German banks can be divided into universal and special ones. Both universal banks and special banks are divided into several subclasses. There are also some differences between ‘direct banks’ (bank head offices) and bank branches. Below we discuss the main types of banks in Germany. Germany is a country of banks. Close to two thousand banks can be found in the country and nearly thirty thousand bank branches.
The Banking system in Germany is based on three pillars (it is a Drei-Säulen-System):
- Cooperative banks (Genossenschaftsbanken);
- Public-sector banks (Öffentlich-rechtliche Banken);
- And private banks (Privatbanken).
Control over, and monitoring of, banking activities lies with Deutsche Bundesbank, the National bank of Germany. If you would like to open an account in a German bank, please follow the link to request a free consultation on foreign bank account opening from experts in the field.
Universal Banks in Germany
Most German banks are ‘universal’ banks in the sense that they offer a wide range of various banking services to clients. The services include the following ones:
- Capital management and deposit acceptance.
- Provision of loans to individuals and legal entities.
- Advising clients on financial issues.
- Buying and selling assets, such as real estate, for instance.
- Storage of valuables, such as gold bars or art objects.
- Provision of bank guarantees.
- Cashless payment opportunities.
Universal banks are divided into credit banks (Kreditbanken), savings banks (Sparkassen), and cooperative banks (Genossenschaftsbanken). Every subtype of the banks has different functions and areas of specialization.
According to Deutsche Bundesbank classification, universal banks that issue short-term loans fall into the group of credit banks. Kreditbanken can be large financial institutions such as Deutsche Bank, for example or they can be small regional banks.
The credit banks make certain that private individuals and small entrepreneurs have access to funds when they need them.
Genossenschaftsbanken appeared in the middle of the 19th century as communities of craftsmen and traders. Today they can be registered cooperatives (eingetragene Genossenschaft eG) or joint stock companies (Aktiengesellschaft AG). Clients of these banks are simultaneously members of the cooperative with voting rights.
Such organizations are financed with the members’ deposits as well as capital operations in the open market. Security and stability of investment is always prioritized over profit in the latter case.
Around 1,000 regional and inter-regional cooperative banks can be found in Germany today. The largest cooperative bank is Sparda-Bank.
Kreditgenossenschaften are controlled by central cooperative organizations (genossenschaftliche Zentralbanken) such as DZ Bank. These organizations also protect the banks from bankruptcy.
Around 400 Sparkassen can be found in Germany with 14,000 bank branches. Most Sparkassen service government contracts. Municipal administrations are the primary clients of such banks. Some Sparkassen work with private clients though.
Savings banks are regional financial institutions in Germany. They do not provide banking services outside the areas of their location. The total amount of capital that Sparkassen hold exceeds 1 billion euros by far.
Spezialbanken are focused on providing some special types of banking services. Normally, the services include issuance of loans and management of deposits. This is their main difference from universal banks in Germany.
Bausparkassen for Investments into Real Property
The work of Bausparkassen is based on the principle of solidarity. The central idea is simple: people are putting money aside for long periods of time. Due to a large amount of capital that they have, Bausparkassen have easier times making profits and they can offer cheap loans to those clients who want to build houses or purchase apartments.
The activities of Bausparkassen are regulated by a special law – Bausparkassengesetz (BauSparkG). In accordance with this law, these types of banks can invest their clients’ money in real property exclusively in the form of mortgages.
The largest Bausparkassen are Schwäbisch Hall and LBS.
The term stands for ‘banks for payments in installments’. Their specialization is issuance of loans for purchase of specific products. Most of the loans are consumer loans or car loans. If you want to buy an expensive product in a store, you may be offered a loan from one of such banks.
Financial institutions of this type do not work on state contracts. They are the best partners for taking short-term consumer loans.
It is much easier to obtain loans from Teilzahlungsbanken than to obtain loans from the public sector and other types of universal banks. Many large financial institutions in Germany have subsidiary Teilzahlungsbanken in their structures.
These are special banks that usually issue loans to finance large real estate. They are often referred to as ‘mortgage banks’ (Hypothekenbanken) and their activities are regulated by a special law – Pfandbriefgesetz.
These banks issue debt obligations that are secured by mortgaged real estate or otherwise, by the government. Realkreditinstitute services are often used when building ships and airplanes.
Direct Banks and Bank with Branches
German banks are different in one more respect: a bank that has no branches is referred to as a Direktbank while a bank that has branches (affiliations) is referred to as a Filialbank. It does not matter if it is a universal or a special bank. A Direktbank may well be a universal bank in Germany.
Filialbank clients can perform financial operations by paying visits to the bank branch in their area. Direktbank clients can perform banking operations only remotely – via the Internet, by phone or fax.
Direktbanken incur lower operational costs, which means that they can offer better interest rates to the depositors and cheaper credits. Many Direktbanken do not charge any fees for current account management.
Direktbanken are often divisions of larger financial institutions and they are responsible for providing direct banking services.
You can open a current account with a Direktbank online. The same holds for other types of bank accounts.
Direktbanken normally join banking groups in order to let their clients withdraw cash. The bank client is issued a regular Girokarte or an EC-Karte that he or she can use in all ATMs in Germany. No additional fees are charged for card issuance nor cash withdrawal.
Germany has one of the most reliable and most well-organized banking systems in the world. Banking in the country is an attractive option to consider indeed if opening a foreign bank account is on your mind. The largest German bank is Deutsche Bank with nearly a hundred thousand employees and branches all over the world. The second largest bank in the country is Commerzbank with around fifty thousand employees.