How were the first Ottoman banks founded?
To cover for expenses made above their budget, the Ottoman government would collect farming taxes or take a loan from tax-farmers. They did not view taking a foreign loan positively. They only began to take loans from foreign sources from the 19th century when inside sources were proving to be insufficient. The first loan that was borrowed was the so called “Galata exchange” and was done so from Venedik and other European money lenders, of Latin origin, who resided in Galata (they were also called “Levantine”).
However, the government was increasingly exceeding its budget along with which there was an increase in trade relations with foreign countries, which meant the Galata bankers were not enough and for this reason works were to begin to found the first bank. The first attempt to build a bank was in the year 1836 in England, followed by the French and the Swiss. However, they could not obtain permission to do so.
Istanbul Bank (“Bank-i Dersaadet”)
The absence of well co-ordinated money politics, banks and other similar establishments, meant that the economy faced difficulties. In order to stabilise the economy, including keeping the price of the gold lira and money exchange parity constant, as well as preventing the devaluation of paper money, the money reforms were put into place in 1844. In order to act on these reforms however, a move towards a modern banking system commenced from 1856 onwards.
With these aims in mind, the first bank during the Ottoman government was founded in 1847 and was called “Istanbul Bank” (Bank-, Dersaadet” or, in French “Banque de a Constantinople”). So it was the first time during the Ottoman reign that a bank that would be in charge of organising foreign payments was founded.
Another attempt by the Ottoman government to build a bank was made after experiencing losses from the Crimea war in 1853-1856. The Ottoman government was forced to take its first loan from foreign lenders during this war. The Ottoman government was forced to take £5 million on 4th August 1854, £3.3 million on 24th August 1854 and £5.5 million the following year on 27th June 1855. This situation brought with it the founding of a government bank which had the privileges of taking care of credits, loans and enterprises.
The Ottoman Bank
In the year 1856, during the time of the English diplomat Layard, the Ottoman Bank was founded. It had share worth £500,000 and was made up of 25 hundred shares each worth £20 and had a centre in London. Ten days after the opening of The Ottoman Bank at its office in London, it opened its doors to the people of Istanbul on 13th June 1856.
However, the Ottoman Bank could not achieve the expected success. From the year 1860 and onward, new works had begun to build a new government bank. The Ottoman Bank’s partners, Galata bankers and many foreign investors brought many national bank projects to the Ottoman government. While the government wanted a shared management of the bank between itself and the shareholders, those who wanted to build the bank wanted the control to be in the hands of their own founders.
The Imperial Ottoman Bank (“Bank-i Shahane-i Osmani”)
After these developments, the shareholders of The Ottoman Bank and French investors signed a contract in Paris, 1862. This was a big step toward building the distinct government bank which they had been trying to build since 1856. After 7 years of service, The Ottoman Bank was closed down in 1863 and with the cooperation of the Ottoman government, reopened as a new and improved bank, The Imperial Ottoman Bank (“Bank-i Shahane-i Osmani”). Sultan Abdulaziz signed the foundation contract without delay and with that, the bank was officially founded.
A few interesting clauses made in the bank’s improvement contract are as follows:
- The bank is a government bank. It will be known as “The Ottoman Bank” (clause 1).
- All of the bank’s transactions are subjected to Ottoman law (clause 2).
- The Ottoman government will carry out the legal inspection of the bank by appointing a minister (clause 3).
With the partnership of the English and French, the subjection to Ottoman law, its management and inspection duties within the administration of its bureau’s in Paris and London, this new bank began it’s 30 year long service. This service included the privilege of printing bank notes and being in possession of monopoly. One of the important turning points of the bank’s services was due to the Sultan’s firman in 1875; this gave the bank the authority to monitor the government’s financial situation and control the government’s budget as well as its earnings and expenses.
The Imperial Ottoman Bank remained a government bank for a long time and provided various services like treasury transactions, such as lending money to the government. It functioned as a trade bank by contributing to the finance of the investments and the Ottoman government’s infrastructure. The bank had become a fully competent government bank which was a trustworthy institution that looked after the balance of earnings and expenses and borrowed money and made payments.
The Imperial Ottoman Bank was in business from 1863 to 1924. However, the First World War had a negative effect on the services of the bank. The bank’s partnership with the English and French paved the way for the opinion that the bank was an enemy institution. During the war, the French and English managers resigned and the government stopped the printing of bank notes.
The service continued after the foundation of Republic. The bank's name was changed to “The Ottoman Bank” and up until the foundation of the Central Bank of the Republic of Turkey (CBRT) it continued its treasury transactions as a government bank.Last Mod: 06 Mart 2014, 18:51