Postscript: Reform requirements of the German banking system

Supplementing the contributions published in ifo Schnelldienst 14/2005 on the three pillar model for the German banking sector, Prof. Wernhard Möschel, University of Tübingen, presents his reform proposals for the German banking system. For him the "traditional three pillar system, despite its performance in the past, is not a viable model for future German banking. Especially its international competitiveness is questionable. The dominance of the public sector in German banking is a hindrance to market forces. With the exception of Deutsche Bank AG at most, no private bank in Germany is immune to a hostile take-over from foreign banks." In addition Möschel sees the German three pillar model as an obstacle to the further integration of the European financial markets. This requires, in his opinion, a reform of formal, legal structures and ultimately a withdrawal of the public sector from German banking: "What is needed is deregulation and a subsequent, overall consolidation of the German banking sector under competitive conditions. Only then will the chance arise of achieving an optimal market structure in accord with the aspect of international competitiveness."