Financial crises no matter what period we talk about, had a tremendous impact heavily on the banking companies, with major implications in the national economy. This paper analyzse the characteristics that has defined the crisis of 1929 compared with those of the current crisis, their impact on banking companies and its dimension. Banking Companies of Romania represent the core of this analysis because they operate in an immature socio-banking area, constantly changing, strongly affected by international financial turbulences. In this context, we considered of paramount importance the identification of the causes that led to the crisis broke out, the effects on the banking companies and thus over the entire economy.banking company, financial crisis, economy, causes.

Ioan POPA

Lia Dorica HUSUSAN (DOGARU)

English

Research Papers in Economics

Review of International Comparative Management                              Special Number 1/2011  367 
 
THE ECONOMIC SIZE OF THE BANKS IN ROMANIA  
IN TIMES OF RECESSION  
 
 
Lia Dorica HUSUSAN (DOGARU) 
Ioan POPA 
The Bucharest Academy of Economic Studies, Romania 
 
 
KEYWORDS: banking company, financial crisis, economy, causes 
 
 
  The  first  part  presents  the  banking  system  during  1918-1929  and  an 
overview of the events that were the crisis breakout premises. Are also detailed the 
expressions of financial crisis in public finance, monetary circulation and credit 
and legislative measures taken to overcome crisis. In the second part is made a 
detailed presentation of what is considered the starting point of the current financial 
crisis, it analyzes its typology, whether or not, fall into a pattern.  
 
1. Banking Companies and the crisis of 1929, "United Recession''-
causes, effects and mitigation measures and the elimination  
of crisis effects 
 
  Strengthening the unity  of the state, the single  internal  market training, 
rehabilitation  and  development  of  national  economy  have  resulted  in  postwar 
development credit and banking system. In this period there has been a process of 
concentration  and  centralization  of  capital,  the  cooperation  of  industrial  and 
banking capital, which took to increasing the number of banks and their capital. 
Between  1919-1921,  the  number  of  bank  liability  anonymous  companies  has  
grew from 487 to 556, and their capital  has increased  from 1010.1  millions to 
2406.4 millions.
1 It grew especially the number of large banks, which occupying, 
through investing, major economic sectors.  
                                                        
1 Mircea Muşat, Ion Ardeleanu, Romania after the Great Unification, Vol II, Part I, p.3988 
ABSTRACT 
Financial  crises  no  matter  what  period  we  talk  about,  had  a  tremendous 
impact  heavily  on  the  banking  companies,  with  major  implications  in  the  national 
economy. This paper analyzse  the characteristics that has defined the crisis of 1929 
compared with those of the current crisis, their impact on banking companies and its 
dimension. Banking Companies of Romania represent the core of this analysis because 
they operate in an immature socio-banking area, constantly changing, strongly affected 
by  international  financial  turbulences. In  this context,  we  considered  of  paramount 
importance the identification of the causes that led to the crisis broke out, the effects on 
the banking companies and thus over the entire economy. 
          Special Number 1/2011                         Review of International Comparative Management  368 
  The Credit system was built around the central bank, which covered most 
of the loans received by the large industry and big Romanian banks and it was 
dominated  by  nine  large  banks:  Romanian  Bank,  Bank  Marmorosch-Blank, 
Romanian  Credit  Bank,  the  Romanian  Commercial  Bank,  Chrisoveloni  Bank, 
General Bank of Romanian Country Scont Bank, Commerce Bank and Agricultural 
Bank of Craiova.  
  Following the significant gains achieved by banks in this period due to the 
permanent support of National Bank by maintaining a 6% discount just by NBR 
and the practice  of interest  of  loans  issued by up to 30%. Banking capital  has 
entered  the  industry  in  1925,  12  large  banks  participating  with  capital  into  
380  industrial  enterprises.  By  merging  the  banking  capital  with  the  industrial 
capital were created monopolistic positions of large capital, both in industry and 
into the banking system with negative consequences for the development of the 
country, especially in generating and deepening of an economic and even political 
rivalries between the two large banks: Bank Romanian - liberal banking center, the 
promoters of the political line "by ourselves" - and Marmorosch Bank & Blank - 
banking center of the promoters of the "open door" policy. 
1 In our country the 
crisis began with the agrarian crisis and   through the financial sphere (taxes, 
budgets, public debt) was propagated in all other sectors of economic life and is 
influencing each other, causing additional problems of  industry, agriculture and 
trade. General economic recession had as an adjacent ef fect the destabilization of  
and  credit  system,  primarily  by  the  economic  units   imposibility  (farmers, 
commercial and industrial enterprises, etc.) of respecting payment engagement, as 
a result of the production crisis and reduction of  consumption goods.  
Insolvency of debtors was a consequence of the credit policy applied 
immediately after the war when there was a "credit inflation" by granting loans 
with great easyness based on monetary inflation. Beeing into impossibility of  the 
asset  realization,  banki ng  enterprises  have  not  been  able  to  fulfill  their 
commitments to the third parties.  
2 
Depositors, in the general economic crisis and of the speculation on its 
bases, panicked it self and in great number requested the withdrawal of deposits, 
which led to the worsening situation of banks.  
Foreign capital in banking, took full advantage from the crisis in Romania, 
during the recession a capital of about 18 billion being withdrawn from banks in 
Romania and deposited abroad.  
On public finances, the economic crisis has had negative effects mainly by 
state intervention to support banks and big capitalists, increasing external debt as a 
result  of  contracting  ext ernal  loans,  military  spending,   made  over  budget ary 
possibilities etc. Governmental measures taken to  overcome the financial crisis 
have generated additional hardship for most people: raising taxes or cutting wages.  
                                                        
1  Stephen  Zeletin,  "National  Finance  and  State  Policy"  in  Social  Justice,  Year  I  (1923),  no.  7,  
April 15  
2 Elena Cristea, ,,Economic crisis of 1929 and 1933 in Romania’’, ASE, Bucharest, 2007 Review of International Comparative Management                              Special Number 1/2011  369 
Through  the  smaller  and  smaller  incomes  -  the  taxes  collected  from 
taxpayers - the state  was forced to reduce spending. Internally, the  government 
decision  was  the  progressive  reduction  of  wages,  through  a  series  of  so-called 
"curve  of  sacrifice."  Another  wrong  measure  of  government,'  with  direct 
consequences  over  state  finances,  was  the  contraction,  abroad,  of  big  loans,  in 
unfavorable  conditions,  and  concessions  granted  to  foreign  monopolies.  The 
conditions in which Romania has obtained loans from foreign markets was very 
hard, leading to greater dependency of the national economy of foreign monopoly. 
Crisis period was characterized by a permanent and substantial depreciation of the 
national  coin  in  the  vast  hinterland  relatively  hidden  from  declining  prices. 
Therefore, we can estimate that stabilize the national coin in 1929 was poor, and 
depreciation was further made worse by problems in industry and agriculture, to 
"export"  of  capital  in  the  country  illegally,  the  depletion  of  foreign  exchange 
reserves of National Bank Romania, the granting of credit by the State National 
Bank to balance the budget. In order to alleviate and eliminate global  economic 
crisis in the period 1929-1933, succeeding governments in power have promoted a 
policy  of  encouraging  domestic  industry  by  adopting  measures  of  protectionist 
policy and massive investment, especially in agriculture.  
As a result, the following took place  during an increase  in commercial 
firms,  but  also  balancing  commercial.  For  exchange,  foreign  trade,  customs 
protection  was  lifted  for  some  products  at  rates  that  were  hardly  accessible  to 
foreign imports of similar products produced.  
Borrowers and banks benefit from reduced delays to banks and the banks 
benefited from the same treatment to creditors and depositors.  
 
2. Current financial crisis: End market growth of loans and real estate 
 
Current  financial  crisis,  triggered  in  the  U.S.,  emerged  in  2007  amid 
creating favorable legal framework of housing and building personal and financial 
framework  relaxed,  which  allowed  access  to  credit  for  housing  low-income 
population.  In  this  regulatory  context,  more  banks,  investment  funds,  insurance 
companies,  have  given  substantial  loans  to  buy  homes  of  customers  who  were 
unable to pay loans. 
There  is  an  excessive  availability  of  credit  funds  through  the  financial 
system  and  banking  companies,  financial  firms  shed  a  wide  range  of  financial 
products on the market: loans for individual houses, buildings, land, cars, credit 
cards. He followed the housing market crisis and credit crunch, triggered as a result 
of  loss  of  capital  by  banks,  but  also  because  application  of  prudential  policy, 
protection of assets.  
In his work, a new paradigm of financial markets credit crisis of 2008 and 
its implications'', George Soros stated that we are in the midst of the worst financial 
crisis  in  1930  invoice.  In  some  ways  it  resembles  other  crises  occurred  in  last 
twenty-five years, but net and differentiate them: the current crisis marks the end of 
an  era  of  credit  expansion,  with  the  dollar  as  international  currency  referent.          Special Number 1/2011                         Review of International Comparative Management  370 
Crazily previous regular process were part of a larger advance-decline, the current 
crisis represents the culmination of a huge economic boom that has lasted over 
twenty-five years. '' 
1 
Commercial banks have expanded strongly after 2000, and in recent years 
many new names have entered the Romanian banking market romanesque. System 
was in 2008, one of the most  profitable in Eastern and Central Europe that the 
banks are were in a period extending  fulminous. The new economic conditions 
caused by the crisis have not only credit but excessive brake, but also including the 
work of small banks, which, for now, have given up investing in the development 
of new sedii. In 2009, profitability fell eight times and Romania became the second 
most profitable  country for bankers and things  could be  worse for financial 
institutions in Romania. 
 Since 2010 we have witnessed the gradual recovery of credit. Banks have 
implemented a series of measures to reduce costs, achieved through measures to 
reduce expenditures on personnel and other administrative expenses. He watched 
as the indicator to reduce costs / venture. In same time, we saw increased net cost 
of risk, due to deteriorating quality of loan portfolios, in the context of adverse 
macroeconomic climate.  
The question arises: what are the prospects, but the banking sector in 
Romania?  
Our answer is changing and maturing of those who operate in the banking 
system, meaning that we must guide action to strengthen the Romanian banking 
system, to be sustainable in the medium and long term. 
In a comment, Andrei Radulescu, senior analyst at brokerage firm Target 
Capital stated, "In other words, would be to see a business model in restructuring 
the banking system. Moreover, the repositioning of the banking sector is an 
important issue for national economic recovery. A small open economy (and the 
case of Romania) needs a competitive banking system. Especially in the context of 
the  role  of  reduced  domestic  capital  market  (Nobel  Laureate  in  Economics,   
P. Samuelson said that money is the blood that irrigates the economy).'' 
 Creating a strengthened banking system increases its competitiveness with 
immediate  and  direct  implications  on  cost  reduction  and  access  to  cheaper 
financing.  
 
Conclusions 
 
But  modern  economic  theories  reject  the  idea  that  economic  crises  - 
financial, can be included in a general model valid in a pattern, considering that 
each  financial  crisis  is  unique.  Periodic  crises  are  inevitable  in  an  economy, 
boosted by the existence of developed financial and banking systems, representing 
in  fact  a  historical  accident,  caused  by  specific  factors  in  a  particular  social 
situation - economic and political. Crazily can not be anticipated, preventing as 
                                                        
1 George Soros, ,New Paradigm of the financial markets credit crisis of 2008 and its implications,’ 
Publisher, ''Point International’’ Bucharest, 2008  Review of International Comparative Management                              Special Number 1/2011  371 
their negative effects. However, history shows that although the economic crisis - 
and not financial effects do not appear in identical parameters, they are closely 
related to the cyclical nature of economic processes.  
 
Bibliography  
 
1.  Elena Cristea, Economic crisis of 1929 and 1933 in Romania, ASE, Bucharest, 
2007  
2.  Virgil  Madgearu,  Evolution  of  Romanian  economy  after  the  World  War, 
Economic Independence House, Bucharest, 1940 
3.  Stephen Zeletin, "National Finance and State Policy" in Social Justice, Year I 
(1923), no. 7, April 15  
4.  George Soros, New Paradigm of the financial markets credit crisis of 2008 and 
its implications, Publisher, ''Point International’’ Bucharest, 2008 
5.  http://economictimes.ro/sistemul-financiar-bancar-din-romania-momentul-
consolidarii/ 

The Economic Size of the Banks in Romania in Times of Recession

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics