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Germany Table of Contents


Nonbank Financing

Ever since the collapse of the Berlin stock exchange after Hitler's seizure of power in 1933, Germany has lacked a major international market for bonds and equities. Nothing in Germany rivals those of New York or Tokyo, and even the London market does more overall trading than Frankfurt. London even trades almost one-third of all German shares. There are now ten regional exchanges in Germany, but no single exchange is very large.

To help promote nonbank financing and a greater German interest in equities, the German government has launched a drive for what it terms Finanzplatz Deutschland, making stock and bond trading easier in Germany and subordinating the roles of the smaller exchanges to the Frankfurt exchange as the major site for German nonbank finance. Proposals include a futures market, improved electronic links among regional markets, some computerized trading, longer opening hours, freedom for firms to issue commercial paper, and the elimination of a small but annoying German turnover tax on securities transactions. They also include tighter national supervision to prevent misuse of the exchanges and of new methods of finance. Finally, there are tight restrictions on insider training, and a supervisory organization that will correspond to the Securities and Exchange Commission in the United States is being created.

The smaller regional exchanges have objected that some of the steps proposed under the Finanzplatz Deutschland proposal violate the federal principle on which postwar West Germany had been founded, and they have been supported by the Land governments that do not want Frankfurt to have too much power. Therefore, not all parts of the government plan have been carried out as soon as its proponents wished. Nonetheless, an important step has been taken in the merger of the Frankfurt stock exchange and the German futures and options exchanges, the Deutsche Terminbörse (DTB).

Despite such measures to encourage equity placements, most German firms still do not seek equity financing, and even if they do, they often work through banks to obtain it. West Germany had 370,000 limited liability companies or closed corporations (Gesellschaften mit beschränkter Haftung --GmbH) as against 2,300 corporations (Aktiengesellschaften --AG). Of those, only 619 had their shares quoted on the markets at the end of 1990, and the number thereafter grew only slowly. There has been no upsurge toward new equity finance as a result of unification, with many East German firms being taken over by West German firms and with banks supplying the needed financing as well as sitting on new boards. Although there are some signs that German firms appear to be turning increasingly to exchanges for funds, and the volume of such placements increased over the late 1980s and early 1990s, many firms still feel more comfortable with their established banking links.

A step that may lead to a greater financial role for Frankfurt in Germany itself as well as in Europe has been the EU's 1994 decision to place the new European central bank in Frankfurt when that bank is established. This would reinforce Frankfurt's place as the center of the European Monetary Union (EMU--see Glossary) and also as the center of German finance (see Germany and the European Monetary Union, ch. 6). Berlin's emergence as a center for trade and services with Eastern Europe might over time boost Berlin's prospects as an alternative center of German finance.

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Data as of August 1995