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In response to the credit crunch during the global financial crisis of 2007-2008, many have called for the re-establishment of regional banks in the UK and elsewhere. In this context, Germany's regional banking system, with its more than 1,400 small and regional savings banks and cooperative banks, is viewed as a role model in the financing of small and medium-sized enterprises (SMEs) However, in line with the 'death of distance' debate, the universal application of ICT-based scoring and rating systems potentially obviates the necessity for proximity to reduce information asymmetries between banks and SMEs, calling into question the key advantage of regional banks. Utilising novel ethnographic findings from full-time participant observation and interviews, this book presents intimate insights into regional savings banks and compares their SME lending practices with large, nationwide-operating commercial banks in Germany. The ethnographic insights are contextualised by concise description of the three-pillar German banking system, covering bank regulation, structural and geographical developments, and enterprise finance. Furthermore, the book advances an original theoretical approach that combines classical banking theories with insights from social studies of finance on the (ontological) foundation of new realism. Ethnographic findings reveal varying distances of credit granting depending on the rating results, id est large banks allocate considerable credit-granting authority to local staff and therefore challenge the proximity advantages of regional banks. Nevertheless, by presenting case studies of lending to SMEs, the book demonstrates the ability of regional banks to capitalise on proximity when screening and monitoring financially distressed SMEs and explains why the suggestion that ICT can substitute for proximity in SME lending has to be rejected.

Cover -- Title -- Copyright -- Contents -- List of figures -- List of maps -- List of boxes -- List of tables -- Preface -- Acknowledgements -- List of abbreviations -- 1 Introduction -- 1.1 The geography of finance and SME lending -- 1.2 Credit decisions and rating systems -- 1.3 Research contributions and proceedings -- 2 Financial systems, the geography of firm financing and rating systems -- 2.1 Financial systems and economic development -- 2.2 The geography of firm financing -- 2.3 Placing the rating systems as non-human actors in credit decisions -- 2.4 Spot the differences: approaching distance in bank-based SME lending -- 3 The German banking system: methods and case descriptions -- 3.1 Methodology -- 3.2 The German banking system -- 3.3 Selection and description of bank cases -- 4 SME credit decision making of savings versus big banks -- 4.1 The informational basis of credit decisions -- 4.2 The organisation of credit decisions at savings and big banks -- 4.3 The effects of the varying organisation of credit decisions at savings and big banks -- 5 Conclusion -- 5.1 Key findings -- 5.2 Practitioner recommendations -- 5.3 Future research directions -- Appendix -- References -- Index

Den regionalen Sparkassen und Kreditgenossenschaften gelang es, die Kreditvergabe an Unternehmen in der Finanzkrise zu steigern, während Groß- und Landesbanken Kredite kürzten. Entsprechend wird international die Bedeutung regionaler Banken diskutiert. Der Einführungsband zum Thema "Banken und Raum" betrachtet die Varianzen zwischen Bankensystemen (viele kleine regionale Banken vs. wenige Großbanken) und diskutiert die Bedeutung von Banken für die regionale Entwicklung und umgekehrt. Aus raum-, sozial- und wirtschaftswissenschaftlicher Perspektive wird die räumliche Dimension zur Klassifizierung von Bankensystemen eingeführt. Es wird die Frage erörtert, wie es den relativ kleinen regionalen Banken gelingt, im Wettbewerb zu bestehen, und argumentiert, dass Dezentralität ihren Erfolg miterklärt. Die Fallstudien zweier Sparkassen sowie diverse Datenanalysen zeigen auf, wie regionale Banken Kredite vergeben, und deuten an, vor welchen Herausforderungen sie in Zeiten niedriger Zinsen stehen.

Abstract
Unlike development strategies for prosperous regions and their prioritisation of high-tech sectors, alternative strategies for left behind places are suggested that shift to foundational economies, community-based social innovation and well-being. While we support this emphasis, we see a tendency to neglect the role of change agents engaged with research and teaching in high-tech domains for initiating new regional growth paths. This study shows how initial funding has promoted change agents and the emergence of today's cybersecurity ecosystem in the old industrial region of the Ruhr. The ecosystem generates fast-growing high-tech start-ups and contributes to positive regional identification. Our paper suggests combining alternative development strategies and the support of change agency from high-tech domains to develop left behind places.

AbstractRegional banks have a competitive advantage in that short distances to clients enable the use of soft information for superior lending decisions. If the ambition of FinTech start‐ups to create superior screening and monitoring technologies materialises, this advantage would be diminished and regional banks would become superfluous for small firm finance. To explore this claim, the paper in hand analyses qualitative empirical data about the lending processes and rating system use of regional German savings banks. In essence, the results from participant observation and interviews clarify the importance of "real" soft information for critical lending decisions. The context specificity and limited verifiability of "real" soft information hamper it from being hardened through the use of rating systems and other bank‐ICT. Though FinTech's scoring technologies may overcome the first limitation, it appears likely that in the course of scoring development "real" soft information will be systematically crowded out due to the manipulation problem. The paper expects improved access to finance for SMEs if FinTech solutions overcome both limitations of "real" soft information use, or if peer‐to‐peer lending and regional banks coexist. Deteriorated access to finance is expected if FinTech companies displace the relationship banking of regional banks due to enhanced competition, without preserving the advantages of "real" soft information with superior screening and monitoring technologies. The paper concludes with recommendations on how to prevent deteriorated access to finance for small firms by promoting fair competition and FinTech innovations.

Die Studie untersucht dezentrale Bankensysteme in Deutschland, Spanien und dem Vereinigten Königreich und inwieweit diese Einfluss auf die regionale Wirtschaftsentwicklung haben. Der durchgeführte Ländervergleich verdeutlicht, dass das deutsche Bankensystem am stärksten dezentralisiert ist. Dies liegt vor allem an den regionalen und gemeinwohlorientierten Sparkassen und Genossenschaftsbanken. Auch wenn das dezentrale Bankensystem in Deutschland als erfolgreich einzustufen gilt, zeigt sich gerade im internationalen Vergleich, dass ein solches Bankensystem kein Selbstläufer ist, sondern auf bestimmte institutionelle und regulatorischen Rahmenbedingen angewiesen ist.

Dieser Beitrag untersucht dezentrale Bankensysteme in Deutschland, Spanien und dem Vereinigten Königreich. Der durchgeführte Ländervergleich verdeutlicht, dass das deutsche Bankensystem wie erwartet am stärksten dezentralisiert ist. Dies liegt vor allem an den regionalen und gemeinwohlorientierten Sparkassen und Genossenschaftsbanken. Während es im Vereinigten Königreich keine dezentrale Bankengruppe mehr gibt und echte Sparkassen in Spanien fast verschwunden sind, dominieren die mehr als 1.400 dezentralen Sparkassen und Genossenschaftsbanken die Unternehmensfinanzierung in Deutschland. Der Ländervergleich hat drei Erfolgsfaktoren identifiziert, die zur Persistenz des dezentralen Bankings beitragen: I. Geringe operationale und funktionale Distanz sowie Einbettung in einen unterstützenden Regionalbankenverband: Geringe Distanzen bzw. räumliche Nähe zwischen regionaler Bank und kleinen und mittleren Unternehmen (KMU) erleichtern den Zugang zu weichen Informationen bei der Kreditvergabe, und die Einbettung in einen Verband ermöglicht es regionalen Banken, auch in peripheren Regionen auf fortschrittliches Bankwissen zurückzugreifen. II. Die Entwicklung zu "echten" dezentralen Universalbanken: Hier ist entscheidend, ab wann regionale Sparkassen und Genossenschaftsbanken das Recht der Kreditvergabe erhielten. Die späte Erlaubnis, Kredite zu gewähren, machte die Sparkassen in Spanien und dem Vereinigten König-reich zu Nachzüglern im KMU-Kreditgeschäft. In Deutschland hingegen waren kleine Unternehmen von Anfang an Kreditkunden der Sparkassen. Das Kreditvergabeverbot im Vereinigten Königreich und Spanien führte dazu, dass die regionalen Banken dort die aus der Nähe resultierenden weichen Informationsvorteile nicht nutzen konnten. III. Das Zusammenspiel aus Regionalprinzip (regionale Marktsegregation), regionaler Einbettung und einem nationalen Umverteilungssystem, welches regionale Disparitäten reduziert: Dieser Dreiklang hilft regionalen Banken, auch in schwachen Regionen ausreichend erfolgreich zu sein, verringert den Wettbewerb zwischen den Banken und unterstützt damit eine enge Zusammenarbeit in den Bankenverbänden. Ferner fördert ein geringerer Wettbewerb das Entstehen von stabilen Hausbankbeziehungen, wovon Banken sowie Unternehmen profitieren können. Sparkassen waren im Vereinigten Königreich und Spanien zu keinem Zeitpunkt so relevant wie in Deutschland. In beiden Ländern gibt es jedoch einige Banken, die sich im Unterschied zu den Großbanken auf Kreditvergabe an KMU spezialisiert haben. Um die Kreditvergabe an KMU und die dazu notwendige Berücksichtigung weicher Informationen zu unterstützen, schlagen wir ein Förderprogramm vor, welches den Screening- und Monitoringaufwand von Banken subventioniert. Solch eine Förderung könnte Banken dazu anregen, ihre Kreditentscheidungsprozesse auf die regionale Ebene zu verlagern (bzw. sie dort zu belassen) und in Zeiten niedriger Zinsen die Notwendigkeit zur Standardisierung, Zentralisierung von Kreditvergabeentscheidungen sowie Bankenfusionen etwas abmildert.

As expected, this comparison of the German and the UK banking systems shows substantial differences between the countries. In the UK, savings banks disappeared long ago and other regional banks have never become important in lending to business. Instead, the five large commercial banks dominate business lending. Hardly any short-distance lenders still currently exist in the UK according to our qualitative distance classification of banks and other financial providers for small firms. The closure of the very last local savings bank in 2017 marks the preliminary end of traditional regional banking in the UK and indicates that the financial crisis indirectly challenges small and regional banks disproportionally. This is because the low interest rate environment and more complex banking regulations affect small and regional banks more, making it almost impossible for small standalone banks to survive. Problems in small firm finance have been discussed in the UK at least since the 1990s and government support has been given to community development financial institutions and credit unions in order to close the financial gap for small firms. Due to the financial crisis, access to finance has become increasingly difficult for small businesses, especially in remote regions, so the debate on how to reinvent local banking (and hence how to improve access to finance) has gathered momentum. Three options are under discussion. The first is to create in one stroke a regional and public banking group with a substantial market share by restructuring the Royal Bank of Scotland into a network of local and public banks. The second is to recreate regional banks on an entirely new basis with the help of a new association that would provide economies of scale and knowledge in order to enable local people to create their local banks. The third is to establish local banking by upscaling other financial providers, such as credit unions and responsible finance providers. Whether any of these options are realistic is difficult to say right now. One additional option that could improve SME finance are the so-called challenger banks, a type of bank unknown in Germany. These banks differ in terms of ownership, business model and regional market orientation, yet our findings suggest that they tend to operate on a more decentralised (short-distance) business model than large commercial banks.

A comparison of the German banking system with that of the United Kingdom (UK) and Spain shows Germany to be decentralised not only regarding the distribution of banks, but also its financial and political system more generally. Decentralised banks, which are predominantly regional savings banks and cooperative banks in Germany, nearly account for most lending to business and have extended lending at the expense of centralised banks (such as the four big banks, for example). Federalism and strong redistribution mechanisms between the regions support decentralised banking in Germany. Furthermore, close cooperation in their banking groups is shown to allow decentralised banks to realise economies of scale and develop superior techniques for retail banking, like bank-ICT and rating systems. The detailed comparison of a savings bank with a big bank suggests that shorter (functional) distances allow regional banks to consider soft information easily and reliably when lending to SMEs. Short-distance lending not only reduces the financial constraints of (financially distressed) SMEs, but can also be profitable for banks as they are able to realise higher interest earnings in business with informationally opaque enterprises. However, decentralised banking is also under threat in Germany due to tightening (more complex) banking regulations and the continuing low interest rate environment. Therefore, decentralised banks need to cut costs, which is why they have merged to larger units and closed branches in recent years. Furthermore, they have tried to increase fee earnings at the risk of disintermediation. This paper identifies two dilemmas of these cost-cutting strategies. First, disintermediation challenges regional savings-investment cycles and thus regional independency. Second, mergers, branch closures and the standardisation of processes endanger local decision-making authority and hence short-distance lending. As the detailed comparison make clear, the ability of regional banks to decide on credit at a short distance enables profitable lending to informationally opaque SMEs, meaning SMEs that appear to be very risky on the basis of hard information, by utilising soft information. Accordingly, short distance tends to be a key competitive advantage of regional banks, especially in a low interest rate environment. Cost-cutting measures must be conducted with full awareness of this advantage. With respect to lending to SMEs, branch closures may be less critical than mergers and standardisation because most branches are not involved in lending to SMEs anyway.