The Road to a Museum

A History of English Clearing Banks

Although banking as we know it has its roots in the seventeenth century, many of its features can be traced back to ancient times.

Before the introduction of a monetary system there were many instances of transactions involving credit in primitive communities. Early Pacific civilisations used strings of beads as a means of recording debts, even before they were a means of exchange. The Chinese dynasties are full of instances of note issues recorded back as far as 14BC under the Emperor Wu-Ti, who used a form of paper money made from stag skin.

In Greece, Babylon and the Roman Empire an extensive international trade demanded banking facilities, such as the lending of money, its exchange in foreign trade and travel, and the safe keeping of deposits. The Greek system was adopted by Egypt and also influenced Rome. The break up of the Roman Empire led to a decline in banking, and, at the same time, usury laws imposed by the Church put restraints on lending.

However, banking did not cease completely as the Lombard merchants developed banking in Venice and Genoa in the 12th century.

The Middle Ages
In medieval times an English village community had no need for ‘banking’, but for the merchants in the growing towns, trading at home and abroad, a knowledge of money became essential.

Since the Christian Church forbade the lending of money for interest, Jewish immigrants to England, who were barred from ordinary trade, living frugally and no bound by the laws of the Church, filled the need for money lenders.

Jews, like many foreigners, had come to England at the time of William the Conqueror. Saxon England had required few money lenders but the Roman and Anglican kings employed Jews to supply them with ready cash in anticipation of their revenue. The Jews became the King’s ‘sponges’ and his Exchequers, collecting his revenue and lending their own money on usury. The Jews became a hated race but survived due to their protection by the King’s troops. Many became rich, like Aron of Lincoln in the reign of King Henry II.

In 1290 to appease popular feeling the King withdrew his protection from the Jews, who were subsequently treated cruelly by their Christian neighbours and driven out of England, not to return until Stuart and Hanoverian times.

Italian influences
After the Jews were banished in the thirteenth century, a vacuum was left to be filled by Italian merchants from the great trading ports of Northern Italy. Lombard Street, which is still today the heart of London’s financial quarter, takes its name from Lombardy in Italy. Their vocabulary has left us with the words cash, debtor, creditor and ledger; the cryptic letters �.S.D. have only partly been discarded by decimalisation. Perhaps the most significant is the fact that these merchants conducted their business on benches or ‘bancos’ and it is from that work that our ‘bank’ is said to be derived.

The Italian merchants arrived at a time when England was changing from a feudal community, with virtually all its wealth in land, to a commercial society in which surplus money needed to be stored and used for profit. This happened in the sixteenth century after a long and stable government under the Tudors, which saw an age of discovery and the beginnings of colonisation; a time of expansion of trade at home and abroad. Moreover, as the Reformation spread throughout Europe, King Henry VIII, at the end of his reign in 1546, repealed the usury laws. Before this the Church disallowed the lending of money with interest; now money could be lent “upon interest according to the King’s Majesty’s Statute at 10 per cent”.

This Act was carried further by his daughter, Queen Elizabeth I, and so the foundation of the modern banking system was laid.

Englishmen of business followed the example of the Italian merchants. In particular, Sir Thomas Gresham, who as a pioneer of lending and borrowing money in the country, became the greatest of the London merchants and is now looked upon as the “Father of English Banking”. He served Henry VIII; Edward VI; Mary I and Elizabeth I and founded the Royal Exchange in Cornhill, London, as a meeting place for merchants to conduct their business.

Goldsmith to Banker
In the early days the goldsmith had exchanged foreign currency, keeping some in hand to supply travellers abroad and melting down the rest in the course of their basic trade. They had also become recognisable and reliable keepers of money and values for people without their own safe custody facilities.

This function was to become more important when, in 1640, Charles I destroyed the reputation of the Royal Mint as the best place for safe custody by seizing the gold. The Royal Mint, originally known as the “Mynte” from the Latin “moneta” meaning money, stood on Tower Hill in London and was the centre for English coinage.

Even though Charles I later repaid the money the damage had been done and the confidence lay with the goldsmiths, who paid interest and gave receipts. In 1640 Oliver Cromwell borrowed money from the goldsmiths to help his army in the Civil War, and in 1663, Charles II borrowed �1,300,000 to build a sailing fleet; this he was unable to repay and the Exchequer suspended the repayment. Anxiety naturally arose about the lender policies of the goldsmiths, since, as a side line, it was becoming a risk business, and so they were to develop ‘banks’ as separate entities from their usual business.

The new men were bankers but they were still goldsmiths. Samuel Pepys gives us some examples. In 1667 Alderman Edward Blackwell changed Dutch money for him and “discoursed with him about remitting of this �6,000 to Tangier, which he promised to do by the first post.” The goldsmiths retained their previous business in dealing with plate; as Pepys “called at Alderman Blackwell’s and there changed Mr Falconer’s state cup, that he did give us this day, for a tankard, which came to �6. 10s. 0d at 5s. 7d. an ounce, and 3s. 0d. in money, and with great content thence away to my brothers.”

Goldsmith bankers, as they were known, had developed into an efficient system of private banking in London and were to develop into the famous banking firms, of which some still exist today. Coutts & Company, now affiliated to the National Westminster Bank, dates from 1692. The firm of Duncombe and Kent at the Grasshopper in Lombard Street, is now part of Barclays (formerly Martins). Barclays itself was incorporated in 1896 by the amalgamation of twenty private banks, among which was Gosling & Sharpe, descended from the famous goldsmith shop of “Ye Three Squirrels” in Lombard Street, which flourished under Major Henry Pinckney in Cromwell’s time.

The receipts given by goldsmiths for deposits have been compared to modern day cheques. However, it would seem that their similarities, as with Bills of Exchange, was their negotiable nature. Drawn notes only became known as cheques a century later.

The cheque could be compared with a drawn note, by which a depositor addressed a letter to his goldsmith authorising the payment to his creditor of the sum owed. The creditor would then take this ‘note’ to the depositor’s goldsmith and there receive the sum in cash.

The earliest known cheque – 1659

Mr Morris and Mr Clayton

Pray pay the bearer hereof Mr Delboe or order four hundred pounds I say �400 – for yours Nico Vanacher.

London the 16th February 1659.

Mr Morris pray pay until Mr Oliver Cromwell (a goldsmith in Townstreet) the sum of sixtie[sic] value received of Mr Thomas Colebrook and place to the account of – Yrs Nicholas Vanacher

Amberley December
the 13ths – 1665 –
At Flying Horse in Cornehill, London

Morris and Clayton were scriveners, bankers and estate agents in Cornhill. Scriveners do not play an important part in the development of banking since they were originally a clerical intermediary of Tudor and Jacobean times, specialising in drawing up banks (sealed undertakings to repay), and in this position they ‘dabbled’ in other business. However, scriveners suffered as a result of the Act for the Restraining of Excessive Usury in 1660, and by 1750 they had all disappeared as a result of bankruptcies.

One example of the most human of the early drawn notes is this example of a customer of Sir Francis Child from the young son of the Duke of Beaufort. Addressed to his father’s banker and dated Chelsey, 23rd September 1686:-

Pray do mee the favour to pay his bird man four guineas for a paire of parakeets that I had of him. Pray don’y let anybody either My Ld or Lady know that you did it and I will be sure my selfd to pay you honestly againe.

Arthur Somersett [sic]


Catalogue entry for early cheque

In the history of British banking the goldsmiths development of the promissory note and cheque, demand and time deposits, balance sheets and cash reserves provided the primitive but nevertheless essential elements of a modern banking system.

The Bank of England
The Bank of England was founded in 1694, primarily to raise money for the war with France. Its founders were to provide the Government with a loan of �1,200,000 and the interest was to be �100,000 per year. In exchange the bank was to have a Royal Charter and the loan was not to be repaid before 1706.

The founders intended to do no more than the kind of business goldsmiths were doing already. Like the pioneer goldsmiths the Bank of England was a bank of issue, printing their own notes and lending money of their own creation. The power granted to the Bank of England in respect of note issue drove others out of circulation until they remained the only bank of note issue. However, other English bankers found that it was possible for deposit banking to be profitable with the right of note issue.

In 1708 the Charter was renewed for further finance for the Government. The most far-reaching consequence of the Charter was the clause prohibiting note issue to any group of people exceeding six in number. This “monopoly” did not hinder the goldsmith bankers, who worked as individuals, but prevented the establishment of joint-stock banking in England for more than one hundred years. The Bank of England became the Government’s bank and also the bankers’ bank, due to the convenience of depositing their surplus balances. During the eighteenth century as private banks developed, the Bank of England continued to dominate the scene, although not knowing it would become the central bank as we know it today.

As the Industrial Revolution enlarged the scope of enterprise, there was a need for banks with more than six partners, so that larger resources could be mustered. In 1825 a severe crisis occurred when seventy-three of the country’s banks stopped payment. Scotland, with joint-stock banks avoided such a crisis. In 1826 advocates for joint-stock banking achieved a limited victory, being allowed to establish joint-stock banks outside a radius of sixty-five miles of the City of London. This was the area dominated by the Bank of England note issue.

In 1883, the Bank of England sought to have their full monopoly confirmed and failed. Joint-stock banking became permissible throughout the United Kingdom. The rest of the century saw a long struggle for survival; the private bankers with the Bank of England on their side against the new joint-stock bankers. Private bankers enjoyed a comfortable living and saw the new joint-stock banks threatening their own business, for it was these men who had fought against joint-stock banking in the Parliament of the early 1880s. In 1854, the new bankers were admitted to the Clearing House, a bankers institution in London for exchanging bills and cheques and settling balances, which was to give them greater strength.

In 1890 the Bank of England organised joint action to save the bankrupt Barings Bank. This showed the Bank of England had accepted responsibility for the financial well-being of the country and had emerged into its adult status as one of the world’s central banks. Throughout the century its importance as a pivot of the banking system had been growing, and by 1900 it had moved a long way from the earlier years of bigoted opposition to the joint-stock banks.

Country bankers
The private goldsmith bankers and the Bank of England were confined to London but, running parallel in development, in the eighteenth century a separate system of banking was developing in the provinces.

The London goldsmiths had made no attempt to expand outside London since trade was flourishing and comfortable compared to midland and northern regions, where transport and communications were virtually non-existent.

However, outside London the beginnings of the Industrial Revolution were taking place, which created the need for monetary services. Traders in the north and midlands needed capital, both fixed and working, for expansion and since in the absence of its supply by London private bankers or the Bank of England, it was left to business men to meet their own needs. The bankers of the country were industrialists, traders, and local revenue collectors; men already experienced in financial transactions.

Mr William Blow Collins, a mercer and draper of Worcester, in 1762 started issuing notes and coin at the time of a Bank of England shortage, for it was the failure of the Mint and the Bank of England to supply a means of payment that left industrialists to fulfil his role.

A great impetus for country banking came in 1797, when the Bank of England suspended cash payments; England being threatened by war. A handful of Frenchmen landed in Pembrokeshire, setting the country in panic. Shortly after this incident Parliament authorised the Bank of England and country bankers to issue notes of low denomination.

The industrialist turned banker could assist his own industry since he did not only provide a local means of payment but accepted deposits. Here we have a parallel with the early goldsmith banking.

In the iron and steel industry, Messrs Taylors and Lloyds, bankers at Dale End in Birmingham, were proper bankers in 1765, paying 2% on deposit accounts. Samuel Galton, gunsmith, formed a partnership with his son and Joseph Gibbons as a Banking House to the gun trade in Steelhouse Lane, Birmingham. Other examples occurred during the great expansion of industry and trade in the second half of the eighteenth century.

Finches of Dudley were long established as nail ironmongers and merchants and had issued tokens as early as 1648, and had entered banking in 1791.

In mining, tokens were first issued as wages, which in many cases led to full banking being undertaken. Notable examples are Miner’s Bank of Truro established in 1759, and Praeds Cornish Bank, established in 1774. In the textile industry, the famous family of Gurney established themselves as the East Anglian Gurney Company in 1775, although long before this they had been advancing money to their employees in the woollen trade and to entrepreneurs in other trades.

For the country banks to give an efficient service there was a need for direct links with London to effect payment and avoid the transporting of coin as well as the remitting of Crown revenue. London held great importance for the country bankers as a money market and an investment centre for their surplus income. All bills of exchange and bank drafts were drawn on London, so too were the “London Bill”, a form of paper credit, effecting payment between the counties and London.

Important country bankers all had their agents in London: Stephen Harris and Stephens at Reading banked with William Percival and Company in Lombard Street. The famous bankers William Deacon and Company were the London agents for Fromes Bank in Somerset.

Figures taken from Baileys British Directory showed remarkable expansion of the banking scene:-

  1. In 1784, there were 119 banks outside London
  2. In 1797, there were 230 banks outside London
  3. In 1804, there were 470 banks outside London
  4. In 1808/9, there were 800 banks outside London

In the early 1800’s Abingdon with only 4,500 people had three banks; Boston with 7,000 people had six banks and Exeter with a population of 18,000 had seven banks.

The aftermath of the Napoleonic wars at the turn of the century caused uncertainty and depression in the industry, leading to the failure of many banks and rationalisation of the system, leaving on the large and more prosperous ones in business.

Joint stock banking
Reference has already been made to joint-stock banking in the section dealing with the Bank of England. The development of this important branch of banking deserves more detailed consideration.

Joint-stock was the name given to companies which are owned by several people who each possessed a certain number of shares in the capital. Their liability for the company’s debts would be limited to that amount. That is why most of the major banks of London were established after 1826, as they were able to start with more capital.

Before Elizabethan times, the advantages of joint-stock enterprises were widely appreciated for risk undertakings. However, after the South Sea Bubble, the “Bubble” Act of 1719 was passed to the effect that the formation of joint-stock banks could only occur by Royal Charter.

Parliament resented such monopolies which were exclusively sold by the Stuarts, and therefore a subject of much debate. Unlike Scotland, whose separate legal system allowed the development joint-stock banks and industries, the Bank of England charter 1709-1825 established that private joint-stock banks would be illegal:

“For any political body or corporation whatsoever elected or to be elected other than the said Governor and Company of the Bank of England for or other persons whatsoever united or to be united in covenant or partnership, exceeding the number of six persons, in that part of the United Kingdom called England, to borrow, owe or take up any sum or sums of money on their bills or notes payable on demand, or any less time than six months from the borrowing therefore.”

Pressure was brought to bear in Parliament by the economist, Ricardo, and by Thomas Joplin, a Newcastle timber merchant with local experience of banking disasters. Joplin knew that with the increased size of financial undertakings it was desirable that greater resources were needed and risks shared. However, Parliament was full of private, metropolitan and provincial bankers who fiercely opposed any inauguration of joint-stock banking threatening their own business.

A business crisis in 1825 led to a new act in May 1826 “for the better regulation and co-partnership of certain bankers in England”, which permitted the establishment of co-partnerships with any number of shareholders and a right of note issue outside a radius of sixty-five miles from the City of London, within which the new banks were not allowed to open offices. The last section of this Act still showed the private bankers and the Bank of England attempting to retain an element of control in the London area.

The first joint-stock bank was opened in Lancaster in 1826, followed by others in Norwich, Huddersfield, Bradford, Workington and at Manchester. Stuckey’s Bank in Somerset was the first existing private bank to take advantage of the act.

The private banks were absorbed by the joint-stock banks, making larger and larger concerns. This process was to reach its culmination at the end of the first world war, when the Big Five took shape. By 1866, there were 154 joint-stock banks with 850 branches against 246 private banks with 376 branches. In 1900, 77 joint-stock banks had 3,757 branches, and there were only nineteen private banks left. Now there are five clearing banks, all of them joint-stock. The last private bank was Gunner’s of Bishop Waltham, which was absorbed by Barclays in 1953.

1854 saw the entrance of the joint-stock banks to the Clearing House which was to revolutionise the cheque. The achieve this the major banks had to take over London banks. In 1884, Lloyds Bank, previously confined to the midlands, took over two famous London banks whilst the Birmingham Banking Company entered London, by absorbing the Royal Exchange Bank.

The pattern of amalgamation continued and by 1936 had emerged as eleven banks, holding a total of over �2,000,000,000 of which the Big Five accounted for 87%. The twentieth century showed services in foreign exchange, and trustee and executor business were beginning to replace competition in price and size.

The beginnings of branch banking
Joint-stock banks began to open more branches, a system which seemed likely to provide a more stable structure and one more suited to the needs of the now advanced Industrial Revolution. However, the branches needed to be controlled from Head Office, which was to prove difficult with poor communications and lack of skilled men.

The problem was best described by Mr Robert Paul in 1826, when addressing Parliament: “that branches were accompanied with so much hazard, required such constant watching and inspection, and involved us altogether in such a degree of superintendence that, upon the whole, my general impression is that the branches are not the most advantageous part of our business.

In 1833, an Act of Parliament permitted joint-stock banks in London, and confirmed the legality of cheques drawn on them. The use of cheques made for more rapid commercial transactions. Where cheques were drawn and paid at different branches of the same bank, they could be cleared through Head Office, a system of internal debiting and crediting, which took several days. Access to the London Bankers Clearing House was still denied to joint-stock banks until 1854.

Further restrictions were imposed in September of 1844 by an Act “to Regulate The Joint-Stock Banks in England”. This applied to the establishment of new joint-stock banks, which now needed Charters, and were given a maximum term of twenty years and a minimum nominal capital of �100,000. Although the Act was unnecessarily irksome the existing banks were exempt from the restrictions and their competitive position was strengthened. As a result of the Act only three joint-stock banks were established after 1844, and even when the Act was repealed in 1857 very few joint-stock banks were attempted.

The second half of the nineteenth century was an age of British industrial and commercial supremacy, which called for an expansion of the services provided by the established banks. For example, the London and Manchester Bank had four branches in 1850, and seven by 1865.

Limited liability now enjoyed by other business companies had not yet become a recognised attribute of banking companies. The final solution was found in the Act of 1879, which provided new legislative principle of “Reserved Liability”. This was the difference between the nominal and paid-up values of shares, this being callable only in event of the company being wound-up. One result of this change was to make obligatory the annual publication of bank balance sheets. This furthered the amalgamation process by revealing the financial position of provincial banks.

In 1826, Lord Liverpool declared that “the solid and more extensive banks could not fail in time to expel the smaller and weaker” This was to become true as many of the old private and small joint-stock banks were unable to meet the demands of the growing industrial nation; since they were lacking in a branch network to bring in deposits to meet demand, and so were forced to sell out. The reason for the improvement of the branch system was the removal of legislative obstacles, the growing dominance of the cheque, the completion of the railways and the development of the telegraph.

Present day banking
Two world wars had little effect of the banking structure of the country. The amalgamations at the end of the first world war were the culmination of the long process of structural development. A massive branch banking system had grown out of the piecemeal development of the past.

In 1918 there were five large banks and six smaller survivors, which caused widespread fear that competition would be restricted if the process was carried further. However, this view changed when it was seen that five or six banks in the same High Street could operate at maximum efficiency. In 1967 the National Board for Prices and Incomes put forward the case for further amalgamation and rationalisation, and the linking of District, National Provincial and Westminster in 1968 was the first move in this direction. Since then other mergers have followed, leaving the Big Four and two smaller banks in England and Wales.

Like their predecessors of hundred years ago, today’s bankers seek to extend their business in every possible aspect, developing expertise in foreign exchange, finance of foreign trade and trustee and executor work. Within their own system a very high degree of mechanisation has occurred; all branches now having a computer linked to a vast network for time saving, greater efficiency and speed.

Diversification has occurred either directly or indirectly or through subsidiaries into new business. For example, the ownership of hire purchase companies, such as Barclays buying United Dominions Trust at the bottom market price, and building it up and selling it at the top market price, and then purchasing Mercantile Credit at the bottom of the market. Leasing and the business of raising capital for companies, a business previously associated with merchant bankers, and the acquisition of a substantial stake in the unit trust movement.

The credit card system, first introduced in 1966 from a well-established American tradition, has now been undertaken by all the major banks and may prove to be an innovation with far reaching effects. Cash dispensers, cheque cards and budget accounts are other recent services offered to aid the convenience of the customer, while the more recent Euro-cheque system enables a traveller in Europe to cash his down British cheque in the currency of the country where he is staying.

The banks are showing no signs of standing still, canvassing fresh ideas of diversification, discussing an all electronic future and, unlike their predecessors, are willing to their the public of their intentions through advertising and public relations.

The goldsmiths who set up as bankers three hundred or more years ago would recognise the essentials of today’s banking, but they would be surprised by its ramifications.

This essay has traced the development of British banking from its origins to the present day. Looking ahead it is interesting to speculate on the future changes of banking, as a service industry, to meet the requirements of society.

Further amalgamation between the four major clearing banks remains a possibility, although the establishment of a monopoly would reduce incentive to change. Probably the greatest influence for change is the suggestions of the possible nationalisation of the banking system. This, however, has to be equated with the successful background of high profit and competition, which compares favourably with other nationalised industries and services. It would be indeed ironic if the rigidity of official policy changed what is said to be the most sophisticated and efficient system of banking in the world.

Perhaps the salient point to emerge from this review is the close relationship between industry and commerce on the one hand and banking on the other; a relationship of partners rather than that of master and servant, depending as it always has done on confidence.

The position of the government in directing and controlling this relationship is complex, but if we accept that industry, commerce and the government are the forces in society producing, controlling and distributing raw materials and wealth of all types, then the banks’ function is that of a catalyst towards achieving a prosperous and balanced company.

D G H Thorpe, ACIB


    • James Daly – Your Money, Its Life – Longmans 1927
    • R M Fitzmaurice – British Banks and Banking – D Bradford Barton Ltd 1975
  • Edward Nevin and E W Davis – The London Clearing House – Elek Books 1970
  • G R Whittlesey and J Wilson – Essays in Money and Banking in Honour of R S Sayer – Clarendon Press, Oxford 1968
  • Movement of Notes and Coins; The Role of Banks; A History of Banking and the Clearing System – Bank Education Services 1971
  • Information from the Archives of Barclays Bank plc and National Westminster Bank plc


Quote of the Week:

 “There are more things to worry about than just money – how to get a hold of it, for example” Anonymous

(Reprinted from the Fluent In Foreign Business Book)

Exporting American-made goods and services has become a hot topic as the U.S. slowly rebounds from one the worst economic recessions. Timing is everything, and with a favorable exchange rate for the U.S. dollar, our exports are even more competitive in overseas markets.

Some other factors in our favor include the global economic recovery, surging demand from emerging markets, the U.S. government’s financing and advocacy resources, and the cache of the mark “MADE IN THE USA.” American service and manufacturing businesses have much to gain from an expanding export market. It is a widely held view among the U.S. economists that increased exports can lead the way to a long-term business recovery.

Global growth across emerging markets presents opportunities for American companies to serve burgeoning consumer classes. More importantly, it presents infrastructure development opportunities for U.S. manufacturers of capital equipment, as well as industrial materials and services.  Fields ranging from airport and road construction to real estate, telecommunications, aerospace, healthcare and transportation, have traditionally been strong sectors for American manufacturers seeking to compete in the global arena.

Unique opportunities exist in regions with emerging economies such as in Eastern Europe, Africa, the Middle East, South and Central America. The so-called BRIC countries — India, Brazil, Russia and China — have long been in a class by themselves as growth leaders.

Despite the emergence of low-cost Asian and South American competition and a strong European presence, American companies remain, and will continue to stay, highly competitive in a number of sectors and industries internationally. However, the obstacles are numerous, and if an American company is not prepared, it won’t succeed in exploiting these opportunities.

The Global State of Mind

Skeptics say that U.S. companies will not be able to compete with low-cost goods and services from China, Brazil, and Korea; yet Germany, which has some of the highest labor costs in the world, is an export powerhouse. Holland and Sweden also have highly paid workers, yet they succeed at exports.

Why? Business people in these countries think, eat, sleep, and literally live exports. They are also very sophisticated and proactive when it comes to direct investment into foreign markets. It’s that simple. Their domestic markets are much smaller than ours, so they must look for business beyond their borders. They dig in and learn foreign cultures. They develop relationships and design goods and services that can be adapted in various countries. They are dedicated to finding ways of doing export business and nothing is going to stop them. These companies are not all major European conglomerates either.  They include small and medium size businesses across many industry sectors.

Though untapped export and investment opportunities exist for many small and medium-sized enterprises, international trade and investments are simply not the typical mindset for American businesses, perhaps since historically we have been fortunate to have such a huge marketplace right here within our own borders. Fear and lack of knowledge on how to do business abroad also deter executives from venturing into the international business arena.

There seems to be a lack of commitment and planning as exporting and overseas investment are an afterthought to many U.S. companies, when instead it should be an integral part of those organizations’ state of mind. I’ve seen it many times: a U.S. business hires an international sales manager at the middle-management level—usually an American with extensive foreign sales experience. He or she is assigned a massive territory with a great sounding acronym such as EMEA (Europe, Middle East, Africa), often with little marketing budget or technical support. That person is sent traveling across the globe to look for qualified distributors. I often wonder why, in contrast, even small American companies have domestic sales forces to cover multiple towns, boroughs, cities, or maybe even states, but overseas it’s acceptable for these same companies to assign entire continents to be managed by a single person with limited administrative and financial resources.

What can be done to change this mindset? How can American companies open new markets abroad?

The next wave of U.S. export and foreign direct investment expansion must be built on four cornerstones that will transform the way American businesses think of exports and international business. They are:

  1. Comprehensive Education of Exporters and International Investors.   We must establish an education system where exports, foreign culture and international business are taught not as a byproduct, but as a core economic discipline at all levels.  We do not, as a nation, foster the cultivation of exporters and direct investors via intensive training or formal education, nor do we have a system of measuring and standardizing the quality of export organizations.  This must change.
  2. Enhanced Export and Foreign Direct Investment (FDI) Infrastructure.  We must refine and enhance our export and FDI infrastructure to better focus our resources on preparing and assisting promising companies to effectively sell and invest overseas. This can be done by expanding funding to appropriate agencies such as the U.S. Trade and Development Agency (USTDA), which delivers $47 in exports for every dollar it spends to fund project feasibility studies and reverse trade missions.  We also need our government resources to be leveraged with Private-Public Partnerships.  We need to involve more banks and private finance companies in funding exports and finance American investments overseas.
  3. Increased National Focus on Exports.  Exports must become a part of our national agenda, on par with healthcare, housing, real estate and education and addressed not only during bad economic times, but consistently and on a sustainable basis.  “When asked to name the top three initiatives that can improve our economy, the average American should be able to name exports as one of them. Small Business Administration reports a mere 1% of all U.S. companies are currently engaged in exporting.
  4. Build a “Securities” Market Approach to Exports and Foreign Direct Investment.  The U.S. export and direct investment industry should learn from the way the securities industry is structured, based on analysis and real-time distribution of information.  Imagine how our industry could be served if, in the wake of Japan’s nuclear crisis, one or more export and investment analysts covering the nuclear sector would highlight third country export or investment opportunities for U.S. companies because of the heightened demand from Japan.



Quote of the Week:

“You may be disappointed if you fail, but you are doomed if you don’t try” Beverly Sills

Why Go Global?

(Reprinted from the Fluent In Foreign Business Book)

Do you want it?
Do you need it?
Do you know what you’re getting yourself into?


“Why? Why am I doing this?” This is the question I asked myself as my colleagues and I walked off the sleeper train in Moscow at five thirty a.m. after logging about thirty- five hundred miles in a week in cars and on a berth of what started out as a reasonably comfortable sleeper train accommodations, which now felt more like a stiff board.

The pace was incredible: thirty-one meetings in five days, six cities, dining cars, bad hotels, miserable weather, and jet lag.  My back ached; my entire body was stiff; my stomach grumbled because of the strong coffee gulped at rushed breakfasts, and the food and spirits consumed at official dinners and train dining cars.

October 2003 – on a mission with clients to perform a USTDA funded feasibility study across nine regions of the Russian Federation. At the same time, I was working with the U.S. Commercial Service to leverage the study’s results and to have the client company meet high level regional and local government officials, as well as future clients and potential local partners for the proposed multiregional wireless telecom system project.

During the first week, our 6-person group was scheduled to visit five regions of the Russian Federation in five days. In each region we visited, we were booked to have between five and seven appointments per day.  We were also traveling on a tight government approved budget.

The problem was that each regional capital was about 300 to 500 hundred miles from the next and either no airlines flew between these cities,  or the service was so unreliable it threatened our entire schedule.   Thus our strategy was either to take an overnight sleeper train, or drive through the night from one town to the next.  In either case, we would arrive early morning, get a couple of hotel rooms to shower and change and be ready to start by 8am.

Advance logistics planning was vital.  Things, which a lot of people take for granted in the US and other developed countries, such as local car rental, early check in, hot water, business centers, convenience stores, etc. would not always be available where we were going, and if they were they may not be of the level or quality that would be necessary to accomplish our goals.

Thus we rented an eight-passenger van and I sent our company driver on an eight hundred mile trek from Moscow to Samara, the first city on our agenda, while the rest of us boarded a fairly comfortable sleeper train for an overnight journey.  We arrived at 6 am, our driver already there and waiting.

Checking into a hotel at 6:30 am in Samara was tricky, as it was problematic in almost every other city we visited.  Rooms were either not ready yet, or already gone despite my assistant having made reservations.  A stern looking lady at the check-in counter informed us that we would have to wait until 12 pm to register, something that was completely unacceptable to us under the circumstances.

After my colleague made a polite request coupled with a gentle smile, and a box of candy (we always carried half a dozen with us for such purposes), several rooms “magically” became available.   We showered, changed and embarked on a grueling journey.

We had scheduled six to seven meetings daily, each lasting an hour to an hour and a half, with no lunch, but endless tea or coffee, which we offered at each meeting as an inherent cultural gesture.  Each meeting involved from five to fifteen people and required long formal introductions, full PowerPoint presentations, and exhausting question and answer sessions.  At each meeting the challenge was to assess the audience: who was there and why.  An extra twist was added because Kazan and later Ufa were part of the Muslim regions of Russia.  Thus in addition to having to read the cultural nuances of the Russian counterparts, we had to factor in the characteristics inherent to the cultures and traditions of those regions.

At the end of each day, famished, we had dinner and then it was either back on the train or into the van for a drive down scary dark one-lane highways to the next city.

Although, by all measures, meetings were a success and our group had accomplished all of its objectives, that trip made me once again revisit the reasons why I do what I do.

The answers to this fundamentally important question can be summed up as follows:

”Because it is very interesting, challenging and at times quite profitable.”

”Because of the growth upside that foreign markets offer.”

“Because cross-border business plays to my strengths of having extensive international experience, global perspective, cross-cultural understanding and foreign language skills.  Yet, at the same time, I am able to offer my foreign clients a very valuable U.S. perspective, along with U.S. ways of doing business, an elite U.S. education, and U.S. experience.  All this provides a valuable competitive advantage, which makes me a strong candidate to succeed in international business.”

For any business in today’s world (and I am not talking about mom and pop shops here), not to expand internationally is practically a sin. Not only does such expansion provide diversification and additional revenue, it also exposes one to different methods of doing business. In addition, the U.S. business back home can benefit from increased cultural sensitivity, competitive intelligence, new opportunities and better management.

International markets vary politically, economically, and socially. Depending on the market context, non-state market actors like multinational corporations and NGOs (non-governmental organizations) offer financial, networking, information exchange, advocacy and protection resources that can help a business of almost any size create a solid framework for entering a foreign market. What’s more, many of these resources are either free or nominal in cost.

One of the obvious reasons to expand overseas is diversification.  Although we live in a global economic society and cross-border slowdowns affect us all, different countries are at different stages of their economic development. Markets that are ultra-competitive and mature in the U.S. are either still emerging, or do not yet even exist, in many countries. This disparity allows businesses to become less dependent on their country’s economic situation and affirmatively exploit their own competencies in emerging overseas markets.

Another reason, of course, is a company’s financial growth. Foreign markets offer one of the best sources for revenue and profit margin expansion. It is no secret that the emerging markets of Brazil, China, Russia, India and Africa offer enormous business potential for all kinds of businesses and industries.

A lot has been written about the BRIC economies and their enormous populations and growing purchasing power.  Today, expanding into these markets requires significant resources and a very strong competitive advantage.

The same can be said for the Western European countries and the markets of Australia and South Africa. Although numerous opportunities still exist in many existing or emerging market segments, businesses that are only now thinking of international expansion, especially those companies that are small to medium in size, would be well advised to consider beginning their international foray with smaller markets in countries such as Vietnam, Ukraine, Romania, Bulgaria, Poland, Hungary, Turkey, Kazakhstan, Georgia, Turkmenistan, Costa Rica, Panama, Chile, the Caribbean Basin and the region of Sub-Saharan Africa.  The list is long and each country may provide terrific additional revenue and profits to any U.S. company that takes the time and effort to study the markets and carefully enter them.

At this point you may be asking,  “How do I choose the right markets?”  “How many countries can my company enter at once?”  “What financial, human and administrative resources will we need?”   “What would be our return on investment if we do this?”  These and other similar questions are all absolutely normal, and the answers lie across a broad spectrum.

I have seen businesses enter foreign markets completely opportunistically, for example after meeting someone from a country at a trade show or being contacted by a foreign customer. I have also seen companies do it thorough systematic analysis and marketing research prior to their market entry. The truth lies somewhere in the middle: developing an effective market entry strategy requires information and a thorough analysis of local, regional and global market forces, yet just the right opportunity for your organization can be missed if you don’t exploit the real life chance opportunities.

Perhaps most important, you must have a high level of commitment to break into a foreign market. It will take time, persistence and serious resources. Once you decide to pursue international expansion, commit to it in your mind and introduce it into your organization’s culture. That’s when things will start to happen and overseas business opportunities will open up. The challenge will be to separate the wheat from the chaff and to eliminate unscrupulous buyers and tire kickers.  Once you identify an opportunity, make sure you thoroughly understand the proposed transaction while you manage the expectations of all involved parties.

Look in the mirror. Ask yourself whether you really want it and whether your company is ready. International expansion can be exciting, cool and profitable. But if you or your organization lacks patience, commitment, a desire to learn, and a strong value proposition, international expansion can be a most painful and costly undertaking.

As with any significant operation, you must set realistic goals. Ask yourself why you want this? What are you hoping to accomplish personally and for your organization? Quantify your objectives in terms of additional revenue and market positions, both short- and long-term. Will expansion affect your present operations? If yes, how? How will you finance the undertaking? Understand your expectations.  Are they realistic? A good rule of thumb is to triple any “realistic” timeframe you come up with. Things always take longer overseas, and in some countries they take much, much longer.

Are you ready for multiple, grueling flights, jet lag, bad hotels, unfamiliar food (sometimes amazing and sometimes inedible), and unpaved, hazardous roads? Is your company prepared to commit the human and financial resources to developing and implementing its international strategy? If you responded with a convincing “Yes” to the above questions, then pack light and enjoy the trip.

Quote of the Week:

“A Sovereign should never launch an army out of anger. a leader should never start  war out of wrath”  Sun-tzu

Barings: the collapse that erased 232 years of history

How the historic name of Britain’s merchant bank was wiped out by Nick Leeson’s rogue trading

Ewan McGregor as Nick Leeson

Ewan McGregor as Nick Leeson in the 1999 film Rogue Trader Photo: Film Stills

The dark grey office block at 6-8 Bishopsgate, in the heart of the City of London, isn’t particularly eye-catching. Its 24 storeys are dwarfed by the likes of the Gherkin, the Cheesegrater and the Shard. But few sites are as steeped in London’s financial history as the one that served as the headquarters of Barings Bank for almost 200 years.

Not many remnants of the bank, which collapsed over 20 years ago, remain at the building, now largely occupied by Deutsche Bank’s London staff. But the rapid demise of Barings reverberated around the City, dramatically changing how UK banks are supervised.

The story of Barings, which was Britain’s oldest merchant bank, is a classic example of how hubris, weak oversight, and a lack of internal checks and balances can bring a company down. In just a few weeks, the Singapore-based trader Nick Leeson racked up hundreds of millions of pounds in losses, disguised them as profits, and fled authorities.

The venerable institution fell into administration just days after management discovered the full scale of the losses, and was sold to the Dutch bank ING for just £1. In the aftermath of the collapse, the Bank of England was roundly criticised, and later stripped of certain powers to create the new Financial Services Authority, whose lack of oversight many believe amplified the effects of the 2008 financial crisis.

Now, what remains of Barings is scattered across the world. The name lives on only through its asset management arm, sold to a US life insurance group 10 years ago, while what remains of the investment bank was absorbed into ING.

Barings was founded on Christmas Day 1762 by John, Francis and Charles Baring, the sons of John Baring, a German wool trader who had arrived in Britain some 45 years earlier. It began life as a merchant house, but soon developed into financing other merchants, becoming a fully-fledged bank. It was its role in Britain’s war efforts, first against the American revolution and then Napoleon’s France, that really made its name, however.

In 1803, the bank financed the Louisiana Purchase, America’s $15m acquisition of land from France that doubled the size of the USA. Three years later it moved to the Bishopsgate office, where it remained until its collapse.

As capitalism swept across Britain, Barings moved from a merchant bank to commercial activities. In 1886, it floated the Guinness brewery, and after a Bank of England-led rescue of the bank in 1890, following Barings’ near collapse when Argentina appeared close to defaulting on its debt, its commercial arm expanded.

In 1984 Barings acquired a Japanese securities business from Henderson Crosthwaite, the stockbroker, and in 1991 a 40pc interest in US investment bank Dillon Read.

In 1992, Leeson, an ambitious young back office banker who had joined three years earlier from Morgan Stanley, was put in charge of Barings Futures Singapore (BFS). The unit’s job was simply to trade futures contracts – largely 10-year Japanese bonds and the Nikkei 225 – for clients.

Leeson was put in charge of both the trading floor and transaction settlement operations. James Bax, who ran Barings’ Asian operations, warned that “we are in danger of setting up a structure which will prove disastrous and with which we will succeed in losing either a lot of money or client goodwill or probably both”.

A year later, BFS began to trade using its own account, attempting to take advantage of the difference between futures on the Japanese and Singaporean exchanges to make a profit. Such arbitrage, referred to inside Barings as “switching”, was seen as “essentially risk-free and very profitable” by management in London, including its chairman Peter Baring, according to the Bank of England’s report into the bank’s collapse.

Leeson, however, set up a secret account, number 88888, which he used to make seismic bets on the Japanese markets.

Nick Leeson ran up losses of more than £800 million while working as a trader in Singapore on the SIMEX exchange

By the end of 1994, account 88888 had lost 33bn yen (£208m), but Barings’ London management were not aware. Leeson, as head of both front and back office, was able to disguise his losses as debts owed by Barings clients. Leeson’s bonus more than trebled in 1994 to £450,000.

Things came to a head, however, on January 17, 1995. The devastating Kobe earthquake caused $100bn in damage, or 2.5pc of Japan’s GDP, and shook its bond and stock markets. Leeson’s losses ballooned to £827m and he was no longer able to disguise them from Barings management – Peter Baring and the bank’s new chief executive Peter Norris.

On Thursday February 23, after executives began to ask questions, Leeson and his wife fled Singapore for Malaysia, from where he faxed his resignation. The next day, Peter Baring met Rupert Pennant-Rea, the deputy governor of the Bank of England, to inform him that Barings had been defrauded. The Bank’s governor, Eddie George, was recalled from his Swiss skiing holiday, and a rescue was attempted over the weekend. Ernst & Young were brought in as administrators on Sunday February 26.

Nick Leeson fled to Singapore where he later served time in prison

A week later, ING had agreed to buy Barings, and Leeson had been arrested in Frankfurt. He would serve two thirds of a six-and-a-half year sentence, and was released after been diagnosed with colon cancer, from which he has recovered. Now 47, Leeson’s City days are over, but he remains on the after-dinner speaking circuit, after several years as chief executive of Irish football club Galway United.

Peter Baring, whose resignation as chairman ended 232 years of unbroken family control of the bank, retired, but Norris staged a comeback after being banned from the City for four years. He established a corporate finance business, and went on to become chairman of Sir Richard Branson’s Virgin Group in 2009.

A report by the Bank of England’s board of banking supervision found that it “did not have an adequate understanding” of Barings. Two years later Labour made the Financial Services Authority the primary policeman of the banking sector.

Whether 2008 would have been managed better or worse had the events of February 1995 not unfolded as they did, one can only speculate. But the collapse of Barings remains a crucial chapter in Britain’s financial history.

Quote of the week:  “The best way to predict the future is to invent it.” [Alan Kay]

Wishing you a Happy and Joyous Holiday Season!!

Several new acquisitions were added to the MoMBIT’s collection this week. They include historical photos of the Panama Canal construction, couple of merchant banking financial tombstones from the 60’s, several documents from the house of Dillon, Read  & Co.dated in 1923 and original publication of the Illustrated London News dated April 10, 1915  containing obituary of Baron Rothschild and a number of fascinating photographs. Once the artifacts are cataloged, they will be available for preview viewing by appointment.


Effective today, MoMBIT is a proud Tier III member of the American Alliance of Museums ( This amazing  organization provides best practices support in the areas of museum governance, collection acquisition and management, as well a advocacy.


Our latest acquisition hunt is a Lehman Brothers’ corporate mission and values cube. A fascinating reading in the aftermath of the meltdown of one of the most storied merchant banking institutions in history. If our offer is accepted,this cube will become part of the MoMBIT’s permanent collection.


MoMBIT has applied to become a tier III member of the American Alliance of Museums ( This membership will allow MoMBIT’s Trustees and Curators to have access to best-in-class museum administration documents, collection acquisition and stewardship,as well as ethical standards and fundraising practices.


Three very small, but important steps taken last week to move MoMBIT closer to launch..

We finalized and completed our logo design. It was done by Gratsiela Ivanova, a talented Bulgarian  Graphics Designer


We also acquired our first artifact, a 1966 hardcover of Joseph Wechsberg’s book “The Merchant Bankers”. This historical narrative, provides detailed history of several of the merchant banking’s premier families, who would be featured in the museum.


MoMBit is now on twitter  – @mombit18

in the next few weeks we will be preparing a kickstarter campaign to help raise funds earmarked for the acquisition of the artifacts and development of the expositions.


November 30, 2016

Starting December 1st, we will regularly chronicle the path upon which we have embarked to develop, create and open to the public this unique undertaking called MoMBIT. It promises to be an interesting journey, one full of challenges, exciting discoveries, learning and new relationships. Join us, as we embark on this adventure.


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