The German Landesbanken

Sunday, January 1st, 1995 at 12:00 am by Michael Gruson and Uwe H. Schneider
Michael Gruson and Uwe H. Schneider, The German Landesbanken, 1995 Colum. Bus. L. Rev. 337

This article discusses a unique feature of the German banking system, namely the important role played by the so-called “Landesbanken.” The Landesbanken constitute an important segment of the banking industry of Germany, an industry that is characterized by its proven safety and soundness, its ability to provide traditional and modern banking services not only to commercial customers but also to consumers, its effective deposit protection schemes and its ability to compete vigorously in the international markets. Landesbanken are banks that are not organized as corporations but are established under public law and whose obligations are guaranteed by German States or political subdivisions thereof. Landesbanken are distinguished from other German banks by their specific purpose, by their special organizational laws, and by their special bank supervisory requirements, all of which are closely interrelated. Since many Landesbanken are actively engaged in the banking business in the United States and in the U.S. capital markets, a discussion of the organization, business activities, capital endowment and supervision of these banks will be of interest to those who do business with Landesbanken.

The German banking landscape is characterized not only by the universal banking system but also by the competition between several types of financial institutions. Landesbanken are significant competitors of the private sector commercial banks that are organized as business corporations and of the credit co- operatives. The discussion of one group of players in the German financial market will make it easier to understand that system. It is noteworthy that at a time when “privatization” has become the password of the politically correct, a major portion of the German financial needs is served by public sector financial institutions.

Part II of this article will give an overview of the main characteristics of the German banking system and will delineate the history of the credit institutions under public law in general and of the Landesbanken in particular; Part III principally will discuss the organization, activities, supervision and capital of the Landesbanken; Part IV will address the relationship between the Landesbanken and the German States as their sponsors which is expressed in the Maintenance Obligation and the Guaranty Obligation of the sponsoring state or of its political subdivisions; Part V will address current developments involving Landesbanken, in particular concentration trends and the call for privatization; and Part VI gives a summary of the legal environment in which the Landesbanken perform their business in the United States.

Author Information

Gruson (Shearman & Sterling, New York and Dusselforf); Schneider (Professor of Banking Law and Corporation Law, University of Darmstadt; Director of the Center for International Banking Law, Johannes Gutenberg-Universitat, Mainz)