Rumblings in the regions

Banking on a Good Year

Germany's local banks are struggling.
  • Why it matters

    Why it matters

    Germany’s regional banks are having to adapt their business models this year as they may no longer count on support from their owners, the federal states.

  • Facts


    • Germany’s regional state-backed lenders owe an estimated €175 billion ($209 billion) in maturing debt in 2014 and 2015.
    • HSH Nordbank, owned by the states of Hamburg and Schleswig-Holstein, owes €18 billion this year.
    • The sector is highly vulnerable in the event of an acute economic downturn.
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The death knell has been sounded many times before: Germany’s unique and myriad network of regional, state-owned banks (Landesbanken) has been brought to its knees several times since the 2008 financial crisis.

Bad loans led to the collapse of two of them and to the bailout of many more. Those that survived have been struggling ever since, with critics, including the Organisation for Economic Co-operation and Development, calling for major consolidation.

The banks’ fight for survival will only get harder this year. Their cozy relationship with Germany’s states, which founded the Landesbanken in the 19th century to foster regional development, could be coming to an end.

So will 2015 be the year that finally breaks the Landesbanken?

HSH Nordbank, a regional lender in northern Germany, could be a test case. The bank barely survived 2014, scraping through the stress tests of the European Central Bank – a comprehensive examination of the health of Europe’s banks. It only passed because of an increased balance sheet guarantee from its majority owners, the states of Hamburg and Schleswig-Holstein.

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