The German Banking Act (Kreditwesengesetz, KWG) is a central component of banking supervision in Germany and sets out the regulatory requirements for credit institutions. It aims to ensure the stability and security of the financial system and to protect consumers and investors from undue risks.

In this blog post, we provide an overview of the most important aspects of the KWG and shed light on the tasks and responsibilities of BaFin as the competent authority. We look at the regulatory requirements, capital requirements and measures in the event of violations of the KWG. We also take a look at international developments and the planned reforms in banking supervision.

Table of contents

Introduction
1.1 Background and significance of the German Banking Act
1.2. objectives and principles of the KWG

BaFin as the Competent Authority
2.1. the role and responsibilities of BaFin
2.2. cooperation with the European Central Bank

Supervisory requirements
3.1. licensing requirement for credit institutions
3.2. minimum requirements for risk management (MaRisk)
3.3. capital and liquidity requirements (CRR/CRD IV)
3.4. requirements for the business organisation

Capital requirements
4.1. definition of capital and capital ratios
4.2. leverage ratio and tier 1 capital
4.3. capital conservation buffer and countercyclical capital buffer

Measures in the event of violations of the German Banking Act
5.1. sanctions and fines
5.2. dismissal of directors
5.3. forced administration and insolvency proceedings

International cooperation and harmonisation
6.1. Basel III and its implementation in the EU
6.2. single supervisory mechanism (SSM)
6.3. future prospects and planned reforms

Conclusion and Outlook for the German Banking Act

German Banking Act Introduction

The German Banking Act (Kreditwesengesetz, KWG) is a central regulatory framework for the German banking sector. It was first passed in 1961 and has since been amended several times to reflect the changing conditions of the financial market. The KWG is designed to stabilise the financial market, protect customers and investors and ensure the integrity of the banking system. It includes regulations on the following aspects:

Background and significance of the German Banking Act

Supervisory requirements and licensing requirements for credit institutions and financial service providers
Capital and liquidity requirements for banks
Risk management and internal controls
Examination and assessment of business models and business practices
Sanctions and measures in the event of violations of the KWG

Objectives and principles of the KWG

The main objectives of the Banking Act are:

(a) Stability of the financial market: the KWG is intended to help ensure the stability of the German financial market and the solvency of banks. By introducing minimum capital requirements, liquidity standards and risk management rules, banks are encouraged to monitor their business practices and to identify and manage potential risks at an early stage.

b) Protection of customers and investors: The KWG protects customers and investors through a number of regulations, such as information and transparency requirements, safeguarding customer deposits and monitoring banks’ business practices.

c) Integrity of the banking system: The regulations of the KWG aim to maintain the integrity of the German banking system by preventing illicit business practices and financial crime such as money laundering, fraud or insider trading.

Some examples of regulations in the KWG that support these objectives are:

§ Section 32 KWG: Licensing requirement for credit institutions and financial service providers: Banks and financial service providers must obtain a licence from the Federal Financial Supervisory Authority (BaFin) in order to conduct their business in Germany. This ensures that only qualified and reputable providers are active in the market.

§ Section 10 KWG: Minimum equity capital requirements: This regulation stipulates that banks must have sufficient equity capital to cover losses from their business activities

and to ensure the stability of the financial system. The capital requirements are based on the risk weights of the assets and are based on international standards, such as the Basel III regulations.

§§ Sections 25a and 25c of the German Banking Act (KWG): Business organisation and risk management: Banks are required to establish appropriate organisational structures, risk management systems and internal control mechanisms. These requirements are intended to ensure that banks can identify, assess and manage potential risks.

§ Section 6 KWG: Sanctions and measures in the event of violations: In the event of violations of the German Banking Act, BaFin can impose sanctions ranging from fines to the closure of banks.

Some recent court rulings concerning the German Banking Act are:

Federal Supreme Court, ruling of 29 June 2021 – XI ZR 7/20: This ruling dealt with the permissibility of negative interest rates for existing customers of banks and the question of whether these practices are compatible with the regulations of the KWG.
Federal Administrative Court, judgement of 21 January 2020 – 8 C 2.19: This judgement concerned the lawfulness of a forced administration of a credit institution ordered by BaFin due to violations of the German Banking Act, in particular with regard to the fulfilment of capital adequacy requirements.
Federal Supreme Court, judgement of 22 November 2018 – III ZR 54/18: This case concerned the liability of a bank for the loss of customer funds in connection with a fraudulent transfer and the question of whether the bank had fulfilled its due diligence obligations in accordance with the requirements of the KWG.

In summary, the Banking Act plays a crucial role in the regulation and supervision of the German banking sector. It ensures that banks and financial service providers in Germany operate to high standards to guarantee the stability of the financial system, the protection of customers and investors, and the integrity of the banking system.

By continuously adapting to international developments and taking into account current court rulings, the KWG helps to make the German financial landscape future-proof.

BaFin as the competent authority

The Federal Financial Supervisory Authority (BaFin) is the central supervisory authority for the German financial market. Its main tasks are the supervision and regulation of banks, financial service providers, insurance companies and securities firms. BaFin was founded in 2002 and is based in Bonn and Frankfurt am Main. BaFin’s main tasks under the KWG are:

BaFin’s role and responsibilities

The responsibilities of BaFin include in particular:

Issuing licences: according to section 32 of the KWG, banks and financial service providers must obtain a licence from BaFin in order to conduct their business in Germany. BaFin examines applications for compliance with legal requirements, such as adequate equity capital, suitable business managers and sound business organisation.
Ongoing supervision: BaFin continuously monitors the business practices of supervised institutions to ensure that they meet regulatory requirements. This includes reviewing business models, risk management practices, capital and liquidity requirements, and compliance with governance rules.
Monitoring compliance with regulatory requirements such as capital and liquidity requirements, risk management and business organisation (Sections 10, 25a, 25c KWG)
Sanctions and measures: Pursuant to § 6 KWG, BaFin can impose sanctions for violations of the German Banking Act, which can range from fines to the closure of banks.
Cooperation with national and international supervisory authorities

Cooperation with the European Central Bank

BaFin’s cooperation with the European Central Bank (ECB) is an important part of the supervision of credit institutions in Germany. The ECB has been responsible for the supervision of the significant institutions in the Eurozone since 2014. In Germany, this concerns the country’s six largest banks: Deutsche Bank, Commerzbank, DZ Bank, Landesbank Baden-Württemberg, Bayerische Landesbank and Norddeutsche Landesbank.

The cooperation between BaFin and the ECB takes place on several levels. On the one hand, BaFin works closely with the ECB to exchange information on the significant institutions. In particular, this involves the supervision of the institutions on the basis of the ECB’s common supervisory standards and procedures. In doing so, BaFin is obliged to provide the ECB with all relevant information necessary for the performance of the ECB’s supervisory tasks.

On the other hand, BaFin is also involved in decisions of the ECB within the framework of the supervision of the significant institutions. This includes participation in the annual reviews and evaluations of the institutions (Supervisory Review and Evaluation Process, or SREP). BaFin is responsible for preparing national parts of the SREP reports, which are then integrated by the ECB into the overall European assessment.

Furthermore, BaFin is also involved in the development and implementation of ECB specifications and standards. This includes, for example, the development of measures to strengthen financial stability (such as the countercyclical capital buffer), the harmonisation of supervisory standards and the enforcement of minimum requirements for risk management (MaRisk).

A current example of BaFin’s cooperation with the ECB is the review of the business models of the significant institutions in 2021. Here, the institutions’ business models were subjected to a comprehensive review to identify and assess potential risks. BaFin worked closely with the ECB to conduct a uniform review and identify potential risks.

In summary, BaFin’s cooperation with the ECB is an important component of the supervision of credit institutions in Germany. Through this cooperation, risks can be identified and addressed at an early stage in order to ensure financial stability.

Legal text – German Banking Act

Regulation (EU) No. 1024/2013 of the European Parliament and of the Council of 15 October 2013 concerning the conferral of certain supervisory tasks upon the European Central Bank
§ Section 15 of the German Banking Act (KWG): Cooperation with national and supranational supervisory authorities

Further examples

Another example of BaFin’s cooperation with the ECB is the introduction of the Single Supervisory Mechanism (SSM) in 2014. With the introduction of the SSM, the ECB was established as the supreme supervisory authority for the significant institutions in the Eurozone. BaFin, as the national supervisory authority in Germany, continues to be responsible for the supervision of the non-significant institutions. However, BaFin works closely with the ECB to ensure uniform implementation of supervisory standards and to exchange information on potential risks.

Another important element of the cooperation between BaFin and the ECB is the enforcement of supervisory measures against credit institutions. Here, the two authorities work closely together to ensure that measures are implemented uniformly and that credit institutions respond accordingly. This includes, for example, compliance with capital requirements, the performance of stress tests and the implementation of risk management measures.

Currently, BaFin’s cooperation with the ECB is also occupied with the discussion about the introduction of digital currencies and the possible effects on financial stability. The two authorities are working closely together to identify potential risks and to develop appropriate measures to safeguard financial stability.

Regulatory requirements

As the supervisory authority, BaFin is responsible for ensuring that credit institutions comply with supervisory requirements and thereby guarantee financial stability. Some important supervisory requirements are explained below.

The prudential requirements are designed to ensure the safety and stability of the financial system. They are designed to ensure that credit institutions are sufficiently capitalised and liquid to absorb any losses.
Credit institutions must comply with the Minimum Requirements for Risk Management (MaRisk) to ensure that they identify, measure and manage risks appropriately. Among other things, MaRisk includes requirements for the risk strategy, risk control procedures and the internal monitoring of risks.
The capital and liquidity requirements are part of the regulatory requirements and determine how much equity and liquid assets credit institutions must hold. The capital requirements are intended to ensure that credit institutions are sufficiently capitalised to absorb losses even in times of crisis. The liquidity requirements are intended to ensure that credit institutions have sufficient liquid funds available even in times of crisis.
Credit institutions must maintain a sound and adequate business organisation to ensure that they conduct their business properly and identify and manage risks appropriately. This includes, among other things, effective risk management and compliance systems, internal controls and an independent audit.
Compliance with the regulatory requirements is regularly reviewed by BaFin as part of its supervisory activities. Credit institutions must submit regular reports on their capital and liquidity resources as well as on their compliance with capital and liquidity requirements.
In the event of violations of the supervisory requirements, measures such as the imposition of conditions or the ordering of organisational changes can be taken. In serious cases, BaFin may also order the withdrawal of a credit institution’s licence to operate.

Licensing requirements for credit institutions

German Banking Act: The establishment and operation of a credit institution in Germany is subject to authorisation. The licence is granted by BaFin if the institution meets the necessary requirements. These include, in particular, sufficient capital resources, a sound business organisation and effective risk management. BaFin also checks the suitability of the managers and owners as part of the authorisation procedure.

The licence to operate a credit institution can also be withdrawn again if the institution no longer meets the regulatory requirements. This may, for example, be due to insufficient capital resources or violations of supervisory regulations.

Minimum Requirements for Risk Management (MaRisk)

The Minimum Requirements for Risk Management (MaRisk) are a central element of the regulatory requirements for credit institutions in Germany. MaRisk was issued by the Federal Ministry of Finance and defines the requirements for risk management and internal control of credit institutions.

Among other things, MaRisk includes the definition of risk strategies, the monitoring of risks, the implementation of risk control procedures and the establishment of an independent risk controlling function. Compliance with MaRisk is regularly reviewed by BaFin as part of its supervisory activities.

Capital and liquidity requirements (CRR/CRD IV)

The capital and liquidity requirements are another central element of the regulatory requirements for credit institutions in Germany. The capital requirements are laid down in the Capital Requirements Regulation (CRR) and the Capital Requirements Directive IV (CRD IV). These regulations stipulate how much equity capital credit institutions must have and which capital instruments can be recognised as equity capital.

The liquidity requirements are set out in the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR). The LCR is intended to ensure that credit institutions have sufficient liquid funds available even in times of crisis. The NSFR is intended to ensure that credit institutions are stably financed in the long term.

Compliance with the capital and liquidity requirements is regularly reviewed by BaFin as part of its supervisory activities. The credit institutions must submit regular reports to BaFin on their capital and liquidity resources and on their compliance with the capital and liquidity requirements.

Requirements for the business organisation

Credit institutions are required to have a sound and adequate business organisation. This includes in particular the establishment of effective risk management and compliance systems, the implementation of internal controls and the establishment of an independent audit.

BaFin also examines the business organisation of credit institutions as part of its supervisory activities and can take measures in the event of violations of the requirements. This may include, for example, imposing conditions or ordering organisational changes.

In summary, it can be said that the supervisory requirements for credit institutions in Germany are comprehensive and target various areas of business operations. Compliance with the requirements is regularly reviewed by BaFin as part of its supervisory activities in order to ensure financial stability in Germany.

German Banking Act: Capital Requirements

Capital requirements are an important part of the regulatory requirements for credit institutions. The aim is to ensure that credit institutions have sufficient capital to absorb losses and guarantee financial stability. Some important aspects of capital requirements are explained below.

Definition of capital and capital ratios

The definition of capital is laid down in the Capital Requirements Regulation (CRR) and the Capital Requirements Directive IV (CRD IV). This includes, among others, core capital, supplementary capital and additional capital. Core capital, also known as tier 1 capital, is the highest ranked capital and includes, for example, share capital, retained earnings and profit transfer amount.

The equity ratio indicates how high the equity is in relation to the risk-weighted business volume. The minimum requirement for the capital ratio is set in the CRR and is currently 8 per cent. However, national supervisory authorities may set higher capital ratios to adequately reflect the risk profile of credit institutions.

The capital ratios serve to ensure that credit institutions have sufficient capital to absorb losses. For example, if a credit institution makes a high proportion of risky loans, it should maintain a higher capital ratio to adequately reflect the higher risk.
Capital ratios can also have an impact on the business strategy of credit institutions. For example, if a credit institution is required to maintain a higher capital ratio, this may affect the institution’s ability to finance large loan portfolios or to develop new business activities.
Compliance with capital ratios is regularly monitored by national supervisors. If a credit institution does not meet the minimum requirements, the supervisory authority can take measures such as ordering a capital increase or restricting business activities.
The definition of equity can change over time. For example, new capital requirements were introduced in the course of the implementation of Basel III. It is important that credit institutions have up-to-date information on equity definitions and ratios and adjust their business strategy accordingly.

Leverage Ratio and Tier 1 Capital

The leverage ratio is another important ratio in the context of capital requirements. It indicates how high the ratio of equity to total assets is. The leverage ratio is intended to ensure that credit institutions do not borrow too much and thus increase the risk of losses.

German Banking Act: Tier 1 capital is an important component of the leverage ratio. This is the highest-ranking equity that can be used to meet regulatory requirements. Tier 1 capital includes, for example, share capital, retained earnings and the profit transfer amount.

The leverage ratio is intended to ensure that credit institutions do not borrow too much and thus increase the risk of losses. For example, if a credit institution borrows too much, it may have difficulty servicing its debts in times of crisis, which can lead to an increase in default risks.
The leverage ratio is also an important tool for the comparability of credit institutions. Since the risk weighting of assets plays no role in the calculation of the leverage ratio, the capital ratios of credit institutions can be easily compared.
Tier 1 capital is the highest-ranking equity capital and comprises capital instruments that can be used to meet regulatory requirements. This includes, for example, share capital, retained earnings and the profit transfer amount.
Tier 1 capital is an important factor in the calculation of the leverage ratio. A higher leverage ratio can be achieved by increasing Tier 1 capital. For example, if a credit institution holds more Tier 1 capital, it can borrow more to finance its business activities.
Compliance with the leverage ratio and Tier 1 capital is regularly reviewed by national supervisory authorities. If a credit institution does not meet the minimum requirements, the supervisory authority can take measures to ensure that the credit institution is sufficiently capitalised and thus contributes to the stability of the financial system.

Capital conservation buffer and countercyclical capital buffer

The capital conservation buffer is an important measure to strengthen the capital base of credit institutions. This is an additional buffer that goes beyond the minimum capital requirements. The capital conservation buffer is intended to ensure that credit institutions maintain sufficient capital to absorb losses even in times of crisis.

The capital conservation buffer is intended to ensure that credit institutions have sufficient equity to absorb losses even in times of crisis. For example, if a credit institution suffers high losses, it can draw on the capital conservation buffer to maintain its equity ratio.
The capital conservation buffer is an additional buffer that goes beyond the minimum capital requirements. The minimum capital requirement is currently 8 per cent, while the capital conservation buffer requires additional capital amounting to 2.5 per cent of the risk-weighted business volume.
The countercyclical capital buffer is designed to ensure that credit institutions build up additional capital in economically good times, which can be used in times of economic weakness. If national supervisors determine that the risk situation in the credit market is increasing, they can activate the countercyclical capital buffer.
The countercyclical capital buffer is an important component of the regulatory requirements for credit institutions. The buffer is currently up to 2.5 per cent of risk-weighted business volume and can be activated by national supervisors if they detect an overheating of the credit market or a systemic threat to financial stability.
Compliance with the capital conservation buffer and the countercyclical capital buffer is regularly reviewed by the national supervisory authorities. If a credit institution does not meet the minimum requirements, the supervisory authority may take measures to ensure that the credit institution has sufficient capital to absorb losses and thus contribute to the stability of the financial system.

The countercyclical capital buffer is another buffer that plays an important role in the framework of own funds requirements. The countercyclical capital buffer is intended to ensure that credit institutions build up equity capital in times of economic stability, which can be used in times of economic weakness. The countercyclical capital buffer can be activated by national supervisors if they detect an overheating of the credit market or a systemic threat to financial stability.

Measures in the event of violations of the German Banking Act

Compliance with the German Banking Act (Kreditwesengesetz, KWG) and supervisory requirements is crucial for credit institutions to be able to conduct their business activities legally while contributing to the stability of the financial system. If a credit institution violates the KWG or fails to comply with the supervisory requirements, various measures can be taken. The most important measures for violations of the KWG are explained below:

Sanctions and fines

If a credit institution violates the KWG or the supervisory requirements, the competent supervisory authority may impose sanctions or fines. Depending on the severity of the violation, these can be substantial and amount to several million euros, for example. Examples of violations that can lead to sanctions are the violation of supervisory requirements for risk management or compliance with minimum capital requirements.

An example of sanctions for violations of the KWG in Germany is the case of Deutsche Bank in 2015, which was fined 13 million euros by the Federal Financial Supervisory Authority (BaFin) for violations of supervisory requirements in the fight against money laundering and terrorist financing.

BaFin had found that Deutsche Bank had not paid sufficient attention to the risks of money laundering and terrorist financing and had not organised its compliance function appropriately.

The fine in this case was comparatively high because BaFin had classified the violations as serious and systemically relevant. Deutsche Bank had already received several fines in the past for violations of the KWG and other regulatory requirements, which led to a tightening of sanctions.

Dismissal of directors

If the supervisory authority finds that managing directors of a credit institution have violated the KWG or the supervisory requirements, it may order the dismissal of these managing directors. This may be the case, for example, if the managers have not adequately organised the risk management of the institution or have not fulfilled their supervisory duties.

The dismissal of directors can have a significant impact on the business of the credit institution and is therefore a rare but serious measure.

Receivership and insolvency proceedings

If a credit institution violates the KWG or the supervisory requirements to such an extent that it can no longer be considered stable and solvent, the competent supervisory authority may order a forced administration or insolvency proceedings. These measures are intended to ensure that the credit institution’s assets are properly managed and that the institution’s creditors are protected.

An example of a forced administration of a German credit institution is the case of Düsseldorfer Hypothekenbank AG in 2015. BaFin had determined that Düsseldorfer Hypothekenbank AG was unable to meet its liabilities and could therefore no longer be considered stable and solvent.

As a result, BaFin ordered a forced administration of the credit institution to ensure that the institution’s assets were properly managed and that the institution’s creditors were protected. BaFin appointed a receiver and ensured that the bank’s day-to-day business continued in order to serve its customers.

In 2017, Düsseldorfer Hypothekenbank AG was then integrated into Deutsche Pfandbriefbank AG and thus reintegrated into the market. The case of Düsseldorfer Hypothekenbank AG shows that forced administrations and insolvency proceedings of credit institutions in Germany can certainly occur when the stability of the financial system is at risk.

International cooperation and harmonisation

Banking Act: Cooperation between countries and harmonisation of prudential requirements are crucial to ensure the stability of the global financial system. Here are some important aspects of international cooperation and harmonisation in the field of banking supervision:

Basel III and its implementation in the EU

Basel III is an international regulatory framework developed by the Bank for International Settlements (BIS) that serves as the basis for prudential requirements for banks worldwide. Basel III includes various elements such as higher capital requirements, liquidity requirements and new prudential standards for risk management.

The EU has implemented Basel III in the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD IV). The CRR and CRD IV contain detailed regulations on capital and liquidity requirements, risk management requirements and supervisory requirements for the business organisation of credit institutions.

Single Supervisory Mechanism (SSM)

The Single Supervisory Mechanism (SSM) is a mechanism of the European Central Bank (ECB) that exercises supervision over the largest credit institutions in the Eurozone. The SSM was established in 2014 to ensure consistent and effective supervision of systemically important credit institutions in the Eurozone.

The SSM includes direct supervision of around 120 credit institutions in the euro area and works closely with national supervisors to ensure consistent supervisory practices. The SSM has the power to impose sanctions and fines, remove managers and order receiverships or insolvency proceedings if necessary.

Future prospects and planned reforms

Cooperation between countries and harmonisation of prudential requirements will remain an important focus of banking supervision in the future. Some planned reforms include the introduction of a European Deposit Guarantee Scheme, which will protect customers’ deposits across the EU, and the introduction of a European Crisis Management Mechanism, which will allow for a coordinated response at EU level in the event of a banking crisis.

Recent court rulings related to international cooperation and harmonisation include, for example, the 2018 European Court of Justice (ECJ) ruling that confirmed the legality of the SSM. The ruling confirmed that the SSM is in line with the European treaties and Union law and is an important measure to strengthen European banking supervision.

Overall, cooperation between countries and harmonisation of prudential requirements is of great importance to maintain confidence in the global financial system and minimise the risks of financial crises. Through the implementation of Basel III and the introduction of the SSM, the EU has taken important steps to ensure uniform and effective supervision of credit institutions in the euro area.

The planned reforms, such as the introduction of a European deposit guarantee scheme and a crisis resolution mechanism, are expected to help further improve the stability of the European financial system.

However, it is important to note that cooperation between countries and harmonisation of prudential requirements are no guarantee that financial crises can be avoided. Compliance by credit institutions with prudential requirements and effective supervision by competent authorities are crucial to ensure the stability of the financial system.

Overall, cooperation among countries and harmonisation of prudential requirements remains an important focus of banking supervision and is expected to continue to play a central role in ensuring the stability of the global financial system.

Conclusion and outlook for the Banking Act

The German Banking Act (Kreditwesengesetz) is an important component of banking supervision in Germany and sets out the regulatory requirements for credit institutions. Through the implementation of Basel III, the introduction of the SSM and the cooperation between the Länder and the harmonisation of supervisory requirements, banking supervision in Germany has made important progress in ensuring the stability of the financial system.

The supervisory requirements of the German Banking Act (KWG) include the licensing requirement for credit institutions, minimum requirements for risk management, capital and liquidity requirements as well as requirements for business organisation. Compliance with these requirements is crucial to ensure the stability and security of the financial system and to protect consumers and investors from undue risks.

Future developments in the area of banking supervision are likely to aim at further enhancing the stability of the financial system and minimising the risks of financial crises. Here are some possible developments:

Digitalisation and technology
Advancing digitalisation and technology present opportunities and challenges for banking supervision. Supervisors need to ensure that credit institutions keep pace with new developments while ensuring the safety and stability of the financial system.

Sustainability
Another important trend in banking supervision is the consideration of sustainability aspects. Credit institutions are increasingly required to integrate environmental, social and governance (ESG) aspects into their business models and risk management processes.

European cooperation
Cooperation between countries and harmonisation of prudential requirements will continue to play an important role in ensuring the stability of the financial system in Europe. Planned reforms such as the introduction of a European deposit guarantee scheme and a crisis resolution mechanism are expected to contribute to the further harmonisation of banking supervision in Europe.

Recent court rulings related to the KWG and banking supervision include, for example, the ruling of the Federal Constitutional Court in 2020 that questioned the legality of the SSM. The ruling emphasised the importance of national parliaments when deciding on the transfer of powers to European institutions.

Overall, the stability of the financial system remains a central concern of banking supervision in Germany and Europe. Much has already been achieved through the implementation of Basel III, the introduction of the SSM and cooperation between countries, but there are further challenges and developments that need to be addressed in the future to ensure the stability and safety of the financial system.

One important challenge will be the integration of sustainability aspects into the risk management and business models of credit institutions. This will require not only the development of new standards and guidelines, but also the adaptation of existing processes and systems to adequately address environmental, social and governance aspects.
Another challenge is to keep pace with technological developments and ensure that credit institutions implement adequate security measures to minimise digital threats. Here, regulators are also challenged to drive the development of new regulations and standards to ensure the security and stability of the financial system.
In addition, European cooperation and harmonisation remains an important focus of banking supervision to ensure the stability of the financial system in Europe. Planned reforms such as the introduction of a European deposit guarantee scheme and a crisis resolution mechanism are expected to help improve the harmonisation of banking supervision in Europe.

Overall, banking supervision in Germany and Europe will continue to face important challenges in the future. It is crucial that supervisory authorities and credit institutions work closely together to ensure the stability and safety of the financial system and to maintain consumer and investor confidence.

German Banking Act KWG – A Comprehensive Guide for 2023