The Definition of a "Credit Institution" in the EC Banking Directive

The many and varied EC Directives relating to banking supervision have recently been consolidated in a single text in order to strengthen and rationalise the body of banking law. Directive 2000/12/EC relating to the "taking up and pursuit of the business of credit institutions" did not change the substance of the law and the definition of the term "credit institution" has remained the same.

Credit institutions are defined as undertakings whose business is to receive deposits or other repayable funds from the public and to grant credit for their own account (article 1 of the Directive). Therefore, an undertaking qualifies as a credit institution if it conducts both the business of lending and the business of accepting deposits or other repayable funds. An enterprise which grants credit without accepting deposits is not therefore a credit institution within the meaning of the Directive, and is not subject to its (harmonised) authorisation and supervision requirements. Similarly, an enterprise which accepts deposits but does not grant credit does not appear to fall within the definition. However, because non-banks are prohibited from deposit-taking by article 3 of the Directive, enterprises which accept deposits from the public may only conduct business if they are a bank (credit institution). Such enterprises must therefore obtain an authorisation (licence) that meets the requirements laid down in the Directive. Consequently, the definition of a credit institution must be understood to include not only enterprises which simultaneously conduct the business of lending and of deposit-taking, but also those which have obtained a licence which enables them to engage in these businesses.

As the term "credit institution" excludes enterprises which lend out of their own funds, or lend money borrowed from banks, it is narrower than the corresponding definition in the German Banking Act. This raises the question of whether the German Banking Act is compatible with the Directive. As the Directive is seen as an instrument of minimum harmonisation, it can only bind member states to the extent of its scope. Because enterprises making loans from their own funds are excluded from the scope of the Directive, member states are free to regulate these lenders as they wish. Thus, the German Banking Act can be reconciled with the Banking Directive.