Why , given Macdonald ’ s speeches critical of the American system , did he second the 1869 Bank Act ? And how was it that a year later a totally different Bank Act was passed by his government ? Not only have these questions not been answered , they have not been posed — not by the leading members of the opposition at the time , nor by subsequent historians .
Evolutionary Change
Starting in 1881 , Canada had decennial reviews until 1992 , when the requirement was increased to every five years ( which may or not have been a good decision ). The most recent review was completed in 2019 .
All the reviews have been conducted by Parliament except for two , which were conducted by a Royal Commission on Banking and Finance . ( A Royal Commission is a group selected by the government to examine an issue and recommend changes to the law .)
Over the years , the reviews have resulted in a wide variety of changes from modifications of the law to facilitate mergers , to permit banks to make residential mortgage loans and to allow banks at the retail level to provide investment counselling , portfolio management and financial planning .
In the years since the passage of the Bank Act , there have been four regulatory regimes . Initially , regulation was light . However , in 1891 the Canadian Bankers ’ Association ( CBA ) was formed with limited regulatory powers . In the 1901 review , membership in CBA was made compulsory . At that time , the government offered to make the renewal of charters perpetual , but the banks believed there was benefit to the decennial review provision . In 1910 , even central gold reserves were placed under the management of the CBA . This was a powerful role for a trade association .
As the years went by , there were increasing cries for government regulation of the banks . The 1923 review rejected the idea . Shortly thereafter , the Toronto-based Home Bank went under , with over $ 15 million on deposit , the largest bank failure since the 1860s . This resulted in an amendment to the Act in 1924 , which established the Office of the Inspector General as part of the Department of Finance .
There would not be another change in regulation and supervision until 1987 , when the Office of the Superintendent of Financial Institutions ( OSFI ) was created as a
Canadian Imperial Bank of Commerce
Senator William McMaster , founder of the Bank of Commerce .
consequence of the failure of two Alberta banks , the Canadian Commercial and the Northland , the first bank failures since the Home Bank .
Bud Estey , a Supreme Court Judge , investigated the bank failures and recommended better supervision than had been provided by the Inspector General of Banks . Estey recommended the creation of the OSFI , which was established in 1987 and combined the previous duties of the Inspector General of Banks and the Superintendent of Insurance .
Among the superintendent ’ s new powers was the right to issue cease-anddesist orders against financial institutions engaging in unsafe or unsound practices . The holder of the new office was also entitled to increased control over valuation of assets held by financial institutions , particularly real estate . The first superintendent was Michael Mackenzie . At the time , Mackenzie was a senior partner with the Canadian accounting firm of Clarkson Gordon . He established high standards of supervision and regulation and left a strong legacy .
Immediately prior to the creation of OSFI , Canada had its “ Little Bang ,” as distinct from London ’ s “ Big Bang .” From 1867 forward , Canada had its own form of “ Glass-Steagall ,” the “ four pillars ,” because of the Canadian constitution . Commercial banks were federally regulated , while investment banks were provincially regulated . Trust companies were provincially regulated , whereas life
insurance companies were mostly federally regulated . Once deregulated , the commercial banks quickly acquired the major investment banks .
These two factors — the creation of OSFI and the acquisition of the investment banks by the commercial banks — reinforced the conservative Canadian banking system . Today , more than a decade past that recession and 150 years since the original Bank Act was proclaimed , the Canadian banking system is regarded as safe and sound , one of the safest and soundest in the world .
Joe Martin is the founding and current president of the Canadian Business History Association / L ’ Association Canadienne pour L ’ Histoire des Affaires . He recently stepped down as the Director of Canadian Business History at the Rotman School of Management , University of Toronto . Prior to joining the Rotman School , he was a partner with the Canadian practice of Deloitte Consulting for nearly a quarter of a century .
Sources
Breckenridge , Roeliff Morton . The History of Banking in Canada . Washington , DC : Government Printing Office . 1910 . Canada , House of Commons Debates [ Hansard ]; 1869 , 1870 , 1871
Denison , Merrill . Canada ’ s First Bank ; A History of the Bank of Montreal , Volume Two . Toronto : McClelland & Stewart Limited . 1967 .
Hammond , Bray . Banks and Politics in America from the Revolution to the Civil War . Princeton : Princeton University Press . 1957 .
Kobrak , Christopher and Joe Martin . From Wall Street to Bay Street : The Origins and Evolution of American and Canadian Finance . Toronto : University of Toronto Press . 2018 .
MacIntosh , Robert . Different Drummers , Banking and Politics in Canada . Toronto : Macmillan Canada . 1991 .
Ross , Victor . A History of the Canadian Bank of Commerce , Vol . 2 . Toronto : University of Toronto Press . 1922 .
Schull , Joseph . 100 years of banking in Canada : A history of the Toronto-Dominion Bank . Vancouver : Copp Clark . 1958 .
Shortt , Adam . History of Canadian Currency and Banking , 1600 – 1880 . Toronto : The Canadian Bankers ’ Association . 1986 .
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