The German bank–growth nexus revisited: savings banks and economic growth in Prussia^†

Abstract

This article provides evidence that smaller, regional public financial intermediaries contributed to Germany's industrial development, using a new dataset of the foundation year and location of Prussian savings banks. This extends the bank–growth nexus beyond its traditional focus on large universal banks. Since savings banks were public financial intermediaries, our results further suggest that state intervention can be successful in the financial sector, particularly at the early stages of industrial development when capital requirements are manageable, and access to international capital markets is limited.

Research evolution in banking performance: a bibliometric analysis

“…Studies have evidenced financial development and thus the banking industry’s role in economic growth [ 60 ]. In the nineteenth century, the establishment of the savings bank demonstrated city growth in Prussia [ 66 ]. Potentially, banks provide investment capital to increase per capita GDP [ 43 ].…”

“…High levels of banking sector development push out the positive effect of private investment Isnurhadi et al [ 70 ] Quantitative Evaluated the relationship between bank capital, efficiency, and risk in Islamic banks Pooled OLS and Random Effect (RE), panel data Bank capital positively affects bank stability and negatively on credit risk and efficiency. hence, efficiency encouraged banks to lessen risk even when the capital was lower Kchikeche and Khallouk [ 71 ] Quantitative Examined the causal link between banking financial development and economic growth Vector autoregression framework Bank-based financial development affected economic growth in both the short and long run Lehmann-Hasemeyer and Wahl [ 66 ] Quantitative Revisited the effect of saving banks on economic development in Prussia Regression (fixed effects) A significant positive relationship was demonstrated between the establishment of saving banks and city growth in the nineteenth century Li et al [ 72 ] Quantitative Investigated the impact of credit risk shocks on the evolution of banking efficiency Efficiency theory DEA (bootstrap-DEA), annual report The efficiency of both state-owned and joint-stock commercial banks was higher than urban/rural commercial banks during a credit risk shock Rehman et al [ 40 ] Quantitative Examined the effect of reformed bank sectors on the relationship between bank performance and board structure Soft-budget constraint, intermediation SFA, DEA, Regression, panel data A negative link was found between board independence and banking efficiency; however, it became positive when banks were listed in the stock market. Larger banks are less efficient than smaller banks Ryu and Yu [ 64 ] Quantitative Examined the nonlinear effect on bank performance due to changes in subordinated debt …”

Cliometrics and the Study of German History

“…In particular, he investigates the nexus from two perspectives, namely the economy as a whole as well as the "modern sector" (industry and railways). Most notably, he finds that credit banks did exert a substantial 63 causal influence during early industrialization and up to the early 1880s, but only on the modern sector, not the economy as a whole; that there was no causal influence of credit banks whatsoever over the later phase; and that savings banks are likely to have exerted such influence over the later phase (a contention formally proved by Lehmann-Hasemeyer and Wahl 2021). Diekmann and Westermann's (2012) findings somewhat contradict Burhop's view.…”

The Austrian banking crisis of 1931: a reassessment

“…Further, this article speaks not only to the historiographer on the causes of the 1931 crisis in Austria but also to several other audiences. Those studying the role of universal banks in industrialisation (Cameron 1953; Fohlin 1999; Gerschenkron 1962; Guinnane 2002; Herriegel 1996; Lehmann-Hasemeyer and Wahl 2017; Tilly 1998) and these banks’ economic benefits (Benston 1994; Boyd et al . 1998; Kroszner and Rajan 1994; van Overfelt et al .…”