Proposal preview

Globalization and national banking systems in Latin America and the Iberian world, 1850-1940

The establishment and consolidation of banking systems in Latin America and the Iberian countries came later than in the more advanced North Atlantic economies. They developed steadily during the second half of the nineteenth century, together with the advance of globalization. Various schemes for the issuing of banknotes were adopted in these regions. Some countries established a sole bank of issue, others allowed multiple banks of issue; in some countries they were state-run banks, they were private banks in others. These initial steps in banking development were accompanied by the entrance, first of British banks, and then of German and French banks, that facilitated the flow of goods and capital between their countries of origin and those of their branches, but also, in some cases, with third countries. Foreign banks played a major role in the development, not only of the banking systems, but also of the international financial and commercial exchanges that gave way to export-led economic growth. On the other hand, a reverse process of internationalization was also taking place as some Latin American banks sought access to European markets, and a particularly strong two-way relationship developed, in some cases, with Iberian countries.

These trends were not interrupted in 1914. The presence of the banks of the United States and Canada, which were already important in the Caribbean and other countries, became stronger throughout Latin America. At the same time, banks of issue began to incorporate some of the functions of central banks, in a similar way to what was taking place in the more advanced countries. This process came to fruition in the 1920s, with the increasing centralization of money issue regimes. This resulted, in various nations (mainly those of the Andean countries and Mexico), in the formal establishment of central banks, generally with the advice of international experts. In other countries, such as Argentina, Brazil, and Spain, the leading national public issuing bank assumed many of the functions of a central bank.

After 1929, there was a regression of globalization due to the financial crisis and the breakdown of multilateral mechanisms of international trade. However, global connections continued to be important through the 1930s -with a greater or lower degree in the different countries- as a result of the already acquired importance of international banks, and of the international commercial and financial exchanges. These connections, stronger or weaker depending on the country, were important to the remodeling of their banking systems during the following years, in function of what was happening in the more advanced economies. This process took place in diverse ways throughout Latin America and the Iberian countries, forging banking systems with different degrees of state control and internationalization.

In this session, we attempt to address these issues from a comparative perspective through several empirically-based studies that explore the history of specific banks and/or banking systems, in relation with the varying trends of globalization in which they were immersed. We seek to better understand the evolution of banking systems in Latin American and the Iberian countries, the way it was influenced by globalization cycles, and its relation to economic growth.

Organizer(s)

  • Andres Regalsky Universidad Nacional de Tres de Febrero regalsky@utdt.edu Argentina
  • Aurora Gómez Galvarriato El Colegio de México agalvarriato@colmex.mx Mexico
  • Pablo Martín Aceña Universidad de Alcalá pablo.martin@uah.es Spain
  • Thiago Gambi Universidade Federal de Alfenas thiago.gambi@uol.com.br Brazil

Session members

  • Roberto Cortés Conde, Academia Nacional de la Historia-Universidad de San Andres
  • Pablo Martín Aceña, Universidad de Alcalá
  • Anne Hanley, Northern Illinois University
  • Yolanda Blasco Martel, Universidad de Barcelona
  • Aurora Gómez Galvarriato, El Colegio de México
  • Carlos Brando , Universidad de los Andes
  • Andrés Regalsky, Universidad Nacional Tres de Febrero
  • Gastón Díaz Steinberg, Universidad de la República
  • Thiago Gambi, Universidade Federal de Alfenas
  • Cristian Naranjo Navas, Universidad Autónoma de Barcelona-Universidad Nacional de Chimborazo
  • Carlos Guimarães, Universidade Federal Fluminense
  • Luis Anaya Merchant, Universidad Autónoma del Estado de Morelos
  • Oscar Granados , Universidad Jorge Tadeo Lozano

Discussant(s)

  • Roberto Cortés Conde Academia Nacional de la Historia-Universidad de San Andres cortes@udesa.edu.ar
  • Pablo Martín Aceña Universidad de Alcalá pablo.martin@uah.es
  • Anne Hanley Northern Illinois University ahanley@niu.edu
  • Aurora Gómez Galvarriato El Colegio de México agalvarriato@colmex.mx
  • Andrés Regalsky Universidad Nacional Tres de Febrero regalsky@utdt.edu
  • Thiago Gambi Universidade Federal de Alfenas thiago.gambi@uol.com.br
  • Gail Triner Rutgers University gtriner@gmail.com

Papers

Panel abstract

The establishment and consolidation of banking systems in Latin America and the Iberian countries came later than in the more advanced North Atlantic economies. They developed steadily during the second half of the nineteenth century, together with the advance of globalization. They were accompanied by the entrance of European banks, and later, by the US banks, playing a major role in the developments that gave way to export-led economic growth. On the other hand, some Latin American banks sought access to European markets. After 1914, banks of issue began to incorporate some of the functions of central banks, in a process of centralization that came to fruition in the 1920s.After 1929, despite the breakdown of multilateral mechanisms of trade, global connections continued to be important, and influential to the remodeling of the banking systems. In this session, we attempt to address these issues from a comparative perspective through empirically-based studies.

1st half

The emergence of banking systems and rules. Latin American and Spanish experiences in historical perspective 1850-1870

Yolanda Blasco-Martel (University of Barcelona, España), María Guadalupe Noriega Caldera (Universidad Autónoma de Zacatecas, México)

In this paper, we analyze the institutional elements of Latin American and Spanish banking development. The economic historiography indicates that the extension of the banking in Latin America and Spain was late compared to the banking development of the rest of Europe (England, France and Germany) and EE.UU; due to the extension of the first banking institutions was until the second half of 19th century. This delay is explained because the capital leaves after independence processes, the weakness in the demand for means of payment and institutional factors. However, the evident need for credit from states and companies (Baring and Rothschild or Huth House), as well as the pioneering banking experiences in Latin America (private, such as the Bank of the United Provinces of the Rio de la Plata (1826) or promoted by the State, such as the Mexican Bank of Avio (1830), force us to rethinking about these hypotheses.

In this paper, we analyze the institutional elements of Latin American and Spanish banking development. The economic historiography indicates that the extension of the banking in Latin America and Spain was late compared to the banking development of the rest of Europe (England, France and Germany) and EE.UU; due to the extension of the first banking institutions was until the second half of 19th century. This delay is explained because the capital leaves after independence processes, the weakness in the demand for means of payment and institutional factors. However, the evident need for credit from states and companies (Baring and Rothschild or Huth House), as well as the pioneering banking experiences in Latin America (private, such as the Bank of the United Provinces of the Rio de la Plata (1826) or promoted by the State, such as the Mexican Bank of Avio (1830), force us to rethinking about these hypotheses.

The War of Paraguay and the Brazilian Banking system: the case of the new Commercial Bank of Rio de Janeiro, 1865-1870

Carlos Gabriel Guimarães (Universidade Federal Fluminense, Brasil)

The aim of this paper is to analyze the creation of Comercial Bank of Rio de Janeiro, from its authorization to operate in the city of Rio de Janeiro in 1866, until the end of the Paraguayan War in 1870. In December of 1864, the Paraguayan War broke out, in which Brazil, Argentina and Uruguay declared war against Paraguay. By virtue of the financing of the war, the Brazilian government increased its internal and external public debt, as well as increasing the issuance of currency and taxes on the provinces. What was the reason for creating a bank in a difficult economic and political conjuncture? What was the strategy developed by the bank in the face of the uncertainties of the period with the war? The answers to these will be developed in this paper.

The aim of this paper is to analyze the creation of Comercial Bank of Rio de Janeiro, from its authorization to operate in the city of Rio de Janeiro in 1866, until the end of the Paraguayan War in 1870. In December of 1864, the Paraguayan War broke out, in which Brazil, Argentina and Uruguay declared war against Paraguay. By virtue of the financing of the war, the Brazilian government increased its internal and external public debt, as well as increasing the issuance of currency and taxes on the provinces. What was the reason for creating a bank in a difficult economic and political conjuncture? What was the strategy developed by the bank in the face of the uncertainties of the period with the war? The answers to these will be developed in this paper.

Native Capital, Foreign Capital: banking and Brazil's economic development at the turn of the twentieth century

Anne Hanley (Northern Illinois University, USA)

At the turn of the twentieth century Sao Paulo was one of the most economically dynamic regions of Brazil, indeed of Latin America, thanks to its dominance of the international coffee market and the growing urbanization and industrialization that accompanied it. The economic dynamism was facilitated by the growth of formal financial institutions, characterized by an expansion in the number and size of domestic banks, underwritten by a new stock exchange, and the participation of a small number of foreign banks. By the eve of WWI, however, the profile of the bank sector had dramatically changed. By 1920, foreign banks commanded more than almost three-quarters of deposits, lent two of every three milréis, and were no longer dominated by British and German institutions. This paper examines these institutional changes to place the expansion and transformation of foreign banking in the context of Brazilian bank sector development.

At the turn of the twentieth century Sao Paulo was one of the most economically dynamic regions of Brazil, indeed of Latin America, thanks to its dominance of the international coffee market and the growing urbanization and industrialization that accompanied it. The economic dynamism was facilitated by the growth of formal financial institutions, characterized by an expansion in the number and size of domestic banks, underwritten by a new stock exchange, and the participation of a small number of foreign banks. By the eve of WWI, however, the profile of the bank sector had dramatically changed. By 1920, foreign banks commanded more than almost three-quarters of deposits, lent two of every three milréis, and were no longer dominated by British and German institutions. This paper examines these institutional changes to place the expansion and transformation of foreign banking in the context of Brazilian bank sector development.

The Uruguayan monetary and banking system, 1865-1914

Gastón Díaz Steinberg (Universidad de la República, Uruguay)

Uruguay’s first monetary law was passed in 1862. While maintaining the Gold Standard was a constant policy objective until 1914, the banking system evolved over time. The tension between a competitive free banking system and the establishment of privileged state banks was constantly present, leading to bouts of inflation, banking crises and periods of currency inconvertibility. However, from 1876 to 1914 Uruguay was able to adhere to the Gold Standard and maintained relative banking stability, with the exception of the 1890 crisis, which coincided with the Baring Crisis in neighboring Argentina that same year. This paper presents data regarding currency emissions, reserves, deposits and credit of the banking sector in order to track the performance of the Uruguayan banking system from 1865 to 1914. Changes in monetary aggregates are examined in relation the evolution of the banking system, as well as in regard to the balance of payments.

Uruguay’s first monetary law was passed in 1862. While maintaining the Gold Standard was a constant policy objective until 1914, the banking system evolved over time. The tension between a competitive free banking system and the establishment of privileged state banks was constantly present, leading to bouts of inflation, banking crises and periods of currency inconvertibility. However, from 1876 to 1914 Uruguay was able to adhere to the Gold Standard and maintained relative banking stability, with the exception of the 1890 crisis, which coincided with the Baring Crisis in neighboring Argentina that same year. This paper presents data regarding currency emissions, reserves, deposits and credit of the banking sector in order to track the performance of the Uruguayan banking system from 1865 to 1914. Changes in monetary aggregates are examined in relation the evolution of the banking system, as well as in regard to the balance of payments.

Institutions, Ideology and State-Capacity: Mexican and Foreign Banks during the First Era of Globalization: 1864-1933

Aurora Gómez Galvarriato (El Colegio de México, México)

Between the second half of the 19th century and the Great Depression banks experienced a first era of global expansion. This paper studies how this process took place in Mexico between 1864 when the first foreign bank, the London and South American Bank opened its doors in Mexico, to 1933 when foreign banks left Mexico. This paper shows that the importance of foreign banks in Mexico and the constraints placed upon them by the government, was not only the result of the ideology shared by government officials (more liberal or nationalistic), but also of the government capacity to regulate them. This is evident during the Mexican Revolution, when in spite of a more nationalistic ideology, foreign banks gain are more loosely regulated than during the previous decades, and become the major players of the banking system.

Between the second half of the 19th century and the Great Depression banks experienced a first era of global expansion. This paper studies how this process took place in Mexico between 1864 when the first foreign bank, the London and South American Bank opened its doors in Mexico, to 1933 when foreign banks left Mexico. This paper shows that the importance of foreign banks in Mexico and the constraints placed upon them by the government, was not only the result of the ideology shared by government officials (more liberal or nationalistic), but also of the government capacity to regulate them. This is evident during the Mexican Revolution, when in spite of a more nationalistic ideology, foreign banks gain are more loosely regulated than during the previous decades, and become the major players of the banking system.

Globalizing from the periphery, between the local and the European markets: the experience of internationalization of two Argentine banks, 1880-1930

Andrés Regalsky (Universidad Nacional de Tres de Febrero, Argentina), Mariano Iglesias (Banco Central de la República Argentina)

In this paper we analyze the history of two banks originated at the middle of the 1880 decade: the Banco Español del Río de la Plata and the Banco Francés del Río de la Plata. Both banks developed an interesting strategy of internationalization, infrequently seen in this period between the banks of the periphery of the world system. In this way they seek to introduce themselves into the European markets as a source of financing their Argentine business. This strategy was consolidated with a network of branches in Argentine, some of the neighboring countries and the main European financial centers, and with an alliance with some of the most important players of the international financial system. These experiences, developed after the prolonged recovery which suited the 1890 crisis, underwent a sharp contrast after the 1914 crisis, in one case, and in the other, with the 1920 one.

In this paper we analyze the history of two banks originated at the middle of the 1880 decade: the Banco Español del Río de la Plata and the Banco Francés del Río de la Plata. Both banks developed an interesting strategy of internationalization, infrequently seen in this period between the banks of the periphery of the world system. In this way they seek to introduce themselves into the European markets as a source of financing their Argentine business. This strategy was consolidated with a network of branches in Argentine, some of the neighboring countries and the main European financial centers, and with an alliance with some of the most important players of the international financial system. These experiences, developed after the prolonged recovery which suited the 1890 crisis, underwent a sharp contrast after the 1914 crisis, in one case, and in the other, with the 1920 one.

2nd half

Relay time: US Banks arrived in the Andes

Oscar M. Granados (Universidad Jorge Tadeo Lozano, Colombia)

This paper aims to understand the arrival of US banks in the Andean markets of Venezuela, Colombia, Ecuador, Peru, Chile and Bolivia during the 1920s and how the leadership of European merchant banks, as Grace, Gibbs, Fox, Balfour & Williamson, Baring, Rothschild, Schroder and the same German and British jointstock banks, was reduced in some of these countries. To achieve the goal and answer these questions, I reviewed the following primary sources: Warburg Papers (Yale), Willis Papers, Vanderlip Papers and WR Grace Collections (Columbia), JP Morgan Jr. Papers (Morgan Museum), Fetter Papers (Duke), Baker Family Papers and Lehman Brothers Records (HBS). This allowed understanding with precision the reasons of the US banks advanced in the Andes.

This paper aims to understand the arrival of US banks in the Andean markets of Venezuela, Colombia, Ecuador, Peru, Chile and Bolivia during the 1920s and how the leadership of European merchant banks, as Grace, Gibbs, Fox, Balfour & Williamson, Baring, Rothschild, Schroder and the same German and British jointstock banks, was reduced in some of these countries. To achieve the goal and answer these questions, I reviewed the following primary sources: Warburg Papers (Yale), Willis Papers, Vanderlip Papers and WR Grace Collections (Columbia), JP Morgan Jr. Papers (Morgan Museum), Fetter Papers (Duke), Baker Family Papers and Lehman Brothers Records (HBS). This allowed understanding with precision the reasons of the US banks advanced in the Andes.

The foundation of the Central Bank of Ecuador, 1926-1927: between the Kemmerer Mission and the Julian Revolution

Cristian Naranjo Navas (Univ.Nacional de Chimborazo-Ecuador, Univ. Autónoma de Barcelona, España)

On July 9th, 1925, a coup d’état overthrew the Ecuadorian government of the president Gonzalo S. Córdova. There is a less popular view of the process known as the Julian Revolution, which understands the coup d’état, and the foundation of the Central Bank of Ecuador, as the result of struggles between bankers due to controversies around currency emissions. Even though real GDP did not decrease in any year from 1913 to 1927, there was a generalized perception of a critical economy due to the constant fluctuation in prices, the increasing of fiscal deficit, and the reduction of revenues from the trade balance. This article proposes two hypotheses: first, the economic crisis was not an isolated case in Latin America, on the contrary, it was part of a regional trend; second, the economic crisis only affected the urban areas, which account for less than half of the total population.

On July 9th, 1925, a coup d’état overthrew the Ecuadorian government of the president Gonzalo S. Córdova. There is a less popular view of the process known as the Julian Revolution, which understands the coup d’état, and the foundation of the Central Bank of Ecuador, as the result of struggles between bankers due to controversies around currency emissions. Even though real GDP did not decrease in any year from 1913 to 1927, there was a generalized perception of a critical economy due to the constant fluctuation in prices, the increasing of fiscal deficit, and the reduction of revenues from the trade balance. This article proposes two hypotheses: first, the economic crisis was not an isolated case in Latin America, on the contrary, it was part of a regional trend; second, the economic crisis only affected the urban areas, which account for less than half of the total population.

The English missions and the (not) creation of a Central Bank in Brazil (1924/1931)

Thiago Fontelas Rosado Gambi (Universidade Federal de Alfenas, Brasil)

The aim of this article is to understand how the recommendation of the creation of a central bank in Brazil by Montagu and Niemeyer missions was received by the government, the Bank of Brazil and the press, in order to elucidate the reasons why Brazil resisted the wave of central bank diffusion throughout the world. We start from the hypothesis that Banco do Brasil's corporatism, the elites' interest in preserving this institution as it was, the political resistance in the legislative and nationalism are elements that would help to understand the reception of the foreign recommendations and the non creation of a central bank in Brazil in the 1920s and 1930s.

The aim of this article is to understand how the recommendation of the creation of a central bank in Brazil by Montagu and Niemeyer missions was received by the government, the Bank of Brazil and the press, in order to elucidate the reasons why Brazil resisted the wave of central bank diffusion throughout the world. We start from the hypothesis that Banco do Brasil's corporatism, the elites' interest in preserving this institution as it was, the political resistance in the legislative and nationalism are elements that would help to understand the reception of the foreign recommendations and the non creation of a central bank in Brazil in the 1920s and 1930s.

Dealing with the Great Depression: the Argentine Banking System between the Currency and Banking Principles: The transition from the Currency Board to the Central Bank (1920-1940)

Roberto Cortes Conde (Universidad de San Andrés, Argentina)

The Argentine monetary and banking experience in the 20s and 30s was quite different from other LA countries. While in the 20s the monetary reforms, with the creation of the central Banks in Colombia, Peru and Chile , were carried out to overcome the monetary anarchy caused by the existence of a multiple banks o f issue, Argentina, until the 30s, was under a currency board regime with a strict monetary rule that linked monetary issues with gold flows. That regime had suffered some several changes after 1929 and finally was replaced by a new institution with a more elastic rule with the foundation of a Central Bank in 1935, which follows successful contra cyclical policies to isolate the country from a international crisis. In spite of the new regime Argentina was not completely isolate form world events.

The Argentine monetary and banking experience in the 20s and 30s was quite different from other LA countries. While in the 20s the monetary reforms, with the creation of the central Banks in Colombia, Peru and Chile , were carried out to overcome the monetary anarchy caused by the existence of a multiple banks o f issue, Argentina, until the 30s, was under a currency board regime with a strict monetary rule that linked monetary issues with gold flows. That regime had suffered some several changes after 1929 and finally was replaced by a new institution with a more elastic rule with the foundation of a Central Bank in 1935, which follows successful contra cyclical policies to isolate the country from a international crisis. In spite of the new regime Argentina was not completely isolate form world events.

Context, challenges and competition of international and national banks in Mexico during the interwar era, 1920-1941

Luis Anaya Merchant (Universidad Autónoma Estado de Morelos, México)

During the inter-wars, the Mexican banking industry went through significant changes that modified it’s face and it’s elaboration in the emergence of a new model of the legislation of 1941. The object of this paper is to relate those changes with it’s historical context. The analysis has as fundamental objective to answer the questions: was there a banking crisis that coincided with the economic depression of the beginning of the thirties? Were the consequences of the changes? Among other distinctive features, the Mexican inter-war banking market showed. 1, Greater competition between "bank houses" and branches of foreign banks; 2, Migration, dispersion and "disappearance" of the old human capital; 3, Dissolution of the fiduciary issue as a key to the traditional banking business. 4, Reorganization of old Porfirian banks. 5, The appearance of new state regulators and state development bank.

During the inter-wars, the Mexican banking industry went through significant changes that modified it’s face and it’s elaboration in the emergence of a new model of the legislation of 1941. The object of this paper is to relate those changes with it’s historical context. The analysis has as fundamental objective to answer the questions: was there a banking crisis that coincided with the economic depression of the beginning of the thirties? Were the consequences of the changes? Among other distinctive features, the Mexican inter-war banking market showed. 1, Greater competition between "bank houses" and branches of foreign banks; 2, Migration, dispersion and "disappearance" of the old human capital; 3, Dissolution of the fiduciary issue as a key to the traditional banking business. 4, Reorganization of old Porfirian banks. 5, The appearance of new state regulators and state development bank.

The Origins of State Banking in Colombia: The Agrarian, Industrial & Mining Bank, 1929-40

Carlos Andrés Brando (Universidad Jorge Tadeo Lozano, Colombia)

In the aftermath of the 1929 Crisis the structure of Colombia´s banking system underwent significant changes: the rise of public banking. Historically dominated by private domestic banks, and since the early twentieth century with growing presence of foreign financial institutions, the country saw the emergence of a publicly-created bank: the Caja Colombiana de Crédito Agrario, Industrial & Minero. During the next half a century La Caja became a national record breaker: the biggest of all Colombian banks, the organisation with the largest number of employees, the prime lender to the countryside, and thanks to the hundreds of branches and agencies located throughout the territory, the only state agency with truly national-level presence. How and why did this occur remains unanswered. As subjects of research, both La Caja in particular, and the origins of public financial organisations in general, have been understudied. This paper addresses these issues.

In the aftermath of the 1929 Crisis the structure of Colombia´s banking system underwent significant changes: the rise of public banking. Historically dominated by private domestic banks, and since the early twentieth century with growing presence of foreign financial institutions, the country saw the emergence of a publicly-created bank: the Caja Colombiana de Crédito Agrario, Industrial & Minero. During the next half a century La Caja became a national record breaker: the biggest of all Colombian banks, the organisation with the largest number of employees, the prime lender to the countryside, and thanks to the hundreds of branches and agencies located throughout the territory, the only state agency with truly national-level presence. How and why did this occur remains unanswered. As subjects of research, both La Caja in particular, and the origins of public financial organisations in general, have been understudied. This paper addresses these issues.

Exploring the roots of internationalisation: the compared trajectories for two big Spanish banks, BBVA and Santander

Pablo Martín Aceña (Universidad de Alcalá, España), María A. Pons y Joaquim Cuevas (Universidad de Valencia, España)

Alongside XXth century BBVA and Banco Santander have experienced a huge transformation to being two of the largest banks of the world. The literature about Spanish banking internationalization has concentrated in two main questions: a) why did Spanish banks internationalize? and b) how have these banks exhibited different internationalization patterns? However, there is not much literature that investigates the relationship between the BBVA and Banco Santander internationalizatio and banking performance. Although there are some cross-country studies that focused on different aspects of banking internationalisation, case studies could be very helpful to get more insights into the general results obtained by cross-country studies. The aim of this paper is, therefore, to examine the results of banking internationalization on banking performance using the case studies of the BBVA and Banco Santander.

Alongside XXth century BBVA and Banco Santander have experienced a huge transformation to being two of the largest banks of the world. The literature about Spanish banking internationalization has concentrated in two main questions: a) why did Spanish banks internationalize? and b) how have these banks exhibited different internationalization patterns? However, there is not much literature that investigates the relationship between the BBVA and Banco Santander internationalizatio and banking performance. Although there are some cross-country studies that focused on different aspects of banking internationalisation, case studies could be very helpful to get more insights into the general results obtained by cross-country studies. The aim of this paper is, therefore, to examine the results of banking internationalization on banking performance using the case studies of the BBVA and Banco Santander.