German Banks Research Articles

Every Cloud has a Silver Lining: On the Relation between Bank-Affiliated Asset Manager Bias and Mutual Fund Fees

Considering the institutional factors of the German mutual fund market, we analyze equity fund holdings of German retail clients who received financial advice between 2005 and 2014 to investigate whether those investors overweight the bank-affiliated asset manager and if so, whether this bank-affiliated asset manager bias leads to higher fees, i. e. Total Expense Ratios. Our analysis clearly indicates the presence of large bank-affiliated asset management biases for clients of all different banking sectors. Thus, German retail clients follow the biased financial advice they receive from their bank. Surprisingly, this bank-affiliated asset manager bias significantly reduces portfolio costs measured via mutual fund fees. Therefore, German banks disproportionately promote products of bank-affiliated asset managers but this biased advice does not lead to higher portfolio costs.

Banks' Credit Losses and Lending Dynamics

Using detailed data of all German banks, we find that banks which have suffered heavy credit losses reduce their corporate lending business by 1.32 euro for each euro lost; with 95% confidence, the effect is between 0.85 and 1.80 euros. This sensitivity is in line with (quite heterogeneous) results of earlier studies but significantly lower than those arising from the assumption of constant leverage. Weakly capitalized banks grant fewer new loans than other banks. We control for credit demand using a new method, the construction of tailored hypothetical bank competitors.

Real Estate Transaction Taxes and Credit Supply

We exploit staggered real estate transaction tax (RETT) hikes across German states to identify the effect of house price changes on mortgage credit supply. Based on approximately 33 million real estate online listings, we construct a quarterly hedonic house price index (HPI) between 2008:q1 and 2017:q4, which we instrument with state-specific RETT changes to isolate the effect on mortgage credit supply by all local German banks. First, a RETT hike by one percentage point reduces HPI by 1.2%. This effect is driven by listings in rural regions. Second, a 1% contraction of HPI induced by an increase in the RETT leads to a 1.4% decline in mortgage lending. This transmission of fiscal policy to mortgage credit supply is effective across almost the entire bank capitalization distribution.

German Bank of Soviet Russia (Activity of the German-Volga Bank of Agricultural Credit in the 1920s)

The transition of Soviet Russia from “war communism” to a new economic policy required the restoration of commodity-money exchange, the financial and tax system, credit and other market institutions. The need for rapid recovery and development of all branches of the national economy predetermined a certain departure from the “communist” views on banking and in the early 1920s. in the country, along with the State Bank, special banks appeared. These banks, being under the control of the relevant economic commissariats, ensured the implementation of the necessary financial and credit policy in this branch of the national economy. The article examines the activity of the German-Volga Agricultural Credit Bank in the ASSR of the Volga Germans during the period of the new economic policy. Special attention is paid to the bank’s issuance of a bond loan intended for placement, primarily on the foreign market. The bank bonds were supposed to be placed in Germany and among the German diasporas of the United States and Latin America. The article analyzes the activities of Nemvolbank in attracting foreign currency funds. The source base was the documents stored in the Russian State Archive of Economics in the funds of the Ministry of Finance of the USSR and the Ministry of Foreign Trade of the USSR: correspondence between the leadership of the ASSR of the Volga Germans about the issue of the loan and the terms of its placement, Regulations on the issue of bonds, etc. The role of the bank in the development of Soviet- German financial and economic relations within the framework of the diplomatic rapprochement of the two countries is traced. Shown activity Newalliance for the return of German colonists, immigrants back in the Volga region. It is concluded that the German-Volga Bank conducted quite active foreign trade activities.

Inflation and Investors' Behavior: Evidence from the German Hyperinflation

This paper analyzes how individual investors respond to inflation. We introduce a unique dataset containing information on local inflation and security portfolios of more than 2,000 clients of a German bank between 1920 and 1924, covering the hyperinflation. We find that individual investors buy less (sell more) stocks when facing higher local inflation. This effect is more pronounced for less sophisticated investors. We also document a positive relation between local inflation and forgone returns following stock sales. Our findings are consistent with individual investors suffering from money illusion. Alternative explanations such as consumption needs are unlikely to drive our results.

The morpho-syntax of phrasal proper names in German

This paper studies the morpho-syntax of proper names like die Deutsche Bank ‘the German Bank’ in German. Semantically, these types of proper names, called phrasal proper names here, refer to entities but have descriptive meaning. Lexically, they are frozen and morpho-syntactically, they are frozen or transparent depending on the phenomenon. To capture these hybrid properties, it is proposed that regular vocabulary items are taken from the lexicon, that these individual elements receive each a referential marker (i.e., an index), and that they are stored as a set in the lexicon. Second, these indexed elements build a regular structure during the syntactic derivation projecting the marker to the entire structure. As is clear from proper names in Italian, certain syntactic operations are sensitive to these markers. As a consequence, these operations cannot single out the individual parts (but only the entire structure). Regular vocabulary items and an ordinary derivation explain the transparent properties; the addition of referential markers accounts for the referentiality and the frozen characteristics. The optional presence of non-restrictive modifiers shows that these nominal structures can be quite complex. Given this discussion, it seems unlikely that the referentiality of phrasal proper names is located in the DP-level.

Systemic risk shifting in financial networks

Banks face different but potentially correlated risks from outside the financial system. Financial connections can share these risks, but they also create the means by which shocks can be propagated. We examine this tradeoff in the context of a new stylized fact we present: German banks are more likely to have financial connections when they face more similar risks. We develop a model that can rationalize such behavior. We argue that such patterns are socially suboptimal and raise systemic risk, but can be explained by risk shifting. Risk shifting motivates banks to correlate their failures with their counterparties, even though it creates systemic risk.

The impact of assurance on compliance management systems on bank directors' decisions

Numerous corporate scandals, in conjunction with managerial misbehavior, demonstrate the need for compliance management systems (CMS) and the relevance of CMS assurance. This study investigates the impact of CMS assurance on German bank directors' perceptions and decisions, and analyzes whether the type of assurer and the level of provided assurance are relevant. For this purpose, we conducted an experiment with 105 bank directors and used ANOVA to analyze their reliance on the hypothetical company's CMS, and their decisions regarding credit granting, purchase, and recommendation of shares. We chose a 2 × 2 + 1 between‐subjects design, manipulating the assurance provider (audit firm vs. third party) and the level of assurance (limited vs. reasonable), and adding a control condition without any assurance. Our results suggest that assured CMS positively affect bank directors' perceptions and decisions, compared to CMS without assurance. Furthermore, we find that our perception measure and all three of our decision measures are strongly associated with the choice of assurance provider, but only two decision measures are associated with the assurance level. Bank directors prefer assurance provision by an audit firm, whereas the findings regarding the impact of the assurance level are inconclusive. The study's results, which confirm the decision‐usefulness of CMS assurance, are of interest for managers, in particular compliance officers, auditors, creditors, regulators, and academics.

What do German bank customers want? The importance of customer expectations and the failure of the integral customer advisory service

Banks and financial service providers are currently facing numerous challenges due to the ongoing cheap money policy of the European Central Bank, an increasingly regulated market environment and a rapidly progressive digitization. The ongoing decline in interest income and the stagnating of a banks commission income are currently leading to a reduction of a banks total income. In addition, there is digitization that brings numerous new competitors into the market and changes the core business models of banks. As a result, the general conditions in the financial sector change fundamentally and continue to do so in the near future. Moreover, the behaviour and expectations of bank customers have changed in a way that factors such as “convenience”, “flexibility” and “speed” have become increasingly important for them. For this reason, we will start with a theoretical overview of the status quo and the current challenges banks are facing and then present the results of our customer survey to highlight the current expectations of bank customers. Based on this, we formulate recommendations for banks on how to meet their customers’ expectations.

The German bank–growth nexus revisited: savings banks and economic growth in Prussia†

AbstractThis article provides evidence that smaller, regional public financial intermediaries contributed to Germany's industrial development, using a new dataset of the foundation year and location of Prussian savings banks. This extends the bank–growth nexus beyond its traditional focus on large universal banks. Since savings banks were public financial intermediaries, our results further suggest that state intervention can be successful in the financial sector, particularly at the early stages of industrial development when capital requirements are manageable, and access to international capital markets is limited.

The transmission of bank capital requirements and monetary policy to bank lending in Germany

AbstractWe investigate the transmission of changes in bank capital requirements and monetary policy, and their interaction, on German banks’ corporate loan growth and lending rates. Our results show that increases in capital requirements are associated with an immediate decrease in total domestic and cross‐border bank lending. Changes in the euro area's monetary policy stance are positively related to corporate loan interest rates in general. Regarding the interacting effect of national bank capital requirements and euro area monetary policy, we observe that the transmission of accommodative euro area monetary policy to corporate lending rates can be attenuated by contemporaneous increases in bank capital requirements. Moreover, more strongly capitalized banks increase their loan growth in response to accommodative monetary policy whereas, for weaker banks, increasing capital requirements implies a decrease in their corporate loan growth. Our results confirm a tradeoff between higher capital requirements and accommodating monetary policy originating from banks’ capital constraints.

Success factors for hackathons: German banks collaborate to tame the economic crisis

Purpose This paper aims to focus on the banking industry and its hackathon formats, which have been created by various banking groups. Other industries can learn from these findings and adopt best practice solutions. Design/methodology/approach A multi-case study was conducted with three hackathon formats (Collabothon, GENOhackathon and Symbioticon) from the banking sector in which qualitative interviews with members of the organization team were held and used to summarize the differences and similarities of hackathon formats in the banking industry. Findings A model was developed to demonstrate how the different hackathon formats in banking overlap and what differences exist. Originality/value This study used a cross-case analysis to summarize differences and similarities of hackathon formats in the banking industry in Germany.

When Do Banks Do What Governments Tell Them to Do? A Comparative Study of Greek Bonds’ Management in France and Germany at the Onset of the Euro-Crisis

ABSTRACT At the onset of the Greek sovereign debt crisis in early 2010, the French government asked French banks to retain plummeting Greek bonds on their balance sheets. And the French banks did exactly that. At around the same time, the German government also asked German banks to retain plummeting Greek bonds on their balance sheets. Yet German banks sold the bonds abundantly. Both governments depended on profit-oriented banks to fulfil a mission of public interest, but neither had formal levers to ensure that banks would do as they were told. Why did the French banks comply with their government’s request while their German counterparts did not? Taking advantage of an opportunistic design and building on data gathered in newspapers and through 20 in-depth interviews, this paper argues that banks’ decisions are the result of long-term institutionalized state-bank modes of coordination in France and Germany. In France, bankers understood the government’s request as being embedded within a long-term relationship of reciprocal favours, which led them to comply. In Germany, state officials resorted to straightforward pressures such as naming and shaming banks. But as soon as the pressure died down, the banks sold out.

Business Roundup

BUSINESS Business Roundup ShareShare onFacebookTwitterWechatLinked InRedditEmail C&EN, 2020, 98 (31), p 14August 17, 2020Cite this:C&EN 98, 31, 14Abstractexpects to record an impairment charge of $6.5 billion for the second quarter, which will drive its quarterly results into the red. The charge relates primarily to a chemical project it has been starting up in Lake Charles, Louisiana, that is billions of dollars over budget. is borrowing $104 million from the European Bank for Reconstruction and Development and $52 million from the German bank KfW IPEX to finance construction of a plant in Poland to produce cathode materials for lithium-ion auto batteries. The plant will be the first to make Matthey’s eLNO materials. plans to expand capacity for monochloroacetic acid—used to make pesticides, cosmetics, and medicines—by over 20% by year’s end at its plant in Delfzijl, the Netherlands. Nouryon is also studying how it can increase output of chlorine, a feedstock for the chemical. and the UK’s Recycling Technologies will jointly adapt the latter’s technology to recycle polystyrene; itView: PDF | Full Text HTML

Repo and Reverse Repo Activity of European Banks – Market Activity, Accounting and Disclosure

Repurchase agreements are money market instruments that are used widely and for various purposes due to their simplicity and flexibility. The European repo market is quite concentrated, as 80% of the transactions is conducted be-tween the top 20 banks and 61.9% of the collaterals used in the European repo market are originated in the Eurozone. Especially, for Europe the repo market is more important than ever, as it reached an all-time high of EUR 7,351 billion in June 2018. Even though the repo market is quite extensive and important, with respect to repos, there has no literature been found, which deals with the disclosure requirements of IFRS 7 in the European banking industry so far. How disproportionate the attention paid to repos is, becomes apparent by examining the financial statement of one German bank. It was noticed, that the information provided on repos was not too extensive, even though repos ac-counted for approximately 39% of the bank’s total assets. The example of Lehman Brothers shows how important it is to formulate appropriate accounting standards that actually reflect the true nature of transactions. The extent of the financial crisis of 2007-2008 may have been reduced, if their troubled situation would have been disclosed honestly in the first place. As the mandatory requirements of IFRS 7 should ensure, that sufficient and decision-useful information to enable users of financial statements to under-stand the risks arising from repos is disclosed, the first step is to review, if the mandatory requirements are fulfilled. 38 IFRS 7 criteria were derived from these mandatory requirements. Besides these mandatory criteria, some supplementary information was gathered. The sample which was examined within this empirical analysis consists of 66 banks from 19 European countries. It will be shown from the 5-year averages that European banks only complied on average with 54%, i.e. only slightly more than half of the mandatory disclosure requirements of IFRS 7, which apply to repos.

Systematic review of omni-channel banking and preview of upcoming developments in Germany

Banks have not come to rest since the 2008 banking crisis and have been struggling for their future ever since. In addition to serious market distortions, there are increasingly digital challenges and investments in the banks’ platforms to remain competitive and continue to meet customer requirements. Other industries are showing the banks how to do it and investing heavily in the networking of distribution channels to form an omni-channel system, as this is where all interfaces converge. The banking industry has also recognized this groundbreaking approach in the distribution channel. Academic literature is also increasingly examining omni-channel management, but studies in the banking industry are still sparse. This study uses multi-method research in the form of a systematic literature review and semi-structured qualitative bank expert interviews to examine omni-channel management in the banking industry. Thereby, the state of scientific research and the future objectives of the banks are analyzed. Bank experts in Germany explain what bank customers will expect, how far German banks have progressed in implementing an omni-channel system, and how the bank-customer relationship will change. Findings show that banks will completely transform their distribution by omni-channel management by breaking with existing structures and creating a new customer experience and higher customer value. The paper provides critical insight into what omni-channel integration means for the banking sector.

Interest and credit risk management in German banks

Abstract Using unique data of a survey among small and medium-sized German banks, we analyze various aspects of risk management. We especially analyze the effect of a 200-bp increase in the interest level. We find that banks seem to reduce the volatility of their net interest margin by exposing themselves to interest rate risk, that they act as if they have a risk budget which they allocate either to interest rate risk or credit risk and that banks’ exposures to interest rate risk and to credit risk are remunerated. In addition, we find that, in the first year, the impairments of banks’ bond portfolios are much larger than the reductions in their net interest income, that banks attenuate the resulting write-downs by liquidating hidden reserves and that banks which use interest derivatives have lower impairments in their bond portfolios.

Assurance on CSR reports: impact on the credibility perceptions of non-financial information by bank directors

PurposeThis paper aims to clarify whether assurance on non-financial corporate social responsibility (CSR) reports impacts the perceptions and decisions of banks as capital providers. The authors investigate the effects of the type of assurance provider and the level of assurance provided on decisions by banks to grant credit, make their own personal investments or recommend share purchases to their customers. The study aims to expand the domain of assurance on CSR reports (CSRR) by taking up a call by Cohen and Simnett (2015), who ask for behavioral research on how non-financial report’s intended users interpret and react to assurance.Design/methodology/approachThe paper is based on an experiment case on a fictitious company with a 2 × 2 + 1 between-subjects design. To overcome concerns regarding external validity and to prove results in a real-world setting, the authors selected German bank directors as subjects due to the extremely high relevance of banks to the German economy. The authors investigated the perceptions of 69 bank directors and analyzed the influence of CSR assurance on their decisions.FindingsThe findings suggest that assurance positively influences confidence in CSRR and that, consequently, bankers are more likely to make favorable decisions toward the reporting companies, such as approving applications for credit, investing themselves in the company or recommending the purchase of shares to their clients. These effects are stronger when an accounting firm provides the assurance and when the assurance level is reasonable rather than limited.Research limitations/implicationsThe arguments presented are, strictly speaking, limited to the case in the experiment and the views held by the bank directors at the time the authors sent out the questionnaires. Moreover, the cell sizes are quite small. Nevertheless, the authors were able to find highly significant results.Practical implicationsThe main implication of the paper is that the purchase of CSRR assurance services has a positive effect on bank directors’ perceptions and decisions. They favor the provision of such services by accounting firms and they prefer a reasonable assurance level. Thus, it can be concluded that bank directors perceive quality differences between assurance providers, are able to recognize the difference between reasonable and limited assurance and that the related information is relevant for their decisions.Originality/valueThis paper fulfils an identified need to study the influence of CSRR assurance on decisions by bank directors. The observation of a high decisions-usefulness of CSRR assurance suggests that regulators should consider mandating some form of assurance on non-financial reports throughout the EU member states.

Sustainable Banking; Evaluation of the European Business Models

Sustainability has become one of the challenges of today’s banks. Since sustainable business models are responsible for the environment and society along with generating economic benefits, they are an attractive approach to sustainability. Sustainable business models also offer banks competitive advantages such as increasing brand reputation and cost reduction. However, no framework is presented to evaluate the sustainability of banking business models. To bridge this theoretical gap, the current study using A Delphi-Analytic Hierarchy Process method, firstly, developed a sustainable business model to evaluate the sustainability of the business model of banks. In the second step, the sustainability performance of sixteen banks from eight European countries including Norway, The UK, Poland, Hungary, Germany, France, Spain, and Italy, assessed. The proposed business model components of this study were ranked in terms of their impact on achieving sustainability goals. Consequently, the proposed model components of this study, based on their impact on sustainability, are respectively value proposition, core competencies, financial aspects, business processes, target customers, resources, technology, customer interface, and partner network. The results of the comparison of the banks studied by each country disclosed that the sustainability of the Norwegian and German banks’ business models is higher than in other counties. The studied banks of Hungary and Spain came in second, the banks of The UK, Poland, and France ranked third, and finally, the Italian banks ranked fourth in the sustainability of their business models.

The Effects of German Economic and Political Progress on the Sparkassen Savings Bank System

Since the end of World War II, the German banking system underwent many dramatic changes, however, the Sparkassen movement has remained in its current form since 1778. Through its localised structure, it has continued to act as a cornerstone of the German economy, accounting for over a third of banking assets since 1945. This system maintained a considerable presence throughout fragile political movements after the collapse of National Socialism, the reunification of the German state and the implementation of significant economic redevelopment such as the ‘Hartz Reforms’. We test these inferences with evidence from the Sparkassen system’s influence on German savings, lending and such relationships with real wage growth. We confirm that for much of the post-war era, savings banks have been more stable over time when placed in comparison with commercial banks. We identify a causal link between wages and balance sheets that exist in savings banks and not in commercial banks throughout the post-war era.