Abstract

Public Saving Banks: Organization and Supervision System in Transition?

In the past, public saving banks contributed significantly to stabilizing the German banking system. Nevertheless, those banks are facing both legal and economic challenges, which might potentially lead to a reform of their current organizational structure. As of today, public saving banks are set up as public law institutions (Anstalten des öffentlichen Rechts) held by municipalities (Gemeinden). In legal terms, the participation of local and regional authorities has been challenged as a forbidden state aid. Similarly, the “Regional-prinzip” (i.e., the restriction of activities of the local saving banks to the area of the holding municipality) has been characterized as a forbidden regional cartel. None of those arguments, however, stands up to scrutiny. Neither does occasional malfunctioning of the saving banks supervision system (consisting of a supervision by the holding municipalities and an additional two-ply supervision by state authorities and European banking control) necessitate a general restructuring. In economic terms, the challenges the saving banks are facing can be met by facilitating mergers, albeit within the remits of Article 28 (2) of the Basic Law and the democratic principle. Access to external capital market is limited by the principle of democratic legitimacy, by the saving banks’ public mandate and the Regionalprinzip. In the future we will see tendencies of centralization: regional saving banks will be merged, they will be more than ever influenced by the saving bank association and they will increasingly act at local distance from their holding municipalities or districts. European regulation should take into account the diversity of national banking systems, especially the characteristics of small regionally restricted saving banks.