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THE HISTORY OF CANADIAN CURRENCY, BANKING AND HXCHANGE p i\ Crisis and Resumption BY ADAM SHORTT, MA. TORUNTi.1 JULRSAL 'n T.IK Canadian Banak.s' Assomatio THE HISTORY OF CANADIAN CURKENCV, HANKING AND EXCHANGE VIII. CRISIS AND RESUMPTION \I/HEN the suspension of the banks of the eastern States and Lower Canada took place, it was the conviction of the leading merchants Lind bankers of Upper Canada that suspension should take place there also. Hut the r-ieut.-Governor Sir V. li. Head, would not hear of it. His altitude on the subject was apparently determined, in large measure, by his intense hatred of everything American, and his consequent aversion to following' that example. Quite ignoring all the exceptional conditions of the situation, he maintained that the promises of the banks should be kept in the letter, even though the commercial heavens should fall. When the commercial and banking crisis loomed up, Mc- Kenzie saw his opportunity, and determined that no effort of his should be spared to discredit the ban'-s in the eyes of the public, or to add to their difficulties in meeting their obligations. He had predicted the utter collapse ot the banks and his reputation as a prophet was at stake. While the banks were curtailing their discounts and otherwise shortening sail before the storm should burst, McKenzie, through his paper The Constitution, *Chi«f sources : Journals of the Assembly, Upper Canada. Statutes of Upper Canada. Journals of the Special Council, Lower Canada. Ordinances of the Governor General and Special Council, I-ower Canada British Blue Books relating to Canada, 1837-39. A Narrative, By Sir Francis B. Head, Bart., Lond.. 1839. Thoughts on the Banking System of Upper Canada and on the Present Crisis, Toronto, 1837. A History of Banking in the United States. By \Vm. Graham Sumner New York. 1896- The Constitution, Toronto, 1837. The Brockville Recorder, 1838-39. The Montreal Gasette, 1837. The Quebec Ganette, 1838. 3 THE HISTORY OF C.i.\At>tA\ Ci f//t/:.\cy abused them for sucking the blood of the mer" hants durin;; prosperous times and then dest-rtin;; tlieiii wlicn distress pre- vailed. When the storm broke and the Lower Canadian banks suspended, McKen/ie waved his hands frantitall) iu scare head- lines, and shouted in the iar^;est type he could cuinmand, "Didn't I tell you so!" *' Rush lo the banks and ^,'et your notes cashed. Save what little you can of your dcjiosits, before the doors an; closed and your hard savin^^s are lost for ever." i"or result there was a severe run upon the banks. Thi:. they managed to meet partly by cash and partly by the usual time-cnnsuminj; devices adapted by bankers with limited cash and clamorous creditors. Much use was made of the simpK' plan of furnishing dummy creditors with large (luantities of notes in order that hours might be consumed in paying out at the wicktl small silver, which was soon afterwards returned to the vault; through the rear. Special devices were employed to block individual demands for large sums. Thus, in the case of the Commercial Hank at Kingston, a large (piantity of notes was presented by a person who was suspected of desiring the specie for export. He was told that the clerk was busy with previous claims, and he would have to wait. Shortly afterwards he re-appeared accompanied by a lawyer pref ared to formally protest every note not cashed on demand. He was asked to present his hrst note, which he did : whereupon the clerk with great deliberation and gravity proceeded to pay it in fractional currency. He was then asked for a second note, which was treated in like manner. .\t the end of an iiour the creditor and his lawyer retired in disgust having secured but a few pounds. The extent to which the run upon the chartered banks had reduced their reserves may be gathered from the following state- ment, furnished to the Select Committee of the .-Vsseribly in 1837: SPECIE IN THE VACl.TS, 15IH MA\ , 1837 Chartered banks £107, a^ Joi-u-stock banks 1 1.039 SPECIE IN THE VAULTS. r5TH JCNB, 1837 Chartered banks £ 78.884 Joint-stock banks 12,094 THK IIISTimy OF l.1.\.1l>IA.\ CIKKEXcy The Hank of Cppcr Canai'.a had paid „ul. in the redenipti.m of n.,l«, fron. May 3rd to June ;4th. £ y,.=,<( . It had ,n,p„rted ,"," .'^"y \' • '" "'■" '""^- ri".>««. and on the 27,h of June an add.l.ona ./ ,oo„. I, will he uhserve.l that the joint-Mock hanks had more specie on hand at the end of the month than at the beK.nn.nK of it. This is accounted for hv the fact that before the crisis they held their reserves lar^-ely in notes of the chartered hanks, particularly of the Hank of Ipper Canada Durntf; the crisis (l.nernor Head continued to pres, the chattered hanks, and especially the Dank of I'pper Canada, to c.mtnnu. speci,- payments, Ihreatenin- ccx.-rrion if they susperded and proi -.sin;,' special .assistance if they held out. In re letter to the liank of fpper Canada, he promised to sohct assistance fron, the Military Chest, throu-h the Commissary General at Uuehecon condition that the h.ank should p.ay out its funds to the last shillin,'. The Government connection .md piitrona(;e, with its comntand of specie and foreiejn exchange hem- ,,l more .mportance to the bank than any other interes'ts' It decdeci to continue pay s, thou;;!, such a course was .-on' trary to the conviction of a m.ajurity of the directors It, his evidence before the LoKisI.ative Committee, the }lon. \\ „.. I roudfoot, I'nsident of the Hank, st.ated that the banks of Lpper Canada should •• follow the same plan as in Lower Cai,,,di. .and suspend spece paynients." The Hon. John Macaulay a directcjr and forn,erly n,an.af,'er of the branch at Kingston, said that there must either be suspen-ion of cash payments or paralysis of the banking bu,siness of the country, hence he avoured as .he 1 • ler evil the suspendinK of specie payments. On the otner hand, . los. Kidout, the cashier of the Hank, while adm,tl,ng that it could not continue discounting or keep up its crcuktion without some legislative protection, yet professed him- self opposed to the suspension of specie payments, takin.r the purely chnica! ground th.at the B.ank should meet its obligations reg.irdless of the effect which that mi-' t have upon the business of the country. This was indeed the language of the Governor, but that It expressed the real conviction of Mr. Hidout ,nav be cloubted. When Governor Head was recalled and the Bank of bpper Canada found it convenient to suspend s,,ecie paytnent, Mr. Kidout was n,uch the stoutest advocate of the i THH HISTOKror CAS.1DIAy ciKRgscr policy of suspension, and presented wliat passed for very forcible arKuments against the very position whicli be iiuw maintained. The Commercial Bank was frankly anxious for susiiension, and, as in the case of thf Lower Canadian banks, it was backed in this' course by the unanimous voice of a public meetinu of th.i merchants and others at KinRston. Hut as it, too, enjoyed a cer tain amount of Government patruna:;^ and its notes were taken in Government payments, its directors wished to have the sanc- tion of the Government before suspending siwcie payments. On May 22nd, Lieut.Governor Head sent a letter to the chartered banks, in which he expressed his ,ippro\al of their determination to redeem their notes regardless of const, [uenccs, but added th.it. in response to their representations, should the worst come to the worst he was prepared to receive from the president, cashier and a majority of the directors of any of the cK -tered banks the accompanying declaration, upon which h.^ would assume the responsibility of authorizing the bank to con tinue its business, under certain restrictions, until thirty days after the next meeting of the Legislature, without the necessity of redeeming its notes. The declaration was as follows : " We. the undersigne 1 president, directors and cashier of the Bank. do hereby solemnly declare that in the course of the business of the institution and under circumstances which we cannot control, this bank has actually, in the redemption of its outstanding bills, put out all the gold and silver specie in its possession or immedi- ate power, and that the said bank for the bona-fide w.-int of such gold and silver, and for no other cause, was forced on the Jay of at the hour of o'clock to suspend specie pay- ment." Such terms being as good as impossible from every point of view, the banks making what virtue they could of neces- sity sacrificed their customers rather than attempt suspension. The Commercial Bank then claimed a share in the assist- ance promised to the Bank of Upper Canada, and the Governor agreed to aflford aid proportionally to the three chartered banks of the Province. To enUrge the sphere of service and give additional credit to the notes of the chartered banks, the Gover- nor issued an order to the Receiver General, the Commissioner of Crown Lands, the Sheriffs, Collectors of Customs, Inspectors of Districts and all other public officials, instructing them to THK HisTOHi- ot cj.tAnu.v cn/K/^vcr receive on the part of the C.overn.nent of Ippcr Canada the niitfs of the three chartered ' inks. The pohcy of the Clovernor was very severely criticised by Hl.nost all ele.nents in the Province The Toronto Hoard of Trade ur«ed h„n to change h,s policy and author./e .us|«nsion of spece paymmts. The merchants in ..ther parts of the country protested at public n,e..tin;,.s a^a.nst th.: Covernor's action, and he was fr,.,.|y ,onden,ned l,y the papers of both Provinces. \\ hen.later, the I,eK.slature was called in response to th- clamour ot the cuntry, a Sclecl Connnittee reported m favour of the bill authot, (the banks to suspend. In answer to the assertions cf the Governor that the suspension would compromise the credit of the 1 rovmce, the committee pointed out that, owin- to the suspension of the banks in the L'nited States and Lower Canada .t was impossible for the Upper Canadian banks to m.aintain' -pece p,ayments and s, ve the e^chan^e needs of the country I.y the forced curtail it of their accommodations the banks were placnK their cus. .mers in a very awkward position. The ordmary obligation of the banks, under normal circumstances to cas^, their notes on demand, and which was established in 'the public interest, should not be made un special circumstances to mihtate a-amst the public interest .'he commerce of the country urgen-ly requires accommodati.,:,, and the only ..uestion IS as to whether this accommodation should be furnished in bank notes or in Government let-al tenders to be issued to the banks When the hrst scare was over and tlie issues of the banks had been curt.uled from twenty-(^ve to thirty per cent., the urgent need for money prevented the remainder of the notes from re urn ing upon the banks. M the same lin.e the banks, owinf; to the mstabihty of the economic situation, could not with safety extend their issues nor hence their accomm.xiations. Indeed as was tern,, discovered by the liank of Upper Canada, it was often much more prohtable under the circumstances to employ specie in the field of foreign e.xchange or in securing the high premiums of the specie market generally than to hold it as security for or,hnary note issues. There was naturally a constant detnand among tlie merchants in Upper Canada for the means of remittance to Lower Canaria, a service which was a common occasion of their seeking discounts from the banks. To grant 6 THE HISTORY OF CANADIAN CVRRBNCr such discounts was now equivalent to advancing so much specie, and commanded rates accordingly. The Bankof Upper Canada, however, hit upon the plan of obtaining from the Bank ot Montreal large quantities of its suspended notes with which it discounted the paper of the merchants without any drain on its own specie. Thus the distress occasioned by the policy of the Government in Upper Canada was partly relieved by the suspen- sion which had been permitted in Lower Canada. This object lesson was not lost upon the public, who soon came to regard the suspension of specie payment not as simply the lesser of two alternative evils which faced the country, but as some great boon or privilege the withholding of which by the Gl ernor was the chief cause of the severe depression from which the Province was visibly suffering. The clamour for relief rose tu such a pitch as to disturb the self-complacency of even Sir Francis Bond Head. With great reluctance h,' ■ ahed a special session a the Legislature for the 19th of June, to talhe suggestion and issued a quantity of post-notes. The natural result was that the ordinary notes of the bank came back for redemption m much the same proportion as the others were issued, hence instead of affording the bank any practical relief he rost.notes were the occasion of compelling it on October ,st to suspend specie payments altogether. In the meantime the Commercial Bank had again made application to the Governor in Council for permission to suspend specie payments, and on the .,th of September, a public declara- tion ot their resolution and a notice of their suspension were ssued by the directors. On the 29th of September, .837, an Order in Council authorized the bank to continue its business notwithstanding the suspension of cash payments. The bank had not been required to pay out all its specie, for it still had .6 '7.327 on hand when allowed to suspend. In suspending, however, the Commercial Bank lost the privilege of having its notes accepted in payment of public dues. This w-as a serious inconvenience so long as the other chartered banks^had their notes accepted i,i Government payments, as it ended to compel merchants to seeit accommodation from the Bank of Lpper Canada so far at least as paying Government dues was concerned. It also threw into the hands of the Bank of Upper Canada all the Commissariat bills and other bills of exchange which gave a command on specie. This was but one phase of the advantages enjoyed by the Bank of Upper Canada in abandoning much of the ordinary mercantile discounting and expanding into the more profitable business of dealing in specie and e.xchanges. h= 1, ,k" '^' ^^^ °' ""= ^°"" '^''"'"*'''" ''"'i 'o^dinK American banks, the Commercial Bank found it necessary to afford accom- modation to Its customers in specie where they had special need for It, charging of course a special rate for that form of accom- modation. In order to replenish its stores of specie it had to pay a considerable premium on specie, or on bills of exchange commanding specie. The Bank of Upper Canada having a virtual monopoly of the Government exchange, the Commissariat and other depart- m ,{, THr. HISTORV OF CAXADIAX CURRENCY ments made their payments by means of cheques drawn upon that bank and which it, of course, paid in its own notes, these bemg received in Government transactions. Practically the only liold which the Commercial ISanl; could obtain upon the Government specie was through the purchase of these Government drafts up.,n the Bank of Upper Canada. When, howexer, the Com- mercial Hank, througli its Toronto branch, presented these drafts to the Bank of Upper Canada they were tendered their own Com- mercial Bank notes, which, if accepted, would have ulterly defeated the purpose of the bank in procuring: the drafts. The Commercial Bank, therefore, refused to accept its own notes in payment of such bills, though in all ordinary transactions a.rd balances it was quite willing to accept its own notes. Obviously there was a good deal to be said on both sides of the question." The matter being referred to a committee of the .\ssembly, it reported in favour of a measure to require all banks, whether paying specie or not, to receive their own notes in payment of sums due them at any place. In the lalier part of 1837, apparently on account of the growing uncertainty as to the safety of the banks, the Commissary General had withdrawn his accounts from even the Bank of Upper Canada. Yet the B.ank continued to enjoy a monopoly of the 1 rovincial Government business, and its notes were accepted in all Government transactions as equivalent to specie. Towards the end of 1837 there was a marked recovery in the monetary condition of the United States. Exchange on Britain was declining and the stronger banks were beginning to resume ; indeed a few eastern banks had never suspend . In January, iSjS exciiange on Britain had reached par at New York and resumption was spreading. In April and May the rates were from four and a half to five per cent, in favour of tlie U .ited States, specie was being extensively imported and resumption was general. The commercial u..,.ress in Upper Canada during 1837. which was more severe than anywhere else on the continent, aggravated the political discontent of the people and might have led to very serious results, had not a small faction of the ultra radicals cleared the atmosphere by a disorganized and premature outbreak in December of tliat year, which was very easily sup- THE H/STOKV OF CAXADIAN CVKRESCY i , pressed. Thus unwittingly did JIcKenzie in tlic end render the country a j,'reat service. The rebellion in Lower Canada was much more serious from both the political and military p„ints of view. On account of those outbreaks a great outlay on (lover... ment account im.iiediately took place in both Provinces. At this time the Hank of Upper Canada had only /-.Ko.ooo of notes in circulation but ^140,000 in specie. The Con.missary General bein- suddenly in need of extra funds, the bank advanced him ^50,000 in dollars, and offered to furnish its notes to meet his outlay within the Province. The ofTer being accepted the bank soon found its note issue raised to ^154.000 and its specie reduced to ^60,000. The b.tnk of course received tlie Com- missary General's bills in exchange for its notes. But these no longer brought the high premium in New York which they formerly commanded. Jjy the end of February they were actually at a discount, and it was no longer profitable to deal in exchange. It now became the interest of the Hank of Upper Cr.ada to reverse its policy of .837. It now wished to issue its own notes, irredeemable if possible, and send its exchanges, not to New York as before, but to London. Early in March, when bills on Britain were at a discount in New \ork, the Bank of Upper Canada discovered that o«in.. to the disturbed condition of the frontiers it was unsafe to brin.' specie from New York; a difficulty not complained of by any o"f the other banks, even those of Lower Canada, which were preparing to resume specie payments. On March 5th, the bank applied to the Governor in Council for permis.sion to suspend specie payments. But the act passed the p'e^TOUs session required that the note issue of a suspended bank should n<" exceed its paid up capital. This did not suit the interests of f- ISank of Upper Canada, as things now stood. But if change, were to be made the bank must act rapidly, for the session was almost closed. Its political influence, however, was equal to the occasion. On March 5th, the very last day of the session, a petition was received frum the Bank of Upper Canada praying that authority be given to the chartered banks to issue notes to twice the amount of their paid up capital, notwithstandin.r the suspension of ca.sh payments. The friends of the bank had on hand the draft of a bill, which they at once laid before the House. 1 2 THE HISTOKY OF CANADIAN CUHRBNCY It was immediaioly taken up and rushed through all its stages at one sitting, disturbed only by a message from the Governor notifying the Assembly that he would prorogue the Legislature on the following day. The bill having passed the Assembly was immediately sent to the Council, which dealt with it sven more expeditiously, for it had passed that House the next mommgand was ready for the Governor's sanction when he arrived to ,.ose the session. , ,. Though Sir Francis Bond Head had been notified of his recall and was simply holding the position of Governor till In* successor should arrive, yet it is interesting to note how at the instance of the Bank of Upper Canada he had deserted the position which he so stubbornly held during the crisis, and now when the crisis was past, allowed the bank to suspend under greatly relaxed terms. The Act was to remain in force till the close of the following session of the Legislature. The bank had accomplished its purpose and could now issue notes to the extent of ^oo.ooo without the expense of importing specie from Britain or selling exchange until a hani=ome profit could be realized. At the same time the irredeemable notes of the Bank of Upper Canada continued to be received in all Government transactions as equivalent to specie. Now it is quite obvious, when we regard the state of the money market, that the Bank of Upper Canada had no occasion whatever, other than its own temporary interest, for suspending when it did. It had command of an unusual quantity of specie of its own, specie was cheap in America, the United btates banks were rapidly resuming, and even the banks in Lower Canada, where the political disturbance was really serious, were preparing to resume. . The very narrow adherence to immediate self-interest which characterized the bank both in maintaining the specie basis while withholding accommodation in the period of crisis, and after- wards in suspending and extending its note issue when the crisis was over, and all this with the aid of Government machinery, did not escape the attention either of the commercial and bank- ing interests in the Canadas or of the financial advisers of the Colonial Office. When the new suspension Act reached Down- ing Street it caused considerable surprise, but as it was under- THE HISTORY Of CANADIAN CVKKENCr 1 3 Stood that the Canadian banks would very soon resume specie payments no effort was made to have it disallowed. The Colonial Office thought it necessary, however, to transmit to Sir George Arthur for his guidance the opinion of the Lords of the Treasury on the Act assented to by his predecessor. In their opinion it was quite reasonable to pass the suspension Act of 1837 when the crisis was upon the country, but tl]ey saw no occasion for its renewal in 1838 and still less for the removal of the restrictions embodied in the former Act. Moreover it should be a necessary condition of any such Act that the banks should not further weaken themselves by paying dividends during the period of suspension. In the meantime Sir George .\rthur had arrived in Canada, too late, as he says, to prevent this Act from going into operation. The banks in Lower Canada having resumed pay- ments in May, i83«, he sent, on July 7th, a circular to tlie chartered banks of Upper Canada urging them to .esum= pay- ments as soon as possible, imd pointing out the very favourable conditions for doing so. The Commercial Liank, adroitly shifting the responsibility from its own shoulders, replied that it was quite willing to resume whenever the Bank of Upper Canada should lead the way. The Bank of Upper Canada, with an angry fling at the Commercial Bank for leaving to it the whole burden of justifying susijension, ne'. ertheless set itself to the difficult task. It points out hov,- it came to the rescue of the Go-ern- ment when the rebellion broke out, as already Stat' d. T how that its credit io in no danger, it points out that it has re it'^d bills to London to the extent of £"200,000, and has ^60,000 of specie on hand. It has, therefore, ^260,000 to meet an outstand- ing note issue of ^154,000. Yet, in the face of this demonstra- tion of strength, it goos on to say that it cannot possibly resume specie payments because to do so would require it to cease all discounting and to call in its outstanding debts as fast as possible, which would inevitably bring ruin upon the country, etc., etc. In fact its zealous solicitude for the exchange needs of the country is quite touching. Moreover, it continues, there is i.-, general wish in the Province to enforce specie payments, f r 11 the banks resumed the country would be drained of its spe, .e by the great numbers who are selling their farms and po' issions li f «4 THE HISTORV OP CylKA/1/A.V CVRRESCV for what they can Ret and RoinR off to the United States. The Government should wait until the next crop is harvested and until there is a resumption of immigration and capital from Britain. Asain, before the resumption of payments there should be a uniform coinage established between Upper and Lower Canada; indeed there should be a special silver coinage struck for the Canadas. In connection with this certain statements were made as to the coinage of Lower Canada which were promptly refuted, with accompanying sutistics, by the Hank of Montreal. However there was one reliable refuge behmd these singularly weak outposts, and that was the fact that suspension had been authorized by law for another year at least, hence the Governor was powerless to bring about resumption. The liankof Upper Canada was building upon the confident expectation of a speedy reaction in the United States exchange market. It miscalculated the situation, however. The remain- der of 183a passed and the opening months of i8;,9 without any opportunity for the bank to unload at a high premium its large amount of London exchange. The result was that the profits of the bank for 1838 fell considerably below the average. The rest fund in the report for 1839 showed a fall from ^17,551 to ;f 13,- 237 instead of a rise to at least ;f 19,500 according to the mmi- mum annual gain during the crisis. During the course of the next session of the Legislature, from February to May, 1839, exchange which had risen to par at New York during the latter part of 1838 fell off again ; hence the liank of Upper Canada was naturally still opposed to resump- tion. A committee of the Assembly was appointed to consider the subject of banking. In their third report we trace the influence of the chartered banks and particularly that of Upper Canada. Owing to the discredit thrown upon the Reform element by the escapade of the ultra radical faction, the Compact party for the time held complete sway in the Assembly. Further, owing to the policy of Governor Head, the majority of the people, notwithstanding the easy condition of the money market, were still filled with a vague dread that the resumption of specie pay- ment would reproduce a currency famine and greatly check trade. This idea the I3ank of Upper Canada sedulously fostered, though when questioned on the subject it had to admit that for some THB HliTOHr OF CAyADIAN CVKgBKCr ij time past it had virtually ceased discountitiK, the fact beini; that its large note issue represented not discounts to the public but the purchase of Ciovernmcnt exchange. At this time it was grantinK less than half the accommodation to the public that it did at the beginnin.,- of the crisis, whereas the Commercial liank had considerably increased its discounts. The committee in its report simply echoed the ar(,'uments of the Hank of Upper Canada and presenied a Hill to authorize sus- pension for another year, but rcquirint; the banks to keep on hand the means of resumption when the proper time arrived, which was -imply buililin,' tlie IJiU on the condition of the Hank of Upper Can.ida as it then stood. In one clause a reconmicnda- tion of the Commercial and Gore Hanks had been intrtxiuced, to the effect that the banks should make a periodical exchange of their . otes, and that balances should be settled by exchange on London. This ckiuse, however, the Upper Canada people managed to eliminate from the Hill before it became law. One reason for the opposition of tlic Upper Canada Hank to resumption is brought out in the evidence of the president and cashier, when taken in connection with the complaints of the other banks. The Bank of Upper Canada holding, as far as Canada was concerned, a virtual monopoly of the exchange on London, purchased by the issue of its own notes, sought Co"force the other banks to purchase that exchange at a high premium. But if It were to redeem its notes in specie the other banks could obtain the exchange by collecting and presenting its note. . In this connection the attempt of the Commercial Bank to have balances settled by exchange on London is interesting. As already stated, the Hank of Upper Canada had curtai?ed its discounts and employed its notes in purchasing Government exchange while the Commercial Bank had employed its capital almost entirely in discounts to the public. There being much the same amount of the notes of each bank in circulation more Upper Canada notes were certain to fall into the hands of the Commercial Bank in the repayment of loans, than Commercial Bank notes into the hands of its rival, hence the balances at settlements would usually be against the Upper Canada Bank, and by requiring that balances should be met by exchange on London, the Commercial Bank would be obtaining an opening 1 i6 THK HISTOXr OF CANADIAK CVHRBHCV into its rival's close preserve. Could this concession be obtained the Commercial Bank was not at all anxious for resumption, (or, since the needs of the Commissary Generpl extended to considerably more than could be supplied by the Bank of Upper Canada, some of the surplus had been obtained by the Com- mercial Hank. Hence it too joined in the cry that the Com- miasary General could not Ret specie and had therefore to employ the notes of the chartert ! banks, and that without suspension the public service would be paralyzed. One would suppose on reading the plaints of the chartered banks that the Commissary General was some impecunious tradesman desiring accommodation on long credit, and to whom the banks had extended a charitable indulgence since he had no security to offer beyond his personal credit. In point of fact the banks were the indulged parties, being favoured in return (or their notes with bills on the British Treasury, affording a perfect command of specie on both sides of the Atlantic, though not always at a premium. In all the evidence offered before parliamentary committees or in statements to the press, no one shows a more thorough grasp of the general conditions of banking and exchange than Mr. Francis Hincks. A sound judgment and an extensive mercantile experience in connection with the foreign trade of the Mother Country before coming to Canada, eminently fitted him to take a broad and impartial view of the situation. As cashier of the People's Bank he was quite familiar with the practical details of Canadian banking. The People's Bank alone, of all the Cana- dian banks, had preserved its credit and maintained specie pay- ments throughout the crisis. In doing so, however, since it had neither Government favour nor large resources, it was compelled to confine its business within a close following of its actual capital. Its interests were entirely in accordance with tne sounder commercial interests of the country, and the opinion of Mr. Hincks and of the very intelligent and independent president of the bank, Mr. Jas. Lesslie, may be taken to represent the honest and well-informed business interests of the country. Both these gentlemen strongly urged the resumption of payments, there being, as they pointed out, no longer any excuse in the conditions of the money market, or the attitude of the leading THE msTOKI- OF CASADIAN CV^KENCr ■7 American banks, to maintain suspension. Mr. Hincks points out that suspension cannot afford more than a temporary relief to the country at large, because of the checks imposed upon the currency of the country by the foreign exchanges. And here the chief objection to the continued suspension of the chartered banks comes in. for they have a monopoly of exchange for which they charge the merchants and others who require it exorbitant ra>ps. More, over, they shov/ favouritism in re.ieeming notes for some wh.lc denying others. The banks of Lower Canada, he thinks, have acted much more in accordance with the interests of the public than have those of Upper Canada. If, however, the Legislature should decide to further exr-nd the period of suspen. on, .«,me effort should be made t(. have the banks afford fair rates of exchange, say from two to three per cent, above New York rates which was certainly a very liberal margin. From the evidence of .Mr. Jas. S. Smith, a Toronto merchant, it appears that the chartered banks were accustomed to charge horn four to five per cent premium on New York during the past year. Indeed the burden of all the evidence from those representing the commercial interests of the Province turns on the exorbitant rates of exchange charged by the Bank of Upper Canada, and the withdrawal of the bank from the ordinary discount business of the country However, the chartered banks and their friends carried the day and a bill was passed extending the period of authorized suspension until the ist of November, .839, and leaving it to the discretion of the Lirut. Governor in council to authorize the banks to suspend for any further period which he might think proper. In deference to the wishes of tlie Home Government the banks were not to declare .lividends during suspension In the course of the summer of 1839, the business of the Commissanat Office decreased and exchange on London advanced to .1 higher point than for a year ^ast. The Bank of Upper Canada, taking advantage of the situation, disposed of its large holdings in London, reduced its excessive note issue and prepared to transfer its capital from the now unprofitable channel of foreign exchange to the more lucrative field of commercial dis- counts. It being no longer necessary to keep up an artificial suspension the bank resumed specie payments on November ist 1 839, and the other two chartered banks followed its lead The .^- !l iD THK HISTOKf OF CASADIAS ClKKBSCr sinnificance of this chanRe in the case of the Bank of Upper Canada in particular may lie observed from a comparison uf the positions of the banks at the opening and close of 1839. Btnh ol Upper Canailt. CgmmwcUl B4nk. Huctajth. Ucc. }ih. Mwcbiith. DM. 9lh. Not« to elrculnlon I!.i2i»il 1:160.471 «379.4"" «"J.653 Depotlts a53.73" "J.lsj ■7;.»89 67.74! Spwii 96J76 103..-8 5S.345 9»."67 Nolei ol other iMuiki 16.780 35,113 72.583 'S'! Balnnces due from other l»Qkl and foreign a«enli 300.177 aj.537 118.644 6.061 Tola* debts due to the t>ank ex- cept balances due from other banki 363.867 3"131 416.305 4"096 The rebellious outbreaks in Lower Canada, bcinj,' much more serious than those in Upper Canada from both the political and the military points of view, the banks of Lower Canada had much more ({round than those in_ Upper Canada for pleading the condition of ihe country as an e.icuse for remainin-; . ..ended. In November, 1.^37, the Montreal banks thought it neces- sary as a precautionary measure to send their specie partly to Quebec and partly to Upper Canada. Vet n hen the hrst out- break was over, keeping in touch with the movement in the United Stales, they followed the lead of the br.nks in New York State in returninK to specie payments in tlie sprinj,' of l.Hj.S. In tile mean- time, howe\er, they sought legal protection for their action. The political condition of the Lower Province bein^' so disturbed at the time of the collapse in the United States, it had been impossible for the banks to obtain any legal authority for their susjiension when it first took place. But when in 1838 the Special Council was established, repre- sentative government having been suspended, the merchants and banks petitioned the Council for an ordinance giving legal sanction to the course which the bank had pursued. Their petitions set forth the circumstances under which the banks had suspendc ' at the req'iest of the public to save the specie of the country and 10 prevent widespread distress and bankruptcy among the merchants. The fruits of an opposite policy are referred tt. is sufliciently visible in the deplorable con- dition of the Upper Province where the banks have been finally compelled to suspend under the authority of an Art of the Legis- Tim HISTOKY Of C^.VAtllA.V LlH/tejVCV iq lature. As there is no immediate prospect of resumption on the part of the United Slates banks, they pray to have their suspen- sion authorized until the American banks resume, or for such time u the Council may deem proper, and also that the notes ol the banks may be accepted in payment of Customs dues. On the 3rd of May, 1838, there was submitted by the Cover- nor for the consideration of the Council, "An Ordinance to authorize the incorporated, chartered and other banks in this Province to suspend the redemption of their notes in specie for a hmited time." As passed the Ordinance relieved the banks incorporated by Provincial or Kny..l charter, on approval by the Governor, from any disabiliiirs in consequence of having sus- pended specie payments. \hey are required to furnish the Ueutenant.Governor on requisition with the usual returns of their affairs. Their notes are made practically a legal tender in ordinary exchang- during the period of suspension. Hut the note issue was not to exceed the amount of paid up capital in each case, and the banks were forbidden to dispose of their specie during suspension. The provisions of the ordinance were extended to the branches of the Bank of British North America ■n Quebec and Montreal and to th, Banquedu Peuple, special returns being required from each of th. ,e. Power was reserved to the Lieutenant-Governor to with, ...w from any bank the privileges of this ordinaac after sixty days public notice. When this ordinance came before the Lords of the Treasury m Britain, they recommended that in any future ordinances of a like nature It should be invariably required that suspension of dividends should accompany suspension of specie payments. However, the banks in the adjoining States undertook to return to specie payments sooner than had been anticipated. Though an Order in Council was duly issued authorizing the suspensKin of the banks for two months, yet within a few days of Its publication the b,-mks determined to resume, the Banque du Peuple leading the way in point of time. The Montreal banks hZZld °" "'* ^^'^ °' "*''' '^^*'^'' ""^ ^'^ '° Q"^'^'^ When the Montreal banks resumed they ceased to accept the notes of the Upper Cinada banks at par. The Banks of Lower Canada shared with those of the Upper TO THE HISTORY OP CANADIAN CURSBNCr Province in the customary prosperity wafted hither ^om Brit^ when the peace of the country was threatened whether from ^tWn or wl^out. The Lower Canadian banks, therefore, had To dffiulTyt maintaining specie payments throughout the sum- mer of 183I But the unusually vigorous outbreak of rebelhon Tth neghbourhood of Montreal in the autumn of that yea quite alarm'ed the banks. They gave credence to the report tha ?n order to possess the most certain means of carrymg out the.r 11 the r^^ntended to obtain through the medium of the.r ^oTe 'a W -; of the specie then in the vaults of the banks, notes a m S V rebellion covered the Ime of com- IriSonttt:!. Momreal and New York by which supplies "'^^Ttsltcrrffancies were set forth by the Bank of Montrea in a petition to the Liemenant-Governor praymg for ^memeasure ofrelief for the banks of the P-™ce A meet ng SThe Special Council was called for November 5th. On he sime day a petition was presented, and, by suspension o the If "teGove'nor.'^Suspension was authorised untU the first of lune 1839, unless earlier abrogated by the Governor. ^Accordingly the banks at both Montreal and Quebec suspendedtr'^the second time on November 7th, .838, w.th the "crption of the Banque du Peuple, which did not desire to con- form to the conditions of the ordinance. The Quebec -erchanU- n7o mllly sanctioning the suspension of the banks under the circ—'ces, desired That they should make such arrangements wthX^ollectors of Customs and the Government, as would facihtate the payment of duties and other pubhc dues. When the authorised period of suspension expired on June ,st .8,9, the banks of Lower Canada resumed specie payments once more, and maintained from that time the regular course of business. Adam Shortt Qoeen'8 Usiversitv, KinK^ton