ZBB 2016, 427

RWS Verlag Kommunikationsforum GmbH, Köln RWS Verlag Kommunikationsforum GmbH, Köln 2199-1715 Zeitschrift für Bankrecht und Bankwirtschaft ZBB 2016 AufsätzeHans-Helmut Kotz* / Reinhard H. Schmidt**

Corporate Governance of Banks – A German Alternative to the Standard Model

The paper provides an overview and an economic analysis of the development of the corporate governance of German banks since the 1950s, highlighting peculiarities – as seen from the meanwhile prevailing standard model perspective – of the German case. These peculiarities refer to the specific German notion and legal-institutional regime of corporate governance in general as well as to the specific three-pillar structure of the German banking system.
The most striking changes in the corporate governance of German banks during the past 50 years occurred in the case of the large shareholder-owned banks. For them, capital markets have become an important element of corporate governance, and their former orientation towards the interests of a broadly defined set of stakeholders has largely been replaced by a one-sided concentration on shareholders’ interests. In contrast, the corporate governance regimes of the smaller local public savings banks and the local cooperative banks have remained virtually unchanged. They acknowledge a broader horizon of stakeholder interests and put an emphasis on monitoring via the auditing divisions of the respective associations.
The Great Financial Crisis, beginning in 2007, has led to a considerable reassessment in the academic and political debate on bank governance. On an international level, it has revived the older notion that, in view of their high leverage and their innate complexity, banks are “special” and bank corporate governance also – and needs to be seen in this light, not least because research indicates that banks with a strong and one-sided shareholder orientation – and thus with what appears to be the best corporate governance according to the standard model – have suffered most in the crisis. In the German case, the crisis has shown that the smaller local banks have survived the crisis much better than large private and public banks, whose funding strongly depends on wholesale markets. This may point to certain advantages of their governance and ownership regimes. But the differences in the performance during the crisis years may also, or even more so, be a consequence of the business models of large vs small banks than of their different governance regimes.

Tabel of contents

  • I. Introduction: Banks – special and opaque
  • II. Corporate governance of banks – German idiosyncrasies
    • 1. Corporate governance of banks – in general
    • 2. Corporate governance – two notions, two perspectives
    • 3. Corporate governance – a capitalisme rhenan reading
    • 4. Germany’s financial system – continuously behind times?
  • III. The trajectory of German banks’ corporate governance over the years
    • 1. Corporate governance in Germany between 1950 and 1990
      • 1.1 The economic and ideological environment
      • 1.2 The corporate governance of large private commercial banks
      • 1.3 The corporate governance of local savings banks
      • 1.4 The corporate governance of public regional banks
      • 1.5 The corporate governance of cooperative banks
    • 2. The corporate governance of German banks between 1990 and 2007
      • 2.1 The changing economic and ideological environment
      • 2.2 Changes in the corporate governance of the “big banks”
      • 2.3 Changes in the corporate governance of the savings bank group
      • 2.4 Changes in the corporate governance of cooperative banks
    • 3. Corporate governance of German banks in the wake of the crisis
      • 3.1 How German banks were affected by the financial crisis
      • 3.2 Regulatory lessons drawn from the crisis
      • 3.3 The post-crisis academic research on banks’ corporate governance
      • 3.4 A reassessment of policy options in the wake of the crisis?
  • IV. By way of concluding
*
*)
Professor, Program Director, SAFE Policy Center, Goethe University, Frankfurt/M., and Resident Fellow, Center for European Studies, Harvard University, Cambridge, MA, former member of the Executive Board of Deutsche Bundesbank
**
**)
Professor Dr. Dr. h.c., Goethe-University und SAFE Policy Center, Frankfurt/M.

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