The tasks of the Deutsche Bundesbank
The Deutsche Bundesbank is the central bank of the Federal Republic of Germany and, thus, the "bankers' bank". Since 1999, it has been part of the Eurosystem, sharing responsibility with the other national central banks and the European Central Bank for the single currency, the euro. The Executive Board of the Bundesbank currently comprises six members. Half are nominated by the Federal Government and half by the Bundesrat, with all members being appointed by the President of the Federal Republic. The Bundesbank is independent of instructions from the Federal Government. In this respect, its status is comparable to that of the Federal Constitutional Court. Some 10,000 people are employed at the Bundesbank's Central Office in Frankfurt am Main, the nine regional offices and 35 branches (as at October 2015) throughout Germany. The Bundesbank uses this nationwide network to perform its operations in the areas of refinancing, cash supply, cashless payments and banking supervision.
The overriding aim behind all of the Bundesbank's activities is to safeguard the stability of the general price level and the financial system. For this, in-depth analyses, long-term goals and impartiality towards individual interests are essential. The Bundesbank's stability policy also relies on the support of economic, fiscal and wage policies.
The Bundesbank's participation in the Eurosystem, the integration of the international financial markets and innovations in the fields of payments and finance are creating new challenges for its stability policy. In order to better meet these challenges, the bank has identified five core business areas and is aiming to hone its profile in these areas in the future.
The main core business area is Eurosystem monetary policy. Its primary task, as laid down in the EC Treaty, is to maintain price stability in the euro area. Stable prices promote public welfare; they encourage growth and employment in the medium term and protect savers and people on fixed incomes against the negative effects of inflation. The Bundesbank President is a voting member of the Governing Council of the ECB and takes part in the monthly monetary policy decision-making process. In doing so, he draws on the expertise of the Bundesbank's economists, statisticians and monetary experts.
Monetary policy decisions affect, among other things, the amount of money in circulation and, thus, the general price level. The central bank amends the key interest rates, leading to a change in the costs at which the credit institutions can obtain cash and credit from it. This ultimately affects the borrowing costs for enterprises and individuals. The Bundesbank implements the monetary policy decisions of the Governing Council of the ECB in Germany. More than 50% of the total volume of short-term borrowing by euro-area banks from the central banks is attributable to the Bundesbank. The Bundesbank also explains the workings of Eurosystem monetary policy and its other core business areas to the German public. This takes the form of appearances by top-level management, publications and a money museum which places a strong emphasis on central banking. This communication serves two purposes. By accounting for its actions, the Bundesbank establishes an additional democratic pillar supporting its legal autonomy. What is more, its public relations activities strengthen the general public's awareness of stability and create a good deal of the trust necessary for the stability policy to succeed.
Financial and monetary system
The Bundesbank's work in the core business area financial and monetary system is aimed at helping to prevent national and international financial crises – international crises not least because they could have knock-on effects in Germany. Financial crises, such as the large-scale insolvency of banks, cause growth and employment to slump. Furthermore, they obstruct monetary policy because banks will then probably no longer be able to transmit interest rate policy decisions. Ultimately, they also shake confidence in price stability. The threat of financial crises can occur in a multitude of places when there is too great a build-up of high-risk and insufficiently secured loans. The Bundesbank's wide-ranging analyses and its financial market observation help to recognise sources of such risk at an early stage and identify appropriate countermeasures.
Banking supervision is another core business area. Here, the Bundesbank performs a key operational task by helping to secure a financially sound banking industry and, ultimately, the stability of the financial system. Supervisory activities and other central bank functions provide valuable insights, for example, for performing the task of safeguarding the stability of the financial markets (Article 105 (5) of the EC Treaty), in terms of the Bundesbank's presence in the money, capital and forex markets, and refinancing the credit institutions. In cooperation with the Federal Financial Supervisory Authority (BaFin), the Bundesbank is responsible for the continuous oversight of the solvency, liquidity and risk management systems of the roughly 2,300 credit institutions in Germany. This also encompasses on-site inspections pursuant to the Basel II framework, for example, prudential discussions and the ongoing analysis of statistical and audit reports. It is also involved on a national and international level in the ongoing development of prudential regulations. One example of this is its many and varied contributions to the discussions preceding the adoption of the New framework agreement of the Basel Committee on Banking Supervision ("Basel II") in 2004. Among other things, Basel II requires that the own funds used by banks to hedge the loans they grant should match the actual, individual risks more closely than in the past.
In cashless payments, the Bundesbank fulfils its statutory mandate to provide for the smooth settlement of payments in Germany and abroad. To this end, it also operates its own payment systems. Urgent individual intrabank payments and the monetary policy operations of the central banks require fast and secure payment systems. The Bundesbank has set the standard in this area. Together with two other Eurosystem central banks, it developed the Europe-wide TARGET 2 system, which has, since November 2007, been jointly operated by the three banks. Unlike its predecessor, TARGET 1, the system no longer constitutes various real-time settlement systems, but is instead based on a single technical platform. It not only allows banks to make payments in real time, but also helps them to save liquidity, for example, by enabling them to use counter-payments as cover.
For the most part, banks execute non time-critical payments from their customers to other credit institutions on a bilateral basis or via systems operated by banking groups. The Bundesbank also offers an additional system for cross-bank payments to all banks – and thus on a competitively neutral basis – in the shape of its Retail Payment System (RPS).
On 2008-01-28, the Single Euro Payments Area (SEPA) was launched in Europe with the SEPA credit transfer. Gradually, this should allow all euro payments in the SEPA to be settled using the new pan-European instruments – SEPA credit transfers, direct debits and card payments – as easily, efficiently and securely as domestic payments today. The Bundesbank supports SEPA, acts as the link between the German banking industry and the Eurosystem and has adjusted its own payment systems to meet the requirements of the SEPA.
In order to maintain confidence in the euro, our currency, it is also important that there is an adequate supply of high-quality cash at all times. To achieve this, counterfeit money as well as damaged or worn coins and banknotes must be removed from circulation. These are sovereign Bundesbank tasks in the core business area of cash management. While the Bundesbank aims to achieve increased privatisation in the field of cash handling, it must, in order to ensure the long-term quality and security of the cash supply in emergencies and crises – ie in the event that larger cash handling firms cannot operate owing to strikes or insolvency – retain a sufficient level of involvement in the cash cycle and in banknote processing.
In addition to these core business areas, the Bundesbank is also responsible for the management of the reserve assets and various tasks in the field of statistics and as the Government's fiscal agent. It also advises the Federal Government on matters of monetary policy.
Two aspects common to all core business areas are active participation in international organisations and research. In all its business areas, the Bundesbank is represented – at all levels – in the relevant European or global international organisations. Consequently, it is involved in most consultations and agreements concerning the monetary and financial system. The international nature of the debate in this area has increased with growing European integration and higher global cash flows. This is also why the Bundesbank is expanding its research in all its core business areas. The Bundesbank will have a role to play in the Eurosystem's monetary policy decision-making process and in the international debate about the stability of the financial system only as long as it is recognised as a voice of authority among its peers. And this can be achieved only through research and analysis. The Bundesbank's Research Centre, which was established in 2000, focuses primarily on research into the potential impact of monetary policy and the requirements and effects of a stable financial system.