No C 243/4 Official Journal of the European Communities 27.9.86 
5. The amount of the aid referred to in paragraph 4 
shall be fixed in ECU per % vol potential alcoholic 
strength and per hectolitre of concentrated grape 
must, account being taken of the effect, on the 
feedingstuff's price, of the replacement of a 
traditional component by concentrated grape must. 
Moreover, the amount shall be fixed in such a way as 
to prevent any increase in concentrated grape must 
production which might result from such must being 
produced solely for use in animal feed. 
6. The amount of the aid referred to in paragraph 4 
shall not exceed that granted under the preventive 
distillation scheme. 
7. In accordance with the procedure laid down in Article 
83: 
— the amount of the aid referred to in paragraphs 1 
and 4 shall be fixed annually before 31 August, 
— the conditions for granting the aid referred to in 
paragraphs 1 and 4, and the other detailed rules 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European 
Economic Community, and in particular Article 57 (2) 
thereof, 
Having regard to the proposal from the Commission, 
Having regard to the opinion of the European 
Parliament, 
Having regard to the opinion of the Economic and 
Social Committee, 
Whereas common standards for the own funds of credit 
institutions are an important cornerstone in building up 
an internal market in the banking sector since they serve 
to ensure the continuity of credit institutions, to protect 
savings, to enhance banking supervision and to foster 
future coordination in the banking field; 
Whereas the common standards would in principle apply 
to all credit institutions authorized in the Community; 
Whereas there exist in some Member States provisions 
requiring particular own funds standards for specialized 
institutions which undertake mortgage credit business; 
whereas since such provisions are generally more strict 
than those applicable to non-specialized credit 
institutions, the abovementioned common standards may for the application of this Article, shall be laid 
down, 
— the limit to the total quantity of concentrated 
grape must to be used in feedingstuffs shall, if 
necessary, be determined. 
8. The Commission shall present to the Council a report 
which will enable the latter, before 1 September 1990, 
to scrutinize the operation of the scheme referred to 
in paragraph 4.' 
Article 2 
This Regulation shall enter into force on the third day 
following its publication in the Official Journal of the 
European Communities. 
It shall apply from 1 September 1987. 
This Regulation shall be binding in its entirety and 
directly applicable in all Member States. 
be adapted to suit their particular needs; whereas those 
provisions should be reviewed when Community 
measures are adopted enabling mortgage credit 
institutions to operate abroad; 
Whereas the own funds of a credit institution can serve 
to absorb losses which are not matched by prospective 
profits of sufficient volume and thereby as such play a 
vital role in ensuring the continuity of the institution; 
whereas the own funds also serve as an important 
yardstick to the competent authorities for assessing, for 
example, the solvency of credit institutions and for other 
prudential purposes; 
Whereas since credit institutions in a common banking 
market engage in direct competition with each other, the 
definitions and standards pertaining to own funds must 
be equivalent; whereas, to that end, the criteria for 
determining the composition of own funds should not be 
left solely to national authorities; whereas, through the 
adoption of such common criteria, the best interest of 
the Community would be served through the avoidance 
of competitive distortions together with the 
strengthening of the banking industry of the 
Community; 
Whereas the definition laid down in the Directive 
provides for a maximum of elements and qualifying 
amounts, leaving to each Member State a discretion to 
use all or part of such elements or to adopt lower 
ceilings for the amounts which are deemed qualifiable; Proposal for a Council Directive on the own funds of credit institutions 
COM(86) 169 final 2 
(Submitted by the Commission to the Council on 18 September 1986) 
(86/C 243/06) 
27.9.86 Official Journal of the European Communities No C 243/5 
Whereas the Directive details qualifying criteria for 
certain elements of own funds, with Member States 
remaining free to apply more stringent provisions; 
Whereas the Directive distinguishes, according to 
quality, elements of own funds which, on the one hand, 
are internal and capable of absorbing losses which may 
be experienced by an on-going credit institution and 
those which, on the other, are external and are placed at 
the disposal of a credit institution but are not 
unconditionally controlled by it; 
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 institution might incur; 
Whereas to reflect the fact that external elements are not 
of the same quality as internal elements, they may be 
considered as own funds to an amount not greater than 
half of the total of internal elements and any excess may 
not be counted as own funds; 
Whereas public credit institutions should not take into 
consideration guarantees of the Member State or local 
authorities in calculating own funds; whereas, however, 
the special dispensation which presently exists in one 
Member State may continue pending further coordi­
nation of that practice; 
Whereas whenever in the course of supervision it is 
necessary to determine the extent of the own funds of a 
group of credit institutions such calculation shall be 
undertaken in accordance with the provisions detailed in 
Council Directive 83/350/EEC of 13 June 1983 on the 
supervision of credit institutions on a consolidated 
basis (x); whereas that Directive leaves scope for interpret­
ation by the Member States with regard to technical 
details of its application, which should be carried out in 
keeping within the spirit of this Directive; 
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 (2), 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 layout of the balance 
sheet as provided for in that Directive; Whereas the Commission shall draw up a report and 
periodically review this Directive with the aim of 
tightening its provisions in order to achieve further 
convergence towards a Community definition of own 
funds; whereas such convergence will lead to improving 
the capital adequacy of credit institutions of the 
Community; 
Whereas the Commission, having regard to the said 
periodical review, shall adopt amendments to this 
Directive after consulting the Banking Advisory 
Committee, 
HAS ADOPTED THIS DIRECTIVE: 
Article 1 
Scope 
1. Wherever a Member State lays down by law, regu­
lation or administrative action a provision which uses the 
term or refers to a concept of own funds in the context 
of supervision of an on-going credit institution, it shall 
bring the concept of own funds used or referred to in 
line with the concept of own funds defined in the 
following Articles. 
2. Credit institutions for the purposes of this Directive 
are the institutions to which First Council Directive 
77/780/EEC (3) applies. Member States may defer the 
application of this Directive to mortgage credit 
institutions pending further coordination. 
Article 2 
General Principles 
1. The own funds of credit institutions shall 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 banking 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. 
0) OJ No L 193, 18. 7. 1983, p. 18. 
O OJNoL 193, 18.7. 1983, p. 1. (3) OJ No L 322, 12. 12. 1977, p. 30. 
No C 243/6 Official Journal of the European Communities 27.9.86 
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 such elements or to provide lower ceilings for the 
amounts in question. 
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. 
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. 
Article 4 
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. 
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. 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. 
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. 
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. 
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. 
27. 9. 86 Official Journal of the European Communities No C 243/7 
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, regulations and administrative 
provisions which they adopt in the field covered 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. 
Article 7 
This Directive is addressed to the Member States.