Faults in a ‘stainless’ system

The reputation of the German financial system is at stake. To compete with the Americans and stem the drop in ratings, its governance must set itself free from its political shackles.

Germany has traditionally done things differently, at least when it comes to the three distinct pillars of its credit market. The first pillar, private commercial banks, includes large national players such as Commerzbank and Deutsche Bank as well as majority foreign-owned banks. The second pillar, cooperative banks, is comprised of locally focused credit cooperatives such as Volksbanken and Raiffeisenbanken as well as two regional institutional credit cooperatives. Finally, the public-sector pillar consists of local savings banks and Landesbanken, established in the 19th century as regional central banks for Germany’s vast network of savings banks, or Sparkassen. These local and regional banks have traditionally been closely tied to the Mittelstand, the regional small- and medium-sized businesses that form the backbone of Germany Inc. And one final proof that Germany does things differently: in the aftermath of the crisis, while the rest of Europe began selling the crown jewels, Germany never even considered privatizing public development banks and other special purpose banks.