EN ECB-PUBLIC  
 
 
1 OPINION OF THE EUROPEAN CENTRAL BANK 
of 19 April 2013 
on protection from risks and separation of banking businesses 
(CON/2013/28) 
 
Introduction and legal basis 
On 25 February 2013, the European Central Bank (E CB) received a request from the German Federal 
Ministry of Finance for an opinion on a draft law on protection from risks and on the planning of recovery and resolution of credit institutions and financ ial groups (hereinafter the ‘draft law’). 
The ECB’s competence to deliver an  opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the third and sixth indents of Article 2(1) of Council 
Decision 98/415/EC of 29 June 1998 on the consu ltation of the European Central Bank by national 
authorities regarding draft legislative provisions
1, as the draft law relates to the Deutsche Bundesbank and 
contains rules applicable to banks which materially  influence the stability of financial institutions and 
markets. In accordance with the firs t 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 
1.1 The draft law contains rules on the following: (a) recovery plans to be prepared by credit 
institutions (CIs), and resolution powers, includi ng the drawing up of resolution plans, for the 
Federal Financial Supervis ory Authority (BaFin), (b) the separati on of areas of risk within CIs, and 
(c) requirements for governing bodies of CIs to safeguard sound risk management, including 
administrative and criminal sanctions.  It supplements the Law on restructuring and the Law on 
reorganisation of credit institutions
2. 
1.2 With respect to recovery and resolution plans a nd the BaFin’s powers in th is regard, the draft law 
aims to require systemically relevant CIs and financial groups to plan recovery measures in 
advance of a crisis. Such CIs and financial gr oups must provide for various possible courses of 
action that could be taken in order to stabilise and improve the economic situation of the CI or 
group in question, thereby securing its ability to surviv e, without needing to have recourse to public 
                                                 
1  OJ L 189, 3.7.1998, p. 42. 
2  With regard to these laws, the E CB adopted opinion CON/2010/83. All ECB opini ons are available on the ECB’s website 
at www.ecb.europa.eu. 
ECB-PUBLIC  
 
2 stabilisation measures. Further, the draft law empo wers the BaFin to establish an organisationally 
separate resolution unit within the BaFin itself.  Such unit will draw up resolution plans in 
cooperation with the Bundesbank and th e BaFin’s supervisory departments. 
1.3 The draft law prohibits specific speculative transactions such as proprietary trading and 
transactions with hedge funds and alternative inv estment funds (highly leveraged institutions) in 
order to separate the areas of risk of CIs or groups  with a high level of overall trading activities or 
where such trading activities account for a relativ ely large proportion of a CI’s or the group’s 
balance-sheet total3. The draft law contains exceptions for tr ansactions carried out in the form of 
services for others. Further, the BaFin has the pow er to prohibit (a) market making activities within 
the meaning of Regulation (EU) No 236/2012 of th e European Parliament and of the Council of  
14 March 2012 on short selling and certain  aspects of credit default swaps4, and (b) other 
transactions entailing a comparable level of risk, if such transactions might endanger the solvency 
of the CI. CIs and financial groups may continue to  engage in the above transactions if these have 
been transferred to a financial trading institution which is economically and legally separate. Such 
financial trading institution: (a) must be licen sed under the Law on banking to carry out the types 
of transactions in question, (b) will be subject to  the supervisory regime under that Law, (c) must 
be able to refinance itself independently, and (d ) must fulfil information requirements vis-à-vis 
BaFin. The financial trading institution is not permitted to provide payment services.  
1.4 In addition, the draft law requires Managing Di rectors of CIs to safeguard risk management. 
Compliance therewith will be monitored by the BaFin. The BaFin is also competent to issue 
instructions. Non-compliance with such instructio ns may result in administrative fines of up to 
EUR 200 000 and prosecution under criminal law5 if, as a consequence, the assets of a company in 
the financial sector, and thereby fi nancial stability, are endangered. 
 
2. Instruments for recovery  and resolution planning 
2.1 The ECB welcomes the draft law as it strengthens  the tools and procedures available to the national 
authorities for planning the recovery and resolution of CIs. In line with the Financial Stability 
Board’s (FSB) Key Attributes of Effective Resolution Regimes for Financial Institutions6 and the 
European Commission’s proposal for a Directiv e on the recovery and resolution of credit 
                                                 
3  The draft law considers this to be fulfilled if items in the trading book or available for sale within the meaning of 
Article 1 of the Annex to Commission Regulation (EC) No  1126/2008 of 3 November 2008 adopting certain international 
accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, 
or items arising from these transactions allocated to the trading stocks and liquidity reserve exceed the value of 
EUR 100 billion or twenty per cent of the total balance sheet of the CI or group. The twenty per cent value only applies if 
the balance-sheet of the CI or group reached a minimum of EUR 90 billion on the date of closing of accounts in the 
preceding three financial years.  
4  OJ L 86, 24.3.2012, p. 1. 
5   A maximum fine on conviction of EUR 10.8 milli on or a term of imprisonment of up to five years. 
6  Available at FSB’s website at  www.financialatabilityboard.org. 
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3 institutions and investment firms dated 6 June 2012 (hereinafter the ‘BRRD’)7, recovery and 
resolution plans are a key element of preparation fo r possible crisis scenarios and for taking swift 
and effective remedial action. The ECB notes that the draft law restricts the requirement to draw up recovery and resolution plans to those institutions  which are assessed as ‘potentially systemic’. The 
ECB is of the view that it is possible to extend this requirement to all CIs, which would have the 
merit that all CIs would benefit from a clear plan of remedial action to be taken in the event of emerging difficulties and clarity would be provided regarding their resolvability. The existence of 
such plans for all CIs would also address potentia l concerns as regards ensuring a level playing 
field. The ECB understands that the consulting authority may have concerns relating to the 
proportionality of placing such requirements on CIs which are not systemically important. In this respect, it is important to rigorously assess why no potential threat to the system is expected to 
derive from an institution’s failure, thus thoro ughly demonstrating why recovery and resolution 
planning is deemed dispensable. 
2.2 The draft law empowers the BaFin to assess the recovery and resolution plans and to address 
eventual shortcomings. The ECB, in line with its general stance
8, welcomes the proposed 
provisions involving Deutsche Bundesbank in such  assessments while it considers that certain 
clarifications should be introduced in this resp ect. It should be clarified that assessments of 
recovery plans are conducted by the BaFin in agreement with th e Deutsche Bundesbank9 acting in 
its capacity as a competent authority performing on-going monitoring of banks10. Furthermore, it 
should be clarified that consultation and inform ation sharing with the Deutsche Bundesbank to 
which BaFin is obliged in connection w ith its assessments of resolution plans11 aims at utilising 
Deutsche Bundesbank’s expertise in the areas of banking supervision and financial stability and 
that this task is not part of the Deutsche Bund esbank’s competence to perform on-going monitoring 
of banks.  
 2.3 The organisationally separate resolution unit cr eated within the BaFin will ensure functional 
separation and independence vis-à-vis the BaFin’s s upervisory tasks. The ECB welcomes that this 
resolution unit will be responsible for draw ing up the resolution plans and conducting a 
resolvability assessment. For the practical functioni ng of any resolution, it will be important that 
the resolution authority has clear ownership of th e resolution planning and, in addition, has the 
power to address impediments to the resolvability, as is the case in the draft law. In particular, the 
power to reduce the complexity of an instituti on or group by changing its legal or operational 
                                                 
7  Proposal for a Directive of the Europ ean Parliament and of the Council estab lishing a framework for the recovery and 
resolution of credit institutions and investment firm s and amending Council Directives 77/91/EEC and 82/891/EC, 
Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC , 2007/36/EC and 2011/35/EC and Regulation (EU) 
No 1093/2010, COM (2012) 280 final. 
8  Opinion CON/2010/83, paragraph 4.2, Opinion CON/2010/7, paragraph 2.1.1, Opinion CON/2007/33, paragraph 2.1. 
9  See Article 47b(2) of the Law on banking, in serted by Article 1(6) of the draft law. 
10    See Section 7 of the Law on banking. 
11  See Article 47e(1),(2) and (5), Article  47f(6) and Article 47g(1) of the Law on banking inserted by Article 1(6) of the 
draft law. 
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4 structure is a key tool for achieving resolvabilit y, in line with the FSB Key Attributes and the 
BRRD. 
2.4 The ECB understands that the draft law ensu res mutual support and the free exchange of 
information between the supervisory authorit y, the new resolution unit, and the Deutsche 
Bundesbank12. Such close cooperation and information exchange will be vitally important for 
effective supervision as well as resolution13. 
2.5 The ECB notes that the draft law includes aspects of the recovery and resolution planning provided 
for in the BRRD. In this context, the ECB understands  that the legislator will review the draft law 
once the BRRD is adopted, in order to ensure full c onsistency with developmen ts at Union level. In 
this respect, the ECB also refers to the R ecommendations of the European Banking Authority 
(EBA) on the development of recovery plans (E BA/REC/2013/02) dated 23 January 2013, and to 
the recent consultation initiated by the EBA on proposed technical standards in this respect14. 
 3. Measures relating to the structure of CIs and groups 3.1 This draft law arises in conjunction with th e Report of the European Commission’s High-level 
Expert Group of 2 October 2012 on reforming the st ructure of the EU banking sector (hereinafter 
the ‘Liikanen report’)
15. The Commission will prepare a compre hensive impact assessment of its 
recommendations in the course of 2013 and will make corresponding legislative proposals as 
appropriate, to ensure a consistent Union frame work. Given that these measures primarily address 
internationally active CIs, the ECB considers c oordination and consistenc y to be important at 
Union level in order to avoid regulatory arbitrage and ensure a level playing field. The ECB also notes that, unlike the Liikanen report, the draft law does not provide for the mandatory separation 
of market making activities.
 Further, trading assets originated to  hedge underlying exposures to 
clients or used for asset-liability management purposes are permitted within the deposit-taking 
entity. The draft law further provides for mandatory separation of proprietary trading, high-frequency trading, and credit and guarantee bus iness with highly-levera ged institutions on a 
secured and unsecured basis, including the prime brokerage business,
 from the deposit-taking 
institution (above the thresholds set out in footnote 3 above). 
3.2 First, the ECB sees merit in mandatory separati on of proprietary trading and other high-risk non-
client related activities as it would, inter alia , further protect depositors from exposure to losses 
from such high risk activities, reduce complexity  and enhance resolvability. However, the ECB 
                                                 
12  See in particular Article 47 c (2) and 47 e (1) of the draft law. 
13  See also point 3.1 of Opinion CON/2012/99 of 29 November  2012 on a proposal for a directive establishing a framework 
for recovery and resolution of credit institutions a nd investment firms, OJ C 39, 12.2.2013, p. 1. 
14  European Banking Authority, Consultatio n Paper: Draft Regulatory Technical Standards On the content of recovery plans 
under the draft directive establishing a framework for the reco very and resolution of credit institutions and investment 
firms, of 11 March 2013, EBA/CP/2013/01. 
15  Available on the European Commission’s website a t: http://ec.europa.eu/internal_market/bank/docs/high-
level_expert_group/report_en.pdf  
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5 notes that, under the draft law, market making w ill still be permitted in the deposit-taking entity, 
though it would be subject to discretionary intervention by the BaFin if risk stemming from such activities was deemed to be too high. As regards th e BaFin’s power to prohibit ‘other transactions 
entailing a comparable level of risk’
16, the ECB, while welcoming such power which aims to avoid 
possible circumventions of the draft law, recommends qualifying this power. This should be done by including, preferably in the law itself, the conditions ensuring compliance with the principles of 
legal certainty
17 and level playing field or by inserting the requirement that the BaFin  
(1) specifically lists the types of prohibited tran sactions and (2) justifies this prohibition with 
evidence indicating the material similarity of th e economic nature of such transactions with the 
transactions prohibited under the draft law. As  regards the scope of mandatory separation, 
consistency should be ensured at  Union level and the ECB encourages the German authorities to 
contribute to harmonisation in this respect. 
3.3 Second, as regards high-frequency trading, as previously highlighted by the ECB18, the ECB 
supports the Commission’s proposal to introduce orga nisational safeguards for trading venues, such 
as circuit breakers, minimum tick sizes and maxi mum ratios of unexecuted orders, in line with 
international recommendations. Further, all entities engaged in algorithmic trading on a 
professional basis should be deemed to come with in the definition of investment firms and be 
subject to supervision and monitoring of their ac tivities by competent authorities. In addition, the 
ECB supports granting competent authorities the power to temporarily prohibit or restrict certain types of financial activity or practices with a vi ew to addressing threats to the orderly functioning 
of financial markets or to the stability of th e whole financial system or part thereof. 
3.4 Finally, the ECB notes that the draft law appli es to CIs whose trading plus available-for-sale assets 
exceed EUR 100 billion or 20 % of total assets. The latter is subject to a EUR 90 billion de minimis  
threshold of total assets. The ECB understands that these thresholds are broadly in line with the proposals under the Liikanen report and are based  on accounting concepts for the classification of 
financial instruments, such as available-for- sale assets. The recognition and measurement of 
financial instruments under International Financia l Reporting Standards, or alternatively, the 
German Commercial Code
19, should not be the only basis for separation as it may provide 
sufficient discretion for CIs to e.g. restructure financial transactions and use the scope provided by accounting rules to circumvent separation rules.  The ECB recommends to the German authorities 
                                                 
16  See new paragraph 3 added in section 3 of the the Law on banking by Article 2(3)(b) of the draft law. 
17  See Section 54 of the Law on banking pursuant to which br eaching the prohibition is subj ect to criminal sanction. 
18  See paragraph 10.1 of Opinion CON/ 2012/21 of 22 March 2012 on (i) a proposal for a directive on markets in financial 
instruments repealing Directive 2004/39/EC of the European  Parliament and of the Council, (ii) a proposal for a 
regulation on markets in financial in struments and amending Re gulation [EMIR] on OTC derivatives, central 
counterparties and trade repositories, (iii) a proposal for a di rective on criminal sanctions fo r insider dealing and market 
manipulation and (iv) a proposal for a regulation on insider dealing and market manipulatio n (market abuse), OJ C 175, 
19.6.2012, p. 11. 
19  See Article 2, no. 3 (b) of the draft la w, amending Section 3 (2) no. 2 of the La w on banking, referring to Section 340e of 
the Commercial Code. 
ECB-PUBLIC  
 
6 inserting in the draft law provisions that will count eract potential circumvention of separation rules 
in that they will grant relevant powers to BaFin or other competent bodies. 
  This opinion will be published on the ECB’s website.  Done at Frankfurt am Main, 19 April 2013. 
 
[signed]  
 
The Vice-President of the ECB 
Vítor CONSTÂNCIO