The central banking system of Germany consists of the German Federal Bank (Deutsche Bundesbank), currently located in Frankfurt am Main (but which is expected to move to Berlin, the capital), one bank for each of the Länder (Landeszentralbanken), and one in Berlin, which are the main offices for the Federal Bank. Although the Federal Bank is an independent institution, the federal government holds the bank's capital and appoints the presidents as well as the board of directors; the Central Bank Council acts as overseer. All German banks are subject to supervision by the German Federal Banking Supervisory Authority (Bundesaufsichtsamt für das Kreditwesen) in Berlin.
The Federal Bank is the sole bank of issue. Until the advent of the euro in 1999 it set interest and discount rates. These functions are now the domain of the European Central Bank (ECB). However, the Federal Bank maintains a leading role in domestic banking. The largest commercial banks are the Deutsche Bank, Dresdner Bank, and Commerzbank. In 1997 Germany had 232 commercial banks, including the "big three," 56 subsidiaries or branches of foreign banks, and 80 private banks. There are also 13 central giro institutions. In addition, there are 657 savings banks and 18 credit institutions with special functions, including the Kreditanstalt für Wiederaufbau (Reconstruction Loan Corporation), which is the channel for official aid to developing countries. In all, there were over 45,000 bank offices in 2002. The German financial system includes just under 2,700 small industrial and agricultural credit cooperatives and allied institutions, in addition to four central institutions; 33 private and public mortgage banks that obtain funds from the sale of bonds; the postal check and postal savings system; and 34 building societies. In April 2000, a proposed merger between two of the "big three", Deutsche Bank and Dresdner Bank, collapsed. The deal would have reduced operating costs since by relieving both banks of their branch networks.
After the Bundesbank just missed its target range for M3 growth for 1996 of 4% to 7%, it decided on a two-year target for monetary supply growth to cover the 1997-98 period leading up to the planned hand-over of responsibility to the ECB on 1 January 1999.
In 1996 Moody's Investments Service capped an extremely poor year for Deutsche Bank by reducing its triple A rating to Aa1. This reflects the fact that elite banks are finding it harder to retain the triple A rating as banking becomes internationally more competitive. Deutsche Bank announced that it hoped to shed 1,300 employees through attrition by 2000.The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $544.8 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $1,849.3 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 4.37%.
Under the constitution, the governments of the Länder regulate the operations of stock exchanges and produce exchanges. Eight stock exchanges operate in Berlin, Bremen, Düsseldorf, Frankfurt, Hamburg, Hannover, Munich, and Stuttgart. Germany has several other independent exchanges for agricultural items. While stock sales have remained fairly steady in recent years, the bond-debture total has risen dramatically. There are no restrictions on foreign investments in any securities quoted on the German stock exchanges. However, a foreign (or domestic) business investor that acquires more than 25% of the issued capital of a German quoted company must inform the company of this fact. The most notable recent banking legislation is the January 2002 elimination of the capital gains tax on holdings sold by one corporation to another.