Market capitalisation of ASB's parent Commonwealth Bank of Australia climbs above US$100 billion making it bigger than the entire German banking system

Yes indeed and still a pimple when the total banking system of Germany is accounted for.

The German three-pillar banking system

The German banking system is divided into three pillars: private commercial banks, public-sector banks and co-operative banks with the distinction being made on the basis of their legal form. It is dominated by universal banks (accounting for 97% of all institutions and 75% of assets) and the majority of institutions are not strictly profit-maximizing entities (82% of institutions and 44% of assets).

Private commercial banks account for around one-tenth of all credit institutions in Germany and for around one-third of the total business volume. They comprise the large banks and smaller regional banks, private banks and branches of foreign banks. While the large banks are truly universal banks, combining retail and corporate banking business with investment banking activities, the regional commercial banks have a strong local presence and are often engaged in special activities like housing finance. The smaller private banks often specialise in industry financing and wealth management. Foreign banks play only a small role.

Public sector banks include savings banks, which are owned by the state governments (Länder or municipalities), and the Landesbanken, which are usually jointly owned by the savings banks and the state governments. Together they account for one-third of total business volume. Savings banks offer a wide range of banking services and have to serve the public welfare (e.g. they are obliged to open up a current account for every applicant). Savings banks are also universal banks but are limited in their regional activity (the ‘regional principle’); thus, they hardly compete with other savings banks, but only with private or cooperative banks in their region. Their core business is retail banking and relationship banking to SMEs and they maintain the largest branch network of all banking groups. The traditional role of the Landesbanken was to act as central institutions for the savings banks (serving as clearing houses, holdingtheir excess liquidity reserves, providing marketing services and access to capital markets and offering savings banks clients investment banking services, access to foreign markets and credit on a larger scale) and serve as the main bank of the respective Land in which they are located in (e.g. pursuing the interest of the state in regional business development). However, these roles, notably acting as central institutions for the savings banks, have decreased in importance over time and the Landesbanken have increasingly operated in similar ways to private commercial banks on an international scale.

Due to their public ownership, savings banks and Landesbanken used to enjoy a guarantee by the public founding entity in the event of default (Gewährträgerhaftung) as well as a maintenance guarantee (Anstaltslast) whereby the owners ensure that the bank can meet its financial obligations at all times (i.e. providing liquidity support and capital injections if the bank is threatened by insolvency).3 This guarantee was less important for the savingsbanks as they are mostly refinanced by deposits, but very important for the Landesbanken due to their marketrefinancing. In 1998, private banks initiated proceedings against the system of state and municipal guarantees. Following a ruling by the European Commission that these guarantees were not in line with state aid regulations, a compromise in February 2002 between the European Commission, the federal government as well as the Länder and the Association of Savings Banks and Landesbanken required the abolition of the guarantee obligation while existing liabilities were still fully covered, and the replacement of the maintenance guarantee (Fischer and Pfeil, 2004). However, a generous phasing-out period until July 2005 allowed the banks to enter liabilities with government guarantee at a maximum duration until 2015.

Credit co-operative banks comprise the largest number of independent institutions among the banking groups. Together with their head institutions they account for around one-tenth of overall business volume. They are owned by their members who receive a profit-dependent dividend. These institutions, however, are not standard profitmaximizing entities, their function is to support the business of their member-owners. The main difference from a corporation is that members usually only have one voting right, irrespective of the size of their investment in the co-operative. The two central institutions of the co-operative banking group provide a wide array of services to the individual co-operatives, similar to the Landesbanken.

Mortgage banks and building and loan associations (Bausparkassen) operate in all three sectors and account for 13% of the balance sheet total. In addition, a number of banks with special tasks exist in the private and public sector, such as development banks, the Industriekreditbank and the publicly-owned Kreditanstalt für Wiederaufbau (KfW), which together account for around 11% of business volume.

This three-pillar system has changed little over time as most mergers occur within each pillar. While private-sector banks in general do not have the opportunity to take stakes in public-sector banks, there are no restrictions for public-sector banks to take over private banks. Takeovers of credit co-operative banks are made difficult due to the regulation that each member has one voting right.