BASEL II: PROBLEMS AND USAGE

According to the Banking Act (paragraph 45), the FFSA possesses a
number of tools in case that a bank fails to meet the regulatory requirements:
• prohibition or limitation of withdrawals or distribution of profits by
proprietors;
• prohibition or limitation of granting loans;
• instructing the bank to implement measures for reducing its risk exposure;
• temporary freezing the payments of the bank;
• closing the bank for business with customers.
The responsibilities of the FFSA and the German Central Bank are
separated in the “Guidelines on Carrying out and Ensuring the Quality of
the Ongoing Monitoring of Credit and Financial Services Institutions by
the German Central Bank” of February 21, 2008.
4.3. The Basel II Regulations in National Law
One of the key objectives of Basel II is to adjust the regulatory capital
requirements for banks to match the actual risks they face. Although the
recommendations of the Basel Committee are not obligatory, they served as
a ground for EU directives. Consequently, the Basel II framework was
transformed into European law by the Banking Directive and the Capital
Adequacy Directive. 20 In turn, these regulations were incorporated into
German law through amendments to the Banking Act, the Solvency Regulation,
and the “Minimum requirements for Risk Management” (MaRisk).
Whereas pillar I and III of Basel II are reflected in the Solvency Regulation,
pillar II is represented by the MaRisk. Figure 6 reflects this structure.
Basel II
Pillar I
(Minimum capital
requirements)
Pillar II
(Supervisory review
process)
Pillar III
(Market discipline)
MaRisk
Solvency Regulation
Figure 6. Basel II in German Law
20 Directive 2006/48/EC and 2006/49/EC of June 14, 2006.
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