Zoltán Gál: The Golden Age of Local Banking by György Váradi

Publishing of this book is supported by the Transdanubian Research Institute of the Centre for Regional Studies (Hungarian Academy of Sciences). Copy editor: Péter Sárfalvi

Contents 1 Introduction

2 Comparative approaches in Economic History    and Historical Geography

2.1 Economic history analyses of the urban network 2.2 Researching banking functions       in comparative analysis of Historical Geography

© 2009 by Zoltán Gál © 2009 by Gondolat Kiadó All rights reserved. No part of this book may be reproduced by any means, or transmitted or translated into machine language without the written permission of the publisher. Published by Gondolat, www.gondolatkiado.hu Cover design: László Pintér Printed by ISBN 978 963 693 035 6

17 20

3 The structural characteristics of the banking system    in the age of the Dual Monarchy (1867–1918)

3.1 The stages of banking development 3.2 The institutional settings of the banking system 3.3 The role of foreign banks

23 25 31

4 The Dimension of the Hungarian banking system

4.1 The size of the banking network 37 4.2 Budapest – national banking centre       with international aspirations 39 4.3 The position of the Hungarian banking system within Europe 51

5 Spatial features of the Hungarian banking system     – regional expansion of banking innovations

5.1 Gradual transition from local to nationwide branch banking 5.1.1 The golden age of local unit banking 5.1.2 The nationwide branch banking           – phases of network building and centralization 5.1.2.1 Creation of interests in the regions             – building bank affiliate networks 5.1.2.2 The beginning of arms length banking             – the rise of branch networks

55 55

5.2 Territorial differences in the Hungarian banking system 5.2.1 Measuring banking network density 5.2.2 The geographical distribution          of banking stocks and flows

68 68

57 57 62

6 The banking functions of the urban network    in the early 20th century

6.1 Surveying the central-place banking functions of cities

6.2 The central places of the Hungarian banking network 6.2.1 The hierarchical ranking of cities          by bank deposit distribution 6.2.2 Hierarchical ranking of cities by asset distribution

103

7 The banking network of the Hungarian regions

127

7.1 The West loses its pre-eminent position       – banking markets of Transdanubia 7.1.1 Declining the earlier dynamics          – transformation of the traditional urban network 7.1.2 Belated development of regional financial centres 7.2 Retarded modernization       – banking markets in Upper Hungary 7.2.1 Economic and social conditions of urban settlements

103 114

128 128 131 134 134

7.2.2 Declining performance of a sparse banking network 7.2.3 The banking centres of Upper Hungary 7.3 Region with large disparities – banking functions       of cities in the Great Hungarian Plain 7.3.1 Rise of the counter pole cities: the most dynamic          regional banking centres of Eastern Hungary 7.3.1.1 Emergence of a dynamic urban belt 7.3.1.2 The role of regional banking centres             in the formation of innovation zone 7.3.2 Internal periphery or peculiar development path          – limited banking functions of the          agricultural market towns 7.3.2.1 Market towns without central-place             banking functions in the Central Great Plain region 7.3.2.2 Socio-economic features strongly             determine local banking functions

135 137 142 143 143 147 154 154 159

7.4 The region with high contrasts       – the banking markets of Transylvania 7.4.1 The socio-economic conditions of the region 7.4.2 Financial markets in Transylvania rapidly catching up 7.4.3 The banking centres of Transylvania

168 168 169 174

8 Outlook

183

References

187

List of place names

195

LIST OF FIGURES Figure 1 Branch and affiliated bank networks of the four largest Hungarian banks having their headquarters in Budapest, 1914 / 59 Figureâ&#x20AC;Ż2 Breakdown of credit institutions and banking equities between Hungary and the successor states of the Hungarian Kingdom after the First World War (Treaty of Trianon), 1920 / 67 Figure 3 Territorial density of credit institutions in Hungary: size of territorial unit per institution, 1894, 1909 / 71 Figure 4 Territorial density of banks/saving banks in Hungary: size of territorial unit per bank/savings bank, 1894, 1909 / 72 Figure 5 The regional breakdown of bank supply index in Hungary: population per credit institute, 1894, 1909 / 75 Figure 6 The regional breakdown of bank supply index in Hungary: population per bank or savings bank, 1894, 1909 / 76 Figure 7 Breakdown of deposits of credit institutions by counties and cities with Âmunicipal rights, 1913 / 79 Figure 8 Regional distribution of per capita bank & savings bank deposits in Hungary, 1894, 1909 / 84 Figure 9 The regional distribution of per capita deposits of credit institutions in Hungary, 1894, 1909 / 87

Figure 10 The regional breakdown of per capita assets of credit institutions in Hungary, 1894, 1909 / 89 Figure 11 The regional breakdown of per capita assets of banks & savings banks in Hungary, 1894, 1909 / 92 Figure 12 The breakdown of the 4 hierarchical groups of the Hungarian banking centres by their significant surplus ratio and volume of deposit portfolios, in percentage, 1910 / 102 Figure 13 The Hungarian urban hierarchy based on central-place banking functions, 1910 / 105 Figure 14 Hierarchical ranks of regional banking centres by asset stocks volumes (million crowns), 1910 / 109

LIST OF TABLES

Figure 15 Concentration of sum total of deposits in the Hungarian cities, 1909 / 112 Figure 16 Concentration of banking assets in Hungarian cities, 1910 / 113 Table 1 The evolution of the modern financial system / 25 Table 2 The weight of the Hungarian banking system within the integrated financial market of the Austro–Hungarian Monarchy / 32 Table 3 Changes in the number of financial institutions and the share of Budapest within the Hungarian banking network 1894–1913 / 39 Table 4 Share of the top 5 and top 15 Budapest-based banks in banking service lines in Hungary, in 1909, in thousand crowns / 41 Table 5 The share of Budapest in the most important banking business lines 1894–1913, in thousand crowns / 45 Table 6 Share of Budapest banks in banking stocks and their annual turnover, 1894–1913 / 48 Table 7 Breakdown of selected banking lines in percentage among the different settlement levels, 1909 / 51 Table 8 Banking intermediation ratio of Hungary / 54 Table 9 The number of branches and affiliated banks of the 15 largest Budapest-based joint-stock credit institutions, 1899–1909 / 62

Table 10 Banks with the largest affiliated branch network in the year 1913 / 66 Table 11 The ranking of counties by the volume of banking deposits and asset stocks, 1909 / 80 Table 12 The hierarchical ranking of cities by deposit portfolios and asset stocks in the year 1909 / 99 Table 13 The hierarchical rank of the Hungarian cities on the basis of central-place banking functions (based on banking deposits calculated by per capita county and national averages in 1909 (The first 50 of 175 towns) / 106 Table 14 The hierarchy of Hungarian cities on the basis of central-place banking functions by asset stocks, a cluster analysis, 1909 / 115

Table 15 The changing positions of Transdanubian cities ranked by asset stocks between 1900 and 1910 / 129

Introduction

Table 16 Changes in the national ranking position of some Transylvanian cities by the volume of banking assets / 175

This book examines the impact of the Hungarian banking system on regional and urban development in the early 20th century, when local banks were important territorial elements of the financial space developing close links to regional economic structures. The basic concept of the study is that there is closer connection not only between the banking sector and the economy as a whole, but between the banking sector and urban development as well. This is coincidental with the argument of the American Historical Geography school, which says that the features of the urban network are in strong correlation with the spatial structure of banking system (Conzen, 1977). We considered the spatial breakdown of capital flows as one of the most important indicators of regional and urban transformation (Gál, 2005). The Hungarian banking system looks back to its legacy of more than 160 years. Examining the impact of the banking system on regional and urban development is reasonable in the context of the second half of the 19th century, since Hungary developed an extensive financial system with a well researchable statistical database (Vargha, 1913). The Hungarian banking system was well developed in comparison to international standards by the first decade of the 20th century (Kövér, 1991; Tomka, 1996). Moreover, it became one of the most rapidly growing sectors of the domestic economy of that time. The evolution of the Hungarian banking system with regards to the phases of industrialization, despite it has developed in a latecomer country, has gone through the similar development stages of the modern financial system

with certain delay than the more advanced economies (Rudolph, 1976; erend–Ránki, 1974). B With the earliest stage of industrialization, the “regionally-locally based, bank-oriented system” operated in Hungary until the end of the First World War I, based on the extensive network of locally based banks using local sources of capital accumulation. During the interwar period it was replaced by the “national or capital market-oriented” stage, in which the banking system became more centralized into the capital city of Budapest and the national market incorporated the local, regional banks setting up the centralized national branch network (Martin, 1994). The paper verifies that predominance of Budapest is not only a direct consequence of the territorial and capital loss following the First World War, rather the market concentration processes evolving since the late 19th century onward determined it. The paper examines this process introducing the first phase of transition from the locally based unit bank system towards the branch banking, which based on the expanding affiliates and branch networks of the largest country banks. If we compare two significant periods from the point of modernization in the development and spatial features of the Hungarian banking sector both in the last decade of the 19th and into the 20th centuries, we find that the banking sector deviated from the modern capitalist path only after the Second World War. Nevertheless, by the first decade of the 20th century Hungary built up a modern financial system and banking infrastructure characterized by extensive local and regional banking. The banking sector was the most rapidly growing and even by European standards was the most developed branch of the contem porary economy. Banking is considered to be the most stable sector of the ‘Belle Epoque’ before the First World War bringing dynamism into local economic and urban development. If someone compares how the Hungarian banking system developed after the banking reform in 1987 with the banking system operating in the early 20th century, one can find some common features of development even if the macroeconomic environment of the two periods are totally different from each other. The present Hungarian banking system bears the marks of an early modernization process resulting in a fundamental change in the economic-political system (change of political regime, transition from the centrally-planned to the market economy) in the 1990s just like the modern credit system of the mid–1800s (1848: introduction of capitalist economic-social reforms, civil revolution and war of independence; 1867: Act of Union with Austria, economic consolidation). Both pro-

cesses can be characterized by a series of new bank foundations resulting in the accumulation of capital, by the intensive penetration of foreign investments, by the foundation of branches of foreign banks and also by bankruptcies, and by the establishment of a legal and financial regulation system. Both the present and the past banking systems were characterized by the dominance of Budapest performing the role of a national financial centre but in the age of Dualism, due to the dominance of domestic banks (unlike recently), the role of local banks was also very important in local-regional finance (Gál, 2001). Studies analysing the development factors of urbanization, although properly identifying the close connection between urban and economic development, many still emphasize the one-sided determinant role of industrialization, which is considered as the sole engine of urbanization (Pollard, 1980). Actually, the world of cities is the centre of the money market and we should not forget the fact that money is the invention of urban civilization. The development of the financial system not only encouraged economic progress but played as important role in urban development as industrialization itself (Bairoch, 1988). Like its European counterpart, Hungarian urban development in the 19–20th century cannot be identified merely with the development of industry. Several facts demonstrate that cities with a one-sided industrial profile produced lower levels of urbanization than cities performing both commercial and financial functions (Gyáni, 1995). The basic idea of our research is that the banking system had greater importance in (local) economic development than in our time. On the one hand, the intermediate role of banks was more significant in economic modernization since the provision and reallocation of the necessary capital resources was channelled through the banking system. This also meant that the spread of financial innovations was quicker and more comprehensive than other economic innovations (Gerschenkron, 1966; Good, 1973). On the other hand, there were closer connections not only between the banking sector and the economy as a whole, but between the banking sector and urban development as well. Banking service functions became one of the main roles of cities (Hohenberg–Lees, 1985). This argument coincided with the argument of the American Historical Geography school saying that the features of the urban network are in strong correlation with the spatial-regional structure of the banking system and the diffusion of financial innovations, or, as was the case in Britain, the earlier fragmented regional economies with their independent provin-

cial banking centres were moving towards greater integration, in which the regionally fragmented economies bound together by metropolitan economies dominated the flows of financial capital and by the increasing centralization of the largest clearing banks having headquarters in London (Conzen, 1977; Black, 1989). A special significance is attributed to the comparative analysis of the banking function of cities by the fact that in peripheral situation the characteristics of modernization and capitalist development are almost exclusively connected with the urban network. It is also argued that regional inequalities were very much determined by economic, especially banking functions of the urban network. The book examines the spatial breakdown of savings and loans listing the various factors that play important role in the territorial configuration of bank centres. Besides studying the regional characteristics of local money-markets on the basis of the territorial breakdown of banking aggregates, the paper analyses the urban network of the early 20th century according to the cities’ banking function in order to identify those groups of towns together with their hierarchical ranks, which became the driving force of modernization, as well as those that played a less determinant role in economic development (Gál, 2005). This paper uses the method of Christaller’s central-place theory (1933) in order to define the central-place functions of Hungarian cities based on banking aggregates (deposits and assets). The survey gives the opportunity not only to analyse the regional breakdown of the banking network, but to compare the economic and urban development of banking centres. This analysis contributed to the change of the traditional view of the “developed West” and the “underdeveloped East”. A special significance is attributed to the comparative analysis of the banking function of cities by the fact that in peripheral situation the characteristics of modernization and capitalist development are almost exclusively connected with the urban network. It is also argued that regional inequalities were very much determined by economic, especially banking functions of the urban network.

Comparative approaches in Economic History and Historical Geography

2.1 Economic history analyses of the urban network Historical geographical researches of the urban network had never been main trends in historical sciences. However, urban history due to its research progress and most of all, with a change towards structuralist approaches has developed from a study of local history to a comprehensive single discipline with wider and comparative approaches studying general social and economic processes. The increasing interest in urban history has also resulted from the innovative trends in economic and social history and historical geography, such as the growing importance of economic and social history focusing mostly on local communities and their analysis at the microlevel. In spite of the new approaches and methodologies in economic & social history, urban geography and urban sociology were disregarded in the works of urban and local history (Hohenberg–Lees, 1985; Cannadine, 1982; Bácskai, 1997; Gyáni, 1995). After a successful paradigm change, international researches of urban history, recognizing the increasing role of cities in economy, society and culture, created a new time and space dimension for researches by selecting the hierarchical system of urban networks separated from their regional hinterlands, as a focal point (Gyáni, 1995b). Comparative

researches of urban history are isolating cities from their environment and making the research of their local economy and society comparable with national or international level. The application of comparative methods is beneficial from several aspects of Hungarian urban history and contemporary urban policy: • O n the one hand, they may serve as a bridge between national history eliminating regional features and local history, often disregarding comparative methods. During the making of such analyses, local and national levels should be harmonized and general, overall processes should be illustrated with local examples (Timár, 1993). • On the other hand, these comparative researches of urban history may serve as experiences for the recently increasing urban competition, where cities are competing with other cities for investors, and the access for resources through local policy in order to increase their competitiveness (higher incomes, employment, attractive image for investors, building new plants, better infrastructure). During this competition, cities may significantly rely on their historical traditions (path-dependence) that may be important phenomena from economic aspects for most cities. In many cities there is no need for ‘creating the past’, as the values of the past are serving as a basis for the future (Lengyel–Rechnitzer, 2000). Thus, urban competition is not a new phenomenon as there are several examples for that in urban history. The comparative analyses in urban history have special importance from the point that the features of modernization were concentrated almost exclusively on the urban level only, and the urban frameworks having been formulated in the early years of the 20th century have had an influence on our cities’ development and their contemporary image. Today, the definition of a settlement’s rank on the basis of population size or administrative functions is insufficient criteria for evaluating its positions and roles. A more detailed analysis is needed on the narrow and broad environment of a settlement, its origins and linkages. From this point, the service supply functions originating from a city’s central-place functions i.e. services provided by cities for their hinterlands (agglomeration, county and region) have primary impor-

tance but interregional and international economic relations are also indispensable elements. The earlier works in economic history analysing the relationship between modern urbanization and economic development − although pretty well identifying the relationship between urban development and the modernization of economy − still overestimate the role of industrialization in urban development and consider it as the only driving force of urbanization. The development of monetary and credit systems not only stimulated economic development but played as great a role in urban development as industrialization itself. Actually “…the world of cities is the centre of the money market and we should not forget that money is the invention of urban civilization. The development of the financial system not only encouraged economic development but played as important a role in urban development as industrialization itself” (Bairoch, 1988. p. 341). Urban development in Europe and in Hungary in the 19th and 20th centuries cannot be identified with the development of the industrial sector only. On the contrary, in several cases, predominantly industrial cities (e.g. Ózd, Újpest, Rózsahegy [Ružomberok], Vajdahunyad [Hunedoara]) produced a lower level of urban development than those having commercial and other service profiles besides industrial (e.g. Temesvár [Timişoara], Pozsony [Bratislava], Nagyvárad [Oradea], Győr) (Gyáni, 1995b). Several papers verify that in Hungary the development of heavy industry − with the exception of Budapest − had no direct influence on urbanization between the last quarter of the 19th century and 1945, the first stage of modernization. The development of provincial cities was not the outcome of the development of heavy industry, the building of factories themselves only partly contributed to the modernization of infrastructure in provincial centres. However, industrialization itself was also weakly bound to cities. In many cases industrial development located not in traditional urban centres but in small settlements sometimes even not having the legal (municipal) status of a town (Salgótarján, Petrozsény [Petroşani], Diósgyőr). This was providing a peculiar rural character to certain sectors of heavy industry (Gyáni, 1997).

2.2 Researching banking functions in comparative analysis of Historical Geography During the 20th century, due to the development of infrastructure, the importance of service sectors significantly increased. But for all that, very few researchers were studying their role in the urban development of Hungary. This is even true that during the last fifty years cities were turning from an industrial profile into commercial-service centres (Hijatella, 1987). However the roots of transformation date back to earlier times. While West European cities of the late middle ages were primarily shaped by the concentration of commercial capital and the early capitalist cities accumulated industrial capital, a new period started from the mid–19th century when a wide range of financial capital and banking functions were concentrated in the majority of cities. It was the public administration and higher order services that were giving a start to the flow of money; and it is the business and financial service functions that determine cities’ position at the top of the urban hierarchy (Williams–Smith, 1986). “Like other industries, financial activities are also characterized by economies of agglomeration, path-dependence and locational lock-in, and historically have tended to cluster geographically in particular urban centres and regions. Indeed, urban hierarchy, to a large degree, is also a financial hierarchy. Thus, most countries have a number of major regional (or provincial) financial centres and, of course, typically a single national centre” (Martin, 1999. p. 6). Urban studies from the aspects of economic history are especially important as the economic performance of countries or regions mostly depends on the economic performance of their cities. The other reason why research of the business and financial service functions of cities would be important is that advanced banking, insurance and financial infrastructure contributed to the spread of credit system innovations in banking serving as a background for socio-economic modernization. Banking activities, as the major capital resources of regional moderni zation, are the catalysts of urbanization level through the spread of modern management techniques, business forms and development of infrastructure. In this way financial institutions have a fundamental role in the development of the cities where they are located. The development of the urban economy and urbanization itself are both determined by financial conditions. By the beginning of the 20th century, our cities were turning into financial centres due to the development of the bank and savings bank network. In this way financial centres were

also the catalysts of Hungarian urbanization. This explains why the research of the spatial aspects of capital flow within the credit system would be an important indicator of the transforming and rising urban system (Conzen, 1977). The research on the development of the banking system and its impacts on regional and urban development should go back to the dualistic period as Hungary had a well-established banking system, which was compatible with the European standards in the early 20th century. Our primary research concept is built on the hypothesis that the urbanization of the late 19th century developed in a close relationship with the development of the modern banking system. The other question to be cleared is why the credit system could turn into the driving force of urban development. The answer for this question is to be found in the analysis of the Hungarian banking centres. The better accessibility to local and national level statistical data and the fact that the banking system of the past had a larger role in economic development than recently have a key importance for comparative researches in banking history and historical geography. While today all headquarters of Hungarian commercial banks are located in Budapest, in 1910 only 5.7% of the total 4,425 credit institutions had their headquarters in Budapest. Hungary’s banking network was fairly dense and practically every city had its own locally founded banking institutions, but the majority of banking assets and transactions in the year 1910 were concentrated in the top 15 banks of the capital city, although banking institutions had strong ties with cities, 65% were operating in rural settlements. Besides, financial institutions played a far more active role in social activities, urban development and local fundraising in the past than today (Gál, 2001).

The structural characteristics of the banking system in the age of the Dual Monarchy (1867–1918) 3.1 The stages of banking development In Hungary during the modernization process of the second half of the 19th century the banking system contributed to a higher extent to economic development than today. It is partly explained by the fact that banks had a more intensive intermediary role in Central East Europe than in the core regions of Europe at the turn of the 19th and 20th centuries, and due to the latecomer economic development status of the Eastern European regions the inflows of external capital were carried out mostly through the banking system. According to Alexander Gerschenkron’s theory, the most lagging regions created the institutional background of financing economic development by the establishment of easily adaptable modern financial structures (Gerschenkron, 1984). The role of banks was not limited to the financial sector only; they also actively participated in the foundation and management of industrial firms, consequently they played an important role in the whole economy. On the other hand, there were strong ties not only between the banking sector and the economy but also between the financial sector and local-regional development (Tomka, 1999; Gál, 1997b, 2005). Func-

tioning as a regional financial centre was one of the most important features of provincial cities at the turn of the 19th and 20th centuries. In the age of the Dual Monarchy of Austria-Hungary, domestic banks were the most dominant actors of the financial system. The historical evolution of the Hungarian banking system, despite its development in a latecomer country with regards to the phases of industrialization, has gone through similar development stages of the modern Hungarian financial system than in the more advanced economies (Martin, 1994). With the earliest stage of industrialization the regionally-locally based, bank-oriented financial system operated in Hungary until the late 1920s, characterized by an extensive network of locally founded banks using local resources for capital accumulation (Martin, 1994) (Table 1). During the interwar period this was replaced by the national and capital market-oriented stage, although the dominance of banks contrary to the Anglo-Saxon models within the financial system remained disputable. In this stage the banking system became more centralized into the capital city of Budapest and the national market and its branch banks incorporated the local and regional banks setting up their centralized nationwide branch network (Gál, 2001). The postwar history of the Hungarian financial sector is a history of nationalization and the introduction of a centrally planned economy, with the result that Hungary turned aside from the world’s development mainstream. By 1948, the whole financial sector was nationalized, and the introduction of a one-tier mono-banking system was characterized by the monopoly of the National Bank of Hungary (NBH). This meant a direct line to the monetarization of the economy which was financed through an oversized mechanism of redistribution.

Table 1 The evolution of the modern financial system Regional and bank-oriented

National and c apital market-oriented

Transnational and securitized form

Associated with industrialization phase of economic development

Characteristics of industrial maturity phase of e conomic development

Associated with postindustrial and transnational phase of economic development

Banks main source of external funds needed by private sector firms

Capital markets main source of funds, using savings of private investors

Bulk of fundsobtained through capital and credit markets, using mainly resources of institutional investors

Industrial growth financed by loans, risk capital and profits

Capital markets channel personal and other savings into industry; risk spread across shareholders

Separation of capital and money markets from industry and commodification of money; proliferation of monetary products

Local-regional and national banking system; local sources of capital important

Concentration and centralization towards national banking and capital markets; loss of local-regional financial autonomy; emergence of internationalization

Development of globally integrated system of world financial centres; loss of national financial autonomy to supranational economy of stateless monies

Source: Martin, 1994.

3.2 The institutional settings of the banking system The birth of the modern banking system in the Austro–Hungarian Monarchy dates back to the 1850s–1860s. In Hungary, radical changes started with the Austro–Hungarian Union (1867) but the formation of

a modern banking system was completed only by the 1880s. While statistical data from the year 1847 reported only 26 banks, their number in 1914 was above five thousand. By adding the number of post offices, credit unions and savings bank branches, this figure goes up to a value of nearly ten thousand (Vargha, 1913). Through the formulation of a modern system, the earlier socially and spatially isolated credit system developed into an institutionalized banking system. The credit institutions in Hungary had been formed of a diverse range of institutional categories in terms of their organizational structure, business lines and functions. Under Hungarian circumstances with low capital resources, the formulation of savings banks with a small equity base was the only reasonable and possible way of bank foundation. The largest of them was the Pest First Hungarian Savings Bank, though the Brassó Savings Bank founded in 1831 was really the first Hungarian banking institution. The Pest Hungarian Commercial Bank founded in 1841 was the first commercial bank establishment in Hungary. The commercial banks (‘credit mobilier’ or ‘mobile banks’) together with savings banks with the largest capital funds were the key institutions of the Hungarian banking system. Since the 1870s savings banks having been transformed into a joint-stock company were practically functioning as commercial banks. The differences between banks and savings banks diminished from the mid–1800s, thus savings banks were also operating as profit-oriented institutions in the organizational form of a joint-stock company. This system had a hidden element, namely private banks without the compulsory provision of statistical data that had key positions in Budapest and the largest provincial cities in the initial phase (Kövér, 1995b; Gál, 2004). Their importance decreased to a great extent by the end of the 19th century. The number of mortgage banks − specialized mostly for mortgage credit − was less within the banking network but their capital assets were disproportionately larger. The majority of banking organizations belonged to the category of credit union as they were mostly operating in small villages, but due to their low capital assets and minor importance they were unable to serve as carriers of modernization for rural areas. The central bank was founded in 1851 and operating under the joint name of Austro–Hungarian Bank from 1878 built an extensive network system in Hungary as well. It became the major coordinator of the Hungarian economic and credit system and ensured liquidity for the Hungarian banking system. The Central Bank − due to the absence of other bank resources in the initial phase − was the major credit provider for the Hungarian economy.

With the development of the banking system, the Central Bank gradually terminated these functions and concentrated mostly on its monetary and the lenders of last resource functions, namely the regulation of currency rates, keeping the liquidity of the national banking system and refinancing savings banks. Before the First World War, the Austro– Hungarian Bank had 42 branch offices (3 in Croatia) and 103 agencies throughout Hungary (Kövér, 2002).1

Headquarters of the Pest Hungarian Commercial Bank in Budapest Source: Jalsovszky–Tomsics, 1992.

Besides the financial institutions listed here, the network of post savings banks and municipal savings banks of smaller importance should be mentioned.

According to the description of a contemporary bank expert, banking, as a strategic field of service sector, had the following missions: “the accumulation of capital surplus and the most appropriate distribution of the collected sums. Its additional tasks are the regulation of financial circulation and safeguarding the economy from getting into a critical situation due to the absence of financial resources” (Vargha, 1913. p. 10). The new financial institutions were not only passively following the demands for financial services, but through the adoption of foreign banking practice they were actively facilitating the accumulation and mobilization of capital, as Hungary had low capital resources in the initial phase of their modernization. Credit institutions established business contacts with economic actors not only through their banking relations but as investors they also contributed to the foundation of new ventures (Katus, 1979).

In the booming period of the economy starting with the Austro– Hungarian Union (1867) ‘our public was also infected by the epidemic of the new world of money and credits, the passion of stock exchange games, anyone having some capital tried to make their fortune on stock markets where all kinds of stags were pumping up the rates of stocks, filling up the money market, up to the sky’ (Vargha, 1885. p. 104). Developing markets, especially those of the eastern and southern regions, were heavily competing with each other for investment funds, and this exhausted their reserves leading to bankruptcies during the 1873 worldwide stock market crisis. The general economic recovery period and prosperity following the crisis gave a new buoyancy to the market and resulted in the resumption of the banking system. Savings banks − primarily founded between 1840 and 1867 with new foundations continuing at a slower rate after the Union − survived the crisis in a relatively good condition; while a series of banks were closed during the crisis, only 14 savings banks went into bankruptcy. This is also due to the fact that the Vienna-centred capital market of the Austro– Hungarian Monarchy was not yet in close contact with the Hungarian banking organizations. Hungary’s largest banks were founded in Budapest and the local financial organizations of the dynamically developing Hungarian cities were mainly savings banks also functioning in the corporate form of joint-stock companies (or were credit unions of minor importance) that − even if their name kept the term of savings bank− were practically operating as deposit banks.2 In Hungary savings banks not only collected savings but were doing all types of ‘banking businesses’, thus instead of functioning as friendly societies or credit unions fulfilling social functions, they were operating as joint-stock company banks for achieving high dividends. This fact completely eliminated the functional differences between savings and commercial banks. Thus, these types of universal banking systems were dominating Hungary’s banking system and the commercial and savings banks (this latter one is the major corporative form in the territories settled by ethnic Hungarians) had a mixed profile from investments to share issuance (Szász, 1961; Illés, 1992). During the 19th century banks and even savings banks were functioning as universal commercial banks and

Headquarters of the Austro–Hungarian Bank (the Central Bank) in Budapest Source: Gerő–Jalsovszky–Tomsics, 1996.

The well-functioning monetary union is one reason why the multiethnic and supranational state of Austria-Hungary is considered in many historical works as a kind of predecessor of the European Union.

this increased their importance in the economic development following the Austro–Hungarian Union. Credit banks (mobile banks), dealing with infrastructure investments and financing industrial and financial organizations through issuing bonds, allocated most of their own and foreign investors’ resources for industrial and infrastructure development projects, such as railway construction. The banks adapted new types of financing techniques serving the country’s economic modernization through the improvement of poor economic conditions characterized by low capital resources in the mid–19th century. In legal-corporate sense the Hungarian banking system The main branch office of the First may be regarded as more univer- Budapest Savings Bank (Erzsébetsal than its German and Austrian város), Budapest, 1905 Source: Jalsovszky–Tomsics, 1992 counterparts as its specialization level and division of labour with other types of financial institutions was narrower and it offered the widest range of services both on macro- and local levels. For example, mortgage banking was very widely available in Hungarian savings bank offices while in other countries it was provided by distinct organizational bodies. However, if we define active investment activities and appropriate liquidity as the other necessary criteria of the universal banking system, we must say that Hungarian banks started their direct industrial investments with a certain delay and even if their volume significantly increased by the first decades of the 20th century, their importance remained low (for example the share of industrial stocks of the Pest Hungarian Commercial Bank accounted only for 3–4% of its total assets and it was still only 10% before the First World War) (Tomka, 1999b). On the basis of different indices (equity/deposit, equity /loans) of banks we must say that the liquidity level of the Hungarian banks was lower than their German and Austrian counterparts.

3.3 The role of foreign banks Especially in the first half of the period of the Austria-Hungary’s DualMonarchy, low capital resources had serious impacts on the building of the international relationship of the Hungarian banks with foreign partners. The international relationship of the Hungarian banking market including Budapest-seated financial organizations was determined by the position of the Hungarian banking market in the Austro–Hungarian Monarchy’s banking system and also by its relationship with Vienna, the Monarchy’s financial centre playing a more important role in international financial markets. Thus, we cannot state that the Hungarian banking system was a completely independent one, as our system was integrated into the banking market of the Austro–Hungarian Monarchy, managed by the ‘binational’ Austrian National Bank (renamed as the Austro–Hungarian Bank in 1878), whose primary focus of interests and operation was outside the pale of the Hungarian territory (Table 2). The operational framework of the Hungarian banking system was marked by the unified monetary (currency) system and by the customs union within the customs boundaries of the Austro–Hungarian Monarchy. All these had strong impacts on the international relationships of the major banks in Budapest as well and these facts also explain the dependencies and limitations of the international relationships of the Hungarian banking system.

Table 2 The weight of the Hungarian banking system within the integrated financial market of the Austro–Hungarian Monarchy 1873

1883

1893

1903

1913

Growth 1873– 1913 1873=100

Assets of joint-stock banks and savings banks in thousand crowns Cis-Leitha provinces* Hungary Share of Hungary, %

3,263,960 3,607,330 5,565,700 638,680 19.5

586,330 2,386,060 16.0

42.8

8,608,200 16,859,200 4,573,100

9,766,380

53.0

58.0

515 1,530

Assets of all credit institutions in thousand crowns Cis-Leitha provinces* Hungary

3,464,170 4,527,950 7,368,970 12,901,260 24,922,540 804,100

763,940 3,238,920

Share of 23.0 16.9 44.0 Hungary, % *Austrian provinces. Source: The author’s edition (Kövér, 2002).

6,435,470 11,970,820 49.0

719 1,466

47.0

The years following the Austro–Hungarian Union (1867) brought significant stimuli for the development of the credit system as well. The ‘entrepreneurial spirit’ coming with transitional abundance of capital resources was favourable for bank foundations. This was the time when Budapest became the second most important financial centre of Austria-Hungary. Due to the huge influx of foreign bank capital it was the period when many of the major banks (Hungarian General Credit Bank, Anglo-Hungarian, Franco-Hungarian banks etc.) were established in Budapest in the form of joint-stock companies that persuaded foreign investors − with speculation aims – to invest their foreign direct capital into railway construction and into the foundation of different companies such as banks and savings banks. The Hungarian General Credit Bank – founded in 1867 – soon became the largest Hungarian bank due to its substantial equity base and the powers of its shareholders including the Rothschild House among others.

In the ‘golden age’ of bank foundations, i.e. the period between the Act of Union and the 1873 banking crisis, many new banks were labelled by either ‘French’ or ‘English’ prefixes in their names. These banks were operating as quasi-international banks and their foundation resulted from the speculative investments of foreign investor groups who were primarily interested in railway construction. These groups were adapting to the Monarchy’s economic ‘environment’ very quickly. They had no connections with those countries whose names they bore, rather they were operating as branches of their Viennese headquarters. They could enter international markets only through the assistance of the London or Paris branch offices of their Austrian headquarters.3 Their short-time of operation was not an example of the international activity of the Hungarian banks but rather they became fragile bulwarks of foreign investors’ rush speculations. Due to the continuous stock floatation of the new banks, 7 million silver forints were invested annually into new banks (with a total asset of 85 million Forints) creating a large number of financially unstable joint-stock companies. The number of private banks also increased. The rising Hungarian financial elite could have attracted more foreign capital to become independent from Vienna but paradoxically, the way to access the foreign markets primarily was through Vienna. Without the involvement of foreign capital the position of Budapestcentred domestic markets was too weak, and thus unable to counterbalance the dominance of Vienna during the whole period.4 Foreign capital flowing almost exclusively into the banking sector was significantly improving the positions of Budapest based banks in the 1880s after the 1879 banking crisis. As a result, even small banks were able to increase their capital stock significantly. Foreign capital returning to the Hungarian financial markets was rarely involved in the foundation of new financial institutions, instead, the international banks primarily established business and affiliated contacts with those Hungarian 3

From the foundation of these banks the Hungarian shareholders expected not only the return of investments but regarded them as prestige investments to turn national banking into an autonomous, boosting and attractive package for the foreign capital market. For these reasons Hungarian investors were insisting that these banks should be located in Budapest and should be given Hungarian names. Although the Budapest stock exchange was decentralized, it could not compete with the Vienna stock exchange as it was only the latter exchange that had international licenses (Budapest had a strong commodity stock exchange and was more competitive in this field).

banks of good reputation that had no linkages with the earlier speculative transactions. By studying the contemporary financial statistical yearbooks, one can clearly see that the development of those Budapest based banks was rapid that were able to involve foreign capital for the increase of their equity stock and in this way a part of their stocks remained in foreign hands. During the period of our study, Hungary’s capital import derived not only from its traditional economic hinterlands (Austria, Germany) or from the greatest capital exporting countries of the earlier period (Great Britain, France) but the major banks of Budapest established new contacts even with Belgian, Swiss and Dutch banks.

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Despite of the active role of foreign investors, the share of foreign capital assets within the Hungarian banking system remained rather low as the proportion of the shares of the Hungarian credit institutions being in foreign hands was still only 11–12% before the First World War (Katus, 1978). Thus, the importance of foreign bank capital at the beginning of the 20th century was to a large extent limited to Budapest and only for the major banks. Thus, we can draw the conclusion that at the turn of the 19th and 20th centuries the Hungarian banking system could consolidate mostly on the basis of local resources, the share of local financial assets involved in the consolidation process was dominant through the whole period. The role of foreign capital was dominant only in some newly founded Budapest based banks serving special market segments, where quick access to foreign markets and the financing of business activities (chemical industry, electrical industry, mortgaging) required significant increase of capital stock. Literature, evaluating the role of foreign capital in financing of the Hungarian economy, proved some correlations between the shortage of capital resources and the increasing importation of capital (Katus, 1978). The Hungarian banking system played a key role both in capital importation and accumulation. At least half of the foreign capital inflows came from Austria, so it can be regarded as an indigenous capital investment. The share of German capital, channelling into Hungary with the assistance of Austrian banks, was the second largest source in the first half of the 20th century. The absence of capital resources in the study period cannot be completely verified, as on the one hand the share of capital intensive industries was low and on the other hand internal finance by industrial companies and the domestic accumulation of capital further decreased the general demand for capital. Simultaneously with the decrease of demand for capital resources the role of foreign capital in financing the Hungarian economy decreased to 20–25% and this is justified by the diminishing foreign capital import. While the share of Hungarian securities deposited in Austrian banks was 50% in the year 1892, it decreased to 34% by 1901 and to 21% by 1912 (Katus, 1978). As recent researches verify, despite the rapid economic development of the Hungarian economy at the turn of the 19th and 20th centuries, the Hungarian banking system together with the import of foreign capital provided larger capital resources for the Hungarian economy (for at least its creditable sectors) than it was able to absorb despite the rapid pace of economic growth (Tomka, 1999). After the completion

of large infrastructure development projects and the consolidation of the Hungarian state budget, we cannot argue that Hungary had a shortage of capital resources, it is rather more true that the Hungarian universal banks, in some cases through the intermediation of syndicated loans provided by foreign banks, had sufficiently played their financing roles, resulting in a continuously growing rate of their industrial stocks prior to the First World War (Tomka, 1999). By the beginning of the 20th century, the Budapest-centred banking sector turned into the most developed and innovative branch of the Hungarian economy with a more evenly distributed spatial structure than that of the industrial sector. Therefore, the active participation of the largest banking groups together with the assistance of the regional centres’ banks in financing the domestic economy, meant that the shortages of financial resources did not impede the industrial development even outside Budapest. Generally, the banking sector found a way of financial assistance for the most important industrial sectors. Accordingly, the only limit for banks in providing a higher level of financial assistance for industrial investments was merely the low demand for capital resources within the domestic industrial sector. Banks with headquarters in Budapest, besides opening local branches in Hungarian cities, were further expanding abroad through opening offices, which became the major gateways for Hungarian capital export. Many of the foreign branches of the Hungarian banks were located in Austria but the majority of new offices were opened in the Balkans. Although at the turn of the 19th and 20th centuries the operation of foreign affiliates − mostly in the Balkan region − was a sign of the increasing international role of the Hungarian banking sector, these banks were however intermediating German and Austrian capital resources mostly for financing local industrial and transport development projects in the Balkans (Kövér, 1991).

The Dimension of the Hungarian banking system 4.1 The size of the banking network The rise and the culmination of the development of the Hungarian banking sector took place between the 1890s and World War I. The statistical documents of the period provide a more detailed picture on the spatial diffusion of innovation generated by the bank sector, the bank location strategies and the other geographical features of the banking system. Examining the size of the banking network we can see that until the Austro–Hungarian Union the increase in the number of Hungarian banks was slow. Their number was 36 in 1848, 40 in 1860 and 60 in 1866. After the Act of Union (1867) the ‘fever’ of new bank foundation rapidly increased the number of banking institutions, their number was 220 between 1866–1870, 1,108 in 1900 and in the eve of the First World War more than 2000 local banks were operating in Hungary, most of them without an extensive branch network. Between 1904 and 1913 the total number of banks, savings and mortgage banks increased from 1,150 to 1,845. This was a 61% growth rate within the last ten years compared to the 42% growth rate of the previous decade. The maximum growth rate of savings cooperatives was characterized in the period between 1894–1904 (with a 212% growth rate) decreasing to 30% in the last few years before the First World War. The belated banking sector development of Croatia between 1899 and 1909 was

counterbalanced by the extremely rapid (330%) extension of its banking institutions consisting mostly of credit unions (Table 3). The employment growth in banking is another indicator of this sector’s importance. When reviewing the share of banking sector employment since 1910 until now, we can argue that in the year 1910 only 0.28% (19,400) of the active wage earners was employed in the sector indicating a very low share of services in the economy during the early stage of industrialization. This value increased to 0.64% after the Trianon Peace Treaty (1920) due to the population loss. This figure, which was calculated on the basis of Hungary’s dismembered (present-day) territory, slightly exceeded the European average, although it was too high for the size and the economic potentials of the country. The intensification of bank consolidation processes in the 1930s reduced the number of jobs to a small extent but the massive closures of banks due to their forced nationalization in 1948 heavily dropped the number of jobs in the banking sector. The number of bank employees reduced and it was only in the 1980s when the number of bank employees regained the level of the 1910s.5

Analysing the changing share of Budapest within the total number of bank sector jobs it is seen that the city’s 50% rapidly increased after the Trianon Peace Treaty and in 1920 two-thirds of bank sector jobs were concentrated in Budapest (16,054 jobs, 3.5% of the total active wage earners in Budapest). Due to the permanent decrease in financial jobs until the 1980s, the number of employees fell below the 1910 level (9,406 in the year 1980).

Table 3 Changes in the number of financial institutions and the share of Budapest within the Hungarian banking network 1894–1913

Year

Banks, savings banks, mortgage banks Hungary

Budapest

Credit cooperaShare tives (credit of Buunions) dapest, % Hungary Budapest

Share of Budapest, %

Total Hungary

Budapest

Share of Budapest, %

1894 809 26 3.2 789 28 3.5 1,598 54 3.3 1899 982 34 3.4 1,381 58 4.1 2,363 92 3.8 1904 1,150 42 3.6 2,462 118 4.7 3,612 160 4.4 1909 1,515 84 5.5 2,910 127 4.3 4,425 211 4.7 1913 1,845 121 6.6 3,191 91 2.8 5,033 212 4.2 Source: The author’s own calculation on the basis of the annual volumes of the Hungarian Statistical Yearbook.

4.2 Budapest – national banking centre with international aspirations Budapest had a peculiar role in the modernization of Hungary during the dualistic period. It was the most important single bridgehead of modernization in the Carpathian Basin. The economic and social modernization originating from several processes were all concentrated in Budapest. By the beginning of the 20th century, the modernization of sub-centres outside Budapest was already under way but despite this, Budapest had far better per capita ‘development’ indices than it would have derived from its population size (Beluszky, 1998). This is especially true in case of the banking sector where successful modernization was the outcome of the large-scale institutional and spatial concentration of financial capital. By the end of the 19th century, the major banks located in Budapest became the largest in the country and were designating the general directions and development frameworks for the Hungarian banking sector until 1918. The top 5 banks were the Pest Hungarian Commercial Bank, the Hungarian General Credit Bank, the Hungarian Mortgage Bank, the Hungarian Discount and Exchange Bank, and the Pest First National Savings Bank. Studying the role of the major banks in the concentration of capital resources we can argue that the importance of major banks,

* Without the autonomous territory of Croatia.

Source: The author’s own edition on the basis of Hungarian Statistical Bulletin vol., 35.

2,989,630 100.0 636,749 100.0 2,253,631 100.0 3,112,283 100.0 1,547,523 100.0 9,778,206 100.0 Hungary’s total

45.8 65.7 43.3 50.3 4,229,410 778,770

2,486,714

79.9

76,785

12.1

1,480, 431

1,369,294

54.2 1,620,336 34.3 773,200 559,964 20.1 56.7 49.7 5 548,796 768,753

626,477

43.8 37.5 4,284,711 580,490

982,776

28.8 23.0 2,815,028 360,483

Budapest top 5 banks Budapest top 15 banks All banks of Budapest All provincial banks

% Banks

705,148

% %

Savings account Assets

87.9

35.7 1,068,017 26.9 606,105 26.2

21.4 640,979 16.6 373,691

% Bill of exchange Charge & chequing account deposit

18.8

Registered capital

In Austria the 12 largest banks concentrated 64.7% of the total banking assets, in Germany the 5 largest banks owned 50% of the total banking assets in the year 1913. The decrease of the share of the top 12 banks is illustrated by the fact that the percentage of their nominal assets was almost 40% in 1900 falling to 37.9 in 1904 and 35.2 in 1909. The decreasing share of large banks coincided with the increasing number of Budapest based credit institutions and with the rapid development and expansion of provincial credit institutions.

Table 4 Shares of the top 5 and top 15 Budapest based banks in banking service lines in Hungary*, in 1909, in thousand crowns, %*

Mortgage loans

residing in Budapest, in the concentration of capital was far less in Hungary than in Germany or Austria (Tomka, 1999).6 In 1890 the five largest banks of Budapest owned 18% of total assets and 27.3% in 1909 and 25.7% in 1913. Their share also slightly decreased in equity capital from the 26.8% in 1900 to 21.8% by year 1910. The largest 15 banks − with more than 10 million crowns equity base − were all located in Budapest concentrating 35.2% (39.7% in 1900) of the banking sector’s total equity base and 41.6% of total assets (Table 4).7

The average equity base of the largest provincial banks was only one tenth that of banks located in Budapest, thus their capital adequacy was always below the average level of the largest Hungarian banks. The equity capital base of the Pest Hungarian Commercial Bank and the Hungarian General Credit Bank were 100 million crowns each and the largest regional bank called the First Croatian Savings Bank, had 11 million while the First Savings Bank of Debrecen had 10 million crowns of equities. These figures show a tenfold difference to the benefit of the Budapest-based banks in the year 1909. The differences in the order of magnitude is well illustrated by the fact that in 1909 Budapest headquarters of the the total capital assets of the five Hungarian General Credit Bank largest banks of Budapest were (today Ministry of Finance) equal to the banking aggregatSource: http://mek.oszkhu/01900/01905/ ed assets of 85 provincial cithtml/ index1455.html ies with the largest asset stocks. Not only spatial concentration of banking services in Budapest but also their absolute volume and dynamism of growth between 1894 and 1913 are striking. During this period the volume of the equity and assets base and reserves of banks residing in Budapest quadrupled and the volume of their mortgage claims quintupled. In 1910, 46.6% of Hungary’s equity stock, 53.9% of the total bank assets and 52.4% of Hungary’s mortgage portfolios (mostly raised for houses) were concentrated in the hands of the 216 financial institutions of Budapest comprising of 86 banks, savings and mortgage banks and with 130 credit unions. The degree of concentration was the largest in the charge and chequing account business as 83.5% of Hungary’s total charge and chequing accounts were kept by

banks of Budapest. Significant internal concentration was taking place within the banking network of Budapest as well: 46.9% of equity base, 60% of the sum total of deposits and 50% of the total assets of Budapest banking market were concentrated in the 5 largest banks having the largest capital stock in 1910. By taking the largest 15 banks of Budapest into consideration, the concentration is even more conspicuous. The top 15 banks had 80% of the equity resources, 75% of assets and more than 80% of savings accounts (Gál, 1998). Within the billing and savings account businesses − as they were mostly run by provincial banks − the share of the big banks of Budapest was only slightly more than 25%. Due to the expansion of the provincial bank networks even the share of Budapest’s banks decreased by the end of the 1910s (Table 5). “The intensive growth of the number of small banks may influence the market share of the large banks, and that is a clear sign of decentralization…” (Varga, 1913. p. 51). While in the year 1900, the 15 largest banks of Budapest had a 38.7% share in the total volume of registered capital stock, it was only 35.2% in the year 1909 and this more than three per cent decrease shows a setback in the concentration process.

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In the first ten years of the 20th century, due to the rapid spread of provincial banks and the spatial expansion of the banking network, the role and importance of the banking services of Budapest moderately decreased in some lines of banking. This was accelerating the deconcentration processes of the banking sector and to some extent reduced the overwhelming dominance of Budapest within the banking sector. This can be verified by the fact that while today all the headquarters of the present-day Hungarian banks are located in Budapest, in the year 1910 only 4.7% of the 4425 Hungarian credit institutions8 were operating their headquarters there and only 4.3% of the total credit cooperatives, being mainly provincial institutions, were operating in the capital city. At the same time, more than half of Hungary’s banking assets (54%)9 were concentrated in Budapest. Hungary’s banking network was fairly dense and practically every city had one or more locally founded banking institutions. Although banks had stronger ties with cities, 65% of credit institutions were operating in village communities. Nevertheless, the majority of capital stocks and banking transactions were concentrated in the 15 largest Budapest banks and in the financial institutions of the largest provincial cities. It is a natural phenomenon of the rapid development progress, characterized by the capital city slowing down and in line with this from the 1890s the focal points of the banking development process relocated, although with slight delay, into the provincial banking centres. The rising regional financial centres themselves became the nodes of capital export and the accelerated capital accumulation in their regions as new financial institutions were established in their gravity zones (Gál, 1998).

Bank business branch

Registered capital (equity)

Bank assets

Savings accounts

Charge and chequing accounts

Bills of exchange

Table 5 → The share of Budapest in the most important banking business lines, 1894–1913, in thousand crowns, % Mortgages 8

The Hungarian credit institutions consisted of 1515 banks and savings banks, and 2910 credit cooperatives in 1910. It was 56.8%, not included Croatia.

Year

Hungarian Empire*

Budapest

Share of Budapest, %

1894

553,125

287,142

51.91

Hungary 528,261

Budapest

Share of Budapest, %

287,142

54.36

1899

853,749

453,087

53.07

813,314

453,087

55.71

1904

1,016,182

500,321

49.24

961,525

500,321

52.03

1909

1,648,907

768,753

46.62

1,547,523

768,753

49.68

1913

2,568,397

1,223,438

47.63

2,437,756

1,223,438

50.19

1894

3,483,496

1,909,747

54.82

3,367,849

1,909,747

56.71

1899

5,183,069

3,028,547

58.43

5,000,730

3,028,547

60.56

1904

6,807,495

3,789,885

55.67

6,489,517

3,789,885

58.40

1909

10,292,998

5,548,796

53.91

9,778,206

5,548,796

56.75

1913

13,932,435

7,881,076

56.57

13,197,280

7,881,076

59.72

1894

1,414,877

308,335

21.79

1,344,061

308,335

22.94

1899

1,772,000

400,074

22.58

1,686,986

400,074

23.72

1904

2,318,625

432,144

18.64

2,186,198

432,114

19.77

1909

3,314,701

626,477

18.90

3,112,283

626,477

20.13

1913

4,123,596

867,468

21.04

3,852,591

867,468

22.52

1894

187,085

174,047

93.03

184,995

174,047

94.08

1899

270,118

247,045

91.46

264,179

247,045

93.51

1904

475,138

425,372

89.53

456,818

425,372

93.12

1909

670,671

559,964

83.49

636,749

559,964

87.94

1913

944,782

770,174

81.52

897,109

770,174

85.85

1894

829,708

212,152

25.57

782,548

212,152

27.11

1899

1,177,200

351,261

29.84

1,108,830

351,261

31.68

1904

1,517,199

444,994

29.33

1,404,570

444,994

31.68

1909

2,422,330

773,200

31.92

2,253,631

773,200

34.31

1913

3,303,000

1,063,253

32.19

3,100,999

1,063,253

34.29

1894

1,050,830

582,801

55.46

1,020,979

582,801

57.08

1899

1,689,996

1,005,363

59.49

1,638,090

1,005,363

61.37

1904

2,170,104

1,257,823

57.96

2,103,986

1,257,823

59.78

1909

3,095,162

1,620,336

52.35

2,989,630

1,620,336

54.20

1913

3,941,786

2,409,978

61.14

3,792,292

2,409,978

63.55

*Including Croatia Source: The author’s own compilation based on Hungarian Statistical Bulletins, 1894–1913.

The increase in the concentration of Budapest’s banking sector slowed down in the early 20th century and stagnated for a while. Budapest’s share in some banking lines slightly decreased and some signs of deconcentration became noticeable, while the share of provincial cities increased within the Hungarian banking system (Table 6). The share of Budapest banks in the total equity stock of Hungarian credit institutions, reaching a peak of 53% in the year 1899, decreased to 46.6% in 1910.10 In 1899 the financial institutions of Budapest had 58.4% share of the total banking assets but in 1910 only 53.9%.11 The trend of the saving deposit portfolios show a long-standing stagnation, though earlier low share of the Budapest-based banks was further decreased from 21.8% in 1894 to 18.9% in 1910. However, Budapest maintained its attraction for charge and chequing deposit accounts that were considered as one of the most innovative financial instruments of that time.12 The degree of the spatial diffusion of charge accounts as a means of financial innovation may well be illustrated by the fact that while in the 1890s, 75% of Hungary’s total charge account transactions were located in Budapest, due to the larger spatial dynamics of this business line the major regional banking centres were gradually introducing this new line (Szász, 1961). This was manifested by the decreasing share of the Budapest banking sector (1900: 93.5%, 1913: 85.8%) but at the same time even in 1913 it was amounting to only 12.5% of the financial institutions’ total liabilities. In spite of a small easing of the concentration of charge and chequing accounts in the capital city, Budapest still retained its strategic role in the distribution of modern financial management techniques and innovations. The share of Budapest in the mortgage business remained above 50%.13 10

11 12

The concentration of the majority of savings deposits and bills of exchange in provincial banks illustrates the spatial outflow of capital from Budapest and the improving economic conditions in the provinces. However, the higher proportion of traditional banking services in the provincial cities and the lower dynamism of some business sectors indicate that economic development in the regions started at a later phase. In certain key business lines, the turnover (and velocity) of the Budapest-based banks were by far exceeding the capital stocks of the given business lines (e.g. in Lombard loan, charge account deposits, credit on bill acceptances) and this ensured long-term competitive advantages for banks residing in Budapest against their provincial counterparts. Budapest − as a national financial centre − preserved its leading role in the introduction of new financial management techniques and in the distribution of financial innovation.

The percentage of Budapest share capital within own assets decreased from a high of 61% in 1900 to 54% by 1909. Calculating without Croatia, these figures are 60.5% and 56.7%. From the 1900s with the expansion of industrialization, the modern forms of capital collection were emerging: charge and chequing account deposits. Both deposit forms were saving industrial and commercial enterprises from the troubles of direct cash handling and banks were performing the role of cashier for them. The speed of the growth of this business is illustrated by the growth of the number of clients increasing from 5,000 in 1899 to 28,000 by the end of 1909 generating a septuple turnover of charge account transactions. Between 1909 and 1913 signs of concentration were emerging on the Budapest mortgage loan market as during a four-year period the share of Budapest in mortgage loan business increased from 52% to 61%!

Share of Budapest within the Hungarian Empire*, %

turnover stock turnover stock Year

1894 26.9 36.1 57.0 50.8 65.4 88.2 22.8 38.3 – – 1896 30.3 37.9 59.9 56.5 73.2 90.4 23.8 44.5 – – 1898 31.3 39.1 60.9 42.6 74.7 85.2 24.4 37.5 – – 1900 31.3 38.9 60.4 27.3 79.3 81.1 23.3 34.8 83.6 91.8 1902 30.9 41.1 60.6 45.4 75.4 87.7 21.8 30.8 84.3 90 1904 29.8 41.1 59.1 39.4 77.9 89.4 19.5 29.2 79.7 90.1 1906 31.2 40.9 55.5 28.5 78.4 88.1 19.7 29.9 77.9 91.1 1907 27.6 40.3 54.7 26.8 71.9 89.7 19.9 31.7 79.4 89.3 1908 30.2 38.9 53.9 27.9 74.4 85.4 20.3 31.1 79.5 89.8 1909 32.8 40.8 53.5 33.5 76.9 83.6 19.8 30.2 79.3 89.1 1913 32.2 61.1 21.4 *Including Croatia. Source: The author’s own edition on the basis of Hungarian Statistical Bulletin, vol. 35 (Vargha, 1913).

stock

turnover

Charge account deposit turnstock over Savings deposit

Commercial paper loan turnstock over Mortgage loan Bill credit

Table 6 Share of Budapest banks in banking stocks and their annual turnover, 1894–1913, in percentage

The importance of the financial services of Budapest banks gradually increased in our research period (1890–1913) both in quantitative (concentration of bank capital) and qualitative (the diffusion of banking innovations) aspects. By the end of the period, Budapest’s financial hegemony in Hungary’s banking system became obvious. This is well illustrated by the cyclical changes of concentration and deconcentration processes. Although between 1910 and 1913 the number of provincial banking institutions increased very rapidly and the distribution of financial institutions became more homogenous in the regions. However, banks in Budapest − after a ten-year transitional period − still increased their market share in five of the six banking lines reviewed in our paper.14 Thus, as a general rule, we can conclude that the Hungarian banking system − even if to a lesser extent than it is recently − was Budapest-centred from the very beginning. The concentration of financial institutions in Budapest by size and the scale economies was even larger than the concentration of each business lines.

The main counter hall of the Pest Hungarian Commercial Bank, Budapest, 1909 Source: Jalsovszky–Gerő, 1996.

Meanwhile in 1913 the 6 largest banks and the 13 largest financial institutions plus the Post Savings Bank concentrated 62.6% of banking assets and only 61.5% in 1927. This proves that the deconcentration cycle continued into the 1920s.

However, the spatial concentration of the financial institution system, unlike today, was very low in Hungary. In the year 1910, 4,425 financial institutions were operating in almost 3,500 settlements. Banks and/or savings banks had their headquarters in 868 different settlements. The level of decentralization of the banking network based on local financial institutions corresponded − in the words of Ron Martin (1994) − to the local-regional bank-oriented stage of the contemporary modern financial systems. At the turn of the 19th/20th centuries, with the expansion of the locally based provincial credit institution network, there was a kind of temporary balance between the centralizing endeavour of Budapest and the major provincial centres trying to stabilize their own economic positions. At that time, the increasing financial importance of the provincial cities was not yet hindered by the large-scale expansion of banks based in Budapest (Table 7). This does not mean that the most important regional financial centres would have threatened Budapest’s economic hegemony but the accelerated and spatially more balanced economic development, characterized by only a few nationwide branch banks, significantly reduced the disparity gap between dynamically developing provincial cities and Budapest by the end of the 19th century (Gál, 1998, 1999).

Table 7 Breakdown of the selected banking lines in percentage among the different settlement levels, 1909* Savings deposit

54.2

33.4

46.5

35.0

55.5

58.2

59.2

28.9

44.9

29.7

37.3

32.1

34.2

29.1

15.1

21.5

14.3

17.8

13.1

18.3

13.6

13.8

23.4

15.4

19.5

19.0

15.9

15.6

All cities

83.1

78.2

76.2

72.3

87.6

92.4

88,3

– of which Budapest

65.2

42.6

61.0

48.4

63.3

63.0

67.0

Villages

16.9

21.8

23.8

27.7

12.4

7.6

11.7

Budapest All provincial cities – of which cities with municipal rights – of which other towns

Return Bill Mortgage (ROE) portfolio loans

Securities portfolio

Equity

Assets

Hungarian 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Kingdom * For banks and savings banks only Source: Author’s calculation on the basis of Hungarian Statistical Bulletin, vol. 35.

4.3 The position of the Hungarian banking system within Europe The Hungarian banking system had been firmly established in the years preceding the first World War. This sector had achieved such a high development level within the economy of Hungary that made it comparable with other European countries. The state of development in banking was not only an indicator of the efficiency of the economy but was also a driving force for the development of other sectors as well. The development level of the contemporary banking sector can be measured by various indices. The comparative intermediation ratio (transmission ratio; bank assets/GNP) is the indicator of the depth of financial intermediation and

a country’s banking development level.15 On the basis of this indicator it can be concluded that the larger the share of capital circulated by banks in the GNP the stronger the financial intermediary function of banks within the economy. The quotient of the available bank, savings bank and mortgage bank assets per GNP was amounting up to 179% of Hungary’s GNP in the year 1913. From his researches László Katus (1978) drew the conclusion that this extremely high indicator of Hungary was unique in Europe and comparable only with the USA. However, the international comparison of indices is complicated by the fact that Rondo Cameron (1967, 1972), a scholar of this field based his calculations on banks only, and in the case of Hungary this would result an intermediation ratio of 55% for the year 1901. This method, excluding the financial assets of savings banks from the calculations would produce only 1/3 of the original 148% value and this would be lower than Austria’s 68% indicator.16 The banking intermediation ratio calculated by banking assets/GNP can be estimated for only 66.7% in 1913, which is also a much lower value (Tomka, 1999b). As a rule, Hungarian banking level indices were higher than those of Western Europe, but not the highest of all. By applying R.W. Goldschmidt’s method in the comparison of the total asset stocks of all financial institutions to the GNP, the intermediation ratio calculated can be accounted for 161% in Hungary in the year 1913. This value, as we have seen it, was not a unique one in contemporary Europe (Tomka, 1996). 17

The comparative intermediation ratio calculated by the total balance results of all financial institutions was 184% in Denmark, 184% in Germany, 287% in Switzerland, 166% in Norway and 153% in Austria in the year 1913. Cameron’s banking indicator for other countries was also lower than the Hungarian indicator. It was 42% for Belgium in 1875, 15.6% for France in 1870, 29.6% for England in 1825, while in Scotland, after its late modernization, it accounted for 89.6% in the year 1845. In Western Europe the ratio of banking assets /GNP was 50–80% without savings banks. The comparative intermediation ratio is the quotient of cumulated annual bank balance sheet data (assets) and the gross national product (GNP). The higher this value is the more ‘bank-oriented’ is the economy, i.e. citizens are more inclined to store their money in banks and the banks are more willing to lend money. The lower Western European values are partly explained by the fact that the financing of industrial enterprises may also be funded directly from the capital markets or from other internal resources.

For the assessment of the density of banks Rondo E. Cameron’s research team worked out a method. It measures and compares the density of banks in European countries calculating the number of banks per thousand heads (Cameron, 1967). In Hungary this calculation should cover the total number of banks and savings banks because of the special institutional features and the similarity of these two types of organizations of the Hungarian banking system. With savings banks performing the The new headquarters of the Pest Hungarian functions of normal banks, Commercial Bank, Budapest Hungary belonged to the Source: Hanák, 1979. group of European countries with ‘high’ bank density figures at the turn of the 19th and 20th centuries (by adding up the 3600 credit unions operating in Hungary in the year 1910 would further increase this density index!). During the 1860s the density of banks was low in Hungary (0.14) by the end of the 19th century Hungary with an index of 0.9 (banks per ten thousand heads) belonged to the group of countries with high bank density. However, including banks only in the calculation would again lower this value (0.36) in the year 1909 (Tomka, 1999b) (Table 8). 18

In R. Cameron’s model, the calculated number of financial institutions per ten thousand heads is very low under 0.1. It is low between 0.1–0.5, moderate between 0.5–1.0 and dense above 1.0. The density of banks in England was 0.48 in 1800, 0.77 at the end of the 1830s. In Scotland it was 1.4 in 1845, 0.45 in Sweden in 1880 and 0.53 in 1900. In Prussia this figure was 0.34 in 1861 (Cameron, 1967; Tomka, 1999).

Table 8 Banking intermediation ratio of Hungary* 1901

1913

GNP (1) (1000 crowns)

3,210,627

6,741,716

Bank and savings bank assets (2) (1000 crowns)

4,755,101

12,115,021

148.1

179.7

1,764,394

–

55.0

–

‘A’ Intermediation ratio = (2)/(1)x100 Bank assets (3) (1000 crowns) ‘B’ Intermediation ratio = (3)/(1)x100 *With Croatia-Slavonia.

Source: Tomka (1996), based on Fellner, F. (1903): A nemzeti jövedelem becslése [Estimation of national incomes], ibid. Ausztria és Magyarország nemzeti jövedelme (1916), [National income of Austria and Hungary].

Spatial features of the Hungarian banking system – regional expansion of banking innovations 5.1 Gradual transition from local to nationwide branch banking The golden age in the development of the Hungarian banking system can be dated back to the period between the 1890s and the mid–1910s. Banks became one of the most important symbols of the prosperity and economic security of the peaceful “Belle Époque”, partly due to the money accumulated in banks as bank deposits proved to be a longterm inflation safe investment for the public yielding profits above the inflation rate.

5.1.1 The golden age of local unit banking During this period the development of the banking system was characterized by two tendencies. One is the spatial expansion of the banking network (Gál, 1999). The second tendency is the rise of the nationwide branch networks through the regional expansions of the big banks. In parallel with the strengthening role of Budapest’s financial market the spatial expansion of the provincial banking network can be seen. The

rapid growth of the local banks, savings banks and credit cooperatives, which were established on the base of the local-regional capital source, resulted in the development and more even spatial distribution of the local money-markets. The local banks, partly through regional public fund management, became the symbol of the local entrepreneurial and public interests, rather than the branches of strange (e.g. Budapest based) banks. The local bankers became their cities’ most honoured citizens, through their local development and patronist activities they were highly respected members of their city’s local community. The development of the independent unit banking network in the regions was determined to a great extent by the fact that the negative backwash effects were not effective in territorial development during this period. That is why the development of the smaller locations and their independent local banking activities were secured without their capital resources being backwashed by the capital city (Gál, 1999, 2001). The rapid development of provincial savings banks and credit unions, based on local capital resources, created a balanced and a relatively more even spatial distribution of the credit institution network. In 1909, 3,458 settlements had some kind of credit institution but only 868 settlements had a bank and/or a savings bank in Hungary. Analysing the banking functions of Hungarian cities, as one of the main urban functions, 175 settlements can be identified. The concentration of major banking services into large cities generated a relatively high spatial concentration process of the banking system even in the regions (Gál, 1999). Apart from Budapest, Hungary’s national financial centre, the regional banking centres also played an important role in Hungary’s banking system. Banking services in Hungary’s south-eastern regions were developing more intensively than in West Hungary, the traditional banking centre of Transdanubia. It is not by chance that of the 10 largest regional financial centres concentrating the largest banking assets eight were located in Hungary’s eastern regions. Local financial institutions − partly because of their role in local finance − were rather more representative of the interests of local entrepreneurs than the local branches of remote banks located in Budapest. The evolution of the network of provincial financial institutions was largely influenced by the fact that the negative ‘backwash’ effects in the regions were at a moderate level only. Thus, new provincial financial institutions even in smaller towns could be operated without the danger that large financial centres (primarily Budapest) would ‘backwash’ their resources. On the one hand, this can be explained by the

fact that the large-scale demand for new business foundations heavily increased the demand for credit and regional banking centres, even if having large amount of capital resources, could have been unable to meet their clients’ credit demands without the help of local banking units. On the other hand, although the Hungarian banking system was one of the most advanced branches of the economy, even by international standards, it was still characterized by the shortage of capital resources, especially in peripheral regions. Consequently, the banking centres in the eastern regions − in spite of their geographical proximity − did not work against each other’s economic interests, because they were located in less favoured areas where the demand for credit could be supplied by only a diverse (multicentred) banking market. Thus, city pairs of regional banking centres provided an additional effect in regional development as their banking facilities developed in a complementary way filling each other’s gaps on a cooperative basis.19

5.1.2 The nationwide branch banking – phases of network building and centralization 5.1.2.1 Creation of interests in the regions – building bank affiliate networks Another development tendency was the large scale concentration of banking capital in Budapest and the penetration of Budapest’s big banks into the provincial money-markets, which paralysed the independent operation of the selected provincial banks facing takeovers and incorporated many local banks into their centralized nation-wide branch network. The spatial concentration of banking capital resources (although its degree was below that of other economically advanced countries) 19

Szeged–Szabadka [Subotica], Arad–Temesvár [Timişoara], Nagyvárad [Oradea]–Deb recen. However there were some examples for the opposite trend in Transdanubia, a less dynamic region compared to East Hungary with a higher density of banking network, where for example the increasing importance of Szombathely and Győr – in the banking sector as well – limited the economic (financial) functions of the nearby cities (Kőszeg, Sopron).

e.~

Bukares Ruszcsu Craiov

Filippopol

•

IyQ Konstantin"

Smyrna

Szaloniki

SzoejapO

Brailae

was accompanied by the market entries of the large Budapest-based banks into the provincial banking market. The centralization of the credit system, after a transitional slowdown period, accelerated again as a result of bank affiliates network building and the branch office building strategy of the major banks. Affiliations or affiliated relations with local banks accompanied by the incorporation of these institutions into the expanding bank affiliates networks of the ‘big players’, became part of the network building strategies of the largest banks having their headquarters in Budapest, which contributed to the increase of capital concentration and centralization. Regional financial markets developed independently for a long time from Budapest’s financial market. The increased financial strength of the banks of the capital city from the 1890s made possible the development of the groups of their affiliated banks and parallels the extension of their branch networks within the organizational frameworks of the largest banking groups.20

Fium

QA Hungarian Bank & 7 Commercial Plc

Source: Edited by the author.

•

O. Pest Hungarian Commercial Bank

Hungarian Discount & DI Exchange Bank

Affiliated banks belonging to the 5 largest banks increased from 19 to 49 between 1900 and 1912, which number increased to 134 taking also those institutions into account which were subinstitutions depending on their affiliated banks.

•

*** Hungarian General Credit Bank

Banjalu Spalato

Szabadka

hos

Mostar Q

Figure 1 → Branch and affiliated bank networks of the four largest Hungarian banks having their headquarters in Budapest, in 1914

For a long time the provincial banking system was independent from the Budapest-based banks. At an early stage of the development of the banking system, major banks of the capital city were also concentrating on absorbing local capital resources. The increased equity base of these banks of Budapest enabled them not only to invest in railway construction and industrial projects but also for creating banking groups through formulating at first an affiliated bank network and later a nationwide bank branch network functioning as channels of capital collection (Zsoldos, 1914). Large, Budapest-based banks entered into the regional bank markets at a very early stage, even in the period of bank foundations. They started their activities in provincial cities not by the foundation and acquisition of financial institutions but by establishing a credit-based interest with relationship building concerns in the so called affiliated institutions. At the early stage of dualism, the Central Bank also established its nationwide network in order to supply capital resources for the developing provincial banking sector.21 Large banks as well did their best to getting closer to clients and companies. With the involvement of banks in their interest sphere they did their best to ‘…support and provide economic and commercial credits and organize their supply not only in Budapest and to involve the whole country into the interest group… The advantages of the system should be extended to the country’s remote areas as well; on the other hand, such small producer and commercial centres should be incorporated into the network that would choose Budapest as their focal point (Zsoldos, 1914. p.14). Large banks were involving credit institutions into their networks partly by building affiliated relations (providing credit funds, billing, bank account credits) and partly by the acquisition of shares. The foundation of new financial institutions was the other method of building interest relations. The main reason of building dependencies was that banks with small equity base had a demand for a stable financial assistant in order to avoid getting into financially unstable position. These smaller banks should have had to increase their own equity to counterbalance their quickly growing liabilities in order to 21

The Angol–Magyar Bank was the only bank to start building the network of its provincial financial institutions without sufficient capital resources at the end of the 1860s. This effort failed with the founder’s early bankruptcy. Pest Hungarian Commercial Bank (PMKB), the biggest network builder, was concentrating on the credit supply of Budapest market and started to build its own affiliated bank network only after the increase of its equity base.

keep their balance sheet equilibrium. Their lack of capital resources were funded by large banks that were also making efforts for getting better access to the new markets partly through their affiliated bank networks depending on these large banks. Due to the penetration of large banks into provincial markets, local credit institutions lost an enormous amount of profit.22 Unlike their own branches, bank affiliates did not primarily serve for the absorption and channelling of capital resources towards the centre. Rather, bank affiliates were the main receivers of correspondent accounts, billing and charge account credits in particular. Because of sharper competition in the market of Budapest and with more limited chances for local market expansion (apart from some special cases) the majority of large banks were concentrating on formulating their affiliated network in the regions. Between 1900 and 1912 the 5 largest banks of Budapest increased the number of financial institutions belonging to their interest groups from 19 to 49. The affiliated bank network of the major banks consisted of 134 affiliated institutions including a number of credit institutions subordinated to their affiliated banks. Between 1900 and 1912, the total value of bank assets belonging to the main affiliated networks increased from 2.4 billion crowns to 7.7 billion crowns.23 Thus, the formulation of affiliated bank network significantly increased the organizational-institutional concentration of banking market of Budapest. So the formation of the related company network significantly reinforced the organizational-institutional concentration of the money-market into Budapest resulting in that the 5 largest banks of Budapest through their affiliated banks network controlled the 58% of the aggregate banking equity stocks in 1913 (in 1900: 47%) (Zsoldos, 1914) (Table 9).

A bank manager of the Braşov Savings Bank was complaining about the expansion of banks located in Budapest and Arad [in 1906] as follows: ‘While provincial banks were dominating their districts, citizens searching for credit could finance their debts only through provincial financial institutions… Now the Budapest-based banks and the largest provincial financial institutions are trying to get provincial clients by offering cheap credits.’ For example, the Discount & Exchange Bank in 1913 through its large affiliated institutions (Hungarian Mortgage Bank, Hungarian General Savings Bank, Hungarian Agricultural and Annuity Bank) was supervising 41 smaller institutions, while Hungarian Credit Bank through its 13 affiliations was keeping contacts with 15 additional financial institutions.

Table 9 The number of branches and affiliated banks (affiliates) of the 15 largest Budapest-based joint-stock credit institutions, 1899–1909 Year 1899 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909

Budapest 18 18 20 20 20 26 28 28 32 35 36

Branches Provincial 4 4 7 7 8 17 21 23 25 25 26

Foreign – – – – 4 9 6 3 6 6 6

Affiliated banks Budapest Provincial – 3 – 4 – 4 – 4 2 8 2 15 2 18 2 27 3 40 3 44 4 47

Foreign – – – – 1 7 9 13 12 11 12

Source: Hungarian Statistical Yearbook, vol. 35.

The endeavours of major banks to build affiliated networks − as Béla Tomka pointed out in his findings − were not in Hungary simultaneous with economic crises. One of the reasons can be explained by the fact that large banks rarely merged with other financial institutions and mergers and acquisitions as the means of concentration were almost an unknown organizational strategy in the early 1900s. In Hungary, even the degree of bank concentration was far below that of the advanced countries resulting in greater stability of banks and the relative rarity of bankruptcies (Tomka, 1999).

5.1.2.2 The beginning of arms length banking – the rise of branch networks Another important tool of the institutional centralization was the development of the bank branch network. While in 1894 there were just 85 bank and savings bank branches in the country, in 1909 this number had increased to 307 from which the number of branches owned by the

largest Budapest banks rose to 68 and the number of affiliations to 63. So the concentration within the banking network had already started in the beginning of the 20th century, but at this time the big banks had a relatively small number of branches and inside the banking system the smaller and independent local unit banks were dominated (Vargha, 1913) 24 . Apart from affiliated banks, the building of branch office networks was the other means of increasing the size of the banking network. “The absorption of capital was the primary task of bank branch office foundations. For head offices, the branches served as capital accumulators collecting savings. They collected ‘unproductive’ capital in deposits and directed them through centres towards the fertilizing channels of the economy” (Zsoldos, 1914. p. 49). Budapest banks were the major beneficiaries of opening branch offices. With stretching their reach and building wider groups of client circles, large banks extended their financial relationships and their market shares by opening bank branches in certain parts of Hungary. The building of branch network due to higher operational costs was an expensive and risky business at the same time. The opening of branches quickly increased the expenses of a bank, partly because of the incurring furnishing and maintenance costs of the expanding branch network, and partly because of employing a larger staff. (The furnishing expenses of a branch bank office were between 40–100 thousand crowns and the amount of sum the four Budapest-based banks spent on their branch offices in Budapest totalled upwards of 3 million crowns. The total operation costs of branches at the four big branch building banks [PMKB, MÁH, MLPB, MBK] were 2.9 million crowns in 1894 but this sum increased to 16 million by 1912 (Zsoldos, 1914). The sustenance of turnover of branches, particularly in those provincial cities where the independent, locally founded unit banks built close relationship with local entrepreneurs (often based on local ethnic client groups), was rather risky from the point of emerging financial expenses. In the period of our research, the local elite was making

The intensive concentration of the bank network largely progressed during the “national or capital market-oriented” stage in the interwar period, in which the banking system became more centralized in the capital city of Budapest and the national market incorporated the local, regional banks setting up a centralized national branch network.

several efforts to impede the penetration of Budapest banks into their local banking markets. The branch network of large banks remained small in the period of our research (Gál, 1996) (Table 10). In 1896 the 4 largest Budapest’s banks had only 7 offices in Budapest and 4 in provincial cities (Figure 1). The building of bank offices accelerated at the turn of the 19th and 20th centuries and after the quick saturation of the Budapest branch network the expansion started in provincial cities. The PMK Bank was the first to build its own banking network but opened its 7 first offices in Budapest. By 1913 the expansion accelerated and increased its own Budapest offices and provincial branches to 15 and to 9 respectively.25 This can explain why it was known as the “Hungarian Credit Lyonnais” though the French bank with 400 branch offices alone was larger than the total number of Hungarian branch offices! While in the year 1894 throughout Hungary there were 85 bank and savings bank branches, their number increased to 307 by 1909, of which 134 were located in Budapest itself. 26 The Hungarian Discount and Exchange Bank, apart from its 9 Budapest based offices opened new ones in Kassa [Košice], Pozsony [Bratislava], Fiume [Rijeka] and Kolozsvár [Cluj-Napoca]. The Hungarian General Credit Bank opened its offices only later, after 1905 but 9 offices were opened at the same time in different provincial cities. The Hungarian General Credit Bank had new offices in Pécs, Brassó [Braşov], Debrecen, Fiume [Rijeka], Győr, Kassa [Košice], Kecskemét, Nagyvárad [Oradea], Pozsony [Bratislava], Szabadka [Subotica] and Temesvár [Timişoara] in 1910.

Brassó [Braşov], Eszék [Osijek], Nagykanizsa, Nagyszeben [Sibiu], Sopron, Újvidék [Novi Sad], Újpest, Erzsébetfalva, Budafok. The number of branches by 1909 reached 416 with Croatia including the credit unions.

The board of directors of the Pest Hungarian Commercial Bank, Budapest, 1905 Source: Hanák, 1979.

The bank building strategies of provincial banks were influenced by several factors. The stronger locally based provincial banks were hindering and slowing down the penetration of Budapest’s banks into their local markets, so certain big banks were trying to enter less saturated smaller-scale markets. In the case of PMKB affiliated banks and branch offices were allocated to different cities following a complementary market building and expansion strategy. Its bank offices − unlike its affiliated banks − were operating in cities of medium-size bank market thus avoiding stronger market competition. The Hungarian Credit Bank followed a more ambitious strategy as it concentrated on counties and cities with the largest sum of deposits. The Bank opened its offices on sites where it was concerned with industrial and financial interests (Bratislava, Subotica, Timişoara etc.). The Hungarian Banking and Commercial Plc was building its office network in the peripheral areas of Austria–Hungary and abroad, especially on the sites of the Balkans where it had many foreign interests (Sarajevo, Saloniki, Banja Luka, Mostar, Bucharest, Istanbul).

Table 10 Banks with the largest affiliated branch network in the year 1913 Number of offices In Budapest

In provincial cities

Pest Hungarian Commercial Bank (PMKB)

Hungarian General Credit Bank (MÁH)

Hungarian Discount and Exchange Bank (MLPB)

Hungarian Commercial Bank Joint-stock Company (MBK)

Source: Zsoldos, G., Bank concentration, Budapest, 1914.

Thus, the concentration of the banking network started at the beginning of the 20th century but at this time large banks had relatively few offices. The banking system was dominated by small-scale, independent and locally founded unit banks. The concentration of the banking network accelerated during the interwar period. In this period of national market-oriented bank system, the gradual expansion of Budapest banks towards provincial sites further increased the dominance of Budapest. After the Trianon Peace Treaty (1920) Hungary’s territory decreased to one-third of the original, several small provincial banks were closed or left outside the new borders thus only one-third of provincial banks could preserve their organizational independence within the smaller and dismembered Hungary (Figure 2). The overwhelming but not only financial dominance of Budapest within the urban network is generally explained by the border changes following the First World War; as before the Trianon Treaty, Budapest was the capital city of a country with 20 million inhabitants and its ‘rival cities’ were excluded from the country after 1920. Budapest’s dominance dated back earlier than the Trianon peace treaty which closed First World War for Hungary. The gap between Budapest and the secondary level of urban hierarchy in the early 20th century was similar as today. (Its population was higher than the total population of the ten biggest regional centres; only in the next 32 cities subsequent to Budapest accounted for as many employees in the commercial sector as Budapest alone in 1900. According to banking statistical data the city’s bank-

ing importance was higher than its commercial one). Until the early 20th century the city’s development dynamics was far above the development pace of provincial cities further increasing the gap in the last third of the 19th century. However in the first twenty years of the 1900s, due to the rapid catching up of the regional centres and to the slowing down of Budapest’s development pace, more spectacular population growth and development progress occurred in the provincial centres. If Hungarian modernization had continued under the same territorial conditions as before Trianon, the ‘cutting edge’ of urban development would have more strongly concentrated on regional centres, thus bringing some further dynamism into the existing structure of urban network. Figure 2 Breakdown of credit institutions and banking equities between Hungary and the successor states of the Hungarian Kingdom after the First World War (Treaty of Trianon), 1920 to Czechoslovakia Upper Hungary

15 to Austria

.I I 74 ansdanubia

39 North E st Hungary

35 I

Transylvania

IN Croatia-Slavonia

Pi 1 4

South East Hungary Banat

to Romania

F-H to Yugoslavia

Key: 1 – Breakdown of the number of credit institutions (in percentage); 2 – Distribution of banking equities (in percentage). Source: Buday, L. 1922: The Organization of Capital, In. Dismembered Hungary, New York.

5.2 Territorial differences in the Hungarian banking system The Hungarian banking system considerably expanded by the eve of First World War, and became one of the most advanced sectors of the Hungarian economy. The development level of the banking system is measurable by means of several macroindicators (comparative financial ratio, employment and penetration index), and by indices measuring the territorial characteristics of the banking network either at the national or regional level (network density indicators compared to territory and population). Spatial breakdown of capital flows are one of the most important indicators of regional and urban transformation, and we examined the regional characteristics of the regional and local money-markets on the basis of the territorial breakdown of the banking stock aggregates (Gál, 1999).

5.2.1 Measuring banking network density By the end of the 1910s, Hungary belonged to the group of European countries with a “high” density of banks and savings banks. In 1910 in Hungary with 20 million inhabitants, the credit institute’s supply index accounted for 3709 clients per institution. While in the early 20th century, with 0.9 bank density index (credit institutions/10,000 inhabitants) Hungary belonged to the group of countries with high density (Gál, 2000; Tomka, 1999). In the Hungarian banking system − compared to Hungary’s economic development level − there were too many credit institutions. The high density of the banking network and its dominant role in the economy alone did not guarantee a smooth, problem-free operation, as the excessive number of institutions decreased the economy of scale within the banking system. The considerable lack of supply of small and medium-size agricultural credits and the absence of Raiffeisen-type credit unions further worsened the credit conditions of small and mediumsized landowners. There excessive number of financial institutions is frequently mentioned in the contemporary literature. The number of provincial banks and savings banks doubled between 1900 and 1915. As Gyula Vargha, the contemporary financial expert wrote “It hardly can be denied that financial institutions were overgrown: they were es-

tablished in such places that already had had an old and consolidated credit base with well-funded capital resources” (Vargha, 1913. p. 55). One can ask why Hungary had relatively many more financial institutions than Western European countries on a territorial basis.27 Because of the bank ‘foundation fever’ generated by the scarcity of capital resources, the low level of institutional and spatial specialization, the strong competition for deposits in places where more than one credit institution was established without any economic rationality (e.g. in North-east Hungary) resulted in frequent bankrupties. Thus, it is not surprising that these organizations with a low equity base were the first to go bankrupt. At the same time the financial institutions in rising regional centres − contributing to the birth of commercial and industrial plants − were financing not only their dynamically developing local economy but frequently they provided banking services in regions characterized by scarce networks of banking institutions. In the centres of peripheral regions with poor capital resources were concentrated many more credit institutions than the national average (Vargha, 1913). Studying the spatial structure of financial institutions we must ana lyse Hungary’s credit institution network and the national-level distribution of banking sites. In 1910 Hungary had 4,425 (5,324 total with Croatia) credit institutions, of which 1515 were operating as banks, savings banks or mortgage banks and 2,910 (3,623 total with Croatia) as credit unions. Of those, 216 financial institutions and 52 offices, 5.7% of the total were located in Budapest.28 In 1909 most savings and credit institutions were operating in Croatia, Transylvania, Transdanubia and Central Hungary, the least numbers in Upper North Hungary and North-east Hungary. In the area of banks and savings bank the quick growth in the financial institutions of eastern and south-eastern regions is striking: the number of banks and savings banks operating in Bánát, Central Hungary (Bácska), and Transylvania was higher than in Upper North Hungary and Transdanubia. Concerning the number of credit institutions per territorial unit size measured in square kilometres (institute/1000 km2) we can see large regional differences within the distribution of credit institutions. Con27

Hungary ranked by the number of financial institutions was 8th even in 1885, exceeding such competitors as France and Austria; by share of population Hungary was beaten only by the Benelux states, Scandinavian states and Germany. In: Vargha Gy ibid. p. 562 4.6% with Croatia and affiliates

temporary statistics used the index of territorial unit per single institution showing the size of the potential supply area of a credit institution. The larger the area supplied by a single institution, the lower the density of the banking network and vice versa. The spatial growth of the credit organization network is indicated by the fact that in the year 1894 one banking institution was serving an area of 177 km2 in Hungary. In the year 1909 one institution was serving a much smaller area of 64 km2 indicating the growth of the number of credit institutions and the decreasing size of the supplied area. The credit institution network was the most densely built up in Central Hungary, Bánát, and in Transdanubia but the density of the network was the lowest in West and East Upper Hungary and Transylvania compared even to territorial dimensions. It is also clearly seen that concerning the density of the banking network, Transdanubia’s good position in 1894 was surpassed in the early 1910s by Bánát region, rapidly developing its financial network and also by Croatia, rapidly growing its credit union network. As Croatia was the most underdeveloped region, it produced the most rapid pace of development of its financial network. However, the density of banks was relatively small there but the density of credit unions was the highest in this region (Figure 3a-b). Naturally, the indicator of territorial unit size per bank or savings bank is higher which means its banks and saving banks network had smaller density, therefore banks had to serve larger areas. In the year 1894 although spatial disparities in general were greater, Central Hungary with South-east Hungary were the two leading regions with the highest density of banks and savings banks. They were followed by Transdanubia followed with a certain gap by North-east Hungary, Eastern part of Upper Hungary, Transylvania and Croatia with the lowest network density. (Figure 4a) (Gál, 1998). In the year 1909 the territorial unit size per bank or savings bank in Transdanubia was far below the Bánát and the Central Hungarian region and the density of banking network was even higher in West Upper Hungary and Croatia. The density of the banking network was the lowest in Transylvania and Eastern part of Upper North Hungary (Figure 4b). The development pace of the banking network can be measured by territorial unit size per credit institution index either at regional or county level. The development pace was the fastest in Croatia, Northeast Hungary, Transylvania and Upper North Hungary, usually in the regions lagging behind. By the number of banking institutions per territorial unit, the North-east Hungarian region was the fourth among the

Hungarian regions but during the evaluation of this fact it should also be considered that the density of settlements is lower here than in the other parts of Hungary, in terms of territorial unit size per single institution index indicating a certain area, measured in square kilometres, which is served by one credit institute. The differences on county level are more significant than on the regional level because smaller units reveal the hidden differences at the regional level. While in 1894 the extreme values were produced by the western, the north-eastern and the Croatian counties, by the beginning of the 20th century a very dense network developed in the south-eastern regions of Hungary. The largest density in 1894 was measured in Vas (83), Sopron (64) and Komárom (46) counties, where a denser network of credit institutions developed resulting in a smaller supply area for each institution. Figure 3 Territorial density of credit institutions in Hungary: size of territorial unit per institution, 1894, 1909 A credit institution per sq. km <100 100-200 200-350

350-500

500-1,000 >1,000

Vj 1 ,

‚

a) 1894

Hungarian Empire (with Croatia): 190 Hungary: 177

141

` otior 1;0,lirmiriAl25411 Q

267

IX 367 h!

4. .s.9

Regional average with Budapest (in the Central Hungary region without Budapest )

Regions: I Transdanubia II Croatia—Slavonia III West Upper Hungary IV East Upper Hungary V Central Hungary VI North East Hungary (Trans-Tiszania) VII South East Hungary (Bánát) VIII Transylvania IX Fiume (Rijeka)

Source: All maps in this format edited by the author

b) 1909

b) 1909 A bank, savings bank per sq. km

A credit institution per sq. km <40

40-60

L _ AI 82

60-80 I I

80-100

103 0 1

I I I I

I 100-120 >120

<100 100-200 200-300 300-400 400-600 >600

T~ ~

67 61

~ 41 '

54 ,

r i I II

r 414 F

Hungarian Empire (with Croatia): 191

Hungarian Empire (with Croatia): 61

tal44111

Hungary: 186

Hungary:64

[ 61 1

Regional average wlth utlapest (in the Central Hungary region without Butlapest )

[212

Figure 4 Territorial density of banks/saving banks in Hungary: size of territorial unit per bank/savings bank, 1894, 1909

a) 1894 A bank, savings bank per sq. km

I I I I

<100 100-200 200-350 350-500 500-1,000 >1,000

44414,

455

370

380 204 41,

. 4 , 00 286 2

Hungarian Empire (with Croatia): 374

Regional average (in the Central Hungary region with BBtlaPPest without Butlapest

The smallest density was measured in Hunyad (578), Máramaros (414), Sáros (546), Bereg (532) Ung (509), Csík (499), Lika-Krbava (1553), and Modrus-Fiume (2439) counties (Figure 3a). By 1909 the counties of Southern-Hungary had built up a very dense credit institute network (Bács-Bodrog [42], Temes [31], Torontál [37], and the network was also strongly expanding in the counties of North-eastern Hungary: Szatmár [39], Bihar [71], Hajdú [50], Szabolcs [56], Ugocsa [30]). Some counties of Upper North Hungary – Liptó (160), Sáros (304), Gömör (153), Zólyom (156), Szepes (153), Árva (135) and also some Transylvanian counties, Csík (131), Hunyad (147) – had the worst provision indicators (Figure 3b). However Croatia, due to the rapid growth of its credit institute network was catching up to the leading counties but the increase in turnover in the region was only moderate (Gál, 1999, Vargha, 1913). The density of the bank and savings banks network in 1909 was the highest in Temes County with the most dynamic provincial banking centre and network. It was followed by Torontál County, then by Bács, Bodrog, Hajdú and Vas counties. The density of the banking network was the lowest in Máramaros, in some Transylvanian coun-

Hungary: 349

(721 l

Regional average J (in the Central Hungary region

with Budapest without Butlapest

ties (Udvarhely, Maros-Torda) and in Croatia (Modrus-Fiume, LikaKrbava). The density of banks and savings banks was also very low in Sáros and in Baranya. In the latter, the lower density emerged due to the small number of banks and to the heavy dominance of the city of Pécs (Figure 4a). In the late 19th century the density of the banking network measured by bank supply index indicating the number of population supplied by a credit institution29 was the highest in Central Hungary, in some counties of Transdanubia, Bánát and in some Saxon counties of Transylvania. In these regions a lower number of residents was serviced by a single credit institution indicating higher efficiency of bank supply in 1894. The largest number of population served by one credit institution (with lower efficiency) was in Croatia, Upper Hungary and in the counties of Transylvania, indicating the lower density of the available banking network (Figure 5a). By year 1909 the region of Bánát and the earlier underdeveloped Somogy County with some Saxon counties of Transylvania and some Croatian counties (Szerém, Pozsega and Verőce) had higher density. The expansion of the network was very fast in Pozsony and Nyitra counties and in North-east Hungary, East Upper North Hungary, Transylvanian and Croatian regions having very few credit institutions at an earlier time. Meanwhile the earlier 2nd position of the Transdanubian region on the density list fell back to the 5th (Figure 5b). By year 1909 on the basis of the population number served by one bank and savings bank (supply ratio), Transdanubia fell back to the 8th, the last position. The Bánát [Banat] South-east Hungary, Central Hungary and Transylvania with relatively low population density were on the top of the density list (Figure 6a–b). Due to the relatively balanced spatial distribution of provincial credit institutions in the early 20th century, the majority, nearly 65% of credit institutions were located in non-urban settlements (villages). This significantly contributed to modernization in small and rural settlements and also indicated that economic development was not reliant on the traditional system of public administration.30 In conclusion, we can state that the innovation of financial institutions penetrated into more and more areas and this ensured a smoother distribution of financial organizations. 29 30

Figure 5 The regional breakdown of bank supply index in H ungary: population per credit institute, 1894, 1909

a) 1894 A credit institution per 1000 inhabitants <6.5 - 6.5-10.0 - 10.0-13.0 - 13.0-20.0 I I 20.0-30.0 >30.0 I I

®~ . NO

~~~

8.2

6.9 6.6

~0.1

igg

9.0 ~

(with

•

(8.2 )

Hungarian Empire Croa tia): 10.2 Hungary: 9.9

Regional average (in the Central Hungary region wlthOUt th Budappest BUddpOSt )

b) 1909 A credit institution per 1000 inhabitants - <3 3-4 - 4-5 I I 5-6 I I 6-7 >7

I I

Bank supply index: calculated by population size per credit institution. Credit unions with weaker capital base were generally operating in non-urban settlements.

Hungarian Empire (with Croatia): 3.9 Hungary: 4.1

(4.2)

Regional average

with Budapest (in the Central Hungary region without Budapest

Figure 6 The regional breakdown of bank supply index in Hungary: population per bank and/or savings bank, 1894, 1909

a) 1894 A bank, savings bank per 1000 inhabitants

<13 13-20

I ~I I I I I

20-30 30-40 40-80 >80

* 04 1 1441 141P41 440 1Ăś

VVV (20 1 Regional average

Empire (with Croatia): 20

Hungarian -~

1v \\!

Hungary: 19

with Budapest (in the Central Hungary region without Budapest

b) 1909 A bank, savings bank per 1000 inhabitants

7-10

10-15

15-20

20-30 >30

5.2.2 The geographical distribution of banking stocks and flows The geographical analysis of the spatial dimension of capital flows and distribution of bank networks is an important indicator of the historic transformation of the urban network as well. During the analysis of spatial distribution, the volume of assets and deposits, the most important indicators of accounting assets & liabilities side of the bank balance sheet, serve as an evaluation basis for the importance of financial institutions. In 1909, 97.5% of Hungarian credit institutions were engaged in the deposit taking business, so this field is a suitable indicator for a deeper analysis. Accepting bank deposits was not only a widespread business line but also was an indicator of local savings and the average propensity to save. The savings deposits served as a main resource for working capital supply for financial institutions.31 Banking portfolios were represented by their assets which is a financial instrument in which wealth can be held. Assets are usually listed on the balance sheet embodying all banking service lines (bill portfolio, mortgage, securities portfolio, interbank loan). The accounting equation relates assets, liabilities and ownerâ&#x20AC;&#x2122;s equity. In financial accounting, a liability (e.g. deposit) is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future. Banking assets are the indicator of the equity base and the activity of a bank. Analysis of the volume of deposits on a local, county and regional level, and the valuation of relative indices on a certain territorial level also seems to be useful. Although the indices of the regional and county level distribution of banking deposits32 may inform us about the concentration and turn31

Hungarian Empire (with Croatia): 12 Hungary: 12

(14)

Regional average with Budapest (in the Central Hungary region without Budapest )

Statistical data reveal that high average deposit sums compared to European standards verify the greater economic importance of this business, as working capital was returned to industrial-commercial businesses only after a short-term deposit period. The financial institutions of Budapest had only 1/5 of deposits and only 30% of annual deposit transactions at the national level. On the one hand, this is proof of the improving living conditions of the provincial population; on the other hand, it is showing the faster innovation of Budapest-based banks as the decrease of savings deposit business was replaced by the fast increase of charge and chequing account business and the expansion of the modern securities business.

019.0

SZE RÉM ❑ 30.2

LIKAKRBAVA • 9.2

• 14.4

Source: Edited by the author, Hungarian Statistical Yearbook, 1913.

Pancsova 11.3® ú 4.7y.

TORONTÁL Újvidék • 226 POZSEÖA 14.3. MODRUS-FIUME

28.4 Fume

Zag

reb.

ZAGRAB ■ 7.5

BEL• ÁRKÖRÖS

Key: 1 – Sum total of deposits by counties; 2 – Sum total of deposits by cities with municipal rights.

Vers0

SZÖRÉNY

8 KRA35Ó■ 426 M 23.2

88.3 • G 87.7

BÁCS-BOD

17.8 VERÖCE 06.5 112

Zomtor BARANYA 26.7

16.8

bra 28.7 Pécs 629.6 98.7

■ SOL - ISKUN 64.0

11.3 8.3r Vara • VA SD

117.4

ZALA

SOMOGY

TOLNA ■ 44.5

156.9

7.4 ~

88.6

❑

13.1 ka 9~ SA NÁ 6964

Temesvár

Arad A 84.8 E117.9 17.9 54

ONGRÁ ❑ 20. álmezóvás:

❑

SAXON LAND

FOGA RAS BRASSO 039 ~-1

4(ÜKÜLLŐ

H35.2

HÁROMSZÉK 7.4

KOLOZS

BIHAR ■ 29.0

®48.9 YKUNS •L

kO ár 15.70 KecskernéIO15.0 FEJE PEST-PIUS-

47.9®

SZÉ

867.5 28.4 VESZPREM VAS

BE ÉS

Na5yváraa HAJDÚ I~ 76.9I I

JASZ-

Budapest

❑ 46.8

qL5Ó..27.9 FEHÉR

TORDA-ARANYOS 019.3 9.80 OLLÓ

MAROS®12.9 Kolozsvár TORDA Marosvásárhely

7.1 D UDVARHELY

SEKLER LAND

19.2

BESZTERCENASZÓD

17.0 • SZOLNOKDOBOKA SZILAGY •

S7ATM

1.4

OZSON

80.0

82 Pozsony

10 O ❑

10o O2 1

0-10 O

. M ON 014.6 064 21. 0 ❑ 13.8 SOPROND OGYÖ OMÁR~

13.9

OGRÁD

HEVES BORSOD

55.2 Debr 18.4 O

SZABOLCS 32.9

7.9 HOT BARS

NYITRA ^ I I I I

28.6

32.3 ®22.2 ❑ÁR ~mémetl

10.0

MÁRA MAROS 4.5

UGO

❑ 22.

BEREG 15 ❑6

UNG

RNA GÖMÖR 26.96a 45.2-.. ABAÚ.O - ❑ bánya KIS-HONT 41.2 12.7 41)7

7. ZOLYOM

3®

3•

ZEMPLÉN

20.8

SAR ❑ OS

0 SZEPES

46.7 8.9

20.3 UPTÓ RÓ

ÁRVA

RENCSÉN

❑

In 1910 the average deposit sum per each savings book was the highest in East Hungary and Banat subsequent to Budapest. This is explained by the concentrated capital accumulation and industrial & wholesale investments of entrepreneurs in the dynamic regional centres of the rapidly developing eastern regions. The average deposit sum per savings book was the lowest in East Upper-Hungary and Transylvania. Dövényi, Z.: A vonzáskörzetek történeti kialakulásának és változásainak vizsgálati lehetőségeiről [On the possibilities of an analysis of the historical origin and changes in the gravity zones]. – Alföldi Tanulmányok, 1977/1 pp. 138–139. The author analysed the ‘hinterlands’ of gravity centres by the number of clients visiting the Szarvas Savings Bank and by the clients’ address.

Million Crowns

Figure 7 Breakdown of bank deposits by counties and cities with municipal rights in 1913

over of deposit accounts at a certain territorial level, they may hide differences within a region or county and this makes it difficult to evaluate the central-place functions of some settlements. The largest sum total of deposits collected by credit institutions was accumulated in Central Hungary, Transdanubia, West Upper Hungary and in Southeast Hungary (Bánát). The volume of bank deposits was medium-sized in Transylvania and North-east Hungary and was low in Croatia and Eastern part of Upper North Hungary. On a county level, counties with dense credit institution networks (Pest-Pilis-Solt, Bács-Bodrog, Temes, Pozsony, Torontál, Vas, Nyitra) or with a major financial centre (Zágráb, Arad, Bihar, Kolozs, Csongrád, Hajdú) had the largest stocks of deposits. While in Transdanubia and Central Hungary the sum total of deposits were distributed evenly, large differences occurred among counties in the periphery such as Croatia and Transylvania. (The counties of the Croatian coast and the ‘Székely-Sekler’ counties in East Transylvania accumulated a very low amount of deposits) (Figure 7, Table 11). An analysis of the deposits per capita averages reveals the general position of a settlement in the financial system.33 Banking statistics clearly show that the per capita indices of sum total of deposits in urban settlements far exceeded county level deposit indices. This can only partly be explained by the greater economic activity of the urban population, generating in this way a larger volume of bank savings. The other reason of this wide difference between urban and county level results comes from the fact that urban banking centres had larger capacities and supplied a wider choice of banking services meeting special demands and offering higher interest rates. This attracted not only local urban but remote rural clients as well who put their deposits into city banks. Their greater trust in city banks was also determining the geographical directions of deposit-taking (Dövényi, 1977).34

Table 11 The ranking of counties by the volume of banking deposits and asset stocks, 1909

County

Budapest Bács-Bodrog Pest-Pilis- SoltKiskun Zágráb

County ranking by the volume of banking deposits*, 1909 1,186,438,000 149,006,000

County

Budapest Zágráb

County ranking by the volume of banking assets, 1909 5,548,796,000 326,289,000

140,506,000

Bács-Bodrog

271,004,000

134,549,000

Szeben Pest-Pilis-SoltKiskun

244,176,000

Temes

120,019,000

Pozsony

226,895,000

112,225,000

Temes

193,109,000

Vas

91,865,000

Arad

154,304,000

Arad

91,737,000

Hajdú

144,033,000

Torontál

86,197,000

Torontál

143,345,000

Bihar

75,144,000

Pozsony

135,639,000

Csongrád

72,445,000

Bihar

128,466,000

Nyitra

71,368,000

Vas

117,766,000

Jász-NagykunSzolnok

66,368,000

Csongrád

115,577,000

Szeben

64,401,000

Hajdú Zala Szatmár Szabolcs Sopron Borsod Békés Kolozs Baranya Szepes Veszprém

59,929,000 54,583,000 49,723,000 46,721,000 46,041,000 45,377,000 45,142,000 43,777,000 43,706,000 43,392,000 41,103,000

Jász-NagykunSzolnok Szabolcs Békés Nyitra Zala Szatmár Somogy Borsod Krassó-Szörény Kolozs Baranya Fejér

Krassó-Szörény

39,424,000

Abaúj-Torna

110,068,000 101,809,000 95,935,000 90,717,000 89,765,000 77,578,000 74,247,000 69,746,000 69,119,000 68,105,000 66,866,000 65,115,000 63,597,000

Fejér Tolna Somogy Gömör-Kishont Abaúj-Torna Zemplén Heves Nógrád Szerém Brassó Fiume Zólyom Nagy-Küküllő Győr Maros-Torda Hunyad Bars Trencsény Komárom Túróc Esztergom Bereg BeszterceNaszód Sáros Alsó-Fehér Hont Modrus-Fiume Szolnok-Doboka Moson Liptó Háromszék Szilágy Varasd Pozsega Ung Verőce Belovár-Kőrös

39,211,000 38,677,000 38,403,000 36,877,000 35,705,000 34,297,000 34,208,000 32,222,000 31,612,000 31,193,000 30,594,000 30,499,000 29,876,000 28,883,000 27,835,000 26,237,000 25,100,000 24,748,000 23,256,000 22,784,000 22,041,000 19,490,000

Fiume Tolna Sopron Veszprém Brassó Nagy-Küküllő Heves Szepes Zemplén Gömör-Kishont Szerém Győr Nógrád Maros-Torda Hunyad Zólyom Bars Bereg Trencsény Verőce Modrus-Fiume Esztergom

61,516,000 60,263,000 57,436,000 54,605,000 54,089,000 53,557,000 53,542,000 51,471,000 50,596,000 48,492,000 46,253,000 46,240,000 44,379,000 42,774,000 40,359,000 38,176,000 35,018,000 34,430,000 32,408,000 31,012,000 30,955,000 28,219,000

18,446,000

Túróc

27,906,000

18,078,000 17,268,000 17,171,000 16,016,000 15,742,000 15,347,000 15,180,000 14,987,000 14,944,000 13,613,000 13,316,000 11,568,000 10,708,000

Pozsega Beszterce-Naszód Alsó-Fehér Szilágy Szolnok-Doboka Sáros Varasd Hont Liptó Belovár-Körös Háromszék Moson Komárom

26,610,000 25,884,000 25,691,000 25,261,000 25,125,000 23,308,000 22,950,000 21,921,000 21,811,000 20,652,000 19,971,000 19,192,000 18,294,000

Máramaros

18,009,000

9,931,000

Table 11 continued

County

County r anking by the volume of banking deposits*, 1909

County

County ranking by the volume of banking assets, 1909

Árva 9,567,000 Csanád 17,074,000 Torda-Aranyos 9,526,000 Ung 17,047,000 Csanád 9,185,000 Torda-Aranyos 14,831,000 Máramaros 8,113,000 Kis-Küküllő 13,636,000 Csík 8,113,000 Csík 12,469,000 Fogaras 7,833,000 Árva 12,396,000 Kis-Küküllő 7,076,000 Fogaras 11,202,000 Lika-Krbava 6,795,000 Lika-Krbava 10,975,000 Udvarhely 6,724,000 Ugocsa 10,293,000 Ugocsa 4,713,000 Udvarhely 9,650,000 *Including savings, charge and chequing account deposits of all credit institutions. Source: The author’s own compilation on the basis of Hungarian Statistical Bulletin, vol. 35.

The analysis of the regional level distribution of deposit stocks – including savings, charge and chequing account deposits of all credit institutes – reveals two facts. One is that the average sum of deposits is a direct indicator of regional economic development and shows the efficiency of a bank’s deposit collection policy. On the other hand, county level indices showing the major directions of deposit acceptance serve as indicators of a financial institution’s gravity zone. The national average of per capita deposit sums in credit institutions increased from 100 crowns in 1894 to 205 crowns by year 1909. The national average of per capita deposit sums in banks and savings banks increased from 44 crowns in 1894 to 193 crowns (177 crowns if Croatia is included) and the provincial average of deposit sums per capita was 107 crowns in 1909. The comparison of the spatial distribution of average per capita sum total of deposits of banks and savings banks in 1894 clarifies that modernization structures, in general, were moving eastward from the west. The further we are going ‘eastward’ the lower are the per capita deposit sum indices. The acceleration of the centrifugal pattern of the spread of banking innovation at the turn of the 19th and 20th centuries is clearly seen in Southern Hungary’s example, catching up to the leading counties between 1894 and 1909 (Figure 8a–b).

At the same time, with the lowest value of average per capita deposits Transylvania and Croatia kept their lagging positions even in 1909. County level statistical averages for 1909 − excluding Pest-Pilis-SoltKiskun County with Budapest, the county seat – were the highest in Szeben (304 crowns) and Túróc (393 crowns) counties.35 This formal value is explained not only by the local Saxons’ traditionally high saving propensity but also by the well-known Nagyszeben General Savings Bank absorbing all the savings of Transylvania’s ethnic German (Saxon) population. The Albina Bank in Nagyszeben, South Transylvania’s other important ethnic bank (Romanian-owned) was further increasing the city’s attractiveness for savings. The fact that Kis-Küküllő County, inhabited by Saxons had very low average per capita deposit sums is explained by the absence of a local financial centre. The local Saxon clients were visiting the financial institutions of their largest centres such as Segesvár [Sighişoara], Medgyes [Medias] and Nagyszeben [Sibiu]. Northern Hungary’s leading position is based on the banks in Túrócszentmárton [Martin] and Rózsahegy [Ruzomberok], which became the bank centres of the Slovaks in Upper Hungary (Tatra Bank, Rózsahegy Credit Bank). Túróc County’s extremely high average is the result of the 1884-founded ‘Tatra’ Bank’s active services and its rapidly growing network in the Slovak population of Upper Hungary (Tóth, 1992).36 The slowly rising bourgeois ethnic society in the peripheral regions was rather more successful in banking activities than in industrial investments; industrial development resulting more from the expanding activities of Austrian, Hungarian and foreign investors. The averages of per capita deposit sums were also high in Pozsony County (277) and in Brassó inhabited by Saxons with traditionally high-level banking culture (274). Szepes County (235), Zólyom (221) and Gömör (191) counties had important industrial plants boosting up banking activities. Croatia’s “money surplus” was channelled to the pools of Zagreb banks (219). (Figure 8b) Central Hungary and some regional financial centres attracting high amount of deposits also generated high average deposit indices in their 35

The per capita deposit index of credit institution was 409 crowns in Túróc County and 364 crowns in Szeben County! The fifteen counties in terms of per capita deposit portfolio are as follows: Fiume, Szeben, Túróc, Pozsony, Brassó, Szepes, Esztergom, Hajdú, Zólyom, Zágráb, Csongrád, Arad, Temes, Győr, Vas. The number of ethnic Slovak banks was the highest in Túróc, Trencsén, Árva, Liptó and Nyitra counties.

respective counties (Arad 216, Temes 215, Csongrád 218, Hajdú 234 crowns). In the latest case Hajdú County’s high position results from Debrecen’s high concentration and the county’s low population density (Figure 8b). The per capita spatial distribution of bank & saving bank deposits shows a hierarchical diffusion pattern. In general, the indices are higher in counties with ‘strong’ economic centres (Hajdú-Debrecen, Arad-Arad, Temes-Temesvár [Timişoara], Csongrád-Szeged and Pozsony-Pozsony [Bratislava]). The map (Figure 8a-b) also shows that the population ratio of county seats to ‘their county’ may strongly influence the general impression; the higher a county’s population lives in a county seat, the greater is the influence on the county’s indices (Debrecen-Hajdú County, Brassó-Brassó County, Győr-Győr County, Kolozsvár [Cluj]-Kolozs county). If a county’s population is several times higher than the population of its county seat, the latter one cannot significantly influence its county’s values (e.g. Nagyvárad [Oradea], -Bihar County). The low values in the neighbouring counties of the large regional financial centres, Figure 8 Regional distribution of per capita bank and savings bank deposits in Hungary, 1894, 1909

a) 1894 Crown per capita <10 I I 10-30 I I 30-50 ~ 50-100 -100-150 -150-200 >200

Hungarian Empire (with Croatia-Slavonia): 84

average [411 Regi (in theonCeal ntral Hungary region witwhitouth Budapest Budapest 84

Hungary: 96

b) 1909 Crown per capita <50 I I 50-100 - 100-140 - 140-200 - 200-300 - >300

.40' 168 ~

r.4 39Akik 8

4110k, 105 ~

148 Hungarian Empire (with Croatia-Slavonia): 179 Hungary: 9ry: 193

[139 6

Regio n al a verage (in fhe Central Hungary region with BudapPeest

without Buoapest ~

sometimes even with wealthy population (e.g. the ‘rich-soiled’ Csanád County (53 crowns) situated between the two centres Arad and Szeged) are explained by the fact that local residents placed their deposits in the banks of the above-mentioned cities generating a higher banking turnover. However, in most counties the low average deposit values reflected the county’s poor economic and living conditions (Árva, Trencsén, Máramaros, Ung and the Croatian counties) (Vargha, 1913). Considering the spatial distribution of the relative per capita deposits of all credit institutions in the year 1909, we can conclude that their per capita deposit sums were exceeding the 140 crown provincial average in the western (West Transdanubia, West Upper Hungary) and central (South-east Hungary, Central Hungary) regions. The national average was 205 crowns and 190 crowns if we include Croatia. South Transdanubia differed from Hungary’s central and north-western Transdanubian counties in this respect too (Baranya 124, Somogy 105 and Zala 117). The average deposit index was high in the central part of Upper Hungary and also in the Great Plain, even in counties having no large county seats (Szabolcs 146, Jász-Nagykun-Szolnok 177, Békés 151). Going eastward from the Sáros-Krassó-Szörény axis, the per capita deposit indices were below the national average (Sáros 103, Ung 71,

Máramaros 24, Ugocsa 51, Krassó-Szörény 84) but the ‘Saxon counties’, being separated from their sorroundings, namely Brassó (308), Szeben (364) and Nagy-Küküllő (201) and even Beszterce-Naszód (144) produced higher than national average values. Seklerland, in this respect, shows unfavourable results (Udvarhely 54, Csík 56 and Háromszék 101). Croatia’s ‘massive backwardness’ resulting from its belated modernization process is reflected by these indices too (Belovár-Körös 30, Lika Krbava 33, Verőce 39). (Figure 9a–b). Nevertheless, the territorial breakdown of banking assets gives us a more accurate picture than deposit indices about the real concentration of banking innovations. The spatial breakdown of banking assets by credit institutions both at regional and county level shows some declination from the pattern of deposits in 1909 (Figure 10). Surveying the regional distributions of asset stock concentration in the regions, Central Hungary and Transdanubia maintain their top positions and were the leading regions, whereas the surprisingly good position of Transylvania was the result of the huge financial capital accumulation made by the traditional Saxon (ethnic German) banks located in South Transylvania. Transylvania’s 3rd position without doubt results from the capital concentration of Nagyszeben banks [banks of Sibiu]. North-east Hungary and South-east Hungary regions occupied middle positions and Upper Hungary situated in the end of this rank. Croatia’s good – 6th – position was unanimously owing to the large capital concentration of the Zagreb-based banks (Gál, 2000a, 2002). On a county level, the largest banking assets were concentrated in counties with a dense network of credit and financial institutions (BácsBodrog, Pest-Pilis-Solt-Kiskun, Torontál, Vas, Jász-Nagykun-Szolnok, Szabolcs, Nyitra and Zala) and in counties with outstanding financial centres (Zágráb, Szeben, Temes, Arad, Hajdú, Pozsony, Bihar, Csongrád). The concentration of banking assets was the smallest in the Transylvanian Udvarhely County together with Ugocsa, Lika Krbava, Fogaras, Árva, Csík, Kis-Küküllő, Torda-Aranyos, Ung, Csanád, Máramaros, i.e. more or less in the peripheral counties (Table 11). The per capita breakdown of banking assets by county provides a more precise overview on the real concentration of banking stocks.

Figure 9 The regional distribution of per capita credit institution deposits in Hungary, 1894, 1909

a) 1894 Crown per capita <10 10-30 0 30-50 50-100 100-150 150-200 >200

Hungarian Empire (with Croatia): 92 Hungary: 100

[ 51f

Regional average

(in the Central Hungary region with Budap est without Budapest

b) 1909 Crown per capita I

I I

<50 50-100

138 ''

100-150 150-200 200-300 >300

4114144 51111 014 437

,160,

M 162

Hungarian Empire (with Croatia): 191 Hungary:205 Regional average

11501 (in the Central Hungary region

'Ith Budappest wil+thout Budapest

The regional breakdown of per capita credit institution assets significantly changed between 1894 and 1909. In 1894 Transdanubia, West Upper Hungary and Central Hungary were on the top of the ranking with their high per capita assets. They were followed by Transylvania and South-east Hungary (Banat). East Upper Hungary, North-east Hungary and Croatia were in the last positions. Thus, the spatial dimensions of modernization processes in the last quarter of the 19th century were determined by development disparities between the eastern and western regions having a fundamental importance in the spread of financial innovations. Regional indices cover quite large county and urban level differences. The traditional financial centres (Nagyszeben [Sibiu], Brassó [Braşov], Beszterce [Bistrita], Sopron) with the financial centres of Transdanubia (Győr, Székesfehérvár, Esztergom) were on the top of the ranking. The western regions’ good results were completed by the high indices of Pozsony and Túróc County. Besides the eastern and southern regions, the traditional Saxon counties, Hajdú and Abaúj-Torna had good positions because of the strong financial centres of Debrecen and Kassa [Košice]. Positions of Arad, Temes, Zagreb and Borsod counties with their county seats, later on growing to important bank centres, were only at the early (‘take off’) stage of their development at this time. In the late 19th century the positions of some traditional banking centres with higher per capita asset indicators on a county level were slowly weakening. In the 1890s dynamic banking centres, emerging as the next development stage, were only in the initial phase of their development (Figure 10a). In consequence of the rapid eastward expansion of banking services, the distribution of per capita assets demonstrated a significant territorial rearrangement taking place between 1890 and 1909. The analysis of the spatial distribution of per capita assest by all credit institutions in 1909 clearly verifies that the ranking of regions was undergoing a complete change during a one and a half decade period. South Transdanubia and West Upper Hungary, once the leading western regions’ position declined significantly, whereas the central and eastern regions (South-east Hungary, Central Hungary, Transylvania) were rapidly catching up. A detailed analysis of this phenomenon will be described in the regional chapters (Figure 10b). In the year 1909 the leading counties’ in terms of per capita credit institution assets, due to their special financial traditions, were the Transylvanian Saxon counties (Szeben 1380 crowns per capita, Brassó 534, Nagy-Küküllő 360). They were followed by Túróc (501 crowns per capita), Zagreb

(594), Temes (386), Arad (372), Csongrád (355), Pozsony (348), Győr (338) and Abaúj-Torna (314) counties. Some counties with more development poles and dense financial network such as Bács-Bodrog (334), Békés (321), Szabolcs (318), Abúj-Torna (314), Esztergom (310) and Szepes (297) were also among the first ones. Naturally, the peripheral, economically and socially less-favoured regions as Croatia (Lika-Krbava, Belovár, Körös, Varasd, Pozsega, Szerém, Verőce), Transylvania (Udvarhely, Torda-Aranyos, Csík, Szolnok-Doboka, Alsó-Fehér, Kis-Küküllő, Fogaras, Hunyad), Upper North Hungary (Trencsény, Ung, Sáros, Bereg, Árva) and due to different reasons some counties of other regions (Komárom, Csanád, Szilágy) were in the most backward situation. The scarcity of banks, the absence of major banking centres and in case of Csanád County the central place function and gravity force of the neighbouring banking centres, hindering the concentration of local banking assets, are the most frequently mentioned reasons of backwardness (Figure 10b). If we include banks and savings banks only in the ranking, we find the same two regions in the first two places. West Upper Hungary is the 3rd and they are followed by North-east Hungary and Transylvania. However, there are no changes to the last positions.37 By the late 19th century, the largest per capita assets were measured in the western and north western regions, the eastern and south-eastern regions were lagging behind.

In Transylvania the rapid development of credit institutions was the result of large scale foundations of credit unions. For this reason the regional banking indices were lower.

Figure 10 Regional breakdown of per capita credit institution assets in Hungary, 1894, 1909

a) 1894

Crown per capita <10 10-50 50-100 I 100-150 -150-200 >200

} wiR _

•

772 104

114

8 44*

89 Hungarian Empire (with Croatia): 221

~~ a

Hungary: 199

eQ'\

~®

(1 14)

Regional average ry re (in the Central Hunga

gion„

w„th onte.

)

b) 1909 Crown per capita I

<100

100-150 150-250 250-350 350-500

>500

197

11114 Hungarian Empire (with Croatia): 493

l?~

~®

The regional spread of financial services clearly mirrored the spatial economic development of Hungary and was characterized by the westeast divide in the first phase of modernization. Transdanubia, once the leading banking region was one of the biggest losers since it fell back by the 1910s from the 1st to the 6th rank of the eight regions under study. In spite of this regional decline its few Transdanubian counties improved their positions (Győr, Fejér) but only one county could strengthen its above-average position (Vas) even if the indices produced a higher than the national average development dynamic.38 West Upper Hungary dropped back from its previous second place to 4th despite its outstanding financial centre (Pozsony [Bratislava]) preserving the Slovaks national importance. The eastern regions gained leading positions representing the rapid west-east directions in the expansion of economic development: South-east Hungary obtained the first rank from its previous 5th position. It was followed by Central Hungary. The regional ranking of banks clearly shows that eastern regions achieved leading positions: South-east Hungary (Banat) rose to the 1st from the 5th position, Central Hungary from the 3rd to the 2nd. The traditionally underdeveloped regions (Croatia, East Upper Hungary) were the last in their ranking (Figure 11a–b). Examining the territorial distribution of per capita deposit sums of banks within the country, correlation can be found between the waves of modernization moving from west to east and the decreasing amount of the average deposit sums measured in the eastern regions. According to this index the South Eastern region between 1894 and 1909 came significantly forward in the rank of Hungarian regions whereas the lowest per capita deposits can be found in the peripheral regions (Transylvania, Croatia). Surveying the regional distributions of per capita sums of bank deposits two conclusions can be drawn. On the one hand, it indicates the state of the economy in a given region and also shows how widespread was the deposit acceptance as the most important form of asset-liability management within certain areas. On the other hand, the dispersion of the county averages indicated the directions (concentrations) of the deposit-taking, from which a conclusion can be drawn regarding the hinterlands of the financial centres.

average 1 RegionalCentral 203

(

) (in the

Hungary

Hungary: 535 region wgth Bunape ) without eu a st

Counties in Transdanubia could not keep up with such substantial bank capital accumulation experienced in some eastern counties.

Figure 11 The regional breakdown of per capita bank & savings bank assets in Hungary, 1894, 1909

In conclusion, we argue that spatial differences of per capita banking assets clearly showed the economic rise of Hungary’s central, eastern and south-eastern regions. The territorial differences in per capita assets unanimously indicated the economic rise of the eastern regions, which resulted in the falling positions of the western territories, which modernized earlier, despite their development progress.

a) 1894 Crown per capita <10 10-50

~ ~ Vs* .634 78~~ *** v 6, 4 90 0m ~ ,

J 50-100 100-150

150-200 >200

~~ ~

31 0

erage 78 ) Regionalav th Budappesf (in ihe Central Hungary region without Budapest

CroatiaSlavonia):

Hungarian Empire ( with

221

Hungary: 199

b) 1909 Crown per capita

<10

r64 4: ~58t~w ~►~ ~-~. ~ ~ ~ 1~ ~ 41~ ~~~ HunE d At.!r *~ ~~ 4* 10-30

I I

30-50

50-100

100-150

, p

150-200 >200

(with Croatia-Slavonia): 84 Hungary: 96

~6 > • "

( 41 ~

Regional average (in the Central Hun

The banking functions of the urban network in the early 20th century 6.1 Surveying the central-place banking functions of cities The advanced financial infrastructure contributed to the spread of innovation processes, which were intermediated largely by the banking system serving as a background for economic-social modernization. The banking activity as the main capital source of regional modernization played an important role in the diffusion of modern management techniques and entrepreneurial culture, and through lending activities banks became the major stimulators of urban development (Hijatela, 1987). The urbanization process was strongly determined by pecuniary conditions and primarily cities became central poles of banking innovation. The banking network that existed in the turn of the 19/20th century was dominated by locally founded institutions. The comparative analyses of urban history have special importance from the point that the features of modernization. They were perceived almost exclusively on an urban level only, and the urban frameworks having been formulated in the early years of the 20th century have had an influence on urban development determining the image of cities. The ranking of geographical places on the basis of population size or administrative functions are insufficient criteria for evaluating its urban functions. From this point the service supply originating from a

city’s central-place function has a key role. Services supplied by cities for their hinterlands (gravity zone, agglomeration, county, region) have primary importance but interregional and international economic relations are also indispensable elements from the point of evaluation. The earlier studies, although they identify the relationship between urban development and the modernization of the economy pretty well, they still overstate the role of industrialization in urban development and consider it as the primary driving force of urbanization. During the 20th century, due to the development of infrastructure the importance of service sectors significantly increased, though very few researches have studied their role in the urban development. This is even true that during the last fifty years cities in Hungary were turning from industrial profile into commercial-service centres. The importance of studies on the economic history of cities is based on the fact that economic potentials of the regions were always depending on the economic performance of cities. The other reason why the research of the business and financial service functions of cities would be important is that advanced banking, insurance and financial infrastructure contributed to the spread of financial innovations serving as a background for socio-economic modernization. Banking activities, as the major capital resources of regional modernization are the multipliers of urbanization through the spread of modern management techniques, business forms and development of infrastructure. In this way financial institutions have a fundamental role in the development of the cities where they are located. The development of urban economy and urbanization are both determined by financial conditions. By the beginning of the 20th century, the Hungarian cities became financial centres due to the development of banking and savings bank networks. In this way financial centres were also the catalysts of Hungarian urbanization. This explains why the research of the spatial aspects of capital flow within the credit system would be an important indicator of the transforming and socially rising urban system. This survey attempted to outline the spatial distribution of capital turnover, accepting the hypothesis that the regional differences in urban development can be revealed with the help of available capital resources (Gál, 1997). We analysed the urban network in the early 20th century on the basis of the cities’ central-place banking function in order to identify the group and hierarchical order of cities being active driving forces of modernization. We also selected those cities that

played only a marginal role in Hungary’s economic development (Gál, 1997). We studied not only the spatial location of the banking network but the impacts and role of financial institutions and bankers on urban development through some examples. The most important result of the survey was that the central-place functions of banking can be defined and the dynamically growing group of cities and their banking hinterland can be identified.39 The hierarchical order (central-place function of banking) of the Hungarian cities were set up on basis of the breakdown of banking turnovers’ proportion (deposits and assets) supplying the hinterland of the cities using the method of Christaller’s central-place theory (1933, 1966) by calculating the so called significant surplus ratio (Gál, 1997).40 In addition to this, the central-place function of cities was complemented using the additional data of in39

The pattern of sum-total deposits represents the accumulated structure of hundreds of channels voluntarily set up between banks in large commercial centres and those dispersed across the country, and provide a first approximation of the flow of capital through the financial system. Consequently it is pointless, however, to try to draw any rigid distinction between “urban” and “rural” sources of capital, as many towns owned rural properties and financial assets, and cities – through their banks – were the main accumulators of capital from the countryside, hence a bank deposit relationship in the late nineteenth and early twentieth centuries involved a bank in a small community maintaining a savings account with a credit institution in a large city. The funds never fell below an agreed minimum and city banks could use them to yield interest. In return, the city bank supplied the smaller (respondent banks) bank in its hinterland with a variety of services, making large loans or bringing the related bank in a profitable loan, counting the deposit account balance as part of the supplied bank’s reserves, referral of new customers and investment advice. It was Walter Christaller, a German geographer, whose theory on central location emphasizing the central character of cities served as a theoretical basis for significant surplus calculations. The calculated significant surplus indices show the ratio of city bank’s deposits in their provinces and serve as a basis for urban hierarchy. The results besides indicating the cities’ economic significance are also indicating whether a city was functioning as an innovative-financial centre or not. This correlation suggests that the geography of the evolution of banking hinterlands, which was based on capital spreading, helps account for the general long-term prosperity of those cities – a claim often made but rarely demonstrated. I processed data of those cities in which the sum-total deposits exceeded two million Crowns (Korona) or more by means of the following formula: K= Fv-Lv ● (Fm/Lm) where K equals the significant-surplus of a certain city, Fv equals the sum-total of deposits of a city’s banks in 1909, Lv equals the population of a city, Fm equals the the sum-total deposits of a city’s hinterland, Lm equals the population of a city’s hinterland.

stitutional hierarchy of banks and the aggregated sum of balance sheet items of all institutions in the case of each settlement. Besides these calculations, the financial importance of cities was calculated by the accumulated absolute balance data of the city’s financial institutions. These analyses – besides providing information on a city’s economic importance and the size of urban gravity zones – also give an answer to the question as to whether a city was functioning as an innovativefinancial centre within the urban network. This survey attempted to outline the spatial distribution of the capital turnover, accepting the hypothesis that the regional differences of the urban development can be revealed by means of the available capital resources (Gál, 1997). The calculations were completed on the basis of the database for the year 1909 just for those settlements with central-place (urban) functions,41 and bank and/or savings bank locations where the stocks of either the sum total of deposits or assets exceeded 2 million crowns. We took the stocks of the assets, deposits and the proportion of the current accounts into consideration, and further those institutions closely related to the financial sector in a wider sense (branch of the central bank, chambers of commerce and industry). In 1909, 3458 Hungarian settlements had some financial institutions. 868 settlements had a bank and/or savings bank, of those 175 cities’ financial role was verified in Hungary. According to the survey examining the banking function of Hungarian cities, central-place functions of 175 settlements based on banking can be proved. Thus, 69% of functional urban settlements had a kind of banking centre function. According to the calculations, the hierarchical groups of cities were clearly distinguishable on the basis of significant surplus ratio being the base of banking functions. On the basis of calculation, the main hierarchical groups of cities on the level of banking network have clearly been formulated On the top of the hierarchical ranking a kind of correlation between the relative weight of financial roles and the relative financial importance of cities may be observed with occasional sharp deviations. By sorting the stocks of deposits and assets and also the calculated significant banking surplus ratios we can see a very strong correlation on the top of ranking (Table 12).

The settlements with central-place (urban) functions were not always coincidental with settlements with municipal rights.

Table 12 The hierarchical ranking of cities by deposit portfolios and asset stocks in the year 1909* Ranks of the cities by deposits      BUDAPEST   1 Zágráb [Zagreb]   2 Arad   3 Pozsony [Bratislava ]   4 Temesvár [Timişoara ]   5 Nagyvárad [Oradea]   6 Nagyszeben [Sibiu ]   7 Debrecen   8 Szeged   9 Miskolc 10 Kolozsvár [Cluj] 11 Fiume [Rijeka ] 12 Győr 13 Székesfehérvár 14 Szabadka [Subotica] 15 Pécs 16 Szombathely 17 Brassó [Braşov] 18 Kassa [Košice] 19 Szatmárnémeti [Satu Mare]

Million crown 1,175.0 117. 6 77.7 70.4 56.0 50.5 46.3 42.8 40.7 38.6 35.2 30.5 28.0 26.7 26.2 24.5 24.4 23.6 23.4 21.5

20 Újvidék [Novi Sad]

21.2

21 Nyíregyháza 22 Nyitra [Nitra]

21.0 20.1

23 Túrócszentmárton [Martin]

19.7

24 Besztercebánya      [Banská Bystrica] 25 Szolnok 26 Esztergom 27 Nagykanizsa 28 Versec [Vršac]

Ranks of the cities by assets

Million crown

BUDAPEST   1 Zágráb [Zagreb]   2 Nagyszeben [Sibiu]   3 Arad   4 Temesvár [Timişoara]   5 Debrecen   6 Pozsony [Bratislava ]   7 Nagyvárad [Oradea]   8 Fiume [Rijeka]   9 Szabadka [Subotica] 10 Szeged 11 Miskolc 12 Kolozsvár [Cluj] 13 Brassó [Braşov] 14 Kassa [Košice] 15 Székesfehérvár 16 Győr 17 Szolnok 18 Pécs 19 Szombathely 20 Szatmárnémeti      [Satu Mare] 21 Nyíregyháza 22 Újvidék [Novi Sad] 23 Marosvásárhely      [Târgu Mureş]

5,262.0 296.0 196.0 115.0 110.0 77.5 73.0 71.5 66.0 58.4 57.2 53.4 49.5 40.4 37.2 34.2 33.2 32.6 29.0 28.8 28.2 27.6 27.4 26.0

18.8

24 Kecskemét

25.9

18.7 18.5 18.4

25 Nagykanizsa 26 Zombor [Sombor] 27 Nyitra [Nitra] 28 Túrócszentmárton      [Martin]

25.2 24.4 24.2

17.3

23.5

Table 12 continued Ranks of the cities by deposits

Million crown

Ranks of the cities by assets

Million crown

29 Zombor [Sombor]

17.7

29 Nagybecskerek      [Zrenjanin]

22.2

30 Sopron

17.6

30 Besztercebánya      [Banská Bystrica]

21.8

31 Nagyszombat [Trnava] 32 Marosvásárhely      [Târgu Mureş] 33 Veszprém 34 Baja 35 Kaposvár 36 Kecskemét 37 Pápa 38 Hódmezővásárhely 39 Eger 40 Eperjes [Prešov] 41 Rimaszombat      [Rimovská Sobota] 42 Kőszeg

17.0

31 Baja

21.1

16.0

32 Esztergom

21.0

15.8 15.1 14.3 14.2 13.9 13.8 13.8 13.7

33 Versec [Vršac] 34 Hódmezővásárhely 35 Cegléd 36 Veszprém 37 Nagyszombat [Trnava] 38 Eger 39 Eperjes [Prešov] 40 Balassagyarmat

19.9 19.4 19.3 19.2 18.9 18.7 17.2 17.2

13.6

41 Gyöngyös

16.8

13.1

16.0

43 Sátoraljaújhely

12.8

44 Nagybecskerek [Zrenjanin] 45 Cegléd 46 Komárom 47 Losonc [Lučenec]

12.7 12.7 12.6 12.3

48 Nagykőrös

11.4

42 Sátoraljaújhely 43 Rimaszombat      [Rimovská Sobota] 44 Komárom 45 Pápa 46 Kőszeg 47 Gyula 48 Rózsahegy         [Ružomberok] 49 Nagykároly [Carei] 50 Losonc [Lučenec] 51 Sopron

49 Balassagyarmat 11.2 50 Szekszárd 11.0 51 Segesvár [Sighişoara] 11.0 *Including only the first 50 provincial cities.

15.7

The spatial distribution of banking functions within the settlement system was more strongly concentrated than any other sectors, i.e. fewer settlements had banking than other service functions (post office, police station, notary office etc.). The deployment of central banking services into large cities resulted in a strong spatial concentration of banking innovation: 83% of Hungary’s total bank deposit portfolio was concentrated in those 175 settlements that had central financial functions on the basis of their banking surplus ratio indices.42 Budapest, as a national banking centre, with the 13 regional banking centres concentrated more than 60% of the banking surplus ratio (Figure 12). This was higher than its share of total deposits sums (48%). The fact that Budapest with the 48 cities followed in the ranking43 concentrated about 80% ratio of banking surplus but only 12% of the country’s total population reveals some peculiar spatial features of countries integrating with some delay to the global capitalist system and explains their increasing spatial disparities on regional and local level. This reflects some of the characteristics of modernization in the latecomer countries, namely the enormous increase in territorial inequalities. Not only industrialization but banking services developed spatial inequalities throughout Europe that were usually larger in the peripheral countries than in the core regions. In consequence of this, Hungarian financial innovation and industrialization concentrated into fewer centres than in the Western European core regions.

14.7 14.2 14.0 13.7 13.6 13.3 13.2 13.0

Source: Author’s own calculation, using the following resources: Vargha, 1913; Thirring, 1912; Galánthai Nagy, 1899–1917. 42

100

The remaining 17% of deposits were concentrated in the agricultural market towns of the Great Plain with relatively high deposit volumes but without significant surplus, such as: Kecskemét, Szentes, Jászberény, Nagykőrös and Karcag. Regional and secondary banking centres together.

101

Figure 12 The breakdown of the 4 hierarchical groups of the Hungarian banking centres in terms of their significant surplus ratio and volume of banking deposits, in percentage, 1910

6.2 The central places of the Hungarian banking network

Percentege 45

6.2.1 The hierarchical ranking of cities by bank deposit distribution

40 35 30 25 20 15 70 5

Bud hc=_t

Regiona bankng

Secondary banking

Tertiary banking

Quarternary

Urban se tlements

entres

centres

banking centres

without banking functions

°Significance surplus ratio

Source: Author’s calculation.

•Bank deposit v olumes

The 175 cities with central-place banking functions were categorised into four hierarchy levels44 (Figure 13, Table 13). On the basis of the spatial breakdown of banking centres based on deposit stock distribution – the most dynamically developing provincial cities – the group of regional banking centres were designated (Gál, 1999). It was the most dynamically developing provincial cities that were functioning as regional banking centres. They were located at the ‘focal points’ of the most densely populated parts of West Transdanubia, West Upper Hungary (Pozsony [Bratislava], Győr, Pécs, Székesfehérvár and Szombathely), and were following the market lines of the once peripheral Great Plain region (Miskolc, Temesvár [Timişoara], Nagyvárad [Oradea], Arad, Debrecen). In the lagging regions of Transylvania and Croatia only some islands of regional banking centres were formed (Kolozsvár [ClujNapoca], Nagyszeben [Sibiu], and Zágráb [Zagreb]) (Figure 14). Analysing the spatial distribution and importance of the 13 regional banking centres we came to the following conclusions (Gál, 1999): 1) Not only the number of banks but the differences between their financial significance were higher in the early 1900s than between the two World Wars. Before explaining the reasons fot these differences, it is worth taking a glance at the spatial distribution of regional banking centres. Taking the number of regional centres into consideration, it can 44

102

Besides Budapest, the national financial centres, regional centres, secondary banking centres, tertiary and quaternary banking centres were categorized. Although there were in 125 settlements with urban functions and with more than 2 million crowns aggregate bank deposit stocks without central-place functions in banking. Their banking deposit sums were lower than could be expected on the basis of their local population. This was typical in the agricultural market towns of the Great Plain and in the declining Upper Hungarian small towns that they were unable to provide sufficient loans for their hinterland and were rather more dependent on external credit resources.

103

This difference can be explained by the fact that on the one hand, invested capital can increase the “value of a certain settlement”, one the other hand,“the value of the capital” is very much dependent on the settlement where it was invested. Consequently, the social and economic structures and traditions of the most important provincial cities (“the spirit of the locality/place” and “genius loci” could provide more favourable conditions for capital investment stimulating entrepreneurial willingness for modernization, which consequently strengthened the central-place functions of these cities.

Key: 1 – Innovation zones; 2 – Inner ring of the Hungarian regional banking centres; 3 – Outer ring of the secondary banking centres; 4 – Regional banking centres; 5 – Secondary banking centres; 6 – Tertiary banking centres; 7 – Quaternary banking centres; 8 – Towns without central-place functions in banking. Source: Calculated and edited by the author.

Figure 13 The Hungarian urban hierarchy based on central-place banking functions in 1910

be stated that not only their numbers were greater but the inequalities were wider between them in the early 20th century than in the interwar period.45 Michael Hechter, who has studied modernization in the peripheries, argues that the hierarchical division of the settlement network is more advanced and the spatial inequalities are bigger in a more peripheral situation; following his argument the regional inequalities in Hungary were very much determined by the regional characteristics of the town-network (Hechter, 1975). Before explanation it is practical to observe the spatial distribution of these regional bank centres. 2) In the early 20th century a special ‘multiple-ring’ formation of urban network having formed at the early 20th century may also reflect the financial role of cities (Tóth–Golobics, 1996). While the most significant medieval towns (economic centres) were situated alongside the western and northern national borders lining up in a semi-circle formation, the most important banking (economic) centres of Hungary were surrounded by the central areas of the country at the beginning of the 20th century (Figure 13). The analysis of the hierarchical spatial structure of cities organized by their banking (economic) functions shows that the network of cities on the edge of core areas was surrounded by a ring of secondary banking centres situated closer to the outer peripheries. The structure of the urban-financial hierarchy was not homogenous yet sometimes the absence of banking centres in some regions can clearly be identified. The regular configuration at the lower levels of hierarchy did not occur and at the same time we can find regions without significant financial centres, particularly in the core areas of the Great Plain and in peripheral border regions of the country. The territorial breakdown of regional banking centres may also be explained by the fact that modernization was most successfully carried out in the core areas of the Carpathian Basin that were inhabited mostly by Hungarians, while the peripheries were inhabited by different ethnic minorities – provided with poorer conditions for agricultural farming. In these peripheries a lower number of cities combined with poorer living conditions affected the social and cultural level of their population (e.g. literacy) which was below the level of the core regions.

Table 13 The hierarchical rank of the Hungarian cities on the basis of central-place banking functions based on banking deposits portfolio calculated by per capita county and national averages in 1909* Hierarchy calculated by the per capita county average deposit

Significant surplus ratio of banking in 1000 crowns

Hierarchy calculated by per capita national average deposit

Significant surplus ratio of banking in 1000 crowns

National banking centre (1) 1 BUDAPEST

990,000

1 BUDAPEST

990,000

Regional banking centres (13)   2 Zágráb [Zagreb]   3 Arad   4 Pozsony    [Bratislava]   5 Temesvár    [Timişoara]   6 Nagyvárad      [Oradea]   7 Nagyszeben      [Sibiu]   8 Miskolc   9 Kolozsvár [Cluj]

100,392 64,164

10 Székesfehérvár

21,141

11 Debrecen 12 Pécs 13 Győr 14 Szombathely

21,100 19,457 18,653 18,100

2 Zágráb [Zagreb]   3 Arad

103,634 65,614

48,684

4 Pozsony [Bratislava]

55,264

46,000

5 Temesvár      [Timişoara]

42,029

43,260

6 Nagyszeben [Sibiu]

39,805

36,054

7 Nagyvárad [Oradea]

38,320

30,851 26,745

8 Miskolc   9 Debrecen 10 Kolozsvár      [Cluj] 11 Fiume [Rijeka] 12 Székesfehérvár 13 Győr 14 Szombathely

28,680 24,865

15 Szeged 16 Túrócszentmárton       [Martin]

17,856

17 Nyitra [Nitra]

16,984

23,544 20,845 19,651 19,407 18,471

Secondary banking centres (35) 15 Nyitra [Nitra] 16 Szatmárnémeti      [Satu Mare] 17 Túrócszentmárton      [Martin]

106

17,736 17,360 16,909

17,100

Table 13 continued Hierarchy calculated by the per capita county average deposit

Significant surplus ratio of banking in 1000 crowns

18 Besztercebánya      [Banska Bystrica ] 19 Kassa [Košice] 20 Újvidék      [Novi Sad] 21 Nyíregyháza

Hierarchy calculated by per capita national average deposit

Significant surplus ratio of banking in 1000 crowns

15,792

18 Besztercebánya      [Banská Bystrica] 19 Brassó [Braşov]

15,650

20 Esztergom

15,056

15,742

14,910

16,415

16,711 15,671

22 Nagykanizsa

15,425

23 Szeged

15,000

24 Esztergom

14,319

25 Szolnok 26 Marosvásárhely      [Târgu Mureş] 27 Veszprém 28 Sopron 29 Nagyszombat      [Trnava]

13,830

21 Pécs 22 Szatmárnémeti      [Satu Mare] 23 Újvidék [Novi Sad] 24 Nagyszombat      [Trnava] 25 Nyíregyháza

13,791

26 Nagykanizsa

13,308

13,258 13,157

27 Szolnok 28 Veszprém

13,302 12,980

12,867

29 Versec [Vršac]

12,449

30 Zombor [Sombor]

12,857

30 Rimaszombat      [Rimovská Sobota]

12,340

12,359

31 Zombor [Sombor]

11,814

12,313

11,517

10,965

32 Kőszeg 33 Marosvásárhely      [Târgu Mureş] 34 Baja 35 Sopron 36 Eperjes [Prešov] 37 Aranyosmarót      [Zlaté Moravce] 38 Pápa

10,776

39 Losonc [Lucenec]

9,809

10,754

40 Kaposvár

9,541

31 Rimaszombat      [Rimovská Sobota] 32 Brassó [Braşov] 33 Eperjes [Prešov]

12,036

34 Kaposvár 35 Baja 36 Versec [Vršac]

11,956 11,848 11,843

37 Kőszeg

11,419

38 Sátoraljaújhely 39 Szabadka      [Subotica] 40 Losonc [Lucenec] * The first 50 of 175 towns

14,813 14,718 14,170 13,628

11,418 11,092 11,022 10,566 10,250 9,964

107

9,048

107. …

…

51 Nagybecskerek      [Zrenjanin] …

7,757 ….

Quaternary banking centres (68) Source: Author’s calculation using the following resources: A Magyar Szent Korona országainak hitelintézetei az 1894–1909. években (ed. Vargha Gyula) Magyar Statisztikai Közlemények (Új folyam), 35. k., Budapest, Pesti Könyvnyomda Rt., 1913. (Nagy) Magyar Compass, (ed. Galánthai Nagy Sándor), Budapest, 1899–1917., Pénzügyi Compass 1900–1913.

108

p Szombathely

Pécs

Győr

Székesfehérvár

Kolozsvár --~

7,867

Miskolc

50 Nagykároly [Carei]

Debrecen

9,213

Pozsony

7,929

Nagyvárad

49 Szekszárd

Temesvár

9,475

Arad

8,123

Nagyszeben

48 Szabadka [Subotica]

Zágráb

9,621

Budapest

8,418 8,356 8,256

10,149 10,023 9,907

8,764

45 Susak 46 Lugos [Lugos] 47 Balassagyarmat 48 Nagybecskerek      [Zrenjanin] Tertiary b anking centres (58) 49 Kismarton [Eisenstadt] 50 Segesvár [Sighişoara]

44 Segesvár      [Sighişoara] 45 Susak 46 Eger 47 Komárom

10,347

N O

8,938

W A A w O N

9,118

43 Sátoraljaújhely

9,275

10,430

Significant surplus ratio of banking in 1000 crowns

0000000000

10,460

41 Kismarton      [Eisenstadt] 42 Balassagyarmat

10,534

44 Pápa

51 Nagykároly [Carei]

Hierarchy calculated by per capita national average deposit

o pea snidans aoueoyiu6iS 0

41 Komárom      [Komarno] 42 Eger 43 Aranyosmarót      [Zlaté Moravce]

Significant surplus ratio of banking in 1000 crowns

sauanionsass )rye8 ~

Hierarchy calculated by the per capita county average deposit

Figure 14 Hierarchical ranks of regional banking centres by asset stock volumes (million crowns), 1910 Z9Z'S 996'Z

Table 13 continued

Source: Edited by the author.

3) Our research also revealed that the development level of the cities and their regions rarely coincided. The differences of regional development did not provide enough explanation for the understanding of the different development paths. It was also proved that regional disparities within the country were only partial explanatory factors and ranking within the leading cities of our hierarchy separated from their regional hinterlands. Thus, in several cases the state of development in cities was not on the same level with their region. Our statistical data may demonstrate a more general conclusion that the spatial inequalities were increasing from the core towards the peripheral regions, hence the bigger cities, as the centres of banking and other services such as manufacturing and administration, became more sharply detached from their hinterland in the peripheral regions. The cities positioned at the top of our hierarchy were in sharper contrast to their surroundings as they increasingly separated from their hinterlands in economic and social respects. The money-markets had a greater developmental

109

ynamic in the once peripheral eastern–southeastern regions in cond trast to the West Transdanubian markets, which were considered to be traditionally more advanced. This resulted in such a paradoxical situation that Transdanubian cities – although far from being underdeveloped – produced lower development dynamics than cities located in the less favoured easternmost areas.46 Hence, it is not surprising that from the 10 largest bank centres with the biggest asset stocks and sum total of deposits, 8 were located in the eastern regions (Figure 15–16). In these former regions a contiguous urban belt, coinciding with the traditional market-line, extended from Szatmár [Satu Mare] through Debrecen, Nagyvárad [Oradea], Arad and Temesvár [Timişoara] to Versec [Vršac]. Economic and urban growth was also the most dynamic alongside the market-line forming an economically prospering East Hungarian innovation zone sharply separated from its more underdeveloped hinterland. Once the peripheral eastern regions produced an innovation and entrepreneurial friendly environment, this market-line generated a more dynamic urban development in these hinterlands. The most advanced regional banking centres were located partly in the eastern regions and besides this in the West Hungarian innovation triangle (Pozsony [Bratislava], Győr, Szombathely). The available bank deposit statistics enable us to compare the relative indices of significant surplus ratio calculated by per capita county or per capita national average deposits – in our hierarchy– with the quantitative indices of banking functions measured by asset and deposit portfolio. In our first case a ranking by sum total of bank deposits 47 concentrated in urban settlements seems to be the most suitable means of analysis (Beluszky, 1990). The available statistics on banking stocks and the calculated relative hierarchical rank make possible a comparison of these indicators. Relative rankings among the leading provincial cities changed considerably as the time being (Figure 15–16). The regional centres of the eastern market-line, largely due to their deposit and asset concentrations and their distinguishable hierarchical ranks, became economic counterpoles of Budapest, while some traditional centres declined or lost their leading positions by the early 1900s (in 46

In some cases intraregional disparities were stronger than the overall difference between east and west Hungarian regions. This was further increased by the selection among different locations by banking capital as large banks followed their location strategies preferring to open new offices in economically prospering large cities. Including savings, charge and chequing account deposits of all credit institutions.

Upper Hungary [Kassa-Košice], Transdanubia [Pécs, Nagykanizsa, Győr, Sopron]) (Gál, 2002). Without going into a detailed analysis of the reasons it should be clear that due to their earlier geographical location, the above-mentioned three cities (Debrecen, Szeged, Szabadka [Subotica]) had lower banking-innovation potentials than it could have been expected on the basis of their local deposit portfolio. This may be explained by their geographical position, smaller and more fragmented gravity zone with scarcely populated scattered farms and a high proportion of inner city population. The low position of the two latter cities (Szeged, Brassó [Braşov]) resulted from the dynamic development of other cities performing industrial and commercial banking functions in close proximity to the former ones resulting in strong competition between the two traditionally rival cities (Temesvár [Timişoara] and Nagyszeben [Sibiu]). At the same time Túrócszentmárton [Martin] and Marosvásárhely [Târgu Mureş] have far better positions on the hierarchy than would have been expected on the basis of their deposit portfolio, as both cities were supplying banking services for a fairly large gravity zone. The first city (Túrócszentmárton) was the ‘headquarters’ of one of the most prominent Upper Hungarian ethnic banks operated by Slovak entrepreneurs, while the other city (Marosvásárhely [Târgu Mureş]) was the largest banking centre of Seklerland.

Susak

O nO c

BUDAPEST

Eaúergom Eger

Újvidék

Zombor

usak

Zombor

Temesvár

Aid

Versec

NagybecskereQ

eged

Debrecen

Lugos

1IIIV►

Nagyszeben

Nagyvárad

700-899

<400

400-499

® 500-699

111111

>6,000 3,000-6,000

Brassó

Segesvár

<700

700-1,000

® 1,000-1,700

® 1,700-3,000

•

Per capita assets in crowns

Brassó

®Segesvár

Marosvásárhely

Nagyszeben

Medgyes

01,200 900-1,200

®Marosvásárhely

Kolozsvár

Szatmárnémeti

111111111

Nyíregyháza

Kisvárda

Sátoraljaújhely

Kassa

111111111

®Lugos

Gyula

110111 110111 1111111 a Hódmez:. : á he y

olnok

Pancsova

Szabadka

Újvidék

Baja

Kalocsa

Székesfehérvár

Miskolc

Gyöngyös

Eger

Source: Edited by the author.

Pécs

Kaposvár

111111

Esztergom

Nyitra Balassagyarmat

őr

Rimaszombat

Besztercebánya

® Gy B UDAPEST Veszprém

Szatmárnémeti

@Nagyvárad

111111 Nagykároly

°Debrecen

Versec

Eperjes ®Túrócszentmárton C

agyszomb " Aranyosmarót

Nagykanizsa

Szombat ely

111111

25-3 35 16-25

300 45-100

5,500

Million crowns

nok

®Sátoraljaújhely

skolc III111Nyíregyháza

Nagybecs kerek

Temesvár

Szeged

111111

Source: Edited by the author.

Pécs

411,

Oókszird

Nódmezőváaárhely•

,O Kecskemit

Figure 16 Concentration of banking assets in Hungarian cities, 1910

Fiume

III

KmniromBOpyannat O O

VeszprimO Bzi ss~hirvi~l~~ ~agYka~

Pipa

Kassa

111111

Eperjes

•

OBesdametAnya Napyszombsi Aranyosmarót

•

Per capita deposit in crowns Túrócszentmárton

Kaposvár Nagykanizsa

Szombathely

Köszeg

Pozsony

Soprinlll

120 80 55 30

1,180

Million crowns

Figure 15 Concentration of sum total of deposits in Hungarian cities, 1909

The lower levels of hierarchy show more or less even distribution regarding the quantitative indices and hierarchical positions. All these suggest a direct link between local resources measured by quantitative indices and the relative importance of cities measured by their central-place banking functions. As a connection with this phenomenon it should be noted that all 49 cities with the largest deposit portfolio are listed in Level I or Level II of our hierarchy. At the same time some small towns in Upper Hungary and some other cities situated on the inner ring of the Great Plain48 show some declinations from the normal trend as their hierarchical positions are much lower than it would be expected from the volume of their deposit portfolios. The cities on the Great Plain having no important financial functions in our hierarchy (e.g. Kecskemét, Hódmezővásárhely, Cegléd and Nagykőrös), although on the basis of their deposit portfolios were positioned at the medium point of our hierarchy (36th, 38th, 45th and 48th positions). From quantitative aspects they were ranked higher than it would have been in the hierarchical order of cities, even Hódmezővásárhely, having the highest position, was only the 166th in the financial hierarchy. At the same time these comparisons also point out that considering purely the bank balance data, financial institutions in the core areas of the Great Plain had relatively large amounts of capital stocks. The relative weakness of central-place banking functions in these regions originate from the specific structure of local society and economy as certain researches in banking history point out; financial institutions in several cases were unable to satisfy all the demands derived from the large local population.

6.2.2 Hierarchical ranking of cities by asset distribution Besides the urban hierarchy calculated on the basis of bank deposits, cities were arranged into a hierarchical ranking by banking assets. The SPSS cluster programme used for computing banking asset surplus ratios calculated not only the variables of provincial service ratios (the ratio of banking service performing central-place function and the fraction of total turnover supplies only for the centre’s hinterland), but also 48

Certain parts of Pest-Pilis-Solt-Kiskun and Szabolcs counties and the territory of Csongrád, Csanád, Békés, Jász-Nagykun-Szolnok and Hajdú counties.

114

i nvolved settlement size and the per capita asset volumes into its calculations. This is the reason why this ranking is slightly different from the ranking prepared on the basis of simple surplus ratio (Table 14). Table 14 The hierarchy of Hungarian cities on the basis of central-place banking functions by asset stocks, a cluster analysis, 1909 Ranks of the cities by asset stocks BUDAPEST   1 Zágráb [Zagreb]   2 Nagyszeben      [Sibiu ]   3 Arad   4 Temesvár      [Timişoara ]   5 Debrecen   6 Pozsony      [Bratislava ]   7 Nagyvárad      [Oradea]   8 Szeged   9 Szabadka      [Subotica] 10 Fiume [Rijeka]

Crowns 2,548,796,000 296,000,000

Ranks of the cities by central-place b anking functions of s ignificant surplus ratio * BUDAPEST   1 Zágráb [Zagreb]**

Crowns 2,968,230,077 277,277,000

217,500,000

2 Nagyszeben [Sibiu]

209,563,107

131,000,000

3 Arad

116,029,658

126,000,000

4 Temesvár [Timişoara]

108,804,465

111,000,000

5 Debrecen

89,023,227

86,480,000

6 Nagyvárad [Oradea]

68,691,947

83,900,000

7 Pozsony [Bratislava]

67,941,149

70,500,000

8 Fiume [Rijeka]

49,695,978

67,700,000

9 Miskolc

57,304,217

61,500,000

10 Szabadka [Subotica]*** 11 Kolozsvár      [Cluj-Napoca] 12 Szeged 13 Brassó [Braşov] 14 Győr 15 Székesfehérvár 16 Nyíregyháza 17 Kassa [Košice] 18 Szolnok 19 Szatmárnémeti      [Satu Mare]

45,277,430

11 Miskolc

59,500,000

12 Kolozsvár [Cluj] 13 Brassó [Braşov] 14 Győr 15 Székesfehérvár 16 Kassa [Košice] 17 Pécs 18 Nyíregyháza

57,500,000 43,800,000 43,400,000 41,500,000 40,600,000 38,800,000 37,170,000

19 Szolnok

36,668,000

43,088,504 42,456,264 34,069,728 32,900,900 32,819,875 30,883,101 30,121,993 29,847,614 27,230,596

115

Table 14 continued Ranks of the cities by asset stocks 20 Szatmárnémeti      [Satu Mare] 21 Szombathely 22 Újvidék      [Novi Sad] 23 Marosvásárhely      [Târgu Mureş]

Crowns

Ranks of the cities by central-place banking functions of significant surplus ratio *

Crowns

35,500,000

20 Pécs

26,950,000

32,330,000

21 Szombathely

24,995,561

30,150,000

22 Kisvárda

24,525,497

28,000,000

23 Túrócszentmárton      [Martin]

23,025,219

24 Kecskemét

27,900,000

25 Nagykanizsa 26 Kisvárda 27 Zombor [Sombor]

27,770,000 26,900,000 26,600,000

28 Orosháza

25,430,000

29 Nyitra [Nitra] 30 Nagybecskerek      [Zrenjanin] 31 Túrócszentmárton      [Martin] 32 Versec [Vrsac] 33 Besztercebánya      [Banská Bystrica] 34 Susak 35 Baja

25,150,000

24 Marosvásárhely      [Târgu Mureş] 25 Újvidék [Novi Sad] 26 Nagykanizsa 27 Nyitra [Nitra] 28 Besztercebánya      [Banská Bystrica] 29 Orosháza

24,600,000

30 Susak

20,008,282

24,000,000

31 Zombor [Sombor]

19,349,459

23,400,000

18,562,203

36 Cegléd

21,620,000

37 Hódmezővásárhely

21,450,000

38 Kaposvár

20,460,000

39 Veszprém 40 Nagyszombat      [Trnava]

20,370,000

32 Esztergom 33 Nagybecskerek      [Zrenjanin] 34 Baja 35 Lugos [Lugoj] 36 Nagyszombat      [Trnava] 37 Medgyes [Mediaş] 38 Aranyosmarót      [Zlaté Moravce] 39 Balassagyarmat

20,300,000

40 Segesvár [Sighişoara]

15,013,881

19,900,000

41 Rimaszombat       [Rimovská Sobota]

14,861,856

41 Eger

116

23,300,000 23,140,000 23,100,000

22,376,464 22,189,170 21,483,101 21,322,687 20,746,088 20,153,432

18,438,000 18,115,890 17,963,134 16,704,947 15,455,638 15,435,201 15,379,781

42 Gyöngyös 43 Balassagyarmat 44 Segesvár      [Sighişoara] 45 Eperjes [Prešov] 46 Medgyes [Mediaş] 47 Kalocsa 48 Sátoraljaújhely 49 Pancsova      [Pancevo] 50 Rimaszombat      [Rimovská Sobota] 51 Aranyosmarót      [Zlaté Moravce]

18,640,000 17,960,000

42 Kaposvár 43 Kalocsa

14,742,612 14,483,994

17,760,000

44 Gyöngyös

14,299,582

17,750,000 17,500,000 17,100,000 16,750,000

45 Eperjes [Prešov] 46 Cegléd 47 Eger 48 Kőszeg

13,881,449 13,569,584 13,251,676 12,663,749

16,600,000

49 Losonc [Lucenec]

12,193,457

16,500,000

50 Kecskemét

12,060,342

16,200,000

51 Sátoraljaújhely

12,024,220

52 Eszék [Osijek]

16,150,000

53 Komárom 54 Gyula 55 Pápa 56 Losonc [Lucenec] 57 Nagykároly [Carei] 58 Szarvas 59 Rózsahegy      [Ružomberok] 60 Kőszeg 61 Nagykőrös 62 Szekszárd 63 Sopron 64 Kiskunfélegyháza 65 Munkács      [Mukačevo] 66 Oravicabánya 67 Ungvár [Užgorod] 68 Békéscsaba 69 Beszterce      [Bystrica] 70 Kismarton        [Eisenstadt] 71 Dés [Dej]

16,050,000 16,020,000 15,430,000 15,260,000 14,860,000 14,800,000

52 Rózsahegy      [Ružomberok] 53 Pancsova [Pancevo] 54 Oravicabánya 55 Nagykároly [Carei] 56 Kismarton [Eisenstadt] 57 Komárom 58 Pápa

14,680,000

59 Szászváros [Orastie]

10,436,736

14,660,000 14,250,000 13,840,000 13,500,000 13,400,000

60 Szekszárd 61 Gyula 62 Szentgotthárd 63 Munkács [Mukačevo] 64 Trencsén [Trenčin]

10,297,561 10,264,692 10,258,112 9,145,825 8,990,215

13,240,000

65 Kunszentmiklós

8,897,923

12,260,000 12,150,000 12,100,000

66 Beszterce [Bystrica] 67 Eszék [Osijek] 68 Dés [Dej]

8,813,068 8,711,044 8,685,876

11,950,000

69 Szarvas

8,666,677

11,500,000

70 Lőcse [Levoča]

8,505,864

11,400,000

71 Ungvár [Užgorod]

8,140,197

11,776,987 11,668,504 11,293,277 11,049,514 10,771,699 10,756,131 10,654,450

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Table 14 continued Ranks of the cities by asset stocks 72 Óbecse      [Stari Beĉej] 73 Szászváros      [Orastie] 74 Szentgotthárd 75 Kunszentmiklós 76 Varasd [Varaždin] 77 Trencsén [Trenčin] 78 Zsombolya      [Jimbolia] 79 Beregszász      [Beregovo] 80 Léva [Levice] 81 Érsekújvár      [Nové Zámky] 82 Lőcse [Levoča] 83 Szentes 84 Fehértemplom      [Bela Crkva] 85 Vác 86 Topolya      [Bačka Topola] 87 Karcag 88 Torda [Turda] 89 Bród      [Slavonski Brod] 90 Soroksár 91 Zsolna [Žilina] 92 Jászberény

Ranks of the cities by central-place banking functions of significant surplus ratio *

Crowns

11,350,000

72 Léva [Levice]

8,027,025

11,070,000

73 Zsombolya [Jimbolia]

7,898,359

10,880,000 10,870,000 10,860,000 10,840,000

74 Varasd [Varaždin] 75 Nagykőrös 76 Beregszász [Beregovo] 77 Rozsnyó [Rožňava] 78 Fehértemplom      [Bela Crkva]

7,684,674 7,477,725 7,374,879 7,286,465

10,440,000

79 Bród [Slavonski Brod]

7,032,600

10,320,000

80 Zsolna [Žilina]

7,004,577

10,300,000

81 Topolya [Bačka Topola]

6,904,373

10,290,000 10,100,000

82 Keszthely 83 Óbecse [Stari Bečej],

6,817,951 6,758,836

9,980,000

84 Hódmezővásárhely

6,650,535

9,920,000

85 Érsekújvár      [Nové Zámky]

6,453,964

9,860,000

86 Torda [Turda]

6,431,165

9,660,000 9,620,000

87 Zalaegerszeg 88 Vukovár [Vukovar]

6,389,972 6,344,917

9,450,000

89 Soroksár

6,277,235

9,440,000 9,180,000 9,000,000

90 Dunaföldvár 91 Sopron 92 Vác 93 Selmec- és Bélabánya      [Banská Stiavnica] 94 Kiskunfélegyháza 95 Károlyváros [Karlovac]

6,035,381 5,458,116 5,428,375

Crowns

10,480,000

93 Zalaegerszeg

8,960,000

94 Hajdúböszörmény 95 Dunaföldvár

8,930,000 8,900,000

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7,248,812

5,261,155 5,123,012 4,721,456

96 Mezőtúr 97 Selmec- és      Bélabánya      [Banská Stiavnica] 98 Máramarossziget      [Sighetu      Marmaţiei]

8,900,000

96 Karcag

4,209,948

8,860,000

97 Máramarossziget      [Sighetu Marmaţiei]

3,794,310

8,859,000

98 Mezőtúr

2,777,105

99 Rozsnyó

8,840,000

99 Nagykikinda      [Kikinda]

2,409,585

100 Vukovár 8,800,000 100 Hajdúböszörmény 2,256,317        [Vukovar] 101 Nagykikinda 8,760,000 101 Békéscsaba 2,004,037        [Kikinda] 102 Keszthely 8,590,000 102 Jászberény 1,967,025 103 Károlyváros 8,540,000 103 Szentes 1,664,459        [Karlovac] *Calculated on the basis of per capita provincial average asset sum (237 crowns). **Printed in bold: regional banking centre, ***printed in italic: secondary banking centre. Source: Author’s calculation on the basis of the volumes of Hungarian Statistical Bulletin by means of SPSS.

The sequence of the top 16 provincial cities on the hierarchy based on asset stocks more or less matches with the hierarchy of cities ranked by bank deposits but some cities’ positions have changed within this group. Budapest placed on the top was followed by Zagreb, Nagyszeben [Sibiu], Arad and Temesvár [Timişoara] in the group of regional centres. There was a strong correlation between their absolute volume of asset stocks and their computed hierarchical level. On the secondary level of regional centres the sequence of cities was as follows: Nagyvárad [Oradea], Pozsony [Bratislava], Debrecen, Miskolc and Kolozsvár [Cluj]. With the exception of Debrecen, all these centres moved to a better position, 2–3 ranks higher than their absolute asset indices. This shows that these cities were important financial centres and had extensive gravity zones. However Debrecen standing in 5th position in the ranking of absolute volume of assets – due to its smaller gravity zone and large concentration of inner city population – was only the 7th city in the hierarchy of banking centres. The hierarchical ranking of the nine regional centres was followed by the group of secondary banking centres, including 22 cities: Szabadka [Subotica], Székesfehérvár, Pécs, Nyíregyháza, Szatmárnéme-

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ti [Satu Mare], Szeged, Győr, Szolnok, Kassa [Košice], Szombathely, Kisvárda, Marosvásárhely [Târgu Mureş], Nagykanizsa, Nyitra [Nitra], Túrócszentmárton [Martin], Brassó [Braşov], Susak, Besztercebánya [Banská Bystrica], Lugos, Újvidék [Novi Sad], Orosháza, Esztergom. In this group the absolute positions of Szeged, Győr, Szabadka [Subotica], Újvidék [Novi Sad] and especially Brassó [Braşov] were better than their hierarchical positions, while the banking function rankings of the remainder were by 5–6 positions above their asset stocks ranking. The geographical distribution of regional centres has changed to some extent. Compared to the hierarchical ranking of cities based on sum total of deposits – due to the larger concentration of banking assets – the overrepresentation of East Hungarian centres may be observed (Figure 16). It seems that several cities situated along the market-line of East Hungary were members of the group of regional banking centres, but major cities of Transdanubia (Szombathely, Győr and Pécs) left the upper level of our banking hierarchy measured by more complex variables of asset allocation. With the exception of Pécs, the positions of the other two Transdanubian cities (Győr, Székesfehérvár) were worse on the assets-based hierarchy than on deposits based ranking.49 Expanding the balance sheet of banks with liabilities for maintaining financial balance and ensuring the liquidity of banks the amount of working capital should be increased. This working capital may be increased on the assets side by the activities of several banking lines. They are bill portfolio, the items of chequing account credit, mortgages, municipal credits, loans and interbank credit placed at other financial institutions and real estate properties. Due to the variety of assets and the different ratios of components differing by cities and regions we cannot provide a detailed and precise analysis of the general role of settlements in banking innovation (Szász, 1992). The list of the top 20 cities ranked by the volume of bank assets included all the 13 major regional banking centres with the largest significant surplus ratio. Thus, on the top of this list there was some correlation between quantitative and qualitative values. However, there is a need to give some kind of explanation regarding the deviations of the 49

Secondary financial centres were as follows: Szolnok, Kassa, Szombathely, Kisvárda, Marosvásárhely, Nagybecskerek, Nagykanizsa, Nyitra, Túrócszentmárton, Brassó, Susak, Besztercebánya, Lugos, Újvidék, Orosháza, Esztergom, Zombor, Baja etc.

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quantitative ranking. On the ranking list of the asset stocks in the year 1909, Budapest and Zagreb, the capital city of the autonomous Croatian territory were followed by Nagyszeben [Sibiu]. The outstanding position of Nagyszeben [Sibiu] in asset concentration is an unusual anomaly considering the city’s general economic importance. The significant share of its total assets was concentrated in the hands of the traditional German burgess, being the owners of Nagyszeben-based banks. The cricial part of their fianancial assets were constituted by huge immovables and debenture-bensd of real-estate properties, which were less liquid and scarcely fulfil the demand of short-term financing. The majority of banking assets in Nagyszeben [Sibiu] were accumulated in large-sized land properties and mortgage securities (registered for housing). These are rather ‘passive’ forms of assets not doing too much for facilitating modern commercial banking activities. Rather, they were serving the preservation of the banking and fund management traditions of the archaic Saxon plutocracy than increasing the city’s economic importance in the modern economy. Szeged and Szabadka [Subotica], situated at the southern edge of the Great Plain could reach a more distinguished position in the assets concentration than in their hierarchical ranks. This means that on the ranking by banking assets Szeged and Szabadka [Subotica] – just like the other cities of the Great Plain – had better positions in absolute volumes of stocks than on the hierarchical ranking of banking centres by their surplus ratio measured by sum total of deposits. This is explained by the extremely high ratio of risky mortgage portfolios – lent primarily for the agricultural sector – serving agrarian interest that cannot be regarded the most prudent of service activities. Only a smaller segment of local entrepreneurs were engaging with short-term maturity financing their commercial-industrial investments, which is considered to be a more secure business line for the banks at the turn of the 19th and 20th centuries. At the same time, the per capita assets ratio was lower because these two cities were the most populated provincial cities in the year 1910. However, the increasing volume of assets during the 1910s was a real indicator of the dynamic economic development of secondary banking centres in Southern Hungary. (Between 1900 and 1910 they moved forward from the 17th–19th positions to the 9th–10th position in the ranking of banking assets. However Temesvár [Timişoara] and Arad were still their strong competitors).

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Szeged-Csongrád Savings Bank, Szeged Source: http://mek.oszk.hu/01900/01905/html/index1455.html

Some disharmony between the absolute and hierarchical rankings can be observed in some cities in the Great Plain but it also occurred with some cities performing special economic functions. Fiume [Rijeka], as Hungary’s only seaport city, was a very important economic financial centre – at least from quantitative aspects – but due to geographical and public law reasons it was not an organic part of Hungary by being an enclave, surrounded by Croatian territory. Accordingly it was not even surrounded by a ‘real’ hinterland with active market exchanges and service relations, therefore Fiume always had better positions in county-level rankings than on a regional basis. Among the core area’s cities of the Great Plain, Szolnok (18th position) was the only one among the 20 top cities with the largest volume of asset stocks. Szeged and Szabadka, the 9th–10th cities on the ranking were in many aspects different from the core area’s cities. Among the cities of minor hierarchical importance, Kecskemét was at the 25th, Hódmezővásárhely was at the 35th and Cegléd was at the 36th position on the ranking of cities by asset stocks. Thus, the value of absolute indices – showing that these cities were not standing at the top of the urban hierarchy – were unable to counterbalance their relatively mi-

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nor financial importance from the point of both population number and the demands of the local economy. At the same time it is also evident that all the above-mentioned cities, concerning the quantitative development of banking services, maintained better positions than on the urban hierarchy. Our findings closely correlate with Pál Beluszky’s view stating: “such discrepancies were usual for the agricultural market towns of the Great Plain capable for development even under new circumstances” (Beluszky, 1990). The equity-based ranking of cities does not reflect the real turnover of the banking sector. Although these indices are indicating the security of the banking business, in other words, the stability of financial institutions, in several cases the amount of equity capital at the oldest and the most prudent financial institutions was the lowest compared to the amount of liabilities, therefore the increase of liabilities is a better indicator of a bank’s performance. It would be more suitable to carry out bill of exchange portfolio surplus ratio analysis, as on the assets side, the importance of the billing business sector from the point of liquidity was equally important with the savings business on the liabilities side. This form of credit was available for all kinds of businesses requiring short-term financing that was used as working capital. With the extension of its maturity even the loan demands of industrial investors could be financed through the system of the billing portfolio. On the other hand, 70% of bills of exchange lending were realized by the provincial credit institutions and this figure is another indicator of the banking centre functions (Szász, 1992). Nearly one-third of banking transactions intermediated in the form of mortgage loans. A part of these were home loan mortgages, thus this sector was financing not only agricultural loans. However this form of credit business can hardly be used for the analysis of banking functions. The growing proportion of land mortgages was an indicator of an increasing amount of capital invested in agriculture but the type of mortgage had always greater importance than its amount. The charging of land properties by short-term loans (as was quite usual) generally was not promoting the modernization of agriculture as mortgages were used rather for land purchase or debt repayment (Vargha, 1913). Credit accommodation for the masses of farmers was not solved even by the 1890s. Even if some efforts were made for the elimination of emerging moneylender’s usury (by founding landowners’ credit unions), the traditional agribusiness strategies were insufficient for increasing public trust in local credit institutions that could have stabilized agrar-

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ian finance. The sums of mortgage credits were the highest in Central Hungary, Transdanubia and the Banat, and the lowest were in Croatia, Transylvania and Upper Hungary. This distribution of mortgages was in close correlation of the level of development of agriculture. The sums of mortgage credits were generally high in the cities of agricultural regions (Székesfehérvár, Szeged, Szabadka [Subotica], Arad, Baja, Hódmezővásárhely etc.), while the distribution of household mortgages among cities was more evenly distributed. Home mortgage sums were the highest in Budapest, followed by Nagyszeben [Sibiu], Pozsony [Bratislava], Sopron, Győr, Nagyvárad [Oradea], Brassó [Braşov], and Kolozsvár [Cluj]. All these cities were prospering even under the changed circumstances. As Lajos Rúzsás points out there is a correlation between the quantitative business indicators of urban financial institutions (assets, deposits, gross capital stock) and population data. A more rapid speed of capital growth with the speed of local population growth generates accelerated economic development and this will naturally generate a further growth in population. If the pace of capital accumulation is quicker than the growth in the city’s population and the line on the chart rises above the number of local population, the city’s economic development will accelerate. Analysing changes in the volume of bank balances (e.g. assets) in some cities between 1883–1925 it seems that the expansion of banking services in prospering cities was continuous, reaching its peak in the year 1913. After the military defeat of AustriaHungary in the First World War the border changes gradually slowed down the general dynamics of economic development, which had a strong impact on the asset base of banking institutions that in several places went below the level of the year 1883 (Rúzsás, 1965). Comparing banking hierarchy based on the surplus ratio with the quantitative indices of financial institutions, we can draw the final conclusion that on the top of the urban hierarchy with the exception of a few cases only, the cities’ absolute (stock distribution) and relative financial importance (central-place functions) more or less strongly correlated in the early 20th century.

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Szabadka [Subotica] Savings Bank, 1910s Source: Jalsovsky–Tomsics, 1992.

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The banking network of the Hungarian regions Our surveys gave the opportunity to analyse the regional breakdown of the banking network, and to compare the economic and urban development of the banking centres. These historical geographical analyses were a great help in eliminating the traditionally ‘advanced’ West (Transdanubia) and ‘lagging’ East (Great Plain) schematic image appearing in literature (Gál, 2003). It is argued that regional inequalities within Hungary were very much determined by economic, especially banking functions of the town network. It is also evident that one of the most important changes in the contemporary urban structure was the rise of the prosperous eastern regional centres (Gál, 2001). Regional level investigations presented useful data for the regional analysis of the banking network (Upper Hungary, Transdanubia, the Great Plain), economic and urban development.

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7.1 The West loses its pre-eminent position – banking markets of Transdanubia

7.1.1 Declining the earlier dynamics – transformation of the traditional urban network A question in comparative urban history may arise: why were the advanced cities of Transdanubia unable to produce such a spectacular urban growth and why were they less competitive at the turn of the 19th and 20th centuries than the cities of Eastern Hungary (Hechter, 1975).50 It was also not accidental that eight of the top ten cities with the highest banking assets were located in the eastern regions. The more densely populated Transdanubia had a greater number of urban centres with a lower hierarchy. As a result, innovation and urbanization concentrated on more growth poles sharing each others’ service hinterlands. Cities with lower hierarchy taking over some urban functions of the larger cities further lowered the importance of Transdanubian regional centres in service provision (Győr, Pécs, Székesfehérvár and Szombathely). As a result, ‘urbanization forces’ in Transdanubia, although very strong but more fragmented than in Eastern Hungary, the four Transdanubian regional centres (Pécs, Szombathely, Győr, Székesfehérvár) positioned in a typical ‘innovation rectangle’ formation, divided the region’s banking gravity zones among themselves (Vörös, 1971). This was shown by the decreasing capital assets of Transdanubia’s local financial institutions at the turn of the 19th and 20th centuries. Comparing to East Hungarian financial centres, the contrast was extremely sharp, and even the largest Transdanubian cities were only ranging from 15th to 20th place in the ranking of cities by asset stocks in 1909. (In 1900 their places ranged from 9th to 22nd on the ranking list). Examining the list of the 13 regional centres their situation is even worse as the four Transdanubian regional centres were the last on the list. Pécs 50

Analysing the modernization of the internal Celtic peripheries of Britain, it was proved with empirical researches that the stronger the peripheral features, the more complex the hierarchical division of the settlement network.

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was the 11th by the volume of asset stocks but by 1909 it fell back to the 18th position behind Győr and Székesfehérvár, further worsening the relative position of its financial institutions (Gál, 2002) (Table 15). Table 15 The changing positions of Transdanubian cities ranked by asset stocks between 1900 and 1910 (rank of order) Cities

1900

Győr 16 Székesfehérvár 9 Pécs 11 Szombathely 23 Nagykanizsa 22 Esztergom 20 Kaposvár 38 Sopron 14 Source: Own calculation (Vargha, 1913).

1910 15 16 17 22 26 37 41 66

The average volume of taxes paid by the largest taxpayers of Hungarian cities (called as ‘virilis’) in the year 1910 also verifies the lower hierarchy of these cities. While the average sum of taxes paid in Arad, Temesvár [Timişoara], Kolozsvár [Cluj-Napoca] was far above 2000 crowns, the largest taxpayers of Győr, Pécs and Szombathely paid less than this sum (Thirring, 1913). In spite of this, Transdanubia was one of Hungary’s most advanced regions even in the age of the Dual Monarchy. This resulted from its geographical position, from the level of its economic development, and from its advanced transport and settlement networks. This may be verified by the standard of living and development level of the local society. The region’s advantageous position was further increased by the greater density of the urban network and perpetual urban development. Transdanubia had a great variety of cities and urban-type settlements manifested in the quality and quantity of various urban development factors. At the same time it gradually became evident that Transdanubia temporarily lost its dynamism: ‘Transdanubia was preserving its advantageous position but signs of weariness were emerging among its population in some places during the ‘age of modernization’ of the 19th century (Bulla-Mendöl, 1947. p. 345). In the second half of the 19th century, the emergence of new

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commercial and transport functions generated an intensive selection process within the traditional urban network of Transdanubia, which was most clearly identified on the level of free royal cities. With the emergence of competitor cities in the Great Plain and alongside the river Danube, the development of Transdanubia’s free royal cities fell back temporarily and this was coupled by the decreasing level of their traditional commercial functions. The recession of the wine business heavily hit some cities such as Ruszt [Rust], Kőszeg, Pécs, Esztergom, Kismarton [Eisenstadt] etc. (Rúzsás, 1966). There was a temporary decline in the economic development of the traditional free royal cities with significant commercial functions (Pécs, Győr) in the last third of the 19th century, which resulted from the transitional problems of the restructuring of the local economy in the age of the industrial revolution. In the case of Győr, the collapse of the corn trade in the 1880s and the breakdown of traditional market relations luckily coincided with the new wave of direct investments into modern industries, turning the city with its advantageous geographical location into one of Hungary’s major industrial centres (Vörös, 1971). Changes resulting from the restructuring of the local economy (the reduction of the corn and wine trade in the riparian counties of the Danube) were reflected by the transformation of local banking sectors (Rúzsás, 1966).

7.1.2 Belated development of regional financial centres The building of banking networks in the regions started quite early, before 1867, the year of the Austro–Hungarian Union. The Austrian Savings Bank founded a branch in Győr as early as 1839 based on the advantages of the city’s proximity to Vienna. During the following decades a series of new local savings banks were founded (Sopron, Győr, Pécs, Székesfehérvár, Nagykanizsa, Veszprém, Kőszeg, and Esztergom). After 1867, foundations of financial institutions had accelerated even in the villages, quickly forming a new infrastructure of credit institutions on lower settlement hierarchy levels.51 In the 1880s the network of credit institutions was densest in Transdanubia. This is not accidental, as savings banks were found on a large scale here even in the 1840s. The advantage of savings banks over commercial banks was greater stability, which was proven by their larger survival rate following the Viennese stock market crash in 1873. This advantage turned into disadvantage by the end of the century because the new prospering ventures demanded the industrial and commercial banks which provided services more tailored to their needs. The real reason for the lack of larger commercial banks in the Transdanubian cities, besides savings traditions, was the small number of large scale businesses that would be the most important potential clients of commercial and industrial banks. Due to the rapid eastward expansion of credit institutions, the bank network density of Transdanubia once being the first by rank, fell behind Central Hungary, Bánát, Bácska and Eastern Hungary by 1910 (Gál, 1999).

Esztergom Savings Bank Source: Jalsovszky–Tomsics, 1992

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In 1909 Nagykanizsa was only a secondary banking centre, even if this prosperous city in the first half of the dualistic period was one of the region’s most important provincial financial markets. This was the first Transdanubian city where the Austrian Bank opened a new branch office in the mid–19th century. However by the turn of the 19th and 20th centuries, on the basis of banking indices (bills of exchange, assets and especially the charge account business) it was lagging behind the regional centres of Transdanubia, just like Sopron and Kőszeg fell behind Győr and Szombathely.

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to the economic restructuring of some cities (e.g. Győr, Pécs) and with the fact that the development of new financial centres (Szombathely, Székesfehérvár) accelerated only by the turn of the 19th and 20th centuries (Gál, 2002). The development of the regional subcentres of Transdanubia accelerated in the first decades of the 20th century and Szombathely ‘a small baroque town ’turned into a modern provincial‘metropolis’. The recovery of the economy of Győr and Pécs may be best illustrated by the transformation of their local banking systems and by the quick growth of the capital resources of credit institutions (Gál, 1997). Evaluating the position of Transdanubian banking markets within Hungary’s urban network, it can be firmly stated that the acceleration of urban development of the less dynamic cities commenced not in the first period of the industrial revolution, in the golden age of massive enterprise foundations (‘Gründerzeit’), but accelerated later at the turn of the 19th and 20th centuries (Gál, 2002).52

Pécs First Savings Bank, 1905 Source: Gál, 2002.

Analysing the Austro–Hungarian Bank’s (OMB) provincial network building strategy between 1851 and 1878, it seems that the Central Bank did not open an affiliate in Transdanubia until the late 1870s. The first Transdanubian branch of OMB was opened in Nagykanizsa in the year 1879 followed by Győr, while in Pécs the first OMB office was opened only in 1887. The Central Bank followed a location strategy to enter first into the most prosperous markets with booming urban centres. Before the First World War, 17 branches were opened in Transdanubia, most of them in the last two decades of the 1851–1914 period. The market building strategy of the OMB bank is clear; as the most dynamic centres generated the largest bank turnover, OMB was following them and opened new branches in the key commercial centres (Kövér, 1995). In the first years of this period Transdanubia’s banking system – due to the absence of Central Bank branches – largely depended on the credits of traditional private banks. On the basis of Transdanubian researches (Gál, 2002b, 2003), we can firmly state that in the first half of the dualistic period the slow penetration of the Central Bank into the Transdanubian markets was in correlation with the temporary recession, due

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The rapid development of Pécs, although its economic importance was relatively small, was partly due to the fact that in the economically weaker South Transdanubian region without competitors, Pécs could develop into a prosperous single regional centre with extensive administrative and cultural functions. Although the prosperity of mining and industrialization contributed to the rapid increase of local population, Pécs remained a commercial, servicing and administrative centre with a promising financial sector. The separation of the historical inner city from the mining and industrial districts was maintained during the modernization period at the turn of the 19th/20th centuries and also during the socialist period, helping the city in the preservation of its civic and urban traditions.

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7.2 Retarded modernization – banking markets in Upper Hungary

7.2.1 Economic and social conditions of urban settlements Upper Hungary’s 53 urban network originating from the middle ages was undergoing a quite intensive transformation and differentiation during the second half of the 19th century. The city of Pozsony [Bratislava] with comprehensive regional functions and later on Miskolc produced the most dynamic urban development at the turn of the 19th and 20th centuries similarz to the cities situated alongside the outer ring of the market-lines (Nyitra [Nitra], Besztercebánya [Banská Bystrica], Kassa [Košice], Losonc [Lučenec], while Kassa [Košice], the once pre-eminent regional centre of East Upper Hungary lost its earlier economic importance. At the same time the old mining towns and some traditional medieval cities in Central Upper-Hungary were declining, creating the image prototype of the ‘sleepy Upper Hungarian small town.’ There was a strong difference between the once prosperous Upper-Hungarian mining towns excluded from capitalist development due to their diminishing ore resources (Dobsina [Dobšina], Újbánya [Nová Baňa], Nagyrőce [Revúca], Breznóbánya [Brezno] etc.) and the smaller medieval mercantile towns situated along international trade routes and losing their economic importance, although keeping their old-style urban image (Lőcse [Levoča], Késmárk [Kežmarok], Szepesbéla [Spišská Belá] in the east, Modor [Modra], Bazin [Pazinok], Szentgyörgy [Sváty Jur], Korpona [Krupina] in the west). Although they had preserved their municipal legal status, in actuality they were not providing urban functions in these small, stagnating and ‘village-featured’ settlements. In North-western Upper Hungary the proportion of urban residents was 53

By Upper Hungary or henceforth ‘Hungarian Basin’ we understand a market-line urban- belt bordered by mountains in the north and south including the areas annexed to Czechoslovakia by the Trianon Peace Treaty (1920) and the territory of the North Hungarian Mountains. The division of the area into western and eastern parts was based on historical-statistical regions: thus the area of West Upper-Hungary covers the statistical regions starting from the left bank of river Danube (excluding Esztergom County) while East Upper Hungary covers the statistical regions situated on the right bank of river Tisza (including Heves County).

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very low even by medieval standards (in the year 1900 Árva County had 4%, in Trencsény 6% of population was living in settlements with real urban functions) (Beluszky, 1990). There were Upper Hungarian cities founded also in the Middle Ages but having more favourable economic circumstances were quickly developing and building larger suburbs with factories and public institutions around their historic centres and these changes were transforming the inner city itself. Kassa [Košice] is a typical example of such a city (Bulla–Mendöl, 1947). The modernization of the late 19th century created the new homogenous townscape prototype of ‘mining-metallurgy’ centres as for example Rózsahegy [Ružomberok], Zsolna [Žilina], Zólyombreznó [Brezno], Lipótszentmiklós [Liptovsky Mikuláš], Ózd and Salgótarján. Upper Hungary’s external relations, just as its sparse railway network was being built, connected this macroregion towards the core regions, whereas its Trans-Carpathian connections were declining by the late 19th century further extending the peripheral areas alongside its borders. Upper Hungary’s peripheral economic situation, among others is explained by its disadvantageous agricultural potential. The region’s strength was in the field of industrial manufacturing, though the transition to modern industrial technologies caused severe restructuring problems hitting mostly the economy of the traditional medieval towns. The region’s industrialization was largely facilitated by the state’s industrial development policy providing the largest state assistance just for the most underdeveloped North Hungarian counties (Liptó, Trencsén, Árva, Túróc, Zólyom) in the early 1900s (Edvi-Halász. 1920). New industrial cities were integrated into a modern type of industrial district in the Ózd–Rozsnyó [Rožnava]– Diósgyőr triangle.

7.2.2 Declining performance of a sparse banking network Upper Hungary’s retarded development and peripheral situation was reflected by the analysis of banking functions within its urban network. Upper Hungary’s first financial institutions (savings banks) were established in its traditional medieval towns (Körmöcbánya [Kremnica], Selmecbánya [Banská Štiavnica], Lőcse [Levoča], Nagyszombat [Trnava], Pozsony [Bratislava], Besztercebánya [Banská Bystrica] etc) in the 1840s. However at the turn of the 19th and 20th centuries, the ‘Gründerzeit’ period started only in the more rapidly urbanizing cities (Nyitra [Nitra],

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Losonc [Lučenec], Munkács [Mukačevo], Rimaszombat [Rimovská Sobota] etc.) and some decades later than for the country’s other regions. Shortages of capital resources generated bank foundations accordingly credit institutions were founded even in those settlements where the local economic situation did not make their operation sustainable. Thus it is not surprising that these banks with a low equity base were the first to go bankrupt after the 1873 stock market crash. In 1909 the number of credit institutions was 738 in Upper Hungary, 16.6% of the country’s total. The development of the credit institution system was rather slow at the turn of the19th and 20th centuries. Despite new bank foundations at the turn of century, this rate was not growing since 1894 as the fluctuation of financial institutions was rather high. The density of financial institutions per territorial unit in Upper Hungary was far below the national average and this region was the last among Hungarian regions in this respect (Sáros, Szepes, Zólyom, Árva, Liptó, Gömör and Trencsény counties had the sparsest financial network). The financial network of Pozsony, Nyitra, Borsod and Bereg counties was denser due to the importance of banking centres located on their territories (Gál, 1998b). The region’s relative economic backwardness, peripheral situation and internal disparities are reflected by the fact that its capital resources and its share in banking assets decreased by the turn of the 19th and 20th centuries. Its 10.1% share in the year 1894 decreased to 8.8% by year 1909. This was partly resulting from the weakening banking market position of the Upper Hungarian banking centres as Pozsony’s [Bratislava] – the biggest banking market of the region – 4th position by the volume of assets in 1900 decreased to the 7th by year 1910. The difficulties of economic restructuring in the city of Kassa [Kosiče] were indicated by its falling from a not too good 13th position to 15th.54 Not only Miskolc55 improved its 15th position to 11th by the volume of banking assets but also the southern agricultural market towns of Upper Hungary (Eger, Gyöngyös, Balassagyarmat), due to their better transport locations. Be54

Nyitra [Nitra] fell back from the 18th to the 30th, Nagyszombat [Trnava] from the 39th to the 43rd, Eperjes [Prešov] from the 36th to the 48th, Sátoraljaújhely from the 40th to the 51st.. The mobility of capital produced less value to the areas of East Upper Hungary less affected by economic development where only the bank deposits of Miskolc had a greater mobility. This was an indicator of the flexibility of local ventures, though capital investments in Kassa were less mobile.

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sides these, the northern town of Túrócszentmárton [Martin] developed into a banking centre of the Slovakian ethnic group, could preserve or even improve their financial importance. At the turn of the century 2 regional, 12 secondary, 17 tertiary and 13 quaternary banking centres were functioning in the region and among the Hungarian regions only Transdanubia had a higher number of banking centres. This means that 26% of the total Hungarian settlements with financial role were situated here, in the Upper Hungarian region (Gál, 1998b).

7.2.3 The banking centres of Upper Hungary Upper Hungary had two major regional financial centres: Pozsony and Miskolc. Both the hierarchical order and the number of banking transactions support Pozsony’s superiority on ‘banking markets’. The two regional financial centres were emerging alongside of the market-line situated on the southern rim of the region. Pozsony in the traditionally more advanced western part of the region had shown continuous development since the Middle Ages, while Miskolc became a dynamic economic centre of East Upper Hungary only during the second half of the 19th century. The diverse commercial activities and the demands of local industry maintained the credit sector’s high importance. By volume of banking assets Pozsony had the 5th position in the ranking of regional centres and though its charge account business grew by eight times, the potential of local chequing account business remained low. This was partially due to the fact that the banking accounts of the city’s factories were run by Viennese banks. All these indicated the city’s diminishing development dynamics. This is the reason why in terms of hierarchical ranking of equity and reserve capital volume Pozsony held only the 15th position in 1909 proving that the majority of local industrial investments were financed by external resources. Pozsony’s financial hinterland was relatively small but as it was functioning as the centre of West UpperHungary, its urban functions covered a much larger area. Miskolc was one of the major cities of the market line where the Great Plain and Upper Hungary met. While Pozsony became the major trade centre of West Upper Hungary, Miskolc performed the same function in East Upper Hungary. The size of its manufacturing industry plants

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exceeded the industry of Kassa [Kosiče]56 and there was also a strong competition between the two cities in the field of commerce (Bulla– Mendöl, 1947). Between 1879 and 1900, the population of Miskolc doubled and the number of jobs tripled in the service sector. The foundation of Crop Mart, the first commodity exchange was another sign of the city’s increasing commercial & financial role. The city’s financial institutions were the catalysts of dynamic urban development. The increase of the credit business of Miskolc was verified by the city’s 10th position by banking assets and 8th position by deposit volume in the ranking of provincial cities. In the field of credit institutions the city’s position was by far better than that of Kassa [Kosiče]. Thus, by the turn of the 19th and 20th centuries Miskolc grew into a real regional-development centre of East Upper Hungary. The foundation of the Miskolc Savings Bank in 1845 was followed by several credit companies (then by some industrial and commercial banks) at the time when the banks of Budapest were building their own markets, therefore the relative independence of local provincial banks strengthened their position. Commercial capitals accumulated during the earlier decades were pumped into financial institutions rather than industrial plants but the foundation of industrial joint-stock companies generated strong loan demand that local banks could finance from internal resources only (Tóvári, 1993). In the 1910s the financial institutions of Budapest and industrial corporations were increasingly penetrating into the joint-stock companies of Miskolc. This resulted in higher competitiveness and capital resources but less independence for local financial institutions. Due to the large extension of the city’s banking gravity zone expanding to several counties (Heves, Borsod, Gömör, Abaúj and Zemplén), Miskolc had hegemony within Borsod County as its central-place functions formed a large hinterland without any other competitor centres. The modernity of the city’s credit system 56

However by the turn of the 19th and 20th centuries, the importance of Kassa diminished as it was excluded from the mainstream of innovation and was overtaken by economically more dynamic centres in the field of banking as well. Although the city’s institutional system was meeting the regional centre criteria, the city’s size and the number of its urban functions were too small for the performance of regional centre functions. The potential gravity zone of banking services in Kassa was not very large, though with the decline of Szepes County towns, settled mainly by Germans, it was extended to the territory of this medieval enclave as well. However its financial institutions could build correspondent relations only in Abaúj-Torna and Sáros counties.

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is verified by the larger volume of charge accounts deposited here than in the Nagyvárad [Oradea] banks. The cities of secondary financial centres – situated around the ring of regional centres closer to the periphery – were creating the most coherent but at the same time the most heterogeneous network. Thus within this group even in the Upper Hungarian region we can find declining cities (Nagyszombat [Trnava], Eger, Besztercebánya [Banská Bystrica], Eperjes [Prešov] etc.) and as well as prospering, centres (Nyitra [Nitra], Losonc [Lučenec], Kassa [Kosiče]) at the same time. Only those cities located alongside the market-lines and the centres of ethnic banks situated in the region’s northern part had important financial functions. At the same time the once prospering mining and commercial cities similar to ‘newly-born’ cities had no important banking functions at all.

City centre of Kassa [Košice], 1910s Source: http://mek.oszk.hu/01900/01905/html/index1455.html.

Almost all the declining small towns ‘closely bunched together’ in Szepes County had a bank or savings bank but the number of the county’s credit institutions (24) and their turnover remained relatively low compared to the neighbouring counties (Borsod 46, Abaúj 32, Zemplén 68). Despite the citizens of these small remote towns losing their once higher economic importance, and being left without any central-place

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functions, this did not result in a greater demand from the banking institutions of Kassa [Kosiče].57 The financial and savings traditions of the local German population were surprisingly similar, although in a smaller scale, to the Saxon cities in Transylvania. With the decline of the medieval guild industry and commerce in communities losing their once important urban features, the formerly accumulated assets were not used for new business start ups but rather for other comfortable forms of savings (real estate or land purchase). Besides the minimal sums in charge and chequing accounts, money was deposited in savings accounts with long maturities. The instability of banking institutions in Szepes County is illustrated by the fact that their equity ratio to deposits was low, which in the case of business failure would have led local financial institutions into early bankruptcy. Túrócszentmárton [Martin], the most important cultural, commercial and financial centre of the Slovak minorities with its high volume of bank deposits, had a good position among the financial centres of Upper Hungary. The city was the centre of the Matica58 and the Tátra Upper Hungarian Bank being under full Slovakian ownership. Its high, (4816 crowns per capita average) deposit sums showed that its three financial institutions were serving not only the local population but its services – through an extended multicounty network – supplied the larger portion of the Slovakian population in Upper-Hungary. Naturally, fast expansion of ethnic banks was also due to the low interest rates being offered, resulting from Czech and American organizations that were pumping huge capital into these banks fulfilling political (nationalist) ambitions and social interests. Ethnic banks financing social credit campaigns aimed at the economic stabilisation of the Slovak middle class and peasants (Tóth, 1992). The economic development of Túrócszentmárton [Martin] and some other once backward remote villages was the result of the expansion of ethnic banks fulfilling the political endeavour of the local Slovak elites and improving urbanization levels by the support of large-scale industrialization (leather, furniture, vinegar factories, distilleries, breweries). “The city’s streets consisted largely of one-storey houses but signs of progress and welfare were seen 57

The closed archaic civilian society and the world of peripheral Slovakian small villages did not have strong economic relations; rather, the Slovaks built economic relations with the Great Plain region through their seasonal migrations. Matica slovenská, the Slovak cultural association with strong political aspi rations.

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everywhere… as the town was coming to the top in this century only as it became the commercial and cultural centre of the Slovaks.” 59 The urbanization level of the mountainous region in the most eastern part of North-east Upper Hungary (Ung, Bereg, Ugocsa counties) was also low. The density of both the urban and also the credit institution network was low in this region, further increasing the well-known poverty and backwardness of Sub-Carpathia. The analysis of the financial functions of Upper Hungary reflects the sharp spatial differences within the region’s urban network. Of the Upper Hungarian cities, even those once prospering but having missed the economic restructuring during the 19th century started to decline. The most dynamic development in the spatial configuration of the Hungarian urban network was experienced by the cities situated in close proximity to the core areas at the western and southern part, although the general development dynamics of the Upper Hungarian urban network was exceeded not only by Transdanubian and Northeast Hungarian but also Southern Hungarian cities, which naturally was reflected in banking functions as well.60

Az Osztrák–Magyar Monarchia írásban és képekben. V. Kötet 1898. [The Austro– Hungarian Monarchy in Words and Pictures, vol. 5, 1898] pp. 336–337. The northern part of Upper Hungary had several settlements with joint-stock banks & savings banks (Szepes, Gömör, Árva, Sáros and Nyitra counties) that despite their institutional background had no banking functions. These mostly stagnating or declining Upper Hungarian towns (Poprád [Poprad], Jolsva [Jelšava], Gölnicbánya [Gelnica], Szepesbéla [Spišská Belá], Bazin [Pezinok], Szepesolaszi [Spišské Vlachy] etc.) in most cases were unable to service even their local population’s financial demands and were forced to finance them from external capital resources. It is not by chance that these weak credit institutions were the first victims of the expansion and takeovers of the Slovak ethnic banks.

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opment of a core area with agricultural market towns progressing towards modern industrial development at the turn of the 19th and 20th centuries remained in many ways more traditional than the prosperous cities located in the eastern and southern fringe of the Great Plain alongside the market line (Gál, 1999).

7.3.1 Rise of the counter pole cities: the most dynamic regional banking centres of Eastern Hungary 7.3.1.1 Emergence of a dynamic urban-belt

Tatra Upper Hungarian Bank, Túrócszentmárton [Martin] Source: http://mek.oszk.hu/01900/01905/html/index1455.html.

7.3 Region with large disparities – banking functions of cities in the Great Hungarian Plain The primary target of this study is to illustrate that – due to its specific development path and the enormous territorial differences – the Great Plain region consisting of three statistical regions (Central Hungary, North-east Hungary, and South-east Hungary) was much more different from the other parts of Hungary and internal territorial differences were much more expressed within this region. In general the Great Hungarian Plain – as a macroregion – was more developed than the other Hungarian regions although its social structure remained traditional but its economic potential was catching up with the level of Transdanubia. However the urban development of the Great Plain cities was not homogenous and the Great Plain region can be divided into several microregions of different development levels. The devel-

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The banking centres (with the exeption of Szolnok) were missing from the core areas of the Great Plain, regarded as an inner periphery. Researches in banking history prove that the lower modernizational skills sterming from the traditional entrepreneurial strategy of the market towns’ sotieties, although the Gret Plain region, as a whole, following a specific developmental path, cannot be regarded as backward one. The sharp contrasts in development levels resulting from strong spatial differentiation between the underdeveloped core area and urban belt of the market line the and the special character of the region’s local-socioeconomic structures should be emphasized here, which naturally were determined by the financial functions as well (Gál, 1998a, 2000). The results of empirical researches show that the regional centres producing the fastest development pace were situated in the eastern regions exactly on the eastern fringe of the plains. Thus, it is not accidental that six of Hungary’s ten largest banking centres by the volume of banking assets were located in the Great Plain region, specifically alongside the urban belt of the eastern-market line (Figure 13). The most striking feature of the geographical location of East Hungarian cities is that they overlapped with the urban belt as it emerged in a modern form from its medieval traditions. The urban centres were at the same time the market centres of the traditional market lines which originated in the 14th–17th centuries. The traditional market cities located at the ‘points of contact’ of two landscape types of different natural and economic character (hills and plains) had better development prospects resulting from their advantageous location: larger gravity zones, better local potentials and higher economic importance even

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in the middle ages. The quickly industrializing commercial centres located on the market line of Eastern Hungary were able to introduce and spread financial innovations in larger areas,. By the comparison of the banking balance sheet data of regional centres with indicators of other cities, it can firmly be stated that the role of regional centres (Arad, Temesvár, Nagyvárad) was larger in the development of their respective regions and it was also much greater in the elimination of the economic peripheral situation than in any other provincial regional centres of Hungary (Thirring, 1912).61 It is clear that the rapidly developing regional centres were located in the eastern fringe of the Great Hungarian Plain (between the highlands and lowlands), therefore it is not surprising that of the ten biggest centres on the basis of assets and deposit stocks six were located in the rising urban belt, situated along the market line (Figure 16). These traditional market centres with medieval roots became growth poles of the 19th century modernization. The advantages of geographical situation not only facilitated the adaptation of innovations but fostered the economic significance and extended the hinterland of these cities (Fodor, 1924). The accumulated capital originated in the agrarian trade hence the entrepreneurial spirit of the local grain merchants played a very striking role in the transformation of the local urban economy, especially due to the redistribution of capital sources into industrial and trading ventures. The financial-commercial and industrial centres of the market-line, forming the innovation zone, became economic counterpoles of Budapest and played an important role in the regional diffusion of the modernization effects (Gál, 1999, 2000a). As a consequence of the infrastructural development of the trade centres alongside the market-line, these became the nodes of the railway network and were at first commercial and service centres, developing later a significant manufacturing sector as well. The only agrarian market towns to become real regional centres were those that could successfully shift from the one-sided agrarian profile with the decrease of the unilateral agrarian trade functions to the industrial and service sector requiring a wider spectrum of urban functions.

The situation was the same regarding the growth of financial assets; while in 1900 Arad and Temesvár held the 5th and 6th positions regarding financial assets, ten years later the positions of all three cities were three positions higher in the ranking of provincial cities.

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The development of East Hungarian regional centres accelerated during the decades following the Austro–Hungarian Union. Until the 1850s in East Hungary the scattered agricultural market towns and riparian market centres of the main rivers had a key role in the development of the urban network and their quick growth was demonstrated by their rapid population growth – exceeding even the growth rate of the free royal cities (Bácskai, 1984). From the second half of the 19th century, the acceleration of urbanization and the building of the railway network ,generated a heavy differentiation among these agricultural market centres. This resulted in a profile change among the commercial centres at the periphery turning first into railway nodes, then into industrial centres. With the building of the railway network the local conditions of agricultural farming fundamentally changed. As a result only those cities were capable of modernization that had been successful in restructuring their local economy, and with the decreasing importance of their one-sided economic, predominantly agricultural structure were capable of catching up with industrial development and in this way they could perform more urban functions than before (Vörös, 1974). Temesvdr. (7drseladras.) Begn•rts:lrl n dohdnygydrrol.

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The real economic roots of the market line urban belt and the transformation of the economy were clearly seen by the contemporary monographers as well. “Large fertile lands, active and large-scale commerce, industry and financial institutions with large turnovers ensure prosperity for Arad, a city developing in a similar way as the North American cities in the middle of the Prairie… The capitalist economy reached

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Temesvár [Timişoara] as well, the city is a real example of the urban development of industry and commerce” (Lendvai, 1908. p. 49). Industrialization was a development factor in Eastern Hungary rather in the advanced cities of the market line only where industry was linked to other urban functions and had never been predominant over the other branches of the economy (e.g. service sector). In these cities with the support of local financial institutions, new industrial plants were founded integrating the local economy into the national economic system and increasing the city’s importance within the urban hierarchy (Beluszky, 1990).62 Manufacturing also played an increasing role in the urban progress of these regional centres. Many of their local companies had a nationwide reputation and local companies considered fairly big by national standards were operating in these cities. For example, the largest distillery operated in Arad and the largest shoe-making factory (Turul) of the country was situated in Temesvár [Timişoara] and due to its important machine and textile industry base the city was known as the ‘Hungarian Manchester’. Some of their manufacturing branches represented high technological improvements, as the example of the first Hungarian car-factory (MARTA) of Arad which was established and where the first buses of Hungary were manufactured from the year 1913. However, besides economic progress the successful development of the communal infrastructure also illustrated their urban achievements. The infrastructure of these cities was also modernized and the view of their inner cityscape had a genuine urban feel. This was the most spectacular and the most advanced in Temesvár, where the modern European city structure was manifested not only by the segregation of the city’s labour and middle-class housing estates but the fact that the city was among the first cities of Europe that were electrified in 1884 (in the same year as Berlin) demonstrating the rapid progress. The first provincial stock and commodity exchange was opened also in Temesvár (Szász, 1992).

7.3.1.2 The role of regional banking centres in the formation of innovation zone During our research we examined the role of the local banks in urban development. The banks had an important role in the catching up process of the Eastern peripheries.63 Banking functions gained more importance for these East Hungarian urban centres than their manufacturing would suggest. Functional specialization among cities had an influence on the ratio of population size to bank capital. By 1900, cities heavily dependent on manufacturing had low ratios of population size to banking activity, and cities specializing in trade and services, especially wholesaling, had a high ratio. The low banking activity of industrial and mining towns may have resulted from manufacturing enterprises bypassing local banks in favour of Budapest and other primary banking centres (Szász, 1992). We were seeking an answer to the question what was the role of local financial institutions in the rapid development of cities? The servicing area of regional centres in East Hungary covered larger hinterlands and their importance in the financial supply of their province was far greater than in commercial or other sectors. (This is verified by the extremely large volume of their banking assets.) This opinion can also be supported by an absence of the region’s lower level financial centres and by the high demand for capital which could hardly be satisfied even with the assistance of important banking centres outside the region. Regional banks had a key role in the modernization and catching-up of Hungary’s eastern districts (Papp, 1983). The dynamic, quickly industrializing commercial centres on the market city line of East Hungary had a far greater influence expanding beyond their original gravity zones and their economic impacts were expanding to Hungary’s eastern and southern areas. The centres (Arad, Temesvár [Timişoara], Nagyvárad [Oradea], Deb recen) were in leading positions whether we take their hierarchical 63

Some geographers think that the emergence of mass production and its penetration into traditional market zones weakened the strong ties between industrialization and urbanization (for example the industrial development of Győr was financed from external resources at the turn of the 19th and 20th centuries).

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In the backward regions due to the catching up process, the demand for capital was even larger during the ‘Gründerzeit’ period. Many smaller banks were established with lower registered capital and competed with each other for the absorption of capital resources providing interest rates exceeding the national average. Resulting from the capital shortage in the ‘Eastern peripheries’, they paid rather high interests and lent for higher interest rates too.

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rank or capital stocks and turnovers into consideration.64 Their importance was demonstrated by the fact that outside Budapest the biggest number of banks (32) was operated in Temesvár in 1914. Analysing the three largest provincial cities’ ratio from the deposit significance surplus, we can see a sequence of Arad, Pozsony [Bratislava], Nagyvárad [Oradea] but if we examine the bill of exchange business (essential for maintaining the liquidity of provincial banks), it is clear that the hierarchy by the significance surplus of deposits and the quantitative indices of other banking lines more or less coincided at the top of hierarchy. The local banking markets of these cities were flourishing and the local financial institutions were the champions not only in the field of deposit taking and bill of exchange businesses but were also the initiators in introducing the latest banking technologies and in the building of their branch network. Their increasing importance is wellillustrated by the fact that in the year 1914 the most (32) credit institutions in the countryside were operating in Temesvár [Timişoara], several being modern industrial and commercial banks. The first financial institutions of these cities were savings banks founded in the 1840s. In East Hungary and in Bánát several other financial institutions were founded for easing the scarcity of capital resources and for following the trend of the fashionable ‘bank foundation fever’ of the prosperous economy. Their majority were operating in the corporate form of joint-stock companies because in this way they were able to raise capital resources in such an amount that far exceeded the potential of local private entrepreneurs. These financial institutions were usually founded with a low equity base and were competing with each other by offering higher than the national average interest rates for their clients to attract freely available financial resources as much as possible. In the ‘eastern areas’ unlike in the western regions, banks were paying extremely high interest rates for banking deposits and at the same time were charging also high interest rates for their loans (Gál, 1999). In our analysed region Arad and Temesvár [Timişoara] had the most advanced bank networks. The volume of deposits and banking assets was by far the highest in Arad and it 64

Regarding to the volume of the sum-stock of deposit and banking assets Arad, excluding Budapest and Zagreb, stood first, throughout Hungary considering the total deposits. With respect to banking assets, Arad was preceded by Budapest and Nagyszeben [ Sibiu ] only.

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was preceded only by Budapest and Zagreb on a national level by the volume of deposits and only by Budapest and Nagyszeben [Sibiu] by the volume of assets.

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Arad’s outstanding financial function was partly due to the city’s huge capital concentration showing the activity of local banks in the deposit business and the successful involvement of external resources into the local economy and its hinterland capable for creating attractive economic environment for capital investments. The capital resources having been accumulated in agricultural trade, and the business strategy of the local Hungarian and German civil society developed by the local crop merchants directing these capital resources to industrial and commercial investments, which had a fundamental role in the modernization of these cities. In the ‘Gründerzeit’ period of massive bank foundations, several financial institutions of high importance were established at a later period: a group of merchants and industrial entrepreneurs founded the bank to serve trade and finance manufacturing industry (Ottenberg, 1901). The majority of the bank’s shareholders were merchants

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and industrial entrepreneurs but some local big landowners were also among the founders. For example the First Savings Bank of Arad had business relations with the largest local industrial plants and commercial firms but lent large sums for local real estate business as well. The business scope of banks soon expanded and a growing number of financial institutions were involved in short-term credit for industrial businesses besides their traditional banking activities, and were using the term ‘industrial’ or ‘commercial’ in their names. Very soon a network of industrial and commercial banks with large turnovers was built in which alongside local sources, external capital resources were invested as well. The prosperity of a local ethnic bank, the Victoria Savings Bank was proof of the economic rise of the ethnic Romanian bourgeois society.

ated a stable basis for the city’s functioning as a regional financial centre. The local crop merchants, millers, distillers and entrepreneurs of private money changers founded several credit institutions including Lloyd’s Company, which later was functioning as a local stock exchange (Lendvai, 1908). Due to the branch building strategy of the Austro–Hungarian Central Bank, new branch offices were opened in every important Hungarian commercial and banking centre and in this way also in Temesvár [Timişoara] in the 1850s and in Arad in 1879 (Kövér, 1993). The Arad and Temesvár [Timişoara] branches of the Austro–Hungarian Bank by profitability and turnover was the second after Debrecen in the year 1909. The banking turnover of the Nagyvárad [Oradea] branch office was surpassed only by the Zagreb institution (Vargha, 1913).

View of the ‘Hungarian Manchester’, Temesvár [Timişoara], 1903 Source: Jalsovszky–Tomsics, 1992.

Arad First Savings Bank Source: Jalsovsky–Tomsics, 1992.

The development of Temesvár’s [Timişoara] financial institutions had a similar dynamism recovering from the 1873 stock market crisis when three local banks went bankrupt. However by 1910 more than thirty banks were operating in the city and the volume of banking assets cre-

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The rapid development of the banking sector had some impacts on the structure of the urban economy and social elite as the wealthiest entrepreneurs were working in the banking sectors. This is an explanation why the bankers of local financial institutions had a greater influence on the local economy before the major banks of Budapest started to build their provincial affiliate bank and branch networks (Timár, 1990).

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Functional specialization among provincial cities, resulting from different hinterland-forming processes made for progress.65 The aggregate functions of wholesaling, servicing and combined centres emphasized tributary business at a regional scale, and large banking hinterlands could consolidate pre-eminence in these functions. The local banks served not only their local market, but provided banking services for their expanding hinterlands. This was supported by several factors: − the huge concentration of banking stocks (assets), − banking centres with lower hierarchical rank were still missing from the eastern regions, − due to belated industrialization only large-scale capital concentration could overcome the extensive capital shortage. Banks of Arad and Temesvár started to build their affiliate bank networks from the 1890s and developed intense business relations towards the Balkans too.66 As a result, the most dynamic provincial banking centres were able to expand their gravity zones to larger territories. While in most sectors the central-place function-based hinterlands of the regional centres on the eastern Great Plain were rather small, their banking functions covered much larger areas and their banking relations due to the well organized network were much more extended67. The banks of Arad and Temesvár [Timişoara] started to build their associate bank network in the 1890s. The banks of Arad built an extensive gravity zone extending to the neighbouring counties (Arad, Csanád, Békés, Hunyad, and Alsó-Fehér). In this zone partly because of the low density of financial institutions and partly because of Arad’s hegemony there were no other important banking markets around and the merger of the Gyulafehérvár [Alba Iulia] central bank agency into the Arad branch was also proof of the expansion of Arad’s banking 65

Industrial towns had small hinterlands due to their special (industrial) functions that served national rather than regional markets. The branch building policy of the Austrian National Bank (from 1878 Austro– Hungarian Bank) opening branches in all important Hungarian centres coincided with the hierarchical rank of our survey: branches were opened in the early years of the economic transformation in Temesvár in 1857 and in Arad in 1879. The gravity zone of the affiliate institutions network of the banks of Temesvár covered the whole area of South Hungary and these banks had business relations even with banks of other countries.

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gravity zone eastwards.68 On the other hand, the financial institutions of Temesvár [Timişoara] built their affiliate relations in the southern part of Hungary and this is a partial explanation why the credit institution density in the Bánát region was far above the national average; almost every settlement had a credit institution but because of the predominance of Temesvár’s banking market their turnovers were relatively low. Geographical studies verify the existence of an innovation zone situated alongside the market-line having serious impacts on the dynamism of the economic environment and urbanization zone consisting of a coherent urban belt of the East Hungarian region. This is an explanation why the extra local resources, resulting from geographical situation (geographical-economic-social environment), had a key role in the formation of these centres, easing the local adaptation of innovations and the accumulation of capital resources. The most dynamic cities alongside of the market-line (Arad, Temesvár and Nagyvárad) as industrial and financial and commercial centres as counter pole cities, were playing an important role in the spatial diffusion of modernization and it is not by accident that Hungary’s biggest provincial ‘banking centres’ were located in this zone. The geographical proximity of regional centres to each other has a fundamental role in the development of this innovation zone. It was partly generating competition among cities that created a complementary situation in which cities could mutually supplement each other’s services. During the dualistic period, there was a constantly high demand for capital resources within the region and it could be satisfied only by the close cooperation of regional financial centres (Gál, 1999).

Az MNB története [The History of the Hungarian National Bank] cited ref. p. 268. The one-centred banking gravity zone system was the result of the lower savings activity of the Romanian population living at the eastern part of the gravity zone, as opposed to the more utilitarian mentality of the German minority (Swabians) and Hungarians living in and around Arad.

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Regional head office of the Financial Authority in Nagyvárad [Oradea], 1916 Source: Jalsovsky –Tomsics, 1992.

7.3.2 Internal periphery or peculiar development path – limited banking functions of the agricultural market towns 7.3.2.1 Market towns without central-place banking functions in the Central Great Plain region The urban belt on the fringe of the Great Plain developing into a real innovation zone and its regional centres were in sharp contrast with the core areas of the Great Plain where some geographers identified the preservation of a frontier type internal peripheral situation69 (Den Hol69

The core area of Great Plain covering Pest-Pilis-Solt-Kiskun, Jász-Nagykun-Szolnok, Hajdú, Csongrád, Csanád and Békés counties, those areas that preserved for a long time their traditional agricultural character (our analyses do not cover cities with a non-agricultural profile or those financial centres that became more industrialized losing their traditional agricultural phase by the turn of the 19th and 20th centuries (Debrecen, Szeged, Szolnok, Gyula); neither the southern nor eastern fringes of the Great Plain where the settlement structure formed partly as a result of the Turkish invasion; and partly the economic and social structure of some urban centres located in the Great Plain but having lost their agricultural profile were fundamentally differing from the general Central Great Plain agricultural market town environment. This chapter will deal with the areas having almost completely been retained in the territory of Hungary after the Trianon border changes.

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lander, 1975). While during the 19th century, the American frontier as a periphery of the quickly expanding capitalist economy was moving rapidly westward and leaving frontier zone states only for some decades in their transitional status, here in Hungary modernization moved eastward from the west – during its history lasting for some decades and only ‘excluding’ the core areas of the Great Plain – and generated spectacular economic and urban development in the more adaptive cities of the market-line zone of East Hungary. At the same time the traditional entrepreneurial strategy of the society of the agricultural market towns in the core areas of the Great Plain also contributed to the long-time preservation of a frontier-like situation in this internal periphery. The region’s traditional agricultural market towns did not turn into significant financial centres and were characterized by lower modernization propensity (Gál, 1999). At the turn of the 19th and 20th centuries, the specific features of urban development in the Great Plain were determined by local socio-economic characteristics of these settlements and by the innovation propensity of the local society as the development of urban network and its differentiation were to a large extent depending on the specialisation of their services (e.g. financial sector) determining the central-place functions and their respective gravity zones (Timár, 1990). The operation of their financial institutions and the local parameters of their financial services were clear indicators of the overall economic development level of the agricultural market towns. The following part of this paper deals with the modernization perspectives of the agricultural market towns introducing the evolution of banking infrastructure and their financial functions performed. The buildings of banks and savings banks were emerging first in the major cities of the Great Plain then spread into more and more places. The diffusion of banking services also had an important architectural manifestation. The huge dome-roofed two storey head office of the local savings bank standing on the main square is like a symbol proclaiming its local power. (Nagy, 1961). The first credit institutions in the agricultural market towns of the Great Plain were founded in the 1860s, some decades after those in West Hungary. The banking statistics of the late 19th century report on a rapidly growing number of financial institutions. As it is seen from statistics, the density of credit institutions was higher in the South Hungarian regions and Transdanubia than in the rural areas of the Central Great Plain. This means that the average density falls only just under the national average. According to statistical data, the bank network

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density of the core region of the Great Plain was only slightly under the national average as one credit institution served an area of 69 sq. kilometres on average (64 km2 for Hungary) and 6,234 inhabitants (4,100 for Hungary) per one bank in the central Great Plain (Vargha, 1913).70 However, the bank density data should be considered more important because of the low density of the settlement network. This was due to the fact that agricultural market towns with a large township, being the dominant settlement type in the Central Great Plain, concentrated the majority of population and in this way almost every scattered settlement merged into these large urban formations. All of these markets towns had some kind of financial institution. We have also carried out some control surveys on the basis of financial statistics (deposits, financial assets, bills of exchange) but they were limited only to agricultural market towns in the core areas of the Great Plain, distinguishing agricultural market towns from the cities of other subregions of the Great Plain in different ways. Here we do not deal with cities developed without a typical agricultural background (Újvidék [Novi Sad], Szabadka [Subotica], Nagybecskerek [Zrenjanin], Baja, Nagykikinda [Kikinda], Zombor [Sombor] etc.) nor those that more or less had lost their agricultural profile by the turn of the 19th and 20th centuries (Szeged, Debrecen, Nyíregyháza, Szolnok). These two groups of cities were categorized into primary or secondary centres on the basis of the banking functions they performed. Contrary to these groups the agricultural towns in the central areas of the Great Plain did not show any signs of central-place function in banking, due to their peculiar path-dependent development.

The average density of population per banking institute was as follows in the year 1909: National average: 4,128. Averages by statistical regions: on the right bank of River Danube: 9,153, on the left bank of River Danube: 5,399, in Central Hungary: 6,151 (with Budapest 4,293), on the right bank of River Tisza: 5,727, on the left bank of River Tisza: 4,036, in Tisza-Maros Corner: 3,034, Transylvania: 3,607, in Croatia: 2,917. Source: MSK. Vol. 35. cited ref. pp. 236–39.

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Nyíregyháza First Savings Bank Source: Jalsovsky–Tomsics, 1992.

Among cities located in the central subregion of the Great Plain, Kecs kemét was on the top with its 36th position by bank deposit stocks standing between Kaposvár and Baja, the two Transdanubian cities with only one third of the population of Kecskemét. In spite of the population lag, the value of charge and chequing accounts in the financial institutions of Kaposvár, a prosperous town in Transdanubia, was 2.5 times higher than those kept in Kecskemét. Kecskemét was followed by Hódmezővásárhely, Cegléd, Nagykőrös and Gyula holding the 38th, 45th and 54th positions in the ranking of cities by deposit portfolios. By the volume of banking assets they were somewhere at the end of the ranking of 55 cities surveyed – in a group of cities with far less population (Eger, Pápa, Komárom, Nagykároly [Carei], Balassagyarmat, Losonc [Lučenec]). The difference between the quantitative indices and hierarchies was seen in case of financial assets in the cities of the Central Great Plain as well. From the cities of the core region Szolnok was the only one that was among the top 20 cities with the largest asset stocks (18th position). By the volume of banking assets, Kecskemét took the 25th, Hódmezővásárhely the 35th, Cegléd the 36th, Gyula the 47th and

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Nagykőrös the 54th position on the ranking list.71 The asset stocks of the above-mentioned cities were more or less of the same size as the secondary banking centres, thus by their quantitative indices they were at the middle position. Analysing the quantitative indices of the cities of the Great Plain (including regional centres) we can conclude that the weight of urban functions per spatial unit was the highest in these cities but regarding the proportion (‘density’) of urban functions, some agricultural market towns were far behind those of even smaller cities located in other regions (Vargha, 1913; Gál, 1997; Beluszky, 1993). In our banking hierarchy based on ‘central-place theory’ disregarding the specific settlement geography features of the Great Plain, this was characterized by the integration of agricultural market towns with their satellite scattered farms located within their administrative borders and by the absence of classic urban hinterland with villages absorbing the service supply of a central place. As the central-place urban functions can not be interpreted here, the hierarchical position of the agricultural market towns proved to be much lower than could be expected from the size of banking stocks (Gál, 2000). 72 Financial hierarchy also shows that agricultural market towns in the core areas of the Great Plain had only a very small banking hinterland or none at all. Consequently – unlike in other areas of Hungary set up on the basis of significant surplus ratio based on the centralplace functions of banking – the fraction of service supply provided for the urban hinterlands here cannot be interpreted at all or only to a limited extent.

7.3.2.2 Socio-economic features strongly determine local banking functions Due to the lack of conventional urban hinterlands of the agricultural market towns, the analysis of banking functions can be interpreted by means of banking and social history studies. The interpretation of urban hinterland as a gravity zone is difficult here, as the services of financial institutions were mainly used by middle-class citizens and by wealthy tenants or landowners living in the inner city zones, in contrast with the majority of local society – living mostly in the outskirts and the remote scattered farm zone of these towns, which were still situated within the extensive administrative borders of the market towns – who usually did not make great demands on the various services of credit institutions at all. For this reason the proportion of banking services which supplied the gravity zone outside the administrative borders of a centre cannot be interpreted here. Agricultural workers limited their banking activities to placing banking deposit only and to occasional mortgage credits (Marjanucz, 1992; B. Kiss, 1939). The majority of the largest taxpayers, in Hódmezővásárhely were originally representatives of the entrepreneurial class, the local elite (doctors, lawyers) and civil servants. Despite these cities’ local economic and social structure being dominated by agriculture, the share of landowners among the wealthiest citizens and largest taxpayers was relatively low (Gyáni, 1977). On this basis a kind of general conclusion may be drawn regarding the attitude of the society of agricultural market towns towards financial institutions (Rácz, 1993).73 The capitalist institutional and economic 73

On the city ranking by the volume of banking assets, Szentes holding the 55th position was preceded by Lőcse, Jászberény at the 69th position by Vác, Hajdúböszörmény at the 81st position by Szászváros, Kiskunhalas at the 84th position by Nagybánya, Hajdúszoboszló at the 90th position by Kézdivásárhely, Kisújszállás at the 94th position by Késmárk, Makó at the 95th position by Székelyudvarhely. Some Great Plain cities of our analysis (e.g. Kecskemét, Hódmezővásárhely, Cegléd, Nagykőrös etc.) had almost no hinterlands at all. However, their positions were higher in the hierarchical ranking by quantitative indices than in the theoretically expectable hierarchy of cities based on services for their urban hinterlands, in which most Great Plain cities were excluded from the list of banking centres and even Hódmezővásárhely, the best positioned agrarian city, was only placed 166th (see Table 1).

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Rácz, I. 1993: Magyar református cívis város [The Hungarian Presbyterian ‘Civis’ city]. – Rubicon. 8–9. 26. p. The special business strategy of the agricultural market towns in the proprietorship of land followed the ‘reutilization or reinvestment of accumulated capital resources’ model. The majority of capital gained from agriculture was returned back to the agricultural sector, to its original source (Rácz, 1993. 8–9 p.). The problem rather more arose from the fact that the available capital resources were used only for extensive land acquisition and not for investment in the modernization of the agricultural sector, particularly the improvement of technology and equipment (i.e. the majority of land properties in the agricultural market towns of the Great Plain were not developed into intensive, profit-oriented capitalist patterned businesses and the majority of proprietors did not turn into modern, capitalist business-oriented entrepreneurs).

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structures naturally penetrated into the agricultural market towns and the modern industrial and commercial businesses were present in agricultural market towns as well. The capitalist macrostructure was also trying to find its role within the agricultural sector. Banks and savings banks were founded in all large-settlements in the central Great Plain though the ‘Gründerzeit’, the peak period of foundations taking place here in the 1860s, was belated compared to the other regions. Urban researches give a real description of the slow transformation of the traditional forms of money management. “Banks are the main tools of commerce. In the past the money-makers of Szabadka [Subotica] kept their money in a box in a priests” cloister. Others took their money to the hands of some merchants for safe custody and many people hid their money in a straw bag.’(Márkus, 1986. p. 41). The social structure of agricultural market towns and the business strategy of agricultural entrepreneurs limited the potential of local financial institutions. While for example in Transdanubia and South Hungary, savings banks and credit unions had a wider clientele as besides civilians, small landowners living in the nearby villages were also frequent bank customers; the middle class society of agricultural market towns, although they had also engaged in deposit business, were rarely borrowing especially on long-term maturity loans. The volume of their savings deposits was always higher than the volume of their charge account deposits. In years with lower agricultural income, the credit institutions of the agricultural market towns in order to preserve their liquidity frequently warned landowners on the risks of repayment of their maturing liabilities consisting of long-term mortgage loans and bills of exchange. Yet very frequently credit-rationed banks refused their loan provision. The credit of the savings banks in the agricultural market towns could be financed only from their deposit portfolios therefore reserves constraint was high since minor banks cannot create credit without prior saving. Smaller institutions could not maintain their mortgage loans outstanding for a long maturity because of their deposit constraints, and had rights to terminate them or to demand their instant repayment resulting in a difficult situation for the landowner investors. The majority of banking clients were recruited from the lower middle-class people (civil servants, intelligence, industrial entrepreneurs, and merchants) and also from big tenants living in inner city areas of these market towns. The complete structure of traditional middle-class society – that could have been the potential client base of banks – was

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missing from these cities. At the same time the bourgeois elite in many places were not integrated into the traditional social structure of the agricultural market towns. Not only because the most dynamic agents of the local bourgeois society were Jews, considered an alien class, in the cities but also because this society introduced such modern urban functions and influences that were initiated from outside the local society instead of evolving internally.

Great Savings Bank, Hódmezővásárhely Source: Jalsovsky–Tomsics, 1992

Modern financial institutions, the institutional system of county administration and the industrial plants founded by external capital were such new emerging phenomena (Márkus, 1986). Consequently the activities of financial institutions and the peculiar character of banking businesses were strongly determined by the special economic and social structure of these agricultural market towns. There were significant differences among the financial functions of towns concerning their development level, the volume of balance sheets and their importance as for example those cities shifted from their agricultural profile towards industrial society (Kecskemét) had better financial institutions than other cities preserving their traditional agricultural development patterns only (Hajdúböszörmény, Hódmezővásárhely, Kisújszállás). Consequently, it is not enough to estimate the financial functions of cities on the mere basis of their balance sheet data or on the basis of services supplying for their hinterlands, as the analysis of socio-economic structure of these predominantly agrarian cities (agricultural market towns) gives us better information on the real situation than statistical data alone.

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Credit provision for agricultural farming was the primary profile of banks in the agricultural market towns and in this way the traditional features of agriculture strongly influenced the credit provision practice of local banks. Landowners living in scattered farms and agricultural workers, both being the lowest segment of the local society due to their traditional, old-fashioned business strategies and their financial condition were not raising effective demands, or only to a minimum extent, for financial services and financed only their most essential expenses from bank credit. The disintegration of the traditional land property system of the agricultural market towns was almost complete by the turn of 19th and 20th centuries weakening the agricultural middle-class, the potential clients of financial institutions. Thus in the local agricultural sector, only few innovative landowners with financial muscle were considered as reliable bank clients. Despite the emergence of a financial infrastructure, the local economy was characterized by a constant lack of capital resources. The demands of the local population needed a larger volume of credits than could be financed from local savings. Several financial institutions in agricultural market towns were trying to get the missing amounts of capital resources through their correspondent contracts with external financial institutions and it was not accidental that the expansion of banks of Budapest were targeted towards ‘the cheaply available’ financial institutions of the region. It is also seen from statistics that the financial institutions in the Central Great Plain regarding merely bank balance data had sufficient capital resources but the reasons of the relative weakness of financial functions are deeply rooted in the peculiar structure of the local society and economy. It seems that financial institutions were unable to perfectly meet even the demands of the large local population (enterprises), thus could not have supplied even the demands of their potential hinterlands. The weight of each banking line and the lending activity of the financial institutions in agricultural market towns closely reflected the special structure of local economies. For example 57% of the business activities of the Hódmezővásárhely Savings Bank was mortgage business but short-term commercial credit business, and only a small group of local entrepreneurs showed interest in bill of exchange and other securities business that had only minor role in financing local enterprises (Marjanucz, 1992).

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Market square in a typical agricultural market town, Nagykőrös, 1914

The financial institutions of the agricultural market towns were generally founded by large equity capital as their liquidity besides deposit collection was funded by equity. These banks – unlike in other parts of Hungary – based their business policies primarily on their own registered capital and equity base since liabilities (e.g. deposits) of banks could quickly diminish to a critical level in years with low profits in the agricultural sector. Banks in other parts of Hungary having a more stable industrial and commercial clientele background were keeping deposits in excess of their equity base (Marjanucz, 1992). The service provision of local banking institutes − in a capitalist economic environment − was unable to keep pace with the increasing demands of the growing local population and the modernization pace in agriculture. The expansion of financial service functions as a centralplace function was not a typical phenomenon in most of the agricultural market towns. The Economic History analysis of the capital resources in the Great Plain also points to the fact that the capital resources of the local population were only 50–60% of the national average while local capital demands (e.g. credit demands of landowners) deriving from the special features of the local economy and the lower common tax & ratebearing capacity of the local population could be much lower than the national average.

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Buildings of the Communal Savings Bank and the town hall in Nagykőrös, 1912

According to László Marjanucz’s researches, in Hódmezővásárhely the per capita sums of local mortgage loans were only half of the national average and only the amounts of less secure banking credit were nearly on the level of the national average.74 Within the local society only a small group of landowners and entrepreneurs had sufficient creditability but the real and potential demands of urban residents, and the demands of economic development and infrastructure improvement in several cases surpassed the lending capacity of local financial institutions (Marjanucz, 1992). Statistical data also verify the weakness of the local financial markets in the agricultural market towns; while on a national level between 1904 and 1909 the amount of financial credits increased by 164% the growth rate was only 13.5% in the central Great Plain. The same trend is seen in the mortgage loan business, the amounts of mortgage loans increased only by 56.8% in the Great Plain while the national average growth rate was 68%, proving that the majority of the local population of the agricultural market towns was not fully utilizing the potentials of economic development. Instead of running modern business farms and intensive agriculture, the majority of the local society was still insisting on the traditional forms of farming (Katona, 1914).

As the majority of mortgage credits were financed from bank savings, the banks of the agricultural market towns were generally providing unfavourable, so-called terminable mortgage loans for their landowner clients.

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The capital savings potentials of once innovative farmers decreased in many traditional agricultural market towns by the end of the 19th century thus hindering the introduction of modern financial techniques. The business running practice of the financial institutions became more rigid and bureaucratic and generally the industrial-commercial credit packages were missing from their service supply. About 70% of the deposit business in small agricultural market towns was accumulated savings in local banks often with disadvantageous interest rates where generally the passive forms of savings (deposits) were the most popular banking service. The low modernization affinity of the local population and the lower efficiency of banking services may also be explained by the fact that a significant part of savings were reinvested into landed property purchase – the original source of this capital – and in this way these capital resources were not used for financing industrial or commercial purposes (Rácz, 1993). Summing up the reasons for the weak financial performance of the agricultural market towns of the Great Plain, we can conclude with the following findings (Gál, 2000): – The investment of capital into agricultural land instead of industrial-commercial businesses was not a negative phenomenon in itself. However the extensive expansion of landed property was not coupled by the development and innovation of its farmland. The number of market-oriented capitalist estates was low. – The dominance of agricultural credits was not a disadvantage, yet the low creditability of the majority of agricultural citizens, and the instabilities of less intensive agricultural farming put local financial institutions into unstable situations causing frequent liquidity problems and relatively weak positions requiring a high rate of equity and high capital reserves. The involvement of external capital through correspondent contracts or central bank branches was a coercive factor. – The defence strategy of local banks changed their policy into a conservative strategy: besides unfavourable short-term and redeemable mortgages with instant repayment liability, the banks’ distrust against their clients was shown by high interest rates and lending (credit creation) constrained by reserves; At the same time cashless charge and chequing account services targeted towards industrial and commercial business were almost completely missing, the bill of exchange turnover was relatively low and the amount of deposit

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portfolios was high. There were frequent cases when usurious loans were provided bypassing local banks. – Other reasons for the weaknesses of financial services are explained by the small number of clients and the strong polarization of the local economy: a small group of entrepreneurs-intelligencia class (i.e. various segments of middle-class society considered to be ‘alien classes’ including Jews) within the local agricultural society, often followed the traditional social standards and business strategies. The capital resources, capital saving ability and creditability of the majority of agricultural citizens were low. The capital demands of the local society derived from the peculiar features of the local economy and the lower common tax and rate bearing capacity of the local population were often lower than the national average. All these circumstances weakened the financial services in the agricultural market towns: the capital resources of the local population was only half of the national average (50–60%); the average value of mortgages reached only half of the national average in major cities (Hódmezővásárhely). Thus, we can conclude that the saving propensity attitude of the local civil society of the agricultural market towns generated a capital accumulation strategy without demanding the improvement of certain financial service lines. Meanwhile, in large agricultural market towns, economic activities demanded far larger credits than could have been financed from local savings due to the small number of local businesses. The real and potential needs of the local society of agricultural market towns, and the demands of economic development and infrastructure improvement in several cases surpassed the economic potentials of financial institutions. All these resulted in a constant scarcity of capital resources (Gál, 2000).75 75

If we compare statistical data on banking of the agricultural market towns in the Great Plain to Transdanubian cities standing on the same level of urban hierarchy with them (in pairs as Szarvas – Kőszeg, Szekszárd – Nagykőrös, Zalaegerszeg – Hajdúböszörmény, Nagykanizsa – Orosháza, Dunaföldvár – Keszthely or Mezőtúr and from bigger cities Hódmezővásárhely – Kaposvár) even in similar categories (in terms of assets), we can find striking differences between them regarding the palette of banking services they were supplying. This is manifested by the different ratios and quality structures of bank businesses and also by the per capita bank density and the per capita assets and deposit rate to the advantage of Transdanubian cities. On the other hand, in the Transdanubian cities the hinterlands based on the traditional market centre functions and on their social structure resulted from their more industrialized and tertiary employment structure manifested not only by the

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The urban network of the Great Plain macroregion included both the regional centres in the eastern fringe, being on a higher development level of urbanization, and the traditional agricultural market towns in the core. This is a clear proof for the large-scale differentiation process of the urban network by the turn of the 19th and 20th centuries. The earlier homogenous ‘agricultural character’ of the Great Plain cities was already disintegrating by the turn of 19th and 20th centuries as several former agricultural towns (Szeged, Debrecen, Szolnok, Kecskemét etc.) were replacing their one-sided agricultural profile with several modern branches of industry and services, transforming in this way their local society into a bourgeois middle-class society as well. Other market towns preserved their traditional agricultural features and marginalised within the urban network limiting not only their economic but also their cultural development potentials. The Central Great Plain situated between Budapest, Hungary’s biggest innovation centre and Transdanubia on one side and the innovation zone of the market-line cities in East Hungary on the other side, remained a peripheral frontier zone with an underdeveloped transition process at the meeting point of West European and East European socio-economic development zones. However, it is also true that the spreading effects of Budapest, on the one hand, and of the economic poles of East Hungarian innovation zone, on the other hand, created the possibilities of catching-up with Hungary’s more advanced regions from its ‘inner peripheral’ situation (Gál, 2000).

higher activity in financial services (e.g. the volume of bill exchange turnover) but also by the embeddedness of the whole credit system into the everyday life of local society (Gál, 1997/b).

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7.4 The region with high contrasts – the banking markets of Transylvania

7.4.1 The socio-economic conditions of the region Although Transylvania was considered as a bulwark of traditionalism, this region cannot be regarded underdeveloped as a whole. Transylvania may be divided into several individual subregions not only geographical but also administrative (Seklerland, Saxon Land)76, economic, ethnic and settlement aspects. The modernization level was below the national average not only in the poor counties of Transylvania (Hunyad, Alsó-fehér, Torda-Aranyos, Kis-Küküllő, Fogaras, Udvarhely, Szolnok-Doboka) but in other counties such as Beszterce-Naszód, Maros-Torda, Csík, Nagy-Küküllő as well. The modernization of the Saxonian Brassó and Szeben counties – in spite of the Saxons’ traditionalism and conservatism – was far above the Transylvanian average and Brassó in many aspects was among the top ten counties of Hungary. Although Kolozsvár [Cluj], the civic and cultural centre of Transylvania, was one of Hungary’s most important regional centres and even one of the counterpole cities of Budapest with significant urban progress, it was unable to develop its hinterland above a medium state of development. The socio-economic differences between major Transylvanian urban centres (Kolozsvár, Brassó [Braşov], Nagyszeben [Sibiu]) and the traditional ‘rural’ areas were higher than in the core regions of Hungary. The subregional differences within Transylvania was not only determined by geographical factors but by the different stage of modernization based on dissimilarities of various ethnic groups. The general hierarchical rank among these groups in terms of their socioeconomic development stage was the following: Saxons, Hungarians and Romanians (Beluszky, 2000). 76

Seklerland, located in the easternmost part of Transylvania and populated by ethnic Hungarian royal ‘border guards’ called Seklers, enjoyed a special administrative autonomy from the Middle Ages until the late 19th century. Saxon Land (Royal Lands), located in South Transylvania and populated by German planters since the 13th century, also had special administrative autonomy until the late 19th century.

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Transylvania, namely the ‘region beyond the Király Mountain Pass’ had several traditional cities with a civic culture and ‘urbanized townscapes’ at the turn of the 19th and 20th centuries. However the region’s overall socio-economic backwardness was reflected by the quantitative indices of the urban network and by the economic structure of cities (the proportion of urban citizens was the lowest in Seklerland, in Küküllős, Szilágy, Szolnok-Doboka and Hunyad counties). In spite of their medieval traditions the cities of Transylvania did not achieve rapid development progress in their traditional agricultural region in the age of early modernization. However the economic development and urbanization of Kolozsvár, Marosvásárhely [Târgu Mureş] and the towns of Saxon Land were competitive with other cities of Hungary. They were like enclaves isolated from their hinterlands, being at the initial phase of the transformation into an industrial society, by development standards (Beluszky, 1990). It was Kolozsvár and Marosvásárhely – with 120 and 100 per cent population growth rate – that were the region’s most dynamic cities in contrast with old-fashioned Saxon cities (Segesvár [Sighişoara], Nagyszeben [Sibiu]). The slowing development of these formal cities was indicated by their comparatively low 50% population growth rate between 1870 and 1910.

7.4.2 Financial markets in Transylvania rapidly catching up Financial services significantly contributed to the territorial differences of modernization within the region. Just like in the other parts of Austria–Hungary, here in Transylvania the birth of a modern banking system dates back to the 1840s–60s with an accelerated development pace following the Austro–Hungarian Union (1867). The very first modern bank of Hungary creating the basis for a modern Raiffeisen type credit union network was the Savings Bank of Brassó founded by Transylvanian Saxons in 1835. During the 1850s the earlier developed, spatially and socially isolated local credit systems were replaced by an institutionalized banking system with the establishment of modern credit institutions. Several types of financial institutions differing by organization, location, business practice and functions were formed. In the underdeveloped Transylvanian region, characterized by capital shortages, the savings banks collecting even the lower sum of deposits, were the most appropriate forms of banking institutions. Later on the

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corporate form of joint-stock company created the equity basis necessary for the establishment of modern commercial banks. The first savings banks were founded in the Saxon areas: in Brassó [Braşov] (1835), Nagyszeben [Sibiu] (1841), Medgyes [Mediaş] (1862) and Szentágota [Agnita] (1864). The core of credit institution network consisted of wellbacked commercial banks operating in the corporate form of joint-stock company and savings banks transforming into commercial banks in the 1870s (Gál, 1997).77 After 1867 the first banks were founded in Kolozsvár (1868), Marosvásárhely (1868), and with some delay new financial institutions started to operate in the Saxon cities of Segesvár (1870), Nagyszeben (1872), Szászváros [Orăştie] (1872), Szatmárnémeti [Satu Mare] (1873), Fogaras [Făgăraş] (1870), Máramarossziget [Sighetu Marmaţiei] (1873) and Beszterce [Bistriţa] (1874) as well. Large-scale bank foundations started in Seklerland only after 1867. The first financial institutions were established in Székelyudvarhely [Odorheiu Secuiesc] and Kézdivásárhely [Târgu Secuiesc] in 1873. They were followed by the Háromszék Savings Bank in Sepsiszentgyörgy [Sfintu Gheorghe]. The Savings Bank of Csíkszereda [Miercurea-Ciuc] started its operation only after a ten-year delay in 1883. By the turn of the 19th and 20th centuries, the establishment of banks in smaller settlements geared up (Petrozsény [Petrosani], Szászváros [Orăştie], Gyergyószentmiklós [Gheorgheni], Dés [Dej]) and smaller credit institutes started to dominate in their regions as the larger banks became more credit-rationed after the bank crisis of 1873. Small credit institutes had more propensity to provide loans as they were established in their initial development phase. In poor peripheral regions like Seklerland, the foundation of savings cooperatives collecting small deposits was the only method of bank foundation Large-scale bank foundations started within this region only after 1867 and established ten financial institutions at the same time. Although the network of Sekler institutions collected small 77

Really big banks were founded in Budapest, the local financial institutions of the dynamic provincial cities were savings banks operating in the corporate form of joint-stock companies. Although they were operating under the name of savings banks, they were practically deposit-taking banks. Thus, savings banks in Hungary were not only collecting savings deposits but were also doing all kinds of ’bankoriented’ business. They were not self-aiding organizations providing financial assistance for ordinary citizens like saving banks or mutual credit unions in other countries, but were functioning as joint-stock company banks eliminating the difference between banks and savings banks.

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capital savings of different social groups, they were unable to expand their internal financial markets and with the absence of the suitable financial instruments hindered the formation of even the modern local trade system. The clientele of these credit networks was dominated by micro and small enterprises. Small provincial savings banks lost their independence and became controlled by big banks, in several cases the upper classes of entire regions were indebted to such an extent that they could escape from this situation only by selling a part or the whole of their landed properties.78

City centre of Kolozsvár [Cluj], 1890s Source: www.kolozsvar.atspace.com

The economic development of Transylvania was characterized by its own ethnic aspects, and this was reflected by the proprietary structure of the credit system as well. Different ethnic groups established and preferred different ethnic-specific organization forms of credit institutions (Hungarians: savings banks, Romanians: banks, Saxons: credit 78

In Seklerland it was a common phenomenon that borrowers were unable to pay the high interest of mortgage loans, consequently their lands were sold by auction. This was also contributing to their emigration waves. The modern credit system was serving not the interests of ordinary Sekler people but rather the interests of the capital owners. In this way the credit system was destroying small properties and was increasing the land concentration.

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unions). The influence of the slowly evolving ethnic bourgeoisie better asserted themselves in their own credit institutions than in industry; and because of the fact that industrial development was rather the result of the expansion of Hungarian state investment. In some cities of South Transylvania (Fogaras [Făgăraş], Nagyszeben [Sibiu]), the prosperity of ethnic banks run by Romanians was not only increasing the financial wealth of the local Romanian bourgeois society but was also designated to give financial-economic assistance and aid for the Romanian peasants on an ethnic basis. Although Brassó [Braşov], the major financial centre, geographically was very close to Seklerland, due to the traditionally restricted credit conditions loans were provided only to Saxons because securities were circulated in a closed system only. The relatively large number of credit institutions – compared to Hungary’s general economic development level – was one of the major features of the Hungarian banking system. The large density of banking networks and the outstanding role of the banking sector in the economy did not automatically guarantee the smooth operation of the system. In many cases the irrationally high number of banking institutions was downgrading economies of scale within the banking system. This phenomenon was more clearly seen in the case of Transylvania with latecomer status in modernization. Between 1867 and 1873, the first period of ‘Gründerzeit’, 7.1 new banks were established annually. Between 1881 and 1900 this growth accelerated to an annual average of 9.4 new banks and between 1901 and 1909 the average annual number of new bank foundations was 18.3. Two-thirds of these were banks and savings banks. Between 1894 and 1909 the growth rates of North-east Hungary (378%) and Transylvania (330%) were exceeded only by Croatia’s growth rate, and the highest growth rate values were indicative of the catching-up processes in the underdeveloped regions. Transylvania concentrated 16.7% of Hungary’s credit institutes (Upper Hungary 16.6%, Transdanubia 16.6%). Unlike several other Hungarian regions (e.g. the stagnating Upper Hungarian banking network), Transylvania with an intensive development of its network increased its share by 3% within the institutional network indicating the diffusion of innovation processes (Gál, 1997). At the turn of the 19th and 20th centuries, with the inclusion of savings banks Hungary’s financial institution density was among the group of countries with a ‘very dense’ banking network. However Transylvania on the basis of the density figures per territorial unit size was at the rear part of the ranking. In 1894 the density of credit institutions was

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one institute per 254 square km and this was enough for the 5th position in the regional ranking in 1894 but by 1909 the one credit institution per 77 sq. kilometres density rate was enough only for the 6th place. In 1894 the Saxon counties had the densest network and the counties of Hunyad, Torda-Aranyos and Seklerland had the sparsest one. In 1909 also the Saxon counties’ network was the densest, but Kolozs, Udvarhely and Maros-Torda counties were catching-up demonstrating the diffusion of institutional modernization towards East Transylvania. The catching-up of Seklerland mostly resulted from the intensive expansion of its credit union’ network. The density indices of banks and savings banks were much lower. Between 1894 and 1909 the region’s 7th position fell back to 8th in the ranking of Hungarian regions (622 sq. kilometres per bank; 253 sq. kilometres per bank). In 1909 the banking networks of Fogaras, Szeben, Brassó, Nagy-Küküllő and Alsó-Fehér were the densest, while Udvarhely, Maros-Torda, Háromszék, Csík, KisKüküllő and Hunyad counties were in a backward position concerning their bank and savings bank supply. By the number of clients per credit institution indices, Transylvania due to its relatively lower population size had better position in the ranking of regions coming up to the 3rd from the 4th between 1894–1910. By the number of clients per bank and savings bank the improvement from the 7th place up to the 3rd is more spectacular. In 1894 the density of the Saxon counties was significantly the highest while Hunyad and Fogaras counties took the last positions in the nationwide ranking. The medium position of Seklerland was only due to its lower population size. In the year 1910 the number of clients per credit institution (bank supply index) was the smallest in Nagy-Küküllő, Udvarhely, BeszterceNaszód and Fogaras counties. Hunyad, Alsó-Fehér, Torda-Aranyos and Szolnok-Doboka counties with a majority of Romanians were the last on the list. By virtue of its intensive network development, Fogaras, once the last county by the supply and density of financial institutions, fell into line with the group of counties with a high network density by the 1910s. However the counties of Seklerland and Kolozs could only preserve their medium positions. With regards to the volume of per capita bank deposits Transylvania was still among Hungary’s last regions. It was continuously keeping its 7th position and was exceeding only Croatia. The per capita volume of deposits mirrored the performance of the local economy and the position of local society. In the year 1894 the relative deposit volume of Kis-Küküllő, Csík, Fogaras, Torda-Aranyos, Hunyad and Szolnok-

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Doboka counties was the lowest. The highest per capita deposits were registered in Szeben, Brassó, and Kolozs counties having the largest financial centres. In the year 1909 there was no change within the list of the leading counties and besides the high-positioned Saxon counties (Szeben, Brassó, Nagy-Küküllő, Beszterce-Naszód) only the indices of Kolozs and Maros-Torda counties were significant. After a large gap they were followed by Háromszék, Alsó-Fehér and Fogaras counties and their ranking was closed to the predominantly Romanian populated counties (Torda-Aranyos, Kis-Küküllő, Szolnok-Doboka) and to the poorest Sekler counties (Udvarhely, Csík) reflecting the regional differences in the propensity to save and the social position of the local population. With regards to the asset stocks of financial institutions, Transylvania, due to some of its financial centres having nationwide significance could keep its 4th moving up to 3rd position between years 1894 and 1909. Transylvania had only 7th and 5th positions by the volume of asset stocks. The ratio of assets concentrated in this region increased from 6% to 6.8% by the end of this period while at the same time Upper Hungary’s concentration decreased from 10.1% to 8.8%. The per capita volume of assets was again the largest in the Saxon counties: Szeben, Brassó and Nagy-Küküllő. Of them Szeben County’s 1,380 crowns per capita average assets are outstanding which is the result of Nagyszeben’s 3rd rank in the national hierarchy by assets concentration. The city’s spectacular 6,500 crowns per capita assets were slightly exceeding even the indices of the capital city. In the county ranking the next were Kolozs, Beszterce-Naszód and Maros-Torda occupying middle positions. Udvarhely and Csík from the counties of Seklerland with Torda-Aranyos and Szolnok-Doboka were the last counties in the ranking of counties by banking assets (Gál, 1997).

7.4.3 The banking centres of Transylvania Transylvania had 25 financial centres of the total 175 Hungarian banking centres in Hungary. This accounted for 14.2% of the total number of banking centres. Nagyszeben [Sibiu] and Kolozsvár [Cluj-Napoca] as regional centres, Brassó [Braşov] and Marosvásárhely [Târgu Mureş] as secondary banking centres were playing an important financial role in the region. The major secondary banking centres by the volume of as-

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sets were in the position of rapidly catching-up to the regional centres (Table 16). The largest number of financial institutions was operating in Kolozsvár [Cluj] (21), Nagyszeben [Sibiu] (10), Marosvásárhely [Târgu Mureş] (8) and Brassó [Braşov] (6). Table 16 Changes in the national ranking position of some Transylvanian cities by the volume of banking assets (Ranks) Cities Nagyszeben [Sibiu] Kolozsvár [Cluj] Brassó [Braşov] Marosvásárhely [Târgu Mureş]

1900

1910

2 12 24 43

3 13 14 25

Source: Own calculation (Vargha, 1913).

Kolozsvár was outstanding among the other cities with its very rapid development pace. The city, located at a great distance from Budapest as the centre of Transylvania, with some isolation from Hungary’s other region developed an extensive financial hinterland. It was located at the eastern wing of the market-line; on the one hand, it was the commercial centre of two different economic zones of the Transylvanian Basin, on the other hand, it was one of the major exchange points for commercial products between the highland and the plain areas. An old travel guide describes Kolozsvár [Cluj] as a well prospering cultural and scientific centre of Hungarians living in Transylvania. It is the most populated Transylvanian city and the most civilized Hungarian city after Budapest.79 Industry played no major role in the urban development of Kolozsvár. The city was rather an administrative-culturaleducational (university) centre of Transylvania. Its journalism, theatre culture, book publishing and theological activities were outstanding by general provincial standards and from this aspect it really was the most flourishing provincial centre.

Kolozsvári kalauz [A Guide to Kolozsvár], Kolozsvár, 1902. p. 140.

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Kolozsvár [Cluj] Savings Bank Source: www.kolozsvar.atspace.com, 1992

With regards to the volume of banking assets, the city was the 12th only on a national level and its significant surplus ratio of deposits was also below the city of Nagyszeben’s volume, located within the same region. However, the quickly growing city and its environment as a consumer market was attracting industrial investors, though the development of a local manufacturing industry was slow here; a tobacco factory, railway workshops and a match factory were the most important local industrial developments representing rather light industry branches. The number of local financial institutions (23, taking the third position after Temesvár [Timişoara] and Arad) was ‘too much’ for a city without a vibrant industrial and commercial base having a gravity zone covering poor North-Transylvanian areas (Gidófalvy, 1909). In the period of large-scale bank foundations, the profit-making desire of the local entrepreneurs resulted in the fragmentation of capital resources and this was making the foundation of larger industrial plants impossible. In spite of this, the local financial institutions of Kolozsvár – founded mostly by Armenian merchants and big landowners – were profitable as they were operating in a banking market within an extensive, economically poor region with emerging credit demand. The dynamism of the city’s economic development was hindered by the other cities of the region having also very extensive gravity zones. With nearly 112% population growth Kolozsvár was by far the most rapidly developing city in Eastern Hungary and although for a long time its townscape gave an impression of a city of one-storey buildings,

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its inner city core with infrastructural development ‘was advancing towards the way of a metropolitan development’ (Bulla–Mendöl, 1947). The relations of Kolozsvár [Cluj-Napoca] with the southern parts of Transylvania were also weak and this was further underlined by the new railway structure as South Transylvania’s transport connection with the central regions of Hungary was built only through the Valley of the River Maros bypassing Kolozsvár (Beluszky, 2000). However this southern subregion was mostly inhabited by Saxon and Romanian ethic minorities, thus this region’s cultural relations with Kolozsvár [Cluj-Napoca] were certainly weaker. The Saxon regions’ and South Transylvania’s financial centres were Nagyszeben [Sibiu] and Brassó [Braşov], the two most important Saxon cities at that time. Nagyszeben’s [Hermanstadt-Sibiu] role and position in our urban hierarchy of regional financial centres was unique from various aspects. The asset value of its traditional financial institutions with good reputation was 196 million crowns in the year 1909. With this huge stock of assets Nagyszeben’s [Sibiu] was the third among the largest banking centres in Hungary following such cities as Budapest and Zagreb, surpassing the assets base of Arad and Temesvár [Timişoara], the cities whose assets volume amounted to 110 million crowns each. By the deposit-based significant surplus ratio, the city was at the seventh position on the national ranking exceeding even Kolozsvár [Cluj-Napoca], the biggest city of Transylvania (Thirring, 1912). The above-listed indices hint at the peculiar but exaggerated role of Nagyszeben’s [Sibiu] credit system in a period when this once flourishing trade and industrial centre was gradually losing a part of its once autonomous administrative and economic function. During the peak period of railway construction the city joined the network with a delay and only through an auxiliary line which diminished not only its turnover but also its hinterland. This happened despite the fact that the development progress of the capitalist economy was rather slow, offering a ‘transitional period’ for the industrialization of Saxon cities including Nagyszeben [Sibiu] as well. The slowly accumulating assets and commercial capital could have served as a basis for the modernization of traditional economic sectors. Although in some sectors the modernization of traditional Saxon guild industries (baize factories, parquet factories, printing houses, salami factories and furniture factories) was carried out but these industries were suppressed by the competition from Austrian factories and the expanding industries of the neighbouring Romanian Kingdom. The city under the nickname

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of ‘Transylvanian Nürnberg’ preserved its old-style even during the age of the industrial revolution. This once prosperous traditional economic environment of the Saxon enclave decreased its innovation potential and the development dynamism of Nagyszeben. Also the size of its factories was far below that of the Bánát (South-east Hungary) and the North-east Hungarian regions. Saxon citizens through their properties, traditions of hard work and with the help of state assistance could preserve some of their inherited historical positions (Szász, 1986). The city’s local government was able to execute its modernization programme without levying extra taxes on their citizens in which the independently developing Saxon credit institutions, organized on a closed ethnic basis and retaining its particular character from the Hungarian and Romanian financial networks, had an important role. Although the number of banks founded by the Saxons was less, they were disposing over larger capital sums and assets. Their credit system following the archaic guild-based traditions built a strictly regulated financial network where not only the institutions but the whole credit system was operating in a closed structure. In the early 1900s the Saxon banks and credit unions established their central alliance in Nagyszeben [Sibiu] introducing a strict internal monitoring system and a standardized business strategy limiting even the institutions’ rights in joining the main Hungarian banking groups (Egyed, 1981). A more detailed analysis of the credit system of Nagyszeben [Sibiu] reveals that despite the above-mentioned large asset stocks, the conservative management system and the outdated asset management techniques were hardly suitable for the mobilization of these vast capital resources and for performing commercial-industrial banking roles at a higher level. The huge urban real estate and debenture bonds granted very large incomes but they were accumulated as passive trust capital only. The share of capital resources invested into modern industrial ventures and cash deposits was minimal in banking ‘circulation‘ and the most advanced charge and chequing account businesses were totally missing from the palette of banking services. However Nagyszeben [Sibiu] (with Brassó [Braşov]) remained the banking centre of the Saxon areas maintaining their extremely high concentration: the predominantly Saxon population of Királyföld (Royal Lands of the Saxons) following long historical traditions kept more than 80% of their capital in the financial institutions of Nagyszeben [Sibiu] and Brassó [Braşov]. These cities’ banking gravity zones covered not only the Saxon Lands but almost the whole area of South Transylvania.

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Nagyszeben [Sibiu], through the foundation of the Albina Bank, the most well-known Romanian ethnic bank, became the banking centre not only of the Saxon ethnic groups but of the Romanian bourgeois society as well. Its founders were lawyers, intelligencia, merchants and landowners, and this bank had an important role in the rise of the Romanian middle classes. In the opinion of Ákos Egyed, ‘the most important and wealthy part of the Transylvanian bourgeois classes were interested in the bank and savings bank sector’, which was even more true for the Romanian bankers, successfully financing their political groups of Romanians as well as providing cheap credit for Romanian peasants (Egyed, 1981. p. 177). From the aspect of banking capital the cities of Seklerland – with the exception of Marosvásárhely [Târgu Mureş] – had the lowest volumes of assets. Marosvásárhely and Brassó [Braşov] were standing at the 25th and 31st positions in the urban hierarchy based on asset stocks.

Brassó [Braşov] Financial Palace

Until the 1850s Brassó [Kronstadt-Braşov] as ‘Transylvania’s most beautiful and romantic city’ was one of the most important centres of the Saxon population, but by the 1890s it had turned into a modern industrial city with mixture of Hungarian, German and Romanian population. Its modernization pace was faster than in Nagyszeben [Sibiu] and because of the changes in the city’s ethnic structure Brassó [Braşov] soon lost its typical archaic identity that characterized Saxon cities: ‘during the last decades the city has made great progress; its surround-

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ing walls were demolished and only a few parts remained as memorials of its bulwarks (Petrik, 1911). Brassó [Braşov] due to belated railway construction, temporarily lost control over its traditional southward international trade routes but by the turn of the 19th and 20th centuries the industrial basis of Brassó [Braşov] developed stronger relations towards the Balkans as by that time ‘the old workshop industry was replaced by modern manufacturing plants.80 The 1890s saw the foundation of several industries here: the most advanced machine factory in Transylvania, a chemical fertilizer plant, an oil refinery, the Czell Brewery, a sugar factory and the famous textile and furniture factories among others. Although the city’s financial gravity zone was smaller than that of Nagyszeben [Sibiu], the city’s more advanced economic and credit institution structure was verified by the lower accumulation of passive capital resources with longer maturity and the greater activity of industrial enterprises characterized by the rapidly growing turnover of its charge and chequing account business. The market-line situated on the edge of the Transylvanian Basin was playing a less important role in the initiation of economic development on the main market-line on the eastern fringe of the Great Plain, but due to the coincidence of several beneficial factors Marosvásárhely [Târgu Mureş] developed into a ‘Sekler market centre’ very early in the 14th century. The city situated in the Valley of the River Maros was the economic and intellectual centre of one of the most fertile and most densely populated areas of Transylvania. “Marosvásárhely is the ‘preeminent city’ of Seklerland with such population, industry, fancy buildings, churches, library, schools and highly intelligent society where life is busy, work is burning, industry and commerce are booming and the whole city is in constant growth, therefore the city deserves the title of Seklerland’s capital.” (Hankó, 1896. p. 326). The city’s quickly growing manufacturing industry had a rather agricultural character (steam mill, brewery and sugar factory) but as a result of the county’s industrial development committee, an oil refinery, an ink factory and a toy and furniture factory were established here in the year 1900. The city’s townscape and especially its inner city commercial district remind geographers of the city of Debrecen: the city with its local artisans, with some farmers and with small town patterned housing estates and rural 80

neighbourhoods that would fit into the row of the Great Plain cities also originating from small villages (Bulla-Mendöl, 1947). Marosvásárhely developed into the major financial centre of Seklerland, being in need of credit institutions. Its banking hinterland supplied seven times a larger population compared to the city’s original size. With this figure the city’s gravity zone was the largest among the secondary banking centres of Hungary.

Az Osztrák–Magyar Monarchia írásban és képben, Magyarország VII. Kötet [The Austro–Hungarian Monarchy in Words and Pictures Vol. 7] 1901 p. 370

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181

Outlook

This book has examined the impact of the Hungarian banking system on the urban network in the early twentieth century. It is based on previous research on territorial distribution of banking functions applied the methodology of Christaller’s Central Place Theory. In the age of the Austro-Hungarian Union, the banking system was primarily based on the „unit banking”, including locally and regionally embedded banks, saving banks and credit unions. Investigations carried out at the level of historical regions made it possible to perform a comparative analysis of the different regions’ (Upper Hungary, Transdanubia and the Great Plain) banking network, economic and urban development. The book has taken a novel methodological approach in investigating the relationship between the banking sector and the contemporary urban development, and it dispels some common misconceptions prevalent in economic history: 1) By presenting a clearer picture of the direct relationship between industrial development and urbanization, it reveals the much more significant role of service sectors – particularly trade and banking sector – in urban development. 2) It has revealed that the development periods of the Hungarian banking system reflected the international trends, though with a time lag. It has also verified that the dominant position of Budapest is not only a consequence of the Treaty of Trianon (dissolution of historical Hungary), it was rather determined by the concentration processes

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inherent in the banking market which dated back to the early twentieth century. 3) These financial geographic analyses contributed to dispel the longestablished stereotypes of ‘developed Western (Transdanubia)’ and ‘underdeveloped Eastern (Great Plain) regions’. This is supported by the fact that the most important provincial banking centers located alongside the eastern market-line (“innovation zone”) of the Great Plain achieved the most dynamic development also in the banking sector in contemporary Hungary. The spatial development of the Hungarian banking sector during the following interwar period was determined by two parallel processes, namely by border changes and by the processes of spatial concentration and institutional centralization following international trends. The dissolution of the previously integrated financial market with the detachment of provincial financial centres was only partially responsible for the disproportionate growth of the asset concentration in the Budapest-based banks. The importance of the remaining provincial financial centres was further decreased by the natural process of market concentration from the beginning of the twentieth century. This led to the merging of many provincial financial institutions into Budapestbased banks or becoming parts of the affiliate networks of the largest banking corporations. As a consequence, the centralization of the banking system resulted that, by the end of the second half of the interwar period, the local/regional unit banking system gradually became an integrated national banking system which rested on the nationwide branch networks of the largest Budapest-based banks. After the First World War and the great economic depression, the consolidation of the banking system was further stimulated by active state interventions. Building an extensive network of provincial branches, banks with Budapest headquarters were weakening the positions of local banks with limited scope of territorial functions. Despite the fact that the contemporary Hungarian banking system is to some extent still lagging behind the most developed western countries, we cannot say that there is a huge inherited gap between Hungary and Western Europe despite some delay, since already by the turn of the 19/20th centuries, the Hungarian banking system was well-developed in comparison to international standards. Hungary’s financial sector after 40 years of discontinuity during the communist period was reintegrated into the world‘s financial system and entered the stage of the

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‘trans-national’ and ‘securitized’ financial world. When one compares the state of the contemporary banking system with that of the early 20th century, one can find many similarities between them. Both were created following a political change of regime (1867: the Austro-Hungarian Union; 1990: the fall of communism) and coincided with the early stages of modernization that were characterized by an original accumulation of capital, by an early foundation of credit institutions, by a massive inflow of foreign capital (although its share was much smaller in 1910), by the foundation of joint-venture banks and by bankruptcies that required new legislation on banks and the creation of public supervision of banking in both eras. The predominant position of Budapest in the money market is even more predominant than it was 100 years ago (Gál, 2000b, 2001). Although local unit banks and regional centres were important elements of the financial space in late 19th, early 20th century Hungary, when banks closely connected with local and regional economic structures, their significance is much less clear in the era of globalization. A common characteristic regarding the spatial organization of the Hungarian banking system before and after the political transformation in 1990 has been an extremely high centralisation of headquarters function in the capital city. The spatial structure of the contemporary banking system is more centralized (as all banking headquarters are located in Budapest) compared to the network which existed at the turn of the 19/20th centuries. At that time the number of independent unit banks scattered throughout the countryside was the dominant organizational form within the banking system.

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List of Place Names Official place names in the Hungarian Kingdom (Austria– Hungary) prior to 1920 Arad Aranyosmarót Baja Balassagyarmat Bátaszék Bazin Békéscsaba Bélabánya Beregszász Beszterce Besztercebánya Brassó Breznóbánya Bród Budapest Csíkszereda Debrecen Budafok Dés (Désakna) Dobsina Dunaföldvár Eger Eperjes Érsekújvár Eszék Esztergom Erzsébetfalva Fadd Fehértemplom Felsővízköz Fiume

Recent official place names

Arad Zlaté Moravce Baja Balassagyarmat Bátaszék Pazinok Békéscsaba Banská Belá Beregovo Bystrica Banská Bystrica Braşov Brezno Slavonski Brod Budapest Miercurea-Ciuc Debrecen Budapest (22nd district) Dej Dobšina Dunaföldvár Eger Prešov Nové Zámky Osijek Esztergom Budapest (20th district) Fadd Bela Crkva Svidník Rijeka

Countries where c ities now belong to

Romania Slovakia Hungary Hungary Hungary Slovakia Hungary Slovakia Ukraine Romania Slovakia Romania Slovakia Croatia Hungary Romania Hungary Hungary Romania Slovakia Hungary Hungary Slovakia Slovakia Croatia Hungary Hungary Hungary Serbia Slovakia Croatia

195

Official place names in the Hungarian Kingdom (Austria– Hungary) prior to 1920 Fogaras Girált Gyergyószentmiklós Gyöngyös Győr Gyula Gyulaférvár Hajdúböszörmény Héthárs Hódmezővásárhely Jászberény Kalocsa Kaposvár Karcag Károlyváros Kassa Kecskemét Keszthely Késmárk Kézdivásárhely Kiskundorozsma Kiskunfélegyháza Kismarton Kisvárda Kolozsvár Komárom Korpona Körmöcbánya Kőszeg Kunszentmiklós Léva Ligetfalu Lipótszentmiklós

196

Recent official place names

Făgăraş Giraltovce Gheorgheni Gyöngyös Győr Gyula Alba Iulia Hajdúböszörmény Lipany Hódmezővásárhely Jászberény Kalocsa Kaposvár Karcag Karlovac Kosiče Kecskemét Keszthely Kežmarok Târgu Secuiesc Kiskundorozsma Kiskunfélegyháza Eisenstadt Kisvárda Cluj-Napoca Komarno Krupina Kremnica Kőszeg Kunszentmiklós Levice Petržalka Liptovsky Mikuláš

Countries where cities now belong to

Romania Slovakia Romania Hungary Hungary Hungary Romania Hungary Slovakia Hungary Hungary Hungary Hungary Hungary Croatia Slovakia Hungary Hungary Slovakia Romania Hungary Hungary Austria Hungary Romania Slovakia Slovakia Slovakia Hungary Hungary Slovakia Slovakia Slovakia

Official place names in the Hungarian Kingdom (Austria– Hungary) prior to 1920 Lőcse Losonc Lugos Máramarossziget Marosújvár Marosvásárhely Medgyes Mezőtúr Miskolc Modor Munkács Nagybecskerek Nagykanizsa Nagykároly Nagykikinda Nagykőrös Nagymihály Nagyrőce Nagyszeben Nagyszombat Nagyvárad Nyíracsád Nyíregyháza Nyitra Óbecse Oravicabánya Orosháza Ózd Pancsova Pápa Pécs Pozsony Rimaszombat

Recent official place names

Levoča Lučenec Lugoj Sighetu Marmaţiei Ocna Mureş Târgu Mureş Mediaş Mezőtúr Miskolc Modra Mukačevo Zrenjanin Nagykanizsa Carei Kikinda Nagykőrös Mihalovce Revúca Sibiu Trnava Oradea Nyíracsád Nyíregyháza Nitra Stari Bečej Oravita Orosháza Ózd Pancevo Pápa Pécs Bratislava Rimovská Sobota

Countries where c ities now belong to

Slovakia Slovakia Romania Romania Romania Romania Romania Hungary Hungary Slovakia Ukraine Serbia Hungary Romania Serbia Hungary Slovakia Slovakia Romania Slovakia Romania Hungary Hungary Slovakia Serbia Romania Hungary Hungary Serbia Hungary Hungary Slovakia Slovakia

197

Official place names in the Hungarian Kingdom (Austria– Hungary) prior to 1920 Parajd Petrozsény Pöstény Putnok Rózsahegy Rozsnyó Salgótarján Sátoraljaújhely Segesvár Selmecbánya Sopron Soroksár Susak Szabadka Szarvas Szászváros Szatmárnémeti Szeged Székelyudvarhely Székesfehérvár Szekszárd Szentes Szentágota Szentgotthárd Szepesbéla Szentgyörgy Szered Szigetkamara Szikszó Szolnok Szombathely Temesvár Tiszapolgár

198

Recent official place names

Praid Petrosani Piešťany Putnok Ružomberok Roznava Salgótarján Sátoraljaújhely Sigishoara Banská Štiavnica Sopron Soroksár Susak Subotica Szarvas Orastie Satu Mare Szeged Odorheiu Secuiesc Székesfehérvár Szekszárd Szentes Agnita Szentgotthárd Spišská Belá Sváty Jur Sered Cămara la Sighet Szikszó Szolnok Szombathely Timişoara Polgár

Countries where cities now belong to

Romania Romania Slovakia Hungary Slovakia Slovakia Hungary Hungary Romania Slovakia Hungary Hungary Croatia Serbia Hungary Romania Romania Hungary Romania Hungary Hungary Hungary Romania Hungary Slovakia Slovakia Slovakia Romania Hungary Hungary Hungary Romania Hungary

Official place names in the Hungarian Kingdom (Austria– Hungary) prior to 1920 Tokaj Topolya Torda Trencsén Túrócszentmárton Újbánya Újpest Újvidék Ungvár Vajdahunyad Vác Varasd Versec Veszprém Vízakna Vukovár Zágráb Zalaegerszeg Zombor Zólyombreznó Zsolna Zsombolya

Recent official place names

Tokaj Bačka Topola Turda Trenčin Martin Nová Baňa Budapest (4th district) Novi Sad Užgorod Hunedoara Vác Varaždin Vršac Veszprém Sibiului Vukovar Zagreb Zalaegerszeg Sombor Brezno Žilina Jimbolia

Countries where c ities now belong to

Hungary Serbia Romania Slovakia Slovakia Slovakia Hungary Serbia Ukraine Romania Hungary Croatia Serbia Hungary Romania Croatia Croatia Hungary Serbia Slovakia Slovakia Romania