Brief history of international banking

 

Brief history of international banking

—Ancient times

• Utilization of some sort of medium of exchange as a form of conducting trade started with the past civilizations of the east and the west which evolved to become a form of money as a standard measure for transacting goods and services

—The middle ages

• —Ironically, the foundation of IB was set by medieval bankers in the middle ages. 
• —As industrialization and economic transactions expanded, so did the need for various entities to perform exchange and conversion activity. 

—European continent

• — Through this beginning, Italian merchants thrived in trading activities, and the impact of that activity had a ripple effect throughout the northern and southern European continent.

—Development of IB

• —The development of IB was dominated first by Italians, who pioneered something known today as universal banking. 
• —In other words, their banking activity went beyond just deposit taking and lending activity. 

—1700's and 1800's

• —Eventually, Dutch dominance in IB and finance faded and London emerged as the center for international credit and banking. 
• —The Bank of England evolved to become an important financial entity during the 1700's and 1800's. 

—19th and early 20th centuries

• —The evolution of IB in the United States has its roots in the late 19th and early 20th centuries. 
• —Fundamental changes in the U.S. economy were the catalyst for the expansion of the banking system in the U.S. 

—After World War II

• —After World War II, the creation of a new order in international economy, commerce and finance was inevitable. 
• —Consequently, a conference was held in Bretton Woods, New Hampshire, to establish a new, worldwide agreement on the operation of the banking system.  

—World Bank

• —The orientation of the World Bank was to provide technical assistance for economic development matters to developing nations. 
• —Coincidentally, it became so appropriate, since after World War II an enormous amount of redevelopment was needed. 
• —The efforts of the World Bank, coupled with the GATT agreement, were major catalysts for the expansion of trade and economic development. 
• GATT eventually became known as the World Trade Organization (WTO

—The expansion of IB

• —The expansion of IB and its involvement in trade and cross-border lending activity resulted in a transfer of a large sum of U.S. dollars overseas, especially to their subsidiaries, agencies, offices, branches, etc. 
• —The existence of this large sum of deposits, devoid of the reserve ratio required by the Federal Reserve, created an environment of profit taking for international banks. 

—The Eurodollar

• — The Eurodollar became a significant financial instrument, since it was not subject to the regulatory limitations of the Federal Reserve that are imposed on domestic reserves of the U.S. banking system. 

—OPEC

• — The OPEC (Organization of Petroleum Exporting Countries) oil cartel imposed an oil embargo against major industrial societies which caused a shortage of the oil supply, and consequently the price of this commodity increased. 
• —This process increased revenue for the oil producing nations and, in turn, these revenues were deposited in major U.S. and European banks.

—Globalization in financial market

• — In modern times, with globalization impacting every aspect of human life, including economics and finance,
• —major banking systems such as the Bank of Japan and the Bank of China were compelled to join the existing multinationals in shaping the evolutionary processes of IB.