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The Bahamas: Banking and Finance
Country Study > Chapter 4 > Economy > Banking and Finance

BANKING AND FINANCE


The second most important Bahamian economic activity in the late 1980s was banking and finance. The nation's proximity to Miami and its location in the same time zone as New York City enhanced these activities. A large number of trust and finance companies and investment firms were established in the 1950s, following the imposition of restrictive finance laws in many industrialized countries. Enactment of regulations in the Bahamas in 1965, however, provided for the licensing and supervision of the banking industry, cutting back drastically the number of financial institutions. Steady growth took place after 1967, the only setback occurring in the mid-1970s following the formation of the Central Bank of the Bahamas. The new Central Bank increased its monitoring of the industry.

By the end of 1985, there were 374 banking and trust institutions registered in the Bahamas. Of these, 270 were permitted to deal with the public; 96 were restricted to dealing with or on behalf of certain people or companies; and 8 held nonactive licenses. Of these 270 public financial institutions, 134 were Eurocurrency branches of banks in Western Europe, Hong Kong, the United States, or South America; 84 were subsidiaries of finance institutions based outside the Bahamas; 33 were Bahamas-based banks or trust companies; 10 were officially designated to deal in gold and in Bahamian and foreign currencies; and only 9 were trust companies designated to act as custodians and dealers in foreign securities.

The proliferation of financial institutions encouraged the development of ancillary services such as accounting, computing, and law. It also required the installation of an advanced telecommunications system, a development that benefited other economic sectors as well.

Several factors combined to make the Bahamas a significant center of finance in the late 1980s. First, the country had taxhaven status: no taxes on income, profits, capital gains, or inheritance. Second, the Bahamas offered liberal legal provisions for the registration and licensing of financial institutions and bank secrecy laws. Third, the Bahamas benefited from its stable political climate. Finally, it offered investors the convenience of geographic proximity to the United States. In January 1985, the financial sector was strengthened by the adoption of a code of conduct that gave the Central Bank a more supervisory role over the banking system. The main purpose of the code was to prevent money laundering. Large cash transactions were prohibited, unless they were made by well-established customers. Lawyers and accountants could no longer sign over accounts of offshore customers without approval of the Central Bank.

Following the example of the banking and finance sector, other offshore activities also gained importance in the mid-1980s. Although liberal legislation for ship registration was passed in 1976, the Bahamas did not attract a major shipping industry until the 1980s. By December 1985, a total of 370 ships were registered, representing 5 million gross tons; in 1987 the Bahamas was the third largest flag-of-convenience nation behind Liberia and Panama. An even younger Bahamian industry was offshore insurance and reinsurance. Legislation was passed in 1983 to remove all taxes on premiums and restrictions on investments for this activity.

Data as of November 1987




Last Updated: November 1987


Editor's Note: Country Studies included here were published between 1988 and 1998. The Country study for The Bahamas was first published in 1987. Where available, the data has been updated through 2008. The date at the bottom of each section will indicate the time period of the data. Information on some countries may no longer be up to date. See the "Research Completed" date at the beginning of each study on the Title Page or the "Data as of" date at the end of each section of text. This information is included due to its comprehensiveness and for historical purposes.

Note that current information from the CIA World Factbook, U.S. Department of State Background Notes, Australia's Department of Foreign Affairs and Trade Country Briefs, the UK's Foreign and Commonwealth Office's Country Profiles, and the World Bank can be found on Factba.se.

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