The German story

For many reasons, a financial crisis in Germany in 2007 seemed remote. While property prices had doubled in the ten years between 1997 and 2007 in most of the countries in Europe and risen by 200 percent or more in Ireland, the United Kingdom and Spain, they were flat in Germany. Homeownership in Germany was and is also much lower than in most other European countries. While countries like Italy, Spain, Greece, Belgium and Ireland have around 80 percent of the population living in their own homes, only 46 percent of Germans owned their own homes in 2007, by far the lowest percentage in the EU (according to Eurostat). German banks have also long since faced much stricter requirements as concerns loan-to-value (a maximum of 60 percent) than other European countries. Northern Rock's “Together loan” would not have been possible in Germany!

German banking is also much more fragmented and national than in most other European countries, especially in comparison with the smaller ones. Figure 10 shows that the share of the top five banks in terms of total banking assets in 1997 was only 16 percent in Germany as contrasted with 40 percent in France, 45 percent in Austria, 55 percent in Belgium and 80 percent in the Netherlands. The financial crisis (to be discussed in this chapter) and the demise of such banks as Dresdner Bank and several of the local Landesbanken led to a doubling of the ratio until 2010, which however still remained lower than in all the other countries presented in the figure.

In another way of measuring dispersion, there were 1,893 financial institutions in Germany in 2012 but only 373 in the UK (Liikanen report, p. 119). In Germany, these were 95 percent domestically owned whereas half the credit institutions in the UK were foreign.

Nor is banking as dominant an industry in Germany as in some other countries. Figure 11 shows assets of financial institutions in the EU as a percentage of the home country's GDP. Ranging from 1,000 percent in Luxembourg, 800 percent in Ireland and Malta to figures below 100 percent in the former Communist states, we find Germany together with Belgium, Sweden, Austria and Spain at around 300 percent of GDP, half of the UK figure. Of the 25 largest banks in the world by assets in 2008, […]