As widely recognized, financial systems play an important role for economic growth. The German as well as the American economy seemed to be both very successful over the last decade in terms of GDP growth. Although both economies are successful, their financial systems differ widely. While the American system is strongly capital market-based, banks play the dominant role in the German financial system. As it was for a long time a purely bank-based system, it represented a unique financial system around the world.
In this paper, I will point out the main features of the traditional German financial system. I will mainly focus on the role and structure of the financial sector, financing patterns of firms, and the German corporate governance system. So far, most academic literature has concentrated on the peculiarities of the “old” German financial system. In the following paper, recent developments will also be included. Major changes and trends of the German financial system since the begin-nings of the 2000s will be outlined, leading to the question if the system underwent a process of transformation from a bank-based to a capital market-based financial system.
I will begin with a brief summary of the basic definitions, concepts and classifications that are necessary to describe and analyze the German financial system. In chapter 3, the “old” German financial system, called an international prototype of a bank-based system, is outlined. After ex-plaining the main elements of the “old” German financial system focusing on the financial sector, financing patterns of firms and the corporate governance system, recent changes and develop-ments since the 2000s will follow in chapter 4. Within chapter 4, the current state of the German financial system will be described with an emphasis on developments that could have led to a transformation to a capital market-based system. This description leads to the conclusion in chapter 5 that the German financial system has not transformed to capital market-based system and kept its unique peculiarities but is no longer a purely bank-based financial system.
Table of Contents
1. Introduction
2. Definitions, Concepts and Classifications
2.1 Definitions & importance of financial systems
2.2 Bank-based & capital market-based financial systems
2.3 Outsider & insider controlled corporate governance systems
2.4 Evolution of financial systems over time
3. The “traditional” German financial system until the 2000s
3.1 The financial sector
3.2 Financing patterns of firms
3.3 Corporate governance system
3.4 Conclusion: the “traditional” German financial system
4. Development and changes since the 2000s
4.1 The financial sector
4.2 Financing patterns of firms
4.3 Corporate governance system
4.4 Conclusion: Changes in the German financial system
5. Conclusion and outlook
Research Objectives and Themes
The paper examines whether the German financial system has undergone a fundamental transformation from a traditional, bank-based model toward a capital market-based system since the early 2000s, by analyzing structural changes in the financial sector, corporate financing, and governance.
- The role and structure of the German banking sector and financial intermediaries.
- Financing patterns of German firms and their reliance on bank loans versus capital markets.
- The German corporate governance system, focusing on the insider-controlled model and the "Deutschland-AG".
- The impact of political and regulatory reforms on the evolution of the financial landscape.
- Assessment of the "equity culture" and the actual shift in corporate control mechanisms.
Excerpts from the Book
3.1 The financial sector
The financial sector consists of financial intermediaries, which can be splitted into banks and non-bank financial intermediaries (NBFIs), and financial markets as well as their rules and structures. Since World War II, banks were the main element of the German financial sector as the primary vehicle for the accumulation of savings of households and the sourcing of funds for businesses. Germany had a so-called three pillar banking system composed of private commercial banks, public savings banks and cooperative banks (The Economist 2012). Most banks were organized as truly universal banks with very close client-relations (“housebank principle”). Regional savings banks and cooperative banks were committed to their region’s public interest and therefore not strictly to profit maximization, catering local businesses. As the following table shows, the German banking system was characterized by a low degree of concentration and a huge number of institutions compared to other developed countries (Suechting & Paul 1998).
Summary of Chapters
1. Introduction: Outlines the objective to analyze if the German financial system shifted from a bank-based to a capital market-based model since the 2000s.
2. Definitions, Concepts and Classifications: Establishes the theoretical framework by defining financial systems, distinguishing between bank-based and capital market-based models, and explaining corporate governance structures.
3. The “traditional” German financial system until the 2000s: Details the characteristics of the German system prior to the 2000s, highlighting the dominance of banks and the stakeholder-oriented governance regime.
4. Development and changes since the 2000s: Examines post-2000s reforms and developments, concluding that while some changes occurred, the system remains bank-dominated rather than fully transformed.
5. Conclusion and outlook: Summarizes that the German financial system has modernized but retained its unique bank-based characteristics, showing no full transition to an Anglo-Saxon capital market model.
Keywords
German Financial System, Bank-based System, Capital Market-based System, Corporate Governance, Financial Intermediaries, Universal Banks, Stakeholder Orientation, Shareholder Value, External Financing, Deutschland-AG, Banking Sector, Financial Market, Equity Culture, Supervisory Board, Codetermination.
Frequently Asked Questions
What is the core subject of this paper?
The paper examines the structural evolution of the German financial system to determine if it has shifted from its historically bank-based nature toward a capital market-oriented system.
What are the primary thematic areas covered?
The analysis centers on three key pillars: the structure of the financial sector, firm financing patterns, and the corporate governance framework.
What is the main research question?
The central question is whether the regulatory and economic changes since the 2000s have successfully transformed Germany into a capital market-based system.
Which methodology is applied?
The paper uses a comparative analysis of institutional structures, intermediation ratios, and historical developments to assess systemic trends against the "natural progression" theory.
What does the main body discuss?
It provides a comparative analysis of the "traditional" system (pre-2000s) against modern developments, identifying both continuity in banking dominance and changes in corporate governance.
Which keywords best describe this study?
Key terms include German financial system, bank-based versus market-based models, corporate governance, and financial intermediation.
How is the "traditional" German banking system described?
It is described as a stable, three-pillar universal banking system that acted as the primary vehicle for household savings and business financing.
What role did the "Deutschland-AG" play?
It represented an elaborate network of interlocking interests where big banks functioned as central coordinators, effectively influencing corporate governance and strategy.
Why did the expected transformation to a market-based system not occur?
The research concludes that despite legal reforms and political efforts, the core elements of the insider-controlled system, such as the supervisory board and bank involvement, remained structurally stable.
- Citation du texte
- Tobias Albrecht (Auteur), 2013, The german financial system, Munich, GRIN Verlag, https://www.grin.com/document/269477
