First Bank

The Bank of Mon­treal had a hand in many of Canada’s defin­ing his­tor­i­cal mo­ments.

Canada's History - - CONTENTS - By Laurence B. Mus­sio

The Bank of Mon­treal, now 200 years old, has had a hand in many of Canada’s defin­ing his­tor­i­cal mo­ments.


— 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 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.

Bank of Mon­treal founder John Richard­son, with cane, in­spects the com­ple­tion of the first lock on the La­chine Canal in this il­lus­tra­tion by Jack Trem­blay. 44

The Bank of Mon­treal’s first ban­knote, top, is­sued in 1817, and the bank’s last note, a five-dol­lar bill, is­sued in 1942.

A re­volver is­sued to the Bank of Mon­treal staff in Regina.

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