Rabobank

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Rabobank is a Dutch cooperative banking institution with offices all over the world, although primarily in the Netherlands.

History

Rooted in agriculture, Rabobank is set up as a federation of local credit unions, which offer services to the local markets. The central organisation is the daughter organisation of the local branches, rather than the parent organisation, as is the case with most banks.

The bank is rooted in the ideas of Friedrich Wilhelm Raiffeisen, the founder of the co-operative movement of credit unions who in 1864 created the first farmers' bank in Germany. Being a countryside mayor he was confronted with the abject poverty of the farmers and their families. He tried to alleviate this need through a variety of charitable activities. He soon realised, however, that self-reliance had more potential in the long run than charitable aid. He therefore converted his charitable foundations into a farmers' bank in 1864. In doing so he created the Darlehnskassen-Verein, it collected the savings of the countryside dwellers and provided the enterprising but needy farmers with loans.

This model found a lot of interest in The Netherlands at the end of the 19th century. One of the first of Raiffeisen's followers was father Gerlacus van den Elsen who stood at the basis of a number of local farmers'banks in the south of The Netherlands. The model caught on being championed by the clergy and the countryside elites. The mission of the farmers' lending banks was an idealistic one but they always operated using strict business principles. The cooperative bank model assured a tight bond between invested capital and the community.

The bank's traditional headquarters are Utrecht and Eindhoven. In 1898 two cooperative bank conglomerates were formed:

• Coöperatieve Centrale Raiffeisen-Bank in Utrecht
• Coöperatieve Centrale Boerenleenbank in Eindhoven

The first was formed as a cooperation of 6 local banks and the latter as a cooperation of 22 local banks. These two existed side by side for three quarters of a century despite their obvious similarities. The reasons for this owed in part to legal disagreements. The most important difference, however, was cultural. The Eindhoven based Boerenleenbank had a decidedly catholic signature while the Raiffeisen-Bank had a protestant background. In the past The Netherlands underwent a process of pillarization or verzuiling, which in practice meant that members of different religious congregations and political movements essentially lived side by side each other without contact between the two. The religious backgrounds found their way to the organisational structure as well; the Eindhoven organisation stressed a highly centralised structure while the Utrecht organisation promoted local autonomy.

By 1940 the two organisations cooperated with each other, be it on a limited scale. Three major developments caused a further tightening of the bonds between the two:

• Increasing number of offices - leading to increased local competition
• A gradual fading of the confessional differences between the two
• An increasing demand for capital in the Dutch industry, which in turn led to higher concentration in the banking business

In 1972 the two organisation merged. The name Rabobank is a portmanteau of Raiffeisen-Boerenleenbank. The organisation chose Amsterdam to be its statutory headquarter due to the historical neutrality in relation to the founding organisations. As of 1980 the central organisation is referred to as Rabobank Nederland.

Development

Right from the start the cooperative banks prosperred well. They managed to perform the key tasks of a banking organisation i.e. bringing excess capital and capital shortages together. These moneylenders stood close to the farmers and were better in judging the creditworthiness of individual farmers than the city banks. This allowed the banks to offer lower interest rates. The local banks were self-governed by members of the cooperation. They adhered to the principle of non-remunerated management and elected the board and the commissioners from among themselves. Only the cashier received a small salary. This has of course changed by now, but even as recently as in late 1950's the local bank office was nothing more than the cashier's living room, he generally performed his administrative duties besides another regular job. Much later, in the 60's the most local banks moved into new and modern offices that reflected their new-found professionalism. The position cashier was replaced by a local bank director. Since 1998 the local bank director is an appointed professional banker and he presides over a board of directors which is chosen from among the members.

Local presence and local autonomy were always important but this hasn't stopped a wave of concentration of the local banks. The major rationale behind this was the need to attain economies of scale in the fields of payments, transaction, processing, staff and of course capital. Increasing customer demand for standardized and widely available products also played a significant part in this development. Currently the motto is:

As large as is necessary, as small as possible.

this of course applies to the size of the local bank offices.

Traditionally the bank served mostly farmers and small businesses. Since the introduction of consumer salary accounts in the 1960s the number of retail clients grew exponentially. This has led to Rabobank being a prominent player in the field of savings accounts, checking accounts and mortgages in The Netherlands.

Rabobank is one of the most well-organised banks in the world and has been awarded the Triple A (AAA+) status, making it the only non-publicly traded bank in the world with such a status [1].

Rabobank Group

The Rabobank Group consists of a network of local banks, Rabobank Nederland and several daughter organisations. Formally the local Rabobanks are the mother organisation of Rabobank Nederland, their central organisation. The local banks are facilitated by Rabobank Nederland to serve their customers and not the other way around as is often the case with traditional banking organisations. Employees of the group do not routinely speak of a headquarters but prefer to speak of Rabobank Nederland, which is their daughter organisation.

The central organisation does occasionally overrule the autonomy of the local bank organisations. In accordance with Dutch regulations in the field of credit and financial services Rabobank Nederland oversees that the local banks maintain a required level of prudency and professionalism while selling financial products. This has grown to be especially important in view of recent developments and international standards such as Sarbanes-Oxley Act, Basel II and IFRS. This leads to an interesting and rather unusual phenomenon within international business: the mother companies and the much larger daughter are essentially forced to coexist together in order to function properly. This has led to a very ambivalent relationship between the two over the years.

At the time of the merger there were five management instruments within Rabobank Nederland:

1. Algemene Vergadering - general assembly. The boards of all local banks within the cooperation were represented here.
2. De Centrale Kringvergadering - advisoryboard manned by representatives of clusters of local banks.
3. De Hoofddirectie - general management. Theoretically they were an autonomous management organ, but in practice, they had to pay 'serious consideration' to what the 4th organ; Raad van Beheer; thought about the course of action for the organisation.
4. Raad van Beheer - management council. An independent advisory council whose chairman also attended the meetings of De Hoofddirectie.
5. Raad van Toezicht - supervisory board.

In 2002 this rather cumbersome structure was simplified. The Raad van Beheer was disbanded. De Hoofddirectie received an integral authority over the banking business. It was also renamed to Raad van Bestuur or Board of Directors. They have an added task compared to a traditional board i.e. they are expected to look out for the specific interests of the members (local banks and their certificate holders). The supervisory board was renamed to Board of Commissioners and now held an independent supervisory role. The chairman of this board also presides over the Centrale Kringvergadering. The latter is the most distinguishing organ as compared to other financial institutions in Holland and abroad.

Market Position

The Rabobank is traditionally a farmers' bank. It is not surprising to learn that they still hold an 85%-90% marketshare in the agrarian sector in The Netherlands. Throughout the years the company also started targeting other sectors of Small and Medium Sized companies. By mid 1970s the marketshare in this sector reached some 30% and currently amounts to approximately 40%. In 1987 an important milestone was reached; the total outstanding loans in sectors other than agriculture exceeded those in the agricultural sector for the first time. By 2005 the agricultural credits amounted to some 8% of total outstanding credit.

Rabobank also holds some 40% of the total outstanding sums on Dutch savings accounts and they account for approximately 20% of all private consumer mortgages in The Netherlands.

The Rabobank Group currently consists of the following divisions:

• Rabobank Nederland - the facilitary and staff organisation that serves the local banks. It currently performs the following core activities:
  • Market (staff)support for the domestic retail banking business
  • Groupfunctions i.e. ICT, Legal and other facilitary departments
  • Wholesalebanking and international retail banking
• Local Banks - Approx. 260 independent and cooperative local banks in The Netherlands
• Rabo Vastgoed - Project developer, real estate
• Robeco - Asset management
• Interpolis - Insurance and pensions (401k)
• De Lage Landen - Vendor finance, leasing and trade finance
• Schretlen & Co - Asset management, private banking sector
• Obvion - Mortgage intermediary
• Alex - online stocktrading
• FGH Bank - Real estate bank
• ACCBank - Agricultural Credit Corporation, Ireland
• VIB Corp - California based financial services corporation