CELEX: 51986PC0169
Language: en
Date: 1986-09-05
Title: PROPOSAL FOR A COUNCIL DIRECTIVE ON THE OWN FUNDS OF CREDIT INSTITUTIONS

No C 243/4                                Official Journal of the European Communities                                  27.9.86
5. The amount of the aid referred to in paragraph 4                          for the application of this Article, shall be laid
   shall be fixed in ECU per % vol potential alcoholic                       down,
   strength and per hectolitre of concentrated grape                     — the limit to the total quantity of concentrated
   must, account being taken of the effect, on the                           grape must to be used in feedingstuffs shall, if
   feedingstuff's price, of the replacement of a                             necessary, be determined.
   traditional component by concentrated grape must.
   Moreover, the amount shall be fixed in such a way as              8. The Commission shall present to the Council a report
   to prevent any increase in concentrated grape must                    which will enable the latter, before 1 September 1990,
   production which might result from such must being                    to scrutinize the operation of the scheme referred to
   produced solely for use in animal feed.                               in paragraph 4.'
6. The amount of the aid referred to in paragraph 4
   shall not exceed that granted under the preventive                                           Article 2
   distillation scheme.                                              This Regulation shall enter into force on the third day
7. In accordance with the procedure laid down in Article             following its publication in the Official Journal of the
   83:                                                               European Communities.
   — the amount of the aid referred to in paragraphs 1               It shall apply from 1 September 1987.
        and 4 shall be fixed annually before 31 August,
   — the conditions for granting the aid referred to in              This Regulation shall be binding in its entirety and
        paragraphs 1 and 4, and the other detailed rules             directly applicable in all Member States.
                             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)
THE COUNCIL OF THE EUROPEAN COMMUNITIES,                             be adapted    to suit their particular needs; whereas those
                                                                     provisions     should be reviewed when Community
Having regard to the Treaty establishing the European                measures     are adopted enabling mortgage credit
Economic Community, and in particular Article 57 (2)                 institutions to operate abroad;
thereof,
                                                                     Whereas the own funds of a credit institution can serve
Having regard to the proposal from the Commission,                   to absorb losses which are not matched by prospective
                                                                     profits of sufficient volume and thereby as such play a
Having regard        to   the   opinion   of   the   European        vital role in ensuring the continuity of the institution;
Parliament,                                                          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
Having regard to the opinion of the Economic and                     prudential purposes;
Social Committee,
                                                                     Whereas since credit institutions in a common banking
Whereas common standards for the own funds of credit                 market engage in direct competition with each other, the
institutions are an important cornerstone in building up             definitions and standards pertaining to own funds must
an internal market in the banking sector since they serve            be equivalent; whereas, to that end, the criteria for
to ensure the continuity of credit institutions, to protect          determining the composition of own funds should not be
savings, to enhance banking supervision and to foster                left solely to national authorities; whereas, through the
future coordination in the banking field;                            adoption of such common criteria, the best interest of
                                                                     the Community would be served through the avoidance
Whereas the common standards would in principle apply                of     competitive     distortions    together  with    the
to all credit institutions authorized in the Community;              strengthening of the banking industry of the
                                                                     Community;
Whereas there exist in some Member States provisions
requiring particular own funds standards for specialized             Whereas the definition laid down in the Directive
institutions which undertake mortgage credit business;               provides for a maximum of elements and qualifying
whereas since such provisions are generally more strict              amounts, leaving to each Member State a discretion to
than those applicable to non-specialized                 credit      use all or part of such elements or to adopt lower
institutions, the abovementioned common standards may                ceilings for the amounts which are deemed qualifiable;
 ---pagebreak--- 27.9.86                                    Official Journal of the European Communities                                 No C 243/5
Whereas the Directive details qualifying criteria for                 Whereas the Commission shall draw up a report and
certain elements of own funds, with Member States                     periodically review this Directive with the aim of
remaining free to apply more stringent provisions;                    tightening its provisions in order to achieve further
                                                                      convergence towards a Community definition of own
Whereas the Directive distinguishes, according to                     funds; whereas such convergence will lead to improving
quality, elements of own funds which, on the one hand,                the capital adequacy of credit institutions of the
are internal and capable of absorbing losses which may                Community;
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                      Whereas the Commission, having regard to the said
unconditionally controlled by it;                                     periodical review, shall adopt amendments to this
                                                                      Directive after consulting the Banking Advisory
Whereas at the initial stage such common standards are                Committee,
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                  HAS ADOPTED THIS DIRECTIVE:
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                                            Article 1
the criteria for elements to qualify as own funds and in
                                                                                                   Scope
particular the concept of internal elements; whereas the
process of strengthening capital adequacy should also                  1.    Wherever a Member State lays down by law, regu-
include the participation of external elements in losses              lation or administrative action a provision which uses the
which the credit institution might incur;                             term or refers to a concept of own funds in the context
                                                                      of supervision of an on-going credit institution, it shall
Whereas to reflect the fact that external elements are not            bring the concept of own funds used or referred to in
of the same quality as internal elements, they may be                  line with the concept of own funds defined in the
considered as own funds to an amount not greater than                  following Articles.
half of the total of internal elements and any excess may
not be counted as own funds;
                                                                       2.    Credit institutions for the purposes of this Directive
Whereas public credit institutions should not take into                are the institutions to which First Council Directive
consideration guarantees of the Member State or local                  77/780/EEC (3) applies. Member States may defer the
 authorities in calculating own funds; whereas, however,               application of this Directive to mortgage credit
the special dispensation which presently exists in one                 institutions pending further coordination.
 Member State may continue pending further coordi-
 nation of that practice;
                                                                                                  Article 2
Whereas whenever in the course of supervision it is                                          General Principles
 necessary to determine the extent of the own funds of a
 group of credit institutions such calculation shall be                 1.    The own funds of credit institutions shall consist of
 undertaken in accordance with the provisions detailed in              the following elements:
 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-       (a) Internal elements:
 ation by the Member States with regard to technical                          (i) paid-up capital plus share premium account,
 details of its application, which should be carried out in                       minus the credit institution's holdings of its own
 keeping within the spirit of this Directive;                                     shares,
                                                                             (ii) reserves, including legal reserves, reserves
 Whereas pending adoption of the proposal for a                                   provided for by the articles of association and
 Directive concerning the annual accounts of banks and                            other reserves, plus profit or loss brought
 other financial institutions, which incorporates certain                         forward after the allocation of the results for the
 adaptations of the provisions of Seventh Council                                 financial year and minus the amounts allocated
 Directive 83/349/EEC of 13 June 1983 based on Article                            to cover general banking risks,
 54 (3) (g) of the Treaty on consolidated accounts (2), the
 precise accounting technique with regard to own funds is                   (iii) revaluation reserves (formally recognized as part
 left to the discretion of the Member States; whereas after                       of shareholders funds),
 the date of application of the abovementioned Directive                    (iv) other internal elements as defined in Article 3;
 account has to be taken of the layout of the balance
 sheet as provided for in that Directive;                               (b) External elements as defined in Article 4.
 0) OJ No L 193, 18. 7. 1983, p. 18.
 O O J N o L 193, 18.7. 1983, p. 1.                                     (3) OJ No L 322, 12. 12. 1977, p. 30.
 ---pagebreak--- No C 243/6                               Official Journal of the European Communities                                   27.9.86
2.     The concept of own funds as defined in             this      3.     Liabilities of members of cooperative credit
Directive gives a maximum of elements and amounts         and       institutions which are not paid up may be included in
leaves it to the discretion of each Member State to       use       own funds only to the extent to which they were allowed
all such elements or to provide lower ceilings for         the      to be counted in the own funds of the institutions of this
amounts in question.                                                category as of 31 December 1984.
3.     The elements listed under paragraph 1 (a) must be            4.     Member States shall not include guarantees which
at the free disposal of the credit institution concerned            they or their local authorities extend to public credit
and the amount must be free from or adjusted for any                institutions in the own funds of the latter.
foreseeable tax charge at the moment of their calcu-
lation.                                                             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
                           Article 3                                binding agreements according to which, in the event of
                                                                    bankruptcy or liquidation of the credit institution, they
      Other internal elements as referred to in Article
                                                                    rank inferior to the claims of all other creditors and shall
                         2 (1) (a) (iv)
                                                                    not be repaid until all other debts outstanding at the time
The concept of own funds used by a Member State may                 have been settled.
include other internal elements provided that whatever
their legal or accounting denominations might be, they              Such other external elements must meet the following
have the following characteristics:                                 criteria:
(a) they are at the free disposal of the credit institution         (a) the funds involved have been fully paid up;
     in order to cover normal business risks where the
     losses or impairment of value have not yet been                (b) the funds involved have an original maturity of at
     identified;                                                         least five years during which they may be subject to
                                                                         gradual reduction; if the maturity of the debt is
(b) there is evidence of their existence in the internal                 unfixed, five years' notice of withdrawal should be
     accounts which a credit institution makes available to              stipulated, unless the relevant funds are no longer
     its competent authorities;                                          considered as own funds or unless the prior consent
                                                                         of the competent authorities is specifically required
                                                                         for early repayment. The competent authorities may
(c) their amount is determined by the management,                        grant permission for early repayment of such funds
     verified by independent auditors, made known to the                 provided the request was at the instigation of the
     competent authorities and placed under the                          issuer and the solvency of the credit institution
     supervision of the latter. "With regard to verification,            remains unimpaired;
     internal auditing may be considered as provisionally
     meeting the aforementioned requirement until such
                                                                    (c) the extent to which they may rank as own funds will
     time as the Community provisions making external
                                                                         be subject to gradual reduction during at least five
     auditing mandatory have been implemented.
                                                                         years prior to the repayment date;
                                                                    (d) the competent authorities must be placed in a
                           Article 4
                                                                         position to verify in detail the fulfilment of the
      External elements referred to in Article 2 (1) (b)                 foregoing conditions and, in particular, the contracts
                                                                         arranging the participation of the funds in the risks
 1.    External elements are funds which are placed at the               of the credit institution must be available to and
disposal of a credit institution but are not under the full              approved by such authorities, or the clauses of such
ownership and control of the credit institution or are put               contracts must be determined by national legislation.
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                                      Article 5
institutions which are not paid up.
                                                                    Not more than three years after the notification of this
                                                                    Directive, the Commission shall draw up a report on the
2.     The external elements may be included up to an               application of this Directive. If deemed appropriate, the
amount not exceeding 50 % of the total of internal                  Commission shall review the provisions of this Directive
elements of own funds: this objective should be achieved            in the light of the results of that report, and shall adopt,
by 1 January 1995; the supervisory authorities will                 after consultation with the Advisory Committee set up
ensure that credit institutions operating presently above           under Article 11 of Directive 77/780/EEC, the necessary
this level will move to this limit in a gradual process.            amendments to this Directive. The Advisory Committee
However, the supervisory authorities may authorize                  shall give its opinion at its next regular meeting and not
those credit institutions to exceed the threshold under             more than six months after the consultation by the
temporary and exceptional circumstances.                            Commission.
 ---pagebreak--- 27. 9. 86                              Official Journal of the European Communities                           No C 243/7
                         Article 6                                3.    The communication referred to in paragraph 2 shall
                                                                  also include a statement, accompanied by an explanatory
1.    Member States shall take the measures necessary to          text, which notifies the Commission of the specific
comply with this Directive not later than 31 December             provisions and elements selected by the respective
1987 and forthwith inform the Commission thereof.                 competent authorities of the Member States as
2.    Within one year of notification of this Directive the       comprising own funds.
Member States shall communicate to the Commission
the texts of the main laws, regulations and administrative                                 Article 7
provisions which they adopt in the field covered by this
Directive.                                                        This Directive is addressed to the Member States.