Relationship Banking and Competitive Advantage: Evidence from the U.S. and Germany

See, for example, McKinsey Global Institute, Service Sector Productivity (Washington, D.C.: McKinsey & Co., 1992), Chapter 2; Little Arthur D. , Hochleistung Kreditinstitute (Wiesbaden: Arthur D. Little International, 1994).

All data on private holdings from the Statistical Abstract of the United States, Flow of Funds Accounts—Assets and Liabilities of Households: 1980 to 1992 (Washington D.C.: U.S. Department of Commerce, 1992), p. 506. To make the data on household assets comparable with other national settings the category “equity in noncorporate business” was not included in total household financial assets for the purpose of calculating percentages. Only in the U.S. is this form of equity included under the category private household assets.

The mutual fund estimate is based on data from the Charles Schwab Corporation cited in the New York Times, March 20, 1994, p. 6. The information on sales of life insurance is from the Hartford-based Life Insurance Market Research Association (LIMRA). A survey of 4,000 commercial banks done in 1994 found that only 10% of commercial banks offer life insurance products and only 2% planned to begin offering these products in the near future.

Figure on consumer installment credit comes from the Federal Reserve Board's Federal Reserve Bulletin (September 1991), A 38. Information on the credit card market comes from “Hanging On,” The Economist, November 20, 1993, p. 78, and interview data. Credit card market shares are measured in terms of total sales volume generated.

Sipple Erich , “When Change and Continuity Collide: Capitalizing on Strategic Gridlock in Financial Services,” California Management Review, 31/3 (Spring 1989): 55; “A Survey of International Banking,” The Economist, April 30, 1994, p. 9.

Statistical Information from the First Manhattan Consulting Group cited in “A Survey of International Banking,” The Economist, April 30, 1994, p. 8.

Baldwin Carliss , “What is the Future of Banking: A Debate,” Harvard Business Review (July/August 1991), p.145–146; Sipple , op. cit.

Organization of Economic Cooperation and Development (OECD), Insurance and other Financial Services: Structural Trend (Paris: OECD, 1992), p. 49.

The figure 76% comes from an interview with Breuer Rolf E. Dr. , member of the Management Board of the Deutsche Bank recorded in “Die Vermögensverwaltung verspricht gute Gewinne,” Handelsblatt, September 9, 1993, p. 15. The two-thirds figure comes from “Zur längerfristigen Entwicklung des Mittelaufkommens der Kreditinstitute,” Monatsbericht der Deutschen Bundesbank (October 1985), p. 29, and interview data.

Krupp Georg , a Member of the Management Board of the Deutsche Bank, writes that the percentage of life insurance sold by exclusive insurance agents is expected to drop from the level of 70% in 1990 to as low as possibly 30% by 1998 and argues that banks will be a primary beneficiary of the market change, see Krupp Georg , “Bankstrategien im Versicherungsgeschäft,” Die Bank (June 1993), p. 332; Insurance companies are echoing that expectation, see Schultz Harald , “Vertrieb von Lebensversicherungen über die Banken,” Die Bank (November 1993), p. 632; on Lebenversicherung Allianz see “Eine Absenkung der Gewinnbeteiligung für das kommende Jahr angekündigt,” Handelsblatt, April 28, 1993, p. 14.

Discussion of credit card market shares is based on statistical data from the GZS Gesellschaft für Zahlungssysteme GmbH and an interview with a representative of the Zentraler Kreditauschuß der Genossenschaftsbanken.

The magnitude of the decline in bank loans to large corporations over the entire period from 1974 to the present has led some commentators to speak of the end of the German system of debt finance. See Sabel Charles Griffin John Deeg Richard , “Making Money Talk: Towards a New Debtor-Creditor Relation in German Banking,” Paper presented at Conference on Relational Investing, Center for Law and Economic Studies, Columbia University School of Law, May 6–7, 1993; Deeg Richard , “The State, Banks, and Economic Governance in Germany,” German Politics (August 1993).

“Ertragslage der deutschen Kreditinstituten,” Monatsbericht der Deutschen Bundesbank (August), various years.

See, for instance, Frankel Allen B. Montgomery John D. , “Financial Structure: An International Perspective,” Brookings Papers on Economic Activity, 1 (1991): 28; Waller David , “Frankfurt's Role Consolidated,” Financial Times, May 31, 1994, Survey German Banking, p. I; “A Survey of International Banking,” The Economist, April 30, 1994, p. 34.

A comparison of concentration levels within Europe can be found in Gardener E.P.M. , “Bank Strategies and 1992,” in Mullineu Andy , ed., European Banking (Oxford: Blackwell, 1992), p. 109.

Statistics on market shares taken from Monatsbericht der Deutschen Bundesbank, various issues, and from Deeg Richard , “The State, Banks, and Economic Governance in Germany,” German Politics (August, 1993).

Bryan Lowell , “A Blueprint for Financial Reconstruction,” Harvard Business Review (May/June 1991).

Continued restrictions on commercial banks engaging in investment banking activities has similarly acted as a competitive disadvantage. The inability to trade in corporate debts and equities means that even in those state that banks can sell investment products, they are restricted to selling other companies mutual funds rather than structuring their own.

“A Survey of International Banking,” The Economist, April 30, 1994, p. 34.

“Die Entwicklung des Geld- und Sachvermögens westdeutscher privater Haushalte in den letzten zwanzig Jahren,” Monatsbericht der Deutschen Bundsebank (April 1992), p. 17

Opening hours are set jointly by management and trade unions as part of the banking sector's collective wage agreement. The introduction of labor-saving and convenience-enhancing technology must follow negotiations with firm-based workers' councils, which enjoy the right of consultation on any significant changes in work practices and organization. Worker layoffs as a means of generating short-term cost savings are also made more difficult by the legal obligation management has to negotiate employee compensation packages with their works councils in the event of any collective dismissal.

See on this point Reichheld Frederick F. , “Loyalty-Based Management,” Harvard Business Review (March/April, 1993); Reichheld Fredrick F. Sasser W. Earl Jr. , “Zero Defections: Quality Comes to Services,” Harvard Business Review (September/October 1990).

Figures on technology investment taken from McKinsey Global Institute, “Service Sector Productivity,” p. 8–10; Bröker Günther , Competition in Banking: Trends in Banking Structure and Regulation in OECD Countries (Paris: OECD, 1989), p. 128; and statistical data of the Zentraler Kreditauschuss der Genossenschaftsbanken.

Works councils in the banking industry were, in fact, heavily criticized both from trade unions and from within their own ranks for not coming up with proactive strategies for shaping the reorganization of the back office. See Czech's Dieter articles “Betriebliche Weiterbildung in Banken,” Die Mitbestimmung (December 1989) as well as “Arbeitsgestaltung und Qualifizierung für Bankangestellte im unteren Tarifgefüge,” Die Mitbestimmung (October 1987).

Baethge Martin Oberbeck Herbert , Zukunft der Angestellten (Frankfurt: Campus, 1986), p. 91–95; Höflich-Häberlein Lisa Häbler Hubertus , Technikdiffusion und Beschäftigungswirkungen im privaten Dientstleistungssektor (Berlin: Walter de Gruyter, 1989), p. 127–130.

Koenig Kathryn , Survey of Bank Personnel Policies and Practices, Vol. 1 (Rolling Meadows, IL: Bank Administration Institute, 1990).

On resistance to part-time employment, see, for instance, comments by Ulrich Weiss, former lead negotiator of the private banks employers' organization, in “Anmerkungen zur Rolle der Gewerkschaften,” Bank und Markt, 4 (April 1990): 9; turnover data from Jahresbericht der privaten Bankgewerbe, various years.

Information of training expenditures is from Kreyenschmidt Gisela , “Bankausbildung vor neuen Herausforderungen,” Die Bank (April 1990) and interview data; statistics on changes in skill structure taken from the Jahresbericht der privaten Bankgewerbe as well as the Ausbilder-Taschenbuch, the savings banks' yearly report on all aspects of personnel policy.

The average figure of 5% comes from “Service Sector Productivity,” Deloitte Touche's “California Banks Compensation Survey, 1992,” while the 10–15% figure comes from interview data.

The banking sector's collective wage agreement mandates 13 months pay with an extra half-month's pay to be awarded at the discretion of individual banks.

See, on this point, Talmor Sharona , “Hit and Miss,” The Bank, 144 (April 1994); 85.

“Variable Pleasures,” The Economist, November 6, 1993, p. 103.

Epple Manfred , “Die Kundenbindung wird schwächer: Vertrieb von Bankprodukten,” Die Bank (October 1991), p. 548. Note that the single bank connection in the retail segment is taken to be so common in Germany that the author interprets the 50% with more than one bank connection as evidence of a weakening of bank-client ties.

“German Banking: Fund-Raising,” The Economist, August 27th, 1994, p. 65.

The largest private banks have moved in recent years to consolidate their business operations with small business clients into regional business centers where other firm clients are served. There is no suggestion, however, of moving away from the relationship manager model in this market segment.

Bostelmannm Jürgen , “Kreditwürdigkeitsprüfen in Krisenzeiten,” Bank Information, (October 1993), p. 32; Krupke Norbert , “Was der Jahresabschluß nicht verrät,” Kreditpraxis (January 1994), p. 30.

Vitols Sigurt , “Banks and Industrial Finance in Germany and the U.S.: An Organizational Perspective on Long-Term Lending,” paper presented at conference on Institutions of Advanced Capitalism, Wissenschaftszentrum Berlin, March 1994.

“When to throw 'em back,” The Economist, March 12, 1994, pp. 81–82.

Vitols , op. cit.

“Take Our Money, Please,” Business Week, July 18, 1994, pp. 66–67.

Percentage based on outstanding loans at the beginning of 1992. See Monatsbericht der Deutschen Bundesbank, (February 1992), Table III.20.

Jährig Alfred Schuck Hans , “So können Hausbanken bei Unternehmenskrisen helfen,” Bankkaufmann, 4 (1989): 15–16.

Kann Günter , “Trends in der Finanzierung kleiner und mittlerer Unternehmen,” Der Langfristige Kredit (November 1988), p. 705.

Pfeffer Jeffrey , “Competitive Advantage Through People,” California Management Review, 36/2 (Winter 1994).

ATM data based on statistical information from the Zentraler Kreditauschuss der Genossenschaftsbanken. On telephone banking, see “Banken hören aufs Wort: Telefonbanking auf dem Vormarsch,” Neue Zeit, October 29, 1993, p. 4.