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    Karen E. Maidment, FCA

Senior Executive Vice President

& Chief Financial Officer

    BMO Financial Group

1 First Canadian Place

100 King Street West, 18th Floor

Toronto, ON M5X 1A1

Tel:
(416) 867-6776

Fax: (416) 867-4137

karen.maidment@bmo.com

October 31, 2005

Don Walker

Senior Assistant Chief Accountant

United States

Securities and Exchange Commission

Washington D.C. 20549

Mail Stop 4561

    RE:

    Bank of Montreal

Form 40-F for the Fiscal Year Ended October 31, 2004

Filed December 15, 2004

File No. 1-13354

Dear Mr. Walker:

Thank you for your letter of September 20, 2005 requesting additional information. We apologize
for the delay in responding. As previously advised we did not receive your letter until October 19, 2005. We are pleased to provide the following responses to your questions.

    1.

    Refer to prior comment 2 from our letter dated August 24, 2005. Please describe for us your
methodologies for calculating your credit risk, valuation, liquidity risk and closeout and
administrative costs fair value reserves.

    Exchange traded derivatives are recorded at exchange prices. For over the counter derivatives
where specific market prices are not available we estimate fair value using models which
incorporate market based information. In these cases, Valuation Product Control (VPC), a group
independent of the trading lines of business, identifies situations where adjustments must be
made to the model estimates to arrive at fair value.

    Methodologies for calculating the reserves are established by VPC and must be approved by the
Vice-Chair of the line of business and the Executive Vice President and Senior Market Risk
Officer. Material changes to the methodologies must also be approved in this manner.
Methodologies are reviewed at least annually to ensure that they remain appropriate. VPC
calculates the reserves on a monthly basis.

    A more detailed discussion of the different types of reserves follows.

    Credit risk reserve

    Our derivative valuation applications apply general market inputs. As a result, the values
estimated using these inputs do not recognize the effects that different counterparty credit
ratings have on the fair value of our derivatives. We use a consistent methodology to
calculate the credit valuation adjustment at each period end. A reserve amount is calculated
by counterparty based on the following factors:

    •

    The credit rating of the counterparty,

    •

    Current credit spreads, and

    •

    The terms and exposure to the counterparty.

    As a result, the credit risk reserve adjusts the value determined through our derivative
applications to our best estimate of our derivatives’ fair value, taking into account
counterparty credit risk.

    Valuation reserve

    For over the counter derivatives where specific market prices are not available, we use
models to estimate fair value. Valuation reserves are calculated as part of this process for
instruments where there are limitations, such as skew and different repricing intervals, in
our model’s ability to estimate fair value in all circumstances.

    As an example, interest rate swaps are valued using the standard three-month index. A
valuation adjustment is applied to non-standard swaps (e.g., with rates that reset monthly or
every six months) using quoted market basis spreads.

    Our methodology for estimating valuation reserves involves identifying any limitations with
our existing models and calculating an appropriate adjustment, depending on the nature of the
limitation. We use observable market data in this process wherever possible. In those
uncommon situations where there is a lack of market data, we use our judgement in order to
arrive at our best estimate, taking into account the nature of the product and any available
historical data and current transactions.

    Liquidity risk reserve

    A liquidity reserve represents our estimate of the additional costs that are not fully
reflected in the close out reserve and that would be incurred to close out positions. The
need for a liquidity risk reserve is evaluated where factors such as the size or terms of an
instrument or lack of market data indicate that the instrument is unusual and therefore less
liquid. Liquidity reserves are calculated on a case-by-case basis using techniques
appropriate to the particular liquidity concerns and incorporating observable market data
wherever possible. In those uncommon situations where there is a lack of market data, we use
our judgement in order to arrive at our best estimate, taking into account the nature of the
product and any available historical data and current transactions.

    Close out reserve

    Typically derivative instruments are initially valued at mid-market levels (i.e., at the
price between the bid and asked price). The close out reserve is calculated related to net
open positions in a portfolio. The close out reserve is determined based on the difference
between bid and asked prices on an open position. The impact of the close out reserve is to
adjust net open positions to the appropriate point within the bid-asked spread.

    We believe our use of close out reserves to adjust the price to a point within the bid-asked
spread at which market place participants would currently transact is consistent with the
guidance in the FASB October 21, 2005 working draft of the Statement on “Fair Value
Measurements”.

    Administrative cost reserve

    The administrative cost reserve is a projection of the future servicing costs to administer
the current portfolio of derivatives. The reserve is computed as the present value of the
estimated annual administrative costs over the average term of the portfolio.

    2.

    Refer to prior comment 2 from our letter dated August 24, 2005. Please separately quantify
for us your credit risk, valuation, liquidity risk and closeout and administrative costs fair
value reserves for each of the past three fiscal year ends and analyze any significant
increases or decreases.

    The table below sets out the amount of each of our reserves and the fair value of our trading
derivatives as at October 31 for the years indicated. (All amounts are in millions of Canadian
dollars.)

    Reserve Summary Totals

    2004

    2003

    2002

    Credit Risk

    (39.1
    )

    (20.8
    )

    (15.2
    )

    Valuation

    (4.6
    )

    (8.4
    )

    (3.4
    )

    Liquidity Risk

    (11.4
    )

    (12.7
    )

    (8.6
    )

    Closeout

    (5.2
    )

    (4.7
    )

    (6.4
    )

    Administrative Cost

    (17.4
    )

    (19.1
    )

    (19.8
    )

    Total Reserves

    (77.7
    )

    (65.7
    )

    (53.4
    )

    Fair Value of Trading
Derivatives

    Assets

    24,914

    20,878

    21,932

    Liabilities

    (23,741
    )

    (20,375
    )

    (21,927
    )

    Significant changes are explained as follows:

    •

    Credit risk reserve: The main reason for the increase between 2002 and 2003 is that we
changed our methodology in 2003 to better incorporate the impact of changes in credit
spreads. The impact of credit spread changes was not reflected in the methodology prior to
2003. The increase from 2003 to 2004 was due to increased credit spreads, increased
exposures by counterparty and increases in commodity contracts and credit derivatives.

    •

    Valuation adjustments: The increase in this reserve from 2002 to 2003 relates to our
commodities and foreign exchange portfolios. In both cases, valuation adjustments were
necessary to account for skew valuation due to limitations in our models to price deep in
the money and out of the money options. Between 2002 and 2003, our natural gas option
positions in our commodities portfolio and our Japanese Yen option positions in our foreign
exchange portfolio increased. In 2004, the Japanese Yen option positions decreased,
explaining the reduction in the reserve between 2003 and 2004.

    •

    Liquidity risk reserve: The main reason for the increase between 2002 and 2003 is that
we implemented reserves for stock warrants for the first time. There was also an increase
in equity derivatives maturing in more than 3 years. These longer dated instruments tend to
be less liquid, giving rise to the need for larger liquidity reserves.

    3.

    Please tell us how you account for any unrealized “day one” gains or losses. If you
initially defer or reserve “Day One” gains or losses, tell us how you subsequently account for
the amount deferred.

    We record all trading derivatives at market on a daily basis. However, since we do not enter
into off-market trades, we do not have “day one” gains or losses that relate to “dealer profit”,
as described in EITF 02-03 “Issues Involved in Accounting for Derivative Contracts Held for
Trading Purposes”.

Should you have any further questions, please contact Cally Hunt, Vice President and Chief
Accountant at (416) 643-1727, or me at (416) 867-6776.

Sincerely,

/s/ Karen Maidment

Karen Maidment

Senior Executive Vice President

& Chief Financial Officer

BMO Financial Group