Banking Reform

China May Copy Savings Banks Model

China's central bank, the PBOC, might like to see a more decentralized banking model in the country. Germany could be a role model.
  • Why it matters

    Why it matters

    The pact intends to foster communication and cooperation between German savings banks and locally-orientated commercial banks in China.

  • Facts


    • China has been trying to reform its fossilized financial system for years.
    • The new cooperation agreement stresses the importance of banking services to help small and medium-sized enterprises such as those in Germany’s Mittelstand layer.
    • More than 400 independent savings banks exist in Germany, typically owned by their local communities and loosely connected via a national savings bank association (DSGV).
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Shortly before the global financial crisis in the late 2000s, Germany’s savings banks still had to endure scorn and mockery. These banks had a 200-year history that seemed out of date, relics in a brave new world of high finance and higher-flying investment bankers.

The near-collapse of the banking system has led to a rethinking. Suddenly the savings banks – which are decentralized, operate locally and are committed to lending to the communities that own them – are being seen as a role model by some countries hoping to break their reliance on a few large “too-big-to-fail” banks that dominate their economy and cost taxpayers billions.

Now, even in the economic superpower of China may be getting in on the act. On Tuesday, the German Savings Banks Association (DSGV) and the China Banking Association (CBA) signed a cooperation deal designed to promote talks between locally-orientated commercial banks in China and their German counterparts. Bankers in the world’s second-largest economy believe Europe’s largest economy may offer clues to how to set up a viable banking system for the future.

It’s an old concept that seems to be enjoying a renaissance. From Britain to Greece, from Iceland to Cuba, governments and think tanks are toying with the development of smaller, regional banks to break the stranglehold of the world’s largest global investment banks and stem the threat of another global financial crisis.

While Germany’s savings banks are far from a perfect model, they just might be the best test case.

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