The Bank of Upper Canada was established in 1821 under a charter granted by the legislature of Upper Canada in 1819 to a group of Kingston merchants. The charter was appropriated by the more influential Executive Councillors to the Lt. Governor, the Rev. John Strachan and William Allan, and moved to Toronto. The bank was closely associated with the group that came to be known as the Family Compact, and it formed a large part of their wealth. The association with the Family Compact and its underhanded practices made Reformers, including Mackenzie, regard the Bank of Upper Canada as a prop of the government. Complaints about the bank were a staple of Reform agitation in the 1830s because of its monopoly and aggressive legal actions against debtors.
History
Bank of the Family Compact
right|thumb|[[John Strachan]]
The first Bank of Upper Canada was located on the south-east corner of King and Frederick streets in York, Upper Canada (later Toronto, Canada West). York was then too small for a bank, and its promoters were unable to raise even the minimal 10% of the £200,000 authorized capital required for start-up. The bank succeeded only because its promoters had the political influence to have that minimum reduced by half, and the provincial government subscribed for 2000 of its 8000 shares. The lieutenant-governor appointed four of the bank's fifteen directors, making for a tight bond between the nominally private company and the state. Despite the tight bonds, the Receiver General, the reform-leaning John Henry Dunn, refused to use the bank for government business.
William Lyon Mackenzie, the Reform politician and newspaper publisher, was the first to demonstrate the nature of that oligarchic power by showing that the government, its officers, and legislative councillors owned 5,381 of its 8,000 shares. Once elected to the House of Assembly, he criticized the Bank's lack of transparency and accountability to the legislature.
Bank officers of the Family Compact
- William Allan (1822–1835), President 1822-1835
- William Proudfoot (1835–1861) The government refused to accept its notes given its American ties, and it went bankrupt in 1822. After its failure, the Bank of Upper Canada used all of its influence to prevent any other bank from being chartered in the province. The monopoly was crucial to keeping its notes in circulation and boosting its profits. It succeeded only until 1832, when the Commercial Bank of the Midland District was chartered finally giving Kingston the bank it desired. The bank was a small operation, which, like many other early Canadian banks, collapsed in 1866.
The financial panic of 1836-8
thumb|right|300px|Democratic cartoon from 1833 showing Jackson destroying the [[Second Bank of the United States, to the approval of the Uncle Sam like figure to the right, and annoyance of the bank's president, shown as the Devil himself]]
On 10 July 1832, President Andrew Jackson vetoed the bill for the rechartering of the Second Bank of the United States, arguing that it was utilized by a "moneyed aristocracy" to oppress the common man. The same complaint was lodged by the Reformers against the Bank of Upper Canada, which served a similar role. The dismantling of the bank plunged the Anglo-American world into an enormous depression (1836-8) that was worsened by bad wheat harvests in Upper Canada in 1836. Farmers were unable to pay their debts. Most banks, including the Bank of Upper Canada,- suspended payments (i.e. declared bankruptcy) by July 1837 and requested government support. While the banks received government support, ordinary farmers and the poor did not.
Bank Wars (1835-1838)
The Bank of Upper Canada was the subject of almost continuous political attack. Shortly after its founding, Reform critic William Lyon Mackenzie published a series of articles on how speculative the Bank's loan practices were, and how close to bankruptcy it was. That resulted in an event, now known as the Types Riot, in 1826 in which the clique of Bank officers dubbed the Family Compact destroyed Mackenzie's printing press. Mackenzie, a bank critic, pushed for a non-speculative "hard money" policy where the bank loaned out only money that it actually had.
Until 1835, all banks in Upper Canada required a legislative charter. Reformers tried several legislative strategies to get their own bank, including attempts to incorporate credit unions such as the Farmers' Storehouse company. That came to an end in 1835 when Charles Duncombe produced a "Report on Currency" for the Legislative Assembly, which demonstrated the legality of the Scottish joint-stock bank system in Upper Canada.
The difference between the English chartered banks and the Scottish joint stock banks is that the Scottish banks were considered partnerships and hence didn't need a legislated Act in order to operate. The joint stock banks thus lacked limited liability, and every partner in the bank was responsible for the bank's debts to the full extent of their personal property. The chartered banks, in contrast, protected their shareholders with limited liability and hence from major loss; they thus encouraged speculation. The Scottish joint-stock banks followed a "hard money policy." They avoided speculative risk because if they failed, their shareholders were responsible for the full loss. Since the banks did not require a legislated charter, many more banks could be founded, and they were more competitive and freer from political influence and corruption.
Duncombe's report opened the gate for many new competitive banks to enter the market - just as the entire Anglo-American financial system was coming apart at the seams in a financial panic lasting until after the Rebellions of 1837. The Bank of Upper Canada survived only because of its influence on government.
The joint-stock banks
Following Duncombe's report, the Farmers' Bank and the Bank of the People were founded on a joint stock basis, until the Family Compact conspired to make new ones illegal in 1838.
The end of monopoly
thumb|The Hamilton, Ontario branch of the bank at James and Vine. It was designed by Frederick James Rastrick in 1857.
The monopoly of the Bank of Upper Canada had been slowly eroding with the chartering of the Commercial Bank, and then the joint-stock banks. The Act to outlaw further joint-stock banks in 1838 again tilted towards monopoly. However, in 1841 the Bank of Montreal, long seeking an entry into Upper Canada, purchased the Bank of the People and quickly began to expand its branch network. The Bank of British North America also entered the provincial market around that time.
As a result, the Bank changed its strategy and in 1850 it became the official bank of the Province of Canada, collecting all government revenue and issuing all government cheques.
Remaining buildings
The 1827 Bank of Upper Canada Building, its second headquarters (first home was a Georgian building from 1822 and demolished 1880s with current building (now Young People's Theatre) replacing it in 1887), still exists, located on Toronto's Adelaide St East. It has been designated a National Historic Site of Canada. Designed by architect William Warren Baldwin, 1825–27, the bank resembled a London townhouse with a Doric portico. along with two branches. The 86 John Street branch in Port Hope, Ontario, built in 1857 by Cumberland and Storm (last operated by Ontario Bank in 1881 and now Hotel Carlyle and Restaurant) and the 46 West Street branch in Goderich, Ontario, built in 1863 (now offices for Orr Insurance).