No C 32/2 Official Journal of the European Communities 5.2.88 
II 
(Preparatory Acts) 
COMMISSION 
Amended proposal for a Council Directive on the own funds of credit institutions (') 
COM(88) 15 final 
(Submitted by the Commission to the Council pursuant to Article 149(3) of the EEC Treaty on 
21 January 1988) 
(88/C 32/02) 
(') OJ No C 243, 27. 9. 1986, p. 4. 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
THE COUNCIL OF THE EUROPEAN COMMUNITIES 
Having regard to the Treaty establishing the European 
Economic Community, and in particular Article 57 (2) 
thereof, THE COUNCIL OF THE EUROPEAN COMMUNITIES 
Having regard to the Treaty establishing the European 
Economic Community, and in particular the third 
sentence of Article 57 (2) thereof, 
Remainder of the preamble and recitals 1 to 8 unchanged 
Recital 9 
Whereas at the initial stage such common standards are 
defined in broad terms in order to encompass the variety 
of elements comprising own funds in the different 
Member States; whereas it is the intention that this 
Directive represents a preliminary stage in a process to 
strengthen the capital adequacy of credit institutions 
operating in the Community and to define more strictly 
the criteria for elements to qualify as own funds and in 
particular the concept of internal elements; whereas the 
process of strengthening capital adequacy should also 
include the participation of external elements in losses 
which the credit institutions might incur; Recital 9 
Whereas at the initial stage such common standards are 
defined in broad terms in order to encompass the variety 
of elements comprising own funds in the different 
Member States; 
(rest deleted) 
Recitals 10 to 12 unchanged 
Recital 13 
Whereas pending adoption of the proposal for a 
Directive concerning the annual accounts of banks and 
other financial institutions, which incorporates certain 
adaptations of the provisions of Seventh Council 
Directive 83/349/EEC of 13 June 1983 based on Article 
54 (3) (g) of the Treaty on consolidated accounts ('), the 
precise accounting technique with regard to own funds is 
left to the discretion of the Member States; whereas after 
the date of application of the abovementioned Directive 
account has to be taken of the balance sheet as provided 
for in that Directive; Recital 13 
Whereas the precise accounting technique with regard to 
own funds should be that laid down in the provisions of 
Council Directive 86/635/EEC of 8 December 1986 on 
the annual accounts and consolidated accounts of banks 
and other financial institutions ('), which incorporates 
certain adaptations of the provisions of Council Directive 
83/349/EEC (2); whereas pending transposition of the 
provisions of the abovementioned Directives into the 
internal legislation of the Member States, the use of a 
specific accounting technique with regard to own funds 
should be left to the discretion of the Member States; 
(') OJNoL 193, 18.7. 1983, p. 1. (') OJNoL372, 31. 12. 1986, p. 1. 
(0 OJNoL 193, 18.7. 1983, p. 1. 
5.2.88 Official Journal of the European Communities No C 32/3 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
Recital 14 unchanged 
Recital 15 
Whereas the Commission, having regard to the said 
periodical review, shall adopt amendments to this 
Directive after consulting the Banking Advisory 
Committee, Recital 15 
Whereas the Commission, having regard to the said 
periodic review, should be authorized to make the 
necessary technical adjustments to this Directive after 
consulting the Banking Advisory Committee, within the 
limits of the implementing powers delegated to the 
Commission by the provisions of the Treaty; whereas this 
Committee should act as a 'Regulatory' Committee, 
according to the rules of procedure as laid down in 
Article 2 procedure III variant (a) of Council Decision 
87/373/EEC (') since the competent authorities of the 
Member States retain primary responsibility for the 
application of the provisions of this Directive in this 
sensitive sector; whereas the report drawn up by the 
Commission should be communicated to the European 
Parliament; 
(') OJNoL 197, 18. 7. 1987, p. 33. 
HAS ADOPTED THIS DIRECTIVE: HAS ADOPTED THIS DIRECTIVE: 
Article 1 unchanged 
Article 2 
General Principles 
1. The own funds of credit institutions consist of the 
following elements: 
(a) Internal elements: 
(i) paid-up capital plus share premium account, 
minus the credit institution's holdings of its own 
shares; 
(ii) reserves, including legal reserves, reserves 
provided for by the articles of association and 
other reserves, plus profit or loss brought 
forward after the allocation of the results for the 
financial year and minus the amounts allocated 
to cover general risks; 
(iii) revaluation reserves (formally recognized as part 
of shareholders funds); 
(iv) other internal elements as defined in Article 3; 
(b) External elements as defined in Article 4. 
2. The concept of own funds as defined in this 
Directive gives a maximum of elements and amounts and 
leaves it to the discretion of each Member State to use 
all elements or to provide lower ceilings for the amounts 
in question. Article 2 
General Principles 
1. The own funds of credit institutions shall consist of 
the following elements: 
(a) Internal elements: 
(i) paid-up capital (capital being understood within 
the meaning of Article 22 of Directive 86/635/ 
EEC) plus share premium account, minus the 
credit institution's holdings of its own shares, 
Remainder of paragraph 1 unchanged 
2. The concept of own funds as defined in this 
Directive gives a maximum of elements and amounts. 
The use of such elements or the fixing of lower ceilings 
for the amounts in question shall, during the period 
provided for in Article 5 be left to the discretion of the 
Member States, which shall nevertheless be required to 
contemplate effecting increased convergence towards a 
common definition of own funds and to take steps to this 
end. Such measures shall be communicated to the 
Commission which shall take account of them when 
applying the provisions of Article 5. 
No C 32/4 Official Journal of the European Communities 5.2.88 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
3. The elements listed under paragraph 1 (a) must be 
at the free disposal of the credit institution concerned 
and the amount must be free from or adjusted for any 
foreseeable tax charge at the moment of their calcu­
lation. unchanged 
Article 3 Article 3 
Other Internal elements as referred to in Article 
2 (1) (a) (iv) 
The concept of own funds used by a Member State may 
include other internal elements provided that whatever 
their legal or accounting denominations might be, they 
have the following characteristics: 
(a) they are at the free disposal of the credit institution 
in order to cover normal business risks where the 
losses or impairment of value have not yet been 
identified; 
(b) there is evidence of their existence in the internal 
accounts which a credit institution makes available to 
its competent authorities; 
(c) their amount is determined by the management, 
verified by independent auditors, made known to the 
competent authorities and placed under the 
supervision of the latter. With regard to verification, 
internal auditing may be considered as provisionally 
meeting the aforementioned requirement until such 
time as the Community provisions making external 
auditing mandatory have been implemented. Other internal elements as referred to in Article 
2 (1) (a) (iv) 
1. unchanged 
2. Securities of indeterminate duration and other 
similar instruments that fulfil the following conditions 
may also be accepted as internal elements; 
(a) they may not be reimbursed on the bearer's initiative 
or without the prior agreement of the supervisory 
authority; 
(b) they may be used to participate in the losses without 
the credit institution having had to cease operating; 
(c) the debt agreement must provide for the credit 
institution to have the option to defer an interest 
payment on the debt; 
(d) the claims of the lender on the borrowing credit 
institution must be fully subordinated to those of all 
unsubordinated creditors; 
(e) the documents governing the issue of the securities 
must provide for the debt and unpaid interest to be 
able to absorb losses, whilst leaving the credit 
institution able to continue to trade; 
5.2.88 Official Journal of the European Communities No C 32/5 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
(f) such securities should not exceed a given percentage 
of the total of the elements described in Article 
2 (1) (a) (i), (ii) and (iii); that percentage should be 
calculated in such a way that the percentage referred 
to in Article 4 (2) includes external elements as well 
as securities of indeterminate duration and other 
similar instruments covered by this paragraph. 
Article 4 Article 4 
External elements referred to in Article 2 (1) (b) External elements referred to in Article 2 (1) (b) 
1. External elements are funds which are placed at the 
disposal of a credit institution but are not under the full 
ownership and control of the credit institution or are put 
at the disposal of the credit institution only for a limited 
period. Subject to paragraph 3, external elements may 
also include liabilities of members of cooperative credit 
institutions which are not paid up. 1. unchanged 
2. The external elements may be included up to an 
amount not exceeding 50 % of the total of internal 
elements of own funds: this objective should be achieved 
by 1 January 1995; the supervisory authorities will 
ensure that credit institutions operating presently above 
this level will move to this limit in a gradual process. 
However, the supervisory authorities may authorize 
those credit institutions to exceed the threshold under 
temporary and exceptional circumstances. unchanged 
3. Liabilities of members of cooperative credit 
institutions which are not paid up may be included in 
own funds only to the extent to which they were allowed 
to be counted in the own funds of the institutions of this 
category as of 31 December 1984. 3. Liabilities of members of cooperative credit 
institutions which are not paid up may be included in 
own funds only to the extent to which they were allowed 
to be counted in the own funds of the institutions of this 
category as of 31 December 1984 and up to the amount 
authorized by the legislation in force on that date, 
subject, however, to the provisions of paragraph 2. 
4. Member States shall not include guarantees which 
they or their local authorities extend to public credit 
institutions in the own funds of the latter. 4. unchanged 
5. Member States or the supervisory authorities may 
include other external elements, which are other than 
liabilities of cooperatives, in own funds only if there are 
binding agreements according to which, in the event of 
bankruptcy or liquidation of the credit institution, they 
rank inferior to the claims of all other creditors and shall 
not be repaid until all other debts outstanding at the time 
have been settled. 5. unchanged 
No C 32/6 Official Journal of the European Communities 5.2.88 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
Such other external elements must meet the following 
criteria: 
(a) the funds involved have been fully paid up; 
(b) the funds involved have an original maturity of at 
least five years during which they may be subject to 
gradual reduction; if the maturity of the debt is 
unfixed, five years' notice of withdrawal should be 
stipulated, unless the relevant funds are no longer 
considered as own funds or unless the prior consent 
of the competent authorities is specifically required 
for early repayment The competent authorities may 
grant permission for early repayment of such funds 
provided the request was at the instigation of the 
issuer and the solvency of the credit institution 
remains unimpaired; 
(c) the extent to which they may rank as own funds will 
be subject to gradual reduction during at least five 
years prior to the repayment date; 
(d) the competent authorities must be placed in a 
position to verify in detail the fulfilment of the 
foregoing conditions and, in particular, the contracts 
arranging the participation of the funds in the risks 
of the credit institution must be available to and 
approved by such authorities, or the clauses of such 
contracts must be determined by national legislation. 
Article 5 
Not more than three years after the notification of this 
Directive, the Commission shall draw up a report on the 
application of this Directive. If deemed appropriate, the 
Commission shall review the provisions of this Directive 
in the light of the results of that report, and shall adopt, 
after consultation with the Advisory Committee set up 
under Article 11 of Directive 77/780/EEC, the necessary 
amendments to this Directive. The Advisory Committee 
shall give its opinion at its next regular meeting and not 
more than six months after the consultation by the 
Commission. Article 5 
Not more than three years after the notification of this 
Directive, the Commission shall draw up a report on the 
application of this Directive, which shall be 
communicated to the European Parliament. In the light 
of the results of that report the Commission shall propose 
the necessary amendments. 
Article 5a 
1. Without prejudice to the report referred to in 
Article 5 and if there is a need, the necessary technical 
adjustments to this Directive concerning: 
— the development of and innovations in the financial 
markets; 
— the development of Community legislation in the field 
of credit institutions and related subject matters; 
— the particular characteristics of certain types of credit 
institutions; 
— technical changes which may be necessary to improve 
the convergence of the definition of own funds 
throughout the Community; 
— the clarification of definitions of elements of own 
funds used in the Directive in order to ensure equal 
application of the Directive throughout the 
Community; 
5.2.88 Official Journal of the European Communities No C 32/7 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
Article 6 
1. Member States shall take the measures necessary to 
comply with this Directive not later than 31 December 
1987 and forthwith inform the Commission thereof. 
2. Within one year of notification of this Directive the 
Member States shall communicate to the Commission 
the texts of the main laws, requlations and administrative 
provisions which they adopt in the field convered by this 
Directive. 
3. The communication referred to in paragraph 2 shall 
also include a statement, accompanied by an explanatory 
text, which notifies the Commission of the specific 
provisions and elements selected by the respective 
competent authorities of the Member States as 
comprising own funds. — the withdrawal of the deferred application of the 
Directive to mortgage credit institutions pursuant to 
Article 1 (2), 
shall be made according to the procedure laid down in 
paragraph 2. 
2. The Commission shall be assisted by a committee 
composed of the representatives of the Member States 
and chaired by the representative of the Commission. 
The representative of the Commission shall submit to the 
committee a draft of the measures to be taken. The 
committee shall deliver its opinion on the draft within a 
time limit which the chairman may lay down according to 
the urgency of the matter. The opinion shall be delivered 
by the majority laid down in Article 148 (2) of the Treaty 
in the case of decisions which the Council is required to 
adopt on a proposal from the Commission. The votes of 
the representatives of the Member States within the 
committee shall be weighted in the manner set out in that 
Article. The Chairman shall not vote. 
The Commission shall adopt the measures envisaged if 
they are in accordance with the opinion of the committee. 
If the measures envisaged are not in accordance with the 
opinion of the committee or if no opinion is delivered, the 
Commission shall, without delay, submit to the Council a 
proposal relating to the measures to be taken. The 
Council shall act by a qualified majority. 
If, on the expiry of a period to be laid down in each Act 
to be adopted by the Council under this paragraph but 
which may in no case exceed three months from the date 
of referral to the Council, the Council has not acted, the 
proposed measures shall be adopted by the Commission. 
Article 6 
1. Member States shall take the measures necessary to 
comply with this Directive not later than 1 July 1988. 
They shall forthwith inform the Commission thereof. 
2. unchanged 
3. unchanged 
Article 7unchanged