Answer ... German banks and financial institutions are permitted to conduct all types of banking activities described in Section 1 of the Banking Act, if respectively licensed. Universal banks in Germany can be divided into three main types of institutions:
- commercial banks;
- public sector banks belonging to the savings bank sector; and
- cooperative banks.
Commercial banks: Commercial banks are part of the private sector and can be further sub-divided into:
- large nationwide (major) banks;
- regional banks; and
- other financial institutions, including the branch offices of foreign banks.
Commercial banks are corporations and mostly operate as universal banks. Other than their legal form and business aims, the principal difference in the types of universal banks is the number of legally independent institutions they have and the number of branch office locations.
In terms of total assets, the four major German commercial banks (Deutsche Bank AG, Commerzbank AG, UniCredit Bank and ING Bank) account for nearly 65%. This reflects their particular importance. Commercial banks are mainly privately owned and private shareholder representatives are members of the supervisory board. There are three large universal banks in Germany: Deutsche Bank AG, Commerzbank AG and HypoVereinsbank, which is owned and controlled by its Italian parent, UniCredit. In addition, there are a number of specialised institutions:
- mortgage banks, which primarily focus on real estate finance;
- auto and other consumer finance banks, which also compete for deposits;
- securities banks, which have an emphasis on brokerage and custody;
- subsidiaries and branches of foreign banking groups, with diverse business focuses; and
- private banks with a concentration on asset management.
Cooperative banks: Cooperative banks are cooperative societies that carry out all types of banking and related services (eg, Berliner Volksbank eG, Sparda Bank Hamburg eG). A cooperative society is one in which the number of members is not fixed and which serves to promote the business or economic interests of its members through jointly owned business operations. Cooperative banks have become less member-centric, as they are now permitted to establish business relations with non-members. Since the repeal of the identity principle for lending transactions, they no longer have to restrict themselves to business with members, so they now differ very little from other universal banks. Still, in accordance with the Cooperative Societies Act, which applies to all German cooperative banks, they must promote the interests of their members. In contrast to commercial banks, maximising profits is not their highest priority. Cooperative banks have a different governance structure. The equity holders have equal voting rights independent from their equity share. As of December 2021, there were 770 cooperative banks, with combined assets exceeding €1.145 billion and a market share of roughly 13%. To overcome any disadvantage of a fragmented structure, the cooperative banks founded two cooperative central banks, DZ Bank and WGZ Bank, which merged in 2016. Following the merger, the cooperative sector has one large financial head institution, DZ Bank in Frankfurt, which provides services to its constituent institutions.
State-owned banks: The German banking sector also includes several large state-owned banks. The state banks (Landesbanken) are central institutions of the Savings Banks Finance Group (Sparkassen-Finanzgruppe). Following the privatisation of HSH Nordbank (renamed Hamburg Commercial Bank), which was completed in early 2019, only the much smaller SaarLB remained in the Landesbank sector, in addition to the four larger institutions: Landesbank Baden-Württemberg, Bayerische Landesbank, Landesbank Hessen-Thüringen and Norddeutsche Landesbank. This part of the German banking market has thus been reduced to five institutions.
In addition to the Landesbanken, there are several special purpose banks (eg, Deka Bank Deutsche Girozentrale, Kreditanstalt für Wiederaufbau and Landwirtschaftliche Rentenbank) that are directly or indirectly owned by the federal or state governments (with some exemptions).
Further, the public bank sector is characterised by around 376 savings banks (Sparkassen), which in most cases are owned by local municipalities or their countries. Savings banks are committed by their municipal ownership to serving their local region. Profits not needed to further strengthen their capital bases are used for the benefit of society. Rather than focusing on financial figures, savings banks concentrate on benefiting the welfare of the people and businesses in the areas they serve. Accordingly, the business policy of the savings banks focuses on sustainable economic growth and social development in their regions. For this reason, the business of the savings banks revolves around transactions centred on the real economy, instead of international financial markets. This commitment to the community does not mean that savings banks must forgo making a profit. Making a profit is not their main goal, but rather a means of fulfilling their public mandate. Savings banks do not engage in international banking business. They play an important role in offering banking services to Germany’s population outside the larger cities, where private commercial banks are not keen to set up local branches.