The recent financial crisis showed the magnitude of consequences that the uncontrolled accumulation of risks in the banking sector can have for the entire economy. It is therefore the aim of banking supervision to ensure that the banking system is efficient and stable. In Germany, the task of banking supervision is shared by the Bundesbank and BaFin. Banking supervision does not directly intervene in transactions conducted by banks, but sets the regulatory framework. The Banking Act (Gesetz über das Kreditwesen) is the legal basis for this.
The Bundesbank continuously looks at the books of the roughly 2,000 credit institutions and 1,500 financial services institutions active throughout Germany to monitor their solvency and liquidity.Besides the balance sheet guidelines, banks must fulfil a range of requirements regarding their organisation and management. During regular on-site inspections, the Bundesbank gains insights into the business operations of the institutions and their risk management in particular.
Because the structures and products in the area of finance are in a constant state of flux, the demands on banking supervision and the regulatory framework change, too. It is for this reason that the Bundesbank is involved at a national and international level in the ongoing development of prudential regulations. For example, it has made wide-ranging contributions to the Revised Framework developed by the Basel Committee on Banking Supervision (“Basel II”) adopted in 2004 and to the adjustments (“Basel III”) agreed in 2010, and has been actively involved in the national implementation of these frameworks. Recognising wrong incentives at an early stage and tackling them with appropriate measures will continue to be one of the Bundesbank’s main tasks in the future.