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Banking on the Frontier : Notes on Early Banking in British Columbia Shearer, Ronald Alexander, 1932- May 31, 1997

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Shearer: Early BC Banking c:\frasrer\banks\bnkfront 1 1/14/2017  2:11 PM BANKING ON THE FRONTIER: NOTES ON EARLY BANKING IN BRITISH COLUMBIA  Ronald A, Shearer Department of Economics The University of British Columbia  #997  -  1873 East Mall Vancouver, B.C. V6T 1Z1 shearer@econ.ubc.ca     Paper prepared for the Conference on the Application of Quantitative Methods to Canadian Economic History May 1997    This paper reports on work in progress.   Because the paper is subject to revision,  it should not be quoted without permission  of the author   Shearer: Early BC Banking c:\frasrer\banks\bnkfront 2 1/14/2017  2:11 PM Abstract Two banks chartered in Britain began banking in British Columbia during the gold rush:  the Bank of British North America opened in Victoria in 1859 and the Bank of British Columbia in 1862.  These banks were required to make quarterly reports of assets and liabilities to the colonial government and they continued to report after British Columbia became a province of Canada.  One result is a 20-year run of quarterly data on two banks that operated in a relatively isolated, economically unstable gold mining region.  The paper uses these data to analyze aspects of the banking operations of these firms. The balance sheet data permit the estimation of a money supply series for the region in the years 1864-1885.  This series provides an index of fluctuations in the economy.  It reveals a very unstable economy, affected both by the international business cycle and local macroeconomic forces emanating from the ebb and flow of the gold rush and preliminaries for the construction of the transcontinental railway. The data also permit the estimation of demand for cash reserve functions.  Given a legal cash reserve requirement in both the banks’ charters and colonial legislation, estimates are reported for the demand for excess cash reserves.  The preliminary evidence suggests that the banks worked to a target level of cash reserves that changed over time rather than the target reserve ratio beloved by monetary economists.  Fluctuations in the circulation of banknotes and payment for purchases of raw gold with gold coin produced departures from the desired level of reserves.  Deficiencies elicited the importation of coin from San Francisco.   In normal banking operations after the ebb of the gold rush the two banks followed very different strategies.  Initially the inexperienced Bank of British Columbia committed almost all of its capital to its speculative venture in British Columbia.  The collapse of the gold rush and injudicious lending brought it to the brink of failure.  It retrenched and withdrew a substantial amount of capital to the relative safety of London, but it remained committed to banking in British Columbia.  It became the primary source of commercial loans and circulating money for the province.  The larger, older, more experienced and widely diversified Bank of British North America allocated but a token amount of capital to British Columbia.  After the gold rush it provided some banking services to the province but primarily collected savings for investment by offices abroad. Both banks opened offices in San Francisco and Portland in this period.  Available balance sheets suggest they were important components of the California banking system.  For the Bank of British North America these were additional offices in a continent-wide banking organization.  For the Bank of British Columbia they represented important diversification of an otherwise dangerously specialized banking organization.  Shearer: Early BC Banking c:\frasrer\banks\bnkfront 3 1/14/2017  2:11 PM Contents I. THE EARLY BANKS ................................................................................................ 6 A. Express Companies. ..................................................................................................................................... 8 B. Private Banks ............................................................................................................................................. 11 C. The Chartered Banks. ............................................................................................................................... 13 II. THE DATA. ............................................................................................................ 14 III. A MACROECONOMIC PERSPECTIVE ON THE BC ECONOMY. ...................... 17 IV. CASH MANAGEMENT. ....................................................................................... 20 V. BANKING ON THE GOLD MINING FRONTIER .................................................. 27 A. Banking During the Gold Boom and Bust, 1859-1866. ........................................................................... 27 B. Banking under “normal“ conditions, 1866-1885. .................................................................................... 30 VI. OPERATIONS IN THE UNITED STATES . ......................................................... 32 VII. CONCLUSIONS .................................................................................................. 33 Shearer: Early BC Banking c:\frasrer\banks\bnkfront 4 1/14/2017  2:11 PM BANKING ON THE FRONTIER: NOTES ON EARLY BANKING IN BRITISH COLUMBIA*     Ronald A, Shearer Department of Economics The University of British Columbia     The standard estimates of the pre-gold rush, non-aboriginal, adult population of British Columbia place it in the hundreds. Victoria, the major population and commercial centre, probably had less than 500. 1   With so few people, commercial and financial activity was very limited, dominated by the Hudson Bay Company who also controlled commercial relations with the much larger aboriginal population.   As in other frontier areas, some informal banking was probably undertaken by merchants and by the Hudson Bay Company, but specialized banking firms did not exist.   The Fraser River gold rush brought about an abrupt change.  The non-aboriginal population took a sudden jump and changed its character.2  Not only miners, hardened in the California gold fields, but also business people arrived by the boat load, seeking their fortunes.  Largely Americans, the newcomers had a profound impact, direct and indirect, on the legal and economic institutions of the colony.  While population estimates for the British Pacific coast a this time are                                             *  I am grateful for the excellent research assistance of Jennifer Reid and Andrew Creech.  1  Barman reports that in 1855 "... Victoria contained about two hundred non-native inhabitants, with seventy-nine residences and a dozen shops" (Barman 1991, p. 61).  Phillips suggested that on the eve of the gold rush the population of Victoria was about 500 (Phillips 1967, p. 45).  Taking a broader compass, Ormsby reported "White settlers on Vancouver Island, numbering with their children no more than 1000 persons ..." (Ormsby 1958, p. 127).  This implies a somewhat larger population for Victoria than the other estimates.  Deaville is more cautious:  “The total population of Vancouver Island at this time has been variously estimated at from six to eight hundred white persons” (Deaville 1928, p. 30).On the mainland, a very small non-aboriginal population was scattered, adjunct to Hudson Bay Company posts.  2  Referring to the first on rush, Howay notes “This rush was in reality merely the transporting of a part of California and the Pacific states to a land under the British flag.” (Howay 1942, p. 141). Shearer: Early BC Banking c:\frasrer\banks\bnkfront 5 1/14/2017  2:11 PM highly speculative, it has been suggested that as many as 30,000 people arrived in the summer of 1858 (Deaville 1928, p. 32; Phillips 1967, p. 45)]. 3  Many did not stay long and the non-aboriginal population appears to have fluctuated widely as the gold rush ebbed and flowed.  The accepted guess for 1871 is under 11,000 (Urquhart 1965).  However, the economy was transformed from one with a fur trade base and a modest fringe of agriculture and coal to one based on the search for and extraction of gold, with new requirements for equipment, supplies, construction materials, internal and external transport, civil and legal administration, the means of subsistence for the expanded population, and banking facilities.  Despite the pretensions of New Westminster, Victoria remained the commercial and financial centre, and after the 1866 union of the mainland and island colonies, the political and administrative capital.  It was the port-of-call for the all-important mail steamship to the commercial and financial hub of the Pacific coast, San Francisco, and the port for the express forwarding of raw gold to the San Francisco branch of the US Mint.  Not surprisingly, Victoria also became the base for the colony’s banking system. The purpose of this paper is to examine some aspects of the early operations of two banks that opened in Victoria in the early phases of the gold rush and continued their operations long after the rush subsided  --  banks that traded in gold but also made loans, accepted deposits and issued notes to be used as money.  In the first section I describe the banking institutions of British Columbia between 1858 and 1885.  This is followed by a discussion of a new set of data on the British Columbia offices of the Bank of British Columbia and the Bank of British North America. Both were chartered in England.   These data permit an approximation to the money supply of British Columbia in this period.  The macroeconomic perspective on the BC economy provided by the money supply estimates is briefly reviewed in Section 3.  The management of cash reserves in an isolated and unstable economy is considered in Section 4 and the broader aspects of banking in the province in Section 5.  Both banks developed extensive operations on the American west coast, and particularly in San Francisco.  The contrasting behaviour of the two banks with respect to the division of their                                             3  The origin of this figure is probably a Victoria Gazette story that concluded that “... not over 30,000 immigrants have ever come hither and not over 20,000 have ever been in British Columbia” (VG 1858e).  In November 1858 Governor Douglas estimated that there were 10,000 men at Shearer: Early BC Banking c:\frasrer\banks\bnkfront 6 1/14/2017  2:11 PM business between British Columbia and San Francisco is considered in Section 6, together with summary information on their San Francisco branches.  Section 7 concludes.  I.  THE EARLY BANKS In the early phases of the gold rush, as in other frontier economies, a standard complaint of merchants and others was the shortage of current money (Reid 1926, p. 13).  The standard money was British but what were used as media of exchange were undoubtedly more cosmopolitan.4  In circulation, British coin was probably outweighed by American coin but as gold began to appear from the mainland gold fields raw gold also became an important medium of exchange (Reid 1926).5  That there was in some aggregate sense a “shortage of money” in the early stages of the gold rush is not supported by the evidence.  The sharp inflation of prices of land and supplies in Victoria and elsewhere suggests the contrary (MacFie 1865, pp. 64-90).  As Redish has argued in a different context, the issue was not a shortage of                                                                                                                                                                                                   work on claims along the Fraser, although by that time “ thousands had left the country.”  (Howay 1914, pp. 40-41).  Later estimates by the Minister of Mines placed the number of miners in 1858 at 3,000 rising to 4400 in 1860.   4  With respect to the money in circulation Ross reports that The refuse of the money-changers had drifted into Victoria; it was a motley collection, from the United States and Central and South America, of variations of the Spanish dollar and of United States fractional currency, the so-called shinplasters.  The coins that would not pass in Victoria found their way up country. (Ross 1920, p. 269) Ross’ observation is supported by a Victoria Gazette story that gave exchange rates in San Francisco for a variety of gold and silver coins “... which are now frequently encountered in monetary transactions here” (VG 1859b).   5  The dominance of American money is suggested by the fact that in issuing government notes in 1861 to pay for road construction the Governor insisted that they be denominated not in pounds but in dollars “... as that is the notation of account of the community at large” (Reid 1926, p. 15).  In 186  the British Columbia government adopted the American dollar as the official unit of account of the province and when gold coins were cast by the British Columbia Mint they were denominated in dollars (Reid ).     With respect to the use of gold dust as money, a story in the Victoria Gazette in late 1858 noted that Gold coin is very scarce here at present, and gold dust is used very generally as a circulating medium. Almost every store in town has a placard of ‘Gold dust bought here,’ and scales for the weighing of the dust. Even at the Custom House, where in most countries nothing save the legal currency of the land is ever taken, gold dust is received in payment for Government dues (VG 1858d). Shearer: Early BC Banking c:\frasrer\banks\bnkfront 7 1/14/2017  2:11 PM circulating money, but unhappiness with its composition  --  its “quality” (Redish 1984).6  What was in short supply was gold and silver coin in convenient denominations and of authenticated value in terms of the legal unit of account:  ... currency absolutely above suspicion, bearing the guarantee of the Government and issued in such denominations as to be available for business transactions (Reid 1926, p. 2) That is to say, British coin and perhaps American coin.7   Gold dust, the product of placer mining on the bars of the Fraser, was abundant but as a medium of exchange it was inefficient. 8 While infinitely divisible, it was not homogeneous and without an assay there was no way to easily                                             6  As an interesting aside, Victoria got caught up in one of the classic repercussions of Gresham’s Law.  In 1873 the United States had demonetized silver in the sense that the legal tender status of full-bodied silver coins was limited to $5.  This was part of an almost worldwide movement away from bimetallism toward the adoption of the gold standard.  Large silver discoveries coupled with virtual stagnation in the production of gold resulted in a steady decline in the price of silver relative to gold.  Silver coins were accepted only at a discount in major commercial centres.  Friedman and Schwartz note that by 1877 the price of silver was so low that “... money brokers sent large amounts to remote districts at full value, despite their lack of legal tender power ....” (Friedman 1963, pp. 113-114).  Victoria was such a “remote district.”  In late January an advertisement appeared in Victoria newspapers announcing that leading businesses would only accept US silver coins at a 5% discount from their face value (VC 1877b).  This was in accord with the policy of local banks, reflecting a 7% discount said to prevail in San Francisco (VC 1877c; VC 1877d).  Apparently the Canadian Customs attempted to restrict the importation of silver by assessing duty on silver coins (Stafford 1877).  Further relief from the “silver plague” was sought by the importation of $1 and $2 denomination Dominion bills for circulation in British Columbia (VC 1877e).  The local banks could not fill this gap.  The Bank of British North America issued small denomination notes in eastern Canada (under the Free Bank Act) but could not re-issue them in British Columbia.   The Bank of British Columbia issued $1 notes in 1863 but the 1864 Act prohibited issuance of notes in value less than $5. (BC 1864a; Ross 1920, pp. 272-273; Charlton 1980, pp. 83-121) 7  Reid discusses an 1859 request to the home government for £100,000 in British coin (to be repaid in bullion) to relieve “... the inconvenience experienced from the want of British coin in this country.”  In the event £6,900 in British silver was received and “... hailed with great satisfaction by the community in general and by business-men in particular, as silver coins, especially in the smaller denominations, had been almost unobtainable ....”   He also refers to early attempts to issue government notes that could be used as currency, at first denominated in pounds and later in dollars, and the offering of a premium on the importation of sovereigns, which he concluded “... did not meet the public need” (Reid 1926, pp. 14-16)  8  The use of the term “gold dust” has been explained as follows: Placer gold is usually called “gold dust;”  but the word dust, without explanation, conveys an erroneous idea.  Gold dust is not a fine powder but ordinarily consists of pieces larger than a pin-head, very often with lumps varying from a pennyweight to an ounce; and, even if the lumps weigh ounces or pounds, it is none the less “gold dust (Hittell 1862, p. 44) . Although placer gold was “free” in the sense that it was not embedded in other ore, as Hittell also noted: Gold, as found in nature, is never pure;  it is always mixed with silver, frequently with copper, and sometimes with other metals (Hittell 1862, p. 49). Shearer: Early BC Banking c:\frasrer\banks\bnkfront 8 1/14/2017  2:11 PM determine the true fineness of a pile of small flakes and nuggets. Moreover, even if the fineness were known, the gold would have to be weighed for each transaction and an allowance made for ultimate disposal costs (assaying, transport to San Francisco, refining, etc.).  Significant transactions costs adhered to the use of gold in its raw state as money.9   It was in this context that banks appeared in Victoria providing facilities for the exchange of raw gold for coin and paper money.  A. Express Companies.    Among the many problems facing the miners in the Cariboo were the conversion their gold dust and nuggets into spendable money and the safekeeping of the proceeds.  Some gold was exchanged for merchandise and services and some was sold to merchants and others, either in the Cariboo or in Victoria. 10  To an unknown but possibly large extent raw gold was also carried to San Francisco at the end of each season by returning American miners.11   However, the possibility of profitable intermediation between the miners and the world gold market also attracted specialized dealers.                                                                                                                                                                                                      Gold from different creeks had different fineness (purity).  For this reason, as Ross reports, the banks established different prices for raw gold depending on the source (Ross 1920, pp. 289-290).   In general, the price of raw gold in the Cariboo was in the range of $15-$16 per ounce depending on its source (the legal price of pure gold, ignoring mint charges, was $20.64 per ounce.   9  According to the historical literature, the lack of homogeneity of gold dust  made its use as money  ... both uneconomical and subject to abuse .... (T)he opportunities open to the unscrupulous to take advantage of the miners were endless (Reid 1926, p. 13). 10 Early on, the Hudson Bay Company advertised: “Gold dust bought. Highest prices paid for gold dust. Apply to Hudson's Bay Co. at the 'Fort'” (VG 1858b).  About a year later the editor of the Victoria Gazette noted: Bullion Buying. -- What with the Express and Exchange Companies and Saloon keepers, on Yates street, all more or less employed in purchasing coin and gold dust at the 'highest prices,' that thoroughfare can justly claim to be entitled the 'Wall street' of Victoria (VG 1859d)  11  In an editorial commenting on the deficiencies of the gold export statistics the Victoria Colonist noted that “... large sums ... are taken down by private hands, towards the close of the year ....(VC 1864).  A note about the sailing of the mail steamer in November 1872 reported that some $200,000 was shipped by express and in private hands.  On that date the express shipment was only $60,757 (VC 1872).  In making the official Shearer: Early BC Banking c:\frasrer\banks\bnkfront 9 1/14/2017  2:11 PM First on the scene were the San Francisco express companies Freeman & Co. and Wells Fargo & Co. I do not know when Freeman & Co. established in Victoria.  However an advertisement shows that they were operating as early as July 1858 (VG 1858c).  Their advertisements soon disappeared from the Victoria newspapers and they are not noted in the list of gold exports after 1859.  Presumably they withdrew from the British Columbia gold trade relatively early in the gold rush leaving the express business to Wells Fargo.   Wells Fargo had a long-lasting involvement in the British Columbia gold trade.  Their primary business was express transport, accepting gold on consignment for speedy shipment to San Francisco by steamer.  Thus, advertisements for Wells Fargo announced: "send express by every steamer", "treasure shipped and insured at lowest rates."  However, as an adjunct to the express business they also offered a range of banking services, and, indeed, in a July 1858 editorial note heralding the imminent arrival of Wells Fargo,  the Victoria Colonist described the a firm as a "banking house."12   In their advertisements Wells Fargo offered to purchase gold, to "receive deposits, general and special," and to make advances on gold dust.  Their extensive express business, and the related network of offices and agents, permitted them to provide international payments facilities.  They offered "checks on our office in San Francisco," and "exchange on all the principal cities in the United States and Canada ... (and) ... on the Union Bank of London and Royal Bank, Dublin" (VG 1860a).                                                                                                                                                                                                     estimates of the total exports of gold from British Columbia, to allow for gold exported “by private hands,” one third was added to the exports reported by the banks through 1877 and subsequently one-fifth. 12 The editor of one paper heralded the arrival of Wells Fargo in these terms: New Banking House -- Wells, Fargo & Co., will in a short time open a banking house in Victoria. Such an establishment is much needed (VG 1858a). A contemporary account reported that  The firm of Wells, Fargo, and Co., an American house, does a large banking as well as express business.  They have special messengers to convey treasure, parcels and letters between Victoria and San Francisco.  They also sell drafts on the principal towns of the United States and England (MacFie 1865, p. 88). A letter in the British Colonist in 1864, before the failure of MacDonald’s bank (see below, p. 10), noted that "... we have four banks, each doing a profitable business."   The fourth must have been the Wells Fargo office (Davis 1864).  Shearer: Early BC Banking c:\frasrer\banks\bnkfront 10 1/14/2017  2:11 PM The San Francisco express companies were directly or indirectly linked to express lines up the Fraser river to the gold fields.  Thus, in July 1858 it was announced that  Freeman & Co., in connection with Ballou & Co., have established agents at all points on Fraser River. Gold dust, letters etc., are also transmitted by them in every steamer to San Francisco (VG 1858c) Similarly, in April 1860 Jaffray & Co. announced their "Fraser River Express," connecting Victoria, New Westminster, Fort Hope, Fort Yale and Port Douglas" (VG 1860b).  With Victoria as the hub, local express companies thus linked the gold fields with the international express service.  While there is no evidence that these express companies provided banking services in the gold fields, they did connect the miners to the banking services available in Victoria.13 Although in the early years there were other shippers, by the mid-1860s Wells Fargo appears to have become the exclusive agent for the express shipment of gold from Victoria to San Francisco.14  They facilitated the shipment of gold purchased by the banks as well as shipping the gold that they purchased on their own account.  While the data are very imperfect, Table 1 confirms that Wells Fargo was important as a purchaser and shipper of gold on its own account.  Unfortunately, I have no information on the nature and extent of this firm's other banking activities in Victoria except that they did not issue their own bank notes for circulation as money (Scholefield 1914).15  Wells Fargo terminated the banking aspects of their activities in Victoria in 1873, disposing of them to their Victoria agent, F. Garesche, while continuing in the express business between Victoria and San Francisco (VS 1873a; VS 1873b; VS 1873c).  Garesche became an important private bank that operated in Victoria until 1894 (see below, p. 12).                                             13  On the subsequent development of the express business on the mainland see (Deaville 1928).   14  A substantial, but unknown, amount of gold was carried to San Francisco by individuals, particularly American miners returning home.  Thus, for example, in mid-November, 1862 the Colonist reported that “ Wells Fargo & Co. shipped $205,998 in gold dust. The total shipment, including the amounts in private hands, will reach $400,000!!!” (VC 1861a; VC 1861b). See also footnote 11.  15 The early gold shipments figures were assembled by the Victoria Colonist newspaper.  I cannot assess their accuracy but they report a substantially smaller export of gold than that estimated by the government (even when the estimate of gold exported directly by the miners is excluded).  In any case, the Colonist data serve to suggest the importance of Wells Fargo and the banks in the early gold trade.  Scholefield reports that Wells Fargo did not issue bank notes (Scholefield 1914, p. 643)  Shearer: Early BC Banking c:\frasrer\banks\bnkfront 11 1/14/2017  2:11 PM B. Private Banks Macdonald's Bank.   The lure of the gold trade soon spawned the colony's first specialized banking firm, Macdonald & Co., which operated from March 1859 until it was broken by a September 1864 robbery.16   Macdonald & Co. was a private bank, operating without benefit of a corporate charter and owned by Alexander D. MacDonald, a Scot with some prior banking and business experience in New Orleans and California (Reid 1926, p. 294). Its head office was in Victoria but in 1863 it opened a second office at Richfield (near Barkerville) in the Cariboo gold fields (Scholefield 1914, p. 644).  As Table 1 indicates, following its first reported shipment in November of 1859, Macdonald's Bank played an active role in the gold trade, acquiring gold in Victoria and in the Cariboo and shipping it to San Francisco (VG 1859c).  But it was relatively small with limited international connections.  In July 1864 the legislature of the colony of Vancouver Island prohibited the issuance of notes intended to circulate as money except by banks chartered by the Imperial government or the colonial legislature, but permitted the continued circulation of Macdonald's notes until March 1865 (BC 1864a).  The impact of this legislation on Macdonald's Bank is not obvious.  The Act applied to "the colony of Vancouver Island and its Dependencies."  However, a major portion of the note circulation of the bank appears to have been in the Cariboo region of British Columbia and British Columbia, a separate colony until November 1866, did not have similar legislation.  With appropriate legal advice it is possible that Macdonald would have been able to finesse the restriction through his Cariboo office even if he had difficulty in obtaining a local charter.  In the event, the possibilities were not tested.  The bank failed shortly after the Act was given Royal Assent.   Financial information about Macdonald's bank is extremely limited.  As a private bank, its financial affairs were intertwined with those of Mr. Macdonald and the bank did not publish a balance sheet until it failed.   At that time, a committee of creditors investigated the books of the bank and produced an estimate of total liabilities of $80,400.  However, some $44,400 of bank notes was reported to have been redeemed during a run on the branch in the Cariboo                                             16 I have been directed to some of the sources on the MacDonald Bank by Andrew Seppelt's essay for Economics 336 at UBC (Seppelt n.d.).   The standard history is (Reid 1926).  See also (Scholefield 1914, p. 644; McIvor 1958, pp. 90-91). Shearer: Early BC Banking c:\frasrer\banks\bnkfront 12 1/14/2017  2:11 PM following the robbery, suggesting total liabilities at the time of the robbery of perhaps $125,000.17   This can be compared with the reported liabilities in the two chartered banks operating in the province at that time, $850,000 and $320,000.   Thus, while smaller than either of the chartered banks, it was a significant component of the banking system. Garesche, Green & Co./ Green Worlock & Co.   After he acquired the business Garesche appears to have carried on the same banking activities as had Wells Fargo.  Thus, he advertised himself as a “Dealer in Exchange, Bullion and U. S. Currency” offering “Drafts on San Francisco, London, Eastern Cities and Canada, at current rates” (VS 1873c).  As is evident in Table 1 he became important in the gold trade, purchasing raw gold for transmission to San Francisco.  Under Canadian law, private banks could not issue bank notes for circulation as currency so that type of banking activity was closed to him.  Although there was no such restriction on accepting deposits, there is no suggestion in the advertisement, which appeared irregularly in the daily newspapers until October, that he was in the deposit business.18    Garesche’s died in 1875.19  A. A. Green took over management of the firm and probably in 1877 the name was changed to Garesche, Green & Co.20  On the death of Green in 1891 management was assumed by F. H. Worlock and in 1892, when Worlock was admitted to partnership by Mrs. Green, the bank became Green, Worlock & Co. (VC 1891; VC 1892).  Although I cannot date the transformation into a deposit-taking institution, by the early 1880s it had become a significant component of the deposit banking business in Victoria.  Thus, a January 1884 newspaper report showed the                                             17 The Victoria office seems to have closed the day after the robbery so I assume that deposit liabilities in Victoria were not paid out after the robbery.   Most of the bank's notes were reported to have been circulated in the Cariboo.  Howay reports that miner in the Cariboo lost about $100,000 as a result of the failure.  He does not cite his source and it is not clear if this was an estimate of the total losses or is in addition to those estimated by the committee of creditors.  If the figure is correct and it is additive, the bank would have been almost twice as big as the figure in the text (VC 1864d; Howay 1914, pp. 154-5). 18  However, the original Wells Fargo advertisements had noted that the firm would "receive deposits, general and special."  If deposits constituted an important part of the firm’s business it is surprising that I could find no subsequent advertisements to reflect this.  Later advertisements for Garesche, Green & Co. included the statement “Interest Paid on Deposits at Highest Market Rates.”  For example (IS 1884). 19  Garesche went down with the mail steamer Pacific en route to San Francisco in early November 1875 shortly after the bank had moved to new quarters in Victoria (VC 1875a; VC 1875b).   20  Garesche is reported to have died in 1874 (VC 1894).  However, the first reference I have found to the firm of Garesche, Green & Co. was in a report on the half-monthly gold shipment in May 1877 (VC 1877).  The firm also appears in the Minister of Mines’ list of banks shipping gold in 1877.    Shearer: Early BC Banking c:\frasrer\banks\bnkfront 13 1/14/2017  2:11 PM bank with deposits of $476,000, comparable to the Bank of British North America ($499,400) although considerably smaller than the Bank of British Columbia ($1,123,000) (VC 1884).   When the bank failed in 1894 it was said to be “... the largest private concern of its character in Canada” (VC 1894).   Schloss, Livingston & Co.  A third private bank announced its presence in Victoria in 1862, in connection with a new private assay office (VC 1862b; VC 1862e; VC 1862f).  They proposed to “buy gold dust, bullion and exchange” but also to “receive deposits and issue certificates of deposit” (VC 1862f).  The bank shipped a substantial amount of gold in 1862 but no shipments were reported in 1863 or later (VC 1862h)..  I have no further information about either the extent or duration of their operations in Victoria. I assume that they withdrew from Victoria in late 1862 or early 1863.   C. The Chartered Banks.    The first incorporated bank attracted by the gold rush was the Bank of British North America which opened an office in Victoria in May 1859.  A British bank, it had been engaged in banking in Britain's North American colonies since 1836.21  By 1859 it had 11 offices in the Atlantic colonies and in Upper and Lower Canada and total assets of $12 million on a capital base of $5 million.  In British Columbia, its banking business was comprehensive, including not only the purchase of gold but also making loans, accepting deposits and issuing notes to be used as currency.   The Bank of British North America was well established in Victoria by the time the Bank of British Columbia appeared in September 1862.  This was also a British bank, created in 1862 for the purpose of engaging in banking on Vancouver Island and in British Columbia.  It was smaller than the Bank of British North America, with subscribed capital of $1.25 million, of which $625 thousand was paid up when it began business.22  Apart from the private banks, the two British banks had no competitors in British Columbia.                                             21 It had begun operations in North America in 1836 as an unincorporated joint stock bank.  Its corporate charter was issued in 1841. 22 The balance of the subscribed capital was called up in 1864 and 1865 and in subsequent years new shares were issued so that by 1866 paid-up capital was $1.875 million.  Total capital, taking into account capital reserves and undivided profits, was then in excess of $2.4 million. Shearer: Early BC Banking c:\frasrer\banks\bnkfront 14 1/14/2017  2:11 PM Because of their involvement in the gold trade, both chartered banks had extensive business in San Francisco arranging for the disposal of the gold they had purchased and for the acquisition of legal tender coin.  In June 1864 the Chairman of the Bank of British North America reported to his shareholders that  ... our business with California ..(is) ... already so large that our expenses in San Francisco are now as high as the cost of the agency we are about to establish there" (VC 1864a). Its San Francisco office opened soon after (Cross 1927, p. 257). The Bank of British Columbia followed in August 1864, also to reduce the expenses involved in their gold transactions in that city (VC 1864c; Ross 1920, pp. 298-303; Cross 1927, p. 128).  Ross reports that the San Francisco office was very profitable (Ross 1920, p. 315).  A year later the bank added an office in Portland, Oregon, a city with only one operating bank. 23   The Bank of British North America followed in 1878 (VC 1878).  Branches of the Bank of British Columbia were added in Seattle and Tacoma in 1889 but because of heavy losses during the depression they were closed in 1896 (Ross 1920). The Portland and San Francisco offices operated profitably until the bank was merged with the Canadian Bank of Commerce at the end of 1900.  II. THE DATA.  Under an 1864 Act of the colonial legislature of Vancouver Island, banks that issued notes intended to circulate as money were required to prepare weekly summary statements of the assets and liabilities of their offices in Vancouver Island and British Columbia, and to make a quarterly report to the government which was also to be published in at least one local newspaper (BC 1864b).  While I do not know if the requirement was followed consistently, the quarterly reports were supposed to be an average of the weekly statements rather than an observation for a single day at quarter end.  When the colonies of Vancouver Island and British Columbia were merged in 1866 the statute continued as one of the laws of the new colony of British Columbia.  British Columbia joined the Canadian Confederation in 1871 and in Canada                                             23 Oregon had a constitutional provision that was interpreted at the time as prohibiting the incorporation of firms to engage in banking.  The one bank in the city was an unincorporated private bank.   The branch office of the Bank of British Columbia was not incorporated in the state and so not subject to the constitutional provision.  (Gilbert 1907, pp. 96-98; Ross 1920, p. 308; Burrell 1967, pp. 102-109) Shearer: Early BC Banking c:\frasrer\banks\bnkfront 15 1/14/2017  2:11 PM banking was a federal responsibility. However, neither bank was chartered in British Columbia and hence neither bank became Canadian in 1871.   Both had Imperial charters but in one respect their charters were very different.   When the charter of the Bank of British North America was renewed in 1869 the Imperial government required it to abide by the general banking laws of the Dominion.  It reported its assets and liabilities to the federal authorities and they were published monthly in the Canada Gazette  There was no such provision in the charter of the Bank of British Columbia until it was renewed in 1884.24  At that time the bank came under federal banking laws and a special Act defined precisely those provisions of the Canadian Bank Act that applied (Canada 1885; Ross 1920, pp. 3329-332).  Earlier, presumably as a result of an agreement, the bank began to submit its quarterly reports to the federal Department of Finance.   Beginning in March 1881 they were published in the Canada Gazette separately from the reports of the other banks.  It was not until 1885 that the bank was finally included in the regular monthly compilation of bank assets and liabilities (Curtis 1931, p.4).   The two banks continued to report to the provincial government and to publish their balance sheets in local papers until the early 1880s.  The result is a 20-year run of quarterly data on banking in a relatively isolated frontier area  -- British Columbia in the formative years between the gold rush and the coming of the transcontinental railway.   The data have limitations, of course.  First, the early years of the gold rush are not covered.  The first statement that I have discovered is for the Bank of British Columbia on December 31, 1862, a year and a half before the reporting act was passed.  There was then a gap of three quarters before the bank began reporting regularly in December 1863.  The final statement for the Bank of British Columbia is for March 1885.  Ignoring the first statement, the quarterly record is complete for almost 22 years (86 observations).   The Bank of British North America did not begin reporting until the Act was passed, so its first British Columbia balance sheet is for September 1864.  The series is somewhat shorter, with the                                             24  The bank’s original charter required it to abide by local regulations “... for restraining or regulating the issue therein of Notes or Bills” and to make provision for the for the periodic publication of its assets and liabilities  (BBC 1862).  The supplemental charter of 1884 required the bank to abide by the “general laws on the subject of Banking and currency” in the colonies or dominions in which it operated.  There was also a special provision confirming that “all Colonies, Provinces and Territories united into one Dominion ... shall be deemed to be one Colony and the special responsibilities of the British Treasury and of the Governor for overseeing banking operations and receiving reports were abolished. (BBC 1884)  Shearer: Early BC Banking c:\frasrer\banks\bnkfront 16 1/14/2017  2:11 PM last published statement being for December 1863 (77 observations).  I have been unable to locate one quarterly statement (June 1877) in either the Provincial Archives or newspapers.25 Second, Macdonald’s Bank, Garesche, Green & Co. and its successor Green, Worlock & Co., are not included in the data.  Macdonald’s failed before the reporting act took effect.  Garesche, Green & Co. and Green, Worlock & Co. did not issue banknotes for circulation as money and hence were not required to report.  This is unfortunate because their operations were far from trivial.  Had they operated only as savings banks the consequences of their omission would have been minimal.  However, both were money issuing banks in the modern sense that a substantial portion of their deposit liabilities was in chequable demand deposits.26 Third, the published abstract from the balance sheet, in the usual nineteenth century reporting model, provides basic but not detailed information.   Tables 2 and 3 display examples from  the 1860s, 1870s and 1880s.  On the liability side, figures are provided for notes in circulation, interest and non-interest bearing deposits and balances due to other banks and branches. The asset side reports the usual "cash" assets, legal tender coin, gold dust and bullion, and notes and bills of other banks, with the earning assets are classified simply as balances due from other banks and "amount of all debts due to the bank."   "Landed property," primarily bank premises, is also reported.  The difference between reported assets and liabilities is an estimate of the capital employed by the British Columbia offices.    A second set of data that is useful for the analysis is the balance sheets for the world wide operations of the banks.   Such balance sheets were presented to the shareholders at half-yearly meetings and printed with reasonable reliability in The Economist.  There are some missing observations, but I have assembled June and December reports for                                             25  The gap was filled by linear interpolation between the adjoining observations 26  At the time of the failure of Green, Worlock & Co. (1894) a balance sheet was published for the information of creditors.  It was reported that the deposit liabilities of the bank were $370,000 of which $160,000 (over 40%) was in non-interest bearing current accounts (VC 1894; VT 1894b).  In a story about the failure it was reported that  The bank transacted a very large business, and had the accounts of a number of big and a great many small merchants, traders, mechanics, etc.  .... It carried the deposits of many citizens ...  attracted by the large interest paid on deposits .... (VT 1894a) I do not know if this business developed after 1885 or was typical of the bank during the period being considered here.    Shearer: Early BC Banking c:\frasrer\banks\bnkfront 17 1/14/2017  2:11 PM both banks from the beginnings of their operations in British Columbia to 1885.27   For the Bank of British Columbia, the difference between balance sheet items for the whole bank and the British Columbia offices reflects primarily its operations in the United States, although some head office items will also be included.  For the Bank of British North America, because of its extensive operations in eastern and central Canada, I cannot identify the US assets and liabilities in this way. III. A MACROECONOMIC PERSPECTIVE ON THE BC ECONOMY. Combining the data for the Bank of British Columbia and the Bank of British North America gives us an approximation to the supply of bank money in British Columbia.  In these years before the completion of the transcontinental railway, when British Columbia’s commercial relations were primarily along the Pacific coast, the circulation of eastern Canadian currency  --  Dominion notes and notes of other Canadian banks  --  in the province was probably a minor consideration.28  Nevertheless, the liabilities of British Columbia’s banks do not provide a complete measure of the British Columbia money supply, not only because of the omission of the deposit liabilities of Garesche Green & Co. but also because there is no measure of United States’ currency or coin in circulation.29  However, assuming they behaved pretty much as the measurable components of bank money, the result is an index of the regional money supply.  Three series are reported on the quarterly balance sheets that would normally be considered the monetary liabilities of the banks:  banknotes in circulation, deposits not at interest and deposits at interest.  The is no doubt that                                             27  The figures in the balance sheets are in £  Sterling.  I have converted them to dollars at the rate of $5 = £1, the conversion rate that was customary at the time.  I have confirmed the use of this exchange rate through reports on the banks' capital which were common to both sets of balance sheets. 28  See above, footnote 6.  The proposal to import small denomination Dominion bills was clearly thought to be unusual.  There were no offices of Canadian banks in British Columbia at this time.   It seems unlikely that there was a significant circulation of the notes of Canadian banks on the Pacific coast. 29  Also neglected is the possibility of British Columbia bank notes in circulation outside the province.  I assume that this was of minor importance.   Shearer: Early BC Banking c:\frasrer\banks\bnkfront 18 1/14/2017  2:11 PM banknotes were actively used as a medium of exchange.  Deposits-not-at-interest were primarily the current accounts of businesses on which no interest was paid.  As time passed they and were increasingly important among bank liabilities and in the monetary affairs of the province.  The deposits-not-at-interest series is highly correlated with banknotes suggesting both were controlled by the same economic forces.30  Combining them gives us an approximation to what we would now call M1.   By contrast, deposits-at-interest were term deposits, left with the bank for a defined period of time and on which interest was paid.  There is no correlation between this series and either of the other two monetary liability series, suggesting that they were controlled by different economic forces.31  For the public, deposits-at-interest were repositories for savings, fluctuations in which did not closely reflect the demands of the economy for media of exchange and hence less closely reflected fluctuations in economic activity.  Adding them to the previous two series gives us an approximation to what we would now call M3.                                              30  When deposits-not-at-interest (DEPNOT) is regressed on banknotes (NOTES) there is strong serial correlation in the residuals.  With correction for first order serial correlation, the regression equation is: DEPNOT  =   646.26   +   0.508NOTES   +   0.932AR(1)            (203.99)     (0.187)                   (0.0444) R2 (adj)    =  .905        d.w.  = 2.519 The figures in brackets are standard errors.   31  When deposits-at-interest (DEPI) is regressed on banknotes (NOTES) and deposits-not-at-interest (DEPNOT) there is strong serial correlation in the residuals and evidence of a structural shift sometime in the mid 1870s.   With correction for first order serial correlation, the regression equations for two sub-periods are:   1864-1874 DEPI  =  17.977  +  0.0086DEPNOT  -  0.078NOTES  +  1.036AR(1)    (285.4)      (0.047)                   (0.0667)              (0.040)  R2 (adj)    =  .944        d.w.  = 1.733  1875-1883 DEPI  =  387.02   -   0.0398DEPNOT   -   0.0323NOTES   +   0.904AR(1)   (151.81)     (0.0849)                    (0.155)                    (0.081)  R2 (adj)    =  .827        d.w.  = 2.198 Shearer: Early BC Banking c:\frasrer\banks\bnkfront 19 1/14/2017  2:11 PM Figure 1 presents the money supply on the M1 and M3 definitions and Figure 2 shows the component series, all seasonally adjusted. 32  While there are questions of timing, the money supply on the M1 definition is a useful index of macroeconomic fluctuations in a nineteenth century economy.  In this case the money supply traces out a series of fluctuations that are only partly explained by fluctuations in gold mining activity.   As a base for comparison, at least of approximate timing, peaks and troughs in United States’ economic activity are indicated along the base axis (Burns 1969, p. 16).  Unfortunately, the money supply data start too late to reflect the intense boom that accompanied the first Fraser rush, the subsequent bust and the second boom linked to the rush to the Cariboo, reaching its peak in 1862.  However, they do reflect the flatness of the economy in the mid-1860s as gold production in the Cariboo receded.33   A mini-boom in gold shipments in the later 1860s is also reflected in the money supply series(compare Figure 1 with Figure 3).  Whether by accident or not, a significant recession in 1870-71 coincided with a corresponding United States trough.  In the 1870s the relative dominance of gold declined as the basic gold mining activity was supplemented by other emerging industries (agriculture; forestry; fisheries).  The money supply series suggest that the British Columbia economy experienced a long period of expansion to 1875 that seemed to defy macroeconomic developments in the United States.  Perhaps this was inspired by the promise of a railway connection to the east and perhaps in part by the fact that the emerging markets for forest products were around the Pacific rim and not                                                                                                                                                                                                   In other words, in both sub-periods (as in the period as a whole {not shown}) deposits-at-interest are explained by the constant and/or the autoregressive term.  The coefficients on the other monetary liabilities are not significant.   32  The seasonal adjustment is by the ratio-to-moving average technique.  The seasonal factors are as follows:  Notes Deposits not at interest  M1 Deposits at interest M3 Q1 0.9123 1.0181 0.9783 1.0412 0.9902 Q2 0.9221 0.9163 0.9155 0.9812 0.9320 Q3 1.0543 1.0242 1.0380 0.9895 1.0262 Q4 1.1274 1.0466 1.0757 0.9892 1.0558        33  It is not apparent whether the blips in 1864 and 1865 were a result of financing the small rush to the Big Bend country or seasonal movements that have only been incompletely adjusted.   Shearer: Early BC Banking c:\frasrer\banks\bnkfront 20 1/14/2017  2:11 PM in the mainland United States.   However, when it seemed less and less likely that the railway would materialize as promised, the British Columbia economy began to sag, with repeated financial difficulties for the provincial government.  The trough in 1880 more or less coincided with a depression in North American economic activity that in Canada had already spurred the reelection of the MacDonald government, the development of the national policy and serious dedication to the completion of the railway project.  The money supply series imply that the boom of the early 1880s, which again corresponded to North American developments, was relatively intense.   At best, the money supply alone is a descriptive tool.  As such, it describes a very unstable economy.  The undulating macroeconomic experience traced by the money supply series is partly a reflection of the general North American business cycle and partly developments that were idiosyncratic to the British Columbia economy.  IV. CASH MANAGEMENT. Fundamental to banking is the management of cash reserves to ensure that all legitimate claims for payment in legal tender can be met on demand.  Three considerations were fundamental to the cash management policies of the Bank of British Columbia and the Bank of British North America in this period:  a legal cash reserve requirement, their relative isolation and their involvement in the gold trade.  Cash Reserve Requirements.  Unlike central Canada, British Columbia had a legal cash reserve requirement (and one that modern banks would find both astounding and oppressive).  It required the banks to ... at all times, hold within the Colony a reserve in legal tender coin, not less in amount than one-third part of the total amount of Notes so issued .... (BC 1864a) Shearer: Early BC Banking c:\frasrer\banks\bnkfront 21 1/14/2017  2:11 PM Probably more powerful was the fact that the same provision was in their charters, violation of which was a potentially serious matter. 34  The banks had to ensure that their holdings of legal tender coin at least satisfied this requirement.  Their fundamental cash management decision was about the level of excess cash reserves. As is evident in Figures 3 and 4, throughout the period both banks had substantial excess cash reserves.  Indeed, at times, their excess reserves greatly exceeded their required reserves.  Thus, before 1872 the excess reserves of the Bank of British North America were between three and four times their required reserves.  In their cash management the banks were very cautious indeed. Cash Management in an Isolated Environment.   A second fundamental consideration in cash management was the comparative financial isolation of both the banks’ regional head offices in Victoria and their branches in the gold fields.  There was no local mint to produce a stock of legal tender coin on demand and no local money market in which securities, held as a secondary reserve, could be reliably sold for cash if needed.35 The only reliable source of cash was San Francisco.  While many ships traversed the route between Victoria and San Francisco, most were sailing vessels of uncertain passage.  The reasonably reliable and most rapid connection was a twice-monthly mail steamer.  For the first few years, this steamer was the most rapid method of transmitting information as well as gold and money.  In April 1866, however, the telegraph reached Victoria, separating communication from transportation (VC 1866a; VC 1866b).  The information that cash was needed could be instantly transmitted to San Francisco agents, eliminating half of the month-                                            34 Because the same provision was in its charter, the British Columbia legislation was, in fact, not a constraint on the Bank of British Columbia (BBC 1862).  I have been unsuccessful in finding a copy of the charter of the Bank of British North America, but I presume it contained a similar provision.  If so, this probably explains why there was no apparent opposition from the chartered banks to the legislation.  It could have had serious implications only for their private competitor MacDonald’s Bank .  The imposition of reserve requirements was not the only respect in which the British Columbia legislation was far in advance of that in central Canada: The Act also provided for partial government inspection of banks.  The Colonial Treasurer and the Colonial Auditor were authorized to inspect the books of banks to ascertain the value of notes outstanding and the coins held on reserve.   I do not know if such inspections were common or, indeed, if any occurred.  Again, the BBC charter required it to submit to such inspections.  35  Equipment for a mint was purchased and set up in New Westminster in 1862 but it was never put into operation.  Only a few sample gold coins were produced  (Reid 1918; Reid 1926).   Shearer: Early BC Banking c:\frasrer\banks\bnkfront 22 1/14/2017  2:11 PM long round trip;  but the delivery of the cash in Victoria still depended on the steamer.  If it was about to leave San Francisco, the delay would be at least 4 days.  If it had just arrived in San Francisco, the delay would be half a month.   Servicing the branch offices in the Cariboo gold fields was also time consuming.  Thus, for example, Ross relates the story of an 1864 trip from Victoria to the Cariboo by a bank employee, carrying $40,000 for the purchase of gold, that took 12 days (Ross 1920, pp. 279-281).   Subsequently, as the telegraph line reached Quesnel (September 1865) on the edge of the gold fields and as roads were improved the communication-transportation cycle was shortened (Neering 1989, p. 48).  However, even with regular express service to the Cariboo, a coin shipment from Victoria would take several days (Howay 1914, pp. 127-137). The BBC and BBNA had to maintain cash in Victoria and in their branches in the gold fields in large enough quantities to withstand any potential claims for legal tender for extended periods and to carry on their gold purchase business.  The requirement to publish quarterly balance sheets presumably created an additional incentive to maintain the appearance of liquidity and safety. Gold Purchases and Cash Management.    A third fundamental consideration in cash management was the importance of the gold trade in the business of the banks.   It was the gold rush that attracted both banks to British Columbia, and, as Table 1 shows, both banks were active in the purchase of gold for export.36  Normally I would expect a bank to purchase gold by paying its own notes not coin from its cash reserves  --  and, given the large circulation of bank notes in the 1860's, it seems evident that this occurred to a significant extent.  However, many of the miners were from the American Pacific coast where there was a strong tradition of transacting in gold coin and a general reluctance to accept paper money  --  attitudes that the miners carried with them to the gold fields of the Cariboo.37  A significant                                             36 When the establishment of a bank for British Columbia was first proposed in London it was called "the British Columbia and Vancouver's Island Banking and Gold Trading Company." (Econ 1862).  In describing the early operations of the bank Ross noted “The purchase of gold dust ... was the most important feature of the work of both branches” (Ross 1920, p. 288-289) 37 The reluctance of many Californians and Oregonians to accept paper money was decisively reflected in the largely successful attempts these two states to maintain the gold standard through the Greenback era during and after the American Civil War in defiance of the legal tender status of the greenback (Gilbert 1907, pp. 95-122; Cross 1927, pp. 289-361). In this context it is interesting to note that the funds stolen from Shearer: Early BC Banking c:\frasrer\banks\bnkfront 23 1/14/2017  2:11 PM portion of each bank’s purchases of gold dust involved payment in gold coin.  Thus, the banks would have required substantial reserves of gold coin to conduct their business and their reserves would have fluctuated widely as they bought and sold raw gold.   Because of the banks' demands for legal tender coin, the steamers that carried gold dust to San Francisco occasionally brought gold coin for the banks on their return trips.  For a number of years, reports are available on the export of "treasure" from San Francisco to Victoria.  These figures are shown in Table 4.38  While small in relation to the production and export of gold from British Columbia, they were relatively large in relation to the reported cash reserves of the banks.  Presumably a similar value of gold and silver coin was carried each year to San Francisco and Portland by US miners returning home.    The Concept of Cash Reserves.   What should be considered as "cash" depends on the context.  The primary cash asset of the banks in British Columbia was British and American gold and silver coins, the only assets that would satisfy the cash reserve requirement.  As Tables 2 and 3 illustrate, the banks also held claims on other banks.  These would have included some of each other’s notes received in the normal course of business.  While obviously a highly liquid asset, in accordance with normal 19th century banking practice any such notes would have been held only temporarily pending collection.  They would not have been regarded as cash reserves available to be paid out over the counter.39  The bulk of the claims on other banks would have been notes of foreign banks and balances at foreign correspondents, held to facilitate international banking arrangements including the foreign exchange requirements of their business customers and of travelers.  I do not include claims on other banks in “cash reserves.”                                                                                                                                                                                                   MacDonald’s bank in 1864, which had been assembled for shipment to the Cariboo, included $15,000 in gold sovereigns and $10,000 in Bank of British North America notes. Why MacDonald’s bank was sending Bank of British North America notes to the Cariboo is a puzzle.   Probably they were more acceptable than their own notes (VC 1864b). 38 For example, the steamer Pacific which took a reported $39,000 of gold to San Francisco in May 1864 was reported to have brought $60,000 of gold coin from San Francisco for the Bank of British Columbia.  Victoria Colonist, May 5, 1864.   The Colonist argued that the reported shipments of coin from California were significant understatements because coin did not have to be declared to customs (VC 1862g). 39  A noted in footnote 37 when MacDonald’s Bank was robbed part of the loot was a large sum in Bank of BNA notes, assembled to be taken to the Cariboo for the purchase of gold (VC 1864b).  Apparently the private bank did not follow traditional banking canons. Shearer: Early BC Banking c:\frasrer\banks\bnkfront 24 1/14/2017  2:11 PM The banks also reported holdings of gold bullion.  This was the product of the placer mining activities, purchased by the banks and held pending shipment to San Francisco.40  The banks were acting as dealers in raw gold.  Thus, when gold production as at its peak in the mid 1860s the banks' holdings of bullion were highly variable but relatively large (Figure 5).41  As gold production waned, the banks' holdings of bullion also fell.   In what follows, I do not include bullion in the cash reserves of the banks.   For the purposes of this paper, cash reserves are only the banks reported holdings of gold and silver coins. Cash Reserve Ratio.  One way to characterize the cash management policies of the banks is by the cash reserve ratios that they maintained.  The appropriate denominator for such ratios is not obvious.   In Figure 6 I have chosen the broadest base.  Cash reserves are expressed as a ratio to the sum of bank note and deposit liabilities.  This chart suggests that the banks were very conservative, holding very large reserves, particularly in the highly unstable early years.  There appears to have been a change in reserve management in the early 1870s when both the average reserve ratio and its variability declined sharply. Thus, from 1863 through 1871 the average reserve ratio for the Bank of British Columbia was .0.389 (with much higher ratios in the mid-1860s) with standard deviation of .171;  for the Bank of British North America  the comparable figures (1864-1871) were .352 and .102.  During the 1870s and 1880s, by contrast, the                                             40  “Bullion” would have included gold dust but was probably primarily gold bars cast by one of the local assay offices. The government of the mainland colony operated an assay office in New Westminster from 1860.  It incurred heavy losses, probably because New Westminster, not being the financial centre or the port for the departure of the San Francisco express service, was the wrong location.  The government of the united colony closed it in 1873 (Reid 1926).  The private assay office of A. Marchand opened in Victoria in August 1859 but closed in April 1862 when the owner was imprisoned for misappropriation of gold left in his charge (VC 1862a; VC 1862c).  In the aftermath of the defalcation Victoria merchants petitioned Wells Fargo to open its own assay office (VC 1862b).  Plans to do so were announced but I have been unable to confirm that the office actually opened (VC 1862d).  In the meantime, S. Molitor, in conjunction with Schloss & Livingston, private bankers, both from San Francisco opened an assay office on Yates Street (VC 1862e; VC 1862f).  The Bank of BC and the Bank of British North America both operated assay offices either in the Cariboo or in Victoria.  The Cariboo offices were short lived because they were unprofitable (Ross 1920).  The government assay office also opened a branch in the Cariboo in 1869 which was closed in 1873. (Ross 1920, pp. 290-291; Reid 1926, pp. 16-30). 41  The data in Figure 3 are annual total gold shipments by banks and express companies and annual average bullion assets.  The annual figures hide much of the variability both in gold shipments and in holdings of bullion.   Shearer: Early BC Banking c:\frasrer\banks\bnkfront 25 1/14/2017  2:11 PM average ratio for the Bank of British Columbia was .153 with standard deviation .030 and for the Bank of British North America .187 and .062.42 Demand for Excess Cash Reserves.  More revealing insights into the cash management policies of the banks are provided by the estimation of demand functions for excess cash reserves. Unfortunately, with one partial exception, we lack quarterly data on variables that reflect the economic environment in which the banks were operating, including the opportunity cost of holding excess cash reserves.43  As a consequence, the demand functions reported in Tables 5 and 6 are estimated using only variables that are reported on each bank’s balance sheet.  Because there are undoubtedly important missing variables the equations are misspecified.  For this reason, it is not surprising that they show strong serial correlation in their residuals. Correction has been made for first order serial correlation.  With one exception, the equations reported in the tables include only variables that are significant at the 5% level.   The first equation in each table is estimated for the period as a whole.  The reserve ratios in Figure 6 suggest a change in cash management policies in both banks in the early 1870s.  Chow tests on the estimated demand equations confirmed the probability of such a structural break.  Accordingly, I re-estimated the equations for two sub periods, with a break in each case at the end of 1872.  Equation #2 is for the period 1863 to 1872 and equation # 3 for 1873 to 1885 (BBC) or 1883 (BBNA).  In the case of the Bank of British North America two versions of equations 2 and 3 are presented, with different variables but about the same explanatory power.  Several points about these equations merit mention.  First, each equation has a relative large constant term  --   a high level of excess reserves that is not explained by any of the variables in the equation.  In some cases, the constant is                                             42  If the reserve ratios are calculated as specified in the law, with notes as the denominator, they appear much higher and more variable.  In the 1860s the ratios for both banks ranged between 3 and 6 times the note circulation!  The same change in policy in the early 1870s is evident. From the mid 1870s the ratios were generally under 1 and it was not until the end of the period that one of the ratios (for the Bank of British Columbia) approached the minimum legal reserve required by the 1864 Act, 0.33.  The ratio for the Bank of British North America was similar to that of the Bank of British Columbia through the 1860s and 1870s but increased dramatically again in the early 1880s. 43  In the early 1860s, not surprisingly, interest rates on loans in Victoria and the Cariboo were very high.  Thus newspapers reported rates on short term loans between 1 1/4% and 3% per month (VC 1862i; VC 1862j).  Risks were high also, of course.   I do not have relevant data, but Shearer: Early BC Banking c:\frasrer\banks\bnkfront 26 1/14/2017  2:11 PM as large or larger than the mean of the dependent variable.  Second, banknotes in circulation appear in most equations, but with a negative sign.  My interpretation is that the banks chose a level of excess reserves (not a reserve ratio) appropriate to the situation that they anticipated.  Unanticipated increases in notes outstanding necessarily reduced excess reserves (and, of course, unanticipated reductions in note circulation increased excess reserves).  In this sense, the equation is not really a demand function.    Third, in none of the estimated equations do deposits-at-interest appear as a determinant of the demand for excess cash reserves.  This is consistent with the proposition advanced earlier that it was note and demand deposit liabilities that were the active components of the local money supply whereas deposits-at-interest were less volatile term deposits, representing savings for precautionary or longer-term purposes.  In the equations for the Bank of British North America (but not the BBC) deposits-not-at-interest are an important explanatory variable. The fourth point is the strong negative seasonal term in the fourth or the third and fourth quarters.  I interpret this as a reflection of the role of the banks in the gold trade.  As Figure 7 illustrates, there was a very strong seasonal pattern in gold shipments, normally reaching a peak in the fourth quarter. 44  If the banks’ policy was to hold a given sum of cash reserves, the use of gold coin to purchase the raw gold it would have induced a seasonal reduction in their excess cash reserves.. In principle, I could use the bank-specific data to directly test the hypothesis that gold purchases had a strong effect on the banks’ holdings of excess reserves. Unfortunately, for a number of years the identity of the shipper was not revealed so I have not been able to compile sufficiently complete bank-specific series to be able to use them in the regressions.  Moreover, the aggregate series also has a number of gaps and includes shipments by Wells Fargo on its                                                                                                                                                                                                   presumably the premium over world market interest rates declined significantly as time passed.  It is not surprising, therefore, that my experiments with the Bank of England Bank Rate in demand for reserves functions did not produce meaningful results.   44  With varying degrees of consistency, the Victoria newspapers reported the value of gold shipments on the twice-monthly mail steamers to San Francisco and in some years published monthly totals.  From these sources I have attempted to compile a quarterly series of gold shipments.  Unfortunately, as Figure 7 reveals, there are some gaps.  The newspaper reports often identified the shipper permitting identification of shipments by the two banks in some years.  However, these bank-specific series have more gaps than the aggregate series.  Shearer: Early BC Banking c:\frasrer\banks\bnkfront 27 1/14/2017  2:11 PM own account (and in some years by other shippers) as well as shipments by the banks of British Columbia and British North America.  Nevertheless, I did estimate some equations using the aggregate gold shipments data.  In the case of the Bank of British North America the results were unsatisfactory.  For the Bank of British Columbia  --  which played a larger role in the gold trade --  the results are as reported in Table 7.  They give some support to the argument.   I conclude from these econometric explorations that the banks did not predicate their cash management on a desired reserve ratio  --  the concept much beloved by monetary economists.  Rather, they seem to have established a target level of cash reserves, depending on the circumstances, significant shortfalls from which would elicit occasional large shipments from San Francisco.  Given the discontinuous transportation system and the transactions costs involved in assembling and shipping gold coin, this was probably a cost minimizing strategy.45   V. BANKING ON THE GOLD MINING FRONTIER  In discussing the business of the two banks it is useful to break the period into two sub-periods:  the initial gold rush and its ebb (1859-1866) and the beginnings of more normal banking (1867-1885). A. Banking During the Gold Boom and Bust, 1859-1866.    Although it was the gold rush that attracted the Bank of British North America to Victoria, as Scholefield asserts and Table 1 seems to verify, initially the bank was not aggressive in the gold trade (Scholefield 1914, p. 647).  No gold shipments were ascribed to the bank until 1863 and its branch in the gold fields was not opened until 1865 (VC 1863; Econ 1865; VC 1865).  Indeed, the bank opened an office in San Francisco before it opened one in the Cariboo.  Its other business, with the merchants of Victoria and the governments of Vancouver Island and Victoria,  also developed slowly.  Thus, in December 1859 the directors reported that "... up to the latest date the transactions (of the Victoria office) have Shearer: Early BC Banking c:\frasrer\banks\bnkfront 28 1/14/2017  2:11 PM been mostly preliminary";  in December 1860 that "Business at Victoria, Vancouver's Island, continues to progress, although not very rapidly, so that the operations there are not at present taken into account";  and by June 1861 that "The new branch at Vancouver's Island had not realized previous expectation" (Times 1859; Times 1860; Econ 1861; BC 1896).46  The Bank of British North America was a long-established, successful bank with extensive operations in central and eastern Canada.   Its approach to what was essentially a speculative venture in British Columbia was conservative.  Rather than expose the bank to a sizable risk, it allocated but a small amount of capital to support the British Columbia operations.   Unfortunately, I do not have a British Columbia balance sheet for the bank before September 1864.  However, at that time the “apparent capital” allocated to the British Columbia office was only $160,000, less than 3% of the bank’s total capital. 47  This sum was not even sufficient to finance the Victoria office’s holdings of reserves of coin. The British Columbia operations of the Bank of British North America were expected to be almost self financing through the issuance of notes and the acceptance of deposits, in an environment that was (at least initially) hostile to paper money.   The contrast with the Bank of British Columbia is dramatic. If the Bank of British North America had been approaching the business of banking in British Columbia with deliberate caution, the Bank of British Columbia plunged in.  As Figure 8 shows, whereas the Bank of British North America continued to allocate a small amount of capital to its Victoria office, the Bank of British Columbia injected a vast sum.  In September 1864 the apparent capital in British Columbia was $870,000 and at its peak in 1866 was $1,560,000.  Indeed, rather than investing a substantial portion of its capital in the London market, where it would provide a safe insurance fund for the institution, it placed almost all of it with                                                                                                                                                                                                   45  There were occasional references in the newspaper to shipments of coin to San Francisco.  It is also interesting to note that San Francisco balance sheets for the banks for dates in 1879 and 1882 (see below, p. 31 ) suggest remarkable liquidity of their San Francisco offices  -- ratios of cash to deposits between 67% and 167%.  It must be emphasized, however, that these were for isolated dates, not averages over a period.  46 Scholefield reports that in 1862 the staff of the Victoria office was reduced (Scholefield 1914, p. 647).  47  By “apparent capital” I mean the difference between the Assets and Liabilities of the British Columbia offices plus “Balances Due to Other Banks and Branches.”  The assumption is that the “Balances due” are funds owing to the head office in London, effectively part of the capital allocated to the British Columbia operation.   As in all cases, the issue of the appropriate valuation of assets bedevils the measurement of the actual capital involved in the British Columbia operations.  Shearer: Early BC Banking c:\frasrer\banks\bnkfront 29 1/14/2017  2:11 PM its British Columbia offices(Figure 9).  As a result, despite reports of "steady improvement" in business at the Bank of British North America, by September 1864 the assets of the Victoria office of the Bank of British Columbia were 2 1/2 times those of its older established rival (Econ 1863a; Econ 1863b; Econ 1864). When the Bank of British Columbia opened in Victoria at the end of September 1862, the production of gold in the Cariboo was approaching its apogee.  In 1863 estimated production was $3.9 millions;  it then subsided (BC 1896).  Despite the contraction in the gold fields, the Bank of British Columbia went after the gold business with unrestrained enthusiasm.  In June, 1863, an office was opened in the Cariboo to compete with MacDonald’s bank for the purchase of gold dust on the spot.48  As a result, from a minor volume in 1862 (it was only open for three months) the bank was responsible for 28% of the gold shipped by all banks and express companies in 1863 and 51% in 1864 (almost twice the shipments of the Bank of British North America).  The growth in purchases and shipments of gold was accompanied by frantic expansion in other aspects of the bank's business.  Thus, from December 1863 to September 1865 loans increased 2.5 fold, from $340,000 to $900,000 and note circulation over seven fold from $32,000 to $232,000.  Overall, the bank's British Columbia assets doubled from December 1863 to their peak in September 1865, two years after the production of gold reached its peak.  This performance was not mimicked by the Bank of British North America.  Perhaps it is true that the bank “... chose to do an indiscriminate credit business by lending money upon incommensurate collateral security ...”   “... discount(ing) notes with such collateral security as a consignment of alcoholic poison or shoddy pantaloons” (Financier 1868; JS 1868).  The years 1865-66 were years of crisis for the bank (Ross 1920, pp. 313-314).   The contraction was dramatic;  Figure 9 shows the withdrawal of capital from British Columbia and Figure 10 the contraction in loans.  The bank was almost brought to its knees.  Indeed, losses were so heavy that disgruntled minority shareholders introduced a motion at an annual meeting to wind up the enterprise (VC 1867).                                              48  Scholefield reports that MacDonald’s Bank opened an office in the Cariboo in 1863 (Scholefield 1914, p. 644).  I have been unable to ascertain whether it preceded or followed the Bank of British Columbia.  Shearer: Early BC Banking c:\frasrer\banks\bnkfront 30 1/14/2017  2:11 PM B. Banking under “normal“ conditions, 1866-1885.   The Bank of British Columbia wrote off its losses, retrenched its loans and its note circulation, reduced the price paid for gold in the Cariboo, withdrew capital from British Columbia to London  --  and survived.  With the intense phase of the gold rush having run its course both banks settled down to more “normal” banking on the gold frontier.   Both remained active in the gold business but in other respects their banking operations in British Columbia differed markedly.  In this regard I want to consider two aspects of their banking operations:  their relative involvement in facilitating the business activity of British Columbia and the expansion of their operations on the American Pacific coast.  The relevant evidence is presented in a series of charts, Figures 10-15. The involvement of the banks in the local economy is reflected in their loans and discounts (Figure 10), their notes in circulation as currency (Figure 11) and their deposits “not at interest” (primarily the current accounts of businesses  -  Figure 12).49  What is evident in these charts is that, following the recovery from the collapse of 1866, the Bank of British Columbia was dominant in these three complementary local banking activities.  The Bank of British North America’s loans, note circulation and current deposits declined to a low level where they remained through the period.  The Bank of British Columbia’s fluctuated with economic activity in the province, rising rapidly at the end of the period as economic activity accelerated in anticipation of the railway.  It was clearly the major bank for local business and government.50   Standing in striking contrast is Figure 13, “deposits at interest.”  In this activity the Bank of British North America was dominant, particularly in the mid-1870s.  Thus, the bank appeared more like a savings bank than a commercial bank                                              49  What I have called “loans and discounts” appears on the balance sheet as “All debts due to the bank ...”  It thus includes an unknown value of securities of all kinds held by the British Columbia offices of the banks.  Apart from government bonds, however, this is likely to be small.  From March 1878 through March 1885 the balance sheets of the Bank of British Columbia distinguished between debts due to the bank “within the province” and “without the province.”   The proportion “within the province” ranged between 72% (June 1878) and 99% (June-September 1884), averaging 94%.  The fluctuations reflect the state of prosperity of the local economy.  Comparing Figure 11 and 12 it is interesting to note the relative increase in importance of “monetary” deposits relative to bank notes.  The cheque must have been emerging as an important method of making payments.   Shearer: Early BC Banking c:\frasrer\banks\bnkfront 31 1/14/2017  2:11 PM --  borrowing from British Columbians, with interest, but lending little to them and making only a small contribution to the local money supply.  What is interesting, however, is not just that the bank collected the savings of British Columbians, but that these savings were largely employed outside the province.    The balance sheets that form the basis for this study show the assets and liabilities on the books of the banks’ offices British Columbia.   They do not include the assets and liabilities of the books of their offices elsewhere, i.e., in San Francisco, Portland, Seattle and London, England, and in the case of the Bank of British North America in Canada and the other British North American colonies.   However, not all of the assets on the books of the offices in British Columbia represent funds employed in British Columbia.   The balance sheets show sizable "balances due from other banks."  It is highly unlikely that the two banks held large deposits with each other or with the private banks of the province.  Almost certainly the "balances due from other banks" were funds placed with banks outside British Columbia.  Some may have gone to London but the vast bulk was probably used in each bank's own offices on the Pacific coast of the United States and particularly in San Francisco (see above, p. 14).51  They were not funds employed in British Columbia.   As discussed above (p. 28), Figure 8 shows the apparent capital assigned by each bank to its offices in British Columbia.  By subtracting the "balances due from other banks" from the “apparent capital” of the British Columbia offices we have an estimate of the funds  --  whether deposits accumulated in British Columbia or capital assigned to British Columbia  --  directed from the British Columbia operations to their satellite offices on the American Pacific coast.  The result of this calculation is the line labeled “Capital Employed in British Columbia” on Figures 14 and 15 (the approximate date of the opening of each bank’s office in San Francisco and Portland is also indicated on the charts).  It seems clear that both banks diverted substantial funds to their American operations.  The Bank of British Columbia maintained positive capital in its activities in British Columbia until the late 1880s.  By contrast, the Bank of British North America                                                                                                                                                                                                   50  The Bank of British Columbia was the banker and fiscal agent for the Government of British Columbia before the union of the colonies and remained the banker for the Province of British Columbia afterwards.  It also acted as agent for the federal government in British Columbia in connection, for example, with the payment of federal subsidies to the province.  51  This does not include the capital of the banks which was retained in London (or allocated elsewhere).  That has already been allowed for in calculating the “apparent capital” of the banks’ offices in British Columbia.  Shearer: Early BC Banking c:\frasrer\banks\bnkfront 32 1/14/2017  2:11 PM assigned very little capital to its British Columbia offices, and diverted all of that and more to its other operations (probably along the Pacific coast).  In effect, the Bank of British North America was collecting savings in Victoria for investment in San Francisco. VI. OPERATIONS IN THE UNITED STATES . The data underlying Figures 14 and 15 do not tell us the magnitude of the banks’ operations in the United States.  Both banks carried on a local commercial banking business in San Francisco and Portland, accepting deposits and making loans.52  I have no evidence of the magnitude of the operations in Portland.  In the case of San Francisco Reports of the Board of Bank Commissioners for the State of California provided balance sheets for 1879 and 1882, with comparable data for other California Banks.53  For information, the relevant data are presented in Table 8.  Although their shares of the total assets of California banks were small, they were far from minor players in the banking market.  Of the 30 banks listed in the 1879 report, the Bank of British Columbia ranked 7th in total assets and the Bank of British North America 8th.  Of the 48 banks in 1882 the Bank of British Columbia ranked 8th and the Bank of British North America 11th.  A small number of very large institutions skewed the distribution in each year.                                                52  Both California and Oregon had constitutional provisions intended to prevent the creation of note issuing banks.   In California, the ban adopted in 1849 was comprehensive:  it prohibited the legislature from creating corporations that would issue paper money and it prohibited "any person or persons, association, company or corporation" from "creating paper to circulate as money." The second provision was actually a constitutional injunction to the state legislature to pass an act prohibiting the creation and circulation of paper money.  This was done in 1855.  As Cross noted: ...the people of California refused to have anything to do with paper money.  They were completely satisfied with the gold and silver of their own mines, and cared not for paper promises to pay, no matter in what form they were printed or secured (Cross 1927, pp. 112, 114, 292-295) A constitutional prohibition in Oregon was similar (Gilbert 1907, pp. 96-98). During the greenback period, when inconvertible US notes were legal tender, California and Oregon struggled to remain on the gold standard, minimizing the use of legal paper money in those states.  On the Oregon experience see the interesting discussion in Gilbert, pp. 95-122; and with respect to California, in Cross, Vol. 1, pp. 303-361. 53  I am grateful to the Bancroft Library of the University of California, Berkeley for making copies of the relevant pages of the Reports available to me.  I am attempting to find similar reports for other dates.  Shearer: Early BC Banking c:\frasrer\banks\bnkfront 33 1/14/2017  2:11 PM VII. CONCLUSIONS In this paper I have described two banks that began banking operations in British Columbia during the gold rush.  Both were chartered in England to engage in banking in British colonies in North America.  What distinguished the banks was their age and experience.  The Bank of British North America was established in 1836 and had extensive operations in central and eastern Canada and an agency in New York.  It approach the British Columbia enterprise with traditional English banking caution.  The Bank of British Columbia was a neophyte, created specifically to engage in banking in British Columbia.  It plunged into the venture almost recklessly, making large profits in the first few years but bringing itself to the brink of failure.  What is extraordinary about this episode was not the probable errors of judgment made by the local management but the bank’s commitment of virtually its entire capital of the bank to a speculative banking venture in an inherently unstable economy.   Among the management problems in the relatively isolated environment of British Columbia was the management of cash reserves.  Legal tender was gold coin and the management of coin reserves was complicated by its role in the gold trade.  The econometric evidence suggests that the banks had in mind a target level of reserves rather than a target reserve ratio as conventionally conceptualized by economists. The banks were also distinguished by the division of their operations between British Columbia and the American Pacific Coast.  Both banks had important operations in San Francisco.  However, the bank chartered specifically to engage in banking in the Pacific province showed a notable commitment to banking in British Columbia, making loans and providing the medium of exchange for the local economy.  By contrast, the older, more conservative institution, with diversified operations in various parts of the continent, essentially used British Columbia as a source of funds for investment in San Francisco.    Shearer: Early BC Banking c:\frasrer\banks\bnkfront 34 1/14/2017  2:11 PM Bibliography  Barman, J. (1991). The West Beyond the West: A History of British Columbia. Toronto. BBC (1862). The Bank of British Columbia: Charter of Incorporation and Deed of Settlement. London, Dixon and Arnold;  CIHM 13606. BBC (1884). The Bank of British Columbia: Supplemental Charter From 31st May 1884 to 31st May 1891. London, Dixon and Arnold;  CIHM 13606. BC (1864a). An Act to Prevent the Unauthorized Issue of Bank Notes and Paper Currency (1864). The Laws of British Columbia (1871): c.18. BC (1864b). An Act to Provide for the Periodical Publication of the Liabilities and Assets of Banks in Vancouver Island and its Dependencies, and for the Registration of the Names of the Proprietors Thereof (1864). The Laws of British Columbia (1871): c.19. BC (1896). Annual Report of the Minister of Mines for the Year Ending 31st December, 1895. British Columbia Sessional Papers. Victoria. Burns, A. F. (1969). The Business Cycle in a Changing World. New York, National Bureau of Economic Research. Burrell, O. K. (1967). Gold in the Woodpile: An Informal History of Banking in Oregon. Eugene, Oregon, University of Oregon Books. Canada (1885). An Act Respecting 'The Bank of British Columbia,' 1885. Acts of the Parliament of the Dominion of Canada: 83. Charlton (1980). The Charlton Standard Catalogue of Canadian Paper Money. Toronto, Charlton Press. Cross, I. B. (1927). Financing an Empire: History of Banking in California. Chicago, S.J. Clarke Publishing Co. Curtis, C. A. (1931). Statistics of Banking. Toronto, Macmillan. Davis, F. F. (1864). The 'Times' and its Contributors. Colonist. Victoria. Deaville, A. S. (1928). The Colonial Postal Systems and Postage Stamps of Vancouver Island and British Columbia, 1849-1871. Victoria, Charles F. Banfield. Econ (1861). Public Companies. The Economist. Econ (1862). The British Columbia and Vancouver Island Banking and Gold Trading Company. The Economist: p. 291. Econ (1863a). Bank of British North America. The Economist (London). Econ (1863b). Bank of British North America. The Economist (London). Econ (1864). Bank of British North America. The Economist (London). Econ (1865). Bank of British North America. The Economist (London). Financier (1868). The Reduction in the Price of Gold Dust by the Banks. Cariboo Sentinel. Barkerville. Friedman, M. a. A. J. S. (1963). A Monetary History of the United States, 1867-1960. Princeton, Princeton University Press. Shearer: Early BC Banking c:\frasrer\banks\bnkfront 35 1/14/2017  2:11 PM Gilbert, J. H. (1907). Trade and Currency in Early Oregon: A Study of the Commercial and Monetary History of the Pacific Northwest. New York, Columbia University Press. Hittell, J. S. (1862). Mining in hte Pacific States of North America. New York, John Wiley. Howay, F. W. (1914). British Columbia from the Earliest Times to the Present. Vancouver. Howay, H. F., Sage, W. N. and Amgus, H. F. (1942). British Columbia and the United States: The North Pacific Slope from Fur Trade to Aviation. Toronto, Ryerson Press. IS (1884). Garesche, Green & Company, Bankers. Inland Sentinal. Yale. JS (1868). The Reduction in the Price of Gold by the Banks. Cariboo Sentinel. Barkerville. MacFie, M. (1865). Vancouver Island and British Columbia:  Their History, Resources and Prospects. London, Longman, Roberts & Green. McIvor, R. C. (1958). Canadian Monetary, Banking and Fiscal Development. Toronto, Macmillan. Neering, R. (1989). Continental Dash: The Russian American Telegraph. Ganges, B.C., Horsdal & Schubart. Ormsby, M. (1958). British Columbia: A History. Toronto, Macmillan. Phillips, P. (1967). Confederation and the Economy of British Columbia. British Columbia and Confederation. W. G. Shelton. Victoria. Redish, A. (1984). “Why was Specie Scarce in Colonial Economies? An Analysis of the Canadian Currency, 1796-1830.” Journal of Economic History XLIV(September): 713-728. Reid, R. L. (1918). “The Gold Coinage of British Columbia.” Journal of the Canadian Bankers' Association 25: 279-283. Reid, R. L. (1926). The Assay Office and the Proposed Mint at New Westminster. Victoria, Charles F. Banfield. Reid, R. L. (1926). “The First Bank in Western Canada.” Canadian Historical REview VII(December): 294-301. Ross, V. (1920). A History of the Canadian Bank of Commerce. Toronto, Oxfor University Press. Scholefield, E. O. S. (1914). British Columbia from the Easrliest Times to the Present. Vancouver. Seppelt, A. (n.d.). The Origins of Banking in British Columbia (MacDonald's Bank). Vancouver, Economics 336, University of British Columbia. Stafford, B. F. (1877). Editor, Colonist. Colonist. Victoria. Times (1859). "A Meeting of the Bank". Times (London). London. Times (1860). "A Meeting of the Bank". Times (London). London. Urquhart, M. C. a. K. A. H. B. (1965). Historical Statistics of Canada. Toronto, Macmillan. VC (1861a). “Departure of the "Pacific".” Colonist(November 18). VC (1861b). “Gold Export.” Colonist(November 16). VC (1862a). “Extensive Embezzlement and Fraud.” Colonist(April 7). VC (1862b). “Proposed New Assay Office.” Colonist(April 8). VC (1862c). “The Marchand Embezzlement.” Colonist(April 18). VC (1862d). “Assay Offices.” Colonist(April 25). VC (1862e). “S. Molitor & Co., Assayers.” Colonist(June 14). Shearer: Early BC Banking c:\frasrer\banks\bnkfront 36 1/14/2017  2:11 PM VC (1862f). “Schloss & Livingston, Bankers.” Colonist(June 14). VC (1862g). “Statistical Information.” Colonist(January 23). VC (1862h). “Shipment of Gold Dust.” Colonist(January 7). VC (1862i). “High Rate of Interest on Capital.” Colonist(July 9). VC (1862j). “Money at from one and a half percent ... (adv.).” Colonist(July 4). VC (1863). Shipment of Gold Dust. Victoria Colonist. Victoria. VC (1864). “The Exports of Gold.” Colonist(June 21). VC (1864a). Bank of British North America. Colonist. Victoria. VC (1864b).  Robbery at Macdonald's Bank. Colonist. Victoria. VC (1864c).  Bank of British Columbia. Colonist. Victoria. VC (1864d). Macdonald's Bank. Colonist. Victoria. VC (1865). “Exports of Gold.” Colonist(January 4). VC (1866a). The Telegraph Cable. Colonist. Victoria. VC (1866b). Telegraphic Communication. Colonist. Victoria. VC (1867). The Bank of British Columbia. Colonist. Victoria. VC (1872). Idaho Sailed. Colonist. Victoria. VC (1875a). Loss of the Stmr Pacific. Colonist. Victoria. VC (1875b). Those Lost. Colonist. Victoria. VC (1877). Treasure Shipment. Colonist. Victoria. VC (1877b). Silver. Colonist. Victoria. VC (1877c). The Silver Glut. Colonist. Victoria. VC (1877d). The Silver Question. Colonist. Victoria. VC (1877e). Relief from the Silver Plague. Colonist. Victoria. VC (1878). Bank of British North America. Colonist. Victoria. VC (1884). Our Banking Capital. Colonist. Victoria. VC (1891). Death of A. A. Green. Colonist. Victoria. VC (1892). Green, Worlock & Co. Colonist. Victoria. VC (1894). Green, Worlock & Co. Colonist. Victoria. VG (1858a). New Banking House. Victoria Gazette. Victoria. VG (1858b). Gold dust bought. Victoria Gazette. Victoria. VG (1858c). Freeman & Co. Express. Victoria Gazette. Victoria. VG (1858d). Scarcity of Coin. Victoria Gazette. Victoria. VG (1858e). California and British Columbia Compared. Victoria Gazette. Victoria. VG (1859b). “Silver and Gold Coin.” Victoria Gazette(April 16). VG (1859c). “Gold Dust Shipments.” Victoria Gazette(November 12). Shearer: Early BC Banking c:\frasrer\banks\bnkfront 37 1/14/2017  2:11 PM VG (1859d). Bullion Buying. Victoria Gazette. Victoria. VG (1860a). Wells Fargo & Co., Express and Exchange Company. Victoria Gazette. Victoria. VG (1860b). Jaffray & Co., Fraser River Express. Victoria Gazette. Victoria. VS (1873a). Wells, Fargo & Co. Victoria Standard. Victoria. VS (1873b). Bank Notice. Victoria Standard. Victoria. VS (1873c). F. Garesche. Victoria Standard. Victoria. VT (1894a). Suspended Payment. Victoria Times. Victoria. VT (1894b). Green, Worlock & Company. Victoria Times. Victoria.  Shearer: Early BC Banking c:\frasrer\banks\bnkfront 38 1/14/2017  2:11 PM Table 1  Gold Shipments from Victoria,  Annual Average, 1858-1864  (Thousands of Dollars)   Total Wells Bank Bank Macdonald Garesche Residual   Fargo of BC of BNA Bank Green &        Worlock          1858-59 870 645   100  125         1861-62 1996 1456 11  316  213         1864 2803 644 1421 714   23         1870-72 1187 311 461 422   -8 1874-76 1527  577 570  303 78 1877-79 1115  323 402  390 0 1880-82 837  305 225  307 0 1883-85 623  240 76  307 0            Sources: (VC 1863; VC 1865; BC 1897)  Shearer: Early BC Banking c:\frasrer\banks\bnkfront 39 1/14/2017  2:11 PM Table 2 Bank of British Columbia, Balance Sheet, 1863, 1874, 1883.  (Thousands of Dollars) Liabilities Sept. 1864 June 1874 Dec 1883     Notes in Circulation 150.8 195.7 835.7 Balance due to other Banks 855.3 36.0 65.9 Deposits:     Not bearing interest 100.8 617.7 1113.7 Bearing interest 68.4 72.8 9.5     Total amount of Liabilities 1175.3 922.1 2024.8         Assets        Legal Tender Coin Gold and Silver 127.0 134.2 294.9 Bullion 231.4 40.1 7.9 Landed and other Property 24.1 35.8 27.3 Balances due from other Banks and Branches 273.7 131.0 220.6 Amount of all debts due to the Bank, including Notes, Bills of Exchange, and all Stock and Funded Debts of every description, excepting Notes, Bills, and Balances due from other Banks  532.8 741.6 1757.2     Total amount of Assets 1189.0 1082.6 2307.9     Shearer: Early BC Banking c:\frasrer\banks\bnkfront 40 1/14/2017  2:11 PM Table 3 Bank of British North America, Balance Sheet, 1863,1874,1883  (Thousands of Dollars) Liabilities Sept. 1864 June 1874 Dec 1883     Notes in Circulation 36.8 76.2 93.1 Balance due to other Banks  26.2 38.7 Deposits:     Not bearing interest 284.1 107.2 218.9 Bearing interest  303.2 280.5     Total amount of Liabilities 320.8 512.8 631.1         Assets        Legal Tender Coin in Gold and Silver 218.7 87.2 120.9 Gold and Silver in Bullion 27.1 4.9 13.4 Notes and cheques of other banks  1.8 3.9 Landed Property 27.2 18.6 15.0     Balance due from other Banks  241.1 268.0 Amount of all debts due to the Bank, including Notes, Bills of Exchange, and all Stock and Funded Debts of every description, excepting Notes, Bills, and Balances due to the said Bank from other Banks  206.4 197.2 237.6     Total amount of Assets 480.9 550.8 658.9 Shearer: Early BC Banking c:\frasrer\banks\bnkfront 41 1/14/2017  2:11 PM Table 4 Shipments of Gold and Silver from San Francisco, 1858-1874 As Reported by the San Francisco Evening Bulletin   Shipments  of Gold to all Destinations Shipments of Gold to Victoria.  $ '000 $ '000  1858 47,548 0 1859 47,640 0 1860 42,326 25  1861 40,677 6 1862 42,562 168 1863 46,072 100 1864 50,707 125 1865 48,426 0  1866 44,366 140 1867 40,672 155 1868 36,358 135 1869 37,287 20 1870 32,983 n.r. 1871 17,253 n.r. 1872 29,330 n.r. 1873 24,641 n.r. 1874 30,171 n.r.     n.r. = no report. Shearer: Early BC Banking c:\frasrer\banks\bnkfront 42 1/14/2017  2:11 PM  Table 5 Bank of British Columbia, Demand for Excess Cash Reserves  Equation Period Mean Dep. Var. C Notes Season Q3 Season Q4  R2 d.w.           #BC1 1863:4-1885:1 79.547 118.851 -0.117 -10.555 -19.017 0.673 0.675 2.084   (34.785) (10.504) (0.029) (4.367) (4.419) (0.083)             #BC2 1863:4-1872:4 85.369 125.068 -0.297   0.469 0.241 1.849   (25.176) (17.989) (0.119)   (.168)             #BC3 1873:1-1885:1 75.269 148.181 -0.156 -13.139 -24.103 0.789 0.855 1.995   (40.141) (19.002) (0.038) (4.452) (4.486) (0.078)              Standard errors are reported in brackets under the regression coefficients (standard deviation of the dependant variable under the mean).  Shearer: Early BC Banking c:\frasrer\banks\bnkfront 43 1/14/2017  2:11 PM Table 6 Bank of British North America, Demand for Excess Cash Reserves  Equation Period Mean Dep. Var C Notes Deposits Not at Interest Season Q4  R2 d.w.           #BNA1 1863:4-1883:4 97.313 74.448 -0.292 0.261  0.826 0.862 2.155   (47.514) (19.728) (0.085) (0.077)  (0.068)             #BNA1a 1863:4-1883:4 97.313 51.844  0.234 -14.765 0.844 0.882 2.051   (47.514) (17.159)  (0.070) (2.881) (0.057)             #BNA 2 1863:4-1872:4 139.654 134.107   -21.869 0.764 0.617 1.966   (29.914) (16.153)   (5.226) (0.117)             #BNA2a 1863:4-1872:4 139.654 97.257  0.149* -21.835 0.757 .650 1.864   (29.914) (26.333)  (0.089) (5.092) (0.114)             #BNA 3 1873:1-1883:4 65.558 63.802 -0.631 0.460  0.398 0.877 1.949   (30.273) (11.485) (0.086) (0.060)  (0.153)              Standard errors are reported in brackets under the regression coefficients (standard deviation of the dependant variable under the mean).  *significant at 10% level.  All other variables significant at 5% level or better. Shearer: Early BC Banking c:\frasrer\banks\bnkfront 44 1/14/2017  2:11 PM Table 7 Bank of British Columbia, Demand for Excess Cash Reserves  (With Aggregate Gold Shipments)  Equation Period Mean Dep. Var. C Notes Gold Shipments  R2 d.w.          #BC4 1865:2-1885:1 80.249 151.291 -0.161 -0.066 0.729 0.747 1.912   (37.427) (13.893) (0.066) (0.014) (0.093)            #BC5 1865:2-1872:4 85.865 101.029  -0.055 0807 .404 1.617   (27.168) (27.609)  (0.022) (.0210)            #BC5a 1865:2-1872:4 85.865 131.821 -0.250** -0.032** 0.704 .437 1.497   (27.168) (31.339) (0.218) (0.030) (0.020)            #BC6 1873:1-1885:1 77.441 172.490 -0.181 -0.085 0.635 0.854 2.212   (41.627) (13.450) (0.026) (0.018) (0.112)            **  not significan at any reasonable level. Standard errors are reported in brackets under the regression coefficients (standard deviation of the dependant variable under the mean).  Shearer: Early BC Banking c:\frasrer\banks\bnkfront 45 1/14/2017  2:11 PM Table 8 Chartered Banks of British Columbia: California Assets and Liabilities    1879 1879 1882 1882  BBC BBNA BBC BBNA Cash 337 286 400 211 Loans 982 984 538 688 Real estate 76  1  Due from banks 45  1 13 Other assets 87    Total assets 1527 1270 939 912      Deposits 345 171 447 312 Capital paid-in 1176 1099 481 596 Other liabilities 6  11 4 Total liabilities  1527 1270 939 912     Note:       Total Assets 1879 1882    BC Banks 2797 1851 Other California Banks 65307 68454 Total  68104 70305    BC % of total  4.1 2.6   Source: (California 1878/79; California 1881/82)   Shearer: Early BC Banking c:\frasrer\banks\bnkfront 46 1/14/2017  2:11 PM BC (1897). Annual Report of the Minister of Mines for the Year Ending 31st December, 1896. British Columbia Sessional Papers. Victoria. California (1878/79). Repot of the Board of Bank Commissioners of the State of California. Sacramento. California (1881/82). Repot of the Board of Bank Commissioners of the State of California. Sacramento. VC (1863). Shipment of Gold Dust. Victoria Colonist. Victoria. VC (1865). “Exports of Gold.” Colonist(January 4).  

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