Landeskreditbank Baden-Württemberg - L-Bank

Enforcement Powers
In order to secure compliance with the German Banking Act and the regulations issued thereunder, the
BaFin and the Bundesbank may require information and documents from a bank and the BaFin may examine a
bank without having to give any particular reason. The BaFin may attend meetings of the bank’s supervisory
board, its managing board and shareholders (and require such meetings to be convened). In practical terms,
because the BaFin has access to our books and records in Germany, it is able to monitor our worldwide activities.
To ensure that German banks, including us, fully comply with all applicable legislation and reporting
requirements, the BaFin requires that they maintain an effective and independent internal auditing department of
adequate size and quality. A bank must also establish a written plan of organization, which sets forth the
responsibilities of its employees and operating procedures. The internal auditing department must examine
compliance with this plan and these responsibilities and procedures.
If the BaFin discovers irregularities, it has a wide range of enforcement powers. The BaFin can challenge
the qualifications of the bank’s management. If the Own Funds of a bank are not adequate, or if the liquidity
requirements are not met and if the bank has failed to remedy the deficiency within a period set by the BaFin, the
BaFin may prohibit or restrict the distribution of profits or the extension of credit.
If a bank is in danger of defaulting on its obligations to creditors, the BaFin may take emergency measures
to avert default. In this connection, it may, inter alia: (1) issue instructions relating to the management of the
bank, (2) prohibit or restrict the acceptance of deposits and the extension of credit, (3) prohibit or restrict the
management of the bank from carrying on their functions and (4) appoint supervisors. If these measures are
inadequate, the BaFin may revoke the bank’s license and, if appropriate, order that the bank be closed. To avoid
the insolvency of a bank, the BaFin has the authority to prohibit payments and disposals of assets, to suspend
customer services, and to prohibit the acceptance of payments other than the payment of debt owed to the bank.
In addition, violations of the German Banking Act may result in criminal and administrative penalties.
Powers of the European Central Bank Affecting L-Bank’s Conduct of Business
The European System of Central Banks (“ESCB”) consists of the European Central Bank (“ECB”) and the
national central banks of the 25 Member States of the European Union (the “National Central Banks”). The ECB
and the National Central Banks of the 12 Member States of the European Union that have transferred their
monetary sovereignty to the ECB and have introduced the Euro as their currency are referred to as the
“Eurosystem”. The primary objective of the ESCB is to maintain price stability, to define and implement the
monetary policy of the European Community, to conduct foreign exchange operations, hold and manage the
official foreign reserves of the Member States and promote the smooth operation of payment systems. The ESCB
is governed by the decision-making bodies of the ECB.
The National Central Banks of the Member States of the European Union that are part of the Eurosystem
retain the functions that are not transferred to the Eurosystem. Thus, the Bundesbank continues to act as discount
window for banks for eligible securities whereby the discount rate is computed on the basis of the so-called base
rate. The base rate is adjusted on January 1 and July 1 of each year by the number of percentage points by which
the ECB’s interest rate for its most recent main refinancing operations has been raised or lowered since the last
change in the base rate.
The ECB requires credit institutions, including us, established in the 12 Member States of the European
Union that are members of the Eurosystem, to hold minimum reserves on accounts maintained with their
respective National Central Banks, which, in our case, are held by the Bundesbank. In its regulation on minimum
reserves, the ECB, currently as of September 12, 2003, set a 0% reserve ratio on the following liability
categories: “deposits with agreed maturity over two years,” “deposits redeemable with notice period over two
years,” “repurchase agreements (repos)” and “debt securities issued with an agreed maturity over two years.” For
all other deposits, debt securities issued and money market instruments, the ECB set a 2% reserve ratio. The ECB
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