Former Austrian Lloyd building (on the right in front), shipping company founded 1833 in Trieste by seven insurance companies, among them “Assicurazioni Generali”, Austrian Generali insurance, founded  by Joseph Morpurgo 1831 in Trieste (on the left in the back). Piazza Unità d’Italia, Trieste (Italy)

The importance of the Austro-Hungarian banks in providing short-and long-term credit to industries has to be emphasised in contrast to the registrations of the stock exchange in the empire. In 1912 the share of foreign bonds in total registered securities was 48 per cent on the London Stock Exchange, 55 per cent in Paris, 5.6 per cent in Berlin and 0.7 per cent in Vienna. In Vienna the share of foreign bonds had not changed much since the 1890s. But after 1909 the Austro-Hungarian Empire was not only a capital importer, but owing to the leading banking groups it could also cover the deficit partly by re-exporting foreign bonds.


In the case of a country of such agricultural importance as the Austro-Hungarian Empire the turnover of mortgage bonds is of greatest importance. Neither bank loans nor the foreign placement of mortgage bonds took a dominant role in providing especially the Hungarian agriculture with credit. By the turn of the century the supply of agriculture with long-term credits seemed to have settled.


Yet in the fields of transport and industrial finance, especially railways and modern energy producers of electricity and petroleum, new forms were developed. The first international holding companies cropped up in Central Europe. One of the first was established in 1890 when the Deutsche Bank and the Wiener Bankverein obtained the majority of bonds in a company that operated the railways in the European part of Turkey. In the same year they founded the Bank für Orientalische Eisenbahnen, specifically for the purpose of owning and controlling bonds of Balkan and Anatolian railways. It was a bank in name only, as it did not operate as a bank since it did not have any creditors or debtors. The Wiener Bankverein was also one of the pioneers in promoting Romanian petroleum on the world market by establishing a finance company in Budapest in 1890 and by taking an interest in a Romanian petroleum company in 1892. So the financing of the exploitation of the oil fields worked through multiple transfers.


A mostly unknown fact is that the Austro-Hungarian Monarchy was the third largest oil producer in the world in 1909 after the USA and Russia, producing 5 per cent of the world production. Since 1910 the amount of oil extracted sank continuously, nevertheless it was still the fifth largest oil producer before the beginning of World War I. Oil production was concentrated in Austrian Galicia, the biggest but also poorest province of the empire with the highest illiteracy rates and a mixed population of Poles; Ruthenes, Jews and other ethnic groups. The region was lacking an efficient infrastructure. The empire counted on private entrepreneurship in developing the oil industry, but most of the Polish big landowners were not interested. Theoretically every small farmer could start drilling for oil in his backyard. That’s why it took some time until the Austrian oil industry started to flourish in the 1880s. The world financial markets had already become aware of this opportunity and some Austrian banks, but mostly French banks, invested in new refineries around Boryslaw. However, there were too many small companies that did not coordinate output and prices and did not succeed in establishing a cartel, so in the first decade of the 20th century they produced too much crude oil and the prices plunged. Since 1910 the production decreased, just at the time when combustion engines became more widespread in the empire. Before, the oil produced there was mainly used for lamps. Austrian Galicia was too far from, and not well-connected to the important marine ports of the empire, Trieste and Pula, where the oil would have been needed urgently. The planned direct train connection across the Carpathian Mountains was not realised before the outbreak of the First World War. Too late, the Austrian politicians and financiers became aware of the political and commercial importance of oil resources and their exploitation.


Banking groups joined to finance the electrical industry from the beginning. This field of business was characterised by the penetration of German capital. 70 per cent of the bonds of the Austrian Siemens-Schuckert Werke were in foreign hands. But the Wiener Bankverein brought about the foundation of the Internationale Elektrizitäts-Gesellschaft in Vienna in 1889, one of the earliest financing companies on the continent, although its scope was limited to the Austro-Hungarian Monarchy only. In the following years new financing companies were founded to promote electricity and build electric works.


Finally it can be said that the Austro-Hungarian banking system was multinational, just as the monarchy itself. Due to the Compromise with Hungary in 1867 the dualistic state system produced a bi-national central bank in 1878 and for similar reasons bi-national companies were founded. The international practices of banks must be viewed from these multinational and bi-national aspects. So foreign banks were either founded as quasi-international banks or they had to adapt to the special conditions of the empire. In the 1890s, after stabilising the government debts placed abroad and at home, the Viennese banks began transactions on their own with German or French backing or through the mediation of Budapest to finance international industrial and transport businesses in the Balkans. Hungarian and Bohemian banks followed suit. In these transactions the international mediator role of the empire’s banks was characteristic. Yet before World War I they lost their ability to finance the Balkans government loans. Throughout the whole period of the Austro-Hungarian Empire since 1867 the share of international finance of the banks was relatively low when compared to the business procured inside the borders of the empire. It became effectively international only after the empire had fallen apart in 1918.


To sum up, the big Viennese banks played a crucial role in establishing Vienna as a significant international financial centre and in promoting modern economic progress in the region. The leading Viennese banks not only mobilised capital, they also turned a substantial part of this capital into direct participating investment in industry, commerce and insurance and also acted as holding companies of conglomerates. Austro-Hungarian legislation on incorporation and taxation promoted this role of banks as it inhibited the formation of joint-stock companies and other businesses with limited liability. That’s why banks tended to replace the capital market by promoting limited-liability businesses and converting firms into joint-stock companies. They issued shares, provided long-term loans and also renewable credit on current account for companies in their own group. When in need of funds, joint-stock companies and banks alike preferred to draw on their own resources or to take up short-term credit from banks rather than get involved on the stock exchange. Capital was also procured through the intermediary of banks, which issued new shares on behalf of their client companies. Banks further secured their credits by acquiring decisive shareholdings as collateral in the largest and soundest undertakings and by cementing their supervision of them by directorships. In Central and Eastern Europe the Viennese banks accumulated and mobilised capital just as other banks did elsewhere, but they played a much more active role in utilising this capital than banks in Western European countries. Due to their controlling influence in the firms, which they had converted into large joint-stock companies, the banks promoted oligopolistic business organisations since 1900. They initiated or organised mergers and encouraged cartelisation. The banks even took over marketing functions for the businesses in their sphere of interest by establishing sales departments and they also acted as cartel bureaux for whole sectors of industry, such as sugar, coal and wood. Company law and tax legislation helped shape the special Central and Eastern European business organisation that linked the banking system and industrial and commercial enterprise. These large commercial banks not only substituted the money market but also limited competition by internalising functions of the market. In 1914 eight big Viennese banks held two thirds of the capital of all financial institutions of the empire and they had strategic stakes in almost all sectors of the industry. Countless industrial and commercial businesses clustered around the big banks and were tied to them either by direct participating investments or by credits over virtually every field of production and trade in all territories of the Austro-Hungarian Empire and the Balkans.

Literature: Köver, Gyöegy, The Austro-Hungarian Banking System, in: Cameron, Rondo / Bovykin, V.I. (eds.), International Banking 1870-1914, OUP 1991

Teichova, Alice, Banking and Industry in Central-East Europe, in: Rathkolb, Oliver / Venus, Theodor / Zimmerl, Ulrike (eds.), Bank Austria Creditanstalt. 150 Jahre österreichische Bankengeschichte im Zentrum Europas, Zsolnay 2005

Frank, Alison, Oil Empire. Visions of Prosperity in Austrian Galicia. Harvard University Press 2005