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The Banking Sector and the Great Depression in Bulgaria, 1924 - 1938: Interlocking and Financial Sector Profitability

Kiril Danailov Kossev ()
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Kiril Danailov Kossev: Oxford University

No 76, Working Papers from Bank of Greece

Abstract: The economic narratives of Southeast Europe during the first part of the 20th century are currently being re-written. A story of failed industrialisation and delayed modernisation during the Interwar period has dominated since the pioneering work of Gerschenkron, but not enough aggregate data are available to see this as the only interpretation. In particular, virtually nothing is known about the financial system. This paper has two aims. First, it looks at the banking sector in Bulgaria in 1924- 1938. We provide new data for the 1920s rise and the 1930s decline of the Bulgarian banking sector and we evaluate its potential contribution to Bulgarian economic growth. In the second part, we discuss different explanations for the widespread collapse of commercial banks after the onset of the Great Depression. Relying on a new data set for over 100 Bulgarian commercial banks, we show that traditional explanations for the collapse of European commercial banks in the 1930s (based on the default of risky loans and falling asset prices due to deflation) need to be complemented by the pernicious effects of widespread insider lending in the Bulgarian case. We conclude that insider lending was the single most important factor behind the demise of the private banking system after the onset of the Depression.

Keywords: Bulgarian economic development; Banking and finance; Great Depression; Insider lending (search for similar items in EconPapers)
JEL-codes: E44 G21 G14 N24 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2008-06
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-his and nep-mac
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