8787 COfficial]ournal of the European Communities ^oC18uBoPl 
Opimon on the proposal foraCouncil directive on the own funds of credit instituuon^ 
^87BC18^1^ 
On 1 October 198^theCouncildecidedto consult the Economic and SocialCommittee, 
under Articlel98 of thelreatyestablishingtheEuropean Economic Commumty,onthe 
abovementioned proposal. 
The Section for lndustry,Commerce, Crafts and Services, which was responsible for preparing 
the Committee's work on the subject, adopted its Opinion on7Apnll987,m the light of 
the report by ^ir,^elletier. 
At its ^^th plenary session ^meeting of l^^viayl987^,the Economic and Social Committee 
adopted the following Opinion byalarge majority with seven votes against and It^absten 
tions 
Lhe Committee approves the proposal, and takes this 
opportunity to present some considerations which it 
hopes will prove constructive. 
Ceneral comments 
1 The Committee trusts that all the conditions for 
the completion ofareal European internal market will 
soon be satisfied. It supports any proposal aimed at 
achieving this goal effectively while taking account of 
economic and social realities 
^ Civen that the harmonization of Community rules 
is an important element in thecompletionofthe internal 
market, it is essential tohaveacommonbasis for the 
definitions which are to be included in such rules. Own 
funds are of particular importance, forming thebasis 
for many ratios andplayinga largepartinensunng 
that credit institutions compete with each other on 
equal terms The Commission itself stresses this in 
the explanatory memorandumwhich accompanies the 
proposal 
^.1 A large number of banks, particularly in the 
United States, have encountered very serious difficulty 
les, largely because their own funds have proved msuf 
ficient for their commitments.This, combined with the 
fact thatcredit institutions are currently facing much 
greater risks, justifiesthespecialattentionwhichthe 
Commission is according this matter, 
^ LheCommittee has learnt of adraft agreement 
between the United kingdom and the USA on the 
establishment of common procedures for the calcuD 
latron of an assets risks ratio, with substantially the 
same aim as the present proposal. The agreement was 
made public by a Bank of England communique of 
8]anuary 1987 Apart from the inconsistencies which 
it hasnotedbetweenthe provisions of this agreement 
and those of the present proposal, the Committee feels 
that this unilateral action bya^viember State showsa 
regrettable confusion about the scope of the Com mission'saction and authonty,The committee stresses 
the need to ensure that the provisions of this agreement 
conform with those of the fOirective once this has been 
adopted. 
^, TheCommission originally intended to harmonise 
the own funds of credit institutions by means of a 
recommendation,The question arises as to whether this 
would have beenamore effective instrument than the 
directivenow beingproposed. Thepolitical decision 
has no doubt been made on thegrounds of effectiveness, 
but it may bring difficulties ifthete^t has to be adapted 
after the initial implementationpenod.Arecommen 
dation almost certainly makes adaption easier,although 
it is less effective as an instrument of harmonization. 
On balance, therefore, the Committee supports the use 
of a Toirective. Articled of theproposal takes some 
accountof the need for adaption,by stating that not 
more than three years after the notification of the 
directive, the Commission will review the situation 
and if necessary will, after consulting the Advisory 
Committee, adopt the necessary amendments. 
^ Lhe Committee considers that Article^delegates 
the legislative power of the Council to the Commission, 
allowing the latter to amend the directive after simply 
consulting the Advisory Committee, In the Committee's 
view,the Commission should also have to consult the 
European parliament and the ESC, the latter under 
Article 198 of thefreaty of R.ome, 
^, Phe Committee feels that the proposal'sdistinc 
tion between internal and external elements stems from 
an admirable concern to present clearly the various 
partsof own funds andtoencompassthe maximum 
number of the various elements comprising own funds 
mthe^iemberStates.Unfortunately, however, some 
ambiguities remaim this method restricts potential har 
No C 180/52 Official Journal of the European Communities 8. 7. 87 
monization, in that Member States are free to omit 
some of these elements from their national definition 
or to fix lower ceilings. This could be contrary to equal 
competition between credit institutions. 
On the other hand, it is noted that the aim of the 
proposal is to standardize and strengthen controls of 
own funds, and that the proposal is adequate to this 
objective. 
7. While listing the various elements which may con­
stitute own funds, the proposal does not mention the 
deductions that are usually made from gross own funds 
to calculate net own funds, which are used as the basis 
for prudential regulations. 
8. The Committee rejects the Commission proposal 
that guarantees extended by statutory authorities to 
certain credit institutions should be excluded from own 
funds. It notes that external own funds include the 
liabilities of cooperative credit institutions insofar as 
four Member States included them in this category as 
of 31 December 1984, taking account of the specific 
character of cooperatives. 
The Committee points out further that some language 
versions refer to 'public credit institutions', while the 
French text covers all credit institutions. 
9. The stipulation that the total of external elements 
shall not exceed 50 % of the total of internal elements 
is felt to be over-restrictive, or at least to be a goal which 
cannot be achieved until after the proposed deadline of 
1 January 1995. 
10. In conclusion, the Committee considers that it is 
up to the Community authorities to solve the problems 
mentioned above, and align Member States' legislation 
and regulations so that the credit institutions which 
operate on the Community market can compete fairly. 
Specific comments 
Article 1 (2) 
The scope of the Directive is defined by a reference to 
that of the First Council Directive 77/780/EEC. The 
problem thus arises of institutions which are defined as 
credit institutions in national legislation even though 
they do not meet the definition of the First Directive. 
With a view to harmonization and clarification, the 
Committee feels that the scope should be clearly limited 
to the definition used in the First Directive. Article 2 (1) (a) (i) 
The Portuguese agricultural credit institution poses a 
special problem. Although according to the Treaty it 
will not be subject to the present Directive until 1993, 
allowing time for it to be restructured under the aegis 
of a central body, the problem is still likely to arise 
after this date. The above paragraph could therefore 
be worded as follows: 
'Paid-up capital plus share premium account, minus 
the credit institution's holdings of its own shares, 
except where these come from the incorporation of 
reserve capital which, by law or by the articles of 
association, may not be distributed to members.' 
The provision to allow Member States to defer appli­
cation of the Directive to mortgage credit institutions 
seems inadequately justified, if not actually excessive, 
when the Commission does not indicate the special 
rules covering these institutions. 
Article 2 (2) 
The wording of this Article is unclear in some language 
versions. It should be amended to read as follows: 
'The concept of own funds as defined in this Direc­
tive represents a maximum of elements and of the 
relative proportions of these elements. Member 
States may decide whether to exclude some 
elements, or to provide lower ceilings.' 
Article 3 (a) 
This could be drafted more clearly to state that the 
other internal elements of own funds are to cover 
possible risks whose costs cannot yet be determined. 
Clear indication is also needed that these internal 
elements may, without particular limitation, include 
mutual guarantee funds, in so far as they meet the 
conditions laid down in Article 3 (a), (b) and (c). 
Article 4 
Greater precision is needed in this Article: 
— The sole aim of Article 4 (2) is to specify that by 
1 January 1995 external elements must not exceed 
50 % of the internal elements of own funds. It does 
not mean that a credit institution would be obliged 
to repay the part of its subordinated loans which 
exceeds-this limit. 
8. 7. 87 Official Journal of the European Communities No C 180/53 
— Article 4 (3) is unclear as to what amount of the 
liabilities of members of cooperative credit insti­
tutions may be included in external own funds. The 
Committee notes that the Commission intended the 
principle to be inclusion of the maximum sum fixed 
according to the law as at 31 December 1984, rather 
than the amount which was actually counted at 
that time. The Committee urges that this point be 
clarified. 
— The gradual reduction in external elements 
described in Article 4 (5) (c) seems both unnecess­
arily complicated and unfair: the funds involved 
remain fully liable for losses if the institution goes 
into liquidation right up until their repayment date. 
Article 4 (4) states that Member States shall not include 
guarantees which they or their local authorities extend 
to public credit institutions. The recital states that 
'the special dispensation which presently exists in one 
Member State may continue pending further coordi­
nation of that practice'. 
Done at Brussels, 14 May 1987. The Committee cannot understand the reasoning 
behind this derogation, which contradicts the actual 
provision contained in the Directive. It would like to 
see a clear indication of the Member State and insti­
tution which are to benefit from this derogation, along 
with a justification for this. 
Article 5 
The Committee thinks that the possible amendments 
to the Directive should be referred to the European 
Parliament and the ESC. It considers that the present 
wording of this Article is not consistent with the Treaty 
of Rome. 
Article 10 of the Single European Act amending Arti­
cle 145 of the Treaty, which gives the Commission 
authority to implement the rules established in the 
measures adopted by the Council, should not mean that 
the Council can delegate its legislative power to the 
Commission by allowing it to amend a Council Direc­
tive. 
The Chairman 
of the Economic and Social Committee 
Alfons MARGOT