ABSTRACT
In this chapter I re-examine the Gerschenkron (1962) late industrialization thesis in light of the German case. I take the position that Gerschenkron’s explanation for the emergence of universal banking in Germany is insufficiently supported by the available evidence. A more compelling, or at least comprehensive, explanation for the particular historical form and development of German banking centers on political conflicts between the political center and periphery and their allied social and economic groups. More pointedly, to understand the emergence of universal banking as the dominant model for banking in Germany, one must go beyond Gerschenkron’s narrow focus on the handful of Big Berlin banks and incorporate the savings and cooperative banks. Indeed, the central institutional feature of the German banking system is universal banking based upon a tripartite division in which private commercial banks compete against public savings banks and mutual cooperative banks. As will be argued below, the competitive dynamic among these three groups played a crucial role in making universal banking the dominant bank strategy in Germany. In other words, it is only by understanding the different characteristics of these three banking groups and their co-evolution that one can understand the particular development of the German banking system.
