Modernising KfW: application of selected provisions of the German Banking Act (KWG)

Germany's Federal Cabinet (Bundeskabinett) today (13 March 2013) approved draft legislation to amend the "Law concerning KfW" (Gesetz über die KfW), the aim of which is to apply selected provisions of the German Banking Act (Kreditwesengesetz, "KWG") to KfW and delegate the review authority of the German Federal Ministry of Finance (Bundesfinanzministerium, "BMF") to the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzaufsicht, "BaFin"). For KfW, this comes as welcome reinforcement on the road toward modernising and professionalising KfW.

At the heart of the legislation is an "authorisation to issue regulations" by virtue of which the BMF, in co-operation with the German Federal Ministry of Economics and Technology (Bundesministerium für Wirtschaft und Technologie, "BMWi"), would be authorised to issue a regulation stipulating that, in future, certain key provisions under banking supervisory law would be analogously applicable to KfW. The regulation to be issued may also provide that the technical supervision of compliance with provisions of banking supervisory law be exercised by BaFin in co-operation with Deutsche Bundesbank. This has no bearing on the legal supervision, which the BMF continues to exercise in co-operation with the BMWi.

If the legislation enters into force in its present form and the regulation is issued, KfW would still not be subject to the German Banking Act – the relevant provisions under banking supervisory law would merely be applied to it by analogy. In view of this, KfW is also exempt from the provisions of the "Banking Directive" and will also continue to be exempt from the CRD IV, which will consolidate the Banking Directive and the Capital Adequacy Directive, nor will it be subject to supervision by the European Central Bank; moreover, KfW will retain its zero risk weighting. This is in recognition of KfW's special statutory mandate to promote development.

KfW is and will not in future be a "normal" bank; it will retain its status as a promotional bank whose responsibilities are defined in the Law concerning KfW. As such, the authorisation to issue regulations also provides that in selecting the provisions under banking supervisory law which are to be applicable to KfW by analogy, the statutory mandate to promote development shall be taken into consideration. A reasonable cost-benefit ratio should also be applied in this context.

KfW has voluntarily complied with components of the German Banking Act for many years, including in particular the Regulation governing Capital Adequacy (Solvency Regulation (Solvabilitätsverordnung, "SolvV") and the Minimum Requirements for Risk Management (Mindestanforderungen an das Risikomanagement, "MaRisk"). KfW's subsidiary, KfW IPEX-Bank, has been subject to the German Banking Act and review by BaFin since it was founded in 2008.

In addition to sharpening its strategic focus, increasing efficiency and improving customer service, professionalising KfW is also an important element of the comprehensive modernisation of KfW. The analogous application of selected provisions of the German Banking Act underscores this aim.