Home Bank of Canada
From Wikipedia, the free encyclopedia
| Industry | Bank |
|---|---|
| Predecessor | Toronto Savings Bank/Home Savings and Loan (1854-1903) |
| Founded | July 10, 1903 |
| Defunct | August 18, 1923 |
| Headquarters | , |
The Home Bank of Canada was a Canadian bank that experienced meteoric growth from its start in 1903 to its sensational and costly collapse in 1923. Its collapse shattered public trust in banks and encouraged growth in bank reform sentiment among the powerful farmer organizations of the time.
It was incorporated July 10, 1903, in Toronto[1] but did not receive a Treasury Board certificate to operate as a chartered bank until the next year.[2]
It succeeded the earlier Toronto Savings Bank, which had been founded in 1854 by Bishop Armand-François-Marie de Charbonnel and the local chapter of the Society of St. Vincent de Paul[3] and later Home Savings and Loans in 1871. The failure of Home Bank on August 18, 1923, was the subject of a Canadian Royal Commission initiated by Prime Minister William Lyon Mackenzie King in 1924.[4]
Founded with the support of the Roman Catholic Church, James Mason and Henry Pellatt represented a benign board of directors including E.G. Gooderham, Claude Macdonnell and three other directors from Winnipeg, Manitoba, affiliated with the United Grain Growers.
Early in its history a number of questionable loans were advanced, including one to A.C. Frost Company to buy timber rights in British Columbia, and another to the New Orleans Gouther and Grand Isle Railway secured by a rolling stock of dilapidated rail cars.[citation needed] In 1912 it undertook a campaign of expanding into Quebec and eastern Canada, to the chagrin of the western Canadian Directors who were seeing much of the bank's capital unavailable for western loans. At the same time, many of the large loans went unpaid and the accrued interest, through a form of bank fraud, was recapitalized onto the principal of the loans.
William Machaffie, Manager of the Winnipeg Branch and a banker since 1882, told the western directors as early as 1914 that the "cooking of the books" through the adding of unpaid interest to the principal and then calculating the interest as profit to pay dividends to major shareholders and directors was wrong. Machaffie wanted to tell the minister of finance at the time, Thomas White, but the western directors were not so sure.
The federal government of the day was not prepared to deal with a bank crisis during wartime. After a leave of absence in 1917 Machaffie returned to his desk to find his position was gone. He wrote a letter to the Minister of Finance which outlined issues regarding bad loans, capitalization of unpaid interest, and accounting malpractice at head office, and stated the only hope for the bank's survival was a merger. He decided not to send the letter to the minister but instead to the Board to "stir things up a bit". He was fired. On August 29, 1918, he drafted a new letter and this time sent it to the Minister of Finance outlining his concerns and a litany of delinquent and non-arm's length loans and issues related to serious flaws in the Home Bank's internal auditing process.
