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German Banks are typically universal ones. A universal is one, which provides a complete range of commercial and investment banking services.
The German Banking Act implicitly provides a legal definition of a universal bank in the wider sense of a bank, which offers the whole range of commercial and investment banking services. Banks in Germany are enterprises conducting banking business.
According to banking Act, banking business comprises:
i. The acceptance of funds from others as deposits irrespective of whether interest is paid (deposit business)
ii. The granting of money loans and acceptance credits (lending business)
iii. The purchase of bills of exchange and cheques (discount business)
iv. The purchase and sale of securities for the account of others (securities business)
v. The safe custody and administration of securities for the account of others (safe custody business)
vi. Investment fund business
vii. The assumption of guarantees and other warrantees on behalf of others (guarantee business)
viii. The performance of cashless payment and clearing operation (giro business)
The banking act forms the legal basis for supervision of banks in Germany. Enterprise, which conduct any aspect of banking business, and defined above are subject to it with the exception of Bundesbank, the Federal Office and Insurance Enterprises. Any enterprise conducting banking business is required to be licensed and supervised by both Federal Banking Supervisory Office and the Bundesbank.
Due to wide definition of banks in Germany, some of the activities which are considered non-banks in UK are considered banking activities in Germany. So generally speaking, German financial system is characterised as “bank based” due to broad legal definition of banking business that most financial institution are by definition banks.
According to definition used by Deutsche Bundesbank, banks in Germany can be divided into a large group of universal banks and a smaller group of more specialised banks. The group of universal banks can be divided into three categories on the basis of ownership and legal form: These categories are the Commercial Bank Sector, the Saving Bank Sector and the Credit Cooperative Sector.
However, one important thing of the German banking sector is that building and loans associations are treated as being separate from the banking system. The three categories of universal banks together accounted for roughly 80% of the volume of business in Germany, confirmation the fact that on the basis of wider definition of universal banking German banks are really universal banks. All the banks are able in principal to conduct the whole range of banking business as specified in the banking Act.
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