Germany: German Banking Market - On The Move

Executive Summary The German banking market is on the move. This presents opportunities for foreign investors who would like to enter the German financial market. However, in order to acquire an interest in a German financial institution, i.e. credit or financial services institution, an investor has to comply with a couple of specific regulatory requirements.

Credit institutions are companies which carry out banking business, as defined in Section 1 of the German Banking Act (Kreditwesengesetz, KWG), such as, for example, granting loans or taking deposits. Financial services institutions offer financial services without being credit institutions. They provide services such as investment placement, investment consulting or the business of providing multilateral trading systems. Larger banks and financial institutions are often stock corporations (Aktiengesellschaft), smaller ones are usually run as limited liability companies or limited liability partnerships (Gesellschaft mit beschränkter Haftung or GmbH & Co. KG).

Transaction structure Usually the purchaser acquires an interest in a financial institution by way of a share deal. The advantage of this is that the banking permit granted to an institution is not affected by the change in ownership; the banking permit remains with the institution and, in effect, the purchaser acquires the permit at the same time it acquires the institution (however, see the paragraph below regarding the question of control of the purchaser according to the KWG). A further advantage of a share deal is that the institution's contractual partners do not have to agree to the sale. In some cases, the new shareholder's entry can trigger termination or other third party rights (e.g. through change-of-control clauses). Transfers of individual assets and obligations are unnecessary in a share deal.

It is also legally permissible for the purchaser to acquire the institution's assets and obligations by way of an asset deal. In this case the purchaser will generally also require a new banking permit to continue the business of the institution. The sale and transfer of individual assets to the purchaser is generally more burdensome and expensive than affecting a share deal. The approval of contractual partners and creditors is required for the transfer of contractual relations and obligations. As a result, purchasers generally prefer to acquire financial institutions by way of a share deal.

Control of purchaser according to the KWG/SSM Regulation

European supervisory Since 4 November 2014, the Single Supervisory Mechanism (SSM) places significant banks in participating countries under the direct supervision of the European Central Bank (ECB).

According to the principles of an effective banking supervision, the regulatory authorities have to monitor every transfer and prohibit it where necessary.

Investors who intend to acquire 'qualified participation'(i.e. at least 10 percent of the capital or voting rights of the respective institution) must disclose their interest with the competent supervisory authority and communicate all the important information to the supervisory authority. The authority has to investigate afterwards within 60 days, if the acquirer meets the demands regarding professional competence, solidity and integrity. The supervisory authority must also examine the suitability for supervision concerning the group and the legal harmlessness with regard to inter alia money laundering.

If there are no objections within the time limit, the acquisition shall be deemed approved.

Current owners also have a duty to notify when participations in a credit institution are being sold. This disclosure requirement applies even if the owner of an investment has decided to reduce their holding to 20, 30 or 50 percent of the voting rights or capital.

As a result, the ECB is now responsible for "assessing" the acquisition or disposal of qualifying holdings in banks in euro member states. According to the preamble of the SSM Regulation, the assessment of the suitability of a new owner in advance of acquiring a significant shareholding in a credit institution is an indispensable means to continuously ensure the suitability and financial soundness of the owners of credit institutions.

The SSM's common procedures are governed by the following key principles:

  • Applications for notifications of an acquisition of a qualifying holding are always sent by the applicant entity to the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin). With regards to notification of an intention to acquire a qualifying holding, BaFin notifies the ECB of such notification no later than five working days following its acknowledgement of receipt to the applicant. A common procedure cannot be finalised until the required information has been submitted. Applicants should therefore ensure that their applications are complete and well structured. If the first review of an application reveals omissions or inconsistencies, BaFin immediately asks the applicant to make the necessary amendments.
  • Once the application has been submitted and its completeness verified, the applicant is subject to a complementary assessment by BaFin and the ECB. The assessment seeks to ensure that all relevant parties gain a thorough understanding of the business model and its viability. To this end, the assessment covers all the criteria set out in relevant national and EU laws. With regards to qualifying holdings, BaFin proposes a draft decision to the ECB to oppose or not to oppose the acquisition. The final decision rests thereafter with the ECB following the usual decision-making procedure. If an application is to be rejected or additional conditions need to be imposed, it will be subject to a hearing. Once a final decision has been reached, the applicant is notified by the ECB.

National supervisory Although the ECB has supervisory authority for the acquisition of interests in German banks, BaFin is still responsible for the approval of acquisitions of financial service institutions.

Particular issues arising in due diligence Certain issues arise in due diligence regarding institutions due to their special regulatory regime.

Banking permit The written authorisation of both BaFin and the ECB is required for anyone who wants to carry on bank business or provide financial services. Therefore, as part of the due diligence, the institution's authorisation must be checked. Often credit institutions and financial service institutions do not possess a full banking permit (that is, a permit which encompasses all permissible bank business and financial services) but rather a permit which is restricted to specific types of bank business and financial services. It is an offence to carry on bank business or provide financial services without a permit. This also applies if a banking permit has been obtained but it does not cover the type of bank business or financial service being provided.

It is, however, possible to change an existing permit after acquisition. This is achieved by requesting either an extension to or amendment of the permit. The relevant applications have to be filed with BaFin and the Deutsche Bundesbank or the ECB respectively. In practice, this can lead to delay in practice.

Equity requirements The availability of equity is important for every financial institution. On the one hand it serves as a basis for rating agencies to asess the financial institution's substance. On the other hand the costs, which are related to the individual equity, can determine the financial institution's competitiveness.

Both aspects are of fundamental importance to a purchaser. Institutions are legally obliged to have available equity in sufficient amounts and consist of liable equity and net profits, together with deferred floating liabilities (Drittrangmittel). Liable equity is the sum of equity and supplementary capital minus certain items. The appropriateness of the capital requirement is not set out in the KWG, but rather the solvency regulation. In addition to the obligation to disclose and the duty of presentation, the institutions have far-reaching information duties vis-à-vis BaFin (e.g. supervisory meetings and special audits). Notes regarding supervisory meetings and reports of special audits can contain valuable information for the purchaser.

Liquidity requirements Financial institutions must invest their funds in such a manner that sufficient liquidity can be ensured at any time. BaFin and the Deutsche Bundesbank are responsible for this supervision. Correspondence with the supervisory authorities can in turn be useful in identifying critical issues.

Financing the acquisition Usually the acquisition of a larger interest in an institution is funded with outside capital. Therefore, a structure must be found that provides sufficient security for the funder, as well as observing the supervisory regulatory standards of availability of security by the financial institution. If the institution grants security without observing the required regulations, the financial institution's managers and members of its supervisory body may be liable for any loss arising.

A pledge of the target institution's shares can be used as security, without the pledgee needing to go through the control procedure required for an actual acquisition. Disclosure to BaFin and the Deutsche Bundesbank or the ECB of the accompanying acquisition only becomes necessary before the potential realisation of the financial institution's pledged shares.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions