Discussion Papers 2006. No. 55.
The Banking Functions of the Hungarian Urban Network in the
Early 20th Century
CENTRE FOR REGIONAL STUDIES
OF HUNGARIAN ACADEMY OF SCIENCES
DISCUSSION PAPERS
No. 55
The Banking Functions of the
Hungarian Urban Network in the
Early 20th Century
by
Zoltán GÁL
Series editor
Zoltán GÁL
Pécs
2006
Discussion Papers 2006. No. 55.
The Banking Functions of the Hungarian Urban Network in the
Early 20th Century
ISSN 0238–2008
ISBN–10: 963–9052–73–6
ISBN–13: 978–963–9052–73–4
Keywords: Hungarian banking rise of branch network, system, urban network and
hierarchy, regional-economic development, local unit banks, territorial diffusion of banking
innovations, central-place theory, central-place banking functions of the cities, capital
concentration, regional banking network
JEL index: G21, N23, N94
2006 by Centre for Regional Studies of the Hungarian Academy of Sciences.
Technical editor: Ilona Csapó.
Printed in Hungary by Sümegi Nyomdaipari, Kereskedelmi és Szolgáltató Ltd., Pécs.
Discussion Papers 2006. No. 55.
The Banking Functions of the Hungarian Urban Network in the
Early 20th Century
CONTENTS
1 Introduction ...................................................................................................................... 7
2 The dimension of the Hungarian banking system in the age of the Dual
Monarchy (1867–1918) .................................................................................................. 8
2.1 The institutional setting of the banking system ...................................................... 8
2.2 The size of the banking network........................................................................... 11
2.3 Budapest: dominance of the national banking centre ........................................... 12
3 Regional expansion of banking innovations ................................................................. 16
3.1 The golden age of local unit banking.................................................................... 16
3.2 Gradual transition from local to nation-wide branch banking .............................. 16
3.2.1 Building respondent bank networks ........................................................... 16
3.2.2 The rise of branch networks ....................................................................... 17
3.3 Regional differences in the Hungarian banking system........................................ 22
3.3.1 Measuring banking network density........................................................... 22
3.3.2 The geographical distribution of banking stocks and flows ....................... 29
4 The banking functions of the urban network in the early 20th century ...........................42
4.1 Surveying the central-place bankig functions of cities ......................................... 42
4.2 Central places of the Hungarian banking network................................................ 48
4.2.1 The hierarchical ranking of cities by bank deposit distribution.................. 48
4.2.2 Hierarchical ranking of cities by assets distribution ................................... 57
5 Outlook ......................................................................................................................... 65
References .......................................................................................................................... 66
Discussion Papers 2006. No. 55.
The Banking Functions of the Hungarian Urban Network in the
Early 20th Century
List of figures
Figure 1
Branch and related respondent bank networks of the four largest
Hungarian banks headquartered in Budapest, in 1914 .................................... 20
Figure 2
Breakdown of credit institutes and banking equities among Hungary and
the sucessor states of the Hungarian Kingdom after the WWI (Treaty of
Trianon), 1920................................................................................................. 21
Figure 3
Territorial density of credit institutions in Hungary: size of territorial
unit per an institute, 1894, 1909...................................................................... 24
Figure 4
Territorial density of banks/saving banks in Hungary: size of territorial
unit per a bank/savings bank, 1894, 1909 ....................................................... 26
Figure 5
The regional breakdown of bank supply index in Hungary: population
per a credit institute, 1894, 1909 ..................................................................... 27
Figure 6
The regional breakdown of bank supply index in Hungary: population
per a bank and savings bank, 1894, 1909........................................................ 28
Figure 7
County level breakdown of credit institutes savings deposits in 1913
(including cities with municipal rights) .......................................................... 30
Figure 8
Regional distribution of per capita bank & savings bank deposit in
Hungary, 1894, 1909....................................................................................... 34
Figure 9
The regional distribution of per capita credit institution deposit in
Hungary, 1894, 1909....................................................................................... 37
Figure 10 The regional breakdown of per capita credit institution assets in
Hungary, 1894, 1909....................................................................................... 40
Figure 11 The regional breakdown of per capita bank & savings bank assets in
Hungary, 1894, 1909....................................................................................... 41
Figure 12 The breakdown of the 4 hierarchical groups of the Hungarian banking
centres in terms of significance surplus ratio and volume of banking
deposit, in percentage, 1910............................................................................ 47
Figure 13 The Hungarian urban hierarchy based on central-place banking
functions in 1910............................................................................................. 49
Figure 14 Hierarchical ranks of regional banking centres by asset stocks volumes
(million crows), 1910 ...................................................................................... 52
Figure 15 Concentration of bank deposit stocks in the Hungarian cities, 1909............... 55
Figure 16 Concentration of banking assets in the Hungarian cities, 1910....................... 56
Discussion Papers 2006. No. 55.
The Banking Functions of the Hungarian Urban Network in the
Early 20th Century
List of tables
Table 1
Changes in the number of financial institutions and the share
of Budapest in the Hungarian bank network 1894–1913 ................................. 12
Table 2
Share of Budapest banks in banking stocks and their annual turnover,
1894–1913, in percentage.................................................................................. 14
Table 3
Breakdown of the selected banking lines in percentage among the
different settlement levels, 1909........................................................................ 15
Table 4
The number of branches and respondent banks (affiliates) of the 15
largest Budapest-seated joint-stock credit institutes, 1899–1909 ...................... 18
Table 5
Banks with the largest respondent branch network in year 1913 ...................... 19
Table 6
The ranking of counties by the volume of banking deposit and asset
stocks, 1909....................................................................................................... 31
Table 7
The hierarchical ranking of cities by banking deposits and asset stocks
in year 1909...................................................................................................... 45
Table 8
The hierarchical rank of the Hungarian cities on the basis of central-place
banking functions (based on bank deposit stocks calculated by per capita
county and national averages in 1909) .............................................................. 50
Table 9
The hierarchy of the Hungarian cities on the basis of central-place
banking functions by asset stocks, a cluster analysis, 1909 .............................. 58
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
1 Introduction
This paper examines the impact of the Hungarian banking system on regional and
urban development in the early 20th century, when local banks were important ter-
ritorial 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 coincided with the argument of the
American Historical Geographical school (Conzen, 1977) says that the features of
the urban network are in strong correlation with the spatial structure of banking
system and the diffusion of financial innovations. We considered the spatial break-
down of capital flows are one of the most important indicators of the regional and
urban transformation (Gál, 2005).
The Hungarian banking system looks back to a history of more than 160 years.
Examining the impact of the banking system on regional and urban development is
reasonable in the second half of the 19th century, since in Hungary developed an
extensive financial system with a well researchable statistical database (Vargha,
1913). The Hungarian banking system was well developed in comparison to inter-
national 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 domes-
tic 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;
Berend–Ránki, 1974).
Studies analyse the development factors of urbanization although, properly
identify the close connection between urban and economic development many of
them still emphasize the one-sided determinant role of the industrialization, which
is considered as the sole engine of the urbanization (Pollard, 1980). Actually
„…the world of the cities is the centre of the money market and we should not
forget the fact that the money is the invention of urban civilization. The develop-
ment of the financial system not only encouraged economic development but
played as important role in urban development as industrialization itself (Bairoch,
1988). The basic idea of our research is that banking system had greater importance
in economic development, than in our days. 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 channeled through the banking
system. This also meant that the spread of financial innovations was quicker and
more comprehensive than other economic innovations (Gerschenkron, 1984;
Cameron, 1967, 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
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
banking sector and urban development as well. Banking service functions became
one of the main roles of cities (Hohenberg–Lees, 1985).
Besides studying the regional characteristics of local money-markets on the ba-
sis 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 order, which be-
came the driving force of modernization, as well as those too played less determi-
nant role in the 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 the Hungarian cities based on banking aggregates (deposits and as-
sets). The survey gives the opportunity not only to analyze 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 de-
velopment are almost exclusively connected with the urban network. It is also ar-
gued that regional inequalities were very much determined by economic, especially
banking functions of the urban-network.
2 The dimension of the Hungarian banking system in the age
of the Dual Monarchy (1867–1918)
2.1 The institutional setting of the banking system
The birth of the modern banking system in the Austro–Hungarian Monarchy can be
dated 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 by the 1880s only. While statistical data from year 1847 reported 26
banks only, their number in 1914 was above five thousand. By adding the number
of post office, 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 in a diverse type of institutional groups in terms of their organisational
structure, business lines and functions. Under Hungarian circumstances with low
capital resources the formulation of savings banks with 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 it was the Brassó [Braşov] Savings
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Bank founded in 1831 that was really the first Hungarian banking organisation.
The Pest Hungarian Commercial Bank of founded in 1841 was the first bank
founded in Hungary).
The commercial banks (mobile banks and traditional commercial banks) to-
gether with savings banks having been transformed into a joint-stock company and
practically functioning as commercial banks since the 1870s were the key institu-
tions of the Hungarian banking system and also they had the largest capital funds.
The differences between banks and savings banks diminished then ceased since the
mid–1800s, thus savings banks were also operating as profit oriented institutions in
the organisational form of a joint-stock company. This system had a hidden ele-
ment, namely private banks without the compulsory provision of statistical data
that had key positions in Budapest and the largest cities in Hungary in the initial
phase (Kövér, 1995b; Gál, 2004). Their importance decreased to a much lower
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 large. The majority of banking organisations 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 mod-
ernization for rural areas. The central bank was founded in 1851 and operating
under the joint name of Austro–Hungarian Bank since 1878 built an extensive net-
work system in Hungary as well. It became the major coordinator of the Hungarian
economic and credit system and ensured liquidity for the Hungarian banking sys-
tem. 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 devel-
opment of the banking system the Central Bank gradually terminated these func-
tions and concentrated mostly on the regulation of currency rates, the stability of
the credit organisation system and on the refinancing of savings banks (Kövér,
2002). Before the First World War. The central bank had 42 branch offices (3 in
Croatia) and 103 agencies throughout Hungary.1
According to the description of a contemporary bank expert, banking, as a stra-
tegic field of service sector, had the following missions: ‘the accumulation of
capital surplus and the most appropriate distribution of the collected sums. Its ad-
ditional tasks are the regulation of financial circulation and safeguarding the econ-
omy from getting into critical situation due to the absence of financial resources’
(Vargha, 1913). The new financial organisations 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 mobilisation of capi-
tal, as Hungary had low capital resources in the initial phase of their moderniza-
1 Besides the financial institutions listed here the network of post savings banks and municipal
savings banks of smaller importance should be mentioned here.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
tion. Credit organisations got into contact with economic actors not only through
their banking transactions but as investors they also contributed to the foundation
of new ventures (Katus, 1979).
Especially developing markets of the eastern and southern regions, were heavily
competing with each other for funds to invest, and this exhausted their reserves
leading to a complete bankruptcy during the 1873 stock market crisis. The general
economic recovery period that followed the crisis gave a new start to the develop-
ment of the banking system. Savings banks − that were founded in extensively
between 1840 and 1867 but new offices were opened at a slower rate after the Un-
ion − survived the crisis in a relatively good condition, as 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 a close contact with Hungarian banking organisations.
Hungary’s largest banks were founded in Budapest and the local financial organi-
sations of the dynamically developing Hungarian cities were mainly savings banks
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 banks not only collected savings but were doing all types of ‘bank-
ing businesses’, thus instead of functioning as savings banks, friendly societies
with social functions, they were operating as joint-stock company banks for
achieving high dividends and this fact completely eliminated the functional differ-
ences between savings and commercial banks.
Thus, this universal banking system was dominating Hungary’s dualistic period
and the commercial and savings banks (this latter one is the major financial corpo-
ration form at Hungarian ethnic territories) had a mixed profile from the finance of
investments to capital issue (Szász, 1961; Illés, 1992). During the 19th century
banks and even savings banks were functioning as universal commercial banks and
this increased their importance in the economic development of Hungary following
the Austro–Hungarian Union. Credit banks (mobile banks), dealing with infra-
structure investments and financing industrial and financial organisations through
issuing bonds, allocated most of their own and foreign investors’ resources for
industrial and infrastructure development projects. This was a new way of banking
finance trying to improve Hungary’s poor economic conditions with low capital
resources and serving for the country’s boosting economic modernization in the
mid–19th century. In legal-corporate sense the Hungarian banking system may be
regarded as more universal than its German and Austrian counterparts as its spe-
cialisation level and cooperation with other banking institutions was narrower and
it offered the widest range of banking services both on macro and local levels. For
example mortgage banking was very widely available in Hungarian bank and sav-
ings bank offices while in other countries it was separated into an independent
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
business. However, if we define active investment activities and appropriate li-
quidity as the other necessary criteria of the universal banking system, we must say
that Hungarian banks started their direct industrial investments with a relative
delay and even if their volume significantly increased in the first decades of the
20th century their importance remained low (for example the share of industrial
stocks of the Pest Hungarian Commerce Bank accounted only for 3–4% of its total
assets and it was still only 10% before the First World War) (Tomka, 1999a). On
the basis of the different indices (equity/deposit, equity /loans) of banks we must
say that the liquidity level of Hungarian banks was lower than their German and
Austrian counterparts.
2.2 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 the bank sector
generated innovation, on the locations of banks, on the spatial structure and geo-
graphical features of the banking system. Examining the size of the banking net-
work 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 Austro–Hungarian 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 years of World War I more than 2000 local
banks were operating in Hungary without an extensive branch network. Between
1904 and 1913 the total number of banks, savings banks (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 in the period between 1894–1904 (this is a 212%
growth rate) decreasing to 30% in the last few years before World War I. The be-
lated banking sector development of Croatia between 1899 and 1909 was counter-
balanced by the rapid (330%) extension of its banking institutes consisting mostly
of credit unions (Table 1).
The number of banking jobs is another indicator of this sector’s importance.
When reviewing the share of banking sector in employment since 1910 until now,
we can argue that in year 1910 only 0.28% (19,400) of the active wage earners was
employed in the banking sector indicating a very low share of services in general in
the early stage of industrial societies. This value increased to 0.64% after the Tri-
anon Peace Treaty (1920) on the basis of Hungary’s present-day territory due to the
population loss. This exceeded the European average only slightly but considering
the country’s strongly reduced territory and economic potentials was too high for
them. The intensification of bank consolidation processes in the 1930s reduced the
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
number of jobs to a slight extent but the massive closure of banks due to their na-
tionalisation 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 reached to the level of the 1910s.
Table 1
Changes in the number of financial institutions and the share
of Budapest in the Hungarian bank network 1894–1913
Year
Banks, savings
Share of Credit cooperatives Share of
Total
Share of
banks, mortgage
Budapest,
(credit unions)
Budapest,
Budapest,
banks
%
%
%
Hungary Budapest
Hungary Budapest
Hungary 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.
2.3 Budapest: dominance of the national banking centre
Budapest had a special role in the modernisation of Hungary during the dualistic
period. Budapest was the most important single bridgehead of modernisation in the
Carpathian Basin. The modernisation processes originating from several processes
were all concentrated in Budapest. By the beginning of the 20th century the sub-
centres of modernisation outside Budapest had already been shaped but despite
Budapest had far better per capita ‘development’ (modernisation) indices than it
would have derived from its population size (Beluszky, 1998). This is especially
true in case of banking sector where successful modernisation was the outcome of
the large-scale institutional and spatial concentration of capital.
By the end of the 19th century all the major Budapest seated banks became the
largest in Hungary and were determining the general development of the Hungar-
ian banking sector until 1918 and some of them, also during the following interwar
period. The big fives, the top 5 banks were Pest Hungarian Commercial Bank,
Hungarian General Credit Bank, Hungarian Mortgage Bank, Hungarian Discount
and Exchange Bank, Pest First National Savings Bank. Studying the importance
and role of the major banks in the concentration of capital resources we can argue
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
that the importance of (Budapest-headquartered) major banks in the concentration
of capital in Hungary was far less than in Germany or Austria (Tomka, 1999b).2 In
1890 the top five banks of Budapest owned 18% of total assets and 27.3% in 1909
and 25.7% in 1913. Their share also slightly decreased in equities 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 banking sector’s total equities and 41.6% of total assets (Table 2).
In the first ten years of the 20th century due to the rapid spread of provincial
banks and the spatial expansion of banking network (decentralisation) the role and
importance of the banking services of Budapest significantly decreased in some
lines of banking. This was intensifying the de-concentration processes of the
banking sphere and to some extent reduced the overwhelming dominance of Buda-
pest in the banking sector. The increase of the concentration of Budapest’s bank
sector halted in the early 1900s and stagnated for a while. In Budapest’s share in
some banking lines there was some decrease and some signs of de-concentration,
while the share of provincial cities increased within the Hungarian banking system
(Table 2). The share of Budapest banks in the total equity stock of Hungarian credit
institutes decreased from 51.9% (1894) to 46.6% by 1910, catching the peak with a
value of 53% in year 1899.3 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 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 periods of concentration and de-
concentration processes. Although between 1910 and 1913 the number of provin-
cial banking institutes increased very rapidly and the distribution of financial in-
stitutions became more homogenous, banks of Budapest − after a ten year transi-
tional period − still increased their market share in five of the six banking lines
reviewed in our paper. Thus, as a general rule, we can conclude that the Hungarian
banking system − even if to a less extent than it is recently − was Budapest-centred
from the very beginnings. The concentration of financial institutions in Budapest
on size (volume) basis was particularly striking. There was a tenfold difference in
equity base between the largest banks of Budapest and the largest provincial banks.
2 In Austria the largest 12 banks concentrated 64.7% of the total banking assets, in Germany the 5
biggest banks owed 50% of the total banking assets in year 1913 (Tomka, 1999).
3 The percentage of Budapest share capital within own assets decreased from the highest 61% in
1900 to 54% by 1909.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Table 2
Share of Budapest banks in banking stocks and their annual turnover,
1894–1913, in percentage
Year
Bill credit
Mortgage loans
Commercial paper loan
Savings deposit
Charge account deposit
stock
turnover
stock
turnover
stock
turnover
stock
turnover
stock
turnover
Share of Budapest within the Hungarian Empire*, %
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
90.0
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).
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
However, the spatial concentration of the financial institution system, unlike to-
day, was very low in Hungary. In year 1910 4,425 financial institutions were oper-
ating in almost 3,500 settlements. Banks and/or savings banks headquartered in
868 settlements. The level of decentralisation of banking network based on local
financial institutions corresponded − as Ron Martin (1994) called − 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 cen-
tralised economy dominated by Budapest and the major provincial centres trying
to stabilise their own positions. At that time the increasing financial importance of
provincial cities was not yet hindered by the large-scale expansion of Budapest
banks (Table 3). This does not mean that the most important regional financial
centres would have meant any major threat for Budapest’s economic hegemony but
the accelerated and spatially more balanced economic development by the end of
the 19th century significantly reduced the disparity gap between dynamically devel-
oping provincial cities and Budapest (Gál, 1998a, 1999).
Table 3
Breakdown of the selected banking lines in percentage among the different
settlement levels, 1909*
Equity
Savings
Return
Bill
Mortgage Securities Assets
deposit
(ROE)
portfolio
loans
portfolio
Budapest
54.2
33.4
46.5
35.0
55.5
58.2
59.2
All provincial cities
28.9
44.9
29.7
37.3
32.1
34.2
29.1
– of which Cities with
15.1
21.5
14.3
17.8
13.1
18.3
13.6
municipal rights
– of which Other towns
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
Hungarian Kingdom
100,0
100,0
100,0
100,0
100,0
100,0
100,0
* For banks & savings banks only.
Source: Author’s calculation based on Vargha (1913).
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
3 Regional expansion of banking innovations
3.1 The golden age of local unit banking
The golden age of the Hungarian banking system lasted from the 1890s until the
1910s. Banks became one of the most important symbols of the prosperity and
economic security of the peaceful „Belle Époques”, partly as the money accumu-
lated in banks and the deposit taking into the banks proved to be a long-term infla-
tion safe investment for the public yielding profits above the inflation rate. In these
times the spatial development of the banking system was determined by two ten-
dencies. One is the spatial expansion of the banking network (Gál, 1999). In paral-
lel with the strengthening role 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 co-operatives, 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 rather the symbol of the local entrepreneurial and
public interests, than the branches of strange (e.g. Budapest based) banks. The local
bankers became their cities’ honoured citizens through their local development and
patronising activities they became highly respected members of their city’s local
community. The development of the independent regional banking network deter-
mined to a great extent by the fact that the negative backwash effects could not be
effective in territorial development during this period. That is why the development
of the smaller banking locations and their functioning were secured without their
capital resources were being backwashed by the capital city (Gál, 1999, 2001).
The rapid development of the local capital resource based provincial savings
banks, banks, credit unions created a balanced, spatially more homogenous credit
institution network and a relatively more homogenous spatial distribution of bank-
ing services. In 1909 in Hungary 3458 settlements had some kind of credit institu-
tion but only 868 settlements had a bank and/or a savings bank.
3.2 Gradual transition from local to nation-wide branch banking
3.2.1 Building respondent bank networks
Another developmental tendencies were the large scale concentration of the bank-
ing capital into Budapest and the penetration of Budapest’s big banks into the pro-
vincial money-markets, which resulted increased the independent operation of the
selected provincial banks facing to takeovers and incorporated many local banks
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
into their centralised nation-wide branch network. The spatial concentration of
banking capital resources (although its degree was below of other economically
advanced countries) accompanied by the market entries of Budapest headquartered
large banks into the provincial banking market. The centralisation of the credit
system, after a transitional slowdown period, accelerated again as a result of re-
spondent bank network building (related bank network of correspondent banks)
and branch office building strategy of the major banks.
Affiliation with local bank’s accompanied by the incorporation of local banks
into their expanding respondent bank networks, became part of the network build-
ing strategies of the largest banks headquartered in Budapest, which contributed to
the increase of capital concentration and centralisation. Regional financial markets
developed independently for a long time from Budapest’s financial market. The
increased financial strength of the banks of Budapest from the 1890s made possible
the development of group of their respondent banks and the establishment of their
branch networks forming the largest banking groups.4
Unlike relations with branches the related institutes (respondent banks) primar-
ily served not for the absorption and channelling of capital resources towards the
centre of capital resources. Related credit institutes were rather the main receivers
for billing and charge account credits. Because of sharper competition in the mar-
ket of Budapest and with more limited chances for market expansion apart from
some cases large banks were concentrating on formulating provincial respondent
bank network. Between 1900 and 1912 the largest 5 banks of Budapest increased
the number of financial institutions belonging to their interest groups from 19 to 49
(Table 4). This figure was 134 with the financial institutions subordinated to their
sub-organisations. Between 1900 and 1912 the total value of bank assets belonging
to the main banking group increased from 2.4 billion crowns to 7.7 billion crowns.
Thus, the formulation of respondent bank network significantly increased the or-
ganisational-institutional concentration of bank service market of Budapest. (Zsol-
dos, 1914).
3.2.2 The rise of branch networks
Another important tool of the institutional centralisation was the bank branch net-
work-development. While in 1894 there were just 85 bank and savings bank
branches in the country, in 1909 this number increased to 307 from which the
number of branches owned by the Budapest banks raised to 68 and the number of
affiliations to 63. So the concentration within the bank network has already started
4 Respondent banks belonged to the 5 largest banks increased from 19 to 49 between 1900–1912,
which number increased to 134 taking also those institutes into account which were sub-institutes
depending on their respondent banks.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
in the beginning of the 20th century, but at this time the big banks had relatively
small number of branches and inside the banking system the smaller and independ-
ent local unit banks were dominated5 (Vargha, 1913).
Table 4
The number of branches and respondent banks (affiliates) of the 15 largest
Budapest-seated joint-stock credit institutes, 1899–1909
Year
Branches
Respondent banks
Budapest
Provincial
Foreign
Budapest
Provincial
Foreign
1899
18
4
–
–
3
–
1900
18
4
–
–
4
–
1901
20
7
–
–
4
–
1902
20
7
–
–
4
–
1903
20
8
4
2
8
1
1904
26
17
9
2
15
7
1905
28
21
6
2
18
9
1906
28
23
3
2
27
13
1907
32
25
6
3
40
12
1908
35
25
6
3
44
11
1909
36
26
6
4
47
12
Source: Hungarian Statistical Yearbook Volume 35.
Apart from affiliations, the building of branch office network was the other
means of increasing the size of 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 direct them through centres towards the fertilising channels
of economy’ (Zsoldos, 1914). Budapest banks were the major beneficiaries of
opening branch offices. With stretching their arms length and building wider
groups of client circles large banks extended their financial relationships by open-
ing 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 branch network of large banks remained small in the period of our research
(Gál, 1996) (Table 5). 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 accel-
5 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 cen-
tralised into the capital city of Budapest and the national market incorporated the local, regional
banks setting up a centralised national branch network.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
erated at the turn of the 19th and 20th centuries and after the quick saturation of
Budapest network the expansion started in provincial cities. The PMKB was the
first to build its own banking network but opened its first offices in Budapest (7).
By 1913 the expansion accelerated and increased the number of Budapest offices to
15 and to 9.6 While in year 1894 Hungary had 85 bank and savings bank branches,
their number increased to 307 (416 with Croatia and with the number credit un-
ions) by year 1909. From which 134 belonged to the branch network of Budapest’s
banks. The Hungarian Discount and Exchange Bank apart from its 9 Budapest
offices opened new ones in Kassa [Košice], Pozsony [Bratislava], Fiume [Rijeka]
and Kolozsvár [Cluj-Napoca]. The Hungarian General Credit Bank opened its of-
fices only at a later time, 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], Gyır, Kassa [Košice], Kec-
skemét, Nagyvárad [Oradea], Pozsony [Bratislava], Szabadka [Subotica] and Te-
mesvár [Timişoara] in 1910. The bank building strategies of provincial banks were
influenced by several factors. The stronger locally based provincial banks were
hindering the penetration of Budapest’ banks into their local markets, so several
Budapest banks were trying to enter less saturated smaller-scale markets. In the
case of PMKB respondent banks and branch offices were allocated into different
cities following a complementary market building and market expansive strategy.
Its bank offices − unlike its related respondent banks − were operating rather in
cities of medium-size bank system avoiding this way the harmful outcomes of a
strong market competition for their profitability. The Hungarian Credit Bank fol-
lowed a more ambitious strategy as it concentrated on counties and cities with the
largest credit stock.
Table 5
Banks with the largest respondent branch network in year 1913
Number of offices
In Budapest
In provincial cities
Pest Hungarian Commercial Bank (PMKB)
15
9
Hungarian General Credit Bank (MÁH)
2
11
Hungarian Discount and Exchange Bank (MLPB),
9
4
Hungarian Commercial Bank Joint-stock Company
6
11
(MBK)
Source: Zsoldos, 1914.
6 Brassó [Braşov], Eszék [Osijek], Nagykanizsa, Nagyszeben [Sibiu], Sopron, Újvidék [Novi Sad],
Újpest, Erzsébetfalva.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Figure 1
Branch and related respondent bank networks of the four largest Hungarian banks
headquartered
in Budapest, in 1914
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
The Bank opened its offices on sites where it was concerned in industrial and
financial interests (Bratislava, Subotica, Timisoara etc.). The Hungarian Banking
and Commercial Plc was building its 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).
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 the period of national market-oriented bank system the gradual expansion of
Budapest banks towards provincial sites further increased the dominance of Buda-
pest. 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 organisa-
tional independence within the smaller and dismembered Hungary (Figure 2).
Figure 2
Breakdown of credit institutes and banking equities among Hungary and the
sucessor states of the Hungarian Kingdom after the WWI (Treaty of Trianon), 1920
Key: 1 – Breakdown of the number of credit institutions (in percentage); 2 – Distribution of banking
equities (in percentage).
Soure: Buday, 1922.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
3.3 Regional differences in the Hungarian banking system
The Hungarian banking system considerably expanded by the Eve of the World
War I, 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
macro indicators (comparative financial ratio, employment and penetration index),
and by indices measuring the territorial characteristics of the banking network
either on 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 the regional and urban transformation. 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).
3.3.1 Measuring banking network density
By the end of the 1910s Hungary belonged to the group of European countries with
“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 insti-
tute. While in the early 20th century Hungary with 0.9 bank density index (credit
institutes/10,000 inhabitants) belonged to the group of countries with high density
(Gál, 2000; Tomka, 1999b).
In the Hungarian banking system − comparing to Hungary’s economic devel-
opment level − had too many credit institutes. The high density of the banking net-
work and its dominant role in the economy did not guarantee smooth, problem free
operation. The oversized number of institutes decreased their efficiency in the field
of the economy of scale. The considerable lack of supply of small and medium-size
agricultural credits and the absence of Raiffeisen type credit unions further wors-
ened the credit conditions of small and medium-sized landowners. There oversized
number of financial institutes is frequently mentioned in the contemporary litera-
ture. 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 institutes were founded in too a great number: they were es-
tablished in such places as well that already had had an old and consolidated credit
base with well-funded capital resources’ (Vargha, 1913). One can ask why Hun-
gary had relatively much more financial institutions than Western European coun-
tries on territorial basis.7 Because of the bank foundation fever generated by the
scarcity of capital resources, the low level of institutional and spatial specialisation,
7 Hungary by the number of financial institutions was the 8th even in 1885, exceeding such
competitors as France and Austria; by the share of population Hungary was beaten only by the
Benelux states, Scandinavian states and Germany. In: Vargha Gy.: see above, p. 562.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
the strong competition for deposits there were places where more than one credit
institutions were established without any economic reasons (e.g. in North-eastern
Hungary). Thus, it is not by chance that these organisations with low equity base
were the first to go bankrupt. At the same time the financial institutes of rising
regional centres − contributing to the birth of commercial and industrial plants −
were financing not only the dynamically developing local economy but several
times they provided banking services in regions scarcely provided by banking in-
stitutes. The towns of regions with poor capital resources concentrated much more
credit institutes than the national urban average number (Vargha, 1913).
Studying the spatial structure of financial institutes we must analyse Hungary’s
credit institution network and the national-level distribution of banking sites. In
1910 Hungary had 4425 (5324 total with Croatia) credit institutions. Of them 1515
were operating as banks, savings banks or mortgage banks and 2910 (3623 total
with Croatia) as credit unions. Of them 216 financial institutes and 52 offices −
5.7% of the total (4.6% with Croatia and affiliates) were located in Budapest. In
1909 most savings and credit institutes were operating in Croatia, Transylvania,
Transdanubia and Central Hungary, the least in Upper North Hungary and North-
Eastern Hungary. In the area of banks and savings banks the quick growth of the
financial institutions of eastern and south-eastern regions is striking: the number of
banks and savings banks operating in Bánát, Central Hungary (Bácska), Transylva-
nia was higher than in Upper North Hungary and Transdanubia.
Concerning the number of credit institutions per territorial unit size measured
in square kilometres (instituts/1000 km2) we can see large regional differences
within the distribution of credit institutes. Contemporary statistics used the index of
territorial unit per single institutes showing the size of the potential supply area of
credit institutes. The larger area supplied by a single institutes the lower the density
of the banking network and vice versa. The spatial growth of credit organisation
network is indicated by the fact that in year 1894 in Hungary one financial institute
was serving for an area of 177 km2. In year 1909 one institute was serving for a
much smaller area of 64 km2 indicating the growth of the number of credit institu-
tions. The credit institution network is the most densely built up in Central Hun-
gary, 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 di-
mensions. It is also clearly seen that concerning the density of the banking net-
work, Transdanubia’s good position in 1894 was surpassed in the early 1910 by
Bánát region, fast 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 there (Figure 3a–b).
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Figure 3
Territorial density of credit institutions in Hungary: size of territorial unit
per an institute, 1894, 1909
a) 1894
b) 1909
Source: Edited by the author.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Naturally, the indicator of territorial size per a 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 year 1910 the territorial unit size per a 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 Upper North Hungary (Figure 4a). In year 1894 although
spatial disparities in general were greater Central Hungary with Bánát were the two
leading regions with the highest density of banks and savings banks. They were
followed by Transdanubia then with a certain gap by North East Hungary, East
Upper Hungary, Transylvania and Croatia (Figure 4b) (Gál, 1999).
In the late 19th century the density of banking network measured by bank supply
index measuring the number of population supplied by a credit institution (bank
supply index: population per credit institutes) was the highest in Central Hungary,
in some counties of Transdanubia, Bánát (Temes, Torontál counties) and in some
Saxon counties of Transylvania. In these regions lower number of residents was
serviced by a single credit institute indicating higher efficiency of bank supply in
1894. The largest number of population was served by one credit institution (with
lower efficiency) 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 Verıce) got onto the top of density rank. The expansion of network
was very fast in Pozsony and Nyitra counties and in North East-Hungarian, East
Upper North Hungary, Transylvanian and Croatian regions having very few credit
institutions at an earlier time. Meanwhile the earlier 2nd position of the Transdanu-
bian region on the density list fell back to the 5th (Figure 5b). By year 1910 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 (South East Hungary
[Banat], Central Hungary and Transylvania (with relatively low population density)
were on the top of density list (Figure 6a–b).
Due to the relatively balanced spatial distribution of provincial credit institu-
tions in the early 20th century the majority, nearly 65% of credit institutes were
located in non-urban settlements (villages). This was significantly promoting mod-
ernisation in small and rural settlements and also indicated that economic devel-
opment was not harmonising with the traditional system of public administration.8
In conclusion, we can state that the innovation of financial institutions was
penetrating into more and more areas (settlements) of economic space and this
ensured a smoother distribution of financial organisations.
8 The less capital funded credit unions were generally operating in non-urban settlements.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Figure 4
Territorial density of banks/saving banks in Hungary: size of territorial unit
per a bank/savings bank, 1894, 1909
a) 1894
b) 1909
Source: Edited by the author.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Figure 5
The regional breakdown of bank supply index in Hungary: population per a credit
institute, 1894, 1909
a) 1894
b) 1909
Source: Edited by the author.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Figure 6
The regional breakdown of bank supply index in Hungary: population per a bank
and savings bank, 1894, 1909
a) 1894
b) 1909
Source: Edited by the author.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
3.3.2 The geographical distribution of banking stocks and flows
The financial geographical analysis of the spatial dimensions of capital flows and
distribution of bank network 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 assets & liabilities side of
the bank balance sheet, are serving as an evaluation basis for the importance of
financial institutions. In 1909 97.5% of Hungarian credit institutions were engaged
in deposit business, so this field is a suitable indicator for a deeper analysis. Ac-
cepting bank deposits was not only a widespread service but also was a local sav-
ings indicator and served as a resource for working capital supply of financial in-
stitutions.
Although the indices of the regional and county level distribution of banking
deposits may inform about the concentration and turnover of deposit account of a
certain territorial level but may hide differences within a region or county and this
makes difficult to evaluate the degree and the central-place service of some settle-
ments. The largest amount of deposits collected by credit institutions was accumu-
lated in Central-Hungary, Transdanubia, West Upper Hungary and in South East
Hungary (Banat). The volume of bank deposits was medium-sized in Transylvania
and North Eastern Hungary and was low in Croatia and East Upper North Hungary.
On county level, counties with dense credit and financial institutions (Pest-Pilis-
Solt, Bács-Bodrog, Temes, Pozsony, Torontál, Vas, Nyitra) or with a major finan-
cial centre (Zágráb, Arad, Bihar, Kolozs, Csongrád, Hajdú) had the largest volume
of deposits. While in Transdanubia and Central Hungary volume of deposits were
distributed evenly large differences occurred among counties in the peripheries as
Croatia and Transylvania. (The counties of the Croatian seaside and the ‘Székely-
Sekler’ counties in Transylvania accumulated very low amount of deposits) (Fig-
ure 7, Table 6).
An analysis on the deposits per capita average indices reveals the general posi-
tion of a settlement in the financial system.9 Banking statistics clearly show that the
sum of deposits per capita indices of urban settlements are far exceeding county
level deposit indices. This can only partly be explained by the greater economic
activity of urban population, generating in this way 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 rendered a
wider choice of banking services meeting special demands and offering higher
interest rates.
9 In 1910 the average deposit sum per each deposit index was the highest in East Hungary and Banat
after Budapest. This is explained by the concentrated capital accumulation and welfare in the
dynamic regional centres of the eastern regions rapidly catching-up. The average deposit sum per
deposit indicator was the lowest in East Upper Hungary and Transylvania.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Figure 7
County level breakdown of bank deposits in 1913 (including cities with
municipal rights)
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Table 6
The ranking of counties by the volume of banking deposit
and asset stocks, 1909
County
County ranking by the
County
County ranking by the
volume of banking
volume of banking
deposits*
assets
Budapest
1,186,438,000
Budapest
5,548,796,000
Bács-Bodrog
149,006,000
Zágráb
326,289,000
Pest-Pilis Solt Kiskun
140,506,000
Bács-Bodrog
271,004,000
Zágráb
134,549,000
Szeben
244,176,000
Temes
120,019,000
Pest-Pilis Solt Kiskun
226,895,000
Pozsony
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-Nagykun-Szolnok
66,368,000
Csongrád
115,577,000
Szeben
64,401,000
Jász-Nagykun-Szolnok
110,068,000
Hajdú
59,929,000
Szabolcs
101,809,000
Zala
54,583,000
Békés
95,935,000
Szatmár
49,723,000
Nyitra
90,717,000
Szabolcs
46,721,000
Zala
89,765,000
Sopron
46,041,000
Szatmár
77,578,000
Borsod
45,377,000
Somogy
74,247,000
Békés
45,142,000
Borsod
69,746,000
Kolozs
43,777,000
Krassó-Szörény
69,119,000
Baranya
43,706,000
Kolozs
68,105,000
Szepes
43,392,000
Baranya
66,866,000
Veszprém
41,103,000
Fejér
65,115,000
Krassó-Szörény
39,424,000
Abaúj-Torna
63,597,000
Fejér
39,211,000
Fiume
61,516,000
Tolna
38,677,000
Tolna
60,263,000
Somogy
38,403,000
Sopron
57,436,000
Gömör-Kishont
36,877,000
Veszprém
54,605,000
Abaúj-Torna
35,705,000
Brassó
54,089,000
Zemplén
34,297,000
Nagy-Küküllı
53,557,000
Heves
34,208,000
Heves
53,542,000
Nógrád
32,222,000
Szepes
51,471,000
Szerém
31,612,000
Zemplén
50,596,000
Brassó
31,193,000
Gömör-Kishont
48,492,000
Fiume
30,594,000
Szerém
46,253,000
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Count. Table 6
County
County ranking by the
County
County ranking by the
volume of banking
volume of banking
deposits*
assets
Zólyom
30,499,000
Gyır
46,240,000
Nagy-Küküllı
29,876,000
Nógrád
44,379,000
Gyır
28,883,000
Maros-Torda
42,774,000
Maros-Torda
27,835,000
Hunyad
40,359,000
Hunyad
26,237,000
Zólyom
38,176,000
Bars
25,100,000
Bars
35,018,000
Trencsény
24,748,000
Bereg
34,430,000
Komárom
23,256,000
Trencsény
32,408,000
Túróc
22,784,000
Verıce
31,012,000
Esztergom
22,041,000
Modrus-Fiume
30,955,000
Bereg
19,490,000
Esztergom
28,219,000
Beszterce-Naszód
18,446,000
Túróc
27,906,000
Sáros
18,078,000
Pozsega
26,610,000
Alsó-Fehér
17,268,000
Beszterce-Naszód
25,884,000
Hont
17,171,000
Alsó-Fehér
25,691,000
Modrus-Fiume
16,016,000
Szilágy
25,261,000
Szolnok-Doboka
15,742,000
Szolnok-Doboka
25,125,000
Moson
15,347,000
Sáros
23,308,000
Liptó
15,180,000
Varasd
22,950,000
Háromszék
14,987,000
Hont
21,921,000
Szilágy
14,944,000
Liptó
21,811,000
Varasd
13,613,000
Belovár Körös
20,652,000
Pozsega
13,316,000
Háromszék
19,971,000
Ung
11,568,000
Moson
19,192,000
Verıce
10,708,000
Komárom
18,294,000
Belovár Kırös
9,931,000
Máramaros
18,009,000
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-Küküllı
13,636,000
Csík
8,113,000
Csík
12,469,000
Fogaras
7,833,000
Árva
12,396,000
Kis-Küküllı
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 checking account deposits of all credit istitutes
Source: The author’s own edition on the basis of Hungarian Statistical Bulletin, Vol. 35
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
This was attracting not only local urban but remote rural clients as well to put their
deposits into city banks. Their greater trust in city banks was also a driving force
for choosing them (Dövényi, 1977).
The analysis on the regional level distribution of deposit stocks – including
savings, charge and checking account deposits of all credit institutes – reveals two
facts. One is that the average sum of deposits is a direct indicator of regional eco-
nomic 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
placements 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
(1894) to 205 crowns by year 1909. The national average of per capita deposit
sums in banks and savings banks increased from 44 crowns (1894) to 193 crowns
(177 crowns if including Croatia) and the provincial average of deposit sums per
capita was 107 crowns in 1909.
The comparison of the spatial distribution of average per capita deposit indices
of banks and savings banks in 1894 clarifies that modernisation structures, in gen-
eral, 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 1894–1909 (Figure 8a–b).
At the same time, with the lowest value of average per capita deposits Transyl-
vania and Croatia kept their last positions even in 1909. County level statistical
averages in 1909 − excluding Pest-Pilis-Solt-Kiskun County with Budapest, the
county seat − were the highest in Szeben (304 crowns) and Túróc (393 crowns)
counties.10 This formal value is explained not only by the local Saxons’ tradition-
ally high saving affinity but also by the well known Nagyszeben General Savings
Bank[in Sibiu] absorbing all the savings of Transylvania’s ethnic German (Saxon)
population. ‘Nagyszeben Albina’, South Transylvania’s another important ethnic
bank (Romanian owned) was further increasing the city’s attractivity for savings.
The fact that Kis-Küküllı County, inhabited by Saxons has a very low average per
capita deposit index is explained by the absence of a local financial centre. The
local Saxonian clients were visiting the financial institutions of their largest centres
such as Segesvár [Sighişoara], Medgyes [Medias] and Nagyszeben [Sibiu]. North-
ern Hungary’s leading position is based on the banks in Túrócszentmárton [Martin]
and Rózsahegy [Ružomberok], the Hungarian Slovaks’ ‘national bank centres’
10 The per capita deposit index of credit institution was 409 crowns in Túróc County and 364 crowns
in Szeben County! The first ten counties in in terms of per capita deposit indices are as follows:
Fiume, Szeben, Túróc, Pozsony, Brassó, Szepes, Esztergom, Hajdú, Zólyom, Zágráb, Csongrád,
Arad, Temes, Gyır, Vas.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Figure 8
Regional distribution of per capita bank & savings bank deposit
in Hungary, 1894, 1909
a) 1894
b) 1909
Source: Edited by the author.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
(Tatra Bank, Rózsahegy Credit Bank). Túróc County’s extremely high average is
the result of ‘Tatra’ Bank’s (founded in year 1884) active services and its rapidly
growing branch system in the gravity zone of Upper Hungary’s Slovakian popula-
tion (Tóth, 1992). The slowly rising bourgeois ethnic society in the peripheral
regions was rather more successful in banking activities than in industrial invest-
ments; industrial development was rather more resulting from the expanding ac-
tivities of Austrian, Hungarian and foreign investors. The per capita deposit
averages were also high in Pozsony County (277), in Brassó, inhabited by Saxons
with traditionally high level banking culture (274) and Szepes County (235).
Zólyom (221) and Gömör (191) counties had important industrial plants boosting
up banking activities. Croatia’s ‘money surplus’ was increasing the savings of
Zagreb banks (219).
Central-Hungary and some regional financial centres attracting high amount of
deposits also generated high average deposit indices in their respective counties
(Arad 216, Temes 215, Csongrád 218, Hajdú 234 crowns). In the latest case Hajdú
County’s high position is resulting from Debrecen’s high concentration and Hajdú
County’s low population density (Figure 8b).
The spatial distribution of per capita banks & saving banks 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-Poszony [Bratislava]). The map also
shows that the population ratio of county seats per ‘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, Gyır-Gyır County, Kolozsvár [Cluj-Napoca] -
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, sometimes even with
wealthy (e.g. the ‘rich-soiled’ Csanád County (53 crowns) situated between the two
cities Arad and Szeged) are explained by the fact that local residents put their
deposits into the banks of the above-mentioned cities generating high financial
turnover. However, in most counties the low average deposit values were reflecting
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 year 1909, we can conclude that their per capita deposit sums
were exceeding the 140 crown provincial average in the western (West-Transdanu-
bia, West Upper Hungary) and central [South East Hungary (Banat), Central-Hun-
gary] regions. The national average was 205 crowns and 190 crowns if we include
Croatia. South Transdanubia was differing from Hungary’s central and north-
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
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 Hun-
gary 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 are below the national
average (Sáros 103, Ung 71, Máramaros 24, Ugocsa 51, Krassó-Szörény 84) but
the ‘Saxon counties’, being island, namely Brassó (308), Szeben (364) and Nagy-
Küküllı (201) and even Beszterce-Naszód (144) produce higher than national av-
erage values. Seklerland, in this respect, shows unfavourable results (Udvarhely 54,
Csík 56, and Háromszék 101). Croatia’s ‘massive backwardness’ resulting from its
belated modernisation process is reflected by these indices too (Belovár-Körös 30,
Lika Krbava 33, Verıce 39) (Figure 9a–b).
Nevertheless, the territorial breakdown of banking assets gives us a more accu-
rate picture about the real concentration of banking innovations. The spatial break-
down of banking assets by credit institutions both, on regional and county level
shows some declination from the pattern of deposits in 1909. Surveying the re-
gional 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 owing to the huge financial
capital accumulation made by the traditional Saxon (German minorities) banks
located in South Transylvania. Transylvania’s 3rd position is definitely resulting
from the capital concentration of Nagyszeben banks [banks of Sibiu]. The Tran-
sTisia (North East Hungary) and the Banat (Sout 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, 2000, 2002) (Table 6).
On county level the largest banking assets are concentrated in counties with a
dense network of credit and financial institutions (Bács-Bodrog, 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-Küküllı, Torda-Aranyos, Ung, Csanád, Máramaros, more or less
the peripheral counties. The per capita breakdown of banking assets by counties
provides a more precise overview on the real concentration of banking stocks.
The regional breakdown of per capita credit institution assets significantly
changed between 1894 and 1910. In 1894 Transdanubia, West Upper Hungary and
Central-Hungary were on the top of ranking with their high per capita assets. They
were followed by Transylvania and South East Hungary (Banat). East Upper Hun-
gary, North East Hungary and Croatia were the last on the ranking. Thus, the spa-
tial dimensions of modernisation processes in the last quarter of the 19th century
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Figure 9
The regional distribution of per capita credit institution deposit
in Hungary, 1894, 1909
a) 1894
b) 1909
Source: Edited by the author.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
were determined by development disparities between the eastern and western re-
gions having also a fundamental importance in the spread of financial innovations.
Regional indices cover quite large county and urban level differences. The tradi-
tional financial centres (Nagyszeben [Sibiu], Brassó [Braşov], Beszterce [BistriŃa],
Szepes cities, Sopron) with the financial centres of Transdanubia (Gyır, Székesfe-
hérvár, Esztergom) were on the top of 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 counties have good positions because of its strong financial centres of De-
brecen and Kassa [Košice]. Later on the major financial centres and their county
hinterlands such as Arad, Temes, Zagreb and Borsod were only at the early stage of
their development process. In the late 19th century the positions of financial centres
with high county level per capita assets were slowly and gradually weakening. In
the 1890s the later emerging dynamic banking centres of the early 1900s were only
in the initial phase of their development (Figure 10a).
In the consequence of the rapid eastward expansion of banking services the dis-
tribution of the per capita assets demonstrated a significant territorial rearrange-
ment took place between the 1890 and 1910. The analysis of the spatial distribu-
tion of per capita indices of assets by all credit institutions in 1909 clearly verifies
that the ranking of regions was undergoing a complete change during a 15 year
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) rapidly catching-up to the
top. A detailed analysis of this phenomenon will be described in the regional
chapters (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 4th
and they are followed by North East Hungary and Transylvania. However, there
are no changes on the last positions.11 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. Regional spread of financial services
clearly mirrored the spatial economic development of Hungary was characterized
by the west-east divide in the first phase of modernization. Once the leading Trans-
danubian region was one of the biggest losers since fell back to the 6th rank (of the
eight) from the first place despite of its few counties improved their positions
(Gyır, Fejér) and one could strengthen its above average position (Vas County)
even if the indices produced a higher than the national average development dy-
namics.12
11 In Transylvania the rapid development of credit institutions was the result of large scale credit
union foundations. For this reason the region density of bank and savings were lower.
12 Counties in Transdanubia could not keep up with such substantial bank capital accumulation
experienced in some eastern counties.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
West Upper Hungary dropped back from its previous second place to the 4th de-
spite its financial centre (Pozsony [Bratislava]) was preserving their national im-
portance. 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 rank. It was followed by Central Hun-
gary. The regional ranking of banks clearly shows that eastern regions got into
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).
In year 1910 the leading counties’ in terms of per capita credit institution as-
sets, due to their special financial traditions, were the Transylvanian Saxon coun-
ties (Szeben 1380 crowns per capita, Brassó 534, Nagy-Küküllı 360). They were
followed by Túróc (501 crowns per capita) Zagreb (594), Temes (386), and Arad
(372), Csongrád (355), Pozsony (348), Gyır (338) and Abaúj-Torna (314) coun-
ties. Some counties with more development poles and dense financial network such
as Bács-Bodrog (334), Békés (321), Szabolcs (318), Abúj-Torna (314), Esztergom
(310), Szepes (297) were also among the first ones. Naturally, the peripheral, eco-
nomically and socially less-favoured regions as Croatia (Lika-Krbava, Belovár,
Körös, Varasd, Pozsega, Szerém, Verıce), Transylvania (Udvarhely, Torda-Aran-
yos, Csík, Szolnok-Doboka, Alsó-Fehér, Kis-Küküllı, 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).
In conclusion we argues, 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 loosing positions of the
western territories, modernizing earlier, despite their development progress
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Figure 10
Regional breakdown of per capita credit institution assets
in Hungary, 1894, 1909
a) 1894
b) 1909
Source: Edited by the author.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Figure 11
The regional breakdown of per capita bank & savings bank assets in Hungary,
1894, 1909
a) 1894
b) 1909
Source: Edited by the author.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
4 The banking functions of the urban network in the early
20th century
4.1 Surveying the central-place bankig functions of cities
The advanced, financial infrastructure contributed to the spread of the 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 the modern management techniques and entrepreneurial culture, and through
lending activities banks became the major stimulators of the urban development
(Hijatela, 1987). Urbanization process was strongly determined by pecuniary con-
ditions and primarily cities became central poles of banking innovation. Banking
network existed in the turn of the 19/20th century was dominated by the locally
founded institutions. The comparative analyses of urban history have special im-
portance from the point that the features of modernisation were perceived almost
exclusively on urban level only and the urban frameworks having been formulated
in the early years of the 20th century, as a path-dependent process have had an in-
fluence on urban development determining the image of cities until our present
time.
The definition of a geographical place’s rank on the basis of population size, or
the marking of administrative functions are insufficient criteria for evaluating its
urban functions and based on its central-place functions. From this point the provi-
sional supply functions originating from a city’s central-place functions. Services
rendered by cities for their hinterland (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, al-
though they are identifying the relationship between urban development and the
modernisation of economy pretty well, still overstate the role of industrialisation in
urban development and consider it as the primary driving force of urbanisation. In
fact the ‘world of cities’ is the world of financial management and financial mar-
kets. We must not forget that money, in essence, is the product of the urban civili-
sation. The development of monetary and credit system not only stimulated eco-
nomic development but played such a great role in urban development as industri-
alisation itself (Bairoch, 1988). Urban development in Europe and Hungary in the
19th and 20th centuries cannot be identified with the development of industrial sec-
tor only. On the contrary, in several cases, predominantly industrial towns (e.g.
Ózd, Újpest, Rózsahegy [Ružomberok], Vajdahunyad [Hunedoara] produce a
lower level of urban development than those having commercial and other service
profiles besides their industrial functions (e.g. Temesvár [Timişoara], Pozsony
[Bratislava], Nagyvárad [Oradea], Gyır) (Gyáni, 1995). Several papers verify that
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
in Hungary the development of large scale industry, with the exclusion of Buda-
pest, had no direct influence for urbanisation between the last quarter of the 19th
century and 1945, the first stage of modernisation. The development of provincial
cities was not the outcome of the development of heavy industry, the building of
factories only partly contributed to the fast modernisation of infrastructure in pro-
vincial centres. Industrialisation itself was also partly bound to cities. In many
cases industrialisation started not in traditional urban centres but in small settle-
ments sometimes even not having the legal status of a city (Salgótarján, Petrozsény
[Petroşani], Diósgyır). This was providing a rural character to certain sectors of
heavy industry (Gyáni, 1997).
During the 20th century, due to the development of infrastructure the importance
of service sectors significantly increased, though very few researches were study-
ing their role in the urban development of Hungary. This is even true that during
the last fifty years cities were turning from industrial profile into commercial-ser-
vice centres. The importance of studies on the economic history of cities is based
on the fact that economic potentials of the regions or cities 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 ad-
vanced banking, insurance and financial infrastructure contributed to the spread of
credit system innovations serving as a background for socio-economic modernisa-
tion. Banking activities, as the major capital resources of regional modernisation,
are the multiplicators of urbanisation 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
sited. The development of urban economy and urbanisation 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 net-
work. In this way financial centres were also the catalysts of Hungarian urbanisa-
tion. 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 ris-
ing urban system.
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 with the help of the available capital resources (Gál, 1997a). We ana-
lysed 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 modernisation. We also marked those cities
that played only minor role in Hungary’s economic development (Gál, 1997b). 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 ex-
amples. The major conclusions of these studies are that by the definition of finan-
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
cial central-place functions the group of economically booming cities could be
identified. The most important result of the survey was that the central-place func-
tions of banking can be defined and the dynamically growing group of cities and
their banking hinterland can be identified. 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) supplied the cities’ hinter-
land using the method of CHRISTALLER’S central-place theory (1933, 1966) by
calculating the so called significant surplus ratio (Gál, 1997a).13 In addition to this,
the central-place function of the cities were complemented using the additional
data of institutional 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 cumulated absolute balance
data of the city’s financial institutions. These analyses − besides informing on a
city’s economic importance and the size of its gravity zones − also give an answer
for the question whether a city was functioning as an innovative-financial 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 with the help of the available capital resources (Gál, 1997b). The
calculations were completed on the basis of the database for the year of 1909 just
for those settlements with central-place (urban) functions, and banks and/or savings
banks locations where the volume of either the sum total of deposits or assets ex-
ceeded 2 million crowns. We took the volume of the assets, deposits, and the pro-
portion of the current accounts into consideration, and further those institutions
closely related to the banking (branch of the central bank, Boards of Inland Reve-
nue, chambers of commerce and industry). In 1909 3458 Hungarian settlements
had some financial institutions. 868 settlements had a bank and/or savings bank, of
them 175 cities’ financial role was verified in Hungary. According to the survey
examines the banking function of the Hungarian cities, central-place functions of
175 settlements based on banking can be proved. Thus, 69% of functional urban
13 It was Christaller, a German geographer, whose theory on central location emphasizing the central
character of cities served as a theoretical basis for significance surplus calculations. The calculated
significance surplus indices are showing the ratio of city bank deposits in their provinces and serv-
ing as a basis for uban hierarchy. The results – besides indicating the cities’ economic significance
are also informing whether a city was functioning as an innovative-financial centre or not. This cor-
relation suggests that the geography of the evolution of banking hinterlands, which were 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 were
two million Crowns (Korona) or more by means of the following formula: K= Fv-Lv ● (Fm/Lm)
where K equal with the Significance-surplus of a certain city, Fv equal with the sum-total of de-
posits of a city’s banks in1909, Lv equal with population of a city, Fm equal with the sum-total de-
posits of a city’s hinterland, Lm equal with population of a city’s hinterland.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
settlements had a kind of banking centre function). According to the calculations
the hierarchical groups of the cities were clearly distinguishable on the basis of
significant surplus ratio being the base of banking functions. On the basis of calcu-
lation the main hierarchical groups of cities on the level of banking network have
clearly been formulated
On the top of ranking a kind of correlation between the relative weight of finan-
cial roles and the relative financial importance of cities may be observed with oc-
casional sharp deviations. By sorting the volume of deposits and assets stocks and
also the calculated significant banking surplus ratios we can see a very strong
correlation on the top of ranking (Table 7).
Table 7
The hierarchical ranking of cities by banking deposits and asset stocks
in year 1909*
Ranks of the cities by deposits
Million
Ranks of the cities by assets
Million
crown
crown
BUDAPEST
1,175
BUDAPEST
5,262
1. Zágráb [Zagreb]*
117.6
1.Zágráb [Zagreb]
296.0
2. Arad
77.7
2. Nagyszeben [Sibiu]
196.0
3. Pozsony [Bratislava]
70.4
3. Arad
115.0
4. Temesvár [Timişoara]
56.0
4. Temesvár [Timişoara]
110.0
5. Nagyvárad [Oradea]
50.5
5. Debrecen
77.5
6. Nagyszeben [Sibiu]
46.3
6. Pozsony [Bratislava]
73.0
7. Debrecen
42.8
7. Nagyvárad [Oradea]
71.5
8. Szeged
40.7
8. Fiume [Rijeka]
66.0
9. Miskolc
38.6
9. Szabadka [Subotica]
58.4
10. Kolozsvár [Cluj-Napoca]
35.2
10. Szeged
57.2
11. Fiume [Rijeka]
30.5
11. Miskolc
53.4
12. Gyır
28.0
12. Kolozsvár [Cluj-Napoca]
49.5
13. Székesfehérvár
26.7
13. Brassó [Braşov]
40.4
14. Szabadka [Subotica]
26.2
14. Kassa [Košice]
37.2
15. Pécs
24.5
15. Székesfehérvár
34.2
16. Szombathely
24.4
16. Gyır
33.2
17. Brassó [Braşov]
23.6
17. Szolnok
32.6
18. Kassa [Košice]
23.4
18. Pécs
29.0
19.Szatmárnémeti Satu Mare]
21.5
19. Szombathely
28.8
20. Újvidék [Novi Sad]
21.2
20. Szatmárnémeti [Satu Mare]
28.2
21. Nyíregyháza
21.0
21. Nyíregyháza
27.6
22. Nyitra [Nitra]
20.1
22. Újvidék [Novi Sad]
27.4
23. Túrócszentmárton [Martin]
19.7
23. Marosvásárhely [Târgu Mureş]
26.0
24. Besztercebánya [Banská Bystrica]
18.8
24. Kecskemét
25.9
25. Szolnok
18.7
25. Nagykanizsa
25.2
26. Esztergom
18.5
26. Zombor [Sombor]
24.4
27. Nagykanizsa
18.4
27. Nyitra [Nitra]
24.2
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Count. Table 7
Ranks of the cities by deposits
Million
Ranks of the cities by assets
Million
crown
crown
28. Versec [Vršac]
17.3
28. Túrócszentmárton [Martin]
23.5
29. Zombor [Sombor]
17.7
29. Nagybecskerek [Zrenjanin]
22.2
30. Sopron
17.6
30. Besztercebánya [Banská Bystrica]
21.8
31. Nagyszombat [Trnava]
17.0
31. Baja
21.1
32. Marosvásárhely [Târgu Mureş]
16.0
32. Esztergom
21.0
33. Veszprém
15.8
33. Versec [Vršac]
19.9
34. Baja
15.1
34. Hódmezıvásárhely
19.4
35. Kaposvár
14.3
35. Cegléd
19.3
36. Kecskemét
14.2
36. Veszprém
19.2
37. Pápa
13.9
37. Nagyszombat [Trnava]
18.9
38. Hódmezıvásárhely
13.8
38. Eger
18.7
39. Eger
13.8
39. Eperjes [Prešov]
17.2
40. Eperjes [Prešov]
13.7
40. Balassagyarmat
17.2
41. Rimaszombat [Rimovská Sobota]
13.67
41. Gyöngyös
16.8
42. Kıszeg
13.1
42. Sátoraljaújhely
16.0
43. Sátoraljaújhely
12.78
43. Rimaszombat [Rimovská Sobota]
15.7
44. Nagybecskerek [Zrenjanin]
12.77
44. Komárom
14.7
45. Cegléd
12.76
45. Pápa
14.2
46. Komárom
12.6
46. Kıszeg
14.0
47. Losonc [(Lučenec]
12.3
47. Gyula
13.7
48. Nagykırös
11.4
48. Rózsahegy [Ružomberok]
13.6
49. Balassagyarmat
11.2
49. Nagykároly [Carei]
13.3
50. Szekszárd
11.0
50. Losonc [(Lučenec]
13.2
51. Segesvár [Sighişoara]
11.0
51. Sopron
13.0
…
…
*Including only the first 50 provincial cities.
Source: Own calculation, using the following resources: Vargha, 1913; Thirring, 1912; Galánthai
Nagy, 1899–1917.
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
stocks were concentrated in those 175 settlements that had central financial func-
tions on the basis of their banking surplus ratio indices.14 Budapest, as a national
14 The remaining 17% of deposits were concentrated in the agricultural market towns of Great plain
with relatively high deposit volumes but without significance surplus, such as: Kecskemét, Szentes,
Jászberény, Nagykırös and Karcag.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
banking centre with the 13 regional banking centres had an above 60% banking
surplus ratio (Figure 12). This was higher than its share of deposits (48%). The fact
that Budapest with the 48 cities followed in the ranking15 concentrated about 80%
ratio of banking surplus but only 12% of the country’s total population throws re-
veals some peculiar spatial features of countries integrating with some delay to
global capitalist markets and explains their increasing regional and local level
spatial disparities. This reflects some of the characteristics of modernization in the
late comer countries, namely the enormous increase of the 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 in Hungary financial innovation and industri-
alization concentrated into fewer centres than in the Western European core re-
gions.
Figure 12
The breakdown of the 4 hierarchical groups of the Hungarian banking centres in
terms of significance surplus ratio and volume of banking deposit,
in percentage, 1910
Percentage
45
40
35
30
25
20
15
10
5
0
Budapest
Regional banking
Secondary banking
Tertiary banking
Quarternary banking
Urban settlements
centres
centres
centres
centres
without banking
functions
Significance surplus ratio
Bank deposit volumes
Source: Author’s calculation.
15 Regional and secondary banking centres together.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
4.2 Central places of the Hungarian banking network
4.2.1 The hierarchical ranking of cities by bank deposit distribution
The 175 cities with central-place banking functions were categorised into four
hierarchy levels16 (Figure 13, Table 8). On the basis of a detailed analysis of the
spatial breakdown of the major banking centres based on deposit stock distribution
− the most dynamically developing provincial cities − the regional banking centres
of modernisation were marked (Gál, 1999). It was the most dynamically develop-
ing provincial cities that were functioning as regional banking centres. They were
located at the ‘focal points’ of the most densely populated parts of Transdanubia,
West Upper Hungary (Pozsony [Bratislava], Gyır, Pécs, Székesfehérvár and
Szombathely), and were following the peripheral market lines of the Great Plain
(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 [Cluj-Napoca], 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 among their financial
importance were higher in the early 1900s than between the two World
Wars. Before opening up the reasons of 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 be stated that not only
their numbers was more but the inequalities was wider among them in the
early 20th century than in the interwar period. According to M. Hechter, who
was taking interest of 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
the explanation it is practical to observe the spatial distribution of these re-
gional bank centres.
16 Besides Budapest, the national finnacial centres, regional centres, secondary banking centres,
tertiary and quaternery banking centres were categorised. Although banks of 125 settlements with
urban functions had more than 2 million crowns aggregate bank deposit stocks but had no
significance surpluses (central-place functions) in banking and their deposit sums were lower than
it could be expected on the basis of their local population. It was typical in the agricultural market
towns of Great Plain and int he declining Upper Hungarian small towns that they were unable to
provide sufficient credit for the locals and were rather more depending on external credit resources.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Figure 13
The Hungarian urban hierarchy based on central-place banking functions in
1910
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Table 8
The hierarchical rank of the Hungarian cities on the basis of central-place
banking functions (based on bank deposit stocks calculated by per capita county
and national averages in 1909)*
Hierarchy calculated by the per
Significant
Hierarchy calculated by per capita
Significant
capita county deposit
surplus ratio
national average deposit
surplus ratio
of banking in
of banking in
1000 crowns
1000 crowns
National banking centre (1)
1. BUDAPEST
990,000
1. BUDAPEST
990,000
Regional banking centres (13)
2. Zágráb [Zagreb]
100,392
2. Zágráb [Zagreb]
103,634
3. Arad
64,164
3. Arad
65,614
4. Pozsony [Bratislava ]
48,684
4. Pozsony [Bratislava]
55,264
5. Temesvár [Timişoara]
46,000
5. Temesvár [Timişoara]
42,029
6. Nagyvárad [Oradea]
43,260
6. Nagyszeben [Sibiu]
39,805
7. Nagyszeben [Sibiu ]
36,054
7. Nagyvárad [Oradea]
38,320
8. Miskolc
30,851
8. Miskolc
28,680
9. Kolozsvár [Cluj-Napoca]
26,745
9. Debrecen
24,865
10. Székesfehérvár
21,141
10. Kolozsvár [Cluj-Napoca]
23,544
11. Debrecen
21,100
11. Fiume [Rijeka]
20,845
10. Pécs
19,457
12. Székesfehérvár
19,651
13. Gyır
18,653
13. Gyır
19,407
14. Szombathely
18,100
14. Szombathely
18,471
Secondary banking centres (35)
15. Nyitra [Nitra ]
17,736
15. Szeged
17,856
16. Szatmárnémeti [Satu Mare]
17,360
16. Túrócszentmárton [Martin]
17,100
17. Túrócszentmárton [Martin]
16,909
17. Nyitra [Nitra]
16,984
18. Besztercebánya [Banska
16,415
18. Besztercebánya [Banská
16,711
Bystrica ]
Bystrica]
19. Kassa [Košice]
15,792
19. Brassó [Braşov]
15,671
20. Újvidék [Novi Sad]
15,650
20. Esztergom
15,056
21. Nyíregyháza
15,742
21. Pécs
14,910
22. Nagykanizsa
15,425
22. Szatmárnémeti [Satu Mare]
14,813
23. Szeged
15,000
23. Újvidék [Novi Sad]
14,718
24. Esztergom
14,319
24. Nagyszombat [Trnava]
14,170
25. Szolnok
13,830
25. Nyíregyháza
13,628
26. Marosvásárhely [Târgu Mureş]
13,791
26. Nagykanizsa
13,308
27. Veszprém
13,258
27. Szolnok
13,302
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Count. Table 8
Hierarchy calculated by the per
Significant
Hierarchy calculated by per capita
Significant
capita county deposit
surplus ratio
national average deposit
surplus ratio
of banking in
of banking in
1000 crowns
1000 crowns
28. Sopron
13,157
28. Veszprém
12,980
29. Nagyszombat [Trnava]
12,867
29. Versec [Vršac]
12,449
30. Zombor [Sombor]
12,857
30. Rimaszombat [Rimovská
12,340
Sobota]
31. Rimaszombat [Rimovská
12,359
31. Zombor [Sombor]
11,814
Sobota]
32. Brassó [Braşov]
12,313
32. Kıszeg
11,517
33. Eperjes [Prešov]
12,036
33. Marosvásárhely [Târgu Mureş]
11,418
34. Kaposvár
11,956
34. Baja
11,092
35. Baja
11,848
35. Sopron
11,022
36. Versec [Vrŝac]
11,843
36. Eperjes [Prešov]
10,566
37. Kıszeg
11,419
37. Aranyosmarót [Zlaté Moravce]
10,250
38. Sátoraljaújhely
10,965
38. Pápa
9,964
39. Szabadka [Subotica]
10,776
39. Losonc [Lucenec]
9,809
40. Losonc [Lucenec]
10,754
40. Kaposvár
9,541
41. Komárom [Komarno]
10,534
41. Kismarton [Eisenstadt]
9,275
42. Eger
10,460
42. Balassagyarmat
9,118
43. Aranyosmarót [Zlaté Moravce]
10,430
43. Sátoraljaújhely
8,938
44. Pápa
10,347
44. Segesvár [Sighişoara]
8,764
45. Susak
10,149
45. Susak
8,418
46. Lugos [Lugos]
10,023
46. Eger
8,356
47. Balassagyarmat
9,907
47. Komárom
8,256
48. Nagybecskerek [Zrenjanin]
9,621
48. Szabadka [Subotica]
8,123
Tertiary banking centres (58)
49. Kismarton [Eisenstadt]
9,475
49. Szekszárd
7,929
50. Segesvár [Sighişoara]
9,213
50. Nagykároly [Carei]
7,867
51. Nagykároly [Carei]
9,048
51. Nagybecskerek [Zrenjanin]
7,757
107. …
…
…
….
Quaternary banking centres (68)
*The first 50 banking centres of 175 are included here.
Source: Own calculation, using the following resources: A Magyar Szent Korona országainak hitel-
intézetei az 1894–1909. években (ed. Vargha, Gyula). Magyar Statisztikai Közlemények (Új
évfolyam) 35. k., Budapest, Pesti Könyvnyomda Rt., 1913.; (Nagy) Magyar Compass, (ed.
Galánthai Nagy, Sándor), Budapest, 1899–1917., Pénzügyi Compass 1900–1913.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Figure 14
Hierarchical ranks of regional banking centres by asset stocks volumes
(million crows), 1910
2,968 5,262
500
450
400
350
300
250
200
150
100
50
-
r
r
st
b
n
d
r
d
y
n
l
c
r
ı
l
y
e
e
r
a
n
y
cs
e
p
r
á
b
r
a
svá
ce
r
vá
é
a
g
A
e
r
e
i
sko
zsvá
é
G
P
t
h
d
á
yvá
zso
b
h
a
u
Z
l
o
b
ysze
m
g
o
e
M
o
e
B
g
e
a
P
sf
m
a
T
D
N
K
N
ke
zo
S
zé
S
Significance surplus ratio
Bank assets volumes
Source: Edited by the author.
2) In the early 1900s a special ‘multiple-ring’ formation of urban network hav-
ing shaped up 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 the central areas of the
country at the beginning of the 20th century (Figure 13). The analysis of the
hierarchical spatial structure of cities having been organised by their finan-
cial (economic) functions shows that the network of cities on the edge of
core areas was surrounded by a ring of secondary banking centres situating
closer to the outer peripheries. The structure of the urban-financial hierarchy
was not homogenous yet but the absence of banking centres in some regions
can clearly be identified (in the core areas of the Great Plain and in periph-
eral border regions). The territorial breakdown of regional banking centres
may also be explained by the fact that modernisation was most successfully
carried out in the core areas of the Carpathian Basin that were inhabited
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
mostly by Hungarians, while the peripheries inhabited by different ethnic
minorities − provided with poorer conditions for agricultural farming. In
these peripheries lower number of cities with worse living conditions was
located, and the social and cultural level of their population (e.g. literacy)
was below the core areas’ level.
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 develop-
ment paths. It was also proved that regional disparities within the country
were only partial explanatory factors and cities’ ranking on the leading cities
of the hierarchy were in many cases sharp contrast with their regional envi-
ronments (hinterlands). Thus, in several cases the development level of cities
was not on the same level with their region. Our statistical data may demon-
strate a more general conclusion that the spatial inequalities are increasing
from the core towards the peripheral regions, hence the bigger cities, as the
centres of banking, other services, manufacturing and administration, be-
came more sharply detached from their hinterland in the peripheral regions.
The cities positioned in 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 develop-
mental dynamic in the once peripheral Eastern-South Eastern regions of the
country in contrast to the Transdanubian markets which were considered to
be traditionally more advanced. This resulted such a paradoxical situation
that Transdanubian cities − although were far from being underdeveloped −
produced lower development dynamics than cities located in the less fa-
voured easternmost areas.17 Hence, it is not surprising that from the 10 larg-
est bank centres with the biggest sum-stock of assets and deposits 8 were lo-
cated in the eastern regions (Figure 15–16). In these regions a contiguous
urban belt, coincided with the traditional market-line, was extended from
Szatmár [Satu Mare] through Debrecen, Nagyvárad [Oradea], Arad and Te-
mesvár [Timişoara] to Versec [Vršac]. Economic and urban growth was also
the most dynamic alongside the market-line forming an economically pros-
pering East Hungarian innovation zone sharply separating from its more un-
derdeveloped hinterland. Once a peripheral eastern regions produced an in-
novation and entrepreneurial friendly environment alongside this market-
line and generating dynamic urban development in their hinterlands. The
most advanced regional banking centres were located partly in the eastern
17 In most cases intra-regional disparities were stronger than the overall difference between east and
west Hungarian regions. This was further increased by the site selection of banking capital as large
banks preferred opening new offices in economically prospering large cities.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
regions, partly in the West-Hungarian innovation triangle (Pozsony
[Bratislava], Gyır, 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 aver-
age deposits − our hierarchy− with the quantitative indices of banking functions
(asset & deposit stocks). In our first case a ranking by bank deposits 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 hierar-
chical rank make possible to compare these indicators. Relative rankings among
the leading provincial towns changed considerably (Figure 15–16). The regional
centres of the Eastern market-line, largely due to their deposits and assets concen-
tration and distinguishable hierarchical ranks, became economic counter-poles of
Budapest, while some traditional centres were declined or loosed their leading po-
sitions by the early 1900s (in Upper Hungary [Kassa/Košice], Transdanubia [Pécs,
Nagykanizsa, Gyır, Sopron]) (Gál, 2002).
The regional bank centres of our hierarchy (based on deposit distribution) can
be found among the first twenty cities ranked on the basis of assets, so in the upper
level usually strong correlation appeared between the quantitative and qualitative
ranks. There is strong correlation between the volume of bank deposits and the
significant surplus ratio on the top levels of the hierarchy (Figure 15, Table 6–7).
Thus − with the exception of a few cases − the volume of bank deposits is also an
indicator of the city’s hierarchical position. Consequently all regional financial
centres are among the top 16 cities with the largest deposits.
In the comparison of regional banking centres from this aspect − despite its
large deposit stocks in banks − the lower, 11th position of Debrecen seems to be
surprising. This statement is also valid for Szeged and Szabadka [Subotica] in the
category of innovation centres but Kassa’s [Košice] and Brassó’s [Braşov] low
regional banking surplus ratios compared to their deposit volumes are also unusual.
At the same time the comparison of Szeged’s and Brassó’s [Braşov] indices with
the national average will eliminate these extreme values. It can also be found that
the cities in the core of the Great Plain usually occupy a better position on the basis
of absolute banking stocks, than in the hierarchical rank. The deviation between the
quantitative ranks and the hierarchies can be noticed not only in the case of the
Great Plain cities, but in the case of cities which fulfil special functions (e.g. Fiume
[Rijeka] (Gál, 1999, 2000a).
Without going into a detailed analysis of the reasons it should be cleared that
due to their earlier geographical location, the above-mentioned three cities (Debre-
cen, Szeged, Szabadka [Subotica]) had lower banking-innovation potentials than it
could have been expected on the basis of their local banking deposits.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Figure 15
Concentration of bank deposit stocks in the Hungarian cities, 1909
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Figure 16
Concentration of banking assets in the Hungarian cities, 1910
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
This may be explained by their geographical position, smaller and more frag-
mented gravity zone with the scarcely populated scattered farms and high number
of inner city population. The low position of the two latter cities (Szeged, Brassó
[Braşov]) resulted from the dynamic development of other cities performing in-
dustrial and commercial banking functions and from their sharpening competition
between the two traditional rivalling cities (Miskolc and Nagyszeben [Sibiu]). The
lower levels of hierarchy show more or less even distribution regarding quantita-
tive 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 the financial role of cities. As a connection with this phenomenon it
should be noted that all the 49 cities with the largest bank deposits are listed in
Level I or Level II of our hierarchy. At the same time some Upper Hungarian small
towns and some other cities on the inner ring of the Great Plain18 show some decli-
nations from the normal trend as their hierarchical positions are lower than would
be expected from the volume of their bank deposits. The cities on the Great Plain
having no important financial functions in our hierarchy (e.g. Kecskemét, Hódme-
zıvásárhely, Cegléd and Nagykırös), although on the basis of their bank deposits
were positioned on the medium part of our hierarchy (36th, 38th, 45th and 48th posi-
tions). From quantitative aspects they were ranked higher than were in the hierar-
chical order of cities, even Hódmezıvásárhely, having the highest position of them,
was only the 166th in the financial hierarchy. At the same time these comparisons
also point out that considering pure bank balance data urban financial institutions
of the inner ring of the Great Plain had relatively large amounts of capital assets.
The relative weakness of banking functions are originating 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 bank-
ing demands of large local population (entrepreneurs).
4.2.2 Hierarchical ranking of cities by assets distribution
Besides the urban hierarchy calculated on the basis of bank deposits cities were
ordered into a hierarchical ranking by banking assets. The SPSS cluster program
used for computing banking assets surplus ratio calculated not only by the variables
of provincial service ratio (the ratio of banking service performing central-place
function and this fraction of total turnover supplies only for the centre’s hinterland)
but also involved settlement size and the per capita assets volumes into its calcula-
tions. This is the reason why this ranking is slightly differing from the ranking pre-
pared on the basis of banking surplus ratio (Table 9).
18 Certain parts of Pest-Pilis-Solt-Kiskun and Szabolcs counties and the territory of Csongrád,
Csanád, Békés, Jász-Nagykun-Szolnok and Hajdú counties
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Table 9
The hierarchy of the Hungarian cities on the basis of central-place banking
functions by asset stocks, a cluster analysis, 1909
Ranks of the cities by asset
Crown
Ranks of the cities by central-
Crown
stocks
place banking functions of
significant surplus ratio *
BUDAPEST
2,548,796,000 BUDAPEST
2,968,230,077
1. Zágráb [Zagreb]
296,000,000 1. Zágráb [Zagreb]**
277,277,000
2. Nagyszeben [Sibiu ]
217,500,000 2. Nagyszeben [Sibiu]
209,563,107
3. Arad
131,000,000 3. Arad
116,029,658
4. Temesvár [Timişoara]
126,000,000 4. Temesvár [Timişoara]
108,804,465
5. Debrecen
111,000,000 5. Debrecen
89,023,227
6. Pozsony [Bratislava ]
86,480,000 7. Nagyvárad [Oradea]
68,691,947
7. Nagyvárad [Oradea]
83,900,000 6. Pozsony [Bratislava]
67,941,149
8. Szeged
70,500,000 10. Fiume [Rijeka]
49,695,978
9. Szabadka [Subotica]
67,700,000 11. Miskolc
57,304,217
10. Fiume [Rijeka]
61,500,000
9. Szabadka [Subotica]**
45,277,430
11. Miskolc
59,500,000 12. Kolozsvár [Cluj-Napoca]
43,088,504
12. Kolozsvár [Cluj-Napoca]
57,500,000
8. Szeged
42,456,264
13. Brassó [Braşov]
43,800,000 13. Brassó [Braşov]
34,069,728
14. Gyır
43,400,000 13. Gyır
32,900,900
15. Székesfehérvár
41,500,000 15. Székesfehérvár
32,819,875
16. Kassa [Košice]
40,600,000 18. Nyíregyháza
30,883,101
17. Pécs
38,800,000 19. Kassa [Košice]
30,121,993
18. Nyíregyháza
37,170,000 19. Szolnok
29,847,614
19. Szolnok
36,668,000 20. Szatmárnémeti [Satu Mare]
27,230,596
20. Szatmárnémeti [Satu Mare]
35,500,000 17. Pécs
26,950,000
21. Szombathely
32,330,000 21. Szombathely
24,995,561
22. Újvidék [Novi Sad]
30,150,000 26. Kisvárda
24,525,497
23. Marosvásárhely [Târgu
28,000,000 1. Túrócszentmárton [Martin]
23,025,219
Mureş]
24. Kecskemét
27,900,000 23. Marosvásárhely [Târgu
22,376,464
Mureş]
25. Nagykanizsa
27,770,000 22. Újvidék [Novi Sad]
22,189,170
26. Kisvárda
26,900,000 25. Nagykanizsa
21,483,101
27. Zombor [Sombor]
26,600,000 29. Nyitra [Nitra]
21,322,687
28. Orosháza
25,430,000 33. Besztercebánya [Banská
20,746,088
Bystrica]
29. Nyitra [Nitra]
25,150,000 28. Orosháza
20,153,432
30. Nagybecskerek [Zrenjanin]
24,600,000 34. Susak
20,008,282
31. Túrócszentmárton [Martin]
24,000,000 27. Zombor [Sombor]
19,349,459
32. Versec [Vrsac]
23,400,000 36. Esztergom
18,562,203
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Count. Table 9
Ranks of the cities by asset
Crown
Ranks of the cities by central-
Crown
stocks
place banking functions of
significant surplus ratio
33. Besztercebánya [Banská
23,300,000 30. Nagybecskerek [Zrenjanin]
18,438,000
Bystrica]
34. Susak
23,140,000 35. Baja
18,115,890
35. Baja
23,100,000 37. Lugos [Lugoj]
17,963,134
36. Esztergom
22,800,000 32. Versec [Vrsac]
16,913,310
37. Lugos [Lugoj]
22,600,000 41. Veszprém
16,864,296
38. Cegléd
21,620,000 42. Nagyszombat [Trrnava]
16,704,947
39. Hódmezıvásárhely
21,450,000 48. Medgyes [Mediaş]
15,455,638
40. Kaposvár
20,460,000 53. Aranyosmarót [Zlaté
15,435,201
Moravce]
41. Veszprém
20,370,000 45. Balassagyarmat
15,379,781
42. Nagyszombat [Trnava]
20,300,000 46. Segesvár [Sighişoara]
15,013,881
43. Eger
19,900,000 52. Rimaszombat [Rimovská
14,861,856
Sobota]
44. Gyöngyös
18,640,000 40. Kaposvár
14,742,612
45. Balassagyarmat
17,960,000 49. Kalocsa
14,483,994
46. Segesvár [Sighişoara]
17,760,000 44. Gyöngyös
14,299,582
47. Eperjes [Prešov]
17,750,000 47. Eperjes [Prešov]
13,881,449
48. Medgyes [Mediaş]
17,500,000 38. Cegléd
13,569,584
49. Kalocsa
17,100,000 43. Eger
13,251,676
50. Sátoraljaújhely
16,750,000 62. Kıszeg
12,663,749
51. Pancsova [Pancevo]
16,600,000 58. Losonc [Lucenec]
12,193,457
52. Rimaszombat [Rimovská
16,500,000 24. Kecskemét
12,060,342
Sobota]
53. Aranyosmarót [Zlaté
16,200,000 50. Sátoraljaújhely
12,024,220
Moravce]
54. Eszék [Osijek]
16,150,000 61. Rózsahegy [Ružomberok]
11,776,987
55. Komárom
16,050,000 51. Pancsova [Pancevo]
11,668,504
56. Gyula
16,020,000 68. Oravicabánya
11,293,277
57. Pápa
15,430,000 59. Nagykároly [Carei]
11,049,514
58. Losonc [Lucenec]
15,260,000 72. Kismarton [Eisenstadt]
10,771,699
59. Nagykároly [Carei]
14,860,000 55. Komárom
10,756,131
60. Szarvas
14,800,000 57. Pápa
10,654,450
61. Rózsahegy [Ružomberok]
14,680,000 75. Szászváros [Orastie]
10,436,736
62. Kıszeg
14,660,000 64. Szekszárd
10,297,561
63. Nagykırös
14,250,000 56. Gyula
10,264,692
64. Szekszárd
13,840,000 76. Szentgotthárd
10,258,112
65. Sopron
13,500,000 67. Munkács [Mukačevo]
9,145,825
66. Kiskunfélegyháza
13,400,000 79. Trencsén [Trenčin]
8,990,215
67. Munkács [Mukačevo]
13,240,000 77. Kunszentmiklós
8,897,923
68. Oravicabánya
12,260,000 71. Beszterce [BistriŃa]
8,813,068
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Count. Table 9
Ranks of the cities by asset
Crown
Ranks of the cities by central-
Crown
stocks
place banking functions of
significant surplus ratio
69. Ungvár [Užgorod]
12,150,000
54. Eszék [Osijek]
8,711,044
70. Békéscsaba
12,100,000
73. Dés [Dej]
8,685,876
71. Beszterce [BistriŃa]
11,950,000
60. Szarvas
8,666,677
72. Kismarton [Eisenstadt]
11,500,000
84. Lıcse [Levoča]
8,505,864
73. Dés [Dej]
11,400,000
69. Ungvár [Užgorod]
8,140,197
74. Óbecse [Stari Beĉej]
11,350,000
82. Léva [Levice]
8,027,025
75. Szászváros [Orastie]
11,070,000
80. Zsombolya [Jimbolia]
7,898,359
76. Szentgotthárd
10,880,000
78. Varasd [Varaždin]
7,684,674
77. Kunszentmiklós
10,870,000
63. Nagykırös
7,477,725
78. Varasd [Varaždin]
10,860,000
81. Beregszász [Beregovo]
7,374,879
79. Trencsén [Trenčin]
10,840,000 101. Rozsnyó [Rožňava]
7,286,465
80. Zsombolya [Jimbolia]
10,480,000
86. Fehértemplom [Bela Crkva]
7,248,812
81. Beregszász [Beregovo]
10,440,000
91. Bród [Slavonski Brod]
7,032,600
82. Léva [Levice]
10,320,000
93. Zsolna [Žilina]
7,004,577
83. Érsekújvár [Nové Zámky]
10,300,000
88. Topolya [Bačka Topola]
6,904,373
84. Lıcse [Levoča]
10,290,000 104. Keszthely
6,817,951
85. Szentes
10,100,000
74. Óbecse [Stari Bečej],
6,758,836
86. Fehértemplom [Bela Crkva]
9,980,000
39. Hódmezıvásárhely
6,650,535
87. Vác
9,920,000
83. Érsekújvár [Nové Zámky]
6,453,964
88. Topolya [Bačka Topola]
9,860,000
90. Torda [Turda]
6,431,165
89. Karcag
9,660,000
95. Zalaegerszeg
6,389,972
90. Torda [Turda]
9,620,000 102. Vukovár [Vukovar]
6,344,917
91. Bród [Slavonski Brod]
9,450,000
92. Soroksár
6,277,235
92. Soroksár
9,440,000
97. Dunaföldvár
6,035,381
93. Zsolna [Žilina]
9,180,000
65. Sopron
5,458,116
94. Jászberény
9,000,000
87. Vác
5,428,375
95. Zalaegerszeg
8,960,000
99. Selmec, Bélabánya [Banská
5,261,155
Belá]
96. Hajdúböszörmény
8,930,000
66. Kiskunfélegyháza
5,123,012
97. Dunaföldvár
8,900,000 105. Károlyváros [Karlovac]
4,721,456
98. Mezıtúr
8,900,000
89. Karcag
4,209,948
99. Selmec, Bélabánya [Banská
8,860,000 100. Máramarossziget [Sighetu
3,794,310
Belá]
MarmaŃiei]
100. Máramarossziget [Sighetu
8,859,000
98. Mezıtúr
2,777,105
MarmaŃiei]
101. Rozsnyó
8,840,000 103. Nagykikinda [Kikinda]
2,409,585
102. Vukovár [Vukovar]
8,800,000
96. Hajdúböszörmény
2,256,317
103. Nagykikinda [Kikinda]
8,760,000
70. Békéscsaba
2,004,037
104. Keszthely4
8,590,000
94. Jászberény
1,967,025
105. Károlyváros [Karlovac]
8,540,000
85. Szentes
1,664,459
* 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: Own calculation on the basis of the volumes of Hungarian Statistical Bulletin by means of
SPSS.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
The sequence of the top 16 provincial cities on the hierarchy based on assets is
more or less matching with the hierarchy of cities ranked by bank deposits but
some cities’ positions have changed within this group. Budapest standing 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: Nagy-
várad [Oradea], Pozsony [Bratislava], Debrecen, Miskolc, and Kolozsvár [Cluj-
Napoca]. With the exception of Debrecen all these centres moved to a better
position by 2–3 ranks higher than their absolute assets indices. This shows that
these cities were important financial centres and had extensive gravity zones.
However Debrecen standing on the 5th position on the ranking of absolute volume
of assets − due to its smaller gravity zone and large concentration of population −
was only the 7th city on the hierarchy of financial 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, Szatmárnémeti [Satu Mare], Szeged, Gyır, 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, Gyır, Szabadka [Subotica], Újvidék [Novi Sad]
and especially Brassó [Braşov] were better than their hierarchical positions, while
the banking function rankings of the rest of cities were by 5–6 positions above their
banking assets ranking.
The geographical distribution of regional centres has changed to some extent.
Compared to the hierarchical ranking of cities on deposit volume − due to the lar-
ger concentration of banking assets − the over-representation of East Hungarian
centres may be observed (Figure 16). It seems that several cities situated along the
market-line of East Hungary are members of the group of regional financial centres
but major cities from the group of Transdanubian and West Hungarian centres
(Szombathely, Gyır and Pécs) left the upper level of financial hierarchy measured
by assets allocation. With the exception of Pécs the other two Transdanubian cities’
(Gyır, Székesfehérvár) positions were worse on the assets based hierarchy than on
deposits based ranking.19
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 assets side by the activities
19 Secondary financial centres were as follows: Szolnok, Kassa, Szombathely, Kisvárda, Marosvásár-
hely, Nagybecskerek, Nagykanizsa, Nyitra, Túrócszentmárton, Brassó, Susak, Besztercebánya,
Lugos, Újvidék, Orosháza, Esztergom, Zombor, Baja etc.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
of several banking lines. They are bill portfolio, the items of checking account
credit, mortgages, municipal credits, loans and interbank credit disposed at other
financial institutions and real estate properties. Due to the variety of assets and the
different ratio of components differing by cities and regions we cannot provide a
detailed precise analysis of the settlements’ role 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 list there was some correlation between the quantitative and qualita-
tive values. However, there is a need to give some kind of explanation regarding to
the deviations of the above shown ranking. On the ranking list of the bank assets in
year 1909 Budapest and Zagreb were followed by Nagyszeben [Sibiu]. This is even
if we consider the city’s special economic role (capital city of Croatian semi-
autonomous territory) in that period, is peculiar phenomena (Thirring, 1912).
Nagyszeben [Sibiu-Hermanstadt] succeeded Budapest and Zagreb − considering
the volume of the banking assets − which is an unusual anomaly in the light of the
city’s economic importance. The significant part of its assets items concentrated in
traditional German minority led banks of Nagyszeben was constituted by the huge
goods & chattels and funds – accumulated in debentures (mortgaged for estate
properties), which were less liquid and scarcely fulfil the demand of the 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 doing not too much for facilitating mod-
ern commercial banking activities. They were rather serving for 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]1, situated in 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 of 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 deposit surplus ratio This is explained by the extremely high ratio
of risky mortgage portfolios − lent primarily for the agricultural sector − serving
agrarian interest that can not be regarded the most prudential service activities.
This was not useful for commercial-industrial investments the most secure banking
business sector 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 pro-
vincial cities in year 1910. However, the increasing volume of banking assets in the
1910s was a real indicator of the dynamic economic development of secondary
banking centres in Southern Hungary. (Between 1900 and 1910 they moved for-
ward from the 17th–19th positions to the 9th–10th position in the ranking of banking
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
assets. However Temesvár [Timişoara] and Arad were still their strong competi-
tors).
Some disharmony between the absolute and hierarchical rankings can be ob-
served at some cities in the Great Plain but it also occurred to some cities per-
forming special economic functions. Fiume [Rijeka], as Hungary’s only seaport
city, was a very important economic financial centre − at least from quantitative
aspects but as due to geographical and public law reasons − it was not an organic
part of Hungary’s, surrounded by Croatian territory, core regions and even was not
surrounded by a hinterland, it always had better positions in county-level rankings
than on regional-level ones.
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 banking assets Szeged
and Szabadka, the 9th–10th cities on the ranking were in many aspects different
from the core area’s cities of the Great Plain. Among the cities of minor hierarchi-
cal importance Kecskemét was on the 25th, Hódmezıvásárhely was on the 35th,
Cegléd was on the 36th position on the ranking of cities by banking assets. Thus,
the value of absolute indices − showing that these cities were not standing on the
top of urban hierarchy − were unable to counterbalance their relatively minor fi-
nancial importance from the point of both population number and the demands of
local economy. At the same time it is also evident that all the above-mentioned
cities, concerning the quantitative development of financial services, maintain bet-
ter positions than on urban hierarchy. Our findings are closely correlating with Pál
Beluszky’s view stating: ‘such discrepancies were usual for the agricultural mar-
ket towns of the Great Plain ‘capable for development even under the new circum-
stances’ (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 banking busi-
ness, 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 li-
abilities is a better indicator of a bank’s performance. It would be more suitable to
carry out a bill portfolio surplus ratio analysis, as on assets side the importance of
billing business sector from the point of liquidity was equally important with sav-
ings business on the liabilities side. This form of credit was available for all kinds
of businesses required short-term credit 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 of the billing portfolio. On the other hand, 70% of
billing credit transactions were realised in provincial credit institutions and this
figure is another indicator of the banking centre functions of provincial cities
(Szász, 1992).
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
Nearly one-third of banking transactions were mortgage loans. A part of them
were home loan mortgages, thus this sector was financing not only agricultural
credits. 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 into agriculture but the type of mortgage
had always greater importance than its amount. The charging of land properties by
short-term loans (it was quite a usual case) generally was not promoting the mod-
ernisation of land as mortgages were used rather for land purchase or debt repay-
ment (Vargha, 1913). Credit accommodation for the masses of farmers was not
solved even in the 1890s. Even if some efforts were made for the elimination of
emerging moneylender’s usury (by founding landowners’ credit unions) the tradi-
tional agro business strategies were insufficient for increasing public trust in local
credit institutions in agrarian finance. The sums of mortgage credits were the high-
est in Central Hungary, Transdanubia and the Banat and the lowest were in Croatia,
Transylvania and Upper Hungary. This distribution of mortgages was in close cor-
relation of the development level of agriculture. The sums of mortgage credits were
generally high in the cities of agricultural regions (Székesfehérvár, Szeged, Sza-
badka [Subotica], Arad, Baja, Hódmezıvásárhely etc.) while the distribution of
household mortgages among cities was more evenly distributed.
Home mortgage sums were the highest in Budapest, Nagyszeben [Sibiu],
Pozsony [Bratislava], Sopron, Gyır, Nagyvárad [Oradea], Brassó [Braşov], and
Kolozsvár [Cluj-Napoca]. All these cities were well-prospering even under the
changed circumstances.
As Lajos Rúzsás is pointing 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 the speed of local
population growth generates accelerated economic development and this will natu-
rally generate a further growth of population. If the pace of capital accumulation is
quicker than the growth of the city’s population and the line on the chart rises
above the number of local population the city’s economic development will accel-
erate. Analysing changes in the volume of bank balances (e.g. assets) in some cities
between 1883–1925 it seems that he expansion of banking services in prospering
cities was continuous, reaching its peak in year 1913. After the lost World War I
and the border changes of Trianon the dynamics of this development gradually
slowed down and the volume of the capital assets of financial institutions in several
places went below the level of 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
urban hierarchy with the exception of a few cases only, the cities’ absolute (stock
distribution) and relative financial importance (central-place functions) strongly
correlated in the early 20th century.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
5 Outlook
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 because despite
some delay, already at the turn of the 19/20th century, the Hungarian banking sys-
tem was well developed in comparison to international standards. Hungary’s finan-
cial sector after 40 years of discontinuity during the Communism was reintegrated
into the world‘s financial system and entered the stage of “trans-national” and
“securitised” financial world. Were someone to compare the state of contemporary
banking system with the banking of the early 20th century, one can find many
similarities between them. Both were created following a political change of re-
gime (1867: Austro-Hungarian Union; 1990: the fall of the Communism) and coin-
cided with the early stages of modernisation that were characterised by an original
accumulation of capital, by an early foundation of credit institutions, by a mass
inflow of foreign capital (although its share was much smaller in 1910), by the
foundation of joint-venture banks and by bankruptcies that demanded new legisla-
tion on banks and the creation of the public supervision of banking in both eras.
The predominant position of Budapest in the money market and in banking is even
more predominant as it was 100 years ago (Gál, 2000, 2001). Although local unit
banks and regional centres were important territorial elements of the financial
space in the late 19th early 20th century Hungary, when banks closely connected to
regional economic structures, their significance is much less clear in the era of
globalisation. A common characteristic regarding the spatial organisation of the
Hungarian banking system before and after the political transformation in 1990 has
been an extremely high centralisation of headquarters functions in the capital city.
The spatial structure of the contemporary banking system is more centralised com-
pared to the network which existed at the turn of the 19/20th century. At that time
the number of independent unit banks scattered throughout the countryside were
dominant within the banking network. Consequently there were proportionally
much less branches before World War I, and only 5.7% of the banking institutions
were concentrated in Budapest.
Gál, Zoltán : The Banking Functions of the Hungarian Urban Network in the Early 20th Century.
Pécs : Centre for Regional Studies, 2006. 69. p.
Discussion Papers, No.55.
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No. 53
FEKETE, G. Éva – HARGITAI, Judit – JÁSZ, Krisztina – SZARVÁK, Tibor –
SZOBOSZLAI, Zsolt: Idealistic Vision or Reality? Life-long learning among
Romany ethnic groups
No. 54
BARTA, Györgyi (ed.) (2006): Hungary – the New Border of the European
Union