Regulatory Framework for the Risk Management of German Credit Institutions

Abstract

The banking industry and the national and international financial markets have undergone radical structural changes over the past two decades. In order to prevent undesirable developments, the supervisory authorities constantly adapt their regulatory framework to the changing circumstances. Until the late 80s, countries adopted a specifically national approach to the question of banking regulation. The picture has completely changed. Internationally uniform supervisory rules particularly for financial price risks have been established over the past few years. International harmonization of banking rules has been accompanied by increasing complexity of regulation. Thus, it is worthwhile to give a brief overview of the development and basic structure of the German Principle I, which sets the capital requirements for credit and market risk and thus the regulatory framework for German credit institutions.¹