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Lecture 10

Lecture 10--The Development of the Canadian Banking Sector.doc

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York University
MGMT 1030
Frank Miller

The Historical Development of the Canadian Financial Sector MGMT 1030 Schulich School of Business The Historical Development of the Canadian Financial Sector 1) Banking in New France and Early British North America  Merchants often assumed the role of credit in the economy of New France  Imbalance of trade with Europe drained specie out of the colony  “Card money” proved to be a short term solution to currency problems in New France  Instability in the colonial financial structure continued after 1763  Transferable certificates for government purchases the first reliable form of currency on Upper Canada after 1792  Army Bills during the war of 1812 were legal tender notes redeemed by the British Government - Other than banks, Canadian economy had to find alternatives; merchants (French companies or small merchants in the colony), to provide for funds to set-up businesses - Economy operated on barter - Called lack of specie; referred to gold or silver/coin, anything that has value - French paid government debt, army and other government officials first, with specie - Counterfeiting became a major problem when currencies were issued - British decided to redeem their paper money at full value - 1759, fall of New France, 1763 Canada becomes British colony o People started to use promissory notes to make trade and negotiate 2) Chartered Banks in British North America  Bank of Montreal established in 1817, followed by others, including the Bank of Nova Scotia in 1832  Granted the power to issue bank notes  Limits on the amount of debt in relation to deposits  General conservative nature of chartered banking in British North America resulted in a branch banking system  Different approach from banking in the United States, where a fear of centralized authority and monopoly resulted in a loose system of many banks  Chartered banks often intimately tied to colonial governments  Decimal and dollar system adopted by the Province of Canada in 1853  1850s witnessed the creation of many new chartered banks  Royal Bank of Canada—1859  Provincial Note Act of 1866  Gradual replacement of private bank notes with government notes - When banks were initially established, very conservative lending habits - Canadian model of banking was very bad at the start;
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