German Universal Banking

1. Stylized facts

The main features of the German-type model of universal banks, namely: financing, information and control. Financing is defined by the author as creating channels to transform savings into investment; the information aspect here is analyzed from the viewpoint of generation of information on the value of the firms and on different investment opportunities.

A major distinction of the German-type financial system is the dominance of a relatively small number of banks ('big three' or 'big four' largest banks), involved in both commercial and investment banking and, maintaining close relationships with the industry.

German-type banks provide long-term money lending to enterprises.

German-type banks provide a wide range of financial services but the element of key importance is the accent on long-term money lending to enterprises. On the information part, little information on the value of securities is made publicly available; instead, banks have a rather privileged access to it through the established close links with the industries. Lastly, with respect to corporate control, the German-type model has as a main feature high concentration of ownership, i.e. companies own substantial stakes of each other. As expected in this situation, banks have both the incentives and the ability to take active participation in shaping the major decisions of the enterprises. The last means that banks are in a position to also influence the investment decisions of non-financial companies. Hostile takeovers and leveraged buy-outs are rare in the German-type model.

In short, the German-type model of universal banks has as a core element the 'close participation in the ownership and control on non-financial firms'.

2. Pros and Cons

'The distinctive feature of successful financial systems is their close involvement in industry'.

A bank's stake in an enterprise would prevent banks from behaving too cautiously when providing credit through allowing them to reap some benefits from financing riskier projects.

Banks would help reduce the existing moral hazard problem between providers of finance, managers and employees via the creation of long-term commitment.

One possible reason for this is the fact that there are too many other factors, such as macroeconomic policy and legal framework that play a considerable role for realization of growth.

More importantly, some authors provide severe arguments against the introduction of the German model since banks as large investors might be too soft because they fail to terminate unprofitable projects they have invested in.

Adv: The main point of introducing such a model in the post communist countries is that universal banks could mobilize a considerable amount of savings and make them available as capital for investment in strategic projects of the firms, as well as impose a better corporate control structure on the firms; thus, they might play the role of an instrument thought which the economy would catch up with the advanced market economies. Often underline that fact that this mechanism is only possible if banks hold concentrated equity of their debtor clients

Adv: The development of efficient security markets on average takes much longer time as compared to the time period needed for the establishment of a stable banking system.

DisAdv: The initial conditions in the transition economies provided little scope to develop banking systems of German type. The main question raised is whether banks in the post-communist countries could play the role of universal banks of German type, taking into consideration the specific conditions in these economies.

Elliot Clark,

Writer, freelancer, scholar, author of thousands of articles available in the Internet, owner of number of blogs on

Article Source: http://EzineArticles.com/6430312

Leaning The Mysteries of Wealth Making

Investing is an activity that is a lot more fun when you have people to share your successes and failures with. Now, it may not seem like that would be the case, but it just so happens to be true. It is one of those things that you can get really excited about when you are getting to tell others how you have been doing. At the same time, there are some who just want company in this area in order to learn more about what they need to be doing to be successful. These are people who want to learn more about the whole investing game.

An investment club is a gathering of people who are all investors. The primary topic of discussion in these groups is obviously about investing. It could be about any number of different investment types. Most people think that investment clubs would just talk about stock market investments, but that is just not the case. You could talk about other markets, or even about something tangible like real estate. It really doesn't matter what type of investments are discussed, it only matters that people are learning and sharing.

In order to get involved with one of these clubs, you are going to have to look around to see where different ones are meeting at. It is not like you can just start asking around to see who else is an investor. You will need to look up to see where these types of clubs are meeting, and you will want to make sure that you see if there is anything that you have to do in order to be admitted into the club. Most of these clubs are open to the public for free, but do not make that assumption until you know this for sure.

It is often a good idea to bring along someone else interested in investing along with you to the club. This is true regardless of if the club is a free one or not. When you bring someone else along with you, you are going to open up more possibilities to learn more about whatever it is that you would like to learn about in the investing realm. You are also opening up this possibility for others as well. Besides this, you will find that you are able to help out the other person that you bring along as well.

Start getting to work finding an investment club that will meet all of your needs. You would be surprised by just how many of these clubs there are, even in your area.

Megan Perry is a writer who looks forward to sharing her knowledge and advice with readers. For more on investing, PFStock gives readers more information on starting successful investment clubs.

Article Source: http://EzineArticles.com/6485719