OPINION OF THE EUROPEAN MONETARY INSTITUTE
on a consultation from the Council of the Europ ean Union under Article 109f (6) of the Treaty
establishing the European Community (the “Tr eaty”) and Article 5.3 of the Statute of the EMI;
on a Commission proposal for a European Parlia ment and Council Directive to amend Council
Directive 89/647/EEC on a solvency ratio for credit institutions (the “SRD”).
CON/96/07
1. The present consultation was initiated by means of a letter sent on behalf of the Secretary
General of the Council of the European Union, addressed to the President of the EMI and
received on 15th July 1996, and relates to the pr oposal for a directive, prepared by the
Commission (reference COM (95) 709 final) and communicated to the Council of the European
Union by means of a letter dated 28th February 1996.
References in this opinion to the text of th e proposal refer to document reference COM (95)
709 final.
2. The EMI notes that the purposes of the propos al are twofold.  First, to allow competent
authorities to treat mortgage backed securities in the same way as loans secured by mortgage
against residential property from the point of  view of risk weighting for capital adequacy
purposes (amendment to Article 6, paragraph 1 (c), item 1 of the SRD).  Second, to permitcompetent authorities to risk weight certain commercial mortgage loans at 50% rather than
100% for the period until 1st January 2001 (previously competent authorities were required torisk weight such loans at 100%, apart from th e competent authorities of Denmark, Germany,
Greece and Austria which had been permitted, until 1st January 1996, to apply a risk weightingof 50% to loans secured against commercial propert y situated in one of those countries - Article
11 (4) of the SRD).  The EMI also notes that  there is no compulsion placed on Member States
to adopt either of the amendments represented by the proposal.
3. The EMI considers that it is competent to give  an opinion in relation to the proposal.  Article
109f (6) of the Treaty and Article 5.3 of the EMI Statute provide for consultation of the EMI by
the Council on any proposed Commun ity act within the field of competence of the EMI.  The
present proposal relates to the field of compet ence of the EMI: it concerns the supervision of
credit institutions, being an area which falls w ithin the competence of a number of national
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central banks, and it will have a potential impact  upon the stability of financial institutions and
financial markets (Article 4.1, four th indent of the EMI Statute).
4. The EMI notes the two proposed amendments referred to in paragraph 2 above and the fact that
they will each have the effect of reducing th e minimum requirements for the maintenance of
capital against certain assets, compared with th e SRD as presently in effect.  The EMI also
notes that the Commission considers that th e amended capital requirements represented by
these proposals will reflect the real risk represen ted by the assets involved and has therefore
presented the proposal to the EU Council.  Th e EMI wishes to inform the Council that a
number of national central banks consider that the proposed capital requirements for
commercial mortgage loans insuffic iently reflect the underlying risks and maintain that further
work is needed to assess the risks involved w ith such assets.  Other national central banks
concur with the Commission view, holding that  the proposed rule on capital requirements for
commercial property mortgage loans well reflects the lower risk of such operations, keeping in
mind the strict assessment criteria for determinin g relevant values and the 60% loan to value
ratio, and point out the transitory a nd optional nature of this provision.
5. The EMI agrees that this opinion may be made public by the consulting authority.
24th September 1996