Banking, Finance and Capital Markets

Banking and finance in Germany: an overview

Banking and finance law in Germany covers how companies raise money and how financial firms are allowed to operate. On the financing side, it includes corporate and syndicated loans, Schuldschein loans, leveraged and acquisition finance, real estate finance, bonds, equity offerings and listings.

On the regulatory side, it determines who needs a licence from the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin), how banks, investment firms, payment institutions, crypto-asset service providers and fund managers are supervised, and what happens when they breach the rules. The two sides meet constantly: a borrower's lender is regulated, a fintech's business model depends on a licence, and an issuer's disclosure duties are enforced by BaFin.

Germany's financial system is bank-centred. Companies, especially the Mittelstand, have traditionally relied on relationship banks, savings banks and cooperative banks, supplemented by the Schuldschein market and, increasingly, by private credit funds. Frankfurt is home to the European Central Bank, the Deutsche Bundesbank, BaFin's securities supervision and the EU Anti-Money Laundering Authority, as well as Deutsche Börse and the Frankfurt Stock Exchange. Much of the applicable law is EU law, applied directly or through German statutes, and supervisory practice is shaped by European authorities as much as by German ones.

This pillar page explains the structure of banking and finance law in Germany, the supervisory architecture, and the main issues for borrowers, lenders, issuers, investors and new entrants. It links to our detailed pages on lending and acquisition finance, capital markets, financial regulation and BaFin licensing, fintech, payments and crypto assets and investment funds and asset management.

The questions our clients bring differ widely. A Mittelstand company refinancing its credit lines wants to know which covenants and security are market standard. A foreign bank wants to know whether it can lend into Germany without a local licence. A start-up wants to know whether its payment feature makes it a payment institution. A listed company wants to know whether a development is inside information. Each answer requires an understanding of both the commercial practice and the regulatory framework of banking and finance in Germany.

Who supervises banking and finance in Germany

Supervision of banking and finance in Germany is shared between national and European authorities. BaFin is the integrated supervisor for banks, insurers, investment firms, payment and e-money institutions, crypto-asset service providers, fund managers and securities markets. The Deutsche Bundesbank carries out much of the ongoing supervision of banks, including the analysis of reports and on-site audits, in cooperation with BaFin. For significant banks in the euro area, the European Central Bank is the direct supervisor under the Single Supervisory Mechanism, with BaFin and the Bundesbank participating in joint supervisory teams. The ECB also grants and withdraws all banking licences in the euro area and decides on acquisitions of qualifying holdings in banks.

The core German statutes are the Banking Act (Kreditwesengesetz, KWG), the Investment Firms Act (Wertpapierinstitutsgesetz, WpIG), the Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz, ZAG), the Capital Investment Code (Kapitalanlagegesetzbuch, KAGB), the Securities Trading Act (WpHG), the Stock Exchange Act (BörsG), the Crypto Markets Supervision Act (KMAG) and the Money Laundering Act (GwG). Directly applicable EU regulations include the Capital Requirements Regulation, the Market Abuse Regulation (MAR), the Prospectus Regulation, the Markets in Crypto-Assets Regulation (MiCAR) and the Digital Operational Resilience Act (DORA), which has applied since 17 January 2025.

Enforcement and supervisory tools

Supervisors in Germany have a broad toolkit. BaFin can request information and documents, conduct special audits, order measures to remedy deficiencies, impose capital add-ons, restrict business activities, remove managers or require their replacement, and, as a last resort, withdraw a licence. Administrative fines can be imposed on firms and individuals, and BaFin publishes many enforcement measures on its website, which can cause reputational damage beyond the fine itself. Managers of institutions must be fit and proper, and BaFin reviews their appointment. For firms under supervision, an open and well-prepared relationship with the authorities is often the most effective risk management.

Companies outside the financial sector also come into contact with BaFin: as issuers of listed securities, as shareholders subject to notification duties, as targets or bidders in takeovers, and when they plan to offer financial products such as embedded payment services, buy-now-pay-later schemes or tokenised instruments to their customers. Banking and finance law therefore matters well beyond banks.

Lending and acquisition finance

Corporate lending in Germany is documented either under German law or, for larger syndicated and leveraged deals, under English law with German-law security. Loan agreements are governed by §§ 488 ff. of the Civil Code (BGB); the law on standard business terms (§§ 305 ff. BGB) can apply even to negotiated facility agreements if clauses are pre-formulated, which is a German peculiarity that drafters must keep in mind. Schuldschein loans (Schuldscheindarlehen) are a German specialty: bilateral loan agreements documented by a certificate of indebtedness and placed by arranging banks with institutional investors, with standardised documentation and without a prospectus.

Security is taken asset by asset: land charges over real estate, pledges over shares (notarised for GmbH shares), security assignments of receivables, security transfers of movable assets, and account pledges. Because German law has no general floating charge, a full security package consists of many separate agreements. Upstream guarantees and security from German subsidiaries are subject to the capital maintenance rule in § 30 GmbHG and are limited accordingly. Our page on lending and acquisition finance explains security packages, limitation language and intercreditor arrangements, and our page on private equity covers the buyout context.

Real estate, project and asset-based finance

Real estate finance is secured primarily by land charges (Grundschulden) entered in the land register, usually combined with a notarised submission to immediate enforcement, assignment of rental income and insurance claims, and in share-deal structures a pledge over the shares of the property-owning company. Project finance for renewable energy, infrastructure and data centres combines similar security with assignments of offtake contracts, step-in rights and direct agreements with counterparties. Asset-based lending, factoring and receivables securitisations rely on security assignments and true-sale structures, for which the insolvency treatment of the transferred assets is the decisive legal question.

Private credit and alternative lenders

Debt funds have become important lenders in German mid-market buyouts and growth financings. Funds that originate loans are regulated under the Capital Investment Code and the amended AIFM Directive rather than the Banking Act, but their lending activity still has to be structured carefully to avoid an unlicensed banking business. Borrowers benefit from flexibility and speed, while unitranche structures raise intercreditor questions between the fund and the bank providing the revolving facility. For borrowers the choice between bank and fund financing is often decided by leverage, covenant flexibility and execution certainty rather than headline pricing.

Capital markets and listed companies

Companies can raise equity and debt on the Frankfurt Stock Exchange and other German exchanges. An offer of securities to the public or admission to a regulated market generally requires a prospectus approved by BaFin under the EU Prospectus Regulation, which the EU Listing Act has amended to simplify documentation and reduce costs. Once listed, issuers must disclose inside information without delay under Article 17 MAR, maintain insider lists, report managers' transactions and comply with periodic reporting and voting-rights notification rules. Shareholders must notify the issuer and BaFin within four trading days when their voting rights reach, exceed or fall below 3, 5, 10, 15, 20, 25, 30, 50 or 75% (§ 33(1) WpHG).

Bonds are governed by the general law of obligations and, for collective issues, the Bond Act (Schuldverschreibungsgesetz, SchVG). If the terms and conditions allow it, bondholders can amend the terms by majority resolution, with a qualified majority of at least 75% of participating votes for material changes (§ 5(4) SchVG). This mechanism is central to bond restructurings. Electronic securities can be issued without a physical global certificate under the Electronic Securities Act (eWpG). Our page on capital markets covers IPOs, bonds and ongoing obligations; takeovers of listed companies are covered on public takeovers.

Market segments and listing choices

The Frankfurt Stock Exchange offers a regulated market, where admission brings the full set of EU and German transparency obligations, and open-market segments with lighter rules, including an SME growth market. The choice affects investor access, index eligibility and ongoing costs. Companies considering a listing should also consider the governance consequences: a listed AG must comply with the rules on supervisory board composition, remuneration votes and the declaration on the German Corporate Governance Code, and its shareholders gain the protection of takeover law.

Liability for disclosure

Disclosure in the capital markets carries liability risk. Issuers and those responsible for a prospectus are liable to investors for incorrect or incomplete material information, and issuers can be liable for failing to publish inside information in time or publishing false information. BaFin can impose substantial fines for breaches of the market abuse and transparency rules. Robust disclosure controls, insider list management and clear responsibilities between management, legal and investor relations are therefore part of the basic infrastructure of a listed company.

Financial regulation, fintech and funds

Anyone who conducts banking business or provides financial services in Germany commercially, or on a scale requiring a commercially organised business, needs written authorisation (§ 32(1) KWG). Investment firms are licensed under § 15 WpIG, payment institutions under § 10 ZAG and e-money institutions under § 11 ZAG. Conducting business without a licence is a criminal offence under § 54 KWG, and BaFin can order the winding-up of unauthorised business. Cross-border providers from other EU states can use passporting; providers from third countries need a licence or an exemption, and BaFin's approach to cross-border services into Germany is relatively strict.

Licensed institutions must have a proper business organisation, including risk management (§ 25a KWG, specified in the Minimum Requirements for Risk Management, MaRisk), outsourcing controls (§ 25b KWG) and, under DORA, a comprehensive framework for ICT risk, incident reporting, resilience testing and third-party risk. Acquirers of a significant holding of 10% or more in an institution must notify BaFin and the Bundesbank in advance (§ 2c KWG), with further notifications at 20%, 30% and 50%. Our page on financial regulation and BaFin licensing explains licensing, owner control and enforcement.

Fintech business models are regulated by function rather than by technology. Payment services and e-money fall under the ZAG, which implements the second Payment Services Directive, while crypto-asset services are authorised under MiCAR, which has applied in full since 30 December 2024, and the KMAG. Existing providers could continue under a transitional regime until 1 July 2026 at the latest. See fintech, payments and crypto assets. Investment funds and their managers are regulated under the KAGB, which implements the AIFM and UCITS Directives; see investment funds and asset management.

Anti-money laundering

The Money Laundering Act (Geldwäschegesetz, GwG) applies not only to banks and other financial firms but also to many non-financial businesses, including dealers in goods, real estate agents, auditors, tax advisers and lawyers in certain transactions. Obliged entities must run a risk-based AML programme, identify customers and beneficial owners, monitor transactions and report suspicious activity to the Financial Intelligence Unit. All legal entities and registered partnerships must report their beneficial owners to the transparency register. The EU's new single rulebook, consisting of the AML Regulation and the directive establishing the Anti-Money Laundering Authority in Frankfurt, will progressively replace much of the national framework, and firms should prepare for the transition.

Sustainable finance

Financial firms and many issuers are subject to the EU's sustainable finance rules: the Sustainable Finance Disclosure Regulation (SFDR) for fund managers and advisers, the EU Taxonomy for classifying environmentally sustainable activities, and the EU Green Bond Standard for issuers that choose to use it. Lenders increasingly link margins to sustainability performance indicators. These rules interact with corporate sustainability reporting; see our page on sustainability reporting.

Banking and finance in a crisis

When a borrower runs into difficulties, banking and finance law intersects with restructuring law. Lenders typically agree standstills and covenant waivers, sometimes in exchange for additional security, which must be assessed for insolvency avoidance risk. A preventive restructuring under the Corporate Stabilisation and Restructuring Act (StaRUG) allows a debtor to restructure financial liabilities with majority votes in creditor groups, including a cross-class cram-down; see StaRUG restructuring. Bond restructurings use the majority mechanisms of the SchVG.

Shareholder loans are subordinated in insolvency (§ 39(1) no. 5 InsO), and repayments within one year before a filing can be avoided. Lenders who become shareholders in a debt-to-equity swap can benefit from a restructuring privilege, but their position must be planned carefully. On the purchaser side, the market for non-performing and distressed loans is regulated by the Secondary Credit Market Act, which implements the EU Credit Servicers Directive. Our page on distressed M&A and investing covers loan-to-own strategies.

Banks themselves can fail. The bank resolution regime, based on the EU Bank Recovery and Resolution Directive and implemented in Germany through the Recovery and Resolution Act (SAG), allows resolution authorities to write down or convert liabilities (bail-in) and transfer businesses. Investors in bank debt instruments and counterparties of banks need to understand where their claims rank in this hierarchy.

• Check covenants and information undertakings early when performance deteriorates.
• Assess new security or payments to lenders for avoidance risk before agreeing a standstill.
• Consider StaRUG or SchVG tools where a consensual solution is out of reach.

How TRW & Co helps

We advise borrowers, sponsors, lenders, issuers, fintechs, fund managers and investors on banking and finance in Germany. On the financing side we document corporate, syndicated, acquisition and real estate loans, Schuldschein loans and German security packages, and support bond issues and listings. On the regulatory side we analyse licensing requirements, prepare licence applications and owner control notifications, design governance, outsourcing and DORA frameworks, and represent clients in BaFin proceedings. For crypto-asset and payment businesses we structure products and authorisations under MiCAR and the ZAG. To discuss a financing or a regulatory question, please contact us.