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Developing a monopoly

El Banco de Hidalgo del Parral

The Banco Minero took over the remnants of the Banco de Hidalgo del Parral in 1888.

Merger with El Banco Mexicano

In January 1896 it merged with the Banco Mexicano since there was no point in competing when the shareholders were practically the same and there were savings to be made in offices and staff. The merger had been approved by the Secretaría de Hacienda the on 17 December 1895.

El Banco de Chihuahua

Iin July 1896 the bank took over the Banco de Chihuahua when the latter failed.

New concession

On 18 September 1897 the bank entered into a new contract with the Secretaría de Hacienda, renouncing its rights under the contracts of 22 May 1888 and 17 December 1895 and bringing itself into line with the Ley general de Instituciones de Crédito. As the Ley prohibited notes in denominations of less than five pesos the bank was given five years to call in all its 25c, 50c and $1 notes. At the same time the design of the other notes was slightly modified with the original inscription ‘pagara a la vista al portador en moneda de plata del cuño Mexicano’ being altered to ‘pagara a la vista al portador a la par en efectivo’ (in cash).

The bank could also now have branches or agencies in Chihuahua, Sonora, Coahuila and Nuevo León.

Merger with El Banco Comercial

By 1897 only two banks of issue remained in Chihuahua, both of them controlled by the Terrazas-Creel interests, namely the Banco Minero, with a capital of 1,500,000 pesos, and the Banco Comercial, with a capital of 600,000 pesos. Finally, in July 1900 the Banco Minero took over the Banco Comercial, at the same time increasing its capital to 4,000,000 pesos and changing its name to Banco Minero de Chihuahua. Existing shareholders converted their $10 shares in both banks to an equivalent number of $100 shares in the merged, and purchased new shares as follows:

 New shares
for existing holding
in the Banco Minero
New shares
for existing holding
in the Banco Comercial
New shares
at $110 each)
Total holding
in enlarged bank
Luis Terrazas 4,930 250 1,050 6,250
Inocente Ochoa 1,500   500 2,000
Miguel Salas 3,950   250 4,200
Enrique Creel 3,930 4,900 16,591 25,421
Luis Terrazas hijo 350   150 500
Alberto Terrazas 200 130 150 480
Juan A Creel 100 100 260 460
J Francisco Molinar 10   40 50
Mariano R Terrazas 10     10
Eduardo C Cuilty 20 100 9 129
Jesus J Falomir   400   400
Ponciano Falomir   100   100
Maximo Krakauer   20   20
  15,000 6,000 19,000 40,000


The bank also took over the Banco Comercial’s branches and agencies in Ciudad Juárez, Santa Rosalía, Ciudad Jiménez and Gómez PalacioEl Norte, 5 July 1900.

Other financial institutions

In addition the Terrazas faction controlled almost all the other financial institutions in Chihuahua. The only major bank that was not under their control was a branch of the Banco de Sonora, which they could not touch as one of its owners was Ramón Corral, vice-president of the Republic. However, they did control:
(a) the local branch of the Banco Nacional de México, where the manager was Federico Sisniega, son-in-law of Luis Terrazas, brother-in-law of Enrique Creel and Spanish consul in Chihuahua (the bank, in 1905, also had branches at Parral and Ciudad Juárez);
(b) the pawn shop, the Monte de Piedad of Chihuahua, established under a concession granted by the local legislature on 28 October 1895 to Creel and Carlos Zuloaga and housed in the old Banco Minero building;
(c) the mortgage bank, the Banco Comercial Refaccionario de Chihuahua; and
(d) its associated savings bank, the Caja de Ahorros de la República Mexicana, both operating from the same building and managed by Martín FalomirThe Terrazas family also had shares in the Banco de la Laguna, Banco de México, Banco de Monterrey, Banco de Guanajuato, Banco de Sonora, United States banks, and the El Mexicano, La Equidad and La Protectora insurance companies..

Thus the clique that governed Chihuahua in the first years of the century gained a monopoly over the issue of banknotes, and a virtual monopoly over banking, trusts, medium and long-term loans and mortgages even down to the pledges of the Monte de PiedadOtherwise, there were a few private banking institutions such as the Chihuahua Investment Company and the Chihuahua Exchange Company, and the United States Banking Company had a branch at Parral..

This monopoly was reinforced by Creel’s involvement in the Banco Central Mexicano. One problem of the 1897 Ley general de Instituciones de Crédito was that the two banks of issue in Mexico City were allowed to open branch offices throughout the country whilst the state banks could not operate outside specific areas and could not exchange their banknotes in the Federal District. In 1898 a group of thirteen state banks created the Banco Central Mexicano, with the intention to ensure at par redemption of state bank notes in the capital. Its operations greatly enhanced the acceptability of notes issued by state banks. By the early 1900s, these notes circulated at par throughout the countryIn 1904 the Banco Central established a limited mutual assistance scheme to provide additional protection to holders of notes issued by state banks. Under this scheme, if any member bank faced a bank run or had liquidity problems, it could utilize resources from a fund created for this purpose by all contributing members. Until 1905, Mexico operated under a bimetallic standard, with a flexible exchange rate between gold and silver specie, the latter being the predominant commodity money circulating in the country. In 1905, the country joined the gold standard and fixed the exchange rate between silver and gold coins. However, between 1905 and 1907, the price of silver increased by about 17% and the real exchange rate between silver and gold appreciated considerably. Hence the book value of banks' capital which consisted to a large extent of silver specie, rose drastically. This led banks to expand the volume of outstanding notes and increase money supply.
There is some evidence that the insurance scheme guaranteed by the Banco Central was not very credible. The Banco Central was chronically short of funds, so much so that it had to be bailed out by the government in 1908. Members were not required to deposit reserves in the Banco Central and it had to offer an 8% interest rate to attract deposits. In addition, it lacked legislative powers usually associated with a payments system. It could not assume control over member operations in emergencies. It also had no special access to members' books. All this conspired to weaken the role of the Banco Central as a regulator of banks (Noel Maurer, Finance and Oligarchy: Banks, Politics, and Economic Growth in Mexico, 1876-1928, PhD Dissertation, Stanford University, 1997)

1907 crisis

After Creel became governor in 1904, the Banco Minero lent the state government large sums to finance his administration's ambitious program of public works. Interest payments of these loans not only enabled the bank to survive, but to prosper during the severe depression that rocked the rest of the Mexican banking community from 1907 to 1909. Terrazas and Creel, in turn, used their banking enterprise for political purposes. Not a few new allies were made and old allies reassured by timely loans from one of the clan's banks.

Mexico suffered a financial crisis in 1907, the result of the enormous growth in foreign investments after 1900, compounded by a crop failure that most acutely affected the northern states. This flood of foreign investments had made the country more and more dependent on the advanced industrial nations; the adoption of the gold standard in 1905 slowed economic growth and the cyclical crisis that occurred in the United States during 1907-1908 had a devastating effect on Mexico in general and the northern states in particular, wrecking havoc on their most important industry, mining. In addition, the years of prosperity had encouraged a wave of speculation in land, mines and industry: when the bottom fell out of the boom, and banks proved unable to cover the losses, speculators and hacendados alike were faced with bankruptcy.

Although the working class was most affected, the middle class was not spared. The banks and state agencies attempted to shift the burden of the crisis to the middle class as well as the working class. The banks called in their outstanding loans and gave credit almost exclusively to companies owned by the oligarchy. In the rare cases where other enterprises received credit, they were charged exorbitant interest rates averaging 12 per cent.

On 10 February 1908 Minister of Finance Limantour sent a stern circular to all banks of issue in which a clear difference was made between the liberty which might be exercised by a private banker and the limited liberty pertaining to a bank of issue. It pointed out the dangers of a shortage of funds when unexpected payments became necessary. It also indicated the great danger involved in renewing credit indefinitely without taking into consideration the variability of the corresponding guarantees. On 9 May 1908 new legislation was passed with the principal purpose of modifying the 1897 Ley general to encourage most of the state banks to transform into refactionary banks, so that the variety of paper money issued would be considerably decreased. This attempt failed when Huerta allowed the banks to issue more currency to support his forced loans.

In addition, to end the flagrant speculation of bankers the government enacted legislation requiring adequate guarantees for loans.