Like many other countries, Germany has had a very difficult 2009. Statistics show that the German GDP shrunk by 5% over the course of the year (the largest decrease since WWII), although the situation stabilised towards the end of the year.

German stock markets started rather weak in 2009 after a serious downturn in the second half of 2008 in response to the Lehman insolvency. Beginning the year at 4,856.85 points, the German DAX (which tracks the price development of the 30 largest and most actively traded German equities) reached a three-year low in March 2009 at 3,666.41 points, but rebounded to more than 6,000 points before the 2009 year-end.

The difficult conditions on the stock markets made conditions unattractive for IPOs and new share issues and placements. Consequently, in 2009 no major IPO took place on the Frankfurt stock exchange, with the three most serious candidates, Hochtief Concessions, Unitymedia and Scan Energy, cancelling at the last moment because of market conditions. For several listed companies, new issues and placements proved unavoidable - not so much despite, but rather because of the financial crisis. So, firms like Infineon, Heidelberg Zement and Premiere issued new shares merely to stay in business.

The regulatory reform which was at the centre of attention in the first quarter of 2009 was the Financial Market Stabilisation Act (Act), which is aimed at stabilising the financial system.

The financial aid available under the Act was capped at EUR480 billion. However, this amount has not been used in full. While most financial institutions that had been hesitant at the start to file for help under the Act slowly started to come around in early 2009, the financial support actually granted by the responsible special fund (SoFFin) only reached about half of the available maximum amount, almost all of this in the form of government-backed guarantees for debt instruments.

Furthermore, a major part of the support had to be used to stabilise a single bank, Hypo Real Estate (HRE). The situation of HRE appeared so critical that the German federal government decided to find a way to take over all shares in HRE. Ultimately, this lead to legislation allowing for disownment of shareholders - the so-called "Rescue Takeover Act" (Rettungsübernahmegesetz). This legislation was an unprecedented step and subject to intense discussion but finally was adopted in March 2009.

Filing for support by SoFFin is purely voluntary, and it comes at a price. Financial institutions accepting support must:

Furthermore, compensation of the individual members of the financial institutions' corporate bodies had to be limited to EUR500,000 at most.

Support measures for financial institutions also comprised a bad bank scheme which was initiated in July 2009. This scheme allows banks and other financial institutions to offload specific "toxic" assets, so relieving future pressures on their equity. In consideration for the transfer of those assets to special purpose vehicles, the vehicles will issue bonds to the transferring entity backed by the transferred assets, and these bonds may be eligible for guarantees from SoFFin.

Even after the relevant legislation had been passed, bad banks had a slow start in Germany. As of today, only one bank, WestLB, actually has started to establish one, and the support this would mean for WestLB is currently under review by the European Commission. In addition, on 20 January 2010, HRE filed for the establishment of a huge bad bank into which it is proposing to off-load EUR210 billion worth of toxic assets.

Even apart from financial support for financial institutions, legislative measures in respect of financial institutions on the national (that is, non-European) level were mostly triggered by the financial crisis. As a reaction to reports on misleading or incomplete investment advice, an act passed by the German parliament in July 2009 aims at improving the enforceability of claims by investors arising from such misleading or incomplete advice. The key component of this act is a new requirement for institutions to prepare a detailed written report of the investment advice they provide to their retail clients. This must be signed by the person providing the advice and be sent to the client before entering into any business trade based on the advice. The client may waive this requirement if the conversation takes place on the telephone and demand immediate execution of his orders and in this case the bank must send the report immediately after executing the trade.

The financial crisis is likely to continue to be the driving force for legislation on the financial markets in Germany in 2010. For example, the German Government is expected to transfer the recommendations of the Financial Stability Board (FSB) on compensation standards into national law in the first half of 2010.

Driven by the impression that bonuses paid by banks to their managers and investment staff had been partly responsible for the crisis on the financial markets, the FSB had made certain recommendations on the design of compensation schemes. These recommendations are aimed, in particular, at the compensation of staff who are in a position to expose the company to high risks (so-called "risk-takers"). These recommendations include that:

With the economic situation appearing to be slowly recovering, the times for special measures at the national level may come to an end in 2010. This leaves room for the implementation of European legislation such as the proposed Directive on Alternative Investment Fund Managers. Itself a reaction to the financial markets crisis, this Directive aims at putting managers of funds that are not harmonised under comprehensive supervision and is specially directed towards hedge funds. This Directive is still in discussion and may not enter into force before 2011.

Although further regulatory reactions to the financial crisis will be discussed both at the European and the domestic German level, it is as yet unclear where such discussions will lead.