Fifty years of financial regulation in Germany

This chapter gives an overview on how financial market regulation evolved in Germany since the 1970s. The picture presented is somehow contradicting, as it seems that banking regulation and capital market regulation evolved in a quite different way. As far as banking regulation is concerned, it will be shown that starting with the Herstatt crisis in 1974 there was a clear trend towards tightening and increasing the regulatory perimeter. By analysing how the budget of the German banking supervision authority evolved since 1988, this claim will also be corroborated empirically. The picture with respect to capital market regulation is quite different, however. Here, the regulatory process started back in the year 1990 and, at least for the first decade, it was focused towards liberalizing and modernizing the German capital market. It will be argued that there is an underlying public choice mechanism able to explain this different development in two adjacent areas of financial market regulation.