Banking in Transition

On 1 July 1990, some 16 million East Germans awoke to a new set of laws, a new currency, and a new banking system. The East German commercial banking system was purchased by the two largest West German banks, the Deutsche Bundesbank became the central bank, and soon all that remained of the East German banking system were its local Savings Bank and Credit Cooperatives. As a result, expectations were high that its economy would soon catch up with West Germany, especially since the West German banking system had been credited with playing a leading role in the Federal Republic's successful reconstruction after 1945. A major recession followed. Using Germany as a focal point, this book asks whether foreign banks can solve the problems involved in creating a well-functioning market economy. Drawing on extensive interviews, as well as a range of English and German sources, it argues that there are no quickfix solutions to transition to a market economy. The German case is also accompanied by a broader review of the situation in Central and Eastern Europe. The findings contain lessons for academics, policy-makers and bankers in all countries undergoing financial development and deepening.