Weathering the Storm? Financialisation and German Savings Banks

ABSTRACT

This paper presents an amendment to and empirical application of the much-acclaimed concept of market-based banking to the case of German Sparkassen. It does this by challenging both public and scholarly opinion on savings banks as resilient spearheads of traditional banking and relationship lending. Through a close and structured comparison of two thrift institutions in the context of the entire savings banks sector during three decades it demonstrates that alternative banks should not necessarily be considered as bulwarks against financialisation, but analysed more carefully with respect to various push and pull factors, while bearing in mind the changing context in which they operate. This not only opens up new paths for further research on the relationship of structure and agency in an era of finance-led accumulation but stimulates a critical debate on the prerequisites of and perils to not-solely for-profit financial services.

KEYWORDS:

• Financialisation
• alternative banks
• market-based banking
• financial system
• Germany

Acknowledgements

I would like to thank Tobias Roemer for his valuable research assistance, the participants of the 2018 FINGEO Global Seminar, Brussels, and the 2018 CCCP Workshop, Cologne, for the opportunity to present and discuss my findings, as well as the anonymous reviewers for their helpful feedback. Furthermore, this paper has benefited greatly from in-depth discussions with Benjamin Braun, Mark Cassell, Florian Fastenrath and Franz Flögel.

Disclosure Statement

No potential conflict of interest was reported by the author.

Notes

1 Alternative banking covers a broad group of monetary financial institutions such as cooperative banks, credit unions, savings banks, public development banks or building societies. Following Butzbach and von Mettenheim (2015, p. 107), they all share the four features of: ‘(1) disavowal of profit maximization and shareholder-oriented governance; (2) longer term business horizons involving sustainable returns; (3) business missions that include social and public goods; and (4) stakeholder-oriented, board-centered governance’. As many interviewees pointed out, all challenges and questions presented in this paper also apply to a similar extent to the cooperative banking sector in Germany.

2 At the end of 2019 the four big commercial banks in Germany (Deutsche Bank, Commerzbank, Postbank, Unicredit) together held 24.7 per cent of all assets (€2.1B) compared with 16 per cent (€1.3B) by savings banks. Yet, concerning loans to households and nonfinancial businesses Sparkassen led the big four with 28.6 per cent to 28.1 per cent. The same holds true for customer deposits (savings banks: 27.6 per cent, big four: 18.5 per cent). In all three categories credit unions substantially trailed savings banks (Bundesbank 2020).

3 Strictly speaking, the concept of a ‘retail revolution’ in banking also includes expanding private credit, encouraging mortgage finance and creating a mass culture of financial investments. All three aspects are without a doubt much more aggressively developed in Anglo-Saxon economies, whereas Germany, explicitly because of its ‘overbanked’ system lags behind (Mertens 2017). Yet, there is ample anecdotal evidence suggesting an (ultimately unsuccessful) attempt to promote such change also by savings banks in the early 2000s. I thank one of the reviewers for making me rethink this argument more carefully.

4 The five remaining private-law savings banks operate as unlisted joint stock companies. They have a diversified shareholder structure featuring public, private and savings banks institutions. Three are in the Hanseatic cities of Hamburg, Bremen and Lübeck, while the remaining two are both located in the Northern state of Schleswig-Holstein. Dating back to the Second Schleswig War (1864) between Prussia and Denmark, Danish savings banks were largely independent private institutions whereas Prussian ones were public after the Savings Banks Act of 1838 (Hackethal 2004). As in many other countries, today, Danish savings banks are joint stock companies, especially after a new privatization law came into effect in 1990 (Johansen 1994).

5 For the sake of precision, numbers exclude income that is generated via proprietary trading. In addition to readjusting your business model by putting a stronger focus on fees, such activities also contribute to diminishing the importance of interest as a source of income. Applying the more conservative Bundesbank measurement in terms of net non-interest income, savings banks have now closed the gap with the big commercial banks in Germany significantly by halving it to a mere 5 percentage points (Bundesbank 2018a).

6 For an excellent account on the evolution of German Pfandbriefe and the, ultimately, crisis-prone business model of the country’s mortgage banks, see Fastenrath (2019), chapter 5.

7 In addition, derivatives transactions can also generate income and contribute to the financialization of other sectors. Numerous pieces of anecdotal evidence refer to the active role of Sparkassen in offering swap deals for municipal public debt management or mezzanine capital investments for SMEs that seek to go beyond balance sheet restrictions (DSGV 2000, 2004, 2005).

Additional information

Funding

Earlier parts of this work were supported by the Cologne Graduate School in Management, Economics and Social Sciences, Universität zu Köln.

Notes on contributors

Michael Schwan

Michael Schwan is postdoctoral researcher in political economy at the Cologne Center for Comparative Politics, Universität zu Köln. He works on the international and comparative political economy of financial markets, financialisation processes and growth models.