Austrian Savings Banks History - an overview
Erste Oesterreichische Spar-Casse, the predecessor institution of Erste Bank der oesterreichischen Sparkassen, was founded in Leopoldstadt in Vienna as the first savings bank of the Austrian monarchy. It was intended as a counterweight to existing private bankers, an institution aiming to prevent the impoverishment of the population and an instrument helping the working population to accumulate wealth.
The first savings banks were cooperative banks established by so-called “friends of humanity", primarily noblemen, members of the clergy, high-ranking civil servants, but also physicians, pharmacists and professional associations. Erste initiated the formation of additional savings banks not only in Austria, but also in the crown lands of the monarchy. Apart from private bankers, savings banks were the only credit institutions active in the crown lands until 1850.
Between 1827 and 1843 altogether 45 branch offices (“Kommanditen") were opened in the Empire, which were constituted as affiliated limited partners of Erste and many of which eventually developed into new savings banks. In addition, Erste established the “Allgemeine Versorgungsanstalt", an institution for retirement provision covering all crown lands. The size of savings deposits was capped by an upper limit and less interest was paid on large deposits than on small ones.
In 1844 the “Savings Banks Regulation" (“Sparkassen-Regulativ") governing the formation, establishment and supervision of savings banks was passed and essentially remained valid as the legal framework regulating savings banks until 1979. Municipalities could only found savings banks once this regulation was adopted. However, municipalities were only able to become distinct political entities from 1849 onward.
The first municipal savings banks were founded in 1853, as of 1856 there was at least one savings bank on the territory of each of today's federal provinces. Savings banks could only engage in banking activities explicitly permitted by the government, which were essentially confined to the savings business, mortgage lending and collateralized lending. Problems were primarily encountered when wars broke out, as large amounts tended to be withdrawn on these occasions in very short periods of time.
In 1866 a boom in savings bank start-ups began. In the two decades until 1874, 71 municipal (district) savings banks and 19 savings associations were established on the territory of modern-day Austria. That made it possible to respond to the increased need for capital caused by the abolition of feudalism and the liberalization of trade laws, as inter alia land and tithe redemptions had to be financed. The savings banks thus became an engine of economic development in the monarchy, particularly for the middle classes and small and medium-sized enterprises.
In 1872 restrictions confining savings banks to offering their services exclusively to “people of limited means" and degressive interest rates on deposits were abolished. Savings banks became “humanitarian credit institutions", able to do business with members of all social strata. Savings banks had effectively served as credit institutions for the middle classes and the lower nobility for some time already. A major financial crisis ensued in the wake of the stock market crash of 1873, but it barely affected the savings banks.
With the emergence of cooperative banks and the founding of the Austro-Hungarian Postal Savings Bank in 1883, competitors entered the rural regions for the first time, albeit in a strongly growing market. Charitable activities and the promotion of home construction by savings banks reached a peak thanks to their strong earnings performance. Many public buildings of the “Gruenderzeit" were financed by foundations established by savings banks (the "Gruenderzeit", literally „founders' era“, was a period of rapid industrial expansion in Austria comparable to the Gilded Age in the US). The custody business was added as a new business segment.
The first regional savings bank association was founded in Lower Austria in 1899 and until 1905 similar associations were established in all other crown lands as well. “Deutsche Kreditgenossenschaft fuer Boehmen" (“German Credit Cooperative for Bohemia") was set up in 1897 as the first central institution for savings banks (and initially also for credit cooperatives). In 1901 it was renamed “Centralbank der deutschen Sparkassen" (“Central Bank of German Savings Banks"). The bank was domiciled in Prague, and as the sector's central institution was responsible for cash clearing and co-financing of large loans. In 1916 its operations were relocated to Vienna.
The “Reichsverband Deutscher Sparkassen in Oesterreich" (“Imperial Association of German Savings Bank in Austria") was founded in 1905 as a nationwide interest group, out of which the modern-day Savings Banks Association eventually evolved. From 1906 onward, the Reichsverband published “Deutsche Sparkassen-Zeitung" (“German Savings Banks Magazine"), the predecessor of Oesterreichische Sparkassen-Zeitung. The allocation of funds continued to be strongly focused on safe assets: mortgage loans represented 55%, and government bonds 24% of the assets held by savings banks.
With the outbreak of World War I, the wave of savings bank start-ups which had reached its pinnacle in the 1870s and 1880s came to a sudden halt. In 1918 there were 695 savings banks in the Austrian half of the monarchy, and 211 savings banks on the territory of modern-day Austria. With the issuance of war bonds, small savers were for the first time given an opportunity to invest in securities, while the savings banks were for the first time allowed to act as subscription agents for these bonds, which became worthless after the war.
Savings banks and commercial banks were forced to support unpopular government measures after the end of the war (primarily the exchange of banknotes and for a short time also compulsory customer identification in the savings business), which greatly dented the population's confidence in the banking industry. In 1921 the savings banks were for the first time permitted to trade in securities, foreign exchange, foreign notes and coins, as well as to grant short term loans (operating loans for businesses and loans against pawned collateral), which enabled them to survive the post-war crisis.
The introduction of the Austrian schilling and the
re-denomination of the currency in 1925 led to a large wave of bank
insolvencies, as many banks had made inflation-driven speculation their main
business. In Vienna alone, almost half of all banks became insolvent.
Thereafter, savings banks enjoyed a
brief economic boom, which lasted until 1930. In 1925 the savings bank sector
introduced World Savings Day. The central institution of the savings banks,
Centralbank der Sparkassen, was wound down in 1926; the new leading institution
Girozentrale was only set up in 1938.
The brief economic boom enjoyed by the savings banks and indeed the entire credit industry came to a sudden halt with New York's “Black Friday" and its repercussions for the Austrian economy. The banking crisis of 1931 led to serious liquidity problems particularly at larger savings banks, which the government attempted to resolve by imposing restrictions on their autonomy (mandatory reductions of salaries, credit bans). Additional interventions in the autonomy of savings banks followed in the wake of the political upheaval from 1934 onward.
The annexation of Austria by the Third Reich resulted in fundamental changes to the structure of the savings bank industry and the laws regulating savings banks. Particularly larger institutions became cat's paws of the Nazi regime and were used as instruments helping it to obtain funding for the war.
The resumption of the savings bank business in July 1945 took place under the most difficult circumstances: many savings bank buildings had suffered air-raid damage, the occupation zones and the lack of transportation hampered supra-regional communication between savings banks. Just as in 1919, savings banks were once again forced to support the government's economic and currency policy, particularly by implementing its credit dirigisme as well as by helping it to enforce the Currency Protection Act of 1947.
After the stabilization of Austria's currency in 1952, a
new upswing for the savings bank sector began, characterized by strong growth
rates, but also hampered by severe government restrictions aimed at fighting
inflation, primarily in the form of credit controls. World Savings Day was
celebrated for the first time again in 1952 and from 1954, the government
promoted school saving schemes. In 1955 savings banks were able to draw up
proper balance sheets for the first time since the end of World War II, thanks
to the Bank Reconstruction Act and the so-called “Schillingbilanz
Eröffnungs-Gesetz” (which one might loosely translate as the “Schilling
Accounting Act”, a law that made it possible for banks to draw up balance
sheets in schilling terms by converting their legacy assets to Austrian
schilling at their actual value).
These ten years were a decade of expansion into new
business activities. The savings banks strongly promoted current accounts for
private individuals. The first securities were marketed, initially only bonds,
but later also investment funds. In the lending business there were not only
many types of discounted loans available which were supported by government
subsidies, but small consumer loans were introduced as well. A first wave of
start-ups of specialized subsidiaries (Spardat, Sparinvest, Immorent) marked
the beginning of the savings banks embracing the concept of universal financial
After many years of preparations, the passing of the
Banking Act (Kreditwesengesetz) and the Savings Bank Act of 1979 represented a
milestone in the history of savings banks: the focal points of the Banking Act
were the transformation of all credit institutions into universal banks,
autonomy in setting interest rates, permission to open branch offices in all
provinces, and the strengthening of creditor and consumer protections. In the
Savings Bank Act of 1979 the legal status of savings banks was redefined;
instead of directors of savings banks working in a honorary capacity,
cooperative management board statutes were introduced, with at least two
full-time directors appointed to each board of directors. The so-called
“regional principle” was repealed (restriction of supra-regional competition),
and savings banks were permitted to perform the same tasks as other credit
institutions. The branch office network doubled to 955 branch offices in these
ten years. The two large savings bank institutions based in Vienna opened
branch offices in all federal provinces.
In this decade comprehensive changes in the business strategy of savings banks were implemented as a result of the Banking Act of 1979. The prohibition against holding participating interests was repealed, and a second wave of start-ups in universal banking services and affiliated partner companies began in 1985: with the founding of s Realservice, s Versicherung, and various real estate investment companies and pension funds, it became possible for savings banks to offer all types of financial services over the counter. As a further effect of the Banking Act, a first wave of mergers in the savings bank sector ensued, and between 1979 and 1983 34 savings banks merged with other savings banks. As of 1983, only 128 independent savings banks remained. Over time, fundamental reforms of the Savings Bank Act resulted in the historical legal form of the savings bank being opened up. At first it became possible to issue participation capital and supplementary capital; from 1986 savings banks were allowed to transfer their banking operations into a joint stock company. The unowned savings bank remained as a passive “Anteilsverwaltungs-Sparkasse" (a holding company solely administering a stake in the newly established stock corporation). Lastly, automation of the banking business reached its first peak as well. Self-service zones with printers for account slips and ATMs made it possible for customers to conduct numerous banking transactions outside of branch office opening hours.
In this decade the savings bank sector, and with it Austria's entire banking system, underwent structural reforms. In addition, Austrian banking legislation was amended so as to comply with EU law. From 1990 onward several large mergers took place in the savings bank sector. Zentralsparkasse merged with Laenderbank in 1990, with the combined entity renamed Bank Austria AG, which in turn purchased a majority stake in Creditanstalt in 1997. In 1992 OeCI was taken over by GiroCredit, which was in turn bought by the holding company Anteilsverwaltung Zentralsparkasse in 1994 and sold to Erste Bank in 1997. As a result of this merger, Erste Bank and GiroCredit became new leading institution of the savings bank sector, under the name “Erste Bank der oesterreichischen Sparkassen AG". With that a new framework for the sector was finally created, after a number of previous structural reform attempts had failed. Bank Austria subsequently decided to gradually withdraw from the sector. Since 1997 Erste Bank and the remaining savings banks have operated in the market as the Sparkassen Group, with a common marketing strategy and increasingly similar financial service offerings. The savings banks agreed to adopt a profitability-focused new division of labor based on the principle “centralized production – decentralized distribution". Finally, Erste Bank transferred its branch offices in the federal provinces, as well as regional savings banks which had been merged in previous years, to savings banks in the provincial capitals or to other large regional institutions, in most cases in exchange for shares. In the wake of two further consolidation waves, the number of savings banks decreased again in the five years from 1989 onward, this time by 50 to 74 banks (as of 1994). Austria's accession to the EU in 1996 required the transposition of EU banking law (such as the directives regulating capital adequacy, solvency and large exposures) into national law by means of comprehensive amendments to the Banking Act.
Ever since the former communist bloc countries in Central and Eastern Europe were opened up, the savings banks led by Erste Bank invested large amounts in what was regarded as an expanded home market. The peak of this expansion was reached with the takeover of Česká spořitelna (2000), Slovenská sporitel'ňa (2001) and Banca Comerciala Romana (2005) by Erste Bank. In Slovenia, Hungary, Croatia, Macedonia and Serbia, savings bank subsidiaries were established as well, often with local savings banks purchasing stakes in them. Another new milestone in terms of cooperation within the savings bank association was achieved in 2001 with the establishment of the Sparkassen Group's cross-guarantee system. After a lengthy legal dispute over the system's compliance with EU competition regulations, a new cooperation and joint liability scheme was set up and came into force in June of 2008 (“Haftungsverbund Neu"). After the changeover of IT systems to the new millennium, the second large IT conversion project of recent savings bank history was successfully completed with the introduction of the euro in 2002. Additional large projects were successfully implemented with Basel II and the adoption of the single European payments area SEPA. As of 2003, all savings banks were for the first time using a common IT platform. The events of 11. September 2001 triggered a change in investor behavior in favor of low-risk forms of investment (“renaissance of the savings book"). While investors by and large returned to investing in securities in the course of the years 2004 to 2007, the severe financial crisis of 2008 once again provided a boost to savings books and other safe investments. In 2008 Erste Bank was split up into Erste Group Bank AG and Erste Bank Oesterreich. Erste Group became the holding company of the banking subsidiaries in Austria and Central and Eastern Europe, serving more than 16 m. customers, while Erste Bank Oesterreich became the leading institution of the savings banks based in Austria. In addition there were Zweite Sparkasse and 52 (2016: 46) regional savings banks, of which 40 transferred their operating business to stock corporations. The original savings banks remained in place in the form of “Anteilsverwaltungs-Sparkassen", 34 of which have been converted into foundations since 1999.