Proposal for a EUROPEAN PARLIAMENT AND COUNCIL DIRECTIVE amending Article 12 of Directive 77/780/EEC on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions, Articles 2, 6, 7, 8 and annexes II and III of Directive 89/647/EEC on a solvency ratio for credit institutions and Article 2 and annex II of Directive 93/6/EEC on the capital adequacy of investment firms and credit institutions
Date: 1996-04-29
Institutions: European Commission
Subjects: credit guarantee, credit institution, financial solvency, management audit, share capital













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51996PC0183

Proposal for a EUROPEAN PARLIAMENT AND COUNCIL DIRECTIVE amending Article 12 of Directive 77/780/EEC on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions, Articles 2, 6, 7, 8 and annexes II and III of Directive 89/647/EEC on a solvency ratio for credit institutions and Article 2 and annex II of Directive 93/6/EEC on the capital adequacy of investment firms and credit institutions  /* COM/96/0183 FINAL - COD 96/0121 */  


Official Journal C 208 , 19/07/1996 P. 0008 





Proposal for a  European Parliament and Council Directive amending Article 12 of Directive 77/780/EEC on the  coordination of laws, regulations and administrative provisions relating to the taking up and  pursuit of the business of credit institutions, Articles 2, 6, 7, 8 and Annexes II and III of  Directive 89/647/EEC on a solvency ratio for credit institutions and Article 2 and Annex II of  Directive 93/6/EEC on the capital adequacy of investment firms and credit institutions(96/C   208/06)(Text with EEA relevance)COM(96) 183 final - 96/0121(COD)(Presented by the  Commission on 30 April 1996)THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN  UNION, Having regard to the Treaty establishing the European Community, and in particular the first and  third sentences of Article 57 (2) thereof, Having regard to the proposal from the Commission, Having regard to the opinion of the Economic and Social Committee, Acting in accordance with the procedure referred to in Article 189b of the Treaty, Whereas Article 12 (1) of Council Directive 77/780/EEC  (1) provides that the competent authorities  are bound by the obligation of professional secrecy; whereas Article 12 (2) allows the competent  authorities of the Member States to exchange information in accordance with the Directives  applicable to credit institutions, any information thus exchanged being covered by professional  secrecy; whereas Article 12 (5) provides for the exchange of information within a Member State, or  between Member States, between competent authorities and other types of authorities or bodies  defined in the same paragraph, any information thus exchanged being subject to professional  secrecy; Whereas Article 12 (3) allows Member States to conclude cooperation agreements, providing for  exchanges of information, with the competent authorities of third countries only if the information  disclosed is subject to guarantees of professional secrecy at least equivalent to those referred to  in Article 12; Whereas Article 12 does not allow Member States to conclude cooperation agreements, providing for  exchanges of information, with the non-banking supervisory authorities of third countries; whereas,  on grounds of consistency, it should be possible to conclude cooperation agreements with the  non-banking supervisory authorities of third countries as defined in the first indent of Article 12  (5) of Directive 77/780/EEC, provided that the information disclosed is subject to guarantees of  professional secrecy at least equivalent to those referred to in Article 12; Whereas Council Directive 89/647/EEC  (2) on a solvency ratio for credit institutions weights  assets and off-balance-sheet items according to their degree of credit risk; Whereas churches and religious communities which, constituted in the form of a legal person under  public law, raise taxes in accordance with the laws conferring such a right on them represent a  credit risk similar to that of regional governments and local authorities; whereas, accordingly, it  is consistent to afford the competent authorities the possibility of treating claims on churches  and religious communities, including non-profit-making bodies and undertakings controlled by them,  in the same way as claims on regional governments and local authorities where these churches and  religious communities raise taxes; Whereas Article 6 (1) (c) (2) of Directive 89/647/EEC lays down, with regard to prepayments and  accrued income, that 'these assets shall be subject to the weighting corresponding to the  counterparty where a credit institution is able to determine it in accordance with Directive  86/635/EEC. Otherwise, where it is unable to determine the counterparty, it shall apply a flat-rate  weighting of 50  %`; Whereas this treatment is inappropriate where the asset items shown under prepayments and accrued  income are of a purely accounting nature, carry no risk and do not have a counterparty, and  consequently are simply the expression in accounting terms of a liability; whereas, in view of the  absence of risk, these assets should have a weighting of 0  % under prepayments and accrued  income; Whereas Commission Directive 94/7/EC  (1) adapting Council Directive 89/647/EEC on a solvency ratio  for credit institutions as regards the technical definition of 'multilateral development banks`  included the European Investment Fund in that definition; whereas the Fund constitutes a new and  unique structure of cooperation in Europe in order to contribute to the strengthening of the  internal market, the promotion of economic recovery in Europe and the furthering of economic and  social cohesion; Whereas, under Article 6 (1) (d) (7) of Directive 89/647/EEC, a weighting of 100  % should be  applied to the unpaid portion of capital subscribed to the European Investment Fund by credit  institutions; Whereas the capital of the European Investment Fund reserved for subscription by financial  institutions is limited to 30  %, of which 20  % would be paid up at the outset in four annual  payments of 5  % each; whereas, accordingly, 80  % would not be paid up, remaining a contingent  liability on the members of the Fund; whereas, having regard to the European Council's stated  objective when creating the Fund of encouraging commercial banks to participate, such participation  should not be penalised and whereas, accordingly, it would be more appropriate to apply a 20  %  weighting to the unpaid portion of subscribed capital; Whereas Annex I to Directive 89/647/EEC, which deals with the classification of off-balance-sheet  items, classifies certain items as full risk and, accordingly, applies a 100  % weighting; whereas  Article 6 (4) of that Directive lays down that 'Where off-balance-sheet items carry explicit  guarantees, they shall be weighted as if they had been incurred on behalf of the guarantor rather  than the counterparty. Where the potential exposure arising from off-balance-sheet transactions is  fully and completely secured, to the satisfaction of the competent authorities, by any of the asset  items recognized as collateral in paragraph 1 (a) (7) or (b) (11), weightings of 0  % or 20  %  shall apply, depending on the collateral in question.`; Whereas account should also be taken of the case where the guarantee is secured by real collateral  within the meaning of Article 6 (1) (c) (1) in respect of off-balance-sheet items which are  sureties or guarantees having the character of credit substitutes; Whereas, under points 2, 4 and 7 of Article 6 (1) (a) of Directive 89/647/EEC, a zero weighting is  applied to assets constituting claims on Zone A central governments and central banks or explicitly  guaranteed by them and to assets secured by collateral in the form of Zone A central government or  central bank securities; whereas, under Article 7 (1) of that Directive, the Member States may,  under certain conditions, apply a zero weighting to assets constituting claims on their own  regional governments and local authorities and to claims on third parties and off-balance-sheet  items held on behalf of third parties and secured by those regional governments or local  authorities; Whereas Article 8 (1) of Directive 89/647/EEC lays down that the Member States may apply a  weighting of 20  % to asset items which are secured, to the satisfaction of the competent  authorities, by collateral in the form of securities issued by Zone A regional governments or local  authorities; whereas collateral in the form of securities issued by regional governments or local  authorities of the Member States should be regarded as being guaranteed by those regional  governments and local authorities within the meaning of Article 7 (1) with a view to allowing the  competent authorities to apply a zero weighting to assets and off-balance-sheet items secured by  such collateral, again subject to the conditions laid down in that paragraph; Whereas Annex II to Directive 89/647/EEC lays down the treatment of off-balance-sheet items  commonly referred to as over-the-counter derivative instruments concerning interest and  foreign-exchange rates in the context of the calculation of credit institutions' capital  requirements; Whereas Articles 5, 8, 9, 10, 11 as well as Annex I and II of this Directive are in accordance with  the work of another international forum of banking supervisors on a refined and in some aspects  more stringent supervisory treatment of the credit risks inherent in over-the-counter derivative  instruments, in particular the extension of compulsory capital cover to over-the-counter derivative  instruments concerning underlyings other than interest and foreign exchange rates and the  possibility of taking into account the risk-reducing effects of contractual netting agreements  recognized by competent authorities when calculating the capital requirements for the potential  future credit risks inherent in over-the-counter derivative instruments; Whereas for internationally active credit institutions and groups of credit institutions in a wide  range of countries, which compete with Community credit institutions, the rules adopted on the  wider international level will result in a refined supervisory treatment of over-the-counter  derivative instruments; whereas this refinement results in a more appropriate compulsory capital  cover taking into account the risk-reducing effects of supervisorily recognized contractual netting  agreements on the potential future credit risks; Whereas for Community credit institutions a similar refinement of the supervisory treatment of  over-the-counter derivative instruments including the possibility of taking into account the  risk-reducing effects of supervisory recognized contractual netting agreements on the potential  future credit risks can only be achieved by an amendment of Directive 89/647/EEC; Whereas to ensure a level playing field between credit institutions and investments firms competing  in the Community consistency in the supervisory treatment of their respective activities in the  area of over-the-counter derivative instruments is necessary and can only be achieved by  adaptations of the Directive 93/6/EEC  (1); Whereas adoption of this Directive constitutes the most appropriate means of attaining the desired  objectives; whereas this Directive is limited to the minimum necessary to attain these objectives  and does not go beyond what is needed for this purpose; Whereas this Directive concerns the European Economic Area (EEA) and whereas the procedure under  Article 99 of the Treaty on the European Economic Area has been complied with; Whereas adoption of this Directive has been the subject of consultations with the Banking Advisory  Committee, which was set up by Council Directive 77/780/EEC, HAVE ADOPTED THIS DIRECTIVE: TITLE I Amendments to Directive 77/780/EEC Article 1 Amendment to Article  12Article 12 (3) of Directive 77/780/EEC is replaced by the following: '3.  Member States may conclude cooperation agreements providing for exchange of information with  the competent authorities of third countries or with the non-banking supervisory authorities of  third countries as defined in the first indent of paragraph 5 only if the information disclosed is  subject to guarantees of professional secrecy at least equivalent to those referred to in this  Article.`TITLE II Amendments to Directive 89/647/EEC Article 2 Amendment to Article 2The  following subparagraph is added to Article 2 (2): 'The competent authorities may also include within the concept of regional governments and local  authorities churches and religious communities constituted in the form of a legal person under  public law, including non-profit-making bodies and undertakings controlled by them, in so far as  they are empowered to raise taxes in accordance with legislation conferring on them the right to do  so.`Article 3 New point 8 in Article 6 (1) (a) and amendments to Article 6 (1) (c) (2)1. The  following point 8 is added to Article 6 (1) (a): '8.  asset items included under prepayments and accrued income that are of a purely accounting  nature, carry no risk and have no counterparty;`. 2. The following is added to Article 6 (1) (c) (2) after the words 'flat-rate weighting of 50  %`: '.  .  . subject to the provisions of point (a) (8) of this paragraph;`. Article 4 Amendment to Article 6 (2)The following is added to the end of Article 6 (2): 'The portion of unpaid capital subscribed to the European Investment Fund may be weighted at 20   %.`Article 5 Amendment to Article 6 (3)Article 6 (3) of the Directive 89/647/EEC is replaced by  the following: '3.  The methods set out in Annex II shall be applied to the off-balance-sheet items listed in  Annex III. They do not apply to contracts traded on recognized exchanges where they are subject to  daily margin requirements and to foreign-exchange contracts (except contracts concerning gold) with  an original maturity of 14 calendar days or less.`Article 6 Amendment to Article 6 (4)The  following subparagraph is added to Article 6 (4): 'The Member States may apply a 50  % weighting to off-balance-sheet items which are sureties or  guarantees having the character of credit substitutes and which are fully guaranteed to the  satisfaction of the competent authorities by mortgages meeting the conditions set out in paragraph  1 (c) (1), subject to the guarantor having a direct right to such collateral.`Article 7  Amendments to Articles 7 (1) and (2) and 8 (1)1. The following is added at the end of Article 7  (1): '.  .  . or secured, to the satisfaction of the competent authorities concerned, by collateral in  the form of securities issued by those regional governments or local authorities.`2. The following  is added at the end of Article 7 (2): '.  .  ., including collateral in the form of securities.`3. Article 8 (1) of Directive 89/647/EEC  is replaced by the following: '(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 other than those of the Member States, 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 institutions.`Article 8  Amendment to Annex IIAnnex II to Directive 89/647/EEC shall be amended as laid down in Annex I  hereto. Article 9 Amendment to Annex IIIAnnex III to Directive 89/647/EEC is replaced by the Annex II  hereto. TITLE III Amendments to Directive 93/6/EEC Article 10 Amendment to Article 2 (10)Article 2  (10) of Directive 93/6/EEC is replaced by the following: '10.  Over-the-counter (OTC) derivative instruments shall mean the off-balance-sheet items to which  according to Article 6 (3) of Directive 89/647/EEC the methods set out in Annex II of the said  Directive shall be applied.`Article 11 Amendment to Annex IIAnnex II, point 5 to Directive  93/6/EEC is replaced by the following: '5. In order to calculate the capital requirement on their OTC derivative instruments, institutions  shall apply Annex II to Directive 89/647/EEC. The risk weightings to be applied to the relevant counterparties shall be determined in accordance  with Article 2 (9) of this Directive.`Article 12 1.  Member States shall bring into force the  laws, regulations and administrative provisions necessary for them to comply with this Directive by  31 December 1997. They shall forthwith inform the Commission thereof. 2.  The provisions adopted pursuant to this paragraph shall contain a reference to this Directive  or shall be accompanied by such reference at the time of their official publication. The procedure  for such reference shall be adopted by the Member States. 3.  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 13 This Directive shall enter into force on the date of its publication in the Official  Journal of the European Communities. Article 14 This Directive is addressed to the Member States. (1)  OJ No L 322, 17.  12.  1977, p. 30, as last amended by Directive 96/13/EC  (OJ No L 66, 16.  3.  1996, p. 15).  (2)  OJ No L 386, 30.  12.  1989, p. 14, as last amended by Directive 96/10/EC (OJ No L 85, 3.  4.   1996, p. 17).  (1)  OJ No L 89, 6.  4.  1994, p. 17.  (1)  OJ No L 141, 11.  6.  1993, p. 1-26. ANNEX I 1. The heading of Annex II to Directive 89/647/EEC shall be replaced by the  following: 'ANNEX II`2. Annex II, point 1 to Directive 89/647/EEC shall be replaced by the following text: '1. Choice of the methodTo measure the credit risks associated with the contracts listed in Annex  III point 1 and 2 credit institutions may choose, subject to the consent of the competent  authorities, one of the methods set out below. Credit institutions which have to comply with  Article 6 (1) of the Directive 93/6/EEC have to use Method 1 set out below. To measure the credit  risks associated with the contracts listed in Annex III point 3, all credit institutions have to  use Method 1 set out below.`3. Table 1 is replaced by the following table: '>TABLE>`4. In Table 2 the heading in the first row third column is replaced by: 'Contracts concerning foreign-exchange rates and gold`. 5. At the end of point 2 the following paragraph is inserted: 'For both methods the supervisory authorities have to ensure that the notional amount to be taken  into account is an appropriate yardstick for the risk inherent in the contract. Where, for  instance, the contract provides for a multiplication of cash flows, the notional amount has to be  adjusted in order to take into account the effects of the multiplication on the risk structure of  that contract.`6. At the end of point 3 (b) the following paragraph is inserted: 'The competent authorities may recognize as risk-reducing contractual netting agreements covering  foreign-exchange contracts with an original maturity of 14 calendar days or less, written options  or similar off-balance-sheet items to which this Annex does not apply because they bear only a  negligible or no credit risk. If, depending on the positive or negative market value of these  contracts, their inclusion in an other netting agreement can result in an increase or decrease of  the capital requirements, competent authorities must oblige their credit institution to use a  consistent treatment.`7. The first paragraph and the first indent of the second paragraph of point  3 (c) (ii) is replaced by the following: '(ii) Other netting agreementsIn application of Method 1 in Step (a) the current replacement cost  for the contracts included in a netting agreement may be obtained by taking account of the actual  hypothetical net replacement cost which results from the agreement; in the case that netting leads  to a net obligation for the credit institution calculating the net replacement cost, the current  replacement cost is calculated as "0". In Step (b) the figure for potential credit exposure for all contracts included in a netting  agreement may be reduced according to the following equation: PCEred  =  0,4  *  PCEgross  +  0,6  *  NGR  *  PCEgrosswhere: - PCEred =  the reduced figure for potential future credit exposure for all contracts with a given  counterparty included in a legally valid bilateral netting agreement- PCEgross =  the sum of the  figures for potential future credit exposures for all contracts with a given counterparty that are  included in a legally valid bilateral netting agreement and that are calculated by multiplying  their notional principal amounts by the percentages set out in table 1- NGR =  "Net-to-gross  ratio": at the discretion of the supervisory authorities either: (i)  separate calculation: the quotient of the net replacement cost for all contracts included in a  legally valid bilateral netting agreement with a given counterparty (numerator) and the gross  replacement cost for all contracts included in a legally valid bilateral netting agreement with  that counterparty (denominator) or(ii)  aggregate calculation: the quotient of the sum of the net  replacement cost calculated on a bilateral basis for all counterparties taking into account the  contracts included in legally valid netting agreements (numerator) and the gross replacement cost  for all contracts included in legally valid netting agreements (denominator)`If Member States  permit credit institutions a choice of methods, the method chosen is to be used consistently. For the calculation of the potential future credit exposure according to the above formula  perfectly matching contracts included in the netting agreement may be taken into account as a  single contract with a notional principal equivalent to the net receipts. Perfectly matching  contracts are forward foreign-exchange contracts or similar contracts in which notional principal  is equivalent to cash flows if the cash flows fall due on the same value date and fully or partly  in the same currency. In the application of Method 2 in Step (a) perfectly matching contracts included in the netting  agreement may be taken into account as a single contract with a notional principal equivalent to  the net receipts; the notional principal amounts are multiplied by the percentages given in Table  2. ANNEX II 'ANNEX IIITYPES OF OFF-BALANCE-SHEET ITEMS1. Interest-rate contracts(a)  Single-currency interest rate swaps, (b) basis swaps, (c) forward-rate agreements, (d) interest-rate futures, (e) interest-rate options purchased, (f) other contracts of a similar nature. 2. Foreign-exchange contracts and contracts concerning gold(a) Cross-currency interest-rate  swaps, (b) forward foreign-exchange contracts, (c) currency futures, (d) currency options purchased, (e) other contracts of a similar nature, (f) contracts concerning gold of a nature similar to (a) to (e). 3. Contracts of a nature similar to those in points 1 (a) to (e) and 2 (a) to (d) concerning other  reference items or indices concerning: (a) Equities, (b) precious metals except gold, (c) commodities other than precious metals, (d) other contracts of a similar nature.`