The German Banking System Essay Research Paper — страница 4

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to “eliminate or minimize typical risk for depositors.” (KPMG pg. 57. By levying an “annual charge of 0.3% of the balance sheet position entitled ‘liabilities to customer’” the association is able to finance its fund. (KPMG pg. 58) This fund will insure customers’ deposits “amounts to 30% of the bank’s core capital plus other liable equity capital, provided the latter does not exceed 25% of core capital.” (KPMG pg. 58) Central bank actions since 1993 Since 1993, the Bundesbank has rarely taken action to lower or raise interest rates. After its initial move to decrease interest rates from 1993 to 1996, its main interest rates have steadied and have seen rare instances of slight movement (Appendix 2). For example, after the discount rate was gradually decreased

from 5.8% in 1993 to 2.5% in 1996, it has unchanged for nearly two years (International Financial Statistics p 313). In addition, the money market rate and interbank deposit rate has risen a mere 0.3% and 0.2% respectively since 1996. Although the Bundesbank’s actions have been fairly predictable since 1996, in a surprise move in 1997 the Bundesbank lifted its repo rate 0.3% to 3.3% for two weeks while keeping other key interest rates steady in a pre-emptive strike against a fear of inflation (Investing, Licensing & Trading in Germany p 8). In addition, in an effort to prepare for the arrival of the Euro, Germany, in conjunction with other members of the Euro, lowered its interbank deposit rate to 3.0% in December of 1998.As a result, of the Bundesbank’s actions prior to

1996 and its reluctance to make major moves since, Germany has experienced a low rate of inflation of approximately 1.4%. However, although it seems to have a strong control over inflation and the Deutsche Mark has weakened considerably against the dollar over the past 5 years. Due to the low interest rates, the German Mark hit an all-time low of 1.80 DM/$ in July of 1997 from a strong 1.43 DM/$ in 1995 (International Financial Statistics p 312). However, there have been signs of a resurgence as the Deutsche Mark is currently around 1.61DM/$. FINANCIAL MARKETS IN GERMANY Germany’s financial markets include stock markets, bond markets, money markets and futures and options markets. Capital markets play an important role in the financing of business investment, though bank

lending is also a prominent method. The financial markets of Germany have had a unique development in the early 1990’s. In 1993, the Deutsche Borse AG was established. The German financial markets are largely under the control of this organization which is an administrative body covering the Frankfurt Stock Exchange, Deutsche Terminborse (the futures and options exchange), Deutsche Wertpapierdaten-Zentrale (the systems house of Deutsche Borse), and Deutscher Kassenverein AG (the central custodian for domestic and foreign securities). (They are fully owned subsidiaries of the Deutsche Borse.) (Wadhwa, pgs.79,80) The role of the money market in Germany is somewhat odd. The opportunities for households, businesses, and public enterprises to even out their short-term liquidity

surpluses and deficits are extremely limited. The monetary policy of the Bundesbank is conducted mostly through short-term fixed income instruments. It is felt that new money market instruments and techniques would only increase competition for funds for banks already facing fierce competition for loans. (Dufey, pgs. 66,67) The German stock market consists of eight technically independent stock exchanges – Frankfurt, Dusseldorf, Munich, Hamburg, Berlin, Stuttgart, Hanover, and Bremen – but they actually work closely together amongst themselves along with the DTB (futures and options exchange). Three market segments compose the German stock markets: the official market (Amtlicher Handel), the regulated market (Geregelter Markt), and the OTC market (Freiverkehr). These markets

are now integrated in the trading of the Deutsche Borse. Stock trading volume for 1997 totaled DM3,717.5 billion, an increase of 43.5 from the previous year reflecting the growing importance of equity markets in Germany.The German bond market is composed of five major categories, listed in order of highest to lowest fractional component. These categories are: communal bonds, direct placement of public authorities, mortgage bonds, noncommunal and nonmortgage bank bonds, and the bonds of special-purpose banks. In addition, a sixth category, the industrial bond, accounts for only half of one percent of the entire bond market. A very significant component of the bond market is the Schuldscheine market or the market in “certificates of indebtedness.” These can be considered