Banking Regulation Comparative Guide - - Germany (2024)

Table of Contents

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1 Legal framework

1.1 Which legislative and regulatory provisions govern thebanking sector in your jurisdiction?

As Germany is an EU member state, the regulatory framework is inmany instances based on EU regulations and directives. Regulation(EU) 575/2013 (last amended by EU Regulation 2021/558 and EURegulation 2021/1043) on prudential requirements for creditinstitutions and investment firms ('Capital RequirementsRegulation' (CRR)) is particularly important. It sets out therules for calculating capital requirements, reporting and generalobligations for liquidity requirements. Further, the CapitalRequirements Directive IV (2013/36/EU) (CRD IV, last amended by EUDirective 2021/338) sets out stronger prudential requirements forbanks, requiring them to:

keep sufficient liquidity and capital reserves; and
avoid insufficient capital reserves and insufficient short andlong-term liquidity.

Additionally, the European Union has actively contributed todeveloping the Basel Committee on Banking Supervision standards atthe Bank for International Settlements on capital, liquidity andleverage. It aims to ensure that major European bankingspecificities and issues are appropriately addressed. In 2020, theEuropean Commission conducted a rapid review of the CRR andintroduced targeted changes to facilitate bank lending in thecontext of the COVID-19 crisis. The commission intends to present aregulatory framework for bank capital requirements in CRD and CRRto complete the Basel III finalisation. Originally planned for2020, the plans were postponed to 2021 in response to the COVID-19pandemic and applied from 28 June 2021.

The German laws covering the banking sector are, inparticular:

the Banking Act, which sets out the requirements and duties ofcredit institutions and financial services institutions;
the Payment Services Oversight Act, which covers thesupervision of payment services and implements the EU PaymentServices Directive into German law;
the Supervision of Financial Conglomerates Act;
the laws covering savings banks;
the Cooperative Societies Act;
the Deposit Guarantee Act;
the Electronic Securities Act;
the Investor Protection Act;
the Capital Investment Code, which covers the provision ofinvestment services and implements the Undertakings for CollectiveInvestment in Transferable Securities Directive (2014/91/EU), aswell as the Alternative Investment Fund Managers Directive(2011/61/EU);
the Money Laundering Act;
the Credit Institution Reorganisation Act;
the Recovery and Resolution Act;
the Securities Trading Act; and
laws covering specialised institutions, such as mortgage banksand building societies.

Ancillary laws and regulations also accompany these statutes,most of which deal with specific regulatory aspects (ie, theRegulation Governing Large Exposures and the SolvencyRegulation).

1.2 Which bilateral and multilateral instruments on bankinghave effect in your jurisdiction? How is regulatory cooperation andconsolidated supervision assured?

The EU Single Supervisory Mechanism (SSM) set out in Regulation(EU) 1024/2013 was set up as the first pillar of the Europeanbanking union, alongside the Single Resolution Mechanism (SRM) andthe European Deposit Insurance Scheme. The three pillars rest onthe foundation of a single rulebook, which applies to all EUcountries. The European banking supervision mechanism aims tocontribute to the safety and soundness of credit institutions andto the stability of the EU financial system by ensuring thatbanking supervision across the European Union is of a high standardand is consistently applied to all banks. While retaining ultimateresponsibility, the European Central Bank (ECB) carries out itssupervisory tasks within the SSM, comprising the ECB and nationalcompetent authorities (NCAs) – in Germany, the FederalFinancial Supervisory Authority (BaFin). This structure providesfor strong and consistent supervision of all relevant entitiesacross the Euro area, while making the best use of the local andspecific expertise of the national supervisor. Within the SSM,composed of the ECB and NCAs, the ECB carries out its supervisorytasks. The ECB is responsible for the effective and consistentfunctioning of the SSM, with a view to carrying out effectivebanking supervision and contributing to the safety and integrity ofthe banking system and the stability of the financial system.

1.3 Which bodies are responsible for enforcing the applicablelaws and regulations? What powers (including sanctions) do theyhave?

German banks are supervised under the SSM by the ECB and BaFin,or both; and by the Deutsche Bundesbank. The responsibility ofeither the ECB or BaFin depends on the allocation of competenciesset out in the SSM. The ECB is competent to supervise all Germancredit institutions with respect to licensing and assessment ofnotifications of acquisitions and disposals of qualifying holdingsin such credit institutions. Additionally, the ECB is competent forthe supervision of credit institutions that are deemed'significant', where:

a credit institution has a total asset value of more than€30 billion;
total assets exceed €5 billion and the ratio of totalassets to German gross domestic product exceeds 20%;
BaFin and the ECB mutually decide that the credit institutionshould be deemed significant;
the ECB decides that a credit institution with subsidiaries inGermany and other EU member state(s), and whose cross-border assetsor liabilities represent a significant part of its total assets orliabilities, should be deemed significant; or
a credit institution has requested or received financialassistance directly from the European Financial Stability Facilityor the European Stability Mechanism (ESM).

As at 1 January 2022, the ECB directly supervises 115'significant' institutions and banking groups in theEuropean Union (including 22 German institutions and bankinggroups), and supervises member states' regulatory authorities,which directly supervise less significant institutions and bankinggroups. BaFin supervises banking, financial service institutionsand insurance companies, and remains the authority responsible fordealing with anti-money laundering law and the supervision ofpayment services providers.

The Deutsche Bundesbank is responsible for receiving andanalysing data submitted by the banks. It cooperates closely withBaFin and the ECB with regard to banking supervision. If a problemoccurs, the Deutsche Bundesbank will promptly involve BaFin. TheECB, BaFin and the Bundesbank cooperate closely, sharingobservations and findings necessary for the performance of theirrespective tasks. In their internal relationship, the ECB or BaFintakes the final decision about whether supervisory measures must betaken or how to construe the law.

Because of the comprehensive responsibility that BaFin has forthe banking, insurance, payment and securities sectors, there areno other supervisory authorities besides the Deutsche Bundesbank inGermany that are specifically relevant to the financial servicesindustry, although the German Deposit Protection Fund has a specialrole. Banks are subject to enhanced audit requirements and externalauditors assess compliance of annual accounts with accountingprinciples, as well as the bank's compliance with itsregulatory obligations. The annual audit report is a very importanttool for BaFin in exercising its supervisory duties. It is commonfor the managers of a bank to be invited to a meeting with BaFin todiscuss the report annually. Where the audit report identifies anydeficiencies or there is any other reason for BaFin to believe thata bank is not fully compliant, BaFin can order a special audit bythe Deutsche Bundesbank or an auditing firm.

Ultimately, BaFin can take various supervisory measures underthe Banking Act. The most common measures are preventative innature and may include a request for information, the submission ofdocuments and the ordering of (ad hoc) audits. However, ifa bank is conducting unauthorised business, BaFin can conductinspections, prohibit the continuation of such business and orderthe liquidation of the existing business. BaFin may also imposeadministrative fines aimed at warning parties to comply with theirstatutory obligations. It can further issue warnings againstmanagers and demand their dismissal if they do not have adequateprofessional qualifications or are considered unreliable.

1.4 What are the current priorities of regulators and how doesthe regulator engage with the banking sector?

The cooperation between BaFin and the Deutsche Bundesbank interms of ongoing supervision of institutions is regulated bySection 7 of the Banking Act. This states that the Bundesbank isresponsible for the vast majority of operational bankingsupervision and has an important part to play in crisis management– for example:

evaluating the documentation, audit reports and annualfinancial statements submitted by financial institutions; and
conducting evaluating on-site inspections.

Additionally, BaFin's guidelines on ongoing supervision areissued in agreement with the Deutsche Bundesbank pursuant toSection 7(2) of the Banking Act (as amended by Article 5 on 3 June2021). The guidelines aim to produce harmonised and high-qualitybanking supervision and ensure the transparent and unambiguousdivision of tasks.

The UK Brexit referendum result of June 2016 had significantimplications for the financial sector in Germany. Supervised creditinstitutions and financial services institutions that are locatedin the United Kingdom are no longer able to conduct regulatedbusiness in the European Union or with European Economic Area (EEA)member states. Specifically, such institutions can no longer relyon the European passport regime, which enabled them to conductbusiness on a cross-border basis without any other local nationallicences. If they wish to continue conducting such business, theyneed to consider relocating from the United Kingdom to an EU or EEAstate.

2 Form and structure

2.1 What types of banks are typically found in yourjurisdiction?

German banks and financial institutions are permitted to conductall types of banking activities described in Section 1 of theBanking Act, if respectively licensed. Universal banks in Germanycan be divided into three main types of institutions:

commercial banks;
public sector banks belonging to the savings bank sector;and
cooperative banks.

Commercial banks: Commercial banks are part ofthe private sector and can be further sub-divided into:

large nationwide (major) banks;
regional banks; and
other financial institutions, including the branch offices offoreign banks.

Commercial banks are corporations and mostly operate asuniversal banks. Other than their legal form and business aims, theprincipal difference in the types of universal banks is the numberof legally independent institutions they have and the number ofbranch office locations.

In terms of total assets, the four major German commercial banks(Deutsche Bank AG, Commerzbank AG, UniCredit Bank and ING Bank)account for nearly 65%. This reflects their particular importance.Commercial banks are mainly privately owned and private shareholderrepresentatives are members of the supervisory board. There arethree large universal banks in Germany: Deutsche Bank AG,Commerzbank AG and HypoVereinsbank, which is owned and controlledby its Italian parent, UniCredit. In addition, there are a numberof specialised institutions:

mortgage banks, which primarily focus on real estatefinance;
auto and other consumer finance banks, which also compete fordeposits;
securities banks, which have an emphasis on brokerage andcustody;
subsidiaries and branches of foreign banking groups, withdiverse business focuses; and
private banks with a concentration on asset management.

Cooperative banks: Cooperative banks arecooperative societies that carry out all types of banking andrelated services (eg, Berliner Volksbank eG, Sparda Bank HamburgeG). A cooperative society is one in which the number of members isnot fixed and which serves to promote the business or economicinterests of its members through jointly owned business operations.Cooperative banks have become less member-centric, as they are nowpermitted to establish business relations with non-members. Sincethe repeal of the identity principle for lending transactions, theyno longer have to restrict themselves to business with members, sothey now differ very little from other universal banks. Still, inaccordance with the Cooperative Societies Act, which applies to allGerman cooperative banks, they must promote the interests of theirmembers. In contrast to commercial banks, maximising profits is nottheir highest priority. Cooperative banks have a differentgovernance structure. The equity holders have equal voting rightsindependent from their equity share. As of December 2021, therewere 770 cooperative banks, with combined assets exceeding€1.145 billion and a market share of roughly 13%. To overcomeany disadvantage of a fragmented structure, the cooperative banksfounded two cooperative central banks, DZ Bank and WGZ Bank, whichmerged in 2016. Following the merger, the cooperative sector hasone large financial head institution, DZ Bank in Frankfurt, whichprovides services to its constituent institutions.

State-owned banks: The German banking sectoralso includes several large state-owned banks. The state banks(Landesbanken) are central institutions of the SavingsBanks Finance Group (Sparkassen-Finanzgruppe). Followingthe privatisation of HSH Nordbank (renamed Hamburg CommercialBank), which was completed in early 2019, only the much smallerSaarLB remained in the Landesbank sector, in addition tothe four larger institutions: Landesbank Baden-Württemberg,Bayerische Landesbank, Landesbank Hessen-Thüringen andNorddeutsche Landesbank. This part of the German banking market hasthus been reduced to five institutions.

In addition to the Landesbanken, there are severalspecial purpose banks (eg, Deka Bank Deutsche Girozentrale,Kreditanstalt für Wiederaufbau and LandwirtschaftlicheRentenbank) that are directly or indirectly owned by the federal orstate governments (with some exemptions).

Further, the public bank sector is characterised by around 376savings banks (Sparkassen), which in most cases are ownedby local municipalities or their countries. Savings banks arecommitted by their municipal ownership to serving their localregion. Profits not needed to further strengthen their capitalbases are used for the benefit of society. Rather than focusing onfinancial figures, savings banks concentrate on benefiting thewelfare of the people and businesses in the areas they serve.Accordingly, the business policy of the savings banks focuses onsustainable economic growth and social development in theirregions. For this reason, the business of the savings banksrevolves around transactions centred on the real economy, insteadof international financial markets. This commitment to thecommunity does not mean that savings banks must forgo making aprofit. Making a profit is not their main goal, but rather a meansof fulfilling their public mandate. Savings banks do not engage ininternational banking business. They play an important role inoffering banking services to Germany's population outside thelarger cities, where private commercial banks are not keen to setup local branches.

2.2 How are these banks typically structured?

Banks are organised as either public-owned banks or cooperativebanks, or are corporations or partnerships. The most common privatelaw legal forms for a bank or financial institution are stockcorporations (Aktiengesellschaft (AGs)) and limitedliability companies (Gesellschaft mit beschränkterHaftung (GmbHs)). The most significant difference between anAG and a GmbH is the internal governance structure. An AG has alargely independent management board, appointed by the supervisoryboard. The shareholders elect the supervisory board. Managing theday-to-day business of an AG is the exclusive duty of themanagement board. Neither the supervisory board nor theshareholders can give directions to the management board. However,the supervisory board can issue guidelines under whichextraordinary transactions require its prior consent.Co-determination – that is, representation of employees onthe supervisory board – is mandatory once an institution hasmore than 500 employees. In contrast, in a GmbH, the managersgenerally must follow shareholder directions. This makes the GmbH amore suitable instrument for a banking subsidiary of a largergroup.

Some smaller private banks are limited partnerships or evengeneral partnerships.

2.3 Are there any restrictions on foreign ownership ofbanks?

German law requires any person intending to acquire a qualifyingholding in a bank or financial institution to notify the FederalFinancial Supervisory Authority (BaFin) and the DeutscheBundesbank. A 'qualifying holding' is a direct or indirectholding in an undertaking that represents 10% or more of thecapital or of the voting rights, or which makes it possible toexercise significant influence over the undertaking'smanagement.

If the notification relates to a participation in a creditinstitution within the meaning of the Capital RequirementsRegulation, BaFin itself does not decide on the intendedacquisition, but instead prepares a draft decision and submits thisdraft to the European Central Bank (ECB), which makes the finaldecision. To implement standardised procedures for cooperationbetween the ECB and other national regulators, a central unitwithin BaFin was set up. Related amendments to the OwnershipControl Regulation are expected.

Overall, there are no general restrictions and the ECB cannotrefuse the acquisition of a qualifying holding in a German bank onthe basis of the prospective acquirer's nationality.Acquisitions from some jurisdictions may be more difficult,particularly from countries where BaFin or the ECB has noestablished contacts with regulators/supervisory authorities.Prospective acquirers from jurisdictions that have a reputation formoney laundering or tax avoidance may also find it difficult toobtain ECB approval. Under certain circ*mstances, BaFin or the ECBmay object to the intended acquisition of a qualifying holding.This includes the assumption that:

the acquirer is not trustworthy;
the institution will not remain able to meet the requirementsof supervision; or
a future managing director is not reliable or qualified.

2.4 Can banks with a foreign headquarters operate in yourjurisdiction on the basis of their foreign licence?

Banks that are headquartered and licensed in the EuropeanEconomic Area (EAA) can conduct regulated banking business inGermany without a German banking licence under the EU notificationprocedure, through a branch or on a cross-border basis.

Other foreign banks can either:

conduct banking business in Germany through a branch (which is,however, subject to the full licensing requirements); or
apply to BaFin for an exemption from the licensing requirementsto provide cross-border services, provided that the bank iseffectively supervised in its home country under internationallyrecognised standards.

3 Authorisation

3.1 What licences are required to provide banking services inyour jurisdiction? What activities do they cover?

Generally, the European Central Bank (ECB) and the FederalFinancial Supervisory Authority (BaFin) are responsible for bankinglicence applications. BaFin also supervises financial services andpayment services that are not included in the definition of'standard banking transactions'. As the risk to financialstability and consumer protection varies depending on the specifictype of activity that is subject to supervision, BaFin bankinglicence requirements differ accordingly. Of importance are:

reliable management;
a sound business plan; and
compliance with anti-money laundering regulations andactivity-specific compliance rules.

When the statutory requirements for the issuance of a Germanbanking licence are met, the applicant has a legally enforceableright to be issued that licence. In this context, it will be up toBaFin to decide whether the details provided are sufficient toissue a licence under supervisory law. Where complex or innovativebusiness models are concerned, many queries or clarifications maybe necessary. Consequently, a great deal of care and accuracyshould be applied when drafting the licence application, to avoid alengthy procedure and ensure that the licence is received asquickly as possible. The banking licence, once granted, is a publiclaw permit and belongs to the institution itself, and is nottransferable as if it were a civil law right. In particular, abanking licence does not transfer to the surviving body in a mergerby way of universal succession.

Any company that commences an activity requiring a licencewithout holding one takes a great risk. Such a company faces finesand even prosecution by the public prosecutor. Even if theinfringement is due to negligence, prison sentences of up to threeyears can be imposed on the management. In addition, thecompany's business may be restricted or prohibited by formaldecision of BaFin.

Since payment services have become subject to different rulesfollowing implementation of the EU Payment Services Directives, ithas become more common to license specialised payment institutions.A universal bank with a comprehensive licence is also allowed toperform payment services as an ancillary business.

3.2 What requirements must be satisfied to obtain alicence?

Anyone wishing to conduct banking business in Germany requires awritten permit from BaFin (Sections 32 and 33 of the Banking Act)(Section 32 and 33 as amended in 2020 and 2021, in particular inSection 33(1), sentence 1 No 1a-f regarding requested capital from€730,000 to €750,000).

To do so, certain requirements must be met. Some examples areoutlined below:

When a new institution is created, a minimum initial capitalmust be proven, depending on the type of business that is intended.In the case of securities trading banks, for example, the requiredinitial capital is at least €750,000; and in the case ofdeposit-taking banks, at least €5 million.
The institution must have at least two professionally qualifiedand reliable managers with joint responsibility for theinstitution. 'Professional suitability' means that theperson concerned has acquired sufficient theoretical knowledge andpractical experience in his or her previous professional career.'Sufficient experience' generally means at least threeyears in a leading position at a bank of similar size and type.BaFin examines the suitability in particular by using informationfrom the Federal Central Register(Gerwerbezentralregister), the Transparency Register(Transparenzregister) and the Commercial Register(Handelsregister).
The application must include a three-year business plan, whichBaFin and the ECB will carefully review for viability. Since moststart-ups show losses in the first year or two, the ECB haspublished further guidance on how much capital it expects to bepaid up in full at the time of authorisation and how much capitalmust be otherwise available (eg, capital commitments by thefounding shareholders). In addition, for the first three years,BaFin will typically ask the ECB to set a minimum regulatorycapital standard well above that for more mature institutions.
Every person holding a direct or indirect interest of 10% ormore in a financial institution is subject to a reliability andfinancial soundness test. This is not an issue if the shareholderis a bank domiciled and regulated in another country with areputable bank supervisory system. Things become more difficult ifan acquirer or founder of a bank is from, for example, an emergingeconomy. In this case, BaFin requires a full personal record, withcomprehensive information on the source of funds invested in thefuture German bank.

3.3 What is the procedure for obtaining a licence? How longdoes this typically take?

Timing and basis of decision: The time fromfiling the application to receipt of the licence is usually six to18 months, in addition to the time taken to prepare theapplication. Where the new bank has a complex business plan orownership structure – for example, through various holdingcompanies – collecting information about direct and indirectshareholders and their individual directors can significantlyextend the overall timeframe.

Cost and duration: The application for a BaFinlicence is subject to a fee, the amount of which depends on thetype of banking transactions, payment or financial services appliedfor. In this respect, Sections 14 and 17 of the Financial ServicesSupervision Act and Section 2(1) of the Cost Ordinance, inconjunction with the attached schedule of fees, are decisive.According to these provisions, the fee for permission to providefinancial services such as investment brokerage or financialportfolio management ranges from €5,045 to €10,725.

If the applicant additionally applies for a licence to conductbanking business (eg, a deposit or lending business), the feeranges from €5,000 to €20,000 and may increase to up to€30,000. In any case, the fees may nonetheless be charged ifthe applicant withdraws its application for a licence or if BaFinissues a negative decision on the application. In addition to theapplication fee, legal fees for work incurred by lawyers advisingon the application process can range from €75,000 to€150,000 (plus value added tax). While there is no end datefor banking licences (and so renewal costs are not applicable),other costs for supervision by BaFin are applicable.

4 Regulatory capital and liquidity

4.1 How are banks typically funded in your jurisdiction?

The funding strategies of German banks have changedsubstantially as a result of the 2008 financial crash.Conceptually, commercial banks fund their balance sheets in layers,starting with a capital base comprising equity, subordinated debtand hybrids of the two, plus medium and long-term senior debt. Thenext layer consists of customer deposits, which are assumed to bestable in most circ*mstances, even though they can be requestedwith little or no notice. The final funding layer comprises variousshorter-term liabilities, such as commercial paper, certificates ofdeposit, short-term bonds, repurchase agreements, swapped foreignexchange liabilities and wholesale deposits. This layer is managedon a dynamic basis, as its composition and maturity can changerapidly with cash-flow needs and market conditions. This fundingstructure is usually relatively stable.

The Federal Financial Supervisory Authority (BaFin) and DeutscheBundesbank continue, on an ongoing basis, to monitor whether Germanbanks have sufficient funds for the risks assumed frombalance-sheet assets and off-balance-sheet transactions – forexample, from claims, securities, derivatives or equityinvestments. In addition to default and market risks, operationalrisks must be backed by their own adequate funds. Institutions mustalso hold funds for the capital maintenance buffer, thecountercyclical capital buffer and, if so ordered, for the capitalbuffer for systemic risks, the capital buffer for globallysystemically important institutions and the capital buffer forinstitutions with other systemic relevance (Sections 10c to 10i ofthe Banking Act, as amended on 9 December 2020). BaFin may orderthis buffer for risks exposures located in Germany or in anothernon-European Economic Area state. Details regarding the calculationof risks and banks' own funds are set out in the CapitalRequirements Regulation (CRR).

4.2 What minimum capital requirements apply to banks in yourjurisdiction?

German banks must at all times meet at least:

a hard-core capital ratio of 4.5%;
a core capital ratio of 6%; and
a total capital ratio of 8%.

In addition, BaFin and the ECB check whether liquidity issufficient – that is, whether the institutions invest theirfunds in such a way that a sufficient solvency is guaranteed at alltimes (Section 11 of the Banking Act, as amended on 9 December2020). As part of the supervisory review process, BaFin alsomonitors those risks that are not required to be backed by ownfunds under the CRR (Section 6b of the Banking Act, as amended on 9December 2020). The core elements of this process are theestablishment of adequate risk management systems and theirmonitoring by the supervisory authority. For example, institutionsmust set up an internal capital adequacy assessment process, whichensures that they have sufficient internal capital to cover allmaterial risks.

The enforcement of such capital adequacy guidelines falls withinthe supervisory mandate of the supervisory authorities. This meansthat BaFin and/or the European Central Bank (ECB) can take measuresto improve the institution's own funds and liquidity.Furthermore, in cases of danger (eg, if the discharge of aninstitution's obligations to its creditors is endangered), theauthorities can take temporary measures to avert that danger. Inparticular, the authorities may issue instructions for themanagement of the institution's business or prohibit theacceptance of deposits, funds or securities from customers and thegranting of loans.

4.3 What legal reserve requirements apply to banks in yourjurisdiction?

The ECB requires German credit institutions to hold compulsorydeposits on accounts with the Deutsche Bundesbank. These are called'minimum' or 'required' reserves and the amount tobe held by each institution is determined by its reserve base. Allbanks must hold a capital conservation buffer consisting offirst-class capital (hard-core capital) equivalent to 2.5% of theirtotal risk exposure. The buffer is intended to preserve abank's equity capital.

In order to determine an institution's reserve requirement,the reserve base is multiplied by the reserve ratio. The ECBapplies a uniform positive reserve ratio to most of thebalance-sheet items included in the reserve base. As noted above,the reserve requirement for each individual institution iscalculated by applying the reserve ratio to the reserve base.Institutions must deduct a uniform lump-sum allowance of€100,000 from their reserve requirement. This allowance isdesigned to reduce the administrative costs arising from managingvery small reserve requirements.

In order to meet their reserve requirements, German creditinstitutions must hold balances on their current accounts with theDeutsche Bundesbank. This means that compliance with minimumreserve requirements is determined on the basis of the averagedaily balances on the counterparties' reserve accounts over onereserve maintenance period. Data on the amount of required minimumreserves and their fulfilment is published in the statisticalsection of the Monthly Report of the Deutsche Bundesbank.

5 Supervision of banking groups

5.1 What requirements apply with regard to the supervision ofbanking groups in your jurisdiction?

The European Central Bank (ECB) and the Federal FinancialSupervisory Authority (BaFin) supervise banking groups as well asindividual institutions. A group generally falls under thejurisdiction of the ECB or BaFin if the parent undertaking:

is a credit institution incorporated in Germany; or
is a financial holding company or a mixed financial holdingcompany; and
either:
- both the holding company and the bank subsidiary areincorporated in Germany; or
- the holding company is incorporated in another EU member stateand the German subsidiary is subject to consolidated supervision inaccordance with the EU Capital Requirements Directive IV.

Requirements: The most important requirement isthat the minimum regulatory capital standards also be maintained atgroup level. For this purpose, the regulatory capital and riskweighted assets of individual institutions and group members areconsolidated. Although each institution in a group may besufficiently capitalised, consolidation of group capital mayproduce a regulatory capital gap – in particular, if thegroup includes entities that are not subject to the same capitaladequacy rules as banks on a solo basis, but that incur risks thatneed to be covered by the owned funds of the consolidatedgroup.

The credit institution at the top of the group or, in the caseof a group headed by a financial holding company or a mixedfinancial holding company, the largest subsidiary creditinstitution in the group is generally responsible to thesupervisory authority for making sure that the group has sufficientregulatory capital.

Similar rules apply to financial conglomerates. These groupsinclude financial institutions and insurance companies.

5.2 How are systemically important banks supervised in yourjurisdiction?

Germany is part of the Single Supervisory Mechanism establishedin all EU member states. Its purpose is to centralise theprudential supervision of banks. In particular, the ECB:

directly supervises 111 institutions and banking groups in theEuropean Union that are considered significant on 1 April 2022(including 21 German institutions and banking groups); and
supervises member states' regulatory authorities thatdirectly supervise less significant institutions and bankinggroups.

In Germany, the day-to-day supervision is conducted by jointsupervisory teams, which comprise staff from both BaFin and theECB. BaFin continues to conduct the direct supervision of lesssignificant institutions – around 3,500 entities –subject to the oversight of the ECB. The ECB can also take on thedirect supervision of less significant institutions if this isnecessary to ensure the consistent application of high supervisorystandards. The ECB is also involved in the supervision ofcross-border institutions and groups, either as a home supervisoror a host supervisor in colleges of supervisors. Moreover, the ECBparticipates in the supplementary supervision of financialconglomerates in relation to the credit institutions included in aconglomerate and assumes the responsibilities of the coordinatorreferred to in the Financial Conglomerates Directive.

5.3 What is the role of the central bank?

The German national central bank is the Deutsche Bundesbank. Inbanking supervision, the Deutsche Bundesbank works in closecooperation with BaFin and the ECB. Because of its role in the EUSystem of Central Banks, the EU system and its participation in theEU payment system TARGET2, it has genuine access to large amountsof data relating to banks. In addition, regular reporting by thefinancial sector is addressed by the Deutsche Bundesbank, whichperforms a quantitative analysis of a financial institution'sfigures. If a problem occurs, the Deutsche Bundesbank will promptlyinvolve BaFin.

6 Activities

6.1 What specific regulations apply to the following bankingactivities in your jurisdiction: (a) Mortgage lending? (b) Consumercredit? (c) Investment services? and (d) Payment services ande-money?

(a) Mortgage lending

The European Mortgage Credit Directive (MCD) of 4 February 2014was transposed into German law through the Act Implementing the MCDas at 21 March 2016. To ensure the protection of consumers raisingreal estate loans, a large number of requirements have been set outacross different pieces of legislation – in particular, inthe Civil Code and the Introductory Act to the Civil Code. Otherchanges can also be found in the Business Code, the PaymentServices Oversight Act, the Insurance Supervision Act and theBanking Act.

A new Section 18a has been added to the Banking Act, whichspecifies a large number of obligations that banks must meet whengranting consumer real estate loans. They include, in particular,requirements in terms of:

(pre-)contractual information obligations;
the assessment of creditworthiness;
the independence of appraisers from the lending process;and
adequate qualifications of bank employees who work inlending.

The Federal Financial Supervisory Authority (BaFin) has set outthe requirements for the qualifications and expertise of internaland external employees in dedicated regulations.

The new provisions of the MCD Directive led to uncertainty amongcredit institutions, especially in relation to the creditworthinessassessment. For this reason, the legislature is planning to specifythe requirements in greater detail.

(b) Consumer credit

Unlike in many other jurisdictions, lending in Germany isgenerally a regulated activity that requires a banking licencepursuant to Section 1 of the Banking Act if performed commerciallyor in a manner requiring a commercial business organisation. Thelicensing requirement applies irrespective of whether loans aregranted to consumers or to non-consumers. According to theadministrative practice of BaFin, the licensing requirement alsoapplies to lenders domiciled abroad if they actively approachborrowers domiciled in Germany to grant loans. Not only thegranting of a new loan, but also the mere restructuring of a loanthat has been acquired from the original lender (eg, by extendingmaturity and/or adjusting interest rates), may qualify as lendingactivity requiring a banking licence.

(c) Investment services

The definition of what are deemed 'investment services'(part of financial services) is set out in Section 1(1a), sentence2, numbers 1 to 12, sentences 3 and 4 of the Banking Act.Accordingly, financial services comprise the following:

Number 1: The brokering of business involving the purchase andsale of financial instruments (investment broking).
Number 1a: Providing customers or their representatives withpersonal recommendations in respect of transactions relating tocertain financial instruments where the recommendation is based onan evaluation of the investor's personal circ*mstances or ispresented as being suitable for the investor and is not providedexclusively via information distribution channels or for thegeneral public (investment advice).
Number 1b: Operating a multilateral facility, which bringstogether the interests of a large number of persons in the purchaseand sale of financial instruments within the facility according toset rules in a way that results in a purchase agreement for thesefinancial instruments (operation of a multilateral tradingfacility).
Number 1c: The placing of financial instruments without a firmcommitment basis (placement business).
Number 2: The purchase and sale of financial instruments onbehalf of and for the account of others (contract broking).
Number 3: The management of individual portfolios of financialinstruments for others on a discretionary basis (portfoliomanagement).
Number 4: Property trading:
- continuously offering to purchase or sell financial instrumentsat self-determined prices in an organised market or a multilateraltrading facility;
- frequent organised and systematic conduct of trading for itsown account outside of an organised market or a multilateraltrading facility, by providing a system accessible to third partiesin order to conduct business transactions with them;
- the purchase or sale of financial instruments for its ownaccount as a service for others; or
- the purchase or sale of financial instruments for own accountas a direct or indirect participant in a domestic organised marketor multilateral trading facility by means of a high-frequencyalgorithmic trading strategy that is characterised by the useof:
- - infrastructure for minimising network latencies and otherdelays in order transmission (latencies), which includes at leastone of the following devices for the input of algorithmic orders:collocation, proximity hosting or high-speed direct electronicaccess;
  - the ability of the system to initiate, generate, transmit orexecute an order without human intervention within the meaning ofArticle 18 of Commission Delegate Regulation (EU) 2017/565 of 25April 2016 supplementing Directive 2014/65/EU of the EuropeanParliament and of the Council as regards organisationalrequirements and operating conditions for investment firms anddefined terms for the purposes of that directive (OJ L 87, 31 March2017, p 1), as amended; and
  - a high volume of intraday notifications within the meaning ofArticle 19 of Delegate Regulation (EU) 2017/565 in the form oforders, course details or cancellations.
Number 5: The brokering of deposit business with undertakingsdomiciled outside the European Economic Area (EEA) (non-EEA depositbroking).
Number 6: The custody, management and safeguarding of cryptosecurities or private cryptographic keys used to hold, store ordispose of crypto securities for others, as well as thesafeguarding of private cryptographic keys used to hold, store ordispose of crypto securities for others in accordance with Section4(3) of the Electronic Securities Act (crypto custodybusiness).
Number 7: Dealing in foreign notes and coins (foreign currencydealing).
Number 8: The maintenance of a crypto securities registerpursuant to Section 16 of the Electronic Securities Act (cryptosecurities register maintenance) and crypto registrationbusiness.

7 Reporting, organisational requirements, governance and riskmanagement

7.1 What key reporting and disclosure requirements apply tobanks in your jurisdiction?

Banking supervisory law – in particular, the Ordinance onNotification – sets out a number of corporate governancerules, including the following:

Committees must be established in an institution'ssupervisory board.
Managing directors must fulfil their roles and personaltasks.
Specialised internal functions must be established, such ascompliance, risk control and internal audit.
In addition to institutions' annual reports, one of thebanking supervisors' main sources of information is the auditreports, which external auditors or audit associations produce aspart of their auditing of the annual reports.
Institutions must regularly file condensed balance sheets, fromwhich the major balance-sheet items, risk positions and changesthereto can be identified.
Institutions must also report major changes – such as netlosses of 25% of the equity capital as defined under the CapitalRequirements Regulation or changes in the management board –in their domestic and foreign branch networks or in holdings ofmore than 10%. They must also report their large exposures andloans of €1 million or more.
Since 3 January 2018, under the Markets in FinancialInstruments Directive (2014/65/EU) (MiFIR II) (as modified byDirective (EU) 2021/338) and Regulation (EU) 600/2014 (MiFIR) (asmodified by Regulation (EU) 2021/23), investment servicesenterprises, trading venue operators (including operators ofmultilateral and organised trading facilities), German centralcounterparties and subsidiaries are obliged to notify the FederalFinancial Supervisory Authority (BaFin) of all on-exchange andoff-exchange dealings in financial instruments, such as securitiesand derivatives. The Second Markets in Financial InstrumentsDirective and MiFIR ensure fairer, safer and more efficient marketsand facilitate greater transparency for all participants. Theprotection of investors is strengthened through:
- the introduction of new requirements on product governance andindependent investment advice;
- the extension of existing rules to structured deposits;and
- the improvement of requirements in several areas, including onthe responsibility of management bodies, inducements, informationand reporting to clients, cross-selling, remuneration of staff andbest execution.

BaFin has adapted its minimum requirements for the compliancefunction to the amendments of MiFID II and published the amendmentin March 2018. BaFin has also adapted existing modules and addednew modules which it has implemented European Securities Authority(ESMA) guidelines under Article 16 of the ESMA Regulation. Allmodules have been adapted in terms of language and content to thenew legal bases in the German Securities Trading Act and DelegateRegulation (EU) 2017/565 (as modified by Regulation (EU)2021/1254).

7.2 What key organisational and governance requirements applyto banks in your jurisdiction?

The Capital Requirements Directive IV (CRD IV) stipulatesguidelines for corporate governance principles for institutions inaccordance with Article 3. Furthermore, in Recital 54 of the CRDIV, the legislature sets out specific principles. The effectiveimplementation of these corporate governance principles requiresthe assistance of legal, regulatory and institutional frameworks.Such guidelines tend to guide the actions of the senior leadershipof a diverse range of banks in a number of countries with varyinglegal and regulatory systems. However, there are significantdifferences in the legislative and regulatory frameworks acrosscountries, which may restrict the application of certain principlesor provisions therein.

In Germany, some of these corporate governance principles havealready been implemented into German law. First, Section 25a of theBanking Act addresses special organisational duties in relation tothe institutions to which the Banking Act applies (eg, creditinstitutions and financial services institutions). Section 25a(1)of the Banking Act stipulates that an institution must have aproper business organisation which ensures compliance with thelegal provisions to be adhered to by the institution. According toSection 25a(1) of the Banking Act, proper business organisationcomprises, in particular, appropriate and effective riskmanagement, on the basis of which an institution must continuouslyensure its risk tolerance.

7.3 What key risk management requirements apply to banks inyour jurisdiction?

The requirements are based on guidelines issued by BaFinrelating to the Minimum Requirements for Risk Management (MaRisk).MaRisk provides a comprehensive framework for the management of allsignificant risks based on Section 25a of the Banking Act, whichgoverns the organisational requirements for institutions regardinginternal risk management. MaRisk provide a principles-basedframework that gives institutions the flexibility to implementsolutions individually. Moreover, MaRisk contains clauses whichensure that smaller institutions can also comply with therequirements in a flexible way.

MaRisk (as amended on 16 August 2021) has a modular structure.The General Section (AT modules) contains basic requirements forinternal risk management, including outsourcing standards. Specialrequirements regarding the organisation of the internal controlsystem for particular types of business and types of risk, and theorganisation of the internal audit function, are set out in theSpecial Section (BT modules). MaRisk has undergone severalrevisions due to recent developments and international regulatoryinitiatives. BaFin has published the current valid version as Circular 09/2017 (BA). MaRisk addressesa variety of issues on controlling business and organisationalrisks of financial institutions. These include the responsibilityof management to:

develop a risk management system suitable to identify andcontrol risks;
meet the requirements of appropriate staff resources;
install internal controls;
meet organisational requirements for lending and tradingbusiness;
identify and address market, liquidity and operational risks;and
ensure basic specifications for the compliance function, therisk control function and the internal audit function.

MaRisk specifies the more general risk management standards setout in Section 25a of the Banking Act. Compliance with MaRisk issubject to the external audit. Any material deficiencies exposed bythe audit report can lead to BaFin requiring corrective measures orimposing sanctions.

Like MaRisk, the Banking Supervisory Requirements for IT(Bankaufsichtliche Anforderungen an die IT (BAIT))specifies the statutory requirements laid down in Section 25a ofthe Banking Act. BAIT describes what BaFin considers to be suitabletechnical and organisational resources for IT systems, withparticular regard to information security and suitable contingencyplans. As institutions are increasingly obtaining IT services fromthird parties, including as part of outsourcing arrangements, BAITalso set out the requirements for the external procurement of ITservices.

7.4 What are the requirements for internal and external auditin your jurisdiction?

Internal audit is part of the ongoing monitoring of thebank's system of internal controls and of its internal capitalassessment procedure. As such, the internal audit function assistssenior management and the board of directors in the efficient andeffective discharge of their responsibilities. The scope ofinternal audit activities should include the examination andevaluation of the effectiveness of the internal control, riskmanagement and governance systems and processes of the entire bank,including the organisation's outsourced activities and itssubsidiaries and branches. The internal audit function shouldindependently evaluate:

the effectiveness and efficiency of internal control, riskmanagement and governance systems in the context of both currentand potential future risks;
the reliability, effectiveness and integrity of managementinformation systems and processes (including relevance, accuracy,completeness, availability, confidentiality and comprehensivenessof data);
the monitoring of compliance with laws and regulations,including any requirements from supervisors; and
the safeguarding of assets.

The head of internal audit is responsible for establishing anannual internal audit plan that can be part of a multi-year plan.The plan should be based on a robust risk assessment (includinginput from senior management and the board), and should be updatedat least annually (or more frequently to enable an ongoingreal-time assessment). The board's approval of the audit planimplies that an appropriate budget will be available to support theinternal audit function's activities. The budget should besufficiently flexible to adapt to variations in the internal auditplan in response to changes in the bank's risk profile.

Together with the Deutsche Bundesbank, BaFin produces a riskprofile for each less significant institution (LSI) – thatis, the credit institutions it supervises directly. BaFin updatesthe risk profile of each of these LSIs at least once a year. Ituses the risk profile of an individual LSI to determine how closelyit supervises the institution. In addition to the findings of theaudit report for the annual financial statements, current riskanalyses and knowledge obtained from special audits and requestsfor information are included in the assessment.

BaFin allocates each institution to a risk class on the basis ofits risk profile. This risk classification is based on the qualityof the institution and potential impact of a solvency or liquiditycrisis of the institution on the stability of the financial sector.In comparison with 2016, there have been only marginal changes inthe allocations to the individual risk classes – while thequality of the institutions showed a slight downward trend, theirimpact increased slightly.

8 Senior management

8.1 What requirements apply with regard to the managementstructure of banks in your jurisdiction?

The Banking Act imposes stringent requirements regarding thequalifications of management board members. The bank or financialinstitution must provide to the Federal Financial SupervisoryAuthority (BaFin):

the names of the senior managers (Section 32(1), sentence 5,number 2 of the Banking Act) (as amended on 12 May 2021);
all information required to assess the trustworthiness of theapplicants and of the senior managers (Section 1(2), sentence 1 andSection 32(1), sentence 5, number 3 of the Banking Act). For thispurpose, the following are required from each applicant or seniormanager:
- the form "Disclosures relating to the reliability ofdesignated managers";
- an excerpt from the Federal Business Record Register if theywere or are self-employed or if, in the course of theirprofessional activities, they were or are the authorisedrepresentative of a businessperson or charged with managing abusiness or the manager of any other commercial enterprise;and
- a "criminal record check for submission to anauthority" or "European criminal record check forsubmission to an authority", or equivalent documents fromanother country; and
the information required to assess the professionalqualifications of the proprietors and the senior managers (Section32(1), sentence 5, number 4 of the Banking Act). Each proprietorand senior manager should submit (along with the references fromany employment relationship that has ended within the last threeyears) a complete signed CV containing all given names, name atbirth, date and place of birth, home address and nationality, aswell as a detailed description of relevant education and training,the names of all undertakings for which the manager/proprietor hasworked and details of the nature and duration (in months and years)of the functions performed there, particularly with relevance tothe business for which authorisation is being sought, including anysecondary activities, except for those performed in an honorarycapacity. When describing the nature of the functions performed, inparticular, the powers of representation, internal decision-makingauthority and the divisions within the undertaking overseen by themanager/proprietor must be specified.

8.2 How are directors and senior executives appointed andremoved? What selection criteria apply in this regard?

According to Section 24(1) number 1 of the Banking Act (asamended 9 December 2020), the institution must notify BaFin and theDeutsche Bundesbank, without delay, of its intention to appoint a(managing) director or to confer sole power on a person torepresent the institution. In addition, facts that are essentialfor assessing the reliability, professional competence andavailability of time to perform the duties in question must beprovided. Further, pursuant to Section 24(1) number 2 of theBanking Act, the institute must notify BaFin and the DeutscheBundesbank, without delay, of the resignation of a (managing)director and the withdrawal of the sole power to represent theinstitution across its entire business area. According to Section24 (1) number 19 of the Banking Act, the institution must informBafin of any outsourcing arrangements.

8.3 What are the legal duties of bank directors and seniorexecutives?

According to Section 25a(1), sentence 2 of the Banking Act, thedirectors are responsible for the implementation, establishment,maintenance and further development of proper businessorganisation. All managers are jointly responsible for compliancewith the requirements of Section 25a of the Banking Act. Thecombined responsibility of the managers for the organisation of thebank is also defined in Section AT 3 of the Minimum Requirementsfor Risk Management (Mindestanforderungen für dasRisikomanagement 2012 AT 3, p4).

A specially appointed director is responsible for:

providing a regular overview of the overall risk profile anddefinition of the business and risk strategy;
reporting on the risk situation to the management; and
reporting to the supervisory board any instances of seriousmisconduct.

8.4 How is executive compensation in the banking sectorregulated in your jurisdiction?

In accordance with Section 25a(1), sentence 3, number 6 of theBanking Act, the remuneration systems for managers and staff shouldbe appropriate and transparent, and geared towards the sustainabledevelopment of the institution. In accordance with Section 25a(5)of the Banking Act, the variable and fixed remuneration ofemployees and managing directors must be appropriately proportionedand balanced. Furthermore, the variable remuneration must notexceed 100% of the fixed remuneration, although an exception inSection 25a(5), sentence 5 of the Banking Act permits the ratio tobe increased to a maximum of 200%.

9 Change of control and transfers of banking business

9.1 How are the assets and liabilities of banks typicallytransferred in your jurisdiction?

In Germany, shareholder control procedures apply to banks andfinancial institutions. They allow the Federal FinancialSupervisory Authority (BaFin), working with the European CentralBank (ECB), to assess in advance the suitability of potentialinvestors. The procedure applies to investors which, eitherindividually or together with other persons or companies, wish toacquire a 'significant holding' in a regulated Germanentity. A 'significant holding' means a direct or indirectholding in an undertaking which represents 10% or more of thecapital or of the voting rights, or a holding which makes itpossible to exercise a significant influence over the management ofthat undertaking. Several investors acting in concert – thatis, coordinating the exercise of their voting rights to influence atarget – can also reach the 10% threshold. Persons orentities intending to acquire a significant holding, or to increasetheir holding to exceed 20%, 30% or 50% of the voting rights orcapital, must notify this intention immediately to BaFin and theDeutsche Bundesbank. Under the revised Section 2c (1) sentence 7 ofthe Banking Act, unintended acquisitions of a significant holdingor an unintended increase of the holding exceeding 20%, 30% or 50%of the voting rights or capital must be notified without delay assoon as the institution becomes aware of the acquisition. This alsoapplies if there is an intention to reduce the shareholding untilit falls below the threshold, unless the shareholding is reducedimmediately after becoming aware of the acquisition or increase.The first notification must be accompanied by a business plan,statements of reliability and further extensive information on theacquirer, its management, its investors and its group. Theauthorities have up to 90 working days to review the filings, whichbegins to run only once all required documentation has beensubmitted. In practice, this leaves the authorities withsignificant discretion as to when the 90-working-day periodactually starts. While no formal approval of the acquisition by theauthorities is required, authorities may, within the assessmentperiod, prohibit the transaction. Thus, they have de factoa veto right.

Investors in all sorts of financial institutions should be awarethat the shareholder control procedure is in many cases timeconsuming and onerous in terms of paperwork – in particular,if the target is a bank and the investor does not yet own afinancial institution in the European Union. In the case of banks,authorities also sometimes use their veto power to require frominvestors certain guarantees that are not explicitly provided forby law, such as a certain capitalisation of the target bank. Whilethe shareholder control procedure should therefore be taken veryseriously and be prepared carefully, it should also be stressedthat in the recent past it has been successfully completed by anumber of investors other than traditional European banks. Thisshows that the authorities recognise that the German banking systemcan strongly benefit from outside investors and their financialstrength. Although it is generally assumed that a veto by BaFin/theECB would not make the acquisition of an interest in a financialinstitution invalid under civil law, such acquisition beforeclearance can qualify as an administrative offence which may beheavily sanctioned by BaFin or the ECB. Therefore, the lapse of theassessment period or a certificate of non-objection by BaFin willgenerally be agreed as a condition precedent to closing of atransaction.

The ECB can prohibit the acquisition of a significant holding ina German credit institution only if any of the following conditionsare met:

The prospective acquirer is considered unsuitable to be a majorshareholder in a financial institution;
The institution would no longer be able to comply with itsregulatory obligations;
The institution would become a subsidiary of a foreigninstitution whose regulator does not cooperate with BaFin or theECB;
The future management would be unreliable;
There are reasonable grounds to suspect that money launderingor terrorism financing is being conducted through the institution,or the acquisition would increase the risk of this; or
The prospective investor cannot provide financial support tothe institution when needed.

During their review of a notification, BaFin and the ECB willinvestigate the ultimate purchaser(s) as well as any intermediateholding companies and their management. Further, BaFin and the ECBwill require evidence of the source of funds used for theacquisition, to combat money laundering. Compliance with theseregulatory requirements generally involves long-term planning andcareful preparation.

An asset deal allows the purchasers to select the assets (andliabilities) which they want to buy. However, the purchaser mustensure that the purchasing entity possesses a BaFin issued licence,which is required to conduct the purchased business at the time ofthe closing. If entire agreements are to be transferred, includingoutstanding obligations of the seller, the contracting party mustapprove of the transfer.

The advantage of a share deal in comparison to an asset deal isthat the licence of the target entity remains unaffected –that is, an entity with an existing licence will be acquired. Thepurchaser must, however, undergo the shareholder controlprocedure(s), as described above. All agreements of the targetgenerally also remain unaffected. However, agreements can containchange-of-control clauses, which can lead to their termination orto termination rights. This is particularly relevant for financingagreements and must be thoroughly analysed in the legal duediligence.

9.2 What requirements must be met in the event of a change ofcontrol?

German law requires any person that intends to acquire aqualifying holding in an institution to notify BaFin and DeutscheBundesbank, without undue delay, of its intention. A'qualifying holding' is a direct or indirect holding in anundertaking that represents 10% or more of the capital or of thevoting rights, or which makes it possible to exercise significantinfluence over the management of that undertaking.

If the notification relates to a participation in a creditinstitution within the meaning of the Capital RequirementsRegulation, BaFin does not decide on the intended acquisitionitself, but instead prepares a draft decision and submits thisdraft to the ECB, which is responsible for taking the finaldecision. In order to implement standardised procedures forcooperation with the ECB and other national regulators involved incross-border transactions, a central unit within BaFin has beenestablished.

Besides the regulatory ownership control procedure, it may benecessary under the Foreign Trade Regulation to file an applicationfor approval with the Federal Ministry for Economic Affairs andEnergy (BMWi) if an investor from a non-EU state intends toacquire, directly or indirectly, 25% of the voting rights in aninstitution that engages in critical infrastructure such as paymentsystems, cash supply, insurance business or settlement and clearingof securities. In December 2018 the BMWi significantly tightenedthe notification requirements for the acquisition of a company thatoperates 'critical infrastructure' by purchasers fromthird-party countries. A reporting obligation already applies tothe acquisition of 10% of the voting rights, instead of theabove-mentioned 25%. In other cases, it is possible to seek theBMWi's approval on a voluntary basis. This may make sense sincethe BMWi can object to transactions (and order the reversal oftransactions) or impose certain restrictions if there is a threatto public policy or public security.

As with all EU banks, German banks are obliged to securedeposits by way of membership in a statutory deposit guaranteescheme (see question 10.2). The statutory deposit protection schemeguarantees the deposits of (most) customers up to an amount of€100,000. From the purchaser's point of view, it isadvisable that the purchase agreement provides approval of theFederal Association of German Banks to the continued membership ofthe target in the statutory deposit guarantee scheme as a conditionprecedent to the closing of the transaction.

10 Consumer protection

10.1 What requirements must banks comply with to protectconsumers in your jurisdiction?

Since the Retail Investor Protection Act came into force,collective consumer protection has been part of the supervisoryobjective of the Federal Financial Supervisory Authority (BaFin).Collective consumer protection means that BaFin protects consumersas a whole. By contrast, the protection of individual consumerinterests is the task of ombudsmen, dispute resolution entities andthe courts.

In order to manage collective consumer protection efficientlyand effectively, BaFin has modified its organisational structure.At the turn of 2016, the new Consumer Protection Departmentcommenced operations, with a total of seven divisions. Although itis part of the Securities Supervision Directorate in Frankfurt amMain, its focus is not on investor protection, but rather on alltopics relevant to consumer protection which are within the remitof BaFin. This means that it also deals with the protection of bankcustomers and insureds. The department is divided between BaFinlocations in Frankfurt am Main and Bonn.

BaFin endeavours to ensure that the range of financial products,insurance products and financial services on offer is transparentand comprehensible. The aim is to ensure that consumers are in aposition where they can understand the functioning and risks ofproducts and services, and can evaluate their actual costscorrectly. The content and form of the information made availableby providers – whether it is legally required or voluntary– must be designed in such a way that the informationsatisfies the needs and knowledge requirements of consumers. Onlythen can consumers keep pace with the informational advantage thatproviders enjoy.

BaFin can issue orders on the basis of Section 4(1a) of the ActEstablishing the Federal Financial Supervisory Authority in orderto prevent or rectify irregularities if it becomes apparent that ageneral clarification is advisable in the interests of consumerprotection. On the basis of the new Section 15 of the SecuritiesTrading Act, BaFin can even restrict or prohibit certain salespractices and the sale of products in serious cases –specifically, if investor protection or the functioning orintegrity of the financial markets is jeopardised.

10.2 How are deposits protected in your jurisdiction?

The Deposit Protection Fund (DPF) of the Association of GermanBanks secures the deposits of every customer at the privatecommercial banks up to a ceiling of 15% of the relevant liablecapital of the respective bank as at the date of the last publishedannual financial statements. The minimum equity capital of a bankin Germany is €5 million. In this case, €750,000 percustomer will be protected. From 1 January 2025, this figure willchange to 8.75% of the liable capital of the bank relevant fordeposit protection. There is one exception: the protection ceilingfor banks joining the scheme is in principle only €250,000 upto the end of the third calendar year of their participation in theDPF.

The protection extends to all deposits held by 'non-bankinginstitutions' – that is, deposits held by privateindividuals, business enterprises and public bodies. The depositsprotected are, for the main part, demand, term and savings depositsand registered savings certificates. Liabilities in respect ofwhich bearer instruments such as bearer bonds and bearercertificates of deposits have been issued by a bank are notprotected. For almost all depositors, this protection concept meansvirtually full protection for all deposits at private commercialbanks. If a bank ceases to participate in the DPF, there areprovisions for depositors to be informed in good time so thatarrangements can be made while still enjoying deposit protection.Furthermore, deposits are protected until the next due date –that is, possibly well beyond the date on which a bank'sparticipation in the fund ends.

Alongside the DPF, there exists a statutory deposit protectionscheme, the Compensation Scheme of German Banks(Entschädigungseinrichtung deutscher Banken (EdB)),which was set up in 1998. The EdB performs the tasks of thecompensation scheme required under the German Deposit Guarantee Actin relation to private commercial banks and private building andloan associations. The protection provided by the EdB is limited to€100,000 per depositor. The DPF only covers deposits anddepositors if and to the extent that the EdB does not already coverthem.

11 Data security and cybersecurity

11.1 What is the applicable data protection regime in yourjurisdiction and what specific implications does this have forbanks?

The applicable data protection regime for banks is based on theBanking Act, General Data Protection Regulation (GDPR), the GermanData Protection Act and the Payment Services Oversight Actregarding bank account information. The GDPR stipulates in veryconcrete terms how the collection, selection, archiving andprocessing of personal data is to be carried out. In addition, banksecrecy aspects apply.

11.2 What is the applicable cybersecurity regime in yourjurisdiction and what specific implications does this have forbanks?

The applicable data protection regime is the EU CybersecurityAct and GDPR, especially Sections 32 and 33 of the GDPR. However,there are also special regulations for the banking sector, suchas:

Section 25a(1), number 5 of the Banking Act, which requires anappropriate contingency plan for IT systems;
the minimum requirements for the security of internet paymentsof the Federal Financial Supervisory Authority; and
the banking supervisory requirements for IT supervision (seequestion 7.3).

12 Financial crime and banking secrecy

12.1 What provisions govern money laundering and other forms offinancial crime in your jurisdiction and what specific implicationsdo these have for banks?

The German Money-Laundering Act governs money laundering.Additionally, Sections 54 to 60d of the Banking Act concern, forexample:

prohibited business transactions;
acting without permission; and
breach of the obligation to notify the relevant authorities ofinsolvency or overindebtedness.

The Federal Financial Supervisory Authority (BaFin) haspublished interpretative and application notes for theimplementation of due diligence and internal safeguard measures toprevent money laundering. Depending on the gravity of the crime,BAFin may revoke required licences as a result of a violation ofanti-money laundering provisions (Section 35(2), number 6 of theBanking Act). Furthermore, BaFin may demand the dismissal of theresponsible managers and prohibit them from carrying out theiractivities at institutions organised as a legal person (Section36(4) of the Banking Act).

12.2 Does banking secrecy apply in your jurisdiction?

The application of banking secrecy in the German jurisdictiondepends on the field of law. In civil law or contract law, bankingsecrecy applies at least as a secondary obligation or as anobligation of consideration based on Section 311 or 241 of theCivil Code. However, in criminal law or tax law, banking secrecydoes not (always) apply.

Under the Anti-Money Laundering Act the obliged banks are exemptfrom the reporting obligation if the reportable matter relates toinformation they received in the context of a client relationshipsubject to professional secrecy. However, the reporting obligationcontinues to exist if the obliged entity knows that the contractingparty has used or is using the relationship for the purpose ofmoney laundering or terrorist financing or another criminaloffence.

With an enforcement and seizure order or search warrant, and incompliance with the principle of proportionality, the German Codeof Criminal Procedure allows for breach of the secrecy obligation.The right of professional secrecy holders to refuse to testify inaccordance with Section 53 of the code does not cover banks ortheir employees.

Section 30a of the German Fiscal Code protected bank customersuntil its abolition in 2017 by the German Tax (Combat) AvoidanceAct. According to Section 93 of the Fiscal Code, the taxauthorities must be provided with information required to establishfacts that are relevant for taxation.

13 Competition

13.1 What specific challenges or concerns does the bankingsector present from a competition perspective? Are there anypro-competition measures that are targeted specifically atbanks?

The European Central Bank (ECB) can prohibit the acquisition ofa qualifying holding in a German credit institution only if any ofthe following conditions are met:

The prospective acquirer is considered unsuitable to be a majorshareholder in a financial institution;
The institution would no longer be able to comply with itsregulatory obligations;
The institution would become a subsidiary of a foreigninstitution whose regulator does not cooperate with the FederalFinancial Supervisory Authority (BaFin) or the ECB;
The future management would be unreliable;
There are reasonable grounds to suspect that money launderingor terrorism financing is being conducted through the institution,or the acquisition would the risk of this; or
The prospective investor cannot provide financial support tothe institution when needed.

During their review of a notification, BaFin and the ECB willinvestigate the ultimate purchaser(s), as well as any intermediateholding companies and their management. Further, BaFin and the ECBwill require evidence of the source of funds used for theacquisition, to combat money laundering. Compliance with theseregulatory requirements generally involves long-term planning andcareful preparation.

Non-financial organisations are not prevented from acquiring andowning banks in Germany. Similarly, German banks are generallyallowed to acquire minority or controlling investments in otherbanks and non-financial organisations. However, qualifying holdingsheld by banks in undertakings outside the financial sector thatexceed certain thresholds will receive a risk weight of 1.25% andthus must be fully funded with own funds of the institution toavoid contagion risk.

14 Recovery, resolution and liquidation

14.1 What options are available where banks are failing in yourjurisdiction?

In 2014 the European Commission, the European Parliament and theEU member states reached agreement on a Single Resolution Mechanism(SRM) for all EU member states whose currency is the euro,including the establishment of a Single Resolution Fund (SRF) of upto €55 billion, to be raised from 2016 to 2023 throughcontributions by EU banks.

Germany was one of the first countries to introduce a recoveryand resolution regime into its regulatory framework. The BankingAct was changed with the implementation of Directive 2014/59/EU onBank Recovery and Resolution (BRRD) as of 1 January 2015, and theentry into force of the SRM as of 1 January 2016. The centrepiecesof the new resolution regime for banks are the SRM Regulation andthe Act on the Recovery and Resolution of Institutions andFinancial Groups. The regime has two major parts: recovery planningand resolution planning, and the actual resolution of a bank thatis failing or likely to fail. Resolution planning and takingresolution decisions fall within the decision power of specificresolution authorities as part of the SRM. In the SRM, similar tothe Single Supervisory Mechanism, competencies and tasks are sharedbetween the Single Resolution Board (SRB), an EU authority, andnational resolution authorities of the EU member statesparticipating in the SRM. The SRB is competent for resolutionplanning and actual resolution of all banks that are directlysupervised by the ECB because they are deemed significant. When abank is failing or likely to fail, and to avoid a bailout, the SRBand the Federal Financial Supervisory Authority (BaFin) can useresolution tools to restructure the bank and safeguard publicinterest, through ensuring the continuity of the bank'scritical functions and financial stability while incurring minimalcosts for taxpayers.

The core resolution tool is the bail-in tool, by which abank's equity, debt instruments and other unsecured liabilitiescan be written down, including to zero, or converted into newequity, in order that shareholders and creditors participate in thelosses and the recapitalisation of the bank. To be prepared for abail-in, banks must have a sufficient amount of unsecuredliabilities that can be bailed-in during times of crisis (minimumrequirement for own funds and eligible liabilities). Internationalrecognition of resolution measures remains a critical issue. Tominimise the risk of non-recognition, German institutions mustinclude a clause in contracts governing their liabilities by whichthe creditor recognises that the liability is subject to thebail-in tool if the liability is governed by the laws of non-EUcountry.

International cooperation between resolution authorities in theEurozone is organised within the SRM. With certain non-EUresolution authorities, the SRB concluded bilateral resolutioncooperation arrangements, which provide a basis for the exchange ofinformation and cooperation in resolution planning and in theimplementation of resolution measures.

14.2 What insolvency and liquidation regime applies to banks inyour jurisdiction?

If an institution becomes insolvent or overindebted, themanaging directors must report this and submit informativedocumentation to BaFin without undue delay. The Act on the Recoveryand Resolution of Institutions and Financial Groups transposes theBRRD into German law. The act provides for detailed provisionsregarding the recovery and resolution of banks.

Pursuant to Section 12 of the Act on the Recovery and Resolutionof Institutions and Financial Groups, institutions are obliged toprepare a recovery plan once the supervisory authority has askedthem to do so. The time limit for the preparation of the recoveryplans may not exceed six months. However, an institution may applyfor an extension of up to six months. The recovery plans mustcontain the measures that will ensure or restore the financialstability in case of a crisis. The act provides a detaileddescription of the content of these plans. The aim of such recoveryplans is to give an institution the tool for handling a crisisthrough its own efforts. In doing so, the resolution ofinstitutions right from the outset may be avoided. BaFin assessesinstitutions' recovery plans and suggests improvements thereto.Where plans do not meet the requirements under the Act on theRecovery and Resolution of Institutions and Financial Groups, BaFincan request a revised recovery plan.

Another key section of the Act on the Recovery and Resolution ofInstitutions and Financial Groups covers the resolution ofinstitutions and financial groups. Pursuant to Section 62, certainconditions must be fulfilled in order to implement resolutionmeasures. One condition, for example, is that the institution isfailing or is likely to fail. An institution is deemed to befailing if:

it breaches the requirements associated with the Banking Act ina way that would justify the suspension of a licence by BaFin;
its assets are below the level of its liability; or
it is overindebted.

Further conditions are that the measure is in the publicinterest and that the failure of the institution cannot be equallyprevented by other means within the available timeframe. Once theseconditions are met, resolution measures can be implemented. Thereare four resolution measures: sale of business, transfer to abridge institution, asset separation and bail-in.

15 Trends and predictions

15.1 How would you describe the current banking landscape andprevailing trends in your jurisdiction? Are any new developmentsanticipated in the next 12 months, including any proposedlegislative reforms?

The German banking market has proved to be fundamentallyconsistent and Deutsche Bank once again leads the top 10 banks bytotal assets, followed by DZ Bank, which maintained this positionafter a merger with WGZ Bank in July 2016, and Kreditanstaltfür Wiederaufbau (KFW Group including its subsidiaries KFWIPEX Bank, DEG and KfW Entwicklungsank). Apart from Commerzbank,which is ranked fourth, the top tier of the German banking industryis partly dominated by German branches of large international banks(UniCredit Bank), development banks (KfW Group, NRW Bank) and statebanks (Landesbank Baden-Württemberg, Bayerische Landesbank,Landesbank Hessen-Thüringen, Norddeutsche Landesbank).

Overall, Germany's three large commercial retail banks(Deutsche Bank, Commerzbank and HypoVereinsbank) together onlycontrol about 15% of the retail banking market. The 403 non-profitindependent Sparkassen or savings banks, which are mostlyowned by local municipalities across Germany, had a 37% share ofthe retail market in 2016 and a 28% market share in local businesslending. Most cooperative institutions are Volks- andRaiffeisenbank institutions. Consolidation in the industryhas led to a continuous reduction in the number of suchinstitutions. Consolidation is somewhat stronger in terms ofnumbers than in the savings bank sector (Sparkassen). Froman asset perspective, a trend towards the formation of largerinstitutions is evident in this sector. For comparison, the averagetotal assets in the cooperative banking sector amount toapproximately €1 billion, whereas those in the savings bankssector amount to around €3.3 billion.

Many of the commercial, public and cooperative banks in Germanyalso have online banking options, and a number of online-only andmobile-only banks have emerged in recent years. Online banking inGermany is fairly straightforward and very common. Most Germanbanks offering online services and a number of banks focus solelyon online banking (eg, bunq, N26, Wise, Revolut, DKB and Santander).

New rules and regulations include the following:

Amendments to the German Placement Agent Regulation based onthe Second Markets in Financial Instruments Directive came intoforce in August 2020. The regulation is relevant for all financialinvestment brokers and fee-based financial investment advisers,subject to Section 34f of the German Trade Act. In addition to theavoidance of conflicts of interest and the so-called'declaration of suitability', financial investmentintermediaries must record the content of telephone conversationsand electronic communications as soon as they relate to thebrokerage of or advice on financial investments in order topreserve evidence
Directive (EU) 2018/843 on the prevention of the use of thefinancial system for the purposes of money laundering or terroristfinancing ('AML 5') entered into force on 9 July 2018. EUmember states were required to transpose AML 5 into national law by10 January 2020. The directive was implemented in Germany inJanuary 2020. In particular, digital companies will be obliged toprovide payment service providers with access to infrastructureservices. These include, for example, interfaces for near fieldcommunication, which is required for cashless payments with mobilephones at physical points of sale.
The regulation for investment screenings in the European Union,including a framework regulation for foreign investment screeningsby EU member states, was adopted in March 2019 and is applicable asof 11 October 2020. The German rules on foreign direct investmentare set out in the Foreign Trade and Payments Act and the ForeignTrade and Payments Ordinance. In 2020, the number of casesincreased significantly from 106 in 2019 to a total of 159 –excluding acquisitions reported to the Federal Ministry ofEconomics and Technology exclusively through the EU cooperationmechanism (which far exceeded the initially expected numbers).
Since November 2019, there has been new momentum to establish aEuropean Deposit Insurance Scheme. The recast Directive 2014/49/EUof the European Parliament and of the Council of 14 April furtherharmonises the requirements for national deposit guarantee systems(DGSs). All EU member states must now establish bank-financeddeposit guarantee funds, thus providing coverage for bank depositsup to the amount of €100,000 should a compensation eventoccur. Germany already meets this requirement through its existingstatutory compensation schemes. Under the directive, DGSs must putaside financial means equal to 0.8% of their covered deposits by 24July 2024. With a view to the future, a pan-European depositinsurance scheme is envisaged. The European Commission'sproposals foresee the gradual implementation of a system ofcomprehensive insurance by 2024, under which bank customers'savings would be covered by a European fund in the event of thebank's insolvency.
The EU Securitisation Regulation (2017/2402) became applicablein the European Union from 1 January 2019. It includes requirementsrelating to investor due diligence, risk retention, disclosure andcredit granting, as well as a ban on resecuritisation. In addition,it established a new regime for 'simple, transparent andstandardised' (STS) securitisations, allowing certain investorsin securitisations that meet the applicable requirements to benefitfrom lower regulatory capital requirements and other favourableregulatory treatment. Certain amendments were made to the EUSecuritisation Regulation and the Capital Requirements Regulationin April 2021, including the introduction of an STS framework forbalance-sheet synthetic securitisations and adjustments withrespect to securitisations of non-performing exposures.
The Federal Financial Supervisory Authority (BaFin) haspublished all modules of the Issuer Guidelines for German andforeign issuers whose securities are admitted to trading on aGerman stock exchange. These guidelines are addressed to issuersfor which BaFin is the competent authority for supervisingcompliance with the requirements of capital markets legislation.The guidelines are designed as a hands-on guide to dealing with therequirements of securities trading legislation, albeit withoutconstituting a legal commentary. They provide an introduction tothese legal issues and explain BaFin's administrativepractice.

In terms of trends and predictions, the German banking businesscontinues to be challenged by new rules and regulations, as well asby state, federal and global regulators. Therefore, bankingentities must focus on the EU Capital Requirements Regulation (CRR)and the EU Capital Requirements Directive IV (CRD IV); and at thesame time, must prepare for new laws and regulations in emergingfocus areas such as climate change, financial inclusion and digitalassets.

Key topics include the following:

Capital and liquidity: Capital and liquidityplanning will likely remain very complex in 2022, and bankinginstitutions must prove resilience under stress scenarios andengage in more sophisticated contingency planning. Among theamendments to the capital rules is a binding advantage ratio of 3%for all institutions that fall within the scope of CRD IV, withadjustments possible under specific circ*mstances. A requirementfor stable funding based on the ratio of an institution'sstable funding over a one-year period (net stable funding ratio) isintroduced, in order to prevent institutions from relying onexcessive amounts of short-term wholesale funding to financelong-term activities. This requirement will become effective on 1January 2024, while in some areas later application dates arerelevant. In addition, CRD IV includes a substantial set oftransitional provisions, which are aimed at grandfathering currentsituations of supervised entities to allow for the gradual phase-inof new requirements. The rules for calculating the capitalrequirements for market risk, which are applicable to trading bookpositions, will be amended as from 28 June 2023 to reflect moreaccurately the actual risk to which banks are exposed. However, toallow for a more proportionate solution, there are derogations forbanks with small trading books and a simplified standardisedapproach for medium-sized banks. Furthermore, the EuropeanCommission's implementing power is replaced by a delegatedpower, enabling the commission to exempt entities from the CRDwhere certain conditions are fulfilled and to decide whether suchinstitutions fall within the scope of the CRD or CRR once againwhere these criteria are no longer fulfilled.
Compliance and anti-money laundering (AML):'Compliance' covers various issues, such as environmental,social and governance (ESG) issues, board governance andthird-party risk management, along with detailed requirements inprudential risk management areas such as capital and liquiditymanagement. An effective compliance management system should coverall new and non-traditional areas, in addition to consumerprotection, AML and the Bank Secrecy Act.
Consumers and consumer protection: BaFin andthe European Central Bank will probably improve consumer-relatedsupervision and enforcement activities in 2022, with a particularfocus on areas such as fair and responsible banking.
Cyber risks: Banking institutions must focuson cyberattacks, data breaches and service outages, and on managingsuch operational and cyber risks.
Data infrastructure and technology resilience:Data is critical to identify and manage emerging risk and developrisk mitigation responses. This results in a need to take care ofthe technology and data strategy, and to consider integration andlegacy systems. This includes data availability across the firm,data privacy, data protection and data security, and relatedanalytic capabilities and resilience.
Digital assets: In 2022, regulators willlikely take a more active role in regulating digital assets in twoareas:
- regulated financial instruments (eg, deposits, futures,securities); and
- regulated entities (eg, banks, broker-dealers, moneytransmission entities).
Flexibility will be essential as therules unfold and firms will need to respond quickly.
ESG and sustainable risks: The FederalFinancial Supervisory Authority (BaFin) will also focus on ESGcompliance and sustainable risks, which have already been outlinedin its circulars on the Minimum Requirements for Risk Management,the Minimum Requirements for the Governance of Insurance Companiesand the Minimum Requirements for Asset Management Companies. BaFinexpects that all supervised entities are considering sustainabilityrisks in their operations and that this is being properlydocumented.
Governance and core risk management: Bankinginstitutions must ensure that their risk management, governance,audit and internal controls are implemented, operational and ownedby both board and supervisor-level employees – particularlyin newly emerging risk areas such as remote and hybrid work.

15.2 Does your jurisdiction regulate cryptocurrencies? Arethere any legislative developments with respect to cryptocurrenciesor fintech in general?

The Act Implementing the Amending Directive on the Fourth EUAnti-Money Laundering Directive has incorporated crypto-custodybusiness into the regime of the Banking Act as a new financialservice. As of 1 January 2020, when this statute entered intoforce, companies seeking to provide such services require prior authorisation from BaFin. However, thelaw includes transitional provisions for companies that conductedsuch business before the law took effect – that is, beforesuch business activities became subject to authorisationrequirements. BaFin provides potential institutions withinformation on the legal situation with regard to thecrypto-custody business and its website is updated on an ongoingbasis. In June 2021, an Electronic Securities Act came into force,which includes regulations on cryptocurrencies. It includes a newregister for cryptocurrencies in Section 16 of the ElectronicSecurities Act.

The Council presidency and the European Parliament have reacheda provisional agreement on the markets in crypto-assets proposal,which covers issuers of unbacked crypto-assets and so-called'stablecoins', as well as the trading venues and thewallets in which crypto-assets are held. This regulatory frameworkwill protect investors and preserve financial stability, whileallowing innovation and fostering the attractiveness of thecrypto-asset sector. This will bring greater clarity in theEuropean Union, as some member states already have nationallegislation for crypto-assets in place, but thus far there has beenno specific regulatory framework at EU level.

16 Tips and traps

16.1 What are your top tips for banking entities operating inyour jurisdiction and what potential issues would youhighlight?

Ultimately, the traditional role of a bank is to lend, acceptdeposits, facilitate payments and assist with investments; andbanks have been doing very well in creating products across thesefunctions for their customers. However, in this regard, they arehighly reliant on traditional channels such as branches andrelationship managers to distribute these products. To survive in adigital world, they must change their methods.

In recent years, banks have made an effort to roll out internetbanking and mobile banking capabilities. However, these effortshave fallen far short of what the younger generation demands.Globally, around 2 billion people remain unbanked, with anadditional estimate of 3.5 billion underbanked. 'Unbanked'refers to people with no relationship with banks at all; while'underbanked' refers to people who have a deposit account,but no access to a suite of financial services.

This notwithstanding, banks are finding it tough to customiseand match the right customers with the right products; and thereare so many choices that it can be confusing for customersthemselves to understand which are most suitable for them.

Fintech will provide banks with the flexibility that they need.Using data-driven models, tech can draw on the abundance ofinformation available in banks to give users a better understandingof their customers. In turn, new technology such as matchingalgorithms will offer banks a more efficient way of reaching out toa bigger segment of customers. It will also benefit existingcustomers, as banks can suggest the choices and options that aremost relevant to their needs.

Alternatively, working with a fintech helps banks to bettermanage risk, as it gives them a safe way of testing the systemwithout exposing their core platforms. Banks can open up the edgesof their system, allowing third-party developers to tag on theirsystems via an open application programming interface.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circ*mstances.

Banking Regulation Comparative Guide - - Germany (2024)

FAQs

How are banks regulated in Germany? ›

In Germany, the task of banking supervision is shared by the Bundesbank and the Federal Financial Supervisory Authority (BaFin). In particular, the Bundesbank is in charge of monitoring the credit institutions.

What is the banking structure in Germany? ›

The country's so-called “three-pillar" banking system is made up of private commercial banks, cooperative banks, and the public banks (savings banks or Sparkassen, and the regional state-owned banks, or Landesbanken).

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What are the three pillars of German banking system? ›

The German banking system is characterised by an original three-pillar structure, composed of private commercial banks, public banks and cooperative banks: Private commercial banks.

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Are bigger banks better firm level evidence from Germany? ›

I identify quasi-exogenous increases in bank size in postwar Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency but worked with riskier borrowers.

Who controls monetary policy in Germany? ›

The president of the Deutsche Bundesbank uses the economic analyses and forecasts when preparing monetary policy decisions. Particular weight is attached to the analysis of money and credit developments (monetary analysis).

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Who is Deutsche Bank regulated by? ›

The Bank is authorized under German Banking Law, and is authorized and regulated by the European Central Bank and the BaFin, Germany's Federal Financial Supervisory Authority.

What is the German Separate banks Act? ›

The German separation act

Bill to separate risks and to plan the recovery and resolution of credit institutions and financial groups) first requires banks that are considered as systemically important by the supervisory authorities (BaFIN and Bundesbank) to provide plans for their own resolution.

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How is the German central bank structured? ›

The Bundesbank is headed by an executive board. Of its six members, half are nominated by the Federal Government and half by the Bundesrat (Germany's upper house of parliament), and all are appointed by the German President.

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Are German banks insured? ›

In Germany, the statutory deposit guarantee scheme protects balances on current accounts, overnight accounts and savings accounts up to the amount of €100,000 per customer and bank.

What are the components of the German financial system? ›

Germany has several types of public financial institutions, including credit and personal checking institutions and cooperative banks. Under public law, credit institutions operate as savings banks, and the state banks act as central banks and clearinghouses for the savings banks and focus on regional financing.

What is the Pillar 2 requirement for Deutsche Bank? ›

From this date, Deutsche Bank will be required to hold a Pillar 2 requirement (P2R) of 2.65%, a reduction of five basis points compared to the bank's current P2R. The ECB has also set a P2R-L for the leverage ratio for the first time; effective January 1, 2024, this requirement will be 10 basis points.

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Why is Deutsche Bank different? ›

Deutsche Bank is ... — the leading bank in Germany with strong European roots and a global network; — aligned to the strengths of the German economy in trading and investment; — focused on the respective needs of its corporate and commercial clients and its private and institutional clients; — the risk manager and ...

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Why is Deutsche Bank special? ›

Deutsche Bank was founded in 1870 in Berlin as a specialist bank for financing foreign trade and promoting German exports. It subsequently played a large part in developing Germany's financial services industry, as its business model focused on providing finance to industrial customers.

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What is the most ethical bank in Germany? ›

The GLS Bank is the first sustainable bank in Germany and was founded in 1974. At GLS bank, your money is invested in social and ecological projects. With a bank account at GLS, your money drives the change you want!

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Who regulates banks in Europe? ›

The EBA is the EU agency tasked with implementing a standard set of rules to regulate and supervise banking across all EU countries. Its aim is to create an efficient, transparent and stable single market in EU banking products.

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What is the European regulation of banks? ›

Prudential requirements aim to make the financial sector more stable, while ensuring that it is able to support households, firms, and other end-users of financial services. The EU provides a framework for authorities to manage bank failures effectively.

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How do banks get regulated? ›

In the U.S., banking is regulated at both the federal and state level. Depending on the type of charter a banking organization has and on its organizational structure, it may be subject to numerous federal and state banking regulations.

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How are banks regulated? ›

At the state level, each state has an agency or agencies that are charged with supervising and regulating state-chartered banks and thrifts. For example, in California, financial institutions are regulated by: Department of Financial Institutions.

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