Comparing Financial Systems

Why do different countries have such different financial systems? Is one system better than the other? This text argues that the view that market-based systems are best is simplistic, and suggests that a more nuanced approach is necessary.

Written by a team of scholars, predominantly from the Centre for Financial Studies in Frankfurt, this volume provides a descriptive survey of the present state of the German financial system and a new analytical framework to explain its workings.

Recoveries vary considerably across countries: our paper compares recoveries in bank-based and market-based economies and finds that market-based economies experience significantly and durably stronger rebounds than the bank-based ones (in particular the more bank-based economies of continental Europe). Further, stronger recoveries also tend to be associated with broader economic flexibility. Our findings suggest that dealing with bank sector vulnerabilities is paramount to support the recovery. In the medium term, structural policies to deepen financial markets are useful, but need to be complemented with structural measures to address rigidities more broadly in the real economy.

Financial systems tend to ...