Judicial Liability of a Bank Board Member for Speculative Business Activities
By judgment of August 8, 2025 (Case No. 43 O 18215/19), the Regional Court of Munich I has clarified in remarkable detail the scope of the duties of bank board members when conducting and supervising high-risk financial transactions. The decision reflects the multifaceted criteria under which members of the board must personally assume responsibility to their institution for damages arising from insufficient risk management and inadequate exercise of control.
Background of the proceedings
In the case at hand, a bank had to endure significant losses over several financial years as a result of various speculative interest rate swap transactions. The responsible bodies subsequently asserted that the permissible risk-bearing capacity had been exceeded and that there had been failures in managing the resulting risks. At the heart of the court’s review was the question of the extent to which the former board member had fulfilled their statutory obligations in organizing, managing, and controlling these highly complex transactions.
Duties of Care and Limits of Entrepreneurial Discretion
Pursuant to Section 93 of the German Stock Corporation Act (AktG), members of a bank’s board are obliged to exercise the care of a prudent and conscientious manager. This duty particularly includes the careful selection, planning, and monitoring of risky transactions—with measures to ensure an effective risk management system, internal control mechanisms, and adequate preparation of the basis for decisions.
The so-called Business Judgement Rule (Section 93 (1) sentence 2 AktG) in principle grants the board discretion in its decision-making, provided the decisions are based on an adequately informed foundation and keep the company’s best interests in mind. However, the Munich judgment clearly shows that this rule does not apply when key oversight duties are breached or warning signs are systematically ignored.
Key Statements and Implications of the Decision
Obligation to risk-oriented business management
According to the court, personal liability of the board in particular arises when high-risk financial products are entered into without adequate analysis and assessment of their risks. As stated in the judgment’s reasoning, the defendant board member repeatedly ignored warnings from internal audit and other control bodies. In particular, there was a lack of systematic review regarding the appropriateness of the risks compared to the bank’s risk-bearing capacity, which constituted a violation of governance requirements as per MaRisk (Minimum requirements for risk management).
Importance of effective supervision
The court further emphasized that the board is not only obliged to establish a risk management system, but must also ensure its ongoing monitoring and adaptation to developments. Delegating responsibilities to subordinate units does not relieve the board of its oversight function. In this case, insufficient supervision and failure to act upon identified errors significantly contributed to the occurrence of damages.
Personal liability and assertion of claims
In cases of serious breaches of duty, the bank—represented by the general meeting or, in the event of insolvency, by the insolvency administrator—can pursue claims for compensation against former board members. The amount of damages to be compensated depends on the specific misconduct identified and the resulting financial disadvantage to the company.
Classification and practical relevance
This decision highlights the heightened requirements for control and management, particularly in transactions subject to banking supervision law. Essentially, it becomes clear that a negligent or inadequate approach to risk can no longer be justified by merely citing entrepreneurial freedom. The courts impose strict standards regarding the personal commitment and integrity of those involved when assessing board liability cases.
The decisive factor is, in particular, how carefully and objectively board members prepare and implement business decisions, how risks are identified, assessed, and controlled, and whether they respond diligently to information from internal control systems.
The proceedings further illustrate that, in complex cases, both questions concerning governance structures and the concrete implementation of supervision and control measures are subject to thorough judicial review. The presumption of innocence remains intact for the board member in question until all legal remedies have been exhausted.
Note
This article is based on the judgment of the Regional Court of Munich I dated August 8, 2025 (Case No. 43 O 18215/19), whose full reasoning can be accessed at https://urteile.news/LG-Muenchen-I43-O-1821519Ehemaliger-Bankvorstand-haftet-fuer-risikoreiche-Geschaefte~N35287 can be accessed. Ongoing or potential further legal proceedings should be taken into account.
Banks, companies, and private individuals facing issues related to director’s liability and risk management may, if needed, contact the lawyers experienced in commercial law at MTR Legal Rechtsanwalt with confidence at any time.
