The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.
Opinion

KfW: Germany’s source of cheap capital

Germany is famous for its engineering and infamous for its banks – but how does a $4 trillion economy get by with only one battered global systemically important bank? And is the answer also the problem or an example to follow?

euro-mark-780



Germany’s third-largest bank, KfW, is a development bank unlike any other – designed originally by the UK and US military governments specifically to complement a fragmentation of German banking they enforced. 

Its remit now ranges from student loans to financing Germany’s renewable energy drive through to occasional transactions for the government in the national interest, such as last year’s thwarting of a Chinese acquisition. 

How does such an organ of the government avoid distorting the market, let alone survive state aid rules? The EC examined it closely in 2002 and obliged it to spin out project and export finance. But the fundamental idea of a bank to support rather than compete with the commercial banking sector is alive and well, and blessed with broad domestic consensus. 

KfW operates on the principle that it finances the public good, where the market is unable to do so economically. Is KfW a disincentive for the market to find a way, therefore perpetuating the fragmentation it was designed to offset? The idea of ‘market failure’ seems also to include ‘a little bit more expensive’. 

Maintaining equilibrium

Commercial bankers grumble a bit in private but don’t challenge the fundamental principles of the arrangement.




You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree