Dresden economics professor Marcel Thum is receiving frequent criticism and enquiries from the banking industry and politicians these days. „More expertise in the supervisory bodies of public banks could help to better manage future crises,“ the Ifo Institute commented recently.

The central thesis is that the more competent a bank's supervisory board is, the lower the risk of high losses in the wake of financial shocks. Explosive: According to this, financial expertise is less pronounced in the supervisory bodies of public banks than in private institutions. Thum and his research colleagues Harald Hau and Tim-Ole Radach reapplied the methodology from an earlier study. At the same time, they also found considerable progress since 2009.

„The results of the study are not understandable to us in this generalised form,“ was the reaction of DekaBank. The institution, which is owned by the savings banks, refers to criteria such as sustainability, digitalisation and cyber security, factors that were not taken into account in the study. The bank also emphasises a „broad financial and credit industry background“ on the Board of Directors, and sees practical European requirements for the suitability of the controllers. Representatives from savings bank associations and the CEOs of individual savings banks primarily control the group.

The Association of German Public Sector Banks (VÖB) emphasises that a management body must „collectively“ have the necessary expertise and experience – apparently a criticism of the researchers' methodolgy, which awarded points to curriculum vitae after curriculum vitae, without taking into account the interplay of professional profiles. NRW.Bank, the development bank in North Rhine-Westphalia, classifies some points, such as US financial market experience, as less relevant for its own business. In addition, many qualifications were not even asked about, such as legal expertise in the development loan business or IT skills.

The study touches on a sore point because, overall, the composition of the supervisory body resembles a balancing act: The public owners also want to see the institutions supervised by their representatives, but at the same time, experience is required because the memory of the financial crisis still has an impact today.

The supervisory bodies of Landesbanken, which are owned by individual federal states and the savings banks located there, typically include ministers from state governments or other high-ranking state representatives, as well as mayors and district councillors and representatives from the savings banks associations. In addition, many CEOs of individual savings banks sit on the supervisory and administrative boards. In turn, many elected politicians sit on the committees of development banks.

Experts from other specialised fields are also represented, such as entrepreneurs, consultants and specialist lawyers. As is usual in large companies, employee representatives are also typically present on the supervisory bodies.

Finally, all of these representatives include people from outside the bank management – apparently, the owners want to fulfil the call for expertise in this way. In addition to the numerous representatives of individual savings banks, KfW board member Melanie Kehr also sits on DekaBank's board of directors. Former Helaba CEO Herbert Hans Grüntker sits on the Board of Directors of Nord/LB as Deputy Chairman. LBBW CEO Rainer Neske and Commerzbank Deputy CEO Bettina Orlopp are among the members of KfW's Supervisory Board. At the same time, LBBW CFO Stefanie Münz, for example, sits on the Board of Directors of Landwirtschaftliche Rentenbank.

Only rarely, however, does an outsider with banking expertise make it to the top of the supervisory body. BayernLB, for example, stands out, having recruited former Aareal Bank boss Wolf Schumacher for this role. The smaller SaarLB appointed the former BayernLB Board Member for Corporate Clients and UBS Germany boss Jan-Christian Dreesen as its top controller. The manager is now also in charge of the football club FC Bayern Munich.

In addition, two former heads of the development bank in Baden-Württemberg, L-Bank, can be found at the top of the boards of directors today. Christian Brand controls LBBW as Chairman of the Supervisory Board – so he remained in his federal state – while Axel Nawrath oversees Investitionsbank Berlin (IBB) in a leading role.

Elsewhere, association representatives have a say in the supervisory bodies: DSGV President Ulrich Reuter heads the Administrative Board of DekaBank, while Helaba, which is majority-owned by the savings banks in Hesse and Thuringia, is controlled by Stefan Reuß, i.e. the Managing President of the responsible savings bank association SGVHT. Landwirtschaftliche Rentenbank plays a unique role among the development banks. Joachim Rukwied, President of the German Farmers' Association, heads the Board of Directors.

And then there are often politicians at the top: Lower Saxony's Finance Minister Gerald Heere controls Nord/LB in a leading position. At the same time, Federal Economics Minister Robert Habeck has taken a seat on the Board of Directors of the development bank KfW, and Federal Finance Minister Christian Lindner currently holds the vice chair.

Expertise is therefore available in all supervisory bodies – but is it enough? And who should chair them? In an interview with Börsen-Zeitung, study author Thum himself advises „interpreting the results with caution“. In addition to the danger of financial crises, other risks are also significant, although not from the perspective of the study, he admits. He also does not comment on political issues associated with the control of a bank.

Germany suffered high losses in the financial crisis. At that time, both private and public institutions were affected. However, according to the authors, there was already a statistical correlation between a bank's losses on the one hand and expertise in the supervisory bodies on the other. Many other studies in other countries have also suggested a comparable effect, as the article explains. However, the methodology varies from case to case, and the results are not always unambiguous.

„There is a public interest in more competent supervisory boards, especially in banks in which the state is the main owner, because the taxpayer is liable here,“ the authors conclude. However, economics professor Thum is aware of the political balancing act. He expressly does not want the study to be understood as a criticism of certain individual banks, he says – a clever answer to a sensitive question.