Sparkassen Savings Banks in Germany
The Sparkassen are regional savings banks operating across Germany. "The first original savings bank was established in Hamburg in 1778, and in 1801 the first municipal savings bank was set up in Göttingen - becoming a prototype for the German savings banks, which up to now have close connections to local authorities." The umbrella organisation DSGV is in charge of managing the Sparkassen-Finanzgruppe, the network of banks across Germany. "There are 396 savings banks, seven Landesbanken Groups, DekaBank, eight Landesbauparkassen, eleven primary insurance groups and numerous other financial service companies (as of January 2017)."
The Sparkassen were established as a result of the need to invest in the country and in German society. As such, they were given - and maintain - clear mandates of public service and the principle of regionalism or local implementation to be able to adjust to the particular needs and challenges of the regions.
Historically, the Sparkassen have been strongly tied to the German government and local communities. As such, current challenges facing the economy (ageing population, climate change, digitalisation) are also considered pertinent to the bank's current and future operations and strategy. "Savings banks help cities and municipalities to actively shape the changes that are needed in their regions. They know that by helping their region, they are helping the people. The reverse also applies: anything that is harmful to the region also impacts negatively on its people and companies." As part of their role, the Group of Savings Banks assumes a responsibility for the social and economic development of the German regions.
From an external perspective these banks are distinctive, in the sense that they not only provide financing and regular banking services but also have social responsibilities established by the country's constitution. "These Savings Banks are not state banks but are essentially credit institutions operating under public law. Their responsible public bodies (but not owners) are the local municipalities. Savings Banks are not a consolidated group; each Savings Bank is an independent credit institution and is highly autonomous. They, however, come under an umbrella organisation, the DSGV, which, although it can only exercise control by consent, is able to ensure effective and efficient operation with very low risk."
Germany has a very distinct history and regional composition. Before 1871, the country consisted of a large number of independent principalities, and currently still keeps a federal structure formed by 16 semi-independent states, "each with its own parliament and tax raising authority. Many of the functions such as health, education etc, which in other countries would be the responsibility of the central government are in Germany exercised by the separate states. There are marked differences in cultures and accents, reflecting the history, and which still have a significant impact on the conduct of business." Developing a bank system that adapts to all these differences represents a challenge in itself.
More recently, the reunification of Germany in the 1990s posed a particular challenge for the government. "Some 14,000 state enterprises were privatised or closed in the East and around four million people moved from East to West. The cost of restoring the infrastructure and progressively rebuilding the economy is estimated to have [amounted to] over 1.3 trillion Euros." This reconstruction and need for investment in the country required significant support from the government and domestic banking sector. "German manufacturing industry went through an acute recession in 2009 and the financial support provided by the Savings Banks during this critical period proved vital not only in terms of survival, but in the ability of industry to emerge from the recession much faster."
The public impact
Savings banks are located all over Germany, accessible to people needing their financial services. "The Sparkassen are most notable for the public welfare mandate they have, whereby stakeholder value is the key objective not shareholder value. The Sparkassen have the lion's share of the market for SME financing in Germany at 70% with an overall 42% market share of business financing generally. As of 2014, the 423 Sparkassen had 15,300 branch offices with 245,000 staff and a business volume of €1,106 billion."
Similarly, one of the core guiding principles of these savings banks is to ensure reliability and long-term support for everyone in Germany. "Sparkassen have been for 200 years [on] the side of the people. As a fair financial partner for all social groups, they behave reliably and predictably. This distinguishes savings banks from other credit institutions and financial investors.")
As part of their commitment to fairness, the banks will allow everyone to open an account, one of their most distinctive offerings. "For Sparkassen, fair partnership means that no-one will be denied access to modern financial products and that all customers will be served (…). For this reason, not only those parts of the population that have earned incomes or property but also approximately 80 per cent of all the recipients of public social transfers have a Sparkasse account."
Sparkassen have provided the German industry and SMEs “with invaluable long-term secure and stable finance on which businesses could be built and expanded. It has resulted in money saved in the regions being used as a priority to support the local economy and the local population."
Stakeholder engagementThe operation of the Sparkassen is based on cultivating sustainable business and long-term commitment to regional development, and they have been able to do this thanks to the close cooperation from banking institutions across Germany. "They are convinced that this is the only approach that will ensure commercial success and their customers’ trust, which is indispensable for the banking industry. In conjunction with other institutions – in particular with the Landesbanken, DekaBank, the public insurance companies, the Landesbausparkassen, Deutsche Leasing, other financial service providers, Germany’s regional Sparkassen associations and the DSGV see themselves as institutions that hold special responsibility for society and the economy. They are willing to accept this responsibility by pursuing a business policy that is fair, human[e] and close at hand [accessible]."
The Sparkassen system is legally established in the country with a mandate to support social progress. "The Banking Act of the Federal Republic of Germany (Kreditwesengesetz, KWG) decrees that only publicly-controlled banks set up by municipalities are allowed to use the savings bank name (Sparkasse). Primarily, however, the savings banks are governed by the savings banks laws (Sparkassengesetz) of the Länder (States) in which they operate, and it is these laws which decree that a savings bank must pursue a ‘dual bottom line' business strategy."
This dual bottom line implies that savings banks should not only pursue profitable operations but also have a responsibility to support the communities in which they operate and promote a healthy development of industry and small businesses. "In some respects this latter aim is achieved through concrete stipulations, such as their obligation to open a transaction account for every applicant. In other respects the State laws will stipulate that the savings bank must encourage prudent and successful financial management by its customers and also satisfy the credit demands of local businesses."
The Group prides itself on having strong customer relationships. "Sparkassen enjoy by far the greatest customer confidence compared to any other group of financial service providers in Germany. Roughly 50 million customer relationships are evidence of this special relationship that people in Germany have with Sparkassen."
Savings Banks are well positioned and recognised within the banking sector in Germany. "The bank continues to benefit from its large-scale and very strong customer base. Many of its customers are fiercely loyal and rely on DSGV for the bulk of their banking needs. In this regard, DSGV is expected to continue to focus on personal banking and catering to small- and medium-sized businesses during the forecast period.". Similarly, the local reach gives them a lead versus other banks as the Sparkassen are closer to the customer.
Clarity of objectivesThe social directive of the bank is established by national law, and ensures the provision of banking services and financing to everyone, as well as support for local businesses and industry. It should promote "savings and pension provisioning, as well as access to financial services for all customer groups. Today, this remains an important pillar of the Savings Banks' business model. Another important pillar is the focus on local and regional development and the respective key players – in particular, enterprises and municipalities. The third pillar is the Savings Banks’ mission to stimulate competition in the German banking market through its broad positioning as a retail bank and significant presence in all of Germany’s regions, be they economically weak or strong. The ‘public mandate’ assigns key lending as well as social duties to the Savings Banks. Moreover, it stipulates that the success of a Savings Bank is measured by its impact on local initiatives – which goes far beyond the basic economic requirements usually associated with the banking industry."
Strength of evidenceThe Savings Bank model is very much country-specific, and has produced very positive results in Germany; however, it is unique. Germany is one of the few countries to maintain a 'three-pillar banking system', which is formed by three main types of institutions: commercial banks, public-sector banks belonging to the savings bank sector, and cooperative banks. "With strong roots in the real economy, savings banks make up the basis of the public network. Their model is generally associated with the competitiveness of the German economy, and particularly that of the SMEs, for which this network provides more than two-thirds of financing. Their close links with their business customers also have stabilising effects during a financial crisis. Their market share and financial performance, the envy of other segments of the German banking industry, provide a model for success."
The Sparkassen system has been operating for more than 200 years, which demonstrates its clear financial and logistical feasibility. Its distinctive character has made it successful in addressing its mission while maintaining a balance between regional autonomy and nationwide consistency:
- "They are public-law institutions under the responsibility (but not ownership) of the local authorities.
- "They are not entities with shareholders and thus cannot be bought or sold.
- "They operate on a principle of strict regionality so each Sparkassen must restrict its activities to a specific geographic area.
- "Audit and control is achieved through the Sparkassen centralised supervision entities.
- "There is close cooperation within the group ‘family' the SparkassenFinanzgruppe.
- "There is a comprehensive Sparkassen Joint Liability Scheme."
The network of banks has been set up with a number of safety mechanisms and monitoring tools, so they are able to support each other if necessary, and a Joint Liability Scheme is in place to apply in the case that any of the individual Savings Banks in the Group runs into economic difficulties. "Savings Banks support each other at regional or supra-regional level to ensure the continued existence of an institution (…). Constant monitoring of all institutions is carried out internally within the Group."
Their legal feasibility is underpinned by The Banking Act of the Federal Republic of Germany (Kreditwesengesetz, KWG), see Political commitment above.
The DSGV is the umbrella organisation of the Sparkassen-Finanzgruppe and is responsible for decision-making within the group. "It also establishes the strategic orientation of the Sparkassen-Finanzgruppe. Its members and joint ventures work with the DSGV to develop concepts for successful market processing. This applies to the market and operational strategy topics, from product development and processing, risk management and overall bank management, card and payment transactions to comprehensive consulting approaches for all customer segments".
Given the nature of the banks' operations and client base, there is a lot of attention paid to the subject of credit risk. "Managing risks and returns constantly requires seeking a balance between the economic market environment, the regulatory framework, and changing customer expectations. Hence, in the current interest rate environment, Savings Banks focus especially on this management balance."
MeasurementSparkassen have reached quite sophisticated levels of measurement, transparency and reporting. "The reporting system used by the Sparkassen is tied to the German Sustainability Code (Deutschernachhaltig-keitskodex –DNK) and the GRI Financial Services Sector Disclosures (GRIFS) developed by the Global Reporting Initiative. This also covers a report on savings compliance, the bank’s responsibility to the public, and sustainability aspects of the business strategy. The Group has also published a Report to Society to this purpose at a federal level. The indicators covered in this report include: value created and distributed to local communities, sustainable investment funds (volume and change), access to financial services for economically disadvantaged people (private and citizens' current accounts), number of branches in local communities, and lending to local enterprises, startups, households, etc."
AlignmentThere is a consistent framework and series of objectives implemented across the multiple banks, encouraging information-sharing while allowing autonomy for each regional bank. "DSGV, S-Rating and regional Savings Banks associations develop and maintain the tools and methods employed, in close cooperation with the member institutions themselves. This produces numerous advantages, including: creating uniform, practice-oriented standards at Savings Banks Finance Group level; establishing a broad database by pooling national data on the basis of these standards; providing relief to the individual institutions and avoiding duplication; and bundling all of the expertise of the Savings Banks Finance Group. Whilst uniform procedures are developed across the entire Savings Bank Finance Group, decision-making in relation to specific transactions and the associated risks – such as for customer product design or own-account investment policies – remains with each individual institution. This also applies to determining individual risk profiles at overall bank level."
Aufgaben und Ziele des DSGV, Finanzgruppe Deutscher Sparkassen- und Giroverband
Exploring the Sparkassen Model of Local Savings Bank in Ireland with the Savings Bank Foundation for International Cooperation (SBFIC), October 2014
Financial Report 2015: Our results - Our contribution, 2015, Finanzgruppe Deutscher Sparkassen- und Giroverband
Report to Our Society 2014: Our country - Our contribution, 2014, Finanzgruppe Deutscher Sparkassen- und Giroverband
Sparkassen - fair, menschlich und nah am Kunden: Moderne Finanzdienstleistungen für alle, July 2008, Finanzgruppe Deutscher Sparkassen- und Giroverband
The German Sparkassen (Savings Banks): A Commentary and Case Study, Chris Simpson, 2013, Civitas
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