BAHAMAS BANKING SYSTEM

The Bahamas is one of the financial centers of the Caribbean, with approximately 350 banks and trust companies registered in the country. Financial services produces some 15 percent of GDP and is the second-largest industry after tourism. The government seeks to attract foreign banks, and the financial sector is extremely open to foreigners. The government is under extreme pressure from the Organization for Economic Co-Operation and Development (OECD) and others to tighten regulation of the offshore financial sector.
Growing from a tiny offshore tax haven comprised of a few branches of foreign banks in the mid-sixties to world banking powerhouse the country's legislation and regulatory structure, comparatively highly-skilled workforce, and its stable government have attracted the some of the most prestigious financial institutions from around the globe. Air transportation, modern infrastructure, including a telecommunications system, support most kinds of business operations.

The asset base of the Bahamas' banking center is in excess of $200 billion, positioning it among the top ten countries in the world, behind the USA, the UK, Japan, Switzerland and others, with Capital-asset ratios average 11%.
Private banking, portfolio management, and mutual fund administration have gained in importance in recent years, reinforcing the international community's recognition of the Bahamas as a safe repository of the financial assets of both individuals and corporations.
Over 350 banks and trust companies from thirty-six different countries, including the United Kingdom, Switzerland, France, the United States, Canada, and Japan, are currently licensed to conduct business within or from the Bahamas. Many are branches or subsidiaries.
Licensees include a very active offshore banking community, with almost one hundred Euro Currency branches of international banks and trusts, as well as 168 Bahamian incorporated institutions. Over 60% of all the banks licensed within the Bahamas, offer trust services in addition to their regular banking operations.
The banking community of the Bahamas is supervised by the Central Bank of the Bahamas, which attempts to maintain a regulatory environment conducive to investment opportunities, while ensuring the high standards of conduct, as developed by the Basil Committee on Banking Supervision.
The self-regulatory code of conduct of the Association of International Banks and Trust Companies (AIBT) also deters the use of financial operations for criminal activities and upholds the principles of bank secrecy.

The Central Bank of The Bahamas
The Central Bank of The Bahamas was established on June 1, 1974, to carry out the independent monetary policy and financial sector supervisory functions entrusted upon The Bahamas after political independence from Great Britain in 1973.
Prior to the establishment of the Bank, there was the Currency Board set up in 1919, which was restricted mainly to issuing currency. The Currency Board era spanned the early evolution of The Bahamas' emergence as an international banking center during the 1960s, and the corresponding challenges posed by the inadequacies of legislation to properly regulate and supervise these activities. Although some relief was provided by the Banks and Trust Companies Regulation Act (1965), which enjoined stringent licensing and operating requirements on banks, it was felt that a more substantive institutional authority was required to oversee the rapidly expanding banking sector.
This need for an alternative institutional arrangement with statutory powers became even more apparent amid the turbulent developments in global financial markets, marked by the 1967 devaluation of the Pound Sterling, to which the local currency was linked. Based on the emerging strong trade linkages with the United States, the Government de-linked the Bahamian dollar (formerly the pound) from its peg with the Pound Sterling, and established the currency on par with the United States' dollar. This action, however, resulted in massive exchange rate losses for banks, which, in the absence of alternative domestic investment opportunities, held most of their assets in sterling balances.
These events led to the demise of the Currency Board, which gave way to the establishment of the Bahamas Monetary Authority (BMA) in 1968. The Authority assumed the aggregate foreign exchange risks of the country by redeeming domestic banks' surplus foreign currency balances for Bahamian dollars, instituted a voluntary system of reserve requirements for clearing banks, and began auctioning Government Treasury bills as an alternative domestic investment for financial institutions.
Despite having an expanded role, including supervisory authority, a serious shortcoming of the BMA was the absence of the legal authority to employ active monetary policy measures. This fundamental weakness came into sharp focus during the late 1960s, when the Authority was unable to exercise control over domestic credit expansion in order to correct the worsening balance of payments position. A decade later in the 1970s, the deficiency was further heightened, when the global economy battled the worldwide recession, brought on by the OPEC oil crisis. These and other developments led to the eventual establishment of a Bahamian central bank.
The Central Bank fills the traditional roles as issuer of legal tender, banker to both domestic banks and the government, and regulator and supervisor of the banking sector. As supervisor of banks, the Central Bank promotes the soundness of banks through the effective application of international regulatory and supervisory standards. These standards were completely revamped during 2000 and 2001 - in response to global multi-lateral initiatives - to heighten the fight against money laundering and other criminal abuses within the international financial system.
The results have been evident both in terms of the Bank's approach to licensing new financial institutions, as well as in a more enhanced supervisory framework for financial institutions. Important features of the new regulatory regime now include broader and more uniform supervision of bank and non-bank financial activities, and stronger mechanisms for international cooperation among Bahamians and similarly placed foreign supervisory and law enforcement agencies. In all, the Bank's overall policy objective is the promotion of a stable economic environment conducive to high levels of domestic production, employment and growth.

Bahamas Financial Services Board (BFSB)
Bahamas Financial Services Board (BFSB), launched in April 1998, represents an innovative commitment by the financial services industry and the Government of The Bahamas to promote a greater awareness of The Bahamas' strengths as an international financial center. The Board is a multidisciplinary body that embraces active contribution from individuals within government, banking, trust and investment advisory services, insurance and mutual fund administration as well as interested legal, accounting and management professionals.
The BFSB represents and promotes the development of all sectors of the industry, including: banking, private banking and trust services, mutual funds, capital markets, investment advisory services, accounting and legal services, insurance, and corporate and shipping registry.
In addition to its coordinated programs to increase confidence and expand knowledge of The Bahamas among international businesses and investors, the private sector-led BFSB will continue to consult with government to develop new initiatives to meet the rapidly changing demands of international financial markets.
The Bahamas' long-standing tradition of democracy (one of the oldest in the hemisphere), and independent stability since 1973, have been significant attributes in the development of our financial services sector. BFSB is guided by the same principles. It does not supplant existing financial services associations that continue to serve individual professional groups within the industry as they have in the past. Rather, the Board complements them, drawing much of its strength from close intra-industry participation and collaboration. The Board's costs, including those of an experienced, active, full-time executive director, are shared by government and the private sector through membership fees. Board members are elected to two-year terms by individuals or representatives of organizations active in one of the areas of interest covered by BFSB.

Financial Institutions Operating
Some of the commercial banks licensed in Bahamas:

British American Bank
Barclay's Bank PLC
Citibank N.A.
The Canadian Imperial Bank of Commerce (CIBC) Bahamas Limited
The Finance Corporation of The Bahamas (FINCO)
The Royal Bank of Canada
Scotiabank Bahamas Limited
Bank of The Bahamas
Commonwealth Bank Ltd.