By the mid-1930s, France, internally divided, was increasingly unable to play an important role in Eastern Europe and to politically support Yugoslavia, which had suffered badly from the economic crisis of that period.

This in fact diminished the Ustashe threat somewhat since Mussolini jailed some of their leaders and temporarily withdrew financial support.

Instead, Yugoslavia officially tried to stay aloof but unofficially instigated a pro-fascist domestic policy spearheaded by the Milan Stojadinović-led government and populist political organizations such as the Yugoslav National Movement headed by Dimitrije Ljotić, this in spite of Paul's personal sympathies for Britain and Serbia's establishment's predilections for France.

In the end, the regency agreed to the formation of Banovina Hrvatska in August 1939 which abolished Bosnia and Herzegovina's territorial integrity and historical borders.

It was founded as part of the Sarajevo Philharmonic Orchestra and was headed by a group of leftist public intellectuals and artists that included painter Vojo Dimitrijević, composer Oskar Danon and architect Jahiel Finci.

[12] The initial founders were all former members of the Collegium Artisticum movement and included Ismet Mujezinović, Vojo Dimitrijević, Mica Todorović, Vojislav Hadžidamjanović, Roman Petrović, Behaudin Selmanović, Sigo Summerecker, Petar Šain and Hakija Kulenović.