The Reorganization of the Banking System in Hungary

Abstract

The Hungarian banking system developed from the first third of the nineteenth century along the continental path, leading to the predominance of universal banks, the department stores of finance. This system of a large number of small banks with numerous branches, a sizable part of them at county and town levels, was controlled by a handful of big banks that were tightly intertwined with large foreign banks. This situation created many well-trained and broadly-skilled bank officers because, especially in the provincial banks and in branches with a limited staff, the bank employees had to be "jacks of all trades," mastering all banking and stock exchange operations. Due to the fact that the Association of Banking Employees, a trade-union-like organization, had a strong left-wing audience which had considerable influence among bankers, the higher echelons of banking staffs consisted largely of pro-Allies liberals who had not been associated with Nazism. Thus, to a considerable extent, the new regime was able to draw its banking cadres from professionally well-trained, and politically loyal or neutral people. From 1949 on, even after the filling of the controlling posts with cadres of the labor movement, the lion's share of the former banking staff remained in lower posts as deputies of the new upper-level managerial staff, or in influential advisory jobs. Thus, the correctness and the professionality of banking operations, accounting, calculation, compilation of balance sheets, correspondence, both domestic and foreign, has been maintained at very high standards. Nevertheless, by having eliminated former top-level managers to a large extent, there was and is a scarcity of bankers who are specialists in allocating loans so as to optimize the safety and profitability of a portfolio. This lack was not obvious until the present decentralization because, even after the reform of the economic mechanism in 1968, the autonomy of the banks continued to be severely curtailed. There is a justified hope that Hungary can fill this gap since, from 1951 on, there has been university training for banking, and