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