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Foreign Competition and Disintermediation: No Threat to the German Banking System?

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  • Claudia M. Buch
  • Stefan M. Golder

Abstract

The German financial system is characterized by lower degrees of penetration by foreign commercial banks and of (bank) disintermedation than, for instance, that of the United States. These differences could be attributed to the fact that universal banking in Germany creates implicit barriers to entry. Yet, regulatory and informational differences which are unrelated to universal banking could be responsible for the observed difference as well. This paper provides a stylized theoretical model of the banking industry, which suggests that market segmentation and limited market entry can be due to a number of factors, including information costs. Preliminary empirical evidence does not provide clear evidence for the hypothesis that universal banking is the reason for the observed differences in financial systems.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 960.

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Length: 40 pages
Date of creation: Dec 1999
Date of revision:
Handle: RePEc:kie:kieliw:960

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Keywords: Competition in banking; universal banking; information costs; Germany; United States;

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References

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  1. Chiappori, Pierre-Andre & Perez-Castrillo, David & Verdier, Thierry, 1995. "Spatial competition in the banking system: Localization, cross subsidies and the regulation of deposit rates," European Economic Review, Elsevier, vol. 39(5), pages 889-918, May.
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  3. Neven, Damien & Roller, Lars-Hendrik, 1999. "An aggregate structural model of competition in the European banking industry," International Journal of Industrial Organization, Elsevier, vol. 17(7), pages 1059-1074, October.
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  11. Economides, N. & Hubbard, R.G. & Palia, D., 1995. "The Political Economy of Branching Restrictions and Deposit Insurance: A Model of Monopolistic Competition Among Small and Large Banks," Papers 95-14, Columbia - Graduate School of Business.
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  15. Grosse, Robert & Goldberg, Lawrence G., 1991. "Foreign bank activity in the United States: An analysis by country of origin," Journal of Banking & Finance, Elsevier, vol. 15(6), pages 1093-1112, December.
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  18. Franklin Allen & Douglas Gale, 1994. "A welfare comparison of intermediaries and financial markets in Germany and the U.S," Working Papers 95-3, Federal Reserve Bank of Philadelphia.
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