The Role of Investment Banking for the German Economy: Final Report for Deutsche Bank AG, Frankfurt/Main
Michael Schröder, M. Borell, Reint E. Gropp, Z. Iliewa, L. Jaroszek, G. Lang, S. Schmidt, K. Trela
ZEW-Dokumentationen, Nr. 12-01,
No. 1,
2011
Abstract
The aim of this study is to assess the contributions of investment banking to the economy with a particular focus on the German economy. To this end we analyse both the economic benefits and the costs stemming from investment banking.
The study focuses on investment banks as this part of banking is particularly relevant for financing companies as well as the development and use of specific products to support the needs of private and professional clients. The assessment of benefits and costs of investment banking has been conducted from a European perspective. Nevertheless there is a focus on the German economy to allow a more detailed analysis of certain aspects as for example the use of derivatives by German companies, the success of M&As in Germany or the effect of securitization on loan supply and GDP in Germany. For comparison purposes other European countries and also the U.S. have been taken into account.
The last financial crisis has shown the negative impacts of banks on the financial system and the whole economy. In a study on the contribution of investment banks to systemic risk we quantify the negative side of the investment banking business.
In the last part of the study we assess how the effects of regulatory changes on investment banking. All important changes in banking and capital market regulation are taken into account such as Basel III, additional capital requirements for systemically important financial institutions, regulation of OTC derivatives and specific taxes.
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Monetary Policy and Financial (In)stability: An Integrated Micro–Macro Approach
Ferre De Graeve, Thomas Kick, Michael Koetter
Journal of Financial Stability,
No. 3,
2008
Abstract
Evidence on central banks’ twin objective, monetary and financial stability, is scarce. We suggest an integrated micro–macro approach with two core virtues. First, we measure financial stability directly at the bank level as the probability of distress. Second, we integrate a microeconomic hazard model for bank distress and a standard macroeconomic model. The advantage of this approach is to incorporate micro information, to allow for non-linearities and to permit general feedback effects between financial distress and the real economy. We base the analysis on German bank and macro data between 1995 and 2004. Our results confirm the existence of a trade-off between monetary and financial stability. An unexpected tightening of monetary policy increases the probability of distress. This effect disappears when neglecting microeffects and non-linearities, underlining their importance. Distress responses are largest for small cooperative banks, weak distress events, and at times when capitalization is low. An important policy implication is that the separation of financial supervision and monetary policy requires close collaboration among members in the European System of Central Banks and national bank supervisors.
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The Role of the Human Capital and Managerial Skills in Explaining the Productivity Gaps between East and West
Wolfgang Steffen, Johannes Stephan
IWH Discussion Papers,
No. 11,
2007
Abstract
This paper assess determinants of productivity gaps between firms in the European transition countries and regions and firms in West Germany. The analysis is conducted at the firm level by use of a unique database constructed by field work. The determinants tested in a simple econometric regression model are focussed upon the issue of human capital and modern market-oriented management. The results are novel in as much as a solution was established for the puzzling results in related research with respect to a comparison of formal qualification between East and West. Furthermore, the analysis was able to establish that the kind of human capital and expertise mostly needed in the post-socialist firms are related to the particular requirements of a competitive marketbased economic environment. Finally, the analysis also finds empirical support for the role of capital deepening in productivity catch-up, as well as the case that the gaps in labour productivity are most importantly rooted in a more labour-intense production, which does not give rise to a competitive disadvantage.
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Banking Regulation: Minimum Capital Requirements of Basel II Intensify Transmission from Currency Crises to Banking Crises
Tobias Knedlik, Johannes Ströbel
Wirtschaft im Wandel,
No. 8,
2007
Abstract
Auf Währungskrisen in Schwellenländern folgen oft Bankenkrisen. Ein wesentlicher Grund sind die durch die Abwertung der Währung ansteigenden Bilanzwerte für Auslandsverbindlichkeiten der Unternehmen. Das vorgehaltene Eigenkapital reicht dann oft nicht aus, um die Zahlungsfähigkeit aufrechtzuerhalten. Hier setzt der unter dem Stichwort Basel II bekannte Vorschlag zur Bankenregulierung, insbesondere zu Mindesteigenkapitalanforderungen an Banken an. Im Unterschied zur bestehenden Regulierung (Basel I) wird eine differenzierte Risikogewichtung auf Basis von Kredit-Ratings für unterschiedliche Assets vorgeschlagen. In diesem Beitrag wird am Beispiel der Währungs- und Bankenkrise von Südkorea im Jahr 1997 hypothetisch berechnet, wie sich die neue Regulierung auf das Eigenkapital der Banken ausgewirkt hätte. Diese Ergebnisse werden mit den Anforderungen der aktuellen Regulierung verglichen. Es zeigt sich, daß die Eigenkapitalanforderungen im Vorfeld der Krise unter Basel II geringer gewesen wären als unter Basel I. Zudem wäre das geforderte Eigenkapital nach dem Eintreten der Krise aufgrund der verschlechterten Ratings stark angestiegen. Die Transmission der Währungs- zur Bankenkrise wäre im Fall Südkoreas nicht verhindert, sondern beschleunigt worden. Dabei waren im koreanischen Fall die Eigenkapitalanforderungen unter Basel I aufgrund der OECD-Mitgliedschaft noch relativ gering. Im Sinne einer Verallgemeinerung der Ergebnisse kann geschlußfolgert werden, daß in anderen Schwellenländern, die nicht OECD-Mitglied sind (beispielsweise Osteuropa und Lateinamerika), das Verhältnis der Eigenkapitalanforderungen von Basel I und Basel II noch höher wäre. Die Übertragung von Währungs- zu Bankenkrisen wird demzufolge mit dem vorgeschlagenen Instrument zur Bankenregulierung verstärkt.
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Why do banks hold capital in excess of regulatory requirements? A functional approach
Diemo Dietrich, Uwe Vollmer
DBW-Die Betriebswirtschaft,
No. 2,
2007
Abstract
Dieser Beitrag erklärt, warum Banken Eigenkapitalvorschriften übererfüllen. Es wird gezeigt, dass Banken ihre Eigenkapitalquote strategisch bei Nachverhandlungen mit Kreditnehmern nutzen können, da sie ihre Selbstbindungsfähigkeit beeinflusst, ausstehende Kredite einzufordern. Weil dieser Zusammenhang nicht-monoton ist, kann eine Bank gezwungen sein, mehr Eigenkapital als vorgeschrieben zu halten.
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Banks’ Internationalization Strategies: The Role of Bank Capital Regulation
Diemo Dietrich, Uwe Vollmer
IWH Discussion Papers,
No. 18,
2006
Abstract
This paper studies how capital requirements influence a bank’s mode of entry into foreign financial markets. We develop a model of an internationally operating bank that creates and allocates liquidity across countries and argue that the advantage of multinational banking over offering cross-border financial services depends on the benefit and the cost of intimacy with local markets. The benefit is that it allows to create more liquidity. The cost is that it causes inefficiencies in internal capital markets, on which a multinational bank relies to allocate liquidity across countries. Capital requirements affect this trade-off by influencing the degree of inefficiency in internal capital markets.
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Bank Market Discipline
Reint E. Gropp, M. Schleicher
ECB Monthly Bulletin,
2005
Abstract
This article reviews the conceptual issues surrounding market discipline for banks and describes to what extent market discipline could complement supervisory activities. The potential of market discipline has been explicitly recognised in the New Basel Accord. In addition to capital requirements (Pillar I) and supervisory review (Pillar II), the Accord provides for a greater role of financial markets in complementing traditional supervisory activities by asking banks for increased transparency with regard to their operations (Pillar III). This article puts Pillar III in the broader context of direct and indirect market discipline. It is argued that both direct and indirect market discipline should be enhanced by the transparency requirements of the New Capital Accord, but that other conditions may also need to be met in order for market discipline to become more effective. Nevertheless, the article also shows that aggregated market prices can play a useful role in monitoring banking sector stability.
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Why do banks hold capital in excess of regulatory requirements? A functional approach
Diemo Dietrich, Uwe Vollmer
IWH Discussion Papers,
No. 192,
2004
Abstract
This paper provides an explanation for the observation that banks hold on average a capital ratio in excess of regulatory requirements. We use a functional approach to banking based on Diamond and Rajan (2001) to demonstrate that banks can use capital ratios as a strategic tool for renegotiating loans with borrowers. As capital ratios affect the ability of banks to collect loans in a nonmonotonic way, a bank may be forced to exceed capital requirements. Moreover, high capital ratios may also constrain the amount a banker can borrow from investors. Consequently, the size of the banking sector may shrink.
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Markets for Bank Subordinated Debt and Equity in Basel Committee Member Countries
Reint E. Gropp, Jukka M. Vesala
BCBS Working Papers, No. 12,
No. 12,
2003
Abstract
This Basel Committee working paper is a study of the markets for banks' securities in ten countries (Belgium, France, Germany, Japan, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom, and the United States). It aims at contributing to the assessment of the potential effectiveness of direct and indirect market discipline. This is achieved through collecting a rich set of data on the detailed characteristics of the instruments used by banks to tap capital markets, the frequency and size of their issuance activity, and the share of issuing banks in national banking systems. Further, information is collected on the amounts of debt and equity outstanding and about trading volumes and liquidity. Developments over the period from 1990-2001 are evaluated.
The paper focuses on subordinated bonds among banks' debt instruments, because they are the prime class of uninsured instruments suited to generate market discipline and have been proposed by some observers as a mandatory requirement for banks.
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The role of real exchange rates in the Central European transformation
Lucjan T. Orlowski
Forschungsreihe,
No. 1,
1998
Abstract
The study eamines the interactions between real exchange rates, current accounts and capital account balances in Poland, Hungary and the Czech Republic. The empirical investigation leads to a strong endorsement of more flexible exchange rates in the present stage of the economic transformation process of the former socialist countries in Central and Eastern Europe. Exchange rate flexibility allows more independent monetary policies that focus on financing structural adjustments and institutional changes in transition economies. However, the integration process with the European Union and more remote considerations of possible accession to the European Monetary Union will require a gradual move to fixed exchange rates and to an exchangerate-based monetary policy.
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