Implications of post-crisis banking regulation after 2007 on the debt capital structures of German companies and corporate banking business models

Total financing volumes and financing structures are important indicators for numerous
real economic and financial developments. Financing decisions are based primarily on
investment decisions, but also provide indications for financing conditions for
companies in the money and capital markets. The financial crisis starting in 2007 and
2008 affected these markets in Germany in various ways.
The spillover of the crisis to Germany can, to a considerable degree, be
explained by the fact that German credit institutions had reached the brink of collapse.
One central problem and cause of the crisis was poor risk monitoring, for instance
through rating agencies on the US securitization market. The burden on banks due to
crisis-induced write-downs as well as the drying-up of interbank money markets, which
resulted in refinancing problems for numerous credit institutions, created a fear of a
potential ‘credit crunch’ for companies or the economy at large.
This means the main macroeconomic concern was that the restriction
on credit supply might be severe enough to cause an economic crisis.
As a result of these disturbances, the regulating authorities put forth several new
measures, provisions and rules. As a lesson learned, one central
task should be strengthening the resilience of the financial system to future crises. The
work in hand, focuses on the effects of the Basel III regulations as these, on the one
hand, are already being enforced and, on the other hand, have a considerable impact
on corporate finance and corporate banking business models.
The Basel III Accords concerning higher capital requirements for banks were already
underway before the financial crisis hit, but the legislators and supervisory authorities
accelerated their implementation after the onset of the crisis. In its aftermath, the
economy experienced historically low levels of interest rates as a result of monetary
policy. Nevertheless, the conventional wisdom of scientists, consultants, and other
experts was shaped by the experience that bank loans tend to become more expensive
and scarcer when when new regulatory requirements are introduced. They advised
companies to shift their debt capital structures from major bank loan financing, which
has historically been the major source in Germany, to more capital market financing
instruments.