Here is an article I found on the Canadian experience. I haven’t had the time to fully digest it, but its claims are opposite Monopsony’s.
http://eh.net/Clio/Conferences/ASSA/Dec_90/Kryzanowski-Roberts.shtml
Extract:…
The provision of government funds to avert a bank failure appears to have been initiated by the Government of Quebec. The Quebec Government financially assisted the merger of the Bank Nationale with the Banque d’Hochelaga in 1923 as follows [Globe (1924): 6]: … The arrangement between the Quebec Provincial Government and the Banque d’Hochelaga is a unique one. Whether the Quebec Government felt that it had a moral obligation to advance aid, or whether its motives were purely philanthropic is a most interesting question. So far as Ontario is concerned, it opens up the possibility that Home Bank creditors may press for similar consideration. Although the two cases are admittedly not parallel ones, the fact that a Provincial Government has come to the rescue in one case may suggest a line of action for interested parties in the other.
Partly based on this precedent, the depositors in the Home Bank petitioned the Canadian Government for compensation and received payment up to 35% of the value of their deposits.
After 1923, the Canadian government provided an implicit guarantee to the public that no chartered bank would be allowed to fail and cause depositor losses. This guarantee was implicit because it was never formally embodied in law, and it was equivalent to one hundred percent deposit insurance.11 Beckhart (1964) documents that government policy was to arrange forced mergers for insolvent banks. He argues that the impetus for mergers came primarily from smaller banks near failure and from government.
Evidence exists that bank mergers were designed to avoid firesale insolvency for the merger of the Bank Nationale with the Banque d’Hochelaga in 1923 (discussed earlier) and the takeover of the Weyburn Bank by the Imperial Bank in 1931.
While the impetus for mergers may not have come primarily from larger banks seeking to expand, they were willing participants and there was considerable “behind-the-scenes” manoeuvering by the larger banks to absorb each new target bank. “I think it a pity,” said another banker, “that the opportunity [Merchants Bank] was not offered to the other banks to participate in the business of the Merchants, and thus distribute the assets and the load, whatever its nature may be.” [Globe (1921a):�1].
With regard to the role of regulators, primary evidence for the existence of an implicit guarantee comes from parliamentary documents and the popular press during the 1920’s. A report in the Globe [(1921c):�1] described the rationale for the Federal Government’s approval of the merger of the Merchants Bank with the Bank of Montreal: “The merger is the only way out.” That is the considered opinion of Sir Henry Drayton, Minister of Finance, when asked if some other method could not have been found of meeting the crisis brought about by the troubles in the Merchants Bank … Sir Henry Drayton said that a merger was only justified when the rest of a bank had been wiped out, its capital impaired and the affairs of the bank in such a position that the interests of the depositors themselves required to be guaranteed. It is assumed here that that must be the position of the Merchants Bank.
“What would happen if you had not given the preliminary consent to such a merger?” Sir Henry was asked.
“The only alternative is insolvency, with a consequent loss to depositors,” was the reply. “That is my answer to criticisms of the Government’s action in permitting the merger.”
Although a proposal in 1914 to merge the Bank of Hamilton with the Royal was not approved by the then Minister of Finance, Sir Thomas White, a proposal to merge the then ailing Bank of Hamilton with the Bank of Commerce in 1923 was readily approved. [The Financial Post (1923a): 1, 16]
Similar sentiments were expressed during 1923 and 1924 when the failure of the Home Bank was scrutinized. A former Minister of Finance, Sir Thomas White, stated Government policy in favor of forced mergers to bank failures as follows:
Under no circumstances would I have allowed a bank to fail during the period in question�…�If it had appeared to me that the bank was not able to meet its public obligations, I should have taken steps to have it taken over by some other bank or banks, or failing that, would have given it necessary assistance under the Finance Act, 1914. [McKeown Commission (April�24, 1924, Vol.�5): 324].