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The Bank of Upper Canada: A Collection of Documents.

The Bank of Upper Canada: A Collection of Documents The Bank of Upper Canada opened for business at York (later Toronto) in July 1822, and failed in September 1866. It was, for much of this period, the largest bank based in Upper Canada, and it is of particular interest because of its involvement with the financing of railroad development and its role as the banker for the government of Upper Canada. However, the bank's papers were destroyed in the 1870s, and most recent scholars have assumed that more detailed studies of its operations were precluded by the lack of an archival foundation for the work. Peter Baskerville has therefore done Canadian business history a service by compiling this large and important collection of documents relating to the Bank of Upper Canada.

The book consists of an introductory essay of 110 pages, 300 pages of documents relating to the bank, three appendixes, which contain a list of the directors of the bank, selected statutes relating to the bank and its agencies (branches), and over 20 pages of tables containing financial data relating to the bank and its competitors. The documents are well organized and easily consulted through the references provided in the introductory essay, so that the reader has ample opportunities to check Baskerville's interpretation of events against his primary sources.

Baskerville sets his introductory essay in the context of two themes of Canadian financial historiography: the links between the bank and the government, and the role of the bank in economic development. He convincingly argues that historians have overrated the extent of the links between the bank and the government of Upper Canada. He demonstrates clearly that the bank was not controlled directly by the government, and that its success was not entirely dependent on its political connections. But many opportunities for fruitful discussion are missed. We learn that the bank was active in the creation of a market for government debt from an early date, and that as a result of significant government securities holdings, the asset portfolio of the bank had a relatively modern look. But the whole discussion of the holding of government securities and the tradeoff between government and private-sector business is poorly informed by the relevant theory. Baskerville does not recognize, for example, that the two different types of business carried different levels of risk and offered different advantages, and that because the bank appears to have considered government securities to be reserve assets, loans to the private sector were not reduced in proportion to accommodation provided to the government.

Baskerville's consideration of the role of the Bank of Upper Canada in promoting economic development is motivated by the writing of radical political economists, such as H. C. Pentland's Labor and Capital in Canada, 1650-1860 (1981) and R. T. Naylor's History of Canadian Business, 1867-1914 (1975), who have argued that because of its short-term and mercantile orientation the Canadian banking system was not suited to the development of industrial enterprise. Baskerville's contribution to the debate is twofold. First, he provides evidence that before the Bank of Upper Canada faced competition in the York area it commonly provided accommodation of up to fifteen months to merchants involved in the wheat and lumber trades, but that after the establishment of the Commercial Bank in 1832, nine months became the maximum loan period. This was because the bank's notes were returning for redemption more quickly via the Commercial Bank than they had before, and because the opening of additional branches and agencies to meet competition meant that the Bank of Upper Canada's capital-to-total assets ratio had fallen. Baskerville does not appreciate that this appears to represent a rational response to a change in the term structure of liabilities through an adjustment to the liquidity of assets. Second, he provides ample evidence that the Bank of Upper Canada did lend to the fledgling industrial enterprises of the region, and confirms the widely held view that the failure of the bank was partly precipitated by injudicious attempts to underwrite fixed capital investment. As a result it is both surprising and disappointing that Baskerville persists with the theme of a banking system which, at the direction of imperialist administrators in Britain, assumed a form that was unsuitable for the Canadian economy and reduced the availability of credit outside the mercantile sphere.

The business history of the banking industry is a demanding field because it requires an understanding of relevant theory from economics and finance as well as from management, marketing, and accountancy. This is clearly demonstrated by the content and organization of some of the tables in the book and by Baskerville's rather clumsy attempts to deal with some of the relevant economic theory, which are more confusing than illuminating. Terms that have specific meanings in economics, such as "profit-taking," "forced saving," and "credit creation," are all used incorrectly, and the term "fixed capital enterprises" is often used to describe the industrial and transportation sectors. He displays only a limited knowledge of how to use the data on matters such as the composition of the bank's asset portfolio and the structure of its liabilities in conjunction with the detailed discussion of events provided by correspondence, so readers will have difficulty in distinguishing comments about marginal adjustments to the bank's portfolio from discussions of the balance sheet position in the aggregate. Baskerville discusses the real bills doctrine as a macroeconomic concept (related to credit creation and money supply), but then pays insufficient attention to the macroeconomic context within which the bank operated, and he ignores the microeconomic aspects of the real bills doctrine, which provide a prescription for portfolio liquidity that is very relevant to the story of the bank.

Business historians will be disappointed by the lack of explicit concern with management structures and routine organization, particularly because of the importance of the principal-agent problems inherent in the use of lending agents physically separated from the cashier and directors of the earliest branch banks. We are offered occasional tantalizing insights into crucial aspects of the credit-granting structure, such as the extent of discretion exercised by branch managers in making loans and the inspection procedures employed by the bank at its branches, but these are not developed into any coherent interpretation. This is unfortunate not only because of the inherent interest of these issues, but also because of their significance for the fortunes of the bank. Similarly, no clear picture of credit policy or methods of evaluating applicants for credit emerges from Baskerville's discussion, and though he clearly has data on the extent on the bank's loans to some firms, he makes no attempt to assess the amount of the credit provided against firm size or collateral. Many important matters of management policy and structure will always remain obscure in the absence of the primary records from the bank itself, but an author with a more detailed understanding of bank management, lending procedures, and microeconomic theory might have made much greater use of the available material and given us more insight into the fortunes of the bank as a result.

As an exercise in archival research, this book is both an impressive achievement and a reminder of how much important material can be gleaned from secondary archival sources. The compilation of documents and data represents a considerable advance in our knowledge about the Bank of Upper Canada and will be of value to business and economic historians interested in banking and economic development in the pre-Confederation period. Some aspects of the operation and failure of the bank will always remain unclear, but we now have much of the information necessary to build a coherent picture of its history. Unfortunately, Baskerville's introductory essay lacks the theoretical and conceptual framework needed to provide that picture for us.
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Author:Quigley, Neil C.
Publication:Business History Review
Article Type:Book Review
Date:Mar 22, 1990
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