This study focuses on regional structural policy and the role played in it by region-specific banks. An empirical analysis of the German savings banks [Sparkassen] examines whether such banks can be successful and their significance in regional structural policy. Without anticipating the content of the following pages, savings banks can succeed. In fact, they can do much more: Germany's decentralised savings banks contribute to the stability of the financial market.
The following is an abridged version of a doctoral thesis written between 2005 and 2007, and published in Germany in 2008. Although the study has a regional and not a financial focus, it also found 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."
(Commission of the European Communities 2009: 58). 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." (Commission of the European Communities 2009: 58). In effect, the quantitative empirical analyses presented here prove that the risks run by Germany's decentralised savings banks are indeed low, and when Robert Wade (2008) from the London School of Economics suggests a suitable response to the financial crisis is not simply better regulation but also the creation of regional financial intermediaries focussed more on customer care and less on profit maximisation, he is advocating something very similar to the German savings bank system.
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 are disregarded in financial market theory and 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.
Click here to read the full Research Paper (.pdf)
GÄRTNER (Stefan)(Dr.). Balanced Structural policy : German Savings Banks from a Regional Economic Perspective. ESBG Perspectives n°58, June 2009, 218 pp.