No C 167/40 Official Journal of the European Communities 3. 7. 89 
9. Money broking 
10. Portfolio management and advice 
11. Safekeeping of securities 
12. Credit reference services 
13. Safe custody services (f) Professional investment advice given to investors on an 
individual basis or on the basis of private subscription in 
connection with any or all of the instruments referred to in 
footnote 2. 
(g) Safekeeping and administration of any of the instruments 
referred to in footnote 2 otherwise than in connection with 
the management of a clearing system. 
9. Money broking 
10. Credit reference services 
11. Safe custody services 
Amended proposal for a Council Directive on a solvency ratio for credit institutions (*) 
COM(89) 239 final — SYN 133 
(Submitted by the Commission pursuant to the third paragraph of Article 149 of the EEC 
Treaty on 30 May 1989) 
(89/C 167/03) 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European 
Economic Communities, and in particular the third 
sentence of Article 57(2) thereof, unchanged 
Having regard to the proposal from the Commission, 
In cooperation with the European Parliament, 
Having regard to the opinion of the Economic and Social 
Committee, 
Whereas the Directive is a development from the work unchanged 
undertaken by the Banking Advisory Committee which has 
under Article 6(4) of the Council Directive 77/780/EEC 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 (2), as amended 
by Directive 86/524/EEC (3), responsibility for making 
'suggestions to the Commission with a view to coordi­
nating the coefficients applicable in the Member States'; 
Whereas appropriate solvency ratios play a central role in unchanged 
the prudential supervision of credit institutions; 
Whereas ratios which weight assets and off-balance sheet unchanged 
transactions according to the degree of credit risk are 
particularly useful measures of solvency; 
(!) OJ No C 135, 25. 5. 1988, p. 5. 
(2) OJ No L 322, 17. 12. 1977, p. 30. 
(3) OJ No L 309, 4. 11. 1986, p. 15. unchanged 
3. 7. 89 Official Journal of the European Communities No C 167/41 
ORIGINAL PROPOSAL 
Whereas the development of common standards of capital 
adequacy in relation to assets and off-balance sheet items at 
risk is accordingly, one of the essential areas of harmonis-
ation necessary for the achievement of mutual recognition 
and thus completion of the internal market in banking 
services; AMENDED PROPOSAL 
unchanged 
Whereas in this respect the Directive is connected with 
other specific legislation also harmonising the fundamental 
techniques of prudential supervision: Council Directive .../ 
.../EEC on own funds, the Commission recommendations 
87/62/EEC (i) and 87/63/EEC (2) on large exposures and 
deposit protection schemes; Whereas in this respect the Directive is connected with 
other specific legislation also harmonising the fundamental 
techniques of prudential supervision: Council Directive 89/ 
299/EEC (J) on own funds, the Commission recommend­
ations 87/62/EEC (2) and 87/63/EEC (3) on large ex­
posures and deposit protection schemes; 
Whereas the Directive should also be seen as directly 
complementary to the Second Coordination Directive 
which lays out the broader framework of which this 
Directive is an integral part; unchanged 
Whereas the minimum ratio contained in this Directive is 
provisional in nature; whereas it will be reviewed following 
a statistical survey; whereas the Commission will, if 
necessary, duly propose an amendment to the figure before 
the final adoption of the Directive; deleted 
Whereas measurement of, and allowance for, interest and 
exchange rate risk, and other market risks, are also of great 
importance in prudential supervision; whereas the Com­
mission shall, accordingly, in cooperation with the 
competent authorities of Member States and others 
working towards similar ends, further study the available 
techniques; whereas it shall then make appropriate 
proposals for the further harmonisation of prudential rules 
relating to these risks; Whereas measurement of, and allowance for, interest and 
exchange rate risk, and other market risks, are also of great 
importance in prudential supervision; whereas the Com­
mission shall, accordingly, in cooperation with the 
competent authorities of Member States and others 
working towards similar ends, further study the available 
techniques; whereas it shall then make appropriate 
proposals for the further harmonisation of prudential rules 
relating to these risks; whereas in so doing it shall pay full 
attention to the interaction of the various banking risks, 
whereas it shall, accordingly, examine the coherence of the 
separate proposals; 
(!) OJ No L 33, 4. 2. 1987, p. 10. 
(2) OJ No L 33, 4. 2. 1987, p. 16. (!) OJ No L 124, 5. 5. 1989, p. 16. 
(2) OJ No L 33, 4. 2. 1987, p. 10. 
(3) OJ No L 33, 4. 2. 1987, p. 16. 
No C 167/42 Official Journal of the European Communities 3. 7. 89 
ORIGINAL PROPOSAL 
Whereas technical modifications to the detailed rules 
contained in this Directive may from time to time be 
necessary to respond to new developments in the banking 
sector; whereas the Commission shall accordingly make 
such modifications as are necessary, after consulting the 
Banking Advisory Committee, within the limits of the 
implementing powers delegated to the Commission by the 
provisions of the Treaty; whereas that Committee shall act 
as a 'Regulatory' Committee, according to the rules of 
procedure laid down in Article 2, procedure III, variant (a) 
of Council Decision 87/373/EEC of 13 July 1987 laying 
down procedures for the exercise of implementing powers 
conferred to the Commission (J); 
HAS ADOPTED THIS DIRECTIVE: 
Scope and definition 
Article 1 
1. This Directive shall apply to credit institutions within 
the meaning of the first indent of Article 1 of Directive 77/ 
780/EEC. 
2. Notwithstanding indent 1 above, the Member States 
need not apply this Directive to credit institutions listed in 
Article 2(2) of Directive 77/780/EEC. 
3. Credit institutions which, as defined in Article 2(4) (a) 
of Directive 77/780/EEC are affiliated to a central body in 
the same Member State, may be exempted from the 
provisions of this Directive, provided that the totality of 
those affiliated credit institutions and the central body are 
included in consolidated solvency ratios in accordance with 
this Directive. 
(!) OJ No L 197, 18. 7. 1987, p. 33. AMENDED PROPOSAL 
New recital 9 
Whereas the risk weights in this Directive could not expect 
exactly to reflect actual credit risk relativities in all cases; 
whereas in this regard the application of a 20 % rather than 
0 % weight to the European Investment Bank reflects 
agreement on the supervisory treatment of borrowing by 
multilateral investment and development banks made in a 
wider international context and not the high credit-
standing of the EIB; 
unchanged 
HAS ADOPTED THIS DIRECTIVE: 
Article 1 
unchanged 
unchanged 
unchanged 
unchanged 
3. 7. 89 Official Journal of the European Communities No C 167/43 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
Article 2 
For the purpose of this Directive: 
(indent 1) 
— 'competent authorities' shall be defined in accordance 
with the fifth indent of Article 1 of Council Directive 
83/350/EEC of 13 June 1983 on the supervision of 
credit institutions on a consolidated basis f1), 
(indent 2) 
— 'Domestic credit institutions' shall comprise all credit 
institutions authorised in the Member States, in 
accordance with Article 3 of Directive 77/780/EEC, and 
branches of those institutions established outside the 
European Communities, 
(indent 3) 
— 'foreign credit institutions' in this Directive shall 
comprise all private and public undertakings outside the 
Member States which satisfy the definition in the first 
indent of Article 1 of Directive 77/780/EEC, including 
their branches, 
(indent 4) 
— in the case of central governments and central banks, 
regional governments and local authorities and the non-
bank sectors as defined below, 'domestic' shall mean of 
the Member States, 'foreign' shall mean of other 
countries, 
(indent 5) 
— 'non-bank sector' shall be defined as all borrowers other 
than credit institutions as defined in the second and 
third indents above, central governments and central 
banks, regional governments and local authorities, the 
European Communities and the European Investment 
Bank, and the Bank for International Settlements (BIS) 
the International Bank for Reconstruction and Develop­
ment (IBRD) and the International Monetary Fund 
(IMF), Article 2 
For the purpose of this Directive: 
(indent 1) 
unchanged 
(indent 2) 
— 'Zone A' shall comprise all Member States and all other 
countries which are full members of the Organisation 
for Economic Cooperation and Development or 
countries which have concluded special lending ar­
rangements with the International Monetary Fund 
associated with the General Arrangements to Borrow; 
'Zone B' shall comprise all other countries, 
(indent 3) 
— 'Zone A' credit institutions' shall comprise all credit 
institutions authorised in the Member States, in 
accordance with Article 3 of Directive 77/780/EEC, 
including their branches and all private and public 
undertakings licensed in other Zone A countries, which 
satisfy the definition in the first indent of Article 1 of 
Directive 77/780/EEC, including their branches, 
(indent 4) 
— 'Zone B credit institutions' shall comprise all private 
and public undertakings licensed outside Zone A which 
satisfy the definition in the first indent of Article 1 of 
Directive 77/780/EEC, including their branches, 
deleted 
(indent 5) 
— 'non-bank sector' shall be defined as all borrowers other 
than credit institutions as defined in the third and fourth 
indents above, central governments and central banks, 
regional governments and local authorities, the Euro­
pean Communities and the European Investment Bank 
(EIB), and multilateral development banks as defined 
below, 
(!) OJ No L 193, 18. 7. 1983, p. 18. unchanged 
No C 167/44 Official Journal of the European Communities 3. 7. 89 
ORIGINAL PROPOSAL 
(indent 6) 
— 'full risk', 'medium risk', 'medium/low risk' and 'low 
risk' off-balance sheet items are described in Annex 1 
and listed in Annex 2, 
— 'participation' shall be defined in accordance with the 
third indent of Article 1 of Directive 83/350/EEC. 
Article 3 
General principles 
1. For the purposes of measuring the solvency of credit 
institutions as defined in Article 1, the competent author­
ities of Member States shall ensure that ratios are 
calculated for each credit institution which expresses its 
own funds, as defined in Article 4, as a proportion of its 
total risk-adjusted assets and off-balance sheet items, as 
defined in Article 5. 
2. Ratios shall be calculated on a consolidated basis in 
accordance with Directive 83/350/EEC and Council 
Directive 86/635/EEC of 8 December 1986 on the annual 
accounts and consolidated accounts of banks and other 
financial institutions (j). Notwithstanding the above 
requirement, unconsolidated ratios shall also be calculated 
for all credit institutions. However, the competent 
authorities shall have the discretion to require sub-
consolidated rather than unconsolidated ratios for credit 
institutions subsidiaries. 
3. Without prejudice to the compliance obligations of 
credit institutions established in Article 9(2), (3) and (4), 
the competent authorities shall ensure that the ratios are 
controlled not less than twice each year. 
4. Valuation of assets and off-balance sheet items shall be 
undertaken in accordance with Directive 86/635/EEC. 
(!) OJ No L 372, 31. 12. 1986, p. 1. AMENDED PROPOSAL 
(indent 6) 
— 'multilateral development banks' shall be defined as the 
International Bank for Reconstruction and Develop­
ment and the International Finance Corporation, the 
Inter-American Development Bank, the African De­
velopment Bank, the Nordic Investment Bank, the 
Caribbean Investment Bank, the Council of Europe 
Resettlement Fund and other multilateral development 
banks in which Member States are shareholding 
members, 
(indent 7) 
— 'full risk', 'medium risk', 'medium/low risk' and 'low 
risk' off-balance sheet items are described in Article 6(2) 
and listed in Annex 1, 
deleted 
Article 3 
unchanged 
unchanged 
unchanged 
4. Valuation of assets and off-balance sheet items shall be 
undertaken in accordance with Directive 86/635/EEC. 
unchanged 
3. 7. 89 Official Journal of the European Communities No C 167/45 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
Article 4 Article 4 
Own funds: the numerator Own funds: the numerator 
Own funds, as defined in Directive .../.../EEC of... 1988 on 
the own funds of credit institutions, shall form the 
numerator of the solvency ratio. Own funds, as defined in Directive 89/299/EEC of 17 April 
1989 on the own funds of credit institutions, shall form the 
numerator of the solvency ratio. 
Article 5 Article 5 
Risk adjusted assets and off-balance sheet transactions: the 
denominator Risk adjusted assets and off-balance sheet transactions: the 
denominator 
1. Degrees of credit risk, expressed as percentage weights, 
shall be assigned to the asset items in accordance with 
provisions of Article 6. The balance sheet value of each 
asset shall then be multiplied by the relevant weight to 
arrive at a risk-adjusted value. 1. Degrees of credit risk, expressed as percentage weights, 
shall be assigned to the asset items in accordance with 
provisions of Articles 6 and 7. The balance sheet value of 
each asset shall then be multiplied by the relevant weight to 
arrive at a risk-adjusted value. 
2. In the case of the off-balance sheet items included in 
categories (a) to (e) of Article 6, a two-stage calculation, in 
accordance with rules presented in Annex 1, shall be used 
to arrive at risk weights. Risk adjusted values shall be 
obtained by multiplying the value of each off-balance sheet 
item by the relevant risk weight. 2. In the case of the off-balance sheet items listed in 
Annex 1 a two-stage calculation, presented in Article 6(2), 
shall be used. 
3. In the case of the interest rate and foreign exchange 
rate related off-balance sheet items in Article 6(2), the 
potential costs of replacing cash flows in the event of 
counterparty default shall be assessed by the application of 
either of the two methods presented in Annex 3. These 
costs shall be multiplied by the relevant counterparty 
weights in Article 6(1) to give risk-adjusted values. 3. In the case of the interest rate and foreign exchange 
rate related off-balance sheet items referred to in 
Article 6(3), and listed in Annex 3 the potential costs of 
replacing contracts in the event of counterparty default 
shall be assessed by the application of either of the two 
methods presented in Annex 2. These costs shall be 
multiplied by the relevant counterparty weights in 
Article 6(1), except that 100 % weights in that Article shall 
be put at 50 %, to give risk-adjusted values. 
4. The total of the risk-adjusted values of assets and off-
balance sheet items described above shall be the denomi­
nator of the solvency ratio. 4. unchanged 
(new paragraph) 
5. When asset items are afforded a lower weight because 
of the existence of an explicit guarantee or of collateral 
acceptable to the relevant competent authorities the lower 
weight shall apply only to that part which is guaranteed or 
which is fully and completely secured by the collateral. 
No C 167/46 Official Journal of the European Communities 3. 7. 89 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
Article 6 
1. The following weights shall be applied to the asset and 
off-balance sheet items shown below, although the 
competent authorities may establish higher weights as they 
see fit: Article 6 
1. The following weights shall be applied to the asset and 
off-balance sheet items shown below, although the 
competent authorities may establish higher weights as they 
see fit: 
(a) Nil weight: 
— cash in hand or equivalent items, 
— asset items representing claims on 'domestic' central 
governments and central banks, 
— asset items representing claims carrying the explicit 
guarantee of 'domestic' central governments and 
central banks, 
— asset items representing claims on the European 
Communities and the EIB, 
— asset items carrying the explicit guarantee of the 
European Communities and the EIB, 
— asset items representing claims on the BIS, IBRD and 
IMF 
— asset items carrying the explicit guarantee of the BIS, 
IBRD and IMF, 
— all off-balance sheet items incurred on behalf of 
'domestic' central governments and central banks, 
— all off-balance sheet items carrying the explicit 
guarantee of 'domestic' central governments and 
central banks, 
— all off-balance sheet items incurred on behalf of the 
European Communities and the EIB, 
— all off-balance sheet items carrying the explicit 
guarantee of the European Communities and the 
EIB, 
— all off-balance sheet items incurred on behalf of the 
BIS, IBRD and IMF, (a) Nil weight: 
(i) cash in hand or equivalent items, 
(ii) asset items representing claims on 'Zone A' central 
governments and central banks, 
(iii) asset items representing claims carrying the explicit 
guarantee of 'Zone A' central governments and 
central banks, 
[new indent (iv)] 
(iv) asset items representing claims on Zone B central 
governments and central banks denominated in the 
national currency of the borrowers and funded in 
that currency, 
[new indent (v)] 
(v) asset items representing claims carrying the explicit 
guarantee of Zone B central governments and 
central banks denominated in the national cur­
rency of the guarantor and the borrower and 
funded in that currency, 
(vi) asset items representing claims on the European 
Communities, 
(vii) asset items carrying the explicit guarantee of the 
European Communities, 
deleted 
deleted 
deleted 
deleted 
deleted 
deleted 
deleted 
3. 7. 89 Official Journal of the European Communities No C 167/47 
ORIGINAL PROPOSAL 
— all off-balance sheet items carrying the explicit 
guarantee of the BIS, IBRD and IMF, 
— loans and off-balance sheet items, fully and com­
pletely secured to the satisfaction of the relevant 
competent authorities, by any of the asset items 
shown above and by deposits and certificates of 
deposit with the lending institutions, 
— all off-balance sheet items having low risk, regard­
less of counterparty; 
(b)10% weight: 
— off-balance sheet items, having medium risk, 
incurred on behalf of 'domestic' credit institutions, 
— off-balance sheet items, having medium risk, 
carrying the explicit guarantee of 'domestic' credit 
institutions, 
— off-balance sheet items, having medium risk and an 
original maturity of up to and including one year, 
incurred on behalf of 'foreign' credit institutions, 
— off-balance sheet items, having medium risk and an 
original maturity of up to and including one year, 
carrying the explicit guarantee of 'foreign' credit 
institutions; 
(c) 20 % weight: AMENDED PROPOSAL 
deleted 
(viii) asset items, fully and completely secured to the 
satisfaction of the relevant competent authorities, 
by collateral in the form of Zone A central 
government securities and securities issued by the 
European Communities, by cash or by deposits and 
certificates of deposit issued by the lending 
institution; 
deleted 
(b)10 % weight: 
deleted 
deleted 
deleted 
deleted 
[new indent (i)] 
(i) claims fully and completely secured to the satisfac­
tion of the relevant competent authorities, by a 
combination in aggregate of the asset items 
recognized as appropriate collateral in Article 6(1) 
(a) and 6(1) (c). 
(c) 20 % weight: 
[new indent (i)] 
(i) asset items representing claims on the EIB, 
[new indent (ii)] 
(ii) asset items representing claims carrying the explicit 
guarantee of the EIB, 
[new indent (iii)] 
(iii) asset items representing claims on multilateral 
development banks, 
[new indent (iv)] 
(iv) asset items representing claims carrying the explicit 
guarantee of multilateral development banks, 
Official Journal of the European Communities 3. 7. 89 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
[new indent (v)] 
(v) asset items representing claims on Zone A regional 
governments and local authorities, other than 
those falling under the exceptional provisions of 
Article 7, 
[new indent (vi)] 
(vi) asset items representing claims carrying the explicit 
guarantee of Zone A regional governments and 
local authorities, other than those falling under the 
provisions of Article 7, 
— asset items representing claims on 'domestic' credit 
institutions, 
— asset items representing claims, with an original 
maturity of up to and including one year, on 'foreign' 
credit institutions, 
— asset items carrying the explicit guarantee of 
'domestic' credit institutions, 
— asset items representing claims with an original 
maturity of up to and including one year, carrying 
the explicit guarantee of 'foreign' credit institutions, 
— off-balance sheet items, having full risk and an 
original maturity of up to and including one year, 
incurred on behalf of 'foreign' credit institutions, 
— off-balance sheet items, having full risk and an 
original maturity of up to and including one year 
carrying the explicit guarantee of 'foreign' credit 
institutions, 
— loans and full and medium risk off-balance sheet 
items, fully and completely secured to the satisfac­
tion of the relevant competent authorities, by any of 
the asset items shown above in the 20 % weight 
category, (vii) asset items representing claims on Zone A credit 
institutions, which do not form an integral part of 
the own funds of those institutions, 
(viii) asset items representing claims, with a residual 
maturity of up to and including one year, on 
Zone B credit institutions, which do not form an 
integral part of the own funds of those institutions, 
(ix) asset items carrying the explicit guarantee of 
Zone A credit institutions, 
(x) asset items representing claims with a residual 
maturity of up to and including one year, carrying 
the explicit guarantee of Zone B credit institutions, 
deleted 
deleted 
(xi) asset items, fully and completely secured to the 
satisfaction of the relevant competent authorities, 
by collateral in the form of securities issued by the 
EIB and multilateral development banks, Zone A 
regional governments and local authorities and 
Zone A credit institutions, or by deposits or 
certificates of deposit with Zone A credit insti­
tutions other than the lending institution. — off-balance sheet items, having full risk, incurred on deleted 
behalf of 'domestic' credit institutions, 
— off-balance sheet items, having full risk, carrying the deleted 
explicit guarantee of 'domestic' credit institutions, 
3. 7. 89 Official Journal of the European Communities No C 167/49 
ORIGINAL PROPOSAL 
— off-balance sheet items having medium/low risk 
incurred on behalf of the 'domestic' and 'foreign' 
non-bank sectors, 
— off-balance sheet items representing local currency 
claims of 'foreign' branches of domestic credit 
institutions on 'foreign' central governments, funded 
by local currency deposits, 
— cash items in process of collection, where the 
corresponding prior payments have already been 
made; 
(d)50% weight: 
— off-balance sheet items, having medium risk, 
incurred on behalf of 'foreign' central and regional 
governments, local authorities and central banks 
and the 'domestic' and 'foreign' non-bank sectors, 
— off-balance sheet items, having medium risk and an 
original maturity of more than one year, incurred on 
behalf of 'foreign' credit institutions, 
— off-balance sheet items, having medium risk and an 
original maturity of more than one year, carrying the 
explicit guarantee of 'foreign' credit institutions, 
— loans to individuals for the purchase of residential 
property in the Community for their own occup­
ation, fully and completely secured to the satisfac­
tion of the relevant competent authorities, by 
mortgages on the property in question; 
(e) 100 % weight 
— asset items representing claims on 'foreign' central 
and regional governments, local authorities and 
central banks, 
— asset items representing claims with an original 
maturity of more than one year, on 'foreign' credit 
institutions, AMENDED PROPOSAL 
deleted 
deleted 
unchanged 
(d)50% weight: 
deleted 
deleted 
deleted 
(i) claims, fully and completely secured to the 
satisfaction of the relevant competent authorities, 
by mortgages on residential property which is or 
will be occupied by the borrower or which is 
rented. 
(e) 100 % weight 
(i) asset items representing claims on Zone B central 
governments and central banks, except where 
denominated in the national currency of the 
borrower and funded in that currency, 
[new indent (ii)] 
(ii) asset items representing claims on Zone B regional 
governments and local authorities, 
(iii) asset items representing claims with a residual 
maturity of more than one year, on Zone B credit 
institutions, 
No C 167/50 Official Journal of the European Communities 3. 7. 89 
ORIGINAL PROPOSAL 
asset items representing claims on 'domestic' and 
'foreign' non-bank sectors, AMENDED PROPOSAL 
(iv) asset items representing claims on Zone A and 
Zone B non-bank sectors, 
off-balance sheet items, having full risk, incurred on 
behalf of 'foreign' central and regional governments, 
local authorities and central banks and the 'domes­
tic' and 'foreign' non-bank sectors, deleted 
off-balance sheet items, having full risk and an 
original maturity of more than one year, incurred on 
behalf of 'foreign' credit institutions, deleted 
tangible assets in accordance with assets heading 
C.II of Article 9 of Council Directive 78/660/EEC of 
25 July 1978 on the annual accounts of certain types 
of companies, (!) (v) unchanged 
— participations where not deducted from own funds, (vi) holdings of shares, participations and other 
elements which form the own funds of other credit 
institutions, where not deducted from the own 
funds of the lending institution; 
all other assets except where deducted from own 
funds. (vii) all other assets except where deducted from own 
funds, including prepayments and accrued income 
other than where, in accordance with Directive 86/ 
635/EEC, such items can be assigned to counter­
parties in lower weight categories. 
2. The methods laid out in Annex 3 shall be applied to 
interest rate and foreign exchange rate related off-balance 
sheet instruments. 2. The following treatment shall apply to off-balance 
sheet items other than those covered in Article 6(3). They 
shall first be grouped according to the risk groupings 
presented in Annex I. The full value of the full-risk items 
shall be taken into account; 50 % of the value of the 
medium-risk items; 20 % of the medium-low-risk items; 
the value of low risk items shall be set at zero. The second 
stage shall be to multiply the off-balance sheet values, 
adjusted as described above, by the weights attributable to 
the relevant counterparties, in accordance with the 
treatment of asset items in Article 6(1) and Article 7. In the 
case of asset sale and repurchase agreements and outright 
forward purchases, the weights shall be those attaching to 
the assets in question and not to the counterparties to the 
transactions. 
(!) OJ No L 222, 14. 8. 1978, p. 11. unchanged 
3. 7. 89 Official Journal of the European Communities No C 167/51 
ORIGINAL PROPOSAL 
Article 7 
1. Member States shall fix weights of either 0 %, 20 % or 
50 % in the case of asset items representing claims on their 
own regional governments and local authorities, and full 
risk off-balance sheet items incurred on behalf of their own 
regional governments and local authorities. Medium risk 
off-balance sheet items incurred on behalf of their own 
regional governments and local authorities shall cor­
respondingly be weighted at 0 %, 10 % or 20 %. Loans 
and off-balance sheet items carrying the explicit guarantee 
of a regional or local authority shall have the same weight 
as loans to, or off-balance sheet items incurred on behalf of, 
the same regional government or local authority. 
2. Member States shall notify the Commission of their 
weights, the Commission shall disseminate that inform­
ation and Member States shall mutually respect the weights 
chosen by each other. They shall have the discretion to 
apply weights of either 0 %, 20 % or 50 % in the case of 
those foreign countries determined in accordance with 
Article 8(2), with medium risk off-balance sheet items 
weighted correspondingly at 0 %, 10 % or 20 %. 
Article 8 
1. Technical modifications in the areas of this Directive 
shown below may be made in accordance with the 
procedure set out in paragraph 3: 
— the minimum established in Article 9, AMENDED PROPOSAL 
3. The methods laid out in Annex 2 shall be applied to 
interest rate and foreign exchange rate contingencies listed 
in Annex 3. 
4. Where off-balance sheet items carry explicit guarantees, 
they shall be weighted as if they were incurred on behalf of 
the guarantor rather than the counterparty. Where 
potential exposure arising from off-balance sheet transac­
tions is fully and completely secured, to the satisfaction of 
the relevant competent authorities, by any of the asset items 
recognised as appropriate collateral in Article 6(1) (a) and 
6(1) (c), weights of 0 % or 20 % shall apply in accordance 
with the collateral in question. Where the conditions of 
Article 6(1) (b) are met a 10 % weight shall apply. 
Article 7 
1. Notwithstanding the requirement in Article 6(1) (c), 
Member States may fix a weight of 0 % for their regional 
governments and local authorities, if there is no ap­
preciable difference in risk between claims on the latter and 
claims on their central governments because of the revenue 
-raising powers of the regional governments and local 
authorities and the existence of specific constitutional 
arrangements acting to reduce the chances of default by the 
latter. A nil weight fixed in accordance with these criteria 
will apply to claims on and off-balance sheet items incurred 
on behalf of the regional governments and local authorities 
in question and claims on others and off-balance sheet 
items incurred on behalf of others guaranteed by those 
regional governments and local authorities. 
2. Member States shall notify the Commission if they 
believe a nil weight to be justified according to the criteria 
laid out in paragraph 1. The Commission shall disseminate 
that information and other Member States may offer the 
credit institutions under the supervision of their competent 
authorities the possibility of applying a nil weight where 
they undertake business with the regional governments and 
local authorities in question or where they hold claims 
guaranteed by the latter. 
Article 8 
1. Technical modifications in the areas of this Directive 
shown below may be made in accordance with the 
procedure set out in paragraph 3: 
— the minimum established in Article 9, 
— the weights and asset items in Article 6, — the weights and asset items in Article 6, 
No C 167/52 Official Journal of the European Communities 3. 7. 89 
ORIGINAL PROPOSAL 
— the list and classification of off-balance sheet items in 
Annexes 2 and 4 and their treatment in the calculation 
of the ratio as described in Article 5 and Annexes 1 and 
3. 
2. The Commission may also, according to the procedure 
set out in paragraph 3, extend to foreign countries the same 
weights applied to domestic central governments, central 
banks and credit institutions, where the risks are con­
sidered equivalent, notably in the case of credit institutions, 
because of arrangements made in an international context 
and similarly to extend the 50 % weight for mortgage-
backed loans for the purchase of property in foreign 
countries. 
3. The Commission shall be assisted by a Committee 
composed of representatives from the Member States and 
chaired by a representative of the Commission. 
The representative of the Commission shall submit to the 
Committee a plan within a time limit to be fixed by the 
Chairman in accordance with the urgency of the matter. 
The opinion shall be given on a qualified majority basis 
according to Article 148(2) of the Treaty in the case of 
decisions which the Council is called upon to take 
following a proposal of the Commission. In the Committee 
the votes of the representatives shall be weighted according 
to the abovementioned article. The Chairman shall not 
vote. 
The Commission shall implement the envisaged measures 
when they are in conformity with the opinion of the 
Committee. 
When the envisaged measures do not conform with the 
opinion of the Committee, or in the absence of an opinion, 
the Commission shall without delay submit to the Council 
a proposal relating to the measures to take. The Council 
shall act according to qualified majority voting. 
If at the end of the period which will be set in the case of 
each decision to be taken by the Council as a result of this 
paragraph, a period which must not exceed three months 
from the day on which the Council was informed, the 
Council has not acted, the Commission shall implement the 
proposed measures. 
Article 9 AMENDED PROPOSAL 
— the definition of 'Zone A' in Article 2, 
— the definition of 'multilateral development banks' in 
Article 2, 
— the list and classification of off-balance sheet items in 
Annexes 1 and 3 and their treatment in the calculation 
of the ratio as described in Articles 5 and 6 and Annex 2. 
deleted 
2. unchanged 
unchanged 
unchanged 
unchanged 
unchanged 
Article 9 
1. Member States shall adopt the measures necessary to 
comply with the provisions of the Directive by 1 January 
1990.' deleted [new Article 11(1)] 
3. 7. 89 Official Journal of the European Communities No C 167/53 
ORIGINAL PROPOSAL 
2. Until 31 December 1992, credit institutions whose 
ratios are below 8 % (!) shall not allow their ratios to fall 
unless such falls are associated with the issue of new capital 
and occur in the period immediately following such 
issuance. The' competent authorities shall ensure that 
corrective measures are taken if falls occur for any reason 
other than that referred to above. 
3. With effect from 1 January 1993, credit institutions 
shall not allow their ratios, as defined in Articles 3(1) and 
(2), to fall below 8 % (!). In the event of such an 
occurrence, the competent authorities shall ensure that 
appropriate measures to restore the ratio to the agreed 
minimum are taken as quickly as possible by the credit 
institution in question. 
4. Notwithstanding paragraph 3, the competent author­
ities may establish ratios above 8 %(1) as they consider 
appropriate. 
5. Member States shall communicate to the Commission 
the texts of the main laws, regulations and administrative 
provisions which they adopt in the field covered by this 
Directive. 
Article 10 
This Directive is addressed to the Member States. AMENDED PROPOSAL 
deleted (new Article 10) 
1. With effect from 1 January 1993, credit institutions 
shall be required to maintain ratios, as defined in 
Article 3(1) and (2), of at least 8 %. 
2. Notwithstanding paragraph 1, the competent author­
ities may establish higher minimum ratios as they consider 
appropriate. 
deleted [new Article 11(2)] 
Article 10 
Until 31 December 1992, credit institutions whose ratios 
are below 8 % shall be required to ensure that the 
minimum target is attained without their ratio falling, 
except temporarily in the case of fluctuations which can 
occur around the time new capital is raised. 
Article 11 
1. Member States shall adopt the measures necessary to 
comply with the provisions of this Directive by 1/1/1991. 
2. Member States shall communicate to the Commission 
the texts of the main laws, regulations and administrative 
provisions which they adopt in the field covered by this 
Directive. 
Article 12 
unchanged 
(!) This figure is provisional. A definitive figure will be proposed 
after study of the results of a statistical exercise to be 
undertaken in the first half of 1988. footnote deleted. 
No C 167/54 Official Journal of the European Communities 3. 7. 89 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
ANNEX 1 deleted 
THE TREATMENT OF OFF-BALANCE SHEET ITEMS IN 
THE SOLVENCY RATIO 
The items shall first be grouped according to the perceived credit 
risk attaching to the instrument in question (see Annex 2). 'Full 
risk' off-balance sheet items shall be deemed to carry a credit equal 
to balance sheet items, and thus their full value taken into account; 
'medium risk' items shall be considered to carry less risk and only 
one-half of their value taken into account; medium/low risk items 
shall be deemed to carry lower risk than the medium category and 
one-fifth of their value taken into account; 'low risk' items shall be 
considered to carry negligible risk and their value accordingly set at 
zero. The second stage shall be to multiply the off-balance sheet 
values, adjusted as described above, by the weights attributable to 
the relevant counterparties, in accordance with the treatment 
afforded to asset items. In the case of asset sale and repurchase 
agreements and outright forward purchases, the weights shall be 
those attaching to the assets in question and not to the 
counterparties to the transactions. Article 6 combines the two-
stage process used for off-balance sheet items into a single 
percentage weight. 
Where off-balance sheet items carry explicit guarantees, they shall deleted 
be weighted as if they were incurred on behalf of the guarantor 
rather than the counterparty. Where potential exposure arising 
from off-balance sheet business is fully and completely secured, to 
the satisfaction of the relevant competent authorities, by any assets 
having a 0 % or 20 % weight, the weight applicable to the 
collateral and not to the counterparty shall be used. 
ANNEX 2 
CLASSIFICATION OF OFF-BALANCE SHEET ITEMS ANNEX 1 
CLASSIFICATION OF OFF-BALANCE SHEET ITEMS 
Full risk 
— Guarantees having the character of credit substitutes, 
— Acceptances, 
— Endorsements on bills not carrying the name of other credit 
institutions, 
— Transactions with recourse, 
— Irrevocable standby letters of credit having the character of 
credit substitutes, 
— Assets sale and repurchase agreements as defined in Ar­
ticle 12(1) and (2) of Directive 86/635/EEC, if these agreements 
are treated as off-balance sheet items pending full compliance 
with Directive 86/635/EEC, Full risk 
— Guarantees having the character of credit substitutes, 
— Acceptances, 
— Endorsements on bills not carrying the name of other credit 
institutions, 
— Transactions with recourse, 
— Irrevocable standby letters of credit having the character of 
credit substitutes, 
— Assets sale and repurchase agreements as defined in Ar­
ticle 12(1) and (2) of Directive 86/635/EEC, if these agreements 
are treated as off-balance sheet items pending full compliance 
with Directive 86/635/EEC, 
Assets purchased under outright forward purchase agreements, Assets purchased under outright forward purchase agreements, 
3. 7. 89 Official Journal of the European Communities No C 167/55 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
— The unpaid portion of partly-paid shares and securities, 
— Other items also carrying full risk. 
Medium risk 
— Documentary credits issued and confirmed (see also medium/ 
low risk), 
— Warranties and indemnities (including tender, performance, 
customs and tax bonds) and guarantees not having the 
character of credit substitutes, 
— Asset sale and repurchase agreements as defined in Ar­
ticle 12(3) and (5) of Directive 86/635/EEC, 
— Irrevocable standby letters of credit not having the character of 
credit substitutes, 
— Undrawn credit facilities (agreements to lend purchase 
securities, provide guarantees, acceptance facilities) with an 
original maturity of more than one year; 
— Other items also carrying medium risk. 
Medium/low risk 
— Documentary credits in which underlying shipment acts as 
collateral and other self-liquidating transactions, 
— Other items also carrying medium/low risk. 
Low risk 
— Undrawn credit facilities (agreements to lend, purchase 
securities, provide guarantees, acceptance facilities) with an 
original maturity of up to and including one year; 
— Other items also carrying low risk. — Forward forward deposits 
— The unpaid portion of partly-paid shares and securities, 
— Other items also carrying full risk. 
Medium risk 
— Documentary credits issued and confirmed (see also medium/ 
low risk), 
— Warranties and indemnities (including tender, performance, 
customs and tax bonds) and guarantees not having the 
character of credit substitutes, 
— Asset sale and repurchase agreements as defined in Ar­
ticle 12(3) and (5) of Directive 86/635/EEC, 
— Irrevocable standby letters of credit not having the character of 
credit substitutes, 
— Undrawn credit facilities (agreements to lend, purchase 
securities, provide guarantees, acceptance facilities) with an 
original maturity of more than one year; 
— note issuance facilities and revolving underwriting facilities, 
— Other items also carrying medium risk. 
Medium/low risk 
— Documentary credits in which underlying shipment acts as 
collateral and other self-liquidating transactions, 
— Other items also carrying medium/low risk. 
Low risk 
— Undrawn credit facilities (agreements to lend, purchase 
securities, provide guarantees, acceptance facilities) with an 
original maturity of up to and including one year, or which can 
be unconditionally cancelled at any time without any notice; 
— Other items also carrying low risk. 
Member States shall communicate to the Commission as soon as 
possible any cases where they have agreed to classify a new off-
balance sheet instrument under one of the final indents in each of 
the risk categories. Such items shall then be definitively classified at 
Community level in accordance with the procedure set out in 
Article 8(2). 
No C 167/56 Official Journal of the European Communities 3. 7. 89 
ORIGINAL PROPOSAL 
ANNEX 3 AMENDED PROPOSAL 
ANNEX 2 
THE TREATMENT OF INTEREST RATE RELATED OFF-
BALANCE SHEET ITEMS THE TREATMENT OF INTEREST RATE RELATED OFF-
BALANCE SHEET ITEMS 
Subject to the consent of their supervisory authorities, credit 
institutions shall choose one of the methods presented below to 
measure the risks associated with the transactions listed in 
Annex 4. Interest and exchange rate contracts traded on 
recognized exchanges, and exchange rate contracts with an 
original maturity of seven days or less shall be excluded. Subject to the consent of their supervisory authorities, credit 
institutions shall choose one of the methods presented below to 
measure the risks associated with the transactions listed in 
Annex 3. Interest and exchange rate contracts traded on 
recognized exchanges where they are subject to daily margin 
requirements, and exchange rate contracts with an original 
maturity of fourteen calendar days or less may be excluded. 
Where there is a separate legal contract, acceptable to the national 
supervisory authorities, between the credit institution and its 
counterparty under which mutual obligations to deliver payments 
in a common currency on a given date are automatically 
amalgamated with other similar obligations due on the same date, 
the single net amount fixed by such novation shall be weighted, in 
the place of the gross amount involved. 
Method 1: the 'marking to market' approach Method 1: the 'marking to market' approach 
Step (a): on the basis of attaching current market values to 
contracts (marking to market) the current replacement costs of all 
contracts with a positive value shall be obtained. Step (a): on the basis of attaching current market values to 
contracts (marking to market) the current replacement costs of all 
contracts with a positive value shall be obtained. 
Step (b): to obtain a figure for potential future credit exposures the 
notional principal amounts or values underlying the institutions' 
aggregate books shall be multiplied by the following per­
centage (*): 
Original 
maturity 
Less than one year 
One year and over Interest rate 
contracts 
nil 
0,5 % Exchange rate 
contracts 
1 % 
5 % Step (b): to obtain a figure for potential future credit exposures (*) 
the notional principal amounts or values underlying the in­
stitutions' aggregate books shall be multiplied by the following 
percentage: 
Original 
maturity 
One year or less 
More than one year Interest rate 
contracts 
nil 
0,5 % Exchange rate 
contracts 
1 % 
5% 
Step (c): the sum of current replacement cost and potential future 
credit exposure shall be multiplied by the risk weight attached to 
the relevant counterparties in Article 6. unchanged 
(*) The percentages are provisional and subject to revision. Footnote deleted. 
(!) Except in the case of single currency 'floating/floating' interest 
rate swaps in which the current replacement cost only will be 
calculated. 
3. 7. 89 Official Journal of the European Communities No C 167/57 
ORIGINAL PROPOSAL 
Method 2: the original exposure approach 
Step (a): the notional principal amounts of each instrument shall 
be multiplied by the percentages given below (J): 
Original 
maturity 
Less than one year 
One year and less 
than two years 
Additional allowance 
for each subsequent 
year Interest rate 
contracts 
0,5 % 
1 % 
1 % Exchange rate 
contracts 
2% 
6% 
4% 
Step (b): the original exposures thus obtained shall be multiplied 
by the counterparty weights given in Article 6. 
(!) These percentages are provisonal and subject to revision. 
ANNEX 4 
TYPES OF INTEREST AND FOREIGN EXCHANGE RATE 
RELATED OFF-BALANCE SHEET ITEMS 
Interest rate contracts 
— Single-currency rate swaps 
— Basis swaps 
— Forward rate agreements 
— Interest rate futures 
— Interest rate options purchased 
— Other contracts of similar nature 
Exchange rate contracts 
— Cross-currency interest rate swaps 
— Forward foreign exchange contracts 
— Currency futures 
— Currency options purchased 
— Other contracts of similar nature. AMENDED PROPOSAL 
Method 2: the original exposure approach 
Step (a): the notional principal amounts of each instrument shall 
be multiplied by the percentages given below: 
Original 
maturity (') 
One year or less 
More than one year and 
less than two years 
Additional allowance 
for each subsequent 
year Interest rate 
contracts 
0,5 % 
1 % 
1 % Exchange rate 
contracts 
2% 
5 % 
3 % 
t1) In the case of interest rate contracts, credit institutions may choose, 
subject to the consent of their supervisory authorities, either original or 
residual maturity. 
Step (b): the original exposures thus obtained shall be multiplied 
by the counterparty weights given in Article 6, subject to a 
maximum weight of 50 %. 
Footnote deleted. 
ANNEX 3 
TYPES OF INTEREST AND FOREIGN EXCHANGE RATE 
RELATED OFF-BALANCE SHEET ITEMS 
unchanged 
unchanged