6. Co-operative Banking in Germany

Market share according to the deposits of private households as reported in DZ Bank’s corporate presentation for the year 2017.

Ibidem.

Ibidem.

Landesbanks are primarily owned by Germany’s Federal States and by savings banks based in their respective federal states. The first Landesbanks were established in the mid-nineteenth century in various federal states. They primarily acted as central banks for the savings banks of a given region and soon became an important provider of local government financing. They are particularly active in the municipal loan and mortgage lending business, which they refinance through Pfandbriefe (covered bonds) or via municipal bonds. They engage mostly in wholesale activities and are active both in Germany and abroad. Landesbanks have retained their regional roots and operate as service providers for savings banks in more complex product areas. There is co-operation between Landesbanks and savings banks in the joint lending to medium-large sized companies and in real estate financing. Landesbanks did not undertake retail banking in the past, but this is now offered by many Landesbanks, partly through subsidiaries. Former savings banks were founded by citizens in the eighteenth century, a set-up reminiscent of private foundations. Later, they were predominantly founded as municipal entities. This legal structure was replaced in the 1930s, with savings banks becoming incorporated under public law—that is, becoming legally and economically independent institutions, eliminating third party interests. Savings banks act as independent and decentralized banks and serve a clearly identified administrative region of the municipality or district in which they were founded. The regional principle is laid down by law and is aimed to incentivize savings banks to operate very close to the market, balancing risks carefully and taking a long-term perspective with their clients and the community as a whole. Savings banks and Landesbanks are part of the Savings Banks Finance Group which is Germany’s biggest banking group. The network also comprises specialized entities in real estate financing, public-sector insurance companies, leasing, factoring, capital investment, and consulting companies, and service enterprises, for example, in the fields of IT, securities settlement, and payment transactions. Documentation on the structure and mission of the Savings Banks Finance Group can be found at https://​www.​dsgv.​de/​en/​savings-banks-finance-group/​index.​html.

DekaBank originated from the merger of Deutsche Kapitalanlagegesellschaft (formerly active in investment advisory services and fund-based asset management) and Deutsche Girozentrale, DGZ (German Savings Banks Clearinghouse, founded in 1918) in 1999. Its capital is totally owned by savings banks. It acts as the reference bank for investment banking, asset management services and financing for savings banks, Landesbanks, and customers not belonging to the Savings Banks Finance Group. See DekaBank history at https://​www.​deka.​de/​deka-group/​about-us/​history.

Local savings banks are affiliated with the public bodies governing the local area in which they operate and to which they are by law also restricted in their activity. As reported by Behr and Schmidt (2015), local authorities are not the owners in a legal sense but rather owner-like supporting institutions with certain property rights and obligations. The profits of savings banks are for the most part allocated as reserves or used for various public welfare projects. Local savings banks are independent legal entities.

Data reported in DZ Bank’s corporate presentation for the year 2017.

These two indicators were equal to 3.6 and 70.2% respectively in 2008 (ECB 2017).

The number of CBs in 2017 reported by BVR is slightly lower: 915 CBs.

Münchener Hypothekenbank eG is the partner organization for the German co-operative banks (Volksbanken and Raiffeisenbanken), providing the full spectrum of residential and commercial property financing services.

The Bank was founded as a co-operative bank in 1896 with the support of the Bavarian government. Over the years, the Bank has evolved from its original agrarian orientation to become a modern mortgage bank that is active in both national and international markets. Furthermore, Münchener Hypothekenbank has retained the same legal status as a registered co-operative since it was founded and is one of the few remaining independent mortgage banks in Germany today. https://​www.​muenchenerhyp.​de/​en/​company/​aboutUs/​index.​html.

Data collected from BVR’s website.

Soergel and Parisius were two bankers involved in the co-operative movement from the very start.

Despite the importance Haas’ co-operatives attained during the second half of the nineteenth century, Wilhelm Haas is barely known among the general public, as his activities and ideas have been eclipsed by Raiffeisen. In fact, one may call Haas the pragmatic heir of Raiffeisen (Prinz 2002).

See the Investors’ presentation of DZ Bank for 2018.

https://​www.​dzbank.​com/​content/​dam/​dzbank_​com/​en/​home/​profile/​investor_​relations/​DZ-BANK-Presentation/​Kundenversion_​InternetE.​pdf.

See DZ Bank Corporate Presentation at https://​www.​dzbank.​com/​content/​dzbank_​com/​en/​home/​DZ_​BANK/​profile/​dz_​bank_​ag.​html.

See DZ Bank Group’s Annual Report for the year-end 2017.

The first Sparda Bank was created in 1896 in Karlsruhe as the savings and loans association of railroad employees (Spar- und Vorschuss-Verein der Badischen Eisenbahnbeamten). In common with the history of other German CBs, Sparda banks represented the affordable way through which a given section of the population could afford to invest money on attractive terms and borrow on non-usury terms. During the 1970s, the membership base was opened to all private individuals, rather than only railroad employees, but the ties with retail banking customers remain at the heart of the strategic thinking and actions of these banks. Currently, Sparda banks form a group of 12 regional CBs spread across more than 400 branches. They serve almost 3.6 million members in Germany with roughly 6000 employees. For additional data and information, see http://​www.​sparda-verband.​de/​en/​history.​php.

PSD banks are retail CBs which originated their name from the Post-Spar- und Darlehnsverein (postal savings and loan association). These CBs were originally created as savings and loan associations for the employees of the postal service. The first PSD bank started to operate in 1872 under the Prussian Empire and acquired a legal status in 1879 when Kaiser Wilhelm granted the association the rights of a legal entity. PSD banks form a non-formal banking group made up of 14 regional independent CBs spread across the German territory and with their own Association. In recent decades, the PSD banks have strategically focused on direct banking, strengthening their operations in on-line and mobile banking. According to the latest figures available, 1.2 million customers are served by PSD banks, which employ a total of 2136 employees. The branch network consists of 57 local branches. For additional information and data, see https://​www.​psd-bank.​de/​PSD-Banken/​Die-PSD-Bankengruppe/​Wer-wir-sind/​c163.​html.

BVR’s website information. https://​www.​bvr.​de/​About_​us/​Cooperative_​Financial_​Network.

It is not mandatory for individual CBs to be members of the association in order to be entitled to use the denomination of Volksbank or Raiffeisen bank and to start to operate. However, they are restricted from using the credit co-operatives’ logo belonging to the federal association (Biasin 2016).

See BVR’s by-laws revised in 2015.

Members of the Council are elected for a period of three years.

See BVR’s Bylaws revised in 2015.

The duties of care under which members must operate are established in section 6 of the statute of the Protection Scheme. In brief, members must hold adequate human and technical resources and organization to conduct their business and to comply with the relevant applicable guidelines and recommendations that have been adopted by the BVR Association council, that is, as far as concerns risk-taking due to business developments.

In line with the requirements defined by article 113(7) sentence 1 of Regulation (EU) no. 575/2013 of the European Parliament for the recognition of institutional protection schemes.

As examined in the previous paragraph, the German co-operative banking sector was historically organized more in line with a three-tier system, with regional central institutions and associations which underwent a substantial consolidation and rationalization process over the passage of time.

See DZ Bank Group’s Investor Presentation for the year 2018.

See DZ Bank Group’s Annual Report for the year-end 2017.

See DZ Bank Group’s Annual Report for the year-end 2017.

See DZ Bank Group’s Investor Presentation for the year 2018.

See BVR’s Statute of the Protection Scheme revised in 2015.

German private banks hold their own private deposit protection fund which currently voluntarily insures the deposits of each individual customer up to 20% of that bank’s own regulatory funds. As of 1 January 2012, the Federal Association of German Banks decided to gradually reduce the limit for its voluntary deposit insurance to 8.75% of its liable capital by 2025. Besides this supplementary protection of deposits, private banks enjoy a statutory protection provided by the Compensation Scheme of German Banks (Entschädigungseinrichtung deutscher Banken GmbH, or EdB) (Bundesbank 2015).

See BVR’s Statute of the Protection Scheme revised in 2015.

See Article 11(1) and (2) of the Deposit Guarantee Scheme Directive 2014/49.

See BVR’s Statute of the Protection Scheme revised in 2015.

See BVR’s Statute of the Protection Scheme revised in 2015.

In 2012, Greece was granted a new financial aid package while its debt was cancelled resulting in a severe haircut for private investors. Spain entered a difficult period, amidst doubts about the strength of its banking system, the deterioration of its public finances, record unemployment, and deepening recession. These concerns led risk premiums on sovereign debt to climb considerably, triggering bailouts for Greece, Ireland, and Portugal. Italy was not spared, with yields on its debt rising as well, despite the reforms undertaken by the government in charge at the time, led by Mario Monti.

Prior to Basel 3 coming into force, the minimum value of the Tier 1 ratio was 4%.

This test is also known as Wilcoxon ranksum test or Mann-Whitney U test.

The data extracted from BankScope refer to a sample of 926 CBs, having excluded banks with just one observation in the entire period of analysis (2008–2015). The data extracted from Orbis Bank Focus cover the period 2016–2017 only and refer to a sample of 635 CBs.

See the Annual Report of DZ Bank Group for the year-end 2008.