The German Financial System

This is a much needed volume on the German financial system providing both a descriptive survey of the present state of the system and a new analytical framework to explain its workings. This book is written by a team of scholars, predominantly from the Centre for Financial Studies in Frankfurt.

List of Figures

xiii

List of Tables

xv

Notes on Contributors

xvii

Part I Introduction and Overview

1

(68)

The Purpose and Structure of the Book

3

(16)

Jan Pieter Krahnen

Reinhard H. Schmidt

Motivation

3

(2)

Questions to be Asked: What Can We Learn from the Modern Literature on Financial Development?

5

(3)

Myths, Methods, and Major Insights

8

(8)

Who Should Read this Book?

16

(3)

What Constitutes a Financial System in General and the German Financial System in Particular?

19

(50)

Reinhard H. Schmidt

Marcel Tyrell

The Purpose and Structure of this Chapter

19

(1)

The Meaning of the Term 'Financial System' and the Importance of Financial Systems

20

(3)

Different Approaches to Analysing Financial Systems

23

(7)

The German Financial System: an Overview of its Characteristic Features

30

(27)

A Brief International Comparison and a Short Outlook

57

(12)

Part II Financial Sectors and Corporate Finance

69

(220)

German Banks and Banking Structure

71

(35)

Andreas Hackethal

Introduction---Bank Disintermediation in Germany?

71

(2)

The Structure of the Banking Market

73

(14)

Major Trends in the German Banking Market

87

(3)

Reports of the Death of Commercial Banking Might be Exaggerated

90

(9)

Outlook

99

(1)

Conclusion

100

(6)

Institutional Investors in Germany: Insurance Companies and Investment Funds

106

(33)

Raimond Maurer

Introduction

106

(2)

Insurance Companies

108

(15)

Investment Funds

123

(16)

Organized Equity Markets

139

(24)

Erik Theissen

Introduction

139

(1)

The German Equity Market

139

(4)

The (Micro)Structure of the German Equity Market

143

(16)

Conclusion

159

(4)

Monetary Policy Transmission and the Financial System in Germany

163

(34)

Andreas Worms

Introduction

163

(1)

The Effects of Monetary Policy on Output and Inflation in Germany

164

(3)

The Channels of Monetary Policy Transmission

167

(9)

Is There a Credit Channel in Germany?

176

(14)

Summary and Conclusions

190

(7)

Universal Banks and Relationships with Firms

197

(36)

Ralf Elsas

Jan Pieter Krahnen

Myth and Motivation

197

(1)

Universal Banks as Financiers of Large Companies: Equity Stakes and Proxy Voting

198

(9)

Banks as Financiers of Small and Medium Enterprises: Lending Relationships

207

(6)

Banks as Financiers of Small and Medium Enterprises: Intertemporal Smoothing, Liquidity Insurance, and Credit Availability

213

(6)

Banks as Financiers of Small and Medium Enterprises: Borrower Distress, Reorganization, and Liquidation

219

(7)

The Hausbank: Myth, Reality, and the Future

226

(7)

Initial Public Offerings and Venture Capital in Germany

233

(28)

Stefanie Franzke

Stefanie Grohs

Christian Laux

Introduction

233

(1)

Initial Public Offerings

234

(5)

Venture Capital Financing in Germany

239

(7)

Why are there so Few IPOs and so Little VC in Germany?

246

(9)

Conclusion

255

(6)

Mergers and Acquisitions in Germany: Social Setting and Regulatory Framework

261

(28)

Frank A. Schmid

Mark Wahrenburg

Introduction

261

(2)

The Social Setting

263

(6)

The Regulatory Framework

269

(6)

Takeover Barriers

275

(9)

Conclusion

284

(5)

Part III Regulation and Corporate Governance

289

(194)

Regulation and Competition in German Banking: An Assessment

291

(59)

Karl-Hermann Fischer

Christian Pfeil

German Banking---Stability and Market Power

291

(28)

A Closer Look---Selected Issues in German Bank Regulation

319

(21)

Conclusion

340

(10)

Corporate Governance: Legal Aspects

350

(36)

Oliver Rieckers

Gerald Spindler

Introduction

350

(3)

Principles and Peculiarities of German Corporate Governance

353

(3)

The Structure of the German Stock Corporation

356

(12)

The Law of Corporate Groups

368

(6)

Current Issues

374

(11)

Conclusion

385

(1)

Corporate Governance in Germany: An Economic Perspective

386

(39)

Reinhard H. Schmidt

The Problem

386

(2)

Basic Concepts

388

(2)

German Corporate Governance from a Systemic Perspective

390

(14)

Developments in German Corporate Governance

404

(14)

Concluding Remarks

418

(7)

Investor Protection and Capital Market Regulation in Germany

425

(25)

Eric Nowak

Introduction

425

(1)

Changes in the Structure of Share Ownership and Growth of the German Stock Market

426

(2)

A Chronology of Formal Legal Changes in the German Capital Market

428

(13)

The Emergence of a Market for Corporate Control

441

(3)

Summary and Outlook

444

(6)

The Role of Accounting in the German Financial System

450

(33)

Christian Leuz

Jens Wustemann

Introduction: Accounting Myths

450

(1)

Financial Accounting and the Institutional Framework

451

(5)

Institutional Analysis

456

(12)

Empirical Evidence

468

(6)

Conclusion

474

(9)

Appendix

485

Part IV Perspectives

483

(34)

Taking Stock and Looking Ahead: The German Financial System at the Crossroads?

485

(32)

Jan Pieter Krahnen

Reinhard H. Schmidt

What We Want to Achieve in this Chapter

485

(2)

Recent Developments and the Current State of the German Financial System: Continuity and Change

487

(10)

Looking Ahead: a Debate Between Three Positions

497

(20)

List of Websites

517

(4)

Index

521

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The German Financial System

Summary

Table of Contents

Supplemental Materials