>The German Banking System : Characteristics and Challenges
>White Paper by Patrick Behr and Reinhard H. Schmidt
>This article is the first version of an article to be published in the forthcoming “Palgrave Handbook of European Banking” edited by Thorsten Beck et al.
>The private commercial banks, the small credit cooperatives and the savings banks and Landesbanken make up what is often referred to as the ‘Three - Pillar - Banking - System’. This structure makes the German banking system unique, with only the Austrian banking system showing a somewhat similar structure in Europe.
>This system is composed of three groups of banks: private banks including the so - called ‘big banks’, banks with government involvement and cooperative banks. The latter group consists of the large Landesbanken and the smaller savings banks with a local focus. This group comprises the banks with the longest tradition, dating back to the turn from the 18th to the 19th century. Then, around 1850, the cooperative banking group emerged as another important group of financial institutions. The ‘big banks’ were founded at the time of the creation of the Second German Empire after the German - French war of 1870/71.
>The Great Financial Crisis of 1930 led to the issuance of the first German banking law of 1934. It created a general regulatory and supervisory regime through which savings banks and cooperative banks were on the same regulatory basis as the private commercial banks. Mainly for political reasons, the economic importance of the savings and cooperative banks rose considerably in the period after the Second World War. This is partly due to the fact that these banks had been less involved in the crimes of the Nazi regime than the big private banks. Then, after German reunification in 1990 and under the joint influence of European integration, a general policy of economic liberalization and the acceleration of globalization, the private banks gained economic importance and market share until the global financial crises started in 2007/2008. The crisis affected the large private banks more than other banking groups because they were more involved in investment banking activities.