CELEX: 51988PC0015
Language: en
Date: 1988-01-15
Title: Amended proposal for a COUNCIL DIRECTIVE on the own funds of crédit institutions (presented by the Commission pursuant to Article 149(3) of the EEC Treaty)

ARCHIVES HISTORIQUES
DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (88) 15
Vol. 1988/0004
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 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                               COM(88 ) 15 final
                                               Brussels , 15" January 1988
                              Amended proposal for a
                                 COUNCIL DIRECTIVE
                 on the own funds of crédit institutions
        ( presented by the Commission pursuant to Article 149(3 )
                                of the EEC Treaty )
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 ---pagebreak---         Amended proposal for a Council Directive
         on the own funds of credit institutions
I. Explanatory Memorandum
     1 . On 18 September 1986 , the Commission sent the Council a
            proposai for a Directive on own funds of crédit insti-
          .  ..   (1)
          tutions
                                                                            ( 2)
     2 . The Economie and Social Committee delivered its opinion
          at its 246th session held in Brussels on 14 May 1987 , and
          the European Parliament delivered its opinion at its
          sitting of 9 July 1987 ^^.
     3 . An amended proposal has been drawn up in order take into
          account ,   as   far  as    possible , the   opinions   delivered   by
          these   two     institutions .    Both   the   Parliament    and  the
          Economic and Social Committee have          endorsed the need for a
          harmonised     definition     of  the  own   funds  for   credit  in¬
          stitutions as an important cornerstone in building up               an
          internal market in the banking sector .
     4 . The Commission was able to accept nearly all the amendments
          proposed by the European Parliament ; most of them help to
          clarify the text or to make the necessary adaptations
          arising from recent developments on the market or in
          Community legislation . The following comments are made on
          the most important changes :
( 1 ) OJ No C 243 , 27.9.1986 , P-4
( 2 ) OJ N “ C 180 , 8.7.198 7 , P - 51
( 3 ) OJ N° C 246 , 14.9.1987 , p. 72
                                                                            7_
 ---pagebreak---                              2
(a) Article 2
    In   or de r    to    clarify      the   notion     1 paid- up  capital '
    ref erenc e     is    made    in   paragraph     1    to   the  recently
    adopted Directive on            annual    accounts     and  con olidated
    accounts     of banks      and other financial        institut  ons .
    The European Parliament stressed the need to commit
    Member States in the long run to achievi ng greater
    convergence towards a common definition of own funds
    and the Commission supports this request entirely .
    Therefore paragraph 2 has been amended .
(b) Article 3
    In  recent      years     securities     of  indeterminate      duration
    and other similar instruments have played an important
    role in some       Member     States   in  the  determination      of  the
    own    funds       of   credit       institutions .      However ,    such
    perpetual debt agreements must fulfil certain specific
    strict conditions in order to be regarded as of similar
    quality       to    primary      capital .     Furthermore ,       it   is
    appropriate to limit its amount in respect to the other
    elements      included       in   the   definition .      The  new    sub-
    paragraph      2 of Article        3 sets out      these criteria and
    limitations .
(c) Article 4
    For the clarity of the provision in paragraph 3 it is
    expressly stated that the criteria for authorising the
    inclusion of unpaid-up liabilities of members of
    cooperative credit institutions in the own funds is the
    legislation in force on 31 December 1984 rather than
    the amount actually authorised and / or held on that date
    by the respective cooperative bank .
 ---pagebreak---                                   3
       (d)  Articles 5 and 5a
            The new Article 5 makes        it clear  that  in  the case of
            substantial amendments of the Directive the Commission
            will   proceed     with    a proposal   for   which   the        full
            legislative procedure laid down in the Single European
            Act would apply .
            However ,     in  the   case of   technical   adjustments         the
            Commission should be able to exercise the implementing
            powers conferred on it under Article 145 of the Treaty
            and for which the procedures for the exercise of such
            powers are laid down in the Council Decision of 13 July
            1987 ( 1 ) .
            The Intergovernmental Conference on the Single European
            Act reguests the Council to give the Advisory Committee
            procedure in particular a predominant place for the
            exercise of powers of implementation for matters of the
            Internal Market and which are provided for in the
            above-mentioned Council Decision . However , given the
            special importance of maintaining confidence in the
            Member State' s banking system and the substantial
            responsibilities for the supervision exercised by the
            competent       authorities   in   the  Member    States ,        the
            Commission considers that it is more appropriate to
            retain the Regulatory Procedure III ,          variant
                                                           variant   (( a
                                                                        a ))   in
                                                                               in
            this case .
( 1 ) OJ N. L 197 ,      18.7.1987 , p. 33
                                                                         A
 ---pagebreak---                               Amended proposal for a Council Directive
                               on the own funds of credit institutions
J I . Tsxt of the proposal
              Original proposai                                  Amended proposal
THE COUNCIL OF THE EUROPEAN COMMUNITIES                    THE COUNCIL OF THE EUROPEAN COMMUNITIES
Having regard to the Treaty establishing            Having regard to the Treaty establishing
the European Economic Communi ty , and in           the European Economic Community , and in
particular Article 57(2 ) thereof ,                 particular the third sentence of Article
                                                    57(2 ) thereof ,
Remainder of the preamble and recitals 1 to 8 unchanged
Recital 9                                          Recita^J)
Whereas at the initial stage such common           Whereas at the initial stage such common
standards are defined in broad terms in            standards are defined in broad terms in
order to encompass the variety of elements         order to encompass the variety of elements
comprising own funds in the different              comprising own funds in the different
Member States ; whereas it is the inten¬           Member States ;
tion that this Directive represents a              ( rest deleted )
preliminary stage in a process to
strengthen the capital adequacy of credit
institutions operating in the Community
and to define more strictly the criteria
for elements to qualify as own funds and
in particular the concept of internal
elements ; whereas the process of
strengthening capital adequacy should
also include the participation of external
elements in losses which the credit
institutions might incur ;
Récitals 10 to 12 unchunqed
 ---pagebreak---                                             - 5 -
              Original Proposai                           Amended Proposal
      Recital 13                                                JRecital _13
Whereas pending adoption of the proposal          Whereas _the precise ^accounting technique with
for a Directive concerning the annual             reqard__to _own jfunds _should be that laid down
accounts of banks and other financial             in _ J*?– provisions^ _of_Council Directive
institutions , which incorporates certain         86 /635/EEC _of_ 8_ December__1986 on_ the_ annual
adaptations of the provisions of Seventh          accounts_ and_ consolidated accounts of banks
Council Directive 83 / 349 / EEC of 13 June       and other_ financial institutions ( 2' , which
1983 based on Article 54(3)(q ) of the            incorporates _ cer tain_ _adaptations     of   the
Treaty on consolidated accountsd ), the           provisions of Council Directive j8 3/ 34 9/ EEC ( 3 );
precise accounting technique with regard          whereas pending transposition of the provisions
to own funds is left to the discretion of         of the above-mentioned Directives into the in¬
the Member States ; whereas after the date        ternal legislation of the Member States , the
of application of the above-mentioned             use of a specif ic . accounting technique with
Directive account has to be taken of the            regard to own funds should be left to the
balance sheet as provided for in that             discretion of the Member States,;
Directive ;
 ( 1 ) OJ N° L 193 , 18.7.1983 , p.l               ( 2) OJ N" L 372 , 31.12.1986 , p. 1
                                                   ( 3) CJ N° 193 , 18.7.1983 , p. 1
                                                                                               G
 ---pagebreak---                                           б -
        Original Proposai                                     Amendai Proposai
Recital 14 unchanged
    Recital 15                                                Recital 15
Whereas the Commission , havinq regard to     Whereas the Commission , having regard to the
the said periodical review , shall adopt      sand periodic review, should be authorized to make the
amendments to this Directive after con¬        necessary     technical     adiustments      to    this
sulting the Banking Advisory Committee ,       Directive     after     consulting      the    Banking
                                               Advisory Committee , within _ the_ the_ limit_s_of
                                               the   implementing      powers   deleqated     to    the
                                               Commission bv_the_ provisions of the Treaty ;
                                               whereas _ this _ &>mmittee_ should_act as a
                                              " Regulatory|_ _ Commit tee , __ accord inq_to_ __the
                                               rules of_procedure as laid_ down in Article 2
                                              procedure _III_variant_(a )_ of _ Council
                                               Decision 87 / 373 /EEXp j_4 ) _since _th_e_competent
                                               authorities      of   the   Member     States    retain
                                               primaryjresponsibiLity for the application of
                                               the _provisions of_ this directive __in _ this
                                               sensitive sector ; whereas the report_drawn up
                                               by the _Commission sh<pld _be _ccpimunicated _ to
                                               the European Parliament ;
HAS ADOPTED THIS DIRECTIVE :                   HAS ADOPTED THIS DIRECTIVE :
                                               (M 0 J N° L 197 , 18.7.1987 , p. 33
 ---pagebreak---                                                   -   7 -
                 Original Proposai                                    Amended Proposal
Artide 1 unchanged
                Artide 2                                              Artide 2
General Principles                                        General Principles
1 . The own funds of credit institutions                  The own funds of credit institutions
consist of the following elements :                       shall consist of the following elements :
( a ) Internai éléments :                                 ( a ) Internai éléments :
           ( i ) paid- up capital plus share premium            ( i ) paid-up capital ( capital being understood
                 account , minums the credit institu¬                within the meaning of Article 22 of Directive
                 tion' s holdings of its own shares ,                86/635/ EEC ) plus share premium account, minus the
                                                                      credit institution 's         holdings of
                                                                      its own shares .
        ( ii ) reserves , including legal reserves ,                  Remainder of paragraph 1 unchanged
                 reserves provided for by the articles
                 of association and other reserves ,
                 plus profit or loss brought forward
                 after the allocation of the results
                 for the financial year and minus the
                 amounts allocated to cover general
                 risks ,
      ( iii ) revaluation reserves ( formally
                 recognized as part of shareholders
                 funds ) ,
         ( iv ) other internal elements as
                 defined in Article 3 ;
 ( b ) External éléments as defined in Article 4 .
                                                                                                               8
 ---pagebreak---                                               8
               Original Proposai                         Amended Proposal
2 . The concept of own funds as defined in      2 . The concept of own funds as defined in
this Directive gives a maximum of elements      this Directive     gives a maximum of elements
and amounts and leaves it to the discretion     and amounts . The use of such elements or the
cl each Member State to use all elements or     fixing of lower ceilings for the amounts i n
to provide lower ceilings for the amounts       ques tion shall , _ _during the
in guest ion .                                  period provided for in Article 5              be left
                                                to the discretion of the Member States              which
                                                shall nevertheless be         required to contemplate
                                                effecting   increased         convergence     towards   a
                                                common definition of          own   funds  and   to  take
                                                steps to this end .         Such    measures   shall   be
                                                communicated    to   the     Commission     which   shall
                                                take   account    of     them      when   applying    the
                                                provisions of Article 5 -
3 . The elements listed under paragraph 1(a )   3 . unchanged
must be at the free disposal of the credit
institution concerned and the amount must
be free from or adjusted for any fore¬
seeable tax charge at the moment of their
calculation .
         Article 3                                            Article 3
Other internal elements as referred to          Other internal elements as referred to
in Article 2(l)(a)(iv )                         to in Article 2 ( 1 ) ( a ) ( iv )
The concept of own funds used by a Member       1 . unchanged
State may include other internal elements
provided that whatever their legal or
accounting denominations might be , they
have the following characteristics .
( a ) they are at the free disposai of the
crédit institution in order to cover
normal business risks where the losses
or impairment of value hâve not yet been
identified •
                                                                                                  3
 ---pagebreak---          Original Proposai                            Amended Proposal
( b ) there is evidence of their existence in
the internal accounts which a credit
institution makes available to its
competent authorities ;
( c ) their amount is determined by the
management , verified by independent
auditors , made known to the competent
authorities and placed under the super¬
vision of the latter . With regard to
verification , internal auditing may be
considered as provisionally meeting the
aforementioned requirement until such
time as the Community provisions making
external auditing mandatory have been
implemented .
                                              2 . Securities of indeterminate duration and
                                              other simil ar instruments that fulfil the
                                              following conditions may also be accepted
                                              as internai éléments ;
                                              ( a )_ they may not be reimbursed on the
                                              bearer 's initiative or without the prior
                                              agréément of the supervisory authority ;
                                              ( b ) they may be used to participate in the
                                              losses _without the credit institution
                                              having had to cease operati ng ;
                                              ( c ) the debt agreement must provide for the
                                              credit institution to have the option to
                                              defer _an interest payment on the debt ;
                                              ( d ) the claims of the lender on the bor¬
                                              rowing credi t institution must be fully
                                              subordinated to those of all unsubordinated
                                              creditors ;
 ---pagebreak---                                           10 -
          Or iginal__Proposai                             Amended Proposai
                                               ( e ) tne documents governing the ^ssue of
                                               the secur ities must provide for the debt
                                               and unpaid in terest to be able to absorb
                                               losses ,    whilst_ leaving       the credit      in-
                                               stitution able to continue to trade r
                                               (f)    such securities should not         exceed       a
                                               given     percentage     of   the   total   of     the
                                               elements    described in Article 2 ( 1 ) ( a ) ( i ) ,
                                               ( ii ) and ( iii ) ; that    percentage should be
                                               calculated      in  such   a way    that  the    per-
                                               centage      referred     to    in   Article     4(2 )
                                               includes      external    elements     as  well      as
                                               securities     of   indeterminate     duration     and
                                               other similar instruments covered by             this
                                               paragraph .
       Article 4                                        Article 4
External éléments referred to in               External éléments referred to in
Article 2(1 ) ( b )                            Article 2(1 ) ( b )
1 . External elements are funds which are      1 . unchanged
placed at the disposal of a credit
institution but are not under the full
ownership and control of the credit
institution or are put at the disposal
of the credit institution only for a
limited period . Subject to paragraph
3 , external elements may also include
liabilities of members of cooperative
credit institutions which are not oaid
up .
                                                                                              U
 ---pagebreak---                                              11 -
         Original Proposal                                  Amended Proposal
2 . The external elements may be included         2 . unchanged
up to an amount not exceeding 50% of the
total of internal elements of own funds :
this objective should be achieved by
1 January 1995 ; the supervisory authorities
will ensure that credit institutions
operating presently above this level will
move to this limit in a gradual process .
However , the supervisory authorities may
authorize those credit institutions to
exceed the threshold under temporary
and exception al circumstances .
3 . Liabilities of members of cooperative         3 . Liabilities of members of cooperative
credit institutions which are not paid            credit institutions which are not paid up
up may be included in own funds only to           may be included in own funds only to the
the extent to which they were allowed to          extent to which they were allowed to be
be counted in the own funds of the                counted     in   the   own    funds   of    the   in-
institutions of this category as of               stitutions      of   this    category     as   of  31
31 December 1984 .                                December      1984 and up to the amount
                                                  authorized by the legislation in force on
                                                  that     date ,    subject ,    however ,    to   the
                                                  provisions of paragraph 2.
4 . Member States shall not include               4 . unchanged
guarantees which they or their local
authorities extend to public credit
institutions in the own funds of the latter .
 5 . Member States or the supervisory             5 . unchanged
 authorities may include other external
elements , which are other than liabilities
of coorperatives , in own funds only if
 there are binding agreements according
                                                                                                  a
 ---pagebreak---                                           12 -
         Original Proposal                     Amended Proposal
to which , in the event of bankruptcy or
liquidation of the credit institution ,
they rank inferior to the claims of all
other creditors and shall not be repaid
until all other debts outstanding at the
time have been settled .
Such other external elements must meet
the following criteria :
( a ) the funds involved have been fully
paid up ;
( b ) the funds involved have an original
maturity of at least five years during
which they may be subject to gradual
reduction ; if the maturity of the debt
is unfixed , five years' notice of with¬
drawal should be stipulated , unless the
relevant funds are no longer considered
as own funds or unless the prior consent
of the competent authorities is specifi¬
cally required for early repayment . The
competent authorities may grant per¬
mission for early repayment of such funds
provided the request was at the insti¬
gation of the issuer and the solvency of
the credit institution remains
unimpaired ;
( c ) the extent to which they may rank
as own funds will be subject to graduai
réduction during at least five years
prior to the repayment date ;
 ---pagebreak---                                               13 -
           Original Proposai                               Unchanged Proposal
( d ) the competent authorities must be
place in a position to verify in detail
the fulfilment of the foregoing con¬
ditions and , in particular , the contracts
arranging the participation of the funds
in the risks of the credit institution
must be available to and approved by such
authorities , or the clauses of such con¬
tracts must be determined by national
legislation .
        Article 5                                          Article 5
Not more than three years after he                 Not more than three years after         the
notification of this Directive , the               notification of     this   Directive ,  the
Commission shall draw up a report on the           Commission shall draw up a report on the
application of this Directive . If deemed          application of this Directive , which shall
appropriate , the Commission shall review          be communicated to the European Parliament .
the provisions of this Directive in the            In the light of the results of that
light of the results of that report , and          report the Commission shall
shall adopt , after consultation with the          propose the necessary amendments .
Advisory Committee set up under Article
11 of Directive 77/ 780 / EEC , the necessary
amendments to this Directive . The Ad¬
visory Committee shall give its opinion
at its next regular meeting and not more
than six months after the consultation
by the Commission .
 ---pagebreak---                      14 -
Original Proposai                 Amended ^Proposai
                                          Article 5 a
                  1 . Without prejud ice to the report referred to in Ar¬
                      tie Le 5_and if there is a need , the necessary
                      technical adjus tments to th is Direeti ve
                      concerning :
                      - the development of and innovations in the
                         financial markets ;
                      - the development of Community legislation in
                         the field of credit inst itutions and related
                         subject matters ;
                      - the particular characteristics             of certain
                         types of crédit institutions ;
                      - technical ch anges which may be necessary to
                         improve the convergence of the definition of
                         own funds throughout the Community ;
                      - the      clarification       of     définitions      of
                         elements_ of own funds                used    in   the
                         Directive in order to ensure equal appli-
                         cation     of   the   Direct ive     throughout    the
                         Community ;
                      - the withdrawal of the deferred application
                         of the Directive to mortgage crédit institu ¬
                          tions pursuant to Article 1(2 ),
                      shall be made according to the procedure laid
                      down in paragraph 2 .
                  2 . The     Commission     shall    be     assisted    by   a
                      committee composed of the representatives of
                      the     Member     States    and     chaired    by    the
                       representative   0f the Commission .
 ---pagebreak---                   15 -
Original Proposai                    Amended Proposai
                     The represent ative of the Commission shall
                     submit    to  the  committee   a   draf t  of   the
                     meas ures   to be  taken . The   committee    shall
                     deliver it s opinion on the draft wi thin 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 with in the_committee
                     shall be weighted in _the manner set out in
                     that Article . The c hairman shall not vote .
                     The    Commiss ion  shall  adopt    the   measures
                     envisaged if they are in _accordance with the
                     opinion of the _commi ttee .
                      If  the    measures   envisaged    are    not   in
                     accordance _ with      the   opinion _ of       the
                     committe , or if no opinion is delivered , the
                     Commission shall , without del ay , submit to
                      the Council _a proposal relating to the
                     measures to be taken . The Council _shall act
                     by _a qualified majority .
                      If _ on the expiry of a period to be laid
                     down in each act_to be adopted by the
                      Council _under this paragraph but which may
                      in no case exceed three months from the date
                      of referral to the Counc il , the Council has
                      not acted , the proposed measures shall be
                      adopted by the Commission .
                                                                 Ab
 ---pagebreak---                                             16 -
          Original Proposai                                    Amended Proposal
          Article 6                                     Article 6
1 . Member States shall take the measures        1.  Member States shall take the measures
necessary to comply with this Directive          necessary to comply with this Directive
not later than 31 December 1987 and              not later than _1 July_1988. - They shall forthwith
forthwith inform the Commission thereof .        inform the Commission thereof .
2 . Within one vear of notification of           2 . unchanged
this Directive the Member States shall
communicate to the Commission the texts
of the main laws , regulations and ad¬
ministrative provisions which they adopt
in the field covered by this Directive .
3 . The communication referred to in             3 . unchanaed
paragraph 2 shall also include a state¬
ment . accompanied by an explanatory text ,
which notifies the Commission of the
specific provisions and elements selected
by the respective competent authorities
of the Member States as comprising own
funds .
Article 7 unchanged
J . 80- 254E84- 254EN1- 254E16
                                                                                         4*