CELEX: 51997PC0706
Language: en
Date: 1997-12-15
Title: Proposal for a European Parliament and Council Directive relating to the taking up and pursuit of the business of credit institutions (codified version)

COMMiSSION OF THE EUROPEAN COMMUNITIES
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** **
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                                                       Brussels, 15.12.1997
                                                       COM(97) 706 final
                                                        97/0357 (COD)
                                     Proposal for a
              EUROPEAN PARLIAMENT AND COUNCIL DIRECTIVE
       relating to the taking up and pursuit of the business of credit institutions
                                   (codified version)
                          (presented by the Commission)
 ---pagebreak---  ---pagebreak---                                                          EXPLANATORY MEMORANDUM
  1. In the context of a people's Europe, the Commission attaches great importance to simplifying and clarifying Community law so as
       to make it clearer and more accessible to the ordinary citizen, thus giving him new opportunities and the chance to make use of the
       specific rights it gives him.·
       This aim cannot be achieved so long as nwnerous provisions that have been amended several times, often quite substantially,
       remain scattered, so that they must be sought partly in the original instrument and partly in later amending ones. Considerable
       research work, comparing many different instruments, is thus needed to identify the current rules.
       For this reason a codification of rules that have frequently been amended is _also essential if Community law is to be clear and
       transparent.
 2. On I April 1987 the Commission therefore decided to instruct its staff that all legislative measures should be codified after no
       more than ten amendments, stressing that this was a minimwn requirement and that departments should endeavour to codify at
       even shorter intervals the texts for which they were responsible, to ensure that the Community rules were clear and readily
       understandable.
 3. The Conclusions of the Presidency of the Edinburgh European Council (December 1992) confirmed this, stressing the importance
       of legislative codification as it offers certainty as to the law applicable to a given matter at a given time.
       It must be undertaken in full compli~ce with the normal Community legislative procedure.
       Given that no changes of substance may be made to the instruments affected by legislative codification, Parliament, the Council
       and the Commission have agreed, by an interinstitutional agreement dated 20 December 1994, that an accelerated procedure may
       be used for the fast-track adoption of codification instruments.
 4. The purpose of this proposal< 1) for legislative codification of Council Directives 73/183/EEC of 28 June 1973, on the abolition of
       restrictions on freedom of establishment and freedom to provide services in respect of self-employed activities of banks and other
       financial institutions; 77/780/EEC of 12 December 1977, on the coordination of laws, regulations and administrative provisions
       relating to the taking up and pursuit of the business of credit institutions; 89/299/EEC of 17 April 1989, on the own funds of credit
       institutions; 89/646/EEC of 15 December 1989, on the coordination of laws, regulations and administrative provisions relating to
       the taking up and pursuit of business of credit institutions and amending Directive 77/780/EEC; 89/647/EEC of 18 December
       1989, on the solvency ratio for credit institutions; 92/30/EEC of 6 April 1992, on the supervision of credit institutions on a
       consolidated basis; 92/121/EEC of 21 December 1992, on the monitoring and control of large exposures of credit institutions, is to
       undertake official codification of this type. The new directive will supersede the various directives incorporated in it(2), their
       content is fully preserved, and they are brought together with only such formal amendments as are required by the codification
       exercise itself.
4a In order to point out the satisfactory application of the codification of the Directive mentioned above, in so far as it is a purely
       formal procedure, the term 'Contact Committee' appearing in Recital No. 21 of Directive 89/646/EEC and Recital No. 15 of
       Directive 77/780/EEC (Recitals No. 23 and 66 respectively, in this consolidated version), is replaced by the term 'Contact Group'.
       In effect, contrary to the terminology that was mistakenly applied in the relevant Recitals of the above mentioned Directives, the
       term 'Contact Group' was used from the beginning of the latter activities.
5. This legislative codification proposal was dra,\n up on the basis of the texts of the acts published in the Official Journal, in all the
      official languages. Although the articles have been given new numbers, the old nwnbering has been retained in the margin for ease
      of reference; the correlation between the old and new numbers is sho,vn in a table set out in Annex VI, to the codified Directive.
( 1) Entered in the legislative programme for 1994
( 2 ) Sec Annex V, Part A of this Proposal.
                                                                           2
 ---pagebreak---                                   Proposal for a
 EUROPEAN PARLIAMENT AND COUNCIL DIRECTIVE /.. ./.. ./EC
                                       of ..... .
      relating to the taking up and pursuit of the business of credit
                                    institutions
 THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE
 EUROPEAN UNION,
 Having regard to che Treaty establishing the European Community, and in
 pa11icular 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 ( 1);
Acting in accordance with the procedure laid down in Article 189b of the
Treaty (2);
(1)    Whereas Council Directive 73/183/EEC of 28 June 1973 on the
       abolition of restrictions on freedom of establishment and freedom to
       provide services in respect of self-employed activities of banks and
       other financial institutions (3), Council Directive 77/780/EEC of 12
       December 1977 on the coordination of laws, regulations and
       administrative provisions relating to the taking up and pursuit of the
       business of credit institutions (4 ), Council Directive 89/299/EEC of
        17 April 1989 on the own funds of credit institutions (5), Council
       Directive 89/646/EEC of 15 December I 989 on the coordination of
       laws, regulations and administrative provisions relating to the taking
       up and pursuit of the business of credit institutions and amending
       Directive 77/780/EEC (6 ), Council Directive 89/647/EEC of 18
       December 1989 on a solvency ratio for credit institutions (7),
       Council Directive 92/30/EEC of 6 April 1992 on the supervision of
       credit institutions on a consolidated basis (8), and Council Directive
       92/121 /EEC of 21 December 1992 on the monitoring and control of
       large exposures of credit institutions (9) have been frequently and
       substantially amended; whereas, for reasons of clarity and
       rationality, the said Directives therefore, should be codified and
       combined in a single text;
(1)
       OJNoC
(2) .
(3)    OJ No L 194, 16.7.1973; p. I.
(4)    OJ No L 322, 17. 12. 1977, p. 30; Directive as last amended by Directive 96/13/EC (OJ No L 66, 16. 3. 1996, p. 15).
(5)    OJ No L 124, 5. 5. 1989, p. 16; Directive as last amended by Directive 92/30/EEC (OJ No L 110, 28. 4. 1992, p. 52).
(6)    OJ No L 386, 30. 12. 1989, p. 1; Directive as last amended by European Parliament and Council Directive 95/26/EC (OJ No L I 68, I 8. 7. I 995,
       p. 7).
(7)    OJ No L 386, 30. 12. 1989, p. 14; Directive as last amended by Directive 96/10/EC (OJ No L 85, 3. 4. I 996, p. 17).
(8)    OJ No L l lO, 28.4.1992, p. 52.
(9)    OJ No L 29, 5. 2. 1993, p. I; Directive as amended by the Act of Accession of Austria, Finland and Sweden.
                                                                           3
 ---pagebreak--- (2) Whereas, pursuant to the Treaty, any discrirninatory treatment with     I. 77/780/EEC
    regard to establishment and to the provision of services, based either     (adapted)
    on nationality or on the fact that an undertaking is not established in
    the Member State where the services are provided, is prohibited;
(3) Whereas, in order to make it easier to take up and pursue the           2. 77/780/EEC
    business of credit institutions, it is necessary to eliminate the most
    obstructive differences between the laws of the Member States as
    regards the rules to which these institutions are subject;
(4) Whereas this Directive constitute~ the essential instrument for     the 1. 89/646/EEC
    achievement of the internal market, a course determined by          the    (adapted)
    Single European Act and set out in timetable form in                the
    Commission's White Paper, from the point of view of both            the
    freedom of establishment and the freedom to provide services, in    the
    field of credit institutions;
(5) Whereas measures to coordinate credit institutions must, both in        4. 771780/EEC
    order to protect savings and to create equal conditions of
    competition between these institutions, apply to all of them;
    whereas due regard must be had, where applicable, to the objective
    differences in their statutes and their proper aims as laid down by
    national laws;
                                                                    4
 ---pagebreak--- (6) Whereas the scope of those measures should therefore be as broad        5. 77/780/EEC
    as possible, covering all institutions whose business is to receive        (adapted)
    repayable funds from the public, whether in the form of deposits or
    in other forms such as the continuing issue of bonds and other          +
    comparable securities and to grant credits for their own account;
    whereas exceptions must be provided for in the case of certain credit"
    institutions to which this Directive cannot apply; whereas the          6.
    provisions of this Directive shall not prejudice the application of
    national laws which provide for special supplementary
    authorizations permitting credit institutions to carry on specific
    activities or undertake specific kinds of operations;
(7) Whereas the approach which has been adopted is to achieve only the     4.  89/646/EEC
    essential harmonization necessary and sufficient to secure the
    mutual recognition of authorization and of prudential supervision
    systems, making possible the granting of a single licence recognized    +
    throughout the Community and the application of the principle of
    home Member State prudential supervision; whereas, therefore, the      9.  77/780/EEC
    requirement that a programme of operations must be produced                (adapted)
    should therefore be seen merely as a factor enabling the competent      +
    authorities to decide on the basis of more precise information using
    objective criteria; whereas a measure of flexibility may nonetheless   11. (adapted)
    be possible as regards the requirements on the legal form of credit
    institutions and the protection of banking names;
(8) Whereas equivalent financial requirements for credit institutions are  12. 771780/EEC
    necessary to ensure similar safeguards for savers and fair conditions      (adapted)
    of competition between comparable groups of credit institutions;
    whereas, pending further coordination, appropriate structural ratios
    should be formulated that will make it possible within the
    frame\vork of cooperation between national authorities to observe,
    in accordance with standard methods, the position of comparable
    types of credit institutions; whereas this procedure should help to
    bring about the gradual approximation of the systems of coefficients
    established and applied by the Member States; \.\1hereas it is
    necessary, however, to make a distinction between coefficients
    intended to ensure the sound management of credit institutions and
    those established for the purposes of economic and monetary policy;
                                                                  5
 ---pagebreak--- (9)   Whereas the principles of mutual recognition and home Member              8. 89/646/EEC
      State supervision require that Member States' competent authorities          (adapted)
      should not grant or should withdraw ·authorization where factors
      such as content of the activities programmes, the geographical            +
      distribution or the activities actually_ carried on indicate clearly that
      a credit institution has opted for t~e legal system of one Member
      State for the purpose of evading the stricter standards in force in
      another Member State within whose territory it carries on or intends
      to carry on the greater part of its_ activities; whereas a credit         7. 95/26/EC
       institution which is a legal person must be authorized in the Member        (adapted)
      State in which it has its registered office; whereas a credit institution
      which is not a legal person must have its head office in the Member
      State in which it has been authorized; whereas, in addition, Member
      States must require that a credit institution's head office always be
      situated in its home Member State and that it actually operates there;
(10) Whereas the competent authorities should not authorize or continue         3. 95/26/EC
      the authorization of a credit institution. where they are liable to be       (adapted)
      prevented from effectively exercising their supervisory functions by
      the close links between that ins~itution and other natural or Jega]       +
      persons; whereas credit institutions. already authorized must also
      satisfy the competent authorities in that respect; whereas the            4.
      definition of 'close links' in this Directive lays down minimum
      criteria and that does not prevent Member States from applying it to      +
      situations other than those envisaged by the definition; whereas the      s. (adapted)
      sole fact of having acquired a significant proportion of a company's
      capital does not constitute participation, within the meaning of
      'close links', if that holding has been acquired solely as a temporary
      investment which does not make it possible to exercise influence
      over the structure or financial policy of the institution;
( 11) Whereas the reference to the supervisory authorities' effective           6. 95/26/EC
      exercise of their supervisory functions covers supervision on a
      consolidated basis which must be exercised over a credit institution
      where the provisions of Community law so provide; whereas, in
      such cases, the authorities applied to for authorization must be able
      to identify the authorities competent to exercise supervision on a
      consolidated basis over that credit institution;
(12) Whereas the home Member State may also establish rules stricter            9. 89/646/EEC
      than those laid down in Article 5 (1 ), first subparagraph and (2), and      (adapted)
      Articles 7, 16, 30, 5 l and 65 for institutions authorized by its
      competent authorities;
                                                                       6
 ---pagebreak--- ( I 3) Whereas the abolition of the authorization requirement with respect     17. 89/646/EEC
       to the branches of Community credit institutions necessitates the           (adapted)
       abolition of endowment capital;
( 14) Whereas, by virtue of mutual recogmt1on, the approach chosen             12. 89/646/EEC
       permits credit institutions authorized in their home Member States          (adapted)
       to carry on, throughout the Community, any or all of the activities     +
       listed in Annex I by establishing branches or by providing services;
       whereas the carrying-on of activities not listed in the said Annex      13.
       enjoys the right of establishment and the freedom to provide
       services under the general provisions of the Treaty;
(15) Whereas it is appropriate, however, to extend mutual recognition to       14. 89/646/EEC
       the activities listed in Annex I when they are carried on by financial      (adapted)
       institutions which are subsidiaries of credit institutions, provided
       that such subsidiaries are covered by the consolidated supervision of
       their parent undertakings and meet certain strict conditions;
( 16) Whereas the host Member State may, in connection with the                15. 89/646/EEC
       exercise of the right of establishment and the freedom to provide
       services, require compliance with specific provisions of its own
       national laws or regulations on the part of institutions not authorized
       as credit institutions in their home Member States and with regard to
       activities not listed in Annex I provided that, on the one hand, such
       provisions are compatible with Community law and are intended to
       protect the general good and that, on the other hand, such
       institutions or such activities are not subject to equivalent rules
       under the legislation or regulations of their home Member States;
( 17) Whereas the Member States must ensure that there are no obstacles        16. 89/646/EEC
       to carrying on activities receiving mutual recognition in the same
       manner as in the home Member State, as long as the latter        ao not
       conflict with legal provisions protecting the general good in the host
       Member State;
( 18) Whereas there is a necessary link between the objective of this          18. 89/646/EEC
       Directive and the liberalization of capital movements being brought         (adapted)
       about by other Community legislation; whereas in any case the
       measures regarding the liberalization of banking services must be in
       harmony with the-measures liberalizing capital movements;
                                                                       7
 ---pagebreak--- (19) Whereas the rules governing branches of credit institutions having      13. 77/780/EEC
     their head office outside the Communit-y should be analogous in all
     Member States; whereas it is important at the present time to
     provide that such rules may not be more favourable than those for
     branches ·of institutions from another Member State; whereas it          +
     should be specified that the Community may conclude agreements
     with third countries providing for the application of rules which
     accord such branches the same treatment throughout its territory,
     account being taken of the principle of reciprocity; whereas the        19. 89/646/EEC
     branches of credit institutions authorized in third countries do not        (adapted)
     enjoy the freedom to provide services under the second paragraph of
     Article 59 of the Treaty or the freedom of establishment in Member
     States other than those in which they are established; whereas,
     however, requests for the authorization of subsidiaries or of the
     acquisition of holdings made by undertakings governed by the laws
     of third countries are subject to a procedure intended to ensure that
     Community credit institutions receive reciprocal treatment in the
     third countries in question;
(20) Whereas the authorizations granted to credit institutions by the        20. 89/646/EEC
     competent national authorities pursuant to this Directive have              (adapted)
     Community-wide, and no longer merely nation-wide, application;
     whereas existing reciprocity clauses have therefore no effect;
     whereas a flexible procedure i~ therefore needed to make it possible
     to assess reciprocity on a Community basis; whereas the aim of this
     procedure is not to close the Community's financial markets but
     rather, as the Community intends to keep its financial markets open
     to the rest of the world, to improve the liberalization of the global
     financial markets in other third countries; whereas, to that end, this
     Directive provides for procedures for negotiating with third
     countries and, as a last resort, for the possibility of taking measures
     involving the suspension of new applications for authorization or
     the restriction of new authorizations;
(21, Whereas it is desirable that agree~ent should be reached, on the        12. 92/30/EEC
     basis of reciprocity, between the Community and third countries
     with a view to allowing the practical exercise of consolidated
     supervision over the largest possible geographical area;
(22) Whereas responsibility for supervising the financial soundness of a     10. 89/646/EEC
     credit institution, and in particular its solvency, rests with the          (adapted)
     competent authorities of its home Member State; whereas the host
     Member State's competent authorities retain responsibility for the
     supervision of liquidity and monetary policy; whereas the
     supervision of market risk must be the subject of close cooperation
     between the competent authorities of the home and host Member
     States;
                                                                     8
 ---pagebreak--- (23) Whereas the smooth operation of the internal banking market               21. 89/646/EEC
     requires not only legal rules but also close and regular cooperation          (adapted)
     between the competent authorities of the Member States; whereas
     for the consideration of problems concerning individual credit
     institutions the Contact Group set up between the banking
     supervisory authorities remains the most appropriate forum;
     whereas that Group is a suitable body for the mutual exchange of
     information provided for in Article 28;
(24) Whereas that mutual information procedure does not in any case            22. 89/646/EEC
     replace the bilateral collaboration established by Article 28; whereas        (adapted)
     the competent host Member State authorities can, without prejudice
     to their powers of proper control, continue either, in an emergency,
     on their own initiative or following the initiative of the competent
     home Member State authorities, to verify that the activities of a
     credit institution established within their territories comply with the
     relevant laws and with the principles of sound administrative and
     accounting procedures and adequate internal control;
(25) Whereas it is appropriate to allow the exchange of information
     between the competent authorities and authorities or bodies which,         8. 95/26/EC
     by virtue of their function, help to strengthen the stability of the          (adapted)
     financial system; whereas, in order to preserve the confidential
     nature of the information forwarded, the list of addressees must
     remain within strict limits;
(26) Whereas certain behaviour, such as fraud and insider offences, are
     liable to affect the stability, including the integrity, of the financial  9. 95/26/EC
     system, even when involving institutions other than credit                    (adapted)
     institutions;
(27) Whereas it is necessary to specify the conditions under whicr. such
     exchanges of information are authorized;                                  10. 95/26/EC
(28) Whereas, where it is stipulated that information may be disclosed
     only with the express agreement of the competent authorities, these       11. 95/26/EC
     may, where appropriate, make their agreement subject to
     compliance with strict conditions;
                                                                       9
 ---pagebreak---  (29) Whereas exchanges of information between, on the one hand, the               12.  95/26/EC
       competent authorities and, on the other, central banks and other
       bodies with a similar function in their capacity as monetary
       authorities and, where appropriate, other public authorities
       responsible for supervising payment systems should also be
       authorized;
 (30) Whereas for the purpose of strengthening the prudential supervision          15. 95/26/EC
       of credit institutions and protection of clients of credit institutions, it     (adapted)
       should be stipulated that an auditor must have a duty to report
       promptly to the competent authorities, wherever, as provided for by
       this Directive, he becomes aware, while carrying out his tasks, of           +
      certain facts which are liable to have a serious effect on the financial
       situation or the administrative and accounting· organization of a           16. (adapted)
       credit institution; whereas, having regard to the aim in view, it is
      desirable for the Member State to provide that such a duty should             +
      apply in all circumstances where such facts are discovered by an
      auditor during the performance of his tasks in an undertaking which
      has close links with a credit institution; whereas the duty of               17. (adapted)
      auditors to communicate, where appropriate, to the competent
      authorities certain facts and decisions concerning a credit institution
      which they discover during the performance of their tasks in a non-
      financial undertaking does not in itself change the nature of their
      tasks in that undertaking nor the manner in which they must
      perform those tasks in that undertaking;
                                                                                    I. 89/299/EEC
(31) Whereas common basic standards for the own funds of credit                        (adapted)
      institutions are a key factor in the creation of an internal banking
      market since own funds serve to ensure the continuity of credit
      institutions and to protect savings; whereas such harmonization
      strengthens the supervision of credit institutions and contributes to
      further coordination in the banking sector;
                                                                                   2.  89/299/EEC
(32) Whereas such standards must apply to all credit institutions
      authorized in the Community;
                                                                                   3.  89/299/EEC
(33) Whereas the own funds of a credit institution can serve to absorb
      losses which are not matched by a sufficient volume of profits;
      whereas the own funds also serve as an important yardstick for the
      competent authorities, in particular for the assessment of the
      solvency of credit institutions and for other prudential purposes;
                                                                         10
 ---pagebreak--- (34) Whereas credit institutions, in an internal banking market, engage in     4.   89/299/EEC
      direct competition with each other, and the definitions and standards        (adapted)
      pertai_ning to own funds must therefore be equivalent; whereas, to
      that end, the criteria for determining the composition of own funds
      must not be left solely to Member States; whereas the adop.tion of
      common basic standards will be in the best interests of the
      Community in that it will prevent distortions of competition and
      will strengthen the Community banking system;
(35) Whereas the definition of own funds laid down in this Directive           5.  89/299/EEC
      provides for a maximum of items and qualifying amounts, leaving it
      to the discretion of each Member State to use all or some of such
      items or to adopt lower ceilings for the qualifying amounts;
(36) Whereas this Directive specifies the qualifying criteria for certain      6.  89/299/EEC
      own funds items, and the Member States remain free to apply more
      stringent provisions;
(3 7) Whereas at the initial stage common basic standards are defined in       7.  89/299/EEC
      broad terms in order to encompass all the items making up own
      funds in the different Member States;
(38) Whereas, according to the nature of the items making up own funds,        8.  89/299/EEC
      this Directive distinguishes between on the one hand, items
      constituting original own funds and, on the other, those constituting
      additional own funds;
(39) Whereas, to reflect the fact that items constituting additional own      I 0. 89/299/EEC
      funds are not of the same nature as those constituting original own
      funds, the amount of the former included in own funds must not
      exceed the original own funds; whereas, moreover, the amount of
      certain items of additional own funds included must not exceed one-
      half of the original own funds;
(40) Whereas, in order to avoid distortions of competition, public credit   · 11.  89/299/EEC
      institutions must not include in their own funds guarantees granted          (adapted)
      them by the Member States or local authorities;
                                                                    II
 ---pagebreak--- (41) Whereas whenever in the course of supervision it is necessary to                  12.  89/299/EEC
     determine the amount of the consolidated own funds of a group of                       (adapted)
     credit institutions, that calculation shall be effected in accordance
     with this Directive;
(42) Whereas the precise accounting technique to be used for the                       13.  89/299/EEC
     calculation of own funds, the solvency ratio, and for the assessment                   (adapted)
     of the concentration of exposures must take account of the                         +
     provisions of Council Directive 86/635/EEC of 8 December 1986                     12.  89/647/EEC
     on the annual accounts and consolidated accounts of banks and                          (adapted)
     other financial institutions (1) ~ which incorporates certain                      +
     adaptations of the provisions of Council Directive 83/349/EEC of                  7.   92/121/EEC
      13 June 1983 based on Article 54 (3) (g) of the Treaty on                             (adapted)
     consolidated acco.unts ( 2 );
(43) Whereas the prov1s1ons on own funds form part of the wider                       14.   89/299/EEC
     international effort to bring about approximation of the rules in                      (adapted)
     force in major countries regarding the adequacy of own funds;
(44) Whereas the Commission will draw up a report and periodically                    16.   89/299/EEC
     examine, with the aim of tightening them, the provisions on own                        (adapted)
     funds and thus achieving greater convergence on a common
     definition of own funds; whereas such convergence will allow the
     alignment of Community credit institutions' own funds;
(45) Whereas the provisions on solvency ratios are the outcome of work                 1.   89/647/EEC
     carried out by the Banking Advisory Committee which is                                 (adapted)
     responsible for making suggestions to the Commission with a view
     to coordinating the coefficients applicable in the Member States;
(46) Whereas the establishment of an appropriate solvency ratio plays a                2.   89/647/EEC
     central role in the supervision of credit institutions;
(47) Whereas a ratio which weights assets and off-balance-sheet items                  3.   89/647/EEC
     according to the degree of credit risk is a particularly useful measure
     of solvency;
(48) Whereas the development of common standards for own funds in                      4.   89/647/EEC
     relation to assets and off-balance-sheet items exposed to credit risk
     is, accordingly, an essential aspect of the harmonization necessary
     for the achievement of the mutual recognition of supervisio11
     techniques and thus the completion of the internal banking market;
                                                                    ./
(I)  OJ No L 372, 31.12.1986, p. I.
( 2) OJ No L 193. I 8. 7. 1983, p. I; Directive as last amended by Directive 90/605/EEC (OJ No L 317, 16. 11. 1990, p. 60).
                                                                          12
 ---pagebreak--- (49) Whereas, in that respect, the provisions on a solvency ratio must be      5.  89/647/EEC
      considered in conjunction with other specific instruments also              (adapted)
      harmonizing the fundamental techniques of the supervision of credit
      institutions;
(50) Whereas, in an internal banking market, institutions are required to      7. 89/647/EEC
      enter into direct competition with one another and whereas the              (adapted)
      common solvency standards in the form of a minimum ratio prevent
      distortions of competition and strengthen the Community banking
      system;
(51) Whereas this Directive provides for different weightings to be given     8.  89/647/EEC
      to guarantees issued by different financial institutions; whereas the       (adapted)
      Commission accordingly undertakes to examine whether this
      Directive taken as a whole significantly distorts competition
      between credit institutions and insurance undertakings and, in the
      light of that examination, to consider whether any remedial
      measures are justified;
(52) Whereas Annex III lays down the treatment of off-balance-sheet            I. 96/10/EC
      items concerning interest and foreign-exchange rates in the context     +   (adapted)
      of the calculation of credit institutions' capital requirements;
     whereas with a view to the smooth functioning of the internal            2.
     market and in particular with a view to ensuring a level playing field
      Member States are obliged to strive for uniform assessment of           +
      contractual netting agreements by their competent authorities;
     whereas Annex III takes account of the work of an international          3.
      forum of banking supervisors on the supervisory recognition of
     bilateral netting, in particular the possibility of calculating the own- +
     funds requirements for certain transactions on the basis of a net
     rather than a gross amount provided that there are legally binding
     agreements which ensure that the credit risk is confined to the net      4.
     amount; whereas the rules contemplated for the supervisory
     recognition of netting at a wider international level will lead to the   +
     possibility of reducing the capital requirements for internationally
     active credit institutions and groups of credit institutions in a wide
     range of non-member countries' credit institutions which compete
     with Community credit institutions; whereas for credit institutions      5.
     incorporated in the Member States, Annex III creates a similar
     possibility for the recognition of bilateral netting by the competent    +
     authorities and thereby offers them equal conditions of competition;
     whereas the rules are both well balanced and appropriate for the
     further reinforcement of the application of prudential supervisory       6.
     measures to credit institutions; whereas the competent authorities in
     the Member States should ensure that the calculation of add-ons is
     based on effective rather than apparent notional amounts;
                                                                       13
 ---pagebreak--- (53) Whereas the minimum ratio provided for in this Directive reinforces    9. 89/647/EEC
     the capital of credit institutions in the Community; whereas a level
     of 8 % has been adopted following a· statistical survey of capital
     requirements in force at the beginning of 1988;
(54) Whereas the essential rules for monitoring large exposures of credit   2. 92/121/EEC
     institutions should be harmonized; whereas Member States should
     still be able to adopt provisions more stringent than those provided
     for by this Directive;
(55) Whereas the monitoring and control of a credit institution's           4. 92/121/EEC
     exposures is an integral parf of its supervision; whereas an excessive
     concentration of exposures to a single client or group of connected
     clients may result in an unacceptable risk of loss; whereas such a
     situation may be considered prejudicial to the solvency of a credit
     institution;
(56) Whereas, in an internal banking market, credit institutions are        6. 92/121/EEC
     engaged in direct competition with one another and monitoring             (adapted)
     requirements throughout the Community should therefore be
     equivalent; whereas, to that end, the _criteria applied to determining
     the concentration of exposures must be the · subject of legally
     binding rules at Community level and cannot be left entirely to the
     discretion of the Member States; whereas the adoption of common
     rules will therefore best serve the Community's interests, since it
     will prevent differences in the conditions of competition, while
     strengthening the Community's banking system;
(57) Whereas the provisions on a solvency ratio for credit institutions     8. 92/121/EEC
     include a list of credit risks which may be incurred by credit            (adapted)
     institutions; whereas that list should therefore be used also for the
     definition of exposures for the purposes of limits to large exposures;
     whereas it is not, however, appropriate to refer on principle to the
     weightings or degrees of risk laid down in the said provisions;
     whereas those weightings and degrees of risk were devised for the
     purpose of establishing a general solvency requirement to cover the
     credit risk of credit institutions; whereas, in the context of the
     regulation of large exposures, the aim is to limit the maximum loss
     that a credit institution may incur through any single client or group
     of connected clients; whereas it is therefore appropriate to adopt a
     prudent approach in which, as a general rule, accoun~ is taken of the
     nominal value of exposures, but no weightings or degrees of risk are
     applied;
                                                                     14
 ---pagebreak--- (58) Whereas, when a credit institution incurs an exposure to its own          9. 92/121/EEC
     parent undertaking or to other subsidiaries of its parent undertaking,       (adapted)
     particular prudence is necessary; whereas the management of
     exposures incurred by credit institutions must be carried out in a
      fully autonomous manner, in accordance with the principles of
      sound banking management, without regard to any considerations
     other than those principles; whereas the provisions of this Directive
     require that where the· influence exercised by persons directly or
      indirectly holding a qualifying participation in a credit institution is
      likely to operate to the detriment of the sound and prudent
     management of that institution, the competent authorities shall take
     appropriate measures to put an end to that situation; whereas, in the
     field of large exposures, specific standards should also be laid down
     for exposures incurred by a credit institution to its own group, and
     in such cases more stringent restrictions are justified than for other
     exposures; whereas more stringent restrictions need not, however,
     be applied where the parent undertaking is a financial holding
     company or a credit institution or where the other subsidiaries are
     either credit or financial institutions or undertakings offering
     ancillary banking services, provided that all such undertakings are
     covered by the supervision of the credit institution on a consolidated
     basis; whereas in such cases the consolidated monitoring of the
     group of undertakings allows for an adequate level of supervision,
     and does not require the imposition of more stringent limits on
     exposure; whereas under this approach banking groups will also be
     encouraged to organize their structures in such a way as to allow
     consolidated monitoring, which is desirable because a more
     comprehensive level of monitoring is possible;
(59) Whereas, in order to be effective, supervision on a consolidated          2. 92/30/EEC
     basis must be applied to all banking groups, including those the
     parent undertakings of which are not credit institutions; where..s the
     competent authorities must hold the necessary legal instruments to
     be able to exercise such supervision;
(60) Whereas, in the case of groups with diversified activities the parent     3. 92/30/EEC
     undertakings of which control at least one credit institution
     subsidiary, the competent authorities must be able to assess the
     financial situation of a credit institution in such a group; whereas,
     pending subsequent coordination, the Member States may lay down
     appropriate methods of consolidation for the achievement of the
     objective of this Directive; whereas the competent authorities must
     at least have the means of obtaining from all undertakings within a
     group the information necessary for the performance of their
     function; whereas cooperation between the authorities responsible
     for the supervision o( different financial sectors must be established
     in the case of groups of undertakings carrying on a range of
     financial activities;
                                                                      15
 ---pagebreak--- (61) Whereas the Member States can, furthermore, refuse or withdraw         5. 92/30/EEC
     banking authorization in the case of certain group structures             (adapted)
     considered inappropriate for carrying on banking activities, in
     particular because such structures · could not be supervised
     effectively, whereas in this respect the competent authorities have
     the powers mentioned in the first subparagraph of Article 7 (1),
     Article 7 (2), point (c) of Article. 14 (I), and Article 16 of this
     Directive, in order to ensure the sound and prudent management of
     credit institutions;
(62) Whereas the Member States can equally apply appropriate               6.  92/30/EEC
     supervision techniques to groups with structures not covered by this
     Directive; whereas, if such structures become common, this
     Directive should be extended to cover them;
(63) Whereas supervision on a consolidated basis must take in all          7.  92/30/EEC
     activities defined in Annex I; whereas all undertakings principally       (adapted)
     engaged in such activities must therefore be included in supervision
     on a consolidated basis; whereas, as a result, the definition of
     financial institutions must ~ widened in order to cover such
     activities;
(64) Whereas Directive 86/635/EEC, together with Directive                 9.  92/30/EEC
     83/349/EEC, established the rules of consolidation. applicable to         (adapted)
     consolidated accounts published by credit institutions; whereas it is
     therefore possible to define more precisely the methods to be used
     in prudential supervision exercised on a consolidated basis;
(65) Whereas supervision of credit institutions on a consolidated basis    11. 92/30/EEC
     must be aimed at, in particular, protecting the interests of the          (adapted)
     depositors of the said institutions and ensuring the stability of the
     financial system;
(66) Whereas the examination of problems connected with matters            14. 77/780/EEC
     covered by this Directive as well as by other Directives on the           (adapted)
     business of credit institutions requires cooperation between the
     competent authorities and the Commission within a Banking              +
     Advisory Committee, particularly when conducted with a view to
     closer coordination; whereas the Banking Advisory Committee of        15. (adapted)
     the competent authorities of the Member States does not rule out
     other forms of cooperation between authorities which supervise the
     taking up and pursuit of the business of credit institutions and, in
     particular, cooperation within the Contact Group set up between
     the banking supervisory authorities,
                                                                   16
 ---pagebreak--- (67) Whereas technical modifications to the detailed rules laid down in     23. 89/646/EEC
     this Directive may from time to time be necessary to take account of    +  (adapted)
     new developments in the banking sector; whereas the Commission         14. 89/64 7/EEC
     shall accordingly make such modifications as are necessary, after
     consulting the Banking Advisory Committee, within the limits of         +
     the:· implementing powers conferred on the Commission by the
     Treaty; whereas that Committee shall act as a 'Regulatory              5.  92/16/EEC
     Committee', according to the rules of procedure laid down in               (adapted)
     Article 2 (Procedure III, Variant (b)) of Council Decision              +
     87/373/EEC of 13 July 1987 laying down the procedures for the          12. 92/121/EEC
     exercise of implementing powers conferred on the Commission ( 1);          (adapted)
(68) Whereas Article 36 (I) of this Directive pennits joint and several      I. 92/16/EEC
     commitments of borrowers in the case of credit institutions             +  (adapted)
     organized as cooperative societies or funds to be treated as own
     funds items under Article 34 (2), point 7; whereas the Danish          2.  (adap~ed)
     Government has expressed a strong interest in having its few
     mortgage credit institutions organized as cooperative societies or
     funds converted into public limited liability companies; whereas, in
     order to facilitate the conversion or to make it possible, a temporary
     derogation allowing them to include part of their joint commitments
     as own funds is required; whereas this temporary derogation should
     not adversely affect competition between credit institutions;
(69) Whereas the application of a 20 % weighting to credit institutions'    13. 89/647/EEC
     holdings of mortgage bonds may unsettle a national financial market
     on which such instruments play a preponderant role; whereas, in this
     case, provisional measures are taken to apply a I O% risk weighting;
(70) Whereas, in order to ensure hannonious application of the              10. 92/121/EEC
     provisions on ·large exposures, Member States should be allowed to         (adapted)
     provide for the two-stage application of the new limits; whereas, for
     smaller credit institutions, a longer transitional period ma~· be
     warranted inasmuch as too rapid an application of the 25 % rule
     could reduce their lending activity too abruptly;
(71) Whereas, moreover, the hannonization of the conditions relating to     6.  89/646/EEC
     the reorganization and winding-up of credit institutions is also
     proceeding;
(72) Whereas the arrangements necessary for the supervision of the          7.  89/646/EEC
     liquidity risks will also have to be harmonized;                           (adapted)
(73) Whereas this Directive must not affect the obligations of the
     Member States concerning the deadlines for transposition set out in
     Annex V, Part B,
HA VE ADOPTED THIS DIRECTIVE:
(l)  OJ No L 197, 18.7.1987, p. 33.
                                                                     17
 ---pagebreak---                                                                         TABLE OF CONTENTS
TITLE I             DEFINITIONS AND SCOPE ................................................................................................... 21 ··
     Article 1      Definitions ................................................................................................................................... 21
     Ar.:icle2      Scope ........................................................................................................................................... 24
     Article 3      Prohibition for undertakings other than credit institutions from carrying on
                    the business of taking deposits or other repayable funds from the public .................................... 27
TITLE II            REQUIREMENTS FOR AC<;ES~ TO THE TAKING-UP AND PURSUIT OF
                    THE BUSINESS OF CREDIT INSTITUTIONS .................................................................... 27
    Article 4       Authorization .............l ................................................................................................................. 27
    Article 5       Initial capital .................................. ,............................................................................................. 27
    Article 6       Management body and place of the head office of credit institutions ......................................... 28
    Article 7       Shareholders and members .......................................................................................................... 29
    Article 8       Programme of operations and structural organization ................................................................. 29
    Article 9       Economic needs ........................................................................................................................... 30
    Article 10     Authorization refusal ................................................................................................................... 30
    Article 11     Notification of the authorization to the Commission .................................................................. 30
    Article 12     Prior consultation with the competent authorities ofother Member States ................................. 30
    Article 13     Branches of credit institutions authorized in another Member State ........................................... 30
    Article 14     Withdrawal of authorization ........................................................................................................ 31
    Article 15     Name ........................................................................................................................................... 31
    Article 16     Qualifying holding in a credit institution .................................................................................... 32
    Article 17 ·   Procedures and internal control mechanisms ............................................................................... 33
TITLE III          PROVISIONS CONCERNING THE FREEDOM OF ESTABLISHMENT
                   AND THE FREEDOM TO PROVIDE SERVICES ................................................. 33
    Article  18    Credit institutions ........................................................................................................................       33
    Article  19    Financial institutions ...................................................................................................................         34
    Article 20     Exercise of the right of establishment .........................................................................................                  35
    Article 21     Exercise of the freedom to provide services ................................................................................                      36
    Article 22     Power of the competent authorities of the host Member State ....................................................                                  36
TITLE IV           RELATIONS WITH THIRD COUNTRIES ........................................................................... 38
    Article 23     Notification of the subsidiaries of third countries' undertakings and conditions of
                   access to the markets of these countries ...................................................................................... 3 8
    Article 24     Branches of credit institutions having their head offices outside the Community ...................... 40
    Article 25     Cooperation with third countries' competent authorities regarding supervision on
                   a consolidated basis ..................................................................................................................... 40
TITLE V            PRINCIPLES AND TECHNICAL INSTRUMENTS
                   FOR PRUDENTIAL SUPERVISION ..................................................................................... 41
    Chapter 1 Principles of prudential supervision ............................................................................................ 41
          Article 26     Competence of control of the home Member State ............................................................. 41 ·
          Article 27     Competence of the host Member State ................................................................................ 41
          Article 28     Collaboration concerning supervision ................................................................................. 42
          Article 29     On the spot verification of branches established in another Member State ......................... 42
          Article 30     Exchange of information and professional secrecy ............................................................. 43
          Article 31     Duty of persons responsible for the legal control of annual and consolidated accounts ..... 4 7
          Article 32     Power of sanction of the competent authorities ................................................................... 47
          Article 33     Right to apply to the courts ................................................................................................. 48
                                                                                         18
 ---pagebreak---     Chapter 2     Technical instruments of prudential supen,ision .................................................................... 48
          Section 1 Own funds .............................................................................................................................. 48
                Article 34  General principles ........................................................................................................       48
                Article 35  Other items ......... :........................................................................................................   50
                Article 36  Other provisions concerning own funds· ......................................................................                     51
                Article 3 7 Calculation ofown funds on a consolidated basis .......................................................                           52
                Article 38  Deductions and limits ..................................................................................................          53
                Article 39  Provision of proof to the competent authorities ...........................................................                       53
          Section 2 Solvency ratio ......................................................................................................................... 53
                Article 40  General principles ........................................................................................................ 53
                Article 41  The numerator: own funds ........................................................................................... 54
                Article 42  The denominator: risk-adjusted assets and off-balance-sheets items ........................... 54
                Article 43  Risk weightings ........................................................................................................... 55
                Article 44  Weighting of claims for regional governments or local authorities of the                                                           _
                            Member States ............................................................................................................. 58
                Article 45 Other weighting ........................................................................................................... 59
                Article 46 Administrative bodies and non-commercial undertakings ......... ;................................. 59
                Article 4 7 Solvency ratio level ..................................................................................................... 59
          Section 3    Large exposures ................................................................................................................. 60
                Article 48 Reporting of large exposures ....................................................................................... 60
                Article 49 Limits on large exposures ............................................................................................ 61
                Article 50 Supervision on a consolidated or unconsolidated basis of large exposures ................. 65
          Section 4    Qualifying holdings outside the financial sector ............................................................. 66
                Article 51    Limits to non-financial qualifying holdings ............................................................ 66
    Chapter 3          Supervision on a consolidated basis ................................................................................. 67
          Article 52   Supervision on a consolidated basis of credit institutions ................................................... 67
          Article 53   Competent authorities responsible for exercising supervision on a consolidated basis ....... 69
          Article 54   Fom1 and extent of consolidation ........................................................................................ 70
          Article 55   Information to be supplied by mixed-activity holding companies and their subsidiaries .... 71
          Article 56   Measures to facilitate supervision on a consolidated basis .................................................. 72
TITLE VI          BANKING ADVISORY COMMITTEE ................................................................................. 73
    Article 57    Composition and tasks of the Banking Advisory Committee ...................................................... 73
    Article 58    Examination of the requirements for authorization ..................................................................... 74
    Article 59    Observation ratios ........................................................................................................................ 74.
TITLE VII         POWERS OF EXECUTION ................................................................ 75
    Article 60    Technical adaptations .................................................................................................................. 75
                                                                                   19
 ---pagebreak--- TITLE VIII        TRANSITIONAL AND FINAL PROVISIONS ...................................................................... 76
    Chapter 1     Transitional provisions .......................................................................................... ~ ............_...... 76
          Article 61   Transitional  provisions regarding Article 36 .......................................................................                  76
          Article 62   Transitional  provisions regarding Article 43 .......................................................................                  77
          Article 63   Transitional  provisions regarding Article 47 .......................................................................                  78
          Article 64   Transitional  provisions regarding Article 49 .......................................................................                  78
          Article 65   Transitional  provisions regarding Article 51 .......................................................................                  80
                                         ~
    Chapter 2     Final provisions ......................................................................................................................... 80
         Article 66    Repealed Directives ........................................................................................................... 80
         Article 67    Imp-lementation .................................................................................................................. 80
         Article 68    Addressees ........................................................................................................................... 80
ANNEX I           List of activities subject to mutual recognition ....................................................................... 81
ANNEX II          Classification of off-balance-sheet items .................................................................................. 82
ANNEX III         The treatment of off-balance-sheet items concerning
                  interest rates and foreign-exchange rates ................................................................................ 83
ANNEX IV          Types of off-balance-sheet items concerning
                  interest rates and foreign-exchange rates ................................................................................ 86
ANNEX V - Part A       Repealed Directives ........................................................................................................... 87
ANNEX V - Part B       Deadlines for implementation ..................~ ........................................................................ 88
ANNEX VI          Correlation Table ...................................................................................................................... 89
                                                                                  20
 ---pagebreak---                                     TITLE I
                         DEFINITIONS AND SCOPE
                                    Article I
                                   Definitions
For the purpose of this Directive:                                                 77/780/EEC
                                                                                   Article 1, 1st indent
1.   "Credit institution " shall mean an undertaking whose business is to
     receive deposits or other repayable funds from the public and to grant
     credits for its own account.
      For the purposes of applying the supervision on a consolidated              -92/30/EEC
     basis, shall be considered as a credit institution, a credit institution      Article 1, 1st indent
     according to the first paragraph and any private or public                    (adapted)
     undertaking which corresponds to the definition in the first                  92/121/EEC
     paragraph and which has been authorized in a third country.                   Article 1 (a)
                                                                                   (adapted)
     For the purposes of applying the supervision and control of large
     exposures, shall be considered as a credit institution, a credit
     institution according to the first paragraph, including branches of a
     credit institution in third countries and any private or public
     undertaking, including its branches, which corresponds to the
     definition in the first paragraph and w~ich has been authorized in a
     third country;
1.   "Authorization" shall mean an instrument issued in any form by the            77/780/EEC
     authorities by which the right to carry on the business of a credit           Article 1, 2nd indent
     institution is granted;
3.   "Branch" shall mean a place of business which forms a legally                 89/646/EEC
     dependent part of a credit institution and which carries out directly all or  Article 1 (3)
     some of the transactions inherent in the business of credit institutions;
     any number of places of business set up in the same Member State by a
     credit institution with headquarters in another Member State shall be
     regarded as a single branch;
4.   "Competent authorities" shall mean the national authorities which are         89/646/EEC
     empowered by law or regulation to supervise credit institutions;              Article 1 (5) to (9)
                                                                                   (as amended by 92/30/EEC,
                                                                                   Article 10 (3))
5.   "Financial institution " shall mean an undertaking other than a credit
     institution, the principal activity of which is to acquire holdings or to
     carry on one or more of the activities listed in points 2 to 12 of Annex
     I;
6.   "Home Member State" shall mean the Member State in which a credit
     institution has been authorized in accordance with Articles 4 to 11;
1.   "Host Member State" shall mean the Member State in which a credit
     institution has a branch or in which it provides services;
8.   "Control" shall mean the relationship between a parent undertaking and
     a subsidiary, as defined in Article I of Directive 83/349/EEC, or a
     similar relationship between any natural or legal person and an
     undertaking;
                                                                    21
 ---pagebreak--- 9. •~Participation for tl,e purposes of supervision on a consolidated basis"      92/30/EEC
   shall mean the ownership, direct or indirect, of 20 % or more of the voting    Article 1, 6th indent
    rights or capital of an undertaking;                                          (adapted)
10. "Qualifying holding" shall mean a direct or indirect holding in an            89/646/EEC
     undertaking which represents 10 · % or more of the capital or of the         Article 1 (10) to (12)
     voting rights or which makes it possible to exercise a significant
     influence over the management of the undertaking in which a holding
     subsists.___                     ·
11. "Initial capital" shall mean capital as defined in Article 34 (2) points 1
     and2; _ __
12. "Parent undertaking" shall mean a parent undertaking as defined in
     Articles l and 2 of Directive 83/349/EEC.
       It shall, for the purposes of supervision on a consolidated basis and      92/30/EEC
       control of large exposures, mean a parent undertaking within the           Article 1, 7th indent
       meaning of Article I (I) of Directive 83/349/EEC and any undertaking       (adapted)
       which, in the opinion of the competent authorities, effectively exercises  92/121/EEC
       a dominant influence over another undertaking;                             Article 1 (c)
                                                                                  (adapted)
13. "Subsidiary" shall mean a subsidiary undertaking as defined in Articles       89/646/EEC
      I and 2 of Directive 83/349/EEC;                                           1Article 1 (13)
     It shall, for the purposts of supervision on a consolidated basis and        92/30/EEC
     control of large exposures, mean a subsidiary undertaking within the         Article 1, 8th indent
     meaning of Article 1 (I) of Directive 83/349/EEC and any undertaking         (adapted)
     over which, in the opinion of the competent authorities, a parent            92/121/EEC
     undertaking effectively exercises a dominant influence.                      Article 1 (d)
                                                                                  (adapted)
     All subsidiaries of subsidiary undertakings shall also be consi_dered        89/646/EEC
     subsidiaries of the undertaking that is their original parent;               Article 1 (13)
                                                                                  92/30/EEC
                                                                                  Article 1, 8th indent
                                                                                  92/121/EEC
                                                                                  Article 1 (d)
14. '"Zone A" shall comprise all the Member States and all other countries        89/647/EEC
     which are full members of the Organization for Economic Cooperation          Article 2 (1), 2nd to 5th indents
     and Development (OECD) and those countries which have concluded
     special lending arrangements with the International Monetary Fund
     (IMF) associated with the Fund's General Arrangements to Borrow
     (GAB). Any country which reschedules its external sovereign debt is,         (as amended by 95/15/EC,
     however, precluded from Zone A for a period of 5 years;                      Article 1)
15. "Zone B" shall comprise all countries not in Zone A;
16. "Zone A credit institutions" shall mean all credit institutions authorized
     in the Member States, in accordance with Article 4, including their
     branches in third countries, and all private and public undertakings
     covered by the definition in point 1, first subparagraph and
     authorized in other Zone A countries, including their branches;
11. "Zone B credit institutions" shall mean all private and public
     undertakings authorized outside Zone A covered by the definition in
     point 1, first subparagraph, including their branches within the
     Community;
                                                                    22
 ---pagebreak--- 18. "Non-bank sector" shall mean all borrowers other than credit                89/647/EEC
    institutions as defined in points 16 and 17, central governments and        Article 2 (1 ), 6th to 8th indents
    central banks, regional governments and local authorities, the European
    Communities, the European Investment Bank (EIB) and multilateral
    development banks as defined in point 19;
19. "Multilateral development banks" shal] mean the International Bank for
    Reconstruction and Development, the International Finance
    Corporation, the Inter-American Development Bank, the Asian
    Development Bank, the African Development Bank, the Council of
    E~rope Resettlement Fund, the Nordic Investment Bank, the Caribbean
    Development Bank, the European Bank for Reconstruction and                  (as amended by 91/31/EEC, 94/7/EC and
    Development, the European Investment Fund and the Inter-American            9S/67/EC)
    Investment Corporation;
20. "'Full-risk',   'medium-risk', 'medium/low-risk' and 'low-risk' off-
    balance-sheet items" shall mean the items described in Article 43 (2)
    and listed in Annex II;
21. "Financial holding company" shall mean a financial institution, the         92/30/EEC
    subsidiary undertakings of which are either exclusively or mainly credit    Article 1, 3rd to 5th indents
    institutions or financial institutions, one at least of such subsidiaries
    being a credit institution;
22. "Mixed-activity holding company" shall mean a parent undertaking,
    other than a financial holding company or a credit institution the
    subsidiaries of which include at least one credit institution;
23. "Ancillary banking services undertaking" shall mean an undertaking the
    principal activity of which consists in owning or managing property,
    managing data-processing services, or any other similar activity which
    is ancillary to the principal activity of o'le or more credit institutions;
24. "Exposures for the purpose of applyi11g Articlt:s 48, 49 and 50" shall      92/121/EEC
    mean the assets and off-balance-sheet items referred to in Article 43       Article l (h)
    and in Annexes II and IV thereto, without application of ,he weightings     (adapted)
    or degrees of risk there provided for; the risks referred to in Annex IV
    must be calculated in accordance with one of the methods set out in
    Annex III, without application of the weightings for counter-party
    risk; all elements entirely covered by own funds may, with the
    agreement of the competent authorities, be excluded from the definition
    of exposures provided that such own funds are not included in the
    calculation of the solvency ratio or of other monitoring ratios provided
    for in Community acts; exposures shall not include:
    - in the case of foreign exchange transactions, exposures incurred in the
       ordinary course of settlement during the 48 hours following payment,
       or
       in the case of transactions for the purchase or sale of securities,
       exposures incurred in the ordinary course of settlement during the
       five working days following payment or delivery of the securities,
       whichever is the earlier;
                                                                      23
 ---pagebreak---  25. •~Group of connected clients" shall mean:                                    92/121/EEC
                                                                                   Article 1 (m)
      - ~o or more natural or legal persons who, unless it is shown
         otherwise, constitute a single risk because one of them, directly or
         indirectly, has control over the other or others; or
         two or more natural or legal persons between whom there is no
         relationship of control as defined in the first indent but who are to be
         regarded as constituting       a  single risk because they are so
         interconnected that, if one · of them were to experience financial
         problems, the other or all of the others would be likely to encounter-
         repayment difficulties;
 26. "Clos~ links" shall mean a situation in which two or more natural or         77/780/EEC
      legal persons are linked by:                                                Article 1, 5th indent
                                                                                  (as amended by 95/26/EC,
      (a) participation, which shall mean the ownership, direct or by way of      Article 2 (1))
            control, of 20 % or more of the voting rights or capital of an
            undertaking, or
      (b) control, which shall mean the relationship between a parent
            undertaking and a subsidiary, in all the cases referred to in Article
            I (1) and (2) of Directive 83/349/EEC, or a similar relationship
            between any natural or legal person and an undertaking; any
            subsidiary undertaking of a subsidiary undertaking shall also be
            considered a subsidiary of the parent undertaking which is at the
            head of those undert~kings.                    ·
            A situation in which two or more natural or legal persons are
            permanently linked to one and the same person by a control
            relationship shall also be regarded as constituting a close link
           between such persons.
                                     Article 2
                                       Scope
1. This Directive concerns taking up and pursuit of the business of               77/780/EEC
credit institutions. This Directive shall apply to all credit institutions.       Article 2(1)
                                                                                  89/646/EEC
                                                                                  Article 2 (1)
                                                                                  89/647/EEC
                                                                                  Article 1 (1)
2. Articles 25 and 52 to 56 shall also apply to financial holding companies       92/30/EEC
and mixed-activity holding companies which have their head offices in the         Article 2
Community.                                                                        (adapted)
The institutions permanently excluded by paragraph 3, with the exception,
however, of the Member States' central banks, shall be treated as financial
institutions for the purposes of Articles 25 and 52 to 56.
                                                                      24
 ---pagebreak--- 3.  This Directive shall not apply to:                                     77n80/EEC
                                                                           Article 2 (2)
    - the central banks of Member States,                                  (as amended by 96/13/EC,
                                                                           Article 1)
    - post office giro institutions,                                       (adapted)
    - in     Belgium,      the     'lnstitut   de   Reescompte    et    de
       Garantie/Herdiscontering- en Waarborginstituut',
    - in Denmark, the 'Dansk Eksportfinansieringsfond', the 'Danmarks
       Skibskreditfond', and 'Dansk Landbrugs Realkreditfond ',
    - in Germany, the 'Kreditanstalt filr Wiederaufbau', undertakings
       which are recognized under the 'Wohnungsgemeinniltzigkeitsgesetz'
       as bodies of State housing policy and are not mainly engaged in
       banking transactions, and undertakings recognized under that law as
      non-profit housing undertakings,
   - in Greece, the "Aeec;ieel:> CnOMcea Aei'ic;+aieel:>6 Afa06yiau6"
      (Elliniki Trapeza Viomichanikis Anaptyxeos), the "(JaiaB'i
      E>atiaMoaec;epi Me AaiaBui" (Tamio Parakatathikon kai
       Danion), and the "(Ja+oatii'ieeu Caieao61:>M'i" (Tachidromiko
      Tamieftirio ),
   - in Spain, the 'Institute de Credito Oficial ',
   - in France, the 'Caisse des depots et consignations',
   - in Ireland, credit unions and the friendly societies,
   - in Italy, the 'Cassa Depositi et Prestiti',
   - in the Netherlands, the 'Nederlandse lnvesteringsbank voor
      Ontwikkelingslanden           NV',      the      'NV     Noordelijke
      Ontwikkelingsmaatschappij', the 'NV Industriebank Limburgs
      Instituut voor Ontwikkeling en Financiering' and the 'Overijsselse
      Ontwikkelingsmaatschappij NV',
   - in Austria, undertakings recognized as housing associations in the
      public interest and the 'Osterreichische Kontrollbank AG',
   - in Portugal, 'Caixas Econ6micas' existing on 1 January 1986 with
      the exception of those incorporated as limited companies and of the
      'Caixa Econ6mica Montepio Geral',
   - in Finland, the 'Teollisen yhteistyon rahasto Oy/Fonden for
      industriellt samarbete Ab', and the 'Kera Oy/Kera Ab',
   - in Sweden, the 'Svenska Skeppshypotekskassan ',
                                                               25
 ---pagebreak---        - in . the United Kingdom, the National Savings Bank, the                   77/780/EEC
          Commonwealth Development Finance Company Ltd, the                        Article 2 (2)
          Agricultural Mortgage Corporation Ltd, the Scottish Agricultural         (as amended by 96/13/EC,
          Securities Corporation Ltd, the Crown Agents for overseas                Article I)
         governments and administrations, credit unions and municipal banks.
4. The Council, acting on a proposal from the Commission, which, for this          77/780/EEC
purpose, shall consult the Committee referred to in Article 57 (hereinafter        Article 2 (3)
referred to as the 'Banking Advisory Committee') shall decide on any               (adapted)
amendments to the list in paragraph 3.
5.       Credit institutions situated in the same Member State · and               77/780/EEC
         pennanently affiliated, on 15 December 1977, to a central body            Article 2 (4) (a), (b) and (c)
         which supervises them and which is established in that same Member        (adapted)
         State, may be exempted from the requirements of Articles 6 (1), 8,
         and 59 if, no later than 15 December 1979, national law provides
         that:
            - the commitments of the central body and affiliated institutions
              are joint and several liabilities or the commitments of its
              affiliated institutions are entirely guaranteed by the central body,
            - the solvency and liquidity of the central body and of all the
              affiliated institutions are monitored as a whole on the basis of
              consolidated accounts,
           - the management of the central body is empowered to issue
              instructions to the management of the affiliated institutions.
         Credit institutions operating locally which are affiliated, subsequent
         to 15 December 1977, to a central body within the meaning of the
         first subparagraph, may benefit from the conditions laid down
         therein if they constitute normal additions to the network belonging
         to that central body.
         In the case of credit institutions other than those which are set up in
         areas newly reclaimed from the sea or have resulted from scission or
         mergers of existing institutions dependent or answerable to the
         central body, the Council, acting on a proposal from the
         Commission, which shall for this purpose, consult the Banking
         Advisory Committee, may lay down additional rule;; for the
         application of the second subparagraph including the repeal of
         exemptions provided for in the first subparagraph, where it is of the
         opinion that the affiliation of new institutions benefiting from the
         arrangements laid down in the second subparagraph might have an
         adverse effect on competition. The Council shall decide by a
         qualified majority.
6.  A credit institution which, as defined in the first subparagraph of            89/646/EEC
    paragraph (5), is affiliated to a central body in the same Member              Article 2 (3)
    State may also be exempted from the provisions of Articles 5 (3) to            89/647/EEC
    (7), 40 to 51, and 65 provided that, without prejudice to the application      Article 1 (3)
    of those provisions to the central body, the whole as constituted by the       92/121/EEC
    central body together with its affiliated institutions is subject to the       Article 2 (2) (b)
    abovementioned provisions on a consoiidated basis.                             (adapted)
    In case of exemption, Articles 13, 18, 19, 20 (1) to (6), 21 and 22 shall
    apply to the whole as constituted by the central body together with its
    affiliated institutions.
                                                                       26
 ---pagebreak---                                           Article 3
         Prohibition for undertakings other than credit institutions from
       carrying on the business of taking deposits or other repayable funds
                                      from the public
   The Member States shall prohibit persons or undertakings that are not credit         89/646/EEC
   institutions from carrying on the business of taking deposits or other               Article 3
   repayable funds from the public. This prohibition shall not apply to the
   taking of deposits or other funds repayable by a Member State or by a
   Member State's regional or local authorities or by public international bodies
   of which one or more Member States are members or to cases expressly
   covered by national or Community legislation, provided that those activities
.• are subject to regulations and controls intended to protect depositors and
   investors and applicable to those cases.
                                         TITLE II
            REQUIREMENTS FOR ACCESS TO THE TAKING UP
                       AND PURSUIT OF THE BUSINESS OF
                               CREDIT INSTITUTIONS
                                          Article 4
                                       Authorization
   Member States shall require credit institutions to obtain authorization before       77/780/EEC
   commencing their activities. They shall lay down the requirements for such           Article 3 (1)
   authorization subject to Articles 5 to 9, and notify them to both the                (adapted)
   Commission and the Banking Advisory Committee.
                                          Article 5
                                       Initial capital
    l. Without prejudice to other conditions of general application laid                77/780/EEC
   down by national law, the competent authorities shall not grant                      Article 3 (2)
   authorization when the credit institution does not possess separate own              (adapted)
   funds and in cases where initial capital is less than ECU 5 million.                 89/646/EEC
                                                                                        Article 4 (1)
                                                                                        (adapted)
   Member States may decide that credit institutions which do not fulfil the            77/780/EEC
   requirement of separate own funds and which were in existence on 15                  Article 10 (1) 3rd subparagraph
   December 1979 may continue to carry on their business. They may                      (adapted)
   exempt such undertakings from complying with the requirement contained
   in the first subparagraph of Article 6 (1 ).
   2. The Member States shall, however, have the option of granting                     89/646/EEC
   authorization to particular categories of credit institutions the initial capital of Article 4 (2)
   which is less than that prescribed in paragraph 1. In such cases:                    (adapted)
   (a)    the initial capital shall not be less than ECU 1 million;
   (b)    the Member States concerned must notify the Commission of their
          reasons for making use of the option provided for in this paragraph;
   (c)    when the list referred to in Article 1I is published, the name of each
          credit institution that does not have the minimum capital prescribed in
          paragraph 1 shall be annotated to that effect;
                                                                          27
 ---pagebreak---  (d)    Within a period of five years starting from 1 January 1993, the            89/646/EEC
        Commission shall draw up a report on the application of this               Article 4 (2)
        paragraph in the Member States, for the attention of the Banking           (adapted)
        Advisory Committee.
 3. A credit institution's own funds may not fall below the amount of initial      89/646/EEC
 capital required by paragraph 1, at the time of its authorization.                Article 10 (1) to (5)
                                                                                   (adapted)
 4. The Member States may decide that credit institutions already in
 existence on 1 January 1993 the own funds of which do not attain the
 levels prescribed for initial capital in paragraphs 1 and 2, may continue to
 carry on their activities. In that event, their own funds may not fall below
 the highest level reached with effect from 22 December 1989.
 5. If control of a credit institutioq falling within the category referred to in
 paragraph 4 is taken by a natural or legal person other than the person who
 controlled the institution previously, the own funds of that institution must
 attain at least the level prescribed for initial capital in paragraphs 1 and 2.
6. _ _ In certain specific circumstances and with the consent of the
competent authorities, where there is a merger of two or more credit
institutions falling within the category referred to in paragraph 4, the own
funds of the institution resulting from the merger may not fall below the
total own funds of the merged institutions at the time of the merger, as long
as the appropriate levels pursuant to paragraphs 1 and 2 have not been
attained.
7. _ _ If, in the cases referred to in paragraphs 3, 4 and 6, the own
funds should be reduced, the competent authorities may, where the
circumstances justify it, allow an institution a limited period in which to
rectify its situation or cease its activities.
                                      Article 6
                 Management body and place of the head office
                                of credit institutions
1. The competent authorities shall grant an authorization to the                  77/780/EEC
undertaking only when there are at least two persons who effectively              Article 3 (2)
direct the business of the credit institution.                                    (adapted)
Moreover, the authorities concerned shall not grant authorization if these
persons ____ are not of sufficiently good repute or lack sufficient
experience to perform such duties.
2. Each Member State shall require that:                                          77/780/EEC
                                                                                  Article 3 (2) (a)
     -   any credit institution which is a legal person and which, under its      (as amended by 95/26/EC,
         national law, has a registered office have its head office in the same   Article 3 (2))
         Member State as its registered office,
    -    any other credit institution have its head office in the Member State
        which issued its authorization and in which it actually carries on its
        business.
                                                                      28
 ---pagebreak---                                       Article 7
                           Shareholders and members
 1. The competent authorities shall not grant authorization,for the taking-up     89/646/EEC
 of the business of credit institutions before they have been informed of the     Article 5, I st paragraph
 identities of the shareholders or members, whether direct or indirect, natural
 or legal persons, that have qualifying holdings, and of the amounts of those
 holdings.
 For the purpose of the definition of qualifying holdings in the context of      89/646/EEC
 this Article, the voting rights referred to in Article 7 of Council Directive   Article I (10), 2nd subparagraph
 88/627/EEC ( 1) shall be taken into consideration.                              (adapted)
 2. The com~etent authorities shall refuse authorization if, taking into         89/646/EEC
 account the need to ensure the sound and prudent management of a credit         Article 5, 2nd paragraph
 institution, they are not satisfied as to the suitability of the abovementioned
 shareholders or members.
 3. _ _Where close links exist between the credit institutions and other         77/780/EEC
 natural or legal persons, the competent authorities shall grant authorization   Article 3 (2)
 only if those links do not prevent the effective exercise of their supervisory  (as amended by 95/26/EC,
 functions.                                                                      Article 2 (2))
                                                                                 (adapted)
 The competent authorities shall also refuse authorization if the laws,
 regulations or administrative provisions of a non-member country
 governing one or more natural or legal persons with which the credit
 institution has close links, or difficulties involved in their enforcement,
 prevent the effective exercise of their supervisory functions.
 The competent authorities shall require credit institutions to provide them
 with the information they require to monitor compliance with the conditions
 referred to in this paragraph on a continuous basis.
                                      Article 8
            Programme of operations and structural organization
 Member States shall _ _ require applications for authorization to be            77/780/EEC
accompanied by a programme of operations setting out inter alia the types of     Article 3 (4)
business envisaged and the structural organization of the institution.           (adapted)
(I)   OJ No L348, 17.12.1988, p. 62.
                                                                       29
 ---pagebreak---                                      Article 9
                                 Economic needs
Member States may not require the application for authorization to be            77/780/EEC
examined in terms of the economic needs of the market.                           Article 3 (3) (a)
                                                                                 (adapted)
                                    Article JO
                              Authorization refusal
Reasons shall be given whenever ·an authorization is refused and the             77/780/EEC
applicant shall be notified thereof within six months of receipt of the          Article 3 (6)
application or, should the latter be incomplete, within six months of the
applicant's sending the information required for the decision. A decision
shall, in any case, be taken within 12 months of the receipt of the application.
                                    Article 11
             Notification of the authorization to the Commission
Every authorization shall be notified to the Commission. Each credit             77/780/EEC
institution shall be entered in a list which the Commission shall publish in     Article 3 (7)
the Official Journal of the European Communities and shall keep up to date.
                                    Article 12
              Prior consultation with the competent authorities
                             of other Member States
There must be prior consultation with the competent authorities of the other     89/646/EEC
Member State involved on the authorization of a credit institution which is:     Article 7
       a subsidiary of a credit institution authorized_ in another Member State,
       or
       a subsidiary of the parent undertaking of a credit institution authorized
       in another Member State, or
       controlled by the same persons, whether natural or legal, as control a
       credit institution authorized in another Member State.
                                    Article 13
                   Branches of credit institutions authorized
                            in another Member State
Host Member States may not _ _ require authorization                          or 89/646/EEC
endowment capital for branches of credit institutions authorized in other        Article 6 (1)
Member States. The establishment and supervision of such branches shall be       (adapted)
effected as prescribed in Articles 17, 20 (1) to (6) and Articles 22 and 26.
                                                                     30
 ---pagebreak---                                     Article 14
                          Withdrawal of authorization
 I. The competent authorities may withdraw the authorization issued to a          77/780/EEC
credit institution _ _ _ _ only where such an institution: _ _ __                 Article 8 (l)
                                                                                  (adapted)
(a)   does not make use of the authorization within 12 months, expressly
       renounces the authorization or has ceased to engage in business for
       more than six months, if the Member State concerned has made no
       provision for the authorization to lapse in such cases;
(b)    has obtained the authorization through false statements or any other
       irregular means;
(c)    no longer fulfils the conditions under which authorization was granted;
(d)    no longer possesses sufficient own funds or can no longer be relied
       upon to fulfil its obligations towards its creditors, and in particular no
       longer provides security for the assets entrusted to it;
(e)    falls within one of the other cases w:iere national law provides for
      withdrawal of authorization.
2. Reasons must be given for any withdrawal of authorization and those            77/780/EEC
concerned informed thereof; such withdrawal shall be notified to the              Article 8 (5)
Commission.
                                    Article 15
                                      Name
For the purpose of exercising their activities, credit institutions _ _ may,      77/780/EEC
notwithstanding any provisions concerning the use of the words 'bank',            Article 5
'saving bank' or other banking names which may exist in the host Member           (adapted)
State, use throughout the territory of the Community the same name as they
use in the Member State in which their head office is situated. In the event of
there being any danger of confusion, the host Member State may, for the
purposes of clarification, require that the name be accompanied by certain
explanatory particulars.
                                                                     31
 ---pagebreak---                                     Article 16 ·
                    Qualifying holding in a credit institution
 l. The Member States shall require any natural or legal person who                89/646/EEC
proposes to hold, directly or indirectJy a qualifying holding in a credit          Article 11
institution first to inform the competent authorities, telling them of the size of (Corrigendum, OJ No L 311,
the intended holding. Such a person must likewise inform the competent             14.11.1997, p. 34)
authorities if he proposes to increase his qualifying holding so that the
proportion of the voting rights or of the capital held by him would reach or
exceed 20 %, 33 % or 50 % or so that the credit institution would become his
subsidiary.
Without prejudice to the provisions of paragraph 2, the competent authorities
shall have a maximum of three months from the date of the notification
provided for in the first subparagraph to oppose such a plan if, in view of the
need to ensure sound and prudent management of the credit institution, they
are not satisfied as to the suitability of the person referred to in the first
subparagraph. If they do not oppose the plan referred to in the first
subparagraph, they may fix a maximum period for its implementation.
2. If the acquirer of the holdings referred to in paragraph I is a credit
institution authorized in another Member State or the parent undertaking of a
credit institution authorized in another Member State or a natural or legal
person controlling a credit institution authorized in another Member State
and if, as a result of that acquisition, the institution in which the acquirer
proposes to hold a holding would become a subsidiary or subject to the
control of the acquirer, the assessment of the acquisition must be the subject
of the prior consultation referred to in Article 12.
3. The Member States shall require any natural or legal person who
proposes to dispose, directly or indirectly, of a qualifying holding in a credit
institution first to inform the competent authorities, telling them of the size of
his intended holding. Such a person must likewise inform the competent
authorities if he proposes to reduce his qualifying holding so that the
proportion of the voting rights or of the capital held by him would fall below
20 %, 33 % or 50 % or so that the credit institution would cease to be his
subsidiary.
4. On becoming aware of them, credit institutions shall inform the
competent authorities of any acquisitions or disposals of holdings in their
capital that cause holdings to exceed or fall below one of the thresholds
referred to in paragraphs l and 3.
They shall also, at least once a year, inform them of the names of
shareholders and members possessing qualifyi_ng holdings and the sizes of
such holdings as shown, for example, by the information received at the
annual general meetings of shareholders and members or as a result of
compliance with the regulations relating to companies listed on stock
exchanges.
                                                                     32
 ---pagebreak--- 5. The Member States shall require that, where the influence exercised by       89/646/EEC
the persons referr~d to in paragraph I is likely to operate to the detriment of Article 11
the prudent and sound management of the institution, the competent              Corrigendum (OJ No L 311,
authorities shall take appro·priate measures to put an end to that situation.   14.11.1997, p. 34)
Such measures may consist for example in injunctions, sanctions against
directors and managers, or the suspension of the exercise of the voting rights
attaching to the shares held by the shareholders or members in question.
Similar measures shall apply to natural or legal persons failing to comply
with the obligation to provide prior information, as laid down in paragraph I.
If a holding is acquired despite the opposition of the competent authorities,
the Member States shall, regardless of any other sanctions to be adopted,
provide either for exercise of the corresponding voting rights to be
suspended, or for the nullity of votes cast or for the possibility of their
annulment.
6. For the purposes of the definition of qualifying holding and other           89/646/EEC
levels of holding set out in this Article, the voting rights referred to in     Article 1 (10), 2nd subparagraph
Article 7 of Directive 88/627/EEC shall be taken into consideration.            (acJapted)
                                    Article 17
                Procedures and internal control mechanisms
Home Member State competent authorities shall require that every credit         89/646/EEC
institution have sound administrative and accounting procedures and             Article 13 (2)
adequate internal control mechanisms.
                                   TITLE III
           PROVISIONS CONCERNING THE FREEDOM OF
 ESTABLISHMENT AND THE FREEDOM TO PROVIDE SERVICES
                                    Article 18
                              Credit institutions
The ~1ember States shall provide that the activities listed in Annex I may be   89/646/EEC
carried on within their territories, in accordance with Articles 20 (1) to (6), Article 18 (1)
21 (1) and (2), and 22, either by the establishment of a branch or by way of    (adapted)
the provision of services, by any credit institution authorized and supervised
by the competent authorities of another Member State, _ _ provided that
such activities are covered by the authorization.
                                                                    33
 ---pagebreak---                                             Article 19
                                     Financial institutions
 The Member States shall also provide that the activities listed in Annex I may be           89/646/EEC
 carried on with'in their territories, in accordance with Articles 20 (1) to (6), 21 (l) and Article 18 (2)
 (2), and 22, either by the establishment of a branch or by way of the provision of          (as amended by 92/30/EEC,
 services, by any financial institution from another Member State, whether a subsidiary      Article 10 (2), 2nd indent)
 of a credit institution or the jointly-owned subsidiary of two or more credit institutions,
 the memorandum and articles of association of which permit the carrying on of those
 activities and which fulfils each of the following conditions:
 -   the parent undertaking or undertakings must be authorized as credit institutions in
     the Member State by the law of which the subsidiary is governed,
 -   the activities in question must a~tually be carried on within the territory of the same
     Member State,
 -   the parent undertaking or undertakings must hold 90 % or more of the voting rights
     attaching to shares in the capital of the subsidiary,
 -   the parent undertaking or undertakings must satisfy the competent authorities
     regarding the prudent management of the subsidiary and must have declared, with
     the consent of the relevant home Member State competent authorities, that they
     jointly and severally guarantee the commitments entered into by the subsidiary,
     the subsidiary must be effectively included, for the activities in question in
     particular, in the consolidated supervision of the parent undertaking, or of each of
     the parent undertakings, in accordance ,vith Articles 52 to 56, in particular for the
     calculation of the solvency ratio, for the control of large exposures and for
     purposes of the limitation of holdings provided for in Article 51.
Compliance with these conditions must be verified by the competent authorities of the
home Member State and the latter must supply the subsidiary with a certificate of
compliance which must fom1 part of the notification referred to in Articles 20 (l) to
(6), and 21 (l) and (2).
The competent authorities of the home Member State shall ensure the supervision of
the subsidiary in accordance with Articles 5 (3), 16, 17, 26, 28, 29, 30, and 32.
The provisions of this Article shall apply mutatis muta11dis to subsidiaries, subject to
the necessary modifications. In particular, the words 'credit institution' should be read
as 'financial institution fulfilling the conditions laid down in Article 19' and the word
'authorization' as 'memorandum and articles of association'.
The second subparagraph of Article 20 (3) shall read:
'The home Member State competent authorities shall also communicate the amount of
own funds of t~e subsidiary financial institution and the consolidated solvency ratio of
the credit institution which is its parent undertaking'.
If a financial institution eligible under this Article should cease to fulfil any of the
conditio-ns imposed, the home Member State shall notify the competent authorities of
the host Member State and the activities carried on by that institution in the host
Member State shall become subject to the legislation of the host Member State.
                                                                      34
 ---pagebreak---                                       Article 10
                     Exercise of the right of establishment
  I. A credit institution wishing to establish a branch within the territory of    89/646/EEC
 another Member State shall notify the competent authorities of its home           Article 19
 Member State.                                                                     (adapted)
 2. The Member State shall require every credit institution wishing to
 establish a branch in another Member State to provide the following
 information when effecting the notification referred to in paragraph I:
 (a)   the Member State within the territory of which it plans to establish a
       branch;
 (b)   a programme of operations setting out inter alia the types of business
       envisaged and the structural organization of the branch;
 (c)   the address in the host Member State from which documents may be
       obtained;
(d)    the names of those responsible for the management of the branch.
3. Unless the competent authorities of the home Member State have reason
to doubt the adequacy of the administrative structure or the financial
situation of the credit institution, taking into account the activities envisaged,
they shall within three months of receipt of the information referred to in
paragraph 2 communicate that information to the competent authorities of the
host Member State and shall inform the institution concerned accordingly.
The home Member State competent authorities shall also communicate the
amount of own funds and the solvency ratio of the credit institution _ _
Where the competent authorities of the home Member State refuse to
communicate the information referred to in paragraph 2 to the competent
authorities of the host Member State, they shall give reasons for their refusal
to the institution concerned within three months of receipt of all the
information. That refusal or failure to reply shall be subject to a right to
apply to the courts in the home Member State.
4. Before the branch of a credit institution commences its activities the
competent authorities of the host Member State shall, within two months of
receiving the information mentioned in paragraph 3, prepare for the
supervision of the credit institution in accordance with Article 22 and if
necessary indicate the conditions under which, in the interest of the general
good, those activities must be carried on in the host Member State.
5. On receipt of a communication from the competent authorities of the host
Member State, or in the event of the expiry of the period provided for in
paragraph 4 without receipt of any communication from the latter, the branch
may be established and commence its activities.
                                                                      35
 ---pagebreak--- 6. In the event of a change in any of the particulars communicated pursuant      89/646/EEC
to paragraph 2 (b), (c) or (d) or in the deposit-guarantee scheme referred to in Article 19
paragraph 3 a credit institution shall give written notice of tl•t~ change in
question to the competent authorities of the home and host Member States at
least one month before making the change so as to enable the competent
authorities of the home Member State to take a decision pursuant to
paragraph 3 and the competent authorities of the host Member State to take a
decision on the change pursuant to paragraph 4.
7. Branches which have commenced their activities, in accordance with the        89/646/EEC
provisions in force in their host Member States, before 1 January 1993,          Article 23 (1)
shall be presumed to have been subject to the procedure laid down in             (adapted)
paragraphs (I) to (5). They shall be governed, from the abovementioned
date, by paragraph 6, and by Articles 18, 19, 22 and 29. _ _
                                       ~
                                      Article 21
                  Exercise of the freedom to provide services
 I. Any credit institution wishing to exercise the freedom to provide services   89/646/EEC
by carrying on its activities within the territory of another Member State for   Article 20
the first time shall notify the competent authorities of the home Member
State of the activities on the list in Annex I which it intends to c... : 1 yon.
2. The competent authorities of the home Member State shall, within one
month of receipt of the notification mentioned in paragraph I, send that
notification to the competent authorities of the host Member State.
3. This Article shall not affect rights acquired by credit institutions          89/646/EEC
providing services before 1 January 1993.                                        Article 23 (2)
                                                                                 (adapted)
                                      Article 22
        Power of the competent authorities of the host Member State
 I. Host Member States may, for statistical purposes, require that all credit    89/646/EEC
institutions having branches within their territories shall report periodically  Article 21
on their activities in those host Member States to the competent authorities of  (adapted)
those host Member States.
In discharging the responsibilities imposed on them m Article 27, host
Member States may require that branches of credit institutions· from other
Member States provide the same information as they require from national
credit institutions for that purpose.
2. Where the competent authorities of a host Member State ascertain that an
institution having a branch or providing services within its territory is not
complying with the legal provisions adopted in that State pursuant to the
provisions of this Directive involving powers of the host Member State's
competent authorities, those authorities shall require the institution
concerned to put an end to that irregular situation.
                                                                         36
 ---pagebreak---   3. If the institution concerned fails to take the necessary steps, the             89/646/EEC
  competent authorities of the host Member State shall inform the competent          Article 21
  authorities of the home Member State accordingly. The competent authorities        (adapted)
  of the home Member State shall, at the earliest opportunity, take all
  appropriate measures to ensure that the institution concerned puts an end to
  that irregular situation. The nature of those measures shall be communicated
  to the competent authorities of the host Member State.
  4. If, despite the measures taken by the home Member State or because such
  measures prove inadequate or are not available in the Member State in
  question, the institution persists in violating the legal rules referred to in
  paragraph 2 in force in the host Member State, the latter State may, after
  informing the competent authorities of the home Member State, take
  appropriate measures to prevent or to punish further irregularities and,
· insofar as is necessary, to prevent that institution from initiating further
  transactions within its territory. The Member States shall ensure that within
  their territories it is possible to serve the legal documents necessary for these
  measures on credit institutions.
  5. The provisions of paragraphs 1 to 4 shall not affect the power of host
  Member States to take appropriate measures to prevent or to punish
  irregularities committed within their territories which are contrary to the
  legal rules they have adopted in the interest of the general good. This shal1
  include the possibility of preventing offending institutions from initiating
  any further transactions within their territories.
  6. Any measure adopted pursuant to paragraphs 4 and 5 involving penalties
  or restrictions on the exercise of the freedom to provide services must be
  properly justified and communicated to the institution concerned. Every such
  measure shall be subject to a right of appeal to the courts in the Member
  State the authorities of which adopted it.
  7. Before following the procedure provided for in paragraphs 2, 3 and 4,
  the competent authorities of the host Member State may, in emergencies,
  take any precautionary measures necessary to protect the interests of
  depositors, investors and others to whom services are provided. The
  Commission and the competent authorities of the other Member States
  concerned must be informed of such measures at the earliest opportunity:
  The Commission may, after consulting the competent authorities of the
  Member States concerned, decide that the Member State in question must
  amend or abolish those measures.
  8. Host Member States may exercise           the powers conferred on them under
  this Directive by taking appropriate          measures to prevent or to punish
  irregularities committed within their          territories. This shall include the
  possibility of preventing institutions        from initiating further transactions
  within their territories.
                                                                          37
 ---pagebreak--- 9. In the event of the withdrawal of authorization the competent authorities     89/646/EEC
of the host Member State shall be infonned and shall take appropriate            Article 21
measures to prevent the institution concerned from initiating further            (adapted)
transactions within its territory and to safeguard the interests of depositors.
Every two years the Commission shall submit a report on such cases to the
Banking Advisory Committee.
 I0. The Member States shall infonn the Commission of the number and type
of cases in which there has been a r~fusal pursuant to ArticJe 20 (1) to (6) or
in which measures have been take~ in accordance with paragraph 4 of this
Article. Every two years the Commission shall submit a report on such cases
to the Banking Advisory Committee.
11. Nothing in this Article shall prevent credit institutions with head offices
in other Member States from advertising their services through all available
means of communication in the host Member State, subject to any rules
governing the fonn and the content of such advertising adopted in the
interest of the general good.
                                   TITLE IV
                 RELATIONS WITH THIRD COUNTRIES
                                   Article 23
      Notification of the subsidiaries of third countries' undertakings
          and conditions of access to the markets of these countries
1. The competent authorities of the Member States shall inform the               89/646/EEC
Commission:                                                                      Article 8
                                                                                 (adapted)
(a)    of any authorization of a direct or indirect subsidiary one or more
       parent undertakings of which are governed by the laws of a third
       country. The Commission shall inform the Banking Advisory
       Committee accordingly;
(b)    whenever such a parent undertaking acquires a holding in a
       Community credit institution such that the latter would become its
       subsidiary. The Commission shall inform the Banking Advisory
       Committee accordingly.
When authorization is ·granted to the direct or indirect subsidiary of one or
more parent undertakings governed by the law of third countries, the
structure of the group shall be specified in the notification which the
competent authorities shall address to the Commission in accordance with
Article 11. - - - - - -
2. The Member States shall inform the Commission of any general                  89/646/EEC
difficulties encountered by their credit institutions in establishing themselves Article 9
or carrying on banking activities in a third country.                            (adapted)
3. _ _ The Commission shall periodically draw up a report examining
the treatment accorded to Community credit institutions in third countries, in
the terms referred to in paragraphs 4 and 5, as regards establishment and the
carrying-on of banking activities, and the acquisition of holdings in third-
country credit institutions. The Commission shall submit those reports to the
Council, together with any appropriate proposals.
                                                                     38
 ---pagebreak--- 4.. Whenever it appears to the Commission, either on the basis of the reports  89/646/EEC
referred to in paragraph 3 or on the basis of other information, that a third  Article 9
country is not granting Community credit institutions effective market access  (adapted)
comparable to that granted by the Community to credit institutions from that
third country, the Commission may submit proposals to the Council for the
appropriate mandate for negotiation with a view to obtaining comparable
competitive opportunities for Community credit institutions. The Council
shall decide by a qualified majority.
5. Whenever it appears to the Commission, either on the basis of the reports
referred to in paragraph 3 or on the basis of other information that
Community credit institutions in a third country do not receive national
treatment offering the same competitive opportunities as are available to
domestic credit institutions and the conditions of effective market access are
not fulfilled, the Com.mission may initiate negotiations in order to remedy
the situation.
In the circumstances described in the first subparagraph, it may also be
decided at any time, and in addition to initiating negotiations, in accordance
with the procedure laid down in Article 60 (2), that the competent authorities
of the Member States must limit or suspend their decisions regarding
requests pending at the moment of the decision or future requests for
authorizations and the acquisition of holdings by direct or indirect parent
undertakings governed by the laws of the third country in question. The
duration of the measures referred to may not exceed three months.
Before the end of that three-month period, and in the light of the results of
the negotiations, the Council may, acting on a proposal from the
Commission, decide by a qualified majority whether the measures shall be
continued.
Such limitations or suspension may not apply to the setting up of subsidiaries
by credit institutions or their subsidiaries duly authorized in the Community,
or to the acquisition of holdings in Community credit institutions by such
institutions or subsidiaries.
6. Whenever it appears to the Commission that one of the situations
described in paragraphs 4 and 5 obtains, the Member States shall inform it at
its request:
(a)    of any request for the authorization of a direct or indirect subsidiary
       one or more parent undertakings of which are governed by the laws of
       the third country in question;
(b)    whenever they are informed in accordance with Article 16 that such an
       undertaking proposes to acquire a holding in a Community credit
       institution such that the latter would become its subsidiary.
                                                                     39
 ---pagebreak--- This obligation to provide infonnation shall lapse whenever an agreement is       89/646/EEC
reached with the third country referred to in paragraph 4 or S or when the        Article 9
measures referred to in the second and third subparagraphs of paragraph 5         (adapted)
cease to apply.
7. Measures taken pursuant to this Article shall comply with the
Community's obligations under any international agreements, bilateral or
multilateral, governing the taking-up and pursuit of the business of credit
institutions.                                  ·
                                     Article 24
           Branches of credit institutions having their head offices
                             outside the Community
 I. Member States shall not apply to branches of credit institutions having       77/780/EEC
their head office outside the Community, when commencing or carrying on           Article 9-
their business, provisions which result in more favourable treatment than that
accorded to branches of credit institutions having their head office in the
Community.
2. The competent authorities shall notify the Commission and the Banking
Advisory Committee of all authorizations for branches granted to credit
institutions having their head office outside the Community .
3. Without prejudice to paragraph I,• the Community may, through
agreements concluded in accordance with the Treaty with one or more third
countries, agree to apply provisions which, on the basis of the principle of
reciprocity, accord to branches of a credit institution having its head office
outside the Community identical treatment throughout the territory of the
Community.
                                     Article 25
          Cooperation with third countries' competent authorities
                 regarding supervision on a consolidated basis
1. The Commission may submit proposals to the Council, either at the              92/30/EEC
request ·of a Member State or on its own initiative, for the negotiation of       Article 8
agreements" with one or more third countries regarding the means of               (adapted)
exercising supervision on a consolidated basis over:
       credit institutions the parent undertakings of which have their head
       offices situated in a third country, and
       credit institutions situated in third countries the parent undertakings of
       which, whether credit institutions or financial holding companies, have
       their head offices in the Community.
                                                                      40
 ---pagebreak--- 2. The agreements referred to in paragraph 1 sha11 in particular seek to           92/30/EEC
ensure both:                                                                       Article 8
                                                                                   (adapted)
       that the competent authorities of the Member States are able to obtain
       the information necessary for the supervision, on the basis of their
       consolidated financial situations, of credit institutions or financial
       holding companies situated in the Community and which have as
       subsidiaries credit institutions or financial institutions situated outside
       the Community, or holding participation in such institutions,
       that the competent authorities of'third countries are ab]e to obtain the
       information necesrnry for the supervision of parent undertakings the
       head offices of which are situated within their territories and which
       have as subsidiaries credit institutions or financial institutions situated
       in one or more Member States, or holding participation in such
       institutions.
3. The Commission and the Banking Advisory Committee _ _ _ shall
examine the outcome of the negotiations referred to in paragraph 1 and the
resulting situation.
                                     TITLE V
             PRINCIPLES AND TECHNICAL INSTRUMENTS
                     FOR PRUDENTIAL SUPERVISION
                                     Chapter 1
                      Principles of prudential supervision
                                     Article 26
              Competence o! control of the home Member State
1. The prudential supervision of a credit institution, includin 6 that of the      89/646/EEC
activities it carries on in accordance with Articles 18 and 19, shall be the       Article 13
responsibility of the competent authorities of the home Member State,               (as amended by by Directive
without prejudice to those provisions of this Directive which give                  92/30/EEC, Article 10 (2))
responsibility to the authorities of the host Member State.
2. Paragraph l _ _ shall not prevent supervision on a consolidated basis           89/646/EEC
pursuant to this Directive.                                                        Article 13 (3)
                                                                                   (as amended by 92/30/EEC,
                                                                                   Article 10 (2), 2nd indent)
                                                                                   (adapted)
                                     Article 27
                     Competence of the host Member State
Host Member States shall retain responsibility in cooperation with the             89/646/EEC
competent authorities of the home Member State for the supervision of the          Article 14 (2)
liquidity of the branches of credit institutions pending further coordination.
Without prejudice to the measures necessary for the reinforcement of the
European Monetary System, host Member States shall retain complete
responsibility for the measures resulting from the implementation of their
monetary policies. Such measures may not provide for discriminatory or
restrictive treatment based on the fact that a credit institution is authorized in
another Member State.
                                                                       41
 ---pagebreak---                                     Article 28
                    Collaboration concerning supervision
 The competent authorities of the Member States concerned shall collaborate       77/780/EEC
closely in order to supervise the activities of credit institutions operating, in Article 7 (1)
particular by having established branches there, in one or more Member            (as amended by 89/646/EEC,
States other than that in which their head offices are situated. They shall       Article 14 (1)
 supply one another with all information concerning the management and
 ownership of such credit institutions that is likely to facilitate their
 supervision and· the examination of the conditions for their authorization, and
all information likely to facilitate the monitoring of such institutions, in
particular with, regard to liquidity, solvency, deposit guarantees, the limiting
of large exposures, administrative and accounting procedures and internal
control mechanisms.
                                    Article 29
              On-the-spot verification of branches established
                           in another Member State
 I. Host Member States shall provide that, where a credit institution             89/646/EEC
authorized in another Member State carries on its activities through a branch,    Article 15
the competent authorities of the home Member State may, after having first
informed the competent authorities of the host Member State, carry out
themselves or through the intermediary of persons they appoint for that
purpose on-the-spot verification of the information referred to in Article 28.
2. The competent authorities of the home Member State may also, for               89/646/EEC
purposes of the verification of branches, have recourse to one of the other       Article 15
procedures laid down in Article 56 (7).                                           (as amended by 92/30/EEC,
                                                                                  Article 10 (4)
                                                                                  (Corrigendum, OJ No L 280, 24.9.1992, p. 54)
3. This Article shall not affect the right of the competent authorities of the    89/646/EEC
host Member State to carry out, in the discharge of their responsibilities under  Article 15
this Directive, on-the-spot verifications of branches established within their
territory.
                                                                    42
 ---pagebreak---                                     Article 30
             Exchange of information and professional secrecy
1. The Member States shall provide that all persons working or who have           77/780/EEC
worked for the competent authorities, as well as auditors or experts acting on    Article 12 (1) to (5)
behalf of the competent authorities, shall be bound by the obligation of          (as amended by 89/646/EEC,
professional secrecy. This means that no confidential information which they      Article 16)
may receive in the course of their duties may be divulged to any person or        (adapted)
authority whatsoever, except in summary or collective form, such that
individual institutions cannot be identified, without prejudice to cases
covered by criminal law.
Nevertheless, where a credit institution has been declared bankrupt or is
being compulsory wound up, confidential information which does not
concern third parties involved in attempts to rescue that credit institution may
be divulged in civil or commercial proceedings.
2. Paragraph I shall not prevent the competent authorities of the various
Member States from exchanging information in accordance with this
Directive and with other Directives applicable to credit institutions. That
information shall be subject to the conditions of professional secrecy
indicated in paragraph 1.
3. Member States may conclude cooperation agreements, providing for
exchanges of information, with the competent authorities of third countries
only if the infom,ation disclosed is subject to guarantees of professional
secrecy at least equivalent to those referred to in this Article.
4. Competent authorities rece1vmg confidential information                  under
paragraphs l or 2 may use it only in the course of their duties:
      to check that the conditions governing the taking-up of the business of
      credit institutions are met and to facilitate monitoring, on a non-
      consolidated or consolidated basis, of the conduct of such business,
      especially with regard to the monitoring of liquidity, solvency, large
      exposures, and administrative and accounting procedures and internal
      control mechanisms, or
      to impose sanctions, or
      in an administrative appeal against a decision of the competent
      authority, or
      in court proceedings initiated pursuant to Article 33 or to special
      provisions provided for in this or in other Directives adopted in the
      field of credit institutions.
5. Paragraphs I and 4 shall not prccl ude the exchange _of information within
a Member State, where there are two or more competent authorities in the
same Member State, or between Member States, between competent
authorities and:
                                                                     43
 ---pagebreak---        authorities entrusted with the public duty of supervising other financial 77/780/EEC
       organizations and insurance companies and the authorities responsible     Article 12 (1) to (5)
       for the supervision of financial markets,                                 (as amended by 89/646/EEC,
                                                                                 Article 16)
                                                                                 (adapted)
       bodies involved in the liquidation and bankruptcy of credit institutions
       and in other similar procedures,
       persons responsible for carrying out statutory audits of the accounts of
       credit institutions and other financial institutions,
in the discharge of their supervisory functions, and the disclosure to bodies
which administer deposit-guarantee schemes of information necessary to the
exercise of their functions. The information received shall be subject to the
conditions of professional secrecy iVdicatrd in paragrnph I.
6. Notwithstanding paragraphs I to 4, Member States may authorize                77/780/EEC
exchanges of information between, the competent authorities and:                 Article 12 (5) (a)
                                                                                 (as amended by 95/26/EC,
      the authorities responsible for overseeing the bodies involved in the      Article 4 (2))
      liquidation and bankruptcy of credit institutions and other similar        (adapted)
      procedures, or
      the authorities responsible for overseeing persons charged with
      carrying out statutory audits of the accounts of insurance undertakings,
      credit institutions, investment firms and other financial institutions.
Member States which have recourse to the provisions of the first
subparagraph shall require at least that the following conditions are met:
      the information shall be for the purpose of performing the supervisory
      task referred to in the first subparagraph,
      information received in this context shall be subject to the conditions
      of professional secrecy imposed in paragraph I,
      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.
Member States shall communicate to the Commission and to the other
Member States the name of the authorities v-.'hich may receive information
pursuant to this paragraph.
                                                                     44
 ---pagebreak--- 7. Notwithstanding paragraphs I to 4, Member States may, with the aim of        77/780/EEC
strengthening the stability, including integrity, of the financial system,      Article 12 (S) (b)
authorize the exchange of information between the competent authorities and     (as amended by 95/26/EC,
the authorities or bodies responsible under law for the detection and           Article 4 (3))
investigation of breaches of company law.
Member States which have recourse to the provision in the first subparagraph
shall require at least that the following conditions are met:
       the information shall be for the purpose of performing the task referred
       to in the first subparagraph,
       information received in this context shall be subject to the conditions
       of professional secrecy imposed in paragraph I,
        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.
Where, in a Member State, the authorities or bodies referred to in the first
subparagraph perform their task of detection or investigation with the aid, in
view of their specific competence, of persons appointed for that purpose and
not employed in the public sector, the possibility of exchanging information
provided for in the first subparagraph may be extended to such persons under
the conditions stipulated in the second subparagraph.
In order to implement the third indent of the second subparagraph, the
authorities or bodies referred to in the first subparagraph shall communicate
to the competent authorities which have disclosed the information, the names
and precise responsibilities of the persons to whom it is to be sent.
Member States shall communicate to the Commission and to the other
Member States the names of the authorities or bodies which may receive
information pursuant to this paragraph.
Before 31 December 2000, the Commission shall d~aw up a report on the
application of the provisions of this paragraph.
8. This Article shall not prevent a competent authority from transmitting:      77/780/EEC
                                                                                Article 12 ( 6)
       to central banks and other bodies with a similar function in their       (as amended by 95/26/EC,
       capacity as monetary authorities,                                        Article 4 (4))
      where appropriate, to other public authorities responsible for
      overseeing payment systems,
information intended for the performance of their task, nor shall it prevent
such authorities or bodies from communicating to the competent authorities
such information as they may need for the purposes of paragraph 4.
Information received in this context shall be subject to the conditions of
professional secrecy imposed in this Article.
                                                                     45
 ---pagebreak--- 9. In addition, notwithstanding the provisions referred to in paragraphs I      77/780/EEC
and 4, the Member States may, by virtue of provisions laid down by law,         Article 12 (7)
authorize the disclosure of certain info,rmation to other departments of their  (as amended by 89/646/EEC,
central government administrations responsible for legislation on the           Article 16)
supervision of credit institutions, financial institutions, investment services
and insurance companies and to inspectors acting on behalf of those
departments.
However, such disclosures may be m~de only where necessary for reasons of
prudential control.
However, the Member States shall provide that information received under
paragraphs 2 and 5 and that obtained by means of the on-the-spot verification
referred to in Article 29 ( 1) and (2) may never be disclosed in the cases
r~ferred to in this paragraph except with the express consent of the competent
authorities which disclosed the information or of the competent authorities of
the Member State in which on-the-spot verification was carried out.
10. This Article shall not prevent the competent authorities from               77/780/EEC
communicating the information referred to in paragraphs I to 4 to a clearing    Article 12 (8)
house or other similar body recognized under national law for the provision     (as amended by 95/26/EC,
of clearing or settlement services for one of their Member States' markets if   Article 4 (6))
they consider that it is necessary to communicate the information in order to
ensure the proper functioning of those bodies in relation to defaults or
potential defaults by market participants. The information received in this
context shall b~ subject to the conditions of professional secrecy imposed in
paragraph I. The Member Stites shall, however, ensure that information
received under paragraph 2 may not be disclosed in the circumstances
referred to in this paragraph without the express consent of the competent
authorities which disclosed it.
                                                                    46
 ---pagebreak---                                        Article 31
              Duty of persons responsible for the legal control of
                        annual and consolidated accounts
 1.    Member States shall provide at least that:                                           77/780/EEC
                                                                                            Article 12a
 (a)    any person authorized within the meaning of Council Directive                       (as amended by 95/26/EC,
        84/253/EEcC 1), performing in a credit institution the task described in            Article 5)
        Article 51 of Council Directive 78/660/EEcC 2), or Article 37 of
        Council Directive 83/349/EEC, or Article 31 of Directive
        85/61 l/EEC(3); shall have a duty to report promptly to the competent
        authorities any fact or decision concerning that institution of which he
        has become aware while carrying out that task which is liable to:
            constitute a material breach of the laws, regulations or
            administrative provisions which lay down the conditions governing
            authorization or which specifically govern pursuit of the activities
            of credit institutions, or
            affect the continuous functioning of the credit institution, or
            lead to refusal to certify the accounts or to the expression of
            reservations;
 (b)    that person shall likewise have a duty to report any fact and decisions
        of which he becomes aware in the course of carrying out a task as
        described in (a) in an undertaking having closed links resulting from a
        control relationship with the credit institution within which he is
        carrying out the abovementioned task.
 2. The disclosure in good faith to the competent authorities, by persons
 authorized within the meaning of Directive 84/253/EEC, of any fact or
 decision referred to in paragraph 1 shall not constitute a breach of any
 restriction on disclosure of information imposed by contract or by any
 legislative, regulatory or administrative provision and shall not i11volve such
 persons in liability of any kind.
                                       Article 32
                Power of sanction of the competent authorities
 Without prejudice to the procedures for the withdrawal of authorizations and              89/646/EEC
the provisions of criminal law, the Member States shall provide that their                 Article 17
respective competent authorities may, as against credit institutions or those
who effectively control the business of credit institutions which breach laws,
regulations or administrative provisions concerning the supervision or
pursuit of their activities, adopt or impose in respect of them penalties or
measures aimed specifically at ending observed breaches or the causes of
such breaches.
(l)   OJ No L 126, 12.5.1984, p. 20.
(2)   OJ No L 222, 14. 8. 1978, p. 11. Directive as last amended by Directive 94/8/EC (OJ No L 82, 25. 3. 1994, p. 33).
(3)    OJ No L 375, 31.12.1985, p. 3. Directive as last amended by Directive 95/26/EC.
                                                                         47
 ---pagebreak---                                      Article 33
                            Right to apply to the courts
Member States sha11 ensure that decisions taken in respect of a cre1it          77/780/EEC
institution in pursuance of laws, regulations and administrative provisions     Article 13
adopted in accordance with this Directive may be subject to the right to
apply to the courts. The same sha11 apply where. no decision is taken within
six months of its submission in respect of an applicaticn for authorizat1on
which contains all the infonnation required under the provisions in force.
                                     Chapter 2
               Technical instruments of prudential supervision
                                     Section 1
                                    Own funds
                                     Article 34
                                General principles
l. Wherever a Member State lays down by law, regulation or administrative       89/299/EEC
action a provision in implementation of Community legislation concerning        Article 1 (1)
the prudential supervision of an operative credit institution which uses the    (adapted)
term or refers to the concept of own funds, it shall bring this term or concept
into line with the definition given in paragraphs 2, 3 and 4 and Articles 35
to 38.
2. Subject to the limits imposed in Article 38, the unconsolidated own          89/299/EEC
funds of credit institutions shall consist of the following items:              Article 2 (1)
                                                                                (adapted)
(I)    capital within the meaning of Article 22 of Directive 86/635/EEC, in
       so far as it has been paid up, plus share premium accounts but
       excluding cumulative preferential shares;
(2)    reserves within the meaning of Article 23 of Directive 86/635/EEC and
       profits and losses brought forward as a result of the application of the
       final profit or loss. The Member States may permit inclusion of interim
       profits before a formal decision has been taken only if these profits
       have been verified by persons responsible for the auditing of the
       accounts and if it is proved to the satisfaction of the competent
       authorities that the amount thereof has been evaluated in accordance
       with the principles set out in Directive 86/635/EEC and is net of any
       foreseeable charge or dividend;
                                                                    48
 ---pagebreak--- (3)   funds for general banking risks within the meaning of Article 38 of        89/299/EEC
      Directive 86/635/EEC; :,                                                   Article 2 (l)
                                                                                 (adapted)
(4)   revaluation reserves within the meaning of Article 33 of Directive
      78/660/EEC; _ __
(5)   value adjustments within the meaning of Article 37 (2) of Directive
      86/635/EEC;
(6)   other items within the meaning of Article 35;
(7)   the commitments of the members of credit institutions set up as
      cooperative societies and the joint and several commitments of the
      borrowers of certain institutions organized as funds, as referred to in
      Article 36 (1 );
(8)   fixed-term cumulative preferential shares and subordinated loan capital
      as referred to in Article 36 (3).
The following items shall be deducted in accordance with Article 38:
(9)   own shares at book value held by a credit institution;
(I 0) intangible assets within the meaning of Article 4 (9) ('Assets') of
      Directive 86/635/EEC;
( 11) material losses of a relevant nature of the current financial year;
( 12) holdings in other credit and financial institutions amounting to more
      than I O % of their capital, subordinated claims and the instruments
      referred to in Article 35 which a credit institution holds in respect of
      credit and financial institutions in which it has holdings exceeding I 0
      %                          '
       of the capital in each case.
      Where shares in another credit or financial institution are held
      temporarily for the purposes of a financial assistance operation
      designed to re-organise and save that institution, the competent
      authority may waive this provision;
( 13) holdings in other credit and financial institutions of up to 10 % of their
      capital, the subordinated claims and the instruments referred to in
      Article 35 which a credit institution holds in respect of credit and
      financial institutions other than those referred to in point 12 in respect
      of the amount of the total of such holdings, subordinated cJaims and
      instruments which exceed I O % of that credit institution's own funds
      calculated before the deduction of items in point I 2 and in this point..
                                                                     49
 ---pagebreak---  _ _ Pending subsequent coordination of the provisions on consolidation,           89/299/EEC
 Member States may provide that, for the calculation of unconsolidated own         Article 2 (1)
 funds, parent companies subject to supervision on a consolidated basis need       (adapted)
 not deduct their holdings in other credit institutions or financial institutions
 which are included in the consolidation. This provision shall apply to all the
 prudential rules harmonized by Community acts.
 3. The concept of own funds as defined in points l to 8 of paragraph 2            89/299/EEC
 embodies a maximum number of items and amounts. The use of those items            Article 2 (2)
 and the fixing of lower ceilings, and the deduction of items other than those     (adapted)
 listed in points 9 to 13 of paragraph 2 shall be left to the discretion of the
 Member States. Member States shall nevertheless be obliged to consider
 increased convergence with a view to a common definition of own funds.
 To that end, the Commission shall, by 1 January 1996 at the latest, submit
 a report to the European Parliament and to the Council on the application of
 this Article and Articles 35 to 39, accompanied, where appropriate, by such
 proposals for amendment as it shall deem necessary. Not later than 1
 January 1998, the European Parliament and the Council shall, acting in
 accordance with the procedure laid down in Article 189b of the Treaty
 and after consultation of the Economic and Social Committee, examine the
definition of own funds with a view to the uniform application of the
 common definition.
4. The items listed in points l to 5 of paragraph 2 must be available to a        89/299/EEC
credit institution for unrestricted and immediate use to cover risks or. losses   Article 2 (3)
as soon as these occur. The amount must be net of any foreseeable tax charge
at the moment of its calculation or be suitably adjusted in so far as such tax
charges reduce the amount up to which these items may be applied to cover
risks or losses.
                                    Article 35
                                   Other items
 I. The concept of own funds used !:>y a Member State may include other           89/299/EEC
items provided that, whatever their legal or accounting designations might        Article 3
be, they have the following characteristics:                                      (adapted)
(a) they are freely available to the credit institution to cover normal banking
     risks where revenue or capital losses have not yet been identified;
(b) their existence is disclosed in internal accounting records;
(c) their amount js determined by the management of the credit institution,
     verified by independent auditors, made known to the competent
     authorities and placed under the supervision of the latter. _ __
                                                                    50
 ---pagebreak--- 2. Securities of indeterminate duration and other instruments that fulfil the     89/299/EEC
following conditionsmay also be accepted as other items:                          Article 3
                                                                                  (adapted)
(a) they may not be reimbursed on the bearer's initiative or without the prior
     agreement of the competent authority;
(b) the debt agreement must provide for the credit institution to have the
     option of deferring the payment of interest on the debt;
(c) the lender's claims on the credit institution must be wholly subordinated
     to those of all non-subordinated creditors;
(d) the documents governing the issue of the securities must provide for debt
     and unpaid interest to be such as to absorb losses, whilst leaving the
     credit institution in a position to continue trading;
(e) only fully paid-up amounts shall be taken into account. ·
To these may be added cumulative. preferential shares other than those
referred to in point 8 of Article 34 (2).
                                     Article 36
                     Other provisions concerning own funds
                                                                                 ~
 I . The commitments of the members of credit institutions set up as             .89/299/EEC
cooperative societies referred to in point 7 of Article 34 (2), shall comprise   Article 4
those societies' uncalled capital, together with the legal commitments of the    (adapted)
members of those cooperative societies to make additional non-refundable
payments should the credit institution incur a loss, in which case it must be
possible to demand those payments without delay.
The joint and several commitments of borrowers in the case of credit
institutions organized as funds shall be treated in the same way as the
preceding items.
All such items may be included in own funds in so far as they are counted as
the own funds of institutions of this category under national law.
2. Member States shall not include in the own funds of public credit
institutions guarantees which they or their local authorities extend to such
entities. - - - -
3. Member States or the competent authorities may include fixed-term
cumulative preferential shares referred to in point 8 of Article 34 (2) and
subordinated loan capital referred to in that provision in own funds, if
binding agreements exist under which, in the event of the bankruptcy or
liquidation of the credit institution, they rank after the claims of all other
creditors and are not to be repaid until all other debts outstanding at the time
have been settled.
                                                                    51
 ---pagebreak--- Subordinated loan capital must also fulfil the following criteria:              89/299/EEC
                                                                                Article 4
                                                                                (adapted)
(a) only fully paid-up funds may be taken into account;
(b) the loans involved must have an original maturity of at least five years,
    after which they may be repaid; if the maturity of the debt is not fixed,
    they shall be repayable only subject to five years' notice unless the loans
    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 the early repayment of
    such loans provided the request is made at the initiative of the issuer and
    the solvency of the credit institution in question is not affected;
(c) the extent to which they may rank as own funds must be gradually
    reduced during at least the last five years before the repayment date;
(d) the loan agreement must not include any clause providing that in
    specified circumstances, other than the winding-up of the credit
    institution, the debt will become repayable before the agreed repayment
    date.
                                   Article 37
              Calculation of own funds on a consolidated basis
                                                                                89/299/EEC
1. Where the calculation is to be made on a consolidated basis, the             Article 5
consolidated amounts relating to the items listed under Article 34 (2) shall be (adapted)
used in accordance with the rules laid down in Articles 52 to 56. Moreover,
the following may, when they are credit ('negative') items, be regarded as
consolidated reserves for the calculation of own funds:
    any minority interests within the meaning of Article 21 of Directive
    83/349/EEC, where the global integration method is used,
    the first consolidation difference within the meaning of Articles 19, 30
    and 31 of Directive 83/349/EEC,
    the translation differences included in consolidated reserves in
    accordance with Article 39 (6) of Directive 86/635/EEC,
    any difference resulting from the inclusion of certain part1c1pating
    interests in accordance with the method prescribed in Article 33 of
    Directive 83/349/EEC.
2. Where the above are debit ('positive') items, they must be deducted in the
calculation of consolidated own funds.
                                                                      52
 ---pagebreak---                                     Article 38
                             Deductions and limits
 I. The items referred to in points 4 to 8 of Article 34 (2), _ _ shall be         89/29WEEC
subject to the following limits: .._                                               Article 6 (1) and (4)
                                                                                   (as amended by 91/633/EEC,
(a) the total of the items in points 4 to 8 may not exceed a maximum of            Article 1 (1))
     100 % of the items in points 1 plus 2 and 3 minus 9, 10 and 11;
(b), the total of the items in points 7 and 8 may not exceed a maximum of
     50 % of the items in points 1 plus 2 and 3 minus 9, 10 and 11;
(c) the total of the items in points 12 and 13 shall be deducted from the
     total of the items.
2. The competent authorities may authorize credit institutions to exceed the
limit laid down in paragraph l _in temporary and exceptional circumstances.
                                   Article 39
                Provision of proof to the competent authorities
Compliance with the conditions laid down in Article 34 (2), (3) and (4) and       8. 9/299/EEC
Articles 35 to 38 must be proved to the satisfaction of the competent             Article 7
authorities.                                                                     '
                                                                                ~.
                                    Section 2
                                 Solvency ratio
                                   Article 40
                               General principles
1. The solvency ratio _ _ _ expresses own funds, as defined in Article            89/647/EEC
41,  as a proportion of total assets and off-balance-sheet items, risk-adjusted   Article 3 (1) to (4)
in accordance with Article 42.                                                    (as amended by 92/30/EEC,
                                                                                  Article 10 (2), 3rd indent)
2. The solvency ratios of credit institutions which are neither parent            (adapted)
undertakings as defined in Article 1 of Directive 83/349/EEC, nor
subsidiaries of such undertakings shall be calculated on an individual basis.
3. The solvency ratios of credit institutions which are parent undertakings
shall be calculated on J consolidated basis in accordance with the methods
laid down in this Directive and in Directive ____ 86/635/EEC.
4. The competent authorities responsible for authorizinr and supervising a
parent undertaking which is a credit institution may also require the
calculation of a subconsolidated or unconsolidated ratio in respect of that
parent undertaking and of any of its subsidiaries which are subject to
authoriz.ation and ~upervision by them. Where such monitoring of the
satisfactory allocation of capital within a banking group is not carried out,
other measures must be taken to attain that end.
                                                                    53
 ---pagebreak--- S. Without prejudice to credit institutions' compliance with the                 89/647/EEC
requirements of paragraphs 2, 3 and 4, and of Article S2 (8) and (9), the        Article 3 (7) and (8)
competent authorities shall ensure that ratios are calculated not less than      (adapted)
twice each year, either by credit institutions themselves, which shall
communicate the results and any component data required to the competent
authorities, or by the competent authorities, using data supplied by the credit
 institutions.
6. The valuation of assets and off-balance-sheet items shall be ~ffected in
accordance with Directive 86/635/EEC. _ __
                                   Article 41
                         The numerator: own funds
Own funds as defined in this Directive shall form the numerator of the           89/647/EEC
solvency ratio.                                                                 1Article 4
                                   Article 42
                 The denominator: risk-adjusted assets and
                            off-balance-sheet items
 I. Degrees of credit risk, expressed as percentage weightings, shall be         89/647/EEC
assigned to asset items in accordance with Articles 43 and 44, and               Article S
exceptionally Articles 4S, 62 and 63. The balance-sheet value of each asset
shall then be multiplied by the relevant weighting to produce a risk-adjusted
value.
2. In the case of the off-balance-sheet items listed in Annex II, a two-stage
calculation as prescribed in Article 43 (2) shall be used.
3. In the case of the interest-rate and foreign-exchange-related off-balance-
sheet items referred to in Article 43 (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 Ill Those costs shall be multiplied
by the relevant counterparty weightings in Article 43 (I), except that the
 l 00 % weightings as provided for there shall be replaced by 50 %
weightings to produce risk-adjusted values.
4. The total of the risk-adjusted values of the assets and off-balance-sheet
items mentioned in paragraphs 2 and 3 shall be the denominator of the
solvency ratio.
                                                                    54
 ---pagebreak---                                      Article 43
                                 Risk weightings
I. The following weightings shall be applied to the various categories of           89/647/EEC
asset items, although the competent authorities may fix higher weightings as        Article 6
they see fit:
(a) Zero weighting
  ( 1)   cash in hand and. equivalent items;
  (2)    asset items constituting claims on Zone A central governments and
         central banks;
  (3)    asset items constituting claims on the European Communities;
  (4)    asset items constituting claims carrying the explicit guarantees of        89/647/EEC
         Zone A central governments and central banks or of the European            Articl~ 6
         Communities;                                                               (as amended by 95/15/EC,
                                                                                    Article 2)
  (5)    asset items constituting claims on Zone B central governments and          89/647/EEC
         central banks denominated and funded in the national currencies of the     Article 6
         borrowers;                                                                 (adapted)
  (6)    asset items constituting claims carrying the explicit guarantees of Zone
         B central governments and central banks denominated and funded in the
         national currency common to the guarantor and the borrower;
  (7)    asset items secured, to the satisfaction of the competent authorities, by
         collateral in the form of Zone A central government or central bank
         securities or securities issued by the European Communities or by cash
         deposits placed with the lending institution or by certificates of deposit
         or similar instruments issued by and lodged with the latter;
(b)    20 % weighting
  (I)    asset items constituting claims on the European rnvestment Bank (EIB);
  (2)    asset items constituting claims on multilateral development banks;
  (3)    asset items constituting claims carrying the explicit guarantee of the
         European Investment Bank (EIB);
  (4)    asset items constituting claims carrying the explicit guarantees of
         multilateral development banks;
  (5)    asset items constituting claims on Zone A regional governments or local
         authorities, subject to Article 44;
  (6)    asset items constituting claims carrying the explicit guarantees of Zone
         A regional governments or local authorities, subject to Article 44;
  (7)    asset items constituting claims on Zone A credit institutions but not
         constituting such institutions' own funds; _ _ __
                                                                     55
 ---pagebreak---   (8)     asset items constituting claims with a maturity of one year or less, on 89/647/EEC
          Zone B credit institutions, other than securities issued by such        Article 6
          institutions which are recognized as components of their own funds;     (adapted)
  (9)     asset items carrying the explicit guarantees of Zone A credit
          institutions;
  ( I O) asset items constituting claims with a maturity of one year or less
          carrying the explicit guarantees of Zone B credit institutions;
  (11) asset items secured, to the satisfaction of the competent authorities,
          by collateral in the form of securities issued by the EIB or by
          multilateral development banks;
  (I 2) cash items in the process of collection;
(c)     50 % weighting
  (I)     loans fully and completely secured, to the satisfaction of the
          competent authorities, by mortgages on residential property which is
          or will be occupied or let by the borrower, and loans fully and         (as amended by 95/1/EC, Euratom,
          completely secured. to the satisfaction of the competent authorities.   ECSC,                      .
          by shares in Finnish residential housing companies, operating in        Annex I, point XI, 8, III, 2 (a))
          accordance with the Finnish Housing Company Act of 1991 or
         subsequent equivalent legislation, in respect of residential property
          which is or will be occupied or let by the borrower;
  (2)     prepayments and accrued income: 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 %;
                                                                      56
 ---pagebreak--- (d)     JOO% weighting                                                          89/647/EEC
                                                                                Article 6
   ( J)  asset items constituting claims on Zone B central governments and      {adapted)
         central banks except where denominated and funded in the national
         currency of the borrower;
   (2)   asset items constituting claims on Zone B regional governments or
         local authorities;
   (3)   asset items constituting claims with a maturity of more than one year
         on Zone B credit institutions;
  (4)    asset items constituting claims on the Zone A or Zone B non-bank
          sectors;
   (5)   tangible "Assets" within the meaning of Article 4 (10) of Directive
          86/635/EEC;
   (6)   holdings of shares, participation and other components of the own
         funds of other credit institutions which are not deducted from the
         own funds of the lending institutions:
  (7)    all other assets except where deducted from own funds.
2. The following treatment shall apply to off-balance-sheet items other than
those covered in paragraph 3. They shall first be grouped according to the
risk groupings set out in Annex II. The full value of the full-risk items shall
be taken into account, 50 % of the value of the medium-risk items and 20 %
of the medium/low-risk items, while the value of low-risk items shall be set
at zero. The second stage shall be to multiply the off-balance-sheet values,
adjusted as described above, by the weightings attributable to the relevant
counterparties in accordance with the treatment of asset items prescribed in
paragraph 1 and Article 44., In the case of asset sale and repurchase
agreements and outright forward purchases, the weightings shall be those
attaching to the assets in question and not to the counterparties to the
transactions.
                                                                   57
 ---pagebreak--- 3. The methods set out in Annex III shall be applied to the interest-rate and    89/647/EEC
foreign-exchange risks listed in Annex IV.                                       Article 6
4. 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
points (a) (7) and (b) (11) of paragraph 1, weightings of O % or 20 % shall
apply depending on the collateral in question.
5. Where asset and off-balance-sheet items are given a lower weighting
because of the existence of explicit guarantees or collateral acceptable to the
competent authorities, the lower weighting shall apply only to that part
which is guaranteed or which is fully covered by the collateral.
                                    Article 44
                Weighting of claims for regional governments
                   or local authorities of the Member States
I. Notwithstanding the requirements of Article 43 (1) (b ), the Member           89/647/EEC
States may fix a weighting of O % for their own regional governments and         Article 7
local authorities if there is no difference in risk between claims on the latter
and claims on their central governments because of the revenue-raising
powers of the regional governments and local authorities and the existence of
specific institutional arrangements the effect of which is to reduce the
chances of default by the latter. A zero-weighting fixed in accordance with
these criteria shall apply to claims on and off-balance-sheet items incurred on
behalf of the regional governments and local authorities in question and
claims on others and off-balance-sheet items incurred on behalf of others
and guaranteed by those regional governments and local authorities.
2. The Member States shall notify the Commission if they believe a zero-
weighting to be justified according to the criteria laid down in paragraph I.
The Commission shall circulate that information. Other Member States may
offer the credit institutions under the supervision of their competent
authorities the possibility of applying a zero-weighting where they undertake
business with the regional governments or local authorities in question or
where they hold claims guaranteed by the latter.
                                                                    58
 ---pagebreak---                                     Article 45
                                Other weighting
l. The Member States may apply a weighting of 20 % to asset items which       89/647/EEC
are secured, to the satisfaction of the competent authorities concerned, by   Article 8
collateral in the form of securities issued by Zone A regional governments or (adapted)
local authorities, by deposits placed with Zone A credit institutions other
than the lending institution, or by certificates of deposit of similar
instruments issued by those credit institutions.
2. The Member States may apply a weighting of 10 % to clai~s on
institutions specializing in the inter-bank and public-debt markets in their
home Member States and subject to close supervision by the competent
authorities where those asset items are fully and completely secured, to the
satisfaction of the competent authorities of the home M~mber States, by a
combination of asset items mentioned in Article 43 (1) (a) and (b) recognized
by the latter as constituting a~equate collateral.
3. The Member States shall notify the Commission of any prov1s1ons
adopted pursuant to paragraphs l and 2 and of the grounds for such
provisions. The Commission shall forward that information to the Member
States. The Commission shall periodically examine the implications of those
provisions in order to ensure that they do not result in any distortions of
competition. _ __
                                    Article 46
          Administrative bodies and non-commercial undertakings
For the purposes of Article 43 (1) (b), the competent authorities may include 89/647/EEC
within the concept of regional governments and local authorities non-         Article 2 (2)
commercial administrative bodies responsible to regional governments or       (adapted)
local authorities, and those non-commercial undertakings owned by central
governments, regional governments, local authorities or authorities which, in
the view of the competent authorities, exercise the same responsibilities as
regional and local authorities.
                                    Article 47
                               Solvency ratio level
I. _ _ Credit institutions shall be required permanently to maintain the      89/647/EEC
ratio defined in Article 40 at a level of at least 8 %.                       Article 10
                                                                              {adapted)
2. Notwithstanding paragraph 1, the competent authorities may prescribe
higher minimum ratios as they consider appropriate.
                                                                   59
 ---pagebreak---  3. If the ratio falls below 8 % the competent authorities shall ensure that the   89/647/EEC
 credit institution in question takes appropriate measures to restore the ratio to Article 10
 the agreed minimum as quickly as possible.                                        (adapted)
                                      Section 3
                                  Large exposures
                                     Article 48
                           Reporting of large exposures
 1. A credit institution's exposure to a client or group of connected clients      92/121/EEC
 shall be considered a large exposure where its value is equal to or exceeds       Article 3
 10 % of its own funds.                                                            (adapted)
 2. A credit institution shall report every large exposure within the
 meaning of paragraph 1 to the competent authorities. Member States shall
provide that reporting is to be carried out, at their discretion, in accordance
with one of the following two methods:
       reporting of all large exposures at least once a year, combined with
       reporting during the year of all new large exposures and any
       increases in existing large exposures of at least 20 % with respect to
       the previous communication,
       reporting of all large exposures at least four times a year.
 3. Exposures exempted under points (a), (b), (c), (d), (f), (g) and (h) of
Article 49 (7) need not, however, be reported as laid down in paragraph 2.
The reporting frequency laid down in the second indent of paragraph 2
may be reduced to twice a year for the exposures referred to in points (a),
(b), (c), (d), (f), (g) and (h) of Article 49 (7) and also in paragraphs (8),          ".
(9) and ( I 0).
4. The competent authorities shall require that every credit institution
have sound administrati\'e and accounting procedures and adequate
 internal control mechanisms for the purpose of identifying and recording
all large exposures and subsequent changes to them, as defined and
required by this Directive, and for that of monitoring those exposures in
the light of each credit institution's own exposure policies.
Where a credit institution invokes paragraph 3, it shall keep a record of the
grounds advanced for at least one year after the event giving rise to the
dispensation, so that the competent authorities may establish whether it is
justified.
                                                                       60
 ---pagebreak---                                     Article 49
                           Limits on large exposures
1. A credit institution may not incur an exposure to a client or group of       92/121/EEC
connected clients the value of which exceeds 25 % of its own funds.             Article 4
                                                                                (adapted)
2. Where that client or group of connected clients is the parent undertaking
or subsidiary of the credit institution and/or one or more subsidiaries of that
parent undertaking, the percentage laid down in paragraph I shall be reduced
to 20 %. Member States may, however, exempt the exposures incurred to
such clients from the 20 % limit if they provide for specific monitoring of
such exposures by other measures or procedures. They shall inform the
Commission and the Banking Advisory Committee of the content of such
measures or procedures.
3. A credit institution may not incur large exposures which in total exceed
800 % of its own funds.
4. Member States may impose limits more stringent than those laid down in
paragraphs I, 2 and 3.
5. A credit institution shall at all times comply with the limits laid down in
paragraphs 1, 2 and 3 in respect of its exposures. If in an exceptional case
exposures exceed those limits, that fact must be reported without delay to the
competent authorities which may, where the circumstances warrant it, allow
the credit institution a limited period of time in which to comply with the
limits.
6. Member States may fully or partially exempt from the application of
paragraphs I, 2 and 3 exposures incurred by a credit institution to its parent
undertaking, to other subsidiaries of that parent undertaking or to its own
subsidiaries, in so far as those undertakings are covered by the supervision
on a consolidated basis to which the credit institution itself is subject, in
accordance with this Directive or with equivalent standards in force in a
third country.
7. Member States may fully or partially exempt the following exposures
from the application of paragraphs 1, 2 and 3:
(a) asset items constituting claims on Zone A central governments or central
     banks;
(b) asset items constituting claims on the European Communities;
(c) asset items constituting claims carrying the explicit guarantees of Zone A
     central governments or central banks o·r of the European Communities;
(d) other exposures attributable to, or guaranteed by, Zone A central
    governments or central banks or the European Communities;
                                                                    61
 ---pagebreak--- (e) asset items constituting claims on and other exposures to Zone B central      92/121/EEC
    governments or central banks which are denominated and, where                 Article 4
    applicable, funded in the national currencies of the borrowers;               (adapted)
(t) asset items and other exposures secured, to the satisfaction of the
    competent authorities, by collateral in the form of Zone A central
    government or central bank securities, or securities issued by the
    European Communities or by Member State regional or local authorities
    for which Article 44 lays down a zero weighting for solvency purposes;
(g) asset items and other exposures secured, to the satisfaction of the
    competent authorities, by collateral in the form of cash deposits placed
    with the lending institution or with a credit institution which is the parent
    undertaking or a subsidiary of the lending institution;
(h) asset items and other exposures secured, to the satisfaction of the
    competent authorities, by collateral in the form of certificates of deposit
    issued by the lending institution or by a credit institution which is the
    parent undertaking or a subsidiary of the lending institution and lodged
    with either of them;
(i) asset items constituting claims on and other exposures to credit
    institutions, with a maturity of one year or less, but not constituting such
    institutions' own funds; _ __
(j) asset items constituting claims on and other exposures to those
    institutions which are not credit institutions but which fulfil the
    conditions referred to in Article 45 (2)_ _ , with a maturity of one year
    or less, and secured in accordance with the same paragraph;
(k) bills of trade and other similar bills, with a maturity of one year or less,
    bearing the signatures of other credit institutions;
(1) debt securities as defined in Article 22 (4) of Directive 85/611/EEC;
(m)pending subsequent coordination, holdings in the insurance companies
    referred to in Article 51 (3) _ _ up to 40 % of the own funds of the
    credit institution acquiring such a holding;
(n) asset items constituting claims on regional or central credit institutions
    with which the lending institution is associated in .a network in
    accordance with legal or statutory provisions and which are responsible,
    under those provisions, for cash-clearing operations within the network;
                                                                     62
 ---pagebreak--- (o) exposures secured, to the satisfaction of the competent authorities, by    92/121/EEC
    collateral in the form of securities other than those referred to in (f)   Article 4
    provided that those securities are not issued by the credit institution    (adapted)
    itself, its parent company or one of their subsidiaries, or by the client
    or group of. connected clients in question. The securities used as
    collateral must be valued at market price, have a value that exceeds the
    exposures guaranteed and be either traded on a stock exchange or
    effectively negotiable and regularly quoted on a market operated under
    the auspices of recognized professional operators and allowing, to the
    satisfaction of the competent authorities of the Member State of origin
    of the. credit institution, for the establishment of an objective price
    such that the excess value of the securities may be verified at any time.
    The. excess value required shall be I 00 %; it shall, however, be 150 %
    in the case of shares and 50 % in the case of debt securities issued by
    credit institutions, Member State regional or local authorities other
    than those referred to in Article 44, and in the case of debt securities
    issued by the European Investment Bank and multilateral development
    banks _ . Securities used as collateral may not constitute credit
    institutions' own funds; _ _ __
(p) loans secured, to the satisfaction of the competent authorities, by        (as amended by 95/1/EC, Euratom,
    mortgages on residential property or by shares in Finnish residential      ECSC,
    housing companies. operating in accordance with the Finnish Housing        Annex I, point XI, B, III, (3) (a))
    Company Act of 1991 or subsequent equivalent legislation and leasing       (adapted)
    transactions under which the lessor retains full ownership of the
    residential property leased for as long as the lessee has not exercised
    his option to purchase, in all cases up to 50 % of the value of the
    residential property concerned. The value of the property shall be
    calculated, to the satisfaction of the competent authorities, on the basis
    of strict valuation standards laid down by law, regulation or
    administrative provisions. Valuation shall be carried out at least once a
    year. For the purposes of this point residential property shall mean a
    residence to be occupied ~r let by the borrower;
(q) 50 % of the medium/low-risk off-balance-sheet items referred to in
    Annex II;
(r) subject to the competent authorities' agreement, guarantees other than
    loan guarantees which have a legal or regulatory basis and are given
    for their members by mutual guarantee schemes possessing the status
    of credit institutions _ _ , subject to a weighting of 20 % of their
    amount.
    Member States shall inform the Commission of the use they make of
    this option in order to ensure that it does not result in dist9rtions of
    competition. _ _ _ By 21 December 1997 at the latest, the
    Commission shall submit to the Council a report accompanied, if
    necessary, by appropriate proposals;
(s) the low-risk off-balance-sheet items referred to in Annex II _ _ _ , to
    the extent that an agreement has been concluded with the client or
    group of connected clients under which the exposure may be incurred
    only if it has been ascertained that it will not cause the limits
    applicable under paragraphs 1, 2 and 3 to be exceeded.
                                                                   63
 ---pagebreak---     8. For the purposes of paragraphs I, 2 and 3, Member States may apply a          92/121/EEC
   weighting of 20 % to asset items constituting claims on Member State              Article 4
    regional and local authorities and to other exposures to or guaranteed by such   (adapted)
    authorities; subject to the conditions laid down in Article 44, however,
    Member States may reduce that rate to 0 %.
    9. For the purposes of paragraphs I, 2 and 3, Member States may apply a
    weighting of 20 % to asset items constituting claims on and other exposures
    to credit institutions with a maturity of more than one but nof more than three
    years and a weighting of 50 % to asset items constituting claims on credit
    institutions with a maturity of more than three years, provided that the latter
    are represented by debt instruments that were issued by a credit institution
    and that those debt instruments are, in the opini9n of the competent
    authorities, effectively negotiable on a market made up of professional
   operators and are subject to daily quotation on that market, or the issue of
   which was authorized by the competent authorities of the Member State of
   origin of the issuing credit institution. In no case may any of these items
   constitute own funds.
    10. By way of derogation from point (i) of paragraph 7 and paragraph 9,
   Member States may apply a weighting of 20 % to asset items constituting
   claims on and other e·xposures to credit institutions, regardless of their
   maturity .
.. 11. Where an exposure to a client is guaranteed by a third party, or by
   collateral in the fonn of securities issued by a third party under the
   conditions laid down in point (o) of paragraph 7, Member States may:
             treat the exposure as having been incurred to the third party rather
             than to the client, if the exposure is directly and unconditionally
             guaranteed by that third party, to the satisfaction of the competent
             authorities,
             treat the exposure as having been incurred to the third party rather
             than to the client, if the exposure defined in point (o) of paragraph 7
             is guaranteed by collateral under the conditions there laid down.
   12. By 1 January 1999 at the latest, the Council shall, on the basis of ,a
   report from the Commission, examine the treatment of interbank exposures
  provided for in point (i) of paragraph 7 and paragraphs 9 and I 0. The
  Council shall decide on any changes to be made on a proposal from the
  Commission.
                                                                         64
 ---pagebreak---                                     Article SO
           Supervision on a consolidated or unconsolidated basis
                               of large exposures
1. If the credit institution is neither a parent undertaking nor a subsidiary,   92/121/EEC
compliance with the obligations imposed in Articles 48 and 49 or in any          Article 5 (1) to (3)
other Community provision applicable to this area shall be monitored on an
unconsolidated basis.
2. In the other cases, compliance with the obligations imposed in Articles
48 and 49 or in any other Community provision applicable to this area shall
be monitored on a consolidated basis in accordance with Articles 52 to S6.
3. Member States may waive monitoring on an individual or
subconsolidated basis of compliance with the obligations imposed in Articles
48 and 49 or in any other Community provision applicable to this area by a
credit institution which, as a parent undertaking, is subject to monitoring on a
consolidated basis and by any subsidiary of such a credit institution which is
subject to their authorization and supervision and is covered by monitoring
on a consolidated basis.
Member States may also waive such monitoring where the parent
undertaking is a financial holding company established in the same Member
State as the credit institution, provided that company is subject to the same
monitoring as credit institutions.
In the cases referred to in the first and second subparagraphs measures must
be taken to ensure the satisfactory allocation of risks within the group.
                                                                      65
 ---pagebreak---                                        Section 4
               Qualifying holdings outside the financial sector
                                       Article 51
                  Limits to non-financial qualifying holdings
  I. No credit institution may have a qualifying holding the amount of which             89/646/EEC
 exceeds 1·5 % of its own funds in an undertaking which is neither a credit              Article 12 (1) to (S)
 institution, nor a financial institution, nor an undertaking carrying on an
 activity referred to in the second subparagraph of Article 43 (2) (f) of
 Directive 86/635/EEC.
 2. The total amount of a credit institution's qualifying holdings in
 undertakings other than credit institutions, financial institutions or
 undertakings carrying on activities referred to in the second subparagraph of
 Article 43 (2) (f) of Directive 86/635/EEC may not exceed 60 % of its own
 funds.
 3. The Member States need not apply the limits laid down in paragraphs I
 and 2 to holdings in insurance companies as defined in Directive
 73/239/EEC(l), and Directive 79/267/EEC(2).
 4. Shares held temporarily during a financial reconstruction or rescue
 operation or during the normal course of underwriting or in an institution's
 own name on behalf of others shall not be counted as qualifying holdings for
 the purpose of calculating the limits laid down in paragraphs I and 2. Shares
 which are not financial fixed assets as defined in Article 35 (2) of Directive
 86/635/EEC shall not be included.
 5. The limits laid down in paragraphs I and 2 may be exceeded only in
 exceptional circumstances. In such cases, however, the competent authorities
 shall require a credit institution either to increase its own furtds or to take
 other equivalent measures.
(I)   OJ No L 228, 16. 8. I 973, p. 3. Dirccti\'e as last amended by Directive 95/26/EC.
(2)   OJ No L 63, 13. 3. 1979, p. I. Dirccti\'c as last amended by Directive 95/26/EC.
                                                                           66
 ---pagebreak--- 6. The Member States may provide that the competent authorities shall not         89/646/EEC
apply the limits laid down in paragraphs 1 and 2 if they provide that 100 %       Article 12 (8)
of the amounts by which a credit institution's qualifying holdings exceed
those limits must be covered by own funds and that the latter shall not be
included in the calculation of the solvency ratio. If both the limits laid down
in paragraphs 1 and 2 are exceeded, the amount to be covered by own funds
shall be the gre~ter of the excess amoun~s.
                                   Chapter 3
                     Supervision on a consolidated basis
                                    Article 52
                     Supervision on a consolidated basis
                              of credit institutions
 t'. Every credit institution which has a credit institution or a financial       92/30/EEC
institution as a subsidiary or which holds a participation in such institutions   Article 3 (1) to (7)
shall be subject, to the extent and in'the manner prescribed in Article 54, to    (adapted)
supervision on the basis of its consolidated financial situation. Such
supervision shall be exercised at least in the areas referred to in paragraphs
5 and 6.
2. Every credit institution the parent undertaking of which is a financial
holding company shall be subject, to the extent and in the manner
prescribed in Article 54, to supervision on the basis of the consolidated
financial situation of that financial holding company. Such supervision shall
be exercised at least in the areas referred to in paragraphs 5 and 6. The
consolidation of the financial situation of the financial holding company
shall not in any way- imply that the competent authorities are required to
play a supervisory role in relation to the financial holding company standing
alone.
3. The Member States or the competent authorities responsible for
exercising supervision on a consolidated basis pursuant to Article 53 may
decide in the cases listed below that a credit institution, financial institution
or auxiliary banking services undertaking which is a subsidiary or in which
a participation is held need not be included in the consolidation:
         if the undertaking that should be included is situated in a third
         country where there are legal impediments to the transfer of the
         necessary information,
         if, in the opinion of the competent authorities, the undertaking that
         should be included is of negligible interest only with respect to the
         objectives of monitoring credit institutions and in all cases if the
         balance sheet total of the undertaking that should be included is less
         than the smaller of the following two amounts: ECU 10 million or
         1% of the balance sheet total of the parent undertaking or the
         undertaking that holds the participation. If several undertakings
         meet the above criteria, they must nevertheless be included in the
         consolidation where collectively they are of non-negligible interest
         with respect to the aforementioned objectives, or
                                                                     67
 ---pagebreak---           if, in the opm!on of the competent authorities responsible for        92/30/EEC
          exercising supervision on a consolidated basis, the consolidation of  Article 3 (1) to (7)
          the financial situation of the undertaking that should be included    (adapted)
          would be inappropriate or misleading as far as the objectives of the
          supervision of credit institutions are concerned.
 4. When the competent authorities of a Member State do not include a
 credit institution subsidiary in supervision on a consolidated basis under one
 of the cases provided for in the second and third indents of paragraph 3, the
 competent authorities of the Member State in which that credit institution
 subsidiary is situated may ask the parent undertaking for information which
 may facilitate their supervision of that credit institution.
 5. Supervision of solvency, and of the adequacy of own funds to cover
 market risks and control of large exposures _ _ _shall be exercised on a
 consolidated basis in accordance with this Article and Articles 53 to 56.
 Member States shall adopt any measures necessary, where appropriate, to
 include financial holding companies in consolidated supervision, in
 accordance with paragraph 2.
 Compliance with the limits set in Article 51 (1) and (2) _ _ shall be
 supervised and controlled on the basis of the consolidated or sub-
 consolidated financial situation of the credit institution.
 6. The competent authorities shall ensure that, in all the undertakings
 included in the scope of the supervision on a consolidated basis that is
 exercised over a credit institution in implementation of paragraphs l and 2,
 there are adequate internal control mechanisms for the production of any data
 and information which would be relevant for the purposes of supervision on
 a consolidated basis.
 7. Without prejudice to specific provisions contained in other Directives,
 Member States may waive application, on an individual or sub-consolidated          '.
 basis, of the rules laid down in paragraph 5 to a credit institu~on that, as a
 parent undertaking, is subject to supervision on a consolidated basis, and to
 any subsidiary of such a credit institution which is subject to their
 authorization and supervision and is included in the supervision on a
 consolidated basis of the credit institution which is the parent company. The
same exemption option shall be allowed where the parent undertaking is a
financial holding company which has its head office in the same Member
State as the credit institution, provided that it is subject to the same
supervision as that exercised over credit institutions, and in particular the
standards laid down in paragraph 5.
In both cases set out in the first subparagraph, steps must be taken to ensure
that capital is distributed adequately within the banking group.
If the competent authorities do apply those rules individually to such credit
institutions, they may, for the purpose of calculating own funds, make use of
the provision in the last subparagraph of Article 34 (2). _ __
                                                                    68
 ---pagebreak--- 8. Where a credit institution the parent of which is a credit institution has   92/30/EEC
been authorized and is situated in another Member State, the competent          Article 3 (8) and (9)
authorities which granted that authorization shall apply the rules laid down in (adapted)
paragraph 5 to that institution on an .individual or, when appropriate, a sub-  92/121/EEC
consolidated basis.                                                             Article 5 (4) and (5)
                                                                                (adapted)
9. Notwithstanding the requirements of paragraph 8, the competent               89/647/EEC
authorities responsible for authorizing the subsidiary of a parent undertaking  Article 3 (5) and (6)
which is a credit institution may, by bilateral agreement, delegate their       (adapted)
responsibility for supervision to the competent authorities which authorized
and supervise the parent undertaking so that they assume responsibility for
supervising the subsidiary in accordance with this Directive. The
Commission must be kept informed of the existence and content of such
agreements. It shall forward such information to the competent authorities of
the other Member States and to the Banking Advisory Committee.
 I 0. Member States shall provide that their competent authorities responsible  92/30/EEC
for exercising supervision on .a consolidated basis may ask the subsidiaries of Article 3 (10)
a credit institution or a financial holding company which are not included
within the scope of supervision on a consolidated basis for the information
referred to in Article SS. In such a case, the procedures for transmitting and
verifying the information laid down in that Article shall apply.
                                   Article 53
              Competent authorities responsible for exercising
                     supervision on a consolidated basis
I. Where a parent undertaking is a credit institution, superv1S1on on a         92/30/EEC
consolidated basis shall be exercised by the competent authorities that         Article 4
authorized it under Article 4.                                                  (adapted)
2. Where the parent of a credit institution is a financial holding company,
supervision on a consolidated basis shall be exercised by the competent
authorities which authorized that credit institution under Article 4.
However, where credit institutions authorized in two or more Member States
have as their parent the same financial holding company, supervision on a
consolidated basis shall be exercised by the competent authorities of the
credit institution authorized in the Member State in which the financial
holding company was set up.
                                                                     69
 ---pagebreak---  If no credit institution subsidiary has been authorized in the Member State in    92/30/EEC
 which the financial holding company was set up, the competent authorities of      Article 4
 the Member States concerned (including those of the Member State in which         (adapted)
 the financial holding company was set up) shall seek to reach agreement as
 to who amongst them will exercise supervision on a consolidated basis. In
 the absence of such agreement, supervision on a consolidated basis shall be
 exercised by the competent authorities that authorized the credit institution
 with the greatest balance sheet total; if that figure is the same, supervision on
 a consolidated basis shall be exercised by the competent authorities which
 first gave the authorization referred to in Article 4. _ __
 3. The competent authorities con~emed may by common agreement waive
 the rules laid down in the first and second subparagraphs of paragraph 2.
 4. The agreements referred to in the third subparagraph of paragraph 2 and
 in paragraph 3 shall provide for procedures for cooperation and for the
 transmission of information such that the objectives of supervision on a
 consolidated basis can be attained.
 5. Where Member States have more than one competent authority for the
 prudential supervision of credit institutions and financial institutions,
 Member States shall take the requisite measures to organize coordination
 between such authorities.
                                     Article 54
                        Form and extent of consolidation
 I. The competent authorities responsible for exercising supervision on a          92/30/EEC
 consolidated basis must, for the purposes of supervision, require full            Article 5
consolidation of all the credit institutions and financial institutions which are
subsidiaries of a parent undertaking.
However, proportional consolidation may be prescribed where, in the
opinion of the competent authorities, the liability of a parent undertaking
holding a share of the capital is limited to that share of the capital because of
the liability of the other shareholders or members whose solvency is
satisfactory. The liability of the other shareholders and members must be
clearly established, if necessary by means of formal, signed commitments.
2. The competent authorities responsible for carrying out supervision on a
consolidated basis. must, in order to do so, require the proportional
consolidation of participations in credit institutions and financial institutions
managed by an undertaking included in the consolidation together with one
or more undertakings not included in the consolidation, where those
undertakings' liability is limited to the share of the capital they hold.
3. In the case of participations or capital ties other than those referred to in
paragraphs 1 and 2, the competent authorities shall determine whether and
how consolidation is to be carried out. In particular, they may permit or
require use of the equity method. That method shall not, however, constitute
inclusion of the undertakings concerned in supervision on a consolidated
basis. -
                                                                       ,o
 ---pagebreak--- 4. Without prejudice to paragraphs I, 2 and 3, the competent authorities          92/30/EEC
shall determine wh_ether and how consolidation is to be carried out in the        Article 5
following cases:
       where, in the opinion of the competent authorities, a credit institution
       exercises a significant influence over one or more credit institutions or
       financial institutions, but without holding a participation or other
       capital ties in these institutions,
       where two or more credit institutions or financial institutions are placed
       under single management other than pursuant to a contract or clauses
       of their memoranda or articles of association,
       where two or more ·credit institutions or financial institutions have
       administrative, management or supervisory bodies with the same
       persons constituting a majority.
In particular, the competent authorities may permit, or require use of, the
method provided for in Article 12 of Directive 83/349/EEC. That method
shall not, however, constitute inclusion of the undertakings concerned in
consolidated supervision.
5. Where consolidated supervision is required pursuant to Article 52 (1) and
(2), ancillary banking services undertakings shall be included in
consolidations in the cases, and in accordance with the methods laid down in
paragraphs I to 4 of this Article.
                                      Article 55
                  Information to be supplied by mixed-activity
                    holding companies and their subsidiaries
I. Pending further coordination of consolidation methods, Member States           92/30/EEC
shall provide that, where the parent undertaking of one or more credit            Article 6
institutions is a mixed-activity holding company, the competent authorities
responsible for the authorization and supervision of those credit institutions
shall, by approaching the mixed-activity holding company and its
subsidiaries either directly or via credit institution subsidiaries, require them
to supply any information which would be relevant for the purposes of
supervising the credit institution subsidiaries.
2. Member States shall provide that their competent authorities may carry
out, or have carried out by external inspectors, on-the-spot inspections to
verify information received from mixed-activity holding companies and their
subsidiaries. If the mixed-activity holding company or one of its subsidiaries
is an insurance undertaking, the procedure laid down in Article 56 (4) may
also be us~d. If a mixed-activity holding company or one of its subsidiaries is
situated in a Member State other than that in which the credit institution
subsidiary is situated, on-the-spot verification of information shall be carried
out in accordance with the procedure laid down in Article 56 (7).
                                                                      71
 ---pagebreak---                                          Article 56
              Measures to facilitate supervision on a consolidated basis
    1. Member States shall take the necessary steps to ensure that there are no      92/30/EEC
    legal impediments preventing the undertakings included within the scope of       Article 7
    supervision on a consolidated basis, mixed-activity holding companies and        (adapted)
    their subsidiaries, or subsidiaries of the kind covered in Aiticle 52 {10), from
    exchanging amongst themselves any infonnation which would be relevant
    for the purposes of supervision in accordance with Articles 52 to 'SS and this
    Article.
    2. Where a parent undertaking and any of its subsidiaries that are credit
    institutions are situated in different Member States, the competent authorities
   of each Member State shall communicate to each other all relevant
    infonnation which may allow or aid the exercise of supervision on a
   consolidated basis.
    Where the competent authorities of the Member State in which a parent
   undertaking is situated do not themselves exercise supervision on a
   consolidated basis pursuant to Article 53, they may be invited by the
   competent au~horities responsible for exercising such supervision to ask the
   parent undertaking for any infonnation which would be relevant for the
   purposes of supervision on a consolidated basis and to transmit it to these
.. authorities.
   3. Member States shall authorize the exchange between their competent
   authorities of the information referred to in paragraph 2, on the
   understanding that, in the case of financial holding companies, financial
   institutions or ancillary banking services undertakings, the collection or
   possession of information shall not in any way imply that the competent
   authorities are required to play a supervisory role in relation to those
   institutions or undertakings standing alone.
   Similarly, Member States shall authorize their competent authorities to
   exchange the information referred to in Article SS on the understanding that
   the collection or possession of information does not in any way imply that
   the competent authorities play a supervisory role in relation to the mixed-
   activity holding company and those of its subsidiaries which are not credit
   institutions, or to subsidiaries of the kind c~vered in Article 52 ( 10).
   4. Where a credit institution, financial holding company or a mixed-activity
   holding company controls one or more subsidiaries which are insurance
   companies or other undertakings providing investment services which are
   subject to authorization, the competent authorities and the authorities
   entrusted with the public task of supervising insurance undertakings or those
   other undertakings providing investment services shall cooperate closely.
  Without prejudice to their respective responsibilities, those authorities shall
  provide one another with any information likely to simplify their task and to
  allow supervision of the activity and overall financial situation of the
  undertakings they supervise.
                                                                         72
 ---pagebreak--- 5. Infonnation received, in the fnmework of supervision on a                  92/30/EEC
consolidated basis, and in particular any exchange of infonnation between     Article 7
competent authorities which is provided for in this Directive, shall be       (adapted)
subject to the obligation of professional secrecy defined in Article JO. _ _
6. The competent authorities responsible for supervision on a consolidated
basis shall establish lists of the financial holding companies referred to in
Article 52 (2). Those lists shall be communicated to the competent.
authorities of the other Member States and to the Commission.
7. Where, in applying this Directive, the competent authorities of one
Member State wish in specific cases to verify the information concerning a
credit institution, a financial holding company, a financial institution, an
ancillary banking services undertaking, a mixed-activity holding company, a
subsidiary of the kind covered in Article SS or a subsidiary of the kind
covered in Article 52 (10), situated in another Member State, they must ask
the competent authorities of that other Member State to have that
verification carried out. The authorities which receive such a request must,
within the framework of their competence, act upon it either by carcying out
the verification themselves, by allowing the authorities who made the
request to carry it out, or by allowing an auditor or expert to carry it out.
8. Without prejudice to their provisions of criminal law, Member States
shall ensure that penalties or measures aimed at ending observed breaches
or the causes of such breaches may be imposed on financial holding
companies and mixed-activity holding companies, or their effective
managers, that infringe laws, regulations or administrative provisions
enacted to implement Articles 52 to SS and this Article. In certain cases,
such measures may require the intervention of the courts. The competent
authorities shall cooperate closely to ensure that the abovementioned
penalties or measures produce the desired results, especially when the
central administration or main establishment of a financial holding company
or of a mixed-activity holding company is not located at its head office.
                                  '     .
                                    TITLE VI
                  BANKING ADVISORY COMMITTEE
                                    Article 57
        Composition and tasks of the Banking Advisory Committee
1. A Banking Advisory Committee of the competent authorities of the           77n80/EEC
Member States _ shall be set up alongside the Commission.                     Article 11
                                                                              (adapted)
2. The tasks of the Banking Advisory Committee shall be to assist the
Commission in ensuring the proper implementation of this Directive.
___ Further it shall carry out the other tasks prescribed by this Directive
and shall assist the Commission in the preparation of new proposals to the
Council concerning further coordination in the sphere of credit institutions.
                                                                     73
 ---pagebreak---  3. The Banking Advisory Committee shall not concern itself with concrete       77n80/EEC
problems relating to individual credit institutions.                            Article 11
                                                                                (adapted)
 4. The Banking Advisory Committee shall be composed of not more than
 three representatives from each Member State and from the Commission.
 These representatives may be accompanied by advisers from time to time
 and subject to the prior agreement of the Committee. The Committee may
 also invite qualified persons and experts to participate in its meetings. The
 secretariat shall be provided by the Commission.
 5. The Banking Advisory Committee shall __ adopt its rules of
procedure and elect a chairman from among the representatives of Member
 States. It shall meet at regular intervals and whenever the situation
demands. The Commission may ask the Committee to hold an emergency
meeting if it considers that the situation so requires.
6. The Banking Advisory Committee's discussions and the outcome
thereof shall be confidential except when the Committee decides otherwise.
                                   Article 58
             Examination of the requirements for authorization
The Banking Advisory Committee shall examine the content given by the           77/780/EEC
competent authorities to requirements listed in Articles 5 (1) and 6 (1), any   Article 3 (5)
other requirements which the Member States apply and the information            (adapted)
which must be included in the programme of operations, and shall, where
appropriate, make suggestions to the Commission with a view to a more
detailed coordination.
                                   Article 59
                              Observation ratios                                    '.
 I. Pending subsequent coordination, the competent authorities shall, for       77/780/EEC
the purposes of observation and, if necessary, in addition to such coefficients Article 6
as may be applied by them, establish ratios between the various assets          (adapted)
and/or liabilities of credit institutions with a view to monitoring their
solvency and liquidity and the other measures which may serve to ensure
that savings are protected.
To this end, the Banking Advisory Committee shall decide on the content of
the various factors of the observation ratios referred to in the first
subparagraph and lay down the method to be applied in calculating them.
                                                                   74
 ---pagebreak--- Where appropriate, the Banking Advisory Committee shall be guided by            77/780/EEC
technical consultations between the supervisory authorities of the categories   Article 6
of institutions concerned.                                                      (adapted)
2. The observation ratios established in pursuance of paragraph 1 shall be
calculated at least every six months.
3. The Banking Advisory Committee shall examine the results of analyses
carried out by the supervisory authorities referred to in the third
subparagraph of paragraph 1 on the basis of the calculations referred to in
paragraph 2.
4. The Banking Advisory Committee may make suggestions to the
Commission with a view to coordinating the coefficients applicable in the
Member States.
                                   TITLE VII
                         POWERS OF EXECUTION
                                    Article 60
                              Technical adaptations
 I. Without prejudice, regarding own funds, to the report referred to in        89/299/EEC
the second subparagraph of Article 34 (3), the technical adaptations in the     J\rticle 8
following areas shall be adopted in accordance with the procedure laid down     (as amended by 92/16/EEC,
in paragraph 2:                                                                 Article 1 (2))
                                                                                (adapted)
         clarification of the definitions in order to take account in the       89/646/EEC
         application of this Directive of developments on financial markets,    Article 22
                                                                                (adapted)
         clarification of the definitions to ensure uniform application of this 89/647/EEC
         Directive in the Community,                                            Article 9
                                                                                (adapted)
         the alignment of terminology on and the framing of definitions in .    92/121/EEC
         accordance with subsequent acts on credit institutions and related     Article 7
         matters,                                                               (adapted)
         the definition of 'Zone A' in point (14) of Article 1,
         the definition of 'multilateral development banks' in point (19) of
         Article 1,
         alteration of the amount of initial capital prescribed in Article S to
         take account of developments in the economic and monetary field,
         expansion of the content of the list referred to in Articles 18 and 19
         and set out in Annex I or adaptation of the terminology used in that
         list to take account of developments on financial markets,
         the areas in which the competent authorities must exchange
         information as listed in Article 28,
                                                                     75
 ---pagebreak---           amendment of the definitions of the assets listed in Article 43 in       89/299/EEC
          order to take account of developments on financial markets,              Article 8
                                                                                   (as amended by 92/16/EEC,
          the list of classification of off-balance-sheet items in Annexes II and  Article l (2))
          IV and their treatment in the calculation of the ratio as described in   (adapted)
          Articles 42, 43 and 44 and Annex III,                                    89/646/EEC
                                                                                   Article 22
          a temporary reduction in the minimum ratio prescribed in Article 47      (adapted)
          or the weighting prescribed in Article 43 in order to take account of    89/647/EEC
          specific circumstances,                                                  Article 9
                                                                                   (adapted)
          clarification of exemptions provided for in Article 49 (5) to ( I0).     92/121/EEC
                                                                                   Article 7
  2. The Commission shall be assisted by a committee composed of                   (adapted)
 representatives of the Member States and chaired by a representative of the
 Commission.
 The Commission representative shall submit to the committ~e a draft of the
 measures to be taken. The committee shall deliver its opinion on the draft
 within a time limit which the chairman may lay down according to the
 urgency of the matter. The opinion shall be delivered by the majority laid
 down in Article 148 (2) of the Treaty in the case of decisions which the
 Council is required to adopt on a proposal from the Commission. The votes
 of the representatives of the Member States in the committee shall be
 weighted in the manner set out in that Article. The chairman shall not vote.
 The Commission shall adopt the measures envisaged if they. are in
 accordance with the opinion of the committee.
 If the measures envisaged are not in accordance with the opinion of the
 committee, or if no opinion is delivered, the Commission shall, without
 delay, submit to the Council a proposal concerning the measures to be taken.
 The Council shall act by a qualified majority.
 If, on the expiry of a period of three months from the date of referral to the
 Council, the Council has not acted, the proposed measures shall be adopted
 by the Commission, saYe where the Council has decided against the said
 measures by a simple majority.
                                    TITLE VIII
                TRANSITIONAL AND FINAL PROVISIONS
                                     Chapter 1
                              Transitional provisions
                                      Article 61
                  Transitional provisions regarding Article 36
Denmark may allow its mortgage credit institutions organized as cooperative       89/299/EEC
societies or funds before I January 1990 and converted into public limited        Article 4a
liability companies to continue to include joint and several commitments of       (as amended by 92/16/EEC,
members, or of borrowers as referred to in Article 36 (I) claims on whom are      Article 1)
treated in the same way as such joint and several commitments, in their own
funds, subject to the following limits:
                                                                     76
 ---pagebreak--- (a) the basis for calculation of the part of joint and several commitments of     89/299/EEC
    borrowers shall be the total of the items referred to in Article 34 (2),      Article 4a
    points 1 and 2, minus those referred to in Article 34 (2), points 9, I 0 and  (as amended by 92/16/EEC,
     11;                                                                          Article 1)
(b) the basis for calculation on I January 1991 or, if converted at a later date,
    on the date of conversion, shall be the maximum basis for calculation.
    The basis for calculation may never exceed the maximum basis for
    calculation;
(c) the maximum basis for calculation shall, from 1 January 1997, be
    reduced by half of the proceeds from any issue of new capital, as defined
     in point 1 of Article 34 (2), made after that date; and
(d) the maximum amount of joint and several commitments of borrowers to
    be included as own funds must never exceed:
    50 % in 1991 and 1992,
    45 % in 1993 and 1994, ·
    40 % in 1995 and 1996,
    35 % in 1997,
    30 % in 1998,
    20 % in 1999,
     10 % in 2000, and
    0 % after 1 January 2001,
    of the basis for calculation.
                                    Article 62
                 Transitional provisions regarding Article 43
1. Member States may apply a 50 % weighting to property leasing                   89/647/EEC
transactions concluded no later than 1 January 2001 concerning assets for         Article 11 (5)
business use situated in the country of the head office and governed by
statutory provisions whereby the lessor retains full ownership of the rented
asset until the tenant exercises his option to purchase.
                                                                    77
 ---pagebreak---  2. Article 43 (3) shall not affect the competent authorities' recognition of       96/10/EC
 bilateral contracts for novation concluded concerning:                             Article 2
                                                                                    (adapted)
        Belgium, before 23 April 1996
        Denmark, before 1 June 1996
        Germany, before 30 October 1996
        Greece, before 27 March 1997
        Spain, before 7 January 1997
        France, before 30 May 1996
        Ireland, before 27 June 1996
        Italy, before 30 July i 996
        Luxembourg, before 29 May 1996
        The Netherlands, before 1 July 1996
        Austria, before 30 December 1996
        Portugal, before 15 January 1997
        Finland, before 21 August 1996
        Sweden, before 1 June 1996
        United Kingdom, before 30 April 1996
                                      Article 63
                   Transitional provisions regarding Article 47
 1. A credit institution the minimum ratio of which has not reached the 8 %        89/647/EEC
 prescribed in Article 47 (1), on 1 January 1991, must gradually approach          Article 11 (1) to (3)
 that level by successive stages. It may not allow the ratio to fall below the     (adapted)
 level reached before that objective has been attained. Any fluctuation should
 be temporary and the competent authorities should be apprised of the reasons
 for it.
 2. For not more than five years after 1 January 1993, the Member States
 may fix a weighting of 10 % for the bonds defined in Article 22 (4) of
 Directive 85/611/EEC             and maintain it for credit institutions when and
 if they consider it necessary, to avoid grave disturbances in the operation of
 their markets. Such exceptions shall be reported to the Commission.
 3. For not more than seven years after 1 January 1993, Article 47 (1) shall
 not apply to the Agricultural Bank of Greece. However, the latter must
approach the level prescribed in Article 47 (1) by successive stages according
to the method described in paragraph l of this Article.
                                      Article 64
                   Transitional provisions regarding Article 49
 1. If, on 5 February 1993, ____ a credit institution had already                  92/121/EEC
incurred an exposure or exposures exceeding either the large exposure limit        Article 6
or the aggregate large exposure limit laid down in Article 49, the competent       (adapted)
authorities shall require the credit institution concerned to take steps to have
that exposure or those exposures brought within the limits laid down. in
Article 49.
2. The process of having such an exposure or exposures brought within
authorized limits shall be devised, adopted, implemented and compl~ted
within the period which the competent authorities consider consistent with
the principle of sound administration and fair competition. The competent
authorities shall inform the Commission and the Banking Advisory
Committee of the schedule for the general process adopted.
3. A credit institution may not take any measure which would cause the
exposures referred to in paragraph 1 to exceed their level on 5 February
1993. _ _ __
                                                                        78
 ---pagebreak--- 4. The period applicable under paragraph 2 shall expire no later than 31         92/121/EEC
December 2001. Exposures with a longer maturity, for which the lending           Article 6
institution is bound to observe the contractual terms, may be continued until    (adapted)
their maturity.
5. Until 31 December 1998, Member States may increase the limit laid
down in Article 49 (1) to 40 % and the limit laid down in Article 49 (2) to 30
%. In such cases and subject to paragraphs 1 to 4, the time limit for bringing
the exposures existing at the end of this period within the limits laid down in
Article 49 shall expire on 31 December 2001.
6. In the case of credit institutions the own funds of which             do not
exceed ECU 7 million, and only in the case of such institutions, Member
States may extend the time limits laid down in paragraph 5 by five years.
Member States that avail themselves of the option provided for in this
paragraph shall take steps to prevent distortions of competition and shall
inform the Commission and the Banking Advisory Committee thereof.
7. In the cases referred to in paragraphs 5 and 6, an exposure may be
considered a large exposure if its value is equal to or exceeds 15 % of own
funds.
8. Until 31 December 2001 Member States may substitute a frequency of at
least twice a year for the frequency of notification of large exposures referred
to in the second indent of Article 48 (2).
9. Member States may fully or partially exempt from the application of
Article 49 (1 ), (2) and (3) exposures incurred by a credit institution
consisting of mortgage loans as defined in Article 62 (1) concluded before 1
January 2002 as well as property leasing transactions as defined in Article
62 (2) concluded before 1 January 2002, in both cases up to 50 % of the
value of the property concerned.
The same treatment applies t'o loans secured, to the satisfaction of the         as amended by 9S/1/EC, Euratom,
competent authorities, by shares in Finnish residential housing companies,       ECSC,
operating in accordance with the Finnish Housing Company Act of 1991 or          Annex I, point XI, B, III, (3) (b)
subsequent equivalent legislation which are similar to the mortgage loans
referred to in the first subparagraph.
10. Without prejudice to paragraph 4, Portugal may be, until 31 December         92/121/EEC
1998, fully or partially exempt from the application of Article 49 ( 1) and (3)  Article 6
exposures incurred by a credit institution to 'Electricidade de Portugal'        (adapted)
(EDP) and Petrogal.
                                                                     79
 ---pagebreak---                                   Article 65
                Transitional provisions regarding Article 51
Credit institutions which, on 1 January 1993, exceeded the limits laid     89/646/EEC
down in Articles 51 (1) and (2) shall have until 1 January 2003 _ _ to     Article 12 (7)
comply with them.                                                          (adapted)
                                  Chapter 2
                              Final provisions
                                  Article 66
                              Repealed Directives
1. Directives 73/183/EEC, 77/780/EEC, 89/299/EEC, 89/646/EEC,
89/647/EEC, 92/30/EEC and 92/121/EEC, as amended by the Directives
set out in in Annex V, Part A, are hereby repealed without prejudice to
the obligations of the Member States concerning the deadlines for
transposition of the said Directives listed in Annex V, Part B.
2. References to the repealed Directives shall be construed as references
to this Directive and should be read in accordance with the correlation
table in Annex VI.
                                  Article 67
                              Implementation
This Directive shall enter into force on the twentieth day following that
of its publication in the Official Journal of the European Communities.
                                 Article 68
                                 Addressees
This Directive is addressed to the Member States.
Done at Brussels,
For the European Parliament,                                              For the Counci~
The President                                                             The President
                                                               80
 ---pagebreak---                                                                 ANNEX I                                         89/646/EEC
                                                                                                                Annex
                             LIST OF ACTIVITIES SUBJECT TO MUTUAL RECOGNITION
1. Acceptance of deposits and other repayable funds.                                                            Corrigendum
                                                                                                                (OJNoL311,
2. Lending (I).                                                                                                 14.11.1997,
                                                                                                                 p. 34)
3. Financial leasing.
4. Money transmission services.
5. Issuing and administering means of payment (e.g. credit cards, travellers' cheques and bankers' drafts).
6. Guarantees and commitments.
7. Trading for own account or for account of customers in:
     (a) money market instruments (cheques, bills, CDs, etc.);
     (b) foreign exchange;
     (c) financial futures and options;
     (d) exchange and interest rate instruments;
     (e) transferable securities.
8. Participation in securities issues and the provision of services related to such issues.
9. Advice to undertakings on capital structure, industrial strategy and related questions and advice as well as Corrigendum
     services relating to mergers and the purchase of undertakings.                                             (OJNoL83,
                                                                                                                30.3.1990,
10. Money broking.                                                                                              p. 128)
11. Portfolio management and advice.
12. Safekeeping and administration of securities.
13. Credit reference services.
14. Safe custody services.
(1 )   Including inter alia:
     - consumer credit,
     - mortgage credit,
     - factoring, with or without recourse,
     - financing of commercial transactions (including forfeiting).
                                                                        81
 ---pagebreak---                                                         ANNEX II                                                        89/647/EEC
                                                                                                                        Annex I
                               CLASSIFICATION OF OFF-BALANCE-SHEET ITEMS                                                (adapted)
 Full risk
 - Guarantees having the character of credit substitutes,
 - Acceptances,
 - Endorsements on bills not bearing the name of another credit institution,
 - Transactions with recourse,
 - Irrevocable standby letters of credit having the character of credit substitutes,
 - Assets purchased under outright forward purchase agreements,
 - Forward forward deposits,
 - The unpaid portion of partly-paid shares and securities,
 - Other items also carrying full risk.
 Medium risk
 - Documentary credits issued and confirmed (see also medium/low risk);
- Warranties and indemnities (including tender, performance, customs and tax bonds) and guarantees not having the
   character of credit substitutes,                     ·
- Asset sale and repurchase agreements as defined in Article 12 (3) and (5) of Directive 86/635/EEC,
                                                '                                            '.
- Irrevocable standby letters of credit not having the character of credit substitutes,
- Undrawn credit facilities (agreements to lend, purchase securities, provide guarantees or acceptance facilities) with
   an original maturity of more than one year,
- Note issuance facilities (NIFs) and revolving unde1writing facilities (RUFs),
- Other items also carrying medium risk.
Medium/low risk
- Documentary credits in which underlying shipment acts as collateral and other self-liquidating transactions,
- Other items also carrying medium/low risk.
Low risk
- Undrawn credit facilities (agreements to lend, purchase securities, provide guarantees or acceptance facilities) with
   an original maturity of up to and including one year or which may be cancelled unconditionally at any time -
   without notice,
- Other items also carrying low risk.
The Member States undertake to inform the Commission as soon as they have agreed to include a new off-balance-
sheet item in any of the 1::i.st indents under each category of risk. Such items will be definitively classified at
Community level once the procedure laid down in Article 60 has been completed.
                                                                    82
 ---pagebreak---                                                              ANNEX III                                                                       89/647/EEC
                                                                                                                                             Annex II
              THE TREATMENT OF OFF-BALANCE-SHEET ITEMS CONCERNING INTEREST                                                                   (as amended b
                                           AND FOREIGN- EXCHANGE RA TES                                                                      96/10/EC,
                                                                                                                                             Article 1)
1. SCOPE AND CHOICE OF METHOD
Subject to the consent of their supervisory authorities, credit institutions may choose one of the methods set out
below to measure the risks associated with the transactions listed in Annex IV. Interest-rate and foreign-exchange
contracts traded on recognized exchanges where they are subject to daily margin requirements and foreign-exchange
contracts with an original maturity of fourteen calendar days or less are excluded.
2. METHODS
Method 1: the 'mark to market' approach
Step (a):      by attaching current market values to contracts (mark to market) the current replacement cost of all
               contracts with positjve values is obtained.
Step (b):     to obtain a figure for potential future credit exposure(}), the notional principal amounts or underlying
              values are multiplied by the following percentages:
                                                              TABLE 1
           Residual maturity                        Interest-rate contracts                 Foreign-exchange contracts
One year or less                                              0%                                 \        1%
More than one year                                           0,5 %                                        5%
Step (c):     the sum of current replacement cost and potential future credit exposure is multiplied by the risk
              weightings allocated to the relevant counterparties in Article 43.
Method 2: the 'original exposure' approach
Step (a):     the notional principal amount of each instrument is multiplied by the percentages given below:
                                                              TABLE2
          Original maturityl 1 J                    Interest-rate contracts                 Foreign-exchange contracts
One year or less                                             0,5%                                         2%
More than one year but not                                     1%                                         5%
exceeding two years
Additional allowance for each                                  1%                                         3%
additional year
l 1 J In the case of interest-rate contracts credit institutions ma y, sub· ect to the consent of their corn petent
      authorities, choose either original or residual maturity.
Step (b):     the original exposure thus obtained is multiplied by the risk weightings allocated to the relevant
              counterparties in Article 43.
3. CONTRACTUAL NETTING (CONTRACTS FOR NOV ATION AND OTHER NETTING AGREEMENTS)
(a) Types of netting that competent authorities may recognize
      For the purpose of this point 3 'counterparty' means any entity (including natural persons) that has the power to
      conclude a contractual netting agreement.
(1)     Except in the case of single-currency 'floating/floating' interest rate swaps in which only the current replacement cost will be calculated.
                                                                              83
 ---pagebreak---                                                                                                                          89/647/EEC
    The competent authorities may recognize as risk-reducing the following types of contractual netting:                 Annex II
                                                                                                                         (as ame.nded b
    (i)   bilateral contracts for novation between a credit institution and its counterparty under which mutual claims   96/10/EC,
          and obligations are automatically amalgamated in such a way that this novation fixes one single net amount     Article 1)
          each time novation applies and thus create a legally binding, single new contract extinguishing former
          contracts;
    (ii) other bilateral agreements between a credit institution and its counterparty.
(b) Conditions for recognition
    The competent authorities may recognize contractual netting as risk-reducing only under the following
    conditions:
    (i)   a credit institution must have a contractual netting agreement with its counterparty which creates a single
          legal obligation, covering all included transactions, such that, in the event of a counterparty's failure to
         perform owing to default, bankruptcy, liquidation or any other similar circumstance, the credit institution
         would have a claim to receive or an obligation to pay only the net sum of the positive and negative mark-
         to-market values of included individual transactions;
    (ii) a credit institution must have made available to the competent authorities written and reasoned legal
         opinions to the effect that, in the event of a legal challenge, the relevant courts and administrative
         authorities would, in the cases described under (i), find that the credit institution's claims and obligations
         would be limited to the net sum, as described in (i), under:
                 the law of the jurisdiction in which the counterparty is incorporated and, if a foreign branch of an
                 undertaking is involved, also under the law of the jurisdiction in which the branch is located,
                the law that governs the individual transactions included, and
                 the law that governs any contract or agreement necessary to effect the contra~tual netting.;
   (iii) a credit institution must have procedures in place to ensure that the legal validity of its contractual netting
         is kept under review in the light of possible changes in the relevant laws.
   The competent authorities must be satisfied, if necessary after consulting the other competent authorities
   concerned, that the contractual netting is legally valid under the law of each of the relevant jurisdictions. If any
   of the competent authorities is not satisfied in that respect, the contractual netting agreement will not be
   recognised as risk-reducing for either of the counterparties.
   The competent authorities may accept reasoned legal opinions drawn up by types of contractual netting.
   No contract containing a provision which permits a non-defaulting counterparty to make limited payments only,
   or no payments at all, to the estate of the defaulter, even if the defaulter is a net creditor (a 'walkaway' clause),
   may be recognized as risk-reducing.
                                                                     84
 ---pagebreak---                                                                                                                          89/647/EEC
(c) Effects of recognition                                                                                               Annex II
                                                                                                                         (as amended b
      (i) Contracts for novation                                                                                         96/10/EC,
                                                                                                                         Article 1)
            The single net amounts fixed by contracts for novation, rather than the gross amounts involved, may be
           weighted. Thus, in the application of Method I, in
                Step (a):   the current replacement cost, and in
                Step (b):   the notional principal amounts or underlying values
            may be obtained taking account of the contract for novation. In the application of Method 2, in Step (a) the
           notional principal amount may be calculated taking account of the contract for novation; the percentages of
           Table 2 must apply.
      (ii) Other netting agreements
           In the application of Method I, in Step (a) the current replacement cost for the contracts included in a
           netting agreement may be obtained by taking account of the current hypothetical net replacement cost which
           results from the agreement. In Step (b) the single net amounts may be taken into account only for forward
           foreign-exchange contracts and other similar contracts, in which notional principal is equivalent to cash
           flows, in cases where the amounts to be claimed or delivered fall due on the same value date and in the same
           currency.
           Jn the application of Method 2, in Step (a)
           -   for forward foreign-exchange contracts and other similar contracts, in which notional principal is
               equivalent to cash flows, in cases where the amounts to be claimed or delivered fall due on the same
               value date and in the same currency, the notional principal amount may be calculated taking account of
               the netting agreement; to all these contracts Table 2 must apply,
           -   for all other contracts included in a netting agreement, the percentages applicable may be reduced as
               indicated in Table 3:
                                                           TABLE3
           Original maturityl I J                 Interest-rate contracts          Foreign-exchange contracts
One year or less                                          0,35 %                               1,50 %
More than one year but not more                           0,75 %                              3,75 %
than two years
Additional allowance for each                             0,75 %                              2,25 %
additional year
l 1 J In the case of interest-rate contracts credit institutions may, sub· ect to the consent of their cornp etent
      authorities, choose either original or residual maturity.
                                                                        85
 ---pagebreak---                                                  ANNEX IV                  89/647/EEC
                                                                           Annex Ill
               TYPES OF OFF-BALANCE-SHEET ITEMS CONCERNING INTEREST RA TES
                                           AND FOREIGN EXCHANGE
Interest-rate contracts
    - Single-currency interest rate swaps,
    - Basis swaps,
    - Forward-rate agreements,
    - Interest-rate futures,
    - Interest-rate options purchased,
    - Other contracts of a similar nature.
Foreign-exchange contracts
    - Cross-currency interest-rate swaps,
    - Forward foreign-exchange contracts,
    - Currency futures,
    - Currency options purchased,
    - Other contracts of a similar nature.
                                                          86
 ---pagebreak---                                                                      ANNEXV
                                                                      PARTA
                                                             Repealed Directives
                                                together with their successive amendments
                                                         (referred to in Article 66)
Council Directive 73/183/EEC                         ,(
                                                   /
Council Directive 77/780/EEC
         - Council Directive 85/345/EEC
         - Council Directive 86/137/EEC
         - Council Directive 86/524/EEC
         - Council Directive 89/646/EEC
         - European Parliament and Council Directive 95/26/EC,
                   only Article l, first indent, article 2 ( l ), first indent, Article 3 (2), Article 4 (2),
                   (3) and (4) - as regards references to Directive 77/780/EEC - and (6), and Article 5,
                   first indent.
         - Council Directive 96/13/EC
Council Directive 89/299/EEC
         - Council Directive 91/633/EEC
         - Council Directive 92/16/EEC
         - Council Directive 92/30/EEC
Council Directive 89/646/EEC
         - Council Directive 92/30/EEC
         - European Parliament and Council Directive 95/26/EC
                   only Article I, l st indent.
Council Directive 89/64 7,EEC
         - Commission Directive 91/31/EEC
         - Council Directi\'e 92/30/EEC
         - Commission Directive 94/7/EC
         - Commission Directive 95/15/EC
         - Commission Directive 95/67/EC
         - European Parliament and Council Directive 96/10/EC
Council Directive 92/30/EEC
Council Directive 92/121/EEC
                                                                         87
 ---pagebreak---                                                                          ANNEXV
                                                                           PAllT B
                                                     DEADLINES FOR IMPLEMENTATION
                                                              (referred to in Article 66)
  Directive                                                                                Deadline for implementation
  73/183/EEC (OJ No L 194, 16.7.1973, p.l)                                                 2. 1.1975(l)
  77/780(EEC (OJ No L 322, 17. 12. 1977, p. 30)                                             15. 12. 1979
  85/345/EEC (OJ No L 183, 16. 7. 1985, p. 19)                                              15.7.1985
  86/137/EEC (OJ No L 106, 23. 4. 1986, p. 35)
  86/524/EEC (OJ No L 309, 4. 11. 1986, p. 15)                                             31.12.1986
  89/299/EEC (OJ No L 124, 5.5.1989, p. 16)                                                 l. I. 1993
  89/646/EEC (OJ No L 386, 30. 12. 1989, p. 1)                   Article 6 (2),            I. I. 1990
                                                                 other provisions          1. I. 1993
  89/647/EEC(OJNoL386,30.12.1989,p.14)                                                     1.1.1991
  91/31/EEC(OJNoL 17,23.1.1991,p.20)                                                       31. 3. 1991
  91/633/EEC (OJ No L 339, 11.12.1991, p. 16)                                              31.12.1992
  92/16/EEC (OJ No L 75, 31. 3. 1992, p. 48)                                               31. 12. 1992
  92/30/EEC (OJ No L 110, 28. 4. 1992, p. 52)                                              31. 12. 1992
  92/121/EEC (OJ No L 29, 5.2.1993, p. 1)                                                  31. 12. 1993
• 94/7/EC (OJ No L 89, 6. 4. 1994, p. 17)                                                  25. 11. 1994
  95/15/EC (OJ No L 125, 8.6.1995, p. 23)                                                  30. 9. 1995
  95/26/EC (OJ No L 168, 18.7.1995, p. 7)                                                  18.7.1996
  95/67/EC(OJNoL314,28.12.1995,p. 72)                                                      1.7.1996
  96/10/EC (OJ No L 85, 3. 4. 1996, p. 17)                                                 30.6. 1996
  96/13/EC (OJ No L 66, 16. 3. 1996, p. 15)                                                15.4.1996
     (I) However, as regards the abolition of the restriction referred to in Article 3 (2) (g), the Netherlands was allowed to defer implementation until
     2.7 .1977.(Ref: Article 8, second subparagraph of Directive 73/183/EEC).
                                                                             88
 ---pagebreak---                                                                                                    ANNEX VI
                                                                                           CORRELATION TABLE
This Directive                 Dir. 77/780/EEC                Dir. 89/299/EEC Dir. 89/646/EEC               Dir. 89/647/EEC                    Dir. 92/30/EEC                Dir. 92/121/EEC   Dir. 96/10/EC
Article l ( l)                 Article 1, 1st indent                                                                                           Article I, I st indent        Article 1 (a)
Article I (2)                  Article l, 2nd indent
Article 1 (3)                                                                 Article l (3)
Article I (4) to (8)                                                          Article I (5) to (9)
Article I (9)                                                                                                                                  Article 1, 6th indent
Article l (10) and (l l)                                                      Article I (I 0) and ( 11)
Article l (12)                                                                Artide I ( 12)                                                   Article I, 7th indent         Article I (c)
Article l (13)                                                                Article I ( 13)                                                  Article I , 8th indent        Article I (d)
Article l (14) to (17)                                                                                      Article 2 (I), 2nd to 5th indents
Article 1 (18) to (20)                                                                                      Article 2 (1 ), 6th to 8th indents
Article I (2l)to(23)                                                                                                                           Article 1, 3rd to 5th indents
Article I (24)                                                                                                                                                               Article l (h)
Article l (25)                                                                                                                                                               Article I (m)
Article l (26)                 Article l, 5th indent
Article 2 (l)                  Article 2 (l)                                  Article 2 (I)                 Article I (1)
Article 2 (2)                                                                                                                                  Article 2
Article 2 (3)                  Article 2 (2)
Article 2 (4)                  Article 2 (3)
Article 2 (5), l st, 2nd and   Article 2 (4) (a), (b) and (c)
3rd subparagraphs
Article 2 (6)                                                                 Article 2 (3)                 Article l (3)                                                    Article 2 (2) (b)
Article 3                                                                     Article 3
Article 4                      Article 3 (I)
Article 5 ( l ), l st subpara. Article 3 (2), l st subpara.
Article 5 ( l ), 2nd subpara.  Article l 0 (I), 3rd subpara.
Article 5 (2)                                                                 Article 4 (2)
Article 5 (3) to (7)                                                          Article 10 (I) to (5)
Article 6 (I)                  Article 3 (2), 1st subpara.,
                               3rd indent and 2nd subpara.
Article 6 (2)                  Article 3 (2)a
Article 7 (I) and (2)                                                         Article l (10), 2nd subpara.
                                                                              and Article 5 ( l) and (2)
Article 7 (3)                  Article 3 (2) 3rd, 4th and
                               5th subparas.
Article 8                      Article 3 (4)
Article 9                      Article 3 (3) (a)
Article 10                     Article 3 (6)
Article 11                     Article 3 (7)
                                                                                                         89
 ---pagebreak--- This Directive          Dir. 77/780/EEC       Dir. 89/299/EEC       Dir. 89/646/EEC               Dir. 89/647/EEC                  Dir. 92/30/EEC Dir. 92/121/EEC Dir. 96/10/EC
Article 12                                                          Article 7
Article 13                                                          Article 6 ( I )
Articlel4(1)            Article 8 (I)
Article 14 (2)          Article 8 (5)
Article 15              Article 5
Article 16 ( 1) to (5)                                              Article 11 (I) to (5)
Article 16 (6)                                                      Article I ( 10), 2nd subpara.
Article 17                                                          Article 13 (2)
Article 18                                                          Article 18(1)
Article 19                                                          Article 18 (2)
Article 20 (I) to (6)                                               Article 19
Article 20 (7)                                                      Article 23 (I)
Article 21 ( 1} and (2)                                             Article 20
Article 21 (3)                                                      Article 23 (2)
Article 22                                                          Article 21
Article 23 (I)                                                      Article 8
Article 23 (2) to (7)                                               Article 9
Article 24              Article 9
Article 25                                                                                                                         Article 8
Article 26                                                          Article 13 (1) and (3)
Article 27                                                          Article 14 (2)
Article 28              Article 7 (I)
Article 29                                                          Article 15
Article JO (1) to (5)   Article 12 (1) to (5)
Article 30 (6)          Article 12 (5a)
Article 30 (7)          Article 12 (5b)
Article JO (8)          Article 12 (6)
Article 30 (9)          Article 12 (7)
Article JO (10)         Article 12 (8)
Article 31              Article 12a
Article 32                                                          Article 17
Article 33              Article 13
Article 34 (I)                                Article I {I)
Article 34 (2) to (4)                         Article 2 (I) to (3)
Article 35                                    Article 3
Article 36                                    Article 4
Article 37                                    Article 5
Article 38                                    Article 6 (I) and (4)
Article 39                                    Article 7
Article 40                                                                                        Article 3 (l)to (4), (7) and (8)
Article 41                                                                                        Article 4
Article 42                                                                                        Article 5                                                            ;
Article 43                                                                                        Article 6
Article 44                                                                                        Article 7
Article 45                                                                                        Article 8
Article 46                                                                                        Article 2 (2)
                                                                                             90
 ---pagebreak--- This Directive         Dir. 77/780/EEC Dir. 89/299/EEC Dir. 89/<>46/EE('        Dir. 89/647/EEC         Dir. 92/30/EEC        Dir. 92/121/EEC       Dir. 96/10/EC
Article 47                                                                      Article 10
Article 48                                                                                                                    Article 3
Article 49                                                                                                                    Article 4
Article 50                                                                                                                    Article 5 (1) to (3)
Article5I (l}to(5)                                     Article 12 (I) lo (5)
Article5I (6)                                          Article 12 (8)
Article 52 ( 1) to (7)                                                                                  Article 3 ( 1) to (7)
Article 52 (8) and (9)                                                          Article 3 (5) and (6)   Article 3 (8) and (9) Article 5 (4) and (5)
Article 52 (10)                                                                                         Article 3 ( I 0)
Article 53                                                                                              Article 4
Article 54                                                                                              Article 5
Article 55                                                                                              Article 6
Article 56                                                                                              Article 7
Article 57             Article 11
Article 58             Article 3 (5)
Article 59             Article 6
Article 60                             Article 8       Article 22               Article 9                                     Article 7
Article 61                             Article 4a
Article 62 (1)                                                                  Article 11 (5)
Article 62 (2)                                                                                                                                      Article 2
Article 63                                                                      Article 11 (I) to (3) ·
Article 64                                                                                                                    Article 6
Article 65                                             Article I 2 (7)
Article 66             ---             ---             ---                      ---                     ---                   ---                   -
Article 67             ---             ---             ---                      ---                     ---                   ---                   ---
Article 68             ---             ---             ---                      ---                     ---                   ---                   ---
Annex I                                                Annex
Annex II                                                                        Annex I
Annex Ill                                                                       Annex lI
Annex IV                                                                        Annex Ill
Annex V                ---             ---             ---                      ---                     ---                   ---                   --
Annex VI               ---             ---             ---                      ---                     ---                   ---                   ---
                                                                             91
 ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---                                                                    ISSN 0254--14 75
                                                            COM(97) 706 final
                                               DOCUMENTS
EN                                                                 01  09    10
                                     Catalogue number         CB-C0-97-726-EN-C
                                                              ISBN 92-78-29624-4
Office for· Official Publications of the European Communities
L-2985 Luxembourg
                                                  92-