Crises, rescues, and policy transmission through international banks
Claudia M. Buch
Bundesbank Discussion Paper 15/2011,
2011
Abstract
The World Financial Crisis has shaken the fundamentals of international banking
and triggered a downward spiral of asset prices. To prevent a further meltdown of
markets, governments have intervened massively through rescues measures aimed at recapitalizing banks and through liquidity support. We use a detailed, banklevel dataset for German banks to analyze how the lending and borrowing of their foreign affiliates has responded to domestic (German) and to US crisis support schemes. We analyze how these policy interventions have spilled over into
foreign markets. We identify loan supply shocks by exploiting that not all banks
have received policy support and that the timing of receiving support measures
has differed across banks. We find that banks covered by rescue measures of the
German government have increased their foreign activities after these policy
interventions, but they have not expanded relative to banks not receiving support.
Banks claiming liquidity support under the Term Auction Facility (TAF) program
have withdrawn from foreign markets outside the US, but they have expanded
relative to affiliates of other German banks.
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The Role of Investment Banking for the German Economy: Final Report for Deutsche Bank AG, Frankfurt/Main
Michael Schröder, M. Borell, Reint E. Gropp, Z. Iliewa, L. Jaroszek, G. Lang, S. Schmidt, K. Trela
ZEW-Dokumentationen, Nr. 12-01,
No. 1,
2011
Abstract
The aim of this study is to assess the contributions of investment banking to the economy with a particular focus on the German economy. To this end we analyse both the economic benefits and the costs stemming from investment banking.
The study focuses on investment banks as this part of banking is particularly relevant for financing companies as well as the development and use of specific products to support the needs of private and professional clients. The assessment of benefits and costs of investment banking has been conducted from a European perspective. Nevertheless there is a focus on the German economy to allow a more detailed analysis of certain aspects as for example the use of derivatives by German companies, the success of M&As in Germany or the effect of securitization on loan supply and GDP in Germany. For comparison purposes other European countries and also the U.S. have been taken into account.
The last financial crisis has shown the negative impacts of banks on the financial system and the whole economy. In a study on the contribution of investment banks to systemic risk we quantify the negative side of the investment banking business.
In the last part of the study we assess how the effects of regulatory changes on investment banking. All important changes in banking and capital market regulation are taken into account such as Basel III, additional capital requirements for systemically important financial institutions, regulation of OTC derivatives and specific taxes.
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Industrial Associations as a Channel of Business-Government Interactions in an Imperfect Institutional Environment: The Russian Case
A. Yakovlev, A. Govorun
IWH Discussion Papers,
No. 16,
2011
Abstract
International lessons from emerging economies suggest that business associations may provide an effective channel of communication between the government and the private sector. This function of business associations may become still more important in transition economies, where old mechanisms for coordinating enterprise activities have been destroyed, while the new ones have not been established yet. In this context, Russian experience is a matter of interest, because for a long time, Russia was regarded as a striking example of state failures and market failures. Consequently, the key point of our study was a description of the role and place of business associations in the presentday
Russian economy and their interaction with member companies and bodies of state
administration. Relying on the survey data of 957 manufacturing firms conducted in
2009, we found that business associations are more frequently joined by larger companies, firms located in regional capital cities, and firms active in investment and innovation. By contrast, business associations tend to be less frequently joined by business groups’ subsidiaries and firms that were non-responsive about their respective ownership structures. Our regression analysis has also confirmed that business associations are a component of what Frye (2002) calls an “elite exchange”– although only on regional and local levels. These “exchanges” imply that members of business associations, on the one hand, more actively assist regional and local authorities in social development of their regions, and on the other hand more often receive support from authorities. However, this effect is insignificant in terms of support from the federal government. In general, our results allow us to believe that at present, business associations (especially the
industry-wide and “leading” ones) consolidate the most active, advanced companies and act as collective representatives of their interests. For this reason, business associations can be regarded as interface units between the authorities and businesses and as a possible instrument for promotion of economic development.
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University Cities: Including Universities and Research Institutes into Strategies for Urban Growth
Peter Franz
International Journal of Knowledge-Based Development,
2011
Abstract
The topic of this special issue refers to the observation that many larger and middle-sized cities dispose of a considerable potential of institutions creating and disseminating knowledge. This kind of endowment seems to be especially valuable in an upcoming knowledge-based economy. Recent strategic concepts and inter-city competitions referring to ‘knowledge-based urban development’, ‘knowledge city’, ‘creative city’, ‘science city’ or ‘entrepreneurial university’ indicate that urban planners and politicians are beginning to search for strategies to take advantage and to make use of this potential. The papers in this special issue a) present case studies of cities trying to activate their knowledge resources for local economic growth, b) deal with regulatory barriers and problems for cities applying ‘knowledge city’ strategies, c) analyze the university support for entrepreneurial activities, and d) discuss some implications of ‘knowledge city’ strategies for architecture and urban planning.
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Path Dependence and QWERTY's Lock-in: Toward a Veblenian Interpretation
John B. Hall, Iciar Dominguez Lacasa, Jutta Günther
Journal of Economic Issues,
No. 2,
2011
Abstract
In “Clio and the Economics of QWERTY,“ Paul David challenges an overarching, mainstream assumption that market forces should indeed lead toward efficient and optimal outcomes that include technology selection. David seeks to explain the endurance of technologies that his use of historiography judges inefficient and suboptimal. We challenge David's research, arguing that failure to consider the original institutional economics (OIE) tradition limits his grasp of complex processes to reduced notions of “path dependence“ based upon a “lock-in.“ This inquiry offers an alternative account of QWERTY and technology selection based upon Veblenian thinking, further supported by Paul Dale Bush's emphasis upon the ceremonial.
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Incubating an Illusion? Long-term Incubator Firm Performance after Graduation
Michael Schwartz
Growth and Change,
No. 4,
2011
Abstract
Local economic development policies worldwide perceive business incubation as an effective measure to promote regional growth through the support of young and innovative ventures. The common assumption is that incubation promotes firm growth, in particular after these firms graduated from their incubator organizations. This article investigates the long-term performance of 324 graduate firms from five German business incubators (incubated between 1990 and 2006) after they have (successfully) completed their incubation. The present study does not suffer from a survivor bias, meaning that performance data of non-surviving firms is also included. Using employment and sales measures as performance indicators, this study contributes to our knowledge with regard to long-term incubator firm performance after graduation. While in the first years after graduation there is significant growth of formerly incubated firms, further results do not support the presumption of continuous firm growth beyond incubation. A minority of graduate firms exhibits a strong increase in performance, but the majority of firms do not experience considerable growth.
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Can Korea Learn from German Unification?
Ulrich Blum
IWH Discussion Papers,
No. 3,
2011
Abstract
We first analyze pre-unification similarities and differences between the two Germanys and the two Koreas in terms of demographic, social, political and economic status. An important issue is the degree of international openness. “Stone-age” type communism of North Korea and the seclusion of the population prevented inner-Korean contacts and contacts with rest of the world. This may create enormous adjustment costs if institutions, especially informal institutions, change. We go on by showing how transition and integration interact in a potential unification process based on the World Bank Revised Minimum Standard Model (RMSM) and on the Salter-Swan-Meade model. In doing so, we relate the macro and external impacts on an open economy to its macro-sectoral structural dynamics. The findings suggest that it is of utmost importance to relate microeconomic policies to the macroeconomic ties and side conditions for both parts of the country. Evidence from Germany suggests that the biggest general error in unification was neglecting these limits, especially limitations to policy instruments. Econometric analysis supports these findings. In the empirical part, we consider unification as an “investment” and track down the (by-and-large immediate to medium-term) costs and the (by-and-large long-term) benefits of retooling a retarded communist economy. We conclude that, from a South-Korean
perspective, the Korean unification will become relatively much more expensive than the German unification and, thus, not only economic, but to a much larger degree political considerations must include the tying of neighboring countries into the convergence process. We finally provide, 62 years after Germany’s division and 20 years after unification, an outlook on the strength of economic inertia in order to show that it may take much more than a generation to compensate the damage inflicted by the communist system.
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The Political Setting of Social Security Contributions in Europe in the Business Cycle
Toralf Pusch, Ingmar Kumpmann
IWH Discussion Papers,
No. 4,
2011
Abstract
Social security revenues are influenced by business cycle movements. In order to
support the working of automatic stabilizers it would be necessary to calculate social insurance contribution rates independently from the state of the business cycle. This paper investigates whether European countries set social contribution rates according to such a rule. By means of VAR estimations, country-specific effects can be analyzed – in contrast to earlier studies which used a panel design. As a result, some countries under investigation seem to vary their social contribution rates in a procyclical way.
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Regional Entrepreneurial Opportunities in the Biotech Industry: Exploring the Transition from Award-winning Nascent Entrepreneurs to Real Start-ups
H. Wolf, Claus Michelsen, Michael Schwartz
Abstract
Knowledge of factors that determine the transition from nascent entrepreneurship into real entrepreneurship is of major importance for policies aiming to effectively stimulate start-ups. Whereas scholars concentrated on person-specific factors to explain transition probabilities, environmental characteristics have been fairly neglected. Given that entrepreneurship is a strongly localized phenomenon, this paper argues that regional entrepreneurial opportunities are a driving force behind the transition from nascent entrepreneurship to new venture creation. Based on unique data on 103 nascent entrepreneurs in the German biotechnology industry, we empirically assess the importance of regional entrepreneurial opportunities on transition probabilities. Further, we introduce a new
approach to measure nascent entrepreneurship by capturing individuals that actively participate in start-up competitions and have won at least one competition. Controlling for technology and individual characteristics, we find strong support for our hypotheses relating to the significant impact of general regional opportunities, specific regional opportunities and the entrepreneurial environment for the probability of transition from award-winning nascent entrepreneurs to real start-ups.
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State Aid in the Enlarged European Union. An Overview
Jens Hölscher, Nicole Nulsch, Johannes Stephan
Abstract
In the early phase of transition that started with the 1990s, Central and Eastern European Countries pursued economic restructuring of the enterprise sector that involved massive injections of state support. Also foreign investment from the West and facilitation of the development of a market economy involved massive injections of state support. With their accession to the European Union (EU), levels and forms of state aid came under critical review by the European Commission. This inquiry investigates whether the integration of the new member states operates on a level playing field with respect to state aid. Quantitative and qualitative analysis is relied upon to answer this key, as well as other, related questions. Findings suggest that in recent years a level playing field across the EU has indeed emerged. State aid in the new EU member countries is rather handled more strictly than laxer compared to the ‘old’ EU countries.
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