What are some examples of credit unions

Difference between the business models of cooperative banks and savings banks


List of figures

List of tables

List of abbreviations

1 Introduction

2. Basics
2.1. The three-pillar system
2.1.1. Credit banks
2.1.2. Cooperative banks
2.1.3. Savings bank sector
2.2. Business models

3. Competition on the German banking market

4. Cooperative banks and savings banks in a historical context
4.1. Cooperative banks
4.2. Savings banks

5. Business models of Berliner Volksbank and Mittelbrandenburgische Sparkasse in comparison
5.1. Berliner Volksbank
5.1.1. Corporate governance
5.1.2. Corporate identity
5.1.3. Retail banking
5.1.4. Corporate business
5.1.5. Earnings situation
5.2. Mittelbrandenburgische Sparkasse
5.2.1. Corporate governance
5.2.2. Corporate identity
5.2.3. Retail banking
5.2.4. Corporate business
5.2.5. Earnings situation
5.3. comparison

6. Conclusion and outlook



List of figures

Figure 1: Development of the number of credit institutions in Germany

Figure 2: Development of the number of branches in Germany

Figure 3: Relative share of the groups of institutions measured in terms of loans to companies and private individuals

Figure 4: Cost-income ratio by bank group

Figure 5: Development of net interest income by bank group as a percentage of the average balance sheet total

Figure 6: Net commission income by bank group as a percentage of the average balance sheet total

Figure 7: VR financial plan

Figure 8: VR finance plan for SMEs

Figure 9: Tiered system of the savings bank financial check

List of tables

Table 1: A rough overview of the Berliner Volksbank's balance sheet as of December 31, 2007

Table 2: Rough overview of the balance sheet of Mittelbrandenburgische Sparkasse as of December 31, 2007

Table 3: Comparison of some asset items of the Berliner Volksbank and Mittelbrandenburgische Sparkasse as of December 31, 2007 in relation to the balance sheet total in percent

Table 4: Comparison of the liabilities positions of Berliner Volksbank and Mittelbrandenburgische Sparkasse as of December 31, 2007

Table 5: Comparison of some important key data from BVB and MBS

List of abbreviations

Figure not included in this excerpt

1 Introduction

The three pillars of the German banking market and the division of this market among them are something special in an international comparison and are repeatedly discussed controversially. The cooperative sector, the savings bank finance group and the credit banks share the market. Critics complain that this leads to cost disadvantages.[1] Consolidation could generate economies of scale and greater efficiency.[2] The competitive situation resulting from the tripartite division is another point of criticism. The private banks are confronted with competitors whose primary goal is not to make a profit. This would mean that cooperative banks and savings banks would not be under the same earnings pressure as credit banks. They argue that inefficiencies would result. Since the business models of all three banking groups are aimed at similar customer groups, the question arises as to whether this three-way division makes sense. The overlapping amounts seem to be very high, especially in the case of cooperative and public institutes.

Due to the peculiarities and the striking analogies in their business models, the comparison of cooperative banks and savings banks using the example of Berliner Volksbank (BVB) and Mittelbrandenburgische Sparkasse (MBS) is the subject of this work. Although both groups of institutes are based on very different ideas, both business models are strikingly similar. You mainly concentrate on a holistic business relationship in the high-volume business with private and medium-sized corporate customers. The aim of the work is to analyze the business models and uncover their similarities and differences. The aim is to clarify to what extent the objectives of the groups of institutes are compatible with one another and to what extent mergers across all pillars can be expedient for the necessary consolidation process on the national banking market.

To this end, the three-pillar system of the German banking market will be discussed first. The structure and the essence should be briefly examined before the various business models that are represented in this market are presented. Finally, the earnings situation of the banks should be examined briefly. The third chapter examines the current competitive situation on the German banking market. The following section looks at the history of the cooperative banks and savings banks. In particular, the aim here is to clarify how both ideas have been able to hold their own over the course of history. In the fifth chapter, the business models of the example institutes BVB and MBS are analyzed and compared. Particularly interesting is the question of how the two models differ, what their unique selling points are and what is their profitability. In the last chapter the results are summarized and a final look at the expected development is given.

2. Basics

In this chapter, the basics necessary for the further course of the work are to be created. First, the three-pillar system in Germany is explained. Afterwards, the individual pillars and their particular features are discussed in detail. In the last section of this chapter, the various business models that can be found on the national banking market are briefly discussed.

2.1. The three-pillar system

Historically grown, the universal bank type dominates in Germany. We speak of a universal banking system here. The business activities of universal banks include all transactions that are listed in the German Banking Act under Section 1 (1). Special banks, on the other hand, specialize in a few businesses. The German universal banking system is divided into three banking groups. The credit banks, which include all domestic universal banks organized under private law that do not belong to the other two pillars and to which no special functions are assigned, cooperative banks with Volksbanks and Raiffeisenbanks, as well as the Sparda banks and the savings bank sector with the Sparkassen and Landesbanken.[3] All three banking pillars differ in their objectives and their legal form, which will now be discussed below. The commercial banking sector is only broadly outlined, as the other two pillars are more important for the further course of the work.

2.1.1. Credit banks

Together, the credit banks have total assets of around EUR 4,600 billion.[4] There are a total of 441 institutes, 5 of which are large banks and manage almost a third of the total assets of this pillar.[5] These five institutions include Deutsche Bank, the Commerzbank Group with Commerzbank and Dresdner Bank, HypoVereinsbank and Deutsche Postbank.

2.1.2. Cooperative banks

The organization of the entire cooperative sector shows - nomen est omen - the principle of the cooperative concept. The central institution is the Federal Association of German Volksbanks and Raiffeisenbanks (BVR), to which the regional cooperative associations are subordinate.[6] This represents all cooperative banks nationally and internationally.[7] All cooperative institutes are members of this organization.[8] At the top of the cooperative banks are their central institutions, DZ-Bank with around 1,000[9] Members and the WGZ-Bank with around 200[10] Members.[11] The almost 1,200 cooperative institutes in Germany manage total assets of around 934 billion euros.

The legal form of a cooperative bank is usually[12] the "registered cooperative".[13] The primary goal is not to maximize profits. Your activity
is based on three important basic principles that have other objectives as their content. According to the principle of identity, the owners of a cooperative are the members[14] who provide part of the liable equity with their deposits. At the same time, they are also their most important customers and manage themselves. Only members are allowed to hold positions on the management board and the supervisory board.[15] The promotion principle is directly related to the identity principle and states that the purpose of the cooperative is to promote the members. According to the principle of democracy, the personal and not the financial aspect is in the foreground. According to this, every member has the same voting rights regardless of the amount of the contribution.[16] Another special feature is a component of liable equity - the liability surcharge.[17] This amount, stipulated in the cooperative statute, can be claimed from members in the event of bankruptcy in order to cover the bank's debts.[18]

Today, cooperative banks are all-financial service providers who, in cooperation with their association, are able to meet an all-financial claim. The broad outlines of the business model of the cooperative banks are discussed in Chapter 2.2. and in Chapter 5.1. treated in detail using the example of BVB.

2.1.3. Savings bank sector

The savings banks sector includes 10 Landesbanks and 434 savings banks. Together they have total assets of around 2,590 billion euros.[19] Savings banks are institutions under public law and their primary goal is not to make a profit, but is determined by a certain charitable status.[20] The owners are the institutional bodies, which can be cities or districts as well as special-purpose associations.[21] The savings bank association is structured on several levels. On the first level are the communal

Savings banks settled.[22] These in turn are organized in regional savings bank associations and are together with the federal states[23] Providers of the Landesbanken, which represent the second stage.[24] Landesbanken and regional savings bank associations support the German Savings Banks and Giro Association (DSGV).[25] The Landesbanken are central giro institutions and central institutes that are responsible for payment transactions between the savings banks and for taking up and investing liquidity at the regional institutes.[26] In addition, they are the house banks and thus service providers and lenders for the federal states.[27] DekaBank is located on the third level, 50% of which are held by DSGV and the Landesbanken.[28] It is the national central institute for all savings banks.[29]

Until 2005, the relationships between the savings bank, the institution's sponsor and customers of the institute were governed by the guarantor liability and the institutional liability. The Anstaltslast obliged the executing agency to support the Sparkasse and to ensure that the institute had a sufficient equity base and thus remained economically viable. As a result of the guarantor liability, the institution carrier was fully liable for the Sparkasse's liabilities. With a complaint from some credit banks in 2001, which saw these two issues as prohibited aid, the relationship between the institution and the savings bank was reorganized. Germany undertook - with transitional regulations for existing liabilities - to abolish guarantor liability. With immediate effect, all liabilities entered into after July 18, 2005 were no longer covered by the guarantor liability. The Anstaltslast was also redefined. From now on, the sponsor was no longer obliged to make money available to the savings banks.[30]

In the savings bank laws and the statutes of the federal states and the institutes, the public mandate is laid down, the content of which is primarily charitable. Business is limited by three other principles. Savings banks are only allowed to be active in the area of ​​their sponsor. However, this regional principle is limited to lending, whereas the deposit business and the provision of services can also take place on a supraregional level. The principle of subsidiarity relates to the multi-level organization of the group and includes the division of labor within the savings bank organization. According to this principle, tasks that can no longer be carried out by a savings bank due to their size and economic efficiency are taken over by the next higher level. The third principle is the enumeration principle, according to which only those business activities are carried out that are expressly permitted in the savings bank ordinances and savings bank statutes. Speculative business may not be carried out according to this principle.[31]

With the help of their network system, savings banks offer a very wide range of financial services and can thus provide all-round support to their customers. In chapter 2.2. your business model is roughly explained and can be found in chapter 5.2. reproduced in detail using the example of the MBS.

2.2. Business models

First of all, this section briefly discusses the business models of the specialist banks available on the German banking market, since the universal banks make use of their services in order to be able to maintain their all-finance claim. Some specialist banks, such as building societies, are part of the association of several institutes from the three banking pillars. Then the business models of the universal banks are briefly explained. This is initially only intended to provide a general overview. Chapter 5 deals with the business activities of cooperative banks and savings banks, which are then compared using example institutions.

The business model of building societies is the financing of residential property and other residential projects. Building societies finance themselves through the deposits of the building society savers. The savings incentive here is not the credit interest, which is usually very low, but the following facts. The home loan and savings contract is divided into two phases. In the first phase, the customer saves a credit and in the subsequent second phase
he gets a loan from the building society. The interest rate for both phases is fixed when the contract is signed. The advantages arise on the customer side in the low interest rate and planning security and on the side of the institute in the independence from money and capital markets and cheap refinancing.[32]

The direct banks offer their services exclusively via modern communication systems, mostly the Internet, and forego branches and personal advice. By saving personnel and operating costs, these banks can offer their customers very favorable conditions. Their product range is limited to services that do not require much explanation. This includes payment transactions, commission and deposit transactions, but also small loans.[33]

Investment companies manage their customers' deposits in funds and invest them separately from their own assets in various asset classes. In this way, even inexperienced investors can take part in the capital market. The investment strategy is thus transferred to the responsibility of the fund manager. The prices for issue and redemption are determined on each trading day. The most common funds are real estate, money market, bond and equity funds or a mixture of these.[34]

Securities depository banks manage and hold securities for other banks. The main tasks of these institutes include all activities involving giro transactions, changes in capital in stock corporations and the repayment of bonds. They also redeem dividend and interest coupons.[35]

Another group of specialist banks are the mortgage banks. They refinance the long-term granting of loans with bonds. These loans are secured by mortgages granted to them by the debtors. They issue mortgage Pfandbriefe for refinancing. The institute may only grant loans amounting to 60% of the mortgage lending value.[36]

Credit institutions with special tasks lend money to "eligible" customers, the framework for determining them being set by the state. The aim here is to provide these customers with cheap liquidity so that these projects are eligible for funding
can also be implemented. These special tasks can have different characters. The spectrum ranges from promoting the supply of credit to small and medium-sized enterprises through foreign trade financing to eliminating liquidity bottlenecks at banks, to name just a few examples.[37]

The aim of the credit banks is to maximize profit in the interest of their shareholders, mostly shareholders. They often operate internationally and are involved in securities transactions with a relatively high percentage. They are partners in capital market financing for their mostly large corporate customers and usually refinance themselves in this way and via the interbank market. The classic deposit business is of relatively little importance to them compared to the other two pillars.[38]

Credit unions and savings banks are mainly active in retail banking and corporate banking with medium-sized companies. You refinance for the most part through customer deposits. Their business models are not based on the maximization of profits, but live from a certain support concept and thus represent a specialty.

3. Competition on the German banking market

All three pillars of the German banking system have overlaps in the target groups and the design of their business models, which means that they tend to attract the same clientele to a large extent.[39] The intensity of competition is particularly high in retail banking.[40] The German banking market is therefore often referred to as "overbanked". Combined with the large number of institutions, this led to considerable consolidation dynamics, as Figure 1 shows. This was particularly strong among credit unions.[41] Despite everything, their number is very large compared to the other two pillars. There are currently around 2,200 credit institutions in Germany, of which the cooperative sector has a share of around 55% with around 1,200 institutions.[42] This can also be traced back to
that the cooperative banks compared to the savings banks were consistently eight to ten percentage points above the cost-income ratio (CIR) of the savings banks over time, as Figure 4 shows. Even if the number of credit institutions in the public sector was lower, the pressure here also led to mergers.[43] The number of savings banks is now 434.[44] The slightest consolidation trend can be observed in the area of ​​commercial banks. The sector remained with a count of 441[45] at a similar level in recent years.[46] However, it can be seen that the big banks, which are particularly in international competition, tried to keep their proportions competitive. Deutsche Bank's grip on Postbank and, most recently, the takeover of Dresdner Bank by Commerzbank should be mentioned in this context.

The number of branches also decreased by 2003, as can be seen in Figure 2. Since the mid-1990s, the big banks left the rural areas to the cooperative banks and savings banks. Only Postbank has significantly expanded its involvement in the retail sector, which led to a sudden increase in the number of business outlets in the commercial banking sector from 2004 onwards. However, it should also be taken into account here that Postbank primarily uses the post offices for its business activities.

However, the market shares of the individual pillars in the private and corporate customer segment, measured in terms of credit volume, have changed only insignificantly in recent years. In the years 1995 to 2005 savings banks and credit banks were each around 40%, the cooperative banks hold around 20%.[47] This sideways trend is shown in Figure 3.

In addition to normal private customer business, however, competition for upscale customers is also increasing. Around 400,000 liquid assets in the millions have to be managed in Germany and the importance of managing large estates will increase in the next few years. The growth rates are attractive and attract new applicants. Above all, the German credit institutions are facing up to the competition, which is currently dominated by international competitors.[48] Even cooperative banks and savings banks cannot escape this market,[49] so that in addition to the normal volume business with private customers, private banking is added as a further overlapping area in the business models of the three banking pillars.

Just like private customer business, corporate customer business with medium-sized companies is a business area in which all three banking groups are involved. However, not all cross-selling potential has been exhausted here by a long way. This applies both to the support of the company, but above all to the support of the entrepreneurs themselves.

In terms of total assets, the five major German banks have a market share of just over 20%.[50] In an international comparison, this is a very low value. In Scandinavia this is around 75%.[51] This suggests a very high level of competition in the German banking market. This small division is often attributed to the three-pillar system and is repeatedly criticized because of the cost disadvantages.[52] The international comparison of the cost-income ratio supports this criticism. While it was around 55% in the best European countries in 2006, it was on average 15 basis points higher in Germany over the same period at 70%.[53] The margins in the deposit and lending business are also continuously decreasing at savings banks and have been at a very low level for a long time at the credit banks, as Figure 5 shows. If you compare this with the constant increase in net commission income from Figure 6 since 2002, the banks seem to be switching to the network business due to the pressure on margins. However, simply comparing the numbers is not enough. The following must be countered against the criticism. On the one hand, the framework conditions and cost factors are very different within Europe.[54] Would be in Italy with a CIR of 55%[55] If the framework conditions correspond to those in Germany, the average CIR would be approximately 111%.[56] On the other hand, the three pillar system has proven itself in the crisis. Cooperative banks and savings banks were by far not as affected by the crisis as the commercial banks and contributed to stabilizing the market.[57] Both refinance themselves mainly through customer deposits[58] and are thus less dependent on the interbank market, which temporarily lost its function during the crisis due to the banks' lack of trust in one another.[59] Even in 2008, for example, Mittelbrandenburgische Sparkasse was able to reduce its cost / income ratio from 52.3% in 2007 to around 51.9%.[60] Thirdly, the real competitive situation cannot be read from the number of credit institutions. Due to the lack of competition within the pillars of the cooperative banks, but also, above all, of the savings banks, these two groups can be viewed in a simplified manner, with regard to the competitive situation, as one aggregate.[61] On closer inspection, the competitive situation is put into perspective and shows that the relatively high CIR cannot simply and exclusively be attributed to the high level of competition. In addition to the different international framework conditions, another important reason must be the deep value chain[62] to be named. A comparison is often made with the automotive industry, which would have to breed the cattle for their leather covers with the same vertical range of manufacture as banks.[63]


[1] Cf. Burchard (2003): Zukunft der Genossenschaftsbanken, p. 324.

[2] Ibid.

[3] See Hartmann-Wendels et al. (2007): Bankbetriebslehre, p.25.

[4] See Deutsche Bundesbank (2009): Bankenstatistik - Bankenstatistik Mai 2009, p. 10.

[5] Own calculation based on figures from the Deutsche Bundesbank.

[6] See Federal Association of German Volksbanks and Raiffeisenbanks: Regional Associations of Credit Cooperatives, p. 1.

[7] See Federal Association of German Volksbanks and Raiffeisenbanks: Tasks - Representative, Service Provider and Competence Center, p. 1.

[8] Ibid.

[9] See DZ-Bank: The Profile of the DZ-Bank Group, p. 1.

[10] See WGZ-Bank: Member banks, p. 1.

[11] Cf. Bussmann (2003): Is the three-pillar system still viable for the future - cross-sectoral business models ?, p. 268.

[12] See Blisse (2005): Strengthening the credit unions through association-related equity, pp. 34 and 259.

[13] Ibid, p. 34.

[14] See Aschhoff et al. (1995): The German Cooperative System, p. 147f.

[15] Cf. Blisse (2005): Strengthening the credit unions through association-related equity, p. 43.

[16] See Aschhoff et al. (1995): Das deutsche Genossenschaftwesen, pp. 147 and 150f.

[17] See Hartmann-Wendels et al. (2007): Bankbetriebslehre, page 35.

[18] Ibid.

[19] See Deutsche Bundesbank (2009): Bankenstatistik - Bankenstatistik Mai 2009, p. 12.

[20] See Lütke-Uhlenbrock (2006): Evaluation of public savings banks, p. 13.

[21] Ibid, p. 9f.

[22] Ibid, p. 15.

[23] See Hartmann-Wendels et al. (2007): Bankbetriebslehre, p. 34.

[24] See Lütke-Uhlenbrock (2006): Evaluation of public savings banks, p. 15.

[25] Ibid.

[26] See Hartmann-Wendels et al. (2007): Bankbetriebslehre, p. 34.

[27] Ibid.

[28] See Lütke-Uhlenbrock (2006): Evaluation of public savings banks, p. 15.

[29] See Hartmann-Wendels et al. (2007): Bankbetriebslehre, p. 34.

[30] See Lütke-Uhlenbrock (2006): Evaluation of public-law savings banks, p. 11f.

[31] See Lütke-Uhlenbrock (2006): Evaluation of public-law savings banks, p. 12ff.

[32] See Hartmann-Wendels et al. (2007): Bankbetriebslehre, p. 36ff.

[33] Ibid, p. 36ff.

[34] Ibid, p. 37ff.

[35] Ibid, p. 38f.

[36] Ibid, p. 35.

[37] Ibid, p. 39f.

[38] Ibid, p. 27ff.

[39] See Stiele (2008): Competition in the banking sector, p. 34.

[40] Ibid.

[41] Ibid, p. 35.

[42] See Deutsche Bundesbank (2009): Bankenstatistik - Bankenstatistik Mai 2009, pp. 10ff.

[43] See Stiele (2008): Competition in the banking sector, p. 34f.

[44] See Deutsche Bundesbank (2009): Bankenstatistik - Bankenstatistik Mai 2009, p. 12.

[45] Ibid, p. 10.

[46] See Stiele (2008): Competition in the banking sector, p. 35.

[47] Ibid, p. 36f.

[48] See bbw Marketing Dr. Vossen & Partner (2007): Customer relationship managers decide the private banking growth market, p. 1.

[49] See Chapter 5.

[50] See Deutsche Bundesbank (2009): Bankenstatistik - Bankenstatistik Mai 2009, p. 10.

[51] See Droste et al. (2006): Consolidation and networking as a way out of the profitability trap, p. 99.

[52] Cf. Burchard (2003): Zukunft der Genossenschaftsbanken, p. 324.

[53] See Droste et al. (2006): Consolidation and networking as a way out of the profitability trap, p. 96.

[54] See Stiele (2008): Competition in the banking sector, p. 98.

[55] Ibid.

[56] Ibid.

[57] Böhnke (2008): Renaissance of the cooperative idea, p. 26 and Mittelbrandenburgische Sparkasse: Your money is safe with us, p. 1.

[58] See Hartmann-Wendels et al. (2007): Bankbetriebslehre, pp.34f.

[59] See Haasis (2009): Renaissance of the savings bank idea in the financial market crisis, p. 29.

[60] See Mittelbrandenburgische Sparkasse (2009): Stable development of MBS despite the crisis, p. 7f.

[61] Barth et al. (2006): Increase in performance through focused mergers, p. 187f.

[62] See Harms (2003): Value chains and process optimization - necessary starting points for reducing costs, p.72.

[63] Harms (2003): Value chains and process optimization - necessary starting points for reducing costs, p. 72.

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