German Federal Bank

Background (1948–1957)

The history of the Bundesbank is inextricably linked with the history of the German currency after the Second World War. Following the total destruction after the war, the old Reichsmark was practically worthless, and a currency reform was implemented in the western occupation zones including West Berlin: on 21 June 1948, the D-Mark, or Deutsche Mark, replaced the Reichsmark. The currency reform was based on laws enacted by the Allied military government. In preparation, the Western Powers established a new two-tier central bank system in the occupied zones; in its federal structure, it was modeled on the Federal Reserve System of the US. It comprised the central banks of the states (Länder) of the West German occupation zones and the Bank deutscher Länder in Frankfurt am Main, which was created on 1 March 1948. The central banks of the Länder acted as central banks within their areas of jurisdiction. The Bank deutscher Länder, whose share capital was held by the central banks of the Länder, was responsible for issuing bank notes, co-ordinating policy and various central tasks including management of foreign exchange. The supreme governing body of the two-tier central bank system was the Central Bank Council (Zentralbankrat) set up at the Bank deutscher Länder. It consisted of a president, the presidents of the central banks of the Länder and the president of the directorate (board) of the Bank deutscher Länder. Amongst other things, the Central Bank Council determined policy on bank rate and minimum reserve policy, open-market policy guidelines and granting of credit. After the negative experience with a central bank subject to government orders, the principle of an independent central bank was established. The Bank deutscher Länder was independent of German political bodies from the start, including the federal German government, which was active from September 1949. It achieved independence from the Allies in 1951.

1957–1990

The German "Basic Law" (constitution), which had come into force on 23 May 1949, placed an obligation on the German federal legislature to establish a federal bank responsible for the issue of bank notes and currency. The legislature fulfilled this obligation by passing the Bundesbank Act (BBankG) of 26 July 1957, which abolished the two-tier structure of the central bank system. The central banks of the Länder were now no longer independent note-issuing banks, but became regional headquarters of the Bundesbank, nevertheless retaining the title "state central bank" (Landeszentralbank).

The Central Bank Council remained the supreme decision-making body of the Bundesbank. It was now made up of the presidents of the central banks of the Länder and a board of directors based in Frankfurt. The Central Bank Council decided on the currency and credit policy and laid down rules for management. As the central executive body of the Bundesbank, the Directorate (Direktorium) was responsible for implementing the decisions of the Central Bank Council. The Directorate ran the bank and was, in particular, responsible for dealings with the federal government and its "special assets" (Sondervermögen), for transactions with credit institutes operating in the Federal republic of Germany, for currency transactions, and foreign commercial transactions, and for open-market dealings. The Directorate was made up of the president and the vice-president of the Bundesbank and up to six additional members.

The central banks of the Länder carried out business falling in their areas independently. The Bundesbank Act explicitly made them responsible for dealings with public bodies and credit institutes. The central Banks of the Länder also controlled the subsidiary bodies (Zweiganstalten), now called branches (Filialen). Overall management of each Land central bank was in the hands of its executive board (Vorstand), which as a rule consisted of the president and the vice-president of the bank.

1990–1993

In the wake of the Fall of the Berlin Wall, the Federal Republic of Germany and the German Democratic Republic signed a treaty on 18 May 1990, that created an economic, social and currency union between the two German states; it came into force on 1 July 1990, and made the Deutsche Mark the sole legal tender in both German states. The Bundesbank was made responsible for money and currency policy within the whole of the currency union. A "Provisional Administration Body" was set up for the purpose of implementing the treaty, and this body continued to operate beyond the official date of reunification until 31 October 1990. The Bundesbank Act was amended to adjust the organizational structure of the Bundesbank to better match changed circumstances following German reunification, and at the same time streamline the organisation. The eleven central banks of the Länder and the Provisional Administrative Body were replaced by nine central banks of similar economic size.

1993–2001

The Maastricht Treaty that came into force on 1 November 1993 laid the foundation for the European Economic and Currency Union (EECU). National responsibility for monetary policy was transferred, at the Community level, to the European System of Central Banks (ESCB), comprising the European Central bank (ECB) and the national central banks (NCBs) of the EU states. Until the ECB became fully responsible for currency in 2001, the Bundesbank had three governing bodies. The Central Bank Council (Zentralbankrat) was the supreme body of the Bundesbank. It was made up of:

the Directorate, which comprised the president, the vice-president and six additional members. These eight people were nominated by the Federal Government (Bundesregierung)

The nine presidents of the Landeszentralbanken. These were nominated by the Bundesrat.