8.1 Frankfurt as a Financial Centre
8.1.3 Institutional Structure
In the debate about varieties of capitalism, the German economy is considered a prime example of a coordinated economy (Beyer 2009: 314).
Corporate integration can thus be regarded as a partial element of a
‘coordinated’ form of capitalism, in which companies do not organize the bulk of their relations through markets but in which the state sets regulatory requirements and workers are incorporated into a system of economic balance
102
of interests [...] and which can be distinguished from the Anglo-American, more competitive, ‘liberal’ capitalism” (Beyer 2002).
In relation to the importance of financial markets with regard to a country’s economy, it can be said that the financial markets have a lower significance with respect to the ideal type of coordinated capitalism, due to companies’ lower market capitalisation, primarily credit-based corporate finances, and a universal banking system with strong credit bank orientation, as well the strategic bonds between a number of large companies and central financial institutions. In the German case, the model has earned the name “Deutschland AG” [“Germany Ltd.”]. For years, however, studies have pointed out the change from coordinated capitalism to a “hybrid variant,” a combination of originally Anglo-American liberal capitalism and the coordinated economy of Germany (Beyer 2009: 308). In contrast to the debate on the varieties of capitalism, the representatives of the concept of “financial market capitalism” (Froud et al. 2010, Windolf 2008) note even a “diachronic change towards enhanced financial market orientation in all varieties of capitalism” (Beyer 2009: 310).
Against the background of this discussion, the question of the significance of the financial market for the German economy needs to be considered. On the one hand, institutional changes such as the financial market promotion law, which helped the financial sector to greater overall economic weight in Germany, will be portrayed. On the other hand, conditions such as the lesser capital market orientation in the German population will be used as examples of enduring features of coordinated capitalism.
In Germany, the liberalisation of financial markets focused on the promotion of the domestic capital market; in particular through four “financial market promotion laws” (German:
Finanzmarktförderungsgesetze) between 1990 and 2002, which, among other things, expanded business opportunities of investment companies, created worldwide investment opportunities for real estate funds, and resulted in tax relief on capital gains (Heeg and Dörry 2009 : 34).
Thus, the financial market promotion laws created the conditions for the release of international capital flows and the promotion of the financial sector in Germany. For growth of the financial sector on an internationally comparable level, the existence of liquid markets is a prerequisite, along with an appropriate legal foundation. In the Anglo-Saxon economies – the USA, Canada, UK, New Zealand, and Australia – this has been achieved through the early deregulation of national financial systems and especially the mandatory introduction of private coverage of individual risk, which to this day frees up large quantities of capital seeking investment in these countries and thus increases liquidity of the financial market (Heeg 2009:
103
132). In the late nineties, large-scale private pensions with government support were introduced in Germany as well. Although this resulted in the liberalisation of investment conditions for German capital, up to now a complete conversion to funded security systems has not yet occurred in Germany. More than in other countries, pension as well as health insurance systems operate through contribution funding, even if personal life risks have to be increasingly covered by capital strategies in the financial market. This is also reflected in the increasing proportion of private wealth that is invested in insurance in Germany. Still, bank savings and time deposits remain the predominant form of investment.
In addition, although the German real estate market has been comprehensively liberalised (Heeg 2009), the percentage of ownership in the housing market — less than fifty percent — is rather low by international standards (Stokes, 2011: 20). In big cities like Berlin and Frankfurt, the percentage of renters is even higher — over eighty percent. Thus, buying a house, and then financing it through the capital market, is not the standard in Germany.
Therefore, the importance of the financial sector, as measured by gross value added and number of workers, appears rather small for the whole of Germany: between 2000 and 2007, the proportion was only 3.7%, remaining well below the United Kingdom and the United States, and compared to other countries of the Eurozone (Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, 2008). Only a share of 18.7% of private assets in Germany is invested in fixed income securities, equities, and investment funds.
By international standards, the German banking industry is relatively fragmented and has increased competition among its institutions. The banking business is not dominated by a few national champions, although the number of banks is declining, accompanied by an increase in funds. (Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung 2008)16.
In 2013, the total assets of all banks in the German banking sector amounted to 7 604 billion Euros. With 36.4%, the largest share belongs to credit banks. The largest German institutions by total assets in 2014 (in €billion) are shown in Fig. 6.
16 In this development, parallel processes to the wave of globalisation at the turn from the 19th to the 20th century become apparent. Hilferding (1910 [1981]: 227-238) describes a similar process of rising concentration in banking, coupled with increasing power of finance over the economy. However, his outlook that this increasing concentration in economic power would lead to an easy transition to socialism (ibid.: 368f) hardly translates to the situation of entrenched neoliberalism, which continues almost unperturbed despite the crisis of 2008, we find today.
104
Credit Institute Total assets (€bn)
1 Deutsche Bank AG, Frankfurt / M. 1 611
2 Commerzbank AG, Frankfurt / M. 550
3 KfW Kreditanstalt für Wiederaufbau, Frankfurt / M. 465
4 DZ Bank AG, Frankfurt / M. 387
5 Unicredit Bank AG, Munich 290
Figure 8-2:Total assets of Germany’s largest banking institutions, 2014 (Source: Bundesverband Deutscher Banken e.
V 2014)
In global comparison, even major German banks are rather small. According to the ranking of the SNI of the top one hundred banks by total assets, Deutsche Bank is in the number 8 spot for 2013. The next German bank is Commerzbank, in 38th place. The third largest German bank, DZ Bank, is ranked 53rd. Australian banks are in positions 40-44 (Tor und Sarafaz 2013).
Germany’s largest financial institutions characterise Frankfurt as a financial centre and provide its significance.
8.1.4 The Contemporary Significance of Frankfurt as a Financial Centre in the