Page 36 - Banking Finance September 2020

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banks, cooperative banks operate within a mutually agreed
regional jurisdiction. There has been consolidation in the
German banking system, in general, to achieve economies
of scale, regulatory requirements and financial stress.

Cooperative Financial Network in
Germany
Germany's local cooperative banks are quite formidable and
have an extensive banking service network in Europe, with
875 cooperative banking institutions, comprising Volks Banks
and Raiffeisen Banks. It boasts of more than 30 million
customers, including about 18.6 million cooperative
members. The local cooperative banks own the capital of organization of the Cooperative Financial Network that was
the central institution, DZ Bank AG, which is structured as
formed voluntarily and operates on the basis of its statutes
a company and provides liquidity support and specialized under the Articles of Association of the BVR. The protection
services, such as securitization, collateral management, scheme run by the BVR helps in ensuring the stability of and
merchant banking, etc. to cooperative banks. public confidence in the cooperative financial network. The
scheme is in operation since 1934, but no cooperative bank
As on December 31, 2018, the cooperative financial network so far has ever turned insolvent. The BVR protection scheme
had an asset size of Euro 1293.17 million, which was is run without any government support and is designated
approximately 17% of the total bank assets in Germany. The as BVR-ISG for deposit insurance, and BVR-SE for the
network also boasts of a healthy common equity tier I capital institutional protection.
ratio of 13.6% . Besides owning a central bank, the
cooperative financial network in Germany also has an
The BVR-ISG has been officially recognized as a deposit
umbrella organization, called the National Association of
insurance system and fulfils the statutory requirement of
German Cooperative Banks (BVR) , which acts as an ensuring that depositors affected by a bank's insolvency are
umbrella organization for the German co-operative financial compensated in accordance with national deposit insurance
network. As an umbrella organization, BVR represents the legislation. The BVR protection scheme (BVR-SE), the bank
interests of the co-operative banking group at both national protection scheme, operates alongside the BVR-ISG (Figure
and international fora and also operates a dual system of 3). Member institutions contribute towards both the
bank protection in the form of deposit insurance and
schemes for seeking protection.
institutional protection.
In addition, the BVR is legally authorized to take measures
The deposit insurance scheme of BVR operates under
to avert any threats posed to a bank's continued existence
national deposit insurance legislation (pursuant to section as a going concern. In order to perform its responsibility
43 EinSiG ) in compliance to EU Deposit Guarantee Schemes under the protection scheme, the BVR implements
Directive, 2015 (DGSD), while the BVR institutional preventive measures aimed at obviating adverse trends and
protection scheme (IPS) is an additional, voluntary system developments at the affiliated institutions and, if necessary,
for protection of cooperative banks at the institutional level advises measures for a financial or operational restructuring
and ensures that the banks remain strong and interests on of the concerned cooperative banks so that they can meet
all the bank clients are safeguarded.
their legal obligations without any difficulties.

Institutional and Deposit Protection In most of the cases, no requirement arises for extending
Scheme for German Cooperative Banks funding support to a cooperative bank from the BVR.
However, in case of necessity, cover funds are assured by
through Umbrella Organisation the BVR with a view to obtaining an unqualified opinion from
The BVR's protection scheme is a kind of self-help the auditors of the respective cooperative bank. This is

36 | 2020 | SEPTEMBER | BANKING FINANCE