Germany’s public savings banks are slowly becoming the world’s most powerful small lenders; regularly using political ties to ensure EU legislation fits their aims.
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Known as sparkassen, they rely on local councils and the federal government to ensure their autonomy.
This recently saw Wolfgang Schäuble, Germany’s Finance Minister, ensure nearly all of the banks remain in German hands, and not those of the European Central Bank.
Their political position has also allowed them to preserve exemptions from the EU’s capital requirement rules, and halted progress on a proposed tax on financial trades.
With a combined balance of over EUR 1 trillion, sparkassen provide the majority of finance to German industry and particularly to the mittelstand; Germany’s small to medium sized businesses.
The remarkable success of the mittelstand over the past 50 years is directly related to the Sparkassen.
This is because the banks are not only constitutionally obligated to provide economic and banking support to the businesses, but support the total sustainable development of the economy within their geographic area.
They also reach deeply into local life across the nation through both the sponsorship of charitable events and the intimate knowledge of local managers.
Importantly, because they are publicly owned, the bank’s support – and ultimately profits – flow back into local coffers.
This led the banks to see the EU’s push to integrate them into a “banking union” – which would see them contribute to a common fund aiming to hoist up weaker banks across the EU – as an attempt of the EU to get its hands on German euros.
Their common safety net is a system whereby each bank is committed to bailing out another in case of a failure or emergency. It has not failed the sparkassen in the 50 years it has been in operation.
This net has been at the center of the sparkassen’s political friend’s efforts to ensure their continued exemption from potential, conflicting regulation.
Georg Fahrenschon, the Sparkassen President, says exceptions to EU banking rules are essential in order to protect these smaller retail lenders from laws designed for big conglomerates.
However, some experts are beginning to fear their influence allows them to punch dangerous holes in Europe’s new financial system.
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