The financial crisis provides a chance to fix Germany’s state banks.
The Economist print edition, 7 May 2009
PERSONAL greed is often the explanation given for the disastrous forays of the world’s banks into America’s subprime mortgages. In Germany, however, many of the worst decisions were made not by the bonus-driven crowd in Frankfurt but by ostensibly well-intentioned public servants in the country’s public banks, or Landesbanken.
The extent of the damage wrought on the Landesbanken, most of which are owned by state governments and local savings banks, was revealed late last month in a leaked document that was published by the Süddeutsche Zeitung, a newspaper.
It said that the financial regulator, BaFin, reckoned that German banks—mostly Landesbanken—held €816 billion ($1.1 trillion) in toxic securities. On May 6th five Landesbanken had their ratings cut by Standard & Poor’s.
So deeply in debt are the hardest-hit of this unwieldy bunch that only the central government has the cash to prop them up. Yet instead of lamenting, many in Berlin see this as the first opportunity in decades to fix a banking system that is plagued by fragmentation and poor profitability.
The main problem facing German banks is that there are too many of them. The country has more than twice as many banks relative to its population as countries such as Britain, Canada and Japan, according to the IMF (see chart).
The intense competition for customers means that they are far less profitable in Germany than in the rest of Europe, according to Moody’s, a rating agency.
