Recently a history of a financial institution almost 200 years was picked up and read. In this case, the bank is a Canadian based one called the Bank of Montreal, the book is A History of the Bank of Montreal, Merrill Denison, McClelland and Steward, 1966. At present the Bank of Montreal has operations across Canada as well as in the Midwest of the United States centred around Chicago with Harris BMO. When the bank was incorporated the funds came from Montreal, Boston and New York although majority voting shares were in Montreal. The bank started as an commercial bank for the bills of exchange and trying to make money on the exchange rates between Montreal, New York and London. There were very few individual depositors in those days (where the bank makes the bulk of its money, now days), over the years banking changes.

In reading the history there are some themes that emerge including cycles in the economy – things happen in the world which will have economic impacts on banks and their balance sheets. In the 1800’s countries went to war – the economy was boosted by the extra military spending, when the war was settled there tends was close to a recession as the countries not longer needed the supplies. In today’s times more than one bank is sustained by safekeeping government funds as well as the military payroll. In the Bank of Montreal’s case much of the history is ensuring the company has good relations with the Colonial office in London. For all legislation or bills needed to be ratified by the English Parliament and they took their input from the Colonial Office. One aspect of dealing with the Colonial office is similar to bureaucracy everywhere, most do not like risk taking. Thus they ensure rules are made to limit risk taking, do not interfere with UK based banks and as such fewer banks tend to fail. As a customer and a government this is a good thing, sometimes the company wishes to take more risk than it does, but bureaucracies limited the risk taking.

In the case of fundraising to start the company, similar to today, while there is always some money available in your hometown, in this case Montreal and being Montreal was an English colony you would have thought linkages to London would have brought money from there; but in the end in came from Boston and New York where the Montreal companies had trading relationships. It could also be thought before the Erie Canal was built the harbour of Montreal was the busiest on the Great Lakes system, primarily because of the rapids on the St. Lawrence. After the Erie Canal was built it took a long time before Montreal responded to the new trade route and raised the money to build canals on the St. Lawrence.

Another theme is as the Bank grew and wanted to expand outside of Quebec, the competition used its influence at the parliamentary office to lessen competition. Banks occupy an important part in the functioning of an economy, it is possible to exist without one but it is much easier to operate with it and those on the Board of Directors level tend to interact with government to ensure the playing field is not changed too much. In the case of the Bank of Montreal, one of its main competitors was very deeply enshrined with the government of the day and also charged high fees, which meant the Bank and other competitors constantly voiced their concerns about the monopoly like conditions which competition could open up for better fees and services to the community. It took 20 years and various changes in governments before the bank could expand beyond Quebec.

Linking to dividend paying stocks, one reason to read the history of the bank is many banks are consistent in paying dividends over the years they have been in operation. For most, raising the dividend is to be seen and having a portfolio with banks is a very good place to place your money. After the 2008 recession banks are now making more money than they ever had been and the price of the stock is reflected in the changed outlook for the economy. As in the past and it is now, the art and practices of lending money, charging interest and getting paid back has never changed. Some banks focus on businesses, others on retail and both strategies have their advantages and disadvantages. Generally the banks do not lose money on retail, except when residential real estate prices fell across the world, hopefully that will not happen again.

There are more questions than answers, till the next time – to raising questions