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German public banking sector

The German public banking sector () represents a significant share of the broader banking sector in Germany. Unlike in most other Western and Central European countries, German public-sector banks have been present since the early phases of formalization of banking entities in the early modern period and have never lost their collective significance. They are typically referred to as one of the three “pillars” of the German banking system, the other two pillars being the cooperative banks and commercial banks.

Following many steps of development, consolidation, and restructuring, the German public banking sector (leaving aside the Deutsche Bundesbank) consists mainly of two clusters: the Sparkassen-Finanzgruppe, which competes with commercial and cooperative banks and includes local savings banks () and regional entities (); and promotional and development banks () owned by the Federal Republic of Germany (in the case of KfW) or the individual states of Germany.

History

Government-owned banks are among the oldest financial institutions in Germany, with several appearing in the late 18th century simultaneously as the first municipally owned savings banks. Throughout the 19th century, governments of individual states or provinces of Prussia established (respectively) and to lend to various kinds of borrowers, including Sparkassen but not limited to them. Unlike in most European countries where banking was an exclusive activity of the private sector, government-owned banks thus remained a structural feature of the German financial system, even as joint-stock gained relative importance in the second half of the century.

The beginning of the 20th century saw the emergence of a number of acting as centralizing entities for their region's Sparkassen, a trend that was greatly accelerated by government policy choices during World War I even though it had started slightly earlier; numerous episodes of consolidation followed, leading to the current Landesbank landscape. By 1929, government-owned banks accounted for at least 40 percent of all banking assets in Germany. That feature set Germany apart from other European countries in which, aside from the Soviet Union of course, the bulk of the banking sector was in private-sector hands.

As a consequence of the European banking crisis of 1931, further German banks were nationalized, but they were soon reprivatized in 1935–1937 by Nazi Germany. Still, by 1938, government-owned banks represented 42 percent (in terms of aggregated assets) of the 25 largest banks in Germany, not counting those in annexed Austria. These included the Prussian and Bavarian , , Reichs-Kredit-Gesellschaft, Deutschlandkasse, Deutsche Girozentrale, and eight regional , namely those in Düsseldorf (serving the Rhineland), Dresden (Saxony), Munich (Bavaria), Magdeburg (central Germany), Berlin (city), Hanover (Lower Saxony), Berlin (Brandenburg), and Breslau (Silesia). (The other 11 banks in the top 25 were Deutsche Bank, Dresdner Bank, Bank der Deutschen Arbeit, Commerzbank, the indirectly government-owned Deutsche Verkehrs-Kredit-Bank, cooperative Deutsche Rentenbank-Kreditanstalt, Bayerische Hypotheken- und Wechsel-Bank, Deutsche Centralbodenkredit AG, part-government-owned Deutsche Industriebank and Deutsche Bau- und Bodenbank, and Bayerische Vereinsbank.) By 1943, the share had risen to 54 percent.

With the delineation of West Germany's between 1948 and 1957, the Landesbanks started acting as "house banks" of their respective , thus expanding into some of largest German issuers of cross-border debt. By the early 21st century, other European countries that had nationalized swathes of their banking sectors in the 1930s and 1940s had mostly brought them back into the private sector, and Germany again stood out for the large share of its banking sector under government control, a situation that has not much changed in the subsequent two decades.

The emerged more recently as a distinct category. KfW was established in 1948 and a few regional promotional banks in the early 1950s, but in most German states they were created (in Eastern Germany) or spun off from the local Landesbank (in the West) in the 1990s and 2000s.

The German public banking sector has witnessed numerous episodes of distress, in part because of its inherently politicized governance. In mid-1931, the default of the Landesbank der Rheinprovinz, following aggressive and uncontrolled expansion of its credit to German municipalities, was a major trigger of Germany's economic depression, even though other Landesbanken such as the survived the episode largely unscathed. Other cases of major difficulties have included the troubles of Westdeutsche Landesbank (WestLB) in the 1970s; Bankgesellschaft Berlin in the early 2000s; and (again) WestLB in 2007–2008; and HSH Nordbank and NORD/LB in the 2010s.

The following lists detail the path of formation of the current landscape, which has tended to be understudied because of its complexity and heterogeneity. For relative readability, developments are classified in broad geographical categories, and individual are omitted. The list also omits various state financial entities set up at the time of Nazi Germany and discontinued in 1945.

National entities

Berlin and Eastern Germany

Northwestern Germany

Western-central Germany

Southern Germany

Cross-regional consolidation

  • 1992: takes up Landesbank role in Thuringia, and is renamed while keeping the shorthand name Helaba
  • NORD/LB takes up Landesbank role in Saxony-Anhalt
  • 1993: NORD/LB takes up Landesbank role in Mecklenburg-Vorpommern
  • 2001: BayernLB acquires majority control of SaarLB
  • 2005: LRP merged into LBBW
  • 2007: SachsenLB acquired by LBBW
  • 2010-2013: Saarland acquires control of SaarLB from BayernLB

National representation

Two overlapping organizations represent the German public banking sector: the Deutscher Sparkassen- und Giroverband (DSGV), the umbrella organization for the Sparkassen-Finanzgruppe; and the Association of German Public Banks, which brings together the Landesbanks (also members of the DSGV) and the .

See also

References