Canada, in the fifth and
concluding paper.
Adam Shortt
Queen's University, Kingston
THE EARLY HISTORY OF CANADIAN BANKING
V
THE FIRST BANKS IN UPPER CANADA
'^HE close commercial dependence of the upper province upon
* the city of Montreal naturally led the merchants of King¬
ston, the chief correspondents in Upper Canada of the leading
Montreal houses, to follow with special interest, and usually
with practical imitation, the introduction of such new business
methods or instruments as promised to facilitate the general
commerce of the country. Thus, as we have seen, the attempt
to establish a provincial bank in Lower Canada in 1808 was
followed shortly afterwards by a similar attempt in Upper Can¬
ada, the initiative being taken by the Kingston merchants. The
army bill experience, which was most characteristic and effec¬
tive in the upper province, naturally left there a very strong
impression as to the numerous beneficent virtues of a paper
currency. The shrinkage in circulation which followed the
withdrawal of the army bills and the disappearance of the ex¬
changes and bullion which had redeemed them, was most
severely felt in Upper Canada. It was the connection of
Montreal with the Anglo-American settlements of the West,
much more than any scarcity of money in French Lower
Canada, which caused its merchants to seek so persistently
the establishment of a bank.
In this matter the merchants of Kingston followed suit
without waiting to know the practical outcome of the Montreal
efforts. Early in 1817, after a considerable discussion of the
matter and preliminary organization, the leading merchants and
others of Kingston drew up a petition which was presented in
the House of Assembly on March 3rd, and which is as
follows :
" To the Honorable House of Assembly of the Province
2
EARLY HISTORY OF CANADIAN BANKING
" of Upper Canada in Provincial Parliament assembled. The
" memorial of the merchants and others of the town of Kings-
" ton, respectfully sheweth : That your memorialists having
" taken into consideration the great utility and advantage of
" banks to a commercial people, which has been evinced
" by the number which have been established in Eng-
"land, and in the United States of America since the
" Revolutionary War ; and feeling the benefit which the
" latter derive from the ready aid afforded by their banks,
" to carry on their establishments and improvements in
"their western territory, which, although of a much more
" recent date, is in a more flourishing state than any part of this
" Province, are of opinion that if found so beneficial in
" those countries, they cannot fail of tending to the
" prosperity of this Province. The want of such an estab-
" lishment was severely felt before the war, and there is hardly
" any doubt but that the same inconvenience will very shortly
" occur, whereas a well regulated bank would obviate all these
" difficulties by keeping up a circulating paper to meet every
" public demand. Your memorialists therefore pray that your
" honorable House will be pleased to pass an Act for their incor-
" poration, and authorizing them to establish a Bank to be
"called 'The Bank of Upper Canada,' having a capital of
" 00,000, divided into 8,000 shares of $50 each share. And
" your memorialists, as in duty bound, will ever pray.
"(Signed) Thos. Markland, and others
" Kingston, January 20, 1817 "
We observe that, in this petition, while general mention is
made of the banks of England, yet the whole of the specific
reference is to the banks of the United States and the beneficial
effects which they have had upon the progress of that country.
We find also that a good deal of the currency of Upper
Canada consisted, at this time, of American bank notes. This
petition seems to have been very well received by the House
of Assembly, which immediately proceeded to introduce the
necessary bill. This bill passed without a division on March
27th, as " An Act to incorporate sundry persons under the
" style and title of the President, Directors and Company of
" the Bank of Upper Canada."
On April ist, the legislative council returned the bill with
a few minor amendments, which were at once agreed to by the
EARLY HISTORY OF CANADIAN BANKING
3
lower house, and the Act was sent to the lieutenant-governor
for the royal assent. This was, therefore, the first bank bill
passed by a Canadian legislature, the Montreal Bank bill not
passing until the following year.
The governor, however, considered it his duty to obtain
the opinion of the home government on the expediency of
authorizing the introduction of a banking system in Canada,
and therefore reserved this first Canadian bank charter for the
signification of His Majesty's pleasure. The legislature,
doubtless being informed of the lieutenant-governor's inten¬
tion, had, at the last moment, attached a rider to the Act pro¬
viding that it should not be forfeited by reason of any non-user
before January ist, 1819. Whether from design or not, the
pleasure of the home government was not made known until
this date had passed. Then, after it had ceased to be of any
value. His Majesty's assent to the bill was graciously accorded,
hence it became necessary to have the Act passed a second
time.
The Act of 1817 was the same as those afterwards passed
to incorporate the Bank of Kingston and the Bank of Upper
Canada, with the addition in the latter of article 3, authorizing
the executive of the province to take shares in the stock of the
batik. These Acts were an adaptation from the Lower Canada
Bank Bill of 1808, and were probably copied from one of the
bills introduced in the legislature of Lower Canada to incor¬
porate the Bank of Montreal.
Before following up the re-enactment of the charter of the
Bank of Upper Canada, some important intervening events
must be recorded.
Seeing the favor with which the petition of the Kingston
merchants had been received by the House of Assembly, that
famous group of persons who filled the chief executive offices
and other government positions at York, and who were known
as " The Family Compact," seemed to have awakened to the fact
that, despite their customary vigilance, here was something
likely to go past them which might make a desirable addition
to their already valuable collection of provincial good things.
Hence, we find that on March 17th, while the bill to give
4
EARLY HISTORY OF CANADIAN BANKING
expression to the Kingston petition was well under pro¬
gress, another petition is presented to the legislature which
runs as follows :—
" To the Honorable the Commons of Upper Canada
" in Provincial Parliament assembled, the memorial of the
" merchants and other respectable inhabitants of the
" Home District humbly sheweth : That your memorial-
" ists, seeing the many advantages enjoyed by other
" countries from the establishment of banks, by means of
" which the facility of mercantile transactions and the
" interest of the public in general is greatly promoted,
"as is evident from the rapidity with which all improve-
" ments in the internal economy of countries are carried into
" effect, where such depositories have been in operation. That
" your memorialists in common with the inhabitants of the
" province, experienced great inconvenience previous to the
" issuing of the Army Bills, from the want of a circulating
" medium ; and like disadvantages will soon become oppressive
" unless some such accommodation is established upon a secure
" and permanent foundation. That a bank incorporated by
" charter with a capital of £\oo,ooo, to be held in shares of
" /"i2 ios. each, provincial currency, would be of the most bene-
" ficial importance to the improvement of the Province, as well
" in its agricultural as commercial progress, your memorial-
" ists have every reason to believe and ground to hope. Where-
" fore your memorialists pray that your Honorable House will
" be pleased to take this very necessary and important public
" measure into your anxious consideration, and pass an Act to
" incorporate a body within this Province under the style and
" title of ' The Upper Canada Banking Company ' with a capi-
" tal of;^ioo,ooo, to be holden in shares of ;^i2 los., provincial
"currency, each, under such regulations as your Honorable
" House may deem wise and prudent. And, as in duty bound,
" your memorialists will ever pray,
(Signed) John Strachan, Alex. Wood and others"
York at that time was of little commercial importance,
beyond what business centered in the financial operations of
the government. Almost the only people of any financial
standing were the leading members of the Family Compact,
who controlled the spigot of government expenditure. The
bank, therefore, which was petitioned for b)' the merchants and
other respectable inhabitants of York, depended, as we shall
EARLY HISTORY OF CANADIAN BANKING
5
see, very little upon the merchants, and very much upon
the other respectable inhabitants. The legislature no doubt
recognized this, and the York petition received no attention.
After waiting for about a year to learn the fate of their
charter at the hands of the home government, the Kingston
people seem to have concluded that no news was bad news, and
that the Imperial government intended to kill the bill by what
the Americans call a pocket veto. Hence a number of the
original petitioners, with some others, resolved to follow the
example of the Montreal merchants, and, in the meantime,
establish the Bank of Upper Canada as a private corporation.
They were no doubt encouraged in this resolution by the suc¬
cess of the Bank of Montreal, and by the movements on foot
for the establishment of two other banks in Lower Canada
upon the same model. The first public indication we have of
the movement of the Kingston merchants is found in a letter in
the Kingston Gazette of June 30, 1818, urging the establishment
of a bank in Kingston. This letter is interesting as typical of
the very confused ideas as to the functions of banks and paper
money which were then current among the ordinary business
men of Canada and the United States.
The writer refers to the fact that seven or eight years ago
an unsuccessful and perhaps premature attempt was made to
establish a bank in Kingston. Since that time, however,
Kingston has grown rapidly, and the surrounding country has
filled up. The greatness of Britain is attributed in a large
measure to her banks. He estimates that the circulating
medium of this province stands to the real estate and personal
property, in the ratio of one to nine, and concludes (falsely
enough) that only one-ninth of the wealth of the province is
available for productive purposes. He refers also to the great
natural resources of the colony, and the need for capital to
develop them. The establishing of a bank at Kingston, by
collecting the dormant capital from all parts of the province,
as also from Lower Canada and the United States, would
increase the effective capital five fold. As a result vacant mill
sites would be occupied, manufactories established, land cleared,
toll bridges built, turnpike roads would be opened, and employ-
6
EARLY HISTORY OF CANADIAN BANKING
ment given to the numerous emigrants daily arriving. Finally,
as in the case of most other writers on such subjects, he refers
to the facilities afforded by the army bills, without which busi¬
ness could not have been carried on during the late war. But
those bills are now nearly redeemed, and are already at a
premium of five per cent. In this letter we have another
example of the prevalent confusion between circulating medium
and capital. Next week the Gazette contained the following
notice :
" A meeting will be held at Moore's Coffee House on
" Thursday evening next, at 8 o'clock, for the purpose of taking
" into consideration the expediency of establishing a bank at
" this place, where those who would wish to promote such an
" establishment are invited to attend.
"Kingston, ist July, iSiS"
The following week appeared the articles of association of
the Bank of Upper Canada. As already stated, these articles
are almost identical with those of the other two banks being
formed in Canada at the same time, the Bank of Canada and
the Quebec Bank.
The leading features of these articles may be condensed as
follows : —
Capital stock, 25,000 in shares of ;^25 each, payable in
gold, silver, or Bank of Montreal bills, two per cent, to be paid
when the whole of the stock is subscribed, and ten days' notice
given, and six per cent, to the directors when they have been
chosen, the remainder in calls of ten per cent, whenever the
directors decide and after thirty days' notice. The bank shall
not issue notes or make discounts until £ 10,000 shall be actually
paid in. There are to be thirteen directors, chosen annually,
and from their number shall be chosen a president and vice-pre¬
sident. The stock and property shall alone be responsible for
the debts of the company, and all persons doing business with
the bank must do so on these terms. Every bond, bill, note, or
depositor's bank-book shall state that payment is to be made
only out of the joint funds of the company. Any number of
stockholders not less than fifty, and together holding not less
than 200 shares, or any seven of the directors may call a joint
EARLY HISTORY OF CANADIAN BANKING
7
meeting of the stockholders. If the object of the meeting is to
consider the removal of the president or a director for mal-ad-
ministration, the person accused shall, from the time of the first
notice, be suspended from the fulfilment of his duties. The
cashier shall give a bond with two or more sureties for ;^i 0,000
for the faithful discharge of his duties, and every clerk a bond
for whatever sum the directors may fix. The company shall
not hold lands or tenements as investments, or hold mortgages,
except as collateral security. The total amount of the debts of
the company shall not exceed three times the amount of its paid
up capital stock over and above a sum equal in amount
to the deposits. The books, papers, correspondence and funds
of the company shall at all times be subject to the inspection of
the directors. The directors shall every year, at the joint meet¬
ing, lay before the stockholders for their information, an exact
statement of the amount of the debts due to and by the com¬
pany, specifying the bank notes in circulation, the amount of
such debts as, in their opinion, are bad or doubtful, the amount
of surplus or profit remaining after deducting losses and provi¬
sion for dividends. The company shall not, directly or indirectly,
deal in anything except bills of exchange, gold or silver bullion.
The association shall continue twenty years and no longer,
but the proprietors of two-thirds of the stock may dissolve the
company at any previous time.
A number of those who had joined in the petition for the
chartered bank did not take stock in this private banking
company, but made alliance with the private banks of Montreal.
Thus, we find the Bank of Montreal opening a branch in King¬
ston, on July 27th, as the following advertisement will indicate :
"The subscriber having been appointed agent for the Bank of
Montreal, any sum required can be obtained at his office for
" good bills on Montreal or Quebec or for specie.
" Thomas Markland
" Kingston, 27th July, 1818"
Mr. Markland it was who headed the list for the first bank
charter. From various sources we discover that Bank of
Montreal notes enjoyed a considerable circulation in Upper
8
EARLY HISTORY OF CANADIAN BANKING
Canada. After the Bank of Canada was founded it also estab¬
lished an agency at Kingston. Thus we find in the Gazette of
October 13th, 1818, the following notice;—
" Bank of Canada. The subscriber being appointed agent
" for the Bank of Canada, he will negotiate bank notes for bills
" on Montreal, Quebec, or for specie.
William Mitchell
" Kingston, Oct. 13th, 1818 "
Mr. Mitchell was also one of the petitioners for the char¬
tered bank.
In the meantime the stock of the private Bank of Upper
Canada was taken up pretty freely, and on the 27th of October
the subscribers are requested to meet at Moore's Coffee House,
on Tuesday, the loth day of November next, at 6 o'clock in the
evening, for the purpose of electing directors. On December
14th the stockholders of the bank are called upon for the first
instalment of 8 per cent., being $8.00 on each share, to be paid
on or before Monday, the ist day of February next. On April
16th, 1819, appears the first advertisement indicating that
the Bank of Upper Canada has opened its doors for busi¬
ness.
" Bank of Upper Canada. Director for the week, Neil
" McLeod, Esq. Discount days, Wednesday in each week.
" All notes offered for discount must be handed to the Cashier
" on the day preceding the discount day.
" S. Bartlett, Cashier "
It appears that, following Lower Canadian precedent, the
various directors of the bank took duty for a week at a time.
The following list gives twelve of the thirteen directors for the
first year :—Benj. Whitney, President, Arch. Richmond, D.
Washburn, C. A. Hagerman, M.P., John McLean, Sheriff, John
Ferguson, P. Smythe, Neil McLeod, Henry Murney, T. S.
Whittaker, Thos. Dalton, Smith Bartlett.
The bank seems to have flourished, and to have more than
held its own in competition with the agencies of the other
banks. Its notes evidently obtained circulation throughout the
province, and even in Lower Canada, where the Bank of
EARLY HISTORY OF CANADIAN BANKING
9
Canada acted as agent for the redemption of its notes. The
advertisement of a Montreal firm states that Bank of Upper
Canada bills are taken at par.
Having got this first bank in Upper Canada fairly
into business we may leave it and return to the charter which
so long awaited the declaration of His Majesty's pleasure. The
first of January, 1819, having passed, and with it the validity of
the Act to incorporate the Bank of Upper Canada, the parties
interested were surprised to find that the Act was, after all,
pleasing to His Majesty. The lieutenant-governor regrets to
announce that the official expression of that pleasure had been
unusually delayed. In a letter to Gouldburn, dated May 7th,
1819, lieutenant-governor Sir Peregrine Maitland refers to
the situation in these terms :
" My Dear Sir,—I received from you by the last mail a
" despatch which states that His Majesty's Privy Council
" see no objection to certain bills passed in this Province
"in 1817, the first of them entitled 'An Act to Incor-
" porate Certain Persons under the Style and Title
"of President, Directors and Company of the Bank of
" Upper Canada.' Though the two years have expired,
" and I cannot make the Act in question available, I
"am very happy to be authorized to give the royal assent to a
" similar bill which may be passed the next session. The
" Province is over-run with American paper, and judging from
" the connections of the persons who were about to open a bank
" at Kingston, there was every reason to suppose that the evil
" would be much increased. But a provincial bank will
" crush it."
The latter part of this letter gives further confirmation to
the fact, indicated from several other quarters, that American
bank notes were then circulating to a considerable extent in
Canada. The suspected tendency of the private Bank of Upper
Canada to increase this circulation, has reference to the fact
that the chief promoters of that bank were Americans, of the
same type as those who started the Bank of Canada in Mont¬
real, and who were especially interested in the trade between
Canada and the United States. It was natural, therefore,
that the Kingston bank should associate itself with the Bank
of Canada.
The lieutenant-governor had intimated that the form of
lo EARLY HISTORY OF CANADIAN BANKING
a re-enactment of the charter of the Bank of Upper Canada
would have to be gone through in order to make it available.
Accordingly, on May 21st, 1819, the Kingston people once more
called a meeting to consider the propriety of petitioning parlia¬
ment at its next session for a renewal of the Act incorporating
a banking company in this province. This movement, we find,
was supported by most of those connected with the private
Bank of Upper Canada in Kingston. As a result of this meet¬
ing a petition was drawn up and presented to the Legislature on
June i2th. On June i6th the York people presented the same
petition as before, asking to be incorporated as the Upper Can¬
ada Banking Company, this time signed by William Allan and
twenty-two others. Mr. Allan was a rising member of the
Family Compact. At that time he held three different offices,
and was destined before long to become a still more important
member of the fraternity under the title of The Honorable Wm.
Allan. Again, however, the legislature took no notice of the
York petition, but proceeded to re-enact the original bill in
accordance with the Kingston petition and the speech from the
throne. The Compact, however, was not in the habit of suffer¬
ing its objects to be lightly defeated, otherwise it had never
attained to the power which it then enjoyed, or improved its
future opportunities. It at once adopted a new plan of cam¬
paign, as we shall presently see. The second bill chartering
the Bank of Upper Canada passed the legislature on June
24th, yet not so unanimously as on the former occasion. In its
later stages, strange to say, Mr. Robinson, of York, who had
introduced the bill for the rival bank, now appears as the patron
of the bill, while many of the eastern members, its former sup¬
porters, voted against it. The bill passed, however, by a
majority of three, and was sent to the legislative council. On
July 8th, Mr. Baldwin, the Master in Chancery, brings down
from the legislative council the following message with refer¬
ence to the bank bill :—
" Mr. Speaker :—The Honorable the Legislative Council
" requests a conference with the Commons House of Assembly
" on the subject matter of a bill entitled ' An Act to incorporate
" sundry persons under the style and title of the President, Di-
" rectors and Company of The Bank of UpperCanada,' and have
" appointed a committee of two of its members who will be
EARLY HISTORY OF CANADIAN BANKING
II
" ready to meet a committee of the Commons House of Assem-
" bly for that purpose in the Legislative Council Chamber at the
" rising of this House this day."
The conference took place, and the result, though strange
enough in itself, had all the facility and despatch of a prearranged
harmony. On the very same day, at the next sitting, Mr.
Baldwin brings down the bill, sent up from the lower house, to
incorporate the Bank of Upper Canada, which the legislative
council has passed with some amendments, which amendments
consisted simply in striking out the names of the Kingston mer¬
chants and others, and substituting the names of the members
of the Family Compact and their friends, while the head office
of the bank is changed from Kingston, not to York, be it observed,
but to the " Seat of Government." There was some talk at
that time of removing the seat of government from York, and
the Compact naturally wished to be able to carry the bank with
them. As a further evidence of prearranged harmony, Mr. Bald¬
win brings down along with these amendments,and as a solace to
the Kingston people, a bill, already originated and passed by the
legislative council, entitled "An Act to incorporate sundry per-
" sons under the style and title of the President, Directors and
" Company of the Bank of Kingston," which they recommend for
adoption by the lower house. This bill was simply, with the
omission of one article, a copy of the Act which the Compact
was in process of capturing. As a final evidence of prearranged
harmony, the majority of the lower house, under the leader¬
ship of Mr. Robinson, immediately accepted these astonishing
amendments, passed the Act so amended, and read the Bank of
Kingston bill a first time, all at one sitting.
But why, it may be asked, since the Compact was willing
to allow Kingston to have a bank, did they not permit the
Kingston people to keep their own bill, and why did not the
Compact use its influence to have a new bill passed to establish
the Banking Company of Upper Canada, for which they had
petitioned the house just three weeks before ? To which we
might suggest the following answer : In the first place, their
proffered bill to establish the Banking Company of Upper
Canada had been already shoved aside, and it was evidently a
bill to establish the Bank of Upper Canada, to which the gover-
12 EARL Y HISTORY OF CANADIAN BANKING
nor seemed authorized to assent. In the second place we find
that the bill for establishing the Bank of Upper Canada con¬
tained an important clause adapted from the Quebec bill of
1808, and ultimately from the charter of the first Bank of the
United States, making it lawful for the governor or lieutenant-
governor, or person administering the government of the
province for the time being, to subscribe and hold in the capi¬
tal stock of the said bank, for and on behalf of this Province,
any number of shares therein not exceeding 2,000, the amount
whereof the governor or lieutenant-governor, etc., is autho¬
rized to take out of the unappropriated monies which now
remain in the hands of the Receiver-General for the future dis¬
position of the parliament of the province. Whether this
clause, which was not in the previous Act, was incorporated in
this bill when it was first introduced to the House, or was
added after the Compact became interested in it, I have
not been able to exactly determine. What evidence there is
would seem to indicate that it was added to the bill by its new
friends. As the Compact usually controlled the executive of
the province, with very limited responsibility to the legisla¬
ture, it may be seen at a glance that a charter with such a
clause in it would be to the Compact an extremely desirable
possession, as practically the same persons would then have
both the granting of the public money and the use of it all in
their own hands.
Sir Peregrine Maitland was as yet new to his office, and
had not been brought into that condition of personal sympathy
and cordial co-operation with the purposes of the Compact
which he afterwards exhibited.
When, therefore, the two bills came before the lieutenant-
governor for his contribution of the royal assent, he evidently
felt unable to sanction so considerable a departure from British
methods as that indicated in the capture of the bill to incorpo¬
rate the Bank of Upper Canada, hence, contrary to expecta¬
tion, he reserved the captured bill for the signification of His
Majesty's pleasure, and gave the royal assent to the substitute
establishing the Bank of Kingston. The people of Kingston
were naturally much astonished at the turn things had taken.
But seeing that the captured bill had been reserved, and that
EARLY HISTORY OF CANADIAN BANKING 13
the one sanctioned was the only charter before the countr}',
they made the best of the situation, and set to work to raise the
necessary capital.
It was on July 12th, 1819, that the lieutenant-governor
gave the royal assent to the bill establishing the Bank of
Kingston. The Act was published in full in the Kingston
Chronicle on July 23, and in the same issue of the paper a
notice appeared calling a meeting of the inhabitants of the
town and its vicinity for the purpose of adopting measures to
carry the Act into effect. This meeting was evidently in favor
of going on with the charter, and in the next issue of the
Chronicle we have the following :
" Notice.—Books of subscription for the Bank of Kingston
will be opened at the directors' room of the Bank of Upper
" Canada, on the 24th August next, and kept open each day
*' from the hour of 10 till 3 o'clock until further notice.
" Kingston, July 27th, 1819"
This notice indicates that there was no antagonism between
the chartered bank and the existing Bank of Upper Canada.
Two of the directors of the Bank of Upper Canada, Neil
McLeod and Patrick Smyth, were among the petitioners for the
Bank of Kingston. From the fact that the majority of the
directors of the private Bank of Upper Canada were among
the charter members in the bill which was captured by the
York people, we may reasonably conclude that it was the inten¬
tion of the private Bank of Upper Canada to unite itself with
the provincial bank as soon as established.
By the third clause of the Act of incorporation of the Bank
of Kingston the number of shares to be subscribed for in the
first instance by any one individual was limited to eighty.
Afterwards, if not all taken up, the number might be increased.
Subscription books were to be opened on the 24th of August,
and the Chronicle, referring to the fact, says that when the
books were opened for subscriptions several individuals entered
their names for the full number of shares allowed in the first
instance. In the same article it is assumed that most of the
stock will be taken up in Kingston, as it has the largest amount
of capital in the province. It is pointed out that a bank-note
currency is greatly needed in Upper Canada, as it will serve all
14 EARLY HISTORY OF CANADIAN BANKING
the purposes of provincial trade, and yet not be likely to drain
away as specie does. This idea, as we have seen, was at that
time as common as it was fallacious. The bank notes being
redeemable in cash, if the nature of the provincial trade
required money to be sent out of the country, bank notes
would simply be converted and the bullion sent off. It
was also held, with more reason, that these notes by affording
a circulating medium for the western trade of the province
would greatly increase it, yet if it tended to increase imports
rather than exports, on which it could have little influence, it
might simply be hastening the exit of metallic money, and this
was, in a measure, the actual result.
The Kingston Bank charter provided for the opening of
books of subscription in the towns of Niagara, York, Brockville,
Amherstburg, Ancaster, Vittoria, Hamilton, (Cobourg) and
Cornwall. It was expected in Kingston that stock would be
taken in most of these places, and branches of the bank opened
in a number of them.
In view of what followed we require to note particularly the
economic condition of the province and of the neighboring
States at this time. A great decline had taken place in the value
of Canadian agricultural products, owing to the contraction at
once of the home market furnished by the troops and other
government employees, and of the British market, due to the
introduction of very stringent corn laws in the interests of the
British farmers. The United States was also undergoing the
natural reaction from the war with England, and was especially
suffering from the depression in international trade which fol¬
lowed the close of the long struggle in Europe, during which the
United States had enjoyed an exceptionally favorable position.
The British corn laws injured the American farmers also, and
there followed throughout the United States a period of very
severe commercial depression, during which metallic money be¬
came scarce and many banking institutions came to grief.
The Canadian trade with Britain was still greatly hampered
by the remnants of her late colonial system and the navigation
laws. The Americans, on the other hand, had obtained many
relaxations of that policy in their favor owing to the necessities
of the late European situation. As a consequence, the Ameri-
EARLY HISTORY OF CANADIAN BANKING 15
cans were able to supply Canada with many lines of colonial
and foreign goods, especially those from China and the East
and West Indies, cheaper than they could be had from British
merchants. Hence, as in the case of Lower Canada, the money
which left the Upper Province went largely to the United
States; from Kingston it passed chiefly to Sackett'sHarbor and
Oswego.
At this time the Americans preferred silver to gold, as it was
best suited to their trade with China, India, and the East gen¬
erally, as also with the West Indies and South America.
A great part of the money sent from Britain to redeem the
army bills was gold, hence silver in Canada first passed to a
premium and soon left the country. About the beginning of
1820 it was reported that there was hardly any silver in circu¬
lation in Canada. Gold itself had passed to a premium of one
per cent., while bills of exchange on London were at a premium
of five per cent, in gold, or six per cent, in silver. Later on we
find that the relations of the metals have changed. The new
trade policy introduced by Huskisson made it more advantage¬
ous to the Canadians to deal with England, consequently gold
came to be the metal most in demand for exchanges, and in 1822
we find that the banks are offering four per cent, premium on
British gold and two and one half to three per cent, on other kinds
of gold. For good bills of exchange on Britain the banks were
willing to pay ten per cent, premium, while fifteen per cent, or
over was charged by the banks for exchanges on Britain. These
figures indicate how one-sided the foreign trade of Canada was
at this time. At the same time it was obviously very profitable
for the banks to undertake the work of exchange, especially
where they could obtain control of the government bills or
those of the leading importers. This, as we have seen, con¬
stituted the strength of the Bank of Montreal, as afterwards it
was the mainstay of the Bank of Upper Canada at York.
Naturally this period of depression was particularly trying
to the merchants of Canada, and especially to those in Kingston,
who depended so largely on the general trade of the province in
agricultural products, and had neither the advantages of the fur
and timber trades of Montreal and Quebec, nor the patronage
of the government as at York.
15 EARLY HISTORY OF CANADIAN BANKING
The expansion of Kingston during the first twenty years of
the century had been rapid and encouraging. Credits to the vari¬
ous local merchants, to mill owners and grain dealers had been
necessary and extensive, and for some time after 1812 had been
very well discharged. When, therefore, the evil days of low
prices and slow sale for agricultural products fell upon the pro¬
vince, accompanied by the rapid disappearance of the currency,
these obligations could not be met with the same promptness.
This was particularly disastrous to Kingston, where most of the
credits centered, and which had been in a sense speculatively
discounting its future. This brief outline of the situation will
enable us the better to understand the currency and banking
condition during the five or six years which followed 1819. In
this period the collapse of the private Bank of Upper Canada
occurred.
The expectation of the Kingston people that shares in
their bank would be eagerly taken up by other Upper Canadian
towns was doomed to disappointment. The truth is that as the
outlying centres were the first to feel the pinch of the growing
depression, they were already unable to find money for anything
more than their present needs, if even for those. Hence they
could not take shares in a bank requiring the various instal¬
ments to be paid in gold or silver. The minimum amount
required to be subscribed before beginning business was
;^5o,ooo ($200,000), and of this ^"20,000 was required to be paid
in. With very little assistance from without, and under the
conditions of the time, this proved to be too much to be raised by
the people of Kingston alone.
Meanwhile the unchartered Bank of Upper Canada was
doing a very brisk business, all things considered much too
brisk for safety. J ust in proportion as specie left the country
people sought assistance from the bank, and its directors did
not recognize with sufficient clearness that the very condition
of affairs which led to the calling out of its notes would make
it difficult for its customers to meet their obligations to the
bank.
Business conditions continuing to grow worse, much specu¬
lation was indulged in as to the best means of remedy. The
opinion which prevailed was that the growing scarcity of money
EARLY HISTORY OF CANADIAN BANKING 17
was the tap root of the evil. Few went beyond that elemen¬
tary observation to ask what might be the cause of the scarcity
of money. We need not perhaps be too impatient in this
matter with our predecessors, when we find that the average
modern citizen, with so much additional experience available,
commonly arrests his diagnosis at the same elementary point,
and spends much of his time in seeking for or trying to apply
the wrong remedy.
When, in 1821, the first session of the 8th parliament
opened at York, we get a glimpse of the nature of popular
opinion on the subject. Mr. Stephen Conger and other inhabi¬
tants in the township of Hallowell, set the ball rolling by their
petition to the House to do something towards supplying the
country, especially the farmers, with money. The petition itself
is not found in the Journals of the House, but the report of the
committee to whom it was referred is given, and is so interest¬
ing with reference to several aspects of our subject, that I give
a few extracts from it. It appears that the petition had asked
for the issue of an inconvertible paper currency by the govern¬
ment, for the committee reports that they " find that to pass an
" Act authorizing the emission of a paper currency which should
" be a legal tender in satisfaction of executions, would be in
" direct violation of the British statute 4 Geo. Ill, chap. 34,
" which expressly prohibits the creation of paper bills of credit,
" to form a legal tender by any Act of a colonial legislature."
It appears, further, that the petitioners desired that the govern¬
ment, having provided itself with plenty of this legal tender
paper, should open a loan office to furnish the farmers with
money on the security of their lands. The better informed
members of the committee recognized well enough what that
would lead to, and declared that " a loan office established on
" the principle stated in the petition would not ultimately afford
"the relief desired. It would be dangerous in the present de-
" pressed state of agriculture and commerce to afford so general
" a facility to loans, which your committee fear would end in the
" inevitable sacrifice of the landed property of most of those
" persons who might be induced by it imprudently to seek relief
" against present pressure, or embark in speculative enterprises
" from too sanguine anticipations of the future. Your commit-
l8 EARLY HISTORY OF CANADIAN BANKING
" tee further beg leave to express their conviction that a paper
" currency issued without any provisions for its redemption by
" payment in specie, but built merely on the credit of landed
" security, must inevitably and immediately sink in value, and
" to attempt to force it as a legal tender in cases of debts now
" contracted, would be in reality to defraud individuals and
" would ruin the credit of the country."
This is sufficient evidence that men of sound views were
not wanting to check the populist ideas of those days. The
committee, however, wished to impress upon the house " the
" great embarrassment experienced throughout this province
"for want of a circulating medium." Further, they declared
that " almost all the money transactions of this province are
" carried on through the means of the paper of a private bank
" of this province, not established by charter, or by bills of
" banks in Lower Canada, which it is obviously contrary to
" good policy to suffer to continue."
As a result of this report and the discussion on it, the fol¬
lowing resolutions were adopted by the House on April 6th :
" Resolved, that it is the opinion of this House, that the
" establishment of a provincial bank under proper restrictions
" would be beneficial to the country, by remedying the great
" want of specie, by securing to ourselves whatever advantages
" are to be derived from the issue of a paper currency, and by
" establishing a circulating medium of known security, instead
" of the paper of private banks, uncontrolled by charter or
" legislative provisions, and which from its being rejected by
" the public receivers, does not answer effectually all the pur-
" poses of trade."
The second resolution runs thus :
" Resolved, that it is the opinion of this House, that a bill
" should be brought in for establishing a provincial bank, the
" corporation to consist of such persons as shall become stock-
" holders under the provisions of the Act ; the system to be as
" similar as circumstances will permit to that contained in the
" bill formerly passed for establishing a bank at Kingston, except
" that to insure its going into operation, the amount of stock
" and deposit, and consequently the paper to be issued, should
" be reduced."
Evidently the people of Kingston were quite satisfied to
accept a general Act of this nature providing for the establish-
EARLY HISTORY OF CANADIAN BANKING
19
ing of a provincial bank, the stock and management of which
would be open on equal terms to all parties in the province.
Hence they made no effort to have their charter amended
to reduce the stock and deposit required before starting the
bank.
In accordance with the second resolution a committee was
appointed to draft a bill giving expression to the ideas therein
contained. This was done, the title of the bill being : " An Act
" to establish a Provincial Bank, under the style and title of
" the President, Directors and Company of the Bank of Upper
" Canada." The bill passed through all its stages, and received
the royal assent on April 14th, 1821. Nevertheless it was
doomed to perish still-born. To the astonishment of everyone
there arrived from England a day or two afterwards the official
expression of the royal assent to the Act of 1819, establishing
the Bank of Upper Canada which had been captured from the
Kingston people by the Family Compact. This of course had
precedence of the Act just passed, and was duly proclaimed on
April 21 St.
As in the case of the Kingston Bank charter, the capital of
the York Bank of Upper Canada was fixed at ^"200,000, of
which ;^5o,ooo was required to be subscribed and ;^2o,ooo paid
in before the bank could begin business. The government was
authorized to subscribe for 2,000 shares, amounting to £'25,000.
As already pointed out, the promoters of the bank and the
executive of the government were practically the same persons,
hence, as was to be expected, the government at once subscribed
for the whole of the 2,000 shares which it was permitted to take.
This was itself half the minimum required. Yet it was found
impossible to raise the other half. Some of the more solid and
conservative members of the government disapproved of the
whole movement, recognizing that there was no adequate capital
or business at York to justify the existence of a bank there.
Thus, the Hon. John McGill, the Receiver-General, whose
knowledge of the economic condition of the country was superior
to that of any of his colleagues, in writing to a friend at this
time, 1821, says :—
" It is not yet ascertained whether there are sufiicient sub-
" scribers to the Upper Canada Bank to commence operations.
20 EARLY HISTORY OF CANADIAN BANKING
" My own opinion is that it will be a losing business, though I
" have been dragged into subscribing more than was perhaps
" prudent. I really cannot see what good business a bank can do
" here. The Lower Canada bank, I am told, has not been able
" to pay a dividend for the last year owing to bad debts."*
But Mr. McGill had some colleagues who were looking in
quite another direction than ordinary business to make the
bank pay.
When it was discovered that a sufficient amount of stock
could not be disposed of to fit the charter, it was sought to make
the charter fit the stock to be had. At the next session of the
legislature, which was convened in November of the same year,
the Attorney-General introduced a bill to amend the charter of
the Bank of Upper Canada, which is usually referred to at this
time, both in the journals and elsewhere, as the " York Bank."
The bill passed through its various stages under the direction of
the Attorney-General, and became law on January 17th, 1822.
By this amendment the minimum deposit required was reduced
from ;£'2o,ooo to ;¿'io,ooo. Even then, however, and with the
aid of the government shares, it was found impossible to raise
the minimum.
In looking over, in the Toronto Public Library, the manu¬
script papers of Mr. Samuel P. Jarvis, one of the first stockholders
of the bank, I find, among other interesting bits of information
with reference to that institution, his receipts for the payment
of the first five instalments on the capital stock subscribed. The
first call was for 10 per cent., or £1 5s. per share, and the receipt
for this is dated ist March, 1822. The second is also for loper
cent., and is dated loth June, 1822. In July the bank began
business, and the third call was not made until October, 1823.
The bank, therefore, went into operation on 20 per cent, of its
subscribed capital. In the end of 1823, after the payment of
the third call for 5 per cent., the paid-up capital was reported
at 0,640. Even assuming that the amount of subscribed
capital was as great in 1822 as in 1823, if 25 per cent, of it
amounted to ;^io,640, then 20 per cent, could not have exceeded
;^8,5I2, of which ;^5,ooo represented the amount contributed by
the government from the public funds, and ;^3,5i2 the whole
•This letter is given in " Toronto Past and Present."
EARLY HISTORY OF CANADIAN BANKING
21
amount contributed by the stockholders. But, as we find that the
amount of subscribed capital was gradually increasing, we are
justified in assuming that there was somewhat less stock taken
up in 1822 than in 1823. Hence, when the bank began busi¬
ness, there must have been somewhat more than ;¿'i,5oo of a
deficiency in making up the minimum of paid-up capital re¬
quired by the amended charter. How then was this deficiency
made up ? Mr. Geo. Hague, General Manager of the Mer¬
chants Bank, has told us on the authority of Mr. Boulton, that
part of the funds needed to start the bank were advanced out of
the Military Chest.
The directors of the bank as it went into operation were
the following : Wm. Allan, Hon. Joseph Wells, Hon. and Rev.
Dr. Strachau, Thos. Ridout, Chris. Widmer, Hon. John McGill,
James Crooks, Wm. Proudfoot, Hon. J. H. Dunn, Henry J.
Boulton, Hon. James Baby, George Munro, George Ridout,
Hon. George Crookshanks, Hon. D. Cameron. Fifteen in all,
of whom nine were either members of the Executive or Legis¬
lative Council, or held important offices under government,
while most of the other six are found in similar positions a few
years later. Thus, with the exercise of a great deal of inge¬
nuity, and the contribution of a little capital on the part of its
promoters, we find that notable institution, the Bank of Upper
Canada, started on its interesting career.
Finding that the establishment of a provincial bank had
been prevented by the proclamation of the royal assent to the
Bank of Upper Canada at York, the Kingston people once
more resumed their efforts to secure a chartered bank of their
own ; and from that time till the final passing of an Act in 1832,
chartering the "Commercial Bank of the Midland District,"
there was an interesting conflict between the Family Compact
at York and the commercial interests in the eastern part of the
province, the details of which, however, bring us into a new
epoch.
Meantime we have the failure of the private Bank of
Upper Canada at Kingston—the particulars of which make
rather a long story which cannot be narrated here.
Adam Shortt
Queen's University, Kingston
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352.1 "1607
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