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CONGRESO DE INTERNACIONAL DE HISTORIA DE LAS CAJAS DE AHORROS Savings Banks since 1800: The German case

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CONGRESO DE HISTORIA DE LAS CAJAS DE AHORROS

Murcia 16-18 de octubre de 2008

Savings Banks since 1800: the German Case

by

Prof. Dr. Günther Schulz

Department of History

Section for Constitutional, Social and Economic History

Rheinische Friedrich-Wilhelms-Universität Bonn

Konviktstraße 11

D-53113 Bonn

Phone +49 228 / 735172

Fax + 49 228 / 735171

Email [email protected]

http://www.igw.uni-bonn.de/www/igw/vswg.html

mailto:[email protected]

http://www.igw.uni-bonn.de/www/igw/vswg.html


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I. Foundation, early development and consolidation until 1908

The foundation and early history of the German savings banks were predominantly influenced

by economic factors, in the second place by social considerations, and political or

administrative effects stood in the third place, but became more and more important during

the 19th

century. As the empiric historical research shows, the picture of the German savings

banks round about 1825 was very heterogeneous.1 To sum it up it can be said that the overall

majority was founded in order to meet with the need to save resp. collect "small capital"

secure and reliable – capital often from all of the population; the lower classes, anyway, were

always included, sometimes the access was restricted to the poor. Practically all early savings

banks fixed a limit for the deposits; the amount differed, mostly because of practical reasons.

This indicated underdevelopment of the capital market resp. of the financial sphere. Most of

the early savings banks in Germany were founded by public authorities and as a part of the

local government. Many foundations were encouraged by members of the middle classes,

businessmen, entrepreneurs, social reformers, and intellectuals. The organisation,

administration etc. differed a lot due to the political heterogeneity of Germany until the

second empire was established in 1871. Before that date no central German government

existed, and so the relations between the state and the markets varied a lot in the German

states. Even within the individual states the legal form of the savings banks system was not

settled from the outset. During the early phase up to round about 1825 private savings banks

existed in equal terms as public bodies – both were not yet very numerous. Later on, bodies

governed by public law gradually became dominant. The majority was built by municipal

savings banks. In 1836 round about two third of the existing 280 savings banks were part of

the local government. Just before World War I the overall majority of the 3.130 savings banks

which existed at that time were municipal bodies. Today, in Germany there are no more than

six non-municipal savings banks, mainly in the north of Germany.2

The development of the municipal type of savings banks is a special German feature. Unlike

the situation in other European countries, savings banks in Germany were in many cases

established by local authorities and the districts and by special-purpose associations.

However, the business activities of the savings banks continued to be limited to their

collection areas: the "regional principle" ("Regionalprinzip"). Until 1931, all the municipal

savings banks were part of the municipal government. Thus the local authorities themselves

from the start shaped the body, organisation and other features of the institutions and could


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make use of the profits – though, on the other hand, had to bear losses. They guaranteed, by

means of an institutional encumbrance ("Anstaltslast"), the viability of the savings banks.3

In the practice of local government and local politics the power of the state on one hand and

citizenship on the other came to a merger. The aim of the middle classes was to overcome

mass poverty (pauperism/the "social question") by means of self help. In the early 19th

century, at a time of extensive radical social and economic change, with no medical,

unemployment or accident insurance or retirement entitlements at hand, many members of the

bourgeoisie as well as of the feudal elites turned to the idea of "helping the poor to help

themselves". Founding savings banks in this sense meant to combine the idea of Enlighment

and humanity with the liberal idea of improvement and progress. The poor should be guided

to economy and savings und thus gain middle class values and behaviour.

The states as well promoted the establishment of savings banks. In states as Bavaria, Hessen

and others the central authority explicitly called on local authorities to establish savings

banks, mainly led by two motives: On the one hand, the establishment of these banks should

help to solve one of the most important social problems: the relief of the poor and to make

provisions for times of unemployment, illness and old age.4 In that the local authorities were

interested themselves as the poor relief was one of their tasks.5 On the other hand, the

government authorities were well aware that the savings banks system offered an opportunity

to improve the government’s supply with capital – especially by influencing the savings

banks investments.6 Thus, for example, many savings flowed to public bodies, being invested

in state and municipal loans.

Due to the historic influence of the "Länder", the law relating to savings banks continued to

be Land law even after the foundation of the German "Reich" in 1871 – and this in many

cases still continues up to now. The first national piece of legislation on the savings banks is

the 1838 Prussian Savings Banks Regulation which continued to apply well into the 20th

century. It laid down the framework, and the municipalities and districts shaped it in detail.7

The establishment of the savings banks and their promotion by the government helped, to

some extent, to fill a market gap. Previously there had been no institution where the poor

could deposit small sums of money safely and with interest return to help them getting over

times of need. The necessity to take precautions became more and more important in 19th


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century as more and more people were threatened with poverty. Here the government acted

mainly for reason of its welfare obligation. That was the reason why it was not intended that

the early savings banks should become involved in the capital markets. Nevertheless, as early

as in the 1830s several Prussian banks were successful in making profits which, as was

mentioned, were given to the local authorities, which used the money to pay off their debts to

the savings banks.8

Thus the savings banks obtained funds with which the local infrastructure was financed and

by that supplemented the still rudimentary capital market at the beginning of the

industrialization. On the other hand the supply of (investment) capital to private individuals

was of little importance. The government rather limited the amount of (high-risk) personal

loans.9

The social tensions of the 1840s with the climax of the 1848 revolution also affected the

savings banks: On the one hand governments recognized that the savings banks, in addition to

measures of precaution, could take over other tasks of social policy, e.g. help to strengthen the

existing political and social structures by educating people to save.10

On the other hand the

savings banks, in collecting small savings deposits, experienced competition from the newly

formed cooperatives. These came into being because – among others – peasants and

craftsmen had in particular been severely affected by the crisis of the 1840s. Based on the

cooperative principle, these groups should from now on be able to avoid destitution. In the

early years the activities of the cooperatives had little effect on the business of the savings

banks. Instead there was a division in the market, especially concerning the assets. While the

savings banks provided mainly with long-term loans, secured by either real property or

municipal loans, the cooperatives mainly provided with short-term personal loans. As a whole

there was little competition in banking during the 19th

century. The market was segmented.

Each of the emerging groups of institutions – the groups governed by private law, by public

law, and the cooperative group – worked for a different segment of the market.11

Considered in terms of regulations: the savings banks were designed a) as institutions

relatively close to local or state government for a special clientele, and b) as an aid serving

social and tax purposes. They were not a private-sector or generally a free-market institution

and certainly not a universal bank. During the rest of the 19th

century there was not much

change. Though there was little competition the banks soon tried to obtain influence on the


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decisions of the governments, especially with the assistance of an association system which

more and more emerged in the banking sector as well as in the other parts of the German

economy mainly during the last third of the 19th

century. The 1881 Statute of the first savings

banks association in Rhineland and Westphalia stated: "The purpose of the association is to

promote the common interests of the public savings banks" (§ 1).12

In the beginning, the association system developed only gradually. Additional regional

associations were founded only little by little. The German Savings Banks Association was

established – with the headquarters close to the government in Berlin – in 1884 only after

some disputes over its structure and purpose. It was an association of associations, that is to

say, the individual savings banks could be a member of the National Association only through

the relevant regional association and no longer directly.13

The founding of the regional associations was lastingly stimulated by the "Post Office

Savings Banks" project.14

It developed in the 1870s from the idea to give the nationwide

operating Post Office the opportunity to accept and manage savings. Thus a centralized

savings banks system in addition to the existing decentralized public savings banks system

would have been created. The reason given was that the municipal savings banks were not

sufficiently taking care of the needs of the poor. The true motive, however, most probably

could be concluded from a 1878 memorandum of the Imperial Post Administration which

argued that the central government’s financial resources should be extended at the expense of

the regional and local bodies.15

That would have been useful for the imperial government as

the German federal states held great proportions of the incoming taxes whereas the Reich had

any meagre sources of income.16

A draft for a new law was presented to parliament but

rejected as there was not a majority in the Reichstag in favour of giving up the existing and

proven municipal structure of the savings banks system.17

So the German Savings Banks

Association was able to achieve what was the negative aim behind its establishment: to

prevent the establishment of a post office savings bank. Nevertheless, the "spectre" of

competition from a post office savings bank continued to haunt the savings banks.

Subsequently, the association strengthened its efforts to implement the positive aims behind

its founding, namely to improve savings opportunities and to improve and tighten up the

internal organization of the savings bank system.18


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However, regional associations, which covered all parts of the "Reich", did not exist until

1908. The founding of the regional savings banks associations during the first decade of the

20th century was given an impetus because, on the one hand, the associations were the

responsible bodies to introduce the auditing system and, on the other hand, the question of

taking up giro transactions was under discussion. While the first phase of the establishment of

the associations in the 1880s was more determined by political considerations, now market

orientation was of greater importance for progressing along the road to "savings banks

unity".19

Between 1850 and 1908, therefore, no major change occurred in the position of the savings

banks between state and market. While the cooperatives emerged as new competitors in

collecting savings deposits, intensive competition did not develop. With the exception of the

failed post office savings bank project, the state did not intervene to a greater extent than

previously in the market or in the business policy of these institutions. This situation changed

only as from 1908, mainly because of the introduction of giro transactions.

II. Market orientation – state intervention – command economy 1908 to 1948

Before the savings banks were able to take up giro transactions – which were new for them –

the government had to create the legal foundations.20

The occasion for this was the 1907

economic crisis, during which a severe cash shortage developed. Thereupon, in 1908 the

Reich government initiated a survey of the banks. The survey came to the conclusion that

there would be less demand for cash if resort was had to giro, cheque and clearing

transactions which until then had insufficiently been taken into account. The Reich Cheque

Act of 1908 gave effect to several suggestions made by the survey and it also granted the

savings banks the capacity to be a drawee of cheques. However, the latter could not yet

engage in cheque transactions as the statutory Reich rules first had to be incorporated into the

federal legislation. This was delayed in a number of Länder, including the Kingdom of

Saxony. Thereupon, the savings banks association there was the first to found – by way, as it

were, of a "makeshift" – a giro association for the purpose of developing a giro system. Like

cheque transactions, giro transactions were explicitly in accordance with the proposals

contained in the survey of the banks. With this action, the Saxon giro association gave, within


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the German savings bank system, the initial impetus to engaging in giro transactions.

However, the giro idea and the additional innovations (deposit and current account

transactions) associated with it spread only gradually within the Savings Bank Organization

which was growing together. Both the regional spread of giro transactions and their

acceptance by customers were initially weak. The German National Giro Association was

founded only in 1916 as an umbrella association for the regional giro associations, and the

German Central Giro Institution emerged only two years later.21

Until the onset of major

inflation, the giro business did not lastingly strengthen the competitive position of the savings

banks.22

This happened at first in another business area: the stockbroking and securities deposit

account business. At first, neither was of importance for the savings banks which developed

this business, not for strategic market reasons, but because the state pushed ahead with it on a

massive scale. Because of their extensive network of branches and customer structure, the

savings banks were an ideal choice for providing geographically widespread war loans to

finance the First World War.23

While the securities business was therefore, as it were, developed by government order, it was

because of market constraints that the savings banks ultimately developed into universal

credit institutions. During the post-war inflation, business in short-term current account

deposits was initially very important for the continued existence of the savings banks as the

traditional long-term areas of loans secured by real property and municipal loans lost their

importance due to inflation. On 15 April 1921, therefore, the Prussian government removed

the existing restrictions on deposit and current accounts in order to enabling the savings banks

to adapt to market requirements. For the same reason, the savings banks were permitted to

engage, on a revocable basis, in all other kinds of banking business provided that this was

compatible with the statutes of these institutions.24

In granting this permission, the government was reacting to market requirements while at the

same time trying to maintain control over the savings bank system. This was because, in the

face of inflation, a number of local authorities had begun to set up independent municipal

banks to which the restrictions under the law on savings banks did not apply. This "rank

growth" should be and was stemmed through an extension of the competences of the savings

banks. 25


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During the period of inflation, the other German Länder also established the basic legal

framework which would enable the savings banks to pursue a more flexible business policy in

their field.26

Although the rules were originally of a provisional nature they remained in force

until inflation ended in 1923. Criticism of the new savings banks' market position therefore

gradually developed. In particular, the private banking industry sought to block the expansion

of these institutions as they were in fact receiving preferential tax treatment from the state

and, for example, did not have to pay tax on income from savings transactions. These disputes

were conducted mainly by the Central Association of the Banking Industry and Bank

Executives on the one hand and the German Savings Banks and Giro Association (Deutscher

Sparkassen- und Giroverband, DSGV) on the other which had developed from a merger

between the German Savings Banks Association, the Central Giro Association and the

German Association of Municipal Banks.

During the 1920s, the confrontation increased in severity. The banks denied that the savings

banks had a competence in the new business areas. The savings banks countered with the

argument that the private-sector banks did not take sufficient account of the interests of small

and medium-sized firms in allocating credit. In 1926 the government took a stand in this

dispute in an expert opinion of the Reichsfinanzhof (Supreme Tax Court) which explicitly

granted the savings banks the option of engaging in this new business. This strengthened the

market position of the Savings Bank Organization. In 1928, the umbrella organizations of all

three groups of institutions thereupon worked out an agreement on competition. For the

Savings Bank Organization at least, this was a success as the private-sector banks for the first

time now recognized the DSGV as an equal.27

What was important about the disputes concerning the development of the savings banks in

the field of banking was the fact that the state took a clear stand in favour of its "own"

institutions which could now establish themselves as fully-fledged credit institutions. In

addition, it was due to state support that the savings banks could operate in a business area

previously held by other credit institutions. However, this improvement in their market

position at first had scarcely any effect: all three groups of institutions focussed mainly on

their customary market segments, and there was still very little competition.28

Until the end of the 1920s, government economic policy was mainly of a liberal character,

even if intervention gained in importance. In view of the world economic crisis and the


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national and international financial crisis which had begun in 1929, the state intervened

persistently in economic life29

, especially as regards the credit institutions which in 1931

experienced their worst crisis. The reason for this was that, because of inflation, the equity

capital base of the German credit institutions was still weak. Urgently needed capital came

mainly from abroad in the form of short-term investments although in most cases it was

invested on a long-term basis. The banking industry therefore faced major problems when

foreigners withdrew funds during the world economic crisis and because of major voting

gains by the National Socialists (1930). On top of these structural problems of the banking

industry, the savings banks had an additional problem, namely, the municipalities to which

administration of the savings banks continued to be subject experienced a huge need of capital

during the 1920s. However, this capital was invested not only in infrastructure and municipal

enterprises but also increasingly in the development of cultural facilities.30

Moreover, the burden on local authorities increased as a result of social welfare services.

Despite these financial needs, the supply of funds was in fact reduced. The 1919 tax reform;

which Matthias Erzberger, the Reich minister of Finance got through, had led to a situation in

which tax receipts were concentrated to a greater extent with the Reich government. This

weakened the Länder and local authorities which tried to cover their needs to a greater extent

through regular and municipal loans. As the foreign capital market had to a large extent been

closed to them because of a statutory Reich order, they used the central giro institutions,

especially the savings banks. The latter were hardly able to resist the credit wishes of the

municipalities as they formed part of the local administration.31

However, a factor of key

importance in municipal problems during the economic crisis was less the fact of borrowing

in itself than the fact that the municipal budget structure, which was generally in deficit,

aggravated the crisis. Nevertheless, contemporaries saw the close connection between savings

banks and municipalities to be a structural evil which – after the banking crisis – needed to be

finally removed by means of statutory rules.32

The banking crisis began when the private Darmstädter und Nationalbank, the second-largest

German bank, became insolvent on 13 July 1931 due to the withdrawal of deposits. As the

Reich government was afraid that the entire German banking system would collapse it

intervened on a massive scale in the market. Through the acceptance banks, behind which the

Reichsbank ultimately stood, funds were at first provided to support the institutions

threatened with failure. These included the Rhine Province Regional Bank.33


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This was followed by other measures entailing long-term state regulation of the market. The

credit institutions were placed under central state banking supervision. The public banks, in

other words also the savings banks were, however, exempted from this because, until the

Credit System Act of 1934, they were already subject to institutional supervision by the

Länder. Moreover, exchange controls were introduced, and the conditions relating to interest

and other aspects were standardized. With emergency decrees, the Reich government in 1931

encroached on the law governing savings banks which, as mentioned, had until then been a

matter for the Länder. From then on, the savings banks were no longer part of local

administration and they acquired an independent legal personality. As guarantors, however,

local authorities continued to be liable for "their" savings banks. The regional central giro

institutions and the German Central Giro Institution were also granted an independent legal

personality. Furthermore, in an emergency decree of 5 August 1931, the Reich government

prohibited savings banks from engaging in the municipal loan business. However, this

prohibition proved to be only temporary. In an additional emergency decree of 6 October it

was laid down that, following removal of the prohibition – which could be decided by the

Länder – municipal loans were to be limited to a maximum of 25 percent of all deposits.

However the Nazi dictatorship prevented the ban from being lifted as it had already

withdrawal legislative competence from the Länder in January 1934. The prohibition was

loosened by the Reich government in several steps only as from 1939.34

This temporarily brought to an end a development during which the state – undoubtedly very

much in its own interest – opened up increasingly greater market opportunities for the savings

banks by means of statutory rules. However, these institutions were scarcely able to use the

opportunities in securities and giro transactions as market conditions were still unfavourable.

The state's economic policy decisions were a contributing factor in this regard. The public

finance system put at a disadvantage the local authorities as bodies responsible for the savings

banks, with the result that over the long-term they got into debt. They were therefore finally

prohibited from using these institutions for municipal loans. In this way, the savings banks

lost one of their most important business areas. Moreover inflation adversely affected the

banks' core business, which was the collection management of savings deposits, as these

rapidly lost their value. Generally speaking, the Reich government intervened increasingly

during the 1920s and 1930s to regulate banking industry markets. This was also subsequently

the case.


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The Credit System Act (CSA / Kreditwesengesetz, KWG), adopted in 1934, was mainly a

long-term consequence of the banking crisis and not a genuinely National Socialist law.

Nevertheless some features of the KWG were in line with the economic ideas of the new

rulers. For the first time the Act laid down a nationally uniform legal framework for the

banking industry. Moreover, as already indicated, in addition to supervision by the Länder,

the mortgage and savings banks were also made subject to the supervisory authority for the

banking industry which had recently been created at the Reichsbank.35

The CSA was of

importance for the development of a market in the credit industry because it abolished

freedom of trade and, along with it, a basic principle of the free-market system. Its place was

taken by an obligation to grant concessions, and this constituted regulation of the market. On

the other hand, business policy was not controlled in a narrowly conducted manner.36

However, the business policy options of all credit institutions were gradually restricted. The

restrictive licensing policy of the Reichsbank reduced the supply available on the capital

market. At the same time Reich loans, which yielded a higher rate of interest than, for

example, bills of exchange, were regarded as liquid funds. Moreover, because private demand

for credit had fallen and because the granting of municipal loans was prohibited until as late

as 1939, the savings banks had scarcely any other alternative but to invest their funds in Reich

loans. In addition, as had already happened during the First World War, due to their

decentralized organization and their customer structure, the savings banks were predestined to

collect private funds for state purposes. Thus the state was able to make use of the credit

institutions governed by public law even though their business policy was nominally still

free.37

Beginning in 1939, the ban on municipal loans was loosened in several steps. However the

"quiet" financing of the Second World War required that the Reich be provided with a great

deal more capital. The Savings Bank Organization continued to be heavily involved in this

process, so that initially there could be no question of a real return to municipal loans.38

Following the end of the war, the Allies at first kept the command economy. As a money

economy was not functioning, a basic precondition for competition in the banking industry

was lacking. Only in 1948 was a basically free-market system established. In the East, on the

other hand, the centrally planned economy was introduced.


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This system was, however, of a different character. In the National Socialist command

economy, private-sector property relations had in principle continued to exist despite state

controls. In the Soviet-occupied Zone and the GDR, on the other hand, credit institutions were

nationalized and were assigned a major role in the development of the planned economy.

While the municipal character of the savings banks was also to a large extent preserved in the

GDR, they were unable to decide their business policies independently. In the beginning they

were directly under the authority of the Minister for Finance and, as from 1972, the state

Bank. While there were still various credit institutions, they were allocated individual

segments. Thus the German bank of issue, the then GDR Central Bank, in 1952 assigned to

the savings banks all salary, wage and business accounts of natural persons and private firms

with up to 10 employees but prohibited them from keeping (or continuing to keep) other kinds

of accounts. The GDR thus integrated the banking industry completely into the state sphere

and subjected it to state interests.39

III. Reconstruction and gradual liberalization since 1948

In the Federal Republic, the banking system was in principle organized on a market-economy

basis, although genuine competition barely developed at first.40

This was due less to statutory

restrictions than to the actual economic situation. However the interventionist CSA of 1934

initially remained in force along with its provisions on the competition agreement and an

extensive ban on advertising. Likewise, exchange controls were at first not removed. The

three major banks were broken up and only in 1956 were they able to operate on a national

scale. Of even greater importance, however, was the fact that the damage caused by the war

on the one hand and reconstruction on the other constituted such a great task that an intensive,

competition-oriented market did not initially come into being. Following the currency reform,

the three groups of banks re-established themselves in their customary business areas. Thus in

the case of the savings banks, savings deposits predominated on the liabilities side, and

municipal and mortgage loans on the assets side.41

State interests benefited the savings banks directly and indirectly. After the currency reform,

the capital market was a very rudimentary one. Moreover investments had depreciated as a


13

result of the currency reform. Until the mid-1950s, the federal government was therefore

interested mainly in reviving and increasing investment opportunities and, as a precondition,

the savings activities of the population.42

Above all, long-term capital investment – including

payment of contributions to the building societies and also various types of savings account

agreements – was promoted through taxation measures. However, despite these incentives,

during the 1950s the traditional savings banks clientele, i.e. the small savers, preferred short-

term investments to the acquisition of securities. Savers were clearly saving to a greater extent

in order to buy consumer goods and not to build up long-term assets.43

The state intervened on an especially large scale in the financing of housing construction

because many dwellings had been destroyed during the war and, despite the scarcity of funds,

construction activity was by now a high priority. For the savings banks and building societies

governed by public law, the Residential Construction Premium Act (1952) was important.

The government paid premiums for savings earmarked for the financing of dwellings. This

promotional measure was targeted mainly at the traditional savings banks' clientele whose

financial room for manoeuvre was gradually widening. The 1959 Savings Premium Act was

designed to work according to the same principle. The result, however, was not that the

population saved more but that the savings structure changed.44

Generally speaking, during the first two post-war decades the traditional savings banks

clientele developed from being merely tolerated to being actively courted. In addition to an

increase in the savings potential, a major contributory factor was the spread of cashless

payment of wages and salaries.45

Here, however, it was less the keeping of an account –

which was initially free of charge – which strengthened the competitive position of the

Savings Bank Organization, the market leader in this segment. Rather, the savings banks

could now win new customers because of their extensive geographical spread. As such

customers already had savings banks accounts, it was easier to win them over with additional

offers. In the late 1950s and early 1960s, this aspect acquired great importance when the

financial room for manoeuvre of broad sections of the population increasingly widened. The

states tried to "absorb" this room for manoeuvre and to make it available to the capital market

by creating additional incentives. The instruments used for that purpose were the previously

mentioned Savings Premium Act, the Capital Formation Act (1961) and three major

privatization campaigns:46

The state-owned firms Preussag, Volkswagen and Veba were

(partially) privatized with a view to putting wider sections of the population in touch with


14

shares as a form of investment. For this reason, the share certificates were designed as

"people's shares" with a small nominal value and wide geographical spread. Although, with

the aid of tax incentives, it was found possible to persuade many small investors to buy the

"people's shares", a lasting share culture developed only in the 1990s.47

The new measures aimed at promoting savings also reflected a change in state financial

policy. Whereas in the early 1950s the focus was on the aim of making the capital market

efficient, structural questions were important until the late 1960s. The state sought to tax more

heavily the recipients of higher incomes and to improve the position of people with average

and lower incomes for the purpose of reducing differences in the distribution of wealth.48

However, the lawmakers also pushed ahead with liberalization. After the end of

reconstruction, they began to dismantle the existing restrictions affecting competition. They

wished to withdraw to a greater extent from the economy and to have the market-economy

elements develop further.49

In the case of the banking industry, the lawmakers in 1958

liberalized branch-office policy after the Federal Administrative Court – in pursuance of a

ruling by the Federal Constitutional Court – had ruled against the obligation to grant

concessions as contained in the 1934 CSA. From then on, all credit institutions were free to

open branches on the basis of operational considerations and without the necessity of an

examination as to their need. However, the regional principle continued to apply to the

savings banks, so that new branches could be set up only in the area of the relevant guarantee

authority. In the wake of the court judgment, the CSA was amended in 1961. However, while

the restrictions imposed on the savings banks as regards loans secured by real property and as

regards municipal loans were removed, many kinds of regulatory features were kept.50

The banking industry received its strongest liberalization impetus in 1967 as the result of the

gradual abolition of measures which restricted competition and which went as far back as the

1930s. Firstly, the decree on interest was repealed: this had regulated conditions for the credit

institutions in such a way that, depending on the investment category involved, only a certain

amount of latitude existed as regards interest. This had greatly inhibited the banks and saving

banks in their pricing policies, with the result that they were unable to make use of one of the

most important instruments in the context of competition. Of greater importance, however,

was the abolition of the agreement on competition which had restricted advertising by these

institutions. The removal of these restrictions enabled the credit institutions, from then on, to


15

approach customers selectively and present themselves as efficient competitors in the

market.51

This had been also requested by the banking industry itself. Since the mid-1960s,

for example, the DSGV had expressed disapproval of the restrictions contained in agreement

on competition. However, it wished to modify the agreement on competition, not abolish it

completely.52

Conclusions drawn: The reconstruction of the West German economy initially required large-

scale state intervention. Thus tax measures helped to build up an efficient capital market. This

benefited savings banks customers just as much as did the later structural interventions

relating to wealth distribution. Through their traditional business areas of municipal loans and

loans secured by real property, these institutions were involved in financing reconstruction.

Towards the end of the 1950s, the state withdrew increasingly from the economy and

removed some of the regulatory provisions relating to the banking industry. As a result, these

institutions came into sharper competition with one another. This trend intensified in the

following years.

One indication of this was the discussion concerning the preferential tax treatment given to

the savings banks. A long time previously, they had established themselves as fully fledged

competitors, not least in association with the expanding regional banks. The manner in which

the Savings Bank Organization was organized and also its business activity were explicitly

confirmed by the 1968 survey of competition, although the savings banks' tax privileges were

gradually reduced. The savings banks had for a long time been exempt from all taxes on

savings transactions. Only beginning in 1968 did they have to pay a 35 percent corporation

tax on income from their savings business. In the case of the other credit institutions, on the

other hand, this rate was 49 percent. The savings banks were also initially in a more

favourable position as regards the trade-earnings and capital tax. By 1981, the government

had also terminated these tax allowances.53

In so doing, the government acceded to the

demands of the private-sector banking industry while also reducing, with the additional tax

receipts involved, its own budget deficit which had greatly increased, especially during the

1970s.

Tax privileges were by then scarcely necessary. Despite a declining market share, the savings

banks were the strongest and, after the specialized institutions, the second strongest

competitor in their customary business fields such as savings deposits and the mortgage loan


16

business. However, what was of far greater importance for their market position was the

development of the strategically important segments relating to international banking services

and to securities transactions. In the case of securities transactions, the focus was less on

securities deposit accounts – which were generally stagnating – than on issue, syndicate and

investment transactions. In these segments, the Savings Bank Organization expanded

considerably, especially in the 1970s even if the private-sector banking industry still clearly

predominated. Within the Savings Bank Organization it was mainly the regional banks and

the central giro institutions which, following a profit-oriented wave of mergers, supported the

build-up of major transactions.54

While, on the basis of the balance sheet total for all universal

credit institutions, the market share of the Saving Bank Organization fell from 50.4 to 48.3

percent during the period from 1970 to 1988, it still continued to be by far the strongest

competitor, leading the private-sector banks (31.8 and 30 percent) and the expanding

cooperative institutions (17.8 and 21.7 percent).55

Competition intensified not only between the three groups of universal banks, in which the

Savings Bank Organization and the cooperatives generally sought to serve the same clientele.

Instead, new competitors established themselves. Thus on the one hand, foreign institutions

pressed into the German market, although more in competition with the large banks and

merchant banks. On the other hand, in many cases non-bank and near-bank credit institutions

such as insurance companies and car manufacturers began to offer their financial service to a

mass clientele. In general, the increased "struggle for customers" led to a situation in which

the relatively clear separation between customer segments which had existed up to the 1960s

gradually receded into the background. Instead, customers became considerably more yield-

conscious. They were no longer as loyal to their regular banks as they used to be and they

increasingly took up offers from credit institutions offering more favourable terms and from

specialized credit institutions and financial service providers.56

The period extending from the late 1960s to the turning point in 1989/1980 was therefore

characterized by a considerable intensification of competition. This was due mainly to a

reduction in state regulation which had begun during the preceding period. The savings banks

also lost tax privileges, and this was due to demands from the private banking industry for

equal treatment on the one hand and to the state's increasing financial needs on the other.


17

The development of the savings banks during the 1990s was influenced mainly by

reunification and globalization.57

On the one hand, it was necessary to develop, on the

territory of the former GDR and in the shortest possible time, a market economy with an

appropriate supply of bank credit. As had happened in previous decades with the

reconstruction of West Germany, the savings banks governed by public law were heavily

involved in this process. On the basis of cooperation with the East German savings banks and

by seconding employees, they transferred, in particular, important know-how. Generally

speaking, the contribution of which the Savings Bank Organization made to the establishment

of market-oriented credit institutions throughout the territory of the former GDR should not

be underestimated.58

The opening-up of the East European markets was also driven by globalization of the

economy. Moreover, European integration acquired a new dynamism. As a result of the

introduction of the euro, economic and monetary union, which entered into force in 1999, had

a special impact on the financial markets which became even more integrated than previously.

This is something which requires new strategies on the part of the banks. With their strong

position in commercial banking, the savings banks are entering into greater competition with

other European banks. However, because of the regional principle they themselves cannot

expand geographically and need to continue to rely in various ways on cooperation with the

regional banks.59

This cooperation has become more important in recent years, particularly in

the expanding business areas of international banking services and securities transactions. As

a result, in particular, of the listing of telecoms there has been a greater propensity on the part

of the population to invest in securities, especially shares. However, the Savings Bank

Organization does not yet have a leading position in this growth segment, and this is probably

due particularly to the special features of its customer structure. Thus, in relation to their

overall market share, the savings banks are underrepresented, especially in the securities

deposit account business. There is also a lack of relatively wealthy customers.60

Admittedly, it is not necessarily part of the public and therefore the state's task to obtain as

high a yield as possible. Moreover, they are primarily "on-the-spot" credit institutions.

However the ongoing internationalization which is taking place in the banking industry

requires that, independently of the current discussion, the savings banks must, as it were,

straddle "global" and yield-oriented expansion on the one hand and a local basic supply of


18

credit on the other: in other words, they must, as it were, straddle market requirements and

state interests.

IV. Conclusions

During the two centuries under review, the position of the savings banks as between the state

and the market underwent major changes. During the 19th century the state – or more

correctly, the individual states – limited themselves to laying down the basic legal framework

under which the business policy of the savings banks was to a large extent geared to accepting

savings deposits and investing them in gilt-edge securities. No change occurred in this basic

orientation during the 19th century.

Only with the First World War and the ensuing inflation did the state widen the opportunities

available to the savings banks, firstly, by encouraging their long-term involvement in new

business areas – for example, the securities deposit account business – and, secondly, by

removing restrictions, as in the case of giro transactions in which the savings banks were

allowed to engage only since 1908. When the savings banks' competitors criticized this

expansion of their market position, the state took a clear stand in favour of these public

institutions.

However, the savings banks were at first unable to make extensive use of this newly won

business freedom because, as early as 1931, the state intervened heavily to regulate banking

industry markets in connection with the banking crisis. During the period of National

Socialism, business freedom was further restricted, not only by means of institutional changes

but also – and particularly severely – as a result of their being integrated into the "quiet"

financing of armaments and the war.

In the GDR, these institutions were nationalized with the result that the most extensive state

intervention in the history of German banking took place there. By contrast, the Federal

Republic increasingly reduced state regulation, especially between 1958 and 1967. On the

other hand, the state began to strengthen the traditional savings banks' clientele – and thus

indirectly the savings banks themselves – by means of tax measures. For regulatory,

competition-policy and tax reasons, beginning in the late 1960s the state withdrew the tax


19

allowances granted to the institutions governed by public law. The 1970s and 1980s were a

period of deregulation, and competition then intensified. During the 1990s, the struggle for

market share increased because, in the wake of Europeanization and globalization, banking

industry markets opened up wider, and other internal and external restrictions were removed.


20

1 See Wysocki (2005), pp. 39 f.

2 Ashauer (1991), pp. 77 ff.; Wysocki (2005), p. 35; Mura (1994), p. 26.

3 Wysocki (2005), pp. 154 f.

4 See Schulz (1989).

5 Vgl. Wysocki (1996), pp. 170 f.

6 Vgl. etwa Pix (1996), p. 134.

7 Ashauer (1991), pp. 94 f.

8 Wysocki (2005), pp. 152–155.

9 Henning (1992), pp. 22–25; Pix (1989), pp. 32 f.

10 Ashauer (1991), p. 156.

11 Pohl (2000), pp. 20 ff.

12 Cited by Ashauer (1991), p. 166.

13 Op. cit., p. 174.

14 Hoffmann (1991), p. 30.

15 See Trende (1957), pp. 415–420.

16 Jaeger (1988), pp. 99 f.

17 Trende (1957), pp. 419 ff.

18 Vgl. Hoffmann (1991), pp. 32–39.

19 See, for example, Wysocki (2005), pp. 186–189; Hoffmann (1991), pp. 42 ff.

20 See Pohl (2005).

21 Wysocki (1995), pp. 23–29; and idem (1987), pp. 38 ff.

22 Pohl (2000), p. 24.

23 Gömmel (1997), pp. 30 f.; Caesar (1992), pp. 54–57.

24 Ashauer (1991), pp. 221 f.; Pohl (2000), pp. 24 f.

25 Wysocki (1987), pp. 40 f.

26 Mura (1994), p. 72.

27 Piorkowski (1997), pp. 45–64.

28 Pohl (2000), pp. 26 ff.

29 Jaeger (1988), pp. 168 ff.

30 Pohl (2000), pp. 26 f.

31 See Fischer (1997), pp. 104–122; Piorkowski (1997), pp. 65–71.

32 Fischer (1997), pp. 278 ff., 303 ff. Also see infra.

33 Op. cit., pp. 270–276.

34 Mura (1994), pp. 102 ff.; and idem (1995), pp. 122 ff.

35 Ashauer (1991), p. 251.

36 Kopper (1995), pp. 122–125.

37 Op. cit., pp. 156–164.

38 Caesar (1992), pp. 66 ff.


21

39 Mura (1994), pp. 273–280; Wysocki/Günther (1996), pp. 153–157, 450 ff.

40 See Schulz (2005).

41 See, for example, Pohl (2000), pp. 30 f.

42 Ambrosius (1990), pp. 38 and 48.

43 Dietrich (1996), pp. 167-173.

44 See Schulz (1997), pp. 237 ff.; and idem (1998), pp. 100–103.

45 Strohmayr (1995), p. 56.

46 Schramm (1983), pp. 130 ff.

47 Kollar (1997), pp. 67 ff.

48 Ambrosius (1990), pp. 38 ff.

49 Op. cit., p. 14.

50 Pohl (2000), pp. 31 ff.

51 Pohl/Jachmich (1998), pp. 207 ff.

52 Emmerich (1995), pp. 166 ff.

53 Pohl (2000), pp. 34 ff.

54 Op. cit., passim.

55 Oellerking/Holzgrabe (1990), p. 100.

56 Miethke (1994), pp. 78 ff.; Pohl (2000), p. 37.

57 See Rudolph (2005).

58 This is the conclusion reached by Geiger/Günther (1998), pp. 359 ff.

59 See, for example, Rudolph (1998), pp. 480 ff.

60 Pohl (2000), p. 40

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