The History Of International Banking

Published Date: 02 Nov 2017

Anquette Anderson-Osobu

FIN 3313

Syed Ahmed

International Banking

Banking has changed in many ways through the years. Banks today offer a wider

range of products and services than ever before, and deliver them faster and more

efficiently. But banking's central function remains as it has always been. Banks put a

community's surplus funds (deposits and investments) to work by lending to people to

buy homes and cars, to start and expand businesses, to put their children through

college, and for countless other purposes. Banks are vital to the health of our nation's\

economy. For tens of millions of Americans, banks are the first choice for saving,

borrowing, and investing. I will be discussing the history of banking in the United

States, Nigeria,and China.

Banks in the US: The first central bank was founded in 1791 by Alexander

Hamilton, the nation’s first Secretary of Treasury. That bank expired in 1811 and the

second bank was opened in 1816 and operated until 1832. During the operations of the

second bank, banks used dollars to procure loans and used a currency of gold and

silver. It wasn’t a great way to keep the banks in order because by 1860 there were over

10,000 dollars at any bank. Commerce began to fail because of that. There was so

much counterfeiting and many banks had to close. As a result, Congress passed the

National Currency Act in 1863. In 1864, President Lincoln signed a revision of that law,

the National Bank Act. These laws established a new system of national banks and a

new government agency headed by a Comptroller of the Currency. The Comptroller's

job was to organize and supervise the new banking system through regulations and

periodic examinations. The new system worked tremendously. National banks bought

U.S. government securities, deposited them with the Comptroller, and received national

bank dollars in return. By being lent to borrowers, the dollars gradually entered

circulation. On the rare occasion that a national bank failed, the government sold the

securities held on deposit and reimbursed the dollar holders. No owner of a national

bank dollar ever lost his or her money. Engraving was doing by private printers and

now by the U.S. Bureau of Engraving and Printing. National banks dollars were used

until 1914 when Federal Reserve dollars appeared. In 1929 there was a worldwide

depression. More than 1,000 U.S. banks failed in 1931. As a result, as soon as

President Franklin D. Roosevelt took office, on March 5, 1933, he declared a bank

holiday and closed every bank around the country until they could be examined.

Congress started federal deposit insurance in June 1933. Accounts covered up to

$2,500 and now $100,000. People were given reassurance that the banks would stay

open and not fail again. Telephone banking, debit and credit cards, and automatic teller

machines are commonplace, and electronic money and banking are evolving. The

techniques of bank examination have changed, too. Today OCC examiners use

computers and technology to help ensure that the banks they supervise understand and

control the risks of the complex new world of financial services. The OCC supervises

national banks and enforces federal banking laws. It rules on new charter and merger

applications for national banks, and conducts basic research on banking and the

economy. The tools have changed, but for the OCC, the basic mission remains the

same as in the days of Lincoln: to ensure a safe, sound, and competitive national

banking system that supports the citizens, communities, and economy of the United

States. The Federal Deposit Insurance Corporation Improvement Act was incorporated

in 1989 (FDICIA). It stated that all commercial banks that accept deposits are required

to obtain FDIC insurance and to have a primary federal regulator. The 12 Federal

Reserve Banks form a major part of the Federal Reserve System, the central banking

system of the United States. The 12 Federal Reserve banks together divide the nation

into 12 Federal Reserve Districts. The 12 banking districts were created by the Federal

Reserve Act of 1913. The twelve Federal Reserve Banks are all responsible for

implementing the monetary policy set by the Federal Open Market Committee. Each

federal reserve bank is also responsible for the regulation of the commercial banks

within its own particular district. The 12 districts are as follows:

1st District - Federal Reserve Bank of Boston with a current asset of $81 Billion.

2nd District - Federal Reserve Bank of New York with a current asset of $1.75 Trillion.

3rd District - Federal Reserve Bank of Philadelphia with a current asset of $90 Billion.

4th District - Federal Reserve Bank of Cleveland, with branches in Cincinnati, Ohio and

Pittsburgh, Pennsylvania with a current asset of $76 Billion.

5th District - Federal Reserve Bank of Richmond, with branches in Baltimore, Maryland

and Charlotte, North Carolina with a current asset of $166 Billion.

6th District - Federal Reserve Bank of Atlanta, with branches in Birmingham, Alabama;

Jacksonville, Florida; Miami, Florida; Nashville, Tennessee; and New Orleans,

Louisiana with a current asset of $206 Billion.

7th District - Federal Reserve Bank of Chicago, with a branch in Detroit, Michigan with a

current asset of $156 Billion.

8th District - Federal Reserve Bank of St. Louis, with branches in Little Rock, Arkansas;

Louisville, Kentucky; and Memphis, Tennessee with a current asset of $48 Billion.

9th District - Federal Reserve Bank of Minneapolis, with a branch in Helena, Montana

with a current asset of $29 Billion.

10th District - Federal Reserve Bank of Kansas City, with branches in Denver,

Colorado; Oklahoma City, Oklahoma; and Omaha, Nebraska with a current asset of $55

Billion.

11th District - Federal Reserve Bank of Dallas, with branches in El Paso, Texas;

Houston, Texas; and San Antonio, Texas with a current asset of $110 Billion.

12th District - Federal Reserve Bank of San Francisco, with branches in Los Angeles,

California; Portland, Oregon; Salt Lake City, Utah; and Seattle, Washington with a

current asset of $327 Billion.

The total asset of the Federal Bank Reserve is $3.09 Trillion.

Banks in Nigeria: The Nigerian banking industry is regulated by the Central Bank

of Nigeria. It is made up of deposit money banks referred to as commercial banks,

development finance institutions and other financial institutions which include; micro

finance banks, finance companies, bureau de changes, discount houses and primary

mortgage institutions. From 1892 to 1952 the Colonial Administration investigated

Nigeria’s Banking system. The G.D. Paton Report resulted from their enquiry and the

first Banking Ordinance of 1952 was created. The Ordinance was put in place to ensure

that banks were maintained in an orderly fashion and that there were no unviable

banks. The Central Bank of Nigeria(CBN) legislation was presented to the House of

Representatives in 1958 and July 1, 1959 CBN became fully operational. The Central

Bank of Nigeria is the equivalent to the Federal Reserve in the U.S.. There are many

branches within Nigeria that make up the Central Bank of Nigeria system. The Central

Bank Act of 1958 and the Banking Decree of 1969 constituted that CBN can operate

and regulate all banks. In 1991, the Banks and Other Financial Institutions Act helped

strengthen CBN power to enhance the effectiveness of monetary policy, regulation of all

banks including non-banking institutions. The CBN is also in charge of capital markets.

In 1960, the CBN introduced treasury bills and treasury certificates in 1968. The Lagos

Stock Exchange was established in 1961 and the Securities and Exchange Committee

in the 1970s. In 2010, the industry consists of 24 commercial banks, 5 discount houses,

5 development finance institutions, 50 class A bureau de change, 598 bureau de

change, 98 Primary Mortgage Institutions, 84 finance companies and 914 Micro-finance

institutions The currency currently used in Nigeria is Naira. The Naira was first used in

1959. N1 Naira is equal to $0.01 Dollars and $1 Dollar is equal to N158.00 Naira. The

CBN is held to high standards and has objects the CBN follow which are:

ensure monetary and price stability;

issue legal tender currency in Nigeria;

maintain external reserves to safeguard the international value of the legal tender currency;

promote a sound financial system in Nigeria; and

act as Banker and provide economic and financial advice to the Federal Government.

Banks in China: The first banks in China opened in the town of Pingyao in the

mid 19th century. The banks were opened by merchants who became rich and needed

somewhere to put their money. The banks made loans, offered remittances and checks,

which made the merchants wealthier, and made it necessary for banks to open

branches in other cities. At its height Pingyao had 22 banks that were instruments in the

trade of silk and tea to Russia and wool and leather from Mongolia. The currency was

silver ingots. But just as as quickly as whole system got started it collapsed. Sometimes

they would use prostitutes to loosen up potential clients. There was also an element of

paranoia. The vaults of the banks were vertical pits dug beneath raised platforms that

stored piles of silver. Sleeping mats were placed on the platforms and bank employees

sat or slept on the mats around the clock. When money was moved it was watched over

by guards trained in the martial arts and armed with halberds axes and maces. In the

Mao era, Chinese banks were much different than U.S. banks. They were government

directed institutions used primarily to distribute state subsidies and collect taxes and

revenues from state enterprises. Chinese banks were over staffed. The employees

were scared to fail fearing a political war. The managers were appointed by the

Communist. Edward Chancellor wrote in the Wall Street Journal: "In 1974, the future

Chinese premier Deng Xiaoping led a large delegation to the United Nations in New

York. Chinese officials discovered, as they prepared for the expensive trip, that the

could muster only $38,000 in foreign cash. In those days there were no banks in China

except the People's Bank of China, then a department of the Ministry of Finance. Today

China's foreign-exchange reserves are fast approaching $3 trillion, and its banks are

among the world's most valuable companies. This remarkable success story has

occurred against a background of more or less continuous worries about the stability of

China's financial system. Lately those concerns have been greater than ever."[Edward

Chancellor, Wall Street Journal, March 14, 2011]. In 1994, Beijing started three banks

that were supposed to act like banks in the U.S.. They were going to give loans based

on credit and then collect. The banks did not do good at all. They gave billions away

and were scammed out of billions. This created a bad loan crisis. One third of all the

money lent was uncollectible. In 1998, the Peoples’ Bank of China got special treasury

bond issued by the Ministry of Finance. Loan proceeds were used to recapitalize the

banks. When U.S. banks were hit by the economic crisis of 2008 and 2009, China’s

banks were not affected. The four main banks of China are the Industrial and

Commercial Bank of China, The Bank of China, China Construction Bank, and

Agricultural Bank of China. In 2010, they were a part of the top 10 largest banks

worldwide. The official currency of China is the Renminbi or Chinese Yuan. Renminbi

means peoples currency. ¥1 Chinese Yuan is equal to $0.16 Dollars. $1 Dollar is equal

to ¥6.16 Chinese Yuan.

International Banking is important to every country. Each place has their own

way of doing things. The U.S., Nigeria, and China all have very different histories of how

their banking system was started. They all grew into what we see today. They are

strong banks that have many policies that help keep them on track. They each have

their own type of currency which is exchangeable in any country. Without a well thought

out banking system our countries would be in trouble.

Citations

http://factsanddetails.com/china.php?itemid=353&catid=9#3301

http://www.cenbank.org/AboutCBN/

http://www.icr.stakescapital.com/research_int/background/nigerian_banking_industry.html

http://www.federalreserve.gov/otherfrb.htm

http://www.factmonster.com/ipka/A0801059.html