Home Bank - Collapse

Collapse

The Post-war period brought prosperity and the inflationary boom gave Home Bank its share of the Canadian penchant for saving money, opening an additional 28 branches (for a total of 82) between 1921 and 1923. Though this period, under greater government scrutiny and with the death of Senator Mason in 1918, the new President of the bank, Herbert Daly was challenged to "keep all the balls in the air at the same time".

The bank's circus act fell to the ground and it fell hard, in what was an alarmingly familiar pattern. The major chartered banks intervened in 1920 to control rising prices by raising interest rates. Demand for credit fell and the resulting recession drove prices down dramatically, making assets worth less than the money loaned to acquire them. During this time, and with the dust storms of the 1922-1923 drought, many farmers lost their land and livelihood.

The indifference of the Eastern banking community led to the success of populist parties in Western Canada and Ontario. In 1922 the United Grain Growers, whose officers comprised the western bank board members, sold all of their shares in the bank. At the same time the Western Canada Pulp and Paper Company had defaulted and, in the spring of 1923 the bank asked Mackenzie King's Liberal government for help, which was refused. The stock plummeted and depositors withdrew money in ever-swelling streams. On the August civic-holiday, J. Cooper Mason, son of the founder and a Director, retired to his study and put a service revolver to his head.

The Canadian National Railway, whose director Richard F. Gough was also a member of the bank's board, withdrew $1 million just before the collapse. The bank closed for good August 17, 1923. Ten officials from Home Bank were arrested on charges ranging from concurring with false returns to fraud on October 4, 1923 at a time when the bank's assets were estimated at $2.7 million and liabilities at $15.5 million. 60,000 prairie farmers and a substantial portion of Toronto's Catholic community lost their savings. In the panic that followed the bank's closure, the Ontario Government shored up the Dominion Bank with $1.5 million to stop a deposit run. Herbert Daly was unable to testify after a nervous breakdown and he died on October 22, 1923.

Cabinet secrecy rules protected politicians from any liability in the matter and, in a precedent setting bailout, the federal government agreed to pay $5,450,000 to depositors (Deposit Insurance was not enacted until 1967 in Canada), providing some settlement to the thousands who lost money as a result of the failure which, had the bank been liquidated or merged in 1916 or 1918 would have been without any loss to depositors.