First Bank
The Bank of Montreal had a hand in many of Canada’s defining historical moments.
The Bank of Montreal, now 200 years old, has had a hand in many of Canada’s defining historical moments.
ON NOVEMBER 3, 2017, THE BANK OF MONTREAL
— now more commonly known as BMO Financial Group — marks an extraordinary milestone. It becomes one of a select few institutions in the North Atlantic world that has been in existence for two centuries. The history of the Bank of Montreal is the history of not only the first Canadian bank but also one of Canada’s founding institutions. The bank is half a century older than Canada itself, or, for that matter, older than many of the principal contemporary nation-states of Europe.
For much of its existence, the bank was a central player in the development of Canada’s financial and economic life. For instance, the bank financed a key public infrastructure project of the nineteenth century — canal building. The liberation of inland navigation was a top economic and trade priority in North America, and canals fostered trade and competitive advantages. Canals were highways to potential prosperity.
Visions of a canal at the Lachine Rapids, just upstream from Montreal, had inspired navigators and traders from the days of the French ancien régime. The dream was to open up trade and exchange with the upper province. It was to remain a dream for decades — well past the British conquest of New France. From the 1790s, Lower Cana-
dian merchants urged its construction. For imperial authorities, the War of 1812 had made the eventual construction of such a canal — and, with it, seamless communication with the Upper Canadian frontier — a military priority. However, it was not until 1819 that the colony’s merchant class successfully petitioned the government to allow the formation of “The Company of the Proprietors of the Lachine Canal” with a capitalization of 150,000 pounds sterling divided into fifty-pound shares. The imperial government held shares, as did the colonial government.
The project was troubled from the beginning. The government eventually dissolved the corporation and took over the construction of the entire canal, with a key Bank of Montreal founder, John Richardson, as chairman. The canal was, in his words, “a work of great public importance and expectancy.” Work began under Richardson’s supervision in July 1821, when the bank was just four years old.
The canal as originally built was 13.6 kilometres long, 8.5 metres wide at the bottom, and 14.6 metres wide at the surface. It had seven locks of cut stone, each 30.4 metres long, six metres wide, and with a 1.5-metre depth of water. The Lachine Canal opened in August 1824 and received its first vessels in 1825. The total construction cost of 109,601 pounds — about 9.6 million pounds or 15.8 million dollars in today’s currency — was borne by the government of Lower Canada (with a 10,000-pound grant from the British government). It was renovated, improved, and expanded in subsequent decades.
The Lachine Canal project showed just how much of a struggle a public project could be in a country with few resources, scarce capital, and generally in competition against well-financed and prosperous competitors. It also showed how vital co-operation and collaboration were to attaining any measure of success. This project, like so many of its successors in Canada’s transportation and communications fields, demanded public and private partnership.
It’s difficult to imagine the complexities of conducting commerce in the absence of a reliable monetary system. When the Bank of Montreal opened its doors in 1817, all manner of currency was in circulation in Upper Canada and Lower Canada, including Portuguese johannes, German carolins, French louis d’or, Spanish dollars (the legendary “pieces of eight”), and British guineas, shillings, and pence. This was complicated by the different valuations placed on the different coins — in one jurisdiction the Spanish dollar was valued at five shillings, in another at eight.
Into this confusion, the Bank of Montreal introduced its first paper banknotes in 1817. This extraordinary note was printed before the bank began business on November 3. The first notes were printed in Hartford, Connecticut, where the bank obtained the plates, the special banknote paper, and the press required for reproducing the notes in Montreal.
This note issued in autumn of 1817 was the effective introduction of a Canadian currency and a Canadian system of banking.
In this case, the twenty-dollar bill was a promise to pay the bearer, on demand, the face value of the note in gold and silver coins. Here, the reputation of the bank and its directors was paramount. The entire system, being tested for the first time, rested on a foundation of trust.
This note was signed by John Gray, first president of the bank, and Robert Griffin, the first cashier. The centrepiece featured a scene of Montreal and its port. A circle in the lower centre featured Britannia, trident in hand, a lion at her feet, and a ship on the distant sea over which she ruled.
The bank continued to issue currency for 125 years. The last Bank of Montreal note went into circulation on December 7, 1942. The five-dollar bill depicted general manager B.C. Gardner and president George W. Spinney on the front side of the note. They seemed to summon all the gravitas they could command for the moment.
The establishment of the Bank of Canada in 1935 as the country’s central bank had set in motion a series of major changes to the Canadian banking system. A new central reserve bank came with the exclusive right to issue currency against the credit of the Dominion of Canada. The banks did not relent without a fight. But once the decision was made, the Bank of Montreal and its fellow chartered banks made the new system work to face the challenges of wartime emergency and postwar reconstruction.
Of those who headed the Bank of Montreal, perhaps none shone so brightly as Edwin Henry King. King joined the bank in 1857. Six years later, at age thirty-five, he became general manager. Six years more and he became president, the youngest ever elected. Yet by 1873 he had resigned and moved to London, England. His tenure may have been relatively short, but it was among the most intense — and controversial.
King has been called the “most striking figure in Canadian banking history” and the “Napoleon of Canadian finance” by various historians over the years. He has also been called — derisively — the “King of Canada,” “a little god who dares to treat the representatives of all other banks” in an insulting manner, a “truculent and uncompromising” fellow, and, even by his allies, “very peculiar.” King promoted the interests of the Bank of Montreal, often brilliantly, frequently ruthlessly, and always with an eye for exploiting emerging opportunities. He was also a polarizing figure who did not suffer fools gladly. By personality, strategy, and result, King was the great disrupter.
Whatever King was, he was arguably the most brilliant strategist and visionary in the history of the bank. In a key period of the bank’s history, he professionalized the business of banking, putting commercial credit on an entirely new basis in the 1860s. King took full strategic advantage of the bank’s leading position in Canadian banking.
At home, he reversed the bank’s faltering position in the Canadian market, showing little mercy to banks in trouble. King especially incurred the wrath of Toronto capitalists for both style and strategy. One of them, Bank of Montreal director Senator William McMaster, was so incensed that he founded the Canadian Bank of Commerce. During the American Civil War, King vaulted the bank to prominence as the go-to bank in the New York gold market.
He extended bank operations to London and established close ties to the government of Canada. In 1863, the Bank of Montreal succeeded the faltering Bank of Upper Canada as the government’s fiscal agent. King also advocated an ill-starred new banking system whose rules of the game would have benefited larger, more stable banks like his own. The resulting political firestorm forced a compromise that led to Canada’s first Bank Act in 1871.
King’s exit mirrored his meteoric rise. He departed the field after only four years as president, retiring to London. His spectacular achievements positioned the Bank of Montreal as the incontestable leader in Canadian banking, to the delight of shareholders and the consternation of his enemies.
Meteors burn brightly, make their mark, and burn out. King did all three.
Apart from bad loans, robbery was a bank’s number one worry. Consequently, firearms played a major — if potentially volatile — role in protecting the bank’s money. Up until the last generation, bank managers’ standard issue in branches included a revolver or pistol in case the unthinkable happened. In fact, it was less a matter of one revolver than revolvers in quantity.
One Bank of Montreal circular in 1964 advised that a minimum of two revolvers be on hand for a staff of six people or fewer. If the branch was considerably bigger — say, forty staff — then five revolvers were suggested. For the really big branches, it was recommended to keep twenty or more revolvers on hand. The guns were used as protection when money needed to be moved around the city.The rules surrounding the care, maintenance, and use of the revolvers were carefully laid down: always “fully loaded and readily accessible … properly oiled and otherwise kept in order … and out of sight of the general public.”
HANDLING GUNS WAS AS ROUTINE AS COUNTING MONEY. PISTOL PRACTICE WAS ALSO A REGULAR PART OF LIFE IN A BRANCH.
Handling guns in branches was as routine as counting money. Pistol practice was also a regular part of the life of a branch in the twentieth century, with the local police often providing instruction to bank employees. However, it was “not the wish of the Head Office that women members of the staff hold revolvers” until much later in the century.
All guns were recalled by the head office in 1978. In November 2001, due to federal legislation on firearms, the bank donated its collection of revolvers and shotguns to the Stewart Museum in Montreal (the second-largest military museum in Canada). To preserve physical evidence of a striking and little-known aspect of the bank’s history, two permanently disabled weapons — a Smith & Wesson revolver from the bank’s branch in Regina, and a shotgun — remained with the bank’s archives.
Fraud and forgery have long been major headaches for banks. Consequently, a machine was invented in 1870 as a means of protection against forgers. The Protectograph cheque writer, manufactured by G.W. Todd & Co. of New York, quickly gained widespread acceptance among banks and large enterprises, with the company claiming eighty-five thousand in use across North America.
Cheque writers were used to print the face value on negotiable securities in relief so that the value could be both seen and felt. The fraudulent alteration of cheques, securities, cash certificates, bills, receipts, and other forms of exchange was a continual challenge for financial institutions.
The Protectograph printed a mark before the digits in the face value, which made it impossible to change the amount after the cheque had been printed. The corrugated surface of the digit stamps was pressed into the paper fibres, which absorbed the special ink. This technique made it virtually impossible to erase or even to chemically remove the printed money value.
This machine is a testament to the darker side of banking — the eternal struggle to keep money in the hands of those whose money it is, and out of the hands of those whose money it is not. The Protectograph was part of a long line of technologies aimed directly at keeping the bank and its customers safe from fraud.
Another technological breakthrough that had a huge impact on banking operations was the telegraph. The bank’s early investment in the Magnetic Telegraph Company — engaged in building the first telegraph line between Montreal and Toronto in the summer of 1847 — consisted of a two-thousandpound loan secured by the notes of individual directors.
For businessmen who understood the implications of the telegraph for control and coordination in banking, branches, and administration, the promotion of the telegraph was understandable.
The transformational possibilities for banking — and for Canadian colonial banking in particular — were evident from the outset. Until the 1840s, top-speed communications across the imposing geography — even of southern Ontario and Quebec — were limited first to the fastest horse, then, increasingly, to primitive locomotives on developing networks of railways. The telegraph would usher in a new, more connected era.
Breakdowns and interruptions were frequent: The ungalvanized iron wires sometimes broke from the weight of flocks of wild pigeons roosting on them. Moreover, short-circuits were common in wet weather. But as the the technology improved, the full power and potential of the telegraph began to show itself.
As the reach of the telegraph expanded, so did the reach of the bank’s head office. This effectively meant the extension of progressively greater control over branches and over the network flows of capital. Importantly, it also facilitated the more direct sharing of banking expertise and the proper execution of strategy. In practical terms, the reduction — or, in some cases, elimination — of the communications time lag allowed for a more nimble approach to buying and selling.
Transmitting intelligence and sensitive financial data through public telegraph lines, however, demanded precautions against eavesdroppers — just as bankers today continue to be wary of twenty-first-century data thieves. Bankers developed codes to conceal their messages, and the languages were continuously updated down the years.
As the introduction to one such code book (printed in 1960!) suggested, the purpose was “to conceal the meaning of messages and to minimize telegraphic charges. Important or confidential messages should be closely coded in order to disguise the meaning as far as possible; where there is not the same need for secrecy, economy of words is the primary objective.”
The code books were high-value intelligence documents and so were kept in a safe or a locked compartment in the custody of the manager or accountant. The chain of custody during office hours was carefully set out, and only authorized personnel would be able to see or to use the code book.
Laurence B. Mussio’s A Vision Greater Than Themselves: The Making of the Bank of Montreal, 1817–2017, was published by McGill-Queen’s University Press. Whom Fortune Favours: The Bank of Montreal and the Rise of Canadian Banking, 1817–2017, will be published in 2018.