The German government rejected calls for an overhaul of the country's banking industry on Monday after a bid by Italy's UniCredito for HVB Group rang alarms bells over the future of the sector. Weakened by years of losses, hamstrung by poor growth prospects at home and frustrated by structural and political hurdles to a domestic merger, Germany's second biggest bank agreed on Sunday to be bought by Italy's leading player.
The government declined to comment on the UniCredito-HVB deal - worth nearly 20 billion euros ($24.5 billion) in total - but rejected suggestions that the barriers dividing the industry into state, co-operative and private sectors needed to be torn down.
"The three-pillar system has proved its worth in Germany and there is no need currently to call it fundamentally into question," a Finance Ministry spokesman said.
Economy Minister Wolfgang Clement said HVB only had itself to blame for its loss of independence.
"(This is) a sign that the banks, and particularly this bank, have not prepared themselves in time," he told reporters.
Industry commentators said HVB Chief Executive Dieter Rampl had little choice but to seek a safe port in a storm and called for politicians to create the conditions that would allow the country's banks to merge and form global competitors.
"The takeover is a warning shot across Germany's bows," said newspaper Die Welt. "Neither protectionism nor political intervention are the right answer to take-overs of German companies, rather a clear policy of reform."
German banks such as Deutsche Bank and Dresdner Bank once numbered among the top global players. Now Europe's biggest economy and the world's leading exporter is unable to determine the future of its financial industry.
"It is a very bad day for the German financial market, but it cannot be avoided," banking expert Wolfgang Gerke said on German television. "If you consider how strong German banks once were internationally, then that is very sad."
Deutsche Bank, Germany's biggest bank with a market value of 37 billion euros, no longer ranks among the European top 10.