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FINAL DRAFT

Changes in the German Banking System

Reorientation of public banks due to the discontinuation of state guarantees

Master Thesis

Submitted in fulfilment of the requirements

for the degree of

Master of Science (M.Sc.)

in

General Economics

at the

Faculty of Economics

Rijksuniversiteit Groningen

Thesis supervisor:

Prof. Dr. Klaas H.W. Knot

Macro

-

Economy

Submitted

by:

Christian

Geissler

Fr.

-

Stellwagen-

Weg

5

18435

Stralsund

(2)

Table of contents

Abstract... I

Preface ...II

Table of contents ... III

List of Figures and Tables... V

List of abbreviations ... VII

1. Introduction ... 1

2. The structure of the German banking market...3

2.1. Banking groups - An overview ... 3

2.2. Commercial Banks ... 5

2.3. Savings Banks ... 6

2.4. Landesbanks ... 9

2.5. Cooperative Banks ... 11

2.6. Special banks... 12

3. Legal improvements in banking regulations... 14

3.1. An Overview... 14

3.2. Basel II ... 15

3.2.1. Development of the concept... 15

3.2.2. Accord in operation ... 15

3.2.3. Consequences and further progress... 16

3.3. Other regulatory factors... 18

3.3.1. The Financial Services Action Plan... 18

3.3.2. The Lamfalussy procedure ... 19

3.3.3. The International Accounting Standard... 19

3.4. Abolition of State Guarantees ... 20

4. Economic trends in the German banking market... 22

4.1. An Overview... 22

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4.3. Modified costumer behaviour ... 24

4.4. Economic debility of the banking sector ... 25

4.5. Market entries of competitors ... 28

4.6. Changes in equity financing... 29

4.7. Exceptional position of SMEs... 32

5. Expected developments and further changes ... 36

5.1. Overview ... 36

5.2. Distortion of competition ... 37

5.3. Adjustment of bank concentration... 38

5.4. Revaluation of bank ratings... 40

5.5. Reform approaches for banks under public law ... 43

6. Conclusion ... 48

7. Figures and Tables ... 51

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List of Figures and Tables

Figures:

Figure 1: Banking structure in Germany by banking groups...51

Figure 2: Balance sheet of commercial banks (1976 - 2006)...53

Figure 3: Government Ownership of Banks in selective countries (2000)...55

Figure 4: Balance sheet of savings banks (1976 - 2006) ...56

Figure 5: Balance sheet of Landesbanks (1976 - 2006)...57

Figure 6: Comparison of total assets between Landesbanks and savings banks (1976 – 2006) ...58

Figure 7: Balance sheet of credit cooperatives (1976 - 2006) ...59

Figure 8: Balance sheet of regional institutions of credit cooperatives (1976 - 2006)...60

Figure 9: Three Pillar Graphic of Basel II (2001)...61

Figure 10: Number of bank institutes in Germany (1990 – 2006)...61

Figure 11: Number of German bank branches (1990 – 2005) ...62

Figure 12: Number of German bank and online - accounts (1995 – 2005) ...62

Figure 13: Net interest income / total assets ratio (1979 – 2003)...64

Figure 14: Non - interest income / interest income ratio (1979 – 2003)...64

Figure 15: Operating costs / gross income (cost/ income) ratio (1979 – 2003) ...65

Figure 16: Profit before tax / equity (return on equity) ratio (1979 – 2003)...65

Figure 17: Return on equity of German bank groups (1995 – 2006) ...66

Figure 18: Comparison between all German banks and foreign banks (1985 – 2006)...66

Figure 19: Development of German banks’ nominal extension of loans ranked by borrowers

(1991 – 2006)...67

Figure 20: Evaluation of banks with repsect to credit business with companies in Germany

(2003 – 2007)...67

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Tables:

Table 1: German banking groups and number of banks...51

Table 2: The 30 largest German banks by total assets (end 2005)...52

Table 3: The CR5 and HHI based on the balance sheet total in European comparison ...53

Table 4: Worldwide Top 20 banks ranked by total assets (2004)...57

Table 5: Development of the banking sector in selective countries (1995 – 2005)...63

Table 6: Credit ratings of all German Landesbanks (LB) before and after abolition of the state

guarantees ...70

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7. Figures and Tables

Figure 1: Banking structure in Germany by banking groups

8,4 3,3 14,3 19,8 17,8 25,7 10,7

Total assets: bn € / shares in %

Commercial banks

7069, 6 bn €

Public banks

Credit co-operatives banks Special banks Major banks 1259.6 Landesbanken 1401.1 Regional banks 757.8 Savings banks 1006.5

Mortgage banks, Banks with special functions, Building and loan associations

1817.3

Credit cooperatives 597.3

Regional institutions of credit cooperatives

230

Source: Deutsche Bundesbank (2006), Own contribution

Table 1: German banking groups and number of banks

Monetary Financial Institution (2.211)

Universal Banks (1.997) Special Institution (214)

Commercial Banks 253 Credit Cooperatives 1274 Savings Banks 470 Special Banks 65 Other MFIs 149 B ig B an ks

Regional banks, other

co m m erc ial ba nk s* an d pr iv ate b an ke rs B ra nc he s o f fo re ig n b an ks R eg io na l in stit uti on s of cr ed it c oo pe ra tiv es C re dit co op era tiv es L an d B an ks Pr im ary sa vin gs b an ks (S pa rk as se n) M or tg ag e b an ks B uil din g a nd lo an as so cia tio ns B an ks w ith sp ec ial fu nc tio ns In ve stm en t c om pa nie s H ou sin g e nte rp ris es w ith sa vin gs fa cili tie s Se cu riti es depo sitories an d i ns titu tio ns o nly co nd uc tin g gu ara nte e b us in es s 5 158 90 2 1.272 12 458 23 26 16 81 43 25

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Table 2: The 30 largest German banks by total assets (end 2005)

118 Total

Assets

Rank Name

(in mn €) Branches Employees

Group (Ownership)

1 Deutsche Bank AG 992.161 1.588 63.427 private

2 HVB Group 493.523 2.316 61.251 private

3 Dresdner Bank 461.372 960 28.774 private

4 Commerzbank AG 444.861 500 33.056 private

5 Landesbank Baden - Württemberg 405.915 240 12.551 public

6 DZ Bank AG 401.638 30 3.834 cooperative

7 KfW Bankengruppe 341.143 3 3.740 public

8 Bayerische Landesbank Girozentrale 340.854 1 9.754 public

9 WestLB AG 264.955 19 6.353 public

10 Eurohypo AG 234.303 29 2.392 private

11 Norddeutsche Landesbank Girozentrale 197.810 150 5.998 public

12 HSH Nordbank AG 185.065 4 4.528 private

13 Landesbank Hessen - Thüringen Girozentrale 164.422 12 5.400 public

14 Hypo Rael Estate Holding AG 152.460 15 1.233 private

15 Bankgesellschaft Berlin AG 144.520 200 8.459 private

16 Postbank AG 140.280 9.000 9.235 private

17 NRW Bank 128.115 2 1.035 public

18 DekaBank Deutsche Girozentrale 114.982 3 3.453 public

19 Hypothekenbank in Essen AG 92.781 5 170 private

20 Landesbank Berlin Girozentrale 90.390 6 5.348 public

21 DG Hyp Genossenschafts - Hypothekenbank AG 79.140 6 582 cooperative

22 Depfa Deutsche Pfandbrief Bank AG 78.938 1 69 private

23 Landwirtschaftliche Rentenbank AG 76.960 1 194 public

24 WGZ Bank AG 73.584 5 1.116 cooperative

25 Landesbank Reinland - Pfalz Girozentrale 67.587 4 1.489 public

26 Allgemeine Hypothekenbank Rheinboden AG 67.378 12 362 private

27 ING-DiBa Allgemeine Deutsche Direktbank AG 64.935 3 2.304 private

28 Sachsen LB - Landesbank Sachsen Girozentrale 62.400 1 597 public

29 SEB AG 55.764 175 3.670 private

30 L - Bank Landeskreditbank Baden - Württemberg 49.887 2 1.090 public

Source: Bundesverband Deutscher Banken [Association of German banks]; (2006)

118 The data in the top - 30 list of the Association of German banks should not be directly compared to the data of

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Table 3: The CR5 and HHI based on the balance sheet total in European

comparison

Country Number of Banks Herfindahl Index for banks* (HHI) in total assets (in percent)** Share of the 5 largest banks (CR5) Year 2001 2005 2001 2005 2001 2005 Belgium 112 100 1.587 2.108 78.3 85.2 Czech Republic 119 56 1.263 1.155 68.4 65.5 Denmark 203 197 1.119 1.115 67.6 66.3 Germany 2526 2089 158 174 20.2 21.6 Estonia 7 11 4067 4039 98.9 98.1 Greece 61 62 1.113 1.096 67.0 65.6 Spain 366 348 532 487 43.9 42.0 France 105 854 606 758 47.0 53.5 Ireland 88 78 512 600 42.5 46.0 Italy 843 792 260 230 29.0 26.7 Cyprus 406 391 964 1029 61.3 59.8 Latvia 39 23 1.053 1.176 63.4 67.3 Lithuania 54 78 2.503 1.838 87.6 80.6 Luxembourg 189 155 275 312 28.0 30.7 Hungary 240 215 892 795 56.4 53.2 Malta 17 18 1835 1.330 81.1 75.3 Netherlands 561 401 1.762 1.796 82.5 84.8 Austria 836 880 561 560 44.9 45.0 Poland 758 739 821 650 54.7 48.6 Portugal 212 186 991 1.154 59.8 68.8 Slovenia 69 25 1.582 1.369 67.6 63.0 Slovakia 21 23 1.205 1.076 66.1 67.7 Finland 369 363 2.240 2.730 79.5 83.1 Sweden 149 200 760 845 54.6 57.3 United Kingdom 452 400 282 399 28.6 36.3 EU-25 9.747 8.684 504 601 37.8 42.3

* A Member Country’s Herfindahl index equals the sum of the squares of all the credit institutions’ market shares, according to total assets.

** The CR5 of a Member Country is the percentage share of the five largest (ranked by their assets) credit

institutions in terms of their total assets, compared to all credit institutions’ total assets in that particular Member Country.

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Figure 2: Balance sheet of commercial banks (1976 - 2006)

a) Assets

0% 20% 40% 60% 80% 100% 2006 2002 1998 1994 1990 1986 1982 1978 Other assets Non-bank securities Loans to non-banks Bank securities Loans to banks

Source: Deutsche Bundesbank time series (2006); Own contribution

b) Liabilities

0% 20% 40% 60% 80% 100% 2006 2002 1998 1994 1990 1986 1982 1978 Other liabilities Equity

Deposits from non- banks Debt securities

Deposits from banks

(10)

Figure 3: Government Ownership of Banks in selective countries (1995)

0 0 0 6,8 21 70,2 4,5 26,2 10,3 10,6 14,9 29,6 88,3 22,3 27,8 37,5 30,7 0 0 0 0 21 70,2 4,5 22,4 10,3 8,9 14,9 29,6 65,7 22,3 27,8 23,7 37,5 30,7 0 0 0 0 0 0 4,5 4,9 6,7 8,9 10,4 12,1 15,8 16,6 16,6 23,7 29,9 30,7 23,7 0 20 40 60 80 United States United Kingdon Japan Spain Australia Austria Ireland France Netherlands Denmark Switzerland Sweden Norway Belgium Italy Portugal Germany Finland in % 100 GB 20 GB 50 GB 90

(11)

Figure 4: Balance sheet of savings banks (1976 - 2006)

a) Assets

0% 20% 40% 60% 80% 100% 2006 2002 1998 1994 1990 1986 1982 1978

Other assets

Non-bank securities

Loans to non-banks

Bank securities

Loans to banks

Source: Deutsche Bundesbank time series (2006); Own contribution

b) Liabilities

0% 20% 40% 60% 80% 100% 2006 2002 1998 1994 1990 1986 1982 1978 Other liabilities Equity

Deposits from non- banks Debt securities

Deposits from banks

(12)

Table 4: Worldwide Top 20 banks ranked by total assets (2004)

Rank* Name Country Total Assests(in bn €) Tier 1 capital in bn € (in bn €) Rank**

1 UBS CH 1.180,4 21,1 1

2 Citigroup USA 1.142,8 57,3 19

3 Mizuho Financial Group JAP 997,8 30,0 8

4 HSBC Holdings UK 983,1 51,8 3

5 Crédit Agricole Groupe FRA 957,1 48,8 5

6 BNP Paribas FRA 950,1 27,5 10

7 JP Morgan Chase & Co USA 891,4 52,8 2

8 Deutsche Bank GER 881,0 19,6 21

9 Royal Bank of Scotland UK 862,0 33,7 6

10 Bank of America Corp USA 855,1 49,5 4

11 Barclays Bank UK 763,9 24,8 13

12 Mitsubishi Tokyo Financial Group JAP 754,8 30,7 7

13 Credit Suisse Group CH 741,4 12,2 27

14 Sumitomo Mitsui Financial Group JAP 690,6 23,4 15

15 ING Bank NL 646,6 22,2 17

16 ABN AMRO Bank NL 638,3 20,8 20

17 Société Générale FRA 630,4 19,3 23

18 Santander Central Hispano SPA 603,4 25,6 12

19 HBOS UK 584,9 28,2 9

20 Groupe Caisse d’Epargne FRA 570,4 19,3 22

Sparkassen Financial Group GER 3.200*** N / A N / A

* Ranked by total assets in 2004.

** Ranked by ‘capital strength’ (Tier 1 capital of 2004). ***Total assets of the entire Sparkassen Financial Group in 2005

Source: Timewell, Stephen; (2005) for Tier 1 Capital and Assets; Finanzgruppe Deutscher Sparkassen und Giroverband; (2006)

Figure 5: Balance sheet of Landesbanks (1976 - 2006)

a) Assets

0% 20% 40% 60% 80% 100% 2006 2002 1998 1994 1990 1986 1982 1978 Other assets Non-bank securities Loans to non-banks Bank securities Loans to banks

(13)

b) Liabilities

0% 20% 40% 60% 80% 100% 2006 2002 1998 1994 1990 1986 1982 1978 Other liabilities Equity

Deposits from non- banks Debt securities

Deposits from banks

Source: Deutsche Bundesbank time series (2006); Own contribution

Figure 6: Comparison of total assets between Landesbanks and savings

banks (1976 – 2006)

0 200 400 600 800 1000 1200 1400 1600 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 in bn € Landesbanks Savings banks

(14)

Figure 7: Balance sheet of credit cooperatives (1976 - 2006)

a) Assets

0% 20% 40% 60% 80% 100% 2006 2002 1998 1994 1990 1986 1982 1978

Other assets

Non-bank securities

Loans to non-banks

Bank securities

Loans to banks

Source: Deutsche Bundesbank time series (2006); Own contribution

b) Liabilities

0% 20% 40% 60% 80% 100% 2006 2002 1998 1994 1990 1986 1982 1978 Other liabilities Equity

Deposits from non- banks Debt securities

Deposits from banks

(15)

Figure 8: Balance sheet of regional institutions of credit cooperatives (1976 -

2006)

a) Assets

0% 20% 40% 60% 80% 100% 2006 2002 1998 1994 1990 1986 1982 1978 Other assets Non-bank securities Loans to non-banks Bank securities Loans to banks

Source: Deutsche Bundesbank time series (2006); Own contribution

b) Liabilities

0% 20% 40% 60% 80% 100% 2006 2002 1998 1994 1990 1986 1982 1978 Other liabilities Equity

Deposits from non- banks Debt securities

Deposits from banks

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Figure 9: Three Pillar Graphic of Basel II (2001)

The New

Capital Accord

Pillar 1

Pillar 2

Pillar 3

Minimum

capital

require-

ments

The

supervisor

y review

process

(SRP)

Enhanced

disclosure

The basic concept of Basel II

Source: Deutsche Bundesbank (2001)

Figure 10: Number of bank institutes in Germany (1990 – 2006)

0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 2006 2004 2002 2000 1998 1996 1994 1992 1990

Commercial banks Savings banks Credit co-operatives Special banks

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Figure 11: Number of German bank branches (1990 – 2005)

0 10.000 20.000 30.000 40.000 50.000 60.000 70.000 80.000 1990 1992 1994 1996 1998 2000 2002 2004

Bank branches Bank branches including Postbank*

* Postbank date not available prior to 1995.

Source: Deutsche Bundesbank (2005) and data directly provided by the German Central Bank (1990 -2005); Own contribution

Figure 12: Number of German bank and online - accounts (1995 – 2005)

0 20 40 60 80 100 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 in m ill io n

Online - bank accounts Total bank accounts

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Table 5: Development of the banking sector in selective countries (1995 –

2005)

Year Population (per 000s) institutes Bank (per 000s) Branches Populationper branch Branches per1000 inhabitants

Population

(per 000s) institutesBank (per 000s) Branches Population per branch

Branches per 1000 inhabitants Germany France 2005 82.464 2.090 46,16 1.787 0,56 62.702 856 40,55 1.546 0,65 2004 82.501 2.149 47,58 1.734 0,58 62.324 889 39,83 1.565 0,64 2003 82.520 2.226 49,56 1.665 0,60 61.475 895 39,35 1.562 0,64 2002 82.482 2.364 53,33 1.547 0,65 61.230 951 37,47 1.634 0,61 2001 82.340 2.527 56,71 1.452 0,69 61.530 1.006 41,49 1.483 0,67 2000 82.168 2.575 56,11 1.464 0,68 60.431 1.108 46,36 1.303 0,77 1999 82.087 2.833 55,49 1.479 0,68 59.100 1.168 46,04 1.284 0,78 1998 82.000 3.111 60,12 1.364 0,73 58.900 1.242 46,77 1.259 0,79 1997 82.100 3.284 59,70 1.375 0,73 58.700 1.288 46,56 1.261 0,79 1996 81.896 3.392 66,61 1.230 0,81 58.500 1.404 46,64 1.254 0,80 1995 81.800 3.500 67,99 1.203 0,83 57.800 1.453 46,65 1.239 0,81 Italy Netherlands 2005 58.530 807 44,59 1.313 0,76 16.322 n/a 4,41 3.704 0,27 2004 58.254 789 44,87 1.298 0,77 16.273 95 4,14 3.932 0,25 2003 58.132 779 44,77 1.298 0,77 16.223 94 4,55 3.565 0,28 2002 58.028 794 43,83 1.324 0,76 16.147 102 4,94 3.269 0,31 2001 57.927 820 43,10 1.344 0,74 16.043 105 5,61 2.858 0,35 2000 57.728 827 42,14 1.370 0,73 15.920 114 5,98 2.661 0,38 1999 57.700 860 41,30 1.397 0,72 15.900 123 6,28 2.531 0,40 1998 57.600 901 40,40 1.426 0,70 15.700 120 6,86 2.288 0,44 1997 57.500 916 40,02 1.437 0,70 15.700 127 7,07 2.220 0,45 1996 57.500 917 39,17 1.468 0,68 15.500 126 6,69 2.316 0,43 1995 57.300 959 38,12 1.503 0,67 15.500 127 6,50 2.384 0,42 UK USA 2005 60.209 393 28,44 2.117 0,47 296.639 9.090 90,7 3.272 0,31 2004 59.834 407 29,98 1.996 0,50 293.908 9.241 86,9 3.382 0,30 2003 59.554 425 31,52 1.889 0,53 291.089 9.336 85,9 3.389 0,30 2002 59.322 449 32,09 1.849 0,54 288.216 9.503 84,8 3.397 0,29 2001 59.942 482 32,53 1.843 0,54 285.335 9.763 83,0 3.440 0,29 2000 59.672 501 33,45 1.784 0,56 275.372 10.051 78,4 3.515 0,28 1999 59.435 506 34,15 1.741 0,57 272.945 10.364 78,0 3.499 0,29 1998 59.227 537 34,70 1.707 0,59 270.509 10.599 77,0 3.513 0,28 1997 59.021 553 35,23 1.675 0,60 268.048 11.067 73,6 3.644 0,27 1996 58.782 561 35,95 1.635 0,61 265.500 11.599 72,7 3.653 0,27 1995 58.400 565 36,96 1.580 0,63 263.000 12.112 72,1 3.645 0,27 Sweden Belgium 2005 9.030 125 2,67 3.387 0,30 10.473 106 5,92 1.768 0,57 2004 8.994 128 2,68 3.362 0,30 10.418 106 6,16 1.692 0,59 2003 8.958 125 2,93 3.060 0,33 10.374 109 6,51 1.593 0,63 2002 8.925 127 3,11 2.874 0,35 10.330 111 7,06 1.464 0,68 2001 8.896 128 3,27 2.719 0,37 10.281 112 7,64 1.346 0,74 2000 8.871 126 3,37 2.629 0,38 10.246 118 8,09 1.266 0,79 1999 8.858 120 3,92 2.258 0,44 10.220 117 8,37 1.221 0,82 1998 8.851 122 3,67 2.414 0,41 10.200 119 8,58 1.190 0,84 1997 8.846 124 3,61 2.452 0,41 10.180 131 9,04 1.126 0,89 1996 8.841 124 3,72 2.378 0,42 10.160 140 9,32 1.090 0,92 1995 8.830 116 3,89 2.269 0,44 10.140 143 9,47 1.070 0,93

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Figure 13: Net interest income / total assets ratio (1979 – 2003)

0,00% 0,50% 1,00% 1,50% 2,00% 2,50% 3,00% 3,50% 4,00% 4,50% 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50

Germany France* Italy** Netherlands Spain UK** USA

* Data for France not available prior to 1988.

**Data for Italy and the UK not available prior to 1984.

Source: Organisation for Economic Co-operation and Development (OECD) time series (2005); Own contribution; Own calculation

Figure 14: Non - interest income / interest income ratio (1979 – 2003)

0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 0 20 40 60 80 100 120 140 160 180

Germany France* Italy** Netherlands Spain UK** USA

* Data for France not available prior to 1988.

**Data for Italy and the UK not available prior to 1984.

(20)

Figure 15: Operating costs / gross income (cost/ income) ratio (1979 –

2003)

119 19 79 19 79 19 79 19 79 20 03 20 03 20 03 20 03 20 03 20 03 2003 40,00% 45,00% 50,00% 55,00% 60,00% 65,00% 70,00% 75,00%

Germany France* Italy** Netherlands Spain UK** USA

* Data for France not available prior to 1988.

**Data for Italy and the UK not available prior to 1984.

Source: Organisation for Economic Co-operation and Development (OECD) time series (2005); Own contribution; Own calculation

Figure 16: Profit before tax / equity (return on equity) ratio (1979 – 2003)

120

19 79 19 79 19 79 1979 20 03 20 03 20 03 2003 200 3 20 03 20 03 -5,00% 0,00% 5,00% 10,00% 15,00% 20,00% 25,00% 30,00% 35,00%

Germany France* Italy** Netherlands Spain UK** USA

* Data for France not available prior to 1988.

**Data for Italy and the UK not available prior to 1984.

Source: Organisation for Economic Co-operation and Development (OECD) time series (2005); Own contribution; Own calculation

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Figure 17: Return on equity of German bank groups (1995 – 2006)

-20,00% -10,00% 0,00% 10,00% 20,00% 30,00% 40,00% 50,00% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Big banks Landesbanks Regional institutions of credit cooperatives Credit cooperatives Commercial banks Savings banks

Average of all banks %

Source: Deutsche Bundesbank; (2006 a); Own contribution

Figure 18: Comparison between all German banks and foreign banks (1985 –

2006)

121 -100 100 300 500 700 900 1100 1300 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 All banks* Foreign banks**

* Includes total assets of all German bank groups.

**Sum of all banks in majority ownership and branches of foreign banks. Source: Deutsche Bundesbank time series (2006); Own contribution

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Figure 19: Development of German banks’ nominal extension of loans

ranked by borrowers (1991 – 2006)

122 -10% -5% 0% 5% 10% 15% 20% 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 -10% -5% 0% 5% 10% 15% 20%

Overall Average Small trade Companies Self- employed

Source: Deutsche Bundesbank time series (2006); Own contribution

Figure 20: Evaluation of banks with respect to credit business with

companies in Germany (2003 – 2007)

a) Changes in credit standards for credit granting

-60% -40% -20% 0% 20% 40% 60% 2003 2004 2005 2006 2007 Tightening Relaxation

Source: Bank Lending Survey (2007); Own contribution

(23)

b) Changes in credit demand

-60% -40% -20% 0% 20% 40% 60% 2003 2004 2005 2006 2007 Decrease Increase

Source: Bank Lending Survey (2007); Own contribution

Figure 21: Development of German banks’ nominal extension of loans

ranked by bank groups (1985 – 2006)

123

a) Domestic companies

-20% -10% 0% 10% 20% 30% 40% 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 -20% -10% 0% 10% 20% 30% 40%

Total average Big Banks* Credit cooperatives* Savings banks*

* Due to adjustments in the German Central Bank’s banking statistics and related structural disturbance, no data for individual bank groups and borrowers is shown for 1999.

(24)

Source: Deutsche Bundesbank time series (2006); Own contribution

a) Self employed

-15% -10% 2006 2005 04 -5% 0% 5% 10% 15% 20% 25% 20 2003 2002 1992 1991 -15% -10% -5% 0% 5% 10% 15% 20% 25% 2001 2000 1999 1998 1997 1996 1995 1994 1993

Total Average Big banks* Credit cooperatives Savings banks

* Due to adjustments in the German Central Bank’s banking statistics and related structural disturbance, no data for individual bank groups and borrowers is shown for 1999.

Source: Deutsche Bundesbank time series (2006); Own contribution

a) Small trade

-40% -30% -20% -10% 0% 10% 20% 30% 40% 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 -40% -30% -20% -10% 0% 10% 20% 30% 40%

Total average Big Bang* Credit cooperatives Savings banks

* Due to adjustments in the German Central Bank’s banking statistics and related structural disturbance, no data for individual bank groups and borrowers is shown for 1999.

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Table 6: Credit ratings of all German Landesbanks (LB) before and after abolition of the state guarantees

Rating with state guarantees (June 2004)

Forecast ratings without state guarantees

(July 2004)

Rating without state guarantees (October 2006)

S & P Fitch Rating Moody's S & P Fitch Rating Moody's S & P Fitch Rating Moody's LB

Baden-Württemberg AAA AAA Aaa A+ A+ n.a. A+ A+ Aa1

Bayerische LB AAA AAA Aaa A- A+ n.a. A A+ Aa2

LB Hessen-Thüringen AA+ AAA Aaa A A n.a. A A+ Aa2

Bremer LB n.a. AAA Aa2 n.a. A n.a. n.a. A A1

HSH Nordbank AA- AAA Aa3 A A n.a. A A A1

Norddeutsche LB n.a. AAA Aa2 n.a. A n.a. A A Aa3

LB Saar n.a. AAA Aa1 n.a. A n.a. n.a. A Aa2

LB Rheinland-Pfalz AA AAA Aa1 A- BBB+ n.a. A- A Aa2

LB Sachsen AA AAA Aa2 BBB+ A- n.a. BBB+ A+ A1

West LB AA AAA Aa2 BBB+ A- n.a. A- A- A1

LB Berlin n.a. AAA Aa3 n.a. BBB+ n.a. n.a. BBB+ A1

For Comparison:

Deutsche Bank AG AA- AA- Aa3 AA- AA- Aa3

Dresdner Bank AG A A- A1 A+ A A1

HypoVereinsbank AG A- A- A2 A A A2

Commerzbank AG A- A- A2 A- A A2

DZ Bank AG BBB+ A A3 A A+ A2

Note: Red fields in the table show a downgrade compared to the initial ratings from June 2004 Green fields in the table show an upgrade compared to the initial ratings from June 2004 Yellow field in the table show an upgrade of the biggest German commercial bank ratings

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Table 7: Risk spreads for financial service firms

Long term interest coverage ratio

Greater than Smaller than Rating Spread

-100000 0,049999 D 16,00% 0,05 0,099999 C 14,00% 0,1 0,199999 CC 12,50% 0,2 0,299999 CCC 10,50% 0,3 0,399999 B- 6,25% 0,4 0,499999 B 6,00% 0,5 0,599999 B+ 5,75% 0,6 0,749999 BB 4,75% 0,75 0,899999 BB+ 4,25% 0,9 1,199999 BBB 2,00% 1,2 1,49999 A- 1,50% 1,5 1,99999 A 1,40% 2 2,49999 A+ 1,25% 2,5 2,99999 AA 0,90% 3 100000 AAA 0,70%

Referenties

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