Former Länderbank (Vienna), founded 1880, architect Otto Wagner (built 1882-1884)

Central and South-Eastern Europe became one of the most important world markets for capital exports after the First World War. Foreign investors not only invested in the defeated countries, such as Germany, Austria, Hungary and Bulgaria, but also in Poland and Czechoslovakia. From 1919 till 1923 international capital from Britain, France, the USA, Belgium, the Netherlands, Italy and Switzerland acquired substantial shares in the main Viennese banks. The Länderbank and the Anglo-Austrian Bank were turned into totally foreign-owned banks, based in Paris and London. A similar development of Western European capital participation took place in all the joint-stock banks of the successor states of the Austro-Hungarian Empire with the exception of the Zivnobanka in Prague. This bank increased its investment in South-Eastern Europe, often together with Western European financial groups. As the governments of the successor states were in urgent need of foreign investment, they promoted the internationalisation of the banking systems there. So the governments paved the way for the access of international capital to industrial enterprises via the participation in the equity of the big commercial banks. This followed the traditional investment pattern of the region and through the internationalisation of the banks the whole area moved closer to international markets.


The economic circumstances in Austria were disastrous after the war, yet the banks tried to continue doing business and credit-financed not only their Austrian clients but also the clients from the former Habsburg Empire. In this way they hoped to recover their leading financial role in the region. They were able to operate in this way as long as they could procure international finance either via foreign direct participation in their own equity or via large hard currency accounts, which Western banks held at their banks, or via taking up and mediating foreign loans. During the severe inflation in the early 1920s the banks met the industrial demand for credit, but that plunged the Austrian financial sector further into debt. The banks financed these industrial credits by borrowing from Western Europe and the United States, so their indebtedness rose three times between 1924 and 1930. Industry became much more dependent on bank loans as sources of funds and the banks increased their share ownership in dependent client companies. This Viennese banking policy was also wide-spread all over Central and South-Eastern Europe. Financing industry was characterised by borrowing short and then re-lending on a long-term basis. In order to maintain their own credit worthiness the banks had to see to the liquidity of their industrial debtors. Hiding industrial losses and paying dividends even in these situations became common in Austria. Especially the management of the big Viennese banks had been expecting an economic recovery, which then did not come about. So Vienna was unable to regain its financial leadership role in Central, Eastern and South-Eastern Europe.

At the end of the Austro-Hungarian Empire the important Viennese banks were heading multinational diversified enterprises. In the 1920s many of these industrial and commercial businesses cut their connections to the Viennese banks. On the one hand the headquarters of several companies were moved from Vienna to the successor states of the monarchy, on the other hand the Viennese banks lost control over their branches in these countries; the ten largest Viennese banks had 143 branches outside Austria proper in 1918 and in 1924 they had 9. Furthermore the Viennese banks had to part with a large number of their subsidiary industrial firms, which were situated in the successor states after World War I; many of them very profitable ones in Czechoslovakia. Substantial assets and some of their most important business clients were shifted to Czech banks, most to Zivnobanka.


The relationship between banks and industry in the region was nevertheless characterised by the conditions created in the Austro-Hungarian Monarchy. The universal banks of Vienna, Budapest and Prague, in addition to the other capitals in the new states remained the main source of funds for businesses. Financing industrial enterprises remained a major task of the banking policy in the region. In actual fact, the development of the relationship between banks and industry showed the same pattern in Austria, Czechoslovakia, Hungary, Italy, Poland, Romania and Yugoslavia after the end of the Austro-Hungarian Empire. While Viennese banks still headed large diversified multinational enterprises and still performed mediating functions, international investors started to participate in the equity of the leading banks, not only in Austria, but also in the other new states, such as the Hungarian General Credit Bank in Budapest, the Bank Handlowy in Warsaw, the Banca Marmorosch, Blank & Co. in Bucharest and the Bulgarian General Credit Bank in Sofia. In this way Western European capital penetrated the relationship between banks and industrial enterprises in Central, Eastern and South-Eastern Europe.


The Credit-Anstalt’s involvement in industry can illustrate this issue. At the end of 1929, before the big mergers of the Viennese universal banks with the Credit-Anstalt, 163 Austrian joint-stock companies with a total nominal share capital of AS 1.1 billion were held to be dependent on the Credit-Anstalt; the total number of joint-stock companies in Austria was 871 then with a total share capital of AS 1.7 billion. They represented 18.6 per cent of the total number of companies, but 68.75 per cent of the total capital of Austrian joint stock companies. There was substantial involvement of the Credit-Anstalt in the ten most important fields of industry in Austria like mining and metallurgy, engineering and metal-working, textiles, wood, beer-brewing, building, chemical industry, electrical industry, leather and shoes and paper. Most of the businesses in connection with Credit-Anstalt were well-known enterprises; many of them were founded during the time of the monarchy and still exist today. The Credit-Anstalt as the only remaining big universal bank after the crash of the 1930s, played an important part in the survival of these companies, especially after 1932 when the bank enforced radical reorganisations, closures and mergers. The Credit-Anstalt decided which of these companies would be rescued and which would be liquidated.

Despite big losses after 1918, the big Viennese banks could still meet the demand for capital by many industrial companies, not only from Austria but also from the new states in the region in the interwar period because the domestic banks in Central, Eastern and South-Eastern Europe lacked the capacities to finance all industrial enterprises. Disastrous economic conditions after World War I and the world economic crisis of the 1930s greatly weakened the traditional system of mixed banking in the region, which had been in place since the 1880s. Nevertheless, the majority of assets of the most important commercial banks still consisted of industrial equity, yet its value decreased over the years and as domestic deposits were insufficient many banks in the new states became illiquid. The banks defaulted on their enormous debts during the Great Depression. The governments of the new states tried to intervene to tackle the wide-spread indebtedness by taking up foreign loans and encouraging foreign investment. By 1937 75 per cent of the equity of commercial banks in Romania and Yugoslavia, 40 per cent in Hungary and Austria and around 30 per cent in Poland and Bulgaria had been transferred into foreign hands. In contrast, in Czechoslovakia only 15 per cent of the total equity of joint-stock banks was foreign-owned. In Austria universal banking survived all changes, but without “a lender of last resort” the biggest Viennese banks could not cope with the crisis of the Great Depression. The state had to intervene by taking over fully or partially the shares of the big credit banks and their large industrial clients. During this period the banks’ involvement with industrial multinational enterprises was reduced. Despite all these negative developments in the interwar years, Vienna remained the gateway to Central, Eastern and South-Eastern Europe. Vienna’s financial links, especially those of its universal banks in the region of the former Austro-Hungarian Empire and beyond, were seen as a springboard for further economic expansion. After the “Anschluß” in March 1938 and the Munich Agreement of September 1938, the big German banks began their direct infiltration of the network of banks and industry in Austria and Czechoslovakia. This served the Nazis’ purpose of incorporating the systems of banks and industries in Central, Eastern and South-Eastern Europe into the German banking system.

Literature: 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 2005,148-161