Financial Intermediation: The Case of German Credit Cooperatives

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Financial intermediation is crucial to the growth of any economy. Without some mechanism to match savers to investors, an economy lacks the ability to channel surplus resources to productive ends. In historical and modern economies alike, however, information and other problems have sometimes limited the ability of financial institutions to play their role in the allocation of capital. The purpose of this research is to analyze a type of financial intermediary that was extremely successful in an environment inhospitable to the methods of conventional banks; the German agricultural credit cooperatives formed during the nineteenth century. The project is designed to exploit historical sources and draw on modern economic theory to understand why these credit cooperatives were able to perform financial intermediation services for those too poor to be desirable customers for banks. This research is important because the understanding of the evolution of capital market institutions is critical to any understanding of long term economic growth and development. Also, a better understanding of the efficiency of agricultural credit co-ops may have useful implications for current policy regarding developing countries.