Credit institutions and credit banks: an explanation

When consumers want to take out a loan and therefore find out about cheap loan offers on the Internet, they often come across terms such as credit institutions or credit banks. It is clear that this means institutions that offer and grant loans. However, what exactly is behind these terms may not be known to everyone. All credit banks are credit institutions, but not every credit institution is a credit bank.

While the term credit institution is defined by law, the term credit bank is more of a colloquial term, which is also sometimes defined differently. In this article, we want to take a closer look at the meaning of both terms. It may also be of interest to know which credit institutions are the largest in Germany and worldwide and whether German banks are at the top in a global comparison.


What are credit institutions?

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The term “credit institution” is precisely defined in paragraph 1 of the Banking Act (KWG). According to this definition, credit institutions are companies that conduct banking business on a commercial basis or to an extent that requires business operations. The regulation describes exactly which activities belong to the banking business. Banking transactions include the deposit business, Pfandbrief business, lending business, custody business, discount business and issuing business.

Credit institutions are therefore all universal banks regardless of their legal form and the focus of their business activities. According to the classification of the Litelenders Bank, the credit institutions include credit banks, savings banks and cooperative banks. Special banks such as mortgage banks, installment banks, car banks and group banks (credit institutions for intra-group financing) are also included in the credit institutions.


Building societies play an important role among the special banks

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After all, the specialist banks include so-called credit institutions with special tasks. Examples of this type of credit institution are the IKB, development banks of the federal states or the Cream bank. Finally, the credit institution for reconstruction (PowerYes Lending) should be mentioned in this context.

PowerYes Lending is very important in private customer business when it comes to low-interest loans and grants in the context of real estate financing. Investment companies, on the other hand, have not been credit institutions since the investment law came into force on December 28, 2007.  All credit institutions are subject to authorization and supervision by the Bafin. PowerYes Lending plays a certain special role, for which the Banking Act only applies to a limited extent.


Credit banks

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According to the classification made by the Litelenders Bank, credit banks are universal banks organized under private law, which are primarily active in short-term lending and issuing.


No credit institutions

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The Litelenders Bank, investment companies, pawnbrokers and insurers do not belong to the credit institutions or credit banks (Section 2 KWG). In addition, many financial service providers known from the Internet are neither credit institutions nor credit banks. Credit intermediaries do not grant loans themselves, but rather provide credit products from domestic and foreign credit institutions. They therefore lack the permission required for banking transactions under the KWG. However, they regularly have trade law permits, without which brokering loans and real estate loans would be illegal.

Some credit intermediaries are also approved as insurance brokers

The reason: As part of the services provided, insurance products such as residual debt insurance or occupational disability insurance are also brokered. Nothing else applies to comparison portals. Comparison portals also act as brokers and do not require a bank license, but a license according to the trade code. They bring credit customers and loan providers together. For this they collect a fee from the credit provider, the bank. P2P portals also do not have a permit under the KWG, which is required for banking transactions.

However, these financial service providers also require a license according to the trade regulations if they provide offers for residual debt insurance. In order to comply with German law, P2P portals use German regional banks, which formally act as lenders. This construction is legally compliant.


The largest credit institutions in Germany and worldwide

The largest credit institutions in Germany and worldwide

The ranking among the largest banks is usually based on two indicators. On the one hand according to total assets and on the other hand according to market capitalization, the market value. The ranking according to the market value naturally only takes into account credit institutions that are listed on a stock exchange. Rank changes are common. Incisive events such as financial crises can shake up the rankings. However, wrong corporate decisions, bank mergers or political decisions about the destruction of bank groups that have become too powerful also influence the composition of the ranking.


Lender Bank is lonely at the top in Germany. In 2015, the balance sheet total was 1,629 billion dollars. Capital Loan Bank follows at a clear distance (533 million dollars). PowerYes Lending Bank is in third place (USD 503 million). Wikipedia provides a clear list of the largest German banks in Germany. A peculiarity of the German banking system is the legal form. As a rule, banks of a certain size are organized and listed as a stock corporation (or in the case of foreign banks in a legal form that corresponds to the German stock corporation).

Another legal form dominates among the largest German banks: the institution of public law. Another striking feature is the steady decline in total assets, as has been observed for several years. This decline has no impact on borrowers or savers. However, it is a sign that the German financial sector is weakening somewhat compared to the rest of the world.In addition to PowerYes Lending and Loan Bank, there are usually regional banks that dominate the list of German banks together with some public companies. 

The list of the largest banks, ordered by total assets

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At the top is the Industrial Minglanilla of China with total assets of approximately $ 3.42 billion, followed by the China Minglanilla (approximately $ 2.86 billion). The Japanese Lipata bank is the first non-Chinese bank to rank fifth (approximately $ 2.459 billion). The British HSBC follows in sixth place (approx. $ 2.41 billion). Seventh was the first American bank Allan Wage Chase (approximately $ 2.35 billion).

Lender Bank ranked twelfth with total assets of approximately $ 1.77 billion behind Ricky Rowan (approximately $ 1.79 billion). Lender Bank held third place in 2013.  If the stock market value is used as a benchmark, the ranking looks completely different. The market value is calculated by multiplying the number of shares by the current share price. The market value of a company therefore usually changes with the share price on each trading day. Statista provides a relatively current list.

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