“This is not a begging letter, Sir,” wrote Mrs. Hill of Toronto’s 45 Sackville Street in her brief note of August 22, 1923, to T.L. Church, her local Member of Parliament. It is “to ask you to try to get our money back, if it is humanly possible, for the poorer class at any rate.”
The “money,” — $234.19 (roughly $2,600 today) — was put aside, said the desperate woman, for the coming “winter’s supply of clothing and coal” that she, her husband, and their two small children would surely need. She had “banked” most of their cash in May, for fear she would “lose it” at home.
Five days before pleading to Church for help, Mrs. Hill had been enjoying the warm, sleepy Friday afternoon in Toronto and had decided to deposit another $40 in the small bank she had come to trust with her family’s money. She did so at precisely 2:30 P.M. Her peace of mind, and that of roughly 60,000 other Home Bank depositors from Quebec to Fernie, British Columbia, was shattered thirty minutes later when the seventy-one-branch, Toronto-based Home Bank of Canada shut down. Much of Mrs. Hill’s savings, and those of others, was gone.
With the Home Bank went an era when many had faith in the transparency of their banks, and national governments were keen to stay out of the business of banking. What followed saw many Canadians turn to government to underwrite their banks’ honesty and politicians increasingly feel comfortable intervening in the business of banking in the name of the public good.
Acrimony spoiled the party when Parliament opened in November 1867. In October, the divide between Canada’s first finance minister, Sir Alexander Galt, and his cabinet colleagues, including Prime Minister Sir John A. Macdonald, was laid bare. Galt wanted Ottawa to intervene and save failing banks, smooth over economic upheaval, rescue ruined depositors, protect debtors from having their loans called before they were due, and bail out bank investors as well as bank executives who exercised bad judgment using the public purse to finance the entire process. Galt had support in Ontario, but not where it counted, in Macdonald’s cabinet, which rejected his pleas for an interventionist policy. After the pomp and ceremony of the opening day of Canada’s first Parliament, Galt resigned. His failure to persuade Macdonald and others reflected the reality of the new government’s troubled finances.
What to do about banking claimed Canada’s second finance minister, Sir John Rose, a little less than two years later. Rose took to heart demands for a sound banking system, inspired in part by the 1866 failure of the Bank of Upper Canada, which left Ontario without a large bank capable of competing with the Montreal-based Bank of Montreal, the biggest North American bank in 1867.
Rose, a Montreal MP and friend of Macdonald’s, proposed legislation modelled on U.S. federal banking law. Though it made safety a priority, many businessmen, farmers, and bankers in Ontario and the Maritimes felt safety came at the expense of competition and access to bank credit needed to grow the new national economy. Like Galt before him, Rose failed to inspire cabinet confidence. Macdonald withdrew Rose’s proposed legislation in May 1869, and shortly thereafter once again sought a finance minister who could deliver a blueprint for banking that would not threaten the stability of his government. Macdonald turned in the end to an old hand, Sir Francis Hincks, who, after a long political career in pre-Confederation Canada, had been absent from politics for a decade.
Hincks’s solution was presented in the Bank Act, 1871, legislation that was promoted as the answer to demands for safety. It proved nothing of the kind. It did not even define a bad debt, which allowed imprudent bank managers to hide their losses.