Aurora y Recio Ent&Soc

Enterprise and Society Advance Access published February 10, 2007
The Indispensable Service of Banks:

Commercial Transactions, Industry,
and Banking in Revolutionary Mexico
M E Z-G A L V A R R I A T O
AURORA GO
GABRIELA RECIO
Revolutions have important social, political, and economic

consequences with which entrepreneurs have to cope to keep
their businesses going. This may involve high transaction costs due
to the violence that emerges as a result of armed conflicts. In
this article we examine the effect that the Mexican Revolution
(1910-1920) had on the banking sector and ultimately on bank
clients, since revolutionary policies forced most banks to close
their doors from 1915 to 1921. By focusing on a major textile
firm, the Compa
na Industrial Veracruzana, S.A., we observe that
companies used nonchartered banks, which spread in the absence
of government regulation, and foreign financial institutions, so that
daily business operations could continue amidst the revolutionary
upheavals.
The Author 2007. Published by Oxford University Press on behalf of the

Business History Conference. All rights reserved. For permissions, please
e-mail: journals.permissions@oxfordjournals.org.
doi:10.1093/es/khm022
AURORA GOMEZ-GALVARRIATO
is Professor in the Department of Eco
nomics of the Centro de Investigacion

y Docencia Economicas
and
Peggy Rockefeller Visiting Scholar at Harvard University, David Rockefeller Center of Latin American Studies during 20062007. Contact
information: DRCLAS, 1730 Cambridge Street, Cambridge, MA 02138.
E-mail: agomez@fas.harvard.edu.
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: grecio@alumni.ksg.harvard.edu.
We would like to thank Gustavo del Angel, Ken Lipartito, and two anonymous
referees for their comments on earlier versions. All errors are, of course, entirely
ours.
GOMEZ-GALVARRIATO
AND RECIO
Introduction
The Mexican Revolution (19101920) serves as a natural experiment
to evaluate the importance of banks to the business community. By
1910 the country had witnessed economic growth that led to the
expansion of the banking system over the course of three decades. As
a result of the armed conflicts that emerged after 1910, all banks of
issue and other major banks closed their doors from 1916 to 1921. The
Revolution had a devastating effect on the banking system. It took the
system several years to rebuild even after the violence ceased.
How could economic activity take place during this period? What
did Mexican companies do to stay afloat? During the Revolution, the
Mexican economy was incapable of functioning without banks. As
soon as the chartered banks were closed by the government, banks
and banking houses without a federal charter started to provide many
of the services formerly offered by chartered banks. Some of these
nonchartered banks had existed since pre-Revolutionary times; others
were new and appeared in the wake of the upheavals. Companies that
had enough resources also turned to foreign banks.
a
This article explores how one major textile company, the Compan
Industrial Veracruzana, S.A. (CIVSA), survived the unrest of those
years. Less detailed information from other companies will also be
presented to give a glimpse of how other enterprises adjusted to
an economy in which formal banking institutions were forced to
close their doors, and government regulation of the banking system
collapsed.
Banks and the Mexican Revolution

After many decades of political unrest, Mexico witnessed a period of
stability and economic growth (18761910).1 Porfirio Daz was able
to pacify the country, gaining control over the states and gradually
putting 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 their
regions.
2. Daz was president during these years except in the 18801884 period when
Manuel Gonzalez, a politician closely related to Daz, was president.
Commercial Transactions, Industry, and Banking in Revolutionary Mexico
made important alliances with the private sector, enabling major

investments in transport infrastructure and in most economic sectors.3
Whereas until 1880 there had only been one commercial bank
operating in Mexico, the Banco de Londres y Mexico founded in 1864,
in the course of the next two decades several banks opened.4 By 1909
there were thirty-five banks operating with a federal charter, and the
larger banks had several regional branches.5 Of these banks twenty-six
were banks of issue.6 Two of them, the Banco Nacional de Mexico
(Banamex) and the Banco de Londres y Mexico, were permitted
to branch nationally, while state-level banks of issue were not, by
law, allowed to expand outside their concession territories.7 From
the onset, Banamexs charter authorized the institution to become
the federal governments bank, since its services were crucial in
managing its national and international debt and tax collection.8 The
bank opened the Mexican Treasury, an account that permitted the
government to obtain up to 8 million pesos yearly. The government
in turn granted Banamex the power to issue banknotes up to three
times the value of its reserves, whereas the other banks could issue
banknotes only up to two times their reserves.9
3. John H. Coatsworth, Growth Against Development: The Economic Impact of

Railroads in Porfiarian Mexico (Dekalb, Ill., 1981), 35.
4. The Banco Nacional Mexicano and the Banco Mercantil Mexicano were
founded 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: A
Comparative Study of Governmental Regulation, Financial Innovation, and
Industrial Structure in Brazil and Mexico, 18401930, in How Latin America
Fell 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 the
Money: The Mexican Financial System, 18761932 (Stanford, Calif., 2002), 1.
6. According to the General Banking Act of 1897 federal charter banks comprised
banks of issue, promotion, and mortgage. In addition, there also existed banks that
were 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.
de un banco: el Banco Nacional de Mexico
8. Leonor Ludlow, La construccion
(18811884), in Banca y Poder en Mexico

(18001925), eds. Leonor Ludlow and
Carlos Marichal (Mexico City, 1985), 174; Carlos Marichal, El nacimiento de la
banca Mexicana en el contexto latinoamericano: problemas de periodizacion,

in
Banca 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.
GOMEZ-GALVARRIATO
AND RECIO
The rest of the chartered banks were formed by six banks of

promotion and encouragement, two mortgage banks, and one bonded
warehouse. Among the promotion banks, the Banco Central Mexicano
was particularly important since it served as a sort of clearing agent
for the state banks, interchanging banknotes of different banks, as well
as carrying other commercial banking services.10
There were also several banks and banking houses operating in
Mexico without a federal concession. The General Banking Act of
1897 was not designed to regulate all credit institutions operating
in Mexico but only the three types of banks it defined. As the
Minister of Finance Yves Limantour explained, until other laws
appeared to regulate the rest of the financial system, these institutions
would only have to comply with the Code of Commerce of 1889.11
Among these institutions were several important banking companies
a Bancaria de Paris
operating without charters, such as the Compan
y Mexico S.A., the Banco Americano S.A, the United States Banking
S.A., and the Mexico City Banking
Co. S.A., the Descuento Espanol
Company, S.A. Several foreign banks had established branches in
Mexico by the end of the Porfiriato as well, such as the Bank
of Montreal, the International Banking Corporation, and the Banco
Aleman Transatlantico, a branch of the Deutsche Ueberseeishce Bank
of Berlin.12
From 1886 to 1910 we found fifty-three companies listed in the
Mexico City Commercial Registry Office that used the word bank in
their names or described their business to be related to banking.13
Many more could have registered in other cities of the country. The
1903 law regulating the use of the word Bank acknowledged the
existence of these banks. The law limited the use of the word Bank
to chartered banks, but allowed institutions that were previously
using it to continue doing so provided that they added to it the
words 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 Monetary
Commission [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,
a del Directorio Oficial Bancario de Mexico S.A.,
15 Nov. 1897, in Compan
Directorio Oficial Bancario de Mexico

(Mexico City, 1905), 1617.
a del Directorio, Directorio Oficial Bancario de Mexico,
12. Compan
22429.
Maurer, Power and the Money, 185 claims that the Porfirian law had banned
branches of foreign banks, but as we will later show this seems to be inaccurate.
13. Republica
Mexicana, Secretara de Fomento, Noticia del Movimiento de
Sociedades Mineras y Mercantiles habido en la Oficina del Registro Publico

de la
de 1886 a 1910 (Mexico City, 1911).

Propiedad y del Comercio durante los anos
companies established in Mexico were entitled to use the word

Bank in their names, after having obtained a special permission
from the Department of Finance.14
Studies on the history of banking in Mexico indicate that
the banking system that developed during the Porfiriato has
been considered one of the most concentrated in Latin America.
Furthermore they show that by 1910 most of the banking business
was carried out by two major banks.15 The studies that reach this
conclusion, however, have only considered chartered banks; perhaps
when banks without charter are taken into account this conclusion
could change. In spite of its problems, the Porfirian banking system
was able to provide credit, and diminish information and transaction
costs in commercial and financial transactions, both to the government
and the private sector. It was an important element for the economic
growth achieved during that era.16
The Daz government did not address important social inequalities
and political imbalances that ultimately led the country into
Revolution. Mexicos banking system was not able to survive the
collapse of the Porfirian regime (1910) and the turbulence of the war.
In fact it could easily be argued that banking was the sector hit hardest
by the Mexican Revolution.17
Business continued almost as usual during the first two years
of Francisco Maderos presidency (19111913). However, as armed
opposition to Madero began to appear, he had to increase his
military spending and with it, the public deficit. By 1912, of the
forty-seven banks and banking companies in the country for which
data was available, only eleven banks reported not to have been
affected by the increasing political disorder. Several of them reported
that Revolutionary troops had looted their reserves, and that they
had therefore decided to close their branches outside of the major
cities. Others complained that their largest clients were moving away
and that many of them, particularly hacienda owners, were facing
severe difficulties in paying their debts. However the Maderista
administration . . . tried to ease the economic situation by using the
14. The law regulating the use of the word Bank can be found in The Mexican
Year Book, 19091910, pp. 28384.
15. Maurer, Power and the Money, 4446; Marichal, El nacimiento de la banca
mexicana, 13233.
16. See Stephen Haber and Noel Maurer, Institutional Change and Economic
Growth: 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.
GOMEZ-GALVARRIATO
AND RECIO
proceeds from its foreign loans to inject liquidity directly into the
banking system18
The economic situation deteriorated further after Victoriano
Huertas coup detat in early 1913, as civil war and political turmoil
grew to new levels. Once Huerta came into power, new rebellions,
loosely gathered around the Constitutionalist Army and led by
Venustiano Carranza, sprang up all over the country in an effort
to oust him from power. To fight the rebels, Huerta desperately
needed resources, causing him to take on more debt. Since the federal
government was the principal debtor of the banking sector, it was
seriously hit when in 1913 the Huerta government suspended its debt
payments. Moreover, in order to obtain funds, Huertas government
began to demand, under threat, important loans from the banks, and
decreed a 15 percent war tax to bank deposits, which generated a mass
retirement of deposits from banks. The credibility of bank notes began
to deteriorate, and the public started exchanging them for specie.19
In spite of the injection of specie carried out by the governments
de Cambiosy Monedas, the peso started depreciating. In an
Comision
attempt to curtail the flight of capital, Huerta forbade the export of
metallic coins, which led the country to abandon the gold standard
(adopted in 1905). With another decree on November 5, 1913, Huerta
ended the convertibility of bank notes to specie.20
To complicate matters further, commanders in different cities were
in need for cash and they forced banksat gunpointto lend them
money for the Revolution. Under these circumstances and to prevent
forced loans, banks began to close their offices around the country.
The Banco Central Mexicanos situation became precarious, since
rumors about the conditions of the various state banks led the public
seeking to exchange their bank notes for those of the Banco Nacional
de Mexico or the Banco de Londres y Mexico. The Banco Central
announced that it would exchange state bank notes for only 25
percent of their nominal value. As a result, the Banco Central faced a
bank run that was soon transmitted to the rest of the banking system.
The government had to declare a bank holiday from December 20 to
31, 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.
constitucionalista
20. Antonio Manero, La reforma bancaria en la Revolucion
(Mexico City, 1958), 24
de banca en Mexico,
21. Banco de Londres y Mexico S.A., Cien anos

7273.
By 1914 banks were coerced into making more substantial loans

to the Huerta government. Since banks could not make these loans
without printing more money than the General Banking Act of 1897
allowed, in January 1914 Huerta issued a decree to increase the
percentage of paper money banks could issue from 33 percent to
50 percent.22 The Huerta government borrowed heavily, via new
banknotes, from several banks, which included Banco Nacional de
Mexico (Banamex), Banco de Londres y Mexico, some state banks,
and the Mexican branches of Banco Germanico de America del Sur
and 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 finance
their needs and refused to accept that of its rivals. This led the
country to a period of hyperinflation, which reached its peak in
1916 once Huerta was ousted from power, as Venustiano Carranzas
government printed huge amounts of money, which was stopped only
when the public refused to accept paper money.24 This inflationary
process put banks in a precarious situation. As a result, a significant
number of them suspended checking operations and money orders,
therby adversely affecting a vast number of businessmen in their daily
transactions.25
While demanding new bank loans, Venustiano Carranza also
declared in September 1915 that the government would liquidate
those banks that had issued more banknotes than allowed by
law. After this decree went into effect, only nine banks of issue
remained operating.26 During 1916 banks operated under a strict
restriction, and were prohibited from diminishing their metallic
reserves. On September 15, 1916, Carranzas government declared
unconstitutional all banking concessions in place, and abrogated the
laws that had authorized them. Banks of issue had to cover the total
of their banknotes in circulation with metallic reserves, which was
22. This meant that Huerta abrogated the 50 percent reserve requirement on
banknote issues and reduced it to 33 percent.
23. Noel Maurer, Finance and Oligarchy: Banks, Politics, and Economic
Growth in Mexico, 18761928, (Ph.D. diss., Stanford University, 1997), 23132.
24. By the end of 1913 the peso abandoned the gold standard and gold currency
disappeared from circulation. From 1913 to 1914 the peso suffered a 54 percent
devaluation, from 1914 to mid-1916 it amounted to 154 percent, and at the end of
1916 it was 2009 percent. For a more detailed account of this problem see Edwin
y Revolucion:
la experiencia mexicana de 1912 a 1917,
W. Kemmerer, Inflacion
Problemas Agrcolas e Industriales de Mexico

5, no. 1 (1953): 172204.
25. Informe Anual del Banco Nacional de Mexico, 7 June 1916, quoted in
Maurer, Finance and Oligarchy, 262.
26. Maurer, Finance and Oligarchy, 241.
GOMEZ-GALVARRIATO
AND RECIO
impossible. Those that did not comply lost control of their operations
to a seizure board named by the Ministry of Finance.27 The boards
of the Banco de Londres y Mexico and the Banamex refused to obey
the new rules, so military forces were sent to the banks offices and
their directors were arrested until they accepted the governments
conditions.28 Banks of issue were officially closed to the public,
although some continued to provide services in a much reduced
scale 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 established
during 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 legal
environment. They were not officially liquidated nor had they been
expropriated. They were allowed to work under close government
supervision but this hindered their ability to provide regular services
to their customers. Even when the banks were returned to their owners
in 1921, it was not clear if the law of 1897 would still apply to them
and thus they began to operate in a regulatory limbo. The General Law
of Credit Institutions was not enacted until 1926.30 Even then, diverse
political as well as economic problems hindered the application of
the law and thus left the banks in an unequal legal footing vis-a-vis
the government.31
Mexican historiography generally considers that a rapid reconstruction of the banking system took place after the reopening of the most
important Porfirian banks in 1921, the creation in 1925 of Mexicos
central bank, the Banco de Mexico, and the passing of a new banking
regulatory framework in 1926. However, a close study of financial
operations suggest that the Porfirian banking system was not so easily
rebuilt. By the end of the 1930s only eight of the previously chartered banks managed to reorganize themselves under the provisions
27. Manero, La Reforma bancaria, 8889.

de banca en Mexico,
28. Banco de Londres y Mexico, S.A., Cien anos

8385.
29. Maurer, Finance and Oligarchy, 250.
(Mexico City, 1945), 16263.

30. Heliodoro Duenes,
Los bancos y la Revolucion
31. Although the Revolution had ended, the country still witnessed the killing
of two revolutionary leaders in the 1920s: Emiliano Zapata in 1919 and Pancho
Villa in 1923. President Carranza was assassinated in 1920 and there was a failed
military rebellion lead by de la Huerta in 1923. Furthermore, during President
Obregons
administration, the United States did not recognize his government and
the country had no access to foreign loans.
of the new laws so that they could provide regular services to their
customers.32
A study of the Banco de Londres y Mexico, which during the
Porfiriato had been the second bank in importance in Mexico, gives
us a glimpse of some of the difficulties that financial institutions
faced after the Revolution. The Banco de Londres y Mexico managed
to survive and resumed operations by 1921. Nevertheless, even after it
was returned to its owners and reorganized, it had trouble surviving.
The bank had lost money from 1916 to 1920. It made some profit in
1922 and 1923, but bank officials reported that they were not large
enough to keep the institution running.33 By 1926 the banks shares
had 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 to
concentrate its activities on financing the agricultural sector, which
were less profitable loans.35 It had not been able to recuperate loans
that were in default since 1915.36 Worst of all, when Carranzas
government confiscated the bank in 1916, it took all the reserves. The
government (19201924) returned the bank to its owners,
Obregon
agreed to pay back what Carranza had seized, and acknowledged
the 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 only
partial payments, which amounted to approximately $4.4 million. 38
and Calles governments were able to pay the bank only
The Obregon
the 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, Banco
Banco del Estado de Mexico, Banco Mercantil de Monterrey,
de Nuevo Leon,
Banco Mercantil de Veracruz, Banco Nacional de Mexico, and Banco Occidental
170.
de Mexico. Duenes,
Los bancos y la Revolucion,
33. Archivo Manuel Gomez

Morin, Instituto Tecnologico
Autonomo
de Mexico,
Mexico City [hereinafter, AMGM], Letter from Banco de Londres y Mexico to Banco
de Paris y de los Pases Bajos, 1 April 1925, Vol. 322, Exp. 1129. The losses in
pesos 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 1922
and 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 de
Pases Bajos, 6 March 1926, Vol. 322, Exp. 1129.
Pases Bajos, March 1926, Vol. 322, Exp. 1129.
sub-gerente del Banco de Londres
36. AMGM, Several letters from G. Calderon,
y Mexico to Manuel Gomez

Morin, 1922, Vol. 320, Exp. 1123.
37. The exception was the Huerta debt series A and B. Banco de Londres
had Huerta debt series B.
sub-gerente del Banco de Londres y Mexico
38. AMGM, Letter from G. Calderon,
to the Minister of Finance, 13 Jan. 1925, Vol. 321, Exp. 1124.
10
GOMEZ-GALVARRIATO
AND RECIO
not made in cash. Instead, mortgage and profit taxes that the bank
owed the government were credited to the governments outstanding
debt.39
In this period, the Banco de Londres y Mexico was not able to
supply its clients important services that it had previously offered
because of its poor financial situation. By 1925 it had not reestablished
services that were important to businessmen in Mexico for their
everyday operations. These included bill of exchange discounting,
wire transfers, money orders, checking accounts, and loans.40 By the
early 1930s this bank was still immersed in problems and in order to
resolve these it was completely reorganized.41
Banks without Charter and the Mexican Revolution

The study of the strategy companies carried out to cope with the
problems of the banking sector during the Revolution leads us to
inquire on the evolution of banks without charter during this period,
since they played a prominent role as part of them. These banks have
been widely neglected in the literature on banking in Mexico during
this period. Yet they were an important part of the banking services
offered in Mexico during the Porfiriato, and their role seems to have
widened as a result of the damage the Revolutionary policies inflicted
on charted banks.42 As Heliodoro Duenes,

a banks employee during
those years, wrote, in the chaotic period that followed the closure
of chartered banks in Mexico City, the banks without charter took
advantage; there sprouted, as fungus in humidity, makeshift bankers
that made huge profits in foreign exchange and loans. In the most
important cities of the Republic banking and foreign exchange houses
also 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 those
operating under distinctly Mexican concessions. According to the
39. Ibid.
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 broken
and Mexican businessmen from the Cuauhtemoc and Ebrard groups invested in
the reorganized bank.
del sistema
42. Luis Anaya Merchant, Colapso y reforma. La integracion
bancario en el Mexico
revolucionario 19131932 (Mexico City, 2002), 93.
154 [our translation].

43. Duenes,
Los bancos y la Revolucion,
Mexican Year Book of 192021, the most important of these banks

a Bancaria de
located in the capital were the following: Compan
Paris y Mexico, Deutsche Sudamerikanische, El Descuento Espanol,

the Mexico City Banking Company, Lacaud e Hijo, the Bank of
Montreal, the Canadian Bank of Commerce, American Foreign
Banking Corporation, and the Mercantile Banking Company. The
National City Bank, Equitable Trust Company, and Irving National
Bank (all of New York) also maintained representatives in Mexico City.
Nearly all the larger banks in the capital also maintained branches,
correspondents, or representatives in the important commercial and
industrial centers of the republic.44
We will focus our attention on two of these banking companies:
a Bancaria de Paris y Mexico, and Lacaud e Hijo, which
The Compan
later became the Banque Francaise du Mexique, since besides being
two of the most important banking institutions during the period,
a Bancaria de Paris
CIVSA carried business with them. The Compan
y Mexico was founded in 1909 by a group of French immigrants
from the region of Barcelonnette, among whom there were several
shareholders of the CIVSA. The stated capital of the company was
10 million pesos, yet by 1913 only half had yet been exhibited by
shareholders.45
From annual statements of 1911, 1912, and 1913 we know that the
company faced problems as a result of the Mexican Revolution and
the war in Europe. The board noted that business had diminished
in Mexico and that board members faced losses in their investments
in stock as the value of the shares decreased. Yet the bank also
experienced an important increase in its deposits, from 3,628,360
pesos in 1911 to 7,154,808 in 1912, which then decreased to 4,893,804
in 1913. The bank had profits on invested capital of 4.7 percent, 6.15
percent, and 9.42 percent in these three years. In 1913, the board
reported that given the increase in the banks business, personnel had
to be expanded and the bank had to move to larger premises located
in one of the most important streets in Mexico City.46
a Bancaria
There is not much information available of the Compan
de Paris y Mexico from 1914 to 1921. However, we know that it
opened commercial agencies in Veracruz and in Coahuila, where it got
involved in granting loans to merchants and to cotton haciendas. The
a Bancaria used to channel through banks
transactions that Compan
44. Mexican Yearbook Publishing Company [Robert Glass Cleland], The

Mexican Year Book, 19201921 (Los Angeles, 1922).
45. El Economista Mexicano, 27 April 1912, pp. 6971.
46. El Economista Mexicano, 2 May 1914, p. 55
11
12
GOMEZ-GALVARRIATO
AND RECIO
gradually began to be carried with banking houses.47 For example,

in Veracruz, it first carried out numerous business transactions with
the Banco Mercantil de Veracruz and later with the Casa Viya y
Hermanos, in Coahuila it shifted them from the Banco de Coahuila
to the Casa Purcell, and in Mexico City from the Banco de Londres y
Mexico and the Banco Nacional de Mexico to Lacaud e Hijo.48
The diminished operations of chartered banks opened the way for
new entrepreneurs to offer services that the public required. One
of them was the French businessman Raoul Aimilien Lacaud, who
by 1905 advertised himself as stockbroker, selling and buying bank,
industrial, and mining stocks.49 Adapting to the changes brought
by the Mexican Revolution, he shifted from stock trading, a very
diminished business as a result of the revolutionary war, to the
flourishing business of buying and selling money orders, a market left
opened by former banks which were immersed in a state of disarray
that hindered them from offering that service. In October 1915, his
company, Lacaud e Hijo, must have been small since it placed a very
brief, two line newspaper ad offering to buy and sell money orders
placed in Veracruz.50 By 1917 the company seems to have grown
since it moved from his former address in San Agustn street to the
more important street of Uruguay in downtown Mexico City.51
In an environment characterized by lack of trust in relation to
matters dealing with money, Lacaud e Hijo had apparently gained
the confidence of the public. This can be seen in newspaper ads
that appeared, especially those dealing with the Italian Opera Season
in 1917, as well as the operas where Caruso would sing in 1919.
The advertisements informed readers that funds from the season
tickets would be deposited in the banking house of Lacaud e Hijo.52
Similarly, in 1919 an advertisement of a raffle organized by an Italian
charitable organization specified that Lacaud e Hijo would pay the
prizes in specie.53 In April 1918 a newspaper article on the opening
of a gold mine by the company Placeres de Oro de Michoacan S.A.
said that given the critical circumstances that the financial market
is going through in the Republic, the promoters of the company did
not dare to issue the stock publicly instead they decided to sell it
47. Some of these banking houses were part of larger commercial houses. In
certain cases it was the citys dry store that also offered financial services.
48. Anaya, Colapso y reforma, 108.
a del Directorio, Directorio Oficial Bancario de Mexico,
49. Compan
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 of

Mr. Lacaud e Hijo.54
By 1918 Lacaud e Hijo was also rendering important financial
who would become President two
services to General Alvaro Obregon,
used the services of Lacaud
years later. In September 1918 Obregon
e Hijo to transfer funds from the First National Bank of Nogales in
Arizona, to Mexico City, as well as to carry out a private business that
involved building a hydroelectric power plant in Sinaloa.55
A newspaper article carried the story of the assault of a man, who
had just cashed a check in Lacaud e Hijo from a mining company
in Jalisco, working as a debt collector for the company Express
Constitucionalista. The story indicates that by 1919 the banking
house was playing an important role in check redeeming throughout
the nation.56 Two other criminal acts reported in the newspaper let
us know that by 1919 Lacaud e Hijo had branched nationally and
internationally into an important cotton producing region by opening
Coahuila, and in San Antonio, Texas.57 Lacaud
an agency in Torreon,
to
e Hijo appear to have taken advantage of their branch in Torreon
enter directly into the cotton business, since on October 21, 1919,
the newspaper reported that Lacaud e Hijo had sent two railroad
cars of cotton to Nonoalco, near Mexico City.58 Once trade between
Europe and Mexico was disrupted as a consequence of World War I,
Lacaud e Hijo also played an important role for Mexican companies
by lending the money they required to import merchandise from U.S.
companies. This was important since the former were unwilling to sell
any products to Mexican entrepreneurs unless it had been previously
paid in full.59
The payment system that substituted the one that had developed
before the Revolution worked less than perfectly. Mexico City
newspapers were filled with stories reporting countless cases of frauds
and falsifications in the course of these years. In 1919, for example,
several falsified money orders from the Bank of Montreal were cashed
in banking houses all over the country and in the United States.60
In this case, as well as in several others, the judicial system proved
ineffective in punishing the criminals.61
54. El Democrata,
22 April 1918, p. 2
55. Anaya, Colapso y reforma, 11819
56. El Democrata,
5 April 1919, p. 8
57. El Democrata,
9 April 1919, p. 5; 4 July 1919, p. 6
58. 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.
13
14
GOMEZ-GALVARRIATO
AND RECIO
By May 23, 1920, Lacaud e Hijo had become the Banque Francaise
du Mexique (Banco Frances de Mexico). Its advertisement indicated
that it was the successor of Lacaud e Hijo, and that it had a capital of 4
million pesos. In Mexico City it kept the same office as Lacaud e Hijo
had previously had, and additionally it also advertised an address
in Paris in the Boulevard des Italiens and branches in Monterrey,
Merida, and Tuxpan.62
Tampico, Veracruz, Torreon,
In 1920 the Banque Franc
aise du Mexique was rendering important
services to the Mexican government. In May the government deposited
the taxes paid by several oil companies in an account it held in that
bank, and used its services to send money orders to pay its troops.63
Moreover, this institution had become President Alvaro Obregons

private banker since he held a special account in that bank.64
Taking advantage of the relation he had built with President Alvaro
Lacaud sent him a letter in August 1920 to express his
Obregon,
worries on the way the banking system was operating in Mexico.
It is necessary that the banks can rediscount their portfolio because
otherwise 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 necessary
that the government allowed the establishment of a private bank with
monopoly of issue that would receive bank deposits and would be
able to make rediscount operations.66
It seems that Lacaud was very well aware of the great frailty of
the banking system. As a result, his bank as well as other credit
institutions pursued extremely conservative policies. In 1920, the
Bank Francaise kept 17 percent of its assets in gold and silver coins
or U.S. dollars and maintained a further 15 percent as deposits in
a Bancaria de Pars
overseas banks. Similarly, by 1919, the Compan
y Mexico kept 21 percent of its assets in the form of gold pesos in
its vaults. During the Porfiriato, interest rates on commercial loans
never surpassed 12 percent annually, but after the Revolution, when
credit could be obtained at all, these rates oscillated between 24 and
36 percent.67
62. El Democrata,
23 May 1920.
64. Ibid., 119.
24 Aug. 1920, Archivo Calles Torreblanca,
65. Letter from Lacaud to Obregon,
exp.21 Bis-170 inv.458, quoted in Anaya, Colapso y
Fondo Alvaro Obregon,
reforma,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, taking
a Bancaria de Paris y Mexico and the Banque Franc
the Compan
aise
du Mexique, along with many other banks and banking houses,
to bankruptcy. These institutions, which had prospered by taking
advantage of the post Porfirian banking instability, suffered as a result
of the frail institutional basis on which the new system was founded.
The lack of any banking regulation left open a vast space for fraud and
falsification. These problems the banks were able to cope with. But
the lack of a bank, or group of banks, that played the role of lender
of last resort put the system in a very precarious situation, as Lacaud
had warned.
Although neither Banamex nor other credit institutions played very
well the role of lender of last resort, there is plenty of evidence that in
several instances Banamex, together with other banking institutions,
rescued banks on the verge of bankruptcy, at least until 1913.68 By
1921, however, there was no bank that could carry out, even partially,
the role of lender of last resort.
a Bancaria de Paris y
During the early 1920s both the Compan
Mexico and the Banque Franc
aise had been lending vast amounts
a Bancaria
of funds to cotton producers in La Laguna. The Compan
had given 4 million pesos in loans to cotton producers in 1920.
Unfortunately, cotton prices dropped by 55 percent between 1920
and 1921 which was further aggravated by a year of bad crops.69
The revolutionary war, by interrupting for more than four months
transit between Veracruz, a major port, and Mexico City also imposed
heavy losses on commercial businesses, a sector that had also been
receiving substantial loans. The event that led customers to demand
a Bancaria
their deposits was the announcement that the Compan
Occidental de Almacenaje de Guadalajara would default on its
a Bancaria de Paris y Mexico.70
outstanding loans to the Compan
a Bancaria
Rumors spread on the payment capacity of the Compan
and in the last three days of December 1920, two and a half million
pesos were withdrawn from its deposit accounts.71 This generated a
banking panic that affected also the Banque Francaise du Mexique
and the Mercantile Banking Company. Crowds gathered outside their
68. For example, in 1913 Banamex and the Banco de Londres y Mexico lent the
Banco 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 (Washington
D.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.
15
16
GOMEZ-GALVARRIATO
AND RECIO
offices waiting to withdraw their deposits. On January 3, 1921 the

a Bancaria de Pars y Mexico and the Mercantile Banking
Compan
Company requested judicial liquidation, the first step in the financial
bankruptcy process.72 By the end of that month these banking houses
suspended payments and closed their doors.
Given these conditions, Lacaud considered requesting the judicial
liquidation of the Banque Francaise, but he decided instead to take
advantage of the good relationship he had built with President
to ask him for the aid necessary to rescue his bank.
Alvaro Obregon
Lacaud was offered a meeting with the Minister of Finance, Adolfo
de la Huerta to negotiate a solution to his banks problems. The
government resolved to support the Banque Francaise through the
Monetaria by rediscounting some of its credits and giving
Comision
it substantial loans.73 As a result of the governments aid, on January
6, the Banque Franc
aise was able to survive a new run. Several days
a Bancaria and
later, the newspapers announced that the Compan
the Mercantile Banking Company would renounce to their judicial
a
liquidation and would reopen in ten days, but only the Compan
Bancaria was able to do so. Both companies had assets larger than their
liabilities but the Mercantile went into bankruptcy nonetheless.74
One of the main shareholders of the Mercantile Banking Company
of Mexico, Mr. J. Mac Carty, deplored the governments preferential
treatment to the Banque Franc
aise and refusal to attend to the pleas
75
that his bank had made.
This banking panic alerted the government of the need to put
Mexicos banking system on more solid ground. On January 31, 1921,
decreed the end of the bank seizure that
President Alvaro Obregon
Carranza had established on December 16, 1916. Those banks that had
assets 10 percent larger than their liabilities were returned to their
legal representatives. The Banco Nacional de Mexico and the Banco
de Londres y Mexico along with several other banks reopened their
doors.76 Yet there were still many issues to be solved, including the
legal status of the banks, given that their former charters had been
declared 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.
It would still take several years before necessary conditions were met
for a sound banking system to exist.
On November 15, 1922 another banking panic broke out.
Newspapers had been announcing a substantial decrease on the
countrys imports as well as on oil production, but it is not clear
what the event that unleashed this crisis was.78 The first banking
house to suspend payments was the Casa Bancaria Eulalio Roman,
from Veracruz, generating alarm in the public. Most deposits were
withdrawn from the Banque Francaise du Mexique in two days
and it had to declare judicial liquidation. This time, however, the
government was in a dire fiscal situation and therefore unable to help
it as it had done a year before.79
The collapse of the Banque Francaise had effects all over the nation
and led to payment suspension of many other banks and banking
houses in Veracruz and Monterrey.80 In Monterrey, the Governor
decreed a suspension of banking activities on the following day
in order to try to stop the massive withdrawal of deposits.81 In
Veracruz, the state congress demanded the federal congress to hasten
in passing a law of credit institutions, since the states inhabitants
were suffering dearly from the recent bankruptcies of the banks and
banking houses.82
In spite of these problems, banks and banking houses without a
Porfirian charter continued to play a major role in the Mexican banking
system during the 1920s. In the course of the Banking Convention
of 1924 summoned by the government to discuss a new banking
legislation, twenty-one out of the thirty-nine private institutions of
credit 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 highlighted
the 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 Casa
Bancaria Viya Hermanos. In Monterrey, the Casa Alberto Stein; Banco Milmo; and
a Bancaria de Monterrey (former Sada Paz Hermanos).
Compan
82. Ibid., 132.
Bancaria de 1924
83. Secretara de Hacienda y Credito Publico,
Convencion
(Mexico City, 1924), 910.
17
18
GOMEZ-GALVARRIATO
AND RECIO
the public sector as treasury to the federal government and as

principal provider of government loans.84 While this was an important
service, loans to the private sector have been minimized and have
not been the subject of a more comprehensive examination. For
example, in the 18841910 period, 62.5 percent of Banamex loans
were directed to private individuals and companies.85 Of these
loans, approximately 26 percent were given to the manufacturing
sector.86 Further analysis indicates that textile firms with inside
connections to banks grew faster than firms that relied on traditional
merchant networks.87 Mexicos relationship banking did serve to
channel capital to industrial projects.
Only four of approximately one hundred cotton textile firms that
existed in Mexico during the Porfiriato were joint-stock companies
that openly traded on the stock market. By 1912, these companies
collectively owned nine mills, and were much larger than their
competitors, owning 27 percent of the spindles, and weaving 24
percent of the cloth.88 CIVSA was one of the four huge publicly traded
joint-stock textile companies. It had important bank connections since
several of its board of directors also sat in the board of important banks.
However, CIVSA, unlike most of the other industrial firms in Mexico
during the Porfiriato, was also able to sell stock and trade it in the
stock market. Thus, CIVSAs investment capital came from the sale of
shares, rather than from bank financing.89 Nevertheless, during that
period CIVSA was able to obtain several short-term loans from banks,
which facilitated day-to-day operations. After 1913 this was no longer
true causing the company great difficulties.
As can be seen in table 1, debt over total capital or over equity
was always very low. However, it decreased during the Revolutionary
years and even more during the 1920s to become almost half of what
it used to be during the Porfiriato. Furthermore, as can be seen in
de un banco and Maurer, Finance and

84. See Ludlow, La construccion
Oligarchy.
85. Estimated from Luis Cerda, Historia Financiera del Banco Nacional de
Mexico,
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 Robert
S. and Ca. Sebastian Robert was founder of the Banco Nacional de Mexico and
sat on its board of directors. He also sat on the board of directors of the Banco
de Morelos. Honore Reynaud sat on the board of directors of the Banco Central
Mexicano and of the Banco Hipotecario de Credito Territorial Mexicano.

Table 1 Distribution of Capital Ratios
Years
18981910
19111920
19211930
Total
Paid-in/
total
capital
Debt/
total
capital
Retained/
total
capital
Equity/
total
capital
Debt/
equity
New
debt/new
capital
0.58
0.66
0.59
0.61
0.15
0.13
0.08
0.12
0.27
0.21
0.34
0.27
0.85
0.87
0.92
0.88
0.17
0.16
0.09
0.14
0.15
0.66
0.29
0.17
Sources: CV, Balance Sheets 18981930.
table 2, very little of CIVSAs debt came from loans given by banks
and banking houses. However, reports given in the board meetings
minutes indicate that bank credit was more important than table 2
suggests since it was provided through short-term loans that did not
appear in the annual balance sheets.
In August 1898, when the textile mill had just opened, CIVSAs
board calculated that once all capital on hand was used, it would still
need 830,000 more pesos over the following six months in order to
make the necessary investments and keep the mill in operation. Since
by that time some production might have already been sold, they
considered that they would only need an amount of 600,000 pesos
to back the operation. The boards president requested credit from
several banks in Mexico City. The manager of the Banco Nacional
de Mexico (Banamex) answered, . . . given that the factory is not
yet in operation, it is difficult to make any advance payment, but
nevertheless, if the company has compelling needs, maybe we could
offer up to 100,000 pesos.90 For its part, the Banco de Londres y
Mexico answered that CIVSA could count on a 200,000 peso loan.
CIVSA did not get a definite answer from the Banco Hipotecario, but
the board thought that the bank could lend at most 100,000 pesos. In
the first half of 1899, the company obtained loans of 300,000 pesos
from banks in Mexico City in order to buy cotton and pay for other
current expenses.91 The necessary long-term capital was acquired
through the capital-stock increase decided at the extraordinary general
stockholders meeting in July 1899.
With important associates in France, CIVSA had easier access
to foreign credit than did most Mexican companies. Although
a Industrial Veracruzana S.A. Cd., Mendoza

90. Archivo de la Compan
Veracruz, 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.
19
1898
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909
1910
1911
1912
1913
1914
1915
1916
1917
1918
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
1,355.88
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Banco Central
Mexicano
0.00
0.00
0.00
87,500.00
87,500.00
45,860.00
45,860.00
45,860.00
45,860.00
45,860.00
45,860.00
100,000.00
142,000.00
142,000.00
115,159.17
67,000.00
81,107.50
121,498.82
102,098.18
86,206.90
147.09
Gassier Freres,
Barcelonnette &
Gap
Table 2 CIVSAs Debt
0.00
0.00
0.00
60,000.00
60,000.00
60,000.00
60,000.00
60,000.00
60,000.00
60,000.00
0.00
0.00
40,000.00
40,000.00
20,996.67
0.00
0.00
0.00
0.00
0.00
0.00
Henry
Reynaud,
Paris
7,251.67
64,614.97
8,179.02
6,078.28
6,281.20
10,288.20
19,215.40
11,586.80
9,291.80
18,874.40
88,613.04
100,020.60
85,994.20
2,280.00
1,579.80
9,813.90
7,990.16
0.00
0.00
9,799.18
2,383.96
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
2,206.56
0.00
0.00
A. Reynaud &
A. Pascal &
Co., Paris
Co. New York
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
CIVSA
Shareholders
0.00
0.00
0.00
0.00
0.00
0.00
0.00
22,667.59
0.00
3,830.60
13,991.33
18,067.11
572.27
0.00
414.89
50.75
0.00
0.00
0.00
1,705.52
0.00
D.Loustau &
Co. Sucs.
Veracruz
30,104.00
0.00
1,342.30
0.00
419.55
0.00
4,308.61
8,752.75
0.00
0.00
176.45
0.00
0.00
0.00
0.00
1,507.34
0.00
0.00
0.00
0.00
0.00
Suppliers
0.00
1,358.03
25,760.66
24,199.36
17,781.63
28,717.72
26,536.95
34,075.44
36,932.90
36,055.36
45,388.66
53,913.69
65,197.73
0.00
0.00
7,809.08
8,043.35
3,313.86
3,413.28
3,515.68
0.00
Other
Creditors
37,355.67
65,973.00
35,281.98
177,777.64
171,982.38
144,865.92
155,920.96
182,942.58
152,084.70
164,620.36
194,029.48
272,001.40
333,764.20
184,280.00
138,150.53
86,181.07
97,141.01
124,812.68
107,718.02
101,227.28
2,531.05
Total
20
GOMEZ-GALVARRIATO
AND RECIO
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
1,355.88
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
1,407,377.66
Gassier Freres,
Barcelonnette &
Gap
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
520,996.67
Henry
Reynaud,
Paris
0.00
1,356.38
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
471,492.96
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
2,206.56
A. Reynaud &
A. Pascal &
Co., Paris
Co. New York
0.00
1,005,156.08
143,909.78
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
1,149,065.86
CIVSA
Shareholders
222.57
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
61,522.63
D.Loustau &
Co. Sucs.
Veracruz
0.00
0.00
4,060.22
21,568.12
0.00
68.38
68.38
0.00
0.00
0.00
0.00
0.00
72,376.10
Suppliers
Sources: CV, Balances Generales 18981930.

Notes: CIVSA shareholders include A. Reynaud y Cia. S.C., Mexico, M. Bell
on Cia., Puebla, P. Richaud Cia., Puebla, and Veyan Juan y Cia. S.C., Mexico.
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
Total
Banco Central
Mexicano
Table 2 (Continued)
0.00
0.00
0.00
74.03
451.92
0.00
0.00
73,169.33
56,237.39
27,982.18
10,975.02
124,404.28
715,307.53
Other
Creditors
222.57
1,006,512.46
147,970.00
21,642.15
451.92
68.38
68.38
73,169.33
56,237.39
27,982.18
10,975.02
124,404.28
4,400,345.97
Total
21
22
GOMEZ-GALVARRIATO
AND RECIO
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 France
granted important loans to CIVSA from 1908 to 1917 (see table 2).92
After Maderos government fell in 1913, the possibility of financing
through banks ended because banks simply stopped lending. In July
1913, the Banco Central Mexicano informed CIVSA that because of
the countrys difficult economic situation, it had credited CIVSAs
promissory notes of 200,000 pesos, charging them to the companys
current account.93 In early December 1913, Banamex told CIVSA that
due to the difficult circumstances and economic crisis a credit for
200,000 pesos at an annual rate of 7.5 percent, which had already
been approved, was canceled.94 The situation deteriorated when in
late December, the government issued a decree authorizing banks not
to redeem bank notes in gold. From then until January 2, 1914, the
government decreed a bank holiday, and banks closed their doors.
CIVSAs board reported that the banks closure put the company in a
very difficult situation.95
In mid-January 1914 CIVSAs president informed the board that all
banks had stopped granting credit and were demanding immediate
a Bancaria de Pars
payment of all outstanding loans.96 The Compan
Mexico S.A. had also canceled its credit, and told CIVSA that it was
going to take payment from the companys bank deposits. CIVSA
desperately tried to obtain funds to make the cotton purchases
necessary to keep the mill running. The president reported that he had
requested a 100,000 peso loan to no avail.97 In October the financial
situation improved briefly, when the Banco Nacional granted CIVSA
the 200,000 peso loan it had canceled in December of the previous
year.98 This was the last loan CIVSA would get from a Mexican bank
for several years.
By late 1913, the countrys railway service was nonexistent since
most of the lines were destroyed and those that were functioning were
used to transport troops. As a result, CIVSAs board was considering
the 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 at
6 percent interest from a Canadian bank. But communications with
La Laguna were soon reestablished, and believing that the exchange
rate risk was very high, CIVSAs board of directors chose not to take
chances.99 In 1920, with a more stable exchange rate, CIVSA took a
loan of 200,000 francs at 5 percent annual interest from a French bank
a Bancaria de Pars y Mexico.100
through the Compan
Other mills must have faced an even more difficult financial
situation. It was probably this disadvantage that facilitated CIVSAs
mill in Puebla in December 1920. When
acquisition of El Leon
in debt
CIVSA purchased El Leon for $700,000, it held El Leon
for $303,500.101 The necessary funds for such operation came from
loans provided by CIVSAs major shareholders as can be seen in
table 2.
Throughout the 1920s, it was impossible for CIVSA to obtain even
short-term loans in Mexico at reasonable interest rates. The company
consequently tried to obtain them abroad. In October 1929 CIVSAs
president explained that he was trying to get a loan from the Equitable
Trust Company of New York to cope with any emergency that might
arise and in order to purchase cotton.102 Unfortunately, the New York
stock market crashed a few weeks later, and CIVSA could not obtain
these funds. We do not find evidence in CIVSAs annual reports of a
loan taken by the company from a Mexican bank until 1937, when
it is reported that the firm was paying interests to Banamex and to
the Banco de Comercio S.A. The following year the firm was paying
interests as well to the Banco de Londres y Mexico S.A.103
CIVSA suffered from the restraint on bank credits that the collapse
of the banking system imposed on it. Even though CIVSA did not
finance its investments through bank loans, short-term bank credit
had been important for CIVSA, which provided it with the necessary
liquidity 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 Comite
100. CV, CR, letter from F. Maurel, director of CIVSA to CIVSAs Comite
Consultatif in Paris, 26 March 1920.
101. CV, CR, letter from F. Maurel, director of CIVSA to CIVSAs Comite
Consultatif in Paris, 26 March 1920 and letter from C. Maure, underdirector of
CIVSA to CIVSAs Comite Consultatif in Paris, 31 Dec. 1920.
102. CV, AC, 1 Oct. 1929.
del Impuesto,
103. CV, Impuesto Sobre Utilidades and Anexos a la Declaracion
1937 and 1938.
23
24
GOMEZ-GALVARRIATO
AND RECIO
exist as a consequence of the Revolution, the company had to increase

its liquidity. As table 3 shows, liquid over total assets drastically
increased after 1910 and remained at very high levels until 1928.
This, of course, imposed a high opportunity cost, by not being able to
place 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 system
caused the company was a lack of the commercial services that the
banks used to provide the company. CIVSA used to employ banks to
pay its suppliers and expenses, and it also deposited its income in
banks. Given that CIVSAs customers and suppliers were spread
extensively not only throughout Mexico, but also abroad, banks
offered the company a very important service. Banks and banking
houses were far more important on the asset than on the liability side
of 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 account
by CIVSA in order to allocate its assets. In 1913, for example, the
board decided to withdraw a large part of the companys deposits
from Mexican banks in order to pay half of its debt in Europe, since
interest rates had dropped to only 2 percent.104 This was a shrewd
maneuver, since it saved CIVSA the trouble it would have faced if it
had held important assets in those banks, since it was in December of
that year when the banks problems were exacerbated.
CIVSAs liquid asset management was also very sensitive to bank
default risk or to government confiscation. In 1907 CIVSAs deposits
relative to cash decreased considerably because of the financial crisis
of that year, but then started growing again. Until 1909 all company
deposits were kept in the Banco Central Mexicano (see table 4), but by
a Bancaria de Pars y Mexico opened, CIVSA
1910, when the Compan
moved about half its deposits to that bank.105 These were two banks
in 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.
1898
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909
1910
1911
1912
1913
1914
1915
$63,416
$66,112
$36,095
$111,936
$288,812
$318,865
$264,124
$252,436
$301,766
$77,831
$84,689
$75,402
$245,289
$531,598
$761,334
$439,307
$736,458
$428,346
Liquid Assets
2.8
2.9
1.6
4.9
12.7
14.0
11.6
11.1
13.2
3.4
3.7
3.3
10.8
23.3
33.4
19.3
32.3
18.8
Liq./ Total
Assets (%)
92
92
85
9
8
4
14
18
14
90
41
32
9
6
3
10
70
3
Cash (%)
0
0
0
87
90
94
84
80
85
7
55
65
90
94
57
78
30
96
Deposits
(%)
Distribution of Liquid Assets
Table 3 CIVSAs Allocation of Liquid Assets 18981929
8
8
15
5
2
2
2
2
2
3
3
4
1
0
40
11
0
0
Bonds (%)
100
100
100
100
100
100
100
100
100
40
49
49
58
89
5
In Mexican
Chartered
Banks (%)
0
0
0
0
0
0
0
0
0
60
51
51
42
4
0
In Mexican
Unchartered
Banks(%)
Distribution of Deposits
0
0
0
0
0
0
0
0
0
0
0
0
0
7
95
Abroad (%)
0
0
0
0
100
100
100
100
(continued overleaf)
0
0
0
0
0
0
0
0
0
0
0
0
0
Foreign
(%)
100
100
100
100
100
100
100
100
100
100
100
100
100
Mexican
(%)
Dist. of Bonds
25
$801,915
$1,336,435
$875,217
$1,404,117
$544,166
$304,177
$1,334,398
$1,077,270
$441,507
$584,304
$207,280
$873,597
$787,777
$214,540
35.2
58.7
38.4
61.6
23.9
13.4
58.6
47.3
19.4
25.6
9.1
38.3
34.6
9
Liq./ Total
Assets (%)
12
4
6
3
6
8
7
1
0.1
1
6
5
12
42
Cash (%)
88
51
35
92
89
81
91
97
95
96
92
94
87
53
Deposits
(%)
Distribution of Liquid Assets
0
45
58
5
5
11
2
2
5
3
2
1
1
5
Bonds (%)
3
3
6
2
4
0
0
0
0
0
In Mexican
Chartered
Banks (%)
0
0
23
31
30
55
9
6
1
11
In Mexican
Unchartered
Banks(%)
Distribution of Deposits
97
97
71
67
66
45
91
94
99
89
Abroad (%)
100
68
48
100
2
2
2
2
0
0
Mexican
(%)
0
32
52
0
98
98
98
98
100
100
Foreign
(%)
Dist. of Bonds
Source: CV, Actas de la Asamblea General and Libros de Mayor, 18981929. Notes: Mexican Chartered Banks: Banco Central Mexicano, Banco Nacional de M
exico. Mexican
Unchartered Banks: Compa
na Bancaria de Paris y M
exico, Banque Francais du Mexique. Banks abroad: Maitland & Coppel, K. Mandell & Co., The Royal Bank of Canada, French
American Bank Corp., First National Bank del Ro, Texas, Canadian Bank of Commerce. Mexican bonds were Mexican government bonds, foreign bonds were French and United States
government bonds.
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
Liquid Assets
Table 3 (Continued)
26
GOMEZ-GALVARRIATO
AND RECIO
1901
1902
1903
1904
1905
1906
1907
1908
1909
1910
1911
1912
1913
1914
100
100
100
100
100
100
100
100
100
39.5
48.9
49.1
58.2
89.2
60.5
51.1
50.9
41.8
3.8
7.0
Banco
Banco
Banco
Ca.
K.
Maitland The Royal
First
Central
Nacional Frances de Bancaria Mandell & Coppel & Bank of Nat.Bank
Mexicano de Mexico Mexico de Pars y Co., N.Y. Co., N.Y. Canada,
del Ro,
(%)
(%)
(%)
Mexico
(%)
(%)
N.Y. (%) Texas (%)
(%)
Table 4 Distribution of Deposits between Banks, 18981925
(continued overleaf)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
French
Canadian Others (%) Total (%)
American Bank of
Bank
ComCorp. (%)
merce
(%)
27
4.8
2.8
3.0
6.5
1.5
4.1
38.5
0.8
0.4
22.7
31.4
30.3
16.9
7.5
5.4
0.6
11.2
6.8
6.6
3.3
9.1
19.7
7.7
3.6
2.2
65.6
65.3
16.4
50.3
45.1
56.2
7.4
75.5
8.0
26.6
50.0
18.5
27.9
23.8
38.2
81.5
66.8
18.6
1.1
6.6
2.4
1.9
2.9
36.2
50.9
3.6
1.8
1.4
0.6 a)
0.1 b)
100
100
100
100
100
100
100
100
100
100
100
French
Canadian Others (%) Total (%)
American Bank of
Bank
ComCorp. (%)
merce
(%)
Notes: (a) Deposited at the Compa

na Bancaria Mexicana; (b) Deposited at the Banco Mexicando de Comercio e Industria in liquidation. From 1925 to 1930 it was
impossible to know the distribution of deposits between banks since the data was aggregated.
Source: CIVSA, accounting books, libros de mayor 19011925.
1915
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
Banco
Banco
Banco
Ca.
K.
Maitland The Royal
First
Central
Nacional Frances de Bancaria Mandell & Coppel & Bank of Nat.Bank
Mexicano de Mexico Mexico de Pars y Co., N.Y. Co., N.Y. Canada,
del Ro,
(%)
(%)
(%)
Mexico
(%)
(%)
N.Y. (%) Texas (%)
(%)
Table 4 (Continued)
28
GOMEZ-GALVARRIATO
AND RECIO
In December 1913, as has been explained, the situation of the Banco

Central became very difficult.106 In January, Banamex published a
reassuring statement indicating that it held large cash reserves, most
of which were in gold. CIVSA moved all its deposit to Banamex
because it regarded this bank as the most secure during that hectic
period. Yet this banks situation also became vulnerable in the course
of 1914, and CIVSA shifted its deposits to banks in New York.
a
Until April 1914, CIVSA was still using the services of the Compan
Bancaria de Paris y Mexico to make certain payments, to make
transfers to and from Mexico City, where CIVSAs central offices
were located, and to Orizaba, Veracruz, near to its Santa Rosa factory.
On April 22, 1914 CIVSAs board sent a letter to the factory manager in
Santa Rosa explaining that the company was facing great difficulties
in getting the necessary funds for the weekly payroll. This was the
a Bancaria to
last time CIVSA employed the services of the Compan
transfer the payroll money from Mexico City to Orizaba.107
The great troubles Mexicos monetary system was suffering made
it very difficult for companies such as CIVSA to obtain the necessary
specie to pay its workers. From July to September 1914 CIVSA and the
a Industrial de Orizaba, the other major textile company in
Compan
the Orizaba region, were paying their workers with checks issued
a Bancaria de Orizaba.108 In September, however, this
by the Compan
bank stopped issuing these checks.109 Clients were paying CIVSA with
banknotes (and even bonds) that were not redeemable in Orizaba, so it
was difficult for the Santa Rosa factory manager to meet the required
funds to make weekly payrolls.110 Specie was sent from Mexico City
by 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 December
1914 and February 1916 communications between Mexico City and
Santa Rosa were completely curtailed. The only possible means of
communication was to send telegraphs to their commercial agent and
banker in New York, K. Mandell & Company, who in turn sent them,
also by telegraph, to Mexico City or Santa Rosa.112 Correspondence
was 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.
29
30
GOMEZ-GALVARRIATO
AND RECIO
States, using the services of D. Loustau & Company in the port of

Veracruz.113
In December 1914 CIVSA also started using the services of D.
Loustau & Company to receive and make payments from clients and
suppliers and to send them to banks in New York, either directly or
through D. Loustau & Company correspondents in New Orleans.114
CIVSAs daily transactions were then carried out through banks in
the United States even when they involved customers or suppliers in
Mexico.115
D. Loustau & Company was a customs agency working in Veracruz
since pre-Revolutionary times.116 CIVSA had used its services to
receive the machinery, spare parts, and chemical shipments it ordered
from Europe at least since 1907.117 By 1909 D. Loustau & Company
was also engaged in river traffic from Veracruz down the coast and
up the Papaloapan River, using barges and a tow boat.118 From
1914 to 1916 the company widened the services it offered CIVSA to
include 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 that
either using his own boats, or through his connections with boat
companies, D. Loustau & Company was able to send and receive from
the United States, money orders, checks, banknotes, and specie, in
times when it was impossible to carry out these transactions through
other 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. Surcrs
from Veracruz, $3942.97 sent from CIVSA Mexico debited against Santos Nasto &
Hno, from Veracruz, and $700, which was the value of the endorsement. Similar
information appeared frequently thereafter in the correspondence sent between
Mexico City and Santa Rosa offices. In a letter from MX to SR, 16 Jan. 1915, there
is mention of Loustau correspondents in New Orleans.
115. In Sept. 1916, for example, their client M. Diez & Cia S.C. paid them with
two 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 from
and Havana and Tampico, bringing 36
Havre, Saint Nazaire, Bordeaux, Coruna,
passengers, mail, and 365 tons of cargo.
which were immediately sent to New York by its agent D. Loustau &
Company, or through transfers made directly between North American
banks when the clients held accounts in them. CIVSA also made its
payments with drafts on New York, for which D. Loustau & Companys
intermediary services were often used.120 Although it is impossible
from CIVSAs documents to asses the amounts charged by D. Loustau
for his services, they must have been expensive since they included
the physical transportation of the documents and specie to and from
the United States. Furthermore, these maneuvers, necessary to keep
the factories running, entailed high transaction costs.
After 1918, as the political situation improved, CIVSA placed some
of its deposits in the Banque Francaise du Mexique and the Ca.
Bancaria de Pars y Mexico, and used their services instead of those of
D. Loustau & Company to make money transfers to the United States.
Deposits in these banks allowed the company to carry out daily
transactions with greater ease. But they too had their difficulties.
a Bancaria de Pars y Mexico closed its doors on
When the Compan
December 30, 1921, CIVSA had trouble recovering its deposits.121
The bank soon emerged from bankruptcy, but its credibility proved
harder to recover. As we see in table 4, CIVSA maintained a very low
percentage of its deposits in that bank after 1921, moving them instead
to the Banque Francais du Mexique and to New York. However, as we
have seen, the fate of this bank was not very different from that of the
a. Bancaria de Pars y Mexico. In November 1922, CIVSAs
Compan
director reported that the Banque Francaise du Mexique had failed,
and that despite the boards caution the company held $9000 at risk
there. He explained that the company was going to try to recover these
funds through extrajudicial means.122
Keeping money in banks in Mexico was risky. Despite the higher
interest rates they offered, relative to those of New York, CIVSA tried
to keep its deposits in them to a minimum. In July 1922 the board of
directors, trying to justify losses, explained that it had to retain certain
funds in banks in Mexico in order to carry out current operations.
Most of the payments they received were in national gold or silver
coins 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 Rosa
a 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 Comite
122. CV, CR, letter from C. Maure, director of CIVSA to CIVSAs Comite
Consultatif in Paris, 25 Nov. 1922 and 18 March 1923.
31
32
GOMEZ-GALVARRIATO
AND RECIO
the following day, to the United States. Naturally, they said we

take all necessary precautions, and try to keep those deposits as low
as possible . . . and we try to spread them between several banks.123
Mexicos precarious political situation made companies wary that
they would lose money even when deposited in the United States.
In June 1922, as CIVSAs directors watched Mexicos relations with
the United States deteriorate, they thought that their access to the
companys funds in the United States could be blocked. The company
therefore sent letters to its bankers in United States, asking if, in this
event, they could move CIVSAs funds to a bank in Canada.124
Although no information is available on the allocation of CIVSAs
deposits after 1925, we know that the company kept them abroad
until at least 1928. In that year the board of directors reported that
it had agreed to hold its funds in dollars in the United States, given
that the interest rates it received there were greater than those it could
obtain in Mexico.125
CIVSAs experience indicates the great difficulties that businesses
faced as a consequence of the Mexican banking systems destruction. It
also indicates that business operations of the complexity of CIVSAs
could not take place without banks. Thus, if national banks could
not carry out the commercial transactions firms required, they were
substituted by foreign banks. This tactic, however, implied great
transaction costs, which CIVSA tried to limit by moving some funds
back, once it was feasible, to banks in Mexico. Nevertheless, they
tried to keep these deposits to a minimum, transferring most of their
liquid assets abroad as soon as they could. Confidence in the Mexican
banking system fell quickly, and recovered very slowly. By the end of
the 1920s CIVSA continued to hold most of its liquid assets abroad.
It is difficult to carry out for other companies a similar analysis to
that undertaken for CIVSA since the information required is generally
not reported in the companies general assembly meetings. However,
it was possible to obtain information for some years, on the allocation
a Fundidora de Fierro y Acero de Monterrey
of deposits of the Compan
S.A. (Fundidora), a very important iron and steel manufacturer. Given
that the company lived a very precarious financial situation for several
123. CV, CR, letter from C. Maure, director of CIVSA to CIVSAs Comite
Consultatif 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 First
National Bank, Del Ro, Texas, 14 June 1922.
125. CV, AC, 27 March 1928.
years, and that it rarely reported its deposit allocation, it is impossible

to make a series similar to that made for CIVSA. Yet, a comparison of
Fundidoras deposits allocation in 1901 and 1919 could be made. As
table 5 shows, Fundidora followed a similar strategy on its deposits
allocation to that of CIVSA. Whereas most of its deposits were held
in Mexico in 1901, only a negligible number of them continued in
Mexico by 1919. As in the case of CIVSA, Fundidora held most of
its deposits abroad in New York City, yet Monterreys proximity with
Texas explains the numerous deposit accounts it held in Texan banks.
It is interesting to note that at least one of the border banks in which
Fundidora held deposits was owned by a Monterrey entrepreneur.
The Milmo National Bank in Laredo, Texas was owned by Patricio
Milmo & Sons., the banking house in which Fundidora held most of
its deposits in 1901.
It is reasonable to believe that all large Mexican businesses took
steps similar to those of CIVSA and Fundidora when the Mexican
banking structure collapsed. An overview of the accounting books of
a Industrial de Atlixco S.A.
another important textile firm the Compan
indicates they followed a strategy similar to that of CIVSA, changing
their deposits to foreign banks, particularly in New York, and keeping
them there at least until the end of the 1920s.126 In 1922 the Boletn
Financiero y Minero wrote Without fear of correction, we can state
that the majority of Mexican depositscash wealthare found in
the United States.127
Conclusions
During the Mexican Revolution, government polices forced the most
important banks to close their doors from 1915 to 1921, when only six
of the twenty-seven banks of issue that existed could reopen. The case
of Banco de Londres y Mexico illustrates that those banks that were
able to survive the Revolution faced diverse difficulties in the 1920s
that hindered not only the quality of their services but their very
survival. This episode serves us to explore the importance of banking
services provided to one of Mexicos major textile companies.
a Industrial
126. Archivo Historico
del Ecomuseo de Metepec. Fondo Compan
de Atlixco S.A., Atlixco, Puebla, Libro Mayor, 19001930.
127. Boletn Financiero y Minero, 12 Jan. 1922, quoted in Maurer, Power and
the Money, 169.
33
34
GOMEZ-GALVARRIATO
AND RECIO
Table 5 Fundidora Monterreys Allocation of Liquid Assets

1901
Deposits in
Mexico
In Banking
Houses
Monterrey
Mexico City
Total
In Banks
Monterrey
Mexico City
Total
Total in
Mexico
Deposits
Abroad
New York
P. Milmo & Sons

A. Basagoiti
Banco de
Monterrey
Banco Nacional
de M
exico
Banco de
Londres y
Mexico
93,482.40
23,731.75
117,214.15
1919
130.24
69.37%
130.24
0.09%
1.10%
70.47%
130.24
0.09%
437.84
906.50
518.30
1,862.64
119,076.79
Kountze Bros.
17,179.93
Brown Bros. &
7,771.99
Co.
Atlantic National
1,904.74
Bank
Anglo South
64.04
American Bank
Mercantile Bank
114,061.98
of the Americas
Dallas, Texas City National
201.50
Bank
San Antonio, Groos National
62.34
Texas
Bank
Laredo, Texas Milmo National
9,544.02
Bank
Eagle Pass,
First National
4,622.70
Texas
Bank
Border National
13,346.22
Bank
Del Ro,
First National
1,760.80
Texas
Bank del Ro
Brownsville,
First National
263.74
Texas
Bank
In Dollars
24,951.92
72,916.04
Total Abroad
49,903.84 29.53%
145,832.08 99.91%
(in pesos)
Deposits Total
168,980.63 99.98%
145,962.32 34.13%
Cash
28.06
0.02%
281,682.61 65.87%
Liquid Assets
169,008.69 100.00%
427,644.93 100.00%
Total Assets
10,118,185.00
16,165,196.00
Liquid/Total
1.67%
2.65%
Assets
Sources: Balances Generales 1901, 1919 from Compa
na Fundidora de Fierro y Acero de Monterrey
S.A., Informe que Rinde el Consejo de Administraci
on Ante la Asamblea General Ordinaria de
Accionistas, M
exico D.F., Mimeo, 1901, 1920.
The study of the serious difficulties banks and banking companies

faced as a consequence of the Mexican Revolution, and the strategies
CIVSA and other companies used to cope with them, tell on the
great importance of bank services to economic life. Business could
not go on without banks, and thus, in an almost biological way,
when the most important banks were shut down by Revolutionary
policies, other institutions emerged to offer services to the business
community, and to the government which also required them dearly.
This process of course was not cost free. The new banking system that
developed as a result of the Revolution had no institutional framework
to support it. Banks and banking houses operated under no regulation,
and there was no lender of last resort. There was no institution that
could rediscount banking credit, and therefore the system was prey
to constant frauds, falsifications, and banking panics. The public
distrusted making deposits, credit was scarce and expensive, and
much of the banking business had either disappeared as a result of
the difficult economic situation or moved to foreign banks. In general
terms, the level of banking operations was considerably lower than it
had been before the Revolution.
Large companies, such as CIVSA and Fundidora, coped with the
situation by transferring most of their deposits to banks in the United
States and using their services to make and receive their payments.
This, however, was not easily done during some of the most turbulent
years of the Revolution, requiring in the case of CIVSA the services of
Loustau & Company to physically transport documents and specie to
and from the United States.
The traumatic effects of the Revolution on financial institutions
proved to be long lasting, and had a significant negative impact
on business by limiting access to loans, forcing firms to keep
extremely high levels of liquidity, generating financial losses, and
most importantly, increasing transaction costs. If large companies
such as CIVSA and Fundidora were able to obtain the banking
services they required through banks abroad, this was a recourse
smaller companies very probably did not enjoy, facing even greater
difficulties. Most companies in Mexico had to handle their money
transactions using the services of the banking institutions operating
then in the country, taking the full risk that the precarious institutional
framework in which they operated provided. For many this implied
the loss of their deposits once these institutions went bankrupt. This
probably hurt most seriously those medium-sized companies that
required long-distance transactions, but too small to have easy access
to banking services abroad.
35
36
GOMEZ-GALVARRIATO
AND RECIO
This article also shows that an important degree of substitution

between national and foreign financial services existed in Mexico at
the beginning of the twentieth century. This substitution was not only
carried out for the provision of credit but also, and most importantly,
for the supply of commercial transaction services. However, this
substitution entailed high transaction costs and the exclusion of
several potential business participants, such as smaller companies
and those that had fewer connections to foreign financial markets.
This must have generated a more concentrated and less dynamic
business environment and probably deterred economic growth.
Finally, this article gives evidence on the importance of institutional
stability and confidence for the development of banking. Even though
the Mexican banking system was nearly rebuilt by the mid-1920s,
companies did not deposit in them but a very small part of their assets
at least until 1930.
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Enterprise and Society Advance Access published February 10, 2007

The Indispensable Service of Banks:

Revolutions have important social, political, and economic

The Author 2007. Published by Oxford University Press on behalf of the

nomics of the Centro de Investigacion

Contact Information: El Colegio de Mexico, Centro de Estudios Historicos,

Banks and the Mexican Revolution

Commercial Transactions, Industry, and Banking in Revolutionary Mexico

made important alliances with the private sector, enabling major

3. John H. Coatsworth, Growth Against Development: The Economic Impact of

(18811884), in Banca y Poder en Mexico

banca Mexicana en el contexto latinoamericano: problemas de periodizacion,

Banca y Poder en Mexico

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

The rest of the chartered banks were formed by six banks of

Directorio Oficial Bancario de Mexico

Sociedades Mineras y Mercantiles habido en la Oficina del Registro Publico

de 1886 a 1910 (Mexico City, 1911).

Commercial Transactions, Industry, and Banking in Revolutionary Mexico

companies established in Mexico were entitled to use the word

18. Maurer, Power and the Money, 139.

19. Banco de Londres y Mexico S.A., Cien anos

21. Banco de Londres y Mexico S.A., Cien anos

Commercial Transactions, Industry, and Banking in Revolutionary Mexico

By 1914 banks were coerced into making more substantial loans

Problemas Agrcolas e Industriales de Mexico

27. Manero, La Reforma bancaria, 8889.

28. Banco de Londres y Mexico, S.A., Cien anos

(Mexico City, 1945), 16263.

Commercial Transactions, Industry, and Banking in Revolutionary Mexico

33. Archivo Manuel Gomez

y Mexico to Manuel Gomez

Banks without Charter and the Mexican Revolution

on charted banks.42 As Heliodoro Duenes,

154 [our translation].

Commercial Transactions, Industry, and Banking in Revolutionary Mexico

Mexican Year Book of 192021, the most important of these banks

Paris y Mexico, Deutsche Sudamerikanische, El Descuento Espanol,

44. Mexican Yearbook Publishing Company [Robert Glass Cleland], The

gradually began to be carried with banking houses.47 For example,

Commercial Transactions, Industry, and Banking in Revolutionary Mexico

privately, depositing the money in the well known banking house of

61. See, for example, El Democrata,

Moreover, this institution had become President Alvaro Obregons

Commercial Transactions, Industry, and Banking in Revolutionary Mexico

71. Alfredo Lagunilla Inarritu,

offices waiting to withdraw their deposits. On January 3, 1921 the

72. El Universal, 4 Jan. 1921.

76. Alfredo Lagunilla Inarritu,

Commercial Transactions, Industry, and Banking in Revolutionary Mexico

CIVSA and the Role of Banks as Credit Providers

78. Ibid., 125.

(Mexico City, 1924), 910.

the public sector as treasury to the federal government and as

de un banco and Maurer, Finance and

88. See Aurora Gomez-Galvarriato,

Commercial Transactions, Industry, and Banking in Revolutionary Mexico

Sources: CV, Balance Sheets 18981930.

a Industrial Veracruzana S.A. Cd., Mendoza

Table 2 CIVSAs Debt

Sources: CV, Balances Generales 18981930.

Commercial Transactions, Industry, and Banking in Revolutionary Mexico

fluctuations in the exchange rates made foreign credit extremely risky,

92. CV, Balances Generales, 19011917.

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