Systemic risk in the banking sector : the German model

As part of the completion of the European Banking Union, the decision on the organization of institutional and deposit protection is still pending. The mere linking of these two objectives, which are by no means necessarily identical in terms of content, has recently led to heated controversy. This article analyzes the fundamental components of systemic risk in (national) banking markets and provides a cursory insight into the structural characteristics of selected financial systems in the EMU.With a focus on the situation in Germany, criteria are derived that should guide the Europe-wide organization of both institutional and deposit protection. It is empirically substantiated that a diversified (national) banking market, particularly in terms of business models, is fundamentally superior to a homogeneous supply structure in the financial sector. This applies explicitly when banking groups with a similar orientation ("Verbünde") have separate institutional protection schemes.