Distance, Rating Systems and Enterprise Finance
Ethnographic Insights from a Comparison of Regional and Large Banks in Germany
In response to the credit crunch during the global financial crisis of 2007–2008, many have called for the re-establishment of regional banks in the UK and elsewhere. In this context, Germany’s regional banking system, with its more than 1,400 small and regional savings banks and cooperative banks, is viewed as a role model in the financing of small and medium-sized enterprises (SMEs). However, in line with the ‘death of distance’ debate, the universal application of ICT-based scoring and rating systems potentially obviates the necessity for proximity to reduce information asymmetries between banks and SMEs, calling into question the key advantage of regional banks.
Utilising novel ethnographic findings from full-time participant observation and interviews, this book presents intimate insights into regional savings banks and compares their SME lending practices with large, nationwide-operating commercial banks in Germany. The ethnographic insights are contextualised by concise description of the three-pillar German banking system, covering bank regulation, structural and geographical developments, and enterprise finance. Furthermore, the book advances an original theoretical approach that combines classical banking theories with insights from social studies of finance on the (ontological) foundation of new realism. Ethnographic findings reveal varying distances of credit granting depending on the rating results, i.e. large banks allocate considerable credit-granting authority to local staff and therefore challenge the proximity advantages of regional banks. Nevertheless, by presenting case studies of lending to SMEs, the book demonstrates the ability of regional banks to capitalise on proximity when screening and monitoring financially distressed SMEs and explains why the suggestion that ICT can substitute for proximity in SME lending has to be rejected.
Table of Contents
List of figures; List of maps; List of boxes; List of tables; Preface; Acknowledgements; List of abbreviations; 1. Introduction; 1.1 The Geography of Finance and SME Lending; 1.2 Credit Decisions and Rating Systems; 1.3 Research Contributions and Proceedings; 2. Financial Systems, the Geography of Firm Financing and Rating Systems;2.1 Financial Systems and Economic Development; 2.2 The Geography of Firm Financing; 2.3 Placing the Rating Systems as Non-Human Actors in Credit Decisions; 2.4 Spot the Differences: Approaching Distance in Bank-Based SME Lending; 3. The German Banking System: Methods and Case Descriptions; 3.1 Methodology; 3.2 The German Banking System; 3.3 Selection and Description of Bank Cases; 4. SME Credit Decision Making of Savings versus Big Banks; 4.1 The Informational Basis of Credit Decisions; 4.2 The Organisation of Credit Decisions at Savings and Big Banks; 4.3 The Effects of the Varying Organisation of Credit Decisions at Savings and Big Banks; 5. Conclusion; 5.1 Key Findings; 5.2 Practitioner Recommendations; 5.3 Future Research Directions; References; Index
Franz Flögel is a researcher at the Institute for Work and Technology (Westfälische Hochschule Gelsenkirchen, Germany). He studied geography and economics in Germany and the United Kingdom and conducted his PhD at Catholic University of Eichstätt-Ingolstadt. His key research interest lies in finance and regional development.