Regulatory Framework for Banks in Germany

Overview of Capital Adequacy Requirements

In Germany, banks are required to maintain adequate funds to meet their obligations towards their creditors and safeguard assets entrusted to them. This includes having common equity Tier 1 capital, a capital conservation buffer, an institution-specific countercyclical capital buffer, and a systemic risk buffer if ordered by BaFin.

Key Requirements

• Common Equity Tier 1 Capital: Banks must maintain a minimum level of common equity Tier 1 capital.
• Capital Conservation Buffer: Banks must hold a capital conservation buffer to absorb potential losses during times of economic stress.
• Institution-Specific Countercyclical Capital Buffer: Banks may be required to hold an additional countercyclical capital buffer based on their individual risk profile.
• Systemic Risk Buffer: In some cases, banks may be required to hold a systemic risk buffer to mitigate the risk of financial instability.

Enforcement of Capital Adequacy Guidelines

BaFin has the authority to take measures to improve an institution’s own funds and liquidity. These measures may include:

• Issuing Instructions for Business Management: BaFin can issue instructions to the bank’s management to improve its capital adequacy.
• Prohibiting the Acceptance of Deposits: In severe cases, BaFin can prohibit the bank from accepting new deposits.

Insolvency Procedures

If an institution becomes insolvent or over-indebted, its managing directors must report this fact to BaFin without delay. The application for the initiation of insolvency proceedings can only be filed by BaFin. The creditors are notified once the decision has been rendered.

Future Changes

The Commission’s legislative proposal includes amendments to the CRD IV and CRR. However, information on recent or expected changes to capital adequacy guidelines beyond what is mentioned in the text is not available.

Note: This article is based on a 500-word text and may not be exhaustive or up-to-date.