German Public Banks, Competition, and Risk: Deregulation of Landesbanks and German Vulnerability to Crisis

This article uses historic and balance sheet analysis to argue that financial deregulation and competitive pressures in financial markets motivated German Landesbanks, large public banks that historically served small and medium enterprises and funded public expenditure, to engage in risky financial practices that precipitated their failures in the 2008 Global Financial Crisis. By contrast, Sparkassen, public municipal-level savings banks that maintained a lending-based model, protected households and small businesses from credit crunches following the Global Financial Crisis. The article shows that pressuring public banks to maximize profits negates the benefits these institutions can offer, while increasing economic instability overall.