Aspects of Payout Policy of German Savings Banks

Abstract

The German savings banks’ distribution of profits among their public owners (i. e. municipalities and districts) requires that legal criteria are met ensuring the banks’ adequate funding via retained profits. In line with the legal framework, our analysis of savings banks in four federal states confirms that profitability and portfolio risk are important determinants of the savings banks’ payout decision. Heavily indebted municipalities and districts, however, might have a strong interest in the savings banks’ payouts to mitigate their financial distress. In fact, we find that the payout decision is also influenced by the public owners’ interest.