The researcher states that Germany financial system is usually categorized as bank-based systems since banks are the ones which partake in most of the financial intermediation processes as well as the execution of cooperate governance. Unlike Germany, the financial systems of the United States of America (U.S.A) and the United Kingdom (UK) are usually categorized as market-based financial systems. This is because, in U.S.A and UK, it is the duty of the capital markets to partake the capital allocation process as well as cooperate governance. Nevertheless, in spite of the major differences between these two financial systems, it has not been established and proven whether one system is better than the other. Besides, Beck points out that both of these financial systems were similarly affected by the 2007 and 2008 worldwide economic and financial crisis. In order to have a clear insight of a country’s financial system, therefore, this paper will focus on the main features of the German financial system and the extent to which this financial system needs to be modified and reformed fundamentally. The German financial system is divided into three pillars which include the private commercial banks, public-sector banks, and co-operative banks which are mainly differentiated by their legal structures. It is, however, worth noting that this financial system is hugely dominated by the universal banks which the majority of them do not focus solely on the profit maximization aspect. To begin with, the private commercial banks comprise the large banks, relatively smaller local banks, privately owned banks and a couple of foreign banks outlets. Therefore, whereas these huge universal banks carry out retail and corporate banking and investment banking undertakings, the smaller regional commercial banks are characterized by a relatively local presence and familiarity, thereby making them to mostly engage in distinctive activities like the offering of mortgage activities and housing finance. Comparatively, the smaller private banks are mostly concerned with financing the German industries and dealing with wealth management.
The German Financial System