Germany's financial regulator, BaFin, is intensifying its oversight of the country's regional cooperative banks, known as Volksbanken and Raiffeisenbanken, following a series of high-profile incidents. One such case involves Volksbank Koeln Bonn, which faces scrutiny over a 2021 loan used by a Chinese investor to purchase Cologne's Pascha brothel. BaFin has formally requested information regarding this loan, and Volksbank has launched an independent internal investigation into whether a board member, later identified as Juergen Neutgens, potentially benefited personally from the transaction. Neutgens, who has been put on leave, denies any wrongdoing, with his lawyer stating he received no payments.
Adding to the sector's woes, BaFin has taken drastic action against Raiffeisenbank Plankstetten, removing its entire board and appointing a special commissioner, Odo Steinmann, on July 9. This intervention, described as one of BaFin's harshest enforcement tools, stemmed from long-standing disputes between the bank's previous board, led by Elmar Weiß and Walter Frank for over 20 years, and the regulator regarding banking supervision. The bank had an unusual corporate structure, having been expelled from Bavaria's cooperative association in 2009 and later converting to a joint-stock company, which led to unclear oversight responsibilities.
The heightened regulatory attention and recent scandals are causing significant reputational damage within the cooperative banking sector. The CEO of DZ Bank, the central institution for German cooperative banks, has acknowledged the "great pain" caused by these "problem banks" and the resulting image damage. Efforts are underway to regain trust through reforms and a new code of conduct. The situation with Raiffeisenbank Plankstetten has further escalated, with former supervisory board members filing criminal charges against the special commissioner appointed by BaFin.
