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