TAILIEUCHUNG - Capital Policy of German Savings Banks – A Survey

We are also concerned with the inclusion of market making activities within the ring-fence: market making activities provide a service for companies that need to hedge risk arising from their business activities. Furthermore, these activities provide services for governments issuing sovereign debt and banks issuing senior debt including covered bonds issued in order to fund lending to the real economy. Due to the difficulty of carrying out this definition, the Liikanen Group has opted to place into the ring-fence all the market making activities. This decision could lead to a negative impact for the European banking industry. | Discussion Paper No. 05-63 Capital Policy of German Savings Banks -A Survey Volker Kleff ZEW Zentrum fur Europăische Wirtschaftsforschung GmbH Centre for European Economic Research Discussion Paper No. 05-63 Capital Policy of German Savings Banks -A Survey Volker Kleff Download this ZEW Discussion Paper from our ftp server ftp pub zew-docs dp Die Discussion Papers dienen einer moglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beitrage liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar. Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW. Non-technical summary This study examines in detail the capital policy of banks with rather peculiar characteristics. German savings banks are public corporations whose access to the capital market is strongly restricted. Therefore they heavily rely on retained earnings. One of the very few alternatives to increase their capital ratio besides retaining profits is to issue subordinated debt. We find that 47 percent of all surveyed savings banks target a quantitative capital ratio. Interestingly these savings banks target both lower and higher capital marks whereas other savings banks with a qualitative capital target only wish to increase or maintain the capital ratio but not to reduce it. Since their capitalisation does not differ significantly we conclude that these banks aiming at a quantitative capital ratio have a more complex capital management. In support of this finding we obtain evidence that these savings banks having a quantitative capital target are more likely to choose a more complex Basel II approach. However also larger savings banks prefer more complicated Basel II approaches. These savings .

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