German banking and the rise of financial capitalism: a case of extraverted financialisation

Beck, Mareike (2019) German banking and the rise of financial capitalism: a case of extraverted financialisation. Doctoral thesis (PhD), University of Sussex.

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Abstract

This thesis examines the impact of the rise of US finance on the financialisation of German banking. The Great Financial Crisis (GFC) has highlighted that German banks have been deeply involved in US speculative practices. Departing from their traditional role as provider of long- term loans to corporations and broader commitment to German industry, it appears that German banks have become increasingly like US American banks.
This shift towards a US form of finance is often understood as a process of ‘marketisation’. German banks supposedly adopted ‘market-based banking’ because they could make higher profits on global financial markets. However, the notion of market-based banking cannot account for the novel imperatives and constraints that the rise of US finance has raised for German banks. Market-based financial practices have a long history in German banking and, therefore, cannot explain the profound transformations of US-led financialisation. Consequently, scholars struggle to grasp why and how German banks changed their practices in response to the rise of US finance.
To understand the trajectory of German banking, I propose the original concept of ‘extraverted financialisation’. The concept aims to capture the problems of financial agents seeking to imitate financial practices that others have developed in a different context. The concept more specifically portrays the rise of US style finance in Germany as an outcome of a major shift in the way US banks have funded themselves. In the 1960s, US banks started to fund themselves with short-term securities issued in US money markets, which allowed them quicker access to larger amounts of funds. This strategy, called liability management (LM), imposed novel and distinct imperatives for non-US banks: accessing US dollars (USD). I show how this forced German banks to find a way into foreign financial markets which were based in London and Luxemburg (the Eurodollar markets), and more importantly in the US. As a result, German banks had to gradually implement the practices of LM to obtain USD from US money markets to operate in these markets.
I articulate my argument through historicising the strategies of the two biggest German banks: Deutsche Bank and Commerzbank. Chapter two surveys the CPE literature on the transformation of German banking and establishes the concept of extraverted financialisation. Chapter three examines the strategies with respect to their original market-based funding, the Pfandbrief, to highlight that not all market-based practices lead to financialisation. In chapter four, I analyse how German banks started seeking dollars on the Euromarkets in the 1960s to regain their capacity to finance the internationalising German industry. Chapter five demonstrates how the attempts to access USD in US money markets since the 1970s drove German banks’ shift to LM. Finally, I scrutinise the banks’ internal power struggles over strategies of how to respond to the imperatives of LM. This will highlight the severity of LM’s impact and the banks’ dependence on USD it has caused. The conclusion emphasises the broader implications of the rise of US finance for (policy) initiatives to transform global banking.

Item Type: Thesis (Doctoral)
Schools and Departments: School of Global Studies > International Relations
Subjects: H Social Sciences > HG Finance > HG1501 Banking
Depositing User: Library Cataloguing
Date Deposited: 06 Nov 2019 08:59
Last Modified: 07 Dec 2021 13:31
URI: http://sro.sussex.ac.uk/id/eprint/87831

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