“It is no exaggeration. By creating the syndicated loan market, Minos Zombanakis played a decisive role in turning London into one of the world’s most important financial centres, a global hub for international banking,” said Gikas Hardouvelis of Minos Zombanakis, the Greek banker who began his career in Kalyves, Chania, and left his mark on global economic history.
At a commemorative event hosted by the “Chrysostomos” Literary Society to mark the centenary of Minos Zombanakis’s birth, with Prime Minister Kyriakos Mitsotakis and Dr Ilias Gavrilakis — a personal friend of the honouree who wrote the book “Minos Zombanakis” — as fellow speakers, Gikas Hardouvelis, chairman of the board of the National Bank of Greece, set out to explain in simple terms Zombanakis’s achievement in international banking.
“We are in the late 1960s, when there was a problem getting money to borrowers because banks were reluctant to lend for five or seven years when they themselves were funded by deposits of only a few months. The sums required for major projects were also enormous, and no bank wanted to take on such a large credit risk alone. This is precisely where the brilliance of the solution devised by the Cretan from Kalyves, Chania, lies,” Mr Hardouvelis explained, before continuing:
“Zombanakis thought of something no one had thought of before. If one bank cannot grant a large loan on its own, several banks can work together, so that instead of one bank taking on the risk, ten, twenty or thirty take it on together. And rather than being fixed, as it had been until then, the interest rate could vary and be linked to the actual cost of raising funds for the banks taking part in the financing.”
Mr Hardouvelis explained that the principle of setting a floating interest rate based on banks’ funding costs caught on internationally and became the precursor to LIBOR, which was established as the dominant international benchmark rate for the following decades.
“With his idea, Zombanakis helped create an entirely new market: the US dollar syndicated loan market, which soon found itself competing with the growing Eurobond market,” Mr Hardouvelis said, also crediting Zombanakis with giving borrowers the right to repay loans early without penalty, a right that had not existed before.
“Zombanakis’s innovation did not simply create a new market. It forced all markets to become better,” said the chairman of the board of the National Bank of Greece, who also highlighted another side of Minos Zombanakis. “Zombanakis was not only a creator. He was also a perceptive observer,” he said, noting that the Cretan banker recognised early on that the market’s extraordinary success concealed risks.
“In 1976, when most people were celebrating the market’s growth, he was warning about the exposure of the international financial system to countries that could not service their external debt. The Mexican crisis came in 1982, followed by the Latin American debt crisis,” he explained.
But in this case, too, he did not remain a mere observer: he put forward proposals to solve the problem. “The Zombanakis Plan” (The Zombanakis Plan), as it was named by The Economist magazine, was published in April 1983, during the Latin American debt crisis.
The proposal was based on an innovative, orderly restructuring mechanism that shared responsibility and benefits between borrowers and creditors. In its official history, the IMF singled out the “Zombanakis Plan” as an exemplary instance of private initiative to ease debt.
Mr Hardouvelis paid particular tribute to Minos Zombanakis’s humanitarian spirit, his support for Greece during periods of crisis, away from the public eye, and the help he gave to other countries around the world facing economic problems, including Japan, Iran and Saudi Arabia.
“Zombanakis was not part of the establishment. He started from the bottom, and that is precisely why he saw things others did not. He belongs to the small group of people who change the way the world works. That is why we remember him, and why we will continue to remember him,” Mr Hardouvelis concluded.