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Flag of Germany
System of government: federal republic
Population: 81.0 million (July 2014 estimate)
Currency: euro (€)
FX regime: free float
GDP: €2,742bn (2013)
IGTA member: yes
FATF member: yes
Treasury association:

Gesellschaft für Finanzwirtschaft in der Unternehmensführung e.V. (GEFIU)

Verband Deutscher Treasurer e.V. (VDT)
Other professional financial/banking associations:

Bundesverband deutscher Banken (Association of German Banks)

Verband der Auslandsbanken in Deutschland (Association of Foreign Banks in Germany)

Financial regulatory framework

Deutsche Bundesbank, the national central bank of Germany, is a member bank of the European System of Central Banks (ESCB). Deutsche Bundesbank fulfils its tasks according to the primary objective, the maintenance of price stability and arranges the execution of domestic and international payments. On 4 November 2014, the European Central Bank (ECB) adopted the authority to monitor the financial stability of banks within the eurozone through its Single Supervisory Mechanism (SSM), in line with the EU’s SSM Regulation No 1024/2013 conferring specific tasks on the ECB with regard to the prudential supervision of credit institutions. The ECB has final supervisory authority, with member states’ national supervisory authorities now providing a supporting role. The ECB directly supervises the 120 “most significant” banks within each eurozone member state. The ECB is responsible for supervisory reviews, on-site inspections and investigations; granting/withdrawing banking licences; assessing bank acquisitions; ensuring compliance with EU prudential rules; and, if required, setting higher capital requirements to counter financial risks. Germany’s national supervisory authorities are the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin, Bonn/Frankfurt, and Deutsche Bundesbank (headquarters in different German cities, According to the German Banking Act (KWG), which is supplemented by principles, guidelines and regulations especially the German Solvency Regulation (SolvV) and the liquidity ordinance (LiquV), banks must have adequate liable capital and must ensure adequate liquidity at all times. The regulations on own funds are in line with the EU law. In connection with the new capital requirements according to the CRD IV Package there will be major changes regarding the capital adequacy ratio, the bank’s necessary tier 1 and tier 2 capital and its liquidity. BaFin also supervises the proper functioning of the securities and derivatives markets by pursuing the objectives of investor protection, market transparency and market integrity. The basic regulatory legal framework for the German securities and derivatives markets is set out in the Securities Trading Act (WpHG) and the Securities Prospectus Act (Wertpapierprospektgesetz). Moreover, BaFin supervises the payment service provider, the institutions which conduct e-money business as well as alternative investment funds and the alternative investment fund manager following the Alternative Investment Fund Manager Directive (AIFMD).

Accounting framework

Germany has in general adopted the International Financial Reporting Standards (IFRS). Consolidated financial statements of companies listed at a stock exchange have to be in line with IFRS. Consolidated financial statements of other companies (groups) which are obliged to balance and account according to US-GAAP or other companies of which only bearer bonds are traded have also to follow IFRS. Parent companies that are not listed on a stock exchange – especially small and medium sized companies – have the choice to meet German GAAP or International Financial Reporting Standards in matters of publishing, Sect. 315 (a) subsect. (3) German Commercial Code.

Taxation framework

The general withholding tax rate (WHT) on bank interest and dividend income amounts to 25% (26.375% including the mandatory solidarity surcharge). There is no WHT levied on interest, which is paid to non-residents (limited liability for taxation) unless the interest bearing assets are secured by domestic real estate property. Regarding WHT on dividends, exemptions may apply according to double tax treaties (DTT) or the implemented EU Parent-Subsidiary-Directive.

Business tax

In Germany 15.825% corporation tax (including the mandatory solidarity surcharge) and 14%-17% trade tax apply. The exact rate of the trade tax depends on the local seat of the company.

Interest expense limitation

A modified cap on interest exists for corporate enterprises. Interest payments of an entity are deductible up to the amount of interest income within one accounting year. Any exceeding payments are only deductible up to the “clearable EBITDA” (30% of the taxable income plus depreciation and amortisation plus interest expense minus interest income). If the clearable EBIDTA is higher than the interest income minus the interest expenses it is possible to forward the clearable EBITDA for the next five years. However, if one of the following escape clauses applies all interest expense is deductible:

  • the net interest expense is less than €3m; or
  • the German entity is not part of a consolidated group (subject to further criteria); or
  • the German entity is part of a group and the equity ratio of the German entity is basically not lower than the equity ratio of the group (deviation of 2% is possible).

Under certain circumstances the last two escape clauses do not apply.

Flat rate withholding tax

For private income on investment there has been a flat rate withholding tax (“Abgeltungsteuer”) since 2009. The rate is 26.375% including solidarity surcharge plus church tax according to the case.

Table 1: Tax burden of a corporation located in Germany from 2009 onwards (example)
Profit before taxes 100,000.00
Trade tax (average rate= 3.5% of Profit before Tax/100*400) 14,000.00
Corporation tax (15%) 15,000.00
(Profit after corporation tax 85,000.00)
Solidarity surcharge (5.5% of the corporation tax) 825.00
= Gross dividend 70,175.00
Calculation of the burden ratio in % Profit before taxes 100,000.00
Taxes and solidarity surcharge 29,825.00
Tax burden ratio in % 29.825

Banking service provision

The universal banks are the dominating banking group within the German banking system. They cover the range of commercial banking and investment banking activities. Universal banks can be divided into three groups: private commercial banks, Landesbanken and mutual savings and co-operative banks. In addition, there are specialised financial institutions such as the Kreditanstalt für Wiederaufbau and mortgage banks.

Clearing and payment systems

The following systems are relevant to the German Financial Industry.


TARGET is the settlement system used by Eurosystem central banks in the euro area. TARGET2 operates via a centralised technical platform, the Single Shared Platform (SSP). TARGET2 is owned by the ECB and the national central banks. Supervised credit institutions established in the European Economic Area are allowed to become direct or indirect participants of the TARGET2 system. Indirect participants of the TARGET2 system settle their TARGET2 payments via a direct participant. For communication and message exchange TARGET2 is generally based on SWIFT’s SWIFTNet services, according to the information guide for TARGET2 users. SWIFTNet is the messaging infrastructure supported by TARGET2 for about 900 directly connected banks in Europe, using the full set of SWIFTNet messaging services e.g.: SWIFTNet FIN, FIN Copy, SWIFTNet InterAct, SWIFTNet FileAct and SWIFTNet Browse. Banks can become SWIFT members. For example SWIFT’s low-end connectivity, SWIFT Alliance or SWIFT Alliance Lite is an option for this. This approach will give banks a full service, independent from other commercial providers in order to manage their Intraday-Liquidity. Since the end of 2010 for small and medium-sized banks an additional messaging system has been available for using TARGET2. That means, besides SWIFT there is an internet based approach possible.

Euro Banking Association

The Euro Banking Association is an organisation of over 180 European banks. EBA Clearing Company was established to operate different payment systems: the EURO1 large-value payment system and the STEP1 low-value payment system. EURO1 is a payment system for cross border and domestic transactions in euro between banks operating in the European Union. In general STEP1 is a payment system for commercial transactions to process single cross border payments in euro. It enables banks that operate in the European Union to exchange commercial payments with the other STEP1 participants – as well as all participants of EURO1 banks. EBA Clearing is also operating STEP2, a pan-European automated clearing house for mass payments in euro using SWIFTNet FileAct as messaging service. It is mandatory for European banks to offer SEPA credit transfer to their customers. STEP2 has been enhanced with both a SEPA Credit Transfer Service and a SEPA Direct Debit Service. These services will allow European banks to send their SEPA compliant credit and debit payments via one processing channel. Besides TARGET2, EBA Clearing established oneself as full-fledged clearing and settlement provider.


SEPA can be defined as Single Euro Payments Area where the current differentiation between national and cross border payments no longer exists. Under SEPA, users of payment services will be able to make cashless payments (SEPA Cards Framework, SEPA Credit Transfer, SEPA Direct Debit) in euro from a single payment account anywhere in the European Union as well as in Norway, Iceland, Switzerland, Monaco and Liechtenstein. The Payment Services Directive constitutes a significant legal basis for the settlement of cashless payments. In Germany the national transformation of the Payment Services Directive took place in two parts: the regulatory (effective since 2009) and the civil law part (effective since 2010). The new pan-European payment instruments initially operated alongside national instruments. Due to efficiency reasons, the national instruments have gradually been abolished. According to the EU Regulation “amending Regulation (EU) No 260/2012 as regards the migration to EU-wide credit transfers and direct debits” of 26 February 2014, migration to SEPA credit transfers and direct debits was finalised on 1 August 2014. However, legacy non-preauthorised direct debits will remain in use until 1 February 2016.

Cash and bank account management

Cash pooling products such as effective cash pooling, notional pooling and margin compensation are offered by various major banks located in Germany.

Cash pooling

There are four practices to cash pooling, exemplified by the following products.

  • Cash concentration (batch-based) – at the end of each accounting day, the balances on the sub-accounts included in the procedure are transferred automatically for the original value date, to the designated main account. At the end of the accounting day, the sub-accounts show a balance of zero. Cash concentration (batch-based) can be used internationally.
  • Cash concentration (SWIFT-based) – This cash concentrating process enables accounts at almost all third-party banks to be integrated into cash pooling structures. At the end of the day or at times defined by the customer, the balances of these sub-accounts are transferred to the predefined main account at the bank using SWIFT MT101. The balance in the sub-account is at disposal in the customer’s bank account with the same value date as the posting date of the concentrating transfer.
  • Margin compensation (cross-currency) – does not entail physically transferring liquidity to a predefined account. Accounts with the bank in Germany and abroad can be involved in this interest rate optimisation process. Thus, Margin Compensation can be used internationally, in different currencies and is based on the currency specific reference interest rate, plus or minus a margin. The margins to be used are derived from the ratio of the balances of all integrated accounts. The more the balances offset each other, the more the net interest income will be optimised.
  • Notional pooling – merely involves adding together the value date balances to calculate the interest. No physical balance settlement via the main account is performed; the balances of the sub-accounts produced as a result of credit and debit entries are maintained.

Liquidity management

Benchmark rates

German interbank money market rates are commonly based on Euribor rates. The Euribor for time deposit and euro overnight index average (EONIA) for overnight are widely accepted benchmarks for the euro money market.

Short-term investments

A wide range of investments is available to any company. Besides bank deposits, exchange-listed or over-the-counter (OTC) products (derivatives) are of great importance. As a rule, all exchange-listed products are also available on a continuous basis in the OTC market. The range of investments includes:

  • term deposits – these are available with maturity from overnight to medium-term (rarely more than two years). Interest rates are usually Euribor minus a spread which depends on market conditions. Amounts usually range from €100,000 to €100m;
  • German and Euro-commercial paper – this is sold in the primary market as well as in secondary market trading; and
  • seasoned bonds – a wide range of bond products, usually bearer bonds paying interest annually in arrears, are also available. Although bonds have a minimum maturity of two years at issuance, issues may be seen as de facto money market instruments. Mortgage bonds (“Pfandbriefe”) and public mortgage bonds (“öffentliche Pfandbriefe”) are issued by banks, but are collateralised by mortgages or loans to the public sector, thereby enjoying a high rating. They are mainly traded in the OTC market on a swap basis. Bid-ask-spreads depend on the current market situation and in the Credit Quality of the Issuer and they are calculated against Mid-Swap.

Deutsche Bundesbank ensures liquidity of government securities by making a market at the exchange. OTC trading is also active. At the stock exchange, there is a regular price fixing per day for less liquid bond issues and continuous trading for more liquid issues.

Since summer 2008, the market for company bonds has developed. Possibly due to the banks’ reluctance concerning the granting of loans, companies are forced to finance themselves increasingly via the capital market and the stock exchange.

Short-term borrowing instruments

There are various money market funding instruments available, including:

  • Bank loans – the main funding instruments in the German money market have historically been bank loans, characterised above all by their flexibility, with virtually no minimum amount or minimum holding period. Availability depends on credit lines. Costs and margins over basis rates on bank instruments can only be stated in general terms, as they depend on market conditions and credit evaluation. Likewise, additional charges and borrowing costs are negotiable. Credit information is available from the credit agencies Schufa, Creditreform and Schimmelpfennig. Ratings from the international agencies like Moody’s and Standard and Poor’s are very important for major companies. It has been reported that due to the financial crisis and high equity regulations of banks, the availability of bank loans has decreased;
  • Overdrafts – now used less frequently as a source of working capital financing. Interest rates are set autonomously by banks in line with market conditions and creditworthiness, with only a loose connection to market rates. Rates tend to be higher than on term loans, but any cash inflows reduce the loan amount. On occasion a commitment fee may be applied;
  • Short-term loans – short-term loans with fixed maturities are available with the option to negotiate maturity, frequency and type (fixed or floating) of interest payments. Roll-over agreements exist as well. Rates depend on market conditions, and can be pegged to Euribor. Depending on the purpose of the loan, a number of government subsidy programmes can be accessed; and
  • Commercial paper – Euro commercial paper can be issued by prime issuers, mainly corporations. CP rates are set at Euribor, plus or minus a margin, which depends on the respective credit quality of the corporate. The minimum amount size depends on the corporation’s decision, normally €5m up to €100m for new issues. Alternatively, German and Euro-commercial paper can be arranged in other currencies. In this sector, credit ratings are important and are more readily available.

Besides the above, a number of other financing instruments are in frequent use. Banks offer intermediate factoring and leasing arrangements and provide guarantees. Down-payments, supplier credits and other short-term financing techniques are in use as well. Moreover, bonded loans become more popular for companies’ medium- and long-term debt financing. Bonded loans are regarded as loans and not as securities; hence the preparation of an issue prospectus is not necessary, while they are in general easy to transfer in the OTC market.

Risk management

Risk management instruments

Between funding instruments and investment vehicles, there is a wide range of derivative instruments, which can be used to hedge assets or liabilities both against interest and/or currency risks, but which are also often used as investments:

  • € overnight indexed swap – Eonia swap allows the swap of any fixed period between two days and 12 months against overnight. This uses the Euribor overnight fixing as a reference instead.
  • Caps, floors, collars, swaps, forward rate agreements (FRAs) and swap options – these are available from banks. They are usually bound to three or six month Euribor, although the recent trend has been towards greater flexibility. Trades usually take place in minimum sizes of €5m and multiples thereof. OTC options on bonds are usually traded in lots of €10m. Users of options in connection with swaps need a credit line. All these products are liquid.
  • Futures – options are traded on EUREX and ICE (contract size €1m). Both exchanges also list contracts on 10-year notional Bundesanleihen. However, EUREX has also set up a futures contract on two-year Schatz, five-year Bobl and 10-year bund.


Government website

German Central Bank

Frankfurt stock exchange

German Financial Supervisory Authority

Federal Statistical Office

European Central Bank

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