Brief Comparison on US and German Financial Systems

If we attach a word for the American and the German financial systems each, the word for American would be LIBERAL and CONFORM for German. For example, the US market tends to have less government intervention and is more market driven with a strong identity of entrepreneurship, while the German market tends to be heavily affected by politics. German enterprises conform to the government orders more than their American counterpart.

This seems to be a result of the history or culture. The ancestors of the American immigrants came to the US for freedom. They tried to limit anything anti-freedom. This type of built-in spirit rooted deeply in the heart of Americans. The geographical detachment from the mainland Europe and other part of the world enabled it to stay. On the other hand, Germany has a history of turmoil and the political environment for business makes freedom a luxury. Survival pressure put a strong mark of conformity to financial systems. That explains why US financial system separates commercial banks from investment banks to protect the benefit of general public, while German banks tend to aggregate, as a means of self-protection with a larger size.

No one system is better than the other. A good system can be defined as a FIT system for its unique environment. Either the German or the American financial system flourished because it was a fit in their respective historical and political background. As a matter of fact, the convergence of the two systems reflects the fact that their environments are converging as a result of the ending of the cold war and globalization.

Government should be watchful for the financial system, but not intervene too much. This is the characteristics of both financial systems now, and both work well.