Laws
Legal basis for banking supervision – a list of the key laws relating to the Deutsche Bundesbank's supervisory activities.
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The German Banking Act forms the legal basis for the supervision of credit institutions and financial services institutions. This law also applies in the context of the Single Supervisory Mechanism because, when supervising German banks, the ECB has to take into account the national transposition of CRD IV into the Banking Act and the exercise of any options available to the member states.
The main purpose of the Banking Act is to counteract undesirable developments in the German banking and financial services sector which may endanger the safety of the assets entrusted to institutions, impair the proper conduct of banking business or provision of financial services or lead to serious disadvantages for the economy as a whole. This task is performed in the public interest.
The first predecessor to today's Banking Act, the German Reich Banking Act (Reichsgesetz über das Kreditwesen), was enacted as far back as 1934 and laid the foundations for banking supervision legislation currently in force. Even then, the Act introduced a general authorisation requirement, rules on capital, liquidity and lending business, and duties to report and disclose information. In addition to creating the Federal Banking Supervisory Office in Berlin (the forerunner of the Federal Financial Supervisory Authority, or BaFin), the centrepiece of the 1961 Banking Act was the introduction of capital requirements. However, only general principles relating to capital were set out.
The implementation of the Investment Services and Capital Adequacy Directives by means of the 6th Act Amending the Banking Act and the Third Financial Market Promotion Act (Drittes Finanzmarktförderungsgesetz) in 1998 resulted in probably the most comprehensive revision of German banking supervision law up to that point. The accompanying rules and regulations concerning banking supervision also had to be fundamentally revised or readopted; in particular, these were Principle I (Grundsatz I), which was applicable at the time, with its rules on capital/solvency, the Regulation Governing Large Exposures and Loans of €1 Million or More (Großkredit- und Millionenkreditverordnung), the Reports Regulation (Anzeigenverordnung) and the Monthly Returns Regulation (Monatsausweisverordnung). The most significant consequence of the inclusion of financial services in the Banking Act and the expansion of the catalogue of banking business as required by European law was that BaFin and the Deutsche Bundesbank have since supervised the entire financial services sector as well as credit institutions.
After the Basel Committee's revised framework for the international convergence of capital measurement and capital standards (Basel II) had been adopted into directives of the European Communities, Germany made further extensive changes to banking supervision law by issuing the Act Implementing the recast Banking Directive and the recast Capital Adequacy Directive (Gesetz zur Umsetzung der neu gefassten Bankenrichtlinie und der neu gefassten Kapitaladäquanzrichtlinie) in 2006. For example, the Act comprehensively expanded the capital requirements, the provisions governing the trading book and non-trading book, the provisions governing cooperation between supervisory authorities within the European Economic Area, and the institutions' organisational duties (requirement for adequate risk management).
The standards set by Basel II were carried forward into the Basel III regime. The relevant rules for EU member states are found in the Capital Requirements Regulation (CRR), which is directly applicable, and in the Capital Requirements Directive IV (CRD IV), which has to be transposed into national law. CRD IV was transposed into national law by way of the Act Implementing the Capital Requirements Directive (CRD IV-Umsetzungsgesetz). In doing so, the new concept of the CRR credit institution was also introduced, which corresponds to the previous term "deposit-taking credit institution".
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Legislative text
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The legal basis for the supervision of payment institutions and e-money institutions is the Payment Services Oversight Act. Almost all of the provisions of this Act transpose the European Payment Services Directive (PSD).
Legislative text
in German only
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In 2013, the additional supervision of financial conglomerates was consolidated into a dedicated law, the Supervision of Financial Conglomerates Act. These rules had previously been found in both the Banking Act and the Insurance Supervision Act (Versicherungsaufsichtsgesetz). Application of the respective rules hinged on whether a conglomerate was headed by an enterprise from the banking and securities sector or from the insurance sector. Since the rules in the two Acts did not always match, regulatory arbitrage was possible. The Supervision of Financial Conglomerates Act is designed to limit those possibilities and make the additional supervision of financial conglomerates more effective overall.
Legislative text
in German only
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For savings banks, the respective savings bank law of the savings bank's home Federal state is also applicable. As before, savings banks exist to encourage the general public to save and build up assets and to ensure that they have access to credit. Savings banks are run in line with the regional principle; they are expected to cater particularly to the needs of the regional economy. Profits are distributed to the owners or directly provided for charitable purposes.
The members of the Savings Bank Association include the German Savings Banks and Giro Association as an umbrella organisation, the Landesbanken, DekaBank, the state building and loan associations, the primary insurance groups of the savings banks, and various financial service providers.
Legislative texts
in German only
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Cooperative banks are subject to the Cooperative Societies Act, which stipulates that the key business objective of cooperative banks is to support their members. The defining feature of cooperative banks is that each member has one vote, irrespective of the size of their share. Cooperative banks' membership of a cooperative society audit association, which audits the annual accounts and the adequacy of business management, is mandatory. The cooperative banks, together with their regional institutions of credit cooperatives, the networked institutions (savings banks and credit cooperatives) and their special institutions, constitute one category of banks.
Legislative text
in German only
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With effect from 3 July 2015, the provisions of Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes were transposed by way of the Deposit Guarantee Act. According to the Deposit Guarantee Act, all banks engaged in deposit business are required to belong to a deposit guarantee scheme in order to secure their deposits. The claim for compensation under the Act is €100,000 per depositor and bank.
The investor compensation rules that had previously been implemented, together with the deposit protection rules, by way of the Deposit Guarantee and Investor Compensation Act (Einlagensicherungs- und Anlegerentschädigungsgesetz) were carried over into the Investor Compensation Act. This Act stipulates that customers who have made use of investment services offered by investment firms (including credit institutions) will be compensated if the firm in question is unable to pay back funds or return financial instruments that it has held in safe custody on its customers' accounts. The compensation claim is limited to 90% of the liabilities arising from securities trades and the equivalent value of €20,000 per investor and institution.
Legislative texts
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The Credit Institution Reorganisation Act entered into force in 2011 and was created in response to the 2007 financial crisis. The Act sets out a special recovery and restructuring procedure for banks, other than insolvency, in the event that the stability of the financial system is jeopardised. The Recovery and Resolution Act entered into force in 2015 and transposes the European Bank Recovery and Resolution Directive (BRRD) into German law.
It contains, amongst other things, provisions on recovery and resolution planning as well as early intervention and governs the orderly resolution of banks. Since the Credit Institution Reorganisation Act was not repealed when the BRRD was transposed into German law, it is still possible, as an additional option, for a credit institution to restructure under its own responsibility under the Act's regime, alongside all measures set out in the Recovery and Resolution Act.
Legislative texts
in German only
Further information
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