Aurora y Recio Ent&Soc

The Indispensable Service of Banks:Commercial Transactions, Industry,and Banking in Revolutionary Mexico

AURORA GOMEZ-GALVARRIATO

GABRIELA RECIO

Revolutions have important social, political, and economicconsequences with which entrepreneurs have to cope to keeptheir businesses going. This may involve high transaction costs dueto the violence that emerges as a result of armed conflicts. Inthis article we examine the effect that the Mexican Revolution(1910-1920) had on the banking sector and ultimately on bankclients, since revolutionary policies forced most banks to closetheir doors from 1915 to 1921. By focusing on a major textilefirm, the Compana Industrial Veracruzana, S.A., we observe thatcompanies used nonchartered banks, which spread in the absenceof government regulation, and foreign financial institutions, so thatdaily business operations could continue amidst the revolutionaryupheavals.

The Author 2007. Published by Oxford University Press on behalf of theBusiness History Conference. All rights reserved. For permissions, pleasee-mail: [email protected].

doi:10.1093/es/khm022

AURORA GOMEZ-GALVARRIATO is Professor in the Department of Eco-nomics of the Centro de Investigacion y Docencia Economicas andPeggy Rockefeller Visiting Scholar at Harvard University, David Rock-efeller Center of Latin American Studies during 20062007. Contactinformation: DRCLAS, 1730 Cambridge Street, Cambridge, MA 02138.E-mail: [email protected].

GABRIELA RECIO is at Centro de Estudios Historicos, El Colegio de Mexico.Contact Information: El Colegio de Mexico, Centro de Estudios Historicos,Camino al Ajusco 20, Pedregal de Sta. Teresa Mexico, D.F., Mexico.E-mail: [email protected].

We would like to thank Gustavo del Angel, Ken Lipartito, and two anonymousreferees for their comments on earlier versions. All errors are, of course, entirelyours.

1

Enterprise and Society Advance Access published February 10, 2007

2 GOMEZ-GALVARRIATO AND RECIO

Introduction

The Mexican Revolution (19101920) serves as a natural experimentto evaluate the importance of banks to the business community. By1910 the country had witnessed economic growth that led to theexpansion of the banking system over the course of three decades. Asa result of the armed conflicts that emerged after 1910, all banks ofissue and other major banks closed their doors from 1916 to 1921. TheRevolution had a devastating effect on the banking system. It took thesystem several years to rebuild even after the violence ceased.

How could economic activity take place during this period? Whatdid Mexican companies do to stay afloat? During the Revolution, theMexican economy was incapable of functioning without banks. Assoon as the chartered banks were closed by the government, banksand banking houses without a federal charter started to provide manyof the services formerly offered by chartered banks. Some of thesenonchartered banks had existed since pre-Revolutionary times; otherswere new and appeared in the wake of the upheavals. Companies thathad enough resources also turned to foreign banks.

This article explores how one major textile company, the CompanaIndustrial Veracruzana, S.A. (CIVSA), survived the unrest of thoseyears. Less detailed information from other companies will also bepresented to give a glimpse of how other enterprises adjusted toan economy in which formal banking institutions were forced toclose their doors, and government regulation of the banking systemcollapsed.

Banks and the Mexican Revolution

After many decades of political unrest, Mexico witnessed a period ofstability and economic growth (18761910).1 Porfirio Daz was ableto pacify the country, gaining control over the states and graduallyputting in order the countrys public finances.2 His government

1. From 1821 to 1876 the average presidential lifespan was about eight months;states were managed as fiefdoms and were unable to maintain order within theirregions.

2. Daz was president during these years except in the 18801884 period whenManuel Gonzalez, a politician closely related to Daz, was president.

Commercial Transactions, Industry, and Banking in Revolutionary Mexico 3

made important alliances with the private sector, enabling majorinvestments in transport infrastructure and inmost economic sectors.3

Whereas until 1880 there had only been one commercial bankoperating in Mexico, the Banco de Londres y Mexico founded in 1864,in the course of the next two decades several banks opened.4 By 1909there were thirty-five banks operating with a federal charter, and thelarger banks had several regional branches.5 Of these banks twenty-sixwere banks of issue.6 Two of them, the Banco Nacional de Mexico(Banamex) and the Banco de Londres y Mexico, were permittedto branch nationally, while state-level banks of issue were not, bylaw, allowed to expand outside their concession territories.7 Fromthe onset, Banamexs charter authorized the institution to becomethe federal governments bank, since its services were crucial inmanaging its national and international debt and tax collection.8 Thebank opened the Mexican Treasury, an account that permitted thegovernment to obtain up to 8 million pesos yearly. The governmentin turn granted Banamex the power to issue banknotes up to threetimes the value of its reserves, whereas the other banks could issuebanknotes only up to two times their reserves.9

3. John H. Coatsworth, Growth Against Development: The Economic Impact ofRailroads in Porfiarian Mexico (Dekalb, Ill., 1981), 35.

4. The Banco Nacional Mexicano and the Banco Mercantil Mexicano werefounded in 1881 and the Banco Internacional Hipotecario was established in 1882.The first two banks merged in 1884 to form the Banco Nacional de Mexico.

5. Stephen Haber, Financial Markets and Industrial Development: AComparative Study of Governmental Regulation, Financial Innovation, andIndustrial Structure in Brazil and Mexico, 18401930, in How Latin AmericaFell Behind, ed. Stephen Haber (Stanford, Calif., 1997), 157; Carlos Marichal,Obstacles to the Development of Capital Markets in Nineteenth-Century Mexico,in How Latin America Fell Behind, ed. Stephen Haber (Stanford, Calif., 1997), 135;Stephen Haber, Armando Razo, and Noel Maurer, The Politics of Property Rights:Political Instability, Credible Commitments and Economic Growth in Mexico,18761929 (Cambridge, U.K., 2003), 84; and Noel Maurer, The Power and theMoney: The Mexican Financial System, 18761932 (Stanford, Calif., 2002), 1.

6. According to the General BankingAct of 1897 federal charter banks comprisedbanks of issue, promotion, and mortgage. In addition, there also existed banks thatwere not federally chartered that provided diverse financial services to their clients.Mexican Yearbook Publishing Company, The Mexican Year Book, 19091910(London, 1910), 22468.

7. Haber, Maurer, and Razo, Politics of Property Rights, 8687.8. Leonor Ludlow, La construccion de un banco: el Banco Nacional de Mexico

(18811884), in Banca y Poder en Mexico (18001925), eds. Leonor Ludlow andCarlos Marichal (Mexico City, 1985), 174; Carlos Marichal, El nacimiento de labanca Mexicana en el contexto latinoamericano: problemas de periodizacion, inBanca y Poder en Mexico (18001925), eds. Leonor Ludlow and Carlos Marichal(Mexico City, 1985), 133; and Maurer, Power and the Money, 2324.

9. With the exception of the Banco de Nuevo Leon.


The rest of the chartered banks were formed by six banks ofpromotion and encouragement, two mortgage banks, and one bondedwarehouse. Among the promotion banks, the Banco Central Mexicanowas particularly important since it served as a sort of clearing agentfor the state banks, interchanging banknotes of different banks, as wellas carrying other commercial banking services.10

There were also several banks and banking houses operating inMexico without a federal concession. The General Banking Act of1897 was not designed to regulate all credit institutions operatingin Mexico but only the three types of banks it defined. As theMinister of Finance Yves Limantour explained, until other lawsappeared to regulate the rest of the financial system, these institutionswould only have to comply with the Code of Commerce of 1889.11

Among these institutions were several important banking companiesoperating without charters, such as the Compana Bancaria de Parisy Mexico S.A., the Banco Americano S.A, the United States BankingCo. S.A., the Descuento Espanol S.A., and the Mexico City BankingCompany, S.A. Several foreign banks had established branches inMexico by the end of the Porfiriato as well, such as the Bankof Montreal, the International Banking Corporation, and the BancoAleman Transatlantico, a branch of the Deutsche Ueberseeishce Bankof Berlin.12

From 1886 to 1910 we found fifty-three companies listed in theMexico City Commercial Registry Office that used the word bank intheir names or described their business to be related to banking.13

Many more could have registered in other cities of the country. The1903 law regulating the use of the word Bank acknowledged theexistence of these banks. The law limited the use of the word Bankto chartered banks, but allowed institutions that were previouslyusing it to continue doing so provided that they added to it thewords without concession. The branches of foreign limited liability

10. The Mexican Central Bank was a private bank established on 15 Feb.1899. It was not a central bank, nor a bank of issue. See U.S. National MonetaryCommission [Charles A. Conant], The Banking System of Mexico (Washington,D.C., 1910), 4153.

11. Address of J. Y. Limantour, Minister of Finance to the Chamber of Deputies,15 Nov. 1897, in Compana del Directorio Oficial Bancario de Mexico S.A.,Directorio Oficial Bancario de Mexico (Mexico City, 1905), 1617.

12. Compana del Directorio, Directorio Oficial Bancario de Mexico, 22429.Maurer, Power and the Money, 185 claims that the Porfirian law had bannedbranches of foreign banks, but as we will later show this seems to be inaccurate.

13. Republica Mexicana, Secretara de Fomento, Noticia del Movimiento deSociedades Mineras y Mercantiles habido en la Oficina del Registro Publico de laPropiedad y del Comercio durante los anos de 1886 a 1910 (Mexico City, 1911).


companies established in Mexico were entitled to use the wordBank in their names, after having obtained a special permissionfrom the Department of Finance.14

Studies on the history of banking in Mexico indicate thatthe banking system that developed during the Porfiriato hasbeen considered one of the most concentrated in Latin America.Furthermore they show that by 1910 most of the banking businesswas carried out by two major banks.15 The studies that reach thisconclusion, however, have only considered chartered banks; perhapswhen banks without charter are taken into account this conclusioncould change. In spite of its problems, the Porfirian banking systemwas able to provide credit, and diminish information and transactioncosts in commercial and financial transactions, both to the governmentand the private sector. It was an important element for the economicgrowth achieved during that era.16

The Daz government did not address important social inequalitiesand political imbalances that ultimately led the country intoRevolution. Mexicos banking system was not able to survive thecollapse of the Porfirian regime (1910) and the turbulence of the war.In fact it could easily be argued that banking was the sector hit hardestby the Mexican Revolution.17

Business continued almost as usual during the first two yearsof Francisco Maderos presidency (19111913). However, as armedopposition to Madero began to appear, he had to increase hismilitary spending and with it, the public deficit. By 1912, of theforty-seven banks and banking companies in the country for whichdata was available, only eleven banks reported not to have beenaffected by the increasing political disorder. Several of them reportedthat Revolutionary troops had looted their reserves, and that theyhad therefore decided to close their branches outside of the majorcities. Others complained that their largest clients were moving awayand that many of them, particularly hacienda owners, were facingsevere difficulties in paying their debts. However the Maderistaadministration . . . tried to ease the economic situation by using the

14. The law regulating the use of the word Bank can be found in The MexicanYear Book, 19091910, pp. 28384.

15. Maurer, Power and the Money, 4446; Marichal, El nacimiento de la bancamexicana, 13233.

16. See Stephen Haber and Noel Maurer, Institutional Change and EconomicGrowth: Banks, Financial Markets and Mexican Industrialization, 18781913,in The Mexican Economy, 18701930, eds. Jeffrey Bortz and Stephen Haber,(Stanford, Calif., 2002), 2392.

17. See Haber, Razo, and Maurer, Politics of Property Rights, 80123.


proceeds from its foreign loans to inject liquidity directly into thebanking system18

The economic situation deteriorated further after VictorianoHuertas coup detat in early 1913, as civil war and political turmoilgrew to new levels. Once Huerta came into power, new rebellions,loosely gathered around the Constitutionalist Army and led byVenustiano Carranza, sprang up all over the country in an effortto oust him from power. To fight the rebels, Huerta desperatelyneeded resources, causing him to take on more debt. Since the federalgovernment was the principal debtor of the banking sector, it wasseriously hit when in 1913 the Huerta government suspended its debtpayments. Moreover, in order to obtain funds, Huertas governmentbegan to demand, under threat, important loans from the banks, anddecreed a 15 percent war tax to bank deposits, which generated a massretirement of deposits from banks. The credibility of bank notes beganto deteriorate, and the public started exchanging them for specie.19

In spite of the injection of specie carried out by the governmentsComision de Cambiosy Monedas, the peso started depreciating. In anattempt to curtail the flight of capital, Huerta forbade the export ofmetallic coins, which led the country to abandon the gold standard(adopted in 1905). With another decree on November 5, 1913, Huertaended the convertibility of bank notes to specie.20

To complicate matters further, commanders in different cities werein need for cash and they forced banksat gunpointto lend themmoney for the Revolution. Under these circumstances and to preventforced loans, banks began to close their offices around the country.The Banco Central Mexicanos situation became precarious, sincerumors about the conditions of the various state banks led the publicseeking to exchange their bank notes for those of the Banco Nacionalde Mexico or the Banco de Londres y Mexico. The Banco Centralannounced that it would exchange state bank notes for only 25percent of their nominal value. As a result, the Banco Central faced abank run that was soon transmitted to the rest of the banking system.The government had to declare a bank holiday from December 20 to31, which was later extended until March 31, 1914.21

18. Maurer, Power and the Money, 139.19. Banco de Londres y Mexico S.A., Cien anos de banca en Mexico (Mexico

City, 1964), 72.20. Antonio Manero, La reforma bancaria en la Revolucion constitucionalista

(Mexico City, 1958), 2421. Banco de Londres y Mexico S.A., Cien anos de banca en Mexico, 7273.


By 1914 banks were coerced into making more substantial loansto the Huerta government. Since banks could not make these loanswithout printing more money than the General Banking Act of 1897allowed, in January 1914 Huerta issued a decree to increase thepercentage of paper money banks could issue from 33 percent to50 percent.22 The Huerta government borrowed heavily, via newbanknotes, from several banks, which included Banco Nacional deMexico (Banamex), Banco de Londres y Mexico, some state banks,and the Mexican branches of Banco Germanico de America del Surand Banque de Paris et des Pays Bas.23

While Huerta was managing to obtain money to fight the rebels,different revolutionary leaders issued their own currency to financetheir needs and refused to accept that of its rivals. This led thecountry to a period of hyperinflation, which reached its peak in1916 once Huerta was ousted from power, as Venustiano Carranzasgovernment printed huge amounts of money, which was stopped onlywhen the public refused to accept paper money.24 This inflationaryprocess put banks in a precarious situation. As a result, a significantnumber of them suspended checking operations and money orders,therby adversely affecting a vast number of businessmen in their dailytransactions.25

While demanding new bank loans, Venustiano Carranza alsodeclared in September 1915 that the government would liquidatethose banks that had issued more banknotes than allowed bylaw. After this decree went into effect, only nine banks of issueremained operating.26 During 1916 banks operated under a strictrestriction, and were prohibited from diminishing their metallicreserves. On September 15, 1916, Carranzas government declaredunconstitutional all banking concessions in place, and abrogated thelaws that had authorized them. Banks of issue had to cover the totalof their banknotes in circulation with metallic reserves, which was

22. This meant that Huerta abrogated the 50 percent reserve requirement onbanknote issues and reduced it to 33 percent.

23. Noel Maurer, Finance and Oligarchy: Banks, Politics, and EconomicGrowth in Mexico, 18761928, (Ph.D. diss., Stanford University, 1997), 23132.

24. By the end of 1913 the peso abandoned the gold standard and gold currencydisappeared from circulation. From 1913 to 1914 the peso suffered a 54 percentdevaluation, from 1914 to mid-1916 it amounted to 154 percent, and at the end of1916 it was 2009 percent. For a more detailed account of this problem see EdwinW. Kemmerer, Inflacion y Revolucion: la experiencia mexicana de 1912 a 1917,Problemas Agrcolas e Industriales de Mexico 5, no. 1 (1953): 172204.

25. Informe Anual del Banco Nacional de Mexico, 7 June 1916, quoted inMaurer, Finance and Oligarchy, 262.

26. Maurer, Finance and Oligarchy, 241.


impossible. Those that did not comply lost control of their operationsto a seizure board named by the Ministry of Finance.27 The boardsof the Banco de Londres y Mexico and the Banamex refused to obeythe new rules, so military forces were sent to the banks offices andtheir directors were arrested until they accepted the governmentsconditions.28 Banks of issue were officially closed to the public,although some continued to provide services in a much reducedscale to some of their most important customers. By October 1917,Banamex, the most important Porfirian bank of issue, was bankrupt.According to Noel Maurer the entire financial system establishedduring the Porfiriato had been shut down by the end of 1917.29

From 1916 (when banks were seized by the Carranza government)until 1921, these institutions lived and operated in a vague legalenvironment. They were not officially liquidated nor had they beenexpropriated. They were allowed to work under close governmentsupervision but this hindered their ability to provide regular servicesto their customers. Even when the banks were returned to their ownersin 1921, it was not clear if the law of 1897 would still apply to themand thus they began to operate in a regulatory limbo. The General Lawof Credit Institutions was not enacted until 1926.30 Even then, diversepolitical as well as economic problems hindered the application ofthe law and thus left the banks in an unequal legal footing vis-a-visthe government.31

Mexican historiography generally considers that a rapid reconstruc-tion of the banking system took place after the reopening of the mostimportant Porfirian banks in 1921, the creation in 1925 of Mexicoscentral bank, the Banco de Mexico, and the passing of a new bankingregulatory framework in 1926. However, a close study of financialoperations suggest that the Porfirian banking system was not so easilyrebuilt. By the end of the 1930s only eight of the previously char-tered banks managed to reorganize themselves under the provisions

27. Manero, La Reforma bancaria, 8889.28. Banco de Londres y Mexico, S.A., Cien anos de banca en Mexico, 8385.29. Maurer, Finance and Oligarchy, 250.30. Heliodoro Duenes, Los bancos y la Revolucion (Mexico City, 1945), 16263.31. Although the Revolution had ended, the country still witnessed the killing

of two revolutionary leaders in the 1920s: Emiliano Zapata in 1919 and PanchoVilla in 1923. President Carranza was assassinated in 1920 and there was a failedmilitary rebellion lead by de la Huerta in 1923. Furthermore, during PresidentObregons administration, the United States did not recognize his government andthe country had no access to foreign loans.


of the new laws so that they could provide regular services to theircustomers.32

A study of the Banco de Londres y Mexico, which during thePorfiriato had been the second bank in importance in Mexico, givesus a glimpse of some of the difficulties that financial institutionsfaced after the Revolution. The Banco de Londres y Mexico managedto survive and resumed operations by 1921. Nevertheless, even after itwas returned to its owners and reorganized, it had trouble surviving.The bank had lost money from 1916 to 1920. It made some profit in1922 and 1923, but bank officials reported that they were not largeenough to keep the institution running.33 By 1926 the banks shareshad lost 50 percent of their value.34

A number of forces worked against the Banco de Londres y Mexico.It had lost the profitable business of issuing bank notes and had toconcentrate its activities on financing the agricultural sector, whichwere less profitable loans.35 It had not been able to recuperate loansthat were in default since 1915.36 Worst of all, when Carranzasgovernment confiscated the bank in 1916, it took all the reserves. TheObregon government (19201924) returned the bank to its owners,agreed to pay back what Carranza had seized, and acknowledgedthe outstanding debts of the previous governments with the banks.37

But dire economic conditions left some of these promises unfulfilled.Under the Calles administration (19241928), the bank received onlypartial payments, which amounted to approximately $4.4 million. 38

The Obregon and Calles governments were able to pay the bank onlythe equivalent of 1.9 percent of the total debt. These payments were

32. The banks were: Banco de la Laguna, Banco de Londres y Mexico, Bancode Nuevo Leon, Banco del Estado de Mexico, Banco Mercantil de Monterrey,Banco Mercantil de Veracruz, Banco Nacional de Mexico, and Banco Occidentalde Mexico. Duenes, Los bancos y la Revolucion, 170.

33. Archivo Manuel Gomez Morin, Instituto Tecnologico Autonomo de Mexico,Mexico City [hereinafter, AMGM], Letter from Banco de Londres y Mexico to Bancode Paris y de los Pases Bajos, 1 April 1925, Vol. 322, Exp. 1129. The losses inpesos for those years were as follows: 1916: 7,349,663.77; 1917: 13,279,383.38;1918: 4,754,480.51; 1919: 4,328,873.71; and 1920: 4,240,985.39. Profits for 1922and 1923 were: 1,243,451.07 and 818,472.22, respectively.

34. AMGM, Letter from Banco de Londres y Mexico to Banco de Paris y dePases Bajos, 6 March 1926, Vol. 322, Exp. 1129.

35. AMGM, Letter from Banco de Londres y Mexico to Banco de Paris y dePases Bajos, March 1926, Vol. 322, Exp. 1129.

36. AMGM, Several letters from G. Calderon, sub-gerente del Banco de Londresy Mexico to Manuel Gomez Morin, 1922, Vol. 320, Exp. 1123.

37. The exception was the Huerta debt series A and B. Banco de Londreshad Huerta debt series B.

38. AMGM, Letter from G. Calderon, sub-gerente del Banco de Londres y Mexicoto the Minister of Finance, 13 Jan. 1925, Vol. 321, Exp. 1124.


not made in cash. Instead, mortgage and profit taxes that the bankowed the government were credited to the governments outstandingdebt.39

In this period, the Banco de Londres y Mexico was not able tosupply its clients important services that it had previously offeredbecause of its poor financial situation. By 1925 it had not reestablishedservices that were important to businessmen in Mexico for theireveryday operations. These included bill of exchange discounting,wire transfers, money orders, checking accounts, and loans.40 By theearly 1930s this bank was still immersed in problems and in order toresolve these it was completely reorganized.41

Banks without Charter and the Mexican Revolution

The study of the strategy companies carried out to cope with theproblems of the banking sector during the Revolution leads us toinquire on the evolution of banks without charter during this period,since they played a prominent role as part of them. These banks havebeen widely neglected in the literature on banking in Mexico duringthis period. Yet they were an important part of the banking servicesoffered in Mexico during the Porfiriato, and their role seems to havewidened as a result of the damage the Revolutionary policies inflictedon charted banks.42 As Heliodoro Duenes, a banks employee duringthose years, wrote, in the chaotic period that followed the closureof chartered banks in Mexico City, the banks without charter tookadvantage; there sprouted, as fungus in humidity, makeshift bankersthat made huge profits in foreign exchange and loans. In the mostimportant cities of the Republic banking and foreign exchange housesalso opened, since it was indispensable to have these services.43

Though materially injured by the Carranza policy, unchartered(mostly foreign) banks in Mexico escaped more easily than did thoseoperating under distinctly Mexican concessions. According to the

39. Ibid.40. AMGM, Letter from Banco de Londres y Mexico to Banco de Paris y de

Pases Bajos, 1 April 1925, Vol. 322, Exp. 1129.41. This meant that previous association of the bank with the Banque de Paris

et des Pays Bas and the Societe Financiere pour lIndustrie au Mexique was brokenand Mexican businessmen from the Cuauhtemoc and Ebrard groups invested inthe reorganized bank.

42. Luis Anaya Merchant, Colapso y reforma. La integracion del sistemabancario en el Mexico revolucionario 19131932 (Mexico City, 2002), 93.

43. Duenes, Los bancos y la Revolucion, 154 [our translation].


Mexican Year Book of 192021, the most important of these bankslocated in the capital were the following: Compana Bancaria deParis y Mexico, Deutsche Sudamerikanische, El Descuento Espanol,the Mexico City Banking Company, Lacaud e Hijo, the Bank ofMontreal, the Canadian Bank of Commerce, American ForeignBanking Corporation, and the Mercantile Banking Company. TheNational City Bank, Equitable Trust Company, and Irving NationalBank (all ofNewYork) alsomaintained representatives inMexicoCity.Nearly all the larger banks in the capital also maintained branches,correspondents, or representatives in the important commercial andindustrial centers of the republic.44

We will focus our attention on two of these banking companies:The Compana Bancaria de Paris y Mexico, and Lacaud e Hijo, whichlater became the Banque Francaise du Mexique, since besides beingtwo of the most important banking institutions during the period,CIVSA carried business with them. The Compana Bancaria de Parisy Mexico was founded in 1909 by a group of French immigrantsfrom the region of Barcelonnette, among whom there were severalshareholders of the CIVSA. The stated capital of the company was10 million pesos, yet by 1913 only half had yet been exhibited byshareholders.45

From annual statements of 1911, 1912, and 1913 we know that thecompany faced problems as a result of the Mexican Revolution andthe war in Europe. The board noted that business had diminishedin Mexico and that board members faced losses in their investmentsin stock as the value of the shares decreased. Yet the bank alsoexperienced an important increase in its deposits, from 3,628,360pesos in 1911 to 7,154,808 in 1912, which then decreased to 4,893,804in 1913. The bank had profits on invested capital of 4.7 percent, 6.15percent, and 9.42 percent in these three years. In 1913, the boardreported that given the increase in the banks business, personnel hadto be expanded and the bank had to move to larger premises locatedin one of the most important streets in Mexico City.46

There is not much information available of the Compana Bancariade Paris y Mexico from 1914 to 1921. However, we know that itopened commercial agencies in Veracruz and in Coahuila, where it gotinvolved in granting loans to merchants and to cotton haciendas. Thetransactions that Compana Bancaria used to channel through banks

44. Mexican Yearbook Publishing Company [Robert Glass Cleland], TheMexican Year Book, 19201921 (Los Angeles, 1922).

45. El Economista Mexicano, 27 April 1912, pp. 6971.46. El Economista Mexicano, 2 May 1914, p. 55


gradually began to be carried with banking houses.47 For example,in Veracruz, it first carried out numerous business transactions withthe Banco Mercantil de Veracruz and later with the Casa Viya yHermanos, in Coahuila it shifted them from the Banco de Coahuilato the Casa Purcell, and in Mexico City from the Banco de Londres yMexico and the Banco Nacional de Mexico to Lacaud e Hijo.48

The diminished operations of chartered banks opened the way fornew entrepreneurs to offer services that the public required. Oneof them was the French businessman Raoul Aimilien Lacaud, whoby 1905 advertised himself as stockbroker, selling and buying bank,industrial, and mining stocks.49 Adapting to the changes broughtby the Mexican Revolution, he shifted from stock trading, a verydiminished business as a result of the revolutionary war, to theflourishing business of buying and selling money orders, a market leftopened by former banks which were immersed in a state of disarraythat hindered them from offering that service. In October 1915, hiscompany, Lacaud e Hijo, must have been small since it placed a verybrief, two line newspaper ad offering to buy and sell money ordersplaced in Veracruz.50 By 1917 the company seems to have grownsince it moved from his former address in San Agustn street to themore important street of Uruguay in downtown Mexico City.51

In an environment characterized by lack of trust in relation tomatters dealing with money, Lacaud e Hijo had apparently gainedthe confidence of the public. This can be seen in newspaper adsthat appeared, especially those dealing with the Italian Opera Seasonin 1917, as well as the operas where Caruso would sing in 1919.The advertisements informed readers that funds from the seasontickets would be deposited in the banking house of Lacaud e Hijo.52

Similarly, in 1919 an advertisement of a raffle organized by an Italiancharitable organization specified that Lacaud e Hijo would pay theprizes in specie.53 In April 1918 a newspaper article on the openingof a gold mine by the company Placeres de Oro de Michoacan S.A.said that given the critical circumstances that the financial marketis going through in the Republic, the promoters of the company didnot dare to issue the stock publicly instead they decided to sell it

47. Some of these banking houses were part of larger commercial houses. Incertain cases it was the citys dry store that also offered financial services.

48. Anaya, Colapso y reforma, 108.49. Compana del Directorio, Directorio Oficial Bancario de Mexico, 228.50. El Democrata, 12 Oct. 1915, p. 4.51. El Democrata, 13 Jan. 1917, p. 5; 22 Feb. 1917, p. 4.52. El Democrata, 13 Aug. 1917, p. 4; 12 Sept. 1919, p. 5.53. El Democrata, 21 Oct. 1919, p. 8; 5 Feb. 1920, p. 12.


privately, depositing the money in the well known banking house ofMr. Lacaud e Hijo.54

By 1918 Lacaud e Hijo was also rendering important financialservices to General Alvaro Obregon, who would become President twoyears later. In September 1918 Obregon used the services of Lacaude Hijo to transfer funds from the First National Bank of Nogales inArizona, to Mexico City, as well as to carry out a private business thatinvolved building a hydroelectric power plant in Sinaloa.55

A newspaper article carried the story of the assault of a man, whohad just cashed a check in Lacaud e Hijo from a mining companyin Jalisco, working as a debt collector for the company ExpressConstitucionalista. The story indicates that by 1919 the bankinghouse was playing an important role in check redeeming throughoutthe nation.56 Two other criminal acts reported in the newspaper letus know that by 1919 Lacaud e Hijo had branched nationally andinternationally into an important cotton producing region by openingan agency in Torreon, Coahuila, and in San Antonio, Texas.57 Lacaude Hijo appear to have taken advantage of their branch in Torreon toenter directly into the cotton business, since on October 21, 1919,the newspaper reported that Lacaud e Hijo had sent two railroadcars of cotton to Nonoalco, near Mexico City.58 Once trade betweenEurope and Mexico was disrupted as a consequence of World War I,Lacaud e Hijo also played an important role for Mexican companiesby lending the money they required to import merchandise from U.S.companies. This was important since the former were unwilling to sellany products to Mexican entrepreneurs unless it had been previouslypaid in full.59

The payment system that substituted the one that had developedbefore the Revolution worked less than perfectly. Mexico Citynewspapers were filled with stories reporting countless cases of fraudsand falsifications in the course of these years. In 1919, for example,several falsified money orders from the Bank of Montreal were cashedin banking houses all over the country and in the United States.60

In this case, as well as in several others, the judicial system provedineffective in punishing the criminals.61

54. El Democrata, 22 April 1918, p. 255. Anaya, Colapso y reforma, 1181956. El Democrata, 5 April 1919, p. 857. El Democrata, 9 April 1919, p. 5; 4 July 1919, p. 658. El Democrata, 21 Oct. 1919, p. 7.59. El Democrata, 29 Dec. 1919, pp. 1, 3.60. El Democrata, 4 July 1919, p. 6.61. See, for example, El Democrata, 9 April 1919, p. 5, and 3 July 1919, p. 3.


By May 23, 1920, Lacaud e Hijo had become the Banque Francaisedu Mexique (Banco Frances de Mexico). Its advertisement indicatedthat it was the successor of Lacaud e Hijo, and that it had a capital of 4million pesos. In Mexico City it kept the same office as Lacaud e Hijohad previously had, and additionally it also advertised an addressin Paris in the Boulevard des Italiens and branches in Monterrey,Tampico, Veracruz, Torreon, Merida, and Tuxpan.62

In 1920 the Banque Francaise du Mexique was rendering importantservices to theMexican government. InMay the government depositedthe taxes paid by several oil companies in an account it held in thatbank, and used its services to send money orders to pay its troops.63

Moreover, this institution had become President Alvaro Obregonsprivate banker since he held a special account in that bank.64

Taking advantage of the relation he had built with President AlvaroObregon, Lacaud sent him a letter in August 1920 to express hisworries on the way the banking system was operating in Mexico.It is necessary that the banks can rediscount their portfolio becauseotherwise they are exposed to suspend payments in the case of panics,even when their situation is solvent and prosperous he wrote.65

Lacaud had expressed in a newspaper interview that it was necessarythat the government allowed the establishment of a private bank withmonopoly of issue that would receive bank deposits and would beable to make rediscount operations.66

It seems that Lacaud was very well aware of the great frailty ofthe banking system. As a result, his bank as well as other creditinstitutions pursued extremely conservative policies. In 1920, theBank Francaise kept 17 percent of its assets in gold and silver coinsor U.S. dollars and maintained a further 15 percent as deposits inoverseas banks. Similarly, by 1919, the Compana Bancaria de Parsy Mexico kept 21 percent of its assets in the form of gold pesos inits vaults. During the Porfiriato, interest rates on commercial loansnever surpassed 12 percent annually, but after the Revolution, whencredit could be obtained at all, these rates oscillated between 24 and36 percent.67

62. El Democrata, 23 May 1920.63. Anaya, Colapso y reforma, 118.64. Ibid., 119.65. Letter from Lacaud to Obregon, 24 Aug. 1920, Archivo Calles Torreblanca,

Fondo Alvaro Obregon, exp.21 Bis-170 inv.458, quoted in Anaya, Colapso yreforma,119 [our translation].

66. El Democrata, 29 Dec. 1919, pp. 1, 3.67. Maurer, Power and the Money, 16566 and 19192.


Between 1921 and 1922, two major bank panics broke out, takingthe Compana Bancaria de Paris y Mexico and the Banque Francaisedu Mexique, along with many other banks and banking houses,to bankruptcy. These institutions, which had prospered by takingadvantage of the post Porfirian banking instability, suffered as a resultof the frail institutional basis on which the new system was founded.The lack of any banking regulation left open a vast space for fraud andfalsification. These problems the banks were able to cope with. Butthe lack of a bank, or group of banks, that played the role of lenderof last resort put the system in a very precarious situation, as Lacaudhad warned.

Although neither Banamex nor other credit institutions played verywell the role of lender of last resort, there is plenty of evidence that inseveral instances Banamex, together with other banking institutions,rescued banks on the verge of bankruptcy, at least until 1913.68 By1921, however, there was no bank that could carry out, even partially,the role of lender of last resort.

During the early 1920s both the Compana Bancaria de Paris yMexico and the Banque Francaise had been lending vast amountsof funds to cotton producers in La Laguna. The Compana Bancariahad given 4 million pesos in loans to cotton producers in 1920.Unfortunately, cotton prices dropped by 55 percent between 1920and 1921 which was further aggravated by a year of bad crops.69

The revolutionary war, by interrupting for more than four monthstransit between Veracruz, a major port, and Mexico City also imposedheavy losses on commercial businesses, a sector that had also beenreceiving substantial loans. The event that led customers to demandtheir deposits was the announcement that the Compana BancariaOccidental de Almacenaje de Guadalajara would default on itsoutstanding loans to the Compana Bancaria de Paris y Mexico.70

Rumors spread on the payment capacity of the Compana Bancariaand in the last three days of December 1920, two and a half millionpesos were withdrawn from its deposit accounts.71 This generated abanking panic that affected also the Banque Francaise du Mexiqueand the Mercantile Banking Company. Crowds gathered outside their

68. For example, in 1913 Banamex and the Banco de Londres y Mexico lent theBanco Central important amounts to help it sustain its operations. Ibid., 141.

69. Prices dropped from $0.3390 per pound in 1920 to $0.1510 in 1921. U.S.Department of Commerce, Historical Statistics of the United States (WashingtonD.C., 1975), 208.

70. Anaya, Colapso y reforma, 110 and 117.71. Alfredo Lagunilla Inarritu, La bolsa en el mercado de valores de Mexico y

su ambiente empresarial (Mexico City, 1963), 119.


offices waiting to withdraw their deposits. On January 3, 1921 theCompana Bancaria de Pars y Mexico and the Mercantile BankingCompany requested judicial liquidation, the first step in the financialbankruptcy process.72 By the end of that month these banking housessuspended payments and closed their doors.

Given these conditions, Lacaud considered requesting the judicialliquidation of the Banque Francaise, but he decided instead to takeadvantage of the good relationship he had built with PresidentAlvaro Obregon to ask him for the aid necessary to rescue his bank.Lacaud was offered a meeting with the Minister of Finance, Adolfode la Huerta to negotiate a solution to his banks problems. Thegovernment resolved to support the Banque Francaise through theComision Monetaria by rediscounting some of its credits and givingit substantial loans.73 As a result of the governments aid, on January6, the Banque Francaise was able to survive a new run. Several dayslater, the newspapers announced that the Compana Bancaria andthe Mercantile Banking Company would renounce to their judicialliquidation and would reopen in ten days, but only the CompanaBancariawas able to do so. Both companies had assets larger than theirliabilities but the Mercantile went into bankruptcy nonetheless.74

One of the main shareholders of the Mercantile Banking Companyof Mexico, Mr. J. Mac Carty, deplored the governments preferentialtreatment to the Banque Francaise and refusal to attend to the pleasthat his bank had made.75

This banking panic alerted the government of the need to putMexicos banking system on more solid ground. On January 31, 1921,President Alvaro Obregon decreed the end of the bank seizure thatCarranza had established on December 16, 1916. Those banks that hadassets 10 percent larger than their liabilities were returned to theirlegal representatives. The Banco Nacional de Mexico and the Bancode Londres y Mexico along with several other banks reopened theirdoors.76 Yet there were still many issues to be solved, including thelegal status of the banks, given that their former charters had beendeclared null, as well as the payment of governments loans to them.77

72. El Universal, 4 Jan. 1921.73. Excelsior and El Universal, 711 Jan. 1921, quoted in Anaya, Colapso y

reforma, 116.74. Ibid., 113.75. Excelsior, 30 Jan. 1921, quoted in Ibid., 117.76. Alfredo Lagunilla Inarritu, Historia de la banca y moneda en Mexico

(Mexico City, 1981), 69.77. Anaya, Colapso y reforma, 123.


It would still take several years before necessary conditions were metfor a sound banking system to exist.

On November 15, 1922 another banking panic broke out.Newspapers had been announcing a substantial decrease on thecountrys imports as well as on oil production, but it is not clearwhat the event that unleashed this crisis was.78 The first bankinghouse to suspend payments was the Casa Bancaria Eulalio Roman,from Veracruz, generating alarm in the public. Most deposits werewithdrawn from the Banque Francaise du Mexique in two daysand it had to declare judicial liquidation. This time, however, thegovernment was in a dire fiscal situation and therefore unable to helpit as it had done a year before.79

The collapse of the Banque Francaise had effects all over the nationand led to payment suspension of many other banks and bankinghouses in Veracruz and Monterrey.80 In Monterrey, the Governordecreed a suspension of banking activities on the following dayin order to try to stop the massive withdrawal of deposits.81 InVeracruz, the state congress demanded the federal congress to hastenin passing a law of credit institutions, since the states inhabitantswere suffering dearly from the recent bankruptcies of the banks andbanking houses.82

In spite of these problems, banks and banking houses without aPorfirian charter continued to play amajor role in theMexican bankingsystem during the 1920s. In the course of the Banking Conventionof 1924 summoned by the government to discuss a new bankinglegislation, twenty-one out of the thirty-nine private institutions ofcredit that sent representatives had not previously had a charter.83

CIVSA and the Role of Banks as Credit Providers

In analyzing banks during the Porfiriato, studies have highlightedthe role that banks, and most prominently Banamex, played in

78. Ibid., 125.79. Excelsior, 13 Dec. 1922, quoted in Ibid., 126.80. Ibid, 125. In Veracruz the banking houses that went bankrupt were

Petroleum Banking Trust Company, S.A; Berea o Kelly Company; and the CasaBancaria Viya Hermanos. In Monterrey, the Casa Alberto Stein; Banco Milmo; andCompana Bancaria de Monterrey (former Sada Paz Hermanos).

81. Anaya, Colapso y reforma, 131.82. Ibid., 132.83. Secretara de Hacienda y Credito Publico, Convencion Bancaria de 1924

(Mexico City, 1924), 910.


the public sector as treasury to the federal government and asprincipal provider of government loans.84 While thiswas an importantservice, loans to the private sector have been minimized and havenot been the subject of a more comprehensive examination. Forexample, in the 18841910 period, 62.5 percent of Banamex loanswere directed to private individuals and companies.85 Of theseloans, approximately 26 percent were given to the manufacturingsector.86 Further analysis indicates that textile firms with insideconnections to banks grew faster than firms that relied on traditionalmerchant networks.87 Mexicos relationship banking did serve tochannel capital to industrial projects.

Only four of approximately one hundred cotton textile firms thatexisted in Mexico during the Porfiriato were joint-stock companiesthat openly traded on the stock market. By 1912, these companiescollectively owned nine mills, and were much larger than theircompetitors, owning 27 percent of the spindles, and weaving 24percent of the cloth.88 CIVSA was one of the four huge publicly tradedjoint-stock textile companies. It had important bank connections sinceseveral of its board of directors also sat in the board of important banks.However, CIVSA, unlike most of the other industrial firms in Mexicoduring the Porfiriato, was also able to sell stock and trade it in thestock market. Thus, CIVSAs investment capital came from the sale ofshares, rather than from bank financing.89 Nevertheless, during thatperiod CIVSA was able to obtain several short-term loans from banks,which facilitated day-to-day operations. After 1913 this was no longertrue causing the company great difficulties.

As can be seen in table 1, debt over total capital or over equitywas always very low. However, it decreased during the Revolutionaryyears and even more during the 1920s to become almost half of whatit used to be during the Porfiriato. Furthermore, as can be seen in

84. See Ludlow, La construccion de un banco and Maurer, Finance andOligarchy.

85. Estimated from Luis Cerda, Historia Financiera del Banco Nacional deMexico, Porfiriato 18841910 (Mexico City, 1994), Vol. 1, 48687.

86. Estimated from Cerda, Historia Financiera, Vol. 1, Books 1 and 2.87. Haber and Maurer, Institutional Change and Economic Growth, 2349.88. See Aurora Gomez-Galvarriato, The Impact of Revolution: Business and

Labor in the Mexican Textile Industry, Orizaba, Veracruz, 19001930 (Ph.D. diss.,Harvard University, 1999), 8890 and 540.

89. CIVSAs most important shareholders were Reynaud A. and Ca and RobertS. and Ca. Sebastian Robert was founder of the Banco Nacional de Mexico andsat on its board of directors. He also sat on the board of directors of the Bancode Morelos. Honore Reynaud sat on the board of directors of the Banco CentralMexicano and of the Banco Hipotecario de Credito Territorial Mexicano.


Table 1 Distribution of Capital Ratios

Years Paid-in/total

capital

Debt/total

capital

Retained/total

capital

Equity/total

capital

Debt/equity

Newdebt/newcapital

18981910 0.58 0.15 0.27 0.85 0.17 0.1519111920 0.66 0.13 0.21 0.87 0.16 0.6619211930 0.59 0.08 0.34 0.92 0.09 0.29Total 0.61 0.12 0.27 0.88 0.14 0.17

Sources: CV, Balance Sheets 18981930.

table 2, very little of CIVSAs debt came from loans given by banksand banking houses. However, reports given in the board meetingsminutes indicate that bank credit was more important than table 2suggests since it was provided through short-term loans that did notappear in the annual balance sheets.

In August 1898, when the textile mill had just opened, CIVSAsboard calculated that once all capital on hand was used, it would stillneed 830,000 more pesos over the following six months in order tomake the necessary investments and keep the mill in operation. Sinceby that time some production might have already been sold, theyconsidered that they would only need an amount of 600,000 pesosto back the operation. The boards president requested credit fromseveral banks in Mexico City. The manager of the Banco Nacionalde Mexico (Banamex) answered, . . . given that the factory is notyet in operation, it is difficult to make any advance payment, butnevertheless, if the company has compelling needs, maybe we couldoffer up to 100,000 pesos.90 For its part, the Banco de Londres yMexico answered that CIVSA could count on a 200,000 peso loan.CIVSA did not get a definite answer from the Banco Hipotecario, butthe board thought that the bank could lend at most 100,000 pesos. Inthe first half of 1899, the company obtained loans of 300,000 pesosfrom banks in Mexico City in order to buy cotton and pay for othercurrent expenses.91 The necessary long-term capital was acquiredthrough the capital-stock increase decided at the extraordinary generalstockholders meeting in July 1899.

With important associates in France, CIVSA had easier accessto foreign credit than did most Mexican companies. Although

90. Archivo de la Compana Industrial Veracruzana S.A. Cd., MendozaVeracruz, Mexico [hereinafter, CV], Board Meeting [hereinafter, AC], 15 Aug.1898, [our translation].

91. CV, AC, 9 Jan. 1899; 6 Feb. 1899; and 22 May 1899.


Tabl

e2

CIV

SAs

Deb

t

Banc

oCen

tral

Mex

ican

oG

assie

rFre

res,

Barc

elon

nette

&G

ap

Hen

ryRe

ynau

d,Pa

ris

A.Re

ynau

d&

Co.

,Par

isA.

Pasc

al&

Co.

New

York

CIV

SASh

areh

olde

rsD

.Lou

stau

&Co.

Sucs

.Ve

racr

uz

Supp

liers

Oth

erCre

dito

rsTo

tal

1898

0.00

0.00

0.00

7,25

1.67

0.00

0.00

0.00

30,1

04.0

00.

0037

,355

.67

1899

0.00

0.00

0.00

64,6

14.9

70.

000.

000.

000.

001,

358.

0365

,973

.00

1900

0.00

0.00

0.00

8,17

9.02

0.00

0.00

0.00

1,34

2.30

25,7

60.6

635

,281

.98

1901

0.00

87,5

00.0

060

,000

.00

6,07

8.28

0.00

0.00

0.00

0.00

24,1

99.3

617

7,77

7.64

1902

0.00

87,5

00.0

060

,000

.00

6,28

1.20

0.00

0.00

0.00

419.

5517

,781

.63

171,

982.

3819

030.

0045

,860

.00

60,0

00.0

010

,288

.20

0.00

0.00

0.00

0.00

28,7

17.7

214

4,86

5.92

1904

0.00

45,8

60.0

060

,000

.00

19,2

15.4

00.

000.

000.

004,

308.

6126

,536

.95

155,

920.

9619

050.

0045

,860

.00

60,0

00.0

011

,586

.80

0.00

0.00

22,6

67.5

98,

752.

7534

,075

.44

182,

942.

5819

060.

0045

,860

.00

60,0

00.0

09,

291.

800.

000.

000.

000.

0036

,932

.90

152,

084.

7019

071,

355.

8845

,860

.00

60,0

00.0

018

,874

.40

0.00

0.00

3,83

0.60

0.00

36,0

55.3

616

4,62

0.36

1908

0.00

45,8

60.0

00.

0088

,613

.04

0.00

0.00

13,9

91.3

317

6.45

45,3

88.6

619

4,02

9.48

1909

0.00

100,

000.

000.

0010

0,02

0.60

0.00

0.00

18,0

67.1

10.

0053

,913

.69

272,

001.

4019

100.

0014

2,00

0.00

40,0

00.0

085

,994

.20

0.00

0.00

572.

270.

0065

,197

.73

333,

764.

2019

110.

0014

2,00

0.00

40,0

00.0

02,

280.

000.

000.

000.

000.

000.

0018

4,28

0.00

1912

0.00

115,

159.

1720

,996

.67

1,57

9.80

0.00

0.00

414.

890.

000.

0013

8,15

0.53

1913

0.00

67,0

00.0

00.

009,

813.

900.

000.

0050

.75

1,50

7.34

7,80

9.08

86,1

81.0

719

140.

0081

,107

.50

0.00

7,99

0.16

0.00

0.00

0.00

0.00

8,04

3.35

97,1

41.0

119

150.

0012

1,49

8.82

0.00

0.00

0.00

0.00

0.00

0.00

3,31

3.86

124,

812.

6819

160.

0010

2,09

8.18

0.00

0.00

2,20

6.56

0.00

0.00

0.00

3,41

3.28

107,

718.

0219

170.

0086

,206

.90

0.00

9,79

9.18

0.00

0.00

1,70

5.52

0.00

3,51

5.68

101,

227.

2819

180.

0014

7.09

0.00

2,38

3.96

0.00

0.00

0.00

0.00

0.00

2,53

1.05


Tabl

e2

(Con

tinue

d)

Banc

oCen

tral

Mex

ican

oG

assie

rFre

res,

Barc

elon

nette

&G

ap

Hen

ryRe

ynau

d,Pa

ris

A.Re

ynau

d&

Co.

,Par

isA.

Pasc

al&

Co.

New

York

CIV

SASh

areh

olde

rsD

.Lou

stau

&Co.

Sucs

.Ve

racr

uz

Supp

liers

Oth

erCre

dito

rsTo

tal

1919

0.00

0.00

0.00

0.00

0.00

0.00

222.

570.

000.

0022

2.57

1920

0.00

0.00

0.00

1,35

6.38

0.00

1,00

5,15

6.08

0.00

0.00

0.00

1,00

6,51

2.46

1921

0.00

0.00

0.00

0.00

0.00

143,

909.

780.

004,

060.

220.

0014

7,97

0.00

1922

0.00

0.00

0.00

0.00

0.00

0.00

0.00

21,5

68.1

274

.03

21,6

42.1

519

230.

000.

000.

000.

000.

000.

000.

000.

0045

1.92

451.

9219

240.

000.

000.

000.

000.

000.

000.

0068

.38

0.00

68.3

819

250.

000.

000.

000.

000.

000.

000.

0068

.38

0.00

68.3

819

260.

000.

000.

000.

000.

000.

000.

000.

0073

,169

.33

73,1

69.3

319

270.

000.

000.

000.

000.

000.

000.

000.

0056

,237

.39

56,2

37.3

919

280.

000.

000.

000.

000.

000.

000.

000.

0027

,982

.18

27,9

82.1

819

290.

000.

000.

000.

000.

000.

000.

000.

0010

,975

.02

10,9

75.0

219

300.

000.

000.

000.

000.

000.

000.

000.

0012

4,40

4.28

124,

404.

28To

tal

1,35

5.88

1,40

7,37

7.66

520,

996.

6747

1,49

2.96

2,20

6.56

1,14

9,06

5.86

61,5

22.6

372

,376

.10

715,

307.

534,

400,

345.

97

Sour

ces:

CV,

Balanc

esG

ener

ales

1898

193

0.N

otes

:CIV

SAsh

areh

olde

rsin

clud

eA.

Reyn

aud

yCia

.S.C

.,M

exico,

M.B

ello

nCia

.,Pu

ebla,P

.Richa

udCia

.,Pu

ebla,a

ndVe

yan

Juan

yCia

.S.C

.,M

exico.


fluctuations in the exchange rates made foreign credit extremely risky,CIVSA obtained credit from foreign sources on several occasions.Gassier Freres, Henry Reynaud, A. Reynaud and Co. from Francegranted important loans to CIVSA from 1908 to 1917 (see table 2).92

After Maderos government fell in 1913, the possibility of financingthrough banks ended because banks simply stopped lending. In July1913, the Banco Central Mexicano informed CIVSA that because ofthe countrys difficult economic situation, it had credited CIVSAspromissory notes of 200,000 pesos, charging them to the companyscurrent account.93 In early December 1913, Banamex told CIVSA thatdue to the difficult circumstances and economic crisis a credit for200,000 pesos at an annual rate of 7.5 percent, which had alreadybeen approved, was canceled.94 The situation deteriorated when inlate December, the government issued a decree authorizing banks notto redeem bank notes in gold. From then until January 2, 1914, thegovernment decreed a bank holiday, and banks closed their doors.CIVSAs board reported that the banks closure put the company in avery difficult situation.95

In mid-January 1914 CIVSAs president informed the board that allbanks had stopped granting credit and were demanding immediatepayment of all outstanding loans.96 The Compana Bancaria de ParsMexico S.A. had also canceled its credit, and told CIVSA that it wasgoing to take payment from the companys bank deposits. CIVSAdesperately tried to obtain funds to make the cotton purchasesnecessary to keep the mill running. The president reported that he hadrequested a 100,000 peso loan to no avail.97 In October the financialsituation improved briefly, when the Banco Nacional granted CIVSAthe 200,000 peso loan it had canceled in December of the previousyear.98 This was the last loan CIVSA would get from a Mexican bankfor several years.

By late 1913, the countrys railway service was nonexistent sincemost of the lines were destroyed and those that were functioning wereused to transport troops. As a result, CIVSAs board was consideringthe possibility of a loan in France of one million francs to buy cotton

92. CV, Balances Generales, 19011917.93. CV, AC, 8 July 1913.94. CV, AC, 4 Nov. 1913 and 2 Dec. 1913.95. CV, Correspondence [hereinafter, CR], letter from F. Mitchel, under director

of CIVSA to CIVSAs Comite Consultatif in Paris, 24 Dec. 1913.96. CV, CR, letter from F. Mitchel, under director of CIVSA to CIVSAs Comite

Consultatif in Paris, 14 Jan. 1914.97. CV, AC, 31 Jan. 1914; 7 Feb. 1914.98. CV, AC, 20 Oct. 1914.


from the United States, since its local supply had been cut off. A.Reynaud & Company in Paris proposed a six-month loan for $7000 at6 percent interest from a Canadian bank. But communications withLa Laguna were soon reestablished, and believing that the exchangerate risk was very high, CIVSAs board of directors chose not to takechances.99 In 1920, with a more stable exchange rate, CIVSA took aloan of 200,000 francs at 5 percent annual interest from a French bankthrough the Compana Bancaria de Pars y Mexico.100

Other mills must have faced an even more difficult financialsituation. It was probably this disadvantage that facilitated CIVSAsacquisition of El Leon mill in Puebla in December 1920. WhenCIVSA purchased El Leon for $700,000, it held El Leon in debtfor $303,500.101 The necessary funds for such operation came fromloans provided by CIVSAs major shareholders as can be seen intable 2.

Throughout the 1920s, it was impossible for CIVSA to obtain evenshort-term loans in Mexico at reasonable interest rates. The companyconsequently tried to obtain them abroad. In October 1929 CIVSAspresident explained that he was trying to get a loan from the EquitableTrust Company of New York to cope with any emergency that mightarise and in order to purchase cotton.102 Unfortunately, the New Yorkstock market crashed a few weeks later, and CIVSA could not obtainthese funds. We do not find evidence in CIVSAs annual reports of aloan taken by the company from a Mexican bank until 1937, whenit is reported that the firm was paying interests to Banamex and tothe Banco de Comercio S.A. The following year the firm was payinginterests as well to the Banco de Londres y Mexico S.A.103

CIVSA suffered from the restraint on bank credits that the collapseof the banking system imposed on it. Even though CIVSA did notfinance its investments through bank loans, short-term bank credithad been important for CIVSA, which provided it with the necessaryliquidity the company required to carry out its day-to-day operations,such as the purchase of raw materials. Once these credits ceased to

99. CV, CR, letter from F. Vinatier, director of CIVSA to CIVSAs ComiteConsultatif in Paris, 17 Jan. 1913.

100. CV, CR, letter from F. Maurel, director of CIVSA to CIVSAs ComiteConsultatif in Paris, 26 March 1920.

101. CV, CR, letter from F. Maurel, director of CIVSA to CIVSAs ComiteConsultatif in Paris, 26 March 1920 and letter from C. Maure, underdirector ofCIVSA to CIVSAs Comite Consultatif in Paris, 31 Dec. 1920.

102. CV, AC, 1 Oct. 1929.103. CV, Impuesto Sobre Utilidades and Anexos a la Declaracion del Impuesto,

1937 and 1938.


exist as a consequence of the Revolution, the company had to increaseits liquidity. As table 3 shows, liquid over total assets drasticallyincreased after 1910 and remained at very high levels until 1928.This, of course, imposed a high opportunity cost, by not being able toplace these assets in other types of more profitable investments.

CIVSA and the Role of Banks in Commercial Transactions

Although lack of short-term credit imposed high costs on CIVSA,the greatest problem that the deterioration of the banking systemcaused the company was a lack of the commercial services that thebanks used to provide the company. CIVSA used to employ banks topay its suppliers and expenses, and it also deposited its income inbanks. Given that CIVSAs customers and suppliers were spreadextensively not only throughout Mexico, but also abroad, banksoffered the company a very important service. Banks and bankinghouses were far more important on the asset than on the liability sideof CIVSAs balance sheets.

CIVSA kept a high percentage of its liquid assets in bank deposits,as table 3 shows. Interest rates paid on them were taken into accountby CIVSA in order to allocate its assets. In 1913, for example, theboard decided to withdraw a large part of the companys depositsfrom Mexican banks in order to pay half of its debt in Europe, sinceinterest rates had dropped to only 2 percent.104 This was a shrewdmaneuver, since it saved CIVSA the trouble it would have faced if ithad held important assets in those banks, since it was in December ofthat year when the banks problems were exacerbated.

CIVSAs liquid asset management was also very sensitive to bankdefault risk or to government confiscation. In 1907 CIVSAs depositsrelative to cash decreased considerably because of the financial crisisof that year, but then started growing again. Until 1909 all companydeposits were kept in the Banco Central Mexicano (see table 4), but by1910, when the Compana Bancaria de Pars y Mexico opened, CIVSAmoved about half its deposits to that bank.105 These were two banksin which CIVSAs major shareholders held influential positions.

104. CV, AC, 21 Jan. 1913.105. Mexican Yearbook Publishing Company, The Mexican Year Book, 1914

(London, 1915), 21.


Tabl

e3

CIV

SAs

Allo

catio

nof

Liqu

idAs

sets

1898

192

9

Dist

ribut

ion

ofLi

quid

Asse

tsD

istrib

utio

nof

Dep

osits

Dist

.ofB

onds

Liqu

idAs

sets

Liq.

/Tot

alAs

sets

(%)

Cas

h(%

)D

epos

its(%

)Bo

nds(

%)

InM

exican

Cha

rtere

dBa

nks(

%)

InM

exican

Unc

harte

red

Bank

s(%)

Abro

ad(%

)M

exican

(%)

Fore

ign

(%)

1898

$63,

416

2.8

920

810

00

1899

$66,

112

2.9

920

810

00

1900

$36,

095

1.6

850

1510

00

1901

$111

,936

4.9

987

510

00

010

00

1902

$288

,812

12.7

890

210

00

010

00

1903

$318

,865

14.0

494

210

00

010

00

1904

$264

,124

11.6

1484

210

00

010

00

1905

$252

,436

11.1

1880

210

00

010

00

1906

$301

,766

13.2

1485

210

00

010

00

1907

$77,

831

3.4

907

310

00

010

00

1908

$84,

689

3.7

4155

310

00

010

00

1909

$75,

402

3.3

3265

410

00

010

00

1910

$245

,289

10.8

990

140

600

100

019

11$5

31,5

9823

.36

940

4951

019

12$7

61,3

3433

.43

5740

4951

010

00

1913

$439

,307

19.3

1078

1158

420

100

019

14$7

36,4

5832

.370

300

894

710

00

1915

$428

,346

18.8

396

05

095

100

0

(con

tinue

dov

erle

af)


Tabl

e3

(Con

tinue

d)

Dist

ribut

ion

ofLi

quid

Asse

tsD

istrib

utio

nof

Dep

osits

Dist

.ofB

onds

Liqu

idAs

sets

Liq.

/Tot

alAs

sets

(%)

Cas

h(%

)D

epos

its(%

)Bo

nds(

%)

InM

exican

Cha

rtere

dBa

nks(

%)

InM

exican

Unc

harte

red

Bank

s(%)

Abro

ad(%

)M

exican

(%)

Fore

ign

(%)

1916

$801

,915

35.2

1288

03

097

100

019

17$1

,336

,435

58.7

451

453

097

6832

1918

$875

,217

38.4

635

586

2371

4852

1919

$1,4

04,1

1761

.63

925

231

6710

00

1920

$544

,166

23.9

689

54

3066

298

1921

$304

,177

13.4

881

110

5545

298

1922

$1,3

34,3

9858

.67

912

09

912

9819

23$1

,077

,270

47.3

197

20

694

298

1924

$441

,507

19.4

0.1

955

01

990

100

1925

$584

,304

25.6

196

30

1189

010

019

26$2

07,2

809.

16

922

1927

$873

,597

38.3

594

119

28$7

87,7

7734

.612

871

1929

$214

,540

942

535

Sour

ce:CV,

Acta

sde

laAs

ambl

eaG

ener

alan

dLi

bros

deM

ayor

,189

819

29.N

otes

:M

exican

Cha

rtere

dBa

nks:

Banc

oCen

tralM

exican

o,Ba

nco

Nac

iona

lde

Mex

ico.

Mex

ican

Unc

harte

red

Bank

s:Com

pan

aBa

ncar

iade

Paris

yM

exico,

Banq

ueFr

anca

isdu

Mex

ique

.Ban

ksab

road

:M

aitla

nd&

Cop

pel,

K.M

ande

ll&

Co.

,The

Roya

lBan

kof

Can

ada,

Fren

chAm

erican

Bank

Cor

p.,F

irstN

atio

nalB

ank

delR

o,T

exas

,Can

adia

nBa

nkof

Com

mer

ce.M

exican

bond

swer

eM

exican

gove

rnm

entb

onds

,for

eign

bond

swer

eFr

ench

and

Uni

ted

Stat

esgo

vern

men

tbon

ds.


Tabl

e4

Dist

ribut

ion

ofD

epos

itsbe

twee

nBa

nks,

1898

192

5

Banc

oCen

tral

Mex

ican

o(%

)

Banc

oN

acio

nal

deM

exico

(%)

Banc

oFr

ance

sde

Mex

ico

(%)

Ca

.Ba

ncar

iade

Pars

yM

exico

(%)

K.M

ande

ll&

Co.

,N.Y

.(%

)

Mai

tland

Cop

pel&

Co.

,N.Y

.(%

)

The

Roya

lBa

nkof

Can

ada,

N.Y

.(%

)

First

Nat

.Ban

kde

lRo

,Te

xas(

%)

Fren

chAm

erican

Bank

Cor

p.(%

)

Can

adia

nBa

nkof

Com

-m

erce

(%)

Oth

ers(

%)

Tota

l(%

)

1901

100

100

1902

100

100

1903

100

100

1904

100

100

1905

100

100

1906

100

100

1907

100

100

1908

100

100

1909

100

100

1910

39.5

60.5

100

1911

48.9

51.1

100

1912

49.1

50.9

100

1913

58.2

41.8

100

1914

89.2

3.8

7.0

100

(con

tinue

dov

erle

af)


Tabl

e4

(Con

tinue

d)

Banc

oCen

tral

Mex

ican

o(%

)

Banc

oN

acio

nal

deM

exico

(%)

Banc

oFr

ance

sde

Mex

ico

(%)

Ca

.Ba

ncar

iade

Pars

yM

exico

(%)

K.M

ande

ll&

Co.

,N.Y

.(%

)

Mai

tland

Cop

pel&

Co.

,N.Y

.(%

)

The

Roya

lBa

nkof

Can

ada,

N.Y

.(%

)

First

Nat

.Ban

kde

lRo

,Te

xas(

%)

Fren

chAm

erican

Bank

Cor

p.(%

)

Can

adia

nBa

nkof

Com

-m

erce

(%)

Oth

ers(

%)

Tota

l(%

)

1915

4.8

19.7

75.5

100

1916

2.8

7.7

8.0

81.5

100

1917

3.0

3.6

26.6

66.8

100

1918

6.5

22.7

2.2

50.0

18.6

100

1919

1.5

31.4

65.6

1.1

100

1920

4.1

30.3

65.3

100

1921

38.5

16.9

16.4

27.9

100

1922

0.8

7.5

6.8

50.3

23.8

6.6

3.6

0.6

a)10

019

230.

45.

46.

645

.138

.22.

41.

80.

1b)

100

1924

0.6

3.3

56.2

1.9

36.2

1.4

100

1925

11.2

9.1

7.4

18.5

2.9

50.9

100

Not

es:(

a)D

epos

ited

atth

eCom

pan

aBa

ncar

iaM

exican

a;(b

)Dep

osite

dat

the

Banc

oM

exican

dode

Com

ercio

eIn

dustr

iain

liqui

datio

n.Fr

om19

25to

1930

itw

asim

possib

leto

know

the

distr

ibut

ion

ofde

posit

sbet

wee

nba

nkss

ince

the

data

was

aggr

egat

ed.

Sour

ce:C

IVSA

,acc

ount

ingbo

oks,

libro

sde

may

or19

011

925.


In December 1913, as has been explained, the situation of the BancoCentral became very difficult.106 In January, Banamex published areassuring statement indicating that it held large cash reserves, mostof which were in gold. CIVSA moved all its deposit to Banamexbecause it regarded this bank as the most secure during that hecticperiod. Yet this banks situation also became vulnerable in the courseof 1914, and CIVSA shifted its deposits to banks in New York.

Until April 1914, CIVSAwas still using the services of the CompanaBancaria de Paris y Mexico to make certain payments, to maketransfers to and from Mexico City, where CIVSAs central officeswere located, and to Orizaba, Veracruz, near to its Santa Rosa factory.On April 22, 1914 CIVSAs board sent a letter to the factory manager inSanta Rosa explaining that the company was facing great difficultiesin getting the necessary funds for the weekly payroll. This was thelast time CIVSA employed the services of the Compana Bancaria totransfer the payroll money from Mexico City to Orizaba.107

The great troubles Mexicos monetary system was suffering madeit very difficult for companies such as CIVSA to obtain the necessaryspecie to pay its workers. From July to September 1914 CIVSA and theCompana Industrial de Orizaba, the other major textile company inthe Orizaba region, were paying their workers with checks issuedby the Compana Bancaria de Orizaba.108 In September, however, thisbank stopped issuing these checks.109 Clientswere paying CIVSAwithbanknotes (and even bonds) that were not redeemable in Orizaba, so itwas difficult for the Santa Rosa factory manager to meet the requiredfunds to make weekly payrolls.110 Specie was sent from Mexico Cityby train to Santa Rosa in order to fulfill payroll payments. However,starting in November 1914, the train service was disrupted frequently,putting the company in serious difficulties.111 Between December1914 and February 1916 communications between Mexico City andSanta Rosa were completely curtailed. The only possible means ofcommunication was to send telegraphs to their commercial agent andbanker in New York, K. Mandell & Company, who in turn sent them,also by telegraph, to Mexico City or Santa Rosa.112 Correspondencewas sent from Mexico City to and from Santa Rosa via the United

106. Ibid., 21.107. CV, CR, letter from CIVSAs Mexico City offices [hereinafter, MX] to Santa

Rosa, Veracruz mill [hereinafter, SR], 22 April 1914.108. CV, CR, letter from SR to MX, 10 July 1914.109. CV, CR, letter from SR to MX, 1 Sept. 1914.110. CV, CR, letter from SR to MX, 17 Sept. 1914.111. CV, CR, letter from MX to SR, 21 Nov. 1914.112. CV, CR, letter from SR to MX, 11 Dec. 1914.


States, using the services of D. Loustau & Company in the port ofVeracruz.113

In December 1914 CIVSA also started using the services of D.Loustau & Company to receive and make payments from clients andsuppliers and to send them to banks in New York, either directly orthrough D. Loustau & Company correspondents in New Orleans.114

CIVSAs daily transactions were then carried out through banks inthe United States even when they involved customers or suppliers inMexico.115

D. Loustau & Company was a customs agency working in Veracruzsince pre-Revolutionary times.116 CIVSA had used its services toreceive the machinery, spare parts, and chemical shipments it orderedfrom Europe at least since 1907.117 By 1909 D. Loustau & Companywas also engaged in river traffic from Veracruz down the coast andup the Papaloapan River, using barges and a tow boat.118 From1914 to 1916 the company widened the services it offered CIVSA toinclude many formerly carried out by banks, such as money exchange,receiving and making payments from CIVSAs clients and suppliers,and sending remittances to banks in the United States. It seems thateither using his own boats, or through his connections with boatcompanies, D. Loustau & Company was able to send and receive fromthe United States, money orders, checks, banknotes, and specie, intimes when it was impossible to carry out these transactions throughother means.119

From 1915 to 1917, CIVSA was paid in gold or silver coins, dollars,money orders, or checks from U.S. banks, many times endorsed,

113. CV, CR, letter from MX to SR, 16 Jan. 1915.114. CV, CR, letter from SR to MX, 11 Dec. 1914. It is indicated that Santa Rosa

has charged to the account of D. Loustau $12,000 given by R. Ramos & Cia. Surcrsfrom Veracruz, $3942.97 sent from CIVSA Mexico debited against Santos Nasto &Hno, from Veracruz, and $700, which was the value of the endorsement. Similarinformation appeared frequently thereafter in the correspondence sent betweenMexico City and Santa Rosa offices. In a letter from MX to SR, 16 Jan. 1915, thereis mention of Loustau correspondents in New Orleans.

115. In Sept. 1916, for example, their client M. Diez & Cia S.C. paid them withtwo endorsements: one over Mobile, Alabama, and other over El Paso, Texas. CV,CR, letter from SR to MX, 11 Sept. 1916. There are many similar examples.

116. El Pais, 27 May 1911, p. 3.117. CV, Invoice from Jauffred and Gariel, 9 Jan. 1907; 8 Sept. 1908; and 31 Oct.

1913.118. The Mexican Herald, 25 Sept. 1909, p. 3.119. El Democrata, 21 April 1920. The newspaper reported that D. Loustau and

Cia. was consignee of the French steamboat Virginie that came to Veracruz fromHavre, Saint Nazaire, Bordeaux, Coruna, and Havana and Tampico, bringing 36passengers, mail, and 365 tons of cargo.


which were immediately sent to New York by its agent D. Loustau &Company, or through transfersmade directly betweenNorthAmericanbanks when the clients held accounts in them. CIVSA also made itspayments with drafts onNew York, forwhich D. Loustau & Companysintermediary services were often used.120 Although it is impossiblefrom CIVSAs documents to asses the amounts charged by D. Loustaufor his services, they must have been expensive since they includedthe physical transportation of the documents and specie to and fromthe United States. Furthermore, these maneuvers, necessary to keepthe factories running, entailed high transaction costs.

After 1918, as the political situation improved, CIVSA placed someof its deposits in the Banque Francaise du Mexique and the Ca.Bancaria de Pars y Mexico, and used their services instead of those ofD. Loustau & Company to make money transfers to the United States.Deposits in these banks allowed the company to carry out dailytransactions with greater ease. But they too had their difficulties.When the Compana Bancaria de Pars y Mexico closed its doors onDecember 30, 1921, CIVSA had trouble recovering its deposits.121

The bank soon emerged from bankruptcy, but its credibility provedharder to recover. As we see in table 4, CIVSA maintained a very lowpercentage of its deposits in that bank after 1921, moving them insteadto the Banque Francais du Mexique and to New York. However, as wehave seen, the fate of this bank was not very different from that of theCompana. Bancaria de Pars y Mexico. In November 1922, CIVSAsdirector reported that the Banque Francaise du Mexique had failed,and that despite the boards caution the company held $9000 at riskthere. He explained that the company was going to try to recover thesefunds through extrajudicial means.122

Keeping money in banks in Mexico was risky. Despite the higherinterest rates they offered, relative to those of New York, CIVSA triedto keep its deposits in them to a minimum. In July 1922 the board ofdirectors, trying to justify losses, explained that it had to retain certainfunds in banks in Mexico in order to carry out current operations.Most of the payments they received were in national gold or silvercoins that they deposited in Mexican banks in order to transfer them,

120. CV, CR, letter from SR to MX. Nota de Giros Remitidos de Santa Rosaa los Sres K.Mandell Co., Nota de Giros en Dollars en Cartera a Santa Rosa,Nota Indicando los Clientes que Han Entregado los Valores Sobre Estados Unidos,Remitidos a K. Mandell Co, monthly through 1915, 1916, 1917.

121. CV, CR, letter from C. Maure, underdirector of CIVSA to CIVSAs ComiteConsultatif in Paris, 9 Jan. 1921.

122. CV, CR, letter from C. Maure, director of CIVSA to CIVSAs ComiteConsultatif in Paris, 25 Nov. 1922 and 18 March 1923.


the following day, to the United States. Naturally, they said wetake all necessary precautions, and try to keep those deposits as lowas possible . . . and we try to spread them between several banks.123

Mexicos precarious political situation made companies wary thatthey would lose money even when deposited in the United States.In June 1922, as CIVSAs directors watched Mexicos relations withthe United States deteriorate, they thought that their access to thecompanys funds in the United States could be blocked. The companytherefore sent letters to its bankers in United States, asking if, in thisevent, they could move CIVSAs funds to a bank in Canada.124

Although no information is available on the allocation of CIVSAsdeposits after 1925, we know that the company kept them abroaduntil at least 1928. In that year the board of directors reported thatit had agreed to hold its funds in dollars in the United States, giventhat the interest rates it received there were greater than those it couldobtain in Mexico.125

CIVSAs experience indicates the great difficulties that businessesfaced as a consequence of theMexican banking systems destruction. Italso indicates that business operations of the complexity of CIVSAscould not take place without banks. Thus, if national banks couldnot carry out the commercial transactions firms required, they weresubstituted by foreign banks. This tactic, however, implied greattransaction costs, which CIVSA tried to limit by moving some fundsback, once it was feasible, to banks in Mexico. Nevertheless, theytried to keep these deposits to a minimum, transferring most of theirliquid assets abroad as soon as they could. Confidence in the Mexicanbanking system fell quickly, and recovered very slowly. By the end ofthe 1920s CIVSA continued to hold most of its liquid assets abroad.

It is difficult to carry out for other companies a similar analysis tothat undertaken for CIVSA since the information required is generallynot reported in the companies general assembly meetings. However,it was possible to obtain information for some years, on the allocationof deposits of the Compana Fundidora de Fierro y Acero deMonterreyS.A. (Fundidora), a very important iron and steel manufacturer. Giventhat the company lived a very precarious financial situation for several

123. CV, CR, letter from C. Maure, director of CIVSA to CIVSAs ComiteConsultatif in Paris, 6 July 1923.

124. CV, CR, C. Maure to Sres. Maitland Coppel & Co, New York, 13 June 1922;C. Maure to Agency of The Royal Bank of Canada, New York, 13 June 1922; C.Maure to Sres. K. Mandell & Co., New York, 13 June 1922; and C. Maure to FirstNational Bank, Del Ro, Texas, 14 June 1922.

125. CV, AC, 27 March 1928.


years, and that it rarely reported its deposit allocation, it is impossibleto make a series similar to that made for CIVSA. Yet, a comparison ofFundidoras deposits allocation in 1901 and 1919 could be made. Astable 5 shows, Fundidora followed a similar strategy on its depositsallocation to that of CIVSA. Whereas most of its deposits were heldin Mexico in 1901, only a negligible number of them continued inMexico by 1919. As in the case of CIVSA, Fundidora held most ofits deposits abroad in New York City, yet Monterreys proximity withTexas explains the numerous deposit accounts it held in Texan banks.It is interesting to note that at least one of the border banks in whichFundidora held deposits was owned by a Monterrey entrepreneur.The Milmo National Bank in Laredo, Texas was owned by PatricioMilmo & Sons., the banking house in which Fundidora held most ofits deposits in 1901.

It is reasonable to believe that all large Mexican businesses tooksteps similar to those of CIVSA and Fundidora when the Mexicanbanking structure collapsed. An overview of the accounting books ofanother important textile firm the Compana Industrial de Atlixco S.A.indicates they followed a strategy similar to that of CIVSA, changingtheir deposits to foreign banks, particularly in New York, and keepingthem there at least until the end of the 1920s.126 In 1922 the BoletnFinanciero y Minero wrote Without fear of correction, we can statethat the majority of Mexican depositscash wealthare found inthe United States.127

Conclusions

During the Mexican Revolution, government polices forced the mostimportant banks to close their doors from 1915 to 1921, when only sixof the twenty-seven banks of issue that existed could reopen. The caseof Banco de Londres y Mexico illustrates that those banks that wereable to survive the Revolution faced diverse difficu

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