board size ECB bank regulator finally flexing some muscle

The ECB says Helaba, a state-backed lender, has too many people on its supervisory board. And it wants more experts at a smaller development bank.
Quelle: dpa
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.

23 p30 Big supervisory committee-01

"The size of the board has not impaired discussions or decision-making in any way," a board member said, highlighting that the comparatively large number of members means some have in-depth knowledge of individual issues. Another member pointed out that, unlike many other German banks, Helaba has been scandal-free for years and has generated stable profits.

However, the owners of the Frankfurt-based bank, which according to the most recent figures has total assets of €163 billion ($201 billion), do not want a dispute with the ECB. Regulators take an institution's organization into account in their assessments as part of the concept of governance. The ECB could, in the most extreme scenario, stipulate a higher minimum capital ratio if it is not satisfied.

Helaba so far is the only German bank censured by the ECB because of the size of its supervisory board. Other German banks have considerably smaller supervisory boards. Deutsche Bank and Commerzbank, the country's two largest banks, each have 20 members, while regional Helaba pier BayernLB has only 11.

The ECB also criticized the supervisory board of Landwirtschaftliche Rentenbank, a state-owned development bank for the agricultural sector, because its 18 members include only three bankers. The ECB has demanded that priority should be given to people with financial expertise when filling vacant positions on the board, and is insisting on financial training for other current members.

Andreas Kröner covers financial services for Handelsblatt in Frankfurt.  Yasmin Osman is a financial editor with Handelsblatt’s banking team in Frankfurt. Silke Kersting covers environmental policy for Handelsblatt from Berlin. To contact the authors: [email protected][email protected][email protected].