Regional organizations in the German cooperative banking system in the late 19th century

Abstract

Germany's successful 19th-century credit cooperatives were by design small, limited their operations to specific geographical areas, and employed few paid staff, most of whom had little business experience. Cooperatives would seem vulnerable to liquidity problems caused by correlated shocks to their member's fortunes. They would also seem vulnerable to fraud and mis-management and to have problems convincing the public they were safe places to invest money. The historical record shows, however, that the cooperatives overcame these problems, growing steadily in numbers and assets. The minimal government regulation to which the cooperatives were subject did little to overcome their potential weaknesses. Rather, the cooperatives devised a series of regional banks and auditing associations to which most cooperatives eventually belonged. Regional cooperative banks provided liquidity and emergency loans to member cooperatives, obviating some disadvantages of their small size. Auditing associations monitored member cooperatives and provided confidence to the public by ensuring adherence to basic standards. © 1997 Academic Press Limited.