Winners, Losers, and Bankers in the Making of Canada’s Central Bank, 1932-1938

Laurence B. Mussio

The establishment of the Bank of Canada as the country’s central bank in 1935 was easily the most consequential development in 20th century Canadian banking. The establishment of a central bank in Canada came decades, and in some cases centuries, after every major nation in the North Atlantic world had established theirs. The absence of a central bank did not, however, prevent Canada from establishing a strong, stable and successful banking system of chartered banks, maintaining price stability and avoiding systemic failures.  Canada’s senior bank, the Bank of Montreal acted as government banker and the Canadian Treasury acted as lender of last resort while the Canadian Bankers’ Association (CBA) acted as a coordinating body for the banks alongside the Canadian Department of Finance. The Depression changed the landscape: between 1932 and 1934, pressures to establish a central bank gathered momentum both domestically and internationally. By 1935, the Bank of Canada was established as a private institution; by 1938, the central bank passed under total government ownership. This paper sheds new light on the political, diplomatic and economic pressures that coalesced to form the Bank of Canada, the strategy of the Canadian banks and the fundamental role of politics. This paper concludes that the Bank of Canada’s establishment was not merely a political outcome. It was also, prominently, a contest of elites: a traditional Canadian banking elite, and an emergent and ultimately prevailing “technocratic” elite in both Ottawa and London convinced about both the inevitability and the necessity of central coordination of currency and banking. The paper analyzes who the winners and losers were in this contest, and whether “how one plays the game” mattered in this fundamental episode in Canadian banking history.