The Bundesbank's role in banking supervision: operational tasks
The Bundesbank is responsible for the ongoing supervision of around 1,850 credit institutions, roughly 1,400 financial services institutions and some 60 payment service providers, as stipulated in Section 7(1) of the Banking Act (Gesetz über das Kreditwesen – KWG) and Section 4(3) of the Payment Services Oversight Act (Gesetz über die Beaufsichtigung von Zahlungsdiensten – ZAG), respectively. Responsibility for ongoing supervision lies with the staff at the Bundesbank’s nine regional offices in various locations across Germany. One aspect of ongoing supervision are the Bundesbank’s off-site supervision activities, and it involves evaluating banks’ documentation, reports, annual financial statements and audit reports, making other requests for information, and conducting routine and, in consultation with the Federal Financial Supervisory Authority (BaFin), ad hoc meetings with credit institutions’ senior management. Further, ongoing supervisory duties include performing and assessing prudential inspections.
Insights into institutions’ capital and liquidity adequacy
In their ongoing supervision of credit institutions in Germany, the Bundesbank’s supervisors take account of the banks’ solvency and liquidity positions, as well as their risk situation. Evaluation criteria include not only the size and structure of risks, but also the adequacy of the respective risk management. Other quantitative and qualitative aspects, such as business model sustainability and the internal organisational structure, also play an important role in supervision.
Prudential inspections give the Bundesbank deeper insights into institutions’ risk structures and the procedures they use to manage risk. Supervisors also assess whether the internal risk measurement methods which banks use to calculate their capital requirements can be approved.
Based on their analyses in the respect of off-site supervision duties, the Bundesbank’s staff create a comprehensive risk classification and assessment for each institution at least once a year (the supervisory risk profile).
If the Bundesbank’s supervisors see any need for prudential action, they make suitable proposals to the Federal Financial Supervisory Authority (BaFin).
New structure since 2014
The launch of the Single Supervisory Mechanism (SSM), a central system of banking supervision in Europe, in 2014 introduced new lines of responsibility in the supervision of European credit institutions. Since then, entities classified as significant institutions (SIs) have been supervised directly by the European Central Bank (ECB). Staff from the Bundesbank and BaFin are members of the joint supervisory teams (JSTs) supervising these institutions at the European level. Responsibility for supervising banks categorised as less significant institutions (LSIs) and financial services institutions remains at the national level; in Germany, it lies with the Bundesbank and BaFin. The ECB performs an indirect oversight function in this area in order to ensure uniform high standards and consistency of banking supervision within the SSM.