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 (see Glossary) 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