No C 337/8 Official Journal of the European Communities 31. 12. 88 
Opinion on the proposal for a Council Directive on a solvency ratio for credit institutions (l) 
(88/C 337/04) 
On 11 May 1988 the Council decided to consult the Economic and Social Committee, 
unter Article 57 of the Treaty establishing the European Economic Community, on the 
abovementioned proposal. 
The section for industry, commerce, crafts and services, which was responsible for preparing 
the Committee's work on the subject, adopted its Opinion on 5 October 1988. The rapporteur 
was Mr Pardon. 
At its 259th plenary session (meeting of 27 October 1988), the Economic and Social Committee 
unanimously adopted the following Opinion. 
The Committee approved the proposal Directive, sub­
ject to the following comments: 
1. General comments 
1.1. In tandem with the second Banking Coordi­
nation Directive the Commission has submitted a draft 
Directive on the solvency ratio for credit institutions. 
Common rules are to be framed on the stipulated, risk-
weighted ratio between (a) own funds and (b) assets 
and off-balance sheet items. The Commission sees this 
as a key component of harmonization necessary for the 
achievement of mutual recognition of authorization 
issued by national authorities. 
1.2. Implementation of the draft Directive presup­
poses the adoption and implementation of a Directive 
on the definition of own funds of credit institutions (2) 
since own funds form the numerator of the proposed 
solvency ratio. 
1.3. As pointed out in the ESC Opinion of 29 Sep­
tember 1988, simultaneous implementation of the draft 
Directive, the Directive on own funds and Community 
provisions regarding supervision of large exposures and 
deposit guarantee schemes is decisive for implemen­
tation of the second Directive on the co-ordination of 
laws, regulations and administrative provisions relating 
to the taking-up and pursuit of the business of credit 
institutions. 
1.4. The proposed ratio expresses the own funds of 
each credit institution as a proportion of the risk-
adjusted value of its assets and off-balance sheet busi­
ness. 
The Commission states that this 'risk-weighting' 
approach was developed over several years in work 
carried out for the Banking Advisory Committee estab­
lished by the first Banking Coordination Directive of 
1977. 
(') OJ No C 135, 25. 5. 1988, p. 4. 
(2) OJ No C 243, 27. 9. 1986, p. 4, as amended on 15 January 
1988, is currently before the Council of Ministers. The ESC hopes that the results of the ongoing calcu­
lations will be published before a final decision is taken 
on the projected 8 % ratio. 
1.5. The Commission rightly considers that measure­
ment of, and allowance for, interest and exchange rate 
risks and other market risks, are of great importance 
in prudential supervision (7th paragraph of the pre­
amble). It therefore intends to study the available tech­
niques in greater depth and to make appropriate pro­
posals for further harmonization of providential rules 
relating to these risks. 
In its Opinion of 29 septembre 1988 on the proposal 
for a second Directive on the coordination of laws, 
regulations and administrative provisions relating to 
the taking-up and pursuit of the business of credit 
institutions, the ESC observed that the powers of the 
competent authorities of the host country to determine 
market risks constituted a significant derogation from 
the principle that the competent authorities of the coun­
try of origin should be responsible for supervision of 
subsidiaries. This disrupted the Directive's unified 
approach, the Committee said (No 2.10.3). 
The ESC took the view that it would have been prefer­
able at this stage to provide for the solvency ratio to 
encompass market risks. 
The ESC reiterates its views on this point and requests 
the Commission to table relevant proposals without 
delay. 
1.6. The definition of standards for own funds is so 
important for banking activities that over the past few 
years harmonization has also been studied by a Basel-
based committee set up under the aegis of the governors 
of the central banks of the group of ten. The Com­
mission has been closely involved in this work. The 
ESC observes that the arrangements adopted last July 
in Basel are very similar to those contained in the draft 
Directive. 
31. 12. 88 Official Journal of the European Communities No C 337/9 
The ESC hopes for consistency between the arrange­
ments chosen by the Commission and by the governors 
of the central banks so as to facilitate the operations 
of the credit institutions and, most important of all, to 
avoid putting Community banks at a disadvantage vis­
a-vis foreign competitors (e.g. United States' and 
Japanese). 
However, more standardized bank accounting can be 
expected from the application of Directive 86/635/EEC 
of 8 December 1986 (OJ No L 372, 31 December 1986) 
and should facilitate certain adjustments, especially as 
regards own funds, e.g. authorization of an appropriate 
approach to revaluation reserves and general risks pro­
visions. 
In practical terms, the ESC hopes that the two sets of 
provisions will be sufficiently aligned in form in order 
to minimize differences in interpretation. 
2. Specific comments 
2.1. Article 1 — Scope and definitions 
In its Opinion of 29 September 1988 on the proposal 
for a second Directive on the coordination of laws, 
regulations and administrative provisions relating to 
the taking-up and pursuit of the business of credit 
institutions, the ESC pointed out that, for purposes of 
protecting savers and consumers and preserving equal 
terms of competition, 'credit institutions' needed to be 
defined more broadly than in the first Directive 77/780/ 
EEC. 
The Committee urges that this recommendation be 
heeded and that Article 1 (1) be amended accordingly. 
2.2. Article 2 — Establishment of domestic/foreign 
credit institutions 
This distinction is a key factor in the risk-weighting 
envisaged in Article 6. Under definitions set out in 
Article 2 however, governments or credit institutions 
(in the case of a loan period over one year or guarantees) 
from countries with an unimpeachable credit rating 
(United States, Canada, Switzerland and Japan, to quo­
te just a few examples) have a risk value coefficient 
of 5 compared with the weighting risks for the Member 
States' institutions. Such a situation would generally be 
a serious constraint on international capital market 
transactions. It would particularly hit branches of Com­
munity credit institutions established in major financial 
centres outside the Community. It would therefore be essential to treat all countries 
of the Organization for Economic Co-operation and 
Development (OECD) as if they were EEC Member 
States. 
2.3. Article 3 — General principles 
Ratios are to be calculated on a consolidated basis in 
accordance with Directive 83/350/EEC and Directive 
86/635/EEC. 
Unconsolidated ratios are, however, also to be calcu­
lated for all credit institutions. 
Providential supervision on a consolidated basis is, of 
course, suited to the complex structure of large banking 
groups. However, such supervision should not mean 
that parent institutions and branches in which they 
hold all, or virtually all, of the capital are simul­
taneously liable to supervision on an unconsolidated 
basis. 
To meet this requirement, some groups would have to 
undertake cumbersome restructuring, with considerable 
tax disadvantages, which would in no way improve 
overall solvency. 
The ESC therefore would recommend that the required 
supervision on an unconsolidated basis be confined to 
subsidiaries where the holding is less than 90%. 
The draft Directive seems to be taking this line in 
specifying that: 
'However, the competent authorities shall have the 
discretion to require sub-consolidated rather than 
unconsolidated ratios for credit institution subsidi­
aries.' 
The ESC also hopes that the conditions for controlling 
ratios will be interpreted with some flexibility and, in 
particular, that they will be applied only once a year 
instead of 'not less than twice each year'. 
2.4. Article 4 — Own funds: the numerator 
In the absence of detailed information on the final rules, 
the ESC is unable to take a stand for the time being. 
Substantial changes have been made to the propo­
sed directive on credit institutions' own funds 
[doc. COM(86) 169 final]. 
In view of the numerator's importance in calculating 
the solvency ratio, the ESC reserves the right to scruti­
nize the new formula to check whether, as it has rec­
ommended, the required consistency between this direc­
tive ans the provisions adopted in Basel is ensured. 
No C 337/10 Official Journal of the European Communities 31. 12. 88 
2.5. Article 6 — Risk weights 
The ESC broadly endorses the risk weighting principle 
and understands that a fixed rate is necessary. However, 
undue distortions must be avoided; here the problems 
created by the 'domestic'/'foreign' approach should be 
borne in mind. 
The ESC does not wish to go into the details of an 
inevitably complex set of rules so will confine its com­
ments to the following points. 
— On mortgage-linked loans, the ESC regrets that 
favourable treatment is to be confined to loans 
to individuals for owner-occupied homes; the risk 
would not seem to be increased when property is 
rented out (and anyway, this cannot be checked 
during the mortgage period). Similarly, it is difficult 
to justify a difference between property used for 
professional purposes and residential property. 
Lastly, property leasing should be subject to the 
same rules as mortgage-linked loans. 
— On tangible assets, the ESC takes the view that 
possession of such assets usually represents a 
guarantee for depositors. Consequently zero weight­
ing would be justified. This would also avoid a 
distinction based on the conditions of their acqui­
sition since, in the event of these assets being 'leased 
back' to a third party, no account would be taken 
of them when calculating the ratio. 
On banking accounts, the Committee advocates consist­
ency between the recommendation of the Basel com­
mittee of governors and the banking accounts directive 
as regards the method of listing assets on the basis of 
duration. 
2.6. Article 7 — Regional governments and local 
authorities 
The above term might give rise to varying interpret­
ations e.g. as to the status of public sector bodies 
which probably does not correspond to the specified 
definition. 
Further, there is a danger that Article 7 might enable 
some Member States to encourage regional or local 
authorities under their control to get into debt. This is all the more likely because loans and off-balance 
sheet items specifically guaranteed by a regional or local 
authority are subject to the same weighting as loans 
granted to such authorities. 
This system involves mutual recognition of the weight­
ing which the supervisory authorities in each Member 
State consider to be appropriate for their respective 
regional and local authorities. A procedure challenging 
this right of each Member State to determine weighting 
might be considered. 
2.7. Article 8 — Technical modifications 
The Commission is authorized to make 'technical modi­
fications' to the draft Directive, in accordance with the 
specified procedure. 
A list of these 'technical modifications' is given: 
— the minimum ratio established in Article 9, 
— the weights and assets items in Article 6, 
— 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, 
— the extension to foreign countries of the same 
weights applied to EC domestic central govern­
ments, central banks and credit institutions where 
the risks are considered equivalent, notably in the 
case of credit institutions due to international agree­
ments, 
— extension of the 50% weighting to mortgage-
backed loans for the purchase of property in foreign 
countries. 
The ESC feels that the highly technical rules of the 
proposed Directive must be able to be rapidly updated 
in line with economic developments and the conditions 
determining operation of the financial markets. It there­
fore feels that the proposed procedures could possibly 
be streamlined and their scope defined less restrictively. 
The committee referred to in Article 8.3 should be 
composed of persons responsible for bank supervision 
in their respective Member States. 
2.8. Article 9 
The competent authorities may establish ratios above 
8 % as they consider appropriate. 
This matter is covered in point 1.6.2. of the Committee 
Opinion of 29 September 1988 on the proposal for a 
31. 12. 88 Official Journal of the European Communities No C 337/11 
second Directive on the coordination of laws, regu­
lations and administrative provisions relating to the 
Done at Brussels, 27 October 1988. 
1. Introduction 
1.1. The Council of Ministers has already adopted 
four Directives on summertime arrangements. Most 
recently, on 22 December 1987, it stipulated that in 
1989 summertime throughout the Community would 
begin at 1 a.m. on 26 March 1989 and end at 1 a.m. 
on 24 September 1989 with the exception of Ireland 
and the United Kingdom, where it would end at 1 a.m. 
on 29 October 1989. 
1.2. The ESC has always fought hard for harmon­
ization of the beginning and end of summertime 
throughout the Community, the last occasion being in 
its Opinion of 16 November 1987. 
(') OJ No C 202, 2. 8. 1988, p. 5. taking-up and pursuit of the business of credit insti­
tutions and amending Directive 77/780/EEC. 
The Chairman 
of the Economic and Social Committee 
Alberto MASPRONE 
1.3. The latest Commission proposal once again 
envisages a continuation of the status quo for 1990,1991 
and 1992, i.e. one date for the ending of summertime in 
the continental countries of the Community and 
another for its ending in Ireland and the United 
Kingdom. However, Ireland and the United Kingdom 
are free to fall in line with the rest of the Community 
before 1992. 
2. General comments 
Further to its previous Opinions, the Committee wel­
comes the sign that the Commission is also tending 
towards the objective unceasingly advocated by the 
ESC, namely a single date for the beginning and a single 
date for the ending of summertime throughout the 
Community. Opinion on the proposal for a fifth Council Directive on summertime arrangements (!) 
(88/C 337/05) 
On 2 August 1988 the Council decided to consult the Economic and Social Committee, 
under Article 100 A of the Treaty establishing the European Economic Community, on the 
abovementioned proposal. 
The section for transport and communications, which was responsible for preparing the 
Committee's work on the subject, adopted its Opinion on 12 October 1988. The rapporteur 
was Mr Haas. 
At its 259th plenary session (meeting of 27 October 1988), the Committee adopted the 
following Opinion unanimously.