Reinhard H. Schmidt

The German Financial System

This book is both a reference book on Germanys financial system and a contribution to the economic debate about its status at the beginning of the twenty-first century. In giving a comprehensive account of the many facets of the system, it covers corporate governance, relationship lending, stock market development, investor protection, the venture capital industry, and the accounting system, and reports on monetary transmission and the credit channel, regulation and banking competition, the insurance and investment industry, and mergers and acquisitions. Special chapters at the beginning and at the end of the book adopt the financial system perspective, analysing the mutual fit of different features of the financial system; and each of the fifteen chapters addresses particular myths that surround it. The book is invaluable for those who want to understand the German economy and its financial system, promising not only a compilation of facts and statistics on Germanys financial markets and institutions, but also an analysis of its current structure and the determinants of its future development. Contributors to this volume - Jan Pieter Krahnen Professor of Finance Goethe Universitat Frankfurt Reinhard H. Schmidt Professor of Finance Goethe Universitat Frankfurt Ralf Elsas Goethe Universitat Frankfurt Karl-Hermann Fischer Deutscher Sparkassen- und Giroverband e.V. Stefanie Franzke Center for Financial Studies Stefanie Grohs Verein fur Socialpolitik (German Economic Association) Andreas Hackethal Goethe Universitat Frankfurt Christian Laux Professor of Finance Goethe Universitat Frankfurt Prof. Dr. Christian Leuz Harold Stott Term Assistant Professor The Wharton School University of Pennsylvania Prof. Dr. Raimond Maurer Professor of Investment, Portfolio Management and Pension Finance Johann Wolfgang Goethe-University of Frankfurt Prof. Dr. Eric Nowak University of Southern Switzerland Lugano Dr. Christian Pfeil Staatskanzlei of the Saarland, Germany Oliver Rieckers Frank A. Schmid Federal Reserve Bank of St. Louis Research Department Prof. Dr. Gerald Spindler Lehrstuhl fur Burgerliches Recht, Handels- und Wirtschaftsrecht Multimedia- und Telekommunikationsrecht, Rechtsvergleichung Juristische Fakultat Georg-August-Universitat Gottingen Prof. Dr. Erik Theissen Universitaet Bonn Marcel Tyrell Goethe Universitat Frankfurt Mark Wahrenburg Professor of Banking and Finance Goethe University Frankfurt Andreas Worms Deutsche Bundesbank Department of Economics Prof. Dr. Jens Wustemann, M.S.G. (Dauphine) Lehrstuhl fur Allgemeine Betriebswirtschaftslehre und Wirtschaftsprufung Fakultat fur Betriebswirtschaftslehre Universitat Mannheim

Grundzüge der Investitions- und Finanzierungstheorie

A. Grundlagen der Finanzmathematik B. Begriffliche Grundlagen 1. Literaturüberblick 2. Intertemporale Allokation als Gegenstand der Investitionsund Finanzierungs-theorie C. Investitionsund Finanzierungsproblem in einer Ein-Gut-Welt unter Sicherheit 1. Das Zwei-Zeitpunkt-Modell von Fisher/Hirshleifer 2. Das Zwei-Zeitpunkt-Modell von Dean 3. Der Kapitalwert als Vorteilhaftigkeitskriterium in einer Mehr-Zeitpunkt-Welt

Banks and German Corporate Governance: on the way to a capital market‐based system?

The German corporate governance system has long been cited as the standard example of an insider-controlled and stakeholder-oriented system. We argue that despite important reforms and substantial changes of individual elements of the German corporate governance system, the main characteristics of the traditional German system as a whole are still in place. However, in our opinion the changing role of big universal banks in governance undermines the stability of the corporate governance system in Germany. Therefore a breakdown of the traditional system leading to a control vacuum or a fundamental change to a capital market-based system could be in the offing.

The Political Debate about Savings Banks

There have been lively political debates about savings banks as long as this type of financial institutions has existed. The focus of these debates have been two of the characteristic features of savings banks: They have always pursued financial as well as non-financial objectives, and until a few years ago and nowadays at least in some countries they are, in a specific sense, public banks. I review the debate about savings banks in two ways. First, I briefly discuss the conventional arguments and present three new arguments for having this type of financial institution. Second, I review the political debate as it has developed on the international level, on the level of the European Union and finally in Germany. I conclude that even though the political debates of the last two decades have led to rather critical assessments of savings banks, both the current financial crisis and recent academic research suggest that this critical position needs to be revised.

Financial Innovation in Retail and Corporate Banking

This valuable book discusses in detail, through a blend of theory and empirical research, the processes of innovation and the diffusion of new financial instruments.

Modell und Erklärung in den Wirtschaftswissenschaften

Vielleicht ist es nur Wunschdenken, vielleicht ist es auch eine beobachtbare allgemeine Tendenz in den Wirtschaftswissenschaften, das wieder verstarkt theoretische Arbeit betrieben wird: Das Gewicht von grundsatzlich-konzeptioneller, abstrakter, formaler und spekulativer Arbeit scheint zu Lasten primar empirischer Forschung, angewandter Entscheidungstheorie und reiner Mestheorien zuzunehmen. Zumindest ist die Toleranz — auch speziell in der Betriebswirtschaftslehre — fur Aussagen, die man gewohnlich als Modelle bezeichnet, wieder groser. Zugleich scheint die Aufgabe der Erklarung gegenuber der (reinen) Beschreibung und der (unmittelbaren) Gestaltung wieder bedeutsamer geworden zu sein. Vor allem deshalb beschranken sich die folgenden Ausfuhrungen auf die Analyse der Rolle von Modellen in erklarenden Argumentationen; die angesprochenen Probleme stellen sich jedoch in ahnlicher Form bei anderen Argumentationsformen wie etwa bei den normativen Modellen der Entscheidungs- und Planungstheorie1), deren Analyse jedoch zusatzlich eigenstandige Problembereiche umfast.

Erich Gutenberg and the Theory of the Firm

When Professor Gutenberg wrote his Grundlagen der Betriebswirtschaftslehre in the 1950s, his work was firmly rooted in the theory of the firm as it stood at the time. In the 1970s and 80s, this close relationship largely disappeared as a consequence of the profound changes which the microeconomic theory of the firm underwent under the influence of the new institutional economics. However, in the last few years, the pendulum has swung back. This is mainly due to the introduction of the new concept of complementarity into the theory of the firm.

On the Convergence of National Corporate Governance Systems: A note on Braendle and Noll

In this issue of the Journal of Interdisciplinary Economics, Udo Braendle and Juergen Noll (B&N) discuss the development of corporate governance systems and specifically the various views expressed in the literature concerning a possible convergence of national corporate governance systems. As is well known, Hansmann and Kraakman (2001 and 2004) have argued forcefully that already now corporate governance systems are largely similar across countries and that any traces of national differences which may exist are about to disappear in the near future. For these authors, the convergence of corporate governance systems is very clear in terms of where it leads, what drives it and how it is to be assessed: the leading and economically superior model of corporate governance is the American model, and competitive pressure forces firms and nation-states to adopt it as soon as possible. Though for different reasons than Hansmann and Kraakman, and with a different view on what the final outcome of universal convergence may be, B&N also predict a convergence of corporate governance systems. However, they seem to expect a convergence to something which they call – literally and evidently without any irony – “a happy medium of systems” between AngloSaxon and European corporate governance, and they leave no doubt that they welcome this kind of convergence. Since they do not offer any economic arguments why this outcome should be desirable, they can not argue, and in fact do not really argue, that the development of financial systems is pushed by the joint forces of efficiency and competition. Instead, in section 3 of their paper they offer two different arguments to support their prediction: observable developments already point in the direction of a middle-of-the-road convergence, and powerful pressure groups favour and foster this development.

Building Financial Institutions in Developing Countries

Financial development and financial institution building are important prerequisites for economic growth. However, both the potential and the problems of institution building are still vastly underestimated by those who design and fund institution building projects. The paper first underlines the importance of financial development for economic growth, then describes the main elements of “serious” institution building: the lending technology, the methodological approaches, and the question of internal structure and corporate governance. Finally, it discusses three problems which institution building efforts have to cope with: inappropriate expectations on the part of donor and partner institutions regarding the problems and effects of institution building efforts, the lack of awareness of the importance of governance and ownership issues, and financial regulation that is too restrictive for microfinance operations. All three problems together explain why there are so few successful micro and small business institutions operating worldwide.

The German Banking System

This chapter provides a comprehensive overview of the German banking system. In the sections “Structural Features of the German Banking System” and “The Structure of the German Banking System”, we will give a detailed description of the current structure of the German banking system and its recent developments. The consequences of the financial crisis of 2007–8 for the German banking system and other challenges facing German banks are discussed in the section “Challenges Facing German Banks”. In the section “German Banking in an International Comparison”, we provide a brief comparison of the German banking system with other European banking systems to point out the uniqueness of the German banking system. The strong role and involvement of the government in German banking is subject to ongoing debate. We elaborate more on this and discuss the findings of recent empirical research on the German banking system in the section “Results of Recent Research on the German Banking System”. Finally, “Concluding Remarks” draws the chapter to a close and offers an outlook for the future.