EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 2 June 2009 
on new measures strengthening financial supervision 
(CON/2009/50) 
 Introduction and legal basis
 
On 9 April 2009 the European Central Bank (ECB) r eceived a request from the German Federal Ministry 
of Finance for an opinion on a draft law on strengthe ning the supervision of the financial market and 
insurance sector (hereinafter the ‘draft law’). 
The ECB’s competence to deliver an  opinion is based on Article 105(4) of the Treaty establishing the 
European Community and the sixth indent of Article 2(1) of Council Decision 98/415/EC of 
29 June 1998 on the consultation of the European Ce ntral Bank by national authorities regarding draft 
legislative provisions1, as the draft law relates to rules applicable  to financial institutions insofar as they 
materially influence the stability of financial ins titutions and markets. In accordance with the first 
sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council 
has adopted this opinion. 
 1.  Purpose of the draft law 
According to the explanatory memorandum accompanyi ng the draft law, the Federal Government intends 
to reform the existing financial market supervisi on instruments, which proved insufficient during the 
financial crisis, and to carry out changes to improve the effectiveness of supervision. In particular, the 
crisis revealed that the institutions concerned had not taken sufficient precautions with regard to the 
adequacy of their equity capital and to establishing a liquidity buffer. According to the same explanatory 
memorandum, in order not to anticipate proposed re gulation at Community level, the proposals are 
limited to targeted amendments to German legi slation, namely the Law on banking and the Law on 
insurance supervision. 
Under the amended § 10(1b) of th e Law on banking, the Federal Fi nancial Supervisory Authority 
(Bundesanstalt für Finanzdienstleistungsaufsicht , BaFin) will be able to require higher own funds if 
otherwise the sustained adequacy of an institution’s capital ratio can no longer be guaranteed or if the 
institution’s risk-bearing ability is no longer certain. Further, BaFin will have the right to increase the 
own funds ratio if an institution does not have an  orderly business organisation and no improvement can 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2 be secured by other means (see the amended § 10 and § 45b(1) of the Law on banking). This will enable 
the possible cyclical development of an institution’s ow n funds ratio to be taken into account (build-up of 
a buffer for the institution in a favourable economic  environment and erosion of the buffer in an 
unfavourable economic environment). Pursuant to the amended § 11(2) of the Law on banking, BaFin 
will be able to require a higher liquidity ratio if, in the absence of such a measu re, the sustained adequacy 
of an institution or group’s liquidity provision cannot be guaranteed. 
Moreover, the leverage ratio (i.e. the relationship between own funds and balance sheet assets that are not 
risk weighted) will, under the draft law, have to be reported annually and any material change 
immediately (see the new §§ 24(1)(a) No 5 and 24(1) No 16 of the Law on banking).  
Under the draft law, measures such as prohibitions on credit and profit distribution will be possible if 
there is a threat of failure to meet the supervisory ratios. Currently, such measu res are only possible in the 
case of actual failure, preventing supervisors from stepping in at an early stage if there are indications of a dangerous situation. Moreover, BaFi n will be able to forbid not only profit distributions, but also any 
payments on equity instruments, even if they ar e based on liabilities that do not count as part of own 
capital and have to be serviced regardless of whether there are available profits.  
Furthermore, under the amended § 46(1) of the Law on banking, BaFin may prohibit or restrict certain 
payments to companies belonging to a group if these transactions prejudice the institution in question. 
According to the explanatory memorandum, this shoul d prevent, for example, liquidity being withdrawn 
in a crisis from a German subsidiary by its foreign parent or foreign associated companies. The argument 
is that BaFin should be given the right to order such  a prohibition on payments in the event of a crisis 
since other states are also operating ring-fencing in the current crisis. 
Finally, further measures under the draft law include a requirement to declare concentrations of risks 
within groups of institutions and financial holding  companies as well as in in surance groups (currently 
only financial conglomerates have been regulated a ccordingly), and the obligation for members of the 
administrative and supervisory boards of an institutio n to be reliable and technically able to understand 
the transactions conducted by the institution.  
 2. General observations 2.1 The ECB welcomes the aim underlying the draft la w of reinforcing the supervisory tools available 
to BaFin. The ECB notes that, following on from other German initiatives to restore short-term confidence in the markets on which th e ECB has already been consulted
2, the draft law is aimed at 
benefiting from the experience of the financial tu rmoil and at putting in place measures to improve 
BaFin’s supervisory powers on a long-term basis.  
                                                 
2  See Opinions CON/2008/57 and CON/2009/24. All ECB opinions are available on the ECB website at 
www.ecb.europa.eu/ecb/legal/o pinions/html/index.en.html. 
3 2.2 In this respect, the ECB welcomes the fact that the explanatory memorandum expressly limits the 
regulatory scope of the draft law in order to  avoid anticipating proposed Community legal 
measures3. 
2.3 Moreover, the ECB would like to draw the cons ulting authority’s attention to the need, besides 
adopting measures such as the draft law, to stre ngthen coordination of policy measures in response 
to the crisis4.  
2.4 With these general observations in mind, and against the background of the guidance previously 
given in its opinions and by the EU institutions and other institutions in this regard, the ECB has 
the following specific observations on the draft law. 
 3. Specific observations Own funds and liquidity requirements 3.1 The draft law contains some provisions on own funds and liquidity requirements (amending §§ 10 
24, 45 and 45b of the Law on banking). In this r espect, the ECB notes that these provisions seem to 
be in line with the concepts underlying ongoing in itiatives at European and international level. 
Prohibition or restriction on transfers of funds  
3.2 The ECB understands that the new § 46(1), third sentence, of the Law on banking introduced by the 
draft law will enable BaFin to prohibit or restrict certain payments to companies belonging to a group of companies if these transactions prejudice the institution in question. Further, BaFin may 
specify that payments are only permissible subj ect to certain requirements. The explanatory 
memorandum expressly states that the provision should ‘in particular counteract the risk that badly needed liquidity is withdrawn from a German s ubsidiary institution by a foreign group company 
which needs capital or liquidity’. 
3.3 In this respect, the ECB emphasises that work is on going at EU level, alongside the review of the 
Credit Institutions Reorganisation and Winding-Up Directive
5, aiming at reducing obstacles to the 
transfer of assets. More specifically, the Ecofin Council of 9 October 2007 requested the Commission of the European Communities ‘to perform a feasibility study on reducing barriers for cross-border asset transferability while introduc ing appropriate safegua rds within banking, 
insolvency and company law, taking into account that  the reallocation of assets in a crisis affects 
the ability of stakeholders in different legal en tities to pursue claims. The overall objective is to 
reinforce the primacy of private solutions, avoi d counter-productive ring-fencing of assets, and 
                                                 
3  See, in particular, the proposal for a directive of the Eu ropean Parliament and of the Council amending Directives 
2006/48/EC and 2006/49/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, 
supervisory arrangements, and cr isis management. On this topi c, see also Opinion CON/2009/17. 
4  See hereto in particular paragraph 2.1 of Opin ion CON/2008/57 and paragraph 2.2 of Opinion CON/2009/24. 
5  Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding 
up of credit institutions (OJ L 125, 5.5.2001, p. 15). 
4 facilitate a smooth management of a crisis6.’ Following the request by the Ecofin Council, the 
Commission released a feasibility report on 14 No vember 2008, concluding that: ‘There might be 
merit in limiting intra-group transfers to limit contag ion risks. On the other hand, it is suggested to 
develop a clear legal framework to allow asset tran sferability, and to avoid that authorities resort to 
ring-fencing, in the absence of other alternatives7.’ In this context, as in previous opinions8, the 
ECB notes that prohibiting or restricting the transfer  of funds or other transactions of banks could 
impair the possibility for banking groups to manage  their liquidity. The ECB also recommends that 
the draft law should fully respect central banks’ t asks and should require Ba Fin to coordinate its 
actions with the home supervisory authorities of the banking groups concerned as well as with the 
central banks concerned. Moreover, if such me asures concern branches of Member State banks, 
then Community law obligations, requiring in particular the provision of information to the Commission and the Member States concerned, should be duly complied with. 
 This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 2 June 2009. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET 
 
                                                 
6  See the Press Release available at  http://www.consilium.europa.eu/ueDocs /cms_Data/docs/pre ssData/en/ecofin/ 
96375.pdf. 
7  See the Commission services’ feasibility report on ‘asset tr ansferability’ within cross border banking groups published on 
14 November 2008, available at http://ec.europa.eu/internal_mar ket/bank/docs/windi ngup/rep141108_en.pdf. 
8  See Opinion CON/2009/34.