THE COOPERATIVE FINANCIAL NETWORK GROWS TOGETHER
In 1967 the Federal Supervisory Authority abolished the interest rate peg that had existed since the nineteen thirties. Competition with the saving banks and other banks increased, prompting central institutions and local cooperative banks to form larger units. Often, however, the separate organisations of the rural and urban cooperative banks stood in the way of mergers. At the end of the nineteen-sixties the Raiffeisenverband (Raiffeisen Association) and the German Cooperative Association began merger negotiations that finally led to a comprehensive reorganisation of the cooperative associations in 1972. The first joint national association for the rural and urban cooperative banks was then created in the guise of the Bonn-based Federal Association of German Cooperative Banks (BVR).
This re-organisation went hand in hand with a comprehensive process of amalgamation between the Raiffeisen organisation and the commercial cooperative organisation. Many local cooperative banks merged. At the regional level most auditing associations and all central institutions merged. Competition within the cooperative system was gradually reduced.
DG BANK Act
The DG BANK Deutsche Genossenschaftsbank Act of 1975 renamed the Deutsche Genossenschaftskasse and extended its banking purview. As of immediately the bank was licensed to run branches in Germany and abroad. As early as 1976 DG BANK opened its first international offices in New York and Hong Kong. What was more important, however, was that it was able to take over the business of regional central institutes and continue it in its branch offices. Later, DG BANK developed increasingly in the direction of a central institution based on cooperative mutual help. This transformation culminated in the privatisation of DG BANK 1998. The bank was transformed into a joint stock company. The remaining capital share held by the Federal Republic of Germany was acquired by the cooperative banks.
VERBUND CONVENTION 1989
Discussion about the structure of the Verbund
When the Bayerische Raiffeisen-Zentralbank AG got into difficulties in 1985 its banking business was transferred to DG BANK. One year later Bayerische Volksbanken AG decided to transfer its banking business to DG BANK. Lively discussions about rationalisation measures and an optimum Verbund structure. Discussion focused, therefore, on the question whether the cooperative banking group would still need regional central institutions in the future, i.e. whether the cooperative financial network should be based in the future on a two- or a three-level structure. While the proponent of a two-tier structure argued with efficiency advantages, the supporters of a three-tier structure feared an excessive concentration of power at the central institution after a merger with the middle level.
In December 1989 these discussions finally led to the “Verbund Convention.” This agreement set out the structure of and cooperation between the central institutes and DG BANK. The Convention expressly allowed the co-existence of a two- and a three-tier system. In the same year Norddeutsche Genossenschaftsbank and Raiffeisen-Zentralbank Kurhessen also decided to transfer their banking business to DG BANK.
German reunification also posed a major challenge for the cooperative organisation: this involved preparing the former GDR’s local cooperative banks to meet the requirements of the market economy. As part of a solidarity action with the new federal states, the local cooperative banks of the old federal states and DG BANK provided the necessary investment in buildings and technology. Local cooperative banks from Western and Eastern Germany entered into partnerships – with employees of Western German local cooperative banks helping their colleagues in Eastern Germany take their first steps into the market economy. In July 1990 DG BANK took over the central institution function in the new federal states.