‘Banking on the Deutsche Mark: The Bundesbank and West German bank internationalisation after Bretton Woods (1968–1985)’

This paper revisits the resurgence of cross-border activity by West German banks following two decades of international reticence after World War Two.  By the 1970s, German banks reoriented towards global capital markets as they built their capabilities in Eurobond underwriting and placement, mirroring the efforts of European and American issuing houses.  Drawing on largely unused public and private archival sources, the paper presents a narrative account of how an identity of interest between German monetary policymakers and commercial bankers laid the foundations for the internationalisation of German banks in the post-Bretton Woods era. 

The attractiveness of the German currency (the Deutsche Mark, DM) became the competitive thrust of German banks’ international business starting from the late 1960s.  Meanwhile, the Bundesbank sought to protect German banks from foreign competition in DM products, aiming to prevent the DM from becoming an international reserve currency.  The banks in return accommodated the stability imperative of the German central bank.  The DM privilege, however, would come into conflict with the Bundesbank’s hostility to financial innovation, which transformed international finance beginning in the 1970s.  Given their inexperience in new financial products, German bank managers thus found it difficult to embrace new trends of the 1980s such as securitisation and off-balance-sheet instruments.  The Bundesbank finally shifted its policy from monetary control towards regulatory competition, thus reducing barriers to entry in DM capital market products for foreign banks.  As the supportive domestic climate dissipated, German banks felt forced to compete in a re-dollarised financial marketplace and a formalised international level playing field.  

The paper finds that, bolstered by the home-currency privilege and protectionist informal domestic regulation, German banks harvested monopoly rents while successfully maintaining their ‘German’ corporate identity.  This contributes to the financial regulation literature, which holds that full competition among economic agents (i.e. banks) should be restricted when market rivalry might run counter to (financial) market stability.  The paper concludes that protectionist responses motivated by regulatory concerns may outweigh potential net gains in financial services liberalisation.  Conversely, financial stability may also undermine the ability of domestic banks to successfully face global competition.

Matthias Kemmerer is a doctoral student in economic and social history at Goethe University Frankfurt in Germany.  From 2016 to 2020, he worked as a research assistant for the German Society for Business History (GUG) and the Historical Commission at the Bavarian Academy of Sciences and Humanities.  Matthias was a participant in the European Business History Association (EBHA) Summer School hosted by Bocconi University in 2017 and a Recognised Student at Oxford University in Trinity term 2022.  Since 2020, his PhD has been funded by a doctoral scholarship from the Gerda Henkel Foundation.  In 2023, he will join the University of Stuttgart as a post-doctoral researcher in business history.