Banking Act
Banking supervision in the Federal Republic of Germany
1. Legal basis and aims
The legal basis for banking supervision in Germany is the Banking Act. This Act is aimed at safeguarding the viability of the banking industry, which is particularly sensitive to fluctuations in confidence, by protecting creditors. The Act seeks to fulfil this aim while paying due regard to free market principles, i.e. the entire responsibility for business decisions rests with the credit institutions' managers. The activity of credit institutions is restricted only by quantitative general provisions and their obligation to disclose their books to the supervisory authorities; the supervisory authorities do not intervene directly in the credit institutions' individual operations.
II. Organisation
Banking supervision is carried out by the Federal Banking Supervisory Office, working in cooperation with the Deutsche Bundesbank. The Act assigns the central role in banking supervision to the Federal Banking Supervisory Office (section 6 of the Banking Act). The Federal Banking Supervisory Office reports to the Federal Ministry of Finance direct.
Recognising that the functions of the authority responsible for banking supervision and those of the central bank are interconnected, the legislature has provided for the Bundesbank to be involved in banking supervision. Moreover, the participation of the Bundesbank is necessary since the Federal Banking Supervisory Office has no substructure of its own. It is only the Bundesbank system, with its main offices and branch offices, that permits efficient and cost-effective supervision, at the local level, of the over 4,000 credit institutions in the Federal Republic of Germany.
There is a clear division of functions between the Federal Banking Supervisory Office and the Bundesbank in the area of banking supervision:
- Sovereign functions, e.g. the issuing of administrative acts, are the responsibility of the Federal Banking Supervisory Office.
- Before issuing general regulations, the Federal Banking Supervisory Office must confer with the Bundesbank. The degree to which the Bundesbank is entitled to participate is graduated according to the extent to which regulations affect its functions. Thus, when issuing Principles Concerning Capital and Liquidity, the Federal Banking Supervisory Office is required to reach agreement with the Bundesbank, whereas in other cases the Bundesbank merely has to be consulted.
- The Bundesbank is fully involved in the regular surveillance of credit institutions and analyses their annual and other reports. Observations which the Bundesbank makes in the course of its own activities are also used in the monitoring operations.
III. Development of banking supervision after the Second World War
After the end of the War, banking supervision was initially carried out at Lander Government level. There was no uniform regulatory framework throughout the Federal Republic until the passing of the Banking Act of July 10, 1961, which at the same time created the legal basis for the establishment of the Federal Banking Supervisory Office.
The extension of the credit institutions' business activities, in particular outside Germany, fairly soon raised the question of how the instruments of banking supervision could be brought into line with these developments.
The amendment of the Banking Act in 1976 confined itself to closing the gaps in banking supervision which had become particularly obvious as a result of the failure of Bankhaus l.D. Herstatt in 1974. In preparation for an extensive revision of the Banking Act, the Federal Minister of Finance set up a Commission of Inquiry into "Basic Banking Questions" in November 1974. The Commission also had to examine whether the structure of the German banking system should be changed. In its report, which was submitted in May 1979, it came to the conclusion that the German banking system had proved to be effective. However, the Banking Act would have to be adjusted to the changes in the credit institutions' risk situation. It was necessary to ensure that credit institutions had adequate capital, both individually and on a consolidated basis. These findings of the inquiry were in line with the demands which the banking supervisory authorities had been making in the light of their practical experience.
The Act Amending the Banking Act, which came into force on January 1, 1985, introduced a consolidation procedure for banking supervision purposes in addition to the existing supervision of individual credit institutions. Until that time, credit institutions could build up credit pyramids through their subsidiaries without any increase in the parent institution's capital base and thus bypass the restrictions on business that are based on credit institutions' capital.
The consolidation comprises
- the assessment of the adequacy of the liable capital,
- the application of the regulations governing large loans, and
- regular surveillance on the basis of consolidated monthly returns.
Through the Fourth Act Amending the Banking Act, which came into force on January 1, 1993, essentially two Directives of the European Economic Community (EEC) - viz. the Second EEC Banking Directive and the Own Funds Directive - were translated into German law. These Directives constitute a further substantial step towards harmonising banking supervision legislation in the EU and are the precondition for free transactions in financial services in the single European market. The regulations for the licensing and ongoing surveillance of credit institutions were harmonised throughout the EU; the branches in other EU member states of credit institutions domiciled in an EU country were, in principle, subjected to the sole supervision of the home-country authority responsible for that domicile, and a uniform extended definition of capital was agreed upon.
On the basis of the new definition of capital, Principle I was redrafted as from January 1, 1993, in implementation of the EC Solvency Ratio Directive. At the same time Principle la, which limits the risks involved in off-balance-sheet transactions, was brought into line with the new capital concept.
IV. Basic features of the Banking Act
1. Scope
All enterprises which conduct banking business within the meaning of section 1 of the Banking Act on a scale which requires a commercially organised business undertaking are subject to the Banking Act. It does not matter whether the capital is German-owned or foreign-owned.
A branch of a credit institution domiciled in another EU member state does not require a licence or any endowment capital and is, in principle, supervised by the appropriate authority at the domicile of the institution. By contrast, the branches of credit institutions domiciled in non-Community countries require both a licence and endowment capital and are, in principle, supervised by the Federal Banking Supervisory Office, like domestic credit institutions. Moreover, some specialised credit institutions such as mortgage banks, ship mortgage banks, building and loan associations and investment companies are subject to special laws in addition to the Banking Act. Savings banks must comply not only with the Banking Act but also with savings bank laws passed under Land legislation.
2. Licensing
Anyone who wishes to operate a credit institution requires a licence from the Federal Banking Supervisory Office (section 32 of the Banking Act). The licence may be limited to certain types of banking business. Conducting banking business without a licence is a punishable offence (section 54 of the Banking Act). No specific legal form for credit institutions is stipulated in the Banking Act, although credit institutions have not been allowed to operate in the form of a sole proprietorship since 1976. The licence may be refused only for the reasons listed in section 33 of the Banking Act, e.g. if the managers lack the requisite personal or professional qualifications, if the shareholders are not trustworthy or if the credit institution does not have at least two managers (principle of dual control). Credit institutions which accept deposits or other repayable funds from the general public and intend to conduct banking business must have a minimum capital equivalent to five million ECUs. The minimum capital of all other institutions is fixed in accordance with the administrative practice of the Federal Banking Supervisory Office.
3. Capital and liquidity
The definition of capital was significantly extended by the Fourth Act Amending the Banking Act. Since then a distinction has been made between superior-quality capital, i.e. core capital (e.g. paid-up capital, published reserves, contributions to the capital by silent partners), and inferior-quality capital, i.e. additional capital (e.g. unrealised reserves, capital represented by participation rights, subordinated liabilities, the addition of members' uncalled commitments in the case of cooperative societies).
Principle I stipulates that at least 8 % of a credit institution's risk assets should be backed by liable capital. Section 10 of the Banking Act defines what is to be regarded as liable capital. Risk assets comprise financial swaps, futures contracts and option rights as well as loans, securities and participating interests. For calculating the Principle I ratio, loans are weighted in accordance with various risk groups. Loans to domestic public authorities and the public authorities of certain states are deemed to be risk-free and are not included. Financial swaps, futures contracts and option rights are converted into loan equivalents in accordance with their periods to maturity and are included in the Principle at the weight for loans, but not at more than 50 %.
The parent institutions of groups of credit institutions must ensure that Principle I is complied with on a consolidated basis, too. The consolidation must include all domestic and foreign subsidiaries as well as leasing and factoring companies in which the parent institution has an interest of at least 40 %, or over which it can exercise a controlling influence. The legislature assumed that the parent institution must normally accept liability for losses incurred by its subsidiaries in accordance with its shareholding. For this reason a "pro rata consolidation" was prescribed, i.e. the risk assets and liable capital are to be consolidated in accordance with the share which the parent institution holds in the subsidiaries' capital.
Principle la limits a credit institution's open positions that are subject to price risks to 42 % of its liable capital. This overall limit is distributed among three subitems. In order to limit the exchange rate exposure, at the close of business each day the difference between a credit institution's foreign-currency-denominated assets and liabilities, irrespective of their maturities, must not exceed 21 % of its liable capital. The open interest rate risk is determined on the basis of the risk-enhancing items arising from interest rate futures and interest rate options, and must not exceed 14 % of the reference variable. Finally, an upper limit of 7 % of the liable capital applies to the items exposed to other price risks.
Liquidity is assessed according to Principles ll and lll. Principle ll stipulates that the sum of certain long-term assets should not exceed the sum of certain financial resources which are deemed to be long-term. These are liabilities with maturities of four years and over and specific percentages of shorter-term liabilities which, as experience has shown, are available to the credit institutions for their long-term use ("deposit base").
Pursuant to Principle lll, the sum of various short and medium-term assets should not exceed the sum of certain short and medium-term financial resources (plus the financial surplus or less the financial deficit under Principle ll). The Banking Act does not provide for the application of the liquidity principles on a consolidated basis.
4. Surveillance of lending business
Loans to a single borrower which, taken together, exceed 15 % of the credit institution's liable capital in the former definition (large loans; see section 13 of the Banking Act), and loans to borrowers closely associated personally or otherwise with the lending credit institution (loans to managers, etc. (Organkredite); see sections 15 to 17 of the Banking Act) are deemed to be particularly risk-prone and are therefore subject to special regulations governing their reporting and decisions to grant them. Moreover, no single large loan may exceed 50 % of the liable capital, and all large loans taken together may not exceed eight times the liable capital in the former definition (see section 13 (3) and (4) of the Banking Act). These limits also apply to groups of credit institutions (see section 13a of the Banking Act). To make it easier to obtain the requisite detailed information from subsidiaries, the consolidation requirement applies only when the parent institution holds a participating interest amounting to not less than 50 % in the subsidiary.
The credit register concerning loans of three million Deutsche Mark or more in accordance with section 14 of the Banking Act is an important source of information both for the banking supervisory authorities and for lenders. This clause stipulates that credit institutions and insurance enterprises must report their loans of three million Deutsche Mark or more to the Bundesbank, which adds together the loans to individual borrowers and subsequently notifies the lenders of the total indebtedness of their borrowers and the number of lenders involved. Mortgage loans and loans of three million Deutsche Mark or more granted by foreign subsidiaries of German credit institutions have been included in the reporting procedure since July 1, 1986.
As regards the concepts of "loan" and "borrower", and the exceptions to the regulations governing lending, see sections 19 (1) and (2) and 20 of the Banking Act.
5. Monthly returns
To enable the banking supervisory authorities to conduct a regular analysis of the credit institutions' business, the latter have to submit monthly returns to the Bundesbank. The Bundesbank passes on these returns, together with its comments, to the Federal Banking Supervisory Office. If the Bundesbank collects monthly balance sheet statistics for the purposes of its monetary analysis, these are deemed at the same time to be monthly returns in order to avoid duplication of work for the credit institutions. The parent institution of a group of credit institutions must submit both its own monthly return and a pro rata consolidated monthly return for the group.
6. Audits of credit institutions
The reporting system for banking supervision purposes relies heavily on the credit institutions' data being correct. For this reason the reports of annual accounts auditors must meet particularly high standards. The Federal Banking Supervisory Office and the Bundesbank have no such auditors of their own. Instead, credit institutions are audited by independent certified auditors whom they select themselves and who, in their audits, have to comply with detailed auditing guidelines laid down by the Federal Banking Supervisory Office. Section 29 of the Banking Act spells out the duties of the auditors. Credit institutions in the savings bank and cooperative bank sectors are normally audited by the auditing bodies of their respective associations.
Moreover, the Federal Banking Supervisory Office is empowered to carry out audits even if there is no special reason for them (section 44 (1) of the Banking Act). External certified auditors are entrusted with these audits, too, though not with audits of foreign exchange transactions, which are carried out by the Bundesbank.
The reports on audits carried out by deposit guarantee funds provide further information. These reports must likewise be submitted to the supervisory authorities immediately (section 26 (2) of the Banking Act).
The Federal Banking Supervisory Office appoints special auditors for audits of safe custody accounts (section 30 of the Banking Act).
7. Powers to intervene
The supervisory authorities must have the possibility of intervening if prudential requirements have been breached. The measures permitted in the case of inadequate capital or inadequate liquidity are set out in section 45 of the Banking Act. If the fulfilment of a credit institution's obligations to its creditors is actually endangered, the Federal Banking Supervisory Office may take measures pursuant to section 46 ff. of the Banking Act. Revocation of the licence is possible as a final resort.
8. International cooperation between supervisory authorities
Previously, provisions had already been included in the Banking Act which permitted cross-border cooperation between banking supervisory authorities and which removed barriers to the provision of information. The further harmonisation of banking supervisory regulations in the EU, which has led to the mutual recognition of banking supervision throughout the Community, entails even closer cooperation between the banking supervisory authorities within the EU. If German credit institutions undertake operations in another EU member state, the Federal Banking Supervisory Office and the Bundesbank, to the extent that the latter takes action under the Banking Act, are required to cooperate with the banking supervisory authorities of that state (section 8 (3) sentence 1 of the Banking Act). Cooperation is particularly close and the exchange of information particularly detailed with respect to German credit institutions which operate branches in another EU member state and with respect to credit institutions in another EU member state which have established branches in Germany. For example, the Federal Banking Supervisory Office has to inform the banking supervisory authorities in other EU member states if the licence to conduct banking business of a German credit institution which maintains branches in other EU member states is revoked (section 8 (3) sentence 3 of the Banking Act). It also has to inform the authorities of the home member states of infringements by domestic branches of credit institutions domiciled in another EU member state of provisions compliance with which is monitored by the Federal Banking Supervisory Office (section 8 (4) of the Banking Act). The details of such cooperation are regulated by bilateral agreements between the banking supervisory authorities.
German legal regulations which restrict the transmission of data shall not be applied if such transmission is necessary to be able to perform banking supervisory consolidation procedures abroad inclusive of subsidiaries in the Federal Republic of Germany (section 44a of the Banking Act). A precondition thereof is that a share of at least 25 % is held in the German subsidiary. The Federal Banking Supervisory Office may prohibit the transmission of data if reciprocity is not assured. At the request of the foreign banking supervisory authority, the Office has to check the correctness of the data transmitted abroad or to permit their correctness to be checked .
It does not constitute a violation of the secrecy requirement if information is passed on exclusively to foreign banking supervisory authorities and to authorities which supervise financial institutions, insurance enterprises or financial markets, if these authorities are subject to the secrecy requirement (section 9 (1) of the Banking Act). The revision of this provision by the Fourth Act Amending the Banking Act facilitates international cooperation in the supervision of financial conglomerates. To ensure a mutual exchange of information, the disclosure of information received from foreign banking supervisory authorities to the German fiscal authorities is banned (section 9 (2) sentence 3 of the Banking Act).
V. Deposit guarantee schemes
Virtually all credit institutions which conduct deposit business belong to one of the deposit guarantee funds set up on a voluntary basis by the banking associations. The fund established for the commercial banks aims primarily at protecting depositors, while the schemes operated by the savings bank and credit cooperative sectors are designed to avert member institutions' insolvency.
The Deposit Guarantee Fund set up for commercial banks at the Federal Association of German Banks safeguards, in cases of insolvency, non-securitised liabilities to non-bank creditors, per creditor up to the level of 30% of the liable capital at the time of the last published annual accounts of the credit institution concerned. Larger liabilities are protected up to this guarantee limit. Protection encompasses both deposits in Germany and those at branches abroad, irrespective of the currency in which they are denominated and of whether the creditors are residents or non-residents.
Although, in the case of public savings banks, the responsibility for indemnifying depositors ultimately rests with the local authorities (e.g. town, district) which set up the savings bank, owing to the existence of what is known as "guarantors' liability", the regional savings bank and giro associations have nevertheless established guarantee funds. In addition, there is a reserve fund of the Land banks/regional giro institutions, which, notwithstanding the guarantors' liability, acts as an extra safeguard for the deposits of non-bank customers. The two schemes, i.e. the regional savings bank guarantee funds and the reserve fund of the Land banks/regional giro institutions, are interlinked.
Credit cooperatives' by-laws provide for a limited obligation on the part of members to pay up further capital when called. The guarantee scheme operated by the credit cooperatives has, however, ensured up to now that not a single insolvency has arisen in the credit cooperative sector.
In order to prevent liquidity crises in the wake of credit institution failures, the Deutsche Bundesbank and the German banking industry joined forces to set up the Liquidity Consortium Bank in 1974; this bank grants, as and when necessary, liquidity assistance to credit institutions of unquestioned soundness.
Banking Act (Gesetz uber das Kreditwesen) Announcement of the amended text of the Banking Act of June 30, 1993 (Federal Law Gazette 1, page 1082), as amended by Article 4 of the Act on Tracing Profits Arising from Serious Criminal Acts (Geldwaschegesetz) of October 25, 1993 (Federal Law Gazette 1, page 1770) and section 7 (1) c of the Act Implementing the Decision of the German Bundes- tag of June 20, 1991 on the Completion of the Unification of Germany (Ber- lin/Bonn Act) (Gesetz zur Umsetzung des Beschlusses des Deutschen Bundestages vom 20. Juni 1991 zur Vollendung der Einheit Deutschlands (Berlin/Bonn-Gesetz)) of April 26, 1994 (Federal Law Gazette 1, page 918). By virtue of Article 8 of the Act Amending the Banking Act (Gesetz zur Anderung des Gesetzes uber das Kreditwesen und anderer Vorschriften uber Kreditinstitute) of December 21, 1992 (Federal l aw Gazette 1, page 2211), the text of the Banking Act in the wording in force as from July 1, 1993 is hereby announced. The amend- ed text takes due account of: 1. the wording of the Announcement of July 11, 1985 (Federal Law Gazette 1, page 1472), 2. Article 7 of the Act of December 19, 1985 (Federal Law Gazette 1, page 2355), which came into force on January 1, 1986, 3. Article 6 of the Act of May 15, 1986 (Federal Law Gazette 1, page 721), which came into force on August 1, 1986, 4. section 31 of the Act of December 17, 1986 (Federal Law Gazette 1, page 2488), which came into force on January 1, 1987, 5. Article 23 number 3 of the Act of July 25, 1988 (Federal Law Gazette 1, page 1093), which came into force on July 26, 1988 and Article 23, numbers 1, 2 and 4 of that Act, which came into force on January 1, 1990, 18 6. Article 14 of the Act of December 22, 1989 (Federal Law Gazette 1, page 2408), which came into force on December 23, 1989, 7. Article 4 of the Act of June 25, 1990 (Federal Law Gazette 1990 Il, page 518), which came into force on June 26, 1990, 8. Article 5 of the Act of November 30, 1990 (Federal Law Gazette 1, page 2570), which came into force on January 1, 1991, 9. Article 1 number 43 of the Act specified at the beginning, which came into force on December 30, 1992, Article 1 numbers 1 to 3 and 4 (b), numbers 5 to 9,11 to 14, 16, 18to 42 and 44 of that Act, which came into force on January 1, 1993, Article 1 numbers 10, 15 and 17 of that Act, which came into force on July 1, 1993, and Article 1 number 4 (a) of that Act, which will come into force on January 1, 1996. Bonn, June 30, 1993 The Federal Minister of Finance Theo Waigel 1 9 Banking Act of the Federal Republic of Germany Table of contents Part I Division 1. Credit institutions and financial institutions General S. 1 Definitions 21 provisions S. 2 Exceptions 21 S. 2a Legal form 2 S. 2b Holders of major participating interests 2 S. 3 Prohibited business 3 S. 4 Decision by the Federal Banking Supervisory Office 3, Division 2. Federal Banking Supervisory Office S. 5 Organisation 3 S. 6 Functions 3 S. 7 Cooperation with the Deutsche Bundesbank 3 S. 8 Cooperation with other bodies 33 S. 9 Secrecy 34 Part ll Division 1. Capital and liquidity Provisionsfor S. 10 Capital 3 credit institutions S. 10a Capital of groups of credit institutions 4 S. 11 Liquidity 4 S. 12 Limitation of investments 4 S. 12a Establishment of corporateties 4 Division 2. Lending business S. 13 Large loans 5 S. 13a Large loans granted by groups of credit institutions 5 S. 14 Loans of three million Deutsche Mark or more5 S. 15 Loans to managers, etc. 5 S. 16 Reporting requirements for loans to managers, etc. 5 S. 17 Liability 5 20 S.18 Information required of borrowers 57 S.19 Theconceptsof "loan" and "borrower" 58 S. 20 Exceptions 59 Division 3. (Repealed) S. 21 (Repealed) S. 22 (Repealed) Division 4. Advertising, and information requirements of credit institutions S. 23 Advertising 61 S. 23a Information on non-membership of a guarantee scheme 61 Division 5. Special duties of credit institutions and managers S. 24 Reports 61 S. 24a Establishment of a branch in another member state of the European Economic Community 63 S. 25 Monthly returns and other information 64 Division 5a. Submission of accounting records S. 26 Submission of annual accounts, annual report and auditor's reports 65 Division 6. Audits and appointment of auditors S. 27 Audits of the notes 66 S. 28 Appointment of the auditor in special cases 66 S. 29 Special duties of the auditor 67 S. 30 Audits of safe custody accounts 68 Division 7. Exemptions S.31 68 Part lll Division 1. Licence to conduct business Provisions on theS. 32 Granting the licence 70 supervision of S. 33 Refusing the licence 71 credit institutions 21 f , S. 33a Deferring or qualifying the licence in the case of enterprises domiciled outside the European Economic Community 72 S. 33b Consultation of the appropriate authorities of another member state of the European Economic Community 73 S. 34 Substitution and continuation in the event of death 73 S. 35 Expiry and revocation of the licence 73 S. 36 Dismissal of managers 74 S. 37 Action to stop unlawful business 75 S. 38 Consequences of the revocation and expiry of the licence; measures in the event of liquidation 75 Division 2. Protection of the terms "bank" and "savings bank" S. 39 Theterms "bank" and "banker" 76 S. 40 The term "savings bank" 76 S. 41 Exceptions 77 S. 42 Decision by the Federal Banking Supervisory Office 77 S. 43 Registration provisions 77 Division 3. Information and audits S. 44 Information from and audits of credit institutions 78 S. 44a Cross-border information and audits 79 S. 44b Audits of the holders of major participating interests 80 Division 4. Measures in special cases S. 45 Measures in case of inadequate capital or inadequate liquidity 80 S. 46 Measures in case of danger 81 S. 46a Measures in case of a danger of insolvency; appointment of persons authorised to represent the credit institution 81 S. 46b Petition for compulsory liquidation 84 S. 46c Calculation of periods 84 22 r S. 47Moratorium; suspension of banking and stock market business 84 S. 48Resumption of banking and stock market business 85 Division 5. Enforceability, sanctions, costs and charges S. 49 Immediate enforceability 85 S. 50 Sanctions 86 S. 51Costsand charges 86 ! Part IV S. 52 Special supervision 87 Special provisions S. 53 Branches of enterprises domiciled in another state 87 S. 53a Representative offices of enterprises domiciled in another state 89 S. 53b Enterprises domiciled in another member state of the European Economic Community 89 S. 53c Enterprises domiciled outside the European Economic Community 91 S. 53d Reports to the Commission of the European Communities 92 Part V S. 54 Prohibited business, acts performed without Provisions on a licence 94 penalties and fines S. 55 Violation of the requirement to report insolvency or overindebtedness 94 S. 56 Breaches of administrative regulations 94 S. 57 (Repealed) S. 58 (Repealed) S. 59 Fines imposed on credit institutions 96 S. 60 Appropriate administrativeauthority 96 Part Vl S. 61 Licence for existing credit institutions 97 Transitional and S. 62 Transitional provisions 97 final provisions S. 63 (Legislation repealed and amended) 98 23 L~ S 63a Special provisions relative to the territory specified in Article 3 of the Unification Treaty 98 S. 64 Deutsche Bundespost POSTBANK 99 S. 64a Limits on investments by existing credit institutions 99 S. 64b Capital of existing credit institutions 100 , . ';~; ~: ,~ - 24 Part I General provisions Division 1. Credit institutions and financial institutions 1. Definitions (1) Credit institutions are enterprises conducting banking business, if the scale of such business calls for a commercially organised business undertaking. Banking business comprises 1. the acceptance of funds from others as deposits, 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 securities for the account of others (securities busi- ness); 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 uber Kapitalan/agegese//schaften) (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 (guar- antee business); 9. the execution of cashless payment and clearing operations (giro business). The Federal Minister of Finance, after having consulted the Deutsche Bundesbank, may designate other business as banking business by regulation where this is war- ranted in the accepted view, taking due account of the supervisory purpose pur- sued by this Act. (2) For the purposes of this Act, managers (Geschaftsleiter) are those natural per- sons who are appointed by law, articles of association or partnership agreement to manage the business of and represent a credit institution organised in the form of a corporation or partnership. In exceptional cases the Federal Banking SupervisorJ Office (section 5) may also revocably designate as manager another person en- trusted with the management of a credit institution's business and authorised to represent it if that person is trustworthy and has the necessary professional quali fications; section 33 (2) applies. If the credit institution is operated by a sole pro- prietor, a person whom the proprietor has entrusted with the management of the credit institution's business and authorised to represent it may be revocably desig- nated as manager in exceptional cases on the conditions specified in sentence 2. If a person is designated as manager on the basis of an application by the credit insti- tution, the designation shall be revoked upon application by the credit institution or the manager. (3) Financial institutions are enterprises which are not credit institutions within the meaning of subsection (1) and whose main ~ftivities 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 or exchanging foreign payment media for their own account or on behalf of customers (business in foreign banknotes ar f coins~ 6. trading in securities for their own account, 7. trading in futures contracts, options, exchange rate or interest rate instruments for their own account or on behalf of customers, 8. participating in securities issues and providing the associated services, 9. advising enterprises on their capital structure, their industrial strategy and asso- ciated issues, advising them and offering them services in the event of corpor- ate mergers and take-overs, 10. arranging loans between credit institutions (money-broking business), or 11. administering assets invested in securities or in the instruments specified in number 7 above on behalf of others, or advising others on the investment of such assets. The Federal Minister of Finance, after having consulted the Deutsche Bundesbank, may designate by regulation other enterprises as financial institutions, whereby the schedule in the Annex to Council Directive 89/646/EEC of December 15, 1989 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of credit institutions (and amending Directive 77/780/EEC) - Official Journal of the European Communities No. L 386, page 1 - (Second Banking Directive) is extended. (4) The home member state is a member state of the European Economic Com- munity in which the head office of a credit institution is registered. (5) The host member state is a member state of the European Economic Com- munity in which a credit institution maintains a branch or provides services outside the home member state. (6) Parent enterprises are enterprises which are considered to be parent enterprises for the purposes of section 290 of the German Commercial Code (Handelsgesetz- buch), irrespective of their legal form and domicile. (7) Subsidiaries are enterprises which are considered to be subsidiaries for the pur- poses of section 290 of the German Commercial Code, irrespective of their legal form and domicile. (8) Control is deemed to exist if an enterprise is considered to be a parent enter- prise relative to another enterprise, or if an analogous relationship exists between a natural person or a corporation and an enterprise. (9) A major 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 if a substantial influence can be exercised on the man- agement of the enterprise in which the participating interest is held. For calculat- ing the share of the voting rights, Article 7 sentence 1 of Council Directive 88/627/EEC of December 12, 1988 on the information to be published when a major holding in a listed company is acquired or disposed of - Official Journal of Li the European Communities No. L 348, page 62 - applies. Participating interests which are held indirectly are to be attributed in full to the enterprise holding the indirect participating interest. 2. Exceptions (1) Subject to the provisions of subsections (2) and (3), the following are deemed not to be credit institutions for the purposes of this Act: 1. the Deutsche Bundesbank; 2. the German Federal Post Office; 3. the Reconstruction Loan Corporation (Kreditanstalt fur Wiederaufbau); 4. the social security funds and the Federal Labour Office (Bundesanstalt fur Arbeit); 5. private and public insurance enterprises; 6. and 7. (repealed); 8. enterprises engaged in pawnbroking, insofar as they carry on this business by granting loans against pledges; 9. enterprises recognised under the Act Concerning Risk Capital Investment Com panies (Gesetz uber Unternehmensbeteiligungsgesellschaften) of December 17, 1986 (Federal Law Gazette 1, page 2488) as risk capital investment companies. (2) The Reconstruction Loan Corporation is subject to section 14 and to action taken by virtue of section 47 (1) 2 and section 48; the social security funds, the Federal Labour Office, insurance enterprises and risk capital investment companies are subject to section 14. (3) Enterprises of the types specified in subsection (1) 5 to 9 are subject to the pro- visions of this Act insofar as they conduct banking business which is not part of their characteristic business. ~ Number 2 will be repealed on January 1, 1996. (4) The Federal Banking Supervisory Office may rule in particular cases that an en- terprise within the meaning of section 1 (1) is not subject to the provisions of sec- tions 10 to 20, 24 to 38, 45 to 46c and 51 (1) of this Act or of section 112 (2) of the Composition Code (Vergleichsordnung), taken as a whole, as long as it does not require supervision, given the nature of the business it conducts. Such a ruling shall be published in the Federal Gazette (Bundesanzeiger). 2a. Legal form Credit institutions requiring a licence in accordance with section 32 (1) may not be operated in the form of a sole proprietorship. 2b. Holders of major participating interests (1) Anyone who intends to acquire a major participating interest in a credit institu- tion shall report the amount of the intended participating interest immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank. In his report he shall state the facts germane to assessing his trustworthiness, which facts shall be specified in more detail by regulation in accordance with section 24 (4); at the request of the Federal Banking Supervisory Office, the records specified in section 32 (1) sentence 2 number 6 (d) and (e) shall be submitted. If the pur- chaser is a corporation or a partnership, the report must contain the facts ger- mane to assessing the trustworthiness of its legal representatives or general part- ners; as long as the major participating interest is held, every newly appointed legal representative or new general partner shall be reported immediately, to- gether with the facts germane to assessing his trustworthiness. The holder of a major participating interest shall, moreover, notify the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately if he intends to increase the amount of the major 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 credit institution becomes a subsidiary. With- in three months of receipt of such notification, the Federal Banking Supervisory Office may prohibit the intended acquisition, or the increase, of the major particip- ating interest if facts are known which indicate that the party submitting the report or, if it is a corporation or partnership, its legal representatives or general partners are not trustworthy; this also applies if other facts are known which en- title the Federal Banking Supervisory Office to refuse the licence in accordance with section 33 (1) sentence 1 number 2a or sentence 2. If such acquisition is not prohibited, the Federal Banking Supervisory Office may fix a period after the expiry of which the party submitting the report shall inform the Federal Banking Supervis- ory Office immediately if it has not carried out the intention reported in accod- ance with sentence 1 or 4. (2) The Federal Banking Supervisory Office may prohibit the holder of a major par- ticipating interest from exercising his voting rights if 1. facts are known which indicate that the influence exercised by the holder or by legal representatives or general partners of the enterprise concerned may have a detrimental effect on the credit institution, 2. facts are known which indicate that, in the case of a major participating inter- est in the credit institution, the holder or the legal representatives or general partners of the enterprise concerned do not satisfy the requirements to be made in the interests of the sound and circumspect management of the credit institution; this is the case, in particular, if they are not trustworthy, 3. facts are known which indicate that the credit institution is associated with the holder of the major participating interest (section 15 of the Companies Act- Aktiengesetz) and that, owing to this association or the pattern of the associ- ation of the holder of the major participating interest with other enterprises, effective control over the credit institution is not possible, or 4. the participating interest has been acquired or increased notwithstanding an enforceable prohibition pursuant to subsection (1) sentence 5. In the cases specified in sentence 1, the exercise of voting rights may be trans- ferred to a trustee. In exercising the voting rights, the trustee shall take due account of the interests of the sound and circumspect management of the credit institution. The trustee is appointed by the court having jurisdiction at the domicile of the credit institution upon application by the credit institution, the holder of a participating interest in it or the Federal Banking Supervisory Office. If the precon- ditions specified in sentence 1 are no longer met, 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 upon applica- tion by the trustee; no further appeal is permissible. The Federal Government advances such expenses and remuneration; the holder of the major participating interest concerned and the credit institution are jointly and severally liable to the Federal Government in respect of its outlays. _ (3) Before taking measures in accordance with subsection (1) sentence 5 and sub- section (2) sentence 1, the Federal Banking Supervisory Office shall consult the appropriate authorities of the other member state of the European Economic Com- munity if the purchaser of the major participating interest is a credit institution licensed in the other member state, a parent enterprise of a credit institution licensed in the other member state or a person controlling a credit institution licensed in the other member state, and if the credit institution in which the pur- chaser intends to hold a participating interest would become a subsidiary of, or be controlled by, the purchaser as a result of the acquisition. (4) Anyone who intends to relinquish a major participating interest in a credit insti- tution or to reduce the amount of his major 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 credit institution is no longer a subsidiary, shall report this to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately; the residual level of the participating interest shall be indicated in the report. (5) The Federal Banking Supervisory Office shall suspend or limit the decision on the acquisition of a direct or indirect participating interest in a credit institution, through which the credit institution becomes a subsidiary of an enterprise domi- ciled outside the European Economic Community, if the Commission or Council of the European Communities has passed a corresponding decision in accordance with Article 22 (2) of the Second Banking Directive. The suspension 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 prolonga- tion. 3. Prohibited business The following are prohibited: 1. the conducting 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 31 credit out of these sums of money (savings enterprises for specific purposes- Zwecksparunternehmen); this does not apply to building and loan association 3. the conducting 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 In doubtful cases, the Federal Banking Supervisory Office decides whether an en- terprise is subject to the provisions of this Act. Its decisions are binding upon the administrative authorities. Division 2. Federal Banking Supervisory Office 5. Organisation (1) The Federal Banking Supervisory Office (Bundesaufsichtsamt fur das Kreditwe- sen) is established as an independent superior Federal authority (Bundesober-behorde). It is domiciled in Berlin. (2) The President of the Federal Banking Supervisory Office is nominated by the Federal Cabinet and appointed by the President of the Federal Republic; the Fed- eral Cabinet shall consult the Deutsche Bundesbank regarding such nomination. 6. Functions (1) The Federal Banking Supervisory Office exercises supervision over credit instit tions in accordance with the provisions of this Act. (2) The Federal Banking Supervisory Office shall counteract undesirable develop- ments in banking which may endanger the safety of the assets entrusted to credt institutions, adversely affect the orderly conduct of banking business, or involve serious disadvantages for the national economy. (3) 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 (1) The Federal Banking Supervisory Office and the Deutsche Bundesbank cooper- ate as provided in this Act. The Deutsche Bundesbank and the Federal Banking Supervisory Office shall communicate to each other any observations and findings which may be of significance for the performance of their respective functions. To this end, the Deutsche Bundesbank shall make available to the Federal Banking Supervisory Office the information it obtains from statistics collected in accordance with section 18 of the Bundesbank Act (Gesetz uber die Deutsche Bundesbank). Before ordering the collection of such statistics, the Deutsche Bundesbank shall consult the Federal Banking Supervisory Office; section 18 sentence 5 of the Bun- desbank Act applies as appropriate. (2) 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 respons- ibility are being discussed. He has no right to vote, but may propose motions. 8. Cooperation with other bodies (1) The Federal Banking Supervisory Office may enlist the services of other persons and institutions to assist in the performance of its functions. (2) If tax evasion proceedings are instituted against proprietors or managers of credit institutions, section 30 of the Tax Code (Abgabenordnung) does not pre- clude 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 ~nmm tt~f~ the offence while in the employment of credit institutions. (3) When supervising credit institutions conducting banking business in another member state of the European Economic Community and when supervising credit institutions on a consolidated basis, the Federal Banking Supervisory Office and - insofar as it is acting under this Act - the Deutsche Bundesbank cooperate with the appropriate authorities of the member state concerned. Communications from the appropriate authorities of another member state may be used for the following purposes only: 1. for checking a credit institution's licence to conduct business, ~ i 2. for supervising the operations of a credit institution or group of credit institu- tions, 3. for orders by the Federal Banking Supervisory Office and for the prosecution and punishment by the Federal Banking Supervisory Office of breaches of ad- ministrative regulations, 4. in the context of administrative proceedings on legal remedies against a de- cision 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. If the licence of a credit institution to conduct banking business is revoked,the Federal Banking Supervisory Office informs the appropriate authorities of the other member states in which the credit institution has established branches. (4) If an enterprise within the meaning of section 53b (1) sentence 1 or (7), through its operations via a branch in the area of validity of this Act or through the services it renders, infringes provisions compliance with which is monitored by the Federal Banking Supervisory Office, that Office informs the authorities of the home member state of the measures it will take to terminate such infringement. The Office also informs the appropriate authorities of the host member state of the measures it will take to terminate infringements by a credit institution domi- ciled within the area of validity of this Act of legal regulations of the host member state of which the Federal Banking Supervisory Office has been informed by the appropriate authorities of the host member state. 9. Secrecy (1) Persons employed by the Federal Banking Supervisory Office and persons appointed under section 8 (1) or section 30 (2) sentence 3, supervisors appointed under section 46 (1) sentence 2 and persons employed by the Deutsche Bundes- bank, insofar as they are acting to implement this Act, may not disclose or use without authority facts which have come to their notice in the course of their activi- ities and which should be kept secret in the interests of the credit institution or a third party (especially business and trade secrets), not even after they have left such employment or their activities have ended. This also applies to other persons who learn of the facts referred to in sentence 1 as a result of official reports.In particular, it is not deemed to be such disclosure, or use without authority within the meaning of sentence 1, if facts are passed on 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 credit institutions, financial institutions or insurance enterprises, or of the financial markets, and to persons commissioned by such agencies, 3. to agencies dealing with the liquidation, composition or insolvency of a credit institution, 4. to persons entrusted with the statutory auditing of the accounts of credit insti- tutions or financial institutions, or 5. to deposit guarantee schemes, 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 sub- ject to secrecy requirements corresponding to those specified in sentence 1. (2) Sections 93, 97, 105 (1) and 111 (5), read in conjunction with section 105 (1), and section 116 (1) of the Tax Code do not apply to the persons referred to in sub- section (1) insofar as they are acting to implement this Act. This does not apply if the fiscal authorities require the information for instituting proceedings for tax eva- sion and the associated tax assessment proceedings, in the prosecution of which there is a pressing public interest, or if the person required to give information or the persons acting on his behalf have wilfully supplied incorrect information. Sen- tence 2 does not apply if the facts involved were communicated to the persons referred to in subsection (1) sentence 1 or 2 by the banking supervisory authority of another state or by persons commissioned by that authority. 35 Part 11 Provisions for credit institutions Division 1. Capital and liquidity 10. Capital (1) In order to meet their obligations to their creditors, and particularly in order to safeguard the assets entrusted to them, credit institutions must have adequate liable capital (ha*endes Eigenkapital). The Federal Banking Supervisory Office,act- ing in agreement with the Deutsche Bundesbank, draws up Principles by which it assesses in the normal case whether the requirements of sentence 1 have been satisfied; the central associations representing the credit institutions shall be con- sulted beforehand. The Principles shall be published in the Federal Gazette. (2) The following shall be regarded as liable capital: 1. in the case of sole proprietorships (Einzelkaufleute), general partnerships (offe- ne Handelsgesellschaften) and limited partnerships (Kommanditgesellschaften): the 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; in the case of general and limited partnerships: only the paid-up capital shall be taken into account; 2. in the case of public limited companies (Aktiengesellscha*en), limited compan- ies with one or more general partners (Kommanditgesellscha*en auf Aktien) and private limited companies (Gesellscha*en mit beschrankter Ha*ung):the paid-up capital and the reserves, less the company's holdings of its own shares and cumulative preferential shares; in the case of limited companies with gen- eral 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 Genossenschaf- ten) the amounts paid up on members' shares and the reserves, plus an addi- tional sum to be fixed by regulation by the Federal Minister of Finance, after having consulted the Deutsche Bundesbank, to take account of the uncalled commitments of members; amounts paid up on the shares of members who are retiring at the end of the financial year and rights of members to the out- payment of a share in the cooperative society's reserves, as shown separately in the balance sheet by registered cooperative societies in accordance wth sec- tion 73 (3) of the Act Concerning Industrial and Trading Cooperative Societies (Gesetz betreffend die Erwerbs- und Wirtschaftsgenossenscha*en), shall be deducted; the Federal Minister of Finance may delegate the authority to issue regulations to the Federal Banking Supervisory Office; 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 num- ber 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. Loans to limited partners, to shareholders in a private or public limited company or a limited company with general partners, or to shareholders in a public credit insti- tution who own more than twenty-five per cent of the capital (nominal capital, total amount of capital shares) of the credit institution, or who hold more than twenty-five per cent of the voting rights, shall be deducted unless they have been granted on market terms or if, contrary to banking practice, they are inadequately secured. Section 16 (2) to (4) of the Companies Act applies as apprnnri~t~ to the calculation of the percentage pursuant to sentence 2. (3) The net profit shall be counted as part of the liable capital insofar as it has been decided to allocate such profit to the capital, the reserves or the amount paid up on cooperative society members' shares. For the purposes of subsection (2), reserves are deemed to comprise only amounts shown as reserves, other than liab- ilities which by virtue of the tax regulations are not subject to taxation until their release . (4) Assets contributed by silent partners shall be counted as ~ I t of the liable cap- ital only 1. if they share fully in any loss, 2. if, in the event of the credit institution's insolvency or liquidation, they cannot be recovered until all creditors have been satisfied, 3. if they have been made available to the credit institution for a period of at least five years, 4. as long as the claim to repayment does not, or, under the terms of the pa ship agreement, cannot, fall due within less than two years, and 5. if the credit institution, when establishing the silent partnership, referred e~ citly and in writing to the legal consequences specified in sentences 2 and 3 After the event, participation in any loss cannot be changed, the subordinatio claims cannot be limited, and neither the period to maturity nor the period cf tice can be shortened. Any premature repayment shall be returned to the c- institution, irrespective of any arrangements to the contrary. Loans to silent~ ners whose contributed assets make up more than twenty-five per cent of liable capital shall be deducted from the liable capital unless they have t granted on market terms or if, contrary to banking practice, they are inadequd secured. Section 16 (4) of the Companies Act applies as appropriate to the ca~ tion of the percentage pursuant to sentence 4. (4a) The following may be counted as part of the liable capital: 1. precautionary reserves in accordance with section 340f of the Comme~: Code; 2. special items providing for general banking risks in accordance with sec~ 340g of the Commercial Code; 3. cumulative preferential shares; 4. unrealised reserves (a) up to the amount of forty-five per cent of the difference between the bot value and the loan value of land, rights equivalent to land, and buildings (b) up to the amount of thirty-five per cent of the difference between the bct value and (aa) the market price of securities which are officially listed on a sto~ exchange or included in another organised market that is recogniset open to the general public and functioning properly (listed securities) (bb) the value to be ascertained pursuant to section 11 (2) sentences 2 to of the Valuation Act (Bewertungsgesetz) of unlisted securities evide cing shares in incorporated enterprises with a balance sheet total of.~ least twenty million Deutsche Mark and belonging to the associatc of credit cooperatives or savings banks; (cc) the published repurchase price of shares in securities or real estate investment funds (other than specialised funds), which shares were issued in accordance with the provisions of the Act on Investment Companies, or of shares in a securities special fund issued by an invest- ment company domiciled in another member state of the European Communities in accordance with the provisions of Council Directive 85/611/EEC of December 20, 1985 on the coordination of laws, regu- lations and administrative provisions relating to undertakings for col- lective investment in transferable securities (Official Journal of the European Communities No. L 375, page 3); in the case of these assets, any precautionary reserves formed are to be added to the book value; 5. reserves pursuant to section 6b of the Income Tax Act (Einkommensteuerge- setz) up to the amount of forty-five per cent, to the extent that these reserves were formed through the transfer of the proceeds of the sale of land, rights equivalent to land, and buildings. Unrealised reserves may be counted as part of the liable capital only if the sum total of the capital items specified in subsections (2) to (4), in sentence 1 number 2 of this subsection and in subsections (6) and (7) sentence 3, less the additional sum pursuant to subsection (2) sentence 1 number 3, and less the amounts listed in subsection (6a) sentence 1 numbers 1 and 2 (core capital), make up at least four point four per cent of the credit institution's risk assets, weighted in accordance with Principle I of the Federal Banking Supervisory Office; unrealised reserves may be counted as part of the liable capital only up to one point four per cent of such risk-weighted assets. Unrealised reserves may be included only if all assets pursuant to sentence 1 number 4 (a) or (b) are included in the calculation of the difference. The mode of calculation of the unrealised reserves is to be disclosed to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately after its completion, indicating the relevant valuations. (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 equival- ent to land, and buildings. These values shall be determined by means of expert valuations at least every three years. The credit institution shall appoint an expert committee 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 is to be decu- from the unrealised reserves. (4c) The market value of listed securities depends upon the price on the bac sheet date. If the average of that price and the prices ascertained on the pre~: three balance sheet dates is below that price, the average price applies. If no a is available on a balance sheet date, then the last price ascertained within t~ days before the balance sheet date applies. If securities are treated in accorda with the principles for fixed assets, the difference between the relevant ma value and the higher book value shall be deducted from the unrealised rese,- The procedure described in sentences 1, 2 and 4 is to be applied as appropr at~ the determination of the value of unlisted securities pursuant to section 11 2 the Valuation Act and of the repurchase price of shares in a special fund. (5) Capital paid up against the issue of participation rights (Genussrechte) sha counted as part of the liable capital only 1. if it shares fully in any loss, and if the credit institution is required to defe- n. est payments in the event of a loss, 2. if it has been agreed that, in the event of the credit institution's insolvency: liquidation, it cannot be repaid until all non-subordinated creditors have be~ satisfied, 3. if it has been made available to the credit institution for a period of at least t years and does not have to be repaid prematurely at the creditor's reques+ tr term of five years need not be observed if securities evidencing partici ~at^ rights are called in prematurely owing to tax changes which result in add t orc payments to the purchaser of the participation rights, and if the capita ~. been replaced before repayment by the inpayment of other liable capita ot ~. Ieast equivalent status, 4. as long as the claim to repayment does not, or, under the terms of the agre~ ment, cannot, fall due within less than two years, and 5. if the credit institution, when concluding the agreement, referred explicitly ana in writing to the legal consequences specified in sentences 2 and 3. After the event, participation in any loss cannot be changed, the subordination o claims cannot be limited, and neither the period to maturity nor the period of no 40 tice can be shortened. Any premature repayment shall be returned to the credit institution, irrespective of any arrangements to the contrary, unless the capital has been replaced by the inpayment of other liable capital of at least equivalent status. If any securities are issued in respect of the participation rights, only the terms of subscription and issue shall refer to the legal consequences specified in sentences 2 and 3. A credit institution may purchase securitised participation rights of its own only if it is thereby carrying out instructions to buy on a commission basis; for market-smoothing purposes, the credit institution may also purchase up to three per cent of the total nominal amount of an issue of participation rights of its own if the participation rights are securitised in listed securities; the intention of taking advantage of the market-smoothing option shall be communicated to the Federal Banking Supervisory Office and the Deutsche Bundesbank. Sections 71a, 71d and 71 e of the Companies Act apply as appropriate. (5a) Capital which has been paid up on account of the incurrence of subordinated liabilities shall be counted as part of the liable capital only if it has been agreed that 1. in the event of the credit institution's insolvency or liquidation, it will not be repaid until all non-subordinated creditors have been satisfied, 2. it has been made available to the credit institution for a period of at least five years and does not have to be repaid prematurely at the creditor's request; if no period has been fixed for the repayment of the capital, a period of notice of at least five years shall be envisaged; after the expiry of these five years, a shorter period of notice may be agreed in favour of the credit institution if, before repayment, the capital has been replaced by the inpayment of other liable cap- ital of at least equivalent status; the period of five years need not be observed if bonds are called in prematurely owing to a change in taxation which leads to additional payments to the purchaser of the bonds, 3. offsetting the repayment claim against claims of the credit institution is ruled out and no contractual collateral for the liabilities is provided by the credit insti- tution or third parties; a credit institution may provide subordinated collateral for subordinated liabilities incurred by a subsidiary of the credit institution that was established for the sole purpose of raising capital; section 11 number 3 of the Act to Regulate the Law Governing the General Terms and Conditions of the Offsetting Ban (Gesetz zur Rege/ung des Rechts der Allgemeinen Geschaftsbedingungen uber das Aufrechnungsverbot) does not apply to claims arising from the credit institution's subordinated liabilities. If the claim to repayment does, or, under the terms of the agreement, can, fall due within less than two years, only two-fifths of the liabilities are counted as part of the liable capital. After the event, 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 credit institution, irrespective of arrangements to the contrary, unless the credit institution has been liquidated or unless the capital has been replaced by the inpayment of other liable capital of at least equivalent status. Upon conclusion of the agreement, the credit institution shall refer explicitly and in writing to the legal consequences specified in sentences 3 and 4; if securities are issued through subordinated liabilities, the aforemen- tioned legal consequences shall be referred to in the subscription and issue terms. Subsection (5) sentences 5 and 6 applies as appropriate. No designation may be used for subordinated liabilities, or for advertising for subordinated liabilities which contains the word "save" or which is otherwise liable to deceive as to the subordinated status in the event of insolvency or liquidation; this does not apply, however, if a credit institution uses its firm-name as protected under section 40. (6) Proven unencumbered personal assets of the proprietor or the general partners may, upon application, be counted as part of the liable capital to an extent to the determined by the Federal Banking Supervisory Office. (6a) The following shall be deducted from the liable capital: 1. Iosses; 2. intangible assets; 3. three per cent of the total nominal amount of the respective issue of own par- ticipation rights evidenced by listed securities and subordinated liabilities if the credit institution intends to take advantage of the market-smoothing option; 4. the following participating interests, claims arising from subordinated liabilities and participation rights, and preferential shares: (a) participating interests in credit institutions and financial institutions, other than investment companies, amounting to more than ten per cent of the capital of these enterprises; upon application by the credit institution,the Federal Banking Supervisory Office may permit exceptions if the cred t insti- tution temporarily holds shares in a credit institution or financial institution in order to give financial support to that enterprise; (b) claims arising from subordinated liabilities within the meaning of subsection (5a) on credit institutions and financial institutions, other than investment companies, in which the credit institution holds more than ten per cent of these enterprises' capital; (c) claims arising from participation rights within the meaning of subsection (5) on enterprises pursuant to letter (b); (d) preferential shares within the meaning of subsection (4a) sentence 1 number 3 of enterprises pursuant to letter (b); 5. the total amount of the following participating interests, claims arising from subordinated liabilities and participation rights, and preferential shares if it exceeds ten per cent of the credit institution's liable capital before deduction of the amounts pursuant to number 4 and pursuant to this number: (a) participating interests in credit institutions and financial institutions, other than investment companies, amounting to not more than ten per cent of these enterprises' capital; (b) claims arising from subordinated liabilities within the meaning of subsection (5a) on credit institutions and financial institutions, other than investment companies, in which the credit 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 within the meaning of subsection (5) on enterprises pursuant to letter (b); (d) preferential shares within the meaning of subsection (4a) sentence 1 number 3 of enterprises pursuant to letter (b). If the credit institution includes all participating interests of at least ten per cent in credit institutions or financial institutions, other than investment companies, in the consolidation in accordance with section 10a, no deductions need be made for these enterprises pursuant to sentence 1 number 4 or 5. Section 10a (5) sentence 2 applies as appropriate. (6b) The sum total of the capital items specified in subsection (4a) sentence 1 num- bers 1 and 3 to 5, subsections (5) and (5a) and the additional sum pursuant to sub- - r l (1) Credit institutions belonging to a group, taken as a whole, must have adequ liable capital. Section 10 on the capital of individual credit institutions applies appropriate . section (2) sentence 1 number 3 must not exceed the core capital. The sum of the additional sum pursuant to subsection (2) sentence 1 number 3 a subordinated liabilities pursuant to subsection (5a) must not exceed fifty p of the core capital; the provisions of the Regulation Governing the Additi Members' Uncalled Liability to the Capital and Reserves (Zuschlagsveror remain unaffected, in accordance with subsection (2) sentence 1 numbe exceptional circumstances, the Federal Banking Supervisory Office may credit institutions or groups of credit institutions to exceed the limits spec sentences 1 and 2 for a temporary period. (7) The criterion for the assessment of the liable capital is the last balance approved for the end of a financial year. The Federal Banking Supervisory may take due account of any changes in the liable capital shown before the a accounts are approved. Interim profits may be taken into account unless th tied up for prospective profit distributions or tax payments, and if they ha~ ascertained on the basis of interim accounts which satisfy the requirements a ing to annual accounts. The interim accounts shall be audited by the auditor annual accounts. The interim accounts and the associated auditor's reports be submitted immediately to the Federal Banking Supervisory Office and Deutsche Bundesbank. Any losses shown in the interim accounts shall be d~ ed from the liable capital. If a credit institution compiles interim accounts, it not discontinue this procedure until five years have elapsed; the procedure ca be resumed until five years have passed since the last interim accounts. (8) Credit institutions shall report immediately to the Federal Banking Super Office and the Deutsche Bundesbank those loans which are to be deducb accordance with subsection (2) sentence 2 or subsection (4) sentence 4. Ioans shall be reported immediately once again if the collateral provided o terms of the loan are changed by a legal transaction. Every five years, the Fe Banking Supervisory Office may require credit institutions to submit to itself a the Deutsche Bundesbank a summary report of the loans to be reported in a ance with sentence 1 10a. Capital of grouos of credit institutions (2) For the purposes of this provision, credit institutions belong to a group of credit institutions if one credit institution (parent institution) holds directly or indirectly at least forty per cent of the capital shares in another credit institution (subsidiary) (= significant participating interest), or can directly or indirectly exercise a control- ling influence over it. Capital shares held directly and indirectly and capital shares owned by a third party for the account of a credit institution belonging to the group shall be added together; capital shares held indirectly are disregarded when determining the significant participating interest if they have been obtained through the intermediation of an enterprise in which the parent institution directly holds less than forty per cent of the capital shares; this applies as appropriate to capital shares held indirectly which have been obtained through the intermediation of more than one enterprise. Voting rights are equivalent to capital shares. Section 16 (2) and (3) of the Companies Act applies as appropriate. The following enter- prises are likewise deemed to be subsidiaries: 1. enterprises the object of which is to purchase money claims, 2. enterprises the object of which is to conclude leasing agreements, and 3. enterprises which are domiciled in another state and which conduct banking business corresponding to that specified in section 1 or business corresponding to that specified in number 1 or 2, other than enterprises within the meaning of section 2 (1) 5 and 8, if a significant participating interest is held in them or if a controlling influence can be exercised over them. Enterprises exclusively conducting safe custody business or investment fund business are not deemed to be subsidiaries. (3) Whether or not credit institutions belonging to a group, taken as a whole, have adequate liable capital shall be determined on the basis of a pro rata consolidation of the liable capital and the other items relevant under the Principles pursuant to subsection (1) sentence 2, read in conjunction with section 10 (1) sentence 2; in the case of subsidiaries domiciled in another state, the items corresponding to those recognised under section 10 are deemed to be liable capital. For the pro rata consolidation the parent credit institution shall consolidate its relevant items with the relevant items of the subsidiaries, to the extent of the share of its capital inter- est in the subsidiary in each case. The book values, as shown by the parent institu- tion (but accounted for by the credit institutions belonging to the group), of the capital shares, of the assets contributed by silent partners in accordance with sec- tion 10 (4) sentence 1, of the capital represented by participation rights in accord- ance with section 10 (5) sentence 1, of the subordinated liabilities in accordance with section 10 (5a) sentence 1 and of the unrealised reserves shown by the ent institution in accordance with section 10 (4a) sentence 1 number 4 shall be deducted from the liable capital to be consolidated on a pro rata basis in accord- ance with sentence 2; in the case of indirect participating interests, the book values shall be deducted on a pro rata basis in accordance with sentence 2.If the book value of a participating interest is higher than that part of the subsidiary's capital and reserves which is to be consolidated in accordance with sentence 2, the difference resulting upon the first inclusion of the participating interest in the pro rata consolidation is not included in the deduction pursuant to sentence 3 for a period of not more than ten years, at an amount decreasing by at least one-tenth each year, but is treated like a participating interest in a credit institution not be- longing to the group. The other items relevant to the calculation of the Principles which are not included in the computation pursuant to sentence 3, and which result from legal relations between credit institutions belonging to the group,shall be omitted. The Federal Minister of Finance, acting in consultation with the Deut- sche Bundesbank, may issue supplementary provisions by regulation. (4) The parent institution is responsible for the group of credit institutions having adequate capital. To fulfil its obligations in accordance with sentence 1 it may, however, exercise an influence over subsidiaries only insofar as this does not contravene current company law. The parent institution shall submit to the Federal Banking Supervisory Office and the Deutsche Bundesbank every month the data required for monitoring capital adequacy. (5) The subsidiaries are required to submit to the parent institution the data needed for a pro rata consolidation. If a parent institution is unable to obtain the requisite data for individual credit institutions belonging to the group, the book values specified in subsection (3) sentence 3 accounted for by the credit institution belonging to the group shall be deducted from the liable capital of the parent insti- tution . (6) Subsections (1), (3) and (4) do not apply to parent institutions which are them- selves subsidiaries, except in the case of credit institutions which hold reciprocal participating interests, credit institutions which are subsidiaries pursuant to subsec- tion (2) sentence 5 number 3 or credit institutions in which the parent institutions hold less than seventy-five per cent of the capital shares. Subsections (1) and (3) to (5) do not apply to subsidiaries which would have to be included in the consolida- tion in accordance with subsection (3) with less than ten per cent of their capital shares. 11. Liquidity Credit institutions must invest their funds in such a way as to ensure that adequate liquidity is guaranteed at all times. The Federal Banking Supervisory Office, acting in agreement with the Deutsche Bundesbank, draws up Principles whereby it assesses in the normal case whether a credit institution's liquidity is adequate; the central associations representing the credit institutions shall be consulted before- hand. The Principles shall be published in the Federal Gazette. The Principles shall link up with the definition of savings deposits, and particularly of a pass- book, given in the Regulation on the Accounts of Credit Institutions (Verordnung uber die Rechnungslegung der Kreditinstitute), which to this extent is subject to the approval of the Bundestag. 12. Limitation of investments (1) A credit institution's investments in land, buildings, furniture and equipment, ships, shares in credit institutions and other enterprises, as well as in claims arising from assets contributed as a silent partner, from participation rights and from li- abilities within the meaning of section 10 (5a) to other credit institutions, excluding the items which have been deducted from the liable capital in accordance with sec- tion 10 (6a) sentence 1 number 4 or 5, calculated at book value, may not in the aggregate exceed the liable capital. (2) Subsection (1 ) does not apply to 1. shares in the capital of other enterprises if they do not exceed ten per cent of the capital (nominal capital, number of mining shares, total amount of capital shares) of the enterprise; 2. securities intended for trading for the credit institution's own account and for market-smoothing operations up to five per cent of an enterprise's capital, if they are listed on a resident or non-resident stock exchange or are included in regulated free trading and if they are recorded and administered separately from other such holdings; 3. shares in the capital of enterprises which the credit institution has purchased in its own name for the account of a third party, as long as the credit institution does not hold them for more than two years; 47 4. Iand, buildings, ships and shares in the capital of enterprises which the credit institution has purchased to avoid losses in lending business, as long as the credit institution does not hold them for more than five years; 5. furniture and equipment of credit cooperatives, insofar as they are required for carrying out transactions in goods. (3) Upon application, the Federal Banking Supervisory Office may permit a credit institution to deviate temporarily from subsection (1). (4) Subsection (1) does not apply to registered cooperative societies which were recognised as non-profit housing enterprises on December 31, 1989 and whose activities mainly comprise the letting of dwellings to their members if 1. the only banking business they conduct is deposit business, which they transact only with their members and their relatives within the meaning of section 15 of the Tax Code, 2. the deposits do not exceed seventy per cent of the fixed assets leased to mem- bers, and 3. they belong to a scheme for protecting savings deposits at enterprises which were recognised on December 31, 1989 as non-profit housing enterprises. (5) A credit institution which accepts deposits or other repayable funds from the general public and conducts banking business may not hold a major participating interest the nominal value of which exceeds fifteen per cent of the credit institu- tion's liable capital in the capital of an enterprise that neither constitutes a credit institution, financial institution or insurance enterprise nor conducts ancillary busi- ness for the credit institution. The total nominal amount of the major participating interests in the capital of these enterprises may not exceed sixty per cent of the credit institution's liable capital. Shares in the capital which are not intended to serve the credit institution's own business operations by the creation of a perman- ent link shall not be included in the computation of the amount of the major par- ticipating interest. The limits specified in sentences 1 and 2 are to be complied with on a consolidated basis, too, in accordance with the Principles pursuant to section 10a. A credit institution or group of credit institutions may exceed the limits specified in sentence 1 or sentence 2 if the credit institution or group of credit institutions covers that part of the participating interest that exceeds the limits by liable capital; those parts of the liable capital may not be considered for the pur- poses of the Principles on the adequacy of liable capital pursuant to section 10 (1) sentence 2 and section 10a (1) sentence 1. If both of the limits specified in sen- tences 1 and 2 are exceeded, the larger amount shall be covered by liable capital. 12a. Establishment of corporate ties (1 ) A credit institution, 1. when acquiring a significant participating interest within the meaning of sec- tion 10a (2), or when acquiring a substantial participating interest within the meaning of section 13a (2), in an enterprise as defined in section 10a (2) sen- tence 5 number 3, or 2. when establishing corporate ties by virtue of which a controlling influence can be exercised directly or indirectly over such an enterprise through majority par- ticipating interests or control agreements, shall ensure that it obtains the data required for discharging the various duties specified in sections 10a, 13a and 25 (2). Sentence 1 shall not apply to the data required for discharging the duties specified in sections 10a and 13a if account is taken of the risk arising from the establishment of the participating interest or the corporate ties by the deduction of the book values, to be effected pursuant to sec- tion 10a (5) sentence 2 in a way comparable to the pro rata consolidation in ac- cordance with section 10a (3) and section 13a (3), and if the Federal Banking Supervisory Office is enabled to monitor compliance with this condition. The credit institution shall report the establishment, modification or discontinuance of a parti- cipating interest or of corporate ties as specified in sentence 1 to the Federal Bank- ing Supervisory Office and the Deutsche Bundesbank immediately. (2) The Federal Banking Supervisory Office may prohibit the continuation of the participating interest or the corporate ties if the credit institution does not receive the data required for discharging the duties specified in section 10a, section 13a or section 25 (2). The exception pursuant to subsection (1) sentence 2 applies as appropriate to the powers of prohibition conferred by sentence 1. 49 Division 2. Lending business 13. Large loans (1) Loans to a single borrower which, taken together, exceed fifteen per cent of the credit institution's liable capital (large loans) shall be reported to the Deutsche Bundesbank immediately; this does not apply to large loans where the amount committed or taken up is not above fifty thousand Deutsche Mark, unless the large loan exceeds fifty per cent of the credit institution's liable capital. Large loans al- ready reported shall be reported again if they are increased by more than twenty per cent of the amount last reported or exceed fifty per cent of the liable capital. The Deutsche Bundesbank passes on the reports, along with its comments, to the Federal Banking Supervisory Office; the latter may waive its right to the for- warding of certain reports. The Federal Banking Supervisory Office may require credit institutions to submit to it and the Deutsche Bundesbank once a year a list of their large loans subject to reporting requirements. (2) Without prejudice to the validity of the transaction, credit institutions organised in the form of a corporation or partnership may grant large loans only on the bacis of a unanimous decision by all managers. The decision should be taken before the loan is granted. 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 a large loan has been granted without a prior unanim- ous decision by all managers, the Federal Banking Supervisory Office and the Deutsche Bundesbank shall be notified within one month whether the decision has been taken subsequently, and, if so, with what result. If a loan already granted becomes a large loan owing to a reduction in the liable capital, the continued granting of this large loan is permissible, without prejudice to the validity of the transaction, only on the basis of a unanimous decision to be taken immediately by all managers; sentences 4 and 5 apply as appropriate. (3) Without prejudice to the validity of the transaction, 1. (Repealed) 2. all large loans in the aggregate may not exceed eight times the credit institu- tion's liable capital. For the purposes of sentence 1 number 2, loans committed but not yet taken up shall be disregarded. (4) Without prejudice to the validity of the transaction, no single large loan may exceed fifty per cent of the credit institution's liable capital. (5) Loans which central credit institutions transmit to final borrowers via the regional institutions (Zentralkassen/Girozentralen) associated with them, or via the registered cooperative societies or savings banks associated with these regional institutions, shall be counted at the central credit institutions for the purposes of subsections (3) and (~, only to the extent that credit is granted to the individual final borrower if the claims in respect of the loans are assigned to the central credit institution as collateral. (6) When calculating large loans, guarantees and other warranties - except guar- antees in respect of loans as defined in section 19 (1) sentence 1 numbers 1 to 3 and 7 - and credit extended by purchasing bills of exchange rediscountable at the Bundesbank shall be counted at only half their value. (7) Subsections (1) and (2) also apply to general credit lines committed subject to the proviso that the reports required under subsection (1) are to be filed on dates specified by the Federal Banking Supervisory Office. (8) Liable capital within the meaning of the preceding subsections comprises the capital items specified in section 10 (2) to (4), (5), (6), and (7) sentences 1 and 2; losses shall be deducted. Capital paid up against the granting of participation rights shall be counted as part of the liable capital only if it does not exceed twenty- five per cent of the liable capital in accordance with section 10 (2) and (3), exclud- ing an additional sum in accordance with section 10 (2) sentence 1 number 3. 13a. Large loans granted by groups of credit institutions (1) Section 13 (1) and (3) to (8) on large loans granted by individual credit institu- tions applies as appropriate to loans granted by credit institutions belonging to a group, taken as a whole. (2) For the purposes of this provision, credit institutions belong to a group of credit institutions if one credit institution (parent institution) holds directly or indirectly at least fifty per cent of the capital shares in another credit institution (subsidiary) (= substantial participating interest), or can directly or indirectly exercise a control- ling influence over it. Capital shares held directly and indirectly and capital shares owned by a third party for the account of a credit institution belonging to the group shall be added together; capital shares held indirectly are disregarded when determining the substantial participating interest if they have been obtained through the intermediation of an enterprise in which the parent institution directly holds less than fifty per cent of the capital shares; this applies as appropriate to capital shares held indirectly which have been obtained through the intermediation of more than one enterprise. Section 10a (2) sentences 3 to 6 on credit institutions belonging to a group applies as appropriate. (3) Whether or not credit institutions belonging to a group, taken as a whole, have granted a large loan and are observing the limits specified in section 13 (3) and (4) shall be determined on the basis of a pro rata consolidation of the liable capital and the loans granted to a single borrower if, for one of the credit institutions belonging to the group, the loan granted by that credit institution is a large loan within the meaning of section 13 (1) sentence 1. Section 10a (3) sentences 2 to 6 on the pro rata consolidation applies as appropriate. (4) The parent institution shall satisfy the reporting requirements and the require- ments to submit lists in accordance with subsection (1), read in conjunction with section 13 (1), in respect of the large loans granted by the credit institutions be- longing to the group, taken as a whole. The parent institution is responsible for the credit institutions belonging to the group, taken as a whole, observing the limits specified in section 13 (3) and (4). To meet its obligations in accordance with sen- tence 2 it may, however, exercise an influence over subsidiaries only insofar as this does not contravene current company law. (5) Section 10a (5) and (6) on the information requirement, the deduction proced- ure and exceptions from the pro rata consolidation applies as appropriate. 14. Loans of three million Deutsche Mark or more (1) Credit institutions shall report to the Deutsche Bundesbank by the fifteenth day of January, April, July and October those borrowers whose indebtedness to them amounted to three million Deutsche Mark or more at any time during the three cal- endar months preceding the reporting date. At the same time they shall report, for their subsidiaries within the meaning of section 13a (2) that are domiciled in another state and conduct banking business in accordance with section 1, the subsidiaries' borrowers within the meaning of sentence 1, to be applied as appro- priate. In the case of syndicated loans of three million Deutsche Mark or more, sen- tence 1 applies even if the share of the individual credit institution does not amount to three million Deutsche Mark. The report shall indicate the amount of the borrower's indebtedness at the end of the month preceding the report. Sec- tion 13 (1) sentence 3 applies as appropriate. (2) If it is found that loans of the type specified in subsection (1) have been grant- ed to a single borrower by several credit institutions or enterprises within the meaning of subsection (1) sentence 2, the Deutsche Bundesbank shall notify the credit institutions concerned. The notificatlon may indicate only the total indebted- ness of the borrower and the number of credit institutions involved. In the notifica- tion, the indebtedness to the credit institutions involved shall be broken down into liabilities arising from 1. Ioans repayable not earlier than four years after they have been granted, or sub- ject to regular repayment extending over a period of not less than four years; 2. Ioans repayable within less than four years after they have been granted; 3. acceptance and discount credit in respect of which the borrower has a right of recourse against other liable parties; 4. guarantees and other warranties and the liability in respect of the provision of collateral for third-party debts and in respect of obligations to meet money claims transferred against payment or to buy them back at the purchaser's request; 5. Ioans which are covered by numbers 1 to 4 and 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; 6. Ioans which are covered by numbers 1 to 4 and satisfy the conditions of section 20(2), 1,20r5. (3) If pursuant to section 19 (2) several debtors are deemed to be a single bor- rower, the indebtedness of the individual debtors shall also be indicated in the reports in accordance with subsection (1). In the notification pursuant to subsec- tion (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 credit institutions which or whose subsidiaries within the meaning of subsection (1) sentence 2 have granted loans to these debtors. (4) After the conclusion of international agreements or after the entry into force of a Directive of the European Economic Community on credit reports within the meaning of this provision, the Deutsche Bundesbank is authorised to pass on the reports specified in subsection (1) in the consolidation provided for in subsection (2) sentences 2 and 3 to the bodies named in the international agreement or in the Directive of the European Economic Community for communication to the enter- prises concerned that are domiciled in another state, and also to notify the credit institutions involved in accordance with subsection (2) about the indebtedness of borrowers to enterprises domiciled in another state. 15. Loans to managers, etc. ( 1 ) Loans to 1. managers of the credit institution, 2. partners (Gesellschafter) of the credit institution who are not managers if the credit institution is organised in the form of a partnership or private limited company, and general partners of the credit institution who are not managers if the credit institution is organised in the form of a limited company with one or more general partners, 3. members of a body of the credit institution appointed to supervise the manage- ment of the credit institution if the supervisory powers of the body are regulat- ed by law (supervisory body), 4. holders of a special statutory authority (Prokuristen) and agents of the bank with authority to represent it in all aspects of its business (zum gesamten Geschaftsbetneb ermachtigte Handlungsbevollmachtigte), 5. spouses and under-age children of the persons specified in numbers 1 to 4, 6. silent partners of the credit institution, 7. enterprises organised in the form of a corporation or partnership if a manager, a holder of a special statutory authority or an agent with authority to represent the credit institution in all aspects of its business is a legal representative or a member of the supervisory body of the corporation or a partner in the part- nership, enterprises organised in the form of a corporation or partnership if a legal rep- resentative of the corporation, a partner in the partnership, a holder of a spe- cial statutory authority or an agent of the enterprise with authority to rep- resent it in all aspects of its business is a member of the supervisory body of the credit institution, 9. enterprises in which the credit institution or a manager holds a participating interest amounting to more than ten per cent of the enterprise's capital or in which the credit institution or a manager is a general partner; a participating interest is deemed to be any holding of shares or mining shares in the enter- prise amounting to not less than one-quarter of the capital (nominal capital, number of mining shares, total amount of capital shares), irrespective of the duration of the holding, enterprises which hold a participating interest in the credit institution amount- ing to more than ten per cent of its capital; number 9 clause 2 applies as appropriate, enterprises organised in the form of a corporation or partnership if a legal rep- resentative of the corporation or a partner in the partnership holds a particip- ating interest in the credit institution amounting to more than ten per cent of its capital; number 9 clause 2 applies as appropriate, may be granted only on the basis of a unanimous decision by all managers of the credit institution and only with the explicit approval of the supervisory body. 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, is deemed to be equivalent to the granting of a loan. (2) Subsection (1) applies as appropriate to the granting of loans to general part- ners, managers, members of the executive board or supervisory body, to holders of a special statutory authority and to agents of an enterprise dependent on the credit institution or controlling the credit institution with authority to represent the enterprise in all aspects of its business, as well as to their spouses and under-age children. In these cases the explicit approval of the supervisory body of the control- ling enterprise must have been given. (3) Subsections (1 ) and (2) do not apply to 1. Ioans to holders of a special statutory authority or to agents with authority to represent the credit institution 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 with authority to repres- ent the credit institution in all aspects of its business, 2. Ioans to the persons or enterprises specified in subsection (1) sentence 1 num- bers 6 to 11, if the loan amounts to less than one per cent of the liable capital of the credit institution or to less than one hundred thousand Deutsche Mark, 3. Ioans which are increased by not more than ten per cent of the amount decid- ed on in accordance with subsection (1 ) sentence 1. (4) The decision by the managers and the decision on approval shall be taken be- fore the loan is granted. The decisions must contain provisions concerning the in- terest payable on and the repayment of the loan. They shall be placed on record. If a loan to be granted pursuant to subsection (1) sentence 1 numbers 6 to 11 is urgent, it is sufficient if all the managers and the supervisory body approve the granting of the loan immediately afterwards; if the decision by the managers has not been taken within two months, or if the decision by the supervisory body has not been taken within four months, this shall be reported to the Federal Banking Supervisory Office immediately. For certain lending operations and types of lend- ing operations, the decision by the managers and the decision on the approval of loans to the persons specified in subsection (1) sentence 1 numbers 1 to 5 and subsection (2) may be taken in advance, but not more than one year in advance. (5) If a loan is granted contrary to the provisions of subsections (1), (2) or (4) 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 grant- ing of the loan. 16. Reporting requirements for loans to managers, etc. A loan pursuant to section 15 (1) or (2) shall be reported immediately to the Fed- eral Banking Supervisory Office and the Deutsche Bundesbank if, (3) Subsections (1 ) and (2) do not apply to 1. Ioans to holders of a special statutory authority or to agents with authority to represent the credit institution 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 with authority to repres- ent the credit institution in all aspects of its business, 2. Ioans to the persons or enterprises specified in subsection (1) sentence 1 num- bers 6 to 11, if the loan amounts to less than one per cent of the liable capital of the credit institution or to less than one hundred thousand Deutsche Mark, 3. Ioans which are increased by not more than ten per cent of the amount decid- ed on in accordance with subsection (1) sentence 1. (4) The decision by the managers and the decision on approval shall be taken be- fore the loan is granted. The decisions must contain provisions concerning the in- terest payable on and the repayment of the loan. They shall be placed on record. If a loan to be granted pursuant to subsection (1) sentence 1 numbers 6 to 11 is urgent, it is sufficient if all the managers and the supervisory body approve the granting of the loan immediately afterwards; if the decision by the managers has not been taken within two months, or if the decision by the supervisory body has not been taken within four months, this shall be reported to the Federal Banking Supervisory Office immediately. For certain lending operations and types of lend- ing operations, the decision by the managers and the decision on the approval of loans to the persons specified in subsection (1) sentence 1 numbers 1 to 5 and subsection (2) may be taken in advance, but not more than one year in advance. (5) If a loan is granted contrary to the provisions of subsections (1), (2) or (4) 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 grant- ing of the loan. 16. Reporting requirements for loans to managers, etc. A loan pursuant to section 15 (1) or (2) shall be reported immediately to the Fed- eral Banking Supervisory Office and the Deutsche Bundesbank if, 1. in the case of natural persons, it exceeds two hundred and fifty thousand Deutsche Mark; 2. in the case of enterprises, it exceeds five per cent of the credit institution's li- able capital and exceeds two hundred and fifty thousand Deutsche Mark Sentence 1 applies as appropriate to withdrawals by proprietors or general part- ners; in the case of general partners, loans and withdrawals shall be added to- gether. The Federal Banking Supervisory Office may request credit institutions every five years to submit to it and to the Deutsche Bundesbank a summary report of their loans to managers, etc., that need to be reported. 17. Liability (1) If a loan is granted contrary to the provisions of section 15, the managers who thereby violate their duty and the members of the supervisory body who, contrary to their duty, take no action to prevent the granting of the intended loan despite having knowledge thereof, are jointly and severally liable to the credit institution for any loss arising; the managers and the members of the supervisory body have to prove that they did not act culpably. (2) The credit institution's right to compensation may also be asserted by its cred- itors insofar as they cannot obtain satisfaction from the credit institution. The liability to compensate the creditors is not annulled by a waiver or by settlement with the credit institution nor, in the case of credit institutions organised in the form of a corporation, by the fact that the loan was granted on the basis of a de- cision by the supreme body of the credit institution (shareholders' meeting, gen- eral meeting, partners' meeting). (3) Claims under subsection (1) are barred under the Statute of Limitations after five years. 18. Information required of borrowers A credit institution which grants to a single borrower loans amounting in the aggregate to more than one hundred thousand Deutsche Mark shall require that borrower to disclose his financial circumstances to it, in particular by submitting his annual accounts. The credit institution may abstain from doing so if, in view of the collateral provided or of the co-obligors, there is manifestly no reason to require such disclosure. Sentence 1 does not apply to a loan based on the purchase of a 57 claim in respect of non-banking commercial transactions if claims on the debtor in question are bought regularly, if the seller of the claim is not answerable for its ful- filment and if the claim falls due within three months of the date of purchase. 19. The concepts of "loan" and "borrower" (1 ) The following shall be regarded as loans for the purposes of sections 13 to 18: 1. money loans of all kinds, money claims purchased, acceptance credits and claims in respect of registered bonds, other than registered mortgage bonds and communal bonds; 2. the discounting of bills of exchange and cheques; 3. money claims arising from a credit institution's other commercial transactions, other than credit cooperatives' claims in respect of merchandise transactions, unless these claims are prolonged beyond the customary period; 4. a credit institution's guarantees and other warranties and a credit institution's liability arising from the provision of collateral for third-party liabilities; 5. the obligation to meet money claims sold or to buy them back at the pur- chaser's request; 6. a credit institution's participating interests in a borrower's enterprise; a particip- ating interest is deemed to be any holding by the credit institution of shares or mining shares in the enterprise amounting to not less than one-quarter of the capital (nominal capital, number of mining shares, total amount of capital shares), irrespective of the duration of the holding; 7. assets with respect to which a credit institution, as the lessor, has concluded leasing agreements, less rentals paid by the lessee or a purchase of lease re- ceivables; such an item may be deducted only up to the book value of the respective asset leased. Any collateral provided to, and balances maintained with, the credit institution by the borrower are left out of account. (2) For the purposes of sections 10 and 13 to 18, the following are deemed to be a single borrower: 1. all enterprises belonging to the same group or connected by agreements which provide that one enterprise has to transfer its entire profit to another enterprise, as well as majority-owned enterprises and the enterprises or persons holding a majority interest in them, other than the central, regional and local authorities and special funds referred to in section 20 (1 ) 1; 2. partnerships and their general partners; 3. persons and enterprises for whose account a loan is raised, as well as the party that raises the loan in its own name. If a credit institution as a trustee holds a majority share in the capital of a limited partnership that invests its assets exclusively in German land, and if the credit insti- tution grants this partnership money loans to finance temporarily the acquisition or development of this land, the partnership is deemed to this extent, in respect of compliance with the limit laid down in section 13 (4), not to be an enterprise with- in the meaning of sentence 1 number 1. In applying section 13, sentence 1 does not apply to loans within a group of credit institutions as defined in section 13a (2) to enterprises included in the consolidation in accordance with section 13a (3). (3) In the case of purchases of money claims in accordance with subsection (1) sentence 1 number 1, the seller of the claim shall be regarded as a borrower within the meaning of sections 13 to 18 if he is answerable for the fulfilment of the claim sold or has to buy it back at the purchaser's request; failing this, the debtor of the liability shall be regarded as a borrower. 20. Exceptions (1 ) Sections 13 to 18 do not apply to 1. Ioans granted to the Federal Government, a Federal special fund. a I ~nd Gov- ernment, a local authority or a local authority association; 2. unsecured claims on other credit institutions in respect of balances maintained with them for investment purposes only and falling due within not more than three months; claims of registered cooperative societies on their regional insti- tutions (Zentralkassen), of savings banks on their regional institutions (Girozen- tralen), and of these regional institutions on their respective central institutions, may fall due later; 3. bills of exchange which have been purchased from other credit institutions, which have been accepted, endorsed, or drawn as promissory notes by a credit institution, which run for not more than three months, and which are normally traded in the money market; 4. loans written off. (2) Section 13 (3) to (5) on large loans, section 15 (1) sentence 1 numbers 6 to 11, section 16 sentence 1 number 2 on loans to managers, etc. and section 18 on information required of borrowers do not apply to 1. Ioans satisfying the requirements of sections 11 and 12 (1) and (2) of the Mort- gage Bank Act; 2. Ioans with maturities not exceeding fifteen years secured by ship mortgages satisfying the requirements of section 10 (1), (2) sentence 1 and (4) sentence 2, section 11 (1 ) and (4) and section 12 (1 ) and (2) of the Ship Mortgage Bank Act (Schiffsbankgesetz); 3. loans granted to a public corporation domiciled in the area of validity of this Act and not specified in subsection (1 ) 1, or to the European Economic Community, the European Coal and Steel Community, the European Atomic Energy Com- munity or the European Investment Bank; 4. loans guaranteed by any person specified in subsection (1 ) 1; 5. loans which are secured by a mortgage, a land charge or a ship mortgage, which exceed the marginal loan values specified in number 1 or 2 and which are guaranteed in the amounts exceeding these values by a person specified in subsection (1) 1. (3) Section 13 (1), (2) and (7) on large loan reports and large loan decisions does not apply to the loans specified in subsection (2) 3 and 4. Section 14 on loans of three million Deutsche Mark or more does not apply to the loans specified in sub- section (2) 3. Division 3. (Repealed) 21. and 22. (Repealed) Division 4. Advertising, and information requirements of credit institutions 23. Advertising (1) To counteract misleading advertising by credit institutions, the Federal Banking Supervisory Office may prohibit certain kinds of advertising. (2) Before general measures are taken under subsection (1), the central associ- ations representing the credit institutions shall be consulted. 23a. Information on non-membership of a guarantee scheme If a credit institution which accepts deposits is not a member of a domestic institu- tion guaranteeing deposits (guarantee scheme), it shall inform its customers who are not credit institutions of this fact, in a clearly printed manner, in its General Terms and Conditions, in its price list and, before an account is opened, in the ap- plication for the opening of an account. The relevant note in the application for the opening of an account shall not contain any other statements, and must be signed separately by the customer. If a credit institution withdraws from a guaran- tee scheme, it shall notify its customers who are not credit institutions of this fact immediately in writing. Division 5. Special duties of credit institutions and managers 24. Reports (1) Credit institutions shall report immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank 1. the appointment of a manager and the authorisation of a person to represent the credit institution in all aspects of its business, stating the facts which are important for assessing his trustworthiness and professional qualifications, 2. the retirement of a manager and the revocation of the authorisation to repres- ent the credit institution in all aspects of its business, 3. the acquisition and disposal of a direct participating interest in another enter- prise, and changes in the amount of the participating interest; a participating interest is deemed to be the holding of at least ten per cent of the capital or voting rights of the enterprise; changes in such participating interests are to be reported as soon as they exceed ten per cent of the capital or voting rights; once a year a summary report on these direct participating interests and a summary report on the indirect participating interests are to be submitted, 4. changes in the legal form, unless a licence is required under section 32 (1), and changes in the firm-name, partnership agreement or articles of association, 5. a loss amounting to twenty-five per cent of the liable capital; capital changes required to be entered in public registers; the termination of participation rights and subordinated liabilities; and, in the case of credit institutions organ- ised in the form of partnerships and in the case of dormant credit institutions, the dissolution of the partnership and repayment of the assets contributed by the partners, 6. the relocation of the office or domicile, 7. the establishment, relocation and closing of a branch; section 24a remains unaffected, 8. the termination of business, 9. the commencement and termination of business other than banking business, 10. the intention of conducting banking business, performing activities pursuant to section 1 (3) sentence 1 numbers 2 to 11, providing commercial information or renting out safe deposit boxes as services within the meaning of Art- icle 60 of the Treaty Establishing the European Economic Community in another member state of the European Economic Community, 11. the acquisition or disposal of a major participating interest in the reporting credit institution, the reaching, over- or undershooting of the thresholds for participating interests of twenty per cent, thirty-three per cent and fifty per cent of the voting rights or the capital, and the fact that the credit institution is becoming or is no longer the subsidiary of another enterprise, if the change in these participatory relationships comes to the attention of the credit institu- tion, 12. once a year, the name and address of the holder of a major participating inter- est in the reporting credit institution and in the foreign subsidiaries pur- suant to section 10a (2), and the amount of such participating interests, if these facts come to the attention of the credit institution. (2) A credit institution intending to merge with another credit institution shall report this fact to the Federal Banking Supervisory Office and the Deutsche Bun- desbank in good time. (3) A manager of a credit institution shall report immediately to the Federal Bank- ing Supervisory Office and the Deutsche Bundesbank 1. the commencement and termination of activities as a manager or member of the supervisory board or administrative board of another credit institution or another enterprise, and 2. the acquisition and disposal of a participating interest in an enterprise and changes in the amount of such a participating interest; section 19 (1) sentence 1 number 6 clause 2 applies as appropriate. (4) The Federal Minister of Finance, acting in consultation with the Deutsche Bun- desbank, may issue by regulation more detailed provisions on the nature, scope and timing of the reports, and on the submission of the documentation, provided for in this Act insofar as this is necessary for the performance of the functions of the Federal Banking Supervisory Office, and especially to enable it to obtain con- sistent records for assessing the banking business conducted by credit institutions. He may delegate this authority by regulation to the Federal Banking Supervisory Office, subject to the proviso that regulations of the Federal Banking Supervisory Office are issued only in agreement with the Deutsche Bundesbank. 24a. Establishment of a branch in another member state of the European Economic Community (1) A credit institution intending to establish a branch in another member state of the European Economic Community shall report this fact to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately. The report shall contain the following particulars: 1. the name of the member state in which the branch is to be established, 2. a business plan indicating the nature of the planned business and the organisa- tional structure of the branch, 3. the address at which the records of the credit institution can be requested in the host member state, and to which documents can be delivered, and 4. the name of the manager of the branch. (2) If there is no reason to doubt the suitability of the organisational structure and financial standing of the credit institution, the Federal Banking Supervisory Office transmits the particulars pursuant to subsection (1) sentence 2 to the appropriate authorities of the host member state within two months of the receipt of the com- plete documentation, and advises the reporting credit institution accordingly. The Federal Banking Supervisory Office also informs the appropriate authorities of the host member state of the amount of the own funds and the adequacy of the cap- ital and, if applicable, of the guarantee scheme of the association of credit institu- tions to which the credit institution belongs. If the Federal Banking Supervisory Office does not pass on the particulars pursuant to subsection (1) sentence 2 to the appropriate authorities of the host member state, it informs the credit institu- tion of its reasons for not doing so within two months of the receipt of all particu- lars pursuant to subsection ( 1 ) sentence 2. (3) If the situation reported in accordance with subsection (1) sentence 2 number 2, 3 or 4 or the situation of the guarantee scheme of its association changes, the credit institution shall report this change to the Federal Banking Supervisory Office, the Deutsche Bundesbank and the appropriate authorities of the host member state in writing at least one month in advance. (4) The Federal Minister of Finance is authorised to rule by regulation that subsec- tions (1 ) to (3) apply as appropriate to the establishment of a branch in a state out- side the European Economic Community insofar as this is necessary in the field of the right of establishment under agreements of the European Economic Commun- ity with states which do not belong to it. 25. Monthly returns and other information (1) Credit institutions shall submit monthly returns to the Deutsche Bundesbank immediately after the end of each month. If monthly balance sheet statistics are collected in accordance with section 18 of the Bundesbank Act, the returns to be submitted for that purpose are deemed to be monthly returns within the meaning of sentence 1. (2) Parent institutions within the meaning of section 13a (2) shall also submit pro rata consolidated monthly returns to the Deutsche Bundesbank immediately after the end of each month. Section 10a (3) on the pro rata consolidation procedure, section 10a (5) sentence 1 on the requirement to provide data, and section 10a (6) on exceptions from pro rata consolidation apply as appropriate. (3) The Deutsche Bundesbank passes on the monthly returns together with its comments to the Federal Banking Supervisory Office; the latter may waive its right to the forwarding of certain monthly returns. (4) The Federal Minister of Finance, acting in consultation with the Deutsche Bun- desbank, may issue by regulation more detailed provisions on the nature and scope of the monthly returns, insofar as monthly balance sheet statistics are not collected in accordance with section 18 of the Deutsche Bundesbank Act, and on other information insofar as this is necessary for the performance of the functions of the Federal Banking Supervisory Office, and especially in order to enable it to obtain consistent records for assessing the banking business conducted by credit institutions. The other information may also relate to enterprises which are domi- ciled in another state and are subsidiaries of the credit institution pursuant to sec- tion 13a (2). The Federal Minister of Finance may, by regulation, delegate the authority to issue regulations to the Federal Banking Supervisory Office. Division 5a. Submission of accounting records 26. Submission of annual accounts, annual report and auditor's reports (1 ) Credit institutions shall draw up their annual accounts for the previous financial year in the first three months of their financial year, and shall submit their annual accounts as drawn up, and subsequently also as approved, and their annual report, if any, to the Federal Banking Supervisory Office and the Deutsche Bundes- bank immediately; their annual accounts shall be elucidated in notes thereon. The annual accounts shall bear the certificate of audit (Bestatigungsvermerk) or a note accounting for the refusal of such a certificate. The auditor shall submit his report on the audit of the annual accounts (auditor's report) to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately after completion of the audit; in the case of credit institutions which belong to a cooperative society audit association or are audited by the audit office of a savings bank and giro asso- ciation (Sparkassen- und Giroverband), the auditor's report shall be submitted only on request. (2) If an additional audit has taken place in connection with the deposit guarantee scheme of a credit institution association, the auditor shall submit his report on this audit to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately. (3) Credit institutions which draw up group accounts or a group annual report shall submit these documents to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately. Subsection (1) sentence 3 on the submission of auditor's reports applies as appropriate if auditor's reports are drawn up by group auditors. Division 6. Audits and appointment of auditors 27. Audits of the notes The notes in accordance with section 26 (1) sentence 1 are to be included in the audits of annual accounts pursuant to section 340k of the Commercial Code and, in the case of cooperative societies, pursuant to section 53 (2) of the Act Concern- ing Industrial and Trading Cooperative Societies. 28. Appointment of the auditor in special cases (1) Credit institutions shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank of the auditor they have appointed immediately after mak- ing the appointment. Within one month of receipt of such notification, the Federal Banking Supervisory Office may request the appointment of a different auditor if this is necessary to achieve the object of the audit; objections and appeals have no postponing effect. (2) The court of registration having jurisdiction at the domicile of the credit institu- tion shall appoint an auditor at the request of the Federal Bankir (1 Sllnervjsory Office if 1. the notification in accordance with subsection (1) sentence 1 is not affected immediately after the end of the financial year; 2. the credit institution does not comply immediately with the request for the appointment of a different auditor in accordance with subsection (1 ) sen- tence 2; 3. the auditor chosen has declined to accept the auditing mandate, is no longer active, or is unable to conclude the audit in time, and the credit institution has not appointed a different auditor immediately. The appointment by the court is final. Section 318 (5) of the Commercial Code applies as appropriate. The court of registration may, at the request of the Federal Banking Supervisory Office, terminate the appointment of an auditor appointed in accordance with sentence 1. (3) Subsections (1) and (2) do not apply to credit institutions which belong to a cooperative society audit association or are audited by the audit office of a savings bank and giro association. 29. Special duties of the auditor (1) When auditing the annual accounts and interim accounts in accordance with section 10 (7) sentence 4, the auditor shall also examine the financial circum- stances of the credit institution; when auditing the annual accounts, he shall ascer- tain whether the credit institution has complied with the reporting requirements laid down in section 10 (4a) sentence 4, (5) sentence 5, (5a) sentence 6, (8) sen- tences 1 and 2, section 12a (1) sentence 3, section 13 (1) sentences 1 and 2, (2) sentences 5 and 6, section 13a (4) sentence 1, section 14 (1), section 15 (4) sen- tence 4 clause 2, section 16 sentences 1 and 2, sections 24, 24a (1), the require- ment to submit lists and summary reports in accordance with section 10 (8) sen- tence 3, section 13 (1) sentence 4, section 13a (4) sentence 1, section 16 sentence 3, section 24 (1) 3 and 12 and the obligations under sections 12 and 18, as well as the obligations under section 14 of the Act on Tracing Profits Arising from Serious Criminal Acts (Gesetz uber das Aufspuren von Gewinnen aus schweren Strafta- ten), if unrealised reserves pursuant to section 10 (4a) sentence 1 number 4 are included in the credit institution's liable capital, the auditor, when auditing the annual accounts, shall also examine whether section 10 (4a) sentences 2 and 3, (4b) and (4c) was complied with when ascertaining these reserves. The result shall be included in the auditor's report. (2) If, in the course of his audit, the auditor learns of facts which might warrant the qualification or refusal of the certificate of audit, endanger the existence of the credit institution or gravely impair its development, or which indicate that the man- agers have seriously infringed the law, the articles of association or the partnership agreement, he shall report this immediately to the Federal Banking Supervisory Office and the Deutsche Bundeshank ~t the request of the Federal Banking Super- report to them and communicate any other facts which have come to his notice in the course of the audit and which suggest that the business of the credit institu- tion has not been conducted properly. (3) The Federal Minister of Finance, after having consulted the Deutsche Bundes- bank, may issue by regulation more detailed provisions on the contents of auditor's reports insofar as this is necessary for the performance of the functions of the Federal Banking Supervisory Office, and especially in order to enable it to obtain consistent records for assessing the banking business conducted by credit institutions. He may delegate this authority