German state banks
Table of Contents
Table of Contents 2
I.Introduction and research questions 2
I.1.Objectives 3
II.Subject of investigation: The German state banks 4
II.1.Sachsen LB 5
II.2.Bayern LB 7
III.Reasons for the underperformance 8
III.1.Business model 8
III.2.Management Board 10
III.3.Supervision 11
III.4.Market structure/ Early warnings 13 Cf. Spiegel (2008) 15
IV.Adjustments 16 Cf. Handelsblatt (2012) 17
I.Bibliography 19
II.Appendix 24
I. Introduction and research questions
The German taxpayer had to bail out state-owned banks after their managements recklessly gambled away billions on subprime investments. Several state-owned banks had to be rescued at the expense of the German tax payer: Bayern LB, West LB, IKB Deutsche Industriebank, and Sachsen LB. The crisis, which originated in the US, brought the whole of the German banking sector under pressure. But why were the state banks more affected than the private banks? The technical reason is obviously their bigger exposure to toxic assets. This paper raises the question why they made these huge strategic mistakes, ignored significant risks and negative market developments. Why did the formerly state backed banks weaken their own fundamentals through horrible mismanagement that almost culminated in their insolvency in 2008?
I.1. Objectives
Throughout this article the goal is to analyze to what extent the negative developments are rooted in the overall structure of the banking sector or the organization structure of the state banks. The paper highlights the weaknesses the state banks had and still have compared to private banks, and gives numerical evidence for these statements. Besides, this work will give a short overview about the adjustments which have been implemented since.
Finally some adjustments which have not been implemented yet, but which would help to prepare this part of the banking sector for future turbulences will be identified.
II. Subject of investigation:
Table of Contents 2
I.Introduction and research questions 2
I.1.Objectives 3
II.Subject of investigation: The German state banks 4
II.1.Sachsen LB 5
II.2.Bayern LB 7
III.Reasons for the underperformance 8
III.1.Business model 8
III.2.Management Board 10
III.3.Supervision 11
III.4.Market structure/ Early warnings 13 Cf. Spiegel (2008) 15
IV.Adjustments 16 Cf. Handelsblatt (2012) 17
I.Bibliography 19
II.Appendix 24
I. Introduction and research questions
The German taxpayer had to bail out state-owned banks after their managements recklessly gambled away billions on subprime investments. Several state-owned banks had to be rescued at the expense of the German tax payer: Bayern LB, West LB, IKB Deutsche Industriebank, and Sachsen LB. The crisis, which originated in the US, brought the whole of the German banking sector under pressure. But why were the state banks more affected than the private banks? The technical reason is obviously their bigger exposure to toxic assets. This paper raises the question why they made these huge strategic mistakes, ignored significant risks and negative market developments. Why did the formerly state backed banks weaken their own fundamentals through horrible mismanagement that almost culminated in their insolvency in 2008?
I.1. Objectives
Throughout this article the goal is to analyze to what extent the negative developments are rooted in the overall structure of the banking sector or the organization structure of the state banks. The paper highlights the weaknesses the state banks had and still have compared to private banks, and gives numerical evidence for these statements. Besides, this work will give a short overview about the adjustments which have been implemented since.
Finally some adjustments which have not been implemented yet, but which would help to prepare this part of the banking sector for future turbulences will be identified.
II. Subject of investigation:
Bibliography: Basel Comitte on Banking Supervision (2010) Enhancement of the Basel II framework Bank for international settlements Bundesbank (2007) Financial Stability Review 2007 Bundesbank (2006) Fiorentino and Herrmann (2009) Effizienz und Wettbewerb im deutschen Bankensektor German Institute for Economic Research Flesch, 2010 Landesbanken ohne neues Geschäftsmodell p. 14 (2010) http://www.dr-sievi.de/fileadmin/downloads/Flesch_Landesbanken.pdf Volume 9/2010 March 2010 NTV (2010) http://www.n-tv.de/wirtschaft/Banken-gesunden-allmaehlich-article833315.html Access Date: 1st of May, 2013 WirtschaftsWoche, no. 18, April 28, 2008, p. 52.