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This paper aspires to provide an overview of the issue of diversity of banking and financial systems and its development over time from a positive and a normative perspective. In other word: how different are banks within a given country and how much do banking systems and entire financial systems differ between countries and regions, and do in-country diversity and between-country diversity change over time, as one would be inclined to expect as a consequence of globalization and increasingly global standards of regulation?
As the first part of this paper shows, the general answer to these questions is that there is still today a surprisingly high level of diversity in finance. This raises the two questions addressed in the second part of the paper: How can the persistence of diversity be explained, and how can it be assessed? In contrast to prevailing views, the author argues that persistent diversity should be regarded as valuable in a context in which there is no clear answer to the question of which structures of banking and financial systems are optimal from an economic perspective
This paper is a draft for the chapter "German banks and banking structure" of the forthcoming book "The German financial system" edited by J.P. Krahnen and R.H. Schmidt (Oxford University Press). As such, the paper starts out with a description of past and present structural features of the German banking industry. Given the presented empirical evidence it then argues that great care has to be taken when generalising structural trends from one financial system to another. Whilst conventional commercial banking is clearly in decline in the US, it is far from clear whether the dominance of banks in the German financial system has been significantly eroded over the last decades. We interpret the immense stability in intermediation ratios and financing patterns of firms between 1970 and 2000 as strong evidence for our view that the way in which and the extent to which German banks fulfil the central functions for the financial system are still consistent with the overall logic of the German financial system. In spite of the current dire business environment for financial intermediaries we do not expect the German financial system and its banking industry as an integral part of this system to converge to the institutional arrangements typical for a market-oriented financial system.