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Vol. 1984/0042 
  
 
Disclaimer  
Conformém ent au règlement (CEE, Euratom) n° 354/83 du Conseil du 1er février 1983 
concernant l'ouverture au public des archives historiques de la Communauté économique 
européenne et de la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983, 
p. 1), tel que modifié par le règlement (CE, Euratom) n° 1700/2003 du 22 septembre 2003 
(JO L 243 du 27.9.2003, p. 1), ce dossier est ouvert au public. Le cas échéant, les documents 
classifiés présents dans ce dossier ont été déclassifiés conformément à l'article 5 dudit 
règlem ent. 
In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983 
concerning the open ing to the public of the historical archives of the European Econom ic 
Communit y and the European Atom ic Energy Communit y (OJ L 43, 15.2.1983, p. 1), as 
amended by Regulation (EC, Euratom) No 1700/2003 of 22 September 2003 (OJ L 243, 
27.9.2003, p. 1), this file is open to the public. Where necessary, classified documents in this 
file have been declassified in conformity with Article 5 of the aforementioned regulation.  
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom  1. 
Februar 19 83 über die Freigabe der historischen Archive der Europäischen  
Wirtschaftsgemeinschaft und der Europäischen Atomgem einschaft (ABI. L 43 vom  15.2.1983,  
S. 1), geändert durch die Verordnung (EG, Euratom) Nr. 1700/2003 vom 22. Septem ber 2003  
(ABI. L 243 vom 2 7.9.2003, S. 1), ist diese Datei der Öffentlichkeit zugänglich. Soweit  
erforderlich, wurden die Verschlusssachen in dieser Datei in Übereinstimmung mit Artikel 5  
der genannten Verordnung freigegeben.  
COMMISSION OF THE EUROPEAN COMMUNITIES
C 0 H C 8 4 ) 118 final 
Brussels, 9  M arch 1984
Com m ission report to the Council
on the "economic need" condition of authorization referred to in 
Article 3(3)C c>  of the First Council Directive of 1 2  D ecem ber 1977 
on the coordination of laws, regulations and administrative 
provisions relating to the taking up and pursuit 
of the business of credit institutions - 
77/780/EEC
C 0 M C 8 4 ) 118 final

Commission report to the Council
on the "economic need" condition of authorization referred  
to in Article 3(3)(c) of the First Council Directive  
of 12 December 1977 on the coordination of, laws,  
regulations and administrative provisions  
relating to the taking up and pursuit of the  
business of credit institutions  - 77/780/EEC
\ ------------------------------------------------------- :--------
1)
 Article 3(3)(c) of Directive 77/780/EEC provides that,  
within six years of the notification of the Directive, the  
Commission shall submit to the Council, after consulting the  
Advisory Committee, a report on the application of the  
criterion of economic need. Subparagraph 3(d) of the same  
article stipulates that the criterion of economic need aS a  
condition of a credit institution's authorization to operate 
shall be applied only on the basis of general predetermined 
criteria, published and notified to both the Commission and  
the Advisory Committee and aimed at promoting :
- security of savings,
- higher productivity in the banking system,
- greater uniformity of competition between the variou's  
banking networks,
- a broader range of banking services in relation to popula­
tion and economic activity.
The purpose of this report is to inform the Council on the  
present position with regard to the application of the  
criterion in question.
2) It should remembered that Article 3(3)(a) of Directive  
77/780/EEC prohibits Member States from requiring that  
applications for authorization to operate as credit institu­
tions be examined in terms of the economic needs of the  
market. Subparagraph (b) adds, however, that, where the  
laws, regulations or administrative provisions of a Member  
State provide, at the time of notification of the Directive,  
that the economic needs of the market should be a condition 
of authorization and where technical or structural difficul­

ties in its banking system do not allow it to give up the  
criterion within the period laid down in the Directive, the  
State in question may continue to apply the criterion for a  
period of seven years, provided that it notifies the Commis­
sion of its decision and of the reasons for that decision  
within six months.
A total of four countries have exercised this option :  
France, Ireland and Italy for all credit institutions and  
Denmark for mortgage-lending institutions only.
The ban on "the economic needs of the market" as a criterion  
for the authorization of credit institutions is justified by  
the fact that its assessment is necessarily largely discre­
tionary and is in fact tantamount to giving discretionary  
powers to the competent national authority in respect of  
authorization. The principles laid down in the Treaty  
prohibit the maintenance of any power likely to be used in a 
discriminatory fashion :  the elimination of restrictions on  
establishment and freedom to provide services (provided for  
in Articles 52 and 59 of the Treaty) may not be given prac­
tical effect in the field of credit institutions if the  
extent to which it is applied is subject to discretionary  
powers. Hence the need, in order to ensure the de facto  
elimination of all discriminatory treatment, to abolish, as  
far as possible, the discretionary powers enjoyed by the  
supervisory authorities in the use of the economic needs of  
the market as a condition of authorization.
The ban of the future use of the economic needs of the  
market is laid down in Article 3 of the Directive, which  
relates to the authorization of new credit institutions.  
Article 4, which relates to the authorization of branches of  
credit institutions with head offices in another Member  
State, is based, as regards the conditions of authorization,  
on the law and procedure applicable to credit institutions  
(whose head offices are situated in the territory of the  
host Member State); law and procedure which, by definition, 
will conform to Article 3(2) to (4). Clearly,

-  3 -
therefore·, the ban <>n the use of the criterion of economic 
need as a condition of authorization applies also to branches. 
If this were not the case, the elimination of restrictions 
on establishment would in fact apply only to the setting up 
of subsidiaries; there might be serious obstacles to the 
establishment of branches. As the Treaty prohibits discri­
mination, undertakings from another Member State - in this 
case, credit institutions - must always be free to cfioose 
whether they wish to set up subsidiaries or branches; further­
more ,  they may choose both forms at the same time,  even 
though this is relatively rare.
5) In its judgment of 1 March 1983 in Case 300/81 (Commission v 
the Italian Republic), the Court of Justice refers, in the 
grounds of the judgment, to the abovementioned principles.
It states in particular that :  "Council Directive 77/780/EEC 
constitutes the first step in the harmonizing of banking 
structures and the supervision thereof. The purpose of such 
harmonization is to permit the gradual attainment of the 
freedom of establishment for credit institutions and the 
liberalization of banking services. In that regard the 
Directive introduces certain minimum conditions for the 
authorization of credit institutions which all Member States 
must observe. In order to facilitate the taking up and 
pursuit of business as a credit institution the Directive 
aims in particular to reduce the discretion enjoyed by 
certain supervisory authorities in authorizing credit insti­
tutions .  "
6) Under Article 3(3)(d) of Directive 77/780/EEC, the Banking 
Advisory Committee was to begin work as from its initial 
meetings on an examination of the criteria on which certain 
Member States continue provisionally to base themselves when 
applying the criterion of economic need in connection with 
the conditions governing the authorization of credit insti­
tutions. As its third meeting on 19 June 1980, the Banking 
Advisory Committee duly requested that it be notified before 
30 September 1980 of the criteria applied in the examination 
of economic need.

- 4 -
In response to this request, Denmark, France, Ireland and 
Italy have notified to Committee of the criteria they apply 
in examining economic need. These criteria, which should be 
assessed in the light of the objectives referred to under 
point 1 above, are as follows :
(a) Denmark (only for mortgage-lending institutions) :
- when granting new authorizations, the competent autho­
rities are careful to ensure that the mortgage-lending 
market maintains a simple and rational structure in 
the interests of the European harmonization already 
achieved.
(b) France :
- new institutions must be able to satisfy the require­
ments of the market, and in particular to improve the 
quality of services offered;
- their financial and technical resources must be commen­
surate with the objectives pursued;
- the future prospects of new institutions must be 
compatible with healthy competition;
- their directors must be reliable and competent and 
should in particular possess the necessary administra­
tive experience and skill to ensure that savings are 
secure ;
- the identity of the shareholders or owners of the 
capital must be known.
(c) Ireland :
- the rquirements of economic and monetary policy must 
be observed;
- the security of deposits must be ensured;
- banking activities must remain transparent.
(d) Italy :
- the productivity of the banking system must be increased

5 -
(The Directive has not yet been transposed into national law 
in Italy - an omission for which Italy was censured by the 
Court of Justice in the abovementioned judgment; administra­
tive channels are used to ensure that the conditions referred 
to under point 1 are observed.)
7) The Member States concerned seem therefore to have taken 
into account, in applying the criterion of economic need, 
the conditions laid down in Article 3(3)(d) of Directive 
77/780/EEC.
An analysis of the statistical data in the Commission's 
possession confirms this conclusion. In Denmark, where the 
criterion of economic need is used only for the authoriza­
tion of new credit institutions, no new authorization has 
been given in the mortgage-lending field because no applica­
tion has been received, either from local promoters or from 
Community institutions. In the three other countries, where 
the criterion of economic need is used both for the setting 
up of new credit institutions and for the opening of branches 
(in France, this possibility existed in law but was not used 
it was reactivated by a decision of the Conseil National du 
Crédit of August 1982), there has been no closure of markets.
Taking 1 January 1980 as the starting point - the date on 
which Directive 77/780/EEC should have been applied - the 
following results are shown for the period 1.1.1980 to 
30.6.1983;
France :
- new approved credit institutions (including subsidiaries 
of foreign (Community and non-Community) credit institu­
tions :  29
- new branches of foreign credit institutions :  5 (including 
one branch of a Community institution);
- new branches :  1116 (no precise details are available for 
new branches authorized since August 1982)

-  6 -
Ireland :
- new approved credit institutions (including subsidiaries 
of foreign (Community and non-Community) credit institu­
tions :  3
- new branches of foreign credit institutions :  0
- new branches :  21
11 a 1 y :
- new approved credit institutions (including subsidiaries 
of foreign (Community and non-Community) credit institu­
tions :  59
- new branches of foreign credit institutions :  13 (including 
6 branches of Community institutions)
- new branches :  761
8) Paragraph 3(c) of the abovementioned Article 3 of Directive 
77/780/EEC also provides for the Commission *to submit, with 
this report and should circumstances require, proposals to 
terminate the application of the criterion of economic need. 
Subparagraph (b) of the same paragraph authorizes those 
Member States which notified the Commission in good time of 
their intention to continue to apply this criterion to do so 
for a period of seven years from notification of the Direc­
tive. This period expires on 15 December 1984.
The same provision referred to at the beginning of this 
point stipulates that the period in question shall be exten­
ded for a further period of five years (i.e. up to 15 Decem­
ber 1989) unless, in the meantime, the Council, acting 
unanimously on proposals from the Commission, adopts a 
decision to terminate the application of that criterion.
9) In the light of the above evidence that the use of the 
criterion of economic need has not made it impossible for 
new operational units (new credit institutions, subsidiaries 
or branches of foreign credit institutions, new branches) to 
gain access to the markets of the States concerned, and 
given the fact that the structural difficulties referred to

- 7 -
in paragraph 3 l  b )  of the abovcmontioned Article 3 do not 
appear to have been overcome, the Commission does not consi­
der that it would be appropriate to propose the early aboli­
tion of the option given to the Member States concerned to 
apply the criterion of economic need.
In Denmark, the situation following the reorganization of 
the mortgage-lending market in the early 1970s, has not yet 
stabilized sufficiently to allow new credit institutions 
access to the market.
In France, the situation arising, firstly, from the nationa­
lization of a major part of the banking system in 1982 and, 
secondly, from the restructuring provided for in the draft 
Banking Act, which is to be voted on at the beginning of 
1984 and which is to cover those credit institutions with a 
special legal status which had previously been exempt, will 
justify the temporary maintenance of the criterion of econo­
mic need, both for the creation of new credit institutions 
and for the geographical extension of those already approved.
In Ireland, the problems arising from the reorganization 
which took place in the early 1970s and which led to a high 
degree of concentration in the Irish banking system have not 
yet been fully solved, which justifies the extension of the 
use of the criterion of economic need.
In Italy, the process of restructuring the banking system 
was in fact instituted at the end of the 1970s, when the 
practice of authorizing the opening of new branches in 
driblets was replaced by a system of plans for branches, 
which has led to an appreciable increase in the number of 
new branches. However, the density of the Italian banking 
network in a large part of the country still being

-  8 -
relatively limited, it would be unwise to terminate immedia­
tely the use of :  he criterion of economic need, since this 
could well lead to the maximum possible number of branches 
being opened in regions where a sufficient number already 
exist. With regard to the setting up of new banks, Italy 
has not revoked a 1966 administrative decision which vir­
tually prohibits this, except in the case of credit co­
operatives, subsidiaries of foreign banks or joint subsi­
diaries of foreign and Italian banks. The Commission consi­
ders that the criterion of economic need during the exten­
sion of its implementation should be used in accordance with 
the conditions lard down in the Directive.
CONCLUSION
The Commission, having found :
(a) that the continued application of the criterion of economic 
need has caused neither the closure nor the crystallization 
of markets,
(b) that, in applying the criterion in question, the Member 
States concerned broadly observe the conditions laid down in 
Article 3(3)(d) of Directive 77/780/EEC, and
(c) that the reasons for allowing the Member States concerned to 
continue to apply this criterion have not completely disap­
peared ;
does not consider it necessary to propose that the Council decide 
to terminate the application of this criterion before the dead­
line set up in Article 3(3)(c) of the above-mentioned directive 
namely 15 December 1989; after this date, the use of the economic 
need criterion as a condition of authorization will be considered 
as an inf r ingemien t  to Article 189 of the Treaty.
The Banking Advisory Committee examined this report at its 
last meeting on 7 December 1983 and unanimously approved its 
conclusions. Some delegations however stated that they were 
unable to share the Commission's interpretation of the scope of 
the above-mentioned provision relating to the opinion of branches 
by already established credit institutions.

A N N E X
T he case of Greece
T he Treaty of Accession of 28 M a y  1979 contains n o  provision relating to 
economic n-:ed in the banking sector in Greece. However, it had been 
tacitly agreed that, if the various notification deadlines laid d o w n  in 
Directive 77/780/EEC were applied also to Greece, the Greek Government 
would have until 30 June 1 9 8 1  (i.e. six months after Greece's accession 
to the C om m unity) to notify the Com m ission of its intention to exercise 
the option provided for in Article 3(3)(b) of the Directive as regards 
the maintenance of the criterion of economic need, both for the setting 
up of n e w  banks and for the opening of branches b y  national or foreign 
banks.
B y  30 June 1981, the Com m ission had not received any such notification.
It w as therefore assumed that Greece had decided not to exercise the 
option referred to above and that any subsequent decision to maintain the 
criterion of economic need would have to be regarded as an infringement of 
Directive 77/780/EEC.
However, in N ovem ber 1981, following the October elections, the n e w  Greek 
Governm ent notified its intention of maintaining the criterion of economic 
need, pointing out at the sam e time that it did not consider itself 
bound b y  the previous government's omission.
W hile the Commission considers that Greece should not, strictly speaking, 
have notified its intention of maintaining the criterion of economic 
need, it feels that it is difficult politically and on grounds of equity 
to argue that a  M em b er States w hose legislations at the time of its 
accession to the Com m unity, provided for the criterion of economic need 
cannot apply that criterion during the transitional period laid d o w n  
in Directive 77/780/EEC, whereas all other M em b er States which had the 
sam e criterion in their legislation at the time the Directive w as 
adopted can continue to apply that criterion up to 1 5  D ecem ber 1989.

-  2 -
A N N E X
T h e Treaty offers only one possibility of overcoming this anomaly : a 
proposal for a  Council Directive containing a  single article amending 
Directive 77/780/EEC by formally inserting a provision allowing Greece 
to take advantage of the clause in Article 3(3)Cb).
For the adoption of such a  Directive, an accelerated procedure might be 
used, since this has proved successful in similar cases involving purely 
formal problems. This procedure w as adopted, for example, in the case 
of Directive 28/148/EEC which standardized the deadline for implementing 
the three Directives adopted by the Council in the stock exchange 
field (79/279/EEC, 80/390/EEC and 82/121/EEC).
T he Com m ission will forward its proposal to the Council shortly.
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