THE CRUCIAL ISSUES OF THE POLITICAL DEBATE

Dnipropetrovsk State agrarian university

Demchuk N.I.,dubrova N.P.

There have been lively political debates about savings banks as long as this type of financial institutions has existed. The focus of these debates have been two of the characteristic features of savings banks: They have always pursued financial as well as non-financial objectives, and until a few years ago and nowadays at least in some countries they are, in a specific sense, public banks. I review the debate about savings banks in two ways. First, I briefly discuss the conventional arguments and present three new arguments for having this type of financial institution. Second, I review the political debate as it has developed on the international level, on the level of the European Union and finally in Germany. I conclude that even though the political debates of the last two decades have led to rather critical assessments of savings banks, both the current financial crisis and recent academic research suggest that this critical position needs to be revised.

Almost as long as savings banks have existed, there have been debates about why savings banks exist at all and whether it makes economic sense for the relevant authorities to accept or even support them, or do what they can to restrict role. There seem to be mainly two reasons for this debate and its evident liveliness. First, savings banks differ in several ways from what can be regarded as the prototype of a bank in a capitalist system, that is, from a bank that is owned by private shareholders and oriented solely to making a profit for these shareholders. Second, in many countries savings banks are important competitors in the market for financial services, and almost naturally, this fact tends to spur controversy.

Savings banks differ from privately owned banks because: they are not exclusively and therefore also not strictly profit-oriented; in a number of countries they are publicly owned or member-owned; and/or they have a mandate to support their clients and the communities in which they operate.This list of their special features does not only suggest why savings banks have been the object of a long and often controversial political debate, but it also serves to define the term "savings bank" and thereby to characterize the object of the debate. However, we should not expect too much from a list of differences between savings banks and other banks, because the differences between the savings banks of different countries are considerable, while in many countries the differences between savings banks and other banks are not at all evident. This fact suggests taking a closer look at the three differences noted above.

On a conceptual level it is clear what it means to say that a given financial institution has a limited profit orientation. It means that the institution is subject to certain restrictions that do not apply to other financial institutions, or that it tries to trade-off profit against some other objectives in ways that others do not. However, it is difficult to determine by simple observation whether a given financial institution merely tries to maximize its profits over the longer term and in doing so takes into account how customers, staff members, competitors, regulators and other stakeholders might react to what it is doing, or whether its profit orientation is indeed limited in the sense just defined.

For savings banks, profit is very important. To function well, almost all organizations need to grow. For regulated financial intermediaries, growth presupposes an increase in equity; for some types of banks, notably savings banks, self-financing or retaining profits is the only relevant source of additional equity. Thus, profit is important for savings banks, even though savings banks are not pure profit maximizers.

The feature of public ownership, which applied to almost all savings banks only a few years ago, can no longer be considered as defining savings banks. In the past 30 years, in many countries "public ownership" has either been abolished or its importance has been greatly reduced. For example, by now all Spanish and most Austrian savings banks have either adopted legal forms of private institutions and/or they are owned by foundations that regard themselves as private institutions. Moreover, in those cases in which savings banks are still public law institutions and in this very specific sense "belong to" municipalities or counties or other public entities, the property rights of these entities are much less comprehensive than are those of the shareholders of a private bank . For instance, these entities do not have the right to sell "their" savings bank, and the right to take out profits for general purposes is either nonexistent or tightly restricted.

The third feature, a mandate to support the economic endeavors of their clients, is also hard to ascertain empirically, and it is shared by a number of other financial institutions. There is a fourth feature of some national savings bank systems, such as the German system. The savings banks in these systems are parts of networks or federations. While this affiliation is crucial for their business model and the success of the individual savings banks, it does not undermine their legal and economic independence in an essential way.

In spite of the reservations that I have just expressed, taken together, these three or four characteristic features describe or characterize the "nature" of a savings bank better than any other list of features. They even help, although, as shown, in only a limited way, to define a savings bank. Interestingly, the same four features that serve to characterize savings banks have, over the years, been criticized again and again, and are therefore at the center of the ongoing debate.

However, such a list of characteristic features does not adequately differentiate between savings banks and other banks, notably cooperative banks and (other) public banks. Cooperative banks also have a limited profit orientation in the sense defined above, have "owners" with more restricted property rights, and have a mandate to serve their clients. Moreover, in many cases they are also independent institutions and at the same time belong to federations or decentralized networks that are very important for their business models.

The only fundamental difference is that all cooperative banks are strictly private institutions, while in some countries the savings banks are public banks. To make matters even more complicated, there are also public banks that are not savings banks. In what follows, I refer to such banks as "(other) public banks". They share the feature of public ownership with some, but not all, savings banks.

In view of these similarities, it is not surprising that much of the political debate about savings banks also applies to cooperative banks, while a considerable part of the general political debate about public banks can be directly transferred to the case of (public) savings banks.

The difficulty of defining savings banks and of setting them apart from other banks is a problem that we often encounter in the social science. One way of dealing with it is not to focus merely on the individual features but to look at a specific combination of features and define this combination as the "ideal type" of the object that we want to study and understand. We must accept that in individual cases, certain features of the ideal type do not apply to a given practical case. However, this fact does not preclude the possibility of making meaningful general statements about the "object" that we are trying to analyze by creating the ideal type, even though the transfer of these statements to all "real" objects of a given class may be difficult and open to debate.

Clearly, since trying to define savings banks precisely and in an operational way is almost impossible today the political debate about savings banks is inseparable from those concerning cooperative banks and (other) public banks. The overriding question addressed in this general debate - and in this paper - is whether and why it is desirable from a public policy standpoint to have savings banks and other banks with a social mission.

The paper is structured as follows. In Section II, I discuss the general arguments for having public, semipublic, and not strictly profit-oriented banks. Even though these arguments are rarely perceived as explicitly addressing political issues, they are in fact highly political, since they revolve around the question of what the respective roles and strengths and limitations of public policy and markets are. In Section III, I examine the explicit political debate at the international level, the European Union (EU) level, and the level of one country in which the debate has been particularly vivid. The paper concludes with a summary and a short list of possible future research questions concerning the role of savings banks in a modern financial system.