Do We Need More Financial Integration

Financial integration, in practice measured as a convergence of indicators, for example prices, on different markets like money, credit or government bond markets and is a goal which European policy makers intend to reach. Yet, the process was interrupted and even reversed by the global financial crisis. Insofar the crisis made clear that pure convergence wasn't just right. In this context we propose a different approach resulting in workable competition and economic growth: local banking structures. Since overly integrated markets bear huge downside risks, we show how the German banking market, mainly because of the business model of savings banks, overcame the crisis very quickly and grants much better access of external finance to small and medium-sized firms in an international perspective.