What lessons can we learn from Germany’s co-operative banking sector?

The co-operative banking network operates its own deposit protection scheme, for which each bank pays a risk-related levy. It uses rating methods and individual audits to make sure banks don’t take too much risk, and can take preventive measures, such as requiring a bank to restructure.

In effect, network members guarantee each other’s lending.

Co-operative principles apply not only within individual banks but across the sector as a whole, with stronger banks supporting weaker ones. Risk is also shared to some extent via the central banks (for instance, through securitisation).

This meant co-operative banks could stay small and local, and prevented them from taking excessive risks. Because of this, the German co-op banking sector required no public funds in the recent financial crisis: the few bank failures were handled within the sector itself.

Read the full article at Co-operative News

 

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