REFIRE / voarcc/Envato
For decades, Germany’s Volksbanken, or cooperative banks, epitomized stability and prudence. Owned by local members and rooted in their communities, they sidestepped the excesses of the 2008 financial crisis, bolstered by a reputation for conservative, down-to-earth banking. Yet, a spate of recent scandals has shattered this image, exposing a darker side of mismanagement, unchecked ambition, and risky ventures.
Three institutions—Volksbank Düsseldorf-Neuss, Volksbank Dortmund-Nordwest, and VR-Bank Bad Salzungen Schmalkalden—have required nearly €500 million in bailouts this year alone. Beneath the surface lies a troubling question: are these cases anomalies, or do they signal deeper, systemic problems within Germany’s cooperative banking sector?
The most dramatic case centers on Volksbank Düsseldorf-Neuss, where a €100 million fraud orchestrated by a former accountant from the French fashion retailer Kiabi has left the bank reeling. Aurélie B., described by one investigator as “a Netflix villain come to life,” allegedly used a fake email address and lax internal controls to transfer the money to Turkey before disappearing into Florida’s luxury jet-set scene. CEO Rainer Mellis resigned amidst the fallout, as critics pointed to his apparent lack of oversight in greenlighting such an outsized transaction.
In Dortmund, Volksbank Dortmund-Nordwest gambled on real estate funds and lost big. Rapid interest rate hikes in 2022 decimated the value of these investments, leading to a €134 million bailout. Meanwhile, in rural Thuringia, VR-Bank Bad Salzungen Schmalkalden embraced an eclectic portfolio of investments—including brothels and a Greek waterworks project—that imploded spectacularly, leaving €280 million in losses.
Each case reveals a pattern of reckless ambition. “These aren’t just isolated lapses,” says Martin Faust, a banking professor at the Frankfurt School of Finance & Management. “They reflect an alarming tendency among some cooperative banks to stray far from their core business.”
Risky leadership culture
At the heart of these scandals lies a shift in leadership culture. Traditionally, Volksbank managers were seen as steady custodians of local finance, rarely venturing beyond the familiar confines of rural Germany. But the era of ultra-low interest rates spurred a new, riskier approach. Eager to boost returns, some managers embraced high-stakes strategies that outstripped their institutions’ capacities.
BaFin’s top banking supervisor, Raimund Röseler, recently lambasted what he called the “old white male syndrome” afflicting some Volksbank boards. “It’s always the same story,” he said at a recent conference. “A dominant figure at the top, convinced of their invincibility, steering the bank into disaster.”
Röseler’s analysis is embodied by figures like Mellis of Düsseldorf-Neuss, who cultivated a public image as a larger-than-life local leader, appearing as a DJ at community events and boasting about his bank’s reach. A former colleague described him as someone who “never met a transaction he didn’t think he could handle.”
Similarly, Stefan Siebert, the now-ousted CEO of VR-Bank Bad Salzungen Schmalkalden, reportedly ran his bank like a fiefdom for nearly two decades. Insiders claim he dismissed internal warnings, leading one observer to remark, “No one dared to tell him no anymore.”
Real estate has proven both a lure and a liability for many Volksbanken. During the ECB’s negative interest rate regime, cooperative banks turned to property investments as a way to boost margins. But as rates climbed, many of these bets turned sour. Volksbank Dortmund-Nordwest’s ill-fated foray into commercial property funds is a case in point, as rising rates slashed valuations and liquidity.
The consequences are rippling through Germany’s real estate sector. Cooperative banks play a pivotal role in financing small and medium-sized developers. “If these scandals lead to stricter credit policies, it could choke off vital funding,” warns one real estate industry executive.
Swiss scandal adds to sector's woes
Adding to the sector’s troubles is the unfolding drama in southern Germany, where several Volksbanken have sued Swiss investors for loans tied to phantom real estate projects. Developers working with the now-insolvent BG Business Group failed to deliver on promised properties, leaving buyers with debts on non-existent apartments. The Volksbanken, accused of ignoring red flags about BG’s credibility, are now seeking repayment from the victims.
“This is financial absurdity,” says a lawyer representing one of the Swiss investors. “The banks are effectively punishing people for trusting them.”
Despite these challenges, the Volksbanken system remains fundamentally resilient. The cooperative sector’s €4.6 billion safety net has absorbed the recent shocks without threatening depositors. But the scandals have exposed vulnerabilities in oversight and governance.
“The cooperative model relies on trust,” says BVR President Marija Kolak, who now faces mounting scrutiny over her leadership. “These incidents remind us that trust must be earned and safeguarded.”
Critics argue that the system’s decentralization—once its greatest strength—now enables rogue institutions to push boundaries. Calls for reform include stricter oversight of bank boards, improved training for supervisory committees, and greater accountability for high-risk ventures. Yet resistance within the sector remains strong, with many arguing that more regulation could stifle the entrepreneurial freedom that sets Volksbanken apart from their publicly owned Sparkassen counterparts.
A reckoning ahead
The current scandals may be just the beginning. Reports of questionable deals and aggressive strategies at other cooperative banks suggest the need for deeper scrutiny. DZ Bank CEO Cornelius Riese has acknowledged the reputational damage, saying, “This is a moment for self-reflection within our sector.”
For the real estate industry, the stakes are especially high. With cooperative banks playing such a crucial role in regional development, any erosion of their financial or reputational capital could have far-reaching consequences.
The Volksbanken scandals offer a cautionary tale about the perils of overreach and the limits of institutional safety nets. They also highlight the importance of leadership accountability and systemic vigilance. As one insider quipped, “The Volksbanken’s slogan is ‘We pave the way.’ Let’s hope that way doesn’t lead to more disasters.”
With more potential scandals lurking, the cooperative banking sector—and its role in Germany’s real estate market—faces a reckoning. Whether it emerges stronger or further diminished will depend on its ability to adapt and rebuild trust.
