4

THE COMMAND AND GENERAL STAFF COLLEGE

LIBRARY

Call Number

940.5337 U____56c v.2

67793
FL Form 887 (Rev) 22 Oct 52 USACGSC-P2-4277-15 June 62-5M

ARMY SERVICE FORCES MANUAL

_ Ila ~.. -- a. -----

iJri
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Gil

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vJCIVIL AFFAIRS HANDBOOK

AUSTRIA
SECTION 5;MONEY AND BANKING
iC -I -I---"----------

C 0N LASS
Dissemination of restricted matter. - The information contained in restricted documents and the essential characteristics of restricted material may be given to any person known to be in the service of the United States and to persons of undoubted loyalty and discretion who are cooperating in Government work, but will not be communicated to the public or to the press (See also par. 18b., except by authorized military public relations agencies. AR 380-5, 28 Sep 19412.)

HEADQUARTERS, ARMY SERVICE FORCES,29 NOVEMBER 1943

AUSTRIA

M 360-5 M 360-7 N 360-8 M 360-9 M 360-12

29 Nov 1943 June 1945 7 Jul 1945 22 Jan 1944 17 Feb 1945

Section 5: Money and Banking Section 7: Agriculture and Food Section 8:; Industry and Commerce Section 9: Labor Section 12: Communications

ARMY SERVICE FORCES MANUAL

M 360-5
Civil Affairs

CIVIL AFFAIRS HANDBOOK

AUSTRIA
SECTION5;MONEY ANDBANKING

*-

*-~p

=_~

LII

II

HEADQUARTERS, ARMY SERVICE FORCES,29 NOVEMBER 1943

UNCLASSIFIED
.
tained in material States in may to be

. Dissemination
documents to of any given

of

restricted
the known to and

matter.
be in

The

information
of of the

con-

restricted

and

essential

characteristics the service who

restricted United

person

and

persons work,

undoubted not be

loyalty

discretion to the

are or

cooperating to the par. press 18b,

Government by

but

will

communicated relations

public (See

except AR

authorized 28 Sep

military

public

agencies.

also

380-5,

1942.)

NUMBERING

SYSTEM OF

ARMY

SERVICE

FORCES

MANUALS

The

main

subject matter numbering

of

each Army Service the following

Forces

Manuals

is

indicated

by consecutive

within

categories:

M1

M99 M199

Basic Army

and Advanced Specialized

Training Program and Pre-

M100 M200 M300 M400 M500 M600 -

Training

Induction M299 M399 M499 M599 M699 M799 M899 up Personnel and

Training Morale

Civil Affairs Supply Fiscal Procurement and Administration Miscellaneous Equipment, Materiel, Housing and Construction Production and Transportation

M700 M800 M900

**
HEADQUARTERS, Washington 25, D. ARMY SERVICE FORCES,

C. November 29, 1943.

Army

Service

Forces Manual M

360-5,

Civil Affairs

Handbook

Austria

Section 5,

Money

and Banking,

has

been

prepared under

the

supervision

of

The

Provost

Marshal

General,

and

is

published

for

the

information

and

guidance

of

all

concerned.

[SPX By command

720 of

( 23

Sep

43) Generel SOMERVELL

Lieutenant

W. Major General,

D.

STYER, Staff Corps,

General

Chief of

Staff.

OFFICIAL: J. A. ULIO, General, General.

Major

Adjutant

24-59475ABCD

RDIASTFI[ UT

* Ppose of the Civil Axffai.rs Hand cook. The basic purposes of civil affairs officers are (1) to assist the Commanding General by quickly establishing those orderly conditions which will contribute most effectively to the conduct of military operations, (2) to reduce to a minimum the human suffering and the material damage resulting from a disorder and (3) to create the conditions which will make it possible for civilian agencies to function effectively. The preparation of Civil Affairs Handbooks is a.part of the effort to carry out these responsib.ilities as efficiently and humanely as possible. The Handbooks do. not deal with/plans or policies (wl ich will depend upon changing and 'unpredictable developments). It should be clearly understood that they do not imJplany They, are rath er ready reference ranM o.f actig. iven. official source books containing the basic factual information needed for planning and policy making, This section on Money and Panking in Austria was prepared

by the BOARP; OF GOTVEItNOS of, the

E.IET'AL RE2TSItVE SYSTEM for the

M. tary Government Division of The Office of the' Provost Marshal ili General. OFFICERS USING TI IS MATERIAL AiE R QUES TED TO LAKE SUGGESTIONS AND CITICISISS INDICATING TIE REVISIONS OR ADDITIOINS WHICH WOULD MAKE THIS MATERIAL IMORE USEFUL FOR THEIR PURPOSES. THESE CRITICISILS SOULD PE SENT TO THE OFFICE OF LT. COL. JAMES H.

SHOEMAKEIP.
DIVISION,

CHIEF OF THE LIAISON AND STUDIES SECTION, MILITARY GOVER r'ENT

P. M. G. 0., 2807
LMU1ITIONS BUILTING,

WAjSHINGTON 25,

D. C.

NCL ASS IF
C
VIL

AFFA

IS

A NANDE 00 I

T 0 P

C AL

NE

1. 2, 3. 4. 5. 6. 7. 8. 9. 10.
11

Geog:aphical and Social Background Government and Administ-ration Legal Affairs Government Finance iIoney an
a -Pl pnrj

Natural Resources Agriculture Industtry an. Cor:rerce Labor Public Works and Utilities Transportation Systems Co1Tmunications 'Public Health and Sanitation Public Safety Education Public WJelfare Cultural Institutio

12, 13,

14.
15. 16. 17

*This preliminary sturdy on IMoneyr uncl FEDERAL TPESERVE BANK OF NtI;YORK.

aTnking in Austria i as prepared

by the BOART OF GO;,N"DOiS of the UISiF.AL RESER'E SYSTEM

and the

UCLASt FI

TABLE OF CONTENTS Page SUi AY A. BACKGROUND I FORIMTION 1

The Period Preceding _he First World War Currency - Austro-Hungarian Bank - Commnercial banks Currency and Central- Banking: 191431 .

Inflation - Stabilization - Austrian National Bank Comimer-cil Banking, 191431 6

Effects of the peace treaties and the inflation Contraction of banking apparatus Crisis of 1924 Credit and inves-tment policy/ - Disappearance of Boden-Credit-Anstalt

Currency and Cen tral Bankin

931.-3

Collapse of Crecd-it-Anstalt - Foreign bank debts Exchange restrictions-- Devaluation and restabilization Changes in central banking policy
. CommercialJankin

1931 -38

12

Reorganization of Credit-Anstalt - Reorganization of Bank-!Verein and Escomote-Gesellschaft - Other banks Effects of banking crash upon economic and political d.evelopment B,. Gen erall TE MONESY AND CBEDITSYSTgg IN 197-3 3 16

semarks Types and functions of financial institutions - Importance of Government and National Bank - .Banking and industry Currency and credit policy - Organization of banking

CurrencV Subsidiary coins - Note circulation Purchasing power

20

Cen trl

Rank
Austrian National Bank: Capital - Organization - Members of General Council- Managers - Note issue - Relation to Foreign exchange - Credit and investments Goverment - ;ndustriekredit A.G. Assets and liabilities

22

ii

*-

Page

Commercial

anking
Organization - Relation between bank and customer -

28

"Current account" system -Interlocking directorates Combination of commercial and investment banking - Savings accounts - Interest rates Greditans tal t Bankve rein
"Board of Directors - Management, anking and industrial

31

participations - Capital - ASsets and liabilities Revenue and expenditures Other Coimercial Banks Zentral-.Europ.ische Landerbank banks - Kontrollbank Savins Banks Development r Assets and liabilities - Zentralsparkasse
der Gemeinde Wien - Erste Osterretchische SparTCasse -

35 ' Mercurbank - Other foreign

credit insttutions - Small Vienna banks - Provincial

Giro-und Cassen-Verein 38

Postal Savings System - Giro-Vereinigimg

Private an ng n'unctiqns - Major fimns Mortgage Banks 43 42

Functions: mortgage and municipal loan bonds - Organization Importance of Land Register - Housing bonds - Gold clause
Interest rates - State owned mortgage banks -Mortgage Bank of Lower Austria - Credit-Institut fir Offentliche Unterneihnungen - Industrial bonds
Aricultural Credit 47
-

Agricultural indebtedness - Relief measures Other Financial Institutions

Cooperatives 50

Urban credit cooperatives - Building and loan associations Dorotheum - Pavmbrokers

Stock Exchange 52

Development - Transactions
Government control ,r Brokers

OQrganization - Management

Insurance

i -

Page 55 ,

T1ypes of Development- Collapse of "phoenix".institutions - Life insurance - Property insurance Government control - Austrian Assets and liabilities InsuranceCorporation - 'Anker" - Other major companies Mutual companies- P-ublc.-institu.-i.s - Foreign companies Social insurance List of Important Protvincial Savings Banks List of Major Urban Credit Cooperatives C. 1. S DEVELOPMEN TS SI T 63
00

E GE}IAN

I1VASI.ON

The Impact of Invasion

CuIrrency and Exchange Effects upon Austrian economyIntroduction of Reichsmark, Abolition of gold clause - Effects upon German foreign exchange position
Central Banking 70

Dissolution of Austrian National Bank - Reichsbank organization in Austria - Org nization of banking Comnmgercial Banking - General Effects of change in Government - Anti-Jewish measures Introduction for Austrian banks tAryanization" -Advantages of German law Creditanstalt-Bankverein Changes in share ownership - Changes in participations Assets and liabilities in 1938-39 - Changes in management and personnel L~nderbank Wien Organization - Assets and liabilities in 1939 - Management Other Comnercial anks79 77 74 71

Hypothekar-und Credit-Institut - Provincial banks - Giro-und Cassen-Verein -Kontrollbank - Branches of German banks

Savings Jtitution.s
Postal Savings System Savings banks - Girozentrale

82

iv

Page Private Banking Expansiqn gf prq -azi fixms Mortage Banks Changes in organization - Contraction of business - Mortgage ank for Lower Austria .gricultural Credit 86 firms = Disappearance of Jewish 85 84

Introduction of Gerran law - Credit cooperatives Other Financial Institutions Urban credit cooperatives - Alpen-Elektrowerke - Reichswerke Hermann Gring - Stock exchange Insurance Control. of Gexman Government and Oerman companies Introduction of German law 2. The Second World War 91 89 87

General Remarks Character of German war economy -- Expansion of banks 3ankve rein Creditanstalt-f Management liabilities
Lnderbank

92 boreign participations -Assets and

94

Management - Foreign participations -Assets liabilities

Other Conmercial Banks

and
95

Other Financial Institutions Savings banks - Private bankers - Mortg age banks Agricultural credit - Urban credit cooperatives Stock Exchege
Insurance
*

96

98
99

SUMMARY
The following report is divided into three principal chapters, dealing .with (A) background information, (B) the money and credit system in 1937-38, and (C) the period following the Nazi invasion of 1938.. Chapter A gives a short review of the development of currency and banking institutions, emphasizing .factors necessary for the understanding of the present system and events which may find a parallel during Chapter B gives a detailed description the period following the present war. Its institutional framework has been maintained in of the pre-Nazi system. large part during the period of Nazi occupation, and many of the changes which have occurred may be expected to be undone in the course of the reIt is also necessary in some cases to go back construction of the country. to the pre-Nazi. years in order to o'tain adequate data on the subject of hapter C describes the alterations made during the Nazi this report, The information is often frag~entary or of doubtful accuracy, most regime. of it coming from Nazi sources, and part of it may soon become outdated. final chapter should be accepted with some f ctent the Thereforehe contentsof reserve. Chapter A The financial institutions of Austria under the Habsburg dynasty were geared to the political influ.ence of the i,onarchy in Central and, SouthIts currency, which it had in common 'with Hungary, was the eastern Europe. The actual circuon gold and equal to about 20 U.S, cents. Crown, based and bank notes issued by the lation consisted mainly of subsidiary coins The five largest commercial banks in Vienna accounted Austro-ungarian Bank. of Austrian banks; their of all assets and liabilities for about one-half affiliations included the most important credit institutions in Bohemia, They combined the functions of cormercial Hungary, and the Balk1an countries. (short-tern credit) and investment banks and were largely responsible for the industrialization of East Central Europe. SThe First World War disrupted that system of currency and banking, and the Austrian insti.tutiors found theirselves restricted to an area oneThe post-war inflation resulted in the eighth of their former territory, depreciation of the Crown to less than 1/100 of 1 per cent of its former In 1922 the currency was stabilized with the help of a foreign loan value. lhe granted to the Government under the auspices of the League of Nations. Austrian National Bank was established as the new central bank, and the Schilling, equal to 10,000 paper Crov.ws or 0.7 gold Crown, as the new monetary unit. The commercial banks had lost the greater part of their assets and their business; a prolonged process of contraction eliminated all but three of the important banks within eleven years after the end of the war. As a result of renewed political and economic disturbances, the largest of the remaining banks, the ustrian Credit-Anstalt, became involved in grave Concessions' and contributions on the part of difficulties in May 1931. and shareholders and especially the intervention of the the large creditors But this could Government, 'made good the deficit of 1 billion Schilling.

D ^- ^<

vi

not prevent the spread of the disturbance to the rest of Europe, the collapse of most other Austrian banks, and a new depreciation of the currency. Subsequently the Schilling'wa '~.abilized again, at the rate of 128 paper Schilling = 100 gold Schilling, and the business of the three big cornmmercial banks was concentrated in one large institution, the Creditanstalt-Bankverein. The Government acquired the majority of the shares of that.bank and thus gained decisive influence upon the entire economic system, due to the close relations between Austrian industry end banking,

Chapter B
At the time of the Ge.an.invasion, the Schilling had been kept at par (about 19 U.S. cents, post-1933) &y a rigorous anti-expansionist policy, which some observers held responsible for the continuing economic depression. The note circulation was kept below 1 billion Schilling, and the gold coverage of the bank notes at more than .25 per cent. The Natiaonal Bank did not extend any new credit to the Government and insisted upon a slow but steady reduction of the old government debt, resulting mainly from the goverrnent intervention in favor of the Credit-Anstalt. The influence of the National Bank upon the financial institutions was based mainly upon its prestige: rediscounting was of little significance, "open market" operations did not take place, and commercial banks were not required to manintain reserves against their deposit liabilities. On the other hand the Government increased its influence in financial matters by asserting control over the National Bank, by its domination of the reorganized CreditanstaltBankverein, and by its ownership of the Postal Savings System, of a large mortgage bank (the Credit-Institut), and of the largest pawnbrokerage institution, The commercial banks still held important investments in industrial and commercial enterprises, but tried to concentrate upon traditional short-

ten lending, while new investment activities owindled away. The relation between bank and customaer- was based on the "current account" system according to which the customer alternatively became a debtor and a creditor of the
bank, Paymonts were made by transfer from one bank account to the other upon written order of the customer to the bank rather than by check; if the transfer involved accounts with different banks, it was effected through a clearing systn (giro) connected with the National Bank. The CreditanstaltBairkverein had lost a large portion of its foreign assets to its foreign creditors, but still controlled the greater part of Austrian industry. Its assets (aoaost 700 million Schilling) represented about oni-half of all assets of Austrian commercial banks, Wnile the Government controlled the majority of its shares and its management, im portant Western European banks owned sizeable minority interests and were represented on its Board, The second largest commercial credit institution lwas the Austrian branch of the Banque des Pays de 1'lSurope Ceritrale (Zentr alEuropaische Ln.derbank) in Paris; the third largest was a subsidiary of the Dresdner Bank in Berlin .(Nercurbank), Most ,fal.l provincial banks were owned by the Creditanstalt,Bankverein,

y-f/ 76

- vii

'he Postal Savings Office played an important role as savings institution and as the center of .a comprehensive clearing system. Most savings banks were non-profit-making institutions owned by municipalities, Their total assets (almost 2 billion Schilling) were substantially higher than those of all commercial.banks; more than one-half of them were held by two large institutions in Vienna. Long-tern. mortgage credit, both agricultural and urban, and, credits to municipalities, were handled by nine institutions owned by the provincial governments, and one bank controlled by the' Federal Government,, with total assets of about 1.2 billion Schilling,. These institutions received their funds mainly by issuing bonds secured by their mortgage and municipa lo ans. Short-ten agricultural credit was extended by a system of about 2,000 agricultural credit cooperatives, and credit to small businessmen and artisans by a smaller number of urban credit coooeratives, All cooperatives together had deposits of more than 600 million Schilling and were organized in "audit associations", united u.nder a central clearing institution. Building and loan associations were similarly orga ized, but played a minor role. Private banking had lost most of its influence during the period of war and inflation, Only a few firms, the most im-portant of them the house of Rothschild, still were active in the field of investment banking; most of the others were concerned mainly with financing stock exchange operations. The Vienna stock exchange, up to the First World War the most important trading center for the securities and currencies of. Southeastern Europe, had lost much of its significance in consequence of the foreign exchange restrictions introduced in most Continental European countries after 1931, The execution of security dealings was: simplified by a system of security clearing ("settlement"), conducted by the Vienna Giro- und CassenVerein. The exchange was under the supervision of a governent commissioner and headed by a Committee representing .its members, Transactions on the "floor" of the exchange had to be made through a limited number of official brokers, whose activities were closely regulated by the rules of the exchange, Insurance companies were as deeply affected as banking by the dissolution of the Habsburg monarchy, The center of Austrian insurance

business up to the end of the First World War had been in Trieste
(Assicurazioni Generali,, Riunione Adriatica), a city which. was joined to Italy by the peace treaties. The Vienna life insurance companies lost practically all their assets and their busin ss as a result of the

depreciation of the Austrian currency in 1922. After the stabilization of the currency they succeeded in slowly rebuilding public confidence until the downfall of the largest Austrian life insurance company, '!Phoenix,"
Sagain disrupted the system in 1936. The majority of the remaining companies

were under foreign (Italian, British, Swiss, Swedish, German) control.

did business in many Southeastern European countries)

They

on the:other hand,

an equal number of foreign companies had branches in Austria. .Tbtal assets of all Austrian companies, which had reached 1,4 billion Schilling just
before the crash of the "Phoenix," amounted to about 1 billion in 1937.

'The largest company was the Austrian Insurance Corporation, which had been formed under the auspices of the Austrian Government in order to take over
the business of the'Phoenix".
vision,

The companies were under government superand their rates and commission

tightened after the "Phoenix" scandal,

fees were regulated by law.

4/_5

1175

- viii

Chapter C After the German occupation, the Reichsmark became legal tender in Austria, the rate of exchange being fixed at 1 Reichsmark = 1.50 This apparent overvaluation of the Austrian currency brought Schilling. hardship to Austrian foreign trade and particularly to the owners of foreign currencies and securities who were compelled to surrender them to The Reichsbank took over the German Government at the new (lower) rates, of the Austrian National Bank, the shareholders of which the functions It has been of German government bonds. received compensation in the fonr 2 billion Reichsmark estimated 'that the Gennan Government acquired about of gold and foreign currency through the seizure of the assets of the Austrian National 3ank and the requisitioning of private holdings. The Peichsbank opened branches in tbh larger Austrian cities and onlber of prominent Austrian bhsiness men and Nazi politicians appointed a banking was affected deeply Con, eial as members of its advisory councils. individuals connected with the Austriananti-Nazi by the elimnination of all movemrent or.the Jewish race; Jewish enterprises were put under Nazi Genman "coimjssars" and either liquidated or acquired by Nazi partisans, and the German system introd andws in igin 'v gii d Ni. Nai law, both of pre-Nazi of organizing all'business enterprises in cotmpulsory associations was exThe RTeich Goverrmi. nt took over: the majority of the shares tended to Austria.

. of the largest Austrian bank, the C'redta nsta t-B3nkverein, formerly held
however,, it : a n 1 by the Austrian Goverrmient and the Austrian .ation.al ransferring about 51 per cent of retained only a 25. per cent irn eres t 'The second the shares to the largest Berlin bank, the Deutsche Ba 1 1 largest Berlin bank, the Dresdner Ban k, which had controlled a medium-sized

Vienna institution, the Mercur fBank, merged this

ank with the Vienna branches

of the Banque des Pays de 1 'Europe Centrale and the ~'ague iwvnostenska he largest Munich Banka, to form a new institution, the I.nder hanlk Wien. bank, the Bayerische HItypotheken- und Wechselbank, acquire.d the Credit'the Roichbank took Institut formerly owned by the Austrian Govea:iment. over the Giro- und Cas sen-Verein, and the German central bank: for cooperatives acquired control of the only independent small Vienna bank.

'Those big Germnan banks that did not set up Aist;rian subsidiaries opened
branches in Vienna, while the branches of other foreign banks disappeared,

In this way the entire structure of comiercial banking--and because of the

nd ndustry in Austria, the economic system close contact between bankgi as a -whole--was brought .under complete Geran con trol within a few months after the occupation, The Austrian Postal Savings system was extended to the rest of the Reich, and the Postal Checking system incorporat.ed into that of the Reichsd credit coopnrativs- were made to post, Saviangs and mortgage ban comform to th Gnerman pattern and affiliated with the corresponding German Private banking was particularly affected by the, central institutions.

anti.-Jewish measures on account of the promi:nence of Jewish fims most of them rwere liquidatd, the largest ones, among than the house of Rothschild,
The prominent pro-Nazi banking firms, being turned over to Genman Nazis. especially the house of Schooller, reaped huge profits by acquiring exAgricultural credit stagnated industrial oenterprises, ish propriated Jew

ix

as a result of the Nazi legislation on hereditary homesteads. Austrian heavy industry came under the control of two giant holding companies owned by the Reich Government: the Austrian subsidiary of the Reichswerke Hemnann Goering, and the Alpen-Elektrowerke. The great inflation of money and credit in the Reich during the war period has been even more pronounced in Austria than in the rest of the country. Total assets of the two big commnercial banks in Vienna

doubled between 1938 and 1942,

Most of their expansion took the form of

an increase in their holdings of government securities; but in addition, the German parent organizations of these banks used them for building up a complicated structure of banking affiliations in Southeastern Europe. The Austrian banks were permitted to acquire participations in the subsidiaries which the big German banks had set up in Czechoslovakia, Poland, Rumania, Yugoslavia, and Bulgaria, and to "collaborate" with other German-controlled institutions all over the Continent. Thus they regained in outward appearance the importance they had enjoyed before the First World VWar, although actually they functioned merely as branches of their German parent organizations. Other financial institutions were less favorably affected, all private investments and long-term credits being curtailed as a result of war-time scarcities of producers goods and the abnormal liquidity of potential borrowers. Only credit cooperatives expanded rapidly because of the agricultural prosperity, although they too could find an outlet for their funds only in government bonds. The stock exchange reflected the inflationary development in a sharp rise in the price of shares which led to severe restrictions on share trading, and even to the compulsory surrender of shares in excess of 50,000 Reichsmark acquired by investors after the start of the war. Insurance companies came under German control as completely as banks, most other foreign holdings being taken over by German interests. Only the Italian companies managed to retain their foothold in Austria. On the other hand, the Austrian companies were permitted by their German parent organizations to expand in Southeastern Europe in the same way as Austrian banks, although again only for the benefit of their Nazi masters.

i'?"5T'i

76

CIVIL AFFAIM

HANDBOOK

on

AUSTRIA

Section Five

on

MONEY

AND

BANKING
5Ki;S'S2SS

!5EICE3S;SE2;SS":S.

C!S^!!.IS'SS272K

PA R T

A brief summary of the developments of the Austrian currency and credit system is necessary for understanding its present condition. Austrian banking had been geared to the large territory of the Austro-Hungarian Monarchy, and was unable to overcomthete losses caused by the defeat in The collapse of the the first world war and the following inflation. largest Austrian bank in 1931 was the immediate cause of the breakdown ' The Government sucof the entire Central European financial structure. ceeded in, saying the currency from another inflation, but had to take over most commercial banks, and thus become the decisive influence in Austrian economic life even before the advent of Nazism,

/~- . , ; '

4UgJSTRIHA--ZO NEY

ClIT ITNTIiSTIONS t.!

INF0RvMTI0^

A, t BACKGROUND

The Period Preceding the First World War,

The financial

history of Austria is a, corollary of its political development. }ihen modern banking methods were introduced in Austria (National- 3.ank, 11.,6; Cre dit,-n stal t 1855), the Habsburg monarchy was supreme in Germany ut even after and Italy as well as in a large part of Eastern Europe. its "hegernon" had been lost, between 1859 and 1866, in Germany to Prussia and in Italy to the House of Savoy, its territory included all of the later republics of Austria and Czechoslovakia, Hungary, the Western parts of Rumania and Yugoslavia, Southern Poland and small, but valuable parts of Northern Italy, especially the Adriatic ports of Trieste and Fiunie. The financial activities of the monarchy centered in the capital of its Western half, in Vienna. The Vienna banks not only determined economic affairs in al. the provinces of the empire,, directly and through branches or affiliated institutions, but played a, decisive An old Austrian role in the Balkan countries ana the Ottoman empire. today legal tender in silver coin, the Maria-Iheresia Dllar, is still Ethiopia and the prevailing comercial currency in most Arab countries. The Vienna banks followed the Bhemian, manufacturer, the Austrian merchant, the Triestine sailor throughout th. Eastern shores of the Mediterranean, and acted. as intenmediaries between the fully developed capitalism of Western Europe and the awakeni.ng economy of the Near, East. A common currency was one of the few legal links between the Western (loosely called Austrian) and Eastern (loosely called. Hungarian) half of the Habsburg monarchy. It was the Crown (K), established by identical Austrian and Hungarian statutes in 1892, and representing about 305 mg of fine gold. The gold parity :to the Dollar was, therefore, roughly $l = 5 K. There was, however, not much.gold in actual. circulation: in 1910, monetary circulation per head was 53.40 K, of which only 4.61 K. were in gold, 8.63 K in silier and minor coins, and 40.16 K in bank notes. The bank notes were covered by gold to the extent of well over 50 per cent, and the gold barity was easily main,tained. The only bank of issue was the Austro-Hmngarian Bank with two legally coordinated offices in Vienna and 3udapest and; branches all It was formally a private institution, private .through the empire. citizens (and financial enterprises) owning the entire capital stock and But actually it was controlled by the governelecting the directors. ment (or rather governments) of the monarchy: . all changes in its charter and by-laws had, to be approved by the Austrian and the Hungarian legislatures, its 'Governor" was appointed by the Fmperor upon common nomination by the Austrian and the Hungarian Ministers of Finance, and two "Vice-Governors" as well as two "Deputy Vice-Governors" were appointed by the nperer one of each category upon nomination by the Austrian, the These other upon nomination by the Hungarian Minister of Finance* appointees, rather than thedirectors, were in reality responsible for the management of the bank.

The main function of the bank was the maintenance of the Its notes (circulation in 1910: gold parity of the Austrian currency. 2,376 million K) were legal tender and constituted the.most common means of payment, checks being almost unknown outside of the more progressive business communities in the'economic centers of Austria In addition, the bank acted as clearing house for comand Bohemia. mercial banks (annual turnover, in 1910: 82 billion K), and the banks kept, for this reason, accounts with the Austro-Hungarian Bank" (in There was no legal obligation of the con.ercial 1910 :194 million K). banks to keep reserves with the Austro-Hungarian Bank (or with any other institution), and therefore their accounts with that institution represented not more than about 2 per cent of their total liabilities. The assets of the Austro-Hungarian Bank consisted mainly of its gold reserve (in 1910: 1,320 million K), other coins (288 million K), bills discounted (889 million K) and advances on securities (149 The official discount rate fell rarely below 4 per cent million K). and rose only under extraordinary circumstances above 5 per cent. but in This rate was higher than that of Lnondon, Paris, or Amsterdam,; The private discount rate general somewhat lower than the Berlin rate. was in general about - of 1 per cent higher than in Western Europe .and 1/10th of 1 per cent higher than in Berlin, as befitted a country that Te, remarkable fact that was constantly in need of foreign capital. may be exolained the official discount rate was lower than in .erlin by the tendency of the Austro-Hungarian Bank to make rediscounting more attractive in order to counteract, to a certain extent, the weaker capital structure of the Austrian commercial banking system. The bank had also a mortgage dep.artment for agricultural credit, mainly for the sake of Hungary and Austrian Poland (in 1910, 198 million K outstanding), and was authorized to act in. certain cases
as administrator and trustee.,

The Vienna banks controlled more than 70 per 'cent of the total assets of all Austrian commercial banks and the five largest,aong them Laderbank, Anglostalt, Boden Crdit--n (Credit-Anatalt Bank-Verei, All the accounted for roughly 75 per cent of that amount. Bank) Vienna banks had total assets of about 6 billion ., a net worth Of about 1.2 billion K, and yearly profits of more than ,100 million K. Their affiliations,. in addition to the most important banks in Budapest,

Prague and Trieste, included banks in Thrkey, Serbia, Rumania, and

Bulgaria as well as branches in Lonon and Paris.

The connection between commercial banks and industry was

The banks not only closer in Austria than.in most other countries. combined, like most continental European institutions, commercial banking (granting of short-term loans, discounting of trade bills, etc.) and investment banking (issuing of bonds and stocks of public and. private enterprises),, but the scarcity of savings capital in Austria forced them, often against their better judg ent, to kee considerable uhis strange quantities of the securities they had underwritton, combination of banking and investment trust business worked well _.enough up to 1914. and made possible the industrialization of the backward parts

.,

*, '* . . *. *

. *

'

. . H

^ '

'

-3"
of the Habsburg monarchy and the rest of South-Eastern Eurqpe Cprency and Central Banking, 19l4-31. The first world war pi

archy For disrupte both the currency and the credit system of the political rpasons (disturbed parliamentary situation, disa fection among
the Slav population, Russian invasion of Austrian Poland), the government decide. to finance the war by borrowng rather than by taxation. The real sa yings of the population were rpid.y exhausted, and the war loans were merely used, as collaterals" upon the "security" of which the in bank notes. At the time Austro-Hungaria. Bank issued about 35 billion of the armistice (November, 1918), the fore.n exchage value as well as the purchasing power of the Qrown had fallen to less than one third of its prewar parity in the official, and even -more in the "black" markets. Upon the dissolution of the monarchy, each "successor state" (Austria, Ceohoalovak a, Hungary, Itay, Poland, Rumania, Yugoslavia) took over that part of the monetary circulation which happened to be in possession of its nationals at the time of :ts "liberation" and established its own currency. The Austro-ungarian Bank was liquidated and its assets distributed among the "successor states". In Austria, a provisional "Austrian Management" of the Austro-Hungarian Bank acted as bank of issue. But the disastrous development of the Austrian budget induced the government and the new bank management to continue the inflationary policy of the war period on an even larger scale. The first four years of the republic witnessed a depreciation of the Crown to less than 1/100th of 1 per cent of its pre-war parity? This meant the expropriation of all owners of fiZed.-interest securities, especially of government bonds (including war bon4s) as well as of the holders of savings accounts, life insurance policies, annuity and pension rights. The government did not permit any revaluation of the claims affected, except for a small nuber of cases (small annuities and pensions of persons passing a severe means test) which belonged to the realm of social welfare rather than of finance, The inflation crippled, therefore, permanently the broad miAddle classes whose economic existence was entirely based upon fixed incomes. The exprpropriation of the middle classes made them easy victims of radical movements, first from the left and later, through fascism and nazism, from the right. The process of inflation was finally halted, in the Fall of 1922, by energetic measures of the Seipel administration which put an end to governmental deficit spending and negotiated a loan through the League of Nations makig possible the establishment of a new currency based on gol.. The Crown was stablized at the rate of 14,400Q1 : 1 K Gold. A later statute,, of ecember 20, 1924, established a new name for the currency. It provided that 10,000 I should be known as 1 Shilling (S) so that i S was about 0.70 K Gold, and fixed the geld content of the Shilling at about 212 mg of fine gold, correspond ig'to the relation $1 7.10 S. The new currency was, for all practical purposes, based upon a mixed gold bullion and gold exchange standard. There were no gold coins in circulation, except for a few specimens coined as a kind of collectors' items, and the actual circulation consisted, apart from minor coins, entirely of bank notes the statutory coverage of which include gold exchange bills as well as gold bullion.

24+59475

-4

Te new bank of issue was the Austrian National fBhk (named after the predecessor of the late Austro-Hungarian Bank) which opened It took over the assets and liabilifor business on January 2, 1923. ties of the "Austrian Management" of the late Austro-Hungarian 3ank, excepting its mortgage and trust departments which were liquidated, evise-enrale (Office of Foreign Exchange) and of the Austrian It acquired thereby gold and foreign exchange equivalent to 145 million S, clains against the Austrian government equal to 255 million S, bills discounted to the arount of 78 million S, and on the other hand, a note circulation of. 408 million S, deposits of 32 million S, and some transiIn addition, the s tockholders mostly Austrian financial tory items. institutions (mutual savings banks), public corporations, and private capitalists, contributed the new capital of 30 million K Gold (43,,2 Later on, additional foreign million S) in gold or foreign exchange. exchange accrued to the National Bank, both from the government, out of the proceeds of the League of Nations loan, and from private capitalists whose confidence in the Austrian currency returned, so that by the end of 1923, the gold and gold exchange reserve of the bank had increased to 440 million S, covering the sum of the increased note circulation (712.5 million S) and deposits (60,5 million S). by more than 50 per cent, The National Pnk was organized on the same lines as the The stockholders elected 11 directors Austro-Hungarian Bank had been. The government appointed the. President and and two "Vice-Presidents". Up to 1929, the governapproved the election of the Vice-Presidents, ment, upon nomination by the League of Nations, appointed in addition a "Foreign Advisers whose approval was necessary for all important In actual practice, the policy of the decisions of the management. bank was mainly determined by its President and its General Manager, The bank with the directors 'unctioning more in an advisory capacity. had its main office in Vienna and branch offices in the other seven capitals of the federal states, The main duty of the bank was the maintenance of the gold In this it was entirely successful up to parity of the new currency, Iiring those eight years, the time of the Creditanstalt crisis, in 1931. the gold bullion and gold exchange reserves .of the bank increased to 930 million S (of which 215 million S ere gold bullion), covering some 80 per cent of the sum of the note circulation, which was maintained at an average of I billion S, and deposits, which remained in general below The govern mnt debt was reduced by repayments to less 100 million S. Te amount of bills discounted also dropped to than 100 million S. less than 100 million S except in times of stress when banks involved with the National Bank, in difficulties had to rediscount their bills

This practice tended to discredit rediscounting because any increase in the amount of bills discounted by tie National Banrk: was (rightly) interpreted as a sign of the impending doom of another commercial bank. The yBank was specifically forbidden to acquire any government bonds, and therefore could not engage in open market transactions; neither could it legally require the commercial bxks to Therefore, it could influence the hold. reserves for their deposits, amount of currency in circulation and of commercial bank deposits only In this matter, as well as by changes in its official discount, rate. in the question of its reserves, the bank: followed to an extreme the In 1923, the rate orthodox rules of the international gold standard, During the "stabilization crisis" of 1924, it stood at 9 per cent. was increased up to 15 per cent, and later gradually lowered again until it reached 6 per cent in 1926. IWhen the flow of American capital to Europe began to ebb in 192f, the rate again was raised to 8 1/2 per cent. After the American stock market crash of 1929, it was lowered successively to 5 per cent where it remained up to the time of the The rate for advances on securities was 1/2 of Creditanstalt crisis. On the other hand, than the official discount rate. 1 per cent higher The policy of was usually somewhat lower. the private discount rate discount rate higher than the market rate in order keeping the official to discourage rediscounting conformed to the practice of the Bank of England and to the anti-inflationary line of action taken by the Austrian government upon the advice of its foreign. Aexperts", Sir Walter Layton and Professor Charles Rist. The official discount rate was traditionally, and partly pursuant to formal agreements between the National Bank: and the commercial banks, decisive for the rate of interest on deposits as well The high rates in force from 1923 to 3.929 attracted as on bank credits. short-term capital from abroad and induced the commercial banks to use The National Bank did nothing these funds for long-tern investments. it apparently thought that it to remedy that dangerous situation: would be impossible to attract long-tem foreign capital and that "!hot Of course, the high rates on money" was better than no money at all.

short-term investments, like savings deposits, necessitated still highor

This rate structure. laid a tremendous burdon rates for long-term debts. on business and made any attempt to expansion almost impossible.

24

. ~' w

41

'x',

-6Between 1923 and 1931, the o erations of the National Bank Although under the statute creating the bank, were highly profitable. debt, the bank earned large the government had to pay no interest on its reserves in interest-bearing foreign bills rater sums by investing its The net profit was distributed, according than in unproductive gold. to a complicated scheme, between the. government and the shareholders, the share of the governent being used for the reduction of the governDividends to stockholders increased steadily until ment debt. they reached 11- per cent ix 1931, Commercial Bankinglgl94--31. The post-inflation reconstruction of a sound system of currency and central banking proved to be much easier than the reorganization of conmmercial banking. .The Vienna banks were hard. by the economic provisions of the peace treaties. hit partiularly Their branches in London and Paris had been confiscated during the war, and the compensation, paid by the Austrian government in devalued currency, was practically worthless. They were forced to sell their valuable interests in other foreign countries, particularly in Turkish railroads, worth, and lost their share in the prosperous at a fraction of -their Their enemy shipping industry of Thyieste which had fallen to Italy. creditors were allowed by the peace treaties to press their pre-war claims in full gold value while the co^ eona ten again was paid by the Austrian government in paper Crowns, . But their most severe loss was that of their branches situated in those parts of the monarchy that--ware dis.tributed among the other "successor states". The Vienna banks had 127 branches in 1918 of which only 25 With were located in the territory awarded to the Austrian Rrpublic, negligible exceptions, all the other branches had to be either liquidacteod they were transferred to new corporations the shares or "nationalized": of which were distributed among the former parent corporation and foreign institutions in which the foreign government had a political or financial interest. In the wealthiest "'successor state", Czechoslovakia, the Zi mostenska Banka became by such transactions the heir to the Vienna banking interests. This catastrophe was imediately followed by the disaster of Not only did the banks have to "lend good money and accept inflation. bad money in repayment", as the report of the League of Nations put it: this fact alone would have hurt their depositors more than the banks But themselves since they in turn borrowed good money and repaid bad. the inflation brought about a tremendous rise in the price of industrial shares held by the banks, excpressed in the rapidly depreciating paper These Crown, and this increase resulted in fantastic paper profits. "profits" were partly distributed among the stockholders in the form of When, dividends, partly paid to the government in the form of taxes, in 1923, the inflation ended and the figures on the balance sheets had to be divided by 10,000 and cpressed in the modest Shilling, it appeared that the real capital of the banks had been dissipated almost to the vanishing point. But the following period of stabilization brought still It marked the end of a period of frenzied stock-market further

losses,

-7-

and the bathks -were deprived .of the' revenues derived 'from that kind of business... The stabilization of public finances could be accom-. The Catholic-cnserCva:tive. fede.ra l plished only by increased taxation. covernment as well as the socialist city administration of. Vienna w..ere hostile to :banking- and burdened the reasorLn, both; although for dif frent .and a city tax b.on bank- debits banks with specihal: taxes a federal tax Most important of all, 'the possibility of reaping huge on :bank salaries. "profits" during the inflation period had resultted in an increase in the business was Ihat little 192, 19in o 13 number of banks, from 27 i had now to be divided among almost three times as many enterprises. left ape, came. in cor nection with the fluctuations of the The inevitable coll nd speculators, had seen one Austrian beankc rs, French franc. in 1984. European currency after another deprecigte until its value -as practically Whenever anew mcurrency started o .depreciate,, they believed that gone. the end w,ould be the same and that a bearish foreign exchange 'speculation W absolutely safe. .. hen the 1ior gan logns un;po,.ctc.d . thoreTfr. the franc, the .ban kers, anrd other speculator , were to "stve" ly was abl caught short. The banks were hit ot only by the. failure of some of their
Sseculation

h. d; sipeculated. on their.own account, best customers, but. seme .of the had lent the money of thoi. depositors to finance. the specor even worse,
ulations of their majority stoekh ai er n .. fficers. o Practically all

ice 1915 disappeared as quickthe now banks that had come into exstle had emerged. But. s e-of th oid er banks, among them the imly as they A major! disaster was. portant De ositen-Bank, also had to close down. by the action of the leading, banks which, with the aid of the Saverted only National Bank, formed a pool to prevent the complete disorganization of
S.:the stock market' . _.. . No major bank, apart from the Depositen-Bank, collapsed at that But' the fatal weakness of th Austrian., banking system had become

time.

apparent, and a thorough contr ction of the apparatus ;s

unavoidable.

For obvious reasons,

the government and theo National Bank tried to avert

open failures, and to this end arranged a-series of bank mergers.

This

policy succeeded in postponing thef rinal crash until 1951 . But it had, the disadvantage of burdening the healthier banks -ith the illiquid assets and

liabilities of institutions which would have been.,completely liquidated if reasons of prestige'and fear of renewe4 loss of confidence had not been .. stronger than strict .business considerations,,
By 1927

,when

the process of contraction

s emed to have reched

an end, only six maj or. banks remained CGrdit-An.stalt, -tehe d Esc mpte- Gesellschaft, Bank-Verein, LKnderbani, Crcdit- nstitut. The Lnderbank had formaly become '.

oGa n-Credit-Ay stalt, government-owned foreign (French)

institution, having transfrred its main office to aParips md continuing its Austrian business through branch offices. The tota,,,sets, of these Vienna
banks had shrunk to 5 billion S (in 191.0 5.4 billion K), their net worth S (in 19:10 185 million K) and their net profit to ,$4 million S (in 19109 Considering the relation between shilling -. nd crown, 84 million K). more than .1 K . 1.44 S, net worth and :net profit had diminished, to. little

to 576 billion S (i.

1910

1 -billion K)., their total revenue to 144 million

one-fourth, total a.sse ts to less than two-fifths of the pro-war level.

1
;7

But later developments showed that even the sums indicated by these figures were far too large since the banks had been able to show profits (and to distribute dividends) only because they neglected to make sufficient provisions for bad debts and depreciated investments. During the period from 1924 to 1931, the Vienna banks tried to resume their business relations with financial and industrial enterprises that in spAte of the contraction in their They felt in Southeast Europe. number and size, the Austrian market was not broad enough to provide for the activities of six major banks, particularly in view of the chronic depression which beset Austrian industry. Reasons of prestige and traBut the artificially created indusdition may also have played a role. countries, which before the war had been mainly agricultries in those tural, were not more profitable than the Austrian enterprises, the markets of which had been narrowed by the nationalistic foreign trade policy of post-war Europe. The credits granted by the Vienna banks, not out of their own depleted capital but out of funds which they had borrowed on short term from Western capitalists, became "frozen", and the attempts of the banks to liquidate them was made the more difficult by the unfriendly attitude the new governments took toward "foreign" financial influences, the lack of diplomatic power of the Austrian republic, and the general anti-creditor feeling that had emerged after the war. The lack of native capital, the depressed state of the Vienna stock-market after 1924, and the pessimistic attitude of the public which shunned long-term investments, induced the banks to continue their pre-war practice of buying shares of industrial companies for their own account. This practice not only added to the illiquidity of the banks, but also compelled them frequently to extend credits to the corporations they conThey - rolled which they would have refused to independent enterprises. became the prisoners of their own debtors, not daring to refuse the extension of old loans or even the granting of new ones for fear that the insolvency of the debtor would bring about their own, symptom of approaching doom became apparent in 1929 The first when one of the oldest and largest banks, the Boden-Credit-Anstalt, became involved in difficulties. The bank had previously aeorbed two other banks, it had assumed proved too burdensome when the world and the liabilities depression started to hit Central Europe, The largest Austrian bank, the Credit-Anstalt, was prevailed upon by government and National Bank to take The over the Boehn-Credit-Anstalt in order to avoid an open failure. Credit-Anstalt had already absorbed another banking business and was not oo strong itself. But it submitted to the pressure brought to bear upon it after the National Bank had promised not to press for payment of ,the bills which the Boden-Credit-Anstalt had rediscounted and to help the Credit-Anstalt to get new foreign credits. Somewhat later, the second largest bank, the Escompte-Gesellschaft, was merged with the largest Austrian holding company in the field of public This transaction was voluntary, but as a result, that bank, too, utilities. became encumbered with liabilities which in the long run proved too much for it.

24-,9475

Currency and Central Banking,

1931-38

On May 8, 1931, the CreditAnstalt, the largest and most respected bank in all Central Europe east of Cermany, notified the federal government that its balance sheet for 1930 revealed a loss of 140 million S surplus and considerably more than one-half which had wiped out all its of its original share capital. Under Austrian law, the loss of more than one-half of a corporation's capital compelled the management to ask for; In order to avoid such a consequence, the liquidation of the enterprise; which would have meant the breakdown of the entire Austrian-banking structure, the federal government contributed 100 million S, and the National Bank and the house of Rothschild (which owned a controlling part of the stock capital of the Credit-Anstalt) 30 million S each, in order to make good the loss and to provide the bank with new capital. In spite of that nmmediate intervention, the public was stunned by the news of these happenings, and a terrific run upon the Credit-Anstalt started. Within two months the National Bank had to advance to the CreditIn addition, the Anstalt about 500 million S against ldiscounted bills.

flight of capital from the country, .interrupted since 1922, was resuned,
fearing a new inflation, investing their capital, in foreign currencies.

foreign creditors recalling their short-term loans and Austrian capitalists,

The reasons for the breakdown of the Credit-Anstalt were nct en-

tirely economic.

In March 1931, the Austrian government had announced its

intention to form a customs union with (republican) Germany, and the French government, trying to put pressure on Austria to abandon that scheme, induced the French banks to recall the substantial sums they had advanced to the Credit-Anstalt. While this act was the immediate occasion of the insolvency, it is obvious that it does not explain the total loss which, as it appeared later, anounted not to 140 million but to 1 billion S r a sum larger than the capital of any but the two biggest banks in the world. It is equally obvious that such a loss could not have arisen in a single year and that the bank. mst have been insolvent for years, possibly ever since the end of the first world war. The anti-inflationry policy of the National Bank; the forced merger with the Boden-Credit-Anstalt; the continuing world depression the consequences of war, defeat, inflation; the failures of the largest Central European textile concern and of the Amstelbank, en affiliate of the Credit-Anstalt in Amsterdam; and the "prestige policy" of the maagement never to acknowledge a loss and to distribute dividends up to the last moment; all of these factors have been held responsible in some measure for the collapse. outside of felt The crash. of the Credit-Anstalt made itself Austria, too. .It was the ijmdiate occasion, although certainly not the main reason, for the rapid withdrawal of capital from Centra. Europe which in the breakdown of the German banking system, climax, first reached its in July, and then in' the abandonment of the gold standard by the United Kingdom, in September 1931. The currency situation in Austria was deeply The foreign debt of the Credit-Anstalt itself affected by those events, million S, at the beginning of 1931 and had been diminhad amounted to 466 ished, as a result of repayments, to 416 million S. The federal government

4&'C. -

s C7 VY s

-10-

managed to: conclude a moratorium with the foreign creditors of the CreditAnstalt for a. period of two years, in exchange for assuming,, in a statut: of May 28, 1931; full responsibility for, the debts covered by the moratoThe foreign debt of th.e other Austrian banks anounted to .380 million ri um. S. These banks, after paying, ou ab6ut, 150 million S, were likewise compelled to conclude "standstill agreements" with their foreign creditors
for the balance. In spite of these. m toatoria, the outflow of capital con-

tinued, hastened by the advances made by Nazism in Germany and by a shortlived fascist rebellion in Austria. Between April and October 1931,. the National Bank lost about 850 million S in foreign exchange so that its reserves in gold and gold exchange dropped from more than 950 million S to little over 100 million S net. The:bank was helped by a credit .of 100 million S in foreign currency: granted by the Bank for International Settlements, and another of 150 million S granted by the Bank of England. Although it was able to repay part of tnese advances already in 1931, it had to subhit again to the control of a 'tforeign adviser" which did not end until 1936. On October 9, 1931, the Austrian government proclaimed strict exchange regulations which put the trade in foreign currencies under the By only moderate use of its extensive powers control of the National Bank, the National Bank was able to provide importers and approved debtors of to foreign creditors with the needd amounts of foreign currency and still But these maintain its own foreign resources at the level of October 1931. restrictions depressed the exchange rate for those claims in Austrian. curThe National rency which could not be freely exchanged for foreign currency. to maintain, the fiction that the Austrian currency had Bank tried at first 'to' importers to buy But in 1932, it granted peission not depreciated, foreign exchange directly from exporters at a price higher than the official These transactions were arranged through' the- clearing house of the rate. Vienna banks, and the "private clearing rates" determined in this way* came transactions in '1933, which substituted the "private to be applied to all clearing rates" for the official parity rate's in computing the shilling with the exception of .some value of all foreign claims and liabilities, for which special .regulations were issued with the purpose of securities lightening the burden of the Austrian debtor. From July 1933 on, the new valie of the shilling was maintained without interruption at the rate qf 128 S for 100 S gold, the new gold value being 1 S - 167 mg. of fine gold. After the stabilization of the dollar in January 1954 at $55 per fine ounce of gold, the new gold parity was roughly $1= 5,.5 S, almost "exactly the relation between the old gold Beginning April 30, 1954, the dollar and the pre-war Austrian crown. National Bank computed the value of its reserves in gold -and foreign exchange on the basis of the new parity. The National Bank was able to maintain the new gold va1Te of the shilling up to the time of the Nazi invasion in 1958. VWhen the gold bloc countries (France, Szitzerland, the Low Countries, Italy, and Czechoslovakia) decided to devalue their currencies in 1936, the management of the It feared that a Austrian National Bank held on to theparity of193355.

new devaluation would undermine the confidence of the people and afford good material for Nazi propaganda. The question of confidence seemed particularly important at that time because, in the spring of 1936, the failure of the largest Austrian insurance concern, the Phoenix, had again endangered the financial structure, The fact that this failure, which in its field was as disastrous as the failure of the Credit-Anstalt, hdd no appreciable effect upon Austrian money and banking, showed that the conservative policy of the National Bank had at least succeeded in putting The stabilization of the interthe credit organization on a sound basis, national value of the currency had been helped by the new international loans granted to the Austrian government in 1930 and 1932, the interto record low levels national tendency of interest rates to fall debtors to reduce the interest rates on their foreign enabling Austrian obligations, as in the conversion of the League of Nations loan in 1934 and the devaluation of most foreign currencies which not only lightened the burden of the Austrian debtors but also made it possible to convert many obligations expressed in foreign currency into Austrian shillings. Even the gold clause in long-tern conptracts, which had been custom.ary in Austria, tended to disappear fromi public and private debts and was legally abolished for the future in 1937. Ini consequence of these developments, the National Bank was able, on June 24, 1935, to grant complete freedom of transfer for all foreign The exchange restrictions were, from that time on, used only obligations. in connection with trade clearing agreements with countries ,that had themselves restricted foreign payments (Germany, Hungary, Yugoslavia, Czechoslovaskia, Rumania), and in order to prevent an excessive flight of Austrian capital to foreign countries' The organization of the I ational B=ank was not affected by these events, except for the reestablishment of the office of a foreign adviser, But the liberal, President of the bank, Mr. Richard from 1931 to 1936. Reisch, was replaced by a Catholic-conservative politician, Mr. Victor Kienb8ck. Mr. Kienb8ck proved to be a .ver able bank manager and a little less anti-expansionist in his credit policy than Mr. Reisch had been. The main change in the balance sheet of the National Bank consisted in the sudden increase of the government debt.. On October 1.2, 1931, the bank concluded an agreement with the goverrmeent according to which the government took over the indebtedness of the Credit-Anstalt resulting from he increased government bills discounted to the amount of 571 million S. debt (663 million S) was to be reduced according to a somewhat complicated Meanwhile scheme, and the government had to pay interest on part of it. Bank had to discount new bills of the remaining banks which the National became involved in difficulties between 1932 and 1934, especially those of the .Escomte-Gesellschaft.. When this bank wa'aS finally reorganized bills These bills with the National 3ank. amounting to 200 million S were left had gradually to be written, off and the profit of the National Bank was thereby curtailed, to such an extent that the yearly dividend had to be reduced from 11-1/2 per, gent to 4,-1/2 per cent,

The National Bank managed slowly to increase its gold reserves (nor held almost exclusively in the form of gold bullion) so as to maintain a coverage of not less than 20 per cent. The note circulation remained about stationary while deposits increased slightly, conforming to the greater liquidity on the money market. The discount rate, which had been raised to 10 per cent in connection with the Credit-Anstelt crisis, was gradually decreased until it reached 3-1/2 per cent on July 10, 1935. Commercial Banking 1931-38

Austrian commercial banking was fundamentally changed i; consequence of the 1931 c@isis. The first reorganization of the Credit-Anatalt proved insufficient. In a series of later statutes and agreements the last of which was concluded on January 29, 1936, a more radical solution was found. The government released the Credit-Anstalt from its liability for the 571 million S in bills discounted by the National Bank which the government had taken over. In addition, it paid 100 million S to the foreign creditors of the Credit-Anstalt, 60 million in cash (advanced by the Credit-Anstalt itself in return for an annuity of 3 million S to be paid to the bank by the government for a period of 40 years) and the remainder in the form of an annuity of 2 million S to be paid over a period of 20 years. Finally, it agreed to the cancellation of the shares it had received in 1931, in return for its contribution of 100 million S, but received without further consideration 71 million S in new common shares. The National Bank agreed to the cancellation of the shares it had received in 1931 for its contribution of 30 million S, but purchased new common shares to the extent of 25 million S, The old stockholders; inscluding the house of Rothschild which had also contributed 30 million S in 1931, agreed to a reduction of the old share capital from 125 million S to 1 million S. The foreign creditors received, in addition to the 100 million S paid to them by the government, 70 million S of new preferred shares and 140 million S 6f the foreign assets of the Credit-Anstalt in the following manner; The foreign assets were transferred to a new the Societe continentale de Gestion with its domicile in the tiny, but politically neutral state of Monaco and a share capital of 40 million S. The Credit-Anstalt received one-half of the share capital, the foreign creditors received the other half as well as 120 million S in bonds. In return, the creditors released both the CreditAnstalt as their original excess of ~he payment made and promised in these agreements. The domestic creditors were paid in full. As a result of these transactions, the capital of the bank amounted, in 1936, to 167 million S, of which 70 million S in preferred shares belonged to the foreign creditors while the remainder, in common shares, belonged almost exclusively to the Austrian government and to the National Bank which held its shares through its subsidiary, the Industriekredit A.G. The employees of the bank, especially those officers whose salaries were not covered by collective agreements, and the retired employees had to accept substantial reductions of their salaries and pensions. But the main lose had been shouldered.by the federal government (about 700 million S), the National Bank (about 55 million S), the old

2459475

shareholders, particularly the house of Rothschild (about 125 million S), and the foreign creditors (1-2 million S). The loss of the government was decreased by a negligible amount as a result of proceedings for damages brought against the old management of the bank and. the house of Rothschild as majority stockholder ,whichended with the house of Rothschild turning over to the government some holdings, mainly real estate, of very doubtful value. The second largest bank, the Bank-Vercin, attempted its first million S worth of "frozen" reorganization in 1932 when it transferred 45.5 .. assets to a government corporation, Gesellschaft fir Revision und Treuhandiz e .Verwaltung,which had been founded and endowed with 140 million S for that very purpose, reduced its capital by 45 million S and issued 23 million S worth of new shares. Already the next year, these newly issued shares were wiped out and the government corporation mentioned above paid in another 6 million S. Even these measures proved insufficient, and on December 51, 1955, the bank was merged with the reorganized Creditanstalt. The new bank took the combined name of Osterreichisch CreditanstaltWiener Bankverein.

The third big bank, the .Escompte-Gsellschaft, went through the same phases of reorganization as the Bank-Vsein. In 1932, it had to reduce its capital by 77.5 million S while the government corporation mentioned above took over 65 million S worth of "frozen" assets and paid in 29 million S in new money. In 1965, the bank had to reduce its capital by another 52.5 million S and to sell 10 million S of new shares to the National Bank. The National Bank, which thereby became practically the strengthened the position of the bank sole owner of the institution, by remitting interest claims of 5 million S and transferring to it, without consideration, the 25 million S newly acquired shares of the Credit-Anstalt. The Escomote-Gcsellschaft in turn transferred its entire banking business to the Credit-Anstalt, changed its.name to Industriekradit A.G. and-remained merely a holding company, administering its affiliated corporations. The National Bank wished to use, the reorganized institution as an. instrument to popularize the issue of industrial bonds, which were almost unknown in Austrian industrial finance. The idea was, however, not realized and the Industriekredit was unable to show any profits or even to repay, 200 million S worth of bills discounted by the National Bank. These two bank reorganizations had cost the government (through the holding company mentioned above which promptly disappeared after writing another 150 million S, the off the "frozen" assets it had acquired) National Bank (in the case of the Industriekredit) about 215 million S, The total and the old stockholders of the banks about 150 million S. Austrian banks alone losses brought about by the collapse of the three big (not counted the losses suffered by stockholders :nd creditors of smaller banks and by the stockholders of the banks merged with Credit-Anstalt in former years) therefore amounted to more than 1-1/2 billion S or, in post1955 dollars,. about $500,000,000.

.-

! I

1'~'/ 7 ~3~~

14 -

The few remaining smaller banks managed to stay in business, with the exception of the Kompassbark which failed as an affiliate of the Phoenix insurance concern. But most of them were able to do so only because of their foreign connections. Two of them (Lnnderbank and Zivnostenska Banka) were even legally merely branches of foreign institutions. A third one, the fMercurbank, although formally independent, was entirely owned by the German Dnrmst 44er Bank and its successor, the Dresdner Bank, which supplied the bank with fresh capital after the original investment of about 20 million S had been wiped out. The provincial Austrian banks (the head offices of which were located outside of Vienna) had always played a very minor role since they were either affiliated with the big Vienna banks or had the impossible task of competing with the provincial branches established by the big Vienna banks, During the inflationary boom, sane new institutitutions had been founded, mostly by politicians who wanted to rid the provinces from the influence of "Jewishcapitalistic-socialistic" Vienna. :t they had quickly collapsed, and after 1933, all the provincial banks were practically branches of the Creditanstalt-Bankverein, in some cases with German (Munich) banks or provincial government institutions as minority shareholders. Private banking in Austria was even more deeply affected by the crisis than the cormmercial banks. The house of Rothschild managed to survive in spite of the tremendous losses suffered in connection with the Credit-Anstalt, allegedly on account of help extended by other branches of the Rothschild family. But many of the lesser firms collapsed, like the ancient house of Auspitz and Lieben, among the former owners of which had been two outstanding Austrian economists. All these changes in Austrian banking fundnentally affected Austrian social and political life. Up to the crisis of 1931) commercial and private banking was almost entirely a Jewish business. This was a remainder of feudal times when the Catholic church, still powerful in Austria up to the time of the Nazi invasion, had looked upon any form of credit as sinful, and money matters had therefore been left to the nonChristians. Before the first world war, the Boards of Directors of the big banks included shining names of high aris'crats and leading big business men, but the management itself was largely, conducted by persons of Jewish origin, the house of Rothschild playing the role of the house of Morgan in New York. After the downfall of the monarchy, the aristocratic names had disappeared, but otherwise the situation had changed but little, The president of the Credit-Anstalt had been aron Louis Rothschild, and the presidents of the other banks were, in general, other well-known personalities of Jewish origin, After 1933, the federal government was, much against its will, owner of all or most of the shares in the most important banks, especially in the Creditanstalt-Bankverein. The ruling Catholic-conservative party was mildly anti-Semitic, Its outstanding leaders, first Chancellor Dollfuss who was never able to forget his humble peasant origin, and later Chancellor von Schuschnigg whose interest was concentrated upon problems of foreign policy and cultural tradition, had little love for and little knowledge of the principles of banking. They left the management of

- 15 Austria' s financial affairs to lesser party members who replaced the former directors and managers with their political friends. Since the banks in turn controlled 90 per cent of Austria's industry, this process was repeated in all the spheres of Austrian economic life. Important economic positions were now looked upon as legitimate political spoils. The inevitable result was, first, political, and in consequence, outright financial corruption. Public opinion offered little resistance to that process since after the disasters of the Credit-Anstalt and the Phoenix, the public had lost faith in their financial leaders. The successors, however, had so little claim to technical competence that the public became accustomed to the practice of judging the merits of a business man not according to his economic success, but according to his party standing. This custom paved the way for the complete substitution of political for economic standards, introduced by the Nazis after their invasion of Austria. Tnhe events of 1931-33 prepared the way for Nazism in still another manner, Austrian economic life was, after 1933, completely dominated by the government, and could, therefore, hardly be called private capitalism any more. This situation was not to the liking of the rulihg party, but the lack of private capital made impossible the restoration of Austria' s economy to private hands. The close interrelation of political and economic power conformed much better to the teachings of Nazism than to those of the Catholic-conservative party whose adherents were mainly small farmers and lower middle class business men. The economic totalitarianism produced by the collapse of commercial and Orivate banking made political totalitarianism seem inevitable.

CIVIL AFFAIRS

HANDBOOK

on.

AUSTRIA

Section. Five

on

AND MONEY S=========5=

B ANKING E E ==

PART

A clear picture of the elements of the Austrian currency and. credit system, their relative significance, and their mutual relationship can best be obtained from studying the situation in 1937-38, immediately before the Germans Although the system has been changed considerably in occupied the ;country. .consequence of that occupation, it represents the only model that can be Moreused in the attempts to reconstruct the country after its liberation. over,' many essential features of the most important banking institutions have been maintained,

-5 7 ,_ 75-

-16B.

g MONEY AND CREDIT SYSTEM IN

1937-38

General Remarks Austrian financial institutions, apart from insurance companies, may be grouped as follows: (a) the Austrian National Bank, acting as the exclusive noteissuing agency and performing all the usual functions of a central bank; in the course of the reorganization of the Austrian banking system after the crash of the Credit-Anstalt in 1931, it had acquired a subsidiary holding company, the Industriekredit A.G. (see p. 13); (b) the commercial banks. most important of which was the Osterreichische Creditanstalt _ Wiener Bankvrein] which in Continental European fashion combined the functions of short-term and long-term (investment) credit institutions; (c) mortgae banks, all gaged in the real estate loans; government corporations, mainly en-

most tm!ertant of which was the Postal (d) savings hJba, Savings Bank (Potsparkassegamt) owned by the federal government, the Zentralsparkasse der Gemeide Vienj owned by the City of Vienna, and the Erste Ostrreichische 9par- asse operated by a private non-profit organization; (e) Private bankers, most important of which was the firm of S.M.v.Rothschild mainly engaged in activities connected with the stock exchange; (d) cooperatives, including urban and rural credit associations and building and loan associations; (e) pawnbrokers, the most important of which was the governmentTOwned Dorotheum, and private money lenders, many of them illegitimate usurers. The credit needs of the ordinary business enterprise were served by the commercial banks; only a few business firms obtained credit from private bankers with which they maintained special relations. The small business man had to rely mainly upon urban credit cooperatives. Agriculture had access to the mortgage banks for the socalled "mortgage bond" loans, to savings banks, insurance companies, and private investors for ordinary mortgages, and to rural credit cooperatives for short-term loans. Urban real estate owners had about the same mortgage facilities as farmers. Consumers' credit was granted by urban credit cooperatives and by pawnbrokers and private usurers. Public bodies had access to the funds of the mortgage banks through the so-called "municipal loan" bonds; in addition,, they sold their own bonds to and through commercial banks, savings banks, and insurance companies, and received shortrterm credits from commercial and savings banks. 24-59475

-..

(.-

The federal govenment exercised, through the Ministry of Finance, a perfunctory supervision over all financial institutions. Its main power, however, was. derived frar the facts that it selected the President of the National Bank, that it was the majority stockholder of the Creditanstalt-3a kverein (and through this institution of most provincial banks) and of an important mortgage bank, the Credit'ne en,and the sole Institut fur Offentliche Jnternnt-eeru of the Postal Savi.gs Bank and of the Dorothem. The state governments had no legislative power over banks, but were important as the owners of all important mortgage banks with the The municipalities had financial influexception of the Credit-Institut. ence as the owners of the most important savings banks, The National Bank had few legal powers over the other finanIts charter prevented it from engaging in opencial institutions. Prirate financial instimarket operations in government securities. tutions--even commercial banks--wore subject to no legal reserve Its discount rate was, in practice, decisive for the requirements. interest rates paid and received by commercial and savings banks, but after 1931 the reorganized commercial banks scarcely used rediscounting facilities and the Vienna stock exchange even discountinued the quotation Therefore, the influence of the National of a private discount rate. close connection with the federal governrested mainly upon its Bank ment, especially in the matter of foreign exchange operations, the traditional respect its "requests" and "advices" commanded throughout the financial world and its power as the majority stockholder of the Industriekreit and, through that institution, as-a minority stockholder of the Creditanstalt-nynkverein (see p.12). The importance of the various kinds of financial institutions of the country is evidenced by the following the economic life for total amount of currency in circulation (coins and bank The figures. notes), amounted: in 1937 to about 1.1 billion S," or about 160 S per 270 S). head of the population (in the United States: about $50 banks amounted to slightly less than commercial Total deposits in all 1 billion S or about 150 S per head of the population (in the United States: about $380 = 2,000 S); of these, about 35 per cent were time Total deposits, about the same proportion as in the United States. billion S, or about 450 S per savings deposits amounted to about 3 head of the population (in the United States: about $190 = 1000 S); of that amount, 62 per cent were deposited in savings institutions--i.e. Postal Savings Banks and savings banks (in the United States: about 40 per cent), 12 per cent in comercial banks (in the United States about 60 per cent) 12 per cent in rural credit coopratives, 10 per cent in urban credit co6poratives, and the rest in other institutions (mortgage banks, Dorotheum, building and loan associations, These data show the rel.tively great importance in Austria of money in circulation as well as of savings deposits, and the At the sane time, they indismaller iportance of demand deposits. cate the roeatively great mpoartalt ce in Austria of central banking,.

savings banks, and credit co8peratives, and the smaller importance of commercial banks. These facts ar e .iphasized by the clearing figures In 1937, the Creditanstalt- '3ankverein of the Austrian banking system. alone held about 45 per cent of all deposits of Austrian commercial banks; its. clearing debits amounted to. 4 billion S so that the turnover of all Austrian commercial banks may be estinated at about 9 billion S or 1,350 S per head of the population (in the United States: On the other hand, many more individuals, about 33,500 = 17,700 S). a great number of enterprises effected payments through their and even The debits on those checking accounts with the Postal Savings Bank. in 1937 were about 13.3 billion S or about 2,000 S per head accounts of the population. While comnercial banks were less important in effecting money transfers than in more fully developed countries, their influFor technical reasons (see below, p. 29) ence upon industry was greater. because of the lack of ready capital in the hands of private capitalists, and because of the psychological obstacles to long-term investments in shares and bonds of private enterprises, industry depended upon commercial bank credit to a very large extent. According to a rough estimate about 90 per cent of Austrian industry was actually controlled by the commercial banks, mainly by the Creditanstalt-Bankverein. On the basis of the detailed figures published by that institution, the debt of Austrian industrial enterprises to commercial banks may This sum was equal to almost be estimated at about 660 million S. 55 per cent of the total indebtedness, 36 per cent of the net worth, and almost 20 per cent of the total assets of all Austrian industrial corporations (Stock Companies and Limited Partnerships) which accounted The corresfor the overwhelming majority of industrial enterprises. and discounts krantd by ponding relations in 1937 of total lons comm erci al b nk s in the Unitud States and the indebtedness, net worth and total assets of all .mericanCorporations were only abbut 17, 16 and 7 per cent, respectively; even these figures are too large in comparison with the Austrian since the (ata on U. S. commercial bank loans include those granted to non-industrial enterprises and to private individuals. The distribution of this indebtedness among the various branches of industry can also be estimated on the basis of the figures The largest debtor group published b the Creditanstalt-Bankverein. consisted of the textile industry (including clothing) which accounted for 13 per cent of the bank' s "debtors" as reported in its balance sheet; next cane the metal industry with 11.5, the manufacturers of machinery and equipment with 7.4, the paper industry with 6.4, the chemical industry with 4.5, and the electric light and power industry with 4 per cent. This distribution corresponded almost exactly to that of wage earners and of share-capital among Austrian industrial enterprises. The.financial influence of the banks was, therefore, evenly spread throughout all importat branches of industrial life. Ihe money and credit policy of Austrian financial institutions The industrial determined by the ideal of stability, in 1937 was still and commercial depression and the heavy weight of permanent unemployment

-19-

persisted in spite of a slight improvement in 1936-37. But all attempts to induce the government, the National Bank and the commercial banks to favor an expansionist policy were defeated by the traditional economic orthodoxy of all Austrian economists, the general fear of any kind of currency inflation or devaluation, and the wish to avoid any move that might, at home or abroad, destroy the renewed confidence in It was the stability of the Austrian currency and banking structure. realized that any blow to this confidence could become a weapon of Nazi The idea of public works was not rejected., but these works propaganda. had to be financed with the aid of bond issues, absorbing existing funds Neither the amount of currency in rather than creating new ones. circulation nor that of outstanding bank credits was to be substantially increased. Only when sums were repaid to the banks as a result of the gradual liquidation of old "'frozen" credits could the banks engage in new This anti-inflationaryd policy becme in practice, lending activities. Th.e flight of capital the will of its authors, a deflationary one. against for political fear of Nazi invasion out of Austria continued, though The suns involved were not so large rather than purely economic motives. as to endanger the stability of the currency or to make new exchange restrictions necessary, but they tended to reduce the supply of loanable At the same time, however, many enterpreneurs were just as fearful funds. of the political future; therefore the demand for loanable funds also The resulting liquidity of the money market remained on a low level. reinforced the arguments against a' change in monetary policy. Under the dictatorship of the federal chancellors Dollfuss and Schuschnigg, all branches of the Austrian economy were organized, in more or less compulsory associations in order to realize the idea of From the times of the the "corporate state" on the fascist model. business enterprises had been members of Habsburg monarchy on, all Now another organization statutory "Chambers. of Cormlerce and Industry". for all financial institutions was added, the .,Finance Union" (Finanzbund) which in turn was divided in branch organizations for banking finms, state mortgage banks, savings banks, credit' coSperatives, building and loan associations, agencies of the government lottery, stock exchange brokers, President of the Finanzbund was Mr. Kienbock, the and insurance fims. The organization of banking finms President of the National ?ank. (Bankenverband) was headed by Mir. Joham, the President of the Creditanstalt; According to the census of 1934, Secretary General was Dr. Max Sokal. not more than 32,144 persons (employers and employees) belonged to the "estate'!.of finance and insurance enterprises and only a fraction-of that number was employed by banking institutions proper. The various, "corporate"' ("Istndische"') organizations were to act not merely as business associations but also in a intended political capacity, electing representatives for the legislative bodies But elections for those set up by the Dollfuss constitution of 1934. representatives of the bodies were never held, instead, hand-picked For instance, various organizations were appointed W'y the government.

-20Mr. Kienbock and Mr. Buchinger, a director of the National Bank and of the Creditanstalt, were made members of the State Council; Mr. Joham, a member of the Federal Economic Council, Mr. Schwarz, a director of the National Bank and Secretary General of the largest Austrian mutual savings bank, a member of the Vienna City Council, etc. In view of the "authoritarian" character of the Austrian government after 1933, all these appointments carried little actual political power.

Currency
The monetary unit, the Austrian Schilling (S) was divided in It was defined as 1/6000th kg of fine gold, but gold 100 Groschen (g). coins for currency purposes were not minted;.the few Austrian gold coins in existence were collectors' items coined on the basis of the parity in force before the devaluation of 1931-33 and therefore worth 28 per cent more than their face value. At the beginning of 1938, the schilling was quoted on the international exchanges at about 19 cents U.S. The actual circulation consisted of small coins made of base metal, silver coins and bank notes, The latest detailed statements available shows the circulation of December 31, 1936, At that time, the following coins were in circulation; Denomination: I g 2 g 5 g 10 g 50 g 1 S 2S Composition: 95% copper, 4% tin, same as 1 25% ickel, 75% same as 5 same as 5 same as 5 64% silver, 36% I$ zinc g copper g g g copper Pieces: 151,876,529 128,798,900 25,490,454 89,155,200 11,494,740 30,960,068 12,502,479 Value in S: 1,518,765 2,575,978 1,274,523 8,91,520 5,747,370 30,960,068 25,004,958

5S
Total

75

"

, 25%

"

kl 94 .66 4
379,943,840

48,32..35
124,324,532

The pieces of 50 g and 1 S had been coined of silver until 1934, and their replacement by pieces made' of base metal, bpth for reasons of economy and in order to prevent hoarding, had aroused some In order to placate the opposition dissatisfaction among the population, and to prevent a loss of confidence in the stability of the currency, the government issued, silver coins of 5 S, from 1935 on, retiring the bank notes of that denomination. These coins bore a likeness of the Virgin Mary, underlining the strong Catholic-clerical character of the Dollfuss-Schuschnigg regime, and making them obnoxious to the anticlerical majority of the population, especially to the socialists and nationalists. The coins of 2 S were issued as a kind of collectors' items: they bore the portraits of well-known personalities, each year a different one, and were eagerly taken up by foreign tourists. Before the advent of the Dollfuss dictatorship, these personalities were selected from famous Austrian scientists, composers and poets, but the later administrations tried to turn them into means of political propaganda by commemorating Catholic-conservative statesmen. The Nazis seized upon these incidents, and upon many similar ones, in order to prevent the unification of Austrian political thought. 24-59475

The coins were issued by the government through the mint in Vienna which delivered them to 'the National Bank. The profit (seigniorage) resulting from the coinage was used .to reduce the debt owed by the government to the National :ank. The total coin circulation was about 20 S per head of the population. The corresponding circulation in the United States (coins and $1 notes) was about $8 per head in 1937, or more than twice as large. The note circulation of the National Bank was as follows at the end of .1936: Denomination: Pieces: Value in S:

5 S
1Q0 20 50 100 S S S S Total

31,644
11,863,8 9 5 7,761,721 2,008,50 5,391,390

1,563,220
118,638, 9 50 155,234,420 1 00,178,500 539,139,000

10005 S

29,157
17,367,657

29,157,000
943,911,090

The notes of 5 S and 1,000 S were being retired from circur lation, the former being replaced by silver coins, the latter in order to prevent hoarding; apd smuggling of currency. The total circulation amounted to about 150 S per head of the population, The note circulation in the United States, excluding $1 notes, was about $42 per head in 1937, or only about 50 per cent higher. The relatively large Austrian note circulation can be 'xplained by the fact thathnny large payments commonly were made in cash rather than by check. The purchasing'power of the schilling was more stable during the 1930'S than that of the Western currencies. ' he drop in world market prices, between 1929 and 1933 had largely been nullified in Austria by the devaluation of the currency and tariff .ar'iers against imported foodstuffs;, the rise in wvorld market prices after 1933 did not extenid'to the domestic market because of the constant pressure of unemployment upon wages and upon the demand for consumer goods. A comparison with the American price level is difficult due to the fundamental differences in consumers' preferences. In general, those goods in the production of which capital, machinery mand imported raw materials played' the most important role as cost factors,. -were more expensive in Austria (particularly "luxury" foodstuffs, like sugar, which were not only, !protected" by high tariffs but also subject to high taxes); on the other hand, services and goods: the price of which was mainly determined: by labor costs were: cheaper thanw vould be indicated by the exchange rate. The general. level of,wages and salaries was a great deal lower, .in some. cases (domestic servants, lover group of white-collar workers) to such an extent that the worker received in Austria hardly more: in Schilling than he would have, received in Dollars in this country, On; the other hand, a comparison of purchasing power must take into consideration the fact that in. 1937-8 rents were still kept by special legislation at a fraction of. their pre-war level, and that workers and other low-income groups vere' the beneficiaries of an elaborate system of social insurance and, especially in Vienna, other public services.

Central Bank The Austrian National Bank was based upon a statute of November 14, 1922, and its amendments. These statutes established Any change had to be the form of the Bank's charter and by-laws. approved by the legislature as well as by the shareholders so that. the shareholders did not enjoy the autonomy granted to ordinary corporations. On the other hand, the Bank, like any other corporation, issued capital stock (30 million K Gold . 43.2 million S Gold = about 55.3 million S), divided into bearer shares (100 K Gold - 144 S Gold : about 184.3 S each). The shares were freely transferrable and the A meeting right to hold them was not restricted to Austrian citizens. of the shareholders had to be called at least once a year to elect the directors (except the President), to approve the balance sheet, the profit and loss statement and the distribution of the profit, and to vote on proposed changes in the share capital or in the by-laws as well as on all other matters submitted by the General Council to its Each shareholder had one vote for every 25 shares in his decision. [n possession, but no shareholder could exercise more than 100 votes. practice, the main right of the shareholders was to participate in the Bank's profits. The shareholders were mainly Austrian financial institutions (banks, but also savings banks and similar institutions), public bodies (municipalities, etc.) and a few private capitalists, both Austrian and foreign. Since the dividend had been stabilized at 4 per cent every year after 1931, the shares were considered more like government bonds than ordinary shares, and their market value was maintained around par. The General Council (Generalrat) was the Bank's legal It consisted of the representative and governing body (Vjrstan ). President, appointed by the President of the Republic, two Vice-Presidents, elected by the shareholders but needing confirmation by the federal government, and 1l directors and 4 deputy directors, elected Six directors, representing specific occupational by the shareholders, to be chosen from panels of three candidates presented:to groups, had the shareholders by the statutory "Chambers" for banks, savings banks, industry, trade and small business (Gewerbe), agriculture, and labor, respectively. Federal employees and, before the period of the Dollfuas-Schuschnigg dictatorship members of the federal and state legislatures, could not be elected directors. Not more than four directors could be officers of banking institutions, and not more than four could be foreigners or officers of foreign corporations. Candidates did not need to be shareholders, but had to make a deposit. of qualifying shares after their election. The members of the General Council held office for five years, but were, in general, reelected (or reappointed), at the expiration of The President and the Vice-Presidents received a salary their terms. while the other members served without compensation. In 1937-38, the President of the Bank was Dr. Victor Kienbock, a prominent member of the Catholic-conservative party and a former

24-59475

-23federal Minister of Finance, intensively anti-Nazi (he was of partJewish descent) and anti-socialist, First Vice-President was Dr. Leopold Joas, a retired high civil servant (former Director of The post of second ViceDivision in the federal Ministry of Finance). In the President was unfilled, apparently for reasons of economy. General Council, the different groups were represented as follows: Banks: Dr. Josef Joham, General Manager of the CreditanstaltBankverein; Karl Weninger, Manager of the government-ovned Creditaron Louis Rothschild, chief of the Vienna house of Rothschild; Institut; k3as: Dr. Paul Schwarz, "General Secretary" (in Savings effect, President) of the largest Austrian mutual savings bank, the Erste Osterreichische Spar-Casse; ng. Arno Demmer, General Manager of the Wiener Industry: Locamotiv Fabrics A. .G,, the largest Austrian locomotive works; Dr, Ferdinand Falkensamer, President of the Brau A.G., the largest Austrian brewery concern, of Linz (Upper Austria) Paul G8tzl, First Vice-Presi.G., the largest Austrian automobile dent of the Steyr-Daimler-Puch concern (apart from "ron Rothschild, the only director of Jewish origin); Dr. Peter von leininghaus, one of the leaders of industry in Styria;. Trade and Small
official

AusinessI Heinrich Lenhart,

Austrian artisens;

a leader of the

"Federal Guild" of

Agriculture: Rudolf Buchinger, General Counsel of the Federation of Agricultural Cooperatives and 'fomer Minister of Agriculture, another prominent member. of the Catholic-conservative party, Labor: Labor of.'Styria,. Dr. Peter Krauland, First Secretary of the Chamber of

The interests of the foreign stockholders were represented by Mr, Gustavo Alberti, a director of a large Italian insurance concern In diswith extensive business in Austria, the Riunione Adriatica, cussions concerning conditions of employment, three representatives of the employees were permitted to attend the meetings of the General Council. The federal government appointed also a State Commissioner whose duty it was to prevent any infringement of the statutes regulating In 1937-38, this post was filled by Dr. Hans Rizzi, the. Bank's business. Director of Division in the federal Ministry of Finance, an able civil His substitute was Count Assen Hartenau, Counselor servant and economist. Duke of in the federal Ministry. of Finance, a son of the (deposed) first Alexander I. of Battenberg, and thereby related to the British Bulgaria, dynasty, The General Council outlined the broad policies of the Banks Its main duties were to appoint the Board of Management and business:. The remainder of its functions was, in to determine the discount rate. practice, taken over by an Executive Committee, consisting of the President, the. Vice-President, the General Manager and the Deputy General Manager,

-24-

The Board of Management consisted of the General Manager, the Deputy General Manager, and two to four Managers and was presided It had to exeover either by the President or the General Manager. cute the policies set by the General Council (or, in practice, by the President), and to distribute routine matters among the various Divisions, each of which was headed by one of the Managers or their deputies. Since 1934, the National Bank managed also the affairs of the Industriekredit of which it had become the owner after the reorganization of the former Escorpte Gesel hft(see p. 13), and had detached several of its managers to act as managers of that enterprise, In 1937-38, Dr. Victor Brauneis was General Manager, Dr. Franz Bartsch his Deputy. Mr. Brauneis had been a Counselor in the Ministry of Finance, and had been called to head the Board of ManageHe was an able and ment when the Bank was founded in 1922. conscientious executive, but as a true Austrian civil servant selfeffacing to such a degree that the personalities of the Presidents, first Professor Reisch and later Mir. Kienbtck, had a much greater Mr. Bartsch influence upon the activities of the Bank than his own, had also come to the bank from the Ministry of Finance. The other Managers were Messrs, Rudolph isenstuck (manager of the Industriekredit), Hans Stierhof and Dr. Karl Strzizek; Deputy MIianagers were Messrs. Max von Marquet (also with the Industriekredit), Such names of French, Richard Buzzi, Oskar Sladeczek and Karl Hossner. Italian and Slavic origin were characteristic of Austrian civil service, as a result of the century-old mixture of races under the Habsburg But the bearers of these names considered themselves monarchy. invariably as of Gerlan "nationality", a term which denoted in .1ustria a curious conglomeration of racial and language affiliations rather than "citizenship." The Bank had its main office in Vienna and branches in Bregenz, Vorarlberg (manager: Mr. Friedrich Kr ftner), Eisenstadt, Burgenland (manager; Mr. Julius Niederberger), Graz, Styria (manager: .r. Karl Capalini), Innsbruck, Tyrol (manager: Mir, Heinrich Waclawek), Klagenfurt, Carinthia (manager: Alfred Hager), Linz, Upper Austria (manager: Mr, Julius Hantich) and Salzburg (manager: Dr. Paul Hinghofer). In addition, the Bank had ten agencies, conducted by local banks or savings institutions and only concerned with handling routine matters; they were located in the following towns: Krems, Neunkirchen, St. Pilten and Wiener Neustadt (Lower Austria), Wels (Upper Austria), Hallein (Salzburg), Dornbirn and Feldkirch (Vorarlberg), Leoben Each office had in addition to its (Styria) and Villach (Carinthia), a staff of honorary "Censors" who had to pass on the regular personnel Their number credit standing of firns submitting bills for discount. men and officials of the statutory "Chambers" included prominent business of industry, trade and agriculture, charter The main business of the Bank, according to both its (Article 1) and its actual practice, was to maintain the Austrian The Bank was granted the exclusive notecurrency at its parity level. issuing privilege; neither the federal government nor any other public or private institution was permitted to issue any kind of paper that
#'

-25-

Furtherore, the notes issued could be used as currency (Art. 80), The 3nk was by the Bank had the quality of legal tender (Art. 82), "temporarily" relieved of the duty of redeeming its notes in specie (Art. 83); this "provisional" clause remained in force from the first 'The Bank had, however, to buy day of the Bankt s existence to the last the parity price and to coin gold for private account upon gold at Despite the inconvertibility of its notes, the payment of a small fee. Dank as compelled to provide coverage for its-notes and sight liabilities, part of which had to consist of gold, of foreign currency "not subject to substantial fluctuations," or of bills drawn upon or guaranteed by, Ihis or balances held with foreign banks of "unquestioned solvency", part had to amount to not less than 25 per cent (in the earlier period 22 per cent) of the amount of the note circulation minus the original amount of the government' s debt to the B.nk--about 260 million S The rest of the .ank t s note circulation -nd sight liabilities (Art.85). was to be covered by the government debt, bills discounted and subThe equivalent of 25 million Crowns Gold sidiary coins, (.<rt."6). (36 million S Gold or about 46 million S) was to be held in foreign If the coverage fell below the minimum percentage banking centers, fixed by Article 85, the .ank had to pay a s'ubstantial "note tax'" In practice, the Bank counted only its gold bullion as cover(Art.88), Its holdings of foreign exchange, consisting age under Article 85. exclusively of Dollars and Pounds Sterlingr were included among the Conforming to the requirement of "other reserves" uinder Article 86. keeping part of its reserves abroad, the Bank maintained balances with the Bank of International. Settlements, the Jank' of angland, and the Federal Reserve sank of New York. Another important function of the Bank was to act as banker,. The federal government was bound to concentrate its for the government. Stransactions in gold and foreign exchange with the Bank. (Art.51). But the Bank was absolutely forbidden to grant any advances, directly or indirectly, to the federal government or to any state government or any In order to make any subterfuge impossible, the of its subdivisions. bank was even forbidden to buy government bonds from third persons, and its right to make advances on government securities was restricted both as to the amount (75 million S maximum) and as to the person of the borrower (persons of known solvency not connected with the govern agencies). Commercial enterprises were, however, ment or any of its not classified as .subdivisions of the government even if owned by the Republic or by one of the states or municipalities (Art.50). A third type of business was connected with the clearing agreements the government had concluded with various foreign countries. Invariably, these agreements provided for payments to be transferred through the National Bank, and thereby gave 'the Bank control of foreign trade and foreign exchange transactions. In addition, the general foreign exchange regulations assigned the Bank the duty of preventing the flight of capital from the country, Finally, types of business: the bank had' the right to engage in the following

(a) .discounting of and trading in bills of exchange, securities and warehouse cretificates (in practice, almost exclusively discounting bills of exchange, bearing the signature of at least two persons of known solvency and payable in Austrian currency, within Justrian territory, at a specific date within three months);. (b) granting loans on gold, silver, securities, bills, and foreign exchange (of no. importance in practice; granting loans on foreign exchange had, however, been used extensively in 1923-24, just after the stabilization of the currency, in order to attract foreign currency) ;. (c) opening deposit accounts (in practice, 'only to. the government and other public bodies,. to banks and other financial institutions in order to enable them to .use the clearing system of the National Bank, and to business enterprises which submitted bills for discount); (d) issuing checks on its own funds;

(e) trading in gold and silver (in connection with its. gold reserve and, in the case of silver, with the bullion needed by the government for minting purposes); (f) trading In bills of exchange on foreign money centers and maiainining balances abroad (mainly in connection with its reserves functions under clearing agreements and foreign exchange and with its regulations); (g) investing its own funds (at the time of the banking crisis of 1931-33, this provision, was used to acquire 4stocks of the Creditanstalt and the Industriekredit, in the course of reorganizing these institutions;

see pp. 12-13)

common causes of banks of issue (.cooperation with other Central Banks

and participation in the Bank for International Settlements to the amount of 4,000 shares, acquired in 1930). The last balance sheet published by the Bank before the in-

(h)

participating in

international organizations serving the

vasion was that of December 31,. 1937. Assets Gold *Foreign Exchange Subsidiary. Coins
Bills Discounted

It may be summarized as follows: Liabilities Thousands of S

Thousands of S 243,187 161,174 7,875'

187,945

Note Circulation 943,914 Deposits 212,790 Other Sight Liabilities 39,774

Reserve for Pensions 4.,922

Advances upon Securities

Government Debt Securities

697
611777 482

Other Liabilities
Transitory Items Capital

.80,830
978 54,960

Buildings, Equipment
Other Assets

. 6,718
129,319
_19174

Surplus
Profit for 1937

7, 91
311 jl 74

-27At the end of 1937, the note circulation and sight liabilities were covered in gold alone by more than 20 per cent, and in gold and On the statutory basis, foreign exchange by more than 33 per cent. namount offset by the the note circulation, after deduction of the original government debt to the Bank, was covered in gold alone by 26 per cent as against the minimum requirement of 22 per cent. .A further amount of foreign exchange and even some gold, together about 67 million S, were included in "Other Assets"; this was done because these items were the result of foreign exchange and stabilization operations and were not regarded as permanent reserves. The bills included only about 20 million S in true commercial paper, The rest ,consisted of bills of the Industriekredit, the remarinder of more than 200 million S in bills of the former Escompte-Gesellschaft, discounted by the National Bank at the time of the bank crisis of ..931These bills were practically worthless and their amount 33 (see p. 11). a ewas diminished less by repayments than by the Banks practice of devoting the greater part of its annual profits to writing off. The government debt consisted of two parts: about 100 million S were the balance of the original debt taken over from the AustroHungarian Banks the rest represented the debt contracted by the CreditAnstalt in 1931 and taken over by the government under the agreements The Bank itself, true to reorganizing that institution (see p. 11). Charter, had always refrained from increasing the debt by granting its new advances. The debt was, on the contray, steadily but slowly reMr. liembtck, however, laid less stress on a decrease than his duced, predecessor had done since he did not wish to produce deflationary effects. The "Other Assets" included, in addition to the amount of gold and foreign exchange mentioned above, other items connected with forward exchange operations and transitory accounts, both of them balanced by identical amounts on the liability side, and investments made for the account of the reserve for retirement pensions. The note circulation had remained almost stationary since 1931. Due to the liquidity of the money market, deposits increased Sight Liabilities (other than deposits) in 1937 by 35.6 million S. included trust funds in connection with bond issues, accounts resulting from clearing agreements, etc. The turnover of the Bank amounted to 35,4 billion S in 1937. The most important factor was the turnover on clearing accounts (28 The gross revenue billion S, against more than '50 billion S in 1929), of the Bank in 1937 amounted to 22,7 million S. Its revenues from regular banking activities reached, however, only 14 million S, the remainder consisting of interest on the government debt held by the The operating expenses amounted to 11.4 million S, but the Bank Bank. had to use another 8.2 million S for writing off part of the Industriekredit bills. The profit of 3.1 million S was used to pay a dividend of 4 per cent4 to increase the reserve for pensions by 150,000 S and to add about 300,000 S to surplus, The snall revenue

and profit were due mainly to the fact that in spite of the low discount rate of 3- per cent the discount business had practically ceased. The Industriek redit A.G. the shares of which were owned by the National 3ank, was an industrial holding company, performing banking transactions for its affiliated companies (see p. 13). These included mainly public utility enterprises, many of them located in foreign countries. It was administered by officers of the National Bank. Its balance sheet for December 31, 1937, may be summarized as follows: Assets: Thousands of S Liabilities: Thousands of S

Cash 860 Bills 6,692 Securities, Participations 44,835 Debtors 179,673 1,710 Premises, etc.
Loss 2
233772,

Capital 10,000 liRserve for Pensions 50 Creditors 223,722

233, 772

The "Creditors" consisted mostly of bills of the former Escompte-Gesellschaft discounted by the National Bank,. They were renewed from year to year except for those which the National Bank had written off out of its yearly profit, The Industriekredit in turn used about one half of its gross revenue (the sum of almost 4 million S in 1937) for writing off part of its own bad debts. Commercial Banking Ey 1937-38, Austrian commercial banks had, in spite of a They had substantial drop. in business, finally regained a solid basis. eliminated all doubtful assets from their balance sheets, and were turning more and more to real commercial banking as distinguished from the combination of investment trust and holding company activities which had characterized them up to the time of the Creditanstalt crisis. The Austrian banks were organized as corporations and subject In addition, certain to the general provisions of the commercial code. statutes and decrees, some of them enacted after the banking crisis of 1924 and others after the crash of 1931, imposed special obligatiohs upon them. There was, however, no basic attempt to do away with the structural and functiona shortcomings that had contributed to the 'here was no real super1936. series of bank failures from 1923 till vision by a competent government authority. The Minister of Finance had to approve the formation of new corporations as well as changes in the charter and capital structure of existing ones. He was also entitled to appoint members of his staff to act as State Commissars But these commissars had no power except to attend with corporations. the meetings of the Board of Directors and of the shareholders, and to T'hey had no voice in policy veto decisions which were contrary to law. There was no prodecisions and no right to inspect the accounts. fessional body of Public Accountants, but the shareholders elected at each annual meeting a number of "auditors", mostly business men or

foner bank officers, who casually tested the technical accuracy of the balance sheet and the profit and loss statement. There was not even a real governing body: The Board of Directors, elected by the shareholders was assu;ed, to bear responsibility for all activities of the bank, but in practice left the management very largely in the

hands of the General Manager and his staff, and contented itself with
the formulation of fundamental policies and some degree of general supervision. -A statute of. 1924 tried to increase the responsibility of the Board of Directors by making the directors, and even any persons holding 10 per cent of the capital of a bank, personally responsible for damages suffered by the corporation and its shareholders through the abuse or lack of use of their powers, especially through negligence in

the supervision of the management,

situation since it proved in

But this statute did not remedy the

to be unenforcable, Other statutes

practice

restricted the compensation to be granted to officers of banks,

All major banks had several bra.rches within and outside of the city where their main office was located. The business of the Austrian barks in 1937-38 was based primarily upon the "current account"
(Kontokorrent) relation between bank and customer. Under this system, the customer becene alternatively a debtor or a creditor of the bank,

He established an account with the bank with the understanding that he

would be permitted to "overdraA'w that account up to a certain sum. He received interest on a credit balance, and paid (much higher) interest on a debit balance. The system was characterized by the facts that (a) the Austrian customer normally disposed of his credit balances not by check, but (except in the case of the most progressive customers) mainly by means of written orders to.the bank; (b) the customer usually received a variety of other services from the bank such as advice as to investm.ent, custody of securities, and collection of bills; (c) the customer was not always, and in the case of a wel.l-established business enterprise not often asked to put up collateral for the credit he received. This latter practice enabled prosperous finns to invest a larger proportion

of their assets directly in their business than if- they had been compelled to put up securities or other liquid assets. But if there was a
mistake on the part of the bankr about the credit standing of the customer, the bank was likely to suffer more serious losses than if it had been customary.to ask for collateral, Since the bank granted credit mainly upon the credit standing of the enterprise, it had to keep more closely in touch, with the business activities of its customers than would otherwise have been necessary. Therefore, the banjks insisted on having one of their officers elected a.director of those coroorations that wanted substantial credits. But the very fact that an officer of the bank participated, formally at least, in the control of the debtor's enterprise, made the relation often closer than.would have been advisable from the bank' s point of view. The debtor considered the credits granted to him as long-terr investments even if they were formally designated as short-tern advances. Therefore, many of these "credits" were in reality "participations" (investments) of the bank. This was especially true in those cases in which the bank had acquired some part, often a controlling interest,
/

-30in the actual stock of the corporation often in connection with the underwriting of a new share issue, with the transformation of a partnership into a corporation, or with the merger of different firms into a larger unit. The remaining activities of the Austrian banks conformed to the general European practice, combining commercial (short-term) and They bought and sold securities and investment (long-term) banking, foreign exchange for their customers, and sometimes for their own. account, underwrote the issue of securities (in 1937-38 mostly bonds of the government or other public authorities), and one of them engaged even in commodity trading (coal, coke and sugar dept.rtments of the Another one, the Creditanstalt-Bankverein was authorized Landerbank), based upon the security of to issue mortgage bonds ("Pfandbriefe"), mortgages which it held. All the banks rented safe deposit boxes which were in general use both for legitimate and illegitimate (tax evasion) purposes lTe liabilities of the. banks included, in addition to deposits on "current accounts", a large sum of savings deposits, often in the form of Certificates of Indebtedness ("Kassenscheine"), These certificates were issued by the banks in bearer form against payment of their

face value, and bore interest at 2 - 3 per cent depending upon their
maturities, They were more popular than deposits on "savings books" bearing the same interest since the name of the creditor did not appear in the books of the bank and could, therefore, not be revealed to the tax authorities. The great burden of taxes upon unearned income, especially in the higher brackets played an important role in the investment policy of the high-income groups, The habit of extending credit denominated in foreign currency (Dollar or Pound Sterling) even if the debtor was Austrian and the loan was made and repaid in Schilling, was abandoned after the losses sustained by Austrian creditors as a result of the deva.uation of those currencies.

Interest rates paid on deposits had fallen during the 'thirties in consequence of the drop of the official discount rate to 3- per cent A decree of 1933 authorized (see p. 12) and of government pressure, the government to prescribe maxi.num rates to be paid by financial The rates varied from 2 to 3 per cent and were graded institutions. according to the period of notice required for the withdrawal of deposits, and also according to the type and domicile of the financial institutions involved: they were lowest for demand deposits of the Vienna comnercial banks and highest for savings deposits, with a period of notice of 3 months and more, with banking institutions other than the Vienna ccrmmercial ard savinrgs banks. Interest charged bybanks on debit balances were also much lower than in the preceding years but including the so-called credit an average of 4 per cent above the discount commission charges still rate. Even wellrknown enterprises could not secure "current account" credits at less than 7 per cent. Still, most business men preferred to pay these rates rather then to secure credit at half that cost by
I

using commercial bills. The main reason for this attitude was the prevailing sentiment of anxiety and uncertainty: A commercial bill had to be met exactly on the day. it fell due, or it vwold be "protested" and the credit of the debtor ruined. But the "current account" credit could usually be renewed without too much difficulty if something unexpected intervened; and even if the bank curtailed the credit, the general credit rating of the firm would not necessarily be seriously impaired. The knowledge that the debtor expected lenient treatment compelled the banks in turn to include a certain risk premium in their "current account" credit rates. Credi tans ta tl-nkve rein the most At the beginning of 1938, this institution was still important bank in Austria, if not the only important one. It was formally operated as an ordinary corporation, although the federal government, together with the National }ank, held a majority of its shares as a result of the events of 1931 (see above pp. 9 and 12). Tfae influence of the government was apparent in the selection of its directors and managers. 'Qhairman of the 3oard of Directors was Dr. E!anuel Weidenhoffer, former Iinister of Finance and a Catholic-conservative politician. Vice-Chainmen were ]r. .Franz }Isslacher, a srall'-town business man from Villach (Carinthia) who also had been selected for this job for purely political reasons; and Mr. Alexander Weiner, a Jewish banker of high reputation forerly General Manager of the CreditAnstalt and at that time a partner in the firm of Ephrussi & Co. which, the Austrian representative racial handicap, was still in spite of its bf the Deutsche Bank, A . ong the other members of the oard, the federal government *was represented by Mr, Rudolf Suchinger, former Minister of Agriculture and a i ader of the farm wing in the Catholic-conservative party; Dr. .Ludwig Draxler, former Minister of Finance and a leader of the fascist wing; Dr. Hans Stigleitner, General Counsel of the Association of Austrian .Savings :3anks, and '3aron Friedrich linti, an aristocratic landed proprietor of Pbchlarn (Lower Austria) and leader of the Of all these men, only Ilegitimistic" (pror-absburg) wing of the party. Dr, Stigleitner had any knowledge of banking and any reputation among business men outside of the party fold. Austrian business interests were represented by Mr. Gustav Heller, a (Jewish) partner of the wellknown candy fim' of Gustav & Wilhelm Heller, and Mr. Karl Klinger, President of an important machinery fim in Lower Austria. [he foreign stockholders, who owned about 42 per cent of the shares as a result of the events of 1931, were represented by international bankers whose prominence overshadowed the personalities They were: Mr. Kenneth W. Banta, selected by the Austrian government. of the National City iank of New Yoxrk Sir Victor Schuster Mr . P. Lindenberg, of the London banking firm of Japhet & Co,; Mr. Jacques Bizot, Inspecteur General des Finances in Paris; Mr, Auguste Callens, of the Socibte G nerale de Belgique; Mr. hoberto Adler, of the Societa Itliana di Credito; Dr, J. A. Meyer, of Zurich; Mr. Gust,Schlieper, of the Deutsche Bank, and Dr. Ernst Kraus, Austrian Represnetative of the German Siemens & Halske A.G.

32 -

The real control of the management, however, was exercised by an "Executive Committee" rather than byj the Board of Directors, and in this Committee the representation of the Austrian government had an overwhelming majority. It included the government-appointed General Manager, Dr. Josef Joham, as President Dr. Victor Brauneis, General anager of the Austrian National Bark; Dr. Walter GfIttl, Counselor in vM the Austrian Ministry of 'inance; :Mr, Franz Hasslacher and Baron Friedrich Tinti, as the representatives of the Austrian majority shareholders; Mr. Jacques Bizot and Sir VictorSchuster, as the representatives of the foreign interests, The Board of Management, which had to execute the policies set by the "Executive Cornittee', consisted of Dr, Josef Joham as General Manager, and of Mr. Erich Heller, Mr. Oskar Pollak and Dr. Franz ottenberg. Mr. Joham had been manager of a small provincial bank in I, rol, and had been called to head; the Credit-Anstalt after the former Since Mr. van General Manager, t:r. van Hengel, had died in 1936. Hengel had been selected by the foreign shareholders, his replacement by an Austrian had been hailed as an important success of the government in its efforts to rid Austrian finance from foreign influences. business Mr, Holler was an engineer, taken over from the public utility of the defunct Escompte-Gesellschaft which had been absorbed by the Messrs. Pollak and Rottenberg Credit-Anstalt in 1933-34 (see P. 13). a member of the management of the old were Jewish bankers, the first Bank-Terein, the other fowierly with the Kontrollbank (see p, 38). Th.e bank had its main office in Vienna and branches in St. P~1ten and Wiener Nustadt (Lower1t Austria) Lina (Upper Austria); Salzburg; Innsbruck (.Tyrol); Bregenz and Feldkirch (Vorarlberg); Graz In addition, and Leobon (Styria); Klagenfurt and Villach (Carinthia). It had a controlling interest it had a branch in u.dapest (Hungary). fir .Bnk in most of the Austrian provincial banks, especially in the Obersterreich un.d Salzburg, the Bank fflr Krnmten the Haup'tbank fUr Its Tirol und Vorarlberg, and the Steiermtrkische EscomPte-Bank. foreign affiliations included minority holdings of shares and repre in l sentation on the Board of the A rNeAine Jugos1avisch.e anikre 3eogradand Zagreb, the All'emeine inkk-Verein in Warsaw and the '.ancue In addition, the bank was repreFranco-iBel e et .alkanioue in Sofia. on the Board of the Ungarische Allgeemeine Creditbank, in Budapest. sented of industrial enterprises which the bank listed in The list sphere of interest" included its yearly reports as belonging to itscorporations, .especially ih the important Austrian practically all the field of insurance, water transportation (the major railroads were were owned owned by the gove rnment), power works (most public utilities by state or municipal administrations), construction, mining, steel works, metal 'indus'tries, railroad equipment, machinery, electrical equipment, automobiles, paper, flour, sugar, dairy products, spirits, textiles, leather goods, rubber, chemical, oil, hotels, department stores, moving pictures and real estite. .It atlso participated in the

management of the "Vienna Fair" which attempted to make Vienna again Most of its a center of foreign trade for South-Eastern Europe. interests in foreign enterprises had been transferred to the Socihtt Continen'tle de Gestion, a holding company formed - in Monaco in 1933 for the benefit of the bank' s foreign creditors (see above p, 12). controlled 50 per cent of the shares of that company However, it still and the mergers with the Bank-Verein and the Escomte-Gesellschaft had In 1937 these included metal again increased its foreign interests. and textile industries in Hungary and Yugoslavia, rubber and chemical enterprises in Hungary, and oil refineries in Poland, The capital structure of the bank had again been changed in The 1936 (for an account of earlier changes, see pp. 9 arid 12). heavy obligations resulting from retirement pensions due to the employees not only of the old Credit-Anstalt, but also of all the banks that had directly and indirectly been merged with the bank, had These constituted a constant burden for the reorganized institution. obligations as far as they concerned employees retired before 1937, were now taken over by a separate Pensions Fund to which the b;k To make this transaction possible contributed almost 100 million S. without giving the appearance of a loss, the share capital of the bank was reduced frau 167 to 101 million S, by reducing the face value of the preferred shares (held by the foreign creditors) fran 500 S to 375 S, and of the' comnon shares (held mainly by the government and by from 500 S to 250 S. the National Bank through the Tndustriekredi t received for the difference of 125 S "Funding The foreign creditors .Certificates" which, were to be amortized within seven years, bearing Since the yearly 5 per cent interest payable only out of profits. stabilized at 5 per cent, the foreign creditors dividend of the bank was suffered no damage by this operation and even obtained assurance of early repayment of pn- t of their investment in the bank. balance sheet before the Nazi invasion showed the The last status of the bank as of December 31, 1937; it is given below in summary formn Assets: Thousands of S 45,543 89,943 68,911 19,689 371,937 68,121 4,992 Liabilities: Thousands of S 101,000 3,000 3,621 139,403 231,316 69,060 58,326 13,410 669136

Cash and due from banks Bills Investments Syndicate participations Debtors Mortgage loans Bank premises, etc.

.669136

Share cApital Surplus Reserve for pensions Savings deposits & certificates .Demand deposits Other current liabilities Mortgage bonds Profit for 1937 .

The bank listed, in addi tion, guarantees on behalf of cusof the tomers, counterbelanced by the corresponding liabilities for future payments to customers, of 62.4 million S; the liability the Industriekredit, according to the agreements made at the time of

the transfer of the banking business of the former EscompteGesellschaft to the Credit-Anstalt (seo: above p. 13) of 12.3 million on investments of 860,000 S. S; and uncalled liabilities Included in the "cash" item were 2,6 million S in gold and 10.5 million S in foreign currency, mostly Dollar and Sterling balances. Among the bills, 90 per cent were Austrian and the rest foreign trade bills, most of them with a term not exceeding 90 days and eligible for The investments included 11.7 rediscounting with the National Bank. Austrian bonds (mainly government securities and treasury million S of bills of the City of Vienna), 1.2 million S in foreign bonds, 48.7 million S in Austrian shares (including the shares of its Austrian bank affiliatee and its own repurchased "Funding Certificates") and 7.3 million S in foreign shares, including the shares of its foreign bank affiliations. The "Syndicate Participations" included those investments which the bank had acquired pursuant to underwriting agreements as a member of a group .("Konsortiumi); such investments would normally be resold in due course to the public, remaining meanwhile, They consisted of 9 million S in in the common control of the group. Austrian bonds (mostly government issues), 8.9 million S in Austrian shares, and 1.8 million S in foreign shares. Among the debtors were 243.7 million S advances to customers, mostly on "current account!, 18.7 million S advances to banks and savings banks, 26.2 million S advances to public bodies, and 68.8 million S advances to "participation debtors", i.e. to firms the capital of which was owned, entirely or in part, by the bank itself. The 3argest debtors (owing more than 1 million S each)accounted for credits, while the snallest (owing up to 100,000 S) 57 per cent of all The items "Mortgage loans" and accounted only for 13 per cent. "Mortgage bonds" each included 50 million S of loans made, and bonds issued, as trustee for the governent under the federal housing program. the pensions reserve had to On the side of the liabilities, cover only claims arising after January 1, 1937, since all previous The savings obligations had been taken over by a separate organization; deposits included 2.9 million S in foreign currency and 20.9 million S The deposits included deposits by public bodies of in "Certificates".

23.8 million S, by banks and savings banks of 82.5 million S, and

others of 175 million S. Other current liabilities outstanding of 1 million S and transitory items, 68 million S. included checks reserves, etc,, of

The revenues of the bank were derived in 1937 principally from interest, on "current accounts", bills and investments (24 million S), earnings from commissions, also frequently related to "current account" transactions (7 million S), and profits from foreign exchange operations (4 million S); the net profits from the purchase and sale of investments and from syndicate participations were carried to The expenses consisted mainly of wages and salaries reserve accounts. -- including retirement payments (1li million S), social insurance payments and taxes (5 million S), interest paid on deposits (3 million The S), and the annual payment to the Industriekredit (1imillion S). a profit op 13.4 million S which total earnings of 38.4 million S left
f.

-35was allocated as follows: 5 per cent dividend on preferred and common shares and 5 per'cent interest on: "Funding Certificates" (5.9 million S), amortization of Funding Certificates (2.5 million S), and the rest (5.0 million S) to Surplus after small payments to statutory reserve funds for mortgage bonds and to themembers of the Board of Directors, Other'Commercial Banks All other commercial banks were either mere branches of foreign institutions;, orthemselves affiliated with the CreditanstaltThe fonrier gro.up was of far ,greater importance than the Bankveroin. latter, The largest foreign bank doing business in Austria was the Zentral-Europi sche L nderbank, originally an Austrian corporation world which had to transfer its main office to Paris after the first The great majority of its shareholders and directors were French: war. President :was Mi, AndrfLuquot, a fonaer governor of the Bangue de France; Vice-President M, Charles Rist, cor-author of the League of Nations report on: Austrian fianncial reconstruction, famous economist General Manager and a director of the 3anque de Paris et des Pays Bas, was M. Henry Reuter, Manager of the Austrian branch was Mr, Enil Freund. total The Austrian business furnished more than four-fifths of its assets andrevenues.. In addition, aside from its small French business, the bank owned controlling interests in banking institutions in Poland (llgemeine Kreditbank), Czechoslovakia ('ank fir Handel und scompte- und Wechselbank) and Industrie), Hungary (Ungarische Its share capital was 100 million Rumania (Ruma nische Kreditbank). total Fr. (at the end of 1937 about equal to 20 million S) and its assets 1,8 billion Fr. (about 360 million S). The Austrian branch had its main office in Vienna and branch offices in Baden (Lower Austria), Linz (Upper Austria), Salzburg, Its business included a "commodity Innsbruck (Tyrol) and Graz (Styria). Its balance sheet for department" which traded in coal, coke and sugar. December 31, 1937, follows:

Assets:;

Thousands of S

Liabilities: Acceptances Sayings deposits

Other Creditors and Demand Deposits Profit

Thousands of S 473 117,946

164,998

Cash.and,due from banks 57,798 64,432 Bills

Securities Participations Debtors 2,204 21,500 138,333 284.267

28 4267

The management of the Vienna branch had always been famous Although the revenues of the bank. suffered sound conservatism. for its from this policy dc ring the years of post-war expansion, the net result was highly beneficial: the bank was the only major institution operating in Austria that was: able to survive the crisis of 1931 without catastrophic losses.
// ... '/-

Another bank ;hich has to be classified as the Vienna branch of a foreign institution was the iMrcurbank. It was formally an Austrian corporation, but practically- all its shares belonged to the Dresdner Bank, of Berlin. It had branches in Klosterneuburg and Wiener

Neustadt (Lower Austria), 31udeenz and Bregonz (Vorarlberg), and affiliated institutions in Eisenstadt (!rgenlanird) and Budapest, balance sheet for December 31, 1937, follows: Assets:
Cash

Due

to its connection with one of the largest oreman banks a considerable part of its business consisted in financing exports to Germany. Its

Thousands of S
13,715

Liabilities:
Share Capital

Thousands of S
15,000

Bills
Securities. Participations

21,776
7,046

Surplus
Savings Deposits Profit

2,000
25,927 202

Debtors
Premises

73,168
2,400

Other Creditors & Dem.Dep. 74,976 118i 105

..

, 105

Another Vienna branh of a foieign bank of some importance was the Vienna office of the Zivnostensk Banka, of Prague, It did not publish separate statemcnts for its Vienna business, but the assets of the branchwere estimated at about 45 million S, The Societh Italiana di Credito had a. branch in Vienna which did some slight business representing the big Italian banks, especially the Banca Comrerciale Italiana. Its financial importance was, however, far smaller than its political weight, due to its connections with the fascist authorities. It did not publish accounts of its Austrian business. The Hunga'rian banks had branches in Vienna which, however, acted mainly as exchange dealers: The "Hernmes" Ungarische Allgemeine Wechselstuben A.G. (.assets: 10 million S), and the Central-

Wechselstuben A.G.(assets: 1,8 million S).

Two other foreign institutions had important financial connections with Austria although they did not engage in commercial

banking,

The Anglo-International Bank Ltd. was the successor of the

Anglo-Austrian Bank, an old Vienna bank which had to move its main world war, and transferred its bankoffice to London after the first ing business in the various "successor states" of the Habsburg monarchy

to separate "nationalized" institutions. In Austria, its business was taken over by the Credit-Anstalt in 1926. As a result of these transactions, it still owned shares of that bank as well as of the BritishHungarian Bank in Budapest, the Rumanian Credit Bank in Bucharest,

the Anglo-Czechoslovakian Bank in Prague, and the Bfanca ItaloBritannica. It remained merely a holding company, with a capital of almost 2 million (about 50 million S) and assets of 3 million

(about 75 million S).

The Continentale Gesellschaft fTr Bank- und Industriewerte was a kind of investment trust,' affiliated with the Schweizerische

Bankverein in Basel (Switzerland). It had been founded by that bank in cooperation with the Credit-Anstalt, the Austrian house of Rothschild and some prominent British and Dutch private bankers for the sake of the administration of and trade in securities of and participations in Central European enterprises. Its capital amounted in 1937 to 30 million Swiss Francs (about 37..5 million S), its.assets to 44 million S (about 55 million.S), Native Austrian banks in Vienna other than the Credi.tanstaltBankverein played a negligible role. The largest among them, the part Niede rsterreichische Gewerbe- und Handel sbank attempted to fill of the credit needs of small business men and its officers were chosen from the ranks of the statutory "guilds" of artisans, Its capital was 20000 S, its total assets amounted to 3.8 million S. Other institutions of still snaller volume were the Continentale Bank , the finance department of the largest grocery chain in Central Eurcpe East of Germany, they Julius Leinl A,G. (capital; and the Bank f r Potroleum und 1 million S, assets 1.5 million S) Bergbau, the finance 'department of the Austrian branch of the Royal Dutch-Shell oil concern (capital: 100,000 S). The Austrian provincial banks, although fundamentally patterned after the model of the Vienna banks, were only of local importance. The largest was the Bank fiAr Oberosterreich und Salzburg, owned jointly by the Creditanstalt and the federal state of Upper Its capital amounted to. 2.5 million S, its total assets to Austria. 36.8 million S. It had its main office in Linz (Upper Austria), branches in Amstetten (Lower Austria), Bad Ischi,' Gunden, Mattighofen, Ried, Steyr, Vcklabruck and Wels (Upper Austria), Salzburg and Badgastein (Salzburg), and a series of "agencies" in snaller towns, Tirol und Vorarlberg belonged to the The Hauptbank ftr millio' S and total assets of It had a capital of. l Creditanstalt, It had its main office in Innsbruck (Tyrol) and 18,9 million S. Bregenz, Dornbirn branches in Kufstein, .Landeck, St. Johann (Tlyrol), The Steierm rkischee sGsconpte-.Bank belonged and Feldirch (Vorarlberg)', also to the Creditanstalt (Qwith which it was formally merged; in 1938, after the Nazi invasion.),. Its main office was in Graz (Styria), Its capital amounted with a branch office in Klagenfurt (Carinthia). The Bank fUr Karnten to 2 million S, its assets to 27.4 million S. was ownied jointly, by the Creditanstalt and the B3eayerische HypothokenIt had its main office in Klagenfurt und Wechsel-ank, of Munich. Its and branches in Spittal, Villach and Wolfsberg (Carinthia). total assets to 9.7 million S. capital amounted to 1 million S, its The Salzburger Kredit-und lechselbank in Salzburg, was the only major provincial bank not affiliated with the Creditan talt, ot heken- und Wechsel bank and was It belonged to trische therefore destined to play a more important role after the Nazi total In 1937, .its capital amounted to..2.3 million S, its invasion. assets to 15.6 million S.

3i

In the federal state of Burgenland (that part of Austria which, up to the end of the first world war, had belonged to Hungary) there were seven very small banks. They had been founded under a provision of Hungarian law permitting corporations to combine the functions of savings and commercial banks, which had to be separate under Austrian law, Their names were: Eisenstader Bank fur das Burgenland, in Eisenstadt, affiliated with the Mercurbank (assets: 2.3 million S); Frauenkirchne,.Spar- und Kreditbank: in Frauenkirchen .(assets: 1 million S); Gilssinger Spar- und Kreditbank, in Gussing (assets': 740,000 S); Mattersburger Spar- und Kreditbank in Mattersburg (assets: 1 million S ); OberwartherBexrk._-S ar- und Kreditbank, in Oberwarth (assets: million S); Pinkafelder Spar- und _Keditbank in Pinkafeld (assets: 2.3 million S); and Rechnitzer Spar- und KIeditbank in Rechnitz (assets: 700,000 S). More important were some financial institutions which, although not themselves commercial banks, fulfilled some special functions in connection with commercial banking. The Osterreichische Kontrollban1 fir Industrie and Handel had been founded by the Vienna banks to administer the "cartels" of Austrian industries - monopolistic trade associations for the sake of a common price, production and marketing policy and often acting as a common sales agency for their members - and.also was engaged in the financing of exports under clearing agreements with certain Eastern European countries. Under a special statute, it acted at Liquidator for the life insurance company "Phoenix". It had affiliated institutions in Hamburg, Budapest and Bucharest. Its share capital was only .750,000 S, its total assets 1.8 million S. Another common enterprise of the Vienna banks was the Wiener Giro- und Cassen-Vere4n acting as a clearing institution for all transactions, in money and securities, on the Vienna exchanges. The -company also was charged with the execution of foreign exchange transactions in'connection with imports an exports, the so-called "private clearing" (see p. 10) and acted as fiscal agent for freight and tariff-credits. Its turnover, in 1937, amounted to 7.2 billion S (against 33 billion S in 1929). Its share capital was 600,000 S, its total assets (mainly cash and balances with the National Bank) amounted to 28,8 million S. The Wiener Saldierungaverein the check clearing house of all Vienna financial, institutions was managed by the National Bank. Its turnover amounted to 2,5 billion S in 1937 (against 4.billion S in 1929. Savings Banks The first Austrian savings bank was founded in 1819 as a nonprofit association of "humanitarian" capitalists who wanted to stmulate the propensity to save among the lower Income groups. The "regulation" of 1844 which remained in force, with little change, up to the Nazi invasion, decreed the principle of government supervision, and stated that savings banks could be founded only by nonprofit organizations (needing a special government permit) or by

24.-59475

From that time on almost all municipalities (cities, districts). ssavings banks wore founded by municipalities rather than by private The law also rigidly, prescribed the types of business associations. in which savings banks might engage, permitting only the acceptance of savings deposits and, their investment in government bonds and first mortgages, secured loans to municipalities and in other bonds which wore, by government decree, declared to be a permissible invcs'taent for trust funds (secured railroad bonds, bonds issued or guaranteed by public bodies, etc.) The inflation destroyed the value of both the assets and the liabilities of the savings banks:- deposits which had reached 2 billion K (4.3 billion S) in 1913, had dropped to 3 million S in .rt _.fter the stabilization of the currency, deposits again 1923. Also the government, in order to help the savings banks developed. to rebuild their business, amended the "regulation" of 1844 so as to permit the banks to accept checking deposits, to discount bills under proper precautions, to ad ance money upon approved collateral (mainly government bonds), to take securities of their customers into custody, T'hey :also v-rc allowed to make advances and to rent safe deposits. to "credit associations" formed under their supervision, which granted The Savings credit to their members on the basis of mutual liability, Banks were managed on such a sound basis that they successfully withstood even the crash of the Creditanstalt, in 1931, Although 250 million S was withdrawn from the savings bans at that time, not a single savings bank failed or even suspended payments for a single day. After 1931, however, the intrusions of the savings banks into the spheres of commercial banking and credit cooperatives were curtailed, and they concentrated upon their original line of business. At the end of 1937, there were .197 savings banks in Austria, with deposits of 1.8 billion S, more than 90 per cent of which were The great majority had deposits from 1 to 5 million savings deposits. S each; only tto Vienna savings banks had deposits of more than 60 million S, but these two institutions accounted for almost one half savings banks. of the total deposits of all of s.l savings ba nks, exA summary of the assets and liabilities cluding the POstal .Savings ysto, is available for December 31, 1936, as follows: Assets: Millions of S Liabilities: Millions of S 1,611 122 82 148 10

337 Cash and due from Banks Mortgages on Urban Real Est. 500 282 IMortgages on Farms 173 Loans to Municipalities 573 Securities 208 Other Assets 1,973

Savings Deposits Checking Deposits Other Liabilities Surplus and Reserves Profit for 1936

L,973

The most important savings bank was the Zentralsparkasse der Gerieinde Medn, owned by the City of Vienna and, n ext to the National ank and the Creditanstalt-Bankverein, the largest financial institution in Austria. A sum ary of its balance sheet for December 31, 1937, follows: Assets:. Thousands of S Liabilities: Thousands of S

Cash and Due from Banks

Mortgages Loans to Municipalities Securities Bills Discounted Debitors Other Assets
Transit Items

126,927
123,961 104,155 163,182

Savings Deposits
Checking Deposits Creditors Transit Items Reserves

457,427
30,177 26,507 16,341 57,860

.21,891
27,999 5,550
14,647

__

588,312

588,312

The bank was very well managed: its net profit for 1937 was
1,7 million S and it had operated- with profit even during the worst In addition, it was a powerful weapon years of the credit crisis. One of the main grievances in the hands of the municipal administration. of the anti-socialist real estate owners in Vienna, during the socialist period of city government (1919-1934), had been that they were dependent for much of their credit upon an institution controlled by their political enemies. The second most important savings bank, the oldest in Austria run in the form of a non-profit assoand one of the very few still It was ste Osterreichische Spar-Casse, in Vienna. ciation, was the likewise one of the most respected financial organizations of Austria, Board of Directors was and to become a (purely honorary) member of its

a coveted social honor. 31, 1937, follows: Assets:

A s unmary of its balance sheet for December Liabilities: Thousands of S

364,448 12,950 12,534 22,741 1,620
1,309

Thousands of S
57,667 155,256 175,27723,028 4,374 4153602

Cash and Due From Banks Mortgages Securities Debtors Other Assets

Deposits Creditors Capital and Surplus Reserves Transit Items

Profit for 1937

415,602

A third savings bank in Vienna, operated by a non-profit organization, was the Neue iener Spar Casse , with deposits of 14.6 of important savings banks outside Vienna is given A list million S. o: pae. e. 3-65. A further savings institution was the Postal Savings System Postsparkassenart). It had been founded in 1882 upon the model of the'

41

British Postal Savings Bank except that it accepted checking as well as savings deposits in order to popularize the use of checks in Austria, It was owned and guaranteed by the federal government, All payments from and to the government, except. for those transactions (foreign exchange, precious metals) which had to pass through the National Bark, were made through the Postal Savings System. Every Post Office in the country acted as its agency. The System used to head the "syr,:iatos" of Austrian credit inst tutions underwriting government bond i.;ues offered to the public. Under a statute of 1926, the bank was permitted to transact the following kinds of business: undervriting of government bonds and collecting government bills; investing its funds in securities, except shares and making advances upon such securities; and placing deposits Discounting bills and warehouse receipts, although in the National Bank, Before 1926, the bank had been legally permitted, was not practiced. permitted to advance mnoney upon shares and, by doing so, had suffered As a result, the government had to make good its tremendous losses. liability to the extent of 130 million S. A particular kind of savings deposit popularized bf the Postal Savings System was the premium deposit: by foregoing part of the regular interest rate and maintaining a minimum savings balance of 300 S throughout the year, a depositor could qualify, for participation in a premium drawing, held once a year and distributing to the winners his system, like the governpremiums ranging from 50 S tolo,000 S, ment lottery and the government lottery bond issue of 1934, was part of the government effort to use the gambling tendency of human nature for good purposes rather than to try in vain to suppress it, In 1937,- the Postal Savings System had 700,000 savings accounts and only 125,000 checking accounts,. But checking balances were twice as large as savings balances, and the turnover was 26,6 billion S on checking accounts as compared with a mere 184 million S A summary of the balance sheet for December 31, on savings accounts, follows: 1937,

Assets:

Thousandof
66,211 159,168 79,787 12,899 3,063 130,000

of Liabilities S Lis:
Savings Deposits Checking Deposits Other Liabilities Reserves Transit Items
.

ousads Thousandof S
.146,627 279,422 7,392 15,201 2,486

Cash and due from banks Securities Debtors Other Assets Transit Items Government Liability

451,128

451128

While the Postal Savings Bank was managed by civil servants

appointed by the government, the other savings institutions were autonomous except for the fact that the government had the right to appoint state commissars with veto power against illegal acts of the The rporations. management, as in the case of business c

direction of their affairs rested with Boards of Trustees or Directors, either appointed by the parent municipality, or (in the case of savings banks founded by private associations) self-perpetuating in character, who selected and supervised the actualmanagers. In December, 1937, the savings banks organized a clearing house, the Giro-Vereinigung, with a share capital of 15 million S subSince 1.922 scribed by the savings banks and the Postal savings system. the savings banks of Styria had had a clearing bank of their own, the Vereinigte Bank Steirischer Sparkassen, in Graz,. with a capital of

600,000 S and total assets of 13,4 million S.

The savings banks of

Upper Austria and Salzburg had a similar institution, for clearing purposes, in the form of a cooperative, the Wirtschaftsvereini gun Oberosterreichischer und Salzburger Sparkassen, in Linz. The savings banks were the most important single group of financial institutions in Austria, not'merely because they had by far the largest amount of deposits and of total assets, but also on account VWhile the commercial of their wider distribution throughout the country. only in the largest banks were concentrated in Vienna andhad branches provincial cities, the savings banks penetrated into every township where a minimum of savings capital could be found, P-rivate Banking Private banking played a minor role in Austrian finance. Private bankers were forbidden by law to accept deposits, and their

activities in the field of investment banking ,.fter 1918 were curtailed by the lack of capital of their phrtners as well as of their customers,
Many of them were little more than small money changers, and agents for

capitalists sp.eculating on the stock market. In March 193.8, there were about 140 priyate banking finus in The great majority Austria, more than 75 per cent of them in Vienna.
was of the Vienna firms - in contrast to those outside of Vienna Jewish. 'he most important of theam was $~,M.v Rothschild, the only one large enough to be a member of the . tSaldierungsverin'- (check clearing

house).

The house of .Rothschild, in spite of the tremendous losses

suffered in connection with the Crodit-Anstalt, 'was actively engaged in underwriting goverment bonds, and had at its disposition not merely the personal wealth of the Austrian branch of the Rothschild family, but the invaluable ties with the family firms in London and Paris. Others used their well-established foreign connections for acting as

intermediaries between Western European and American lenders and Central

and Eastern European borrowers. The old firm of Ephussi & Co. repre-

sented the interests of the Deutsche Bank; the firm of Kux 3loch & Co,
was an affiliate of the banking firm of Mendelssohn & Co. in iBerlin and Amsterdam., Other important firms,, mainly engaged in the administration

of the considerable properties of their partners and friends, were Breisach & Co., Frid & Thiemann, Friedenstein & Co. Gebrd. Guimann,
Langer & Co.,
Rosenfeld & Co., (controlled by Bohemian and Hungarian

banks), Gebrlider S. & M. .Reitzes, and M. Thorsch Sohne, Some of these firms used to undertake special financial operations, like Rosenfeld & Ca,, which had a practical monopoly in financing sme:.ll moving picture
theaters. Others, like Breisach & Co., concentrated most of their activities on stock exchange operations in Vienna and abroad,

43 -

The non-Jewish finms in Vienna numbered hardly more than a The most important were Schoeller & Co. which acted mainly as dozen. a banking house for the extensive industrial enterprises (steel, sugar, flour) of the family Baron Schoeller and had close (family) connections with the Sudeten-Gennan industry and the German aristocracy; Chrissoveloni, Bistegli & Co. (industrial financing); Pichler & Schick (foreign currency and security transactions); Pinschof & Co. (with a branch in Innsbruck); and Semmering, Lower and Schelhaimer & Schattera (with branches in B3ad 'Lhe Austria; Salzburg and Badgastein, Salzburg; and Kitzbhel, Tyrol). a pillar of the Catholicfim was. Mr Hans Wancura, owner of the latter conservative party. Its main business was to act as agent, for the Austrian government lottery. Outside of Vienna, there were private banking firms in most state capitals and in a few other fairly large towns, like Baden and The only firns Semmering (Lower Austria) and Braunau (Upper Austria). of importance were those of Krentsch1cr& Co. in Graz, and Carl Spangler & Co. with its main office in Salzburg and branches in Bagastein sand Zell a See (Salzburg) and St. Wolfgang (Upper Austria), primarily engaged in the financing of tourist traffic, including foreign exchange transactions for foreign visitors. Private bankers needed a license to do business, but were not Tihey were not required to publish their subject to regular supe vision. Private balance sheets and no details of their business were available. brokers were of practically no importance. discount houses or bill Mortgage Banks Austrian real estate credit was characterized by the imOrdinary mortgages portance of the "mortgage bond" (Pfandbri f), banks, insurance companies and private inwere granted by savings B.at in addition, vestors, especially administrators of trust estates, by special institutions out of funds which a large amount was invested These bonds they raised in the market by the sale of their own bondd. banks. were secured by the mortgages held by the issuing The original concept of these banks operations was that they should issue their mortgage bonds direct to the person creating the mortgage, who then could obtain cash by selling these bonds in In practice, however, the banks marketed their own securthe market. the market velue of the and paid the mortgagor the proceeds, i.e, ities This market value was remarkably stable, having been 96 per bonds. cent during 1937 for the mortgage bonds of all the issuing institubions. The value of the bonds was continuously sustained by reason of the fact that mortgage debtors could purchase them in the market and tender them in lieu of cash .when making repayments to the issuing banks. Also it was the deliberate policy of the banks to stabilize the market value by means of their own purchases and sales. Akin to the mortgage bonds were the "municipal loan bonds" These were not bonds issued by the (Kommunal-Schuldverschreibung). themselves - although some of the larger cities issued municipalities bonds directly - but rather bonds issued by the mortgage banks and

z^-5ii f

secured by loans to municipalities rather than by mortgages Such securities issued by a well-known mortgage bank rere more attractive known municipality. Municito investors than obligations of a little palities therefore found it cheaper to borrow from a mortgage bank than from the public, especially since the banks could assess the credit standing of the debtor better than a private investor, and did not need to include a substantial riSk premium in their interest rates. Mortgage bonds were issued by a commercial bank, - the Creditanstalt, and by the governentovned mortgage bank, the CreditInstitut.. 7ut the but]l of the business was conducted by the Landesinstitutions oved by the eight federal states Hlrotheken -nstalten, They and the free city of Vienna (not by the federal government). were public corporations, with separate legal identity but fully They had no guaranteed by the governmental bodies that owned them. capital of their own, but they built up reserves out of their profits wrhich made it unnecessary for them to ask for appropriations from their A "!oard of. Trustees" (iuratorium), composed of repreCarent bodies. sentatives of the state admiistrations, appointed and supervised the Xanager, who together with his staff, in practice, was in sole control of the institution. The mortgage business of these institutions was facilitated by the national Land Register (Grrundbuch) which showed beyond a possibility of dispute the extent, ownership and encumbrances of all or Uncertainty as to title parcels of real estate in the count r. The fact that a previous liens was thereby completely eliminated. mortgage was used as security for a mortgage bond issue was also recorded in the Register. ortgage bonds were based on both agricultural and urban real Only real estate the market estate, in approximately equal parts. value of which could easily be ascertained and realized, could be mortgaged to mortgage banks; "luxury" estates or "luxury" buildings (theatres), and factories with a value based largely on goodwill were mortg.:.ges, The banks were authorized to lend on first not acceptable. value of a building, and up to two-thirds up to half the ascertained of the value of a farm; however, they tried to keep the mortgages to 50 per cent for fanus, too. downl Second mortgages on new dwelling projects, up to 90 per cent of the construction costs, were financed through a special procedure received The latter arranged by the government with the mortgage banks. applications for such mortgages, and after having obtained the governThese mentt s approval, financed them by issuing special Housing Bonds. bonds, marketed through the government-oevned Credit Institut, were serviced by the government, which in turn received from the mortgage banks through the Credit Institut the interest and amortization payments affected by the borrower. The mortgaging of urban apartment houses had for many years been curtailed by the legal rent restrictions which made the profitable Tut the gradual relaxation operation of such buildings impossible.

-45of these restrictions after 1933 made such houses again legitimate objects of mortgage bonds. During the first years after the stabilization of the Austrian currency, all mortgage bonds were issued with gold clauses which created. great difficulties after the devaluation of the schilling, in 1931-33. The government finally found a solution by ordering the payment of these bonds (and of the underlying mortgages) at a 25 per cent premium, corresponding approximately to the actual change in the gold value of the currency, but at the same tite reducing the original interest rates to current levels and prolonging the period of amortization. Immediately after the war, the interest rate on mortgage loans had been as high as 12 per cent, but it was gradually reduced to 5 per cent, and a further reduction to 4 per cent was planned to occur in 1938, The debtor had to pay, in addition to that interest rate, a federal tax of ,15 per. cent and an "aoTninistration fee" of #- of 1 per cent; therefore total charges came to 5,65 per cent, The mortcalculated in such gages were amortized by. means of annuity payments, a way that the debtor paid for a stated period a fixed annual sum comprising interest and capital instalments; a corresponding amount of mortgage bonds was repurchased out of retirement funds accumulated by the banks. The amount of the annuity varied according to the agreed period of repayment; the maximum period was 47- years, (annuity 6.15 per cent) and the minimum 25 years (rannuity 7.65 per cent), In addition to their bond business, the mortgage banks with the exception of the Vienna bank which left that kind of busir ness to the city-wned Vienna savings bank - received savings and other deposits and. invested them mostly, like a savings bank, in short or medium-rterm ordinary mortgages. On December 31, 1937, the nine state-owned mortgage banks had total assets of about 790 million S, mortgage bonds outstanding in the value of 265 million S, municipal ,oan bonds of 195 million S, housing loan bonds of 120 million 3, savings deposits of about 90 million. S and other deposits of about 60. million S. The largest individual institution was that of Lower Austria

(total assets- 240 million S), then followed .Trol (assets: 1721 million S), Upper Austria (assets 47 million S), Carinthia (67' million S), Salzburg (63" million S), the city of Vienna (36 million S), Vorarlberg (26- million S), .Burgenland (20 million S) and finally Styria (17
million S), The business of the mortgage bank of Burgenland v as. conducted by the management of the ?ank of Lower Austria, although it had its on B3oard of Trustees. The Vorarlberg institution issued bonds not only in schilling but also in Swiss Francs, on account of its proximity to Switzerland and its close relations with the Swiss capital market. the balance sheet of the largest institution, that of Iower for December 31, 1937, follows:

Austria,

I. .-

.f -'

)1

Deposit Business

Assets:

Thousands of S 18,556 9,378

Liabilities:

Thousands of S
35,204 22,662 S1,217 3,000 872 76

Cash and Due From Banks Securities Current Accounts Loans and Advances Premises, etc. Transit Itoms

869
33,574

44 610
63, 031

Savings Deposits Current Liabilities Reserve Fund (Surplus) Pensions Fund Transit Items Profit for 1937

63,031

Mortgage '3ond Business;

Assets:
Mortgage Loans Securities Transit Items

Liabilities: ilortgage Bonds Reserve Funds (Surplus) Retirement Fund Current Accounts Transit Items Profit for 1937 72,262 1,438 9,659

72,381 11,097 1,460

271
1,229 79
8,t 33

Municipal Loan Bond Business: Assets: Loans to Municipalities Housing Loans Securities Transit Items S Liabilities:

61,506 26,566 2,501 1,945

'MunicipalLoan Bonds Housing Loan Bonds

61,506 26,566

Reserve Funds (Surplus)

Retirement Fund Current Accounts Transit Items Profit for 1937

650 1,8.51
599 1,270 76

92

The bank had gross revenues in 1937 of 10.8 million S, consisting principally of interest which, in the case of the mortgage and municipal bond business, was exact1y equivalent to the interest therefore, w~v.,s ,of 1 per cn.t of The "admninistr.tion fet" paid out, a slight profit. sufficient to pay all expenses and to leave An institution similar.-in purpose to the state-owned mortgage banks, but organized in form of an ordinary banking corporation and owned by the federal government, was the Creo dit-InstiLtut fr It was administered by civil servants, Offentliche Unternehmuggen. In mainly former members of the staff of the Ministry of Finance, addition to its functions as a mortgage bank, it acted as trustee for the Housing Bonds issued by the mortgage banks on the bdasis of governOther special statutes made the institution the ment liability. Official Receiver for insolvent banks. nd hotel enterprises reorganized The institution also differed from the staterith governmental help.
' '* '.'

,'

4"(

owned mortgage bank in that it handled ordinary commercial and investment business, e.g. as banker to the government-owned Austrian Broadcasting Corporation, ('avag") and t to Vienna stockyard organization, the (Wicner Vich - und Flei echarktKaessa). A swinary of its tbalnce sheet for December 31, 1937, follows: Assets: Cash Mortgages Housing Loans Bills Securities Debtors Bank Premises Thousands ofS 23,248 20,873 251, 039 8,703 18,043 64,722 8 Liabilities: Thousands of S

Capital . 10,400 Surplus 2,100 Reserves 2,391 Mortgage Bonds 20,994 Housing Bonds 251,039 Depoeite and Creditors 98,912 Profit for 1937 800

38666

386,636

The mortgage bond business of the Credtanstalt. Banverei was somewhat more substantial, wwith mortgage bonds outstanding to the amount of 68 million S (see above, p.33) In remarkable contrast to the development of mortgage bonds, industrial bonds were rarefy used in Austria. The investor looked upon them as combining the shortcomings of industrial shares, which offered no certainty of income or capital repayment, and of government bonds, whioh 'would suffer from a decline in the purchasing power of money. Moreover, those enterprises which usually rely most heavily upon that form of corporate finance, railroads and public utilities, were owned to a large extent by the federal government and other public bodies, and therefore financed by government rather than by industrial bond issues. Only a few semi-public utilities, owned jointly by public agencies and private investors, and.a very small number of other large enterprises, had industrial bonds outstandipg. The face value of all such bonds outstanding in 1937 amounted. to 208 million , of which 129 million S were obligations of public utilities. Most of these bonds had originally been Dollar obligations issued in the United States, but had been converted into Schilling after the devaluation of the Dollar, No banking institution specialized in this kind of business. The Industriekredit had been created by the National Bank in order to undertake such a :unaction, but it never did so, for lack of capital as well as of interest on the part of prospective investors. Agricultural Credit
r The need of agriculture for longrterm oredit was satisfied by the activities of themortgage banks and by those of savings banks, insurance institutions, and private investors granting ordinary mortgages. Less complaints ,ere heard about a scarcity of supply of long" term capital than about some farmers mortgaging too high a proportion of their property to private investors and above all, about interest rates. Private capitalists sometimes asked as much as 1012 per cent, -even for first mortgages which were safely covered by. the mortgaged property, and the rates on second or third mortgages were still higher.

24-59475

other "import restrictibos the price of agricultural products was not less in the thiirties, to high enough in the 'twenties,. and still warrant such a burden. .Moreover, mani Austrian farms were located in Alpine valleys, on.mountain slopes, and in remote,areas where modern methods of mechanization and rationalization could not have been used even if the necessary capital had been available, Statistics as to the amount of agricultural mortgages. are available only as far as mortgage banks, savings banks and insurance The latter had become less important after companies are concerned. the crash of the Phoenix in 1936, which in a single year reduced the total assets of the A.ustrian insurance companies by almost 500 million S. Farm mortgages granted by ts thsethree groups togher may be estimated at 500 million S .in 1937, of which about.300 million was granted by savings banks, about 180 million $ by the mortgage banks, and the rest by insurance -companies. No reliable estimate is available for the: amount of the total of private farm mortgages but these probably aggregated nearly as much as the 'ortgages granted by The total arable farm land in Austria financial institutions, amounting to about 2.7 million hectares (6.9 million acres) the total mortgage debt"was 300-360 S per hectare of arable land (about $15-18 per acre), or almost exactly the figure for the United States Since the quality of Austrian farm land, however, was very (1935). much inferior to that of the United States, the indebtedness of the Austrian farmer was in reality fr more burdensome than that of the American In order to alleviate-the burden of the famer, a statute of 1932 permitted the suspension of foreclosure proceedings for.6 months in cases of. great hardship for the debtor; but* that law .was-- -repealed in 1936. lMo.anwhile a government..fund for the relief of farmers in. mountainous districts ( crgbauemrHilfsfond) had been:. created, and this fund was used to make grants and loans for the payment of arrears, the conversion of private mortgages or the rehabilitation of:the famner in general, If the owner of the rehabilitated farm appeared incapable of operating it economically, the fund was entitled to have the fam foreclosed and to transfer it to a more aset .mYa- ~ ) promising/ candidate; however, this procedure .wa's u

e In spite of t h protection granted Austrian faimers by tariffs and

The problem of short-term agricultural credit was attacked

by rural credit co8peratives, named itcr their German origin.tor There were almost 2,000 of these cooperatives Raiffeisen-Kassen. in Austria, with deposits of ;more than 350 million S. In contrast xclusively based to the urban credit cooperatives, they "wcre.almoste liability of all members for the debts upon the principle of unlimited of the cooperative. Like all other cooperatives, they were- organized in state-wide associations which supervised their operations and. acted as financial clearing institutions. -In Lower Austria, the Nieder6sterreichische Landwirtschaftliche Genossenschafts-Zentralkasse in Vienna included, i addition to a-lmost 1,200 other agriculturalcooperatives, about 600 credit cooperatives. In Upper Austria, the Oberssterreichische Genossenschafts-Zentralkasse in Linz included
, .rl h f r~

;i

L1,

-4.9-

about 300 agricultural and non-agricultural credit coeperatives. In Tyrol, the Tiroler Genossenschaftsverband, in Innsbruck, included almost 200 agricultural credit cooperatives. In Vorarlberg, the VerbandLandwirtschaftlicher Genossenschaften, in Bregenz, included about 90 credittcoperatives in addition to 120 other agricultural cooperatives. In Styria, the SJteri.cheRaiffeisenverband, in Graz, included 300 credit and almost as many other agricultural co1peratives. Similar organizations of smaller importance existed in Carinthia and Burgenland. All these institutions were in turn organized into the Girozentrale der sterreichischen Genossenschaften, the financial Its center of all Austrian agricultural and industrial cooperatives. share capital was 5 million S, and its total assets amounted to 4.1.3 million S (cash and due from banks 8,3 million, bills 9.3 million, securities and participations 5.2 million, debtors 17.5 million S). Most individual cooperatives were small and covered only a They were administered by a honorary Board of limited local area. Directors,, elected by the members, and a Business Manager, appointed by the Directors (usually the local schoolmaster). Some of them, however, were larger organizations, like the Bauer.yereinskasse fr Steiermark, in Graz, with 12,000 members, deposits of 9.8 million S They collected their funds from and total assets of 11.2 million S. of their members, without any substantial outside assistthe savings ance. For the credit they granted to their members, they charged 5-8 per cent interest, an average lower than that for commercial In genera? they credit because of the low costs of administration. Where such difficulties without difficult"'. maintained their solvency arose, as in the case of' some Styrian cooperat.ives, the reason was alm6st without exception some violation of their articles of association, like the granting of long-term instead of short-term In all cases, open failures were avoided, although the credit. National Bank sometimes had to advance relatively snall amounts to The co8peratives invested help them overcome their difficulties. their surplus funds with their.contral organizations which in turn helped to finance other agricultural cooporatives organized for purThe organization for Lower Austria chasing or marketing purposes. in financing fodder grain imports from neighboring also participated countries (Czechoslovakia). The activities of the rural credit cooperatives were the more important since the commercial banks did not extend agricultural This is apparently' the reason for the relatively high figure credit. In the of deposits. 190 S =36 per head of the farm population. institutions (short United States, the credit furnished by comparable and medium term credit granted with. the aid of the Farm Credit Administration, including the F.ederal Intermediate Credit Banks, the Production Credit Associations and the District Banks for Cooperatives)

amounted to only 1I. per hoad of the fari population in 1938; however, this sum represented only about '20-25 per cent of the total short,term funds available to agriculture.

Other Financial I.sttutions ratives (GenossensGhafteon) were of some Urban credit ccna importence, both as means of con suncer finance .and as sources of credit concentrated in Instalment buying was still for sinall business men. the lowest income groups, an.d outside of the cooperatives, hardly any This was also reputable banking institution was willing to finance it. to pritrue of other consumption credits which as a rule were left (and vate (illegitimate) usurers to the extent that codperatives pawnshops) did not step in. Austria had altogether about 350 non-agricultural credit cooperatives, with-deposits of about 270 million S.: Most of them were located in small provincial torns, The most iiportant exception to that rule was the cooperatives of public. employees, a group of great influence on account of the widespread activities of the government They were of the country, and its subdivisions in the economic life organized in the Union of Civil Servants CoOperatives in Vienna, with Some other 27 member co8peratives and deposits of about 45 million S. credit cotperatives were affiliated with the two existing organizations of consumerst ccperatives (a socialist and a non-socialist one), A few Vienna credit which together had deposits of about 25, million 8, cooperatives were, controlled by a pri-ate firm of pa nrokers The great majority, however (more than 300 ceqperatives with more than in deposits) were. organizod in the Austrian Union of 200 million Cotperatives, A1 the crdit' cooperatives, together with the agricultural and producers' cooperatives, were .joined together by the Girozentrale (see p, 49)which acted as their common banking institution, The organization with which the cobperatives were affiliated (Genossenschafts-Verband) had the duty of ;examining their business and A few cooperatives auditing their books at regular intervals. liability of their members for all debts of stipulated an unlimited of But the great majority restricted the liability the institution. The coaperatives were the asount of his shares, each member to twice allowed to accept deposits from, and to grant credit to their members only, but they were permitted to invest surplus funds in about the of major urban credit oosame manner as savings banks. A list

Operatives is given n

s 66-67.

Building and loan associations started to gain in importance during the late 'twenties and were subject to governmental regulation

by a statute of 1932.
of that kind in

1r

the end of 1936, there were 23 institutions

The most important.(with deposits of 2

million S) was a branch of the great German organiation, Gesellschaft der Freunde, WUstenroth, organized in for of a non-profit "Buildings
All others, with: total deposits of 500,000 S., were Savings Brank, organized as codperatives, four of them affiliated to the socialist union of consumers' coperatives.

existence.

The pamnbroking business in Austria was characterized by the fact that the largest institution, engaged in these activities It had been founded orotheum". was a government corporation, the as early as 1707 for the sake of granting credit upon personal
..

-:

-51-

property on a non-profit basis. In 1923 a deposit department had been added. It conducted auctions of" unredeemed pledges as well as judicial sales and auctions of .works of art. It was headed by a Board of Trustees, appointed by the federal government and the Mayor of Vienna, selecting and supervisin the General Manager and the Managers Of the pawnibroking, auction, and. deposit departments. Its main office was in Vienna, branch offices were in'Baden, Modling, St. Palten, and Wiener Neustadt (Lover Austria), Linz (Upper Austria,) and Klagenfurt and Villach (Carinthia). In spite of its non-profit basis, its interest rates for small personal loans were around 20 per cent per annum, about three times as high as those for ordinary commercial credit. The management justified these rates by citing the high costs of handling small loans and of evaluating, holding, and * in case of default - selling the property pledged as collateral. The loans outstanding amounted to about 40 million 8 at the end of 1937, while deposits included 28 million S in savings and 4.7 million S in checking accounts. Other pawnshops were of local importance only. The largest Vienna firra was that of Gerhold & Weinlich with pawnshops all over the city. None of these firms was organized as a corporation and no published statistics are available, The firm Lwere supervised by the government authorities, to prevent them from receiving stolen goods, defraudinG their custpmers, and charging usurious interest rates. In spite of that supervision, complaints about the size of the interest rates were universal, though without effect.

24-57475

Stock Exchange

The only stock exchange in the post-1918 territory of Austria was located in Vienna. It had been founded in 1771 ahd even after the first World War was a, very important trading center for the securities and currencies of Central and Southeastern Europe. Ihe period of inflation (1919-24) witnessed an unprecedented speculative activity on the exchange based largely upon. it Southeastern European connections, The growing restrictions on international capital transactions during the depression of 1931-33, put an end to most of that business and thus hit the Vienna stock exchange much harder than the markets of the neighboring countries. The following table shows this development by comparing the number of. securities and currencies quoted, and of official brokers, members, and bank employees admitted to the exchange, in July 1914, December 1925, and December 1937: 194
Securities and currencies Official brokers Members 855 30 840

192
924 54 1,289

1937
490 24 392

Bank employees

121

175

22

The members of the exchange were the banks (including the National Bank, and savings and mortgage banks, which were supposed to trade only in bonds and to avoid all speculative transactions), the Postal Savings System, private, bankers, and individual 'investors and speculators who were admitted upon the recprnendation of two members in good standing, Transactions took place either on the rfloor" (Schranken) or in the "coulisse". Bonds and those shares that were supposed to be of "investment" quality,

were traded on the "floor".

All "floor" transactions had to be made through

official brokers; most of those securities had to be traded "at one price', at the equilibrium price computed daily by the brokers and published i.e. in the official price list. Trading in the ,coulisse was done at "fluctuating" prices and had a more speculative character; these transactions were made among the members directly or through middlemen who had neither the legal monopoly nor the other special rights and duties of official brokers, Transactions in most securities had to be carried out through the official clearing conducted by the Giro- und Cassen-'Verein (see p. 38), This clearing took place once or, for the most important securities, twice a week, Transactions were either for "cash" (payment and delivery on the settlement date immediately following the contract) or for "time" (payment and delivery being arranged for some specified future settlement date). Various types of speculative forward transactions were permitted and practiced, Such transactions would have been void under the Austrian antigambling laws if made outside of a stock exchange, but were recognized as valid if made on the exchange according to its rules, The rules of the

--

exchange regulated the rights and duties of the rarties, the tine and foru of their declarations, the prolongation and fulfilment of contracts, and the procedures for lending and borrowing on securities in connection with transactions Due to the clearing of practically all "margin" transactions. through the Giro- und Cassen-Verein,. 'the actual fulfilment of, the, contracts mainly consisted in the. payment of relatively small balances: on each settlement date, In December 1937, listings on the exchange' included 214 shares (among them. 126 Austrian issues with a market value of about 900 million Under the currency reguSchilling), 238 bonds,. and 38 foreign currencies, could be traded only in .a limited way and at the lations, these latter T.he prices fixed in the "private clearing" of.the Giro- und Cassen-Verein. share index stood at 70 per cent of the level of 1929, but at 160 per cent of the level of 1935; the bond index stood at 110 per cent of the level of Prices of govern1935., reflecting an average interest rate of 5.5 per cent. ment bonds were kept steady by the government-controlled credit institutions (Postal Savings System) through judicious buying and selling aimed at ironing out unwanted fluctuations; prices of mortgage bonds were stabilized in the same way by the mortgage bankg; and prices of shares were influenced by the big banks with which the issuing compties were affiliated.: This policy defended by many observers as a .service to investors, but attacked by others as fundamentally unsound, had been one of the reasons that the banks had found themselves overloaded with, shares bought at boom prides when the In later years movements in share prices were depression of 1931 set in. sometimes rather violent; in 1937 the .pric of the"leading Austrian specut lative share (Alpine Montan; mining) fluctuated between 70, and 36 Schilling. In the clearing of the Giro- und Cassen-Verein, the turnover in securities amounted to 626 million Schilling in 1937 (as compared to 5.9 billion in 1923) ; the -number of shares traded was 4 million (as compared to 476 million in 1923). The organization of the exchange was based upon a statute of 1875, enacted as a result of the Vienna stock market crash of 1873 which had ushered in a period.of economic depression surpassed only by that of 1931. No. exchange was to be established without, special government license; it was a criminal offense to take any part in unlicensed exchanges or even to publish any other than thie officially-quoted prices .for any security or The exchange was headed currency traded in the licensed Vienna exchange. the members of, which originally were elected by the nembers by a Committee, of the exchange and after 1934 appointed by the Minister of Finance upon nomination by the official organizations of commercial banks, savings banks, mortgage banks, private bankers, and brokers., This Committee, subject to government approval, established the rules of the exchange, covering not only trading procedures but also the conditions of admission to membership, the privileges and duties of members, the administrative organization, and It decided upon the shares, the establishment of a court of arbitration. It declared and bonds, and foreign currencies to be listed on the exchange. published the insolvency of any member who did not promptly (12 o'clock noon of the settlement day) make any payment due in connection with any transIt was authorized to punish any member for breaking action on the exchange.

. 4

_ Ir'1

54-

the rules of the exchange (including the prohibition of disseminating false rumors) by imposing fines, suspending the membership for a definite period, or excluding the member from the exchange. The court of arbitration had exclusive jurisdiction in all disputes arising from transactions among members or between members and brokers. It consisted of a number of exchange members acting as arbitrators, and a qualified 'lawyer as secretary. The court enjoyed a high prestige, and many merchants made use of the statutory provision pennitting the subtission to the court of disputes The daily routine arising from transactions made outside of the exchange. of the management of the exchange was conducted by a staff of employees under a secretary-general. In 1937, Hans Wancura, of the private banking fin of Schelhammer& Schattera, was chitrman of the Committee; Erst 0. Ernst secretary general; and Max Bitterl-Tessenberg his deputy. The Minister of Finance appointed a civil servant as exchange commissioner and a number of deputies.' The commissioner supervised the management of the exchange and the- activities 6f the brokers, with the right of vetoing any action which he deemed contrary to the law or the rules of the exchange. Disputes between the Committee and the conmissioner had to be 'submitted to the decision of the Mayor of Vienna; the mayor. having been a sQcialist from 1919 to 1934, and being hostile to both the stock exchange and the representative of the Catholic-conservstive Minister of Finance, The Minister of Finance had both parties invariably avoided such conflicts. the right to suspend the functions of the Committee in case of grave irreguIn December larities, and to close -the exchange temporarily or permanently. 1937, Walter Gittl, Counselor in the Ministry of Finance, was exchange commissioner, The brokers were appointed by the Caomittee, subject to the approval and each Their number was limited by the r1leS, of the Mayor of Vienna. vacancy filled on the basis of competitive applications; the sale of a "seat'! on the exchange was not possible.' The candidates had to be Austrian citizens Brokers were not permitted to trade for and to pass a special examination, their own account, to be connected in any way with a business finn or corporation, to form partnerships among themselves, or to employ agents (except for the purpose of receiving orders from their customers). They transactions; these records constituted had to keep complete records of all Their fees (commission on turnover) were fixed cornclusive legal evidence. In case of contraventions, they were tried by the rules of the exchange. consisting of the exchange commissioner as chainan and before a coinmission This comuission four members appointed by the Comm ittee of the exchange. was authorized to impose fines, to suspend the broker, or to expel him from the exchange; the expulsion was mandatodr in some specified cases (criminal conviction, banksup'cy) .

.2 ~

Y7

.I

/-

Insurance Up to the end of the First World War, the big companies in Trieste (Assicurazioni Generali, founded in 1831; Riunione Adriatica di Sicurta, founded in 1838) and Vienna controlled most of the insurance business in the Austro-Hungarian monarchy as well as in the rest of The dissolution of the empire, in the course of Southeastern Europe. which Trieste was joined to Italy, completely disrupted the structure of that system, and the following inflation completed the downfall of the After the stabilization of the Austrian currency in Vienna companies. insurance had to be re1922, public confidence in the principle of life built, premium reserves had to be replenished, and the entire organization had to be readjusted to the conditions of a narrow domestic market. Most companies could survive only by accepting the financial help of foreign competitors, thus bringing a large part of the system under the control On the other hand, they of foreign (British, Swedish, Swiss) capital. with the new companies that had been tried to maintain close relations established in the "successor. states" and to participate-in the reinsurance of their portfolios. The intense competition. among Austrian insurance companies tried to was reflected in q4 great variety of types of contracts <which meet every insurance need, .and many special premium rebates and "bargain" a very Such practices increased adinistrative costs and left rates. The continuing economic depression was responsible slim safety margin, insurance, and for a high surrender and lapse ratio in the field of life Agency expenses were very high, hindered the acquisition of new business. and abuses (splitting of commissions, undercutting of premium rates) were The largest Austrian company, the "Phoenix" Life Insurance common. Corporation, collapsed in 1936, as the result of such abuses coupled with overexpansion, disproportionate expenditures on agencies and publicity, The total deficit in this scandalous affair and financial mismanagement. Under government auspices, a new amounted to 480 million Schilling, corporation, was formed to take over the Austrian business of the "Phoenix" ), 'the deficit in 'the premium reserves in Austria. being (see below p. covered by the, issuance to the new corporation of about 290 million Schillings in the .bonds of an Insutance Fund supported by contributions from all other insurance companies operating in Austria. Although the rights of the policy-holders were not seriously infringed, the life-insurance movement in Austria suffered a heavy blow from this episode, On December 31, 1937, 35 large institutions, about the same number of agencies of foreign companies, and about 300 small "benevolent were mainly burial associations" were operating in Austria; the latter associations and the like, without any major economic importance, since their original functions had been taken over by the compulsory system of Of the large institutions, 20 were share corporations, social insurance, 9 were mutual companies, and 6 were owned by the Austrian provincial governSome of the foreign institutions did not actually transact any ments. business in Austria, but merely maintained an agency for technical reasons.

ZC/1 -s79

74%

On the other hand, some domestic corporations were subsidiaries of foreign All companies were members of the Association of Insurance concerns. Institutions which represented them in their relations with the GovernThe Association did not interfe e:with the internal affairs of its ment. members, but was authorized to issue binding directives as. to questions of general policy. Life insurance used to be the most important branch of insurance insurance premiums aoounting to one half of all premium in Austria, life The collapse of the "Phoenix" changed that picture: receipts up to 1935, from 1935 to 1936 the total income from life insurance premiums dropped from 222 million to 95 million Schilling; most of that decrease was due to the cessation of the income of the "Phoenix" from foreign branches (especially Czechoslovakia, Poland, Hungary, Yugoslavia, Italy), while the income from domestic sources dropped only from 79 million to 61 million Total life insurance in force decreased from 4,5 billion to 2.2 Schilling. insurance in force dropped from 1,7 billion Schilling while domestic life The Austrian agencies of foreign companies accounted billion to 1.5 billion. The number of policyholders was less figure, for 20 per cent of the latter affected than the sums in question: the total dropped from 2,2 million to 1.6 million policyholders, but the number of Austrian policyholders actually The average Austrian policy increased from 1,3 million to 1.4 million. more than 1,OQO Schilling; the smallness of that sum amounted to little accounted to some extent for the.u favorable relation between premium receipts and administrative expenditures, Fire insurance brought total premiums -of 110 million Schilling in 1936; about 47 per cent of that income went to reinsuring institutions, The The Austrian domestic business accounted for 46 million Schilling. claim ratio was not favorable, especially as far as the foreign business (in the agricultural Balkan states) was concerned: about 37 per cent for In prethe total, about 29 per cent for the Austrian business in 1936. ratio often had reached 60 per cent for the total and 50 vious years the A large part of the insurance concerned per cent for the Austrian business. insurance of the roof or "part insurance" of agricultural property, ie,, for the prevention of fire another vital part of a building.- A commission and accidents tried to promote moder methods of fire protection, but was hampered by the depression which made impossible the 'replacement of antiquated equipment, The importance of the other branches of property insurance (which under Austrian law included accident insurance) is shown in the following table which reflects the situation in :1936: Branch Total premium income (millions of S) Reinsurance atio (in per cent) Claim ratio (in per cent), Direct domestic business (millions of S)

Liability Accident
Automobile Iransportation Burglary

60 21
12 12 10

60 30
55 38 45

42 .45
63 75 39

2-

23 1
4 4 6

Hail
Machinery Glass Cattle Water pipe

5
4 2 1,5 1

39
54 12 40 48

85
60 40 67 26

2
1.5 1.5 1 1

Automobile insurance was compulsory under Austrian .law. Transportation insurance was largely concerned with shipping on the Danube, and the high claim ratio was a consequence of the difficulties of that navigation. Bonding and credit insurance was -almost unknown, with a total premium income of only 850,000 Schilling in 1936; under Austrian law, security was given mainly by depositing cash (savings pass-books) or government bonds, rather than by producing bondsmen. Ibtal income of all Austrian insurance companies (excluding agencies of foreign companies) amounted to 622 million Schilling in 1935, insurance as a result of the crash of the but due to the drop in life In 1937 a slight recovery was ex"Phoenix" only to 444 million in 1936. perienced, increasing the number of policies and the amount of insurance in force by about 10 per cent . But the Nazi invasion of 1938 made it impossible to decide whether or not this development marked the beginning. of a new trend. The consolidated balance sheet of all Austrian insurance companies for 1935 and 1936 (the latest date for which these details are available) follows: Assets Liabilities . 135 1936 (millions of S) 87 537 237 99 126 261 48 25 75 Life ins. premium res, Other premium reserves 469 145 Other reserves 49 .Other liabilities . 64 Capital 134 Surplus Profit '30 24 1936 1935 (millions of S) 412 378 425 82 38: 77 8.. 441 139 221 67 38 76 7

Cash and due from banks Securities Real estate Policy loans Other loans Reinsurance accounts Agencies and arrears Other assets

l42

99

420

990

The legal basis for Austrian insurance was provided.mainly by the Insurance Regulation (Versicherungsregulativ) of March 7, 1921, and the Statute of Insurance Contracts (Versicherungs-Vertrags-Gesetz) of The former regulated the government supervision of December 23, 1917, insurance companies, required companies to apply for a license, and prescribed in detail the organization of such companies and the types of inThe current supervision vestment in which premium reserves were to be kept, to the insurance division of the Federal Chancellery (after 1936: was left of the F'ederal Mvinis try. of Finance.); the head of that division committed The statute of 1917 provided suicide after the collapse of the ,Phoenix". for standard insurance contracts from which no deviation unfavorable to the policyholder was permitted. After the crash of. the "Phoenix" a series of All insurance companies were required to keep new statutes was enacted. their premiin reserve investments separate from the rest of their assets, them in a special premium reserve register; these investments and to list were to be supervised by a special goverment commissioner. Minimum premium The making of rates were prescribed for all life insurance- contracts. in foreign currency or with a gold clause was proinsurance contracts The salaries of employees were reduced in order to enable the hibited,

S-

475
L

56

insurance companies to meet their contributions to the fund established for the coverage of the "Phoenix" contracts, and the commission fees of insurance agents were limited. The largest Austrian insurance company in 1937 was the Austrian Insurance Corporation (Osterreichische Versicherungs A.G.), founded in 1936 by the Austrian Government, the Creditanstalt-Bankverein, the City of Vienna, the Munich Reinsurance" Corporation, and the Assicurazioni Generali, in order to take over the Austrian business of the "Phoenix" Life Insurance Corporation. Its main office was in Vienna, with branches in Graz, Linz, Innsbruck, Salzburg, and Klagenfurt. The capital (and paid-in surplus) of the new company was fixed at 11 million Schilling, but its real working capital consisted of the insurance fund bonds of 290 million Schilling, issued on the basis of the contributions of the other Austrian insurance companies. The company took over all Austrian life insurance policies of the "Phoenix", but with some modifications pennitted by the so-called "Phoenix" statutes: gold dollars (in which most Of the "Phoenix" contracts had been expressed) were converted into Schilling at a rate lower than the actual gold parity (although higher than the current exchange rate on the dollar); the repurchase values were curtailed by 4 per cent; and the date of maturity of insurance payments (except in the case of the death.of the insured) were prolonged by 2 to 5 years. In 1936-37, the company took over the life insurance portfolio of two other Austrian insurance companies (without the reductions made in the case of the "Phoenix" policies) and of three Austrian agencies of foreign companies. it the end of 1937, the company had outstandint about 285,000 policies with a capital value of 660 million Schilling. Total revenue amounted to 37 million, but profit only to 200,000 Schilling. The balance sheet for the end of 1937 follows: Assets Cash and due from banks Real estate Securities Policy loans Other loans Arrears Other assets Millions of S 7 13 268 16 .15 2 Liabilities Premiumn reserves Other reserves Other liabilities Capital and surplus jiillions of S 297 10 7 11

4 325

325

The second-largest insurance company was the Austrian subsidiary of the Swiss Reinsurance Corporation (Zurich), the "Anker" General Insurance . Corooration, founded in 1858. Its main office was in Vienna; it hadiO Hungary, Yugoslavia, branches in Austria, 17 more in Germany, Czechoslovakia, It had two depar tments, and Egypt, and subsidiaries in Poland and Hungary. The former one concerned vith life., and the other with property insurance. had 120,000 policies with an insured sum of about 380 million Schilling outIts income amounted to 17 million from life standing at the end of 1937. and 3 million from property insurance but the net profit was negligible. 2Y, 544/~~~3~

- 59 -

The balance sheet for the end of 1937 follows:

,..

Assets
Life insurance:

M llions ofS

.Lia blit~e

Millions of S

' Cash and due from banks

Real estate Seurities .6 . . Policy loans Mortgage loans .. Reinsurance accounts : Arrears Other assets

.3
.37 15 . 17 . 17 .2 1

Premium reserves: .
.;. : Qther rese.rves ther liablities apital and. surplus: . ;

116
4 .4 4

l2S~
Property insurance: Cash and due from banks Other assets 1 1 2

128

Reserves Other liabilities

,
.

1:

1 1..
2

The other major tare companies in :the field of insurance were:_/ main office in Vienna, Allianz und Giselaverein, foundedi880; Main field industrial Klagenfurt. branches in Graz, Linz, Innsbruck, insurance without medical examination) , 1.50,000 policies insurance (life with an insurance sum of 165 million Schilling outstanding in 1937; revenue Affiliated with Assicurazioni 7 million; total assets 54 million Schilling, Generali, Munich Reinsurance Corporation, and "Star" insurance corporation (Prague). Anglo-Elementar Insurance Cororation, founded 1897; main office in Vienna, branches in Budapest, Prague, Bratislava, Trieste, and 23 other Controlled by Commercial Union cities in Austria and Czechoslovakia. Revenue 13 million, profit Property insurance. Assurance Ltd., London. 1.3 million, dividend 12 per cent on share capital of 5 million, total assets 37 million Schilling in 1937. "Donaut General Insurance Corporation, founded 1867, subsidiary Office in Vienna;, subsidiaries of Magdeburg Fire Insurance Corporation,. Third largest in Zagreb, Reichenberg (Sudetenland), Arad (Rumania), Warsaw, company, life and property insurance divisions, .The foner with Austrial Revenue 13 145,,00 insured, 325 million Schilling insured sum outstanding, million (property), but profit negligible; total assets and 20 million (life)

83 mill in

(life) and 18 million (property) in 1937.

:First Qeneral.Accident.Insurance Corporation founded 188, subsidiary of Assicurazioni Generali;, largest Austrian company specializing Main office in Vienna, agencies in . in accident and property insurance,

All figures on revenue and assets exclude the quotas of reinsurers.

o 60 Amstidam Bratislava, Brno, Budapest, Copenhagen, Ljubljana, Prague, Sarajeo, Trieste, Zagreb. Subsidiaries in Italy and Czechoslovakia. Schilling, profit 1.4 milion, dividend 20 per cent Revenue 21 .mlion on capital of '4 million, total assets 51 million in 1937. International Accident Insurance Corporation founded 1890; main office in Vienna, branches in Berlin, Prague, rno,Amsterdam, Budapest, Zagreb. Subsidiary of Riunione Adriatica di Sicurta; merged in 1957 with First Burglary and Fire Insurance Corporation (Munich Reinsurance concern). Subsidiaries in Italy, France, Denmark, Germany. Mainly property insurance; smaller life insurance division. Revenue 20 million (property), 4 million (life), profit 2 million, dividend 20 per cent on capital of 3.5 million, total assets 57 million (property) and 15 million (life) in 1937. "Phoenix" General Insurance Corporation, founded 1860; main office in Vienna, branch offices in Munich, Grz, Linz,.Ennsbruck. Sube It had founded the "Phoenix".Life sidiary of Munich Reinsurance concern. Insurance Corporation and the two companies still had some common agencies in 1936. However, it escaped the disaster that overtook its associate. Property insurance. Revenue 34 million, but negligible profit, total assets 34 million Schilling in 1937. Vienna Reinsurance Corporation founded n 1869; subsidiary of"Svea" (Gothenburg, Sweden); only Austrian company specializing in reinsurance. Revenue 5 million, total assets 9 million Schilling in 1937. The most important mutual company was the "Wechselseitige Brandschaden und Janus" General Mutual Insurance Compan, founded in 1824, as one of the oldest Central European mutual insurance institutions. Its main office was in Vienna; with branches in Budapest and nine Austrian cities. It was controlled by patholic-conservative interests (originated by Austrian priests to provide fire protection for the agricultural population). Its life insurance division was transferred to the Austrian Insurance Corporation in 1936. It had a revenue of 6 million and total assets of 8 million Schilling in 1937. Other mutual companies specialized in the insurance of boilers, plate glass, mortgages, private railroads. General property insurance was the object of a number of mutual companies established by specialized groups of industrialists, the largest one being tiat of the machinery industry (total assets: 4 million Schilling in 1937). On the border between private 'and public insurance institutions stood the Insurance Institute of the Austrian States, a corporation founded in 1922, the shares of which were held by the provincial governments, It had its main office in Vienna, with branches in all provincial capitals. Its life insurance division specialized in industrial insurance (480,000 policyholders, 275 million Schilling insured sum in 1937). Its property insurance division was particularly active in agricultural districts. In addition, the corporation acted as reinsurer for the various insurance institutions owned by the separate provincial governments (see below).. Its revenue was 13 million (property) and 9 million (life), and its total assets 17 million (property) and 52 million (life) in 1957?

24-59475

61

By far the most important insurance institution operated directly by a public body 'was the Insurance Institute of the City of Vienna, founded The company specialized It had branches in five Austrian cities. in 1898, 280 million Schilling in industrial insurance (460,000 policyholders, insurance sum), health insurance, fire accident, burglary, and automobile Its policy was to use the huge funds of the city as reinsurance insurance. -funds and to use outside reinsurance only for 10 per cent of its risks. insurance division) and 16 million Its revenue amounted to 13 million (life total assets to 51 million (life) (property insurance division), and its and 17 million (property) in 1937. The provincial governments of Carinthia, Upper Austria, Salzburg, Tyrol, and Vorarlberg operated public fire insurance institutes, with total The oldest one, and at the same combined assets of 20 million Schilling. time the largest, was that of Upper Austria, founded in 1811 by the then The local burgesses acted as the representatives of the institutes "estates". The risks were reinsured. with the Insurance Institute in their communities. of the Austrian States. The most important agency of German insurance companies was that and accident insurance specializing in life of the Victoria zu etrlid The (revenues from the Austrian business: 8 million Schilling in 1937), agency of the Assicurazioni. Generali (Trieste) had revenues of Austrian insurance division, and 4 million in its property life 6 million in its insurance division; that of its old rival, the Riunione Adriatica di Sicurta insurance division) and 4 mnillion (Trieste) revenues of 5 million (life The Austrian agency of the ttZiricht General Accident insurance). (property and Liability Insurance Corporation (Zurich, Switzerland) had revenues of But the three last 1 million Schilling (property insurance only) in 1937. in Austria because of their Austrian mentioned companies were more important Other foreign subsidiaries than on account of their direct activities, companies (German, Siss, Czechoslovakian, Hungarian, Italian, and English) significance. were of little The business of Austrian insurance companies was affected deeply by the system of social insurance which covered practically all employees All of them (including those in domestic occupations and agriculture). were insured against unemployment, accident, and sickness. Salaried employees also received disability, old age, and dependentst benefits, while nonsalaried wage earners were entitled to such payments on the basis of we.fare insurance accounting; on the other hand, considerations rather than of strict the (compulsory) contributions of employees were considerably higher than Social insurance (except for unemployment insurance those of wage earners. which was under direct govermen t administration) was managed by public ttnsurance Institutes", on the supervisory boards of which employers and Such institutions existed for salaried industrial employees were represented. 190,000 in 1937), non-salaried industrial wage earners employees (membership: (900,000), agricultural employees (12,500), agricultural wage earners (300,000j public employees (125,000), railroad employees (62,000), journalists (2,500), any employer organizations, especially the "guilds" and pharmacists (1,000). of tradesmen, artisans, and small business men in general, and the association; of professional men, had established voluntary institutions of a Similar kind, -ff4175

62 -

and the members of the immediate family of the insured participated in many benefits (sickness, maternity); thus practically the entire population The contributions to the was connected with the social insurance systen. old age and dependentst benefit system of. the insurance institute for industrial employees alone were twice as large as the entire income of Nevertheless the number of life the largest Austrian insurance company. insurance policies in Austria was almost equal to the number of members of the social insurance system; in spite of the economic depression most people preferred to add private protection to that offered by the public system.

) ~-&i97~

Important Provincial Savings Banks--1937 Aigen, Upper Austria, deposits 1.2 million S Allentsteig, Lower Austria, deposits: 3.2 million S Aistetten, Low er Austria, deposits: 5.6 million S Aspang, Lower Austria, deposits: 1 million S ad Aussee, Styria, deposits: 2.8 million S Taden, Lower Austria, deposits: 20.4 million S Braunau, Upper Austria, deposits: 2.2 million S 3regenz, Vorarlberg, deposits: 9.6 million S Bruck a/d Leitha, Lower Austria; deposits:' 1.6 million S Bruck a/d Mur, Styria, deposits: 5.6 million S Deutsch Landsberg, Styria, cdeposits: 2,8 million S omrnbirn, Vorariberg, .deposits: 15 million S Eferding, Upper Austria, deposits: 3.1 million S Egg, Vorarlberg, deposits: 1,8 million S Eggenburg, Lowver Austria, deposits: 7.4 million S Eins, Upper Austria, deposits: 3 million S Fehring, Styria, deposits: 1.1 million S Feldbach, Styria, deposits: 3,4 million S Feldkirch, Vorarlberg,' deposits: 7,4 million S Feldkirchen, Carinthia, deposits: 1,7 million S Frankenai:rkt, Upper Austria, deposits: 2.1 million S Freystadt, Upper Austria, deposits: 3.8 million S Fitrstenfeld, Styria, deposits: 5 r illion S rAustria, deposits: 1.8 million S. Gf'hl, Lower Gleisdorf, Styria, deioosits: 2.9 million S GG.oggnitz, Lower Austria, deposits: 3.1 million S GmUnd, Lower austria; deposits: 3.8 million S Gmunden, Upper Austria, deposits: 4.9 million S Graz, Styria: Gemeinde'-Sparkasse (city-ovned), deposits: 40.4 million S; Steierrmrkische Soarkasse (non-profit organization, founded

1825) deposits: 48.7 million S; Sparkasse des Bezirkes

Umgebug Graz (owned by rural county), deposits:11.1 million S Grein, Upper Austria, deposits: 2.3 million S Griesskirchen, Upper Austria, deposits: 5.3 million S Gross Gerungs, Lower Austria, deposits: 2,2 million S Gross Siegharts, Lower .ustria, deposits: 2,5 million S Grunburg, Upper Austria, deposits: 1.5 million S Haag, Lower Austria, deposits; 4.9 million S Haag am Fausruck, Upper Austria, deposits: 2.2 million S Hainburg, Lower Austria, depoists: 2 million S Hainfeld, Lower Austria, deposits: 1.9 million S Hall, Tyrol, deposits: 2,4 million'S Hallein, Salzburg, deposits: 2,1 million S Hartberg, Styria, deposits: 4 million S Haugsdorf, Lower Austria, deposits: 1.9 million S Herzogenburg, Lower Austria, deposits: 3.7 million SHollabrunn, Lower Austria, deposits: 12.8 million S Horn, Lower Austria, deposits: 7.8 million S Imst, .Trol, deposits: 2.6 million S Innsbruck, Tyrol: Sparkasse der Stadt Innsbruck (city-owned, founded 1822), deposits: 55.6 million S; Tiroler Bauern-Sparkasse (non-profit organization, mainly agricultural), deposits: 9,1 million S

64 -

Important Provincial Savings Banks--1937 (cont.)

Irdning, Styria, deposits: 1 million S

Bad Ischl, Upper Austria, deposits: 4.8 million S urgenland, deposits:. 1.2 million S Jennersdorf, Judenburg, Styria, deposits; 3.1 million S Kindbcrg, Styria, .deposits: 2.3 million S Kirchdorf am Wagram, Lo er Austria, deposits: 3 million S Upper Austria, deposits: 4.1 million S Kirchdorf a/d Kr es, lhIrol, deposits: 1.9 million S Kitzbhel, Klagenfurt, Carinthia, deposits: 28.3 million S Klosterneuburg, Lower Austria, deposits: 3.1 million S Knittelfeld, Styria, deposits: 3.2 million S crneuburg, Lower iustria, deposits: 7.4 million S Eroms, Lower Austria*, deposits: 13.9 million S Kremsmuinster, Upper Austria, deposits: 2.3 million S Kufstein, lyrol, deposits: 4:4 million S Laa a/d Thaya, Lower Austria, deposits: 4.9 million S. Lambach, Upper Austria. deposits: 8,2 million S Langenlois, Lover Austria, deposits: 3.8 million S Leibnitz, Styria, deposits: 3.3 million S Leoben, Styria, deposits: 9.6 million S Leonfelden, Upper Austria, deposits: 1.7 million S Lienz, Tyrol, deposits; 4.2 million S Liezen, Styria, deposits: 1.1 million S Linz, Upper Austria, deposits: 54.7 million S Mank, Lower Austria, deposits: 1.2 million S Mariazell, Styria, deposits: 1.8 million S Mattighofen, Upper Austria, deposits: 3.5 million S MIatzen, Lower Austria, deposits: 1.4 million S iauerkirchen, Upper Austria, deposits; 6,4 million S iLauthausen,. Upper Aus tria, deposits:. 2.5 million S Melk, Lower Austria, deposits: 5,2 million S Mistelbach, Lower Austria, deposits: 9.8 million S Midling, Lower Austria, deposits: 22.9 million S Mondsee, Upper Austria, deposits: 1 million S Murau, Styria, deposits: 3.2 million S Mureck, Styria, deposits: 1I1 million S Mtrzzuschlag, Styria, deposits: 1,6 million $ Neufelden, Upper:Austria, deposits: 1,5 million S .Neuhofen, Upper Austria, deposits: 2,1 million S Neulengbach Lower Austria, deposits: 4.2 million S Neunkirchen, Lower Austria, deposits; 8 million S Neusiedl am See, Burgenland, deposits: 1.2 million S Obernberg am Inn, Upper Austria, deposits: 1.7 million S Ottenschlag, Lower Austria, deposits 1,7 million S Ottensheim, Upper Austria, .deposits: 1.3 million S Perg, Upper Austria, deposits; 4,2 million S Peuerbach, Upper Austria, deposits: 3.2 million S Pllau, Styria, deposits: 1.2 million S Pottenstein, Lower Austria, deposits: 1.2 million S Poysdorf, Lower'Austria, deposits: 3.4 million S Pregarten, Upper Austria, deposits:" 1.8 million S Pulkau, Lower Austria, deposits. 1,1 million S Raab, Upper Austria, deposits: 3.3 million S

ImportantProVinci
Important Provincial

Savi

Bans--97 (ct
(cot.)

Savings Banks--1937

Raabs, Lower Austria, deposits: 2.8 million S Radkersburg, Styria, deposits: 1 million S and 400,000 Dinars (frontier town, doing business with neighboring parts of Yugoslavia which had. formerly: been part of the township) .37 million S Ravelsbach, Lower Austria, depositse Retz, Lower Austria, deposits: 8.2 million S Reutte, Tyrol, deposits: 1.6 million S Ried, Upper Austria, deposits 92 millions Rohrbach, Upper Austria, deposits: 3.5 million S Rottenmann, Styria, deposits: 1.4 million S Salzburg, Salzburg, deposits: 50.9 million St. Florian, Upper Austria, deposits: 5.2 million S St. Johann, Salzburg, deposits; 2.3 million S St. Peter-Seitenstetten, Lower Austria, deposits: 1.2 million S . St. Polten, Lower Austria, deposits; 26.9 million / St. Veit, Carinthia, deposits: 2.7 million Sauerbrunn, Burgenland, deposits: 1.1 million S Scharding, Upper Austria, deposits; 2.5 il .on S Scheibbs, Lower Austria, deposits: 2.5 milion S Schladming, Styria, epositsa 1.1. million S Schrems, Lower Austria, deposits: 1.@ million S Schwanenstadt, Upper Austria, deposits: 2.1 million S Schwaz, Tyrol, deposits: 3.3 million S Sohwechat, Lower Austria, deposits: 6 milion S Spitz, Lower Austria, deppsits: 1.4 million S Stainz, Styria, deposits: 1.4 million S Steyr, Upper Austria, deposits: 15.6 million S Stockerau, Lower Austria, deposits: 8.2 million S Tamsweg, Salzburg, deposits: 2.1 million S Tulln, Lower Austria, deposits; 5.8 million S Villach, Carinthia, deposits: 9.8 million S Vocklabruck, Upper Austria, deposits: 5.2 million S Voitsberg, Styria, deposits: 3.3 million S Volkemarkt, Carinthia, deposits; 1.3 million S Waidhofen a/d Thaya, Lower Austria,' depOsits; 8.3 million S Waidhofen a/d Ybbs, Lower Austria, deposits: 7.3 million Waizenlirchen, Upper Austria, deposits: 1.9 million S Weitra, Lower Austria, deposits: 2 7 millionS . Weiz, Styria, deposits: 3.5 million Wels, Upper Austria, deposits: 13.8 million S Weyer, Lower Austria, deposits: 2.9 million S Wiener Neustadt, Lower Austria, deposit': 16.8 million S Windischgarsten, Upper Austria, deposits: 1.2 million. S Wolfsberg, Carinthia, deposits: 4,6 million S Wolkersdorf, Lower Austria, deposits: 2.1 million S Ybbs, Lower Austria, deposits: 2.2 million S Zistersdorf, Lower Austria, deposits: 5.5 million S Zwettl, Lower Austria, deposits: 5,4 million S

24-59475

uo

Major Urban Credit Cooperatives--l

.2 :.

A. Vienna::
S(a) Members.of the nion of Civil Servants'

.
Coperatives:

Beamten-Spar und Kreditkassa "Beamtenchutz" (assets: 2,3 million S) edienstetn (for ra.ilo ar- ud Vorgcsskonsortum von isenba K.V.E.S
road employees: assets 2.3; million S)
6 Spar- und Darlehenskasse ffentlich Antestellter Isterreichs (assets:. 12. . , million S) und Vorchuss-Konsortium "Union" (assets: 2.4 :million .S) S;arSpar -und VorschusezConsortium Whri ng- (assets:, 2.4 millipn S) f f entlichen Aneste;lten (assets: 6 million S) hStafa Kredi t institut der

Spar

und Kreditkassa "Mars" (assets 1.1 million

,)

(b) Others: t d Vor s chusskasse '(assets: 2.9 million S) d Erste Floridsdorfer Sar Kreditgenossenschaft fu Gewerbetreibende (for small artisana; assets 3.4

Smillion.
sse schaft3sase (asSets ,.6 million S)

Osterreichische

Zntr.eno

Sar- un Vorschusskasse in Gross Jedlersdorf (assets: 2.3 million S) " assets: 4.9 Wiener Vorschusskasse (for artisans of Czech "nationali
' S ar- und Vorschussverein "Land rasse (assets: 4.6 million S) Meidlinger Vorschu(ss und Sarkasse(asets 6.7 million S (assets: 1.5 million S, la Niederesterreichische Darlehens- Mnd S

mill)on

):

the

d. last three affiliated with brokers .firm of Gerhold . .

Weinlich.)

B. Outside of Vienna

Altheim, Upper Austria (assets: 5.7 million S)

Bad Hall, Upper Au.stria (assets: 1.3 million S). . Baden, Lower Austria (assets: 3.2 million S) (two cooperatives; total assets: 7 million S) Bludenz, Vorarlberg Braunau, Upper Austria (assets; 1.1 million S) Bruok a/d Mur, Styria (assets: 2 million S)

Feldkirchen, Carinthia (assets: 800,000 S)

Freistadt, Upper Austria (assets: 1.5 million S) Goisern, Upper Austria (assets: 5 million S) Graz, Styria: Alenlandische Volkskreditbank,..(assets: 2.1 million S); Beamten-Bank (for public employees; assets: 11.7 million S) Moistervereins-Kasse (for artisans. assets: 1.1 million 5) million S Herzogenburg, Lower Austria (assets: (assets: 9.2 million S) Hollabrunn, Lower Austria

Horn, Lower Austria (.assets: 2.2 million S) Innsbruck, Tyrol: Handels- und Gewerbebank (assets: 1.4 million S); St.
Josef Spar- und Vorschuss-Verein (assets: 6..4 million S);

Tiroler Spar- und Kreditkasse (assets: 800.,000 S)}

Kapfenberg, Styria (assets,: 11. million S) Kitzbuhel, Tyrol (assets: 900,000 S) Klagenfurt, Carinthis (assets - 5.7 million S) Klosterneuburg, Lower Austria (assets; 1,6 million S) Koflach, Styria (assets: 1,3 million S)

A. t-5'F7

MafLjor UrbL

Credit

%.oper=ttie s -1cj';7

(colt.)

Krems, .ower -Austria (assets: 4 million 3) Kufstein, Tyrol (assets: 2.5 million S) Laa a/d Thaya, Lower .ustria (assets: 3.7 million S) Linz, Upper Austria: Oberisterreichische Volkskredit-, Bauern - und Gewerbebank, with branches in Brauriau, CGunden, Ried, Stoyr, V cklabruck, Wels, and 15 agencies in smaller towns, all in million S, savings deposits 18,2 million Upper Austria (capital S, current deposits 4i million S, total assets 23.6 million S); OberBsterreichische Genossenschafts-Zen tralkasse, with a membership of 365 c~iperat:ves, and guaranteed by the state of Upper pustria (total asets: 18.3 million S) Lustenau, Vorarlberg (assets: 1,2 million 3). Marchegg, Lower austria (assets 2.7 million S) Mattersburg, Surgenland (assets: 1.5 million S) Mlrzzuschlag, Styria (assets; 2,3 million S) Oberwarth, Burgenland (assets: 600,000 S) Ried im Innkreis, Upper -ustria (assets: 3.1 million S) Rottonmann, Styria (assets: 1 million S) Rnprechtshofen, Lower .ustria (assets: 2 million S) Saalfelden, Salzburg (assets: 1,8 mil ion S) Scharding, Upper Austria (assets: 1,8 million S) Stockerau, Lower Austria (assets: 1.5 millon S) Tulln, Lower ..ustria (assets: 3.7 million 3) Wels, Upper rustria (assets: 5,6 million 5) Wieselburg, Lower Austria (assets: 1.6 million S),

CIVIL

AFTAI1RS

Hii.NDIOOK

on

AUlS TRIA

Section Five

on

= ------. . MONEY=

* - ' *=

= ---- == "-" , o AND n-- BANKING

PA R T'

The Germans introduced the Reichsmark and .abolished the Austrian currency The big Berlin and Munich banks took over and the Austrian central bank, The entire economic structure was inteall important commercial banks. grated into the German system. However, the Austrian banks, although reduced to mere subsidiaries of German institu tions, profited from the German -rearmament and'war boomns, and especially from :the German conquest of SouthThey were permitted to share: the fruits of the, exploitation easternEurope. of the occupied countries, and at least in outward appearance to regain a position in the international field similar to that- held by them before the . first world war,
i,</ 7

C.

DEVELOPMENTS SINCE THE GERMAN INVASION 1. The Impact of Invasion

Currency and Exchange On March 17, 1938, immediately after the unopposed. invasion by German troops, .the Nazis decreed that the Reichsmark vvwas to be legal tender in Austria, as well as the Schilling. On April 23, the Schilling currency was abolished completely and Reichsmark currency substituted. The Austrian National Bank was liquidated and its function taken over All Schilling notes by a newly-created Vienna branch of the Reichsbank. and coins lost their legal tender quality and had to be presented for exchange by December 31, 1938; after that date, their holders lost all claims. A singular exception was made for copper coins of 1 and 2 Groschen, which became equal in value to the German copper coins of 1 and 2 Pfennig, respectively. Apart from this exception, the rate of exchange for converting prices, debts, etc., was fixed at 1 RM = 1.50 8; before the invasion the The new rate was explained as a concesrate had been about 1 RM g 2 S. sion to the Austrian people and as a political gesture of conciliation and friendship, In reality, however, the alleged concession was nonexistent. The old rate had substantially overvalued the Reichsmark in relation to the Schilling so that the new rate probably corresponded reasonably well to the inte nal purchasing power relationship of the On the other hand, the change-over from Schillings to two currencies. Reichsmark, especially at the new rate, had very adverse effects in Austria as a result of the changed external position of the currency, place the Reichsmark was virtually worthless outIn the first side of the Nazi economy and after the German invasion, it was extremely difficult for Austrians to convert their local currency into foreign Under the previous Austrian regime exchange had been availexchange able tc meet all legitimate obligations toward foreign creditors, incluing payment for imported goods and for service on public and ,private debts. Under'the much more severe German exchange regulations exchange for imports was very strictly rationed and no exchange was Payments on such made available for the service of foreign debts. debts had to be made in Reichsmark. to a German official agency, the Deutsche Konversionskasse, which administered the funds "for the beneof" the foreign creditors. The restrictions on the flight of fit capital were made muchnmore stringent and the penalties much more severe; these provisions were particularly important since many persons of means in Austria were frantically seeking to save their property from the Nazi grip. A statute of December 12, 1938, completed the unification of exchange legislation in Germany and Austria.

-69-

While foreign exchange. was now available only in very limited amounts, it had become cheaper in terms of the local currency, The U. S. dollar, for instance, which had been worth about 5,t40 S, was now worth only 2.50 RM--the equivalent of 3,75 S--in transactions at the official rate.l For the most part, however, this worked to the disadvantage of the Austrian public. Under the new regime all foreign securities held by Austrians were in effect devalued, and this fact was immediately brought home by the issuance of a decree requiring that all Austrian holdings of gold, foreign currency, foreign securities, and other assets readily convertible into foreign currency had to be offered to the Reichsbank at the official rate of exchange. If an investor or business man had had dollar assets and Schilling liabilities-a not infrequent occurrence--the forced sale of his foreign assets at this artificial price caused him serious losses. The adverse effects of the new exchange relationship were even more important'in Austrian foreign trade. Export prices expressed in foreign money were sharply reduced in terms of domestic currency, In this way, the competitive advantage of .Austrian export industries over their German competitors was completely destroyed, The Austrian industrialists were forced either to enter into "cartel' agreements with the Germans, or to switch to other products--which under the Nazi regime meant to make their plants available to the government for war production. This was probably the main reason for the "favorable" rate of exchange granted to Austria by the Nazis. Another consequence of the new exchange rate was to make exporters and importers entirely dependent upon government help. The government expressed its willingness to grant subsidies to export firms, the continued activity of which was deemed essential from the viewpoint of Nazi economy. In fact, these subsidies were granted not so much according to economic criteria, but rather according to the swiftness and completeness with which the firm was able to prove its total , political "reliability". The famous Vienna piano industry, which depended entirely upon export, was practically destroyed because its leader was known for his anti-N.zi sentinent. Conversely, those importers who were allowed to bwy foreign exchange at the official rate were .sure to make good profits since their costs had been lowered in relation to their domestic selling prices. But only importers in good political standing received that permission; the others were either denied all supply of foreign currency, or had to pay a premium which destroyed their profit margin. In one respect only did Austrian exporters'benefit by the invasion: Germany had accumulated a clearing debt of 30 million RN toward these exporters, and had rejected all requests of the Austrian authorities to provide for the transfer of that sum in foreign exchange. The Nazi government had done so mainly in order to embarrass the Austrian regime; the Austrian exporters pressed the National Bank to discount 1 This valution of the Reichsmark was, of course, purely fictional and could be maintained only by the rigid government control of all .exchange transactions. p2,. 5y75

- 70 -

their blocked claims, but this would have meant lending official supAfter Austria came within the Reichsmark currency port. to Germany, area, of course, the Austrian exporters couild freely utilize their Reichsmark balances at home. By a decree of June 1939 which was made retroactive t?,March 1938, the Nazis voided all gold clauses in domestic Austrian contracts 1.50 S to gold Schilling, too, N and applied the exchange rate of 1 RM The only exception was made for contracts entered into after the devaluation of the Schilling in 1931-33, in which the gold Schilling was used The main effect of this decree was to. represent 1.28 paper Schilling. to reduce the value of the gold bonds issued by public and private bodies, it has been estimated that the Nazis acquired in Austria nearly two billion Reichsmark in gold and foreign exchange, about 20 per cent of which they 'obtained from the Austrian National Bank and the rest from private parties (partly by confiscating Jewish property), These assets never were shown as such in the Reichsbank statements; they had no significance as a monetary reserve since after 1933 the Reichsmark no longer was baised' upon gold or foreign exchange, They were vitally important, however, in that they increased the capacity of the Reich'Government to import additional strategic materials in the course of its rearmament program. Central Banking The_.Reichsbank liquidated the Austrian National Bank after taking over its business. A Nazi decree repealed all pertinent provisions of the Bank's charter, and offered the shareholders 125 RM in 4-1/2 per cent Reich government bonds for each share. Since the face (and market) value of the shares had been 100 Gold Kronen or 186,32 S while 125 RM corresponded to 187,50 'S, and the Bank had distributed 1 per cent, the offer seemed fair enough, /2 regularly a divident 'of But the shareholders received in fact a paper claim, depending upon o the shaken credit of the Nazi regime, in exchange for a participation in a well-run,enterprise, Still, they had np choice but to accept the offer -or to wait for the- breakdown of the Nazi regime, The new chairman of the management of the Vienna branch of the Reichsbank was a German, Mr. Paul Emde, Three Austrian managers, Messrs, Richard Buzzi', Hans Stierhof, and Karl Strzizek, remained in their positions. President KienbBck was removed, but left at liberty, due to the personal intervention of the President of the Reichsbank, Dr. Schacht, who may not have wanted to antagonize the heads of the central banks in Western countries, with whom Mr. Kienbock had very The General Manager of the Bank, Mr. Brauneis, friendly relations. died a few months after the invasion, broken by the indignities inflicted upon some of his closest collaborators, His deputy, Mr, Bartsch, was imprisoned for the crime of having dismissed some Nazi

t;r"

i S'S

qC f~

"

71 -

employees of the Bank who had participated in the rebellion of 1934. All other employees who had been guilty either of anti-Nazi activities or of some connection with the Jewish race, were summarily dismissed. In 1959, the organization of the Reichsbank in the former Five branches of the Reichsbank were Austrian territory was changed, with agencies in Eisenstadt and Znaim (formerly in Vienna, established: belonging to Moravia); in Graz, with an agency in Klagenfurt; in Innsbruck, with an agency in Bregenz; in Linz; and in Salzburg. Vienna, The following were named as Graz, and Linz became "main branches". members of the Advisory Council of the Reichsbank in Berlin; Dr. Hans Fischbick and Mr, Franz Hasslacher of the Greditanstalt; Mr. Leonhard Wolzt of the Landerbank; Dr. Hans Stigl:eitner of the Erste Osterreichische Spar-Casse; Dr. Philipp von Schoeller of Sdhoeller & Co,; and Dr. Eduard von Nicolai who had "taken over"c the former firm of S,M.v,Rothschild Members of the Vienna district council were, among (see below; p,R4). others, Mr. Heinz Birthelmer, Nazi Governor of Lower Austria and a director of the L.nderbank; Dr. Josef Joham of the Creditanstalt; Dr, Members of the Graz district von Schoe]ler; and Dr, Stigleitner. councils included Dr. Armin Dadieu, Nazi Governor of Styria and a director of the Creditanstalt; Mr,:Franz Easslacher; and Mr. Alexander Members of the GStz, manager of the Graz brarch of the Creditanstalt, Linz district council included Mr, Franz Langoth, ex-Governor and "Senior Leader" (Oberfthrer) of the 8,S., Chairman of the Board of the Bank f'tr Obersterreich und Salzburg, and a director of the Creditanstalt; and Dr. Georg-Meindl, of the Lnderbank. The organization of banking in general was assimilated to that The former Austrian territory, now called the Alpine of the "old" Reich, and Danubian Districts (Alpen- und Donau-Gaue), became one of the 25 In the regional areas in the German corporative economic structure. functional division of the German economy, Austrian banks became affiliated with the "Reichgruppe Banken" and its sub-organizations for commercial banks, public banks (including mortgage banks), savings banks, credit cooperatives, and. miscellaneous credit institutions (including building association, pawnshops, ind instalment credit agencies).
Commercial Bankin -- General,

The conversion of the Austrian banks into Nazi institutions was made, easier by the fact that the most important credit institutions had been owned, directly or indirectly, by the Austrian government. When the Nazis took over the. government., they were able to control the financial structure completely without. having to resort to wide-spread At the expropriation or other methods creating ill-will and confusion. same time the banks, as shareholders and creditors, controlled the most important industrial and commercial enterprises so that they could comMany enterprises pel those firms to cooperate with the Nazi regime. thathad remained independent of the big banks were under Jewish ownership or management, and in these cases the expropriation and expulsion

,t tY-

:~/~.

of the Jewish part of the population were sufficient to achieve the desired result. Within less than one year, the economic structure of Austria was more completely "nazified" than the German had been in five years of Nazi rule. Although only a minority of the Austrian population was proNazi at the time of the invasion, there was no symptom of resistance to the economic penetration of Nazism, Many if not most sincere anti-Nazis were convinced that the union of Germany and Austria was economically desirable; others profited from the elimination of the Jewish competition;, the socialist opposition had been crushed by Chancellor Dollfuss in 19314 and the Catholic-conservative opposition.was exhorted by the Austrian bishops to collaborato with the invaders; the most uncompromising enemies of Nazism were intimidated by the Gestapo and. saw no way out except emigration. Therefore the Nazis were able to complete their program without more disturbance than that created by the exporpria:tion of some prominent anti-Nazi leaders and by the eradication of Jewish influence. Leading anti-Nazis and Jews were eliminated at first by an informal "sequestration" of their property. These actions were legalized by a decree of April 13, 19N, which auth.orized the Party to appoint "Commissars" for. all firms for which such an action was desirable in the "national interest". In most cases these Commissars were employees of the firm who had belonged to the secret part' organization. A large number of them were incompetent opportunists whose only objective was to exploit their trust for personal gain. Only in the case of large corporations was more care taken to select the Commissars. For most Jewish private bankers the Wiener Giround IKassenverein (see above, p. 38) was appointed Commissar iafter it had "itself been "nazified". The main exception this rule was the firm of S.M.v,Rothschild for which the to most important private banking firm of Nazi Germany--Merck, .Finck & Co. (Munich),--was appointed Comnissar after the senior partner, Baron Rothschild, had been sent to a concentration camp. The purpose of the provisional management by Commissars was either to prepare the "aryanization" or "nazification" of the firm, or to liquidate it. "Aryanization" beame the most profitable form of business activity, since valuable business properties brought only a "liquidation va lue" to the former owner. The profits were distributed among the favored buyers, the Commissars, and the -party organization. The "nazification" of business was the most sensational part of financial- life in the pe-riod of transition, but it-was not the-only effect of the Nazi invasion. The unionof Germany and Austria brought some real advantages to Austrian banking. The wealth of all Germany was now available for financing Austrian enterprises, and its prestige permitted Austrian credit institutions again to enter the international competi tion for supremacy in South-Eastern Europe . The Nazis were fully aware of the importance of the financial relations between Austria \and

i'

1J -

~,"'~ C1

S--J

73 -

the Balkans, and they knew that political power can foster as well as arise from economic influence. Therefore they decided to restore the Vienna banks to the position they had -held before the First World War (see p. 1). There was one fundamental difference, however: the Vienna banks had ceased to be independent and had become mere subsidiaries of German institutions, politically and economically controlled from Berlin or Munich, with German majorities in their boards of directors. The banks returned to more orthodox methods of banking, and especially ceased their combination of commercial banking and investment trust functions. The Reich government acquired from them' large quanti. ties of shares in basic industrial enterprises through special government corporations (see below, p, 88 )). Since the banks were largely government-owned themselves, this was mainly a bookkeeping transaction; but it enabled the banks to attain a more liquid position and to expand their purely commercial credit activities, The controlled inflation practiced by the Nazis, combining an increase in the amount of money in circulation with,the energetic enforcement of price and wage ceilings, brought about an increase in the supply of loanable funds, These could be used to finance not only the rearmament program, but also (in 1938) to some extent, private industry. Austrian big business was enabled, for the first time in many years, to raise funds by floating industrial bonds (e.g,, issues by the steel firm of Gebr, Boehler & Co. A.G., and by the Austrian subsidiary of the German dye trust, I,G. Farbenindustrie AG.). Austrian small business was helped by a Reich guarantee for loans to such enterprises from credit institutions. The total guarantee was limited to 150 million RM; individual credits were fully guaranteed up to 2,000 RM while larger credits could be guaranteed in part. However, this action had political rather than economic significance since these credits were often used to enable poor but '"deserving" Nazis to acquire "aryanized" enterprises without 'funds of their own, A decree of August 2, 1938, compelled all Austrian firms, including banks, to revalue their assets and liabilities in Reichsmark, to recalculate their net worth, and to publishi a new "initial" balance sheet. For this reason, balance sheets of enterprises published after the invasion are often not strictly comparable with earlier ones, adjusted for the -change in the currency unit. The Nazis; gradually introduced Germa law into Austria, Many 6f these laws were instruments of "nazification", but some of them were non-political and a substantial improvement over the statutes they replaced, This was particularly true of the German Commercial Code and The the German Banking Act (Reichsgesetz flber das Kreditwesen) df 1934. former clarified the organization 'of corporations,' providing for a Supervisory Board (Aufsichtsrat) to: represent the stockholders, a Management Board (Vorstand), appointed and controlled by the Supervisory Board, to direct the business of the enterprise, and Public Accountants to audit books and balance sheets, The latter provided for rigid
-

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supervision of banking operations by a special, office, the Reichsaufsichtsamt fur Kreditwesen, under the Minister of Economics; prescribed strict rules for credits and investment; regulated the safekeeping of securities deposited with banks; and prescribed periodic examinations. The rates of interest were fixed, those, to be paid on checking deposits at 1 per cent, those on savings accounts .at 3 to 5-1/8 per cent; and those to be charged for current account credits at 1 per cent above the official discount rate plus 1/8,of 1 per cent "commission" per month. Creditanstalt-Baniverein The Reich government.became the owner of 76 per cent of the shares of this largest Austrian credit institution, taken over from, both the Austrian government and the Austrian National Bank. It'turned them over to its holding company, Vereinigte Industrie A.G, ("Viag"), 25 per cent and later another 26 per cent to the largest which sold first Berlin bank, the Deutsche Bank. This bank agreed not to establish a branch of its own in Austria and to respect the so-called "regional principle" providing for some degree of decentralization of the highly centralized German banking system. The Creditanstalt thereby became the most important "provincial" bank of Germany,- andwas assigned the business of the."South Eastern living space of the German people". The fiction of independence was maintained, in order to soothe the feelings of Austrians, and to appeal to the financial tradition of' the SouthEastern nations which"had been accustomed to trade,with Vienna, but had a wholesome distrust of everything connected with Berlin. In fact, however, the bark was but a branch of its parent institution and entirely Its name was shortened to "Creditanstaltdependent upon its direction. Bankverein" in order to get rid of the word "Oesterreichische" (Austrian) which was banned in Nazi Germany. In its new Reichsmark balance sheet of April 1, 1938, the bank's share capital was revalued at 70.7 million RM and the surplus at 40 million RM. The.various categories of shares were consolidated, seven new shares of 100 RM each'being givenin exchange for each old The bank sold 'its participation .nn the share (face value of 1000 S). most important transportation, public utility, and heavy industry enterprises to other government-owned corporations, especially the On the other hand, it absorbed a Goering concern (see below, p. 88 ) large provincial subsidiary, the Steirische Escompte-Gesellschaft, which had suffered heavy losses in the transition period, and received the remaining banking business of the Industriekredit A.G., which was liquidated...After the acquisition of the Sudetenland by the Reich in consequene of the Munich agreement of 1938, the bank opened three branches in .that part of Moravia whihwas: sunited with Lower Austria After Slovakia had become an "indQ(Lundenburg, Nikolsburg, Znaim). pendent" state under the protection of the Reich in March 1939, the bank acquired the .Union Bank in Pressburg (Bratislava), which in turn

.:

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75

Shad acquired the Slovakische All'gemeine Creditbank with four branches in SSlovakia. These moves foreshadowed, a much broader expansion' into Eastern Europe during .the: arfyears under the aegis of the Deutsche Bank (see

P. 93),
SThe development of the bank s business was characterized by an increase in. its holdings of government securities, a decrease in its other.:securities and participations,' an increase in loais and deposits (except savings deposits)', and'a deerease in its mortgage business, which was slowly -1iquidated :as alien to its commercial banking attivities The "fundiig certificates' held by its former foreign creditors (see p. 33) were retired, .It liquidated its Monaco holdihg company, .the 'Sociee Continentale do eesttion; the bonds of which also were held by the former foreign creditors of the CreditanstaIt, the bondholders receiving in exchange shares' in the Continentale Gesellschaft f{r Bankund' nddustriewerte (see. p. 36) A summary of the bank's balance sheets ,of April 1, 1938, and December 51, 1939, follows SApr 1938
SMillions
.

Assets

De, 1939
of RM-'

Liabilities
~illions

'
M

Apr 1

Dee 1939
of RM,

Cash and due 61 . r om banks Bilrs discounted 63 Advances 238 Government bills 1 & bonds Other securities 95 & participations ' SMortgage loans 15 Other assets & transit items' 70

82 69 289 73 72 13 55

Sight deposits Savings deposits Other time deposits Mortgage bonds 'Retirement fund Other liabilties & transait items Capital & surplus

231 89 5 10 20 77 111

296 60 81 8 2 73 111

*'

The "Other assets" included advances under the governmentguaranteed system of Housing Bonds for which the bank merely acted as a collecting and disbursing agency (see p. )4), amounting to 33 million in 1938, and to 31 million in 1939; and claims arising out of trustee arrangements, 'amounting to 30 million in 1938f and'19 million in 1939, The "Other liabilities" included the balancing items of those transit assets, as well as special 'reserves of 11 million in 1938 and 9 million in 1939 (the decrease being due o the retirement of the "funding certifi o eates") , The "Other deposits" consistedmainly of deposits by other banks, including its own parent intitution, The bank's revenues reached 29 million RM in 1938, and 28 million in 1939. The expenditures decreased by more than the revenues,

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however, mainly due- to a reduction in the number of employees, so that the net profit rose from. 3 .9 million to .,8 million RM, permitting the distribution of a dividend of 5 per cent .or 1938, and 6 per cent for 1939, The changes in the bank's personnel were characterized by the removal of all anti-Nazi or Jewish officers and employees; and their superoession by trusted German and Austrian party members, According to the new German law, the board of directors had become a Supervisory Board (Aufsichtsrat), Mr. Franz .Hasslacher-who had been appointed by Chancellor Schuschnigg as a reputed Austrian patriot.-was retained as chairman of the Board; it appeared that he had been a "fellow traveler" of Nazism for a long time. Dr-. Alfred 01scher, of the "Viag", and Mr, Hermann Abs, of the Deutsche Bank, became vice-chairmen; since they
represented the owners of the majority of the share capital, they became

the real power ,in the bank. Other board members representing; German political and economic interests at the. end of 1939, were: Mr, Werner A:t, of the government-owned Elektrowerks (see below, p.88 ); Mr, Claus von Bohlen und Halbach, of the Austrian .subsidiary of the German Krupp Af.; Dr. Max Ilgner, of the -German dye trust; Dr. Ernst Kraus, of the Austrian subsidiary of the German Siemens concern; State Councillor Friedrich Reinhart, of the Commerzbank, Berlin; and Mr, August Rohdewald, of; the government-owned Reichs.Kredit-Gesellschaft, Berlin, The local party organizations were represented by Professor Armin Dadieu, the Nazi Governor of Styria; Mr, Theo Gross, State Commissioner for Agriculture and Forestry; and Mr, Franz Langoth, a former Governor of Upper Austria. Austrian industry was represented by eight members, all of Them carefully selected on the basis of party affiliations: Dr. Herbert Auer von Welsbach, son of a famous Austrian inventor and president of the firm founded by his father, the Treibacher Ohemische Werke; Dr. Heinrich Bleckmann, of the largest Austrian steel2 .mill, the SchoellerBleokmann Stahlwerke; Mr. Karl von Hinke, of the Steirische Gusstahlwerke; Dr, Karl Innerebner, a Tyrolian business man; Mr. Karl Klinger, a member of the old Board; Mr. Hermann Rhomberg, a textile -manufacturer from Vorarlberg; Mr. Gottfried Schenker-Angerer, of the firm of Schenker & Co. which, in Central Europe, played a role similar to that of the American Express Co, and was actually owned by the German State Railways; and Dr, Philipp von Schoeller, head of the largest non-Jewish private banking firm in Vienna, The foreign shareholders were represented by Alberto d'Agostino, of the Italian Ministry of Foreign Commendatore Exchange; asnd Mr, Auguste Callens, of the Soci te Generale de Belgique,
SThe Management Board. (Vorstand) consisted of Dr, Hans Fischbock as chairman, and Dr, Hans Friedl (the former head of the bank s secretariat), Dr, Ludwig Fri.tscher (president of the Vienna stock exchange), Mr, Erich Heller, Dr. Josef Joham, and Dr, Rudolf Pfeiffer (the former head of the bank's law department), Messrs, Heller and Joham had been managers of the bank under the. pre-Nazi regime; Mr, Joham was retained in spite of the prominent role he had played as president of the bank

_V4 44 74

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and even more as a member of the legislature under the Schuschnigg regime (see pp. 19-20),. since he. had been able to remain on good terms with the outlawed Nazi organization, Dr, Fischb8ck was the son of a judge of the Austrian Supreme CoUrt; the. Sphuschnigg government had .made him president of the Austrian Insurance Corporation,, a .governmentowned enterprise which took over the business ofV the .insolvent Phoenix concern(see p. 11):). After.the invasion, he was revealed as. a leader of the secret Nazi organization, became a member of the "Quisling" government set up by Mr. Seyss-Inquart, and was rewarded with the Presidency of the Greditanstalt. He was later to become the economic dictator of the Netherlands, of which his .. riend , Mr. Seyss-Inquart, was the Nazi f Governor. The staff of the bank was purged of non-Nazi elements to such an extent that the compensation for dismissed employees (based upon salary and term of employment) between April and December 1938 amounted .to more than 1 million RM.-although Jewish.employees were increasingly Some leading anti-Nazi deprived of their right to such compensation. staff members were sent-to concentration camps, Landerbank Wien The monopolistic position.of the Creditanstalt was challenged The by the establishment of a second "big bank"" nder the Nazi regime. second largest Berlin bank, the Dresdner Bank, was the sole shareholder After of a medium-sized Vienna. institution, the Mercurbank (see p, 36)., the invasion, the Dresdner Bank persuaded, the other two important foreign banks with branches in Vienna, the Zivnostenska Banka in Prague and the Banque des Pays.de l'Europe Centrale (Zentral,-Europ isch- Lnderbank) in Paris, to permit, the absorption of thesp .branches by the .successor The new bank took the name of Lnderbank Wien, of the Mercurbank. reminiscent of the Oesterreichische LRdndrhank which, had played an imported role in Austrian banking before the First World War (see p. 35). Its capital, entirely owned by the Dresdner .Bank, amounted to 20 million RM, and its total assets at the time of its establishment to 300 million. The new institution took over the Austrian proyincial branches of the amalgamated banks and the Hungarian subsidiary of the Mercurbank. In 1939 it acquired the Deutsche HIandels- und Kreditbank in Pressburg (Bratislava) which was merged with the Zipser Bank in.K'smark (Kezmarok) and became thereby one of the most important Slovakian banks, with 10 Within Austria it opened new branches in branches in that country. Sti P81ten (Lower Austria), and in three towns which had been split from Moravia and united with Lower Austri& according to the Munich In addition, it took over the. Viennese business, of the agreement, Societa Italiana di Oredit o.and of the:. ihngarian "Hermes' bank (see p. 36). The bank for the most part sought the business of small and medium-sized firms; almost ,Q per cent of its advances amounted to 100,000 RM or less at.the end of 1939. Apart from this factor, the

78 -

development of the bank was similar t- that of the Creditanstalt: a large increase in government securities, a, decrease in other securities, and an increase in loans.. However, during 1939 the amount of bills Total assets discounted declined, as did sight and savings deposits, increased less than those of the Creditanstalt, but were somewhat more balance sheet in Reichsmarkwas not set up until liquid. Its first January 1, 1939, A summary of this statement .as well as of that of December 31, 1959, follows: Jan. 1959 Mill.ions Dec. 1939 of Ri. 21 87 122 95 15 6 Jan. 1959 Millions 227 68 10 2 1 22. Dec. 1939 of RM. 210

Assets

Liabilities "" Sight deposits Savings deposits Other time deposits Retirement & other' reserves Other liabilities Capital & surplus

51 Cash & due from banks 117 Bills discounted 104 Advances 58 Government bills & bonds 15 Other securities & participations 5 Other assets

5.
6

5 25

Not included in these items were guarantees and .endorsements l-on January 1, and to 22 million on December amounting to 25 million Most advances were short-term in fact as well as in name: 31, 1959. in 1939, 150 .million RM of new credits had been granted, more than the Total revenue amounted to amount outstanding at the end of the year. 11 million RM in 1938, and 1! million 'in 1939. There was neither profit nor loss in 1938--the balance sheet had obviously been set up with this end in view-but there was a profit of 800,000 RM in 1939, all of which was distributed as a dividend, The officers of the new bank were largely representatives of The chairman of the Supervisory Board. (Aufsichtsrat) the Dresdner Bank. was Mr, Anton Apold, the president (dismissed by the Schuschnigg government for his pro-Nazi activities) of the Alpine Montan-Gesellschaft, the greatest Austrian mining concern, which had been acquired by the (see below, p.88 ) . The vice-chairmen were two officers (re Goering W Among the of the Dresdner Bank, Mr, Hans Pild er and Mr. Hans Schippel. other members at the end of '1939 were four more officers of the Dresdner Bank, Messrs. Otto K~mper (Deutsche Bau-und Bodenbank), Karl Rasche, Edmund Veesenmayer, and Tilo Baron Wilmowsky, and eight Austrians: Messrs. H.A. Birthelmer, the Nazi Governor of Lower Austria; Otto Boehler, of Gebr. Boehler & Co., (steel works), who had been one of the founders of the Austrian Rotary movement; Robert Hammer, WNazi-appointed "Curator" of the Mortgage Bank for Lower Austria, and former head of the Central Bank of Austrian Savings Banks which he led to bankruptcy in 1926;

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Arthur Himmerle, a textile manufacturer of Vorarlberg; Walter Hiedler, of the largest Austrian concrete plant, Perlmooser Zementwerke; Georg Meindl, the president of the largest Austrian automobile factory, Steyr-Werke; and August, Schmid von Schmidsfelden (steel). This board was less dominated by mere party politicians than that of the Creditanstalt, probably'be6ause of the-more direct relations between the latter bank and the Reich government. The Management Board (Vorstand) consisted of Messrs. Alois Hitschfeld, Karl Lehr, Adolf Warnecke, and Leonhard volzt, all of them of the Dresdner Bank and the former Mercurbank. Mr. Wolzt was considered to be the head of the management in practice although all members had theoretically equal powers. He played a great role in "aryanizing" Jewish firms, Other Commercial Banks The Nazi invasion brought about the creation of a new mediumsized commercial bank of a' rather peculiar type. :The Credit-Institut fir Offfentliche Unternehmungen, owned by.the Austrian government (see p, 46), was sold by"the Nazi:authorities to a Munich bank, the Bayrische Hypotheken- und Wechselbank. Since German enterprises were not supposed at that time to acquire Austrian firms, the Munich bank bought the shares not directly but through its. wholly-owned Salzburg subsidiary, the Salzburger Kredit- und Wechselbank (see p. 37), a small provincial institution with assets equal to only a small fraction of those of its new "daughter". Th' Munich bank was" one of two institutions in that center which cultivated both commercial banking and real estate credit, and The. name of the it reorganized the Vienna bank on the same principle, bank was changed: to Hypotheken- und Credit-I'stitut in Wien, its capital increased to 12 million RM, and'braches stablished in,0raz nd Linz. The liquidity of the bank was impaired by the fact that the public bodies which used to deposit their funds with the institution as long as it was. government-owned, now were compelled to transfer them to In addition, savings deposits public banks in the "old Reich". Thereafter the invasion, as with all other Austrian banks. declined its holdings of government bonds fore the bank was not able to increase as the other banks did, and had to liquidate its holdings of. other On the other hand, securities even more than the other Austrian banks. remained active after the initial stagnathe mortgage credit business tion resulting from the shock of the invasion and the' subsequent expropriations of Jewish and other anti-Nazi real estate owners. The reduction of interest rates for mortgage bonds from 5 to :-1/2 per cent, under consideration at the time of the invasion, was effected shortly thereafter to conform with German practice,, and the bank-was authorized to issue 25 million RM of new bonds. Only about . million RM were actually issued, however; probably because, the outbreak of the war in Septemberi 1939 interfered with the extension of private long-term

S3'C'H 7S"

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credits, The bank increased its activities as a trustee for industrial credits, some of them granted in connection with the "aryanization" of industrial enterprises, and as the trustee for the governmental Housing Bonds (see p. IA). A summary of its " initial" balance sheet in Reichsmark, for January 1, 1939, and of its balance sheet for December 31, 1939, follows: Jan, 1939 Millions 1l 6 13 Dec. 1939 of RM 11 5 13 Jan. 1959 Millions 7 58 7 Dec. 1959 of RM

Assets

Liabilities

Cash & due from banks Bills discounted Mortgage loans Loans to municipalities Other loans Government bills & bonds Other securities & participations Other assets Transit items

Savings deposits Other deposits Mortgage bonds Municipality bonds Other liabilities Transit items (trusts) Retiren p fund

4
l1 11 6 1 15 1 15

3
52 2 18 2 8

3
33
2 10 2 15

1 8 1, 10

Capital & surplus

(trusts)

The large drop in total assets. and liabilities from previous balance sheets is the result of the exclusion of the Housing Bonds from the new statements. These bonds totalled 153 million RM at'the beginning of 1959, but this sum was reduced to 38 million RM at the close .oC the year through the conversion of most obligations into ordinary Reich government bonds. Total revenues reached 3 million RM in 193&8, and million in 1939; net profit 0.5 million in 1938, and 9,7 million in per cent for 1938, and 4.5 per cent 1939. The divident amounted to (on the increased capital) for 1939.

4.7

The Supervisory Board at the end of 1939 consisted of the president of the Bayrische Hypotheken-:und Wechselbank, Geheimrat Joseph Schyeyer, as chairman (he was succeeded in both positions, after his death, by Geheimrat Michael Kopplstaetter), and another officer of that bank, Dr. Carl Kraemer, as vice-chairman. The other members were Austrian: Mr. Werner Schicht, of the Austria r, subsidiary of the Unilever concern, as vice-chairman; Mr. Georg von Boschan, a manufacturer; Dr, Emanuel Braunegg, a prominent Nazi lawyer; Ernst von Streeruwitz, a former Catholic-conservative Chancellor of Austria, who had been received into the fold of the Nazi party some time before the invasion; General Edmund Ilaise von Horstenau, a, member of the Schuschnigg government who had turned "Quisling" and accepted a position in the puppet government

Aj

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established by the Nazis under Seyss-Inquart; and Dr. Ludwig Vogl, a manufacturer from a provincial town in Salzburg, As in the case of the Creditanstalt, the number and influence of the representatives of German economic and political (Nazi) interests were larger than those of Austrian business. The Management Board consisted of Messrs. Karl Weninger, Wilhelm Bauernfeind, and Eugen von Klimburg, all of them officers of the old.Credit-Institut. The smaller banks did not experience much change. The Niederosterreichische Gewerbe- und Handelsbank was <taken over by the German Central Bank for Cooperatives (see below, p. 87). The Bank fur Oberisterreich und Salzburg (which had' to replace the work "Oberosterreich" by Oberdonau" in crder to avoid the memory: f old Austria) received a new president in the person of the Nazi ex-Governbr of Upper Austria, Mr. Franz Langoth, but retained its connection with the Creditanstalt, The Hauptbank fur Tirol und Vorarlberg simplified its name by substituting Bank" for "Hauptbank , atretained Mr, Joham of the Creditanstalt-who had started:his career with this institution--as chairman of its board. The Bank fi r K ernten increased its capital to 1 million RM,- taken over j otinly by the Cred'itanstalt ad the Bayrische Hypotheken- und Wechselb'In; Mr.: Joham of the former, and Mr. Remshard, president of the Salzburg subsidiary of the latter bark, became cochairmen of the board. In Styria, a new bank was formed after the' merger of the Steirische Escompte-Bank with the Creditainstalt, mainly in order to, function as a clearing' house for savings banks, It was named Steiermrkische Bank, absorbed the exist.ing Vereinigte Bank Steirischer Sparkassen (see p. l ) 'and was' the only Adstrian bank in the legal form of a limited partnership (Ge'sellschaft mit beschrankter Haftung) rather than of a. share corporation. Its capital amounted to 2 million RM, and its total assets to 30 million at the end of 1938. The' Wiener Giro- und Cassen-Verein,' jointly owned by the Vienna banks, codrtiriued o function as a clearing house for stock Its activity in the field of foreign exchange exchange operations. Its balance sheet for clearings was taken over by the Reichsbank. December 31, 1939, showed the following main items: Assets Millions of RM Liabilities Millions of RM 5.6 1.9 0.6

Cash & due from banks 2 9 Government bills & bonds .4 Other assets &transit items 0.8

Deposits Retirement' & other 'reserves Capital & surplus

The tremendous decline in assets and liabilities reflects the decline in the importance of the Vienna stock xechange under the If the turnover--for which no figures were given--had Nazi regime,
.

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stock decreased in the same proportion as assets and liabilities, about 60 per cent from 1937 to exchange activity would have dropped 1939. The Supervisory Board at the end of 1939 consisted of the representatives of the member banks: Mr, Robert Hammer (Mortgage Bank) as chairman; Dr. Ludwig Fritscher (Creditanstalt, president of the stock exchange), and Mr. Leonhard Wolzt (L.nderbank) as vicechairmen; Otto Benedikt (Genonenschaftliche Zentralbank), Prince Alfred Hohenlohe (Schoeller & Co..), Dr. Fritz Horn, Josef Kern, Dr. Eugen von Klimburg (Hypotheken- und Oredit-Institut), and Dr. Hans The managers were Dr. Franz SStigleitner (savings banks), as members. Zorn, a former civil servant in the Ministry, of Finance, and Robert Nedl, an old employee of the institution. The Kontrollbank fur Industrie und Handel, which was also i jointly owned by t"e,"ienna banKs see p' 58, became the official institution for financing and accelerating the "aryanization" or If the buyer lacked sufficient funds, "nazification", of enterprises. the bank was supposed to supply th.mj and if no buyer could be found as soon as the party or the government decided that the former owner had to disappear, the bank took over and administered the enterprise In this way, extended periods of in trust for the future purchaser. management by irresppnsible Coxmissars were prevented, and it was assured that the profits from the "aryanization" would flow into the The Board of Directors of this institution at the "right" channels. end of 1939 ,consisted of Messrs. Ludwig Klucki and Walter Guttle, two former civil :servants of the Austrian Ministry of Finance; Dr. Hans -Mann, a prominent Nazi lawyer and,a leader of the "legion" of Nazi exiles which had instigated the rebellion of 1934 and the murder of Chancellor Dollfuss; and Mr. W. von Thelemann, a representative of the Munich banking firm of Merck, Finok.& Co. which acted as Commissar for the firm;of Rathsch ld. The bank was liquidated in 1940 after the "aryanization" of the Austrian economy was completed. German banks were not allowed to *establish branches in Austria Subsequently, however, months after the invasion. during the first the Deutsche Bau- und Bodenbank in Vienna: various banks opened branches which specialized in- real estate credit , particularly in connection with the construction of new houses; the Commerzbank, the third largest German commercial bank; and the Bank der Deutschen Arbeit, the politically and economically aggressive finance institution of the Deutsche Arbeitsfront, the compulsory organization of all German employers and employees. Savings Institutions The Austrian Postal Savings System served as a model for introducing the prinChoples of postal 'siving into the German economy. The Vienna Post Office was made the center of the new Reich Postal

Y ~ ~ ~' 9 Lf 7 ~d

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Savings System which started to function on January 2, 1939. In order to appease the German savings banks, whi'h did not like the idea of the Reich postal organization competing with them for the savings of the lower income classes, the interest rate paid on savings deposits by the Postal System' was set at i/l. of' 1 per cent less than for other savings instiututions,' and the maximum withdrawals .permitted without notice were restricted to 100 RM a month instead of 1,000 RM for the other institutions, The Reich government unified the various kinds of savings deposits used in Austria (see p. 41), :and limited the. investments permitted to the System, According' to 'it' regulations, the assets had to be kept as follows 5 per cent in cash or on deposit with the ReichsSbank; 15 per cent in Treasury bills; and 80 per cent in Reich bonds. While the humber of saving8 accounts in Austria declined, the amount :'eposited remained about cnstant.. or the System as a whole., both the number of accounts and' the amount of deposits increas.ed sharply because of its extens'ion to the "old" Reich and the inclusion of the Sudeten-German branches of the Czechoslovak Postal' Savings- System, During the first three months of 1939, the number of accounts increased from L00000 to 800,000, the amount of savings deposits from 102.5 million to 146 million RM; by 1941 the number of accounts had" increased to almost 5 million, the amount of deposits. to 1 billion RM; intermediate data are not available. :
.

While postal savings acc'ounts had been unknown to the Reich,

postal checking accounts 'had been used' as extensively as in Austria. The Austrian checking accounts were taken over by a newly created Postal Checking Office 'in Vienna, which became a part of the German Postal Checking System, The number of accounts, the amount of deposits, .ahd the yearly turhover .remained at about the pre-invasion level. The Austrian s vings 'banks became subject to the German " stdtutes ;'tho most impcirta.t c'h ige's consisting in inew. limits for .nteres't rates (5 to'-1/8 per cenit) and in the limitation .of withr drawals withbut notice; sin.ce this 1imitatibn ha'd been unknown in Austria, the amount to be withdrawn each month 'ithout notice was nstead of 1,000 R1M as in the old Sset at 3,000 RM for each depositor Reich. Although the new interest rates ere higher than 'tose before the, invasion:, the I'Imount of savings' d'epos ts. decreased during 1938; the checking deposits showed an increase, however, so that the total remained about the same.. The investment' of funds was radically changed in consequenhe of a decree, of August 1938 which prohibited savings banks from ranting mortgage 'loans, except in cases of construction credits for "public (ie., armament) purposes. This decree was issued in order to compel the 'savings banks to invest practically all Stheir funds in Reich bills and bonds,
' . ' 1 -

" 1i -Z-1'u 7s Am

- 84

unchanged. The organization of the savings, banks was left Their banking institution, had its name cha-nged into Girozentrale fGr die Ostmark and became one of the regional Girozentralen in Germany o and thereby a member .. f the central institution, the Deutsche GirozentraleKommunal-Bank,. This organization acted as a .clearing house, for checking accounts held by customers of savings bans,, and did much. to encourage payment by transfers from and to bank accounts rather than by cash. Various smaller savings banks were merged, and the number of savings banks in Vienna an4 Graz reduced to 2 and.,1,respectively. Savings banks were authorized to establish branches in other places, subject to the approval of the authorities. The usual' changes in personnel were made, Dr. HI, Stigleitner (who had .succeeded Dr. P. Schware, deceased) remained secretary-general .of_ the largest mutual savings bank, the Erste isterreichische Spar-Casse, but the officers of the Savings Bank of the City of Vienna were replaced by representatives of the ,"nazified" city administrations Private Banking Private banking was most deeply affected by the invasion since the anti-Jewish measures taken by the Nasis destroyed the great majority of existing firms, Only a few .of the largest firms were "aryanized"; the others were merely "liquidated". Even the non-Jewish firms were hard hit by the abolition of the government lottery, the suspension of stock exchange dealings., and the tightening of foreign exchange regulations which hindered both speculation on foreign stock The largest non-Jewish exchanges and the regular exchange business. firms were able to profit from new investment opportunities, especially The firm of the acquisition of shares of "aryanized" corporations. Moritz Krentschker. "bought" the majority of the Montana A,G., an important coal trading enterprise, which subsequently extendedits activities into the German-dominated .Balkan countries. The firm of Schoell.er.& Co., together with the Munich firm of Merck, Finck & Co. (see below), .bought" the majority of .the shares of one of .th. largest Scentral Eu'ropean textile concerns, the VBslauer .Kammgarnfabrik, Only the largest Jewish firms were "aryanized",. The firm of SM.v.Rothschild,.one of the oldest on the European continent, was taken over by two German aristocrats, Eduard von Nicolai and Baron Edmund Ritter, the .latte, a brother of the general manager of the firm The. Deutsche Industrier of Merck, Finck &:Co.. which acted as "commissar". bank, owned by the Reich government, became a silent partner in the ,It was reported that the net worth of the :firm, amounted enterprise. 100. million RM, in spite of the terri'ioc losses it had sustained to in connection with the crash of the Creditanstalt. The name was eNazi decree .which.forbade changed to E,v.Nicolai & Co., pursuant to'., to retain the nme of former Jewish owners any firm

85 -

The firm of Ephrussi & Co. was taken over by its non-Jewish partner, C.A.Steinh.usser; the firm of S.& M. Reitzes by the nonJewish wife of the owner. Other "aryanized" firms included: Breisach & Co. (new name: Winter, Schneider & Co.); Frid & Thiemann (new partners: A. de Antoni and H. Hacker) ; Gebr. Kanitz (new name: Hieggelke & Co., a subsidiary of the Berlin firm of Comes & Co., which had taken over several "aryanized" banking firms in Germany and had close relations with the party hierarchy); Leopold Langer; and Rosenfeld & Co. (new owner: a former officer of the firm, M. A. Mayer-Loos--the Pester Commercial-Bank remained a silent partner). The firm of Kux, Bloch & Co. was slated for "aryanization"; but the collapse of its silent partner, the Amsterdam firm of Nendelssohn & Co., made -these plans impossible. The authorities stated frequently that the "aryan" private banker would have ample opportunities for business under Nazism. In reality, even, the elimination of all Jewish competition could not compensate for the loss of all private initiative in financial matters without which private banking cannot exist. The complaints about the plight of the private banker, often heard in Austria in pre-invasion days, did not disappear. Except for the gains made by some firms through the "purchase" of Jewish property, the business of private banking was not benefited by the invasion. Mortgage Banks The organization of public mortgage banks remained unchanged, except for the merger of the banks of Lower Austria and Burgenland, as a result of the administrative changes brought about by the invasion. The mortgage business of the Creditanstalt was liquidated; that of the Credit-Institut was affected by the transformation of that institution into a private organization, The reduction of the rate of interest of mortgage bonds to a uniform L-1/2 per cent, contemplated before the invasion, was achieved by means of a compulsory conversion in March 1939, This action, accompanied by a corresponding reduction in rates charged on mortgage loans, was modelled upon an earlier German example. At the-same time, all Austrian piblic. mortgage banks became members of a central institution, the Pfandbriefstelle OstmL.rkischer Landes-Hypotheken-Anstalten, which centralized the issue of mortgage and municipal bonds, leaving to the individual banks merely the direct contact with their debtors. The management of this central institution was entrusted to the largest bank, that of Lower Austria; the managers of the member banks formed a supervisory council. In March 1939, Austrian public mortgage banks had outstanding 171 million RM in mortgage bonds, and 88 million RM in municipal bonds; this was a reduction of 5 per cent in mortgage and 30 per cent in municipal bonds as compared with the end of 1937. The drop in municipal

Tr

36 I -

bonds was confined to the smaller banks (outsiide of Vienna); since no detailed figures for those banks are available, the reason fo' this drop cannot be ascertained. It may be that the reduction in the interest rate on direct obligations issued by municipalJities induced some to borrow directly from the public rather than through the mortgage banks . The Mortgage Bank for Lower Austria remained the most important of these instuttutions. A summary of its balance sheet for December 31, 1939, follows: Assets Millions of RM 19 3 1 11 10 70 Liabilities Millions of RM 17 24.

Cash & due from banks Trade bills & checks Treasury bills Own bonds repurchased Other securities Mortgage loans Municipality loans Other loans Transit items

40
13 17

Savings deposits Sight deposits Mortgage bonds Municipality bonds Other liabilities & reserves Transit items Surplus

63
42 11 17 10

This balance sheet cannot be compared directly with those of pre-invasion days, because of the change in currency, the revaluation of assets and liabilities under German law, and a change in the system of accounting. The main increases are in "Cash and due from, banks" and in "Other securities" (obviously Reich bonds), balanced by similar increases in "Sight deposits" and "Surplus"--the latter a consequence of the revaluation of assets. Most "Sight deposits" were deposits by other financial institutions; this increase and the corresponding increase in the item "Due from banks" represented merely a rise in Savings inter-bank deposits rather than an extension of business. deposits had dropped by 30 per cent. The "Transit items" no doubt included the Housing Bonds for which the bank acted as agent (see p. JA). The revenue for the year 1939 amounted to 8 million RM, the net profit to 0.5 million. The increase in profits in spite of the small change in.gross revenue was mainly the result of the bank's exemption from' taxes and social insurance contributions to which it had been subject under Austrian law. Agricultural Credit Immediately after th .invasion the Nazis introduced into Austria the German statutes creating in.alienable, hereditary homesteads (Erbhof) for farmers who met certain racial and economic qualifications. These homesteads could not be mortgaged except with special permission given by the regional "peasant leader" (Landesbauernfihrer); even if

that permission were given, the creditor could not force a sale of the homestead, but only try to levy execution on the crops or on personal property of the owner. All farmers, whether hereditary homestead owners ("Erbbauern") or not, were given the right to ash for a readjustment of their indebtedness if their income was not sufficient to permit full payment of their debts. Those debts which exceeded a certain proportionof the value of their- farms were scaled down while the interest charges on the remainder were reduced to 4-1/2 per cent. These measures brought agricultural long-term credit to a However, agricultural credit cooperatives: concomplete standstill. tinued to give personal .(unsecured) credit; the collection of such debts was facilitated;by the .provision that any owner of a hereditary homestead who failed to pay his personal debts although able to do so, could be removed from his homestead by a "court of honor". The impgrtance of rural cooperatives was increased by the growing demand for agricultural products and therefore agricultural machinery, due to the Nazi policy. of self-sufficiency, :The organization remained unchanged, except for the usual changes in personnel. The existing regional clearing and banking organizations were incorporated into the German system and affiliated with the central bank of all German cooperatives, the Deutsche Zentral-Genossenschaftskasse This bank acquired the Giro-Zentrale and renamed ("Deutschlandkasse"). it the Genossenschaftliche Zentralbank .der Ostmark. It became the center of all Austrian agricultural cooperatives; at the end of 1939, it had a capital of 3.5 million RM.,and total assets of 65 million, or 2-1/2 times its, assets in 1937. Other Financial. Institutions The urban credit cooperatives were also incorporated into the German system. The largest organizaton of urban.credit ccoperatives, the. Zentral-Genossenschaftskasse, was renamed the Zentralkasse Sudostdeutscher Genossenschaften.. It became the center of all Austrian urban cooperatives, and had total assets of 30 million RM in 1939--an increase of ,nearly 5 .times over 1937. This rise was due partly to the change in organization, the Zentralkasse' replacing other fin:-cial institutions as depositary of excess funds of its member cooperatives, and partly to the. guarantee given by the Reich government for credits to small artisans in the sum of 150 million RNI. The Deutschlandkasse acquired the shares of the Niederisterreichische Gewerbe- ind Handelsbank and made that institution into a, "Volksbank", fulfilling the functions of the American Morris Plan banks. Such banks as well as credit cooperatives were permitted to Spay a slight premium-over the usual rate.:of,, interest .on deposits.
;-~

~~~~~~~~~ . ' .

~~
.,

97

- 88 -

The building and loan associations which under German law were placed'under the supervision of the insurance rather than of the banking authorities, did not expand much, probably because the government did not encourage private construction which might use scarce materials. No data are available as to the development of the Dorotheum The credit' cooperatives affiliated with the and private pawnshops. pawnbrokerage firm of Gerhold & Weidlich were liquidated. The Reich government set up two holding companies which became important for the financing of Austrian industry although they The Alpen-Elektrowerke took over most did not function as banks, formerly owned by the Industriekredit (see p, 28), public utilities Of the members of its Supervisory Board, only two were Austrian: Messrs. Erich Heller (Creditanstalt), and Philipp von Schoeller (Schoeller &"Co., Creditanstalt); all the others were German, notably the president, State Secretary Ernst Trendelenburg (Reichs-KreditGesellschaft), and the vice-president, Alfred Olscher (VIAG, CreditThe relations to the Creditanstalt were particularly close, anstalt).. not only because the Reich government owned a substantial portion of the, shares of the Creditanstalt, but also because that bank had taken over the banking business of the Industriekredit and thereby bad become the banker of all the corporations in which the Alpen-Elektrowerke held interests.' The second government-owned holding company was the Reichswerke Hermann Gsring, Linz (Upper Austria), which belonged to the concern of It originally had a capital of only 5 million. the same name in Berlin, RM, but soon was merged with the largest Austrian mining enterprise, the Alpine Montan-Gesellschaft. 'This corporation had been a member .of the German steel combine, Vereinigte Stahlwerke; in 1937 its-capital had been 60 million S, its total assets almost 150 million S, its gross revenue more than 30 million S, and its profit more than 3 million S. The members of the Supervisory Board of the Reichswerke were all German. The Reichswerke acquired from the Creditanstalt and other banks shares in the most important Austrian corporations in the fields of heavy railroad equipment (Simmeringer Waggonindustry and transportation; Paukerwerke), automobiles (Steyr-Daimler-Puch), steel (Steirfabrik, ische Gusstahlwerke)-, and water transportation (Donau-DampfschiffahrtsThese transactions brought all strategic industries in Gesellschaft). Austria under the direct control of the Reich government, The Industriekredit A.G,, which had been owned by theAustrian Bank, was liquidated after it had sold its assets to the other National government-held corporations, mainly the Alpen-Elektrowerke, and transferred the remainder of its banking business to the Creditahstalt. The Vienna stock exchange was closed from March to October '1918. When it was reopened, its organization was brought into conformity with that of the German exchanges; all forward transactions were prohibited, Jewish members, brokers, and employees were expelled, and managers of the German-controlled big Vienna banks became the leading officers of the exchange,

^V^T/gL~7,

89 -

Insurance A decree of June 20, 1938, authorized the Gex-an'Minister of Economic Affairs-to take all nece.ssary measures for ,Ire6oganizilng" Austrian insurance, including the dssolution and merger of insurance companies. Under- this decree, Austrian insurance was, brought completely under the control of the big German concerns, with.the exception of the affiliates of the two large Italian institutions :and' of the. Swiss Reinsurance Corporation. The "German Ring" concern, owied by the German Labor 'Front and thus most intimately connected with the Nazi party hierarchy, imnediately acquired a. majority interest in, the largest Austrian life insurance instit (renamed IGenaan TnR Life tution, the Austrian Insurance ,rorporation Insurance Corporation), and in the largest industrial insurance'institution, Through the "Allianz und .Giselaverein" (renamed Ost n rkische Volksflrsorge). all ordinary and inthese corporations, it controlled about one-third of The Miunich Reinsurance group increased dustrial life insurance in Austria. its control of the "Phoenix" General Insurance Corporation by purchasing the minority interest owned by the Assicurazioni Generali; it renamed the conforming to the names of other subsidiaries corporation "Wiener Allianzl In addition, it acquired a minority interest in a new of the concern. combination formed by the merger of the Insurance Institute of the City of Vienna with the old mutual organization "Wechselseitige Brandschaden und Janus"; the amalgamated company took the name of "Wiener Sthdtische ud . The "Colonia" insurance concern (Cologne) acquired the shares of Janus", the Anglo-Elementar, now named General Elementar Insurance Corporation. The Magdeburg Fire Insurance Corporation retained its control of the "Donau", merged it with its Sudetenland subsidiary, and renamed it "Donau-Concordia" The Insurance Institute of the Austrian General Insurance Corporation. Insurance Corporation (in order to avoid the States was renamed "Ostmark" The Vienna Reinsurance Corporation word "Austriah", obnoxious to Nazis), to the uNordstern" group of Berlin, was sold by its Swedish owners Although German fire insurance groups took over some small Austrian companies, including one subsidiary of the Assicurazioni Generali, the Assicurazioni retained control of the First General Accident Insurance and Corporation, and made this company its main representative in Central General" the Sudetenland Southeastern Europe; it allotted to the "First business of its three Czechoslovak subsidiaries and the German business of The Riunione two British companies which it had taken over early in 1939. Adriatica di Sicurta strengthened its subsidiary, the International Accident Insurance Corporation by specializing in the field of burglary insurance. The "Anker" General Insurance Corporation remained under the control of. the Swiss IRinsurance Corporation'until 1943, when it was sold tq the "Victoria zu Berlin". Most agencies of foreign (non-Gennan) companies disappeared, five of them transferring their business to the "German Ring". The German companies themselves preferred to do business in Austria through subsidiaries rather than through branches, first of all because of the sensibilities of the Austrian population, and also in order to evade the limitations placed by the German Government upon the opening of new branches The usual changes in the personnel of German insurance companies in Austria, were made, German business men and Nazi and especially in the management politicians replacing all individuals connected either with the Austrian antirNazi movement or the Jewish race.
7 A IV: Jr

A decree of February 28,

1939, substituted Germrni

for Austrian

insurance law, introducing the German (pre-Nazi) statutes concerning the

supervisiqn.of insurance companies and insurance contracts, making the Reich Board for Private Insurance (Reichsaufsihtsamt fur Privatversicherung) the supervisory agency for all Austrian insurance companies, and repealing a ll Austrian- statutes, including those enacted as a result of the "Phoenix" crash, . The Insurance :FPuad created to make good the losses of the "Phoenix premia.n reserve exchanged -its bonds 'for l 80Tmillion Reichsmark of new 4.5
per cent obligations with an amortization period of 32 years, and the burden of servicing these bonds was put on all German insurance companies, thus removing the special handicap on Austrian institutions. On the other hand, the Austrian companies, had. to reduce the interest on their mortgage loans

to the German level, 5 to 5.5 per cent. The numerous small benevolent Sassociations providing for burial insurance were dissolved .and their holdings transferred to the -seven large life iisurance companies.

-.-

.f

7-

-LI

t-sj~7

2.

The Second World War

.'

General Remarks

The war' ia first disturbedtheprocess of reestablishing confidence and 'ability in Austran finance But ~ from 1941 on it brought about an' nparalleled boA in Austrian industry, commerce, and agriculture, and therefore also in Autrian banking. The" upward trend. became particularly pronounced in 1942 3t .Austrian heavy industry profited from the destructin ft' the :tn hr'Rhie district Austrian trade from the Naxi occupation of Souith-aster Europe and from the subftitution of water traffic (tanUbe) fo rail and motoa trnhport. tion, Austrian pubiic utilities friom he' eplcement 'of coalc water power (Alpine strease inthe produioii:ofelectricity, Au trian forestry from the demandr for lumber as a ra material for rayon and plastics, and Austrian dairy farming from' te general European famine. New enterprisee demanded new capital, credit, and other baakin aerv ices. The only force preventing an expal ion of private investment was the attempt of the Reich government to channel all loanable funad : ... .. -. into, the war effort.: In general, Austria had becQe an integral part of te German war. economy, .the development of which :is: described. n detail in :the Civil Affairs Handbook for Germany. Prosperous business and ris ng money incomes (even .after Increased taxation) were accompanied by:a general deoline in 'the standard of living as en ever.increasing share of the national output was absorbed -by the war machine. .Rigid price control, already: introduced: in the. rearmament years, succeeded in preventing any significant rise in .the offTcial indexes for prices and the cost :of .living. These indexes, however, are highly untrustworthy, not least because they take no appropriate account 'of the radical decline in :quality of :consumer goods, L::Xn any case, the sheer absence of outlets for consumer expenditure forced the public to hold an increasing proportion of its noeme in the form of cash, bank depoests, savings deposits, end.government bond , In general the German program for war finance hasph epasized the collection of the: 'rublic's savings thrugh: institutional investors (banks and. other credit institutions, insurance companies, etc.) rather than by direct sales of government bondq to -individuals. The result has been a general inflation of the balance sheets of all credt institutions and a marked growth in the volume of money (currency aEn bank d.eposits ) hed by the public. Price control and.the suppression of :blackt markets has thus far jre-. vented this mass of money from producing a price inflation on the scale that might have been anticipated Austrian institutions ;all ishared' to greater or less 'degree in the expansion. potal assets of the : two big conmercial 'bank, CreditanstaltBankverein and L~derbank, increased by about 80 per cent from 1939 to 1942, Tyotal asseta ofI so me provincial banis andl credit cooperatives inreased more raipdly, but those of mortgage and

24.59i75

savings banks lagged behind. Al. insuttutions invested most of their new funds in Reich securities, The big banks, especially the Creditanstalt, also expanded their priva e investments, mostly in the form of advances to war industries and to the trade with Axis-occupied SouthEastern Europe. They .underwrte new issues of industrial shares and bonds, but kept only relatively small amounts in their own portfolio. The preference of the public, for shares, which seemed to provide better guarantees against the effects of. inflation, provided a ready market for new issues and .produced a boom on the Vienna stock exchange until severe restrictive measeures ere taen.. Collaboration with German institutions and with banks in the occupied countries enabled the two big banks to participate in the eploitation 0f South-Eastern Europe and to strengthen their international character in line with their old tradition; however, accordipg to authoritative press comments, ,made "where the political ccmpetence rests", the fineal decison 'sere i.e., in.Berlin rather tha4n in Vienna. Creditanstalt*ankverein Ti-he Supervisory Board of. the ban' has undergone several changes. The representative of the Belgian shareholders withdrew after the invasion of Belgium; three representatives of governmentowned corporations, Messrs. Axt, Reinhart;, and Rhodewald., were replaced by representatives of the Deutsche Bank 'concern,Messrs. Karl .Gerlan, the Austrian Nazi organization gained iHns .ammel; Oswald Rosler, and another representative in the person of Mr. Walter Rafelsberger, the :W"Oqmaissar:" for Austrian industry under the Quisling government after the :invasion; the representation of Austrian industry was further weakened 'by the withdrawal of' Messrs. von Bohlen und Halbach, Auer von Welsbach, von Hinke, .and Klinger ,(it;smay be more than; a coincidence that three of. them were the .o~ly "titled" directors, with: the exception offr,, von Schoeller: this trend may indicate the teeady replacement sympathizers by .plebeian members of the Nazi party), of ":patrician: Instead of Dr. 'Fischbookand Dr. :Pfeiffer, who assumed positions con-' Buzzi, the former manager of nected with econcmic.warfare, Mr. .iRchard: the Vienna'branch of' the Reichsabank, apnd M. Walter Tron,' a manager of the Deutsche hank, were appointed members of the Management Board. Mr. Erich Heller left the Management Board for the Supervisory Board. SThe. increase in the' bank's total assets and in sight deposits 1939 to 1942 was proportionately greater than for most big Berlin fr.c: banks; but the increase in s.avings deposits. was smaller. This relation, which was: also found in mst other Austrian credit institutions, indicates the continuing sceptic ism of the Austrian public as to the future of the Reichsmark. The bank managed to keep its holdings of Reich bills and bonds at less than 40 per cent of its total assets, while the ratio varied from 60 to: 75;per cent at the big Berlin banks. It was ,the Qoaly large Gerxman- bank :whose loans and advances continued to be larger than its investments in governmet seouritee iogT r th the Landerbank, it underwrote an issue of 50 mi4ionRMof industrial bonds of the largest Austria a ii~t ble concern (now engaged in manufacturing armaments), the Steyr Workes and, as a result of the

24-59475

93

aryanization of the largest Austrian cellulose concern, Bunzl & Biach, acquired the majority of shares in the successor concern, Kontinentale Rohstoff- und Papier- Industrie ("Kontag"), The purely commercial credit business increased especially with the new Polish and the Hungarian branches. The foreign investments of the bank rose with every step in the Nazi march of conquest. The Deutsche Bank permitted its subsidiary to acquire'the following participations: a majority of the shares of the Allgemeine Jugoslavische Bankverein, which in 1941 was divided into the Bankverin fur Kroatien in Zagreb and the Bankverein Belgrad in Beograd; a minority interest in the Moravian Bank (Brno); and 3.0 per cent interest in the Deutsch-Bulgarische Creditbank, Pumanische Commercial bank, and Bhmische Unionbank. In addition, the Bank continued to hold a majority of the shares of the Union Bank in, Pressburg (Slovakia) and participated in the "understanding" of the Deutsche Bank with the Banque Nationale de Grece, the most important Greek bank. After the conquest .of Yugoslavia, it open~4 three new branches in the annexed parts of Southern Styria (Marburg, Pettau) and in the territory occupied by Hungary (Ujvidek). After the invasion of Poland it opene.d a branch in Cracow, after that of Russia, another one in Lwow (formerly. the capital of Austrian Poland). One of its domestic subsidiaries, the SBank fur Karnten, took over the Carinthian branches of the bank and opened a new one in the former Yugoslav .territory united with Carinthia. A summary of its balance sheet for December 31, 1942, is compared below with the figures for December 31, 1939: Assets Millions of JM 82 . 69 289 73 72 13 55 94 Liabilities Sight deposits Millions of RM 26 60 81 8 24 . 73 111
X53

Cash and due from banks Bills and notes Advances Government securities Other securities & participationsMortgage loans Other assets & transit

577
110

92 Savings deposits 402 Other time deposits 375 Mortgage bonds 172 16 12 Retirement fund Other liabilities & transit Capital & surplus

266 3 73 20 116

53

1,165

1,165

SAbout one half of the increase in "other" securities and most of the increase in the retirement fund reflected the recapture by the.bank of the Pension 'Fund which had been made an independent corporation in 1937 (see p. 33) . The drop in "other" assets and liabilities was due to the. fact; that the government Housing Bonds (31 million RM) for which the bank acted as agent were now shown

24-59475

outside of the balance sheet, as ware endorsements and other guarantees (63 million). One half of the remaniing '"other" liabilities consisted Sof reserves. Total.: revenue in ;19l2 .mmounted to 38 million-RM, taxes. to 18 million, and profit to 4 million .:.sufficient; for a dividend of
.6 per cent. .-.. ..

L~nderbank

.The Dresdner Bank remained the :s'ole owner. .Among its representatives on the: Supervisory Board', Messrs. Piilder anid Schippel 'were' replaced, 'by Messrs. CarlC Goetz. (chairman .of: the board :.of the Dresdner Bank) "and: Karl Pfeiffer; and. the Nsi politician, Birthelmer, by a German'industrialist, Dr. Fritz von Engelberg. Mr. Franz Gold, former manager of the Slovakian subsidiary of the bank, became' a member'of 'the .Management Board. . The 'bank continued to seek the patronage of medium sied business firms; in 9l41 it -announced that the average amount of credits granted had dropped below 100,000 RA for; the first time. The main increase in its assets took place in Reich scurities which formed almost 60 per cent of its total assets. in 19.2 (as compared-:to less than 40 per cent in the Creditanstalt,. but to 75 per cent in some Berlin banks). But it also participated in the'underwriting of shares and bonds (issues of the Steyr concerh,. Boehl.r'.steel mills, and sereral electricity concerns and in the acquisition of the shares of the
l

'I ontag"t)

..

:.. .

'

..

The foreign affiliations .- the bank.increased as fast as of those of the Creditanstalt; :they also were restricted to minority. rights, the majority remaining always. in the hands of the Dresdner Bank. The bank owned shares in, and was represented in the adiinistration of, the Bohrlischie Escompte-Bankli.in Prague, .the-Commeroialbank in Cracow and LI .(formerly Austrian Poland), Deutsche Handel@s und Kreditbank. (Prescburg, Slovakia), Rumatnische Bankanstalt (Bukarelst and branches in Transylvania and the" Rumanian Banat), Kroatische Landesbank (Zagreb, branch in Italian-occupied Lubljana), "Mercur" (Budapest), and Buigarische Handelsbank (Sofia). In addition, it had "fri-ndly underst rdings" with the largest Hunarian bank, the Ungarische Allgemeiane Creditbank (which in.turn had subsidiaries in Croatia, Slovakia 'and Transylvania), the.'Deutsche Orien bank (Istanbul and Izmir, Turkey)- and the second largest Greek, bank, the Banque : .i:. d'Athenes- w.ith which it shared the. ownership of the Gri.echisch-:. Deutsche Pinanzierungs-Gesellschaft, the banker .of: the. monopolistic' German-Greek trade corporation, "Degriges". . A summary of its balance sheet for December 31, 19 1:2 , is compared below with the figures for December 31, 1939.

' iY;

95 -

1939
Assets Cash and due from banks Bills and notes Advances Government securities Other securities & participations Other assets 21 87 122 93 13 6 ; 3W.

1942Liabilities Sight deposits Savings deposits Other time deposits : Reserves .. . Other liabilities Capital & surplus 18 109 136 339 19 6
;

1939

Millions of RM

1942

Millions oFTMi 210 54 146 . 1 22 310 120 162 5 3 24

372 2

'_

Savings deposits, in spite of the great increase between 1939 and .1942, were hardly larger at the end of the period than they had been in 1937 in the three banks which were merged to form the LRnderbank; oh the other hand; total assets and liabilities had more than doubled since 1937. The surprisingly small amount of cash and net worth reflected the fact that the bank was in practice only a branch of the Dresdner Bank. Guarantees and endorsements for 42 million RM were not included in the Balance Sheet. The revenue of. theBank in 19142 amounted to 15.5 million RM, the net profit to 1.2 million, permitting the distribution of a 6 per cent dividend. Other Commercial Banks The Hypotheken- und Credit-Institut did not make the same progress as the two big banks. Its mainbusiness, real estate credit, did not expand to any appreciable extent. Its total assets., capital, and profits remained about unchanged. The Bank fur Oberdonau und Salzburg, owned by the Creditanstalt, expanded proportionately more than any other commercial bank, probably because of the establishment of the Austrian subsidiary of the Goering Werke in Linz (Upper Austria). At. the end of 1941 (the latest date available) its total assets amounted to 119 million RM (against only 37 million S in 1937). All the other banks remained unimportant. The Bank fur Tirol und Vorarlberg, belonging to the Creditanstalt group, had total assets and 28 miilion RM; the Bank fir. Krnten, jointly owned by the Creditanstalt und the Bayrische Hypotheken- und IWechselbank, 2 0 million; the Salzburger Kre'dit- und Wechselbank, belonging to the Bavarian bank just mentioned, 19 million; and the Eise st!dter Bank, owned by the L.Lnderbank, 3 million. These figures, all relating to the end of 191i, represented increases of about 100-200 per cent over 1937.

- 96 -

The Giro- und Kassen-Verein (see p. 38) was taken over by the Reichsbank and liquidated, along with a:ll similar organizations in the rest of the Reich in order to simplify the banking structure; its :functions were subsequently performed by the Vienna branch of the Reichsbank. Other Financial Institutions Austrian savings banks continued to stagnate in 19)40; but from 19)41 on their deposits began to share in the general inflationary expansion, although to a lesser degree than those of the commyrcial banks. Total deposits amounted to 2, 3 billion RM at .the end of 19l . (the latest date available), an increase of 90 per cent over 1937. The largest mutual savings bank, Este Osterreichische Spar-Casse (which was the only financial institution permitted to retain the word "Austrian" in its name) absorbed another (small) savings bank and had deposits of 346 million RM at the end of 1941, an increase of less than per cent over 1937. The main increase in deposits of savings banks took place in current, rather than savings, accounts. Depositors could dispose of their current account balances by interbank-transfer ("giro"), while under German law, the banks could use such deposits to This explains why make unsecured personal loans to small borrovwers. the increase occurred mainly in small communities which hitherto had not been provided with banking facilities (except those of the Postal Checking System) rather than in the big cities where commercial banks gave the same service,

40

The only private bankers playing an important role were the firms of Schoeller, Nibc6oai (formerly flothschild), and Krentschker. The former two participated in the "aryanization" of the "Kontag"; Nicolai also took over the banking firm of Chrissoveloni, Bisteghi & Co, (total assets 2,5 million RM), which had "friendly relations" with the Berliner Handelsgesellschaft. The firm of Reitzes was liquidated, leaving less than a dozen private banking firms in Vienna. The public mortgage banks still labored under the restrictive influences of the homestead principle and the statutes providing for the reduction of agricultural indebtedness; also private construction virtually ceased because of the lack of building materials. The circulation of. mortgage bonds declined (the Vienna Mortgage Bank redeemed 1 million RM of its bonds in 191 alone); however; short-term advances by the mortgage banks expanded somewhat. In contrast to the declining importance of all these institutions, credit cooperatives developed rapidly. Depositors preferred the relatively small associations to the larger savings institutions, perhaps because they knew that the savings banks and similar establishments were compelled to invest all their available funds in Reich bonds make while they thought (wrongly) that the cooperativ s would still most of their funds available to their fellow-members,

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The central institution of Austrian rural credit cooperatives, Genossenschaftliche Zentralbank der Ostmark, increased its total assets to 170 million RM in 1942 as compared to only 41 million S in 1937. The central institution of Austrian urban- credit coperatives, the -Zentralkasse S dostdeutscher Gendssenschaften, ;inreased its total assets to 166 million RM in. 192 ias compared to only 10 million S in 1937. Figures for the total assets of the agricultural credit cooperatives themselves are not available for 1942, but those of non-agricultural credit cooperatives amounted to 509 million RM, as compared to 270 million S in 19371. Assets of agricultural credit cooperatives were probably substantially larger than 500 million RM in 19.2, since their assets formerly were about one-quarter larger than those of the urban. institutions and they probably shared at least as much in the war-time expansion. Deposits of- the, urban cooperatives amounted to about 90 per cent of their balance sheet total, while savings deposits accounted fof about 7,5 per cent of, their totalde posits. Their assets consisted in almost equal parts of .loans to members, Reich securities, and balances with their centra! institutions. The central bodies in turn kept about 50 per cent; their assets on balance with other financial institutions, and most of the -rest-in Reich paper. These other institutions again invested up to 0 per cent of their assets in Reich.. securities. In the ,final analysis, therefore, ne&arly 'twothirds of the total assets of the cooperatives were directly or indirectly invested in Reich securities. Similar data for the agricultural credit cooperatives are not available for. 1942; but their development in, the preceding years suggests a similar di'stribution.

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The increase in the assets of the cooperative central institutions was much larger than that of their member cooperatives, partly because outlets for cooperative loans did not increase along with the rise in their deposits, and secondly because the policy of centralization pursued by the German authorities required members to deposit all their surplus funds with their central organization rather than with other banks. In addition, the Zentralkasse acquired new members in 1941: the Building and Loan Association of Austrian Cooperatives ("Bausparkassen") and the Association of Styrian Cooperatives, which until that time had had their own central bodies.

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Stock Exchange
The distrust of Austrian investors in :the currency and fixedinterest securities brought about a sharp rise in demand for Austrian (not Itold Reich") shares. In October 1940 the President of the exchange, Ludwig Fritscher (Creditanstalt), prohibited all dealings in Austrian :shares atprices higher than those of October 2. In order to give the investor a more "patriotic" outlet for his accumulated savings, 2 billion RV of Reich securities and "old Reich" shares were introduced on the exchange during 1940 alone:, * In 1941, further attempts at control were made: the banks were forbidden to offset customers', sales and purchases; price ceilings were extended to cover all shares; and the brokers were compelled to "justify" any increase in the price of a share by demonstrating that it was based upon a change in the status of the issuing corporation. After the end of 1941 the market purposely was kept in a state of grave uncertainty by the requirement that all shares acquired after the outbreak of the war in excess of 100,000 mH (later: 50,000 FM) had to be registered with the authorities,. a preliminary step to their expropriation. In June 1942, the sale of such securities was prohibited, except that the Minister of National Economy was authorized to "buy" them at the price of December 31, 1941, effecting payment in blocked Treasury bonds to be deposited at the Reichsbank, The abnormal character *of exchange transactions is shown by the fact that share yields which in normal times were well above those on government bonds, fell below that level so that the current return on *shares was. very low." Due to the restrictions mentioned above, the volume of transactions in shares dwindled to almost nothing. The Vienna branch of the Reichsbank took over the clearing functions of the Giro- und Cassenfurther its grip upon the Verein in 1942, and thereby strengthened still technical machinery of the exchange,

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Insurance The German occupation of Southeastern Europe opened up a large new field of activity for the Austrian companies. Their German "parent" organizations used them for the same purpose for which the big German banks used their Vienna subsidiaries: the Balkan people had been accustomed to dealing with Austrian institutions until the First World War, and it was not difficult to induce them to resume these relations., The "German Ring" and the "VolksflUrsorge" were active in Slovakia. The "Anker" participated in the Hungarian "Turul" company and worked directly in the territory of insurance. The former Czechoslovakia and of Hungary, specializing in life "Wiener Allianz" tightened its ties with Hungarian and Rumanian companies The "Wiener Sthdtische that formerly had belonged to the "Phoenix" group. ~ud Janus" participated in the Rumanian "Nationala" General Insurance Corporation, and was directly active in Hungary and in the territory of former Jugoslavia where it took over the portfolios of three French companies; The "Genera its subsidiary "Danubia" also expanded into Hungary and Rumania. Elementar" participated in the Rumanian '"Alemannia" (formerly "Blritannia") corporation, and operated directly in Slovakia, Hungary, and former The "Donau-Concordia" Jugoslavia, specializing in property insurance. participated in the "Dunov" company in Serbia and the "Agronomul" in Rumania, and in addition to becoming one of the most important property insurance organizations in the territory of former Czechoslovakia, it did business in all insurance branches in Hungary, and specialized in life insurance in The "First General Accident" cooperated with the Assicurazioni Turkey. subsidiaries in the Balkan countries; the "International Accident" with the Both companies also did a large amount of direct Riunione subsidiaries. The net result was especially in Hungary and fnQrer Yugoslavia. business, same as in banking: in outward appearance, Austrian insurance had about the regained the status it had enjoyed up to the' First World War, although in reality, it merely was used as a "front" for its German masters.

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