Germany has a modern banking sector, but is often considered “over-banked,” as evidenced by
ongoing consolidation and low profit margins.
The country’s so-called “three-pillar” banking
system is made up of private commercial banks, cooperative banks, and the public banks
(savings banks, or Sparkassen, and the regional state-owned banks, or Landesbanken). The
private bank sector is dominated by Deutsche Bank and Commerzbank, accounting for 24% and
7.6% of all bank assets respectively (2012 figures). In efforts to raise capital ratios in advance of
new international guidelines (the Basel III agreement), both banks continue to shrink the size of
their balance sheets. Commerzbank received €18 billion in financial assistance from the federal
government in 2009, which gave the government a 25% stake in the bank (now reduced to 17%).
Germany’s regional state-owned banks were among the hardest hit by the crisis and continue to
face major challenges to their business models. The federal government is currently in the
process of winding down several so-called “bad banks” composed of toxic assets of failed banks
WestLB and Hypo Real Estate.