The events surrounding Silicon Valley Bank have raised an essential question in the private sector: which is the safest bank in Europe? In addition to a bank's rating and the consideration of systemically relevant institutions, technology solutions in the financial sector with strong partners are also of significant importance in the selection process.
To adequately protect corporate assets, the wisest choice is to select a mix of reliable providers and, with that, reduce the risk of exposure to macroeconomic factors.
What is the Safest Bank in Germany?
The question of the safest bank in Germany cannot be answered in a general way, as numerous banks in the country have extremely high security standards. Criteria that indicate elevated safeness include whether the institution is seen as a public institution (e.g. KfW Bankengruppe, the German savings banks, or LBBW) or its position as a systemically important financial institution (e.g. Deutsche Bank).
There is no reason to worry about deposits of less than €100,000 per account at a German bank, as the statutory European deposit guarantee protects the total amount. Since July 2015, this has amounted to a uniform €100,000 per customer and bank in the EU.
For deposits over €100,000, finding out about the bank's security is crucial. Criteria include:
- The bank's rating.
- Its size and diversification.
- Its role as a systemically important financial institution.
- Any partner banks in the case of e-money institutions.
- Its customer service and reputation in the market.
Finding Banks With the Best Rating
One indicator of a bank's safety is its rating, assigned by agencies such as Fitch, Moody's or Standard & Poor's. The higher a bank's score, the safer it is considered. Investors can search for bank ratings on the agencies websites. According to the current classifications, some banks in Germany achieve stable outlooks for their long-term credit products, among them Deutsche Bank, KfW, Sparkassen, Volksbanken, and Commerzbank.
As a partner bank, Friday Finance relies on BNP Paribas. The French financial institution has an AA rating and is one of Europe's largest and safest banks.
Consider Systemically Important Financial Institutions (SIFIs)
The state supports Systemically Important Financial Institutions to ensure financial market stability and reduce effects on the broader economy. JP Morgan Chase, Bank of America, Citigroup, HSBC, BNP Paribas - Friday Finance's partner bank - and Deutsche Bank are examples of SIFIs.
The largest institutions tend to be very broadly diversified and avoid cluster risk, also known as concentration risk, by broadly diversifying deposits and loans. In the case of the collapse of Silicon Valley Bank, significant cluster risk was present because deposits and loans were almost exclusively attributable to the technology sector.
Extra security: Fintechs Collaborating with Strong Partners
Segregation of deposits into accounts is one of the safest ways to avoid total asset losses. Meanwhile, financial technology companies have created solutions to open accounts digitally and in minutes and transfer deposits with real-time SEPA bank transfers. This is often done through a partner banking model in which large banks work with technology partners to provide these solutions.
The partner banking or custodian banking model is secure for customers, where different and often regulated institutions work together. This is the case with Friday Finance business accounts: Friday develops the software for the user interface that opens Friday Finance business accounts, authorises transfers and automates payment processes and accounting. Swan is an e-money institution regulated by the ACPR that provides payment technology to transfer funds to or from the Friday Finance account. BNP Paribas is the custodian bank that holds and guarantees the funds for Friday Finance. BNP is not allowed to use the funds for investment or lending.
Such a model offers one of the safest banking set-ups for clients, as the funds are held and insured by a large, systemically important, and reliable bank like BNP Paribas. It allows users to focus on innovation while ensuring that security is paramount.
