Lesson 4

Topic: Banks and Banking (40-50 mins)

Goal: Introduce students to the concept and history of banks and banking in Canada. Learn why banks are important and how people use banks throughout their daily lives.

Lesson Overview:

1. Class discussion – What do they know about banks and banking?

2. Starter Activity – Listing the main banks in Canada and Credit Unions

3. Lecture/Did they know? – The history of banking in Canada

4. Video – Middle School Money Matters Video #4 – Banks and Banking.

5. Paper activity – Studying a bank statement and answering questions

6. Wrap-up or Extension activity

Class discussion: What do they know. Start with question prompts like : Why do we have banks? What purpose do they serve? What are the kinds of services banks provide? How do people use banks in the daily lives? What do the banks get out of it? How do they make money? Do we need banks? Why? Bonus Question: Why is the integrity of the banking system important to the functioning of a country?

*Starter activity: Ask students if they can list the big 5 banks in Canada (RBC, BMO, Scotia, TD, CIBC). What other institutions are there? (Credit Unions like VanCity or Coast Capital) Ask students how many have bank accounts and at what institution, make a bar graph on the board showing how many accounts and at what banks.

Lecture/Background information: Banks, Credit Unions and who has your money – History and background of banking in Canada.

The history of banking in Canada

Coinage and money have been around for a long time allowing people to make transactions and trade goods. Whether it was commodity money like precious metals or salt, or coins or notes backed by countries or kingdoms, but what is a newer invention is the idea of credit. Credit is the idea that a person or business can borrow money and repay it at a future date. As this idea became more popular, it necessitated a larger organization that had money to lend out and could offer credit to people The way the current day banking system functions (which is largely based on credit) is a relatively new invention. Back in the 1700s when Canada was still known as New France, merchants began issuing something call ‘Bons’ which were essentially an IOU saying they were good for the money, this was really the first form of credit to appear on a large scale in Canada which allowed merchants to acquire inventory and pay for it in the future (in the hope that they would have sold most of it by then so they didn’t have to come up with the initial money themselves) So essentially these merchants became the first ‘bankers’ in Canada.

The first real issuance of paper money in Canada was back in 1812 where notes were issued by the British Government in order to help finance the war of 1812. After the war people were able to exchange these notes for gold bullion provided by the British Government and this was the first step in getting the public to trust ‘paper money’ to ‘believe’ that these notes actually had value and were not just worthless pieces of paper.

After this success, in 1817, the British Government granted the rights for Canada’s first bank, The Bank of Montreal, to begin issuing notes of its own essentially becoming the first ‘Bank of Canada’. In the years following, the British Government granted rights for several other banks to start up and begin issuing currency. So now each individual private bank had its own currency so in order to make things work the government made it a rule that each of these private banks was required to recognize the currency of the other banks and take it at face value, sort of like a miniature version of what happens today in the world with currency from different countries.

This continued for years until the confederation of Canada and the British North America Act which then brought the responsibility of money control into the hands of the new Canadian government and created a uniform currency across the country – the Canadian Dollar – the production of these bank notes was still done by the big charter banks, but under the control of the Canadian government. Because of the way Canada began, it evolved a slightly different banking system than the United States. While the US had many small individually owned banks across the nation, Canada had created a system where we had just a few large charter banks with branches across the country. This generally led to more stability within the banking system than in the US and over time the US has gradually moved toward a system like Canada’s where the banking system is dominated by a few giants. The final big change came in 1935 when the Bank of Canada was officially created to provide economic stability during the years after the Great Depression. The production of bank notes by the banks ceased and the Bank of Canada began producing the ‘cash’ people used. And since then the banking system has operated in a fairly consistent manner setting interest rates for bank lending and controlling the money supply.

Current day banking: Over the last 50 years, some of the biggest changes in banking we have seen is in the different services they offer. In the past banks were predominately about lending money (offering loans for a variety of things like houses, cars, equipment…) and keeping people’s money on deposit and keeping that money safe and paying interest on the deposit. And while this is still the main function of banks today, other financial services have made life much simpler and efficient for business and for the average person. Beginning with cheques and the ability to transfer money between different people’s accounts within a bank and across banks, then the invention of credit cards and debit cards which is fairly new, investments such as mutual funds are fairly new and of course more recently automatic payroll/direct deposit, Internet Banking, things like Paypal and Interac etransfers. At this point in our history it is not only possible, but probably easier to live without ever having to use cash, and this has all happened within the last 40 years.

Video: Middle School Money Matters 6-4 ‘History of banking in Canada’

*Discuss the types of accounts listed in the video, what do they know about them. For the in-class activity they will be studying a typical bank statement from a chequing account.

Activity: Studying a bank statement. Use the supplied bank statement and go over the different types of deposit and withdrawal transactions it shows, then have students answer the questions on the bank statement worksheet. Review answers as a class.

In-class/Homework/Research Assignment/Extension ideas:

• Look up pictures of old Canadian notes, see if students can find some of the ones issued by the banks before the government took over

• Ask Google ‘How do banks make money?’ What are Interest rate spreads, fees, lending?

• Complex On-line Research Questions: What happened to the big banks in the Unites States during the economic downturn of 2008/09. Why? What are interest rates and why are they important? What were sub-prime mortgages?

*Share out with class. The teacher could treat this kind of like “Genius Hour” but using only topics related to banks. Have students come up with a question about banks or banking they would like answered and then do the research and share with the class what they found.