Banking Sector Germany

1 HISTORY GERMAN BANKIN INDUSTRY

The development of the German banking industry is closely related to Germany’s history and its evolving industry. The development of the banking sector was a respond to the industrialization and the accompanying financial needs.

Until 1870 the banking sector was dominated by private bankers and influential “banking families”. Some of them are still known today, such as Sal. Oppenheim jr. & Cie.

The privat bankers were financed only by equity capital. However as the industrialization went on and the need for money and financing constantly grew, this solely equity was not sufficient anymore to finance the occurring capital intensive industries. In response of that the private bank Abraham Schaaffhausen was transformed into the first incorporated bank on August 28, 1984. Following this example more and more incorporated banks occurred, especially in the area of the Rheinland where the capital intensive industry was very active. Still today the most important banking centers are in this area. The aim of the cooperated bank was to focus on financing the industry.

In the second half of the 19th century and in the beginning of the 20th century, the German banking industry was growing very fast and successful. This growth however was accompanied with a steady concentration process and primarily the private banking houses were diminishing. After the Second World War in 1947/48 those concentrated big banking houses were broken down and 30 successor institutes were founded in West Germany. Later in 1952 those institutes were again merged to three bigger institutes and in 1957 renamed to Deutsche Bank, Dresdner Bank and Commerzbank. Those three banks still form part of the commercial sector of Germany’s banking system.

Besides the incorporated banks, a lot of Sparkassen were founded in the 19th century. Communities founded those banks in order to make financing available to their inhabitants and small local companies at an affordable price. At the same time Volksbanken and Raiffeisenbanken were brought into being. The Volksbank was founded as an institution to self-help small trading companies. The Raiffaisenbank had its beginnings in the federation of farmers as they tried to counteract the monopolisation of trading companies which bought their products. They pooled money in order to buy capital intensive equipment together and therefore become less dependent on the big trading companies.

Still today those different bank types exist in Germany, in the following this structure will be described in further detail.

2 STRUCTURE OF THE GERMAN BANKING INDUSTRY

Germany has with 2300 financial institutes, 42600 branch offices and 5366,3 MRD Euro total assets on of the biggest banking industries. The German banks are controlled by the “Bundesanstalt fÐ"јr Finanzdienstleistungesaufsicht (BaFin) by which banking operations have to be approved explicitly.

The German banking system is organized as a Universal bank system. This means, that every bank offers almost every services and products common in the banking industry. There is no separation in special service banks as in other countries like the US, where for example investment in securities is primarily restricted to Investment banks.

Even though the product variety of the banks is quite homogenous, the form of organization and the size of the banks are very different. Germanys banking industry is know as the three pillar system as there are three banking groups; the commercial banks, the “Sparkassen and Landesbanken” and the “Volks- and Raiffeisenbanken”. The main difference between the groups is their legal form. Those separation lies in historical roots. The banks in each group work together in own banking associations.

Commercial Banks: This group concists of 270 comercial banks which accumulate a asset value of 2048, 5 MRD Euro. However the group is dominated by five major banks; the deutsche Bank AG, the Dresdner Bank AG, the HypoVereinsbank AG, the Commerzbank AG and the Deutsche Postbank AG. They account for 63,5% of the total asset in this group. Also in this group are the 91 branch offices of foreign banks which have a total asset of 129,5 Mrd Euro.

The main profit source of the commercial banks is deposit transactions and loans to industry and trade.

One characteristic that distinguishes this group from the others is their widely spread branch office grid. Furthermore they do not underlie restrictions in terms of products,