Executive Summary The 11th senate of the
German Federal Supreme Court again had to deal with the duties of a
bank recommending interest rate swap agreements. In this context,
the German Federal Supreme Court re-affirmed on 22 March 2016
– XI ZR 425/14 – its position that a bank dealing with
a customer interested in the conclusion of an interest rate swap
has a core duty to advise this customer. In this context, the bank
also has to disclose to its customer a negative market value of the
interest rate swap at the time of the conclusion of such
swap.
The background of the dispute is interest rate swaps which have
been entered into by a German municipality on the basis of which
the municipality accepted to pay flexible interest rates against
fixed interest rates to be paid to the bank. Prior to entering into
such interest rate swaps, the bank did not disclose to the
municipality the negative market values of such interest rate
swaps. The interest rate swaps provided for
