The first attempt was not made in Canada until 1792 when, after the conclusion of the Revolutionary war, Montreal’s commercial importance was increased through the settlement of the United Empire Loyalists in Upper Canada.
Until the Loyalists came, there were only a few scattered military posts in Upper Canada. The new settlers began to clear the land and grow crops. Then, as now, the greater part of the produce exported by the provinces was sent to England; and the greater part of the imports came from the American colonies. The imports came by the Lake Champlain routes. So Montreal handled the inceased exports and imports caused by the settling of the Western province.
In connection with this trade, and with the other business of the city, banking operations were required. These were transacted by the English merchants. They took money on deposit, made advances, and issued due bills which served as currency.
All the writers dealing with this period of Montreal’s history lay much stress on the troubles caused by the lack of circulating medium. It should be remembered that the habitants in Lower Canada had suffered great losses from the issues of paper money during the French régime. Their experience with this paper money caused them to hoard gold and silver and to distrust paper promises to pay. Their attitude towards the first bank notes is said to have had a considerable influence in making the banks hold strong reserves against issues of notes. The currency of the country then consisted largely of French, Spanish and Portuguese gold coins.
In his “Early History of Canadian Banking,” Professor Shortt has shown that banking in Canada represented the development of ideas emanating from Alexander Hamilton, the great American statesman. In 1791 the first Bank of the United States was formed, on a plan constructed by Hamilton. This bank performed very valuable services for the young Republic; and it contributed most importantly to the development of industry and trade. But it was a private concern; and in its work of caring for the business of the country, it committed the crime of earning satisfactory profits for its proprietors. Even in that early day “the people” exhibited a strong propensity for putting out of business any public corporation which had the temerity to earn good profits in serving them. In the case of the Bank of the United States, its end was probably hastened by the fact that the greater part of its capital stock had been purchased by investors in England. At any rate, in 1811, after twenty years of operation, its affairs were liquidated.
In 1792, the year after the Bank of the United States was formed, an attempt was made to launch the “Canada Banking Company,” which was to receive deposits, issue notes, discount bills and keep cash accounts with customers. Professor Shortt says the idea of the bank is supposed to have been originated and worked up by Montreal merchants. The official notice in the Quebec Gazette is signed by Phyn, Ellice & Inglis, a London firm, and by Todd, McGill & Company, and Forsyth, Richardson & Company—Montreal merchants, who were customers of the London firm. The Canada Banking Company was to have its head office in Montreal and branches at Quebec and other places. The two Montreal firms here referred to had a large share of the trade with the Upper Canada settlers.
This scheme fell through. Mr. James Stevenson says in his work that the promoters succeeded in forming a private bank of deposit; and in Sir Edmund Walker’s book it is stated that the company did issue notes, but they doubtless had a very limited use.
Upon the failure of this project, the Montreal merchants proceeded to develop and extend the business of private banking carried on by them in connection with wholesale trade. They gave credit for supplies, issued due bills, accepted orders drawn by one party on another, etc.
In 1808, while the first Bank of the United States was still in active business, steps were taken to organize the “Canada Bank.” A bill was introduced in the Legislature providing for a capital of £250,000 currency ($1,000,000), the shares being of the denomination of £25 currency ($100). This bank was promoted by a combination of citizens of Montreal and Quebec. It was to have twenty-four directors, twelve from Montreal and twelve from Quebec. Although the Legislature rejected this bill, it was printed at the time of introduction. Professor Shortt states that he had the opportunity of examining it and comparing it with the charter of the Bank of the United States.