After years of merger talk, Germany finally has a new heavy-weight bank: Commerzbank’s acquisition of Dresdner Bank from Allianz, the insurer, provides a rare example of consolidation in a sector still dominated by publicly owned small-scale banks. The deal, however, is unlikely to precipitate an overhaul of Germany’s banking sector soon. That is unfortunate.

Split three ways between commercial, public and co-operative banks, German retail banking is oversupplied and margins are slim. Costs need to be cut. However, consolidation is difficult because German states want to keep their stakes in local Landesbanken, which together with savings and co-operative banks dominate the retail sector.