Total financing volumes and financing structures are important indicators for numerous
real economic and financial developments. Financing decisions are based primarily on
investment decisions, but also provide indications for financing conditions for
companies in the money and capital markets. The financial crisis starting in 2007 and
2008 affected these markets in Germany in various ways.
The spillover of the crisis to Germany can, to a considerable degree, be
explained by the fact that German credit institutions had reached the brink of collapse.
One central problem and cause of the crisis was poor risk monitoring, for instance
through rating agencies on the US securitization market. The burden on banks due to
crisis-induced write-downs as well as the drying-up of interbank money markets, which
resulted in refinancing problems for numerous credit institutions, created a fear of a
potential ‘credit crunch’ for companies or the economy at large.
This means the main macroeconomic concern was that the restriction
on credit supply might be severe enough to cause an economic crisis.
As a result of these disturbances, the regulating authorities put forth several new
measures, provisions and rules. As a lesson learned, one central
task should be strengthening the resilience of the financial system to future crises. The
work in hand, focuses on the effects of the Basel III regulations as these, on the one
hand, are already being enforced and, on the other hand, have a considerable impact
on corporate finance and corporate banking business models.
The Basel III Accords concerning higher capital requirements for banks were already
underway before the financial crisis hit, but the legislators and supervisory authorities
accelerated their implementation after the onset of the crisis. In its aftermath, the
economy experienced historically low levels of interest rates as a result of monetary
policy. Nevertheless, the conventional wisdom of scientists, consultants, and other
experts was shaped by the experience that bank loans tend to become more expensive
and scarcer when when new regulatory requirements are introduced. They advised
companies to shift their debt capital structures from major bank loan financing, which
has historically been the major source in Germany, to more capital market financing
instruments.
Table of Contents
1. Introduction
1.1. Background and Motivation
1.2. Aim and Objectives
1.3. Chosen Approach
1.4. Structure of the Study
2. Review of Literature
2.1. Debt Capital Markets and Structures in Germany
2.1.1. Universal and Economic Reflections in View of Financing Decisions
2.1.2. Funding Considerations on Business Level
2.1.3. Recent Developments in German Debt Markets
2.2. Impact of the Basel III Regulations on Financing Terms
2.2.1. Key Contents of the Basel III Accords
2.2.2. Effects of Basel III on the Financing Terms for Companies
2.3. Review of Financing Instruments
2.3.1. Equity and Mezzanine Capital
2.3.2. Debt Capital
2.3.3. Off-Balance Sheet Instruments
3. Implications for Corporate Banking Models in Germany
3.1. Challenges of Basel III for Corporate Banking
3.2. Market Potential and Overview
3.3. Behaviour of Existing Market Players and New Market Entrants
3.3.1. Existing Market Players
3.3.2. New Market Entrants
3.4. Development of Bank Loan Portfolios
4. Empirical Analysis of Developments of Capital Structures since 2007
4.1. Research Questions
4.2. Research Methodology
4.3. Research Sample
4.4. Development of German Companies’ Debt Capital Structures
4.4.1. Multinational Companies
4.4.2. Large Companies
4.4.3. Medium Sized Companies
4.5. Key Findings and Qualitative Evaluation
5. Conclusions
5.1. Aim and Objectives
5.2. Summary of the Empirical Evidence and Outlook
5.3. Outlook and Possible Future Scenarios for Banks
5.4. Research Limitations
5.5. Implications for Future Research
Objectives and Research Themes
The primary objective of this research is to evaluate whether German companies anticipated the potential consequences of post-2007 banking regulations—specifically the Basel III Accords—such as increased costs or the scarcity of bank loans, by altering their capital structures. Additionally, the study investigates the subsequent impact of these regulations on the German corporate banking market and the behaviors of its key participants.
- Impact of Basel III on corporate financing and lending conditions in Germany.
- Development of debt capital structures across different company size classes (Multinational, Large, and Medium Sized).
- Transformation of corporate banking business models and market competitiveness.
- Usage of alternative financing instruments compared to traditional bank loans.
- Empirical assessment of corporate balance sheet data from 2007 to 2013.
Excerpt from the Thesis
1.1. Background and Motivation
“Corporate financing is a key metric at the interface between a country’s financial sector and its real economy.”
Total financing volumes and financing structures are important indicators for numerous real economic and financial developments. Financing decisions are based primarily on investment decisions, but also provide indications for financing conditions for companies in the money and capital markets. The financial crisis starting in 2007 and 2008, triggered by the insolvency of US investment bank Lehman Brothers and the near-collapse of the US insurer AIG, affected these markets in Germany in various ways. The spillover of the crisis to Germany can, to a considerable degree, be explained by the fact that German credit institutions had reached the brink of collapse.
One central problem and cause of the crisis was poor risk monitoring, for instance through rating agencies on the US securitization market, in which mortgage loans of suspect value especially were securitized to so-called residential mortgage-backed securities, a subcategory of asset-backed securities. The burden on banks due to crisis-induced write-downs as well as the drying-up of interbank money markets, which resulted in refinancing problems for numerous credit institutions, created a fear of a potential ‘credit crunch’ for companies or the economy at large, in other words, a situation in which the supply of bank loans is so limited that it represents a significant economic risk. This means the main macroeconomic concern was that the restriction on credit supply might be severe enough to cause an economic crisis.
Summary of Chapters
1. Introduction: Outlines the motivation, aim, and structure of the thesis, specifically focusing on the financial crisis and the subsequent impact of Basel III on corporate finance.
2. Review of Literature: Provides an overview of German debt markets, Basel III regulations, and various corporate financing instruments.
3. Implications for Corporate Banking Models in Germany: Analyzes the challenges posed by Basel III for banks and the strategic responses of existing and new market players.
4. Empirical Analysis of Developments of Capital Structures since 2007: Presents the methodology and findings of an empirical assessment of 54 German companies regarding their debt capital structures.
5. Conclusions: Summarizes the research findings, offers an outlook on future scenarios for banks, and discusses research limitations.
Keywords
Basel III, Corporate Banking, Debt Capital Structure, German Companies, Bank Loans, Financial Crisis, Mittelstand, Capital Requirements, Financing Instruments, Deleveraging, Credit Crunch, Equity Ratio, Liquidity Ratios, Corporate Finance, Banking Regulation
Frequently Asked Questions
What is the core focus of this research?
The research focuses on the implications of post-2007 banking regulations, particularly Basel III, on the financing structures of German companies and the evolving business models within the German corporate banking sector.
What are the central thematic areas?
Key areas include the impact of capital requirements on loan supply, the shift in German company financing toward capital markets, and the competitive shifts in the banking landscape.
What is the primary research question?
The study aims to determine whether German companies anticipated regulatory consequences—like rising loan costs or potential scarcity—by proactively adjusting their debt capital structures between 2007 and 2013.
Which methodology is employed?
The thesis utilizes a mixed method approach, combining qualitative literature review with a quantitative assessment of balance sheet data from 54 German companies across three size categories.
What does the main part cover?
The main part analyzes the banking market's response to regulations, examines the empirical data on company capital structures, and describes trends such as disintermediation and bank strategy shifts.
Which keywords best characterize this work?
Keywords include Basel III, Corporate Banking, Debt Capital Structure, Mittelstand, and Financial Regulation.
What conclusion does the author reach regarding the 'credit crunch'?
The research concludes that there was no evidence for a broad-based credit crunch; rather, it identifies a decoupling of multinational companies from large and medium-sized firms in their usage of financing instruments.
How do 'Mittelstand' companies differ from multinational companies in their financing?
The research finds that multinational companies increasingly utilized bonds as a financing instrument, whereas 'Mittelstand' companies remained largely reliant on traditional bank loans and overdraft facilities throughout the observation period.
- Quote paper
- Stephan Miller (Author), 2014, Implications of post-crisis banking regulation after 2007 on the debt capital structures of German companies and corporate banking business models, Munich, GRIN Verlag, https://www.grin.com/document/284311
