The rise and fall of private banks in Elora

The following is a re-print of a past column by former Advertiser columnist Stephen Thorning, who passed away on Feb. 23, 2015.
Some text has been updated to reflect changes since the original publication and any images used may not be the same as those that accompanied the original publication.

One of the least known of the small-town businesses of the 19th century was the private banker. These were one-man operations or partnerships with only one office, offering a full range of banking services.

There was no government regulation of this industry. Depositors and customers had only the personal reputation of the banker as their guarantee that they would ever see their money again. Between 1865 and 1910, about 700 private banks operated in Ontario, most in the smaller towns.

Elora’s first private banker, Walter Newman, operated in Elora as the “Farmers Bank” between 1866 and his death in 1881.

Newman was one of the most extraordinary men in the village’s history. The son of a wealthy merchant in Cheltenham, England, Newman ran away from home at an early age and hired out as a cabin boy. He drifted around Australia for a couple of years, then migrated to Upper Canada to try his hand at farming.

In 1846, the 27-year-old Newman showed up in Elora and presented himself to Charles Allan. He was immediately hired as a clerk in Allan’s store. Although he had virtually no schooling, Newman was a quick study and had managed to pick up a solid education on his own initiative. His interests ranged widely. In 1848, he designed and patented a turbine, the prototype of which operated Elora’s mill for several years.

By 1849, he was handling the books for Allan’s many business interests. The following year he set up his own accounting practice. He was soon handling real estate and mortgages.

During the 1850s, Newman persuaded three brothers to join him in Elora. His elder brother, Edwin, was the first to come and remained in Elora the rest of his life. In 1853, Edwin purchased Charles Allan’s store. Walter was a junior partner in the venture, and carried on his accounting and real-estate activities from the back room of the store.

The demands for banking services in the Elora of the 1850s were not great. Merchants were largely a part of the credit system of their suppliers in Hamilton, Toronto and Montreal. Few local people had any money to save or invest, and much business was conducted by barter.

All this would change in the following decade. Walter Newman’s business soon became the centre for financial transactions in the village. By the early 1860s, he was an agent for the Bank of Montreal in Guelph, handling deposits and drafts for the bank, and advising on loan applications.

In 1866, the Newman Brothers store, at the north end of the Victoria Street bridge, was destroyed by fire. The Newmans rebuilt a stone structure on the site, with a fireproof vault for the banking business. There were two retail spaces on the first floor and offices above. 

The banking business was established as a separate concern, known alternately as W.P. Newman and Co., and the Farmers Banking House. Brother Edwin operated the store in this building briefly, later moving it to larger quarters. Upstairs, Walter conducted his real estate and insurance agency, and Edwin kept offices for his auction business.

By modern standards, or even those of the late 19th century, the Newman bank was not a large one. The brothers did not have a great deal of capital at their disposal, and much of the local deposit money only passed through their hands to the Bank of Montreal, though there were many people at this time who were disinclined to deal with a business they did not know personally.

As well, private bankers such as Newman frequently offered better interest rates than the chartered banks. The Farmers Banking House soon had several hundred depositors on its books, and offered loans to farmers, merchants and individuals. 

Newman was careful to restrict the size of his loans, and to spread his risks widely. He specialized in loans for cattle and machinery, cultivating a rural clientele that was shunned by the chartered banks.

Competition arrived in Elora in 1867. The Merchants Bank, with headquarters in Montreal, established an agency that became a full branch in 1870. The branch closed eight years later, after alienating the local community when it foreclosed on the Elora mill and the two largest factories in Elora.

By the mid-1870s, Newman’s meagre capital was insufficient, and he decided to bring in additional partners. Among these were Hugh Pritchard and David Foote, two successful area farmers. Their participation in the bank strengthened ties with the agricultural community.

Walter Newman continued to find new interests through the 1870s. He took a leading role in the horticultural society, and began cultivating cactuses and tropical plants in Elora’s first greenhouse. He spearheaded efforts to clean up the Elora Gorge, and spent many hours planting wildflowers and scattering seeds along the banks of both rivers. He tried his hand at local history, contributing several columns to local newspapers in a prose style so baroque that it is virtually impenetrable.

In 1880, Walter Newman was diagnosed with kidney disease. A son and daughter took over the day-to-day running of the bank. As his health faded, he was unable to care for his tropical plants. These were sold at an auction which took a full day and attracted buyers from across the province.

Walter Newman died in May of 1881, three weeks after his brother Edwin.

Following the death of Walter, the Newman family decided to sell the business rather than carry it on themselves. The purchaser was the firm of Johnston, Gale and Tisdall, which operated private banks in Strathroy and Clinton. Gale came to Elora as manager of the Elora bank.

Partnerships such as this and the chains of private banks they controlled were becoming common in the 1880s. Although there were signs that the economy was in depression, the demand for all types of banking services continued to grow. Loan portfolios expanded, while money on deposit expanded even more rapidly. Private bankers began to look for the security and stability that came with size and geographic diversification.

In 1883, the firm of Johnston, Gale and Tisdall acquired a new senior partner. He was W.W. Farran, a civil engineer who had made a fortune as a railway contractor building branch lines in southern Ontario in the 1870s. He was also the reeve of Clinton and had wide business investments there.

Farran differed profoundly from the type of banker represented by Walter Newman. Farran’s goal in entering the banking business was to employ the local savings base for investment in local business and industry. Bankers such as Farran developed complicated chains of partnerships and interests in other private banks.

The Elora bank was among Farran’s investments. He supplied much of the capital to the Elora bank, but did not take an active part in its management. The Elora firm was reorganized in 1884 as Gale and Archibald. 

Farran continued as a silent partner, with the addition of James Archibald, whose family had banking and milling investments in Minnesota and Winnipeg.

In 1890, Gale sold his share to Farran, and the Elora bank became known as Farran and Archibald.

After 1890, Farran became more involved in the Elora bank, particularly in loan decisions. The bank became a lender to local industry, particularly the John C. Mundell furniture company. James Archibald was involved in several business ventures with Mundell, which were financed by the bank.

Farran and Archibald employed resources that were probably ten times those available to Walter Newman in the 1870s. Still, this was only a medium-sized private bank by the standards of the time. In addition to Archibald, the Elora staff consisted of Henry Clarke, nephew of local MLA Col. Charles Clarke, and a part-time bookkeeper. Feeling well settled and prosperous, James Archibald commissioned a new house, the largest in Elora. He named it Hillcrest.

Relations with chartered banks were becoming uneasy for private bankers in the 1890s. The chartered banks desired to get their hands on the vast amounts of deposit money that were accumulating in small-town Ontario.

Private bankers were dependent on the chartered banks for access to the clearing system for cheques. More and more business was being conducted by cheque, and merchants were taking out operating loans with banks rather than tying themselves to a small number of suppliers through credit purchases.

In addition to delays with the clearing system, private bankers had other problems. A number of private banks failed in the 1890s. The chartered banks did everything in their power to publicize these failures.

Private bankers had to offer much higher interest on deposits to attract money, and consequently had to charge higher interest on loans than the chartered banks did. Many borrowers approached private banks only when they had been turned down elsewhere. The loan portfolios of private banks became very shaky.

Things went sour for Farran and Archibald in 1897. A flax business owned by Mundell and Archibald failed, and the Lipsey and Stickney oatmeal mill closed, with virtually no assets. Both were major borrowing accounts of the bank. 

Farran forced Archibald to relinquish his share in the bank as partial payment for the unpaid loans. In the span of a few months James Archibald lost his flax mill, his wife, his bank and his house, and was left virtually destitute with a young family.

In spite of the difficulties, the bank did not fail. It continued under the sole ownership of Farran, with Henry Clarke as the manager, until 1904. The Merchants Bank returned to Elora in 1899, eroding much of Farran’s business. He recognized the inevitable and ended the era of private banking in Elora by selling out to the Traders Bank, which later merged with the Royal Bank of Canada.

*This column was originally published in the Elora Sentinel on Aug. 28 and Sept. 4, 1990.

Thorning Revisited