Conventional wisdom about German banks and investment finance

Banks play a major role in the German system of finance for investment, so much so that it is often characterised as being a ‘bank-based’ system. This is a reflection of the fact that German banks are typically universal ones. The term ‘universal bank’ is normally taken to refer to a bank providing a complete range of commercial and investment banking services (see Schneider, Hellwig and Kingsman, 1978), but is sometimes extended to mean a bank which also has close links with, and influence over, non-banks (see Krummel, 1980; World Bank, 1989, p. 50). The ‘bank-based’ German system of finance for investment is widely regarded as having made an important contribution to the successful performance of the German economy during the ‘economic miracle’ following the Second World War. A representative view of the role played by German banks in the German economy in this period is the following statement by Hallett (1990,p. 83):

As this quotation illustrates, the German system of finance for investment is commonly perceived to be one which has two main distinguishing features.