The Federal Financial Supervisory Authority () better known by its abbreviation BaFin is the financial regulatory authority for Germany. It is an independent federal institution with headquarters in Bonn and Frankfurt and falls under the supervision of the Federal Ministry of Finance. BaFin supervises about 2,700 banks, 800 financial services institutions, and over 700 insurance undertakings.
History
Background
Prudential banking supervision in Germany essentially started as a consequence of the banking crisis of 1931, prior to which the only supervised credit institutions were the public savings banks. On , a decree established the office of (), for which Chancellor Heinrich Brüning appointed . In 1934, this was transformed into the , by new comprehensive banking legislation ( of ). Initially the Reichsbank was associated with the supervisory process through a newly established Supervisory Office, but that role was transferred to the Economics Minister upon a legislative revision in 1939, and the itself was dissolved in 1944 with its duties taken over by the economics ministry.
After World War II, banking supervision was devolved in West Germany to the Länder, until a national banking supervisor was re-established in 1962 as the (known as BAK or BAKred), which again cooperated closely with the Deutsche Bundesbank.
Creation of BaFin and early development
BaFin was formed on 1 May 2002 with the passing of the Financial Services and integration Act () on 22 April 2002. The aim of this legislation was to create one integrated financial regulator that covered all financial markets. BaFin was created by the merger of the three supervisory agencies, namely the BAK for banking, the Federal Supervisory Office for the Securities Trading (, BAWe), and the Federal Insurance Supervisory Office (, BAV).
This meant there was uniform national supervision of banks, credit institutions, insurance companies, financial service companies, brokers and stock exchanges. This model was designed to provide transparency and manageability and to make sure all financial activity was regulated.
In 2003 changes to the Banking Act (KWG) gave BaFin further responsibility to monitor the creditworthiness of financial institutions and to collect detailed information from those institutions. The aim was to increase customer protection and the reputation of the financial system. It shares responsibility here with the Bundesbank. As of 2015, BaFin is in transition, after major responsibilities for banking supervision shifted to the purview of the European Central Bank in November 2014.
Financial crisis and aftermath
On 19 September 2008, in response to threats from the global financial crisis and following measures taking by the United States, BaFin banned short selling on eleven German finance stocks. These were Aareal Bank, Allianz, AMB Generali, Commerzbank AG, Deutsche Bank, , Deutsche Postbank, Hannover Re, Hypo Real Estate, MLP AG and Munich Re. The ban expired on the 31 January 2010 and was not renewed at that time.
On 19 May 2010, in response to 2010 European sovereign debt crisis, BaFin banned naked short selling of credit default swaps on euro-area government bonds until 31 March 2011. At the same time they re-introduced a ban on naked short selling of the previous 10 banks and insurers companies.
In 2019, BaFin banned short-selling in response to accusations of accounting fraud in Wirecard. As the accusations proved true, BaFin itself was put under scrutiny a year later.
In November 2020, the European Securities and Markets Authority (ESMA) published the results of its review which assessed the events leading to the collapse of Wirecard AG and the supervisory response by BaFin. This review identifies a number of deficiencies, inefficiencies and legal and procedural impediments relating to the following areas: the independence of BaFin from issuers and government; market monitoring by both BaFin and the Financial Reporting Enforcement Panel (FREP); examination procedures of FREP; and the effectiveness of the supervisory system in the area of financial reporting.
In April 2021, German prosecutors in Frankfurt announced the opening of a criminal investigation into BaFin's supervision of Wirecard.
In May 2022, the Federal Ministry of Finance gave BaFin more leeway and independence in conducting its work. According to new cooperation principles between the two authorities, BaFin is to only inform the ministry in critical cases, for example when a large corporation is involved or if there is an impact on financial markets stability.