Whether 2017 or 1885, no matter what year, in whatever century, the lending policies of the government bank was always bound to be a notoriously sticky subject. Stingy lending policies hinders local business growth. Too generous lending policies runs the risk of reducing the liquidity ratio into negative figures.
During boom times, no one cares who lends what to whom, because there is more than enough money to be made. Loans easily get repaid. But, during bust times, those lull economic times in Bahamian history, things always get precarious, as we shall soon see.
The first government bank, a simple savings institution, opened its doors in 1836.
By 1885, it was broke.
When the Public Bank of the Bahamas was forced to suspend activities on March 30th., 1885, the terrible news sent shockwaves across America and Europe. After all, it wasn’t only Bahamians who had money deposited in Nassau, many foreigners did as well.
From the book, Islanders in the Stream: A History of the Bahamian People: Volume Two From the Ending of Slavery to the Twenty-First Century, by Micheal Craton and Dr. Gail Saunders published in 1998 by University of Georgia Press, we get a better understanding of what had happened:
“The first Bahamian bank was the savings bank created by an act in 1835, which open for business in 1836. It became the Public Bank of the Bahamas in 1837 once it had developed for banking functions, including loans, discounting, and the issue of currency notes, as well as the operation of deposit and current accounts. The scale of its operations can be judged, though, by the fact that the entire currency circulation in the Bahamas in 1844 was only £21,000. The weakness of the Public Bank’s loan policy and its lack of the liquidity were also evident in that when it failed in 1885 it had a cash balance of only £466, though the sum outstanding to the credit of depositors was £86,000.”
Why did the Public Bank of the Bahamas fail?
The answer to this question is simple, the Bahamas went from boom to bust, yet again.
By 1826, the entire population of the Bahamas was 16,413 people. By 1834, the plantation-based economy which flourished under slavery was seeing its end. Sharecropping and small plot farming became the norm and the market hawking system was born for the vast number of negroes on the islands.
Slavery compensation was paid to slaveowners and some decided to leave, investing what monies they had elsewhere. For those who stayed, the compensation money, didn’t last very long. By 1838, the population had grown to 21,794. Sponging became the profitable industry. Pineapples, sisal, fruit and vegetables exports took off but it only kept food on the table. It didn’t bring vast wealth across the islands.
Diseases of all sorts often hit randomly. Entire crops across the islands were affected, annual yields were destroyed. Plants and trees had to be destroyed. This ruined many farmers financially.
(The Guardian London 03 May 1848)
By 1845, the population had increased to 26,491 people. Grants Town, the negro shantytown was expanding. So was Foxhill. Successive hurricanes took their devastating toll. Hurricanes and a series of smaller storms lashed the islands, leaving devastation to vessels, businesses and homes.
(The Guardian London September 22, 1848)
To add to the misery, a cholera epidemic swept across the islands in 1851 to 1852.
(The Alabama Beacon 29 October 1952)
By the time the American Civil War began in 1860, Bahamians were so desperate for money and to get out of the hot fields, they eagerly began helping the South by running the Northern Blockage. They really could have cared less that they were helping the side that wanted to keep slavery. The islands became rich again, this was the only thing that mattered.
Money began pouring into Nassau.
Deposits came pouring into the Public Bank of the Bahamas.
The Bahamas was in a boom! Money was everywhere.
None of it would last. Just a few years after the end of the American Civil War, the Bahamas fell back into a economic and social malaise. All the fever pitch excitement of Blockade running was over. The money was over as well.
People began to borrow from the Public Bank of the Bahamas. They borrowed more and more and more. With little to no deposits coming in,as they did during the Blockade Running Years, it was only a matter of time before the bank went bust.
Borrowing to pay back depositors
The collapse of the Public Bank of the Bahamas was a severe blow to the colony in more ways than one. Now the government had to borrow money to pay back depositors. They had to borrow long term, to pay back short term deposits, knowing that the vast percentage of loans made by the Public Bank, were uncollectible. They would probably have to be written off.
By October 1885, the Bahamas Government was seeking tenders for a four and a half percent loan of £35,000 authorised by the Bahamas Loan Act of 1885. The Crown Agents for the Colonies, in Downing Street, London acted as brokers on behalf of the Government of Bahamas, placing the loan with investors in Britain.
The loan was secured on the general revenues and assets of the Government and was raised on debentures representing £100 each, bearing interest from 15th August 1885, at the rate of 4 and 1/2 percent per annum payable half yearly on the 15th February and 15th August each year.
The debentures were issued at £93.
(The Guardian London Saturday 3rd October 1885)