Foreign Banks in Germany A Broad Range of Different Strategies
In the Federal Republic of Germany, 47 countries are represented in the banking business by agencies, branches, subsidiaries or joint enterprises. This shows the importance of Germany as a financial location. 181 foreign banks have agencies, 63 foreign banks are represented by branches, and another 53 banks hold controlling interests in legally independent banks or subsidiaries.
The volume of business of all the branches of foreign banks in Germany was DM 81 billion at the end of 1985. About DM 70 billion must be added to this from banks subject to a controlling interest by foreign banks appearing in the statistics of the German Federal Reserve Bank under the headings of "Regional Banks' and other "Commercial Banks' or "Private Bankers'. The overall volume of business of foreign banks in Germany is thus about DM 150 billion, i.e. 20% of the volume of business of "Commercial Banks' in Germany or 4.5% of the volume of business of all banks in Germany taken as a whole.
Are these percentages explicative? The answer must be: Not really. Foreign banks are not doing business in all the areas of major interest of German banks. Euro-business, too, is not covered by the above figures. My estimate of the share of foreign banks in the overall business in Germany covered jointly with German banks is approximately 10%, this share being somewhat higher in some areas, e.g. foreign exchange dealings and international payments.
Generally, it can be said that foreign banks are visible in the Federal Republic of Germany, but do not have a share in the market which could be termed significant.
Development During the Post-War Period
The volume of business of foreign banks and therefore the share of foreign banks in German banking business is all the easier to comprehend if it is remembered that the figures reached today have slowly but steadily developed during the last 25 years from almost zero, the volume of business of branches of foreign banks alone doubling during the last five years.
In the beginning, i.e. after the war until the late 50s, there were but a handful of British banks in Hamburg, continuing business from the pre-war period, and some other foreign banks functioning as military banks for their respective military units.
American banks were the first to establish branches and subsidiaries in Germany.
Then, as German banks increasingly went abroad, a reverse movement was triggered off almost immediately: more and more foreign banks came to Germany. Additional, if not decisive, factors for becoming active in the Federal Republic of Germany were seen in the increasing German economic strength, the excellent export achievements, and in the increasing value and stability of the German currency. All good reasons for foreign banks to establish domicile in Germany, mostly in Frankfurt.
Business Development of Foreign Banks
The requirements of the German Banking Law set the framework for the activity of all banks, including foreign banks. The appearance of foreign banks on the German market had a strong effect on the personnel situation. Many, mostly younger, bank clerks saw their chance to get ahead quicker in new enterprises. Wages, therefore, were and now still are usually somewhat higher than for the corresponding positions in German banks. This is a surcharge always to be paid by foreign institutions, the same being true for German banks abroad, at least in the leading industrial countries.
Foreign banks gradually built up their range of services enabling them to meet the strong competition of German banking institutions. Foreign banks were also subject to credit losses during the 70s and early 80s due to decreasing numbers of good borrowers. In many cases, large parts of the allocated capital were lost. It must be mentioned, however, that no banking institution operating in Germany, independent of its legal status, was abandoned by its foreign parent bank. …