Balanced structural policy: German savings banks from a regional economic perspective
New publication by the Institute for Work and Technology
Redaktion: Claudia Braczko
Germany’s decentralised savings banks contribute to the stability of the financial market. At this conclusion arrives a current publication by the German Institute for Work and Technology (Institut Arbeit und Technik/ IAT) just published by the European Savings Banks Group, Brussels. The author Dr. Stefan Gärtner won the European Savings Banks Academic Award 2008, first price.
The study found among others that regional banks which check capital mobility and have long-term relationships with and obligations to their customers stabilise financial markets. These findings have become particularly topical in the current financial crisis, which has confirmed their truth at least as regards Germany’s savings banks. German savings banks have long been criticised by the European Commission as, operating solely within set regional boundaries, they stand for anything but the model internal market and financial market integration. “The traditional hypothesis on the relationship between financial integration and financial stability has been that financial integration and globalisation would dilute risks and reinforce financial stability.”
Since the financial crisis began, however, there have been growing signs of a rethink: the Commission questioned its market philosophy for the first time in the European Financial Integration Report released in January 2009. “The financial crisis has offered a live demonstration that financial globalisation may indeed amplify the original financial shock.” In effect, the quantitative empirical analyses presented here prove that the risks run by Germany’s decentralised savings banks are indeed low and that regional banks can stabilize financial markets.
Savings banks are relatively small and have a higher concentration risk due to their regional loan portfolios, yet are nevertheless successful and contribute to financial market stabilisation. This can be explained by factors such as geographical and mental proximity and a sense of responsibility for staff and the region, in other words factors which cannot be recorded using the analytical tools applied by major banks and rating agencies. The financial crisis offers the chance to put aside traditional dogmata for a debate on companies’ social and regional responsibility, on the role of a State which stimulates and supports but also regulates, and on the importance of regional diversity in Europe. The world of science as well as political and social groups should exploit this window of opportunity. In the context of this debate, savings banks could provide inspiration both for European regional development and for the architecture of stable financial markets.