Our new study shows: an oversized financial sector harms the economy and society.
- The size of the financial sector in the eurozone has doubled relative to GDP in the last 20 years.
- The sector is fulfilling less and less of its original function of lending to firms and households. Instead, many financial transactions take place exclusively within the financial sector.
- If the financial sector is to be more inclusive again, it must shrink.
Text book economics suggests that the main business of a bank like Deutsche Bank is credit provision. After all, Deutsche Bank grants loans worth 431 billion euros. That sounds like a lot at first and corresponds to more than one tenth of Germany’s gross domestic product (GDP).
But in comparison with the exposure from derivatives, credit provision suddenly appears minuscule. After all, Deutsche Bank’s outstanding derivatives add up to a staggering 32,000 billion euros, or 1,000 percent of Germany’s GDP.
The study paints a clear picture that large parts of the financial market are unnecessary and even harm society and the economy in many places. In the eurozone, the size of the financial sector has doubled relative to GDP in the last 20 years. This trend now needs to be reversed so that the financial sector is once again more at the service of society and the real economy.