Directive 98/33/EC of the European Parliament and of the Council of 22 June 1998 amending Article 12 of Council Directive 77/780/EEC on the taking up and pursuit of the business of credit institutions, Articles 2, 5, 6, 7, 8 of and Annexes II and III to Council Directive 89/647/EEC on a solvency ratio for credit institutions and Article 2 of and Annex II to Council Directive 93/6/EEC on the capital adequacy of investment firms and credit institutions
Date: 1998-06-22
Institutions: Council of the European Union, European Parliament
Subjects: EU Member State, European Economic Area, banking, credit institution, directory, management audit

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DIRECTIVE  98/33/EC  OF  THE  EUROPEAN  PARLIAMENT  AND  OF  THE  COUNCIL

of  22  June  1998

amending  Article  12  of  Council  Directive  77/780/EEC  on  the  taking  up  and  pursuit  of  the
business  of  credit  institutions,  Articles  2,  5,  6,  7,  8  of  and  Annexes  II  and  III  to  Council
Directive  89/647/EEC  on  a  solvency  ratio  for  credit  institutions  and  Article  2  of  and  Annex  II
to  Council  Directive  93/6/EEC  on  the  capital  adequacy  of  investment  firms  and  credit
institutions

THE  EUROPEAN  PARLIAMENT  AND  THE  COUNCIL  OF
THE  EUROPEAN  UNION,

in 

bodies 
the
those  countries  provided 
information  disclosed  is  subject  to  appropriate
guarantees  of  professional  secrecy;

that 

Having  regard  to  the  Treaty  establishing  the  European
Community,  and 
in  particular  the  first  and  third
sentences  of  Article  57(2)  thereof,

(2)  Whereas  Council  Directive  89/647/EEC  of  18
December  1989  on  a  solvency  ratio  for  credit
institutions (5)  weights  assets  and  off-balance-sheet
items  according  to  their  degree  of  credit  risk;

Having  regard  to  the  proposal  from  the  Commission (1),

Having regard to the opinion of the Economic and Social
Committee (2),

Acting  in  accordance  with  the  procedure  referred  to  in
Article  189b  of  the  Treaty (3),

(1)  Whereas  the  first  Council  Directive  (77/780/EEC)
of  12  December  1977  on  the  coordination  of  the
laws,  regulations  and  administrative  provisions
relating  to  the  taking  up  and  pursuit  of  the
institutions (4)  allows 
business  of  credit 
the
exchange  of 
information  between  competent
authorities  and  certain  other  authorities  or  bodies
within a Member State or between Member States;
whereas 
the
conclusion  by  Member  States  of  cooperation
agreements  providing 
exchange  of
information  with  the  competent  authorities  of
third countries; whereas on grounds of consistency,
this  authorisation  to  conclude  agreements  on  the
information  with  third  countries
exchange  of 
should  be  extended  so  as  to  include  the  exchange
of  information  with  certain  other  authorities  or

the  said  Directive  also  allows 

the 

for 

to 

risk 

similar 

(3)  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
regional
that  of 
a  credit 
governments  and 
local  authorities;  whereas,
accordingly, it is consistent to afford the competent
authorities  the  possibility  of  treating  claims  on
churches  and  religious  communities  in  the  same
way  as  claims  on  regional  governments  and  local
authorities  where  these  churches  and  religious
communities  raise  taxes;  whereas,  however,  the
option  to  apply  a  0 %  weighting  to  claims  on
regional  governments  and  local  authorities  shall
not  extend  to  claims  on  churches  and  religious
communities only on the basis of the right to raise
taxes;

1994 

(4)  Whereas  Commission  Directive  94/7/EC  of  15
adapting  Council  Directive
March 
89/647/EEC  on  a  solvency  ratio 
for  credit
institutions  as  regards  the  technical  definition  of
‘multilateral  development  banks’ (6)  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;

(1)  OJ  C  208,  19.7.1996,  p.  8,  and  OJ  C  259,  26.8.1997,  p.

1.

(2)  OJ  C  30,  30.1.1997,  p.  13.
(3)  Opinion of the European Parliament of 10 April 1997 (OJ C
132,  28.4.1997,  p.  234),  Council  common  position  of  9
March  1998  (OJ  C  135,  30.4.1998,  p.  32)  and  Decision  of
the  European  Parliament  of  30  April  1998  (OJ  C  152,
18.5.1998).  Council  Decision  of  19  May  1998.

(4)  OJ  L  322,  17.12.1977,  p.  30.  Directive  as  last  amended  by

(5)  Whereas  within  the  meaning  of  Article  6(1)(d)(7)
of  Directive  89/647/EEC,  a  weighting  of  100 %
should  be  applied  to  the  unpaid  portion  of  capital

(5)  OJ  L  386,  30.12.1989,  p.  14.  Directive  as  last  amended  by
Directive  98/32/EC  (see  page  29  of  this  Official  Journal).

Directive  96/13/EC  (OJ  L  66,  16.3.1996,  p.  15).

(6)  OJ  L  89,  6.4.1994,  p.  17.

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subscribed  to  the  European  Investment  Fund  by
credit  institutions;

required  and  the  quality  of  and  the  level  of
protection  provided  by  the  posted  collateral;

for 

reserved 

subscription  by 

(6)  Whereas  the  capital  of  the  European  Investment
financial
Fund 
institutions is limited to 30 %, of which 20 % is to
be  paid  up  at  the  outset  in  four  annual  payments
each  of  5 %;  whereas,  accordingly,  80 %  is  not  to
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;

(7)  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
recognised  as  collateral  in  paragraph  1(a)(7)  or
1(b)(11),  weightings  of  0 %  or  20 %  shall  apply,
depending  on  the  collateral  in  question’;

(8)  Whereas  the  clearing  of  over-the-counter  (OTC)
derivative  instruments  provided  by  clearing  houses
acting as a central counterparty plays an important
role  in  certain  Member  States;  whereas  it  is
appropriate  to  recognise  the  benefits  from  such  a
clearing  in  terms  of  a  reduction  of  credit  risk  and
related systemic risk in the prudential treatment of
credit  risk;  whereas  it  is  necessary  for  the  current
and potential future exposures arising from cleared
OTC derivatives contracts to be fully collateralised
and  for  the  risk  of  a  build-up  of  the  clearing
house’s  exposures  beyond  the  market  value  of
posted  collateral  to  be  eliminated  in  order  for
cleared  OTC  derivatives  to  be  granted  for  a
transitional  period  the  same  prudential  treatment
as 
the
exchange-traded  derivatives;  whereas 
competent  authorities  must  be  satisfied  as  to  the
level  of  the  initial  margins  and  variation  margins

(9)  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
credit
the 
guarantees  having 
substitutes;

character  of 

(10)  Whereas  within  the  meaning  of  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,
within  the  meaning  of  Article  7(1)  of  that
Directive,  the  Member  States  may,  on  certain
conditions,  apply  a  zero  weighting  to  assets
constituting 
regional
governments and local authorities and to claims on
third  parties  and  off-balance-sheet  items  held  on
behalf  of  third  parties  and  guaranteed  by  those
regional  governments  or  local  authorities;

their  own 

claims  on 

(11)  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;

(12)  Whereas  Annex  II  to  Directive  89/647/EEC  lays
down  the  treatment  of  off-balance-sheet  items
as  OTC-derivative
commonly 
to 
instruments 
foreign
exchange  rates  in  the  context  of  the  calculation  of
credit  institutions’  capital  requirements;

referred 
concerning 

interest  and 

(13)  Whereas  Articles  2(1)(a),  Article  2(2),  Article
2(3)(b), and Article 2(6) and Article 3(1) and (2) of
this  Directive  and  the  Annex  thereto  are 
in
accordance  with  the  work  of  an  international
forum  of  banking  supervisors  on  a  refined  and  in

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some  aspects  more  stringent  supervisory  treatment
of  the  credit  risks  inherent  in  OTC  derivative
the  extension  of
instruments, 
in  particular 
compulsory  capital  cover 
to  OTC  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 recognised
by  competent  authorities  when  calculating  the
capital  requirements  for  the  potential  future  credit
risks  inherent  in  OTC  derivative  instruments;

(14)  Whereas 

for 

active 

credit
internationally 
institutions  and  groups  of  credit  institutions  in  a
wide range of third countries, which compete with
Community  credit  institutions,  the  rules  adopted
on  the  wider  international  level  will  result  in  a
refined  supervisory  treatment  of  OTC  derivative
instruments;  whereas  this  refinement  results  in  a
more  appropriate  compulsory  capital  cover  taking
effects  of
into 
supervisorily 
netting
recognised 
agreements  on  potential  future  credit  risks;

risk-reducing 

contractual 

account 

the 

(15)  Whereas  for  Community  credit 

derivative 

instruments 

institutions  a
similar  refinement  of  the  supervisory  treatment  of
OTC 
the
possibility  of  taking  into  account  the  risk  reducing
effects  of  supervisorily  recognised  contractual
netting  agreements  on  potential  future  credit  risks
can  be  achieved  only  by  amending  Directive
89/647/EEC;

including 

(16)  Whereas  to  ensure  a  level  playing-field  between
credit  institutions  and  investment  firms  competing
in  the  Community,  consistency  in  the  supervisory
treatment of their respective activities in the area of
OTC  derivative  instruments  is  necessary  and  can
only  be  achieved  by  adaptations  of  Council
Directive  93/6/EEC  of  15  March  1993  on  the
capital  adequacy  of  investment  firms  and  credit
institutions (1);

(17)  Whereas  this  Directive  is  the  most  appropriate
means  of  attaining  the  objectives  sought  and  does
not  go  beyond  what  is  necessary  to  achieve  those
objectives,

HAVE  ADOPTED  THIS  DIRECTIVE:

Article  1

In  Directive  77/780/EEC  Article  12(3)  shall  be  replaced
by  the  following:

conclude 

States  may 

‘3. Member 
cooperation
agreements, providing for the exchange of information,
with  the  competent  authorities  of  third  countries  or
with authorities or bodies of third countries as defined
in  paragraphs  (5)  and  (5a)  only  if  the  information
disclosed 
is  subject  to  guarantees  of  professional
secrecy  at  least  equivalent  to  those  referred  to  in  this
Article.  Such  exchange  of  information  must  be  for  the
purpose  of  performing  the  supervisory  task  of  the
authorities  or  bodies  mentioned.

Where  the  information  originates  in  another  Member
State,  it  may  not  be  disclosed  without  the  express
agreement  of  the  competent  authorities  which  have
disclosed  it  and,  where  appropriate,  solely  for  the
purposes  for  which  those  authorities  gave  their
agreement’.

Article  2

Directive  89/647/EEC  is  amended  as  follows:

1.  Article  2  shall  be  amended  as  follows:

(a)  In  paragraph  (1)  the  following  indent  shall  be

added:

‘—  “recognised exchanges” shall mean exchanges
the  competent  authorities

recognised  by 
which:

(i) 

function  regularly,

(ii)  have  rules,  issued  or  approved  by  the
appropriate  authorities  of  the  home
country  of  the  exchange,  which  define
the  conditions  for  the  operation  of  the
exchange,  the  conditions  for  access  to
the  exchange  as  well  as  the  conditions
that  must  be  satisfied  by  a  contract
before  it  can  effectively  be  dealt  on  the
exchange,

(iii)  have a clearing mechanism that provides
for  contracts  listed  in  Annex  III  to  be
subject  to  daily  margin  requirements
providing  an  appropriate  protection  in
the 
competent
of 
authorities.’

opinion 

the 

(1)  OJ  L  141,  11.6.1993,  p.  1.

be  added:

(b) In paragraph (2) the following subparagraph shall

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churches 

authorities, 

‘The  competent  authorities  may  also 
include
within  the  concept  of  regional  governments  and
local 
religious
communities  constituted  in  the  form  of  a  legal
person  under  public  law,  in  so  far  as  they  raise
taxes  in  accordance  with  legislation  conferring  on
them the right to do so. However, in this case the
option  set  out  in  Article  7  shall  not  apply’.

and 

2.  In  Article  5(3),  the  first  sentence  shall  be  replaced  by

the  following:

‘3.
In the case of the off-balance-sheet items referred
to  in  Article  6(3),  the  potential  costs  of  replacing
contracts in the event of counterparty default shall be
calculated  by  means  of  one  of  the  two  methods  set
out  in  Annex  II’.

3.  Article  6  shall  be  amended  as  follows:

(a)  In  paragraph  (2)  the  following  sentence  shall  be

added:

‘The  portion  of  unpaid  capital  subscribed  to  the
European  Investment  Fund  may  be  weighted  at
20 %’.

house’s  exposures  beyond  the  market  value  of
posted  collateral  is  eliminated.  Member  States
shall  inform  the  Commission  of  the  use  they
make  of  this  option’.

(c)  In paragraph (4) the following subparagraph shall

be  added:

‘The  Member  States  may  apply  a  50 %  weighting
to  off-balance-sheet  items  which  are  sureties  or
guarantees  having 
credit
the 
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’.

character  of 

4.  Article  7  shall  be  amended  as  follows:

(a)  in paragraph (1) the following shall be added after

the  words  ‘local  authorities’:

‘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’;

(b) in paragraph (2) the following shall be added after

the  words  ‘the  latter’:

‘,  including  collateral  in  the  form  of  securities’.

(b) Paragraph  (3)  shall  be  replaced  by  the  following:

5.  Article  8(1)  shall  be  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  except  for:

—  contracts  traded  on  recognised  exchanges,

—  foreign-exchange  contracts  (except  contracts
concerning  gold)  with  an  original  maturity  of
14  calendar  days  or  less.

the 

Until  31  December  2006,  the  competent
authorities  of  Member  States  may  exempt
from the application of the methods set out in
Annex  II  over-the-counter  (OTC)  contracts
cleared  by  a  clearing  house  where  the  latter
acts  as 
legal  counterparty  and  all
participants  fully  collateralise  on  a  daily  basis
the  exposure  they  present  to  the  clearing
house, thereby providing a protection covering
both  the  current  exposure  and  the  potential
future  exposure.  The  competent  authorities
must  be  satisfied  that  the  posted  collateral
gives  the  same  level  of  protection  as  collateral
which  complies  with  paragraph  1(a)(7)  and
that  the  risk  of  a  build-up  of  the  clearing

to 

the  satisfaction  of 

‘1. Without  prejudice  to  Article  7(1)  the  Member
States  may  apply  a  weighting  of  20 %  to  asset  items
the
which  are  secured, 
competent  authorities  concerned,  by  collateral  in  the
form  of  securities 
issued  by  Zone  A  regional
governments  or  local  authorities,  by  deposits  placed
with Zone A credit institutions other than the lending
institution,  or  by  certificates  of  deposit  or  similar
instruments  issued  by  such  credit  institutions’.

6.  Annexes  II  and  III  shall  be  amended  or  replaced  in
accordance  with  Parts  A  and  B  of  the  Annex  to  this
Directive.

Article  3

Directive  93/6/EEC  is  amended  as  follows:

1.  Article  2(10)  shall  be  replaced  by  the  following:

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‘10.  “over-the-counter 

(OTC) 

to  which  according 

derivative
instruments”  shall  mean  the  off-balance-sheet
items 
first
subparagraph  of  Article  6(3)  of  Directive
89/647/EEC the methods set out in Annex II to
the  said  Directive  shall  be  applied’.

the 

to 

2.  Annex 

II,  point  5,  shall  be  replaced  by 

the

following:

‘5. 

In order to calculate the capital requirement on
their  OTC  derivative  instruments,  institutions
shall  apply  Article  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.

the  competent
Until  31  December  2006, 
authorities  of  Member  States  may  exempt  from
the application of the methods set out in Annex
II  OTC  contracts  cleared  by  a  clearing  house
where  the  latter  acts  as  the  legal  counterparty
and all participants fully collateralise on a daily
basis  the  exposure  they  present  to  the  clearing
house,  thereby  providing  a  protection  covering
both  the  current  exposure  and  the  potential
future  exposure.  The  competent  authorities
must be satisfied that the posted collateral gives
the  same  level  of  protection  as  collateral  which
complies  with  Article  6(1)(a)(7)  of  Directive
89/647/EEC  and  that  the  risk  of  a  build-up  of
the  clearing  house’s  exposures  beyond  the
market  value  of  posted  collateral  is  eliminated.
Member  States  shall  inform  the  Commission  of
the  use  they  make  of  this  option’.

Article  4

1. Member  States  shall  bring  into  force  the  laws,
regulations  and  administrative  provisions  necessary  for
them  to  comply  with  this  Directive  not  later  than  24
months  after  the  date  of  its  entry  into  force.  They  shall
forthwith  inform  the  Commission  thereof.

When  Member  States  adopt  these  measures,  they  shall
contain  a  reference  to  this  Directive  or  shall  be
accompanied  by  such  reference  on  the  occasion  of  their
official  publication.  The  methods  of  making  such
reference  shall  be  laid  down  by  Member  States.

2. Member States shall communicate to the Commission
the  text  of  the  main  provisions  of  domestic  law,  which
they  adopt  in  the  field  governed  by  this  Directive.

Article  5

This  Directive  shall  enter  into  force  on  the  day  of  its
publication  in  the  Official  Journal  of  the  European
Communities.

Article  6

This  Directive  is  addressed  to  the  Member  States.

Done  at  Luxembourg,  22  June  1998.

For  the  European  Parliament

For  the  Council

The  President

The  President

J. M.  GIL-ROBLES

J.  CUNNINGHAM

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ANNEX

A.  Annex  II  to  Directive  89/647/EEC  is  amended  as  follows:

1.  The  heading  is  replaced  by  the  following:

‘ANNEX  II

THE  TREATMENT  OF  OFF-BALANCE  SHEET  ITEMS’;

2.  Point  1  is  replaced  by  the  following:

‘1.  Choice  of  the  method

To  measure  the  credit  risks  associated  with  the  contracts  listed  in  points  1  and  2  of  Annex  III,
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  Directive
93/6/EEC  must  use  method  1  set  out  below.  To  measure  the  credit  risks  associated  with  the
contracts  listed  in  point  3  of  Annex  III  all  credit  institutions  must  use  method  1  set  out
below’;

3.  In  point  2,  Table  1  is  replaced  by  the  following:

‘TABLE (a) (b)

Residual maturity (c)

Interest-
rate
contracts

Contracts
concerning
foreign-
exchange
rates  and  gold

Contracts
concerning
equities

Contracts
concerning
precious
metals  except
gold

Contracts
concerning
commodities
other  than
precious  metals

One  year  or  less

0 %

1 %

Over  one  year,
less  than  five  years

Over  five  years

0,5 %

1,5 %

5 %

7,5 %

6 %

8 %

10 %

7 %

7 %

8 %

10 %

12 %

15 %

(a)  Contracts which do not fall within one of the five categories indicated in this table shall be treated as contracts

concerning  commodities  other  than  precious  metals.

(b)  For  contracts  with  multiple  exchanges  of  principal,  the  percentages  have  to  be  multiplied  by  the  number  of

remaining  payments  still  to  be  made  according  to  the  contract.

(c)  For contracts that are structured to settle outstanding exposure following specified payment dates and where the
terms are reset such that the market value of the contract is zero on these specified dates, the residual maturity
would be equal to the time until the next reset date. In the case of interest-rate contracts that meet these criteria
and  have  a  remaining  maturity  of  over  one  year,  the  percentage  shall  be  no  lower  than  0,5 %.

For  the  purpose  of  calculating  the  potential  future  exposure  in  accordance  with  step  (b)  the
competent  authorities  may  allow  credit  institutions  until  31  December  2006  to  apply  the  following
percentages  instead  of  those  prescribed  in  Table  1  provided  that  the  institutions  make  use  of  the
option  set  out  in  Article  11a  of  Directive  93/6/EEC  for  contracts  within  the  meaning  of  point  3(b)
and  (c)  of  Annex  III:

Table  1a

Residual
maturity

Precious  metals
(except  gold)

Base metals

Agricultural
products
(softs)

Other,  including
energy  products

One  year  or  less

Over  one  year,
less  than  five  years

Over  five  years

2 %

5 %

7,5 %

2,5 %

4 %

8 %

3 %

5 %

9 %

4 %

6 %

10 %’

21.7.98

EN

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L  204/35

4.  In  Table  2,  the  heading  in  the  first  row  of  the  third  column  is  replaced  by:

‘Contracts  concerning  foreign-exchange  rates  and  gold’.

5.  In  point  2  the  following  paragraph  is  added  at  the  end:

‘For  methods  1  and  2  the  competent  authorities  must  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 must be adjusted in order
to  take  into  account  the  effects  of  the  multiplication  on  the  risk  structure  of  that  contract’.

6.  In  point  (3)(b)  the  following  paragraph  is  added:

‘The  competent  authorities  may  recognise  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  another  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.  In  point  (3)(c)(ii),  the  first  paragraph  and  the  introductory  wording  and  the  second  paragraph,  first

indent,  are  replaced  by  the  following:

‘(ii)  Other  netting  agreements

In  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  where  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  future  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  *  PCEgross

where:

—  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  exposure  for  all  contracts
with  a  given  counterparty  which  are  included  in  a  legally  valid  bilateral
netting  agreement  and  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  competent  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.

L  204/36

EN

Official  Journal  of  the  European  Communities

21.7.98

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’.

B.  Annex  III  to  Directive  89/647/EEC  is  replaced  by  the  following:

‘ANNEX  III
TYPES  OF  OFF-BALANCE-SHEET  ITEMS

1.  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  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’.