Germany’s state-owned savings and cooperative banks are moving forward with discussions that could create a powerful financial association with $286 billion in assets and a staff of 11,000, the Financial Times reported on Wednesday (Oct. 9).
Talks between Frankfurt bank Helaba and asset manager Deka were sparked by regional banking heads.
Landesbanken are regional, wholesale-focused institutions that serve the local savings banks, or Sparkassen, and are co-owned by the Sparkassen and regional government.
Local savings banks — or Sparkassen — are served by regional, wholesale-focused institutions — or Landesbanken.
“In the long run, local Sparkassen want to have one efficient wholesale institution that can support local savings banks in a more powerful way,” a source told FT.
A union between Helaba and Deka could be a model for other mergers that could involve Landesbanken such as LBBW in Stuttgartand and Bayern LB based in Munich, the source said.
A combined lender could be the catalyst to unify Germany’s fractured public banking system. Low-interest rates combined with escalating expenses and pricey bailouts have caused an upset in the country’s state-backed banking sector.
“The repeated need for costly bailouts from the taxpayer also undermined the confidence in the Landesbankens’ business model and governance,” the report said.
Frankfurt University Professor of Finance Jan Pieter Krahnen told the news outlet that Germany’s public banking system is struggling due to “ossified structures” and redundancy.
“The sector is in need of radical reforms and [a merger between Helaba and Deka] could be the starting point,” said Krahnen.
Bundesbank, Germany’s central bank, said increased use of financial technology in the country could present regulators with their biggest hurdle since the financial crisis.
“We are seeing completely new business models like platforms and crowdfunding,” said Joachim Wuermeling, a board member at Germany’s central bank.
Banks’ outsourcing of activities to companies that are more technology than finance means regulators lose oversight of those activities.
Bundesbank has been in contact with all of the large tech companies providing financial services to talk about plans, Wuermeling said.