ber, 1873, to $4,057,591 in December, 1877, while "real estate (other than bank premises)" increased from $586,996 in 1873, to $2,383,454 at the close of 1879. "Notes and bills discounted and current," on the other hand, fell from $139,379,457 in December, 1874, to $97,603,688 in December, 1879; circulation from $28,465,192 to $22,352,761, and all classes of deposits from $85,600,000 to $79,370,000. The reduction of deposits, it will be observed, was comparatively slight, the reason, of course, being that in hard times idle money is placed with more attention to the safety than the profit of the investment. The last change to be noted is that in paid-up capital. The item stood at $66,800,225 on 31st December, 1875; four years later it had fallen to $60,351,505, within $700,000 of the lowest point reached after 1874. All these changes, however, are better studied from the table given in the Appendix I.

45.—BANK FAILURES AND LOSSES, 1874-1879 The reduction in the banking capital of the country was effected in four ways: I-the reduction of capital stock by resolution of the shareholders of the bank under authority granted by Parliament; IIthe amalgamation of banks according to special act of Parliament, and reorganization on a reduced capitalization; III-voluntary liquidation and retirement from business; IV-and compulsory winding up.

I. (a) The capital of La Banque Jacques Cartier was successively reduced from $2,000,000 to $1,000,000 in 1877, and from $1,000,000 to $500,000 in 1879. (40 Vic., cap. 55; 42 Vic., cap. 54.) The policy of

the bank in the preceding. period was described as enterprising and aggressive. It had no branches, and the losses were due to the poor management by which many ill-advised loans became lock-ups. The cashier was afterwards convicted for falsifying returns.

(b) The president and general manager of the Merchants' Bank of Canada resigned in February, 1877. A new manager took hold of the bank in March. At his suggestion the stockholders secured authority in 1878 to reduce its stock in the ratio of three to two. The reasons assigned for the reduction were bad and doubtful debts previously unprovided for, losses in the New York office by gold transactions in a falling market, the reduced market value of the Detroit and Milwaukee bonds purchased at the time of the Commercial failure, expenses and losses incurred in disposing of certain Quebec securities, and provision for contingencies likely to arise in the business of a widely extended bank, whose organization was lacking both in strength and centralization. The reduc

tion effected was almost $3,000,000, the capital being brought from nearly $9,000,000 to a little less than $6,000,000.

II. (a) The Niagara District Bank, one of the survivors of free banks," lost heavily from the failure of American correspondents in 1873. It is probable that the decaying fortunes of St. Catharines, the city in which the bank was established, also affected it. The paid-up capital in June, 1873, was $356,000. The bank was amalgamated in 1875 with the Imperial Bank of Canada (38 Vic., cap. 61), and an exchange of shares made on the basis of the relative value of the two stocks. Certain assets of the Niagara District Bank were excluded from the reckoning for

realization in exclusive behalf of the original proprietors.

(b) In 1876 the St. Lawrence Bank, of Toronto, was rechristened the Standard Bank of Canada, and shares of the old bank's stock of the par value of $100 exchanged against new shares worth $50, at the ratio of one to one and a half. This operation, nominally an amalgamation, was really a stock reduction (amounting to not more than $150,000), by which the bank could start on a new basis, and escape whatever associations may have been attached to the name St. Lawrence. (39 Vic., cap. 45.)

(c) At the instance of the City Bank, then under the presidency of Sir Francis Hincks, that corporation and the Royal Canadian Bank agreed to unite in September, 1875. The agreement was confirmed by Parliament in 1876, and the two reincorporated as the Consolidated Bank. (39 Vic., cap. 44.) No reduction of capital occurred at this time, but rather an increase. The reasons for the union are obscure; the subsequent history of the united bank pertains to another part of the section.

III. (a) The Metropolitan Bank of Montreal was one of the banks chartered in 1871. From the first it engaged largely in loaning upon bank stocks, and taking exceptional transactions at high rates of interest. It was young and ambitious, and its officers, no doubt, fancied their methods modern. When the turn came in 1874-75, the bank's affairs took a different aspect. Instead of profits there were large losses. In May, 1876, it held $121,150 of its own stock, over 15 per cent. It had been forced to re-discount in October, 1875, $425,000; in May, 1876, $187,690.

1

1 Monetary Times, vol. ix, p. 1129.

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given in the return for October, 1876, the assets of the bank were $314,000 less than the liabilities to the public and shareholders. In June, 1877, authority having been obtained from Parliament, the shareholders resolved gradually to wind up the bank, pay off its debts, and save their investments from furthur depreciation. The reduction of paid-up banking capital due to this action was $800,170.

(b) Like the Metropolitan, the Stadacona Bank of Quebec was one of the younger corporations. And like those of the Metropolitan, its shareholders, discouraged by adverse fortune, decided to wind it up. Voluntary liquidation was begun in July, 1879. Within two years the proprietors had recovered about 90 per cent. of their investments, and the prospect for further returns was good. By this action $990,000 were withdrawn from the banking capital of the country.

IV. So far a gross reduction of $6,500,000 in capital alone has been accounted for, without mention of the other ways in which, to meet their losses, the banks were obliged to reduce the valuation of their resources. To investors, of course, reduction of rests or reserve funds, the application of earnings to prevent the impairment of capital, and the falling off in dividends, was almost as serious as actual impairment of capital. The average rate of dividend paid in 1874 by banks in Ontario and Quebec, was 8.76 per cent.; in 1878, 6.46 per cent.; in 1879, less still. The shrinkage of the market value of bank shares in four years was estimated in 1878 at not less than $17,000,000. In 1879 Sir Francis Hincks reckoned the shrinkage at $25,000,000.

1Monetary Times, vol. xiv, p. 70.

From the standpoint of the banking interests, the year 1879 was the most disastrous of the five. On the 28th May the Mechanics' Bank stopped payment; on the 16th June, La Banque Jacques Cartier; on the 1st August, the Consolidated Bank; on the 7th, the Exchange Bank; on the 8th, La Banque Ville Marie; and in October, the Bank of Liverpool. All save the last named had their head offices in Montreal. Naturally the public were alarmed by so many suspensions, and began to wonder where difficulty would next arise. But the condition of the failed banks, if the decline of stocks is an indication, had been suspected for some time. Many former creditors had transferred their trust to banks in better esteem. Moreover, it was known that the Exchange, Ville Marie and Jacques Cartier Banks would soon be enabled to resume. The press and financial leaders pointed out the exceptional circumstances of the banks in trouble, and urged the people to maintain a sober calm. Runs started upon some of the solvent banks were cordially met, and in one way and another a bank panic was again averted.

(a) The first of the failures was the worst. The Mechanics' Bank had been a blot on the Canadian banking system for years, and it died at last because it was too corrupt to live. The support accorded for a time by the Molsons' Bank was withdrawn in 1876. The Mechanics' was then obliged to reduce its capital by 40 per cent. Its subsequent existence was maintained by means neither worthy nor legitimate. The managers had almost no support from reputable. business men, their discount business was small and confined to the most undesirable classes. The circulation, on the contrary, was higher in proportion to