7. The Nature and Degree of Competition

At a national level, concentration measures and the number of independent organisations indicate a very low level of concentration in the German banking sector. However, if the cooperative and the public sectors are each considered as large, single institutions, concentration ratios are much higher. The interest margins of German banks have been slightly higher than in some other developed capitalist countries, such as Japan and France, but since 1995 margins have shown a downward trend. This can be related to increased competitive pressure in the deposit market due to the entrance of new financial institutions, in particular money market funds. At a regional level, concentration is considerably higher. Focusing on big cities and measuring competition by the number of branches in a certain area, savings banks and cooperative banks are the main players in the retail markets, while the big German banks are fringe players. Before 1995 the market for investment banking services was small, highly concentrated and dominated by German-owned banks. Since 1995, however, the market has grown, and foreign-owned banks have become much more important. The entrance of these new competitors led to a decline in the concentration ratios. However, the market for large IPOs today is dominated by a relatively small number of international investment banks, and only two German banks, Deutsche Bank and Commerzbank, belong to the big players.