The German Banking Act (Kreditwesengesetz – KWG) is a German law whose purpose is to regulate the market and the markets in the banking sector.
The German Banking Act applies to financial services institutions and credit institutions (cf. § 1 par. 1 sentence 1, par. 1a sentence 1, par. 1b).
The main purposes of the Banking Act are:
– maintaining and ensuring the functioning of the banking industry
– the protection of creditors of credit institutions against the loss of their deposits
This is particularly evident in § 6 KWG, which regulates the tasks of BaFin (Federal Financial Supervisory Authority). According to Section 6 (1), BaFin must on the one hand exercise the so-called supervision of financial institutions, i.e. the supervision of financial services and credit institutions, and on the other hand ensure the proper execution of banking transactions and financial services within the framework of general maladministration supervision in the financial services and credit sector and thus prevent the occurrence of significant disadvantages for the economy as a whole.
However, this type of supervision is not intended to protect the individual consumer or creditor, but rather to protect all creditors in their community and public confidence in the functioning of financial services and credit institutions. The German Banking Act was adopted in response to the banking crisis of 1934 in Germany and came into force a year later in its first form.
The German Banking Act and supplementary ordinances impose restrictions on credit institutions that significantly limit the banks’ ability to assume certain risks. These rules can be categorised according to the type of risk they limit:
The risk of default:
– Section 10 of the German Banking Act (KWG); capital backing for counterparty default risks (Solvency Ordinance)
– Sections 13, 14 KWG; large exposures and million loans
The Market risk:
-§ Section 10 of the German Banking Act (KWG); capital backing for market price risks (Solvency Regulation)
Liquidity risk:
– Section 11 KWG (specified by the Liquidity Regulation)
Operational risk:
– Section 10 KWG; Capital backing for operational risks (Solvency Ordinance)
– Section 13 (2) KWG; large exposures
-§§ Sections 15, 17 KWG; loans to governing bodies
-§ Section 18 KWG; Examination of economic conditions
-§ Section 25a KWG; organisational obligations (prevention of money laundering; sections 25b to 25i KWG)
-MaRisk as a concrete definition of § 25a KWG
-§ Section 32 (1) KWG; permit
Information risk:
– Section 23 KWG; advertising ban
– Section 23 a KWG; deposit protection
§ 39, 40 KWG; designations Sparkasse, Bank, Bankier, Volksbank
laws
The German Banking Act provides the legal basis under which the Bundesbank and BaFin receive information from banks and can exert direct influence on credit institutions.
The German Banking Act stipulates that the supervised institutions are obliged to notify the public:
The general duty to provide information:
– SECTION 44 KWG
Information and audits from institutions: Banks are generally obliged to provide information on all business matters, even without special cause.
Solvency information
– § 10 KWG in conjunction with Solvency Regulation: This section concerns the adequacy of the own funds of all credit institutions. A monthly overall ratio is generated. In addition, the bank’s own models must be reviewed and approved.
Liquidity disclosures
§ Section 11 KWG in connection with Liquidity Ordinance: the liquidity situation of credit institutions is represented by a monthly liquidity ratio.
large loans
– Sections 13, 13a, 13b KWG: Large exposures: Banks are obliged to report their large exposures on a quarterly basis. The reporting period for individual large exposures may only be exceeded with the approval of BaFin. The amount exceeding the large exposure ceiling must be backed by additional own funds. Further provisions on large exposures are laid down in the Large Exposures and Million Loans Ordinance (GroMiKV).
Monthly statements and annual accounts
– 25 KWG: The monthly balance sheet statistics (monthly reports) to the Deutsche Bundesbank must be submitted to BaFin.
– 26 KWG: Presentation of annual financial statements, audit reports and management reports