The German banking system is characterized by high fragmentation low profitability and low
foreign ownership. Main reason for this is its particular structure that can best be described
as forced segmentation. This structure produces local banking markets. The book argues that
local bank competition is not as pronounced as national concentration ratios predict and
presents a bank pricing study which indicates that local banks banks located in less densely
populated areas and less productive banks tend to charge higher prices for retail bank services
than banks that operate nationally. These results as well as lessons drawn from international
reforms suggest that the German banking system could benefit from cross-pillar consolidation
which promises to export competition from the national to local banking markets. Last but not
least the book analyzes political economy implications of banking reforms and provides
suggestions on status quo resolution by identifying ways to facilitate reform implementation in
the German banking system.
