Banking in Germany, 1918–1939

Abstract

The focus of this chapter is not on the short‐term fluctuations experienced by the German banks during the inter‐war period, but on the structural change that ultimately resulted in the formation of a national banking system. The banking system of the early twentieth century was not a rational construct, but had evolved over the previous hundred years and consisted of a mixture of quite different financial intermediaries defined by a combination of legal provisions, ownership, economic philosophy, and business structure. Post‐war hyperinflation was followed by financial reconstruction, but the system collapsed in the banking crisis of 1931 and was reorganized under the Banking Law of 1934 as a monopolistic structure under strict government surveillance. The resulting system fitted the Nazi regime of armament and autarky, but was not an adequate model for the expanding world economy created after World War II.

Initial Public Offerings and Venture Capital in Germany

“…Banks made this 51 For a more extensive discussion see Monopolkommission (1998), pp. 99-101.20 experience in Nazi Germany when, according to Hardach (1995), the banks lost much of their corporate business and were forced into a passive role because of the "financial autarky" of industry resulting from retained profits, which in turn resulted from lucrative government contracts, low wages, and a limit on dividends.…”

East Asian Growth before and after the Crisis

“…Others, while conceding that there were some advantages to this bank-based financial system relative to Anglo-Saxon type capital markets, have stressed that there were also disadvantages in the form of greater exposure to financial instability, more moral hazard and a less efficient allocation of investment funds (Collins, 1998). The German banking system eventually came to grief in the macroeconomic crisis of 1931 following a period of reckless domestic lending and accumulation of short-term foreign debt by banks with little capital at risk (Hardach, 1984). The lessons drawn by the German authorities were that if investment banking was to continue much tighter prudential supervision and regulation was required and this was enacted in a new law in 1934 whose provisions essentially remained in force throughout the postwar Wirtschaftswunder.…”