Are the German Banks Riskier than the European Competitors

Germany had undergone a long phase of political instability prior to the unification of the East and West German regions. Afterward, the administration of the region had implemented various measures to ensure stability in the region from all aspects through the implementation of a large number of policies. Despite a significant amount of positive changes occurring in the domestic arena, when a comparison is made with other neighboring regions of Germany, in Europe, it often appears apparently that the former is in a far worse and thus riskier position. The present study is an analysis of the financial aspect of the German and non-German banks, i.e., the extent of financial stability in the two regions. Financial stability can again be captured through an evaluation of the risk quotient characteristic of the financial sector of the concerned regions. The greater the risk underlying the financial situation in the region, the lower will be the financial stability, which can again prove detrimental for economic stability and thus prospects of future economic growth into the region. This is the reason why a rigorous study about the underlying risk factors in the financial structure of a region is of utmost importance for the administration and a relatively risky situation is a rather alarming matter for the national authorities.

The present study involves an empirical analysis regarding the financial prospects of German and other non-German European banks. in other words, the paper tries to evaluate how far one group is riskier financially than the other one. The variable that is considered to sort this analysis out is the ratio of the total amount of liquid assets to that of the total amount of assets possessed by a firm. Comparison is made through using F-statistic, which relates the variations in the values of one group with those of another one, over the entire time frame and seeks out whether there is any significant difference in the innate characteristics of the two.