We investigate how differential exposures by German banks to the US real-estate market affect domestic lending in Germany when home prices started to decline in the USA. We find that banks with an exposure to the US real-estate sector and to conduits shift their domestic lending to industry–region combinations with lower insolvency ratios following a decrease in US home prices. These banks also contract their lending to German firms more than banks that do not have such exposure. We mainly document that possible losses abroad shift bank lending at home where the size of the effect depends on the type and the degree of exposure the bank has.

This paper brings together the academic literature on individual and institutional investors in order to understand the nature of difficulties faced by them and set the background for the Special Issue. This introductory article and the papers in the Special Issue contribute to the debate on how to support individuals in their savings commitments and investment decision-making and whether and how institutional investors have fulfilled their role in supporting the development of the funded pension industry. There are three main conclusions: (i) individual investors are not ready for the role that has been assigned to them in the pension industry, (ii) institutional investors are a long way short of establishing healthy relational contracts and trustworthy relationships with their clients, and (iii) more effective regulation may be needed.