J v 
COMMISSION OF THE EUROPEAN COMMUNITIES 
C0M(93) 392 final 
Brussels, 1 September 1993 
REPORT FROM THE COMMISSION TO THE COUNCIL 
under Article 8(3) of Directive 89/647/EEC, 
on the weightings applied by Member States on the basis of 
Article 8(1) and (2) of that Directive 
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Article 8(1) and (2) of Directive 89/647/EEC of 18 December 1989 on a 
solvency ratio for credit institutions permits Member States to apply a 
specific risk weighting (different from those provided for in Article 6) to 
certain asset items taken into account in calculating the solvency ratio. 
The last sentence of Article 8(3) requires the Commission to submit to the 
Council a report on these specific provisions in order to ensure that they 
do not result in any distortions of competition.1 
The provisions in question are' as follows: 
Article 8(1): 
"1. The Member States may apply a weighting of 20% to asset items 
which are secured, to the satisfaction of the competent authorities 
concerned, by collateral in the form of securities issued by Zone A 
regional governments or local authorities, by deposits placed with Zone 
A credit institutions other than the lending institution, or by 
certificates of deposit or similar instruments issued by those credit 
inst itut ions." 
Article 8(2): 
"2. The Member States may apply a weighting of 10% to claims on 
institutions specializing in the inter-bank and public-debt markets in 
their home Member States and subject to close supervision by the 
This report is also being transmitted to Parliament and the Economic 
and Social Committee. 
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competent authorities where those asset items are fully and completely 
secured, to the satisfaction of the competent authorities of the home 
Member States, by a combination of asset items mentioned in 
Article 6(1)(a) and (b) recognized by the latter as constituting 
adequate collateral." 
On 1 May 1993, following a request for information on the application of 
Article 8(1) and (2) which the Commission made by letter dated 
22 January 1993 to the members of the Banking Advisory Committee, the 
position was as follows: 
(a) With respect to Article 8(1) 
Two countries (Netherlands, United Kingdom) had not applied specific 
weightings under this provision-, 
The other ten countries had applied specific weightings: 
1. In Belgium, Article 8 has been applied as follows: 
1. Belgium has not made use of the possibility of taking account of 
the security referred to in Article 8(1) of the solvency ratio 
Directive in order to grant a lower weighting than that provided for 
in Article 6 of the Directive, except for collateral in the form of 
securities issued by the Belgian Regions and Communities. 
2. Pursuant to Article 7(1) of the solvency ratio Directive, Belgium 
applies a zero weighting to credits and off-balance-sheet operations 
whose counterparties are the Belgian Regions or Communities, or with 
third-party counterparties but secured irrevocably and expressly by 
the Belgian Regions or Communities. For the reasons set out below, 
the same weighting is applied to items secured by a voidable 
security on securities issued by the Belgian Regions or Communities. 
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The zero weighting for the Belgian Regions and Communities envisaged 
by the Belgian rules is justified first of all by the fact that, in 
terms of credit risk, there is no difference between claims on the 
Belgian central government and claims on the Belgian Regions and 
Communities, it is also justified by a concern for neutrality in 
the light of the federal structure adopted by Belgium following the 
reform of the constitution, which transfers a large part of central 
government power to the Regions and Communities, including the 
transfer of competence in financial and tax matters. This lack of 
any difference as regards the risks involved and the existence of a 
specific institutional framework explain why, in the rules on 
solvency, this equality of treatment of claims on central government 
and on the Regions and Communities is extended to include claims 
secured either directly by the Regions or Communities or indirectly 
by means of a security on securities issued by them. 
2. In Denmark a 20% weighting is applied, in accordance with 
Article 8(1), to claims collateralized by: 
securities issued by: 
- Zone A regional governments or local authorities, 
- mortgage credit institutions or other credit institutions, 
and 
deposits placed with other Zone A credit institutions or by 
certificates of deposit issued by other credit institutions. 
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3. In Germany provision has been made for a 20% weighting to be 
applied subject to the following conditions: 
A lower weighting may be applied if the credit institution in question 
has real collateral that complies with the relevant legislation. Such 
guarantees should meet the following criteria: 
- they should be based on a specific declaration made by the party 
providing the collateral; 
- that declaration should cover the same period as that for which the 
credit secured is granted; 
- where securities are lodged with a foreign credit institution, the 
party benefiting from the guarantee should have the same rights as 
under German banking law. 
In the case of collateral in the form of securities issued by Zone A 
regional governments or local authorities, the lower weighting takes 
account of the unquestionable solvency of such governments and 
authorities, as is also reflected in Article 6(1)(b)(5) of the solvency 
ratio Directive. As the transposition of the option provided for in 
Article 7(1) shows, there is no difference in risk between the central 
authorities and the regional and local authorities. As a result, the 
application of a 100% weighting to asset items secured by collateral in 
the form of securities issued by local authorities in contrast to the 
application of a zero weighting to asset items secured by collateral in 
the form of securities issued by the central authorities would be 
completely out of proportion and would discriminate excessively against 
such regional and local authorities as compared with the central 
authorities. 
Deposits placed with Zone A credit institutions other than the lending 
institution should be pledged to the latter under the above-mentioned 
conditions and should be held in a special account separately from the 
client's assets. In these circumstances, the risks incurred by the 
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lending credit institution must be considered to be slight since, in 
the event of the guarantee being called, there is no possibility of the 
deposits placed with a Zone A credit institution being appropriated. 
This supports the case for a 20% weighting. 
Similar considerations were also decisive in ensuring that guarantees 
in the form of certificates of deposit or other securities issued by 
Zone A credit institutions other than the lending institution can be 
given a lower weighting. 
4. In Greece this specific weighting has been applied. 
5. In Spain this weighting has been used as follows: 
The reduced weightings provided for in Article 8(1) are applied in 
their entirety to assets which are secured by collateral in the form of 
securities issued by regional authorities (with the exception of the 
Autonomous Communities, i.e. regional governments, whose issued 
securities authorized by the State are zero-weighted in accordance with 
Article 7(1) of Directive 89/647/EEC) and by local author ities, and to 
assets secured by deposits placed with Zone A credit institutions other 
than the lending institution or by certificates of deposit or similar 
instruments issued by those entities. 
6. In France this specific weighting has been used. 
7. In Ireland the Central Bank of Ireland reports that, in its 
implementation notice relating to the own funds and solvency ratio 
Directives, it assigned a 20% weighting to asset items constituting 
claims carrying the explicit guarantees of Zone A regional governments 
or local authorities. 
A weighting of 20% is also applied to asset items carrying the explicit 
guarantees of Zone A credit institutions. 
8. In Italy this specific weighting has also been applied. 
9. In Luxembourg this specific weighting has been used. The Luxembourg 
delegation justifies its use as follows: 
"Provision has also been made, under Article 8(1), for a 20% weighting 
to be applied to assets guaranteed by securities issued by Zone A 
regional or local authorities. Luxembourg takes the view that, in 
terms of the credit risk incurred, there is no difference between 
claims on or guaranteed by regional and local authorities (which carry 
a 20% weighting in accordance with Article 6(1)(b)) and those 
guaranteed by securities issued by those same authorities. 
Similarly, assets secured by cash deposits placed with Zone A credit 
institutions other than the lending institution or by certificates of 
deposit or similar instruments issued by those credit institutions can 
be given a 20% weighting since, from the viewpoint of the credit risk 
incurred, they can be treated as claims on or guaranteed by such 
institutions, to which a 20% weighting is applied under 
Article 6(1)(b). 
We would point out that, in all the cases provided for in Article 8(1), 
the Institut Monétaire Luxembourgeois (IML) instructions require 
securities received as collateral to be valued on a prudent and 
cont inuous basis. 
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Securities received as collateral have thus to be valued at their 
market value. In addition, safety margins have to be applied to take 
account of possible price fluctuations and currency risk. The 
safety-margin requirement is also applied to cash deposits in order to 
take account of currency risk." 
10. In Portugal the adoption of this option is explained by the 
Portuguese delegation as follows: 
"The application of the option provided for in Article 8(1) stems from 
the view that the various forms of security set out there are in 
substance identical, as regards the credit risk incurred, to assets 
constituting claims on the entities referred to there." 
(b) With respect to Article 8(2) 
Nine Member States (Belgium, Germany, Greece, Spain, France, Ireland, 
Italy, Netherlands, Portugal) simply report that they have not made use 
of this option of applying this specific weighting. The Portuguese 
delegation adds that "the non-use of the option provided for in 
Article 8(2) is due to the fact that this type of institution does not 
exist in Portugal". 
Luxembourg makes use of the Article 8(2) option of applying a 10% 
weighting to claims on institutions specializing in the inter-bank and 
public-debt markets in a Member State and subject to close supervision 
by the authorities of that Member State where the asset items in 
question meet the conditions laid down in Article 8(2). However, 
application of this provision is subject to the prior agreement of the 
IML. 
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Although this type of Institution does not exist as such in Luxembourg, 
use has been made of this option in order to enable Luxembourg banks to 
benefit from the same treatment as their competitors established in 
countries where such specialized institutions exist or where the law 
permits a 10% weighting to be applied to claims on such institutions. 
If it turns out that no other Member State is to apply this provision, 
Luxembourg will not apply it either. 
In the case of the United Kingdom, this procedure has been used as 
fo11ows: 
* For institutions subject to the prudential supervision of the Bank 
of England, the latter's representative states: 
"In the United Kingdom a 10% risk weighting is applied to loans to 
discount houses, gilt-edged market makers, and Stock Exchange money 
brokers, which operate in the gilt-edged market, where the loans are 
secured on gilts, UK Treasury bills, eligible local authority and 
eligible bank bills, or London CDs. 
These institutions all specialize in trading activity in the interbank 
and public-debt markets in the UK. The institutions themselves are 
subject to a supervisory regime operated by the Bank of England. 
Further, a lower risk weight is merited on prudential grounds because 
the Bank of England seeks to ensure that such lending is of very low 
risk because of the high quality of the assets on which it is secured." 
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* For institutions subject to the prudential supervision of the 
Building Societies Commission, the tatter's representative states: 
"The Building Societies Commission has applied a 10% weighting to 
deposits with the following credit institutions: 
(i) any gilt edge market maker; 
(i i) any stock exchange money broker ; 
(i i i) any d i scount house. 
This is provided that they are collateralized by assets which, if held 
directly, would have a weighting of not more than 20%. 
Additionally, Stock Lending rights against any stock exchange money 
broker have also been weighted at 10% provided that they are 
collateralized by assets which, if held directly, would not have a 
weighting of more than 20%. 
The above are claims on institutions specialising in the inter-bank and 
public-debt markets in the UK and are subject to supervision by the 
competent authorities." 
The Danish delegation's reply was as follows: 
"As indicated in our answer concerning Article 1(4), we have no 10% 
weighting on claims on institutions in Denmark specializing in 
inter-bank and public-debt markets. But we have applied a 10% 
weighting to claims which Danish credit institutions may have on 
institutions in other Member States specializing in inter-bank and 
public-debt markets." 
To conclude, if one examines the impact of these provisions on competition, 
the following picture emerges: 
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With regard to Article 8(1). ten Member States have applied a specific 
weighting under this Article. However, comments have been made by 
certain delegations: 
Italy points out that "in fact, the provision relating to securities 
issued by regional governments or local authorities has not yet been 
applied in pract ice". 
- The Danish delegation adds that "for Danish credit institutions the 
competitive advantage of applying a 20% weighting on claims 
collateralized by securities issued by regional governments, local 
authorities or credit institutions/mortgage credit institutions is 
of minor importance. The total amount of claims secured by such 
securities is about 3% of total loans and advances, and 1.7% of 
total assets". 
- Ireland adds that "it would not be possible to give an assessment of 
the implications of these provisions for competition". 
- Germany makes the same remark. 
With regard to Article 8(2). eleven Member States have not applied a 
specific weighting under this Article. A 10% weighting is applied in 
Denmark and Luxembourg to claims which credit institutions in those two 
countries may have on institutions specializing in the inter-bank and 
public-debt markets in other Member States, in so far as those 
specialized institutions benefit from a preferential weighting in their 
home country. 
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The United Kingdom Representative (from the Bank of England) states finally 
that: "The specialised nature of these institutions, and of the lending to 
them, means that the implications for competition of the use of this 
provision are negligible." 
There is nothing in the replies from the Member States to indicate that use 
of this provision has caused a distortion of competition. The Commission 
therefore considers that there is no need to propose any specific measures 
in this respect. 
The Council is asked to take note of this report. 
>f*> 
ISSN 0254-1475 
COM(93) 392 final 
DOCUMENTS 
EN 10 
Catalogue number : CB-CO-93-423-EN-C 
ISBN 92-77-58506-4 
Office for Offîcial Publications of the European Communities 
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