This chapter examines how individuals working in legitimate illegal markets protect property rights and address uncertainties, focusing on unlicensed street vending in China. Street vending is an essential part of urban economies in developing countries like China, with most street vendors operating outside state regulation. They encounter market-based uncertainties and unpredictable law enforcement. Empirical data collected in two Chinese cities suggest that street vendors form private governance organizations to overcome resource limitations, allocate pitches, and resist government interference. Street vendors who cannot rely on effective private governance organizations may purchase protection from a third party (e.g., agents of the state) to secure informal rights to a particular spot and avoid confiscation of their wares and equipment. This study contributes to the existing literature on extralegal governance institutions in illegal markets that are morally legitimate yet legally unauthorized.

This chapter first summarizes two essential achievements of this book. Empirically, our research addresses significant challenges associated with collecting empirical data on sensitive topics in authoritarian China and offers a comprehensive picture of extralegal governance institutions in China’s illegal markets. Theoretically, our research adopts and develops a socio-economic analytical approach, integrating new institutional economics with sociology to study extralegal governance institutions and illegal markets. This chapter also offers suggestions for future research, including employing a multidisciplinary approach, adopting the methods of comparative institutional analysis, and exploring the dynamic interaction between formal and extralegal institutions. It concludes with a number of policy implications for regulating illegal markets.

The conclusion summarises the book and reflects on what is at stake in reconceptualising the transformation of European banking as extroverted financialisation. It contemplates recent financial endeavours to ‘improve’ our global financial architecture and finds most somewhat lacking in their ability to introduce a global financial system that serves social rather than financial ends. In fact, missing the implications of EF, some of these endeavours have the potential to worsen, rather than improve, the threats of credit crunches and crises. Alternatively, we might be better off to consider more radical solutions that tackle the very nature of USD debt creation and the financial architecture itself.

Chapter 2 challenges three conceptions that dominate political economy accounts of financialisation: (a) that financialisation is best understood as a process of marketisation; (b) that financial systems transform in response to external drivers (i.e., marketisation) as ‘national varieties’ conceptually outside the global economy; and (c) that German finance is best conceptualised as a bank-based system which transformed into a hybrid from the 1990s onwards. Critically analysing the debate about the Americanisation of global finance, this chapter shows that the concept of marketisation captures the expansion of markets but struggles to identify fundamental transformations within markets themselves. As a result, political economy scholars rarely study banks in their own rights and underestimate the power and weaknesses of banks as agents of financialisation. Instead, this chapter introduces the theoretical building blocks of the concept of extroverted financialisation, which frames the analysis of the book. EF has four features that each represent a new imperative in global markets for European banks and that have shaped their responses to the rise of US finance: (a) the rise of liability management; (b) the need for USD; (c) the institutional specificity of US money markets; and (d) the contradictions of contemporary banking.

Chapter 6 delves into the heart of Deutsche Bank’s transformation towards a US investment bank. It situates the changes of Deutsche’s business model within its play of catch with US banks: To compete in Eurodollar markets, German banks had to find a way to institutionalise their connections to US money markets to improve their access to USD. The attempts to adopt liability management (LM) drove Deutsche’s partial uprooting from its home market to relocate to the US. This challenges the dominant narrative of a US imposition, instead recognising that the trajectory of change was driven by Deutsche’s strategies of extroversion. Tracing the specific practices of Deutsche’s foreign acquisitions and strategies on US money markets, this chapter reveals that Deutsche had to progressively change its traditional practices to accommodate the imperatives of LM. This transformation went from a change in funding strategies to acquire more USD to the corresponding adaptations on Deutsche’s asset side – from corporate loans to US residential mortgage-backed – or ‘toxic’ – securities. This chapter thus presents Deutsche’s move away from the centre of Germany Inc. towards a US investment bank as an outcome of the imperatives of extroverted financialisation.

Chapter 8 emphasises that the transition to financialised banking was no easy shift and only saw exceptional profits for a limited amount of time for European banks, if compared to US banks. This challenges accounts of financialisation that see the transition to US investment banking as a straightforward shift towards higher profits compelled by securities markets. The chapter documents the problems and contradictions that banks experienced internally and externally, and the resistance of Deutsche Bankers to the practices of liability management (LM) as they experienced losses of their traditional power and autonomy over banking practices. This chapter thus shows how unlikely it was initially for Deutsche to transform so thoroughly towards US finance. It argues that LM is better understood as a necessity to accommodate the higher costs, risks and logics of banking in US money markets. While the financial calamity of 2008 propelled a rethink of Deutsche’s path, financialised banking is not easily reversed, and German banks continue to struggle with the need to raise USD funding. As such, we should worry about banks’ USD funding gap as key source of vulnerability and risk. While a few select US banks have excelled in mastering LM as a powerful technique to flexibly (mis-) match their balance sheets, everyone else suffers from the fallout of the relentless near crisis mode of global finance.

Chapter 7 traces Commerzbank’s trajectory of financialisation to highlight how its extroverted strategies differed from those of Deutsche Bank. Commerzbank is a less-likely actor of financialisation as it is a smaller bank and has historically focused on the European SME sector. Commerzbank attempted a transformation without major relocation, and redirected fewer resources to its strategies of liability management (LM). While it established the first German foreign branch in the US in 1971, it never bought a major US or British institution. Commerzbank’s more hesitant approach meant that the bank failed to uphold itself in US money markets several times. The chapter shows that Commerzbank’s significant US immersion only happened during the GFC when it bought the larger Dresdner Bank during the 2008 financial crisis but could not manage Dresdner’s heavy exposure to US RMBS, eventually resulting in a public bailout. Commerzbank’s alternative story demonstrates that the rise of US finance made LM a transformative but differentiated concern for non-US banks.

Why have European banks embarked on a radical transformation in which they became deeply dependent on US financial markets, a relationship they are ill-equipped to manage and less likely to overcome? This chapter introduces and summarises the book. It outlines the debates about the Americanisation of global finance and presents the concept of extroverted financialisation to help explain US-led financialisation outside the US.

Chapter 5 lays out the institutional grounding for global financial markets and their currency, the USD. This provides an answer to an ongoing puzzle on the origins of the 2008 financial crisis. Scholars of the global banking glut hypothesis recognise that European banks were deeply connected to US finance but do not fully account for why this was the case. By contrast, this chapter demonstrates that, despite their global nature, US and Eurodollars are thoroughly grounded in US financial institutions, which has given US banks an additional competitive edge over other banks. The complex institutional infrastructure made US financial markets exceptionally deep and liquid so that US banks could flexibly fund their practices of liability management (LM) in US money markets and arbitrage between Euro- and USD markets. By contrast, European banks’ money markets were ill-equipped for LM while foreign banks faced heavy restrictions to bank in the US until the 1970s. This posed a key constraint to the international practices of the European banks. In response, German banks expanded their offshore funding practices to access more USDs to be able to compete against US banks.

Chapter 3 starts the recalibration of financialisation by telling an alternative history of German finance. It zooms in on the struggles over deposits to provide the historical and institutional backdrop to appreciate the key differences and overlaps in US and German financial markets, and to understand those financial developments that set them apart from the 1960s onwards. This chapter examines the development of the Pfandbrief (covered bond) from the eighteenth century onwards to establish that market-based funding practices have a long history in Germany. After the devastation of the Seven Years’ War (1756–1763), banks and the state (the Prussian prince and its gentry) together sought new ways to boost lending and borrowing with the help of financial securities and collateral. This chapter shows that German housing finance was historically much more market-based than in the US. While the Pfandbrief has been a key financial security promoting long-term lending, it was used predominantly by specialised mortgage and public savings banks. Universal banks only entered the fray in the 1970s when their corporate deposits declined. Chapter 3 shows that German banking was geared towards market-based finance but different to the one that emerged as part of US-led financialisation.

Chapter 4 situates the beginnings of extroverted financialisation at the time when US banks started to dominate the Eurodollar markets from the 1960s onwards. The Euromarkets are an important turning point for financialisation, but their impacts on European finance are rarely examined. During this time, however, German banks had their first contact with new US innovations, which fundamentally links the German post-WWII political economy with global offshore markets, significantly before the 1990s, when many accounts date the impact of financial globalisation. Identifying a gap of international funding for its developing export sector, this chapter shows that the making of the German coordinated market economy was already bound up with global financial markets. Tracing the financial innovations of German banks, this chapter argues that the transformative impact of US finance is not market expansion or regulatory evasion by going offshore per se. Instead, financialisation has posed distinct imperatives in relation to the rise of liability management that induced a qualitative change. Liability management fundamentally differs from the German banks’ original international strategies, which drove the banks' turn to the Eurodollar markets in order to meet the US challenge.