Banking and Financial Crisis in Turkey from 1929 to 2007: "Impact Which Does Not Kill You Makes You Stronger"

INTRODUCTION Since the Turkish Republic was established, it has faced banking and finance crisis due to both external developments in foreign countries and internal political and economical developments. Nation's weakly constituted finance and banking sectors whose shareholder's equity was inadequate were damaged in each crisis and suffered losses. The most recent crisis indicates that Turkey has been in a crossroads. Now it is impossible to solve the crisis with former political and economical policies. Moreover, we do not obtain the chance to suffer and overcome crisis on our own as it used to be. Considering the effect of the crisis on February 19 on foreign markets, we are obliged to solve the crisis we created and hinder the factors that form them as well. With globalization financial crisis may spread to other nations like a contagious sickness. In this study, it is aimed to examine the banking and finance crisis from 1929 to the very last crisis. Some of these crises were foreign-origin and affected banking and finance sectors considerably. After 90s, there has been a considerable rise in financial crisis due to progresses around the world and internal economical policies. WORLD CRISIS OF 1929 AND ITS EFFECTS ON TURKISH BANKING SYSTEM In 1923, during the settlement period of Turkish Republic, there were 31 banks (18 national, 13 foreign) active. Foreign banks compared to single-branched and economically weak national banks had a larger share in banking sector and possessed large portion of the credit market. In the period between 1923 and 1932 which is known as the first banking period of republican banking, considerable attention was paid to development of national banking. There had been a rise in the numbers of national banks. In 1928 there were 57 banks in the nation. In the period between 1924 and 1929, there had been a development of %50 percent in gross national product due to progresses in foreign trade and production increase in agriculture. The main features of economical policies executed in this period were balanced budget policy, tightening its stranglehold on the money supply, providing balance in balance of payment, maintaining asset of the national currency. The 1929 World Crisis which had emerged from US and spread to the world had a serious effect on Turkish economic structure. Turkey, with experiencing opposition from terms of trade, faced great deficits in balance of payment, and TL's losing value. 1929 World Crisis had its effect especially on agriculture sector which produces for foreign trade. The banks establishing credits to this sector had difficulties, and some of them went bankrupt. In 1932-38 periods, ten banks went bankrupt containing Turk Ticaret ve Sanayi Bank, Karaman Ciftci Bank, Istanbul Esnaf Bank, Istanbul Bank, Aksaray Halk bank, Karaman Milli Bank, Trabzon Bank, Karadeniz Bank, Kastamonu Bank, Kayseri Milli Iktisat Bank. Besides, five banks which had been established in 1938-1940 were liquefied. The most important reason for bankruptcies in this period was the loan holders could not pay these loans back because either product prices went down or the product amount was inadequate. Moreover the high interests of local banks compared to state banks had been a factor making payback of the credit harder. The most significant effects of 1929 World Crisis on banking system were the concentration on establishing state banks for financing industrial investments, reducing the numbers of local banks and increasing the government's regulatory and auditing role on banking. In the 1930s policies have changed for economical development, a planned economic order had been initiated in the government's lead. Between 1933 and 1938 state banks had been established consecutively in parallelism with changes in main policies. In this period Sumerbank (1933), Belediyeler Bank (1933), Etibank (1935), Denizbank (1937), Halk Bank and Halk Sandiklan (1938) were established chronologically. …