Wearing the worst mistake in Toronto-Dominion Bank’s 169-year history is not how Bharat Masrani expected to end his 10-year tenure as CEO. U.S. allegations that TD facilitated money laundering by criminal drug gangs in three states to the tune of US$653 million are all that Bay and Wall Streets are talking about when his bank is mentioned these days.

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Yet in the arc of TD Bank’s history, Masrani will be remembered not just for undermining the bank’s position with U.S. regulators, but also for stumbling on a larger project, one that began in the mid-1990s under Charles Baillie’s leadership. As president and later CEO, Baillie initiated an aggressive growth strategy that included large acquisitions, buying Waterhouse Securities in 1996 to complement the TD Securities business he had created some years before.

In 2000, Baillie struck a deal with Ed Clark, CEO of Canada Trust, to buy the London, Ont.-based trust company. The acquisition would see Clark installed as CEO of a larger TD Bank in 2002 to continue Baillie’s work.

What was different about the mid 1990s TD strategy that culminated in the Canada Trust merger in 2000? It cut a new path to growth for TD that it had historically avoided — using large acquisitions to supercharge expansion. It was a change that Clark and his successor, Masrani, fully embraced.

For much of its history, TD had been a master of organic growth, a lower-risk strategy that relies on a mix of operational excellence and business acumen to drive expansion. This approach typically helps preserve operational efficiencies through discipline and organizational culture. It requires the leadership of the bank to stress excellence in execution of basic banking principles.

These ideas were deeply embedded in the bank’s DNA. The Bank of Toronto was founded in 1855, and the Dominion Bank launched in 1871. Both were well-managed from the start, focused on building economic opportunities in and around Toronto and, after Confederation in 1867, Western Canada. At a time in the early history of Canadian banking when so many banks failed, neither of these banks were cause for worry in Ottawa.

In the typical quest for scale, however, most Canadian banks leaned heavily on acquisitions in their early years. Bank of Montreal, Canada’s oldest bank (founded in 1817), had absorbed seven banks by 1925; Royal Bank did one better by buying eight banks by 1925; Scotiabank had taken-over five by 1919; and the Canadian Bank of Commerce — now CIBC — was the master of mergers, having completed 14 of them by 1961.

The Dominion Bank and Bank of Toronto stood apart from this trend until 1955 when they joined forces to become the Toronto-Dominion Bank. Interestingly, the new TD Bank pursued an organic growth strategy that looked much the same as the one the banks had pursued individually prior to the merger. TD appeared for many years to be the exception to the rule in Canadian banking that acquisitions were key to successful growth.

After the purchase of Canada Trust in 2000, TD set its sights on the U.S retail banking market. In 2005, TD dropped US$3.8 billion on Banknorth, taking a majority position in the New England bank that it renamed TD Banknorth. Three years later TD acquired Commerce Bancorp, which had branches in New York, Pennsylvania, Washington, D.C., and parts of Florida. The Toronto-Dominion Bank, an Ontario-born institution initially started to support industry, farming and the development of Western Canada, had become TD Bank, “America’s Most Convenient Bank.”

Masrani’s contribution to this strategy was to have been TD’s US$13-billion deal to buy U.S.-based First Horizon Corp. Announced in February 2022, the acquisition of First Horizon would have grown the Canadian bank’s footprint across 12 states in the Southeastern U.S. while adding more than a million new business and personal clients. But U.S. regulators would have none of it, and eventually it was revealed that the lapses in anti-money-laundering controls were a big part of the problem. In May 2023, with regulatory approval nowhere in sight, the deal was terminated.

Over the course of its growth by acquisition strategy in the U.S., TD Bank lost the operational effectiveness and discipline that was the basis of its success historically. How that success came to be is not a mystery. Back in 1915 the Bank of Toronto published a 119-page book with 1,001 rules that it gave to staff explaining how to run a safe, profitable bank.

Rule 302 is as relevant today as it was then. It notes bankers must be satisfied “as to the circumstances and character of the customer before accepting the business” and that “the legal responsibility that the bank by necessity must assume … makes business with strangers risky out of all proportion to any possible profit to be derived.”

For Raymond Chun, who will become TD’s next CEO in 2025, it may be helpful to read the Bank of Toronto’s little book on how to run a sound bank. It symbolizes what cultivates success in banking. Namely, that growth can only be sustained when the basic principles of banking are understood and followed as a matter of course. Such were the building blocks of the Toronto-Dominion Bank’s good fortune for much of its history.

John Turley-Ewart is a regulatory compliance consultant and Canadian banking historian.

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