THE BANKING SECTOR AND THE GREAT DEPRESSION IN BULGARIA, 1924-1938: INTERLOCKING AND FINANCIAL SECTOR PROFITABILITY
Kiril Danailov Kossev
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.
JEL classification: E44; G21; G14; N24.
Acknowledgements: the author is grateful to Matthias Morys (Economic Department, University of Oxford) for his exceptional support. Martin Ivanov (BAS), Nikolay Nenovsky (BNB), Roumen Avramov (CLS), Avner Offer, Knick Harley, Jane Humphries and David Chambers (all from the University of Oxford) provided me with invaluable comments. An internship at the Bulgarian National Bank and work with Nikolay Nenovsky and Kalina Dimitrova (BNB) has given me the time and resources to work at the archives for much longer than I could have hoped for otherwise. I am grateful to the Economic and Social Research Council in the UK and the George Webb Medley Fund at the Economics Department of Oxford University for funding my studies and research.
Nuffield College, Oxford, OX1 1NF, UK;