board size

ECB bank regulator finally flexing some muscle

Frankfurt am Main bei Nacht
More people on the board than on the observation platform. Source: DPA

Landesbank Hessen-Thüringen (Helaba), the German state-owned regional bank, is regarded in Germany’s banking sector as the essence of stability. The bank is known for its conservative outlook, which allowed it to survive the 2008 financial crisis without government bailouts, unlike several rivals. “A good balance sheet is slightly better than it looks,” said Herbert Hans Grüntker, chairman of the executive board.

Despite the pedigree, the European Central Bank (ECB) is unhappy with the size of the bank’s supervisory board, which is uncharacteristically large at 36 members. The ECB’s banking regulators say the size prohibits the panel from holding proper discussions and leads to inefficient decision-making, according to Handelsblatt information. The criticism follows a pilot project in which the ECB subjected Helaba and some other European banks to a “cultural review.” This included observing how committees operate and how members interact.

The bank agreed to trim the size of the board as terms expire. They are envisaging a reduction to 27 members, inside sources said. However, internal bank committees have not yet approved the decision. Helaba publicly refused to comment. The bank is 69-percent held by public-sector savings banks (Sparkassen) in the states of Hesse and Thuringia. Both states also have a small Helaba stake.

The size of Helaba’s supervisory board has historic reasons, with their roots in the 2008 financial crisis. Helaba took over parts of the former regional bank WestLB after the latter was broken up in 2012 (one of the Germany’s biggest casualties of the 2008 crisis). To do that, it added the savings banks associations of Germany, the Rhineland and Westphalia to its owners, and gave these new shareholders seats on its supervisory board.

At the time, the decision was seen as strengthening the connection between Helaba and the region’s savings banks. So it’s not much of a surprise that some are criticizing the ECB’s decision now.

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