Enterprise and Society Advance Access originally published online on August 3, 2007
Enterprise and Society 2007 8(3):602-641; doi:10.1093/es/khm068
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Does Civil Law Tradition and Universal Banking Crowd out Securities Markets? Pre-World War I Germany as Counter-Example
Research Professor of Economics at Johns Hopkins University, Department of Economics and Institute for Applied Economics and the Study of Business Enterprise. Contact information: Department of Economics, Mergenthaler Hall, Johns Hopkins University, Baltimore, MD 21218
fohlin{at}jhu.edu
This article poses three main questions: Does the civil-law tradition favor large, concentrated, universal banking systems? Does this sort of legal system work against the development of active securities markets? Do powerful universal banks (whether or not legal tradition lies at the root of bank power) replace securities markets or prevent them from operating efficiently? Based on evidence from Pre-World War I Germany, this paper argues that the answer to all three questions is "no."
I am grateful first and foremost to Gary Herrigel for his several rounds of editorial advice and comments. I also thank Jeff Fear and an anonymous referee for extensive and helpful input on earlier drafts as well as to seminar participants at the 2006 SASE meetings in Trier, Germany and at the Board of Governors of the Federal Reserve. My thanks go as well to Tobias Brünner, Thomas Gehrig, and Steffen Reinhold, who have co-authored two studies reported on extensively in this article, and to John Latting. This research has been funded by the U. S. National Science Foundation.