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Banking and Financial Markets

Like the regulatory framework, the structure of the international financial markets influences the development of financial service providers and economies. Scenarios for the future development of the global financial market, and the related opportunities and risks, are a major part of the work of Deutsche Bank Research.

180 (141-150)
July 31, 2013
In this issue we look at two structural aspects of the German economy which provide speed limiters for GDP growth. The first is the interplay of foreign and domestic demand with implications for the current cyclical forecast. The second is the demographic implications for German labour supply which will be the biggest bottleneck for the economy’s long term growth potential. [more]
July 15, 2013
The announcement of Fed tapering has boosted financial market volatility and high-yield spreads. This is an important development for private equity because debt markets are a major driver. However, historical patterns suggest that this spike may be a temporary phenomenon during which markets are weaned off the liquidity glut.
Over the medium term, monetary normalisation should be associated with stronger risk assets and better prospects for private equity. This is not because private equiteers would cheer a cut in liquidity supply. Instead they would cheer the underlying economic improvement that would allow cutting liquidity in the first place. [more]
June 11, 2013
Since the height of the financial crisis at the end of 2008, the use of different debt finance instruments by companies in the euro area has been diverging remarkably: whereas the outstanding volume of traditional bank loans has fallen by about EUR 360 bn on aggregate (-7.4%), net issuance of corporate bonds (i.e. long-term debt securities) has amounted to almost exactly the same cumulative (but positive) figure over the same period of time (a rise by 63%). [more]
June 10, 2013
This study reviews how Japanese banks have responded to the adverse macroeconomic environment during the past ten to twenty years. The experience of Japanese banks provides some valuable insights into the effect of a prolonged phase of low interest rates on bank balance sheets and profitability. Banks have adapted both the cost and income drivers of their business. Profitability and efficiency gains have been limited though. While Japanese banks have reduced their bad loan problem, they have also become increasingly exposed to their home sovereign. [more]
June 4, 2013
Before the global financial and economic crisis erupted central bankers were considered if not the masters of the universe at least the masters of the world of finance. However, serious problems have emerged with regard to both the theoretical underpinnings of monetary policy as well as to its implementation. As the roles of the financial sector and asset bubbles had been neglected, the problems contributed to the development of the global financial crisis. <p>
Even though our forecast for German GDP growth in 2013 has hugged the lower end of the consensus range for quite a while, we have slightly reduced our estimate to 0.1% (from 0.3%). The main reasons for doing so are the below-forecast Q1 GDP reading (0.1% qoq) and the downward revision for 2012, which additionally depressed the starting level for 2013. Despite the downward revision to German GDP we now expect private consumption to pick up by 1%. The driving factors are the high employment level, falling inflation and relatively robust wage settlements. [more]
May 3, 2013
With banks searching for sources of income and growth and the relationship of trust with their customers being redefined, pricing is a key issue in retail banking. Price-setting calculations for retail financial products can be quite complex and one crucial factor for success is the capacity to identify and collate all necessary information to take sound decisions on this basis. While the range of analytical options has grown considerably in recent years, the challenge banks are facing is to use them intelligently to develop client-oriented offers. To complement their pricing, banks also need convincing strategies to communicate the prices and value-propositions of their products. [more]
February 28, 2013
Since 1997, small and medium-sized enterprises (SMEs) in Germany have raised their average equity ratio substantially from 6% to 22%, not least as a reaction to more stringent lending requirements by banks. At the same time, SMEs’ dependence on bank loans declined
whose share in total assets dropped to just 26% from 37%.
Large differences remain between private and public firms. [more]
January 31, 2013
High investor demand is fuelling corporate bond issuance in the EU. Deleveraging in some countries and the fact that some banks are paying roughly the same or even higher rates for their refinancing than their customers no doubt has pushed corporate debt markets. But the main driver for the high issuance volumes seems to be investors’ search for yield in a low interest rate environment. As sovereign bonds are offering historically low yields, corporate bonds have turned into a significant investment alternative in the present market conditions. However, in an era of Knightian uncertainty and high liquidity, strong growth in corporate bond market calls for attention to potential overheating. [more]
January 28, 2013
We expect a recovery to set in approximately in spring this year on the back of a stabilising euro area and more buoyant emerging markets. Owing to the low starting point, however, annual average growth will probably come to no more than 1/4% in 2013. Nonetheless, the labour market is expected to remain relatively stable. With oil prices forecast to stabilise, consumer prices will probably rise less strongly this year. Public-sector budgets look set to deteriorate for cyclical reasons in 2013. However, with a deficit of only about 1/2% of GDP, Germany would still be in an excellent position by international standards. [more]