The German Government’s Urgent Plea to Save Landesbanken
Germany’s association of public sector-controlled Sparkassen savings banks is facing a crisis. The Landesbanken, state-owned regional banks of which the savings banks are part-owners, are in financial trouble. In a closed-door meeting two weeks ago, German Money Minister Peer Steinbrück, along with top officials, urged the heads of the savings bank associations to take responsibility for the losses of the Landesbanken. The government threatened to withdraw support if they didn’t address their share of the losses.
The Reluctance of the Savings Banks
The heads of the savings bank organizations, many of them former politicians now working in finance, argued that they won’t pay. They believe that the Landesbanken, such as WestLB, should find financial support elsewhere. The savings banks claim they have their own problems to deal with and cannot offer further assistance.
The Crisis Shakes the Sparkassen Savings Banks
The financial crisis has had a greater impact on the Sparkassen savings banks than initially thought. While they were considered relatively stable, the crisis has forced them to dip into their reserves and use special accounting rules to avoid showing losses on their balance sheets. This raises concerns about the true extent of their hidden risks.
The Creation of a “Bad Bank” for the Sparkassen
Some savings bank association presidents are considering the creation of a “bad bank” specifically for the Sparkassen. This would help shift the risk to the government, benefiting the cities and counties that own most of the savings banks. Ultimately, they are pushing for Berlin to come to the rescue of the Landesbanken.
The Savings Banks Boycott Solutions
So far, the savings banks have refused to accept any proposed solutions. The former CEO of WestLB, Heinz Hilgert, resigned when he realized that the savings banks were not willing to provide the necessary financial support. The banks believe that the government will not allow major institutions like WestLB to fail and will eventually have to step in.
The Consequences for the Savings Banks
The savings banks are already facing significant losses due to their investments in Landesbanken. The value of Landesbank Berlin (LBB), for example, has dropped significantly, resulting in substantial write-offs for the savings banks. Other savings banks are also facing financial difficulties, with some even requiring government assistance to survive.
The Influence of the Sparkassen
The savings banks exert a significant influence on German politics and society. They have close ties to local communities and politicians, making it difficult to hold them accountable. Attempts to tighten regulations and investigate ownership conditions have been met with strong opposition.
The Challenges Ahead
Reconstructing the public sector banks presents a massive challenge for the German financial landscape. Taxpayers are at risk as the Landesbanken still have outstanding lending guarantees worth billions of euros. While other countries, like France, have successfully restructured their banking systems, Germany is facing resistance due to the influence and interests of the Sparkassen.
Conclusion
The financial crisis has exposed the vulnerabilities of Germany’s Landesbanken and the Sparkassen savings banks. The reluctance of the savings banks to provide support has further complicated the situation. The government is being urged to intervene and find a solution to stabilize the Landesbanken. The outcome of this power struggle remains uncertain, but the stakes are high for taxpayers and the entire German financial system.
