German banking is distinguished from neighboring European banking systems by the influence of its public sector banks. Nearly 50 percent of German banking is carried out by government owned state banks (ländesbanken) and regional savings banks (sparkassen) whose roots date from the 18 th century. German banks play a particularly important role in the economy and exert more control over firms and corporations than do their American counterparts. German banks tend to be less profitable than foreign counterparts. German public banks were originally founded to foster local and regional business. However, the operations of German public sector banks now extend into all forms of international investment. German public banks are currently seeking new business models to increase profits as they are being forced to compete in the global financial market under liberal market practices dictated by the European Union. Turbulence in the global financial market precipitated by the U.S. sub‐prime mortgage meltdown has severely impacted German public sector banks, precipitating a banking crisis that leaves German taxpayers exposed to staggering losses. These global financial pressures dictate the restructuring of the German financial system. This restructuring has forced a breaking point in the traditional German corporatist banking model and is associated with significant risks to the stability of the German banking system.