Imperial Bank of Persia

From Wikipedia, the free encyclopedia
Jump to: navigation, search
Imperial Bank of Persia, Teheran, 1902

The Imperial Bank of Persia (Persian: بانک شاهی ایران‎) was a British[1] bank that operated as the state bank and bank of issue in Iran (generally known as Persia until the 1930s) between 1889 and 1929.[2] It was established in 1885 with a concession from the Persian government to Baron Julius De Reuter (born Israel Beer Josaphat) a German-Jewish banker and businessman who later became a British subject.

Imperial Bank of Persia (at right), Teheran, 1910

The bank was the first modern bank in Iran and introduced European banking ideas to a country in which they were previously unknown.[3] The legal centre of the bank was in London and whilst it was subject to British law, its activities were based in Tehran. It also had operations in other Middle Eastern countries. It was later named British Bank of the Middle East (BBME) and is now called HSBC Bank Middle East Limited. After the Iranian Revolution of 1979, all the Iranian activities of this bank were transferred to Bank Tejarat.

Background and history[edit]

Nineteenth-century Iran has been described as "one of the most backward countries in the world."[2] The traditional money lenders in Iran were the Jewish sarrafs, who continued to dominate the field after the Imperial Bank's arrival due to greater loan flexibility and cultural ties.[3] At the time the only form of money in circulation were gold and silver coins.

Reuter was granted Reuter concession in 1872 which granted him exclusive rights over virtually all the resources in the land of Persia. It also gave him monopoly over banking for sixty years. The concession was hidden from the British government till the last minute, and alarmed both British and Russian governments upon its revealing. The concession was resented by the local population, which protested that the Shah has granted all the resources of the land to a Jew and by Russians who saw the British competing with their interest in Persia. Due to mounting pressure, the Shah subsequently cancelled the concession in 1873, citing the fact that Reuter failed to initiate the railway project within 15 months.

Reuter was not to go down without a fight. However it was not until 1889 that he was able to get exclusive banking and mining rights for sixty years. Although this new concession was not as immense as the first one, it still granted him valuable control over Persian banking and mining with the energetic support of Jewish-British minister, Henry Drummond Wolff. [4]

The Imperial Bank of Persia was finally established in 1889 on the basis of the 1872 concession to Baron Julius De Reuter from the Persian government (Reuter concession) which made it the state bank, with the exclusive right to issue notes and tax free status for sixty years.[3] The Imperial Bank was publicly floated in London.[3]

Between 1889 and 1928, the bank operated as the state bank and bank of issue of Iran, and held a virtual monopoly on banking in the country.[3] Sir William Keswick was the bank's chairman.[5] The bank was principally funded by Glyn, Mills & Co., J. Henry Schröder & Co. and David Sassoon & Co..[6] Despite holding a monopoly, the bank's management was farcical, according to Geoffrey Jones, and the bank struggled to make a profit.[3] However, Jones also notes that British banks in this period were allowed to disguise their profits by making transfers to or from "inner" or "secret" reserves before reaching their published profits figure. The Imperial bank's real profits were on average twice as high as the published profits between 1890 and 1952. [7] The bank contributed to the Iranian economy by mobilizing domestic savings, but many were doubtful of the real use of these savings as the Bank was often "discriminated against Persians in giving credit".[8] In 1927, 80% of the loans granted in Bushehr, Shiraz and Esfahan were to finance Iranian export of Opium, whereas most of the loans in the northern cities related to the trade with Russia. Like all overseas British banks until the 1950's, the imperial bank never employed locals as managers. In contrast, the Imperial Ottoman Bank, which was mixed British, French and Turkish ownership employed middle eastern nationals in managerial positions. The bank's first owner, Joseph Rabino, born in London to an Italian Jewish family, was always regarded with great suspicion by his board.[citation needed] He served Eighteen years in Persian and was instrumental in building up the Bank's reputation. At the time, Persians were vary of giving up silver and gold coins for paper notes. He ordered all branches to keep enough silver coins to be able to redeem paper notes for silver on demand. However bank runs did occur in the early years of the Bank and these runs were sometimes instigated by the Russians who were British rival in Persia. The bank only issued small notes in the early years to be able to redeem the notes for silver even in the remote areas. With the protection of Persian soldiers, the bank supplied even remote branches with enough silver coins. [9]

The bank's high level contact in Tehran was general Albert Houtum-Schindler who was, like Reuter, a British subject of German origin. Schindler lived in Persia for many years and was the most informed member of the European community in Persia at the time. Henry Drummond Wolff liked him so much that he tried unsuccessfully to persuade the foreign office to engage him as a member of Legation staff. Reuter employed him instead.Schindler and Rabino were instrumental in increasing the Bank's reputation.

The bank was instrumental in providing British loans to the Shah between 1892 and 1911. These loans were secured using Caspian fisheries and the custom dues of the Persian Golf ports and raised the alarm of the Persian nationalists. [10] By 1928 the bank had 24 branches in all major Iranian cities.[5]

Between 1928 and 1952, the Imperial Bank was subject to criticism and attack from the nationalistic Iranian governments.[3] Bank Melli, an Iranian-controlled central bank, was established in 1928.[3] In 1933, Imperial Bank was forced to relinquish its note-issuing powers.[3] In the 1930s exchange controls and barter agreements destroyed the Imperial Bank's business in financing foreign trade.[3] Imperial Bank began to rapidly lose market share to Bank Melli, and by 1939 the Imperial Bank held just 9 percent of Iranian bank deposits.[3] The bank sold off half of its branches in the 1930s.[3]

In the late 1940s the bank opened branches in the Gulf States, and was the first bank in Kuwait, Dubai and Oman.[3] In 1952 the bank abandoned the Iranian market and renamed itself the British Bank of the Middle East.[3] In 1959 the British Bank of the Middle East was acquired by Hongkong Bank in a friendly takeover, and now forms part of its HSBC Bank Middle East subsidiary.[11]

Assessment[edit]

According to Jones, "the Bank was widely seen as an agent of British imperialism, and with reason".[12] Jones argues that during the two World Wars and in the early 1920s, the bank placed British diplomatic interests before those of Iran.[12]

See also[edit]

External links[edit]

References[edit]

  1. ^ State Bank or Agent of Empire? The Imperial Bank of Persia's Loan Policy 1920-23 Frances Bostock Iran , Vol. 27, (1989) , pp. 103-113 Published by: British Institute of Persian Studies Article Stable URL: http://www.jstor.org/stable/4299822
  2. ^ a b Geoffrey Jones (2013). Entrepreneurship and Multinationals. Edward Elgar Publishing. p. 111. ISBN 978-1-78254-818-8. 
  3. ^ a b c d e f g h i j k l m n http://www.thebhc.org/publications/BEHprint/v016/p0069-p0082.pdf
  4. ^ The English Amongst the Persians: Imperial Lives in Nineteenth-Century Iran, Denis Wright, pp 103.
  5. ^ a b Geoffrey Jones (2013). Entrepreneurship and Multinationals. Edward Elgar Publishing. p. 112. ISBN 978-1-78254-818-8. 
  6. ^ Kienholz, M. (2008). Opium Traders and Their Worlds-Volume Two: A Revisionist Exposé of the World's Greatest Opium Traders. iUniverse. p. 27. ISBN 978-0-595-61326-7. 
  7. ^ B. V. Anan'ich, Rossikoe Samoderzhavi i Vyvoz Kapitalov (Leningrad: 1975).
  8. ^ The Imperial Bank of Iran and Iranian Economic Development, 1890-1952, Geoffrey Jones, page 75.
  9. ^ The English Amongst the Persians: Imperial Lives in Nineteenth-Century Iran, Denis Wright, pp 105.
  10. ^ The English Amongst the Persians: Imperial Lives in Nineteenth-Century Iran, Denis Wright, pp 106.
  11. ^ Project MUSE - Alfred Chandler and the Importance of Organization
  12. ^ a b Geoffrey Jones (2013). Entrepreneurship and Multinationals. Edward Elgar Publishing. p. 119. ISBN 978-1-78254-818-8.