On Aug. 17, 1923, the 71-branch Home Bank of Canada failed.

Faced with public outcry over constant bank failures, the government acted.

Since 1923, two Canadian banks have failed, while 17,000 have failed in the USA.

This is the story of Home Bank of Canada

For the first half century of Canada's existence, the only safeguard that customers had with their banks was the competency of management and the hope that assets covered deposits. It was not a good system and by 1923, 40% of Canadian banks had failed.

Finance Minister W.S. Fielding, who assumed the post in 1896, saw nine bank failures by 1910. Many Canadians, and even industry leaders like H.C. McLeod, the GM of the Bank of Nova Scotia, wanted to have government inspections to prevent fraud in Canada's banks.

A new Bank Act was passed in 1913, which required all bank mergers be approved by the finance minister, and required an audit of a bank's shareholders. There were still problems with the system, and many banks simply ignored the new legislation.

The Home Bank of Canada began in 1854 as the Toronto Savings Bank under James Mason. In 1905, it obtained a federal bank charter and started to expand outside Ontario.

Mason collected deposits that he converted into loans for speculators like Henry Pellatt.

Pellatt, who was building his new home Casa Loma, owed Home Bank of Canada $4.5 million by 1910. Since he could not repay the loans, nor could other speculators, Home Bank was on shaky ground. Under the Finance Act, $450,000 was provided by the government to the bank.

James Mason died in 1918, and the bank continued to expand. Between 1921 and 1923, the bank opened 28 new branches and reached a high of 82 branches.

In 1923, Fielding was again Minister of Finance and he started to work on a new Bank Act.

The Act brought in many changes including improved auditing and reports that would not allow bad banks to hide any bad loans they had issued. The Bank Act of 1923 became law on July 1, 1923 but did not come into force until Oct. 1, 1923.

Since bad loans were previously reported as being in good standing, banks like Home Bank were in a serious situation. The bank had $7 million in bad loans. The only option was to cease operations. On Aug. 17, the bank closed its doors completely.

Over 70,000 depositors lost millions in savings. Eventually, the federal government provided Home Bank customers with 35 cents on the dollar for deposits up to $500.

While criminal charges were brought against bank officials, no one was ever convicted.

In 1924, the government created the Inspector General of Banks to supervise banks and prevent such a collapse from happening again. From this point on, Canada's banking system became much more stable, with increased government oversight.

I hope you enjoyed that look at Home Bank Canada.

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