VR bank in trouble: How big is the hole in the “Effenberg bank”?

The VR-Bank Bad Salzungen Schmalkalden, also known as the “Effenberg Bank”, is in trouble. Your case raises questions: How reliable are cooperative banks? Did BaFin react in a timely manner?

If the banking regulator BaFin sends one of its people, then the situation is serious: Christian Gervais has been managing the business of VR-Bank Bad Salzungen Schmalkalden for almost four months. His goal: first to ensure peace and quiet. “No customer, no shareholder, no business partner, no tradesman who invoices us will lose money. We are protected by all Volks- and Raiffeisenbanks,” says Gervais in an interview with MDR clear.

Became known under the name Effenberg

BaFin’s special representative is picking up the pieces in Thuringia left behind by bank boss Stefan Siebert, who has since resigned. Under his leadership, VR Bank did not shy away from unusual business areas: the bank owns properties in Oberhausen, some of which are used as brothels. BaFin special administrator Gervais said he was horrified that something like this could happen in a cooperative bank.

The bank was also active in professional football – including a consulting deal with former national player Stefan Effenberg. The commitment brought the bank nationwide attention – and a nickname: “Effenberg Bank”.

Risky ones Business decisions

How does a small cooperative bank end up pursuing such lines of business? “Sparkassen and Volks- und Raiffeisenbanken, these are of course the banks that are, so to speak, the banks of choice for many Germans,” explains Christina Bannier, Professor of Banking and Finance at the University of Giessen. “They are considered very trustworthy and stable. All of these banks – but also all private banks – are also suffering from the enormous cost pressure that has arisen in recent years.”

This in turn is related to the growing regulations for banks, explains Bannier. Basic risk management tasks are now difficult to control for savings banks or Volks- und Raiffeisenbanken.

Cost pressure is increasing: “And of course you have to counteract that by making business decisions – for example lending decisions,” says Bannier. “Such business decisions can involve a lot of risk – and they can certainly not end well.”

Other VR banks are involved

The case of VR-Bank Bad Salzungen Schmalkalden shows where this leads in case of doubt. It is an extreme case that other Volks- und Raiffeisenbanken should now iron out: VR-Bank Bad Salzungen Schmalkalden is requesting the help of other cooperatives – this is what the security scheme of the Federal Association of Volks- und Raiffeisenbanken provides.

It remains to be seen how expensive the renovation of the VR-Bank Bad Salzungen Schmalkalden will ultimately be. According to media reports, it could be a three-digit million sum – a hole that could have arisen because VR Bank may have significantly overestimated the value of its real estate in recent years.

tact BaFin asked

Could BaFin have prevented this if the supervisors came too late? It is still too early to judge, says economist Bannier. “The fact is that BaFin also has to think very carefully about: ‘When do we intervene in the autonomy of a bank?’ You can’t act too early, otherwise you could create reputational risks that might not be justified for the bank.”

It is not yet possible to predict what damage VR-Bank Bad Salzungen Schmalkalden has caused. An annual report for 2022 is still not available. The damage to the banking sector’s reputation is also difficult to quantify: other cooperative banks are likely to stay away from brothels and professional football in the future.