The President of the Savings Bank, Helmut Schleweis, wants to address the “elephant in the room” right at the beginning of the balance sheet press conference. This is how the British describe it in their pictorial language when something unpleasant is obvious, but nobody dares to say it out loud. What is meant this Tuesday in Frankfurt is the collapse of the Silicon Valley Bank (SVB) in California, which has just sent shock waves through the financial markets and banking world from the USA.
Does the precarious situation in the USA, triggered by a bank run, also have consequences for the savings banks, their customers, for the other German banks? These are the questions they are asking themselves this week. But Schleweis gives the all-clear. As a special bank for start-ups, the SVB is “not at all comparable to the business model of German savings banks,” he said. And anyway: In times of crisis, investors have repeatedly seen savings banks as a so-called safe haven. “When in doubt, the funds then flowed to us.” Although this is currently not necessary, as Schleweis emphasized, because the “entire German credit system”, including the Volksbanks and private banks, is stable. Apparently, however, regulatory gaps in the USA have now led to the precarious situation. For example, when it comes to the question of how much liquidity a bank needs to have in reserve in order to be able to pay out its customers if necessary.
The past few days had awakened memories of the 2007/2008 financial crisis. First the Californian bank was suddenly closed to stop further outflows, then the government in Washington felt compelled to act again at the weekend and guarantee deposits in the accounts of the SVB and another institute. Customers had apparently also withdrawn money there. Pictures of queues in front of ATMs made the rounds on social media. In addition, the US Federal Reserve launched a new loan program and provided banks with liquidity.
California? German savings banks? There is a parallel there
American start-ups that thought they had lost their money at the bank initially breathed a sigh of relief. However, the measures taken at the start of the week fizzled out on the global stock markets. Led by bank stocks, things continued to fall sharply, and investors fled to safe securities. The situation only calmed down on Tuesday. The leading German index, the Dax, was slightly up again. Bank shares also recovered from the losses.
However, there are parallels between the bank in California and the savings banks in Germany. The SVB ran into problems mainly because it had invested customer deposits in longer-dated fixed-income securities. Although they were safe, they lost value as a result of the rise in key interest rates, because nobody wants to buy bonds with low interest rates when interest rates rise. As long as bonds can be held to maturity, such losses are harmless. But because suddenly too many customers wanted their money, the SVB had to sell the paper at market value – and suffered high losses in the process. A balance sheet hole opened up that could no longer be plugged by a capital increase. More outflows followed, and things spiraled out of control.
Many of the almost 360 German savings banks have also invested heavily in bonds because they usually accept more deposits than they want or are able to lend. And this also led to massive book value write-downs for the savings banks in 2022: a total of 7.8 billion euros. Although the savings banks have constantly demanded higher key interest rates in recent years because this usually increases the margins in the traditional lending business, the abrupt interest rate hike still surprised them.
Sparkasse President Helmut Schleweis is optimistic. He thinks that the savings banks are in a position “to bear such write-offs”.
(Photo: Matthias Müller/dpa)
Schleweis emphasized that the institutes could cope well with the losses, that the bonds had an average term of four years and mostly good credit ratings. Most houses would simply hold them to maturity and now have to temporarily write them off because of accounting rules. “The savings banks have the power to bear such depreciation,” said the President of the German Savings Banks and Giro Association (DSGV). He was also not aware of any savings bank that was seriously in trouble. Even if this is the case, there are sufficient “preventive measures”. In fact, all customer deposits at savings banks are fully secured. If there were major difficulties, the savings banks could probably fall back on their state owners.
Savings banks are skimping on overnight interest rates
critical situations there was recently. In January, the Sparkasse Zwickau in Saxony put its acting boss on leave because of high losses. In the Corona year 2020, unsuccessful share transactions had caused the Sparkasse to lose 47 million euros. A year later, the Zwickau residents were caught off guard by falling prices on the bond market. In February, the head of Stadtsparkasse Haltern in North Rhine-Westphalia also had to vacate his position. There, too, there were difficulties with the development of interest rates.
Apart from these outliers, the savings banks remained stable in 2022 despite the energy crisis and the war. In total, the institutes earned 1.5 billion euros after taxes, after 1.6 billion euros in the previous year. At EUR 370 million, risk provisions in the lending business were lower than in previous years and than assumed, as Schleweis said. “The widely expected recession has not materialized – and we are no longer expecting it either”. Customers are doing better than expected. In the summer, Schleweis expressed concern that, in view of the inflation, “perspectively up to 60 percent” of households in Germany might no longer be able to save money. “Fortunately, that was averted,” he said. Above all, the federal government’s stabilization measures and the high employment rate would have prevented this – although this should not obscure the fact that individual groups in the population had to accept significant cutbacks.
And when will the savings banks pay higher overnight interest rates again? Schleweis kept a low profile on this question. Although all financial institutions are currently generating higher income due to the higher interest rates, they are stingy when it comes to overnight money conditions. In Germany, according to the latest surveys of around 600 banks, almost 400 have not paid any call money interest at all, including 209 savings banks, while some providers are already calling for up to two percent for call money.
Schleweis emphasized that every local savings bank would decide for itself on the conditions, if only for antitrust reasons. However, he indicated that interest rates are likely to remain low for the time being. And one thing is also clear: as long as customers are loyal, do not withdraw their money in droves, if they even see the institute as a haven of stability and bring their deposits to the savings bank, nothing will change for the time being.