Merkel to Boost KfW Oversight as Bank Grows to Germany’s No.3

Chancellor Angela Merkel’s coalition plans to boost oversight of the KfW Group lender after the publicly owned bank’s growth propelled it to Germany’s number three position by assets.

The Frankfurt-based bank, formed in 1948 to make development loans and that had assets of 511 billion euros ($664 billion) in 2012, is big enough to require supervision by the BaFin regulator and the Bundesbank, Klaus-Peter Flosbach, a finance spokesman for Merkel’s Christian Democrats, said in an e-mail today. The coalition has drawn up a bill to facilitate better oversight, Flosbach said

The government is seeking “binding and strict” supervision of the bank without hampering its business, said Flosbach. “The KfW was, is and will in future be no ordinary lending bank.”

Other state-owned lenders such Norddeutsche Landesbank Girozentrale and BayernLB are already subject to full BaFin scrutiny. Germany’s third-biggest lender after Deutsche Bank AG and Commerzbank AG augments its activities as a bank for projects including improving building insulation and export finance for small- and medium-sized companies and by acting as an off-budget lender to the government.

Governments since the mid-1990s have temporarily “parked” shares in state-owned assets such as Deutsche Telekom AG (DTE) and Deutsche Post AG (DPW) at the KfW in exchange for loans that haven’t appeared on the budget reported to the European Commission in compliance with the euro’s rules.

The bank in 2012 bought shares on behalf of the government in European Aeronautic Defense and Space Co., a transaction that did not appear on Merkel’s budget reported to the commission.

KfW, which has some 5,000 employees, is co-owned by Germany’s states -- with a 20 percent stake -- and the federal government, which owns the remainder, according to its website.

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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