| Abstract: |
This paper re-visits the state of decentralised banking in Germany, Spain and
the UK. The cross-country comparison we conducted has identified Germany as
having the most decentralised banking system, followed by Spain and the UK, as
expected. The development of regional and double-purpose banks, i.e. savings
and cooperative banks, mainly account for the differences in the degree of
centralisation. Whereas no such bank exists in the UK any longer and real
savings banks in Spain have almost disappeared, two decentralised banking
groups with more than 1,400 savings and cooperative banks dominate business
finance in Germany. Our comparison has identified three factors of success
contributing to the persistence of decentralised banking: I. Short operational
and (especially) functional distance and embeddedness in supportive regional
bank associations. Short distances allow banks to capitalise on soft
information advantages in lending, whilst banking associations also secure
access to advanced banking knowledge for banks headquartered in peripheral
regions. II. The development of "real" decentralised universal banking. Here,
the time when regional savings and cooperative banks received the right to
lend is crucial. Because it took them so long to get permission to offer
loans, savings banks in Spain and the UK were latecomers to (business)
lending, whereas lending had always been the business of German savings banks.
Therefore, savings banks in the UK and Spain were not able to capitalise on
soft and local information advantages in short distance lending. III. The
interplay of the regional principle (regional market segregation), regional
embeddedness and a national system that balances regional disparities.
Together, these three factors help to make regional banks sufficiently
successful, even in weak regions, and hinder competition between banks,
thereby supporting meaningful cooperation in banking associations and
relationship lending. Savings banks have never been as important in business
lending in the UK and Spain as they are in Germany. Though large commercial
banks dominate business lending in both countries, some (partly newly
established) banks tend to specialise in lending to small enterprises at
shorter distances there. To support short-distance lending, this paper
suggests a compensation scheme for screening and monitoring costs. Such a
scheme may stimulate banks to shift, or preserve, their lending decision
processes to the regional level and reduce the need for standardisation,
centralisation and bank mergers in times when interest rates are low. |