The German Banking Act forms the legal basis for the supervision of credit institutions and financial services institutions. This law also applies in the context of the Single Supervisory Mechanism because, when supervising German banks, the ECB has to take into account the national transposition of CRD IV into the Banking Act and the exercise of any options available to the member states.
The main purpose of the Banking Act is to counteract undesirable developments in the German banking and financial services sector which may endanger the safety of the assets entrusted to institutions, impair the proper conduct of banking business or provision of financial services or lead to serious disadvantages for the economy as a whole. This task is performed in the public interest.
The first predecessor to today's Banking Act, the German Reich Banking Act (Reichsgesetz über das Kreditwesen), was enacted as far back as 1934 and laid the foundations for banking supervision legislation currently in force. Even then, the Act introduced a general authorisation requirement, rules on capital, liquidity and lending business, and duties to report and disclose information. In addition to creating the Federal Banking Supervisory Office in Berlin (the forerunner of the Federal Financial Supervisory Authority, or BaFin), the centrepiece of the 1961 Banking Act was the introduction of capital requirements. However, only general principles relating to capital were set out.
The implementation of the Investment Services and Capital Adequacy Directives by means of the 6th Act Amending the Banking Act and the Third Financial Market Promotion Act (Drittes Finanzmarktförderungsgesetz) in 1998 resulted in probably the most comprehensive revision of German banking supervision law up to that point. The accompanying rules and regulations concerning banking supervision also had to be fundamentally revised or readopted; in particular, these were Principle I (Grundsatz I), which was applicable at the time, with its rules on capital/solvency, the Regulation Governing Large Exposures and Loans of €1 Million or More (Großkredit- und Millionenkreditverordnung), the Reports Regulation (Anzeigenverordnung) and the Monthly Returns Regulation (Monatsausweisverordnung). The most significant consequence of the inclusion of financial services in the Banking Act and the expansion of the catalogue of banking business as required by European law was that BaFin and the Deutsche Bundesbank have since supervised the entire financial services sector as well as credit institutions.
After the Basel Committee's revised framework for the international convergence of capital measurement and capital standards (Basel II) had been adopted into directives of the European Communities, Germany made further extensive changes to banking supervision law by issuing the Act Implementing the recast Banking Directive and the recast Capital Adequacy Directive (Gesetz zur Umsetzung der neu gefassten Bankenrichtlinie und der neu gefassten Kapitaladäquanzrichtlinie) in 2006. For example, the Act comprehensively expanded the capital requirements, the provisions governing the trading book and non-trading book, the provisions governing cooperation between supervisory authorities within the European Economic Area, and the institutions' organisational duties (requirement for adequate risk management).
The standards set by Basel II were carried forward into the Basel III regime. The relevant rules for EU member states are found in the Capital Requirements Regulation (CRR), which is directly applicable, and in the Capital Requirements Directive IV (CRD IV), which has to be transposed into national law. CRD IV was transposed into national law by way of the Act Implementing the Capital Requirements Directive (CRD IV-Umsetzungsgesetz). In doing so, the new concept of the CRR credit institution was also introduced, which corresponds to the previous term "deposit-taking credit institution".
