Long title: Gesetz über das Kreditwesen

In the amended text of the Announcement of September 9, 1998 (Federal Law Gazette I, page 2776), as last amended by Article 3 of the Act amending insolvency and banking law provisions (Gesetz zur Änderung insolvenzrechtlicher und kreditwesenrechtlicher Vorschriften*) of December 8, 1999 (Federal Law Gazette I No. 54, page 2384).

* This Act serves to implement Directive 98/26/EC of the European Parliament and Council of May 19, 1998 on settlement finality in payment and securities settlement systems (Official Journal of the European Communities No. L 166 page 45)

Table of Contents

Part I General Provisions

Division 1. Credit institutions, financial services institutions, financial holding companies and financial enterprises

Section 1 Definitions
Section 2 Exceptions
Section 2a Legal form
Section 2b Holders of qualified participating interests
Section 3 Prohibited business
Section 4 Decision by the Federal Banking Supervisory Office

Division 2. Federal Banking Supervisory Office

Section 5 Organisation
Section 6 Functions
Section 7 Cooperation with the Deutsche Bundesbank
Section 8 Cooperation with other bodies
Section 8a Responsibility for supervision on a consolidated basis
Section 9 Secrecy

Division 1. Own funds and liquidity

Section 10 Provision with own funds
Section 10a Own funds of groups of institutions and financial holding groups
Section 11 Liquidity
Section 12 Limitation of qualified participating interests
Section 12a Establishment of corporate ties

Division 2. Lending business

Section 13 Large exposures of non-trading book institutions
Section 13a Large exposures of trading book institutions
Section 13b Large exposures of groups of institutions and financial holding groups
Section 14 Loans of three million Deutsche Mark or more
Section 15 Loans to managers, etc.
Section 16 (Rescinded)
Section 17 Liability
Section 18 Information required of borrowers
Section 19 The concepts of "exposure" in sections 13 to 14, and of "borrower"
Section 20 Exceptions to the requirements of sections 13 to 14
Section 21 The concept of "exposure" in sections 15 to 18
Section 22 Authority to issue regulations on exposures

Division 3. (Repealed)

Division 4. Advertising, and information requirements of institutions

Section 23 Advertising
Section 23a Guarantee scheme

Division 5. Special duties of institutions, their managers, financial holding companies and mixed-activity holding companies

Section 24 Reports
Section 24a Establishment of a branch and provision of cross-border services in other states of the European Economic Area
Section 24b Participation in payment and securities transfer and settlement systems
Section 25 Monthly returns and other particulars
Section 25a Particular organisational duties of institutions

Division 5a. Submission of accounting records

Section 26 Submission of annual accounts, management report and auditor's reports

Division 6. Audits and the appointment of auditors

Section 27 (Rescinded)
Section 28 Appointment of the auditor in special cases
Section 29 Special duties of the auditor
Section 30 (Rescinded)

Division 7. Exemptions

Section 31 Exemptions

Division 1. Licence to conduct business

Section 32 Granting the licence
Section 33 Refusing the licence
Section 33a Deferring or qualifying the licence in the case of enterprises domiciled outside the European Communities
Section 33b Consultation of the appropriate authorities of another state of the European Economic Area
Section 34 Substitution and continuation in the event of death
Section 35 Expiry and revocation of the licence
Section 36 Dismissal of managers
Section 37 Action to stop unlawful business
Section 38 Consequences of the revocation and expiry of the licence; measures in the event of liquidation

Division 2. Protection of certain designations

Section 39 The terms "bank" and "banker"
Section 40 The term "savings bank"
Section 41 Exceptions
Section 42 Decision by the Federal Banking Supervisory Office
Section 43 Registration provisions

Division 3. Information and audits

Section 44 Information from and audits of institutions, ancillary banking services enterprises, financial holding companies and enterprises included in supervision on a consolidated basis
Section 44a Cross-border information and audits
Section 44b Information from and audits of the holders of qualified participating interests
Section 44c Prosecution of unauthorised banking business and financial services

Division 4. Measures in special cases

Section 45 Measures in cases of inadequate own funds or inadequate liquidity
Section 45a Measures relating to financial holding companies
Section 46 Measures in cases of danger
Section 46a Measures in cases of a danger of insolvency; appointment of persons authorised to represent the institution
Section 46b Insolvency petition
Section 46c Calculation of prescribed periods
Section 47 Moratorium, suspension of banking and stock market business
Section 48 Resumption of banking and stock market business

Division 5. Enforceability, sanctions, costs and charges

Section 49 Immediate enforceability
Section 50 Sanctions
Section 51 Costs and charges

Section 52 Special supervision
Section 53 Branches of enterprises domiciled abroad
Section 53a Representative offices of institutions domiciled abroad
Section 53b Enterprises domiciled in another state of the European Economic Area
Section 53c Enterprises domiciled in a non-EEA state
Section 53d Reports to the Commission of the European Communities

Section 54 Prohibited business, operating without a licence
Section 55 Violation of the duty to report insolvency or overindebtedness
Section 55a Unauthorised use of data on loans of three million Deutsche Mark or more
Section 55b Unauthorised public disclosure of data on loans of three million Deutsche Mark or more
Section 56 Provisions governing fines
Section 57 (Repealed)
Section 58 (Repealed)
Section 59 Fines imposed on enterprises
Section 60 Appropriate administrative authority
Section 60a Notifications in cases of criminal prosecution

Section 61 Licence for existing credit institutions
Section 62 Transitional provisions
Section 63 (Legislation rescinded and amended)
Section 63a Special provisions relating to the territory specified in Article 3 of the Unification Treaty
Section 64 Successor enterprises to Deutsche Bundespost
Section 64a Limits on investments by existing credit institutions
Section 64b Capital of existing credit institutions
Section 64c Transitional arrangement for asset-side balances
Section 64d Transitional arrangement for large exposures
Section 64e Transitional provisions for the Sixth Act Amending the Banking Act

Part I General Provisions

Division 1. Credit institutions, financial services institutions, financial holding companies and financial enterprises

1. Definitions

1. the acceptance of funds from others as deposits or of other repayable funds from the public unless the claim to repayment is securitised in the form of bearer or order debt certificates, irrespective of whether or not interest is paid (deposit business),

2. the granting of money loans and acceptance credits (lending business),

3. the purchase of bills of exchange and cheques (discount business),

4. the purchase and sale of financial instruments in the credit institution's own name for the account of others (principal broking services),

5. the safe custody and administration of securities for the account of others (safe custody business),

6. the business specified in section 1 of the Act on Investment Companies (Gesetz über Kapitalanlagegesellschaften) (investment fund business),

7. the incurrence of the obligation to acquire claims in respect of loans prior to their maturity,

8. the assumption of guarantees and other warranties on behalf of others (guarantee business),

9. the execution of cashless payment and clearing operations (giro business),

10. the purchase of financial instruments at the credit institution's own risk for placing in the market or the assumption of equivalent guarantees (underwriting business),

11. the issuance of prepaid cards for payment purposes, unless the card issuer is also the service provider and hence the recipient of the payment made using the card (prepaid card business), and

12. the creation and administration of units of payment in computer networks (network money business).

1. the brokering of business involving the purchase and sale of financial instruments or their documentation (investment broking),

2. the purchase and sale of financial instruments in the name of and for the account of others (contract broking),

3. the administration of individual portfolios of financial instruments for others on a discriminatory basis (portfolio management),

4. the purchase and sale of financial instruments on an own-account basis for others (own-account trading),

5. the brokering of deposit business with enterprises domiciled outside the European Economic Area (non-EEA deposit broking),

6. the execution of payment orders (money transmission services), and

7. dealing in foreign notes and coins (foreign currency dealing).

(2) For the purposes of this Act, managers (Geschäftsleiter) are those natural persons who are appointed by law, articles of association or partnership agreement to manage the business of and represent an institution organised in the form of a legal person or partnership. In exceptional cases the Federal Banking Supervisory Office may also revocably designate as manager another person entrusted with the management of an institution's business and authorised to represent it if that person is trustworthy and has the necessary professional qualifications; section 33 (2) applies. If the institution is operated by a sole proprietor, a person whom the proprietor has entrusted with the management of the institution's business and authorised to represent it may be revocably designated as manager in exceptional cases on the conditions specified in sentence 2. If a person is designated as manager by virtue of an application by the institution, the designation shall be revoked upon the application of the institution or the manager.

(3) Financial enterprises are enterprises which are not institutions and whose main activities comprise

1. acquiring participating interests,

2. acquiring money claims against payment,

3. concluding leasing contracts,

4. issuing or administering credit cards or travellers' cheques,

5. trading in financial instruments for their own account,

6. advising others on investing in financial instruments (investment advice),

7. advising enterprises on their capital structure, their industrial strategy and associated issues; advising them and offering them services in the event of corporate mergers and acquisitions, or

8. arranging loans between credit institutions (money-broking business).

(3a) Financial holding companies are financial enterprises whose subsidiaries are exclusively or primarily institutions or financial enterprises, with at least one subsidiary being a deposit-taking credit institution or a securities trading firm.

(3b) Mixed-activity holding companies are enterprises which are neither financial holding companies nor institutions, with at least one subsidiary being a deposit-taking credit institution or a securities trading firm.

(3c) Ancillary banking services enterprises are enterprises which are neither institutions nor financial enterprises and whose main activity comprises administering real estate, operating computer centres or performing other activities which are ancillary activities relative to the main activity of one or more institutions.

(3d) Deposit-taking credit institutions are credit institutions which receive deposits or other repayable funds from the public and conduct lending business. Securities trading firms are institutions which are not deposit-taking credit institutions and which conduct banking business within the meaning of subsection (1) sentence 2 numbers 4 or 10 or which provide financial services within the meaning of subsection (1a) sentence 2 numbers 1 to 4 unless the banking business or financial services are confined to foreign exchange, units of account or derivatives within the meaning of subsection (11) sentence 4 number 5. Securities trading banks are credit institutions which are not deposit-taking credit institutions and which conduct banking business within the meaning of subsection (1) sentence 2 numbers 4 or 10 or provide financial services within the meaning of subsection (1a) sentence 2 numbers 1 to 4.

(3e) Stock exchanges or financial futures exchanges within the meaning of this Act are stock markets or financial futures markets which are regulated and supervised by publicly approved agencies, are held regularly and are accessible to the general public either directly or indirectly, including their systems for safeguarding settlement of the trades in these markets (clearing houses) that are regulated and supervised by publicly approved agencies.

(4) The home state is the state in which the head office of an institution is registered.

(5) The host state is the state in which an institution maintains a branch or provides cross-border services outside its home state.

(5a) The European Economic Area (EEA) within the meaning of this Act designates the states of the European Communities and the contracting states to the Agreement on the European Economic Area. Non-EEA states within the meaning of this Act are all other states.

(5b) Zone A comprises all states of the European Economic Area, the full member states of the Organisation for Economic Cooperation and Development, unless they have rescheduled their external debt within the past five years or faced comparable balance of payments difficulties, and the states which have concluded special lending arrangements with the International Monetary Fund under the Fund's General Arrangements to Borrow. Zone B comprises all other states.

(6) Parent enterprises are enterprises which are deemed to be parent enterprises for the purposes of section 290 of the German Commercial Code (Handelsgesetzbuch) or which can exercise a dominant influence, irrespective of their legal form and domicile.

(7) Subsidiaries are enterprises which are deemed to be subsidiaries for the purposes of section 290 of the Commercial Code or on which a dominant influence can be exercised, irrespective of their legal form and domicile. Affiliated enterprises are enterprises which have a common parent company.

(8) Control is deemed to exist if an enterprise is considered to be a parent enterprise relative to another enterprise, or if a similar relationship obtains between a natural person or a legal person and an enterprise.

(9) A qualified participating interest is deemed to exist if at least ten per cent of the capital of, or the voting rights in, an enterprise is held directly or indirectly through one or more subsidiaries or a similar relationship or through collaboration with other persons or enterprises, or if a significant influence can be exercised on the management of the enterprise in which a participating interest is held. For calculating the share of the voting rights, section 22 (1) and (3) of the Securities Trading Act (Wertpapierhandelsgesetz) applies. Participating interests which are held indirectly are to be attributed in full to the persons and enterprises holding the indirect participating interest.

(10) A close association is deemed to exist if an institution and another natural person or another enterprise are linked

1. through the direct or indirect holding of at least twenty per cent of the capital or the voting rights, or

2. as parent enterprise and subsidiary, through a similar relationship or as affiliated enterprises.

1. shares, certificates representing shares, debt securities, participation certificates, warrants, and

2. other securities that are comparable to shares or debt securities if they can be traded on a market; securities also comprise share certificates issued by an investment company or a foreign collective investment company. Money market instruments are claims that are not covered by sentence 2 and which are customarily traded in the money market.

1. the stock exchange or market price of securities,

2. the stock exchange or market price of money market instruments,

3. the exchange rate of foreign exchange or units of account,

4. interest rates or other income streams, or

5. the stock exchange or market price of commodities or precious metals.

1. financial instruments, marketable assets and equities which the institution holds as proprietary positions with a view to reselling them or which are taken on by the institution with the intention of profiting in the short term from existing or expected differences between buying and selling prices or variations in prices or interest rates, 2. portfolios and transactions which serve the purpose of hedging market risk arising from the trading book, and any associated refinancing transactions,

3. name-to-follow deals, and

4. assets in the form of fees, commissions, interest, dividends and margin payments that are directly associated with the trading book positions.

2. Exceptions

1. the Deutsche Bundesbank;

2. the Reconstruction Loan Corporation (Kreditanstalt für Wiederaufbau - KfW);

3. the social security funds and the Federal Labour Office (Bundesanstalt für Arbeit);

4. private and public insurance enterprises;

5. enterprises engaged in pawnbroking, insofar as they conduct this business by granting loans against pledges;

6. enterprises recognised under the Act Concerning Risk Capital Investment Companies (Gesetz über Unternehmensbeteiligungsgesellschaften) as risk capital investment companies;

7. enterprises which conduct banking business solely with their parent enterprise or with their subsidiaries or with affiliated enterprises;

8. enterprises which provide brokerage services solely on a stock exchange, on which exclusively derivatives are traded, for other members of that exchange and whose liabilities are covered by a system that guarantees the settlement of trades on that exchange.

(3) Enterprises of the types specified in subsection (1) 4 to 6 are subject to the provisions of this Act insofar as they conduct banking business which is not part of their characteristic business.

(4) The Federal Banking Supervisory Office may rule in particular cases that an institution is not subject to the provisions of sections 10 to 18, 24, 24a, 25 to 38, 45, 46 to 46c and 51 (1) of this Act, taken as a whole, as long as the enterprise does not require supervision, given the nature of the business it conducts. Such a ruling shall be published in the Federal Gazette (Bundesanzeiger).

(5) The Federal Banking Supervisory Office may rule in particular cases, in consultation with the Deutsche Bundesbank, that an enterprise which solely conducts prepaid card business is not subject to the provisions of sections 10 to 18, 24, 32 to 38, 45, 46 to 46c and 51 (1) of this Act or of section 112 (2) of the Composition Code (Vergleichsordnung), taken as a whole, if the prepared cards have a limited use and dissemination which suggests that they are unlikely to pose a threat to the payment system. Such a ruling shall be published in the Federal Gazette. The Federal Ministry of Finance may, through a regulation to be issued in consultation with the Deutsche Bundesbank, specify detailed provisions for qualifying for exemption under sentence 1. The Federal Ministry of Finance may delegate this authority by regulation to the Federal Banking Supervisory Office provided that the regulation is issued in consultation with the Deutsche Bundesbank.

(6) The following are deemed not to be financial services institutions:

1. the Deutsche Bundesbank;

2. the Reconstruction Loan Corporation;

3. the public debt administration of the Federal Government, of one of its special funds, of a Land Government or of another state of the European Economic Area and its central banks;

4. private and public insurance enterprises;

5. enterprises which provide financial services solely for their parent enterprise or for their subsidiaries or for affiliated enterprises;

6. enterprises whose financial service consists solely in the administration of a system of employee participations in themselves or their affiliated enterprises;

7. enterprises which solely provide financial services within the meaning of both number 5 and number 6;

8. enterprises which provide financial services within the meaning of section 1 (1a) sentence 2 numbers 1 to 4 that consist solely of investment broking and contract broking between customers and

(a) an institution,

(b) an enterprise operating in accordance with section 53b (1) sentence 1 or (7),

(c) an enterprise that is treated as an EEA enterprise or that is granted exemption from the provisions by means of a regulation pursuant to section 53c, or

(d) a foreign collective investment company, as long as these financial services are confined to share certificates of investment companies or to foreign investment fund certificates whose distribution is permitted under the Foreign Investment Fund Act (Auslandinvestment-Gesetz) and the enterprises are not authorised to acquire ownership or possession of funds, certificates or shares of customers in providing such financial services;

9. enterprises which provide financial services solely on a stock exchange, on which exclusively derivatives are traded, for other members of that exchange and whose liabilities are covered by a system that guarantees the settlement of trades on that exchange;

10. members of free professions who provide financial services only occasionally within the framework of their professional activities and who belong to a professional chamber having the legal form of a public corporation whose professional rules do not exclude the performance of financial services;

11. enterprises whose main business is trading in commodities with similar enterprises, with producers or commercial users of the commodities and which perform financial services only for these persons and only to the extent necessary for their main business;

12. enterprises whose sole financial service is dealing in foreign notes and coins unless their main business is foreign currency dealing.

(7) The provisions of section 2a (2), sections 10 to 18 and 24 (1) 10, sections 24a and 33 (1) sentence 1 number 1, section 35 (2) 5 and sections 45 and 46 to 46c shall not apply to financial services institutions which provide no financial services apart from non-EEA deposit broking, money transmission services and dealing in foreign notes and coins. (8) The provisions of section 2a (2), sections 10, 11 and 12 (1), sections 13, 13a, 14 to 18 and 24 (1) 10 and sections 45 and 46 to 46c shall not apply to investment brokers and contract brokers who in the course of providing financial services are not authorised to obtain ownership or possession of funds or securities of customers and who do not trade in financial instruments for their own account.

(9) The provisions of section 24a on the establishment of a branch and on cross-border services shall not apply to investment brokers and contract brokers who, instead of the initial capital, can demonstrate that they have taken out suitable insurance pursuant to section 33 (1) sentence 2.

(10) An enterprise shall be deemed not to be a financial services institution if it conducts the investment broking or contract broking solely for the account and under the liability of a deposit-taking credit institution or securities trading firm domiciled in Germany, or of an enterprise operating in accordance with section 53b (1) sentence 1 or (7), or if it conducts such business under the joint and several liability of such institutions or enterprises, without providing any other financial services and if this is reported to the Federal Banking Supervisory Office by one of these liable institutions or enterprises. Its activities shall be regarded as forming part of those of the institutions or enterprises for whose account and under whose liability it operates. If there is any change in the circumstances reported by the liable institutions or enterprises, the new circumstances shall be reported immediately to the Federal Banking Supervisory Office. The Federal Banking Supervisory Office will forward the reports pursuant to sentences 1 and 3 to the Deutsche Bundesbank and the Federal Supervisory Office for Securities Trading (Bundesaufsichtsamt für den Wertpapierhandel).

(11) An institution is not required to apply the provisions of this Act concerning trading book business if

1. the share of the institution's trading book activities as a rule does not exceed five per cent of the aggregate total of its on and off-balance-sheet business,

2. the aggregate total of the individual trading book positions as a rule does not exceed the equivalent of ECU 15 million, and

3. the share of its trading book business at no time exceeds six per cent of the aggregate total of its on and off-balance-sheet business and the aggregate total of the trading book positions at no time exceeds the equivalent of ECU 20 million. For the purpose of determining the share of the trading book business, derivatives shall be valued according to the nominal value or the market price of the respective underlying instruments, and the other financial instruments at their nominal value or market price; short and long positions shall be aggregated irrespective of whether they are positive or negative. Further details shall be defined by means of a regulation pursuant to section 22. The institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately if it makes use of the option provided for in sentence 1, if it has exceeded one of the limits laid down in sentence 1 number 3, or if it applies the provisions concerning trading book business even though it meets the exemption conditions laid down in sentence 1.

2a. Legal form

(2) In the case of securities trading firms in the form of a sole proprietorship or partnership, the risk assets of the proprietor or general partners shall be included in the assessment of the institution's solvency pursuant to section 10 (1); however, the personal assets of the proprietor or partners shall be excluded for the purpose of calculating the institution's own funds. If such an institution is operated in the form of a sole proprietorship, the proprietor shall take appropriate precautions to protect his customers in the event that the institution ceases trading owing to his death, his incapacity to continue the business or other reasons.

2b. Holders of qualified participating interests

The holder of a qualified participating interest shall, moreover, notify the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately if he intends to increase the amount of the qualified participating interest in such a way that the thresholds of twenty per cent, thirty-three per cent or fifty per cent of the voting rights or capital are reached or exceeded, or that the institution comes under his control. The Federal Banking Supervisory Office will forward one copy of each report pursuant to sentences 1 and 6 to the Federal Supervisory Office for Securities Trading.

(1a) Within three months of the receipt of the full report pursuant to subsection (1) sentence 1 or 6, the Federal Banking Supervisory Office may prohibit the intended acquisition of, or increase in, the qualified participating interest if facts are known which warrant the assumption that

1. the party submitting the report or, if it is a legal person, a legal representative, or, if it is a partnership, a partner is not trustworthy or for any other reason does not meet the demands required in the interest of ensuring a sound and prudent management of the institution,

2. the acquisition of, or increase in, the qualified participating interest would integrate the institution into a corporate association with the holder of the qualified participating interest which would hamper effective supervision of the institution, or

3. the acquisition of, or increase in, the qualified participating interest would make the institution a subsidiary of an institution domiciled abroad that is not effectively supervised in the state where it is registered or has its head office or whose appropriate supervisory body is not prepared to cooperate satisfactorily with the Federal Banking Supervisory Office.

(2) The Federal Banking Supervisory Office may prohibit the holder of a qualified participating interest and the enterprises he controls from exercising his voting rights and stipulate that the shares may be used only with the Office's assent if

1. the prerequisites exist for a prohibition pursuant to subsection (1a) sentence 1,

2. the holder of the qualified participating interest has not fulfilled his duty pursuant to subsection (1) to notify the Federal Banking Supervisory Office and the Deutsche Bundesbank beforehand and has not subsequently made such notification after a period of time set by the Federal Banking Supervisory Office, or

3. if the participating interest has been acquired or increased notwithstanding an en- forceable prohibition pursuant to subsection (1a) sentence 1. In the cases specified in sentence 1, the exercise of voting rights may be transferred to a trustee; in exercising the voting rights, the trustee shall take due account of the interests of a sound and prudent management of the institution. In the cases specified in sentence 1 numbers 1 and 3, the Federal Banking Supervisory Office may, over and above the measures specified in sentence 1, charge a trustee to sell the shares where they constitute a qualified participating interest if the holder of the qualified participating interest does not furnish proof of a trustworthy buyer to the Federal Banking Supervisory Office within an appropriate period to be set by that Office; the holders of the shares shall cooperate in the sale to the extent necessary. The trustee is appointed by the court having jurisdiction at the domicile of the institution at the request of the institution, the holder of a participating interest in it or the Federal Banking Supervisory Office. If the prerequisites specified in sentence 1 no longer exist, the Federal Banking Supervisory Office shall apply for the revocation of the appointment of the trustee. The trustee is entitled to the reimbursement of reasonable expenses and to remuneration for his activities. The court determines such expenses and remuneration at the request of the trustee; no further appeal is permissible. The Federal Government advances such expenses and remuneration; the holder of the qualified participating interest concerned and the institution are jointly and severally liable to the Federal Government i n respect of its outlays.

(4) Anyone who intends to relinquish a qualified participating interest in an institution or to reduce the amount of his qualified participating interest below the thresholds of twenty per cent, thirty-three per cent or fifty per cent of the voting rights or the capital, or to change the participating interest in such a way that the institution is no longer a controlled enterprise, shall report this to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately. The intended residual level of the participating interest shall be indicated in the report. The Federal Banking Supervisory Office may set a period after the expiry of which the person or partnership who has submitted the report pursuant to sentence 1 shall notify that Office whether or not the intended reduction or change has been carried out. After the expiry of this period, the person or partnership who has submitted the report pursuant to sentence 1 shall submit the notification to the Federal Banking Supervisory Office immediately.

(5) The Federal Banking Supervisory Office shall temporarily prohibit or limit the acquisition of a direct or indirect participating interest in an institution, through which the institution would become a subsidiary of an enterprise domiciled outside the European Communities, if the Commission or Council of the European Communities has passed a corresponding decision in accordance with Article 22 (2) of the Second Banking Coordination Directive or Article 7 (5) of Council Directive 93/22/EEC of May 10, 1993 on investment services in the securities field - Official Journal of the European Communities No. L. 141 page 27 - (Investment Services Directive). The temporary prohibition or limitation may not last longer than three months from the date of the decision. If the Council of the European Communities decides to prolong the period pursuant to sentence 2, the Federal Banking Supervisory Office shall take due account of this prolongation and prolong the temporary prohibition or limitation accordingly.

3. Prohibited business

1. the conduct of deposit business if the majority of the depositors are persons employed by the enterprise (employee savings banks - Werksparkassen), unless other banking business is conducted which exceeds the scale of such deposit business;

2. the acceptance of sums of money if the majority of the lenders have a legal right to loans being granted to them or objects being supplied to them on credit out of these sums of money (savings enterprises for specific purposes - Zwecksparunternehmen); this does not apply to building and loan associations; 3. the conduct of lending business or deposit business if, by agreement or in line with normal business practice, it is impossible or very difficult to withdraw the amount of the loan or the deposits in cash.

4. Decision by the Federal Banking Supervisory Office

Division 2. Federal Banking Supervisory Office

5. Organisation

(2) The President of the Federal Banking Supervisory Office is nominated by the Federal Government and appointed by the President of the Federal Republic; the Federal Government shall consult the Deutsche Bundesbank regarding such nomination.

6. Functions

(2) The Federal Banking Supervisory Office shall counteract undesirable developments in the banking and financial services sector which may endanger the safety of the assets entrusted to institutions, impair the proper conduct of banking business or provision of financial services or involve serious disadvantages for the national economy, except in cases for which the Federal Supervisory Office for Securities Trading has responsibility under the Securities Trading Act.

(3) The Federal Banking Supervisory Office may, as part of its brief, issue instructions to the institution and its managers that are appropriate and necessary to prevent or overcome undesirable developments at the institution which could endanger the safety of the assets entrusted to the institution or could impair the proper conduct of its banking business or provision of financial services.

(4) The Federal Banking Supervisory Office performs the functions assigned to it under this Act and under other Acts in the public interest only.

7. Cooperation with the Deutsche Bundesbank

(2) The cooperation and communications pursuant to subsection (1) include the communication of personal data. The Federal Banking Supervisory Office and the Deutsche Bundesbank are authorised to automatically access one another's database maintained for the purpose of performing their functions under this Act. Every tenth time that the Federal Banking Supervisory Office calls up data from the Deutsche Bundesbank's database, the Deutsche Bundesbank shall, for the purpose of safeguarding data protection, log the time, the details which enable the data records called up to be ascertained and the identity of the person calling up the data. The data so logged are to be used solely for the purpose of safeguarding data protection, data security or for ensuring the proper functioning of the data processing system. The log files are to be deleted at the end of the calendar year following that in which the data were stored. Sentences 3 to 5 apply as appropriate to data retrievals by the Deutsche Bundesbank from the database of the Federal Banking Supervisory Office.

(3) The President of the Federal Banking Supervisory Office or, if he is unable to attend, his deputy is entitled to take part in the deliberations of the Central Bank Council of the Deutsche Bundesbank whenever matters within his field of responsibility are being discussed. He has no right to vote, but may propose motions.

8. Cooperation with other bodies

(2) If tax evasion proceedings are instituted against proprietors or managers of institutions, section 30 of the Tax Code (Abgabenordnung) does not preclude communication of the proceedings and the underlying facts to the Federal Banking Supervisory Office; the same applies if the proceedings are directed against persons who committed the offence while in the employment of an institution.

(3) When supervising institutions which conduct banking business or provide financial services in another state of the European Economic Area and when supervising institutions as provided in Council Directive 92/30/EEC of April 6, 1992 on the supervision of credit institutions on a consolidated basis - (Journal of the European Communities No. L 110, page 52) - (Consolidation Directive), the Federal Banking Supervisory Office and - insofar as it is acting under this Act - the Deutsche Bundesbank cooperate with the appropriate authorities of the state concerned. Communications from the appropriate authorities of the other state may be used for the following purposes only:

1. for checking an institution's licence to conduct business,

2. for supervising the operations of institutions on an individual basis or a consolidated basis,

3. for orders by the Federal Banking Supervisory Office and for the prosecution and punishment by the Federal Banking Supervisory Office of breaches of administrative regulations,

4. in the context of administrative proceedings regarding legal remedies against a decision by the Federal Banking Supervisory Office, or

5. in the context of proceedings before administrative courts, insolvency courts, public prosecutors' offices or courts having jurisdiction in criminal cases or administrative fine cases.

(4) The Federal Banking Supervisory Office notifies the appropriate authorities of the host state of the measures it will take to terminate infringements by an institution of legal provisions issued by the host state of which the Federal Banking Supervisory Office has been informed by the appropriate authorities of the host state. 8a.Responsibility for supervision on a consolidated basis

(1) The Federal Banking Supervisory Office may abstain from supervising a group of institutions or a financial holding group within the meaning of section 10a (2) to (5), and revocably exempt the parent enterprise from the provisions of this Act governing supervision on a consolidated basis, if,

1. in the case of groups of institutions, the parent enterprise is a subsidiary of a deposit- taking credit institution or a securities trading firm domiciled in another state of the European Economic Area and, in that other state, is included in supervision on a consolidated basis in accordance with the Consolidation Directive, or if,

2. in the case of financial holding groups, these groups are supervised on a consolidated basis in accordance with the Consolidation Directive by the appropriate authorities of another state of the European Economic Area.

(2) In addition to the cases regulated by section 10a (3), the Federal Banking Supervisory Office may rule a group of enterprises to be a financial holding group and an institution of the group to be the parent enterprise, as provided in Article 4 (2) to (4) of the Consolidation Directive; in that case, the provisions of this Act governing supervision on a consolidated basis apply as appropriate.

9. Secrecy

1. to public prosecutors' offices or courts having jurisdiction in criminal cases and administrative fine cases,

2. to agencies which, by virtue of an act of parliament or by official order, are entrusted with the supervision of institutions, collective investment companies, financial enterprises, insurance enterprises, the financial markets or the payments system, and to persons commissioned by such agencies,

3. to agencies dealing with an institution's liquidation or the initiation of insolvency proceedings over its assets,

4. to persons entrusted with the statutory auditing of the accounts of institutions or financial enterprises and to agencies which supervise such persons,

5. to a deposit guarantee scheme or an investor compensation scheme, or

6. stock markets or financial futures exchanges, insofar as these agencies require the information for the performance of their functions. Secrecy in accordance with sentence 1 applies as appropriate to persons employed by these agencies. If the agency is located in another state, the facts may be passed on only if that agency and the persons commissioned by it are subject to secrecy requirements corresponding to those specified in sentence 1. The foreign agency is to be informed that it may use information solely for the purpose for which it has been passed on to it. The agencies specified in sentence 3 numbers 3 to 6 which directly or indirectly obtain information from appropriate authorities in other states may forward such information only with the express permission of the agencies passing on the information.

Part II Provisions for Institutions

Division 1. Own funds and liquidity

10. Provision with own funds

(1a) In determining the adequacy of the own funds pursuant to section 10 (1) and section 10a (1), a counterparty-related weighting of zero per cent may be assigned to loans constituting claims on, or carrying the explicit guarantee of,

1. a central government, central bank, regional government or local authority in another state of the European Economic Area, or

2. a central government or central bank in a non-EEA state if enterprises domiciled in that non-EEA state are exempted in full or in part from the provisions of section 53 by virtue of a regulation pursuant to section 53c, as long as the Federal Banking Supervisory Office has not announced a different applicable weighting and the loans are given a zero weighting by the appropriate authority of the other state or non-EEA state. Loans granted prior to the announcement of a different applicable weighting may continue to be given a weighting of zero per cent until the end of the term of the loan.

(2a) The following shall be regarded as core capital after deducting the positions listed in sentence 2:

1. in the case of sole proprietorships (Einzelkaufleute), general partnerships (offene Handelsgesellschaften) and limited partnerships (Kommanditgesellschaften): the paid-up capital and the reserves, less withdrawals by the proprietor or the general partners and loans granted to them, and less any net debt in the proprietor's unencumbered personal assets;

2. in the case of public limited companies (Aktiengesellschaften), limited companies with one or more general partners (Kommanditgesellschaften auf Aktien) and private limited companies (Gesellschaften mit beschränkter Haftung): the paid-up capital, less the cumulative preferential shares, and the reserves; in the case of limited companies with one or more general partners: also assets contributed by the general partners but not paid into the capital, less withdrawals by the general partners and loans granted to them;

3. in the case of registered cooperative societies (eingetragene Genossenschaften): the amounts paid up on members' shares and the reserves; amounts paid up on the shares of members who are retiring at the end of the financial year and their rights to the outpayment of a share in the cooperative society's revenue reserves, as shown separately in the balance sheet by registered cooperative societies in accordance with section 73 (3) of the Act Concerning Industrial and Trading Cooperative Societies (Gesetz betreffend die Erwerbs- und Wirtschaftsgenossenschaften), shall be deducted;

4. in the case of public savings banks and private savings banks recognised as public savings banks: the reserves;

5. in the case of public credit institutions not coming under the provisions of number 4: the paid-up endowment capital (Dotationskapital) and the reserves;

6. in the case of credit institutions organised in any other form: the paid-up capital and the reserves;

7. the special items for general banking risks pursuant to section 340g of the Commercial Code;

8. the contributions to capital by silent partners within the meaning of subsection (4).

1. the loss for the financial year,

2. the intangible fixed assets,

3. the adjustment item pursuant to subsection (3b),

4. loans to limited partners, to shareholders in a private or public limited company or a limited company with one or more general partners, or to shareholders in a public in- stitution who own more than twenty-five per cent of the capital (nominal capital, total amount of capital shares) of the institution, or who hold more than twenty-five per cent of the voting rights, if they have not been granted on market terms or if they are not adequately secured in line with banking practice, and

5. loans to silent partners within the meaning of subsection (4) whose contribution to the capital amounts to more than twenty-five per cent of the core capital, excluding the capital contributions of silent partners, if they have not been granted on market terms or if they are not adequately secured in line with banking practice. Section 16 (2) to (4) of the Companies Act (Aktiengesetz) applies as appropriate to the calculation of the percentages pursuant to sentence 2 numbers 4 and 5.

1. contingency reserves in accordance with section 340f of the Commercial Code,

2. preferential shares,

3. reserves pursuant to section 6b of the Income Tax Act (Einkommensteuergesetz) up to the amount of forty-five per cent, insofar as these reserves were formed by the transfer of the profits from the sale of land, rights equivalent to land, and buildings,

4. liabilities represented by participation rights within the meaning of subsection (5),

5. longer-term subordinated liabilities within the meaning of subsection (5a),

6. the unrealised reserves shown in the notes to the last set of approved annual accounts pursuant to subsections (4a) and (4b) in the case of land, rights equivalent to land, and buildings up to the amount of forty-five per cent of the difference between the book value and the loan value,

7. the unrealised reserves shown in the notes to the last set of approved annual accounts pursuant to subsections (4a) and (4c) in the case of banking book positions up to the amount of thirty-five per cent of the difference between the book value, including contingency reserves, and

(a) the market price of securities which are tradeable on a stock exchange,

(b) the value to be ascertained pursuant to section 11 (2) of the Valuation Act (Bewertungsgesetz) of unlisted securities evidencing shares in incorporated enterprises with a balance sheet total of at least twenty million Deutsche Mark and belonging to the association of credit cooperatives or savings banks, (c) the published repurchase price of shares in a special fund within the meaning of the Act on Investment Companies, or of shares in a special securities fund issued by a collective investment company domiciled in another state of the European Economic Area in accordance with the provisions of Council Directive 85/611/EEC of December 20, 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (Official Journal of the European Communities No. L 375, page 3) (UCITS Directive), and

8. in the case of registered cooperative societies, the additional sum to be set by regulation by the Federal Ministry of Finance, after having consulted the Deutsche Bundesbank, to take account of the uncalled commitments of members. For the purpose of calculating the liable capital, additional capital may only be included up to the level of the core capital. Moreover, the amount of additional capital included in the calculation consisting of longer-term subordinated liabilities and the uncalled commitments of members may not exceed fifty per cent of the core capital. The Federal Ministry of Finance may by regulation transfer its authority under sentence 1 number 8 to the Federal Banking Supervisory Office.

1. the pro rata profit that would arise from the notional closing of all trading book positions, less all identifiable expenses and disbursements and less the probable losses from banking book business in the event of a liquidation of the enterprise, unless these are already included in the adjustment items in accordance with subsection (3b) (net profit), and

2. the short-term subordinated liabilities within the meaning of subsection (7). The net profit and the short-term subordinated liabilities may only be included as tier 3 capital up to an amount which, together with that part of the additional capital which is not needed to back the risk arising from banking book business under the provisions of this Act (free additional capital), does not exceed two hundred and fifty per cent of the core capital not needed to back the risk arising from banking book business under the provisions of this Act (free core capital). Insofar as the institution does not exhaust the limit of two hundred and fifty per cent through short-term subordinated liabilities, it can replace the latter by positions which cannot be included as additional capital solely because of capping pursuant to subsection (2b) sentences 2 and 3. For securities trading firms the limit stipulated in sentence 2 is two hundred per cent of the free core capital, unless the illiquid assets within the meaning of sentence 5, where these have not been deducted from the liable capital in accordance with subsection (6) sentence 1 number 1, and the losses of its subsidiaries are deducted from the tier 3 capital.

1. tangible fixed assets,

2. shares and claims arising from capital contributions of silent partners, participation rights or subordinated liabilities, if they are not evidenced by securities that are tradeable on a stock exchange and if they do not form part of trading book business,

3. loans and non-marketable debt securities with a remaining period to maturity of more than ninety days, and

4. stocks of commodities, if they do not have to be backed by own funds in accordance with the Principles pursuant to subsection (1) sentence 2 and section 10a (1) sentence 2; margin payments on forward or futures transactions concluded on a stock market or financial futures exchange are not deemed to be illiquid assets.

(3a) Reserves within the meaning of subsection (2a) sentence 1 comprise only the amounts designated as such in the balance sheet in the last approved annual accounts for the end of a financial year, with the exception of liability-side items that will be liable to tax only after they have been released. Amounts designated as reserves that have been formed from income which will become liable to tax only after a future event occurs may be counted only up to the level of forty-five per cent. Reserves which are formed as a result of premium income obtained through a share issue or through some other inflow of external resources can be included from the time of their inflow.

(3b) The Federal Banking Supervisory Office may decide to adjust the liable capital by an adjustment item, particularly in order to take account of losses which have not yet affected the balance sheet. Such adjustment shall be rendered null and void by the next approved balance sheet covering the end of a financial year. Upon the institution's request, the Federal Banking Supervisory Office shall rescind its adjustment insofar as the reasons for it no longer apply.

(4) Assets contributed by silent partners shall be counted as part of the liable capital if

1. they share fully in any loss and the institution is entitled to defer interest payments in the event of a loss,

2. it has been agreed that, in the event of the initiation of insolvency proceedings over the institution's assets or of the institution's liquidation, they will not be repaid until all creditors have been satisfied,

3. they have been made available to the institution for a period of at least five years,

4. the claim to repayment does not, or, under the terms of the partnership agreement, cannot, fall due within less than two years,

5. the partnership agreement contains no debtor warrant clauses according to which the reduction in the repayment claim caused by losses during the period to maturity of the capital contribution can be offset by profits which arise more than four years after the repayment claim has matured, and

6. the institution, when establishing the silent partnership, referred explicitly and in writing to the legal consequences specified in sentences 2 and 3. Subsequently, participation in any loss cannot be changed to the detriment of the institution, the subordination of claims cannot be limited, and neither the period to maturity nor the period of notice can be shortened. Any premature repayment shall be returned to the institution, notwithstanding any arrangements to the contrary, unless the capital has been replaced by the inpayment of other liable capital of at least equivalent status or the Federal Banking Supervisory Office has agreed to the premature repayment.

(4b) Section 12 (1) and (2) of the Mortgage Bank Act (Hypothekenbankgesetz) applies as appropriate to the calculation of the loan values of land, rights equivalent to land, and buildings. These values shall be determined by means of expert valuations at least every three years. The institution shall appoint a committee of experts consisting of at least three members for calculating the loan values. Section 32 (2) and (3) of the Act on Investment Companies applies as appropriate. If the loan value is below the book value, this negative difference shall be deducted from the unrealised reserves.

(4c) The market value of securities defined in subsection (2b) sentence 1 number 7 (a) depends on the price on the balance sheet date. If the average of that price and the prices ascertained on the previous three balance sheet dates is below that price, the average price applies. If no price is available on a balance sheet date, the last price ascertained within thirty days before the balance sheet date applies. If securities are treated in accordance with the principles for fixed assets, the difference between the relevant market value and the higher book value shall be deducted from the unrealised reserves. The pro- cedure described in sentences 1, 2 and 4 shall be applied as appropriate to the deter- mination of the value of securities defined in subsection (2b) sentence 1 number 7 (b) pursuant to section 11 (2) of the Valuation Act, and to the determination of the repurchase price of shares in a special fund.

(5) Capital paid up against the issue of participation rights (liabilities represented by participation rights) shall be counted as part of the liable capital if

1. it shares fully in any loss, and if the institution i s entitled to defer interest payments in the event of a loss,

2. it has been agreed that, in the event of the initiation of insolvency proceedings over the institution's assets or of the institution's liquidation, it will not be repaid until all non-subordinated creditors have been satisfied,

3. it has been made available to the institution for a period of at least five years,

4. the claim to repayment does not, or, under the terms of the agreement, cannot, fall due within less than two years,

5. the agreement governing the contribution of capital in the form of participation rights contains no debtor warrant clauses according to which the reduction in the repayment claim caused by losses during the period to maturity of the contribution can be offset by profits which arise more than four years after the repayment claim has matured, and

6. the institution, when concluding the agreement, referred explicitly and in writing to the legal consequences specified in sentences 3 and 4. The institution may reserve the right to terminate the liability without notice in the event that a change in taxation gives rise to additional payments to the party acquiring the participation rights. Subsequently, participation in any loss cannot be changed to the detriment of the institution, the subordination of claims cannot be limited, and neither the period to maturity nor the period of notice can be shortened. Except in the cases described in sentence 6, any premature reacquisition of the participation rights or other repayment shall be returned to the institution, notwithstanding any arrangements to the contrary, unless the capital has been replaced by the inpayment of other liable capital of at least equivalent status or the Federal Banking Supervisory Office has agreed to the premature repayment; the institution may reserve such a right contractually. If securities are issued in respect of the participation rights, the legal consequences specified in sentences 3 and 4 shall be specified in the subscription and issue terms only. An institution may purchase securitised participation rights issued by itself up to three per cent of the total nominal amount of an issue, for market-smoothing purposes, or if it is thereby carrying out instructions to buy on a commission basis. The Federal Banking Supervisory Office and the Deutsche Bundesbank shall be notified immediately of an institution's intention to take advantage of the market-smoothing option in accordance with sentence 6.

1. it has been agreed that in the event of the initiation of insolvency proceedings over the institution's assets or of the institution's liquidation, it will not be repaid until all non-subordinated creditors have been satisfied,

2. it has been made available to the institution for a period of at least five years, and

3. offsetting the repayment claim against claims of the institution is excluded and no contractual collateral for the liabilities is provided by the institution or third parties.

(6) The following shall be deducted from the sum of core and additional capital:

1. participating interests in institutions, other than investment companies, and financial enterprises amounting to more than ten per cent of the capital of these enterprises; at the request of the institution, the Federal Banking Supervisory Office may permit exceptions if the institution temporarily holds participating interests in another institution or a financial enterprise in order to give financial support to that enterprise;

2. claims arising from subordinated liabilities within the meaning of subsection (5a) on institutions, other than investment companies, and financial enterprises in which the institution holds more than ten per cent of these enterprises' capital;

3. claims arising from participation rights in respect of enterprises pursuant to number 2;

4. assets contributed by silent partners to enterprises pursuant to number 2;

5. the total amount of the following participating interests and claims insofar as it exceeds ten per cent of the institution's liable capital before deduction of the amounts pursuant to numbers 1 to 4 and pursuant to this number:

(b) claims arising from subordinated liabilities on institutions, other than investment companies, and financial enterprises in which the institution holds no participating interest or in which the participating interest amounts to not more than ten per cent of these enterprises' capital;

(c) claims arising from participation rights in respect of enterprises pursuant to letter (b);

(d) assets contributed by silent partners to enterprises pursuant to letter (b). Participating interests which an institution or its parent enterprise is required to include in the consolidation pursuant to section 10a, pursuant to section 13b (3) sentence 1 and - with respect to the stock of participating interests existing on January 1, 1993 (subject to section 64a) - pursuant to section 12 (2) sentences 1 and 2, need not be deducted from its liable capital. This provision applies as appropriate to the participating interests which the institution or its parent enterprise voluntarily includes in the consolidation pursuant to section 10a, pursuant to section 13b (3) sentence 1 and - with respect to the stock of parti- cipating interests existing on January 1, 1993 (subject to section 64a) - pursuant to section 12 (2) sentences 1 and 2, or which it consolidates voluntarily in accordance with these provisions.

(7) Capital which has been paid up by virtue of the incurrence of subordinated liabilities shall be counted towards tier 3 capital as short-term subordinated liabilities if

1. it has been agreed that, in the event of the initiation of insolvency proceedings over the institution's assets or of the institution's liquidation, it will not be repaid until all non-subordinated creditors have been satisfied,

2. it has been made available to the institution for a period of at least two years,

3. offsetting the repayment claim against claims of the institution is expressly excluded and expressly no contractual collateral for the liabilities is provided by the institution or third parties, and

4. it is expressly stated in the terms of the contract that

(b) premature repayments of principal or payments of interest made by the institution shall be returned to it, notwithstanding any arrangements to the contrary. Subsequently, the subordination of claims cannot be limited, and neither the period to maturity nor the period of notice can be shortened. Except in the cases described in sentence 5, any premature reacquisition of the claim or other repayment shall be returned to the institution, notwithstanding any arrangements to the contrary, unless the capital has been replaced by the inpayment of other own funds of at least equivalent status or the Federal Banking Supervisory Office has agreed to the premature repayment; the institution may reserve such a right contractually. Upon conclusion of the agreement, the institution shall refer explicitly and in writing to the legal consequences specified in sentences 2 and 3; if securities are issued in respect of the subordinated liabilities, the aforementioned legal consequences shall be specified in the subscription and issue terms only. An institution may purchase securitised subordinated liabilities issued by itself up to three per cent of the total nominal amount of an issue, for market-smoothing purposes, or if it is thereby carrying out instructions to buy on a commission basis. The Federal Banking Supervisory Office and the Deutsche Bundesbank shall be notified immediately of an institution's intention to take advantage of the market-smoothing option in accordance with sentence 5. An institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately if its own funds fall below one hundred and twenty per cent of the sum total of the appropriate own funds pursuant to subsection (1) sentence 1 on account of repayments of principal or payments of interest in respect of the short-term subordinated liabilities.

(8) An institution shall report immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank pursuant to sentence 2 those loans which are to be deducted in accordance with subsection (2a) sentence 2 number 4 or 5. It must also specify the collateral provided and the terms of the loans. Such loans which it has reported pursuant to sentence 1 shall be reported immediately once again to the Federal Banking Supervisory Office and the Deutsche Bundesbank if the collateral provided or the terms of the loans are changed by a legal transaction, together with the corresponding changes. The Federal Banking Supervisory Office may require institutions to submit to itself and to the Deutsche Bundesbank every five years a summary report of the loans to be reported in accordance with sentence 1.

(9) A securities trading firm must have own funds amounting at least to one-quarter of its costs shown in the profit and loss account of the last set of annual accounts under general administrative expenses, depreciation of tangible and intangible fixed assets and value adjustments. If a set of annual accounts has not yet been drawn up for the first full financial year, the corresponding estimates for these items contained in the business plan for the current year shall be indicated. The Federal Banking Supervisory Office may raise the requirements pursuant to sentences 1 and 2 if this appears appropriate in view of an expansion of the institution's business activity.

10a. Own funds of groups of institutions and financial holding groups

(2) For the purposes of this provision, a group of institutions consists of the parent enterprise domiciled in Germany and the subordinated enterprises (enterprises belonging to the group). For the purposes of this provision, subordinated enterprises are the subsidiaries of an institution which themselves are institutions, financial enterprises or ancillary banking services enterprises. The parent enterprise of the group is the institution which is not subordinated to any other institution domiciled in Germany. If, in the case of mutual cross-shareholdings, no institution within the group meets this condition, the Federal Banking Supervisory Office shall determine which is to be deemed the group's parent enterprise. If only ancillary banking services enterprises are subordinated to an institution, a group of institutions is deemed not to exist.

(3) For the purposes of this provision, a financial holding group is deemed to exist if a financial holding company domiciled in Germany has subordinated enterprises within the meaning of subsection (2) sentence 2, of which at least one deposit-taking credit institution or securities trading firm domiciled in Germany is a subsidiary of the financial holding company, unless the financial holding company for its part

1. is a subsidiary of a deposit-taking credit institution, a securities trading firm or a financial holding company domiciled in Germany, or

2. is a subsidiary of a deposit-taking credit institution or a securities trading firm domiciled in another state of the European Economic Area. If the financial holding company is domiciled in another state of the European Economic Area, a financial holding group is deemed to exist, subject to sentence 1 numbers 1 and 2, if

1. at least one deposit-taking credit institution or securities trading firm domiciled in Germany is a subsidiary of the financial holding company, and if neither a deposit- taking credit institution nor a securities trading firm domiciled in the financial holding company's country of domicile is a subsidiary of the financial holding company, and

2. the deposit-taking credit institution or the securities trading firm domiciled in Germany has a larger balance sheet total than any other deposit-taking credit institution that is a subsidiary of the financial holding company and than any other securities trading firm that is a subsidiary of the financial holding company which are domiciled in another state of the European Economic Area; in the event of identical balance sheet totals, the domicile at which the licence was granted first shall take precedence. In the case of a financial holding group, that deposit-taking credit institution or securities trading firm belonging to the group and domiciled in Germany which itself is not subordinated to any other institution belonging to the group and domiciled in Germany is deemed to be the parent enterprise. If several deposit-taking credit institutions or securities trading firms domiciled in Germany satisfy these requirements, or - in the case of mutual cross-shareholdings - no institution domiciled in Germany satisfies these requirements, the Federal Banking Supervisory Office shall determine which is to be deemed the group's parent enterprise.

(5) Investment companies are deemed not to be subordinated enterprises.

(6) Whether or not enterprises belonging to a group, taken as a whole, have adequate own funds shall be determined on the basis of a consolidation of their own funds, including the shares of other partners and the other items relevant under the Principles in accordance with subsection (1) sentence 2, read in conjunction with section 10 (1) sentence 2; in the case of enterprises belonging to a group, the items corresponding to those recognised under section 10 are deemed to be own funds. For the consolidation, the parent enterprise shall combine its relevant items with those of the other enterprises belonging to the group. The following shall be deducted from the own funds to be consolidated in accordance with sentence 2:

1. the book values, as shown by the parent enterprise and the other enterprises belonging to the group (and accounted for by the enterprises belonging to the group),

(a) of the capital shares,

(b) of the assets contributed by silent partners in accordance with section 10 (4) sentence 1,

(c) of the participation rights in accordance with section 10 (5) sentence 1,

(d) of the longer-term subordinated liabilities in accordance with section 10 (5a) sentence 1, and

(e) of the short-term subordinated liabilities in accordance with section 10 (7) sentence 1, as well as

2. the unrealised reserves included by the parent enterprise or another enterprise belonging to the group in accordance with section 10 (2b) sentence 1 numbers 6 and 7, insofar as they are accounted for by enterprises belonging to the group. The capital shares, but subject to the provision concerning the capitalised consolidation difference in accordance with sentences 6 and 7, and the assets contributed by silent partners shall be deducted from the core capital, the longer-term subordinated liabilities from the additional capital components as specified in section 10 (2b) sentence 3, the liabilities represented by participation rights and the unrealised reserves from the sum total of the additional capital components, in each case before the capping specified in section 10 (2b) sentences 2 and 3, and the short-term subordinated liabilities from the tier 3 capital as specified in section 10 (2c) sentence 1, before the capping specified in section 10 (2c) sentences 2 and 4. In the case of participating interests mediated by enterprises not belonging to the group, such book values and unrealised reserves shall be deducted on a pro rata basis to the extent of the share which corresponds to the arithmetical capital share. If the book value of a participating interest is higher than the pro rata share of the capital and the reserves of the subordinated enterprise to be consolidated in accordance with sentence 2, the parent enterprise shall deduct the difference in equal parts from the group's core capital and additional capital. The capitalised consolidation difference may be treated as a participating interest in an enterprise outside the group, with an amount that decreases by at least one-tenth each year. The items which derive from the legal relationships between enterprises belonging to the group shall be disregarded. Market-risk positions of different enterprises belonging to a group cannot be netted with one another, unless the enterprises are included in the parent enterprise's central risk management system, the own funds are appropriately distributed across the group and, in the case of subordinated enterprises domiciled in non-EEA countries, it is ensured that the local legal and administrative regulations do not hinder the free transfer of capital to other enterprises belonging to the group. The Federal Ministry of Finance, acting in consultation with the Deutsche Bundesbank, may issue supplementary provisions by regulation, in particular also in order to specify in greater detail the application of regulations concerning trading book business within the group, the requirements that the parent enterprise's central risk management system must satisfy and the appropriateness of the distribution of own funds within the group and to issue more detailed provisions concerning the offsetting of positions subject to market risk. The Federal Ministry of Finance may delegate by regulation this authority to the Federal Banking Supervisory Office subject to the condition that the regulation must be issued in agreement with the Deutsche Bundesbank. The central associations of the institutions shall be consulted prior to the issue of such regulation.

(8) The parent enterprise is responsible for ensuring that the group has adequate own funds. To fulfil its obligations in accordance with sentence 1, it may, however, exercise an influence over enterprises belonging to the group only insofar as this does not contravene current company law. Section 10 (1) sentence 4 applies as appropriate.

(9) The enterprises belonging to the group shall set up a proper organisation and appropriate internal monitoring procedures to ensure that the data required for the con- solidation in accordance with subsections (6) and (7) are duly processed and passed on. They are required to transmit the data needed for the consolidation to the parent enterprise. If a parent enterprise is unable to obtain the requisite data relating to individual enterprises belonging to the group, the book values specified in subsection (6) sentence 3 accounted for by the enterprise belonging to the group shall be deducted from the own funds of the parent enterprise.

(10) Subsections (1) and (6) to (8) do not apply to a parent enterprise which itself is subordinated to an institution domiciled in Germany to which subsections (1) and (6) to (8) apply.

11. Liquidity

12. Limitation of qualified participating interests

(2) An institution which is a parent enterprise of a group (section 10a (2) or (3)) that includes at least one deposit-taking credit institution shall ensure that the group does not hold qualified participating interests in an enterprise within the meaning of subsection (1) sentence 1 whose share in the nominal capital, in terms of the amount, exceeds fifteen per cent of the group's liable capital. It shall further ensure that the group in the aggregate does not hold qualified participating interests in enterprises within the meaning of subsection (1) sentence 1 whose share in the nominal capital, in terms of the amount, exceeds sixty per cent of the group's liable capital. Subsection (1) sentence 3 applies. The institution may allow the group to exceed the limits laid down in sentence 1 or 2 with the approval of the Federal Banking Supervisory Office. The Federal Banking Supervisory Office may grant such approval only if the institution backs that part of the participating interests that exceeds the limit by the group's liable capital; if both the limits are exceeded, the larger amount shall be backed by the group's liable capital.

12a. Establishment of corporate ties

(2) The Federal Banking Supervisory Office may prohibit the continuation of the participating interest or of the corporate ties if the parent enterprise does not receive the data required for discharging the duties specified in sections 10a, 13b or 25 (2). The exception pursuant to subsection (1) sentence 2 applies as appropriate to the powers of prohibition conferred by sentence 1.

Division 2. Lending business

13. Large exposures of non-trading book institutions

(2) Without prejudice to the validity of the transactions, a non-trading book institution or- ganised in the form of a legal person or partnership may incur a large exposure only by virtue of a unanimous decision by all its managers. The decision should be taken before the exposure is incurred. If in individual cases this is impossible because of the urgency of the transaction, the decision shall be taken immediately afterwards. The decision shall be placed on record. If the large exposure has been incurred without a prior unanimous decision by all the managers and if such decision has not been retrospectively made within one month after the exposure has been incurred, the non-trading book institution shall report this fact to the Federal Banking Supervisory Office and the Deutsche Bundesbank. If an exposure already incurred becomes a large exposure owing to a reduction in the liable capital, this exposure may continue, without prejudice to the validity of the transaction, only by virtue of a unanimous decision to be taken immediately by all its managers. The decision shall be placed on record. If the decision has not been retrospectively taken within one month after the point in time at which the exposure became a large exposure, the non- trading book institution shall report this fact to the Federal Banking Supervisory Office and the Deutsche Bundesbank.

(3) Without prejudice to the validity of the transactions, a non-trading book institution may not incur exposures to a single borrower, without the approval of the Federal Banking Supervisory Office, which in the aggregate exceed twenty-five per cent of the liable capital of the non-trading book institution (individual large exposure limit). Irrespective of whether the Federal Banking Supervisory Office grants its approval, the non-trading book institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately if the individual large exposure limit is exceeded and shall back the amount by which the large exposure exceeds the individual large exposure limit by liable capital. Exposures to an affiliated enterprise that neither belongs to a group within the meaning of section 13b (2) nor is consolidated by the appropriate authorities of another state of the European Economic Area as provided in Council Directive 92/121/EEC of December 21, 1992 on the monitoring and control of large exposures of credit institutions (Official Journal of the European Communities 1993 No. L 29, page 1) (Large Exposures Directive) may not exceed, without the approval of the Federal Banking Supervisory Office, twenty per cent of the non-trading book institution's liable capital. Sentence 2 applies as appropriate. The non-trading book institution shall ensure that all large exposures in the aggregate do not exceed, without the approval of the Federal Banking Supervisory Office, eight hundred per cent of its liable capital (overall large exposure limit). Irrespective of whether the Federal Banking Supervisory Office grants its approval, the non-trading book institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately if the overall large exposure limit is exceeded and shall back the amount by which its large exposures in the aggregate exceed the overall large exposure limit by liable capital. A non- trading book institution which exceeds both the individual large exposure limit with respect to one or more borrowers and the overall large exposure limit shall back only the larger amount by which the respective limit is exceeded by liable capital. The Federal Banking Supervisory Office may grant approval in accordance with sentences 1, 3 and 5 at its own discretion. In exceptional circumstances the Federal Banking Supervisory Office may temporarily exempt a non-trading book institution from the requirement to back the excessive amount by liable capital in accordance with sentence 2, also read in conjunction with sentence 4, if the limit was exceeded due to the merging of borrowers or comparable occurrences and this could not have been anticipated by the non-trading book institution. (4) Subsections (1) and (2) also apply to general credit lines committed, provided that the reports required under subsection (1) are to be filed on the dates specified by a regulation in accordance with section 24 (4) sentence 1.

13a. Large exposures of trading book institutions

(2) Section 13 (2) concerning the unanimous decision for large exposures incurred by non-trading book institutions applies as appropriate to trading book institutions.

(3) Without prejudice to the validity of the transactions, a trading book institution shall ensure that the individual total position from banking book business does not exceed, without the approval of the Federal Banking Supervisory Office, twenty-five per cent of its liable capital (individual large exposure limit for banking book business). Irrespective of whether the Federal Banking Supervisory Office grants its approval, the trading book institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank if the individual large exposure limit for banking book business is exceeded and shall back the amount by which the limit is exceeded by liable capital. The individual total position from banking book business vis-à-vis an affiliated enterprise within the mean- ing of section 13 (3) sentence 3 may not exceed, without the approval of the Federal Banking Supervisory Office, twenty per cent of the trading book institution's liable capital. Sentence 2 applies as appropriate. The trading book institution shall ensure that all large exposures from banking book business in the aggregate do not exceed, without the approval of the Federal Banking Supervisory Office, eight hundred per cent of its liable capital (aggregate large exposure limit for banking book business). Irrespective of whether the Federal Banking Supervisory Office grants its approval, the trading book institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank if the aggregate large exposure limit for banking book business is exceeded and shall back the amount by which the limit is exceeded by liable capital. Section 13 (3) sentence 7 applies as appropriate. The Federal Banking Supervisory Office may grant approval in accordance with sentences 1, 3 and 5 at its own discretion. Section 13 (3) sentence 9 applies as appropriate.

(4) The trading book institution shall ensure that the individual total position from overall business does not exceed, without the approval of the Federal Banking Supervisory Office, twenty-five per cent of its own funds (individual large exposure limit for overall business).

Irrespective of whether the Federal Banking Supervisory Office grants its approval, the trading book institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank if the individual large exposure limit for overall business is exceeded and shall back the amount by which the limit is exceeded by own funds as laid down in the regulation pursuant to section 22 sentence 1. The individual total position from overall business vis-à-vis an affiliated enterprise within the meaning of section 13 (3) sentence 3 may not exceed twenty per cent of the trading book institution's own funds. Sentence 2 applies as appropriate. The trading book institution shall ensure that all large exposures from overall business in the aggregate do not exceed, without the approval of the Federal Banking Supervisory Office, eight hundred per cent of its own funds (aggregate large exposure limit for overall business). Irrespective of whether the Federal Banking Supervisory Office grants its approval, the trading book institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank if the aggregate large exposure limit for overall business is exceeded and shall back the amount by which the limit is exceeded by own funds as laid down in the regulation pursuant to section 22 sentence 1. Section 13 (3) sentence 7 applies as appropriate. The Federal Banking Supervisory Office may grant approval in accordance with sentences 1, 3 and 5 at its own discretion; approval as laid down in sentence 1 or 3 shall be deemed not to have been granted if the individual total position from banking book business exceeds the relevant limit as laid down in subsection (3) sentence 1 or 3.

(5) Even if the limit laid down in subsection (4) sentence 1 or 3 is exceeded with the approval of the Federal Banking Supervisory Office, the individual total position from trading book business of a trading book institution may not exceed five hundred per cent of that portion of the trading book institution's own funds that are not required for the purpose of backing risks arising from banking book business. If this limit is exceeded, the trading book institution shall report this immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank and shall back the amount by which the limit is exceeded by own funds as laid down in the regulation pursuant to section 22 sentence 1. All individual total positions from overall business which exceed the limit laid down in subsection (4) sentence 1 or 3 for more than ten days may not exceed in the aggregate, after deducting the amounts that do not exceed these limits (aggregate excess position), six hundred per cent of that portion of the trading book institution's own funds that are not required for the purpose of backing risks arising from banking book business. If this limit is exceeded, the trading book institution shall report this immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank and shall back the amount by which the limit is exceeded by own funds as laid down in the regulation pursuant to section 22 sentence 1.

(6) Subsections (1) and (2) also apply to general credit lines committed, provided that the reports required under subsection (1) are to be filed on the dates specified by a regulation in accordance with section 24 (4) sentence 1.

13b. Large exposures of groups of institutions and of financial holding groups

(2) For the definition of a group within the meaning of this provision, section 10a (2) to (5) applies as appropriate.

(3) Whether or not enterprises belonging to a group have in the aggregate incurred a large exposure and are complying with the limits specified in sections 13 and 13a shall be determined by virtue of a consolidation of their own funds, including the shares of other partners, and the exposures to a single borrower, if, vis-à-vis one of the enterprises belonging to the group, the individual total position from overall business incurred by that enterprise amounts to or exceeds five per cent of its liable capital. Section 10a (6) sen- tences 2 to 15 and (7) applies as appropriate.

(4) The parent enterprise shall satisfy the reporting requirements in accordance with subsection (1), read in conjunction with sections 13 and 13a. It is responsible for ensuring that the enterprises belonging to the group, taken as a whole, comply with the limits specified in sections 13 and 13a. To fulfil its obligations in accordance with sentence 2, it may, however, exercise an influence over enterprises belonging to the group only insofar as this does not contravene current company law.

(5) Section 10a (9) and (10) applies as appropriate.

14. Loans of three million Deutsche Mark or more

(2) If it is found that loans of three million Deutsche Mark or more have been granted to a single borrower by more than one enterprise, the Deutsche Bundesbank shall notify the reporting enterprises. The notification may indicate only the total indebtedness of the borrower and the number of enterprises involved. In the notification, the indebtedness to the lenders involved shall be broken down into

1. loans within the meaning of section 19 (1) sentence 2,

2. derivatives that are loans within the meaning of section 19 (1) sentence 1,

3. loans within the meaning of section 19 (1) sentence 3 numbers 3 to 5, 7, 9 and 12,

4. loans which are guaranteed or secured in some other way by the Federal Government, a Federal special fund, a Land Government, a local authority or a local authority association (publicly guaranteed loans),

5. loans which satisfy the conditions of sections 11 and 12 (1) and (2) of the Mortgage Bank Act (mortgage loans),

6. loans within the meaning of section 20 (3) sentence 2 number 2, and

7. loans within the meaning of section 19 (1) sentence 2 number 9 and claims arising from the purchase of money claims.

(3) If pursuant to section 19 (2) several debtors are deemed to be a single borrower, the indebtedness of the individual debtors shall also be indicated in the reports in accordance with subsection (1). In the notification pursuant to subsection (2), the total indebtedness of the debtors deemed to be a single borrower shall be stated. The indebtedness of individual debtors shall be notified only to those enterprises which themselves, or whose subordinated enterprises within the meaning of subsection (1) sentences 3 and 4, have incurred exposures to these debtors.

(4) After the conclusion of international agreements or after the entry into force of a Directive of the European Communities on credit reports within the meaning of this provision, the Deutsche Bundesbank is authorised to forward the reports specified in subsection (1) in the aggregated form provided for in subsection (2) sentences 2 and 3 to the agencies named in the international agreement or in the Directive of the European Communities for notification to the enterprises concerned that are domiciled abroad, and also to notify the enterprises concerned in accordance with subsection (2) about the indebtedness of borrowers to enterprises domiciled abroad.

15. Loans to managers, etc.

1. managers of the institution,

2. partners (Gesellschafter) of the institution who are not managers if the institution is organised in the form of a partnership or private limited company, and general partners of an institution who are not managers if the institution is organised in the form of a limited company with one or more general partners,

3. members of a body of the institution appointed to supervise the conduct of its business if the supervisory powers of the body are regulated by law (supervisory body),

4. holders of a special statutory authority (Prokuristen), and agents of the institution with authority to represent it in all aspects of its business (zum gesamten Geschäftsbetrieb ermächtigte Handlungsbevollmächtigte),

5. spouses and under-age children of the persons specified in numbers 1 to 4,

6. silent partners of the institution,

7. enterprises organised in the form of a legal person or partnership if a manager, a holder of a special statutory authority or an agent of the institution with authority to represent it in all aspects of its business is a legal representative or a member of the supervisory body of the legal person or a partner in the partnership,

8. enterprises organised in the form of a legal person or partnership if a legal repres- entative of the legal person, a partner in the partnership, a holder of a special statutory authority or an agent of the enterprise with authority to represent it in all aspects of its business is a member of the supervisory body of the institution,

9. enterprises in which the institution or a manager holds a participating interest amounting to more than ten per cent of the enterprise's capital or in which the institution or a manager is a general partner,

10. enterprises which hold a participating interest in the institution amounting to more than ten per cent of its capital, and

11. enterprises organised in the form of a legal person or partnership if a legal representative of the legal person or a partner in the partnership holds a participating interest in the institution amounting to more than ten per cent of its capital, may be granted only by virtue of a unanimous decision by all managers of the institution, and only with the explicit approval of the supervisory body. A participating interest within the meaning of sentence 1 numbers 9 to 11 is deemed to be any holding of shares in the enterprise amounting to not less than one-quarter of the capital (nominal capital, total amount of capital shares), irrespective of the duration of the holding. The authorisation of withdrawals in excess of the remuneration due to a manager or a member of the supervisory body, and in particular the authorisation of advances on such remuneration, are deemed to be equivalent to the granting of a loan.

(3) Subsections (1) and (2) do not apply to

1. loans to holders of a special statutory authority or to agents of an institution with authority to represent it in all aspects of its business, or to their spouses and under-age children, if the loan does not exceed one annual salary of the holder of the special statutory authority or of the agent of the institution with authority to represent it in all aspects of its business,

2. loans to the persons or enterprises specified in subsection (1) sentence 1 numbers 6 to 11, if the loan amounts to less than one per cent of the liable capital of the institution or to less than one hundred thousand Deutsche Mark, and

3. loans which are increased by not more than ten per cent of the amount approved in accordance with subsection (1) sentence 1.

(5) If, contrary to the provisions of subsections (1), (2) or (4), a loan is granted to a person specified in subsection (1) sentence 1 numbers 1 to 5 or subsection (2), it shall be repaid immediately, notwithstanding any arrangements to the contrary, unless all the managers and the supervisory body subsequently approve the granting of the loan.

16. (Rescinded)

17. Liability

(2) The institution's right to compensation may also be asserted by its creditors insofar as they cannot obtain satisfaction from the institution. The li ability to compensate the creditors is not annulled by a waiver or by composition on the part of the institution nor, in the case of institutions organised in the form of a legal person, by the fact that the loan was granted by virtue of a decision by the supreme body of the institution (shareholders' meeting, general meeting, partners' meeting).

(3) Claims under subsection (1) are barred under the Statute of Limitations after five years.

18. Information required of borrowers

1. the loan is secure