There was a sharp increase in financial globalization in the 19th century and London was the home of much of this. Increasingly, foreign governments were turning to London to raise capital. These included some of the first emerging market sovereign bond issuers, the newly independent countries of the Americas. However, government bonds were…
In 1974, a large American bank, Franklin National Bank, failed. Over the coming years, many others would follow. While there were some commonalities between Franklin National Bank and the other banks that failed, this bank was peculiar. It was peculiarly badly managed. What is illuminating though is how bad management seemed to self-perpetuate at…
Improvements in infrastructure had tremendous effects on both trade and finance, perhaps most notably in the 19th century. Canals and railways first connected cities within countries and then connected continents. These improvements made trade in merchandise and commodities more efficient, creating opportunities for exchange that did not previously exist. Even communications technology, like…
The advent of a market for credit relies on a supply of and demand for surplus financial resources. The demand for credit can be driven by trade or investment or even large consumer purchases. The supply of credit can come from deposits with banks or the reserves of insurance companies. Today, the endowments of…
Population growth and rising living standards increased demand for meats in Britain during the Industrial Revolution; however, diseases that reduced cattle herds meant more imports were needed to satisfy demand. Some of this demand was met by imports of fresh beef from America. This was extraordinary considering that up to this moment in history,…
The market for railway company bonds grew quickly in the mid-to-late 19th century. Laying new track was very expensive and the returns would not come until a line was completed. For larger projects, such as those rail links crossing an entire continent, this could be years away. Thus, financing was as important an input…
Over a century ago, railway companies were among the largest issuers of bonds in the market, second only to governments. Indeed, one could say that it was financing railways that really built the modern bond markets. Because many railway issues had very long terms, some a century or longer, a few vestiges of this…
Under a gold standard regime, exchange rates were understood to be self-regulating courtesy of the ‘price–specie flow’ mechanism. Expansions or contractions in the money supply from trade surpluses or deficits would bring about stability in exchange rates without threats to the gold standard and with minimal or no need for changes in interest rates.…
In the late 18th century, marine insurance in a nascent United States was put to a stressful test. During an undeclared naval war between America and France known as the Quasi-War, merchants were ruined and losses to insurance underwriters rose, as did the frequency of insurance disputes. In the end, insurance not only survived…
Exactly how much of a fiscal burden governments can bare is the subject of frequent debate. Some believe any debt is problematic and others believe that, at least for some countries, there is no limit to the fiscal headroom available. Historically, it is in times of war that governments push themselves to the very…
In the first fifty years of its history, insurance in the United States was a growing but scarce product. Few insurance firms existed and those that did were typically small and focused on just a couple products: fire and marine insurance. They also offered coverage only in specific areas near where they were founded.…
Insurance was one of the first financial products to achieve a level of sophistication recognizable to practitioners today. In the Late Middle Ages, insurance was widely traded in Italian port cities and life annuities were sold across Europe. However, insurance requires a calculation of risk that is rarely straightforward in a world where information…
