The Growth of Finance and Its Role Since the 1980s—A Quantitative Overview

The value of financial assets in the German economy grew rapidly in the 1990s, both in absolute terms as well as relative to GDP. The activity of banks, as measured by the ratio of deposits, bank loans and securities held by banks to GDP, also grew strongly in the later period. At the same time the size and activity of financial markets has grown, although to a lesser extent. Despite the growth of financial markets, however, they are still rather underdeveloped by international comparison. More significant changes can be observed in the non-financial corporate sector. Non-financial corporations have increased the share of their investments assigned to financial assets; a larger part of their profits has been generated from financial sources; and the share of their earnings distributed to financial investors has increased. There were important changes in ownership and control of the German corporations, which coincided with those trends. In the early 1990s, the most important shareholders in companies were non-financial corporations, but such cross-holdings subsequently declined quite strongly. The second most important shareholders were households, although their holdings also declined subsequently, partly due to a shift towards indirect holdings through institutional investors. The most striking increase in share-holdings has been that by foreign investors. Institutional investors grew rapidly in the decade from 1990 to 2000. However, their size is still small by international comparison. Over all, the data and comparisons suggest that the growth of finance is a quite recent and still relatively modest phenomenon in Germany.