SHORT VERSION:GERMANY AS A FINANCIAL CENTRE AND
CORNERSTONE OF THE
THE EUROPEAN FINANCIAL SYSTEM
A study by GERMANY FINANCE and zeb

Key points of Germany as a financial centre
Absolute size of the German financial system in 20201)... generatedAsa financial centre,
Germany…

122 billion euros per year

… employed... is the2)

1.1 million employees

largest financial sector in Europe

3)4)1) Financial sector definition according to NACE Rev. 2: K = Provision of financial and insurance services; 2) Total gross value added of the sector; 3) Employment according to the domestic concept on an annual average; 4) By number of employees (see footnote 3);second largest financial sector by gross value added (after Great Britain); Sources: Eurostat, zeb.research

2The financial centre of Germany as a whole consists of several leading regional financial centres
Global Financial Centres Index1), September 2021

Glasgow(Rank: 65)
Edinburgh(Rank: 22)

Other
41

5

Berlin(Rank: 60)

London(Rank: 2)
Luxembourg(Rank: 23)

Frankfurt(Rank: 14)

Germany

Munich(Rank: 31)

Paris(Rank: 10)

Zurich(Rank: 21)

Germany is particularly strongly
represented in the ranking in Europe withfive cities among the top 60 – in the other
European countries there is usually only
one strong financial centre•

Despite Brexit, London remains thestrongest financial centre in Europe byinternational standards – Paris is number 2
in Europe, followed by Frankfurt

Vienna(Rank: 44)

Milan(Rank: 45)

12
25
Asia/Pacific1) Index analyses and evaluates 116 financial centres worldwide interms of their competitiveness (criteria: economic environment, humancapital, infrastructure, financial sector development,
reputation); Sources: Global Financial Centres Index 30, zeb.research•

Warsaw(Rank: 56)

Stuttgart(Rank: 39)

33 Rest of Europe
North
America

Most of the most important international
financial centres are located in Europe –although Asia/Pacific and North America
are both well ahead in the ranking (numberof top 10: Asia/Pacific: 5, North America: 3,
Europe 2), they are significantly behind
Europe in terms of the total number

Hamburg(Rank: 30)

Dublin(Rank: 41)

Number of cities in the ranking
by region:•
Amsterdam(Rank: 17)

Geneva(Rank: 20)

Rome(Rank: 47)

Madrid(Rank: 24)

3

The German financial system is large, customer-oriented and determined by the actions of many
individual institutions
Summary

Financial architecture1

How do we define a financial systemand how is it structured in Europe?

Special aspects

2

3• A financial system consists of various financial actors (esp. banks,
insurance companies and stock exchanges) and their interaction• Overall, the European financial system is growing significantly, but tovarying degrees across the various players• The individual facets of the financial system are sometimes very different
in European countries• German banking, insurance and stock exchange markets are among thelargest in Europe in absolute terms – their relative importance is smaller

What characterises the pillars of theGerman financial system in comparison
to Europe?

• Structurally, the German system has some unique aspects: e.g. the 3-pillar
model, mutual insurance associations and regional stock exchanges

Networking• Especially in the banking and insurance market, there are large
institutions with high volumes of foreign business, but smaller ones
operate nationally and regionally

How connected is the German financial
economy with other states?

p. 9-12

p. 13-24• In all areas, Germany has some of the most institutes in Europe –decentrality and customer proximity are decisive elements• While exports are an elementary part of the German economy, in somecases internationality has a smaller role in the German economy
p. 25-28• In a European comparison, no other stock exchange is as relevant fordomestic (but also foreign) companies as Germany
4Europe’s “bank” – the German real economy is large, fast-growing, international and stable
The German real economy in a European comparison

GDP 2019, in billion EUR

Ø-GDP growth 2010-2019, in % 1)

3.473

2.0

Growth1.8

None of the largest 5 European economies
has seen as strong growth as Germany since
2010

Size

2.527

In terms of gross domestic product, Germany
is by far the largest economy in Europe

2.438

1.4

1.795

1.0

1.244
Share of global
exports in 2019, in %Country Rating (Fitch)

6,4

AAA

Structure
In Europe, Germany has the largest share of
global exports – internationally, only the USA(13.0%) and China (9.1%) have higher shares

0.3

3,7

AA

3,5

AA-

2,5
1,9

Stability
Germany is the only major European country
that still has an issuer default rating of AAA(best value) – clear financing advantages are
the consequence
ABBB-

1) Average annual growth rate (CAGR) of real gross domestic product 2010-2019 (Linked Volumes 2010); Sources: Bloomberg, Eurostat, Worldbank, zeb.research

5Special aspect: Germany is the most important location for reinsurers in Europe

2

Share of domestic reinsurance groups in global premium income, 20191)

1.7 %

6.5 %

3.3 %

•

In terms of global premium income, almost 20% of reinsurers' business iscarried out in Germany as a business location•

This makes Germany the second largest reinsurance market in the world
after the USA (26.9%)•

However, in view of highly internationalised business, Germany has also
recorded a declining global market share in recent years (2013: 27.8%)•

Two of the five largest international reinsurance groups are based inGermany

0.04 %

19.3 %

x%

3.2 %Share of global
contributions

Top 5 Global Reinsurance Groups2)

11.7 %
1.7 %1.

Swiss Reinsurance Co.

$39,649 million3)

2.

Munich Reinsurance Co.

$35,394 million4)

3.

Hannover Rück SE$22,815 million

4.

Berkshire Hathaway Re$16,952 million

5.

SCOR SE$16,196 million

1) Booked net contributions, no data for Italy, the Netherlands and Austria; 2) Calculated according to booked net contributions, Lloyd's (GB): Investment income/other income not available at the level of the reinsurance division; 3) Figures including primary
insurance business; 4) Figures including primary insurance business of ERGO; Sources: Standard & Poor's, zeb.research

6German stock exchanges are high in turnover – the system of regional stock exchanges is unique in a
European comparison
Euronext Stock

Relevance

Structure

Core characteristics of European stock exchange systems, 2020

Number of
exchanges

5 (6)1)1

1 (2)2)

1

3

1

1

1

1

1

1

Stock Exchange Regional/
National/
SupervisionEU

National

National

National/
ZB3)/EU

National/
ZB/EUNational/EU

National/EU

National/
ZB/EUNational/EU

National/
ZB/EUNational/
ZB/EU

Stock market
turnover4) in

1.934

1.700

1.320

732

693

77

63

35

0.1

n.a.

~

~

~

~

~

2,2945)billion EUR✓

Liquidity6)

All others

Top 5

Concentration7)

Product split8)

2

parts /✓ Yes / high ~ Inmedium

Exchanges✓In stocksn.a.

All others9)
Bonds andfinancial market
instruments

n.a.

39%
83%

91%

81%

94%

55%
98%

93%
61%

n.a.

100%

n.a.

98%
45%

1) Tradegate is a 60% subsidiary of Deutsche Börse AG (DB); 2) BX Swiss is a 100% subsidiary of Börse Stuttgart; 3) ZB: Central Bank; 4) Securities turnover (interest derivatives and others not included); 5) DB and Börse Stuttgart; 6) Liquidity (stock exchange turnoverat market capitalisation of listed companies): high: >75%; medium: >50%-75%, for DE DB only; 7) Concentration: Revenue share of the 5 most traded shares, for DE DB only; 8) For DE DB only; 9) Securitised derivatives, ETFs, UCITs; Sources: FESE, LSE, zeb.research

7German stock exchanges show the highest share of foreign equities in a European comparison

3

Stock market turnover by share of domestic and foreign shares, 2020

1)

Domestic stocks

80%

20%

1914.9

83%

17%

0.1

86%

14%

1758.7

95%

5%

34.4

96%

4%

1373.1

99%

423.3

99%

76.3

100%

63.7

100%

677.5

100%

1237.4Foreign shares•

The stock market turnover with shares is not as highin any other European country as in Germany – thestrong German economy with its many internationally
important companies is in high demand among
investors•

The very liquid German stock exchange also seems tobe highly interesting for foreign companies when it
comes to a stock exchange listing – in 2020, 20% of
the total stock exchange turnover was generated withshares of foreign companies•

In most other countries, the central stock exchange isfocused on the domestic economy – the Luxembourg
Stock Exchange and the London Stock Exchange areother stock exchanges where significant exchange
turnover is achieved with foreign shares

Exchange turnover of shares in billion
EUR1) Deutsche Börse Group and Börse Stuttgart; Sources: FESE, LSE, zeb.research

8The German regional stock exchanges are (or have become) unique in Europe

2

Stock exchange locations in Europe and their unique selling propositions
Warsaw SE1)

Nxchange:
Crowdfunding Stock
Exchange in NL

NPEX:
Stock exchange for SMEs
in NLEuronext Amsterdam

BÖAG Börsen AG:
Sponsoring company for the three
regional stock exchanges ofHamburg, Hanover and Düsseldorf•

Regional stock exchanges are a
special feature of Germany – many
European countries have a central
stock exchange, yet the German
landscape is also characterised byregional institutes with sometimes
very different unique selling points– only in NL is there still an
independent stock exchange with afocus on SMEs•

Euronext continues to expand its
already strong European presence
and is the largest competitor of
Deutsche Börse AG – most recently
Euronext bought Borsa Italiana fromthe London Stock Exchange in 2021•
Stuttgart Stock Exchange:
Regional exchange and pioneer for
crypto trading in Germany

The BME1) is particularly active inthe bond and money markets – EUgovernment financing and ESM
securities account for the majorityof stock exchange turnoverCountries with a central stock
exchange

German stock
exchanges

Tradegate/
Börse Berlin:
The largest European stock
exchange for private investors –Owner: Berliner Börse

London SE

Euronext Dublin
Luxembourg SE

Deutsche Börse Group:
Central stock exchange in Germany
and operator of Tradegate (focus:
private investors)

Euronext Paris

SIX

Munich Stock Exchange:
Regional exchange with a focus on
SME financing

BME2)

Vienna Stock Exchange

Borsa Italiana
1) SE: Stock Exchange; 2) BME: Bolsas y Mercados Españoles; 3) Other Euronext
locations: Brussels, Lisbon and Oslo; sources: Websites, zeb.researchEuronext Stock
Exchanges3)

Other stock exchanges
NL

9Stability – German The banking sector is much more stable than other markets in Europe

1

Variance in earnings and capitalisation of European banking markets
25.0%Core Capital Ratio (2016-2020)1)

High capital ratio
due to state
recapitalisation

Ireland

Luxembourg

Netherlands

Great Britain
Switzerland

17.5%

Germany

PolandAustria
15.0%

FranceItaly•

The German banking sector has shown high stability
in its results, especially in recent years•

Capitalisation as a whole is appropriate in theEuropean midfield and against the background of
earnings stability•

Other large markets such as Italy or Spain withsignificantly lower bank capitalisation andsignificantly higher earnings stability

Spain
12.5%

2)

High variance of
surpluses
10.0%
0.32%

0.16%

Low variance of
surpluses
0.14%

0.12%

0.10%

Variance return on equity before taxes (2016-2020)

0.08%

0.06%
Euro area

0.04%

0.02%

0.00%

Non-euro area

All values are internationally comparable and in accordance with IMF Financial Soundness Indicators; values of the respective central banks may differ from these; 1) Core capital to risk-weighted assets; 2) Assumed minimum ratio (6% Pillar I requirement, 1.5% Pillar
II requirement, 4.0% capital ratio, 1.0% control and manoeuvring buffer); Sources: Bundesbank, IMF, zeb.research

10Germany with low average customer loan interest rates compared to Europe

1

Customer interest rates1) and private expenditure on financial services (FDL)2) in European banking business, 2016-2020 average

Corporate

Nominal loan interest
Real loan interest

3,4%
2,4%
1,9%

1,5%

1,7%

1,1%

0,9%

0,4%

0,2%

0,1%

1,5%

1,5%

1,4%

1,3%

1,2%

2,7% 2,5%
0,8%

0,1%
-0,2%

Private mortgages

4,2%

1,6%
Nominal customer interest
0,4%Real customer interest

Priv. expenses
for FDL

1,5%
0,5%

1,8%

1,7%
0,4%

1,2%

1,0%

1,2%
0,4%

0,1%

3,8%

3,2%
2,5%
1,2%

1,2%

1,8%

2,5%

2,1%

1,9%

4,1%
1,8%

Share of total
consumption expenditure

1,6%

3,0% 2,8%

2,3%

2,0%
1,2%

1) Average customer interest rates New business, monthly data from 31.01.2016 to 31.12.2020; loan interest rate in real terms: Nominal loan interest excl. average inflation rate in 2016-2020; no data available for Switzerland; 2) Average share of private spending on
financial services (excl. "interest and fees expressed as a percentage of the transaction value") of total consumer spending in 2016-2020; sources: Autonomous Research, Eurostat, zeb.research

11Profitability – German A mid-range comparison of the banking sector in Europe

1Long-term profitability and efficiency of European banking markets

Ø-Return on equity before taxes (2016-2020)1)

12,5%

10,0%

7,5%

Netherlands

3)

Luxembourg

Austria
Great Britain

France•In a European comparison over the past few years,
the profitability of the German banking sector is in
the mid-range – on this basis, no general, structural
profitability gap can be determined•

Germany lags behind other markets in efficiency –lower earnings compared to other markets as themain cause, partly also cost disadvantages

PolandGermany
5,0%Ireland

Spain

Switzerland
2,5%

Italy

0,0%
80%

75%

Ø-Cost-Income Ratio (2016-2020)2)

70%

65%

4)

Euro area

60%

55%

Non-euro area

All values are internationally comparable and in accordance with IMF Financial Soundness Indicators; values of the respective central banks may differ; 1) Net income before taxes on equity; 2) Operating costs on total income; 3) Estimated cost of equity across all
countries and banks; 4) Average level of claims of a branch bank in Europe; Sources: IMF, zeb.research

12

Stability – The German insurance sector is extremely solvent by European standards

2

Solvency ratios in a European comparison, 2020
450
400

SCR ratio, in %1)

350
300

•

Germany has the highest SCR coverage ratio
distribution, with a median value of almost 300%
and values in the lower quartile of over 200%•

The vast majority of countries have a median value
between 175% and 225%•

Companies with a coverage ratio above 100% havesufficient capital reserves for negative scenarios,
which statistically occur once in 200 years – theEuropean insurance market is very solvent

250
200
150
100
50
0

Interquartile range of the SCR ratio

Median SCR ratio

No data for Switzerland; 1) SCR: Solvency Capital Requirement – equity ratio to cover long-term interest obligations, the amount of equity corresponds exactly to the solvency capital requirement, the coverage ratio amounts to 100%; Sources: EIOPA, zeb.research

13Efficiency – German Insurance sector operates a profitable business at an average cost ratio

2

Loss and expense ratios (non-life) in a European comparison, 2020

14%

54%
23%

54%
38%

41%

36%

51%
45%

•

The median value of the expense ratio in Germany isaround 36% and thus in the European midfield – anabove-average inefficiency cannot be observed
despite the special structure of the German
insurance industry (high importance of VVaGs, many
insurance companies)•

In addition, with simultaneous consideration of theloss ratio, a relatively high profitability is revealed

44%

28%

62%

37%

55%

36%

56%

26%

70%
43%

57%
Cost ratio1)

Loss ratio2)

No data for Switzerland; the sum of the combined ratio and cost ratio does not represent the combined ratio due to the median consideration; 1) operating costs in relation to the gross contributions earned; 2) Loss expenses in relation to the gross contributions
earned; Sources: EIOPA, zeb.research

14

FinTech hubs are also emerging away from established financial centres, thus leading to more
decentralisation

2B

Number of financial centres and FinTech hubs (cities) – Globally, in Europe and in Germany

Global Perspective

Number of financial
centres1) by region(116 cities total):

41
(35%)
12
(10%)

European Perspective
5
(4%)

1
1
1
83
(31%)

72
(27%)
45
(17%)

Germany
Rest of Europe

Asia/PacificNorth America

Other

12
5

2

25
(22%)

Global FinTech Hubs

3

33
(28%)

9
55
(3%)
(21%)
Number of FinTech
hubs2) by region(264 cities total):Global Financial Centre

German Perspective

City

Financial
CentreGlobalRanking

FinTech Hub
GlobalRanking

Berlin60

6

Hamburg3030Frankfurt

14

57

Munich31

58

Düsseldorf-

121

Stuttgart

39

157

Leipzig

-

179

Mainz

-

190

9
Represented Germany
with four cities each in the
Top 50/Top 100(GFCI/GFTI) – Great Britain
only with 2 (GFCI) or 3
(GFTI)

6
5
4
4

2

2

1

3

1

3

1

1

1

1

1) According to GFCI (Global Financial Centres Index); 2) According to GFTI (Global FinTech Index) – analyses over 11,000 FinTechs worldwide and evaluates cities in terms of their competitiveness(criteria: number of FinTechs, coworking
spaces, accelerator
Cologne204 andevents, quality of FinTechs based on web presence, customer base and ratings, as well as the technological infrastructure); Source: Global Financial Centres Index 30. The Global Fintech Rankings Report, zeb.research15Size, decentralisation and special structures shape the German financial system
Summary of the German financial system

Banks

Insurance companies

Stock exchanges•

The German banking market is characterisedby its unique 3-pillar structure – a large
number of banks, a low market concentrationand only consolidations within the banking
sectors are characteristic•

The legal separation principle leads to a low
concentration and slow consolidation inGermany – despite a high proportion of state
insurance systems, the private insurance
market is growing•

In a European comparison, the German stock
exchange is the only one that is still home toindependent regional stock exchanges – at thesame time, it is the stock exchange with thehighest stock exchange turnover in Europe•

The structure of the German banking businessis reflected, among other things, in its highbranch density and high proportion of cash inpayment transactions – but Internet banking
use is expected to continue to move steadily inthe direction of 80-85% (see other European
countries)•

In the two divisions (life and non-life), the mostimportant sales channels in Germany arebrokers and intermediaries – bancassurance
plays a comparatively minor role, especially inlife insurance•

Stock exchange trading in Germany is veryliquid and has a low concentration in relation
to the listed companies – a side effect of thestrong and broad-based German economy••

The market share of foreign insurers inGermany is relatively small – but large German
insurance companies achieve significant sales
in foreign business

The attractiveness of the German stock
exchange is also illustrated by the relatively
high share of stock exchange turnover
generated by foreign shares•

German banks are strongly focused on thedomestic market with their business, but there
are differences between the bank pillars

16Structures of the German economy and the banking sector show great similarities

1

Economic structure and banking system

Companies by revenue class (in EUR)
NumberOver 250 million

0.1%50-250 million

0,3%5-50 million

2,9%

1-5 million

9,3%

Up to 1 million

Banks by balance sheet total classes (in EUR)
Aggregated revenue
Over $100 billion

1%

16%

50-100 billion

1%

19%

10-50 billion

3%

10%

5-10 billion

6%8%

Up to 5 billion

48%

87,4%

Aggregate balance sheet
total

Number

48%

8%

13%

8%

90%

23%

Sources: Annual financial statements of German banks, Federal Statistical Office, zeb.research

17Advantages of the German financial system are well documented – accuracy of fit to the economic
structure is elementary
Summary of the German financial system

Banks

•

Various analyses underline the benefits of thecustomer-oriented German banking system –especially with regard to macroeconomic
aspects and lending•

The decisive factor is the "fit" of the banking
market with the special economic structure ofGermany

Insurance companies•

In the European insurance system, mutual
insurance associations (VVaGs) are a special
German feature•With regard to efficiency, there is currently noclear evidence that VVaGs, for example, have a
cost disadvantage compared to classic AGs••

From a macroeconomic point of view, the 3pillar model with its different ownership
structures gives the banking sector a special
stability

Stock exchanges•

The literature confirms a generally positiveeffect of regional stock exchanges on theinnovative power of the entire stock exchangesystem – the advantage of larger stock
exchanges lies in the higher liquidity andeconomies of scale•

Regional stock exchanges often cover subtopics that are less served by large stock
exchanges and thus contribute to an expanded
product range•

It has not been established whether regional
stock exchanges offer SMEs better access toequity financing

Both positive and negative effects of a highconcentration of insurance companies can bederived from the literature – the results arethus ambiguous

18

With a view to the future, there are three core challenges for maintaining the German financial
systemSummary

Transition to sustainable energy

1

What are the central aspects forfinancial actors and what are theconsequences?

Digital (R-)evolution

2

What other challenges are there forthe financial system and thus for its
functioning?

Banking and Capital Markets Union

3

What is the current state of the
discussion and what next steps are
now necessary?

• The transition to sustainable energy is THE challenge of the coming years
and decades – financial actors play a central role

• Depending on the scenario, banks in particular are facing new, significant
risks – insurers need to expect higher amounts of phys. damage

p. 50-59• The enormous need for innovation to transform the economy also holds
opportunities for the financial system – be it stock exchanges, insurers or
banks• Digitalisation brings further challenges due to changed customer
behaviour, pressure for efficiency and new competitors• Today, new services are emerging from faster transactions – in the future,
new forms of interaction will result in new business models

p. 60-65• The Banking Union remains an important goal at the European level• The implementation of a possible joint deposit insurance is controversial
and the subject of current (political) discussion

p. 66-70• The Capital Markets Union is intended to facilitate access to the capital
market and is needed to finance the transition to sustainable energy

19

The transition to sustainable energy requires massive innovations and thus financial resources

1D

Annual climate change-indexed innovation and investment needs in the European Union

Annual investments in relevant industries in the European Union 2021-2030 (EUR billion)
1.092

1.092

620

118
88
59
20
Total necessary
investments p.a.
(55% reduction)

By industrial
sector•To reduce GHG emissions by 55% by 2030 incomparison to 1990, extensive innovations andthus annual investments of approximately EUR
1,100 billion are required – the main part isaccounted for by companies, the amount isincreased by additional depreciation
requirements•

Funds for the conversion can only be partiallyfinanced by public bodies (including promotionalbanks) – massive activation of private funds isnecessary (including via EU Green Deal)•

Development and financing of corresponding
innovations of the companies not only coveredby current cash flow or reserves•

New business opportunities may open up,
especially for stock exchange financing via green
bonds, equities and banks•

There are opportunities for insurance companies
when investing funds

1.092

Traffic
905

187

Review

Construction
Energy1)
Tertiary
Agricultural1)
Industry

47
140
According tocustomersegment

Corporateclients+ SMEsCRE2)
Retail2)

1) Energy includes investments in the power grid, power plants, boilers, production and distribution of new fuels; agricultural: Estimate based on the relative investment needs of the energy sector (not included in the official EU estimate); 2) Assumption: 75% ofinvestments in the building sector are accounted for by the retail segment, 25% by CRE (Commercial Real Estate); sources: EIB, European Commission, ECB, zeb.research

20

The transition to sustainable energy is changing the roles of financial actors

1

Effects of the transition to sustainable energy on the German financial system

The role of the German financial system in the transition to sustainable energy:•

The German financial system and its various players have a special role to play in the transition to sustainable energy – asintermediaries, financiers and insurers, they must accompany, control and actively shape the transformation•

The good networking and high degree of fit of the German financial industry to the German real economy especiallyenables a focused customer dialogue, as well as the setting of incentives and specifications

The risks of the transition to sustainable energy:•

The efficient and innovative German economy is facing a major upheaval with the transition to sustainableenergy – German banks in particular will therefore have to understand the transitional risks in detail•

In the future, Germany will be less affected by nationwide physical risks, but by local events – locallyanchored institutions must find (integrated) solutions for these risks

The opportunities of the transition to sustainable energy:•

The realisation of the transition to sustainable energy of the German economy leads to a clearly increased need forcapital – there is great potential for actors in the German financial system to actively accompany this transformation•

The active management and insurance of new (and old) risks enables the creation of new products and opens up
additional earnings potential

Source: zeb.research

21

The transition to sustainable energy has far-reaching consequences for all financial actors

Consequences for …

Banks
•

… overall
risk

•
•

... the regulatory
requirements••... the productportfolio••... own
investments... the role as an
employer•

Climate change leads to new physicaland transitory risks
Significant direct and indirect effects on
all types of risk
Significant increase in regulatory
requirements and initiatives
Currently, esp. focus on risk mgmt anddisclosure; more will follow
High demand for new services in all
segments (loans, bonds, investments)
High demand for innovation requires
financing, e.g. through new products
Climate change leads to shifts intraditional investment decisions
New risks and different margins for(non-)sustainable assets••

1

Further information on
subsequent pages

The transition to sustainable energy and selected consequences

Insurance companies
•
•

•
•
•
•
•
•

Increase in extreme weather events
leads to greater damage
Consideration of ESG risks in theunderwriting process (possible
exclusion)
Regulators are starting to focus onsustainability
High density of new regulations, e.g. EU
taxonomy important for investment
Increased demand for damage
insurance, sustainable productsReviewing the product range isnecessary; possibly including cessationof existing services
High financing requirements of theeconomy lead to new investment
opportunities.
Decision on return vs. risk is
supplemented/adjusted by ESG factor

Stock exchanges
•
•
•
•
•
•
•
•

Higher volatility due to physical andtransitory risks (events, ...)
Risk of capital destruction or default forexisting companies
Taxonomy as an essential grid forclassification according to ESG criteria
Considerably stricter interpretation ofsustainable products (funds, indices, ...)The innovation needs of the economy
lead to a significantly higher capitalrequirement
Rapidly increasing demand forsustainable forms of investment(bonds, ETFs, ...)
Possible creation of new market areas
Marketplaces for relevant certificatesand papers

For applicants, the positioning of potential employers in ESG issues is becoming increasingly important
Sustainability is becoming an important factor in the "war for talents"

Source: zeb.research

22

The transition to sustainable energy has a massive impact on all areas of the financial system

1

Conclusion: The transition to sustainable energy

Banks

•

Banks have a central role to play in thetransition to sustainable energy•

Climate change brings new, enormous physicaland transitory risks for banks – a decentralisedbanking system may help the regional economy
to understand different developments, but it
must also be stable to compensate for
additional risks••

Significant additional regulatory requirements– Rapidly increasing demand for data/models
poses major challenges for institutes
Huge investment needs lead to opportunities
for banks in sustainable financeInsurance companies•

Physical risks of climate change bring
additional risks or damages for insurers –volatility of damages increases•

Depending on the scenario, situations may
arise that lead to the fact that certain products
can no longer be offered in certain regions(extreme case of the "uninsurable world") –other products are gaining relevance (forexample, elementary protection)•

Insurers as institutional investors: Thetransition to sustainable energy also leads to
new capital requirements and new investment
opportunities

Stock exchanges•

Stock exchanges as an important source ofcapital with enormous importance to cover theupcoming investment needs – provision of
appropriate marketplaces•

Increased demand for sustainable investment
products has potential for new sustainable
funds, indices, ETFs, ... – opportunities for newmarket segments•

Climate change leads to risks (destruction ofcapital, extreme events, ...) or higher volatility

23

Digitalisation brings changed customer requirements, pressure for efficiency and new competitors

The challenge of …

... changing customer
requirements

Banks
•

Standardised services increasingly
covered by online banking – complex
consulting, in particular at regional
branches•

Focus on digital customer experience•

Higher comparability/transparency may
reduce bank commitment•

The extensive automation ofstandardised processes (e.g. via RPA1) or
NLP2) will become a "must-have"•

Targeted application of AI and Big Data
becomes a differentiator•

FinTechs are entering the market andacting as innovation drivers in a world
with high pressure to change•

Technology companies (e.g. Apple) use
their high customer loyalty to enter thebanking business... efficiency pressure... new competitors

2

Further information on
subsequent pages

Digital revolution and selected challenges

Insurance companies

Stock exchanges•

Expectation of a consistent focus on
customer needs requires restructuringof business models•

Companies are looking foropportunities, e.g. SSD3) being able tomarket themselves•

Removing the boundaries between
analogue and digital sales channels andfocusing on loss prevention•

In addition to cost aspects,
transparency and security are
becoming increasingly important•

Restructuring of business models
requires adaptation of operational core
activities•

Extensive automation of stock market
listings of new securities necessary forcost reductions•

Use of digital technologies to increase
efficiency (e.g. self-service offers, indiv.
premium calculation)•

Tokenisation4) can lead to a sharp
decline in transaction costs in the
future•Aggregators (e.g. Check24), platform
providers and BigTechs are new forcesin the insurance market that may evenexceed the risk of disruption of
insurtechs•

Digital platforms are emerging
alongside traditional marketplaces•

Dedicated trading venues, e.g. forcryptocurrencies, are establishingthemselves in rapidly growing businessfields1) RPA: Robotic Process Automation; 2) NLP: Natural language processing (linguistic data processing); 3) SSD: promissory note loans; 4) e.g. by means of STOs: Security token offerings can digitally represent real asset titles and become tradable financing instruments
through issuance, whereby payments (e.g. dividends) are stored on the blockchain; source: zeb.research

24

The digital revolution is in full swing and affects financial players at all levels

2

Conclusion: digital revolution

Banks

•

•

Digitalisation affects banks at all levels andbrings with it great challenges – internalpressure for efficiency arises, externalcustomer requirements are changing and newcompetitors are entering the market fromoutside the existing system

Insurance companies•

The insurance industry is undergoing a profoundchange due to digitisation – business models,
structures and sales channels are being put tothe test•

The use of new technologies makes it possible toexpand the value contribution of insurers – inaddition to compensation, the prevention ofdamage is becoming increasingly important

Technological progress makes it possible tointensify existing customer relationships andcreate a new customer experience••

The innovative power of a financial location ispositively influenced by decentralisation and ahigh presence of e.g. FinTechs – newcompetitors are (partly) of ambivalent
importance for German banks

The focus on activities outside the core businessunderlines the importance of building
ecosystems – in addition to insurtechs, this iswhat particularly demands. Aggregators,
platform providers and BigTech's traditional
insurers

Stock exchanges•

Digitisation has already significantly changed
stock exchanges – the personal component instock exchange trading has declined
significantly in recent decades – but thepressure to change continues to persist•

In addition to the automation of all trading up
to the listing of new securities on the stock
exchange (efficiency), transparency andsecurity are becoming increasingly important•

New asset classes (e.g. cryptocurrencies) aresometimes traded to a large extent away fromthe "traditional" stock exchanges – investing in
new products at an early stage entails
corresponding opportunities and risks

25

The further development of the Capital Markets Union is of immense importance for financial actors

3

Conclusion: European Banking and Capital Markets Union

Banks

•

•

In addition to building a single banking market,
the Banking Union is pursuing the goal of
improving cross–border access to services andstrengthening supervision – however, the final
structure of the Banking Union has not yet
been decided in view of the discussion about
EU deposit insurance
As an intermediary between investors andinvestors/issuers, banks are dependent on an
efficient capital market – strengthening thecapital market is therefore important for banks
in order to permanently secure theircompetitiveness and sovereignty (in particular,
after the UK’s withdrawal from the EU as a
global financial centre)

Insurance companies

Stock exchanges•

The important European goals of sustainability
and digitalisation are central drivers for thedevelopment of a full-fledged capital markets
union

•

The Capital Markets Union aims to improveaccess to capital for European companies andthus contribute to a sustainable, digital,
inclusive and resilient economic recovery•

For insurers, in particular, the establishment ofa uniform data platform for access to financial
and sustainability data of companies in the EU
is an important component of the CapitalMarkets Union•

With their pricing processes, stock exchanges
play a central role in the growth and financing
of companies•

Well-functioning primary and secondary
financial markets (issuance and trading) are acentral prerequisite for the development of afull-fledged capital markets union

26

GERMANY FINANCE AS A CLIENT
Ostdeutscher Bankenverband e.V.

Achim Oelgarth

Tel. 030 / 88 777 88-0
achim.oelgarth@ostbv.dehttps://berlin-finance-initiative.de/Frankfurt Main Finance e.V.

Andreas Glänzel

Tel. 069 / 94 41 80-99
andreas.glaenzel@fmfinance.dehttps://frankfurt-main-finance.com/
Finanzplatz Hamburg e.V.

Jörn Le Cerf

Tel. 040 / 36138-360
info@finanzplatz-hamburg.com
https://finanzplatz-hamburg.com/de/
Fin.Connect.NRW

H.-Joachim Plessentin

Tel. 0211 / 61772-0
heinz-joachim.plessentin@mwide.nrw.de
https://www.wirtschaft.nrw/finconnectnrw
Stuttgart Financial

Dominik Schütz

Tel. 0711 / 222 985-726
schuetz@stuttgart-financial.de
https://www.stuttgart-financial.de27