CELEX: 51988PC0015
Language: en
Date: 1988-01-15
Title: AMENDED PROPOSAL FOR A COUNCIL DIRECTIVE ON THE OWN FUNDS OF CREDIT INSTITUTIONS

No C 32/2                                    Official Journal of the European Communities                                         5.2.88
                                                                         II
                                                                 (Preparatory Acts)
                                                       COMMISSION
                      Amended proposal for a Council Directive on the own funds of credit institutions (')
                                                                 COM(88) 15 final
               (Submitted by the Commission to the Council pursuant to Article 149(3) of the EEC Treaty on
                                                                  21 January 1988)
                                                                    (88/C 32/02)
               (') OJ No C 243, 27. 9. 1986, p. 4.
                       ORIGINAL PROPOSAL                                                               AMENDED PROPOSAL
THE COUNCIL OF THE EUROPEAN COMMUNITIES                                       THE COUNCIL OF THE EUROPEAN COMMUNITIES
Having regard to the Treaty establishing the European                         Having regard to the Treaty establishing the European
Economic Community, and in particular Article 57 (2)                          Economic Community, and in particular the third
thereof,                                                                      sentence of Article 57 (2) thereof,
                              R e m a i n d e r of t h e p r e a m b l e a n d r e c i t a l s 1 to 8 u n c h a n g e d
Recital 9                                                                     Recital 9
Whereas at the initial stage such common standards are                        Whereas at the initial stage such common standards are
defined in broad terms in order to encompass the variety                      defined in broad terms in order to encompass the variety
of elements comprising own funds in the different                             of elements comprising own funds in the different
Member States; whereas it is the intention that this                          Member States;
Directive represents a preliminary stage in a process to
strengthen the capital adequacy of credit institutions                        (rest deleted)
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;
                                                    R e c i t a l s 10 to 12 u n c h a n g e d
 Recital 13                                                                   Recital 13
Whereas pending adoption of the proposal for a                                Whereas the precise accounting technique with regard to
Directive concerning the annual accounts of banks and                         own funds should be that laid down in the provisions of
other financial institutions, which incorporates certain                      Council Directive 86/635/EEC of 8 December 1986 on
 adaptations of the provisions of Seventh Council                             the annual accounts and consolidated accounts of banks
Directive 83/349/EEC of 13 June 1983 based on Article                         and other financial institutions ('), which incorporates
 54 (3) (g) of the Treaty on consolidated accounts ('), the                   certain adaptations of the provisions of Council Directive
 precise accounting technique with regard to own funds is                     83/349/EEC ( 2 ); whereas pending transposition of the
 left to the discretion of the Member States; whereas after                   provisions of the abovementioned Directives into the
 the date of application of the abovementioned Directive                      internal legislation of the Member States, the use of a
 account has to be taken of the balance sheet as provided                     specific accounting technique with regard to own funds
 for in that Directive;                                                        should be left to the discretion of the Member States;
                                                                               (') OJNoL372, 31. 12. 1986, p. 1.
 (') O J N o L 193, 18.7. 1983, p. 1.                                          (0 O J N o L 193, 18.7. 1983, p. 1.
 ---pagebreak--- 5.2.88                                    Official Journal of the European Communities                                  No C 32/3
                       ORIGINAL PROPOSAL                                                    AMENDED PROPOSAL
                                                     Recital 14 unchanged
Recital 15                                                           Recital 15
Whereas the Commission, having regard to the said                    Whereas the Commission, having regard to the said
periodical review, shall adopt amendments to this                    periodic review, should be authorized to make the
Directive after consulting the Banking Advisory                      necessary technical adjustments to this Directive after
Committee,                                                           consulting the Banking Advisory Committee, within the
                                                                     limits of the implementing powers delegated to the
                                                                     Commission by the provisions of the Treaty; whereas this
                                                                     Committee should act as a 'Regulatory' Committee,
                                                                     according to the rules of procedure as laid down in
                                                                     Article 2 procedure III variant (a) of Council Decision
                                                                     87/373/EEC (') since the competent authorities of the
                                                                     Member States retain primary responsibility for the
                                                                     application of the provisions of this Directive in this
                                                                     sensitive sector; whereas the report drawn up by the
                                                                     Commission should be communicated to the European
                                                                     Parliament;
                                                                     (') O J N o L 197, 18. 7. 1987, p. 33.
HAS ADOPTED THIS DIRECTIVE:                                          HAS ADOPTED THIS DIRECTIVE:
                                                     Article 1 unchanged
                            Article 2                                                            Article 2
                      General Principles                                                    General Principles
1.     The own funds of credit institutions consist of the           1.     The own funds of credit institutions shall consist of
following elements:                                                  the following elements:
(a) Internal elements:                                               (a) Internal elements:
       (i) paid-up capital plus share premium account,                    (i) paid-up capital (capital being understood within
           minus the credit institution's holdings of its own                 the meaning of Article 22 of Directive 86/635/
           shares;                                                            EEC) plus share premium account, minus the
                                                                              credit institution's holdings of its own shares,
      (ii) reserves, including legal reserves, reserves
           provided for by the articles of association and
                                                                     Remainder of paragraph 1 unchanged
           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 elements as defined in Article 4.
2.     The concept of own funds as defined in this                   2.     The concept of own funds as defined in this
Directive gives a maximum of elements and amounts and                Directive gives a maximum of elements and amounts.
leaves it to the discretion of each Member State to use              The use of such elements or the fixing of lower ceilings
all elements or to provide lower ceilings for the amounts            for the amounts in question shall, during the period
in question.                                                         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.
 ---pagebreak--- No C 32/4                               Official Journal of the European Communities                                    5.2.88
                     ORIGINAL PROPOSAL                                                   AMENDED PROPOSAL
3.     The elements listed under paragraph 1 (a) must be                 unchanged
at the free disposal of the credit institution concerned
and the amount must be free from or adjusted for any
foreseeable tax charge at the moment of their calcu-
lation.
                          Article 3                                                            Article 3
Other     Internal elements as referred      to   in  Article      Other    internal   elements as referred     to  in  Article
                        2 (1) (a) (iv)                                                       2 (1) (a) (iv)
The concept of own funds used by a Member State may                1.     unchanged
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 disposal of the credit institution
     in order to cover normal business risks where the
     losses or impairment of value have not yet been
     identified;
(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
     supervision 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
                                                                   similar instruments that fulfil the following conditions
                                                                   may also be accepted as internal elements;
                                                                    (a) they may not be reimbursed on the bearer's initiative
                                                                        or without the prior agreement of the supervisory
                                                                        authority;
                                                                    (b) they may be used to participate in the losses without
                                                                        the credit institution having had to cease operating;
                                                                    (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 borrowing credit
                                                                        institution must be fully subordinated to those of all
                                                                        unsubordinated creditors;
                                                                    (e) the documents governing the issue of the securities
                                                                        must provide for the debt and unpaid interest to be
                                                                        able to absorb losses, whilst leaving the credit
                                                                        institution able to continue to trade;
 ---pagebreak--- 5.2.88                                  Official Journal of the European Communities                                  No C 32/5
                      ORIGINAL PROPOSAL                                                    AMENDED PROPOSAL
                                                                   (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 percentage 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 elements referred to in Article 2 (1) (b)                 External elements referred to in Article 2 (1) (b)
1.     External elements are funds which are placed at the         1.     unchanged
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 paid up.
2.     The external elements may be included up to an                    unchanged
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 exceptional circumstances.
3.      Liabilities of members of cooperative credit               3.     Liabilities of members of cooperative credit
institutions which are not paid up may be included in              institutions which are not paid up may be included in
own funds only to the extent to which they were allowed            own funds only to the extent to which they were allowed
to be counted in the own funds of the institutions of this         to be counted in the own funds of the institutions of this
category as of 31 December 1984.                                   category as of 31 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 guarantees which           4.     unchanged
they or their local authorities extend to public credit
institutions in the own funds of the latter.
 5.     Member States or the supervisory authorities may            5.    unchanged
 include other external elements, which are other than
 liabilities of cooperatives, in own funds only if there are
 binding agreements according 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.
 ---pagebreak--- No C 32/6                               Official Journal of the European Communities                                     5.2.88
                      ORIGINAL PROPOSAL                                                   AMENDED PROPOSAL
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 withdrawal should be
     stipulated, unless the relevant funds 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 early repayment of such funds
     provided the request was at the instigation 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 gradual reduction during at least five
     years prior to the repayment date;
(d) the competent authorities must be placed in a
     position to verify in detail the fulfilment of the
     foregoing conditions 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
     contracts must be determined by national legislation.
                           Article 5                                                           Article 5
Not more than three years after the notification of this           Not more than three years after the notification of this
Directive, the Commission shall draw up a report on the            Directive, the Commission shall draw up a report on the
application of this Directive. If deemed appropriate, the          application     of this Directive, which shall be
Commission shall review the provisions of this Directive           communicated to the European Parliament. In the light
in the light of the results of that report, and shall adopt,       of the results of that report the Commission shall propose
after consultation with the Advisory Committee set up              the necessary amendments.
under Article 11 of Directive 77/780/EEC, the necessary
amendments to this Directive. The Advisory Committee
shall give its opinion at its next regular meeting and not
more than six months after the consultation by the
Commission.
                                                                                               Article 5a
                                                                    1.    Without prejudice to the report referred to in
                                                                   Article 5 and if there is a need, the necessary technical
                                                                    adjustments to this Directive concerning:
                                                                   — the development of and innovations in the financial
                                                                        markets;
                                                                   — the development of Community legislation in the field
                                                                        of credit institutions and related subject matters;
                                                                   — the particular characteristics of certain types of credit
                                                                        institutions;
                                                                    — technical changes which may be necessary to improve
                                                                        the convergence of the definition of own funds
                                                                        throughout the Community;
                                                                    — the clarification of definitions of elements of own
                                                                        funds used in the Directive in order to ensure equal
                                                                        application of the Directive throughout the
                                                                        Community;
 ---pagebreak--- 5.2.88                                Official Journal of the European Communities                               No C 32/7
                      ORIGINAL PROPOSAL                                                AMENDED PROPOSAL
                                                                 — the withdrawal of the deferred application of the
                                                                      Directive to mortgage credit institutions 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 of the Commission.
                                                                 The representative of the Commission shall submit to the
                                                                 committee 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 within 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 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 Council, the Council has not acted, the
                                                                 proposed measures shall be adopted by the Commission.
                         Article 6                                                        Article 6
1.    Member States shall take the measures necessary to          1.    Member States shall take the measures necessary to
comply with this Directive not later than 31 December            comply with this Directive not later than 1 July 1988.
1987 and forthwith inform the Commission thereof.                They shall forthwith inform the Commission thereof.
2.    Within one year of notification of this Directive the       2.     unchanged
Member States shall communicate to the Commission
the texts of the main laws, requlations and administrative
provisions which they adopt in the field convered by this
Directive.
3.    The communication referred to in paragraph 2 shall          3.     unchanged
also include a statement, 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 u n c h a n g e d