Introduction

The German Banking Act (Kreditwesengesetz – KWG) is a key set of regulations in the German banking and financial sector. It establishes the legal framework for credit institutions and financial services institutions and serves to protect customers and the stability of the financial system. In this article, we will examine the structure of the KWG, its main contents, areas of application and significance for the financial sector.

What is the German Banking Act (KWG)?

The German Banking Act was first adopted in Germany in 1961 and has undergone numerous amendments since then. It regulates the supervision of credit institutions, financial services institutions, financial holding companies, mixed financial holding companies and financial enterprises.

Structure of the KWG

The KWG is divided into several parts that deal with different aspects of credit:

Part 1: General provisions

This part contains basic definitions and establishes the scope of the law.

Part 2: Permission

This regulates the requirements for granting a license to commence business operations of credit institutions and financial services institutions.

Part 3: Supervision on an individual basis

This part contains provisions on the ongoing supervision of institutions, including capital adequacy requirements, liquidity requirements, and organizational requirements.

Part 4: Supervision on a consolidated basis

This sets out the rules for the supervision of financial holding companies and mixed financial holding companies on a consolidated basis.

Part 5: Special regulations

This part contains special regulations for certain institutions and companies.

Part 6: Fines and penalties, final provisions

This regulates the fine and penalty provisions for violations of the KWG as well as final provisions.

Main contents of the KWG

Permission required

Credit institutions and financial services institutions require a permit from the German Federal Financial Supervisory Authority (BaFin) to conduct their business. The KWG sets out the requirements for the granting of this permission.

Capital requirements

The KWG contains provisions on the capital adequacy of credit institutions to ensure that they have sufficient capital to absorb losses.

Liquidity requirements

According to the German Banking Act (KWG), banks must have sufficient liquidity to meet their obligations at all times.

Supervision and control

The KWG lays the foundations for the supervision of credit institutions by BaFin. This includes auditing the management, business organization and risk management systems.

Reporting

Credit institutions are required to report certain information to BaFin on a regular basis. This serves to monitor institutions and to identify risks to the financial system at an early stage.

Sanctions for violations

In the event of violations of the KWG, sanctions such as fines, profit skimming or, in extreme cases, the revocation of the banking license can be imposed.

Significance of the KWG for the financial sector

The German Banking Act is of central importance for the stability of the financial sector in Germany. Strict regulations and effective supervision are intended to prevent credit institutions from getting into difficulties and thereby endangering the entire financial system. In addition, the KWG protects the customers of credit institutions by ensuring transparency and fairness in their dealings with them.

Conclusion

The German Banking Act is a complex set of rules that plays a central role in the regulation of the German banking and financial sector. It establishes the legal framework for credit institutions and financial services institutions and serves to protect customers as well as the stability of the financial system. It is essential for credit institutions to be fully aware of and comply with the provisions of the KWG in order to avoid sanctions and maintain the trust of customers and the public.