Taking Stock and Looking Ahead: The German Financial System at the Crossroads?

Jan P. Krahnen and Reinhard H. Schmidt

in The German Financial System

Published in print March 2004 | ISBN: 9780199253166
Published online January 2005 | e-ISBN: 9780191601651 | DOI:
 Taking Stock and Looking Ahead: The German Financial System at the Crossroads?

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The concluding chapter of the book is devoted to the question of whether the German financial system still is largely bank-dominated or has already changed to being (more) capital market-dominated, or, in other words, whether change or continuity prevail. The authors first summarise briefly what the individual chapters indicate with respect to the issue of change and continuity. But since continuity and change coexist in almost any facet of the German financial system, the authors then discuss three competing views of the possible future development of the German financial system.

One view is that of simple modernisation: Though with delays, the German financial system will continue to become more and more market-oriented. The second view holds that in the future the distinction between bank- and market-based systems will disappear anyway and that therefore a new kind of synthesis can be expected to emerge in Germany. The third view is that because of important complementarities, financial system development is not gradual and is prone to crises. This might lead to the adoption of the Anglo-Saxon type of a financial system, irrespective of whether such a system is desirable in pure efficiency terms.

Keywords: convergence; efficiency; financial system development; path dependence; relationship banking

Chapter.  14666 words.  Illustrated.

Subjects: Financial Markets

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