CELEX: 51989PC0239
Language: en
Date: 1989-05-26
Title: AMENDED PROPOSAL FOR A COUNCIL DIRECTIVE ON A SOLVENCY RATIO FOR CREDIT INSTITUTIONS

No C 167/40                              Official Journal of the European Communities                                          3. 7. 89
                                                                          (f) Professional investment advice given to investors on an
                                                                              individual basis or on the basis of private subscription in
                                                                              connection with any or all of the instruments referred to in
                                                                              footnote 2.
                                                                          (g) Safekeeping and administration of any of the instruments
                                                                              referred to in footnote 2 otherwise than in connection with
                                                                              the management of a clearing system.
9. Money broking                                                     9. Money broking
 10. Portfolio management and advice                                  10. Credit reference services
 11. Safekeeping of securities                                        11. Safe custody services
 12. Credit reference services
 13. Safe custody services
                    Amended proposal for a Council Directive on a solvency ratio for credit institutions (*)
                                                  COM(89) 239 final — SYN 133
                   (Submitted by the Commission pursuant to the third paragraph of Article 149 of the EEC
                                                       Treaty on 30 May 1989)
                                                            (89/C 167/03)
                       ORIGINAL PROPOSAL                                                     AMENDED PROPOSAL
THE COUNCIL OF THE EUROPEAN COMMUNITIES,                             unchanged
Having regard to the Treaty establishing the European
Economic Communities, and in particular the third
sentence of Article 57(2) thereof,
Having regard to the proposal from the Commission,
In cooperation with the European Parliament,
Having regard to the opinion of the Economic and Social
Committee,
Whereas the Directive is a development from the work                 unchanged
undertaken by the Banking Advisory Committee which has
under Article 6(4) of the 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 (2), as amended
by Directive 86/524/EEC (3), responsibility for making
'suggestions to the Commission with a view to coordi-
nating the coefficients applicable in the Member States';
Whereas appropriate solvency ratios play a central role in           unchanged
the prudential supervision of credit institutions;
Whereas ratios which weight assets and off-balance sheet             unchanged
transactions according to the degree of credit risk are
particularly useful measures of solvency;
(!) OJ No C 135, 25. 5. 1988, p. 5.                                  unchanged
(2) OJ No L 322, 17. 12. 1977, p. 30.
(3) OJ No L 309, 4. 11. 1986, p. 15.
 ---pagebreak--- 3. 7. 89                                Official Journal of the European Communities                             No C 167/41
                     ORIGINAL PROPOSAL                                                  AMENDED PROPOSAL
Whereas the development of common standards of capital             unchanged
adequacy in relation to assets and off-balance sheet items at
risk is accordingly, one of the essential areas of harmonis-
ation necessary for the achievement of mutual recognition
and thus completion of the internal market in banking
services;
Whereas in this respect the Directive is connected with            Whereas in this respect the Directive is connected with
other specific legislation also harmonising the fundamental        other specific legislation also harmonising the fundamental
techniques of prudential supervision: Council Directive .../       techniques of prudential supervision: Council Directive 89/
.../EEC on own funds, the Commission recommendations               299/EEC (J) on own funds, the Commission recommend-
87/62/EEC (i) and 87/63/EEC (2) on large exposures and             ations 87/62/EEC (2) and 87/63/EEC (3) on large ex-
deposit protection schemes;                                        posures and deposit protection schemes;
Whereas the Directive should also be seen as directly              unchanged
complementary to the Second Coordination Directive
which lays out the broader framework of which this
Directive is an integral part;
Whereas the minimum ratio contained in this Directive is           deleted
provisional in nature; whereas it will be reviewed following
a statistical survey; whereas the Commission will, if
necessary, duly propose an amendment to the figure before
the final adoption of the Directive;
Whereas measurement of, and allowance for, interest and            Whereas measurement of, and allowance for, interest and
exchange rate risk, and other market risks, are also of great      exchange rate risk, and other market risks, are also of great
importance in prudential supervision; whereas the Com-             importance in prudential supervision; whereas the Com-
mission shall, accordingly, in cooperation with the                mission shall, accordingly, in cooperation with the
competent authorities of Member States and others                  competent authorities of Member States and others
working towards similar ends, further study the available          working towards similar ends, further study the available
techniques; whereas it shall then make appropriate                 techniques; whereas it shall then make appropriate
proposals for the further harmonisation of prudential rules        proposals for the further harmonisation of prudential rules
relating to these risks;                                           relating to these risks; whereas in so doing it shall pay full
                                                                   attention to the interaction of the various banking risks,
                                                                   whereas it shall, accordingly, examine the coherence of the
                                                                   separate proposals;
(!) OJ No L 33, 4. 2. 1987, p. 10.                                 (!) OJ No L 124, 5. 5. 1989, p. 16.
(2) OJ No L 33, 4. 2. 1987, p. 16.                                 (2) OJ No L 33, 4. 2. 1987, p. 10.
                                                                   (3) OJ No L 33, 4. 2. 1987, p. 16.
 ---pagebreak--- No C 167/42                              Official Journal of the European Communities                                      3. 7. 89
                     ORIGINAL PROPOSAL                                                  AMENDED PROPOSAL
                                                                    New recital 9
                                                                    Whereas the risk weights in this Directive could not expect
                                                                    exactly to reflect actual credit risk relativities in all cases;
                                                                    whereas in this regard the application of a 20 % rather than
                                                                    0 % weight to the European Investment Bank reflects
                                                                    agreement on the supervisory treatment of borrowing by
                                                                    multilateral investment and development banks made in a
                                                                    wider international context and not the high credit-
                                                                    standing of the EIB;
Whereas technical modifications to the detailed rules               unchanged
contained in this Directive may from time to time be
necessary to respond to new developments in the banking
sector; whereas the Commission shall accordingly make
such modifications as are necessary, after consulting the
Banking Advisory Committee, within the limits of the
implementing powers delegated to the Commission by the
provisions of the Treaty; whereas that Committee shall act
as a 'Regulatory' Committee, according to the rules of
procedure laid down in Article 2, procedure III, variant (a)
of Council Decision 87/373/EEC of 13 July 1987 laying
down procedures for the exercise of implementing powers
conferred to the Commission ( J );
HAS ADOPTED THIS DIRECTIVE:                                         HAS ADOPTED THIS DIRECTIVE:
                     Scope and definition
                            Article 1                                                          Article 1
 1. This Directive shall apply to credit institutions within        unchanged
the meaning of the first indent of Article 1 of Directive 77/
780/EEC.
 2. Notwithstanding indent 1 above, the Member States                unchanged
 need not apply this Directive to credit institutions listed in
 Article 2(2) of Directive 77/780/EEC.
 3. Credit institutions which, as defined in Article 2(4) (a)        unchanged
 of Directive 77/780/EEC are affiliated to a central body in
 the same Member State, may be exempted from the
 provisions of this Directive, provided that the totality of
 those affiliated credit institutions and the central body are
 included in consolidated solvency ratios in accordance with
 this Directive.
 (!) OJ No L 197, 18. 7. 1987, p. 33.                                unchanged
 ---pagebreak--- 3. 7. 89                                Official Journal of the European Communities                                No C 167/43
                      ORIGINAL PROPOSAL                                                  AMENDED PROPOSAL
                           Article 2                                                           Article 2
For the purpose of this Directive:                                 For the purpose of this Directive:
(indent 1)                                                         (indent 1)
— 'competent authorities' shall be defined in accordance           unchanged
    with the fifth indent of Article 1 of Council Directive
     83/350/EEC of 13 June 1983 on the supervision of
    credit institutions on a consolidated basis f1),
                                                                   (indent 2)
                                                                   — 'Zone A' shall comprise all Member States and all other
                                                                       countries which are full members of the Organisation
                                                                       for Economic Cooperation and Development or
                                                                       countries which have concluded special lending ar-
                                                                       rangements with the International Monetary Fund
                                                                       associated with the General Arrangements to Borrow;
                                                                       'Zone B' shall comprise all other countries,
(indent 2)                                                         (indent 3)
— 'Domestic credit institutions' shall comprise all credit         — 'Zone A' credit institutions' shall comprise all credit
     institutions authorised in the Member States, in                  institutions authorised in the Member States, in
     accordance with Article 3 of Directive 77/780/EEC, and            accordance with Article 3 of Directive 77/780/EEC,
     branches of those institutions established outside the            including their branches and all private and public
     European Communities,                                             undertakings licensed in other Zone A countries, which
                                                                       satisfy the definition in the first indent of Article 1 of
                                                                       Directive 77/780/EEC, including their branches,
(indent 3)                                                         (indent 4)
— 'foreign credit institutions' in this Directive shall            — 'Zone B credit institutions' shall comprise all private
     comprise all private and public undertakings outside the          and public undertakings licensed outside Zone A which
     Member States which satisfy the definition in the first           satisfy the definition in the first indent of Article 1 of
     indent of Article 1 of Directive 77/780/EEC, including            Directive 77/780/EEC, including their branches,
     their branches,
 (indent 4)
— in the case of central governments and central banks,            deleted
     regional governments and local authorities and the non-
     bank sectors as defined below, 'domestic' shall mean of
     the Member States, 'foreign' shall mean of other
     countries,
 (indent 5)                                                         (indent 5)
— 'non-bank sector' shall be defined as all borrowers other        — 'non-bank sector' shall be defined as all borrowers other
     than credit institutions as defined in the second and              than credit institutions as defined in the third and fourth
     third indents above, central governments and central               indents above, central governments and central banks,
      banks, regional governments and local authorities, the            regional governments and local authorities, the Euro-
     European Communities and the European Investment                   pean Communities and the European Investment Bank
      Bank, and the Bank for International Settlements (BIS)            (EIB), and multilateral development banks as defined
      the International Bank for Reconstruction and Develop-            below,
      ment (IBRD) and the International Monetary Fund
      (IMF),
 (!) OJ No L 193, 18. 7. 1983, p. 18.                               unchanged
 ---pagebreak---   No C 167/44                             Official Journal of the European Communities                                    3. 7. 89
                      ORIGINAL PROPOSAL                                                   AMENDED PROPOSAL
                                                                     (indent 6)
                                                                     — 'multilateral development banks' shall be defined as the
                                                                         International Bank for Reconstruction and Develop-
                                                                         ment and the International Finance Corporation, the
                                                                         Inter-American Development Bank, the African De-
                                                                         velopment Bank, the Nordic Investment Bank, the
                                                                         Caribbean Investment Bank, the Council of Europe
                                                                        Resettlement Fund and other multilateral development
                                                                        banks in which Member States are shareholding
                                                                        members,
 (indent 6)                                                          (indent 7)
 — 'full risk', 'medium risk', 'medium/low risk' and 'low           — 'full risk', 'medium risk', 'medium/low risk' and 'low
     risk' off-balance sheet items are described in Annex 1             risk' off-balance sheet items are described in Article 6(2)
     and listed in Annex 2,                                             and listed in Annex 1,
 — 'participation' shall be defined in accordance with the          deleted
    third indent of Article 1 of Directive 83/350/EEC.
                           Article 3                                                           Article 3
                       General principles
 1. For the purposes of measuring the solvency of credit            unchanged
institutions as defined in Article 1, the competent author-
ities of Member States shall ensure that ratios are
calculated for each credit institution which expresses its
own funds, as defined in Article 4, as a proportion of its
total risk-adjusted assets and off-balance sheet items, as
defined in Article 5.
2. Ratios shall be calculated on a consolidated basis in            unchanged
accordance with Directive 83/350/EEC and Council
Directive 86/635/EEC of 8 December 1986 on the annual
accounts and consolidated accounts of banks and other
financial institutions ( j ). Notwithstanding the above
requirement, unconsolidated ratios shall also be calculated
for all credit institutions. However, the competent
authorities shall have the discretion to require sub-
consolidated rather than unconsolidated ratios for credit
institutions subsidiaries.
3. Without prejudice to the compliance obligations of               unchanged
credit institutions established in Article 9(2), (3) and (4),
the competent authorities shall ensure that the ratios are
controlled not less than twice each year.
4. Valuation of assets and off-balance sheet items shall be         4. Valuation of assets and off-balance sheet items shall be
undertaken in accordance with Directive 86/635/EEC.                 undertaken in accordance with Directive 86/635/EEC.
(!) OJ No L 372, 31. 12. 1986, p. 1.                                unchanged
 ---pagebreak--- 3. 7. 89                                  Official Journal of the European Communities                                No C 167/45
                      ORIGINAL PROPOSAL                                                   AMENDED PROPOSAL
                            Article 4                                                            Article 4
                   Own funds: the numerator                                             Own funds: the numerator
Own funds, as defined in Directive .../.../EEC of... 1988 on         Own funds, as defined in Directive 89/299/EEC of 17 April
the own funds of credit institutions, shall form the                 1989 on the own funds of credit institutions, shall form the
numerator of the solvency ratio.                                     numerator of the solvency ratio.
                            Article 5                                                            Article 5
   Risk adjusted assets and off-balance sheet transactions: the         Risk adjusted assets and off-balance sheet transactions: the
                          denominator                                                          denominator
1. Degrees of credit risk, expressed as percentage weights,          1. Degrees of credit risk, expressed as percentage weights,
shall be assigned to the asset items in accordance with              shall be assigned to the asset items in accordance with
provisions of Article 6. The balance sheet value of each             provisions of Articles 6 and 7. The balance sheet value of
asset shall then be multiplied by the relevant weight to             each asset shall then be multiplied by the relevant weight to
arrive at a risk-adjusted value.                                     arrive at a risk-adjusted value.
2. In the case of the off-balance sheet items included in            2. In the case of the off-balance sheet items listed in
categories (a) to (e) of Article 6, a two-stage calculation, in      Annex 1 a two-stage calculation, presented in Article 6(2),
accordance with rules presented in Annex 1, shall be used            shall be used.
to arrive at risk weights. Risk adjusted values shall be
obtained by multiplying the value of each off-balance sheet
item by the relevant risk weight.
 3. In the case of the interest rate and foreign exchange            3. In the case of the interest rate and foreign exchange
 rate related off-balance sheet items in Article 6(2), the           rate related off-balance sheet items referred to in
potential costs of replacing cash flows in the event of              Article 6(3), and listed in Annex 3 the potential costs of
 counterparty default shall be assessed by the application of        replacing contracts in the event of counterparty default
 either of the two methods presented in Annex 3. These               shall be assessed by the application of either of the two
 costs shall be multiplied by the relevant counterparty              methods presented in Annex 2. These costs shall be
 weights in Article 6(1) to give risk-adjusted values.               multiplied by the relevant counterparty weights in
                                                                     Article 6(1), except that 100 % weights in that Article shall
                                                                     be put at 50 %, to give risk-adjusted values.
 4. The total of the risk-adjusted values of assets and off-         4.    unchanged
 balance sheet items described above shall be the denomi-
 nator of the solvency ratio.
                                                                      (new paragraph)
                                                                      5. When asset items are afforded a lower weight because
                                                                     of the existence of an explicit guarantee or of collateral
                                                                      acceptable to the relevant competent authorities the lower
                                                                      weight shall apply only to that part which is guaranteed or
                                                                      which is fully and completely secured by the collateral.
 ---pagebreak--- No C 167/46                             Official Journal of the European Communities                                    3. 7. 89
                     ORIGINAL PROPOSAL                                                   AMENDED PROPOSAL
                           Article 6                                                           Article 6
1. The following weights shall be applied to the asset and         1. The following weights shall be applied to the asset and
off-balance sheet items shown below, although the                  off-balance sheet items shown below, although the
competent authorities may establish higher weights as they         competent authorities may establish higher weights as they
see fit:                                                           see fit:
(a) Nil weight:                                                    (a) Nil weight:
    — cash in hand or equivalent items,                                (i)   cash in hand or equivalent items,
    — asset items representing claims on 'domestic' central            (ii) asset items representing claims on 'Zone A' central
       governments and central banks,                                        governments and central banks,
    — asset items representing claims carrying the explicit            (iii) asset items representing claims carrying the explicit
       guarantee of 'domestic' central governments and                       guarantee of 'Zone A' central governments and
       central banks,                                                        central banks,
                                                                   [new indent (iv)]
                                                                       (iv) asset items representing claims on Zone B central
                                                                             governments and central banks denominated in the
                                                                             national currency of the borrowers and funded in
                                                                             that currency,
                                                                   [new indent (v)]
                                                                       (v) asset items representing claims carrying the explicit
                                                                             guarantee of Zone B central governments and
                                                                             central banks denominated in the national cur-
                                                                             rency of the guarantor and the borrower and
                                                                             funded in that currency,
    — asset items representing claims on the European                  (vi) asset items representing claims on the European
        Communities and the EIB,                                             Communities,
    — asset items carrying the explicit guarantee of the               (vii) asset items carrying the explicit guarantee of the
        European Communities and the EIB,                                    European Communities,
    — asset items representing claims on the BIS, IBRD and         deleted
        IMF
    — asset items carrying the explicit guarantee of the BIS,      deleted
        IBRD and IMF,
    — all off-balance sheet items incurred on behalf of            deleted
         'domestic' central governments and central banks,
    — all off-balance sheet items carrying the explicit            deleted
         guarantee of 'domestic' central governments and
         central banks,
    — all off-balance sheet items incurred on behalf of the        deleted
         European Communities and the EIB,
    — all off-balance sheet items carrying the explicit             deleted
         guarantee of the European Communities and the
         EIB,
    — all off-balance sheet items incurred on behalf of the         deleted
         BIS, IBRD and IMF,
 ---pagebreak--- 3. 7. 89                                 Official Journal of the European Communities                               No C 167/47
                        ORIGINAL PROPOSAL                                                   AMENDED PROPOSAL
     — all off-balance sheet items carrying the explicit            deleted
          guarantee of the BIS, IBRD and IMF,
     — loans and off-balance sheet items, fully and com-                 (viii) asset items, fully and completely secured to the
          pletely secured to the satisfaction of the relevant                   satisfaction of the relevant competent authorities,
          competent authorities, by any of the asset items                      by collateral in the form of Zone A central
          shown above and by deposits and certificates of                       government securities and securities issued by the
          deposit with the lending institutions,                                European Communities, by cash or by deposits and
                                                                                certificates of deposit issued by the lending
                                                                                institution;
     — all off-balance sheet items having low risk, regard-         deleted
          less of counterparty;
( b ) 1 0 % weight:                                                 (b)10 % weight:
     — off-balance sheet items, having medium risk,                 deleted
          incurred on behalf of 'domestic' credit institutions,
     — off-balance sheet items, having medium risk,                 deleted
          carrying the explicit guarantee of 'domestic' credit
          institutions,
     — off-balance sheet items, having medium risk and an           deleted
          original maturity of up to and including one year,
          incurred on behalf of 'foreign' credit institutions,
     — off-balance sheet items, having medium risk and an           deleted
          original maturity of up to and including one year,
          carrying the explicit guarantee of 'foreign' credit
          institutions;
                                                                    [new indent (i)]
                                                                         (i)    claims fully and completely secured to the satisfac-
                                                                                tion of the relevant competent authorities, by a
                                                                                combination in aggregate of the asset items
                                                                                recognized as appropriate collateral in Article 6(1)
                                                                                 (a) and 6(1) (c).
 (c) 20 % weight:                                                    (c) 20 % weight:
                                                                     [new indent (i)]
                                                                          (i)    asset items representing claims on the EIB,
                                                                     [new indent (ii)]
                                                                          (ii) asset items representing claims carrying the explicit
                                                                                 guarantee of the EIB,
                                                                     [new indent (iii)]
                                                                          (iii) asset items representing claims on multilateral
                                                                                 development banks,
                                                                     [new indent (iv)]
                                                                          (iv) asset items representing claims carrying the explicit
                                                                                 guarantee of multilateral development banks,
 ---pagebreak---                                     Official Journal of the European Communities                                       3. 7. 89
                  ORIGINAL PROPOSAL                                                    AMENDED PROPOSAL
                                                               [new indent (v)]
                                                                    (v) asset items representing claims on Zone A regional
                                                                           governments and local authorities, other than
                                                                           those falling under the exceptional provisions of
                                                                           Article 7,
                                                               [new indent (vi)]
                                                                   (vi) asset items representing claims carrying the explicit
                                                                          guarantee of Zone A regional governments and
                                                                          local authorities, other than those falling under the
                                                                          provisions of Article 7,
— asset items representing claims on 'domestic' credit             (vii) asset items representing claims on Zone A credit
   institutions,                                                          institutions, which do not form an integral part of
                                                                          the own funds of those institutions,
— asset items representing claims, with an original                (viii) asset items representing claims, with a residual
   maturity of up to and including one year, on 'foreign'                 maturity of up to and including one year, on
   credit institutions,                                                   Zone B credit institutions, which do not form an
                                                                          integral part of the own funds of those institutions,
— asset items carrying the explicit guarantee of                  (ix) asset items carrying the explicit guarantee of
   'domestic' credit institutions,                                        Zone A credit institutions,
— asset items representing claims with an original                (x) asset items representing claims with a residual
  maturity of up to and including one year, carrying                     maturity of up to and including one year, carrying
  the explicit guarantee of 'foreign' credit institutions,               the explicit guarantee of Zone B credit institutions,
— off-balance sheet items, having full risk, incurred on      deleted
  behalf of 'domestic' credit institutions,
— off-balance sheet items, having full risk, carrying the     deleted
  explicit guarantee of 'domestic' credit institutions,
— off-balance sheet items, having full risk and an            deleted
  original maturity of up to and including one year,
  incurred on behalf of 'foreign' credit institutions,
— off-balance sheet items, having full risk and an            deleted
  original maturity of up to and including one year
  carrying the explicit guarantee of 'foreign' credit
  institutions,
— loans and full and medium risk off-balance sheet                (xi) asset items, fully and completely secured to the
  items, fully and completely secured to the satisfac-                   satisfaction of the relevant competent authorities,
  tion of the relevant competent authorities, by any of                  by collateral in the form of securities issued by the
  the asset items shown above in the 20 % weight                         EIB and multilateral development banks, Zone A
  category,                                                              regional governments and local authorities and
                                                                         Zone A credit institutions, or by deposits or
                                                                         certificates of deposit with Zone A credit insti-
                                                                         tutions other than the lending institution.
 ---pagebreak--- 3. 7. 89                                    Official Journal of the European Communities                               No C 167/49
                        ORIGINAL PROPOSAL                                                      AMENDED PROPOSAL
     — off-balance sheet items having medium/low risk                  deleted
          incurred on behalf of the 'domestic' and 'foreign'
          non-bank sectors,
     — off-balance sheet items representing local currency             deleted
          claims of 'foreign' branches of domestic credit
          institutions on 'foreign' central governments, funded
          by local currency deposits,
     — cash items in process of collection, where the                  unchanged
          corresponding prior payments have already been
          made;
( d ) 5 0 % weight:                                                    ( d ) 5 0 % weight:
     — off-balance sheet items, having medium risk,                    deleted
          incurred on behalf of 'foreign' central and regional
          governments, local authorities and central banks
          and the 'domestic' and 'foreign' non-bank sectors,
     — off-balance sheet items, having medium risk and an              deleted
          original maturity of more than one year, incurred on
          behalf of 'foreign' credit institutions,
     — off-balance sheet items, having medium risk and an              deleted
          original maturity of more than one year, carrying the
          explicit guarantee of 'foreign' credit institutions,
     — loans to individuals for the purchase of residential                 (i)    claims, fully and completely secured to the
          property in the Community for their own occup-                           satisfaction of the relevant competent authorities,
          ation, fully and completely secured to the satisfac-                     by mortgages on residential property which is or
          tion of the relevant competent authorities, by                           will be occupied by the borrower or which is
          mortgages on the property in question;                                   rented.
(e) 100 % weight                                                       (e) 100 % weight
     — asset items representing claims on 'foreign' central                  (i)   asset items representing claims on Zone B central
          and regional governments, local authorities and                          governments and central banks, except where
          central banks,                                                           denominated in the national currency of the
                                                                                   borrower and funded in that currency,
                                                                       [new indent (ii)]
                                                                             (ii) asset items representing claims on Zone B regional
                                                                                   governments and local authorities,
     — asset items representing claims with an original                      (iii) asset items representing claims with a residual
          maturity of more than one year, on 'foreign' credit                      maturity of more than one year, on Zone B credit
          institutions,                                                            institutions,
 ---pagebreak---  No C 167/50                              Official Journal of the European Communities                                   3. 7. 89
                      ORIGINAL PROPOSAL                                                    AMENDED PROPOSAL
        asset items representing claims on 'domestic' and                (iv) asset items representing claims on Zone A and
        'foreign' non-bank sectors,                                            Zone B non-bank sectors,
        off-balance sheet items, having full risk, incurred on       deleted
        behalf of 'foreign' central and regional governments,
        local authorities and central banks and the 'domes-
        tic' and 'foreign' non-bank sectors,
       off-balance sheet items, having full risk and an             deleted
       original maturity of more than one year, incurred on
       behalf of 'foreign' credit institutions,
       tangible assets in accordance with assets heading                (v)   unchanged
       C.II of Article 9 of Council Directive 78/660/EEC of
       25 July 1978 on the annual accounts of certain types
       of companies, (!)
    — participations where not deducted from own funds,                 (vi) holdings of shares, participations and other
                                                                              elements which form the own funds of other credit
                                                                              institutions, where not deducted from the own
                                                                              funds of the lending institution;
       all other assets except where deducted from own                  (vii) all other assets except where deducted from own
       funds.                                                                 funds, including prepayments and accrued income
                                                                              other than where, in accordance with Directive 86/
                                                                              635/EEC, such items can be assigned to counter-
                                                                              parties in lower weight categories.
2. The methods laid out in Annex 3 shall be applied to              2. The following treatment shall apply to off-balance
interest rate and foreign exchange rate related off-balance         sheet items other than those covered in Article 6(3). They
sheet instruments.                                                  shall first be grouped according to the risk groupings
                                                                    presented in Annex I. The full value of the full-risk items
                                                                    shall be taken into account; 50 % of the value of the
                                                                    medium-risk items; 20 % of the medium-low-risk items;
                                                                    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 weights attributable to
                                                                    the relevant counterparties, in accordance with the
                                                                    treatment of asset items in Article 6(1) and Article 7. In the
                                                                    case of asset sale and repurchase agreements and outright
                                                                    forward purchases, the weights shall be those attaching to
                                                                    the assets in question and not to the counterparties to the
                                                                    transactions.
(!) OJ No L 222, 14. 8. 1978, p. 11.                                unchanged
 ---pagebreak--- 3. 7. 89                                Official Journal of the European Communities                              No C 167/51
                     ORIGINAL PROPOSAL                                                   AMENDED PROPOSAL
                                                                   3. The methods laid out in Annex 2 shall be applied to
                                                                   interest rate and foreign exchange rate contingencies listed
                                                                   in Annex 3.
                                                                   4. Where off-balance sheet items carry explicit guarantees,
                                                                   they shall be weighted as if they were incurred on behalf of
                                                                   the guarantor rather than the counterparty. Where
                                                                   potential exposure arising from off-balance sheet transac-
                                                                   tions is fully and completely secured, to the satisfaction of
                                                                   the relevant competent authorities, by any of the asset items
                                                                   recognised as appropriate collateral in Article 6(1) (a) and
                                                                   6(1) (c), weights of 0 % or 20 % shall apply in accordance
                                                                   with the collateral in question. Where the conditions of
                                                                   Article 6(1) (b) are met a 10 % weight shall apply.
                           Article 7                                                          Article 7
1. Member States shall fix weights of either 0 %, 20 % or           1. Notwithstanding the requirement in Article 6(1) (c),
50 % in the case of asset items representing claims on their       Member States may fix a weight of 0 % for their regional
own regional governments and local authorities, and full           governments and local authorities, if there is no ap-
risk off-balance sheet items incurred on behalf of their own       preciable difference in risk between claims on the latter and
regional governments and local authorities. Medium risk            claims on their central governments because of the revenue
off-balance sheet items incurred on behalf of their own            -raising powers of the regional governments and local
regional governments and local authorities shall cor-              authorities and the existence of specific constitutional
respondingly be weighted at 0 %, 10 % or 20 %. Loans               arrangements acting to reduce the chances of default by the
and off-balance sheet items carrying the explicit guarantee        latter. A nil weight fixed in accordance with these criteria
of a regional or local authority shall have the same weight        will apply to claims on and off-balance sheet items incurred
as loans to, or off-balance sheet items incurred on behalf of,     on behalf of the regional governments and local authorities
the same regional government or local authority.                   in question and claims on others and off-balance sheet
                                                                    items incurred on behalf of others guaranteed by those
                                                                    regional governments and local authorities.
2. Member States shall notify the Commission of their               2. Member States shall notify the Commission if they
weights, the Commission shall disseminate that inform-              believe a nil weight to be justified according to the criteria
ation and Member States shall mutually respect the weights          laid out in paragraph 1. The Commission shall disseminate
chosen by each other. They shall have the discretion to             that information and other Member States may offer the
apply weights of either 0 %, 20 % or 50 % in the case of            credit institutions under the supervision of their competent
those foreign countries determined in accordance with               authorities the possibility of applying a nil weight where
Article 8(2), with medium risk off-balance sheet items              they undertake business with the regional governments and
weighted correspondingly at 0 %, 10 % or 20 %.                      local authorities in question or where they hold claims
                                                                    guaranteed by the latter.
                           Article 8                                                           Article 8
 1. Technical modifications in the areas of this Directive           1. Technical modifications in the areas of this Directive
 shown below may be made in accordance with the                     shown below may be made in accordance with the
 procedure set out in paragraph 3 :                                 procedure set out in paragraph 3 :
 — the minimum established in Article 9,                            — the minimum established in Article 9,
 — the weights and asset items in Article 6,                        — the weights and asset items in Article 6,
 ---pagebreak--- No C 167/52                              Official Journal of the European Communities                                    3. 7. 89
                      ORIGINAL PROPOSAL                                                  AMENDED PROPOSAL
                                                                    — the definition of 'Zone A' in Article 2,
                                                                    — the definition of 'multilateral development banks' in
                                                                       Article 2,
— the list and classification of off-balance sheet items in         — the list and classification of off-balance sheet items in
    Annexes 2 and 4 and their treatment in the calculation             Annexes 1 and 3 and their treatment in the calculation
    of the ratio as described in Article 5 and Annexes 1 and           of the ratio as described in Articles 5 and 6 and Annex 2.
    3.
2. The Commission may also, according to the procedure              deleted
set out in paragraph 3, extend to foreign countries the same
weights applied to domestic central governments, central
banks and credit institutions, where the risks are con-
sidered equivalent, notably in the case of credit institutions,
because of arrangements made in an international context
and similarly to extend the 50 % weight for mortgage-
backed loans for the purchase of property in foreign
countries.
3. The Commission shall be assisted by a Committee                  2. unchanged
composed of representatives from the Member States and
chaired by a representative of the Commission.
The representative of the Commission shall submit to the            unchanged
Committee a plan within a time limit to be fixed by the
Chairman in accordance with the urgency of the matter.
The opinion shall be given on a qualified majority basis
according to Article 148(2) of the Treaty in the case of
decisions which the Council is called upon to take
following a proposal of the Commission. In the Committee
the votes of the representatives shall be weighted according
to the abovementioned article. The Chairman shall not
vote.
The Commission shall implement the envisaged measures               unchanged
when they are in conformity with the opinion of the
Committee.
When the envisaged measures do not conform with the                 unchanged
opinion of the Committee, or in the absence of an opinion,
the Commission shall without delay submit to the Council
a proposal relating to the measures to take. The Council
shall act according to qualified majority voting.
If at the end of the period which will be set in the case of        unchanged
each decision to be taken by the Council as a result of this
paragraph, a period which must not exceed three months
from the day on which the Council was informed, the
Council has not acted, the Commission shall implement the
proposed measures.
                           Article 9                                                           Article 9
 1. Member States shall adopt the measures necessary to             deleted [new Article 11(1)]
comply with the provisions of the Directive by 1 January
 1990.'
 ---pagebreak--- 3. 7. 89                                     Official Journal of the European Communities                           No C 167/53
                       ORIGINAL PROPOSAL                                                    AMENDED PROPOSAL
2. Until 31 December 1992, credit institutions whose                    deleted (new Article 10)
ratios are below 8 % (!) shall not allow their ratios to fall
unless such falls are associated with the issue of new capital
and occur in the period immediately following such
issuance. T h e ' competent authorities shall ensure that
corrective measures are taken if falls occur for any reason
other than that referred to above.
3. With effect from 1 January 1993, credit institutions                 1. With effect from 1 January 1993, credit institutions
shall not allow their ratios, as defined in Articles 3(1) and           shall be required to maintain ratios, as defined in
(2), to fall below 8 % ( ! ). In the event of such an                   Article 3(1) and (2), of at least 8 %.
occurrence, the competent authorities shall ensure that
appropriate measures to restore the ratio to the agreed
minimum are taken as quickly as possible by the credit
institution in question.
4. Notwithstanding paragraph 3, the competent author-                   2. Notwithstanding paragraph 1, the competent author-
ities may establish ratios above 8 %( 1 ) as they consider              ities may establish higher minimum ratios as they consider
appropriate.                                                            appropriate.
5. Member States shall communicate to the Commission                    deleted [new Article 11(2)]
the texts of the main laws, regulations and administrative
provisions which they adopt in the field covered by this
Directive.
                                                                                                 Article 10
                                                                        Until 31 December 1992, credit institutions whose ratios
                                                                        are below 8 % shall be required to ensure that the
                                                                        minimum target is attained without their ratio falling,
                                                                        except temporarily in the case of fluctuations which can
                                                                        occur around the time new capital is raised.
                                                                                                 Article 11
                                                                        1. Member States shall adopt the measures necessary to
                                                                        comply with the provisions of this Directive by 1/1/1991.
                                                                        2. Member States shall communicate to the Commission
                                                                        the texts of the main laws, regulations and administrative
                                                                        provisions which they adopt in the field covered by this
                                                                        Directive.
                            Article 10                                                           Article 12
This Directive is addressed to the Member States.                       unchanged
(!) This figure is provisional. A definitive figure will be proposed    footnote deleted.
    after study of the results of a statistical exercise to be
    undertaken in the first half of 1988.
 ---pagebreak--- No C 167/54                                   Official Journal of the European Communities                                          3. 7. 89
                         ORIGINAL PROPOSAL                                                      AMENDED PROPOSAL
                               ANNEX     1                               deleted
  THE TREATMENT OF OFF-BALANCE SHEET ITEMS IN
                     THE SOLVENCY RATIO
The items shall first be grouped according to the perceived credit
risk attaching to the instrument in question (see Annex 2). 'Full
risk' off-balance sheet items shall be deemed to carry a credit equal
to balance sheet items, and thus their full value taken into account;
'medium risk' items shall be considered to carry less risk and only
one-half of their value taken into account; medium/low risk items
shall be deemed to carry lower risk than the medium category and
one-fifth of their value taken into account; 'low risk' items shall be
considered to carry negligible risk and their value accordingly set at
zero. The second stage shall be to multiply the off-balance sheet
values, adjusted as described above, by the weights attributable to
the relevant counterparties, in accordance with the treatment
afforded to asset items. In the case of asset sale and repurchase
agreements and outright forward purchases, the weights shall be
those attaching to the assets in question and not to the
counterparties to the transactions. Article 6 combines the two-
stage process used for off-balance sheet items into a single
percentage weight.
Where off-balance sheet items carry explicit guarantees, they shall      deleted
be weighted as if they were incurred on behalf of the guarantor
rather than the counterparty. Where potential exposure arising
from off-balance sheet business is fully and completely secured, to
the satisfaction of the relevant competent authorities, by any assets
having a 0 % or 20 % weight, the weight applicable to the
collateral and not to the counterparty shall be used.
                               ANNEX 2                                                                 ANNEX 1
     CLASSIFICATION OF OFF-BALANCE SHEET ITEMS                               CLASSIFICATION OF OFF-BALANCE SHEET ITEMS
Full risk                                                                Full risk
— Guarantees having the character of credit substitutes,                 — Guarantees having the character of credit substitutes,
 — Acceptances,                                                          — Acceptances,
 — Endorsements on bills not carrying the name of other credit           — Endorsements on bills not carrying the name of other credit
     institutions,                                                           institutions,
 — Transactions with recourse,                                           — Transactions with recourse,
 — Irrevocable standby letters of credit having the character of         — Irrevocable standby letters of credit having the character of
     credit substitutes,                                                     credit substitutes,
 — Assets sale and repurchase agreements as defined in Ar-               — Assets sale and repurchase agreements as defined in Ar-
     ticle 12(1) and (2) of Directive 86/635/EEC, if these agreements        ticle 12(1) and (2) of Directive 86/635/EEC, if these agreements
     are treated as off-balance sheet items pending full compliance          are treated as off-balance sheet items pending full compliance
     with Directive 86/635/EEC,                                              with Directive 86/635/EEC,
     Assets purchased under outright forward purchase agreements,            Assets purchased under outright forward purchase agreements,
 ---pagebreak--- 3. 7. 89                                   Official Journal of the European Communities                                     No C 167/55
                       ORIGINAL PROPOSAL                                                      AMENDED PROPOSAL
                                                                      — Forward forward deposits
— The unpaid portion of partly-paid shares and securities,            — The unpaid portion of partly-paid shares and securities,
— Other items also carrying full risk.                                — Other items also carrying full risk.
Medium risk                                                           Medium risk
— Documentary credits issued and confirmed (see also medium/          — Documentary credits issued and confirmed (see also medium/
   low risk),                                                             low risk),
— Warranties and indemnities (including tender, performance,          — Warranties and indemnities (including tender, performance,
   customs and tax bonds) and guarantees not having the                   customs and tax bonds) and guarantees not having the
   character of credit substitutes,                                       character of credit substitutes,
— Asset sale and repurchase agreements as defined in Ar-              — Asset sale and repurchase agreements as defined in Ar-
   ticle 12(3) and (5) of Directive 86/635/EEC,                           ticle 12(3) and (5) of Directive 86/635/EEC,
— Irrevocable standby letters of credit not having the character of   — Irrevocable standby letters of credit not having the character of
   credit substitutes,                                                    credit substitutes,
— Undrawn credit facilities (agreements to lend purchase              — Undrawn credit facilities (agreements to lend, purchase
   securities, provide guarantees, acceptance facilities) with an         securities, provide guarantees, acceptance facilities) with an
   original maturity of more than one year;                               original maturity of more than one year;
— Other items also carrying medium risk.                              — note issuance facilities and revolving underwriting facilities,
                                                                      — Other items also carrying medium risk.
Medium/low risk                                                       Medium/low risk
— Documentary credits in which underlying shipment acts as            — Documentary credits in which underlying shipment acts as
   collateral and other self-liquidating transactions,                    collateral and other self-liquidating transactions,
— Other items also carrying medium/low risk.                          — Other items also carrying medium/low risk.
Low risk                                                              Low risk
— Undrawn credit facilities (agreements to lend, purchase             — Undrawn credit facilities (agreements to lend, purchase
   securities, provide guarantees, acceptance facilities) with an         securities, provide guarantees, acceptance facilities) with an
   original maturity of up to and including one year;                     original maturity of up to and including one year, or which can
                                                                          be unconditionally cancelled at any time without any notice;
— Other items also carrying low risk.                                 — Other items also carrying low risk.
                                                                      Member States shall communicate to the Commission as soon as
                                                                      possible any cases where they have agreed to classify a new off-
                                                                      balance sheet instrument under one of the final indents in each of
                                                                      the risk categories. Such items shall then be definitively classified at
                                                                      Community level in accordance with the procedure set out in
                                                                      Article 8(2).
 ---pagebreak---  No C 167/56                                    Official Journal of the European Communities                                           3. 7. 89
                          ORIGINAL PROPOSAL                                                          AMENDED PROPOSAL
                               ANNEX     3                                                               ANNEX     2
  THE TREATMENT OF INTEREST RATE RELATED OFF-                               THE TREATMENT OF INTEREST RATE RELATED OFF-
                        BALANCE SHEET ITEMS                                                        BALANCE SHEET ITEMS
Subject to the consent of their supervisory authorities, credit           Subject to the consent of their supervisory authorities, credit
institutions shall choose one of the methods presented below to           institutions shall choose one of the methods presented below to
measure the risks associated with the transactions listed in              measure the risks associated with the transactions listed in
Annex 4. Interest and exchange rate contracts traded on                   Annex 3. Interest and exchange rate contracts traded on
recognized exchanges, and exchange rate contracts with an                 recognized exchanges where they are subject to daily margin
original maturity of seven days or less shall be excluded.                requirements, and exchange rate contracts with an original
                                                                          maturity of fourteen calendar days or less may be excluded.
                                                                          Where there is a separate legal contract, acceptable to the national
                                                                          supervisory authorities, between the credit institution and its
                                                                          counterparty under which mutual obligations to deliver payments
                                                                          in a common currency on a given date are automatically
                                                                          amalgamated with other similar obligations due on the same date,
                                                                          the single net amount fixed by such novation shall be weighted, in
                                                                          the place of the gross amount involved.
Method 1: the 'marking to market'         approach                        Method 1: the 'marking to market'        approach
Step (a): on the basis of attaching current market values to              Step (a): on the basis of attaching current market values to
contracts (marking to market) the current replacement costs of all        contracts (marking to market) the current replacement costs of all
contracts with a positive value shall be obtained.                        contracts with a positive value shall be obtained.
Step (b): to obtain a figure for potential future credit exposures the    Step (b): to obtain a figure for potential future credit exposures (*)
notional principal amounts or values underlying the institutions'         the notional principal amounts or values underlying the in-
aggregate books shall be multiplied by the following per-                 stitutions' aggregate books shall be multiplied by the following
centage (*):                                                              percentage:
              Original              Interest rate      Exchange rate                     Original            Interest rate      Exchange rate
             maturity                 contracts          contracts                       maturity              contracts           contracts
Less t h a n o n e year                  nil               1 %            O n e year o r less                     nil                1 %
O n e year a n d over                  0,5 %               5 %            M o r e t h a n o n e year            0,5 %                5%
Step (c): the sum of current replacement cost and potential future        unchanged
credit exposure shall be multiplied by the risk weight attached to
the relevant counterparties in Article 6.
(*) The percentages are provisional and subject to revision.              Footnote deleted.
                                                                          (!) Except in the case of single currency 'floating/floating' interest
                                                                               rate swaps in which the current replacement cost only will be
                                                                               calculated.
 ---pagebreak--- 3. 7. 89                                      Official Journal of the European Communities                                          No C 167/57
                       ORIGINAL PROPOSAL                                                          AMENDED PROPOSAL
Method 2: the original exposure     approach                             Method 2: the original exposure          approach
Step (a): the notional principal amounts of each instrument shall        Step (a): the notional principal amounts of each instrument shall
be multiplied by the percentages given below ( J ):                      be multiplied by the percentages given below:
            Original              Interest rate       Exchange rate                   Original                  Interest rate       Exchange rate
            maturity                contracts           contracts                   maturity (')                  contracts             contracts
Less than one year                   0,5 %                2%             One year or less                          0,5 %                  2%
One year and less                                                        More than one year and
than two years                       1 %                  6%             less than two years                       1 %                    5 %
Additional allowance                                                     Additional allowance
for each subsequent                                                      for each subsequent
year                                 1 %                  4%             year                                      1 %                    3 %
                                                                         t1) In the case of interest rate contracts, credit institutions may choose,
                                                                             subject to the consent of their supervisory authorities, either original or
                                                                             residual maturity.
Step (b): the original exposures thus obtained shall be multiplied       Step (b): the original exposures thus obtained shall be multiplied
by the counterparty weights given in Article 6.                          by the counterparty weights given in Article 6, subject to a
                                                                         maximum weight of 50 %.
(!) These percentages are provisonal and subject to revision.            Footnote deleted.
                            ANNEX      4                                                                  ANNEX      3
 TYPES OF INTEREST AND FOREIGN EXCHANGE RATE                               TYPES OF INTEREST AND FOREIGN EXCHANGE RATE
           RELATED OFF-BALANCE SHEET ITEMS                                           RELATED OFF-BALANCE SHEET ITEMS
Interest rate contracts                                                  unchanged
— Single-currency rate swaps
— Basis swaps
— Forward rate agreements
— Interest rate futures
— Interest rate options purchased
— Other contracts of similar nature
 Exchange rate contracts                                                  unchanged
— Cross-currency interest rate swaps
— Forward foreign exchange contracts
 — Currency futures
 — Currency options purchased
 — Other contracts of similar nature.