Banking activities in Germany are enforced by the German Banking Act (Kreditwesengesetz or KWG) which is constantly changing in order to improve the banking sector. The German banking system is quite unique as it relies on private commercial banks, state savings banks and cooperative banks. Commercial banks are spread worldwide, while savings banks and cooperative banks act on regional level.
The German Banking Act, simply known as KWG, contains the main regulations that apply to banking and financial institutions. As a member of the European Union the German law encompasses all EU directives referring to banking activities. Some of these directives are the Banking Directive (Directive 2006/48), the Capital Adequacy Directive (Directive 2006/49), the E-Money Directive (Directive 2009/110), and the Directive on Undertakings for Collective Investment in Transferable Securities. The German Banking Law states what the requirements and duties of banks and financial institutions are, the capital a company must subscribe in order to become a financial institutions. The German KWG applies to all German and foreign banks and financial institutions. Banks and financial institutions that hold an European Economic Area (EEA) license and banks from EU member states can benefit from the EU passport rule. The EU passport rule states that banks and financial institutions do not require a license issued by BaFin, but they can use the license granted by their home state authorities. The KWG also sets the regulatory frame for the supervising authorities, such as the Federal Financial Supervisory Authority (Bundesanstalt Finanzdienstleistungsaufsicht, or BaFin) and the German Federal Bank (Deutsche Bundesbank).
Banks and financial institutions, but also their banking activities are supervised by the German Federal Financial Supervisory Authority, shortly known as BaFin and by the German Federal Bank, mainly known as Bundesbank. BaFin has the authority to grant banking licenses and take administrative decisions, while Bundesbank is in charge with receiving and analyzing all data banks submit. The two institutions collaborate, but the decision factor lies with BaFin. BaFin is also in charge with supervising insurance companies and capital markets in Germany.
BaFin has two offices, one in Bonn and another one in Frankfurt and is subordinated to the Federal Ministry of Finance in Germany.
Bundesbank is headquartered in Frankfurt and has eight regional offices (Hauptverwaltungen) in Berlin, Hamburg, Hannover, Leipzig, Dusseldorf, Frankfurt, Munich and Stuttgart.
In order to complete the German KWG there are other regulations that apply to German banks and financial institutions. Among these the most important are:
These laws are completed by the Solvency Regulation (SolvV), the Liquidity Regulation (LiqV) and the Regulation on Large Exposures and loans of 1.5 million EUR (GroMikV).
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