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Market-Based Banking and the International Financial Crisis$
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Iain Hardie and David Howarth

Print publication date: 2013

Print ISBN-13: 9780199662289

Published to Oxford Scholarship Online: September 2013

DOI: 10.1093/acprof:oso/9780199662289.001.0001

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A Peculiar Kind of Devastation: German Market-Based Banking

A Peculiar Kind of Devastation: German Market-Based Banking

Chapter:
(p.103) 5 A Peculiar Kind of Devastation: German Market-Based Banking
Source:
Market-Based Banking and the International Financial Crisis
Author(s):

Iain Hardie

David Howarth

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199662289.003.0005

This chapter describes the shift of the German banking industry from the traditional bank-based financial capitalism to ‘market-based banking’, which took place from the late 1990s. German banks have long had high levels of market-based liabilities, but their borrowing has been from more stable wholesale markets, including via covered bonds. However, the rapid rise of market-based banking on the asset side of the balance sheet for German commercial and public sector banks, eager to expand in the context of cloistered national markets, explains the very high exposure of the German banking/financial system to the early stages of the financial crisis. German banks imported instability from the United States through the large-scale purchase of securitized loans. As a result, the German banking system was among the worst affected early in the international financial crisis yet the impact on total bank lending was limited.

Keywords:   Germany, German banking system, market-based banking, patient capital, covered bonds, coordinated market economy

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