Banking History

Western accountants combing through the balance sheets of East European banks are finding that the communist governments burdened many banks with loans to industries now rendered obsolete by the introduction of free markets. When the banks were freed from the central banks that controlled them, they were forced to take the bad loans with them (The Economist, 1991. p. 79). Consequently, the Baltic States, Hungary and Poland suffered through costly banking crises in the early 1990s. In the Czech Republic, 13 banks had failed by 1996 and subsequent schemes to prop up weak banks cost the Czech taxpayers at least 40 billion koruna ($1.25 billion). Bulgaria's banking system practically collapsed in 1997 as a result of fraudulent lending. And Slovakia's third-biggest bank was bailed out to the tune of almost 12 billion Slovak koruna ($348m) by the central bank in December 1997 (The Economist, 1998, p. 64). Currently, none of Slovakia's three biggest banks meets international capital requirements and nearly a third of all Czech, Slovak and Romanian bank loans are classified by regulators as possible or probable losses (The Economist, 1998, p. 64).

Banks in Europe's emerging economies can only be made safer and stronger if their governments, supervisors and managers develop a better understanding of how and why banks get into trouble (The Economist, 1997, p. S7). Unfortunately, not even banking experts can agre

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. Consequently, the bank had to maintain adequate specie (coin) reserves to do so (Bruchey, 1991, p. 77). Unfortunately, numerous banks were forced into bankruptcy because they overextended their loans and discounts and were unable to meet their notes when required. Still, conservatism was the hallmark of the earliest American commercial banks. Bruchey contends that the thinking of the time favored the establishment of a single quasi-governmental bank in each state that would operate in the public interest under private management (1991, p. 77). Many political leaders feared that too many banks or loans would hobble the government's power to collect taxes and swamp the economy in depreciated paper, a fear proved real by the current crisis in Eastern Europe. Thus, although the BUS was a large commercial bank providing loans to the private sector as well as to government, its board of directors managed the institution very conservatively. Nonetheless, the expansion of America's population and its trading habits after 1800 created a need for a comparable growth in the volume of money and credit. Furthermore, the end of the first BUS's charter in 1811 followed by the War of 1812 induced most banks throughout the country to suspend sp
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Approximate Word count = 2596
Approximate Pages = 10 (250 words per page)

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