Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- 1 Introduction
- 2 A theoretical framework for analysing the effects of the financial system on economic performance
- 3 The significance of bank loans in the finance of aggregate investment in Germany
- 4 Legal forms of enterprise in Germany, and their implications for the role of the German financial system
- 5 The structure of the German banking system
- 6 Bank supervisory board representation and other aspects of German bank lending to firms
- 7 German bank behaviour when firms are in financial distress
- 8 The ownership structure of large German firms, and its implications for German banks' corporate control role
- 9 Do German banks act as delegated exercisers of equity's control rights?
- 10 Conclusion
- Bibliography
- Index
7 - German bank behaviour when firms are in financial distress
Published online by Cambridge University Press: 02 November 2009
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- 1 Introduction
- 2 A theoretical framework for analysing the effects of the financial system on economic performance
- 3 The significance of bank loans in the finance of aggregate investment in Germany
- 4 Legal forms of enterprise in Germany, and their implications for the role of the German financial system
- 5 The structure of the German banking system
- 6 Bank supervisory board representation and other aspects of German bank lending to firms
- 7 German bank behaviour when firms are in financial distress
- 8 The ownership structure of large German firms, and its implications for German banks' corporate control role
- 9 Do German banks act as delegated exercisers of equity's control rights?
- 10 Conclusion
- Bibliography
- Index
Summary
Introduction
One particular aspect of German bank lending behaviour which requires detailed analysis concerns the response of banks to situations of financial distress on the part of firms to which they have made loans. As was noted in chapter 1, the German system of finance for investment is claimed to have the merit that German banks are more ready to support firms in financial distress than are UK banks. Dyson (1986, p. 132), for example, states that
the solidarity of a Hausbank with the firm's management finds its clearest expression in the bank's sense of duty to organise rescues in times of crisis, using at such times its wide range of industrial, financial and governmental contacts as well as its own expertise and numerous services … Banks maintain a network of favoured industrial managers and their proteges who can be drafted in to a corporation in difficulties.
According to The Economist (1 August 1992, p. 70) ‘in Germany … a company in trouble will usually be coaxed back to health by its supervisory board or its bankers’. As we saw in chapter 6, it is difficult to argue that a greater willingness of German banks to reorganise firms in financial distress, if it exists, is the result of long-term commitments between particular firms and particular banks in the form of an exclusive house bank relationship. Nevertheless, examples such as the role of German banks in rescuing AEG in the late 1970s and early 1980s are often invoked in support of the claim that bank attitudes to reorganisations differ between Germany and the UK.
- Type
- Chapter
- Information
- Banks, Finance and Investment in Germany , pp. 156 - 177Publisher: Cambridge University PressPrint publication year: 1994