Process of consolidation

For some time, the German banking system has been in the process of consolidation – barely
noticed by the broader public. Each year, around 40 small banks disappear, particularly in the
cooperative and public savings banks sector.4 They are either taken over by a larger bank within
their immediate vicinity or they join forces to form larger institutions.

This is accompanied by a substantial decrease in the number of branches and reduction of the
employee base. Consolidation is also happening among the central institutions for the public
and cooperative banking networks. As a result, there is now only one cooperative banking central
institution; in the public banking pillar, the number of Landesbanken (regional state banks) has
been reduced from twelve in 2006 to now only seven institutions.5 The pillars of the German
banking system are becoming leaner.

Additionally, more centralised structures are being created along the entire value chain within
the public and cooperative pillars:
• Central product and platform providers for specific customer and market-relevant topics
• Establishing centralised competence centres for the respective overall networks,
e.g. For rating models
• Merger of formerly independent IT service providers to a central provider
• Consolidation of certain back office activities in separate entities
Furthermore, several cross-pillar activities can be observed, especially in areas where considerable
infrastructure is required, e.g. In securities settlement or payment transactions.
So far, there is little indication that the typical German market and consolidation pattern will
change significantly. Consolidation across the pillars faces major political hurdles, and for private
banks, the value creation potential of mergers is limited.
As a result, consolidation of the German banking structure has so far progressed at a slower pace
than in other markets. The market remains highly fragmented with over 1,600 banks (2016) and
more than 27,000 branches (2015) .

At the same time, a fourth pillar is being created elsewhere in the German banking landscape.
Figure 2: Number of banks, 2017
Germany1,668
France 786
Italy 586
Spain 283
UK 341
USA 4,900