Banking Supervision and Deposit Insurance in Germany, 1974-84: Keeping the State at Arm's Length

Abstract

Explores the lack of response from the German political system concerning financial policy & its minimal changes in the sectoral governance mechanism despite sweeping changes in the international financial markets during the last quarter of the 20th century. The collapse of the Herstatt Bank in 1974, plus crises in other banks, could have altered the framework of regulation & power between government & the private financial sector, but little was changed other than the creation of the Basle Committee for international cooperation in banking supervision. First explaining the structure of the German banking industry, the historical development of banking supervision, & the supervisory institutions, this article explores the policy episode between 1974 & 1984. It is argued that the amount of self-regulation retained by the private sector has hindered the development of powerful institutions & bureaucracies for international competition & has left the German government uninformed as to the inner working of the financial sector. The emergence of the European Monetary Union, however, may dictate reform to solve deposit insurance problems. L. A. Hoffman