The German Financial System And The Financial And Economic Crisis (financial And Monetary Policy Studies)

This book provides an up-to-date overview of the development of the German financial system, with a particular focus on financialization and the financial crisis, topics that have increasingly gained attention since the crisis and the discussion on the secular stagnation started. The authors of the book -- economists who have conducted extensive research in this area -- offer a perspective on the financial system in the context of its importance for the overall economic system. The book not only provides detailed insights into Germany's financial system; it also takes a broader perspective on finance and connects it with current macroeconomic developments in Germany Preface 6 Contents 8 Abbreviations 14 List of Figures 17 List of Tables 23 1 Introduction 26 Abstract 26 1.1 Financialisation in Germany? 26 1.2 The Historical Development of the German Financial System 27 1.3 The Growth of Finance and Its Role Since the 1980s—A Quantitative Overview 28 1.4 The Institutional Structure of the German Financial System 29 1.5 Germany’s Integration into International and European Financial Markets 29 1.6 Regulation of the German Financial System 30 1.7 The Nature and Degree of Competition 31 1.8 Profitability of the Financial Sector and Sub-sectors 31 1.9 Efficiency of the Financial Sector 32 1.10 Sources of Funds for Business Investments: Non-financial Corporate Sector and Small and Medium-Sized Enterprises (SMEs) 32 1.11 The Involvement of the Financial Sector in the Restructuring of the Economy 33 1.12 Privatisation and Nationalisation Policies and the Financial Sector 34 1.13 The Financial Sector and Private Households 34 1.14 The Real Estate Sector and Its Relation to the Financial Sector 35 1.15 Financialisation and Income Distribution 36 1.16 Crisis and Macroeconomic Policies 36 1.17 Final Conclusions 37 References 38 Development and Structure of the German Financial System 39 2 The Historical Development of the German Financial System 40 Abstract 40 2.1 Introduction 40 2.2 German Industrialisation 41 2.3 The Inter-war Period 44 2.4 The Post-war Period in West Germany 46 2.5 Conclusion 49 References 50 3 The Growth of Finance and Its Role Since the 1980s—A Quantitative Overview 51 Abstract 51 3.1 Introduction 51 3.2 Financial Assets in the German Economy 52 3.3 Size and Activity of Banking and Financial Markets in Germany in International Comparison 56 3.4 Increased Financial Activity in the German Financial and Non-financial Corporate Business 64 3.5 The Rise of Institutional Investors 72 3.6 Conclusion 74 References 75 Data Sources 75 4 The Institutional Structure of the German Financial System 77 Abstract 77 4.1 Introduction 77 4.2 Banks 78 4.2.1 Private Banks 78 4.2.2 Savings Banks 84 4.2.3 Cooperative Banks 86 4.2.4 Specialised Banks 87 4.3 Securities Markets 87 4.4 Shadow Banks 89 4.5 Conclusion 91 References 92 Data Sources 92 5 Germany’s Integration into International and European Financial Markets 93 Abstract 93 5.1 Introduction 93 5.2 International Payment Flows 94 5.3 International Investment Position and Bank Lending 98 5.4 Financial Integration in Europe 102 5.5 Conclusion 110 References 111 Data Sources 111 6 Regulation of the German Financial System 112 Abstract 112 6.1 Introduction 112 6.2 Supervisory Institutions in Germany 113 6.3 The Development of the German System of Financial Regulation Until 2007 117 6.3.1 The Regulatory Framework After the Second World War 117 6.3.2 Adaptions of the Regulatory Framework Due to Banking Crises 118 6.3.3 Facilitators of Changes from the 1980s on 119 6.3.4 The Effects of the Financial Crisis After 2007 126 6.4 Conclusion 127 References 128 Competition, Profitability and Efficiency 131 7 The Nature and Degree of Competition 132 Abstract 132 7.1 Introduction 132 7.2 Concentration on the National Level and International Comparison 133 7.3 Retail Banking and Regional Markets 136 7.4 Interest Rate Spreads in Germany and in International Comparison 137 7.5 Competition in Investment Banking 139 7.6 Conclusion 142 References 143 Data Sources 143 8 Profitability of the Financial Sector and Sub-sectors 144 Abstract 144 8.1 Introduction 144 8.2 Profitability of the German Banking Sector in International Comparison 145 8.3 Internal Comparison of the Profitability of the German Banking Sector 148 8.4 Comparison of the Profitability of the Financial Corporate Sector with the Non-financial Corporate Sector 155 8.5 Conclusion 157 References 158 Data Sources 158 9 Efficiency of the Financial Sector 159 Abstract 159 9.1 Introduction 159 9.2 Approaches Towards Efficiency 160 9.3 Efficiency of the German Banking Sector in International Comparison 161 9.4 Efficiency of Different Segments of the German Banking Sector 164 9.5 The Effect of Mergers on the Efficiency of the Banking Sector 167 9.6 Conclusion 167 References 169 Data Sources 170 Finance and the Non-financial Sector 171 10 Sources of Funds for Business Investments: Non-financial Corporate Sector and Small and Medium-sized Enterprises (SMEs) 172 Abstract 172 10.1 Introduction 172 10.2 Sectoral Composition, Profit Shares and Real Investment 174 10.3 Sources and Uses of Profits of Non-financial Corporations 177 10.4 Real Investment Finance of Non-financial Corporations 179 10.5 Real Investment Finance of Small and Medium-sized Enterprises (SMEs) 182 10.6 Conclusion 187 References 188 Data Sources 189 11 The Involvement of the Financial Sector in the Restructuring of the Economy 191 Abstract 191 11.1 Introduction 191 11.2 Changes in German Corporate Governance since the 1990s 192 11.3 Conclusion 201 References 202 Data Sources 203 12 Privatisation and Nationalisation Policies and the Financial Sector 204 Abstract 204 12.1 Introduction 204 12.2 Privatisation Before the Financial Crisis in 2007/2008 205 12.3 Financial Institutions and the Government During the Financial Crisis 213 12.4 Conclusion 221 References 222 Data Sources 223 13 The Financial Sector and Private Households 224 Abstract 224 13.1 Introduction 224 13.2 The Development of Income Distribution and the Components of Private Household Sector Income 225 13.3 Consumption and Saving of Private Households 225 13.4 Household Wealth and Indebtedness 230 13.5 Conclusion 236 Appendix 237 References 239 Data Sources 240 14 The Real Estate Sector and Its Relation to the Financial Sector 242 Abstract 242 14.1 Introduction 242 14.2 Historical Background and Institutional Framework 243 14.3 Size and Composition of the German Real Estate Stock 249 14.4 Relevance of the Real Estate Sector for German Economic Activity 250 14.5 Investment in Real Estate 253 14.6 Real Estate Prices and Rents 256 14.7 The Relation of the Real Estate Sector with the Financial Sector 258 14.8 Institutional Investors in the Real Estate Sector 263 14.9 Conclusion 266 References 267 Data Sources 268 Finance, Distribution and Crisis 269 15 Financialisation and Income Distribution 270 Abstract 270 15.1 Introduction 270 15.2 Trends of Re-distribution Since the Early 1980s 271 15.3 The Effect of Financialisation on Distribution 275 15.4 Conclusion 283 References 284 Data Sources 286 16 Crisis and Macroeconomic Policies 287 Abstract 287 16.1 Introduction 287 16.2 The German Macroeconomic Policy Regime in the Era of Finance-Dominated Capitalism 288 16.3 The Transmission of the Crisis to Germany 293 16.4 The Bailout of the Financial Sector 296 16.5 Macroeconomic Policies and Recovery from the Crisis 298 16.6 Conclusions 304 References 305 Data Sources 307 17 Final Conclusions 309 Abstract 309 17.1 Introduction 309 17.2 The Global Tendency Towards Financialisation 310 17.3 Main Characteristics of the German Financial System 313 17.4 Developments Before and After the Great Financial Crisis and the Great Recession 316 17.5 Summing up 318 Index 319 Front Matter....Pages i-xxv Introduction....Pages 1-13 Front Matter....Pages 15-15 The Historical Development of the German Financial System....Pages 17-27 The Growth of Finance and Its Role Since the 1980s—A Quantitative Overview....Pages 29-54 The Institutional Structure of the German Financial System....Pages 55-70 Germany’s Integration into International and European Financial Markets....Pages 71-89 Regulation of the German Financial System....Pages 91-109 Front Matter....Pages 111-111 The Nature and Degree of Competition....Pages 113-124 Profitability of the Financial Sector and Sub-sectors....Pages 125-139 Efficiency of the Financial Sector....Pages 141-152 Front Matter....Pages 153-153 Sources of Funds for Business Investments: Non-financial Corporate Sector and Small and Medium-sized Enterprises (SMEs)....Pages 155-173 The Involvement of the Financial Sector in the Restructuring of the Economy....Pages 175-187 Privatisation and Nationalisation Policies and the Financial Sector....Pages 189-208 The Financial Sector and Private Households....Pages 209-226 The Real Estate Sector and Its Relation to the Financial Sector....Pages 227-253 Front Matter....Pages 255-255 Financialisation and Income Distribution....Pages 257-273 Crisis and Macroeconomic Policies....Pages 275-296 Final Conclusions....Pages 297-306 Back Matter....Pages 307-313