Crisis aid to banks in Germany

The financial crisis hit Germany’s banking industry early and severely. But closer analysis reveals that Germany’s banking crisis was peculiarly asymmetric due to the country’s highly segregated three-pillar banking model, and to the differentiated business models, degrees of exposure to international financial markets, and reliance on interbank borrowing, that it entailed. These idiosyncrasies played a major role in shaping the three phases of Germany’s response to that crisis, from the early ad hoc aid measures designed to rescue the banks most heavily exposed to the subprime crisis, through the implementation of a comprehensive scheme to stabilise banks faced with liquidity issues, to the creation of a bad bank to tackle the most severely and persistently affected banks.