In Germany, A Sound Banking System Amid Turmoil

The Sparkasse logo stands illuminated on the facade of a bank branch in Leipzig, Germany. i i

The Sparkasse logo stands illuminated on the facade of a bank branch in Leipzig, Germany. Sean Gallup/Getty Images hide caption

itoggle caption Sean Gallup/Getty Images
The Sparkasse logo stands illuminated on the facade of a bank branch in Leipzig, Germany.

The Sparkasse logo stands illuminated on the facade of a bank branch in Leipzig, Germany.

Sean Gallup/Getty Images

Europe is still struggling to come up with a united response to the financial crisis sweeping the continent. Amid the turmoil, however, one banking system is sound and secure.

The more than 400 savings banks in Germany's Sparkasse system have for many years followed a conservative strategy. And its clients are now reaping the benefits.

The Sparkasse banks are the German equivalent of a savings and loan. But they're owned by local governments — not private investors — and they serve average Germans, like 58-year-old Wolfgang Schwabe.

"I'm a small saver," says Schwabe, who is a computer engineer. "I don't have any stocks, mutual funds, nothing like that."

Schwabe gets no more than 4 percent interest on the money he has deposited in his local Sparkasse bank, but it's safe.

The bank loans money out to local small-business owners and to people looking to buy a house or a car. But the collateral requirements are steep: At least 20 percent is needed for a mortgage. So while stockholders in the United States and elsewhere fret over the losses in their stock portfolios, Schwabe and his fellow Sparkasse savers breathe easy.

"If you think about it," Schwabe says, "the financial crisis means one thing — I was right not to take a risk with my money."

The Sparkasse system is tailor-made for investors like Schwabe. The banks serve all customers, no matter how small. Across the country, they hold nearly $1 trillion in deposits.

"The Sparkasse banks have been important for many years," says Stefan Marotzke, head of public relations for the Sparkasse system. "They allowed the private banks to go after the big business because the Sparkasse took care of the guy on the street."

The rest of the banking system in Germany is in as bad a shape as the other institutions in Europe.

The Sparkasse banks have been especially important in Germany because, on the whole, Germans investors are far more conservative than Americans or other Europeans. Just 10 percent of the population is invested in the stock market. In the United States, more than half of working adults own stocks.

"It seems that Germans have a very strong demand for safe assets, and then they do not mind too much if the return of these assets is not that high," says Stefan Kooths, an economist at the German Institute for Economic Research in Berlin.

During the telecommunications boom, Germans were tempted to dabble in stocks. For a time, the Sparkasse banks were out of favor. But after they lost a lot of money in the collapse of the telecom bubble, Germans came back to the Sparkasse, Marotzke says.

"For many years, the Sparkasse banks were considered old-fashioned, boring, not very modern," Marotzke says. "But in the past two or three weeks, everyone who was criticizing it is now saying, 'Gosh, we are so lucky to have this system in Germany.'"

Professional economists like Kooths still think the Sparkasse system is a bit old-fashioned. Kooths thinks his countrymen may be a bit too conservative with their money.

"I'm not really convinced that the Germans are very clever in what they do, because we have very strong enterprises here that make a lot of profits," he says. "But most of these profits go to foreign investors, so the Germans do not really make the most of their money. They may be lucky today as we have this crisis everywhere, but in the longer perspective it's not the best idea to be so reluctant to run the risk on the stock markets."

When stocks rebound, it may be that Germans will be tempted again to take some risk. But for the moment, deposits in the Sparkasse banks are increasing across the country.

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