The German banking system is characterized by its three-pillar structure based on private banks, banks governed by public law and cooperative banks. The private commercial banks include major banks such as Deutsche Bank and Commerzbank; banks governed by public law are the roughly 500 Sparkassen (savings and loan associations) and the Landesbanken (state banks); cooperative banks include the roughly 1,200 Volks- und Raifeisenbanken (credit unions) and their two central institutions DZ Bank and WGZ-Bank. The largest market share – roughly 45% – is taken by the public law banking sector. It is followed by the private banking sector with 42% and the cooperative sector with 13%.
Private banks aim to maximize their profits, while cooperative banks pursue the goal of “improving the earnings of members”. Credit institutions governed by public law also perform public duties. While large private banks focus on financial markets, savings banks and cooperative banks devote greater attention to business with private customers. These different goals give rise to strong competitive pressures that generate low prices for banking services in Germany compared to other countries. There are differences not only in goals, but also in terms of liability. Government guarantees exist for banks governed by public law, which makes them highly popular in the current financial crisis.
