The german financial system

Seminar paper from the year 2013 in the subject Economics - Finance, grade: 1,0, University of Massachusetts Boston, language: English, abstract: 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.