Once upon a time, Halifax tied Toronto and Montreal as the heart of Canadian banking. How did it happen—and when did those commercial tides turn?

In the early 19th century, Halifax was a garrison town in transition. For decades, the fate of the city had swung from foreign conflict to foreign conflict: the War of Independence, the Napoleonic Wars, the War of 1812—conflicts that brought waves of new immigrants and shaped Halifax’s economic outlook.

But in the peace that set in after 1815, a new kind of domestic prosperity took hold. Local capitalists sought to cash in on Halifax’s location at the eastern edge of North America to build fortunes based on shipbuilding, fishing, West Indies trade and timber exports to Britain.

For these colonial merchants, fulfilling a vision of Halifax as the dominant port in the region also required another industry: banking, to finance the projects upon which Halifax’s wealth depended. These early banks, founded in buildings not far from the bustling warehouses lining Upper and Lower water streets, would go on to become the largest in the colony—and eventually, the country—granting Halifax an early foothold in the race to establish Canada’s commercial centres.

Today, however, when people think of banking in Canada, they’re more likely to envisage Bay Street than Barrington. But historians say Halifax’s journey from the centre of Canadian banking to the periphery, mirrors Canada’s economic history more broadly—a history that has lessons for the present-day fortunes of a society still in flux.

Experts in the history of Canadian banking are thin on the ground, and Joe Martin knows that better than most. In 2020, Martin (who has an honorary doctorate but not, as he says, an ‘earned’ one) was contacted by McGill University to act as an external examiner for a PhD student’s thesis on Canadian banking. There was no one else with his level of expertise—much of the writing that has been done on the subject, he says, is the product of American scholars.

Nonetheless, Martin, who is founding and current president of the Canadian Business History Association (CBHA) and co-author of the book From Bay Street to Wall Street, comparing Canadian and American financial history, says banking is more central to the creation of Canada than it was to the establishment of our southern neighbour. Understanding how this relates to the history of banking in Atlantic Canada—and by extension, the economic history of the region—requires (bear with me) a rapid-fire tour through the annals of the early legislation that made up this country.

In 1867, the four colonies of British North America made the decision to unite, laying out the structures that would govern the new confederation. These structures weren’t solely governmental; banking was also central to the discussion, Martin says. “In the [1867] Canadian Constitution, not only was [the banking system] established in every draft, but banking was there from the very beginning.” By contrast, nowhere in the U.S Constitution is banking mentioned. This matters, Martin says, because it shows that an assumption of national banking was built into the Canadian system.

 

According to Joe Martin, president of the Canadian Business History Association, Canada didn’t experience any bank failures during the Great Depression because of its national banking system and federal supervision. The United States, which didn’t have those systems, saw thousands of localized banks go under.

 

 

Meanwhile, banking in the U.S in the 19th century was a fragmented industry, made up of tiny ‘national’ banks—national in name only, since they couldn’t do business across state lines. Canada nearly went the same way, Martin says; in 1869, then-minister of finance, a Montreal corporate lawyer named John Rose, introduced legislation that would have restricted banks to their respective provinces. This prompted a two-year fight Martin calls ‘the battle of the bank acts,’ where bankers from Halifax, Toronto and Montreal joined together to push back against the proposed legislation.

If the nature of that battle sounds less than thrilling, Martin invites you to consider the consequences had it gone Rose’s way: imagine travelling from St John’s to Victoria and not being able to go to your bank when you got there. Instead, the Bank Act that was ultimately passed in 1871 allowed for the establishment of a truly national banking industry (as well as safeguards, like the requirement to review the Act every 10 years to ensure it meets the needs of the economy).

“I can’t think of anything else that has been more significant,” says Martin. “The rejection of the Bank Act of 1869 was far more important than all other aspects of national policy put together.”

All of this is significant, Martin says, because it formed the foundation of Canada’s economic system. And for the fledgling banks that had just been established in Atlantic Canada, this legislation changed the trajectory for the role they would play.

 

By the 1870s, Halifax was a thriving city of approximately 25,000 people, home to no fewer than five banks, as well as a stock exchange, sewer system and a horse-drawn railway.

One of these institutions was the Bank of Nova Scotia, born out of a meeting held on New Year’s Eve, 1831, on the second floor of a building at the corner of Bedford Row and George Street. Downstairs was the Halifax Police Court and City Hall; upstairs, in the Merchant Exchange Coffee House, Halifax businessmen met to discuss the need for a public bank to serve as an alternative to the private Halifax Banking Company. Three months later, the Bank of Nova Scotia was born.

 

“Places like Halifax and Saint John were just as hopeful as Toronto and Montreal in being able to dominate that national economy—each one wanted to be the Toronto or Montreal that everybody else resented. Halifax and Saint John just lost out; most of the banks that had a regional origin just followed the money.”

—Sean Cadigan

 

 

In the early years, competition was stiff, including with the Halifax Banking Company; each institution refused to honour each other’s bank notes (a national currency wasn’t established until 1935), leading to currency wars. Meanwhile, competition was also emerging with other upstart banks, including the Merchants Bank of Halifax, established in 1864, and further afield, the Bank of Toronto in 1855 and Canadian Bank of Commerce in 1867 in Ontario (later TD and CIBC), and the Bank of Montreal, which had grown rapidly since its establishment in 1817.

“Halifax was the third financial centre at the time, after Montreal and Toronto,” Martin says.

Halifax’s competitiveness (and that of the Maritimes more broadly) hinged on the importance of wooden-hulled sailing ships for global trade. As that industry began to move to iron and steel ships powered by steam engines, investors were faced with a choice: to embrace the transition in the shipping industry, where they had the competitive advantage, or to move towards the entirely new opportunity that rail represented. Sean Cadigan, a professor in the department of history at Memorial University, says merchants were seduced by rail, which they saw as the safer option.

“There was a mystique in the period about railways, in particular, that railways weren’t just economic infrastructure. They were almost ideological in their appeal: that modern was the railway, the future was the railway.”

But unfortunately for the region —and despite attempts such as the Intercolonial Railway, which connected Nova Scotia and New Brunswick to Ontario and Quebec—Halifax was not well situated to be integrated into that future.

“Halifax and Saint John were just literally too far out on the edge of that continental economy,” says Cadigan. By contrast, Toronto and Montreal were located at the centre of that burgeoning system—and just as importantly, were situated close to more productive farmland, which in turn underpinned the rise of manufacturing for the continental market, such as the hides used in boot and shoe production.

“So it’s the old story of Maritime and Atlantic Canadian regional interests being sort of overwhelmed by a kind of central Canadian impulse,” says Cadigan.

For the banks that had recently been established in Halifax, this shift in the national economy drew their gazes westward.  While the Merchant Bank of Halifax and the Bank of Nova Scotia had spent the latter half of the 18th century opening ‘agencies’ in rural Maritime communities (a model of growth more akin to franchises than branches), the economic prospects of these communities were dwindling, as were the hopes for a Maritime manufacturing industry based in places like Halifax and Truro.

Seeking to avoid the collapse that had claimed other Maritime banks—and eyeing the greater investment opportunities on offer in central Canada—the Bank of Nova Scotia moved its head office to Toronto in 1900, having already opened branches in Montreal and Kingston, Jamaica.

In 1907, the Merchants Bank—which by that time had changed its name to the Royal Bank of Canada—followed suit, moving its head office to Montreal. Shortly after making this shift, RBC swallowed up other banks in Halifax, Ontario, Quebec and Western Canada, expanding its national presence and claiming the title of the largest bank in the country by assets.

Cadigan says these moves make sense when one considers why banks had formed in Halifax in the first place. These institutions had not been founded with the intention of regional development, he says; rather, they emerged at a time when cities were jockeying for the top spot in the country—and when places like Halifax and Saint John still stood a shot.

“Places like Halifax and Saint John were just as hopeful as Toronto and Montreal in being able to dominate that national economy—each one wanted to be the Toronto or Montreal that everybody else resented,” he says. “Halifax and Saint John just lost out; most of the banks that had a regional origin just followed the money.”

Cadigan says this strategy didn’t leave much room for community development. But in the subsequent decades, a counter-movement based in the Maritimes—one focused squarely on this kind of development—would emerge.

 

 

By the 1920s, frustration at what was seen as the disadvantages of being integrated into Canada had taken hold in the Maritimes. In places like Little Dover, on Nova Scotia’s eastern shore, economic decline meant poverty so deep the government officials recommended relocating the community, a struggle shared across the region. A 1928 Royal Commission on the state of fishing communities reported that it had heard tell “of abandoned fishing vessels left hopefully equipped as they came in from the sea to wait for a better season which never came; of fisher folk despondent and disheartened, struggling on against economic disabilities, eager to labor in their most hazardous pursuits, but unable to sell their products for a reasonable reward.”

Meanwhile, the economic crash of the 1930s further affected people’s economic fortunes: fishers lost their boats, families their houses.

Into this maelstrom stepped the fiery Catholic priest Father Jimmy Tompkins. In 1931—as reported by Maclean’s—Tompkins climbed onto the stern of a fishing boat in Little Dover and exhorted a crowd to gather round so he could tell them about a new kind of banking that had been spreading across other parts of eastern North America: credit unions.

“Basically, Father Tompkins’ idea was to be masters of our own house,” says George Karaphillis, former Dean of the Shannon School of Business at Cape Breton University and a researcher studying the economic impact of credit unions. In contrast to the big banks, “his theory was that if you control your own finances, and you borrow from each other, then basically you will be able to survive any rough spots.”

The Antigonish movement, inspired by Father Jimmy Tompkins and led by Father Moses Coady out of the Extension Department at Saint Francis Xavier University, encouraged the establishment of cooperatives to help small communities overcome their economic problems. While these co-ops took many forms, it often meant credit unions. These allowed fishers, farmers and mine workers, for whom bank loans were expensive or impossible to obtain, to have access to credit. In the 1930s, a representative of the American educational initiative the Carnegie Foundation (with which the Antigonish Movement had close ties) called it “the boldest and most constructive attempt to conquer the depression that is going on anywhere in the world.”

In some ways, this is a complicated picture; for instance, Joe Martin says the reason Canada did not see any bank failures during the Great Depression, unlike the United States where thousands of localized banks went under, was in part Canada’s creation of a national banking system, as well as a system of federal supervision. This move shifted banks’ attention away from Atlantic Canada, but it also created a system that was able to withstand economic shocks.

“There were criticisms of the banks, that they contracted lending, but what else were you going to do under those circumstances?” Martin says. “If they had continued to loan, the loans would have gone bad.”

Either way, the establishment of credit unions meant that in places like Larry’s River, N.S., the pooling of people’s pennies funded the opening of a grocery store, then a fish plant. But this was to have an influence far beyond these small communities; by the 1940s, credit unions had taken root across the region, and had begun to spread to other parts of English-speaking Canada.  In some places, credit unions now figure among the dominant financial players, like the Vancouver City Savings Credit Union in B.C., which is the largest credit union in the country.

 

George Karaphillis, former Dean of the Shannon School of Business at Cape Breton University, says credit unions have filled important economic development roles in Atlantic Canada since the early 1930s, especially for communities deemed too small to support a bank.

 

 

Over the course of the 20th and 21st centuries, many small co-operatives in sectors like retail have struggled to compete with large corporations, but Karaphillis says credit unions have retained a steady presence. Karaphillis says this is partly a reflection of the gap credit unions are filling, including in communities that are too small to support a bank. In these communities, credit unions’ multiplier effect (meaning their impact on the economy), such as the number of people employed relative to revenue generated, are also more obvious. “They’ve done very well in Atlantic Canada over the years, because Atlantic Canada is so rural, and it works well with institutions that are locally controlled,” he says.

In the years ahead, this relationship may become even more pronounced; in 2022, a flurry of rural bank branch closures was announced in communities stretching from Fogo Island to Westville to Grand Manan, echoing a nationwide trend that has seen 315 bank branches close between 2017 and 2021.  Bank officials cited a shift in the way people do banking, including the rise in online services, as the reason for branch closures.

In places where communities have been left without a bank, credit unions have often stepped in, as was the case in Eagle River, Labrador after the only bank closed. “Credit unions have generally done well when they fill the void left by banks, but nobody wanted the banks to go in the first place,” says Sean Cadigan. “So for me, it’s more about why we find it so hard to develop economic development strategies that really revolve around small-scale enterprise.” Cadigan says there’s a lack of research on this question—but either way, credit unions may be part of the answer.

Meanwhile, the picture is different in urban centres. Credit unions struggle to compete against large banks in big cities, and in the corporate banking sphere; the so-called ‘big five’ banks (which include Scotiabank and RBC) represent 90 per cent of Canadian bank assets.

Ultimately, this may mean that in the 21st century, where Canada is made up of small local businesses as well as international corporations, and tiny rural communities as well as big urban centres, there’s a need for a financial system that can accommodate both ends of the spectrum.

What this system looks like is still being determined. After all, despite the fact that banking has been part of Canada since the country’s earliest days, the industry is relatively young, and still in flux. Even in his own lifetime, Joe Martin says he’s seen significant changes.

“I’ve taken American guests on a walk through downtown Toronto, and told them that the TD building was the only big bank building when I moved here in 1968, and they’ve called me a liar,” he says.

Regardless of what changes lie ahead, Martin says the early structures put in place for Canadian banking have made it one of the safest systems in the world, even as the provision of regular review has allowed that system to evolve. As Canada faces further economic transformation, including in the financial sector, new ideas will no doubt emerge—and at least some of those will be able to trace their origins back to the fishing communities and garrison towns of Atlantic Canada.