A Bank-Based Financial System In a bank-based financial system, banks play a key role in the economy. Such a system has its own set of advantages and disadvantages that make it unique. Let's explore why Germany has a bank-based financial system and delve into its advantages and disadvantages. What is a Bank-Based Financial System? 1 2 3 Definition Role of Banks Regulation A financial system in which Banks provide loans and Banks are highly regulated to banks act as the principal finance for individuals and maintain stability and prevent financial intermediary. organizations. excessive risk-taking. Advantages of a Bank-Based Financial System 1 Stability 🚀 2 Easy Access 👋 3 Long-Term Banks are highly regulated, Banks provide easy access Investment 💸 which helps maintain to loans and finance for Banks help support long- financial stability. individuals and businesses. term investment, which is essential for economic growth. Disadvantages of a Bank-Based Financial System Risk of Economic Crashes High Transaction Costs If banks invest in high-risk assets, it can lead to Banking transactions can come with high fees, economic instability and crashes. which can hurt smaller clients and organizations. Why is Germany's Financial System Bank-Based? 📈 1. Low Use of Stocks 2. Small but Long-Term Businesses 3. Proactive Bank Regulation 🎖️ 🏢 The Role of Banks in the German Economy Relationship-Oriented Strategic Partnerships 🤝 Focus on Local Businesses 🏭 German banks prioritize Banks work closely with Banks promote regional establishing long-term businesses to provide expert economic growth by investing relationships with their advice, finance, and in local businesses and clients. investments. projects. 🤝 Bank-Based Financial Systems Around the World Germany Japan South Korea Germany has the largest bank- Japan's financial system is also South Korea has transformed based financial system in the heavily based on banks, with from a traditional banking world. three megabanks accounting for system to a more market- 30% of banking assets. oriented system, still based on banks. Is a Bank-Based Financial System Right for You? Pros Cons Stable and secure High transaction costs Easy access to funds Can lead to economic instability Promotes long-term investment Limited choice of financing options