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Lecture 9

HIST113 Lecture 9: Lecture 9. Banking and Financial Services to the Late 19th C. Oct 14 2014.docx


Department
History
Course Code
HIST113
Professor
Catherine Briggs
Lecture
9

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HIST 113
Lecture 9
October 14 2014
Banking and Financial Services to the Late 19 th
C
Themes and Questions
1) Reasons for the Creation of Banks.
2) Why and How did Government intervene in the Banking sector?
3) What factors led to the Bank Act of 1871 and How has Government Regulation
impacted on Banking in Canada? (How has regulation impacted on other financial
services?)
4) Operation of Financial Services sector.
Banking in Early 1800s
Before 1817 and the formation of the first bank in Canada,
Before banks were there to facilitate exchange there was a significant problem
The economy was based on trade
A lot of movement of goods in and out of the colony
Impacted by the fact that there was no set or agreed upon and consistent currency
Need for a common medium of exchange
Gold/silver coins are inadequate
oNot enough of them
oIts heavy
oHard to move through the trade networks from one local to another
Bank notes coming from some banks
oGenerally U.S. banks
oDon’t know how much real value the paper money has
oMay deteriorate in value
oBecause of the lack of regulation
Banks are small and localized and serving their own community
Isn’t any money being issued by the government that is specifically British north
American or Canadian
Conduct business based on a series of promissory notes
oMay have some value because they are based on networks and business
ties (the person doesn’t want to dishonor themselves by not paying)
oThe British army has issued its own currency. The bills are generally a bit
more stable (but still not 100%)
Chartered banks
oMerchants think they need to create banks in the major cities
oWould facilitate the commercial economy
oBanks would print paper money (create a medium of exchange that could
be used to facilitate transactions)

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oFurther facilitate the commercial economy by providing the ability to
move money between merchants and over distances
oCreate systems of credit (and give loans)
Government issued charters
oThe first banks in Canada were private (created by business men)
oJoint stock companies with the investors also being the stockholders
oThe banks will issue paper money that will facilitate transactions
oWanted the government to charter the banks (give it the exclusive rights to
operate as the bank) in order to limit its liability
The first bank was created in 1817 and was the Montreal bank
Chartered Banks
Eventually the governments of all the colonies begin to issue charters to banks to
encourage bank formation
Encourage the formation of banks because overall it would be good for the
economies
The government gives them the right to operate through a charter
Gives them a monopoly within a certain area
Enough banks may not be created if you leave it solely up to the private sector
Not necessarily perceived as having the potential to be successful as a business in
its own right
Encourages the proliferation of more banks
Granted Limited liability
oSo the investor is not responsible for all the resources should the bank go
under
Operation of First Banks
These banks would exchange their paper currencies for other paper notes or gold
coins
The banks take these forms of money and in exchange they will give the banks
paper currency to that person (or move it on their behave to facilitate a
transaction)
Their operation depends on their ability to cover some of the money out of the
various forms of currency they take
oSo that they realize a profit and don’t lose money
Each bank had their own money
oIn terms of redeeming the various different forms of currency that they
took in
oGave out money to their clientele in the form of their currency
Reserves could not be based on land or mortgages
oThere was a sense that this would not stabilize or garner acceptance for
their currency
oLand values were no more consistent
oLand did not have the liquidity that they would like
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