The History of Banking Part Two

The experiment of setting up banks in the Caribbean, carried out by the principals in the city of London to take advantage of the changing economic scene, had paid off. There had been some calls, but careful and cautious handling of the Colonial Bank’s affairs by its managers had saved the day.

In post-emancipation Trinidad in the 1840s, there was great dislocation in the society. As Lord Harris, the island’s governor, remarked in a dispatch to London:

“A race has been freed, but a society has not been formed, liberty has been given to a heterogenous mass of individuals who can only comprehend license. A participation in the rights and priviledges and duties of a civilised society has been granted to them, but they are only capable of enjoying the vices.”

White planter society was also in disarray in the 1840s, as thousands of former slaves left the estates. The question of labour was becoming a terrifying issue. Compensation had been paid to them upon the freeing of the slaves by the British government. Some of the planters took their compensation and left for the French islands, where they had connection and in some cases owned property.

Those who remained had no financial resources to tide them over the violent transition period that took place after emancipation. It was felt that the local agents of the London Bank, the Colonial Bank, took care to see that they did not get it either. Most of them went bankrupt and London-promoted stock companies took over the estates. Governor Harris remarked in his report:

“The European and upper classes have been ruined by a succession of blows, which followed so rapidly one on the other that no foresight could have provided against them under the circumstances in which they are placed. Bankrupt in pocket and crushed in spirit.”

Notwithstanding these setbacks, the planters were reluctant to leave their adopted homeland. The dispossessed planters hewed their way into the interior forest of the island and by the dint of their hard work laid the foundation for a first class cocoa economy, whose real successes were to come some fifty years later.

The introduction of Indian indentured labour was regarded by those who now controlled the economy as the saving grace. Not everyone held this view, however. Lord Harris himself remarked that “the habits which they [the Indians] introduce are commonly pernicious, and morally and socially they tend to deteriorate if left at liberty.”

For the Colonial Bank, bad debts were accumulating on their books. First the bank had estimated £100,000, but as the plantation system failed and the newly imported labour from India was slow to revive it, it became obvious that a new figure, perhaps in excess of £200,000, would have to be provided for. The period 1843 to 1853 would test the management capabilities of this fledgling institution to its limits.

The real desicion came when the original charter, authorising the bank to carry on business, came due to expire in May 1856. The Court, as the Colonial Bank’s principals called themselves, decided to continue operations in the West Indies, but with a revised charter.

During the period of the late 1850s and into the 1860s, the Colonial Bank was challenged by the opening of the London & Colonial Bank. This new bank sought refuge in amalgamation with the American Exchange Bank, styling itself the International Bank. This new arrangement possessed an authorised capital of £3 million, and a paid up capital of £450,000.

The International Bank, however, had little impact on the Colonial bank. Their main concern seemed to be the legality of the bank notes of the International Bank. But with the collapse of the new bank’s chairman’s personal fortune, the Colonial Bank was by 1865 acting as the International Bank’s agents to collect outstanding receivables.

The Carpenter Report

By 1877, the Colonial Bank found it necessary to seriously review its operatives. This review was undertaken by Edward Carpenter, the younger son of WIlliam Hooker Carpenter, keeper of prints in the British Museum in London. Edward Carpenter began his career in the Barbados branch of the Colonial Bank in 1853 as assistant and secretary. Before leaving for London in 1886, to become the bank’s secretary, he produced a report of some 91 pages entitled ‘Facts and figures collected from the records of the Colonial Bank’, now called the ‘Carpenter Report’. This document records the losses and the gains made by the bank in its 40 years of business. Carpenter remarks:

“So far as my 25 years of experience go, even after the heaviest commercial disasters, the bank has always rapidly recovered; for hitherto they have been confined to one or two of our colonies at any one time, and the falling off threat has been made up elsewhere.”

Carpenter suggested that greater supervision may affect the profits even by as much as £10,000, but would reduce significant losses in the long run. He also remarked that in Trinidad a large proportion of the bank’s losses had arisen from estates’ accounts, such losses being unknown in Barbados. William Rennie, the manager in Trinidad, attributed this to the great strength of the British mercantile houses which owned or ran the Barbados estates. Carpenter did not agree. His view was that the problem was “in a great measure due to the predilection the Trinidad merchants have for becoming estate owners. The result is that when a few bad years come in succession, the profits of the business is inadequate to carry on the estates; disasters follow and the bank suffers doubly.” The Barbados investors would be supported by their London partners. At the end of the day, the French planters had no ‘home land principles’ to fall back on. The French Revolution had severed not only the heads of their relatives, but also their links to France.

The Canadian Banks

Changing social and political realities, together with economic pressures in Canada, started a process which forced the Canadian banks to look increasingly abroad. The Caribbean was a natural choice, for close to 100 years trade between these British territories had been building . Canadian firms shipped timber, fish, flour, even ice to the Caribbean ports and in return received molasses, rum, pitch, cocoa and coffe from the islands.

With the maritime provinces in recession in the 1880s, the banks looked south with a view to establishing links with their customers and trading partners.

The Bank of Nova Scotia was the first to impact in the Caribbean, opening in Kingston, Jamaica in 1889. By 1906, it had become the banker for the Jamaican government. It made a move to establish itself in Trinidad. The Colonial Bank, caught off guard in Jamaica, was however more territorial in Trinidad. The Bank of Nova Scotia closed in Port-of-Spain in 1907.

The Royal Bank of Canada, under an aggressive expansion management, established itself in Cuba in 1889. It moved to acquire the Union Bank of Halifax, which had started in Trinidad in 1902. As the result of that acquisition the Royal Bank of Canada was well established by 1910. So confident was Royal that it attempted to buy the Colonial Bank in 1911, albeit without success. Royal went on to acquire the Bank of Honduras and the Bank of British Guiana by 1914.

At that time, the Bank of Nova Scotia had 12 branches in the Caribbean; Royal had 37. The Canadian banks were successfully challenging the Colonial Bank’s way of doing business. The caution and discretion displayed by the Colonial Bank as a result of it being burned more than once, together with a hardened attitude towards its customers, had created a situation where it was pressed to keep up with changing times, in fact with the changing world order. For it to grow it had to start looking behond the Caribbean. This journey would cause a change of name.

Part 3 to follow

The History of Banking Part One

The first bank in Trinidad and Tobago

In the plantation system as it obtained in the colonies prior to the abolition of slavery, there was little need for money. Food, shelter and clothing were provided by the plantation. The existence of the plantation also meant that there was little room for the development oƒ a service or retail trade sector. Since there was no paid labour force on the plantation, there were no wages to be paid and transactions were mainly in kind.

Transactions between plantations and Europe were handled in the main by Bills of Exchange and book entries. The merchant-banker in London or Marseilles would provide ships to bring for example sugar from Trinidad, then sell the cargo in the foreign market. From the proceeds, he would pay the planter’s commitments like pensions and mortgages in Europe, buy goods for him and send it back on a ship to Trinidad. No cash was involved in the transaction at all.

The need for the creation of some type of banking institution in the British Caribbean colonies became increasingly evident following the emancipation of the slaves. Emancipation had the effect of requiring the planter to pay for many of the services which were hitherto rendered by slaves. The full economic impact of emancipation was, however, cushioned by the fact that it was accompanied by a six-year apprenticeship scheme which provided that the ex-slaves were only to be paid wages for work done in excess of 40 hours a week.

But in 1838, when Trinidad’s 20,656 apprentices (ex-slaves) were finally freed, the planters lost control of the labour force. Planters and their merchant bankers in London were aware that full emancipation, when it came, would increase the number of transactions for which they would have to pay in cash. Cash was needed to pay wages for services which had to be bought, thus the need for working capital which it was felt would best be met by the establishment of a bank.

Also, the expansion of bureaucracy and a consequent need for funds to pay the civil servants as well as for public sector projects were evident after emancipation. The former slave owners in the colonies had been given £20 million by way of compensation for the loss of their unpaid labour. All of a sudden, there was a significant increase in the money supply both in Britain and the colonies. Entrepreneurs started to realise that it would be good business to establish a bank to absorb some of this excess liquidity.

On the 1st June, 1836, the Colonial Bank was the first to be incorporated with an authorised capital of £2 million, divided into shares of £100 each. Subscriptions were sought from UK residents to the extent of £1.5 million, while the remaining half million was allocated to subscribers in the colonies in which the bank was to be established. The Colonial Bank was to be established exclusively in the British West Indies and British Guiana, but not elsewhere, not even in London! Its currency were dollars. The bank’s notes would be widely acceptable throughout the West Indies.

In Trinidad, Mr. John Shine was appointed to assume control of the Trinidad branch when it should open, but he died only 60 years of age just months before the bank was opened. The man actually appointed to be the first manager at a salary of £800 a year was Anthony Cumming, Esq., a merchant and plantation owner.

The Colonial Bank finally opened its doors on St. Vincent Wharf and King Street (now Independence Square) on May 15th, 1837, the same day as its principal (controlling) office opened in Barbados and in eleven other places in the islands and British Guiana. Four days before the official opening, Mr. C.A. Calvert, the secretary of the bank, had written to the Trinidad manager advising that seventy boxes of dollars had been shipped on board the ‘Harriet’. Each box contained from 3,000 to 5,000 coins, the total being $250,738.50. The Barbados branch received on 24th April, 1837 the first consignment of notes over $13,125,000 (£2,735,275). These notes would be the first and for many years the only examples of paper money freely to circulate in the West Indies. They were much needed to bring some order into the otherwise chaotic jumble of monetary systems in the Caribbean, where French, Spanish and American coins were used alongside British pieces.

(Pictures and lists of money)

In the early years of the Colonial Bank’s operations, the sugar cane industry was the mainstay of the economy. Quite naturally, therefore most of the bank’s transactions involved operations in that industry. In the post-emancipation era, the sugar industry came under severe pressure, and the bank’s fortunes rose and fell. One of the major problems which the industry faced was the shortage of cheap and steady labour. Freed slaves were naturally unwilling to work on the estates, preferring instead either to buy small plots of land or to squat on crown lands which were in abundant supply.

In 1846, the British government introduced the Sugar Duties Act, which called for the gradual equalisation of all duties on sugar. Thus West Indian sugar lost the advantage it had previously enjoyed over foreign sugar on the British market, having to compete with cheaper sugar from Cuba, Puerto and Brazil. The elimination of the preferential duty on sugar produced in the British colonies led to the virtual collapse of the colonial economy.

Many planters were seriously affected by the crisis. Several had borrowed heavily from merchants and from the banks to tide them over the period of difficulty. As money dried up, some planters were forced to borrow at rates which were as high as 45 percent. Many did not survive and went bankrupt, causing losses for the Bank. Also, many merchant houses collapsed.

The economic crisis led to the failure of one of the two banks then operating in the colonies: the West India Bank, which had been established in 1840, with head offices in Barbados, did not survive. The collapse of the West India Bank in December 1847, which had provided good competition for the Colonial Bank, ruined many of the newly freed slaves who had placed their faith in its viability.

To be continued!