Germany Banking License in 2026: The Complete KWG Guide

Why a German banking licence is still worth the effort

Germany is the largest EU economy and the deepest banking market on the continent. A German credit-institution licence is the tier-1 stamp for any institutional-facing financial business. German corporates, asset managers and pension funds prefer to work with BaFin-regulated banks. Tier-1 correspondent banks open faster lines to German banks than to any other EU jurisdiction.

The trade-off: the German banking process is slow, expensive and thorough. Budget 24 to 48 months end-to-end, EUR 50 million to EUR 100 million in real launch CET1, and a 20-to-40-person launch team. Germany is the right home for banks that are serious about long-term institutional banking; it is the wrong home for quick challenger-bank experiments.

KWG section 32 and the two-supervisor model

Section 32 of the Kreditwesengesetz (KWG) prohibits anyone from conducting banking business on a commercial scale in Germany without authorisation. Banking business is defined in section 1 KWG to include deposit-taking and lending, among other activities.

Two supervisors share the authorisation.

• BaFin. Single point of contact for the applicant, runs the entire substantive assessment, coordinates the file with the Deutsche Bundesbank on prudential aspects.
• European Central Bank (ECB). For deposit-taking and lending activities (credit-institution authorisation under CRR), the ECB takes the final decision under the SSM Regulation.

For other KWG financial services (payment services, investment services, crypto custody under the old regime), BaFin remains the sole decision-maker. The two-supervisor model applies specifically to credit institutions.

Capital: the EUR 5 million minimum and what really matters

CRD Article 12 sets the minimum initial capital of a credit institution at EUR 5 million. KWG transposes this. In practice the real CET1 at launch of a credible German bank is EUR 20 million to EUR 100 million, depending on business model and balance-sheet growth plan.

The stack that actually matters:

• Pillar 1. RWA x 8% (4.5% CET1, 6% Tier 1), plus 2.5% conservation buffer, countercyclical buffer and systemic buffers. 15-20% CET1 ratio common for new banks.
• Pillar 2. SREP add-on (P2R binding, P2G guidance) set by BaFin/ECB. Commonly 1.5-3% above the headline ratio for new banks.
• CRR3 / Basel 3.5 output floor. Phasing in from 1 January 2025. New banks mostly use standardised approaches; output floor is less of a shock than for legacy banks on IRB.
• MREL. Resolution-required minimum own funds and eligible liabilities, mostly binding once the bank is deemed resolvable.
• CRD6. Entered into force 9 July 2024, transposition by 11 January 2027. Introduces new licensing rules for core banking activities, including third-country branch access.

Authorisation process and timeline

Budget for a three-to-four year journey from incorporation to paid-up capital to live customers.

1. Phase 1 - pre-application (6 to 12 months). BaFin industry-contacts desk meetings, capital-plan iteration, governance build, key hires lined up.
2. Phase 2 - file build (6 to 12 months). Full authorisation file (2,000 to 4,000 pages typical). Business plan, governance, ICAAP, ILAAP, recovery plan, risk framework, AML, MaRisk/BAIT/DORA ICT, outsourcing, internal audit, IFRS 9 model, remuneration.
3. Phase 3 - submission. In German, three copies per section 14 AnzV.
4. Phase 4 - substantive assessment (9 to 18 months). RFIs, interviews, ICAAP/ILAAP challenge, cyber and AML deep-dives, onsite visits.
5. Phase 5 - ECB decision (2 to 4 months). BaFin submits draft decision to ECB under SSM. ECB issues final decision.
6. Phase 6 - conditions precedent (2 to 4 months). Paid-up capital, key hires on board, IT tested, DGS contribution, recovery plan in final form. Licence issued.

End-to-end: 24 to 48 months for a well-prepared file. Less-prepared files run longer or are discontinued.

Governance, substance and fit-and-proper

• Two-tier board. Vorstand (management board) and Aufsichtsrat (supervisory board) required for AG. For GmbH above a threshold, supervisory board required.
• Management body size. At least 2 executive directors (Geschäftsleiter), both BaFin-approved with individual fit-and-proper tests. Common practice 3-5 executives for a full bank.
• Key function holders. CFO, CRO, CCO/MLRO, head of internal audit. All German-resident and full-time.
• Head office. Effective place of management in Germany. Remote-only or letter-box arrangements rejected.
• Qualifying holdings. Every 10% shareholder BaFin-assessed. Private-equity fund structures unpacked to UBO.
• Remuneration. InstitutsVergV (Instituts-Vergütungsverordnung) implements CRD remuneration rules: bonus caps, deferred pay, malus, clawback.

Ongoing supervision: MaRisk, BAIT, DORA

German banks live under three layered frameworks.

• MaRisk. Minimum requirements for risk management. Proportionate depth; even small banks face material documentation.
• BAIT. Banking supervisory requirements for IT, running parallel to DORA.
• DORA. Applies from 17 January 2025. ICT risk framework, incident reporting, digital-resilience testing, third-party ICT register.
• SREP. Annual review, P2R/P2G, supervisory score.
• BaFin + Bundesbank joint inspections. Regular onsite reviews, thematic deep-dives on AML, conduct and IT.

Supervisory fees scale to size. ECB + BaFin fees for a small significant bank run EUR 500k to EUR 2M per year. Less-significant banks pay EUR 200k to EUR 800k.

Alternatives to a full German banking licence

Most fintechs that "want a German bank" do not need one. Common alternatives:

• ZAG EMI. For e-money and cards. EUR 350k capital, 12-18 months.
• ZAG PI. For payments. EUR 20k-125k capital, 9-15 months.
• MiCA CASP. For crypto services. EUR 50k-150k capital, 6-12 months.
• Lithuanian specialised bank. Full deposit-plus-lending with EUR 1M capital, EU passport into Germany. 12-24 months. See the Lithuania specialised bank guide.
• Passport from another EU bank. CRD passport lets any EU-authorised bank operate in Germany under freedom of services or establishment.

Ship a German bank product with Crassula

A German banking licence is the legal wrapper. Core banking is the product layer: ledger, deposits, lending, cards, SEPA and SEPA Instant, treasury, IFRS 9, MaRisk/BAIT/DORA, COREP/FINREP. Crassula delivers the composable core so the bank can go from paid-up capital to live product without a multi-year ops build.

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