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Central and Eastern Europe (CEE) was badly affected by the 2008 financial crisis. VBAG’s stake in Kommunalkredit AG was bought by the Austrian federal government in November 2008 for a symbolic €1, forcing VBAG to realise a loss of €420,000.ĭexia suffered a similar fate. VBAG was initially damaged by the failure of Austria’s infrastructure bank Kommunalkredit AG, in which VBAG had a 50.78% stake the other principal shareholder was the Belgian/French bank Dexia. Although we think of this as primarily an American disaster, the crisis in fact caused bank failures all over Europe. But they did this not by establishing small local co-op banks to help rebuild local businesses, as Germany did after WWII, but by establishing branches and lending cross-border. The fall of the Iron Curtain encouraged both Raiffeisenbank and VBAG to re-establish old trading links with countries in the former Austro-Hungarian Empire and in the Balkans. Indeed it says it still regards CEE, along with Austria, as its “home territory”. It remains 87% owned by the Raiffeisen regional banks. It was briefly nationalised in 1938 under German occupation, but restored to co-operative ownership in 1955. Raiffeisen Zentralbank Oesterreich AG (RZB) was created in 1927 to provide clearing and liquidity services to the Raiffeisenbanken, which collectively owned it. By 2004 it had branches in eleven CEE countries and its balance sheet had been massively expanded with risky loans. Over the next decade, VBAG expanded its operations in CEE and acquired interests in insurance, corporate finance and public finance. A joint stock international bank owned by a co-operative … What could possibly go wrong? Meanwhile, VBAG itself remained in majority ownership by the Volksbanken. In 1999 VBI became a joint stock company and was renamed Volksbanken International AG (VBI). And the principle of self-help soon followed. The principle of localism had been abandoned. The following year, VBAG founded an international division which, it said, was “to streamline banking activities in central and eastern Europe (CEE) and deploy capital more effectively”. Cross-shareholdings should be a feature of joint stock ownership models, not co-operative models.Īnd that was when the rot set in. How a foreign bank buying shares in a supposedly co-operative bank is consistent with co-operative principles is difficult to imagine. And in 1996 the German bank DZ Bank AG bought a 25% stake, apparently to improve “co-operation” between the Austrian and German co-operative banking systems. In 1991 its “central bank” function was extended to allow it to act as a commercial bank in its own right. It was originally a co-operative, but in 1974 it was converted to a co-operative public limited company. Oesterreichische Volksbanken AG (VBAG) was created in 1922 to provide clearing services and liquidity support for the Volksbanken. It is at the “central bank” level that Austrian co-operative banking has gone wrong. For the Volksbanken, that is Oesterreichische Volksbanken AG for the Raiffeisenbanken, it is Raiffeisen Zentralbank Oesterreich AG. The Volksbanken and Raiffeisenbanken networks each has its own “central bank”, which provides liquidity and payments facilities. Volksbanke are far smaller in number (41 instead of over 600) and have no intermediate regional structure. There are about 1,600 Raiffeisenbanken grouped into eight regions, each with its own regional bank which the Raiffeisenbanken collectively own. Like Germany, Austria has two co-operative banking systems – Volksbanken, which are similar to the credit unions first established by Franz Schulze-Delisch in Prussia, and Raiffeisenbanken, which were founded by the father of co-operative banking, Friedrich Raiffeisen.Īustrian Volksbanken and Raiffeisenbanken are small local banks linked by a common system of guarantees. Co-operative banking can be highly successful.īut it can also go horribly wrong. France’s co-operative banking sector (Credit Agricole, Credit Mutuel and BCPE) has an estimated 45% market share, while the Netherlands’ Rabobank has 10 million customers and a 40% market share. Germany’s Volksbanken and Raiffeisenbanken are perhaps the best-known, but France, Italy, the Netherlands and Austria also have important systems of co-operative banks. Many European countries have co-operative banks.