Are universal banks bad for financial stability? Germany during the world financial crisis

Dietrich, Diemo; Vollmer, Uwe

doi:10.1016/j.qref.2011.12.008

Cited by 18 publications

(8 citation statements)

References 41 publications

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“…Presumably, the different relevance of CSR may impact the incentives for firms to engage in CSR. The financing environment in coordinated market economies may show many characteristics of a bank-based system, with an emphasis on relationship-based lending (Dietrich and Vollmer, 2012). This may result in different demands of the stakeholders.…”

Section: Resultsmentioning

confidence: 99%

“…This could be the result of different financing forms. The liberal market economies are characterised by market-based financing, while the coordinated market economies tend to have relationship-based financing with banks (Dietrich and Vollmer, 2012). In the liberal market economies, the markets monitor firms and demand higher levels of corporate governance (Qian and Yeung, 2015).…”

Section: Resultsmentioning

confidence: 99%

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Tax avoidance, value creation and CSR – a European perspective

Kiesewetter

Manthey

2017

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Purpose This paper aims to answer how corporate governance and corporate social responsibility (“CSR”) affect the relationship between value creation and tax avoidance. This study further analyses the impact of the institutional environment, i.e. whether a country is rather a liberal or a coordinated market economy, on the relationship between CSR and tax avoidance. Design/methodology/approach The empirical analysis comprises a panel data set of 7,924 observations for the years from 2005 to 2014 for European companies. The relationship between value creation and tax avoidance is tested by grouping the sample in high and low CSR performers. Similarly, the impact of the type of market economy is analysed for the firms. Findings The research design does not find evidence that tax avoidance is creating value. The empirical findings reveal that there is a positive relationship between value creation and the effective tax rate for firms with low social and environmental characteristics. Further, this analysis could show that stronger corporate governance is associated with a lower effective tax rate in both coordinated and liberal market economies. The analysis identifies social strengths being associated with a higher effective tax rate for coordinated market economies. Practical implications It is proposed to encourage CSR disclosure. The creation of incentives for social strengths could increase tax revenue. Firms should reconsider whether the engagement in tax avoidance is worth it and pursue social responsibility to achieve higher value creation for their stakeholders. Originality/value The paper challenges the intuitive expectation that tax avoidance creates value. It is suggested that the governance and CSR culture, as well as the tax legislation in Europe, is different to the USA. Conclusively, tax avoidance is not generating value for the European sample.

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Section: Resultsmentioning

confidence: 99%

Section: Resultsmentioning

confidence: 99%

Tax avoidance, value creation and CSR – a European perspective

Kiesewetter

Manthey

2017

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“…At the same time, local Sparkassen weathered the crisis well and managed to make small profits (Dietrich and Vollmer, ). In the light of the devastating crisis experiences of Landesbanken and Spanish Cajas , the question arises why the highly politicized supervisory boards did not translate into high exposure and large losses for Sparkassen .…”

Section: Macroeconomic Shocks and Corporate Governance: Publicly Contmentioning

confidence: 99%

The Corporate Governance of Public Banks before and after the Global Financial Crisis

Hallerberg

Markgraf

2018

Global Policy

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During the 2008-09 financial crisis, many states were forced to nationalize faltering private banks. But also public banks ran into trouble and market actors continue to worry about their stability and crisis resilience. During the crisis, German public Landesbanken and Spanish public Cajas were hit hard. Yet, German public Sparkassen emerged strengthened from the crisis. This calls for a closer examination of the regulatory framework and corporate governance of public banks. We compare how corporate governance choices affected the financial crisis performance of public banks in three countries. Italy that had privatized its extensive public banking sector over the past decades; Spain that had problems with its savings banks during the crisis, which were eventually privatized or shut down; and Germany whose public savings banks navigated the financial crisis relatively well while its public Landesbanken got into serious trouble, and where calls for privatizing public banks resurface periodically. The paper considers the question whether Italy's banking crisis is partly rooted in the legacies of its formerly public banks and how the privatization of public banks in Spain and Italy can inform the debate in Germany and in other European Union countries with significant public banking sectors. Policy Implications• Regulators should be concerned with how public-sector influence affects whether a bank maximizes profit and hence the likelihood that a bank will need to be resolved.• Public-sector banks' operations should be strictly regulated to moderate implications of political interference in bank governance.• The bank management of public-sector banks should have sufficient autonomy from the supervisory board to limit political interference.• Bank privatization must be underpinned with real reform of banks' governing bodies, restricting public-sector influence.

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“…This ultimately limits the ability of regulators to tailor risk monitoring to the specific vulnerability of each strategy to distress. 2 Although there is no strong evidence to support the claim that universal banks are riskier than specialized ones (Benston 1994;Cornett et al 2002;Dietrich and Vollmer 2012;Curi et al 2015), some studies (e.g., Demirgüc-Kunt and Huizinga 2010;Lozano-Vivas and Pasiouras 2010) show a non-monotonic impact of non-traditional funding-investment models on risk. Starting from low level of non-deposit funding in combination with non-interest income activities, these non-traditional banking strategies provide risk diversification benefits, whereas further increases in the level of this mix amplify bank fragility.…”

Section: Introductionmentioning

confidence: 99%

“…On the other side, it could also increase bank vulnerability if associated with a very specialized investment strategy that suffers from the lack of diversification. The universal model offers better diversification opportunities that usually facilitate resilience (Dietrich and Vollmer 2012), although sources of funding towards wholesale-debt tend to exacerbate distress during market crisis due to the low levels of stable funding.…”

Section: Introductionmentioning

confidence: 99%

Banks’ business strategies on the edge of distress

et al. 2019

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The paper investigates the importance of banks’ business classification in shaping the risk profile of financial institutions on a global scale. We employ a rare-event logit model based on a state-of-the-art list of major global distress events from the global financial crisis. When clustering banks by their business strategies using a community detection approach, we show that (i) capital enhanced resilience only for traditional banks that were on average less capitalized than other banks; (ii) boosting ROE, usually associated with riskier exposures, improved resilience for stable funded and asset diversified banks; (iii) conversely, higher levels of ROA exacerbated banks’ vulnerability when associated with concentrated (not-diversified) investment structures; (iv) size in terms of total assets contributed to instability only for wholesale-funded institutions due to their high levels of unstable funding. Liquidity, on the contrary, reduced the institution likelihood of being in distress, regardless of its business classification. Although our findings refer to the recent financial crisis, they provide evidence that a tailored risk monitoring based on a proper peer group identification can facilitate banks’ distresses prediction.

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Are universal banks bad for financial stability? Germany during the world financial crisis

Cited by 18 publications

References 41 publications

Tax avoidance, value creation and CSR – a European perspective

Tax avoidance, value creation and CSR – a European perspective

The Corporate Governance of Public Banks before and after the Global Financial Crisis

Banks’ business strategies on the edge of distress

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