Sparkassen system could serve rural Ireland

The German Sparkassen public banking system is regarded as a major success, although it could be argued that the cultural and political mores of the Germans might not be easily replicated in this country.

The Sparkasse (this is the German singular of the plural, Sparkassen) is owned publicly by a municipality or local authority.

A special-purpose body is set up to oversee the bank which renders it an economically independent financial institution.

“There is a special relationship between the municipalities and Sparkassen that means the municipalities do not own the Sparkassen they are responsible for and also cannot sell them,” according to the Local Public Banking In Ireland report.

“Sparkassen operate in geographically delimited areas and they are precluded from operating outside of those areas.”

There are 431 Sparkassen banks in 12 German regions. These include 7,000 branches which serve 50m customers. The banks account for 17% of the market.

Irish Rural Link received advice and expertise from the foundation arm of Sparkassen to put together a proposal that would attempt to replicate the best elements of the German public banks.

According to the submission: “The proposal has an ethos of benefiting the local community with profits being used for the benefit of social projects in the community, and an aim of supporting local, regional and rural development, including the development of local, regionally located SMEs.”

The idea would be for eight to 10 regional banks throughout the State, managed independently but employing the same business model.

Each bank would have its own network of branches and would operate solely in the area in which it is located. Ideally, a system of “local deposits for local loans” would be used.

“It is proposed that these local public banks would benefit from shared services through a centralised service provider that would provide functions such as risk-management, accounting, IT and HR, lowering the cost base of the local public banks.

“Each bank would make annual contributions to the central service provider. The proposed local public banks would be publicly owned and it would be intended that they could not be acquired by third parties. They would be stakeholder driven with a public mandate.”

The proposal was examined in detail by the authors of the Local Public Banking in Ireland report but rejected on the basis of the estimated start-up costs of €170m.

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