Opinion of the European Central Bank of 2 June 2009 on new measures strengthening financial supervision (CON/2009/50)
Date: 2009-06-02
Institutions: European Central Bank
Subjects: Germany, financial institution, financial requirements, financial stability, financial supervision, money-market liquidity, national law

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) received a request from the German Federal Ministry 

of  Finance  for  an  opinion  on  a  draft  law  on  strengthening  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  Central  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  institutions  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 accompanying the draft law, the Federal Government intends 

to  reform  the  existing  financial  market  supervision  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  regulation  at  Community  level,  the  proposals  are 

limited  to  targeted  amendments  to  German  legislation,  namely  the  Law  on  banking  and  the  Law  on 

insurance supervision. 

Under  the  amended  §  10(1b)  of  the  Law  on  banking,  the  Federal  Financial  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.  

 
 
 
 
                                                 
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 own 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 measure, 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 measures 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,  BaFin  will  be  able  to  forbid  not  only  profit  distributions,  but  also  any 

payments  on  equity  instruments,  even  if  they  are  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 should 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  insurance  groups  (currently 

only  financial  conglomerates  have  been  regulated  accordingly),  and  the  obligation  for  members  of  the 

administrative and supervisory boards of an institution 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 law 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 the ECB has already been consulted2, the draft law is aimed at 

benefiting from the experience of the financial turmoil 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/opinions/html/index.en.html. 

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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  consulting  authority’s  attention  to  the  need,  besides 

adopting measures such as the draft law, to strengthen 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 respect, the ECB notes that these provisions seem to 

be in line with the concepts underlying ongoing initiatives 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  subject  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  subsidiary  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 Directive5, 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  introducing  appropriate  safeguards  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  entities  to  pursue  claims.  The  overall  objective  is  to 

reinforce  the  primacy  of  private  solutions,  avoid  counter-productive  ring-fencing  of  assets,  and 

3  

4  
5  

See,  in  particular,  the  proposal  for  a  directive  of  the  European  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 crisis management. On this topic, see also Opinion CON/2009/17. 
See hereto in particular paragraph 2.1 of Opinion CON/2008/57 and paragraph 2.2 of Opinion CON/2009/24. 
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). 

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facilitate  a  smooth  management  of  a  crisis6.’  Following  the  request  by  the  Ecofin  Council,  the 

Commission released a feasibility report on 14 November 2008, concluding that: ‘There might be 

merit in limiting intra-group transfers to limit contagion risks. On the other hand, it is suggested to 

develop a clear legal framework to allow asset transferability, 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’  tasks  and  should  require  BaFin  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  measures  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  

7  

8  

the  Press  Release  available  at  http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ecofin/ 

See 
96375.pdf. 
See the Commission services’ feasibility report on ‘asset transferability’ within cross border banking groups published on 
14 November 2008, available at http://ec.europa.eu/internal_market/bank/docs/windingup/rep141108_en.pdf. 
See Opinion CON/2009/34. 

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