CELEX: 52004PC0486(01)
Language: en
Date: 2004-07-14
Title: Proposal for a Directive of the European Parliament and of the Council relating to the taking up and pursuit of the business of credit institutions (recast) {SEC(2004) 921}

EN
EN    EN
 ---pagebreak---                     COMMISSION OF THE EUROPEAN COMMUNITIES
                                                     Brussels, 14.7.2004
                                                     COM(2004) 486 final
                                                     2004/0155 (COD)
                                                     2004/0159 (COD)
                                                     Volume I
                                         Proposal for
      DIRECTIVES OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
    Re-casting Directive 2000/12/EC of the European Parliament and of the Council of 20
    March 2000 relating to the taking up and pursuit of the business of credit institutions
   and Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment
                                 firms and credit institutions.
                                (presented by the Commission)
                                       {SEC(2004) 921}
EN                                                                                          EN
 ---pagebreak---                                     EXPLANATORY MEMORANDUM
   1.         GENERAL COMMENTS
   A single financial market in the EU will be a key factor in promoting the competitiveness of
   the European economy and the lowering the capital cost to companies. The Financial Services
   Action Plan announces a directive on new capital adequacy rules for credit institutions and
   investment firms in 2004, in step with progress at G-10 level in the Basel Committee on
   Banking Supervision1.
   The agreement by the G-10 Basel Committee on Banking Supervision of the so-called Basel
   Accord in 1988 (Basel I) led to the adoption of minimum capital requirements across over 100
   countries2. It was broadly contemporaneous to the adoption of key EU directives (Directive
   89/299/EEC of 17.4.1989 on own funds, Directive 89/647/EEC of 18.12.1989 on a solvency
   ratio, consolidated in Directive 2000/12/EC of the European Parliament and of the Council of
   20.3.2000 relating to the taking up and pursuit of the business of credit institutions).
   These directives addressed credit institutions’ risks arising from credit-granting activities.
   Directive 93/6/EEC of 15.3.1993 on the capital adequacy of investment firms and credit
   institutions extended both the credit risk and market risk rules to investment firms.
   1) The need for improved European requirements.
   The existing rules have made a significant contribution to the single market and high
   prudential standards. However, various important shortcomings have been identified.
   1. Crude estimates of credit risks result in an extremely crude measure of risk and is in danger
   of falling into disrepute.
   2. Scope for capital arbitrage: innovations in markets have enabled financial institutions to
   effectively arbitrage the mismatch between institutions’ own allocation of capital to risks and
   minimum capital requirements.
   3. Lack of recognition of effective risk mitigation: the present Directives do not provide
   appropriate levels of recognition for risk mitigation techniques.
   4. Incompleteness of the risks covered under the existing directives, including operational risk,
   which are not subject to any capital charges.
   5. Absence of requirement for supervisors to evaluate the actual risk profile of credit
   institutions to satisfy themselves that adequate capital is held having regard to that risk
   profile.
   1
            The Basel Committee on Banking Supervision was established by the central bank Governors of the
            Group of Ten (G-10) countries. It consists of representatives of the authority responsible for prudential
            supervision of banks from the following countries: Belgium, Canada, France, Germany, Italy, Japan,
            Luxembourg, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom and the United States.
            The European Commission, along with the European Central Bank, participates as an observer.
   2
            While formally agreed by the authorities of the G-10 group of industrialised countries for application to
            internationally active banks, the 1988 Accord has been applied throughout the world to banks of all
            sizes and levels of complexity.
EN                                                         2                                                          EN
 ---pagebreak---    6. Absence of requirement for supervisory cooperation: in an increasingly cross-border
   market authorities must cooperate effectively with each other in the supervision of cross-
   border groups to reduce regulatory burdens.
   7. Absence of proper market disclosures: the present Directives do not facilitate effective
   market discipline for reliable information for market participants to make well-founded
   assessments.
   8. Lack of flexibility in the regulatory framework: the current EU system the lacks the
   flexibility to keep pace with rapid developments in financial markets and risk management
   practices, and with improvements in regulatory and supervisory tools.
   What would happen under a “no policy change” scenario?
   There is strong consensus that the present situation is unsustainable. Capital requirements and
   risks would continue to be misaligned resulting in limited effectiveness of the prudential rules
   and increased risks to consumers and financial stability. The full extent of the risks that some
   financial institutions are undertaking would still not be captured. In addition, the newest and
   most effective risk management techniques would not be actively encouraged or recognised
   and financial services groups operating in more than one Member State would continue to be
   subject to disproportionate burdens resulting from multiple layers of regulation and
   supervision. Finally, the EU would be unable to benefit appropriately from future
   developments, given the difficulty in speedily updating the current EU regulatory framework.
   In view of the proposed global implementation of the new Basel Accord the EU financial
   services sector would be significantly disadvantaged compared with its overseas competitors.
   2) The approach of the Directive
   The Commission’s 1998 Financial Services Action Plan stated that the EU needed accurate,
   internationally consistent, up to date prudential standards. They should also be proportionate
   recognising the reduction in risks arising from the context in which exposures are incurred,
   and in particular lending to consumers and to small- or medium-sized entities. Rules should
   apply to both credit institutions and investment firms (level playing field) but also need to be
   proportionate and take fully into account the ‘biodiversity’ of EU financial institutions.
   2.        CONSULTATION AND IMPACT ASSESSMENT
   a) Consultation of stakeholders and interested parties
   The Commission has been engaged in consultation with stakeholders and interested parties
   since November 1999. Three full consultation papers have been issued on 22.11.1999,
   5.2.2001 and 1.7.2003. A full and structured dialogue with stakeholders was organised on
   18.11.2002. Consultation papers on specific technical issues have been published (real estate
   and covered bonds on 7.4. 2003; ‘expected losses and unexpected losses´ on 26.11.2003;
   collective investment undertakings on 3.2.2004).
   Commentators have generally been very supportive of the major objectives of the project.
   Enhanced risk-sensitivity leading to greater financial stability is supported and there is now a
   pressing need for the rules to be updated, to respond to the significant advances in techniques
   for risk measurement and management in financial services, and to reflect increased
   regulatory and supervisory sophistication. There is strong support for the Commission’s
EN                                                 3                                                EN
 ---pagebreak---    approach that the EU capital framework should be revised consistent with the new
   international framework but differentiated where necessary for EU specificities.
   Less complex institutions
   There is broad and significant support for the application of the new rules in Europe – to all
   credit institutions and investment services providers whatever the legal nature and complexity
   of the institution, also to avoid ‘second class’ institutions that would be likely to result if some
   were excluded. This reflects the perception that the proposed new framework has been well
   designed for the purposes of broad application.
   Flexibility of the new directive
   There is continued wide and strong support for the approach proposed to ensure that the new
   framework is responsive to market and supervisory innovation to maintain an optimally
   efficient and competitive EU financial services sector. Stakeholders support the approach
   where enduring principles and objectives are set out in the articles and provide the mandate
   for the more detailed and technical provisions contained in the annexes. The procedure for
   amending the annexes must ensure full and effective consultation with interested parties.
   Investment firms
   Significant modifications have been introduced to address concerns expressed by some from
   the investment firm sector about being subject to capital requirements which they perceive to
   be more appropriate for credit institutions.
   Complexity
   Some respondents asked for simplification and less prescription. The Commission has
   increased the clarity and user-friendliness of the text. The design will be attractive to those
   institutions seeking simple rules to apply or wishing to progress gradually to more complex
   capital rules. The proposed new framework contains a range of options and approaches of
   different degrees of sophistication.
   Since 1999 there have also been several consultations on detailed issues. The proposal has
   been taken account of very detailed and useful comments from interested parties, in particular
   the banking and investment firm industry.
   b) Impact assessment
   An extended impact assessment has been carried out to identify whether there is a need for
   action at EU level and, if so, the action required.
   The Basel Committee published a quantitative impact study (QIS3) involving credit
   institutions across 40 countries to assess the impact of the new Basel proposals on banks'
   minimum capital requirements. The Commission assisted in extending this study to EU
   countries not represented in Basel. The key conclusions were that the new rules will in
   general reduce capital requirements for EU credit institutions by around 5% compared to
   present levels. Furthermore, the outcomes for the different approaches are in line with
   objectives – particularly combining capital neutrality with appropriate incentives for
   institutions to move towards more sophisticated approaches. Finally, smaller domestic credit
   institutions adopting the simple approach will face slightly reduced capital charges; larger
   internationally active credit institutions adopting the more advanced approach will face
   substantially unchanged capital charges; smaller but specialised and sophisticated EU credit
   institutions adopting the advanced approach might face substantially lower capital
EN                                                   4                                                  EN
 ---pagebreak---    requirements than at present. Importantly, the main source of reduction in capital
   requirements is the ‘retail’ portfolio, which is mostly composed of loans to Small and
   Medium Enterprises (SMEs) below EUR 1 million and residential mortgage loans. The new
   operational risk capital charge is the main source of offset of this decrease in capital
   requirements for credit institutions.
   In addition, at the request of the Barcelona European Council the Commission commissioned
   a study on the consequences of the draft proposed new capital requirements for credit
   institutions and investment firms in the EU3. The final report, prepared by
   PricewaterhouseCoopers, is positive about the impact (with only two areas of criticism –
   investment firms and venture capital - both of which have been addressed in the
   Commission’s proposals).4 The key conclusions are that the new capital requirements
   framework should be positive for the EU, and for prudential regulation in the EU. EU credit
   institutions’ capital requirements should decrease by ± 5% (€ 90 billion) and translate into an
   annual increase in profits of ± € 10-12 billion. There is no disadvantage for smaller credit
   institutions and no indication that the new regime will force mergers or consolidation. The
   decision to cover all credit institutions in the directive will not put EU firms at a competitive
   disadvantage, nor is the US decision to apply only advanced approaches to some 20 big credit
   institutions a significant competitive factor. Implementation costs for EU credit institutions
   are not solely driven by Basel II and many of these investments (perhaps as high as 80%)
   would have happened anyway, although over a longer period. Importantly, there will be no
   negative impact on the availability and cost of finance for SMEs in most EU Member States
   (‘procyclicality’ effects are less - and less damaging - than the present rules). SME fears stem
   from insufficient information understanding of Basel II. The macro-economic effects of Basel
   II on the EU-economy are small - there could be a benign supply-side shock to the economy
   reducing the cost of capital to firms and generating an increase of 0.07% in EU GDP. In
   general the new capital framework will reduce the banking system’s vulnerability through
   greater awareness of risk, improved risk management, and a more efficient allocation of
   capital should have beneficial long-run consequences for the EU economy.
   3.        LEGAL BASIS
   The proposals are based on Article 47(2) of the Treaty, which is the legal basis to adopt
   Community measures aimed at achieving the Internal Market in financial services. The
   chosen instrument is a Directive as the most appropriate to achieve the objectives and it
   amends existing directives covering the same technical issues. Its provisions do not go beyond
   what it is necessary to achieve the objectives pursued.
   4.        COMMENTS ON THE ARTICLES
   The proposals apply the ‘re-casting technique’ (Interinstitutional Agreement 2002/C 77/01)
   enabling substantive amendments to existing legislation without a self-standing amending
   directive. This reduces complexity and makes EU legislation more accessible and
   comprehensible.
   3
            OJ S167 of 29/08/2002,
   4
            Available on Commission website - http://europa.eu.int/comm/internal_market/regcapital/index_en.htm
EN                                                       5                                                      EN
 ---pagebreak---    Amendments of a non-substantive nature are made to many provisions to improve the
   structure, drafting and readability of the directives.
   A.        DIRECTIVE 2000/12/EC
   Article 4: Definitions
   Article 4 contains certain new definitions concerning essential concepts to clarify their
   meaning and contribute to a better understanding.
   Article 22:
   The existing wording has been amended to clarify and develop the obligation for credit
   institutions to have in place effective internal risk management systems. Given the diversity
   of credit institutions covered, these requirements will have to be met on a proportionate basis.
   Relevant technical provisions are in Annex V.
   Articles 56-67:
   A small number of amendments have been made. Although it is not intended to review the
   definition of ‘own funds’, as a consequence of the modified approach to expected loss in the
   Basel Committee (‘Madrid decision’), some limited amendments are necessary.
   Articles 68-75:
   Credit institutions must hold adequate own funds on an ongoing basis and state the minimum
   level of those own funds. The provisions specify how the requirements should be met if the
   credit institution is part of a group (the existing option for Member States’ authorities to
   waive certain requirements has been retained but with more precision). The calculation of the
   requirements has been clarified in the light of the introduction of Regulation (EC)
   no.1606/2002 on international accounting standards.
   Articles 76-101:
   These provisions replace the existing solvency ratio requirements for credit risk and introduce
   two methods to calculate risk weighted exposure amounts.
   The Standardised Approach (Art. 78-83) is based on the existing framework, with risk
   weights determined by the allocation of assets and off-balance sheet items to a limited number
   of risk buckets. Risk sensitivity has been increased by the number of exposure classes and risk
   buckets (Art. 79). There are lower risk weights for non-mortgage retail items (75%) and
   residential mortgages (35%). A 150% risk weight for assets which are 90 days past due
   (100% for residential mortgages) is introduced. The use of credit rating agencies’ ratings to
   assign risk weights where these are available (‘external ratings’) is permitted (Art 81-83).
   Relevant technical provisions are in Annex VI.
   The Internal Ratings Based (IRB) approach (Art 84-89), permits credit institutions to use their
   own estimates of the risk parameters inherent in their different credit risk exposures. These
   parameters form the inputs into a prescribed calculation designed to provide soundness to a
   99.9% confidence level. The ‘Foundation’ Approach allows credit institutions to use their
   own estimates of probability of default, while using regulatory prescribed values for other risk
EN                                                   6                                              EN
 ---pagebreak---    components. Under the ‘Advanced’ Approach, credit institutions may use their own estimates
   for losses given default and their exposure at default. Credit institutions are allowed to use
   pooled data in the estimation of risk parameter values. This allows smaller credit institutions
   to apply a more risk sensitive approach to calculating capital requirements.
   The proposed ‘roll-out’ rules (Art. 85) for the IRB approach provide flexibility for credit
   institutions to move different business lines and exposure classes to the Foundation or the
   Advanced IRB Approach during a reasonable timeframe. ‘Partial’ use is allowed for non-
   material exposure classes and business lines (capital requirements can be calculated under the
   Standardised Approach even if a credit institution uses the IRB Approach for other exposure
   classes). The proposed EU framework recognises that, for small credit institutions the
   requirement to develop a rating system for certain counterparties is potentially very
   burdensome. Permanent partial use for these exposure classes is proposed even in cases where
   credit institutions’ exposures to such counterparts are material (Art. 89).
   Relevant technical provisions for the IRB approach are in Annex VI.
   Articles 90-93:
   The rules identify common issues for mitigation techniques and treat common underlying
   risks or economic effects consistently. These include the recognition of a wider range of
   collateral and guarantee/credit derivative providers than at present. The IRB Foundation
   Approach gives a prudentially appropriate level of recognition to financial receivables and
   physical collateral. Alternative methodologies are available for credit institutions to choose
   between methods of different levels of complexity (a Simple Method – based on an easy-to-
   use ‘risk weight substitution’ approach; or a Comprehensive Method – involving the
   application of volatility adjustments to the value of the collateral received). To calculate
   volatility adjustments more and less complex approaches are made available (a simple
   ‘Supervisory’ approach where the amounts of the benchmark volatility adjustments are set out
   in a table; or a more risk-sensitive ‘Own Estimates’ approach). Relevant technical provisions
   are in Annex VIII.
   Articles 94-101:
   These articles introduce for the first time a harmonised set of rules for capital requirements for
   securitisation activities and investments. This provides a significantly improved capital
   requirements framework – allowing credit institutions to take advantage of the funding,
   balance-sheet management and other advantages that such transactions can deliver. It will also
   reduce the extent to which securitisation has been seen as an instrument of capital arbitrage.
   Relevant technical provisions are in Annex IX.
   Articles 102-105:
   These provisions introduce requirements to meet the operational risk faced by credit
   institutions. Three different methodologies are available. A simple approach (Art. 103) based
   on a single income indicator (Basic Indicator Approach - BIA). This approach provides a
   capital buffer against operational risk, without requiring credit institutions to develop
   sophisticated and costly information systems about their risk exposure. A more precise
   approach based on business lines (Standardised Approach - STA) (Art. 104) is more risk-
   sensitive as the capital requirement for operational risk is differentiated to reflect the relative
   risks of different business lines. This approach is likely to be attractive to a large number of
   smaller / less complex credit institutions. More sophisticated methodologies (Advanced
EN                                                  7                                                  EN
 ---pagebreak---    Measurement Approaches - AMAs) (Art. 105) generate their own measures of operational
   risk, subject to more demanding risk management standards. AMAs are expected to be
   gradually adopted mainly by large internationally active credit institutions and smaller
   specialised credit institutions which have developed advanced risk monitoring systems for
   their main activities. Relevant technical provisions are in Annex X.
   Articles 106-119:
   A small number of amendments bring consistency between capital requirements and the large
   exposures rules, in particular to reflect the expanded recognition of credit risk mitigation
   techniques.
   Article 123-124:
   These Articles reflect the second ‘pillar’ of the Basel Committee’s capital accord. Art. 51A
   requires credit institutions to have in place internal processes to measure and manage their
   risk and the amount of ‘internal’ capital they themselves deem adequate to support those risks.
   Competent authorities are required (Art. 124) to review compliance by credit institutions with
   the various legal obligations for organisation and risk control, and to evaluate the risks taken
   by credit institutions. This assessment will be used by supervisors to determine whether
   weaknesses exist in controls and capital held. Relevant technical provisions are in Annex
   XIII.
   Articles 125-143:
   There is an increasing degree of EU cross-border business and a trend towards centralisation
   of risk management within cross-border groups. This requires improved coordination and
   cooperation amongst national supervisory authorities in the EU. The existing and well
   established role of the consolidating supervisor has thus been developed further. Under Art.
   136 supervisors will be provided with a minimum harmonised range of powers to require
   credit institutions to address any inadequacies in the requirements of the Directive.
   Article 144:
   A minimum set of disclosure requirements exists for Member States’ authorities to enhance
   convergence of implementation and introduce transparency.
   Articles 145-149:
   These provisions reflect the ‘third’ pillar of the Basel Committee’s new capital accord. The
   disclosure of information by credit institutions to market participants contributes to greater
   financial soundness and stability, maintains a level playing field and respects the sensitivity of
   certain information. Art. 147 requires disclosure on a minimum annual basis for most credit
   institutions - more frequent disclosure may be necessary in the light of specific criteria.
   Relevant technical provisions are in Annex XII.
   Article 150:
   The Directive needs to keep pace with market developments. The necessary degree of
   flexibility is provided by making a distinction between core and technical rules (particularly
   in the annexes to the directive) that may need adaptations in the short to medium term. Art.
   150 adds new technical areas to those in Directive 2000/12/EC (introduced in 1989) and
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 ---pagebreak---    proposes that the new technical Annexes should be able to be modified following the same
   rapid procedure.
   B.       DIRECTIVE 93/6/EEC ON       THE  CAPITAL ADEQUACY       OF INVESTMENTS     FIRMS  AND
            CREDIT INSTITUTIONS
   Article 2: Scope
   Article 2 specifies how the requirements apply to individual investment firms, groups of
   investment firms, and mixed groups.
   Article 3: Definitions
   There are certain new and amended definitions on essential concepts to clarify their meaning
   and contribute to a better understanding.
   Article 11: Trading book capital treatment
   There is an enhanced definition of the ‘trading book’ to increase certainty as to the capital
   requirements that apply and to restrict possible arbitrage between the ‘banking book’ /
   ‘trading book’ boundary. Relevant technical provisions are set out in Annex VII.
   Articles 18 and 20:
   Article 18 prescribes, for credit institutions and investment firms, the minimum capital
   requirements for market risk. The treatment of positions in collective investment undertakings
   and credit derivatives and a number of other modifications for increased risk-sensitivity are
   new. Relevant technical provisions are in Annexes I to VII. Article 20 extends the rules on
   capital requirements for credit risk and operational risk in Directive 2000/12 to investment
   firms, as at present. New credit risk elements include the provision of a treatment for credit
   derivatives and an amended measure of exposure for repurchase transactions and
   securities/commodities financing transactions. For operational risk there are significant
   modifications to take account of the specific features of the investment firm sector, with an
   option to continue the ‘Expenditure Based Requirement’ for investment firms falling into the
   low-, medium- and medium/high-risk categories.
   Article 28: Large exposures
   The current situation is continued where credit institutions and investment firms are subject to
   the same rules, subject to modifications to large exposures for trading book transactions. A
   new element is an amended measure of exposure for repurchase transactions and
   securities/commodities financing transactions. Relevant technical provisions are in Annex VI.
   Article 33: Valuation of positions for reporting
   Enhanced requirements for the valuation of trading book positions are prescribed for
   prudential soundness in the context of rules designed for trading book positions to be priced
   on a daily basis. Relevant technical provisions are in Annex VII.
   Article 22: Consolidated requirements
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 ---pagebreak---    The existing option for competent authorities to waive the application of consolidated
   requirements for groups consisting of investment firms is continued subject to more
   prudentially sound conditions.
   Article 34: Risk management and capital assessment
   Article 34 incorporates the obligation for credit institutions (Article 17 of Directive 2000/12),
   for investment firms to have in place effective internal risk management systems. Given the
   diversity of the institutions covered, these requirements will have to be met on a proportionate
   basis. It also applies the requirement in Article 51A of Directive 2000/12 to investment firms
   to have internal processes to measure and manage the risk they are exposed to and the amount
   of capital (‘internal’ capital) they deem adequate to support those risks. It adds to the existing
   risk management requirements for investment firms in Directive 2004/39/EC.
   Article 37: Supervision
   This Article applies the rules in Directive 2000/12 mutatis mutandis to investment firms.
   Article 42
   As for Directive 2000/12, Directive 93/6 need to keep pace with market developments. The
   necessary flexibility is brought by distinguishing between core and technical rules
   (particularly in the annexes) that will need adaptations in the short to medium run. The
   technical Annexes should be able to be modified following a rapid procedure. To reflect
   expected further important developments in regulatory practice in the coming years, a review
   clause is included for the treatment of counterparty risk.
EN                                                 10                                                 EN
 ---pagebreak---                                                                            2000/12/EC
                                                                 2004/0155 (COD)
                                                  Proposal for a
        DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
       relating to the taking up and pursuit of the business of credit institutions (recast)
                                                                           new
                                           (Text with EEA relevance)
                                                                           2000/12/EC (adapted)
   THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty establishing the European Community, and in particular the first
   and third sentences of Article 47(2) thereof,
   Having regard to the proposal from the Commission,
   Having regard to the opinion of the Economic and Social Committee5,
   Acting in accordance with the procedure laid down in Article 251 of the Treaty6,
   Whereas:
                                                                           2000/12/EC Recital 1 (adapted)
   (1)     Council Directive 73/183/EEC of 28 June 1973 on the abolition of restrictions on
           freedom of establishment and freedom to provide services in respect of self-employed
           activities of banks and other financial institutions7, first 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
           institutions8, Council Directive 89/299/EEC of 17 April 1989 on the own funds of
           credit institutions9, second Council Directive 89/646/EEC of 15 December 1989 on the
           coordination of laws, regulations and administrative provisions relating to the taking
   5
           OJ C 157, 25.5.1998, p. 13 ⌦ […] ⌫ .
   6
           Opinion of the European Parliament of 18 January 2000 (not yet published in the Official Journal)
           ⌦ […] ⌫ and Council Decision of 13 March 2000 (not yet published in the Official Journal)
           ⌦ […] ⌫ .
   7
           OJ L 126, 26.5.2000, p.1, as last amended by the Act of Accession 2003
   8
           OJ L 126, 26.5.2000, p.1, as last amended by the Act of Accession 2003
   9
           OJ L 126, 26.5.2000, p.1, as last amended by the Act of Accession 2003
EN                                                       11                                                  EN
 ---pagebreak---            up and pursuit of the business of credit institutions10, Council Directive 89/647/EEC of
           18 December 1989 on a solvency ratio for credit institutions11, Council Directive
           92/30/EEC of 6 April 1992 on the supervision of credit institutions on a consolidated
           basis12, and Council Directive 92/121/EEC of 21 December 1992 on the monitoring
           and control of large exposures of credit institutions13 have been frequently and
           substantially amended. For reasons of clarity and rationality, the said Directives
           therefore, should be codified and combined in a single text. ⌦ Directive 2000/12/EC
           of the European Parliament and of the Council of 20 March 2000 relating to the taking
           up and pursuit of the business of credit institutions14 has been substantially amended
           several times. Since further amendments are to be made, it should be recast in the
           interest of clarity. ⌫
                                                                           2000/12/EC Recital 2 (adapted)
   Pursuant to the Treaty, any discriminatory treatment with regard to establishment and to the
   provision of services, based either on nationality or on the fact that an undertaking is not
   established in the Member State where the services are provided, is prohibited.
                                                                           2000/12/EC Recital 3
   (2)     In order to make it easier to take up and pursue the business of credit institutions, it is
           necessary to eliminate the most obstructive differences between the laws of the
           Member States as regards the rules to which these institutions are subject.
                                                                           2000/12/EC Recital 4 (adapted)
   (3)     This Directive constitutes the essential instrument for the achievement of the internal
           market, a course determined by the Single European Act and set out in timetable form
           in the Commission's White Paper, from the point of view of both the freedom of
           establishment and the freedom to provide financial services, in the field of credit
           institutions.
                                                                           2000/12/EC Recital 5 (adapted)
   (4)     Measures to coordinate credit institutions must, both in order to protect savings and to
           create equal conditions of competition between these institutions, apply to all of them.
           Due regard must ⌦ should however ⌫ be had, where applicable, to the objective
           differences in their statutes and their proper aims as laid down by national laws.
                                                                           2000/12/EC Recital 6 (adapted)
   (5)     The scope of those measures should therefore be as broad as possible, covering all
           institutions whose business is to receive repayable funds from the public, whether in
   10
           OJ L 126, 26.5.2000, p.1, as last amended by the Act of Accession 2003
   11
           OJ L 126, 26.5.2000, p.1, as last amended by the Act of Accession 2003
   12
           OJ L 126, 26.5.2000, p.1, as last amended by the Act of Accession 2003
   13
           OJ L 126, 26.5.2000, p.1, as last amended by the Act of Accession 2003
   14
           OJ L 126, 26.5.2000, p.1 as last amended by Directive 2004/xx/EC (OJ L, […])
EN                                                       12                                               EN
 ---pagebreak---        the form of deposits or in other forms such as the continuing issue of bonds and other
       comparable securities and to grant credits for their own account. Exceptions must
       ⌦ should ⌫ be provided for in the case of certain credit institutions to which this
       Directive cannot apply. The provisions of this Directive shall ⌦ should ⌫ not
       prejudice the application of national laws which provide for special supplementary
       authorisations permitting credit institutions to carry on specific activities or undertake
       specific kinds of operations.
                                                               2000/12/EC Recital 7 (adapted)
   (6) The approach which has been adopted is ⌦ It is appropriate ⌫ to achieve
       ⌦ effect ⌫ only the essential harmonisation necessary and sufficient to secure the
       mutual recognition of authorisation and of prudential supervision systems, making
       possible the granting of a single licence recognised throughout the Community and the
       application of the principle of home Member State prudential supervision. Therefore,
       the requirement that a programme of operations must be produced should be seen
       merely as a factor enabling the competent authorities to decide on the basis of more
       precise information using objective criteria. A measure of flexibility may
       ⌦ should ⌫ none-the-less be possible as regards the requirements on the legal form
       of credit institutions of ⌦ concerning ⌫ the protection of banking names.
                                                               new
   (7) Since the objective of the proposed action cannot be sufficiently achieved by the
       Member States and can therefore, by reason of the scale and the effects of the action,
       be better achieved at Community level, the Community may adopt measures, in
       accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In
       accordance with the principle of proportionality, as set out in that Article, this
       Directive confines itself to the minimum required in order to achieve those objectives
       and does not go beyond what is necessary for that purpose.
                                                               2000/12/EC Recital 8 (adapted)
   (8) Equivalent financial requirements for credit institutions are necessary to ensure similar
       safeguards for savers and fair conditions of competition between comparable groups of
       credit institutions. Pending further coordination, appropriate structural ratios should be
       formulated that will make ⌦ making ⌫ it possible within the framework of
       cooperation between national authorities to observe, in accordance with standard
       methods, the position of comparable types of credit institutions. This procedure should
       help to bring about the gradual approximation of the systems of coefficients
       established and applied by the Member States. It is necessary, however to make a
       distinction between coefficients intended to ensure the sound management of credit
       institutions and those established for the purposes of economic and monetary policy.
                                                               2000/12/EC Recital 9 (adapted)
                                                               new
   (9) The principles of mutual recognition and home Member State supervision require that
       Member States' competent authorities should not grant or should withdraw ⌦ an ⌫
EN                                              13                                                EN
 ---pagebreak---            authorisation where factors such as ⌦ the ⌫ content of the activities programmes,
           the geographical distribution ⌦ of activities ⌫ or the activities actually carried on
           indicate clearly that a credit institution has opted for the legal system of one Member
           State for the purpose of evading the stricter standards in force in another Member State
           within whose territory it carries on or intends to carry on the greater part of its
           activities. A credit institution which is a legal person must ⌦ should ⌫ be authorised
           in the Member State in which it has its registered office. A credit institution which is
           not a legal person must ⌦ should ⌫ have its head office in the Member State in
           which it has been authorised. In addition, Member States must ⌦ should ⌫ require
           that a credit institution's head office always be situated in its home Member State and
           that it actually operates there.
                                                                      2000/12/EC Recital 10
                                                                  (adapted)
   (10)    The competent authorities should not authorise or continue the authorisation of a credit
           institution where they are liable to be prevented from effectively exercising their
           supervisory functions by the close links between that institution and other natural or
           legal persons. Credit institutions already authorised must ⌦ should ⌫ also satisfy
           the competent authorities in that respect. The definition of «close links» in this
           Directive lays down minimum criteria. That does not prevent Member States from
           applying it to situations other than those envisaged by the definition. The sole fact of
           having acquired a significant proportion of a company's capital does not constitute
           participation, within the meaning of «close links», if that holding has been acquired
           solely as a temporary investment which does not make it possible to exercise influence
           over the structure or financial policy of the institution.
                                                                      2000/12/EC Recital 11
                                                                  (adapted)
   (11)    The reference to the supervisory authorities' effective exercise of their supervisory
           functions covers supervision on a consolidated basis which must be exercised over a
           credit institution where the provisions of Community law so provide. In such cases,
           the authorities applied to for authorisation must ⌦ should ⌫ be able to identify the
           authorities competent to exercise supervision on a consolidated basis over that credit
           institution.
                                                                      2000/12/EC Recital 12
                                                                  (adapted)
   The home Member State may also establish rules stricter than those laid down in Article 5(1),
   first subparagraph and (2), and Articles 7, 16, 30, 51 for institutions authorised by its
   competent authorities.
                                                                      2000/12/EC Recital 13
                                                                  (adapted)
   The abolition of the authorisation requirement with respect to the branches of Community
   credit institutions necessitates the abolition of endowment capital.
EN                                                   14                                             EN
 ---pagebreak---                                                                     2000/12/EC Recital 14
                                                                 (adapted)
   (12)    By virtue of mutual recognition, the approach chosen permits cCredit institutions
           authorised in their home Member States ⌦ should be allowed ⌫ to carry on,
           throughout the Community, any or all of the activities listed in Annex I by establishing
           branches or by providing services. The carrying-on of activities not listed in the said
           Annex enjoys the right of establishment and the freedom to provide services under the
           general provisions of the Treaty.
                                                                    2000/12/EC Recital 15
                                                                 (adapted)
   (13)    It is appropriate, however to extend mutual recognition to the activities listed in Annex
           I when they are carried on by financial institutions which are subsidiaries of credit
           institutions, provided that such subsidiaries are covered by the consolidated
           supervision of their parent undertakings and meet certain strict conditions.
                                                                    2000/12/EC Recital 16
                                                                 (adapted)
   (14)    The host Member State may ⌦ should be able ⌫, in connection with the exercise of
           the right of establishment and the freedom to provide services, ⌦ to ⌫ require
           compliance with specific provisions of its own national laws or regulations on the part
           of institutions not authorised as credit institutions in their home Member States and
           with regard to activities not listed in Annex I provided that, on the one hand, such
           provisions are compatible with Community law and are intended to protect the general
           good and that, on the other hand, such institutions or such activities are not subject to
           equivalent rules under this legislation or regulations of their home Member States.
                                                                    2000/12/EC Recital 17
                                                                 (adapted)
   (15)    The Member States must ⌦ should ⌫ ensure that there are no obstacles to carrying
           on activities receiving mutual recognition in the same manner as in the home Member
           State, as long as the latter do not conflict with legal provisions protecting the general
           good in the host Member State.
                                                                    2000/12/EC Recital 18
                                                                 (adapted)
   There is a necessary link between the objective of this Directive and the liberalisation of
   capital movements being brought about by other Community legislation. In any case the
   measures regarding the liberalisation of banking services must be in harmony with the
   measures liberalising capital movements.
EN                                                 15                                                EN
 ---pagebreak---                                                                      2000/12/EC Recital 19
                                                                 (adapted)
   (16)    The rules governing branches of credit institutions having their head office outside the
           Community should be analogous in all Member States. It is important at the present
           time to provide that such rules may not be more favourable than those for branches of
           institutions from another Member State. It should be specified that tThe Community
           may ⌦ should be able to ⌫ conclude agreements with third countries providing for
           the application of rules which accord such branches the same treatment throughout its
           territory, account being taken of the principle of reciprocity. The branches of credit
           institutions authorised in third countries do ⌦ should ⌫ not enjoy the freedom to
           provide services under the second paragraph of Article 49 of the Treaty or the freedom
           of establishment in Member States other than those in which they are established.
           However, requests for the authorisation of subsidiaries or of the acquisition of
           holdings made by undertakings governed by the laws of third countries are
           should subject to a procedure intended to ensure that Community credit institutions
           receive reciprocal treatment in the third countries in question.
                                                                     2000/12/EC Recital 20
                                                                 (adapted)
   The authorisations granted to credit institutions by the competent national authorities pursuant
   to this Directive have Community-wide, and no longer merely nationwide, application.
   Existing reciprocity clauses have therefore no effect. A flexible procedure is therefore needed
   to make it possible to assess reciprocity on a Community basis. The aim of this procedure is
   not to close the Community's financial markets but rather, as the Community intends to keep
   its financial markets open to the rest of the world, to improve the liberalisation of the global
   financial markets in other third countries. To that end, this Directive provides for procedures
   for negotiating with third countries and, as a last resort, for the possibility of taking measures
   involving the suspension of new applications for authorisation or the restriction of new
   authorisations.
                                                                     2000/12/EC Recital 21
                                                                 (adapted)
   (17)    It is desirable that aAgreement should be reached, on the basis of reciprocity, between
           the Community and third countries with a view to allowing the practical exercise of
           consolidated supervision over the largest possible geographical area.
                                                                     2000/12/EC Recital 22
                                                                 (adapted)
   (18)    Responsibility for supervising the financial soundness of a credit institution, and in
           particular its solvency, rests ⌦ should lay ⌫ with the competent authorities of its
           home Member State. The host Member State's competent authorities retain ⌦ should
           be ⌫ responsibility ⌦ responsible ⌫ for the supervision of ⌦ the ⌫ liquidity
           ⌦ of the branches ⌫ and monetary policy ⌦ policies ⌫. The supervision of
           market risk must ⌦ should ⌫ be the subject of close cooperation between the
           competent authorities of the home and host Member States.
EN                                                 16                                                 EN
 ---pagebreak---                                                                 2000/12/EC Recital 23 and 24
                                                             (adapted)
                                                                new
   (19) The smooth operation of the internal banking market requires not only legal rules but
        also close and regular cooperation         and significantly enhanced convergence of
        regulatory and supervisory practices  between the competent authorities of the
        Member States. For the ⌦ To this end, in particular, ⌫ consideration of problems
        concerning individual credit institutions      and the mutual exchange of information
        should take place in  the «groupe de contact» (contact group)            Committee of
        European Banking Supervisors  set up by Commission Decision 2004/5/EC 15 
        between the banking supervisory authorities remains the most appropriate forum. That
        group is a suitable body for the mutual exchange of information provided for in Article
        28. That mutual information procedure does ⌦ should ⌫ not in any case replace the
        bilateral collaboration ⌦ co-operation⌫ established by Article 28. The competent
        host Member State authorities can,. wWithout prejudice to their powers of proper
        control, ⌦ the competent authorities of the host Member States should be able ⌫
        continue either, in an emergency, on their own initiative or following the initiative of
        the competent ⌦ authorities of ⌫ home Member State authorities, to verify that the
        activities of a credit institution established within their territories comply with the
        relevant laws and with the principles of sound administrative and accounting
        procedures and adequate internal control.
                                                                2000/12/EC Recital 25
                                                             (adapted)
   (20) It is appropriate to allow the exchange of information between the competent
        authorities and authorities or bodies which, by virtue of their function, help to
        strengthen the stability of the financial system. In order to preserve the confidential
        nature of the information forwarded, the list of addressees must ⌦ should ⌫ remain
        within strict limits.
                                                                2000/12/EC Recital 26 and 27
                                                             (adapted)
   (21) Certain behaviour, such as fraud and insider offences, is liable to affect the stability,
        including the integrity, of the financial system, even when involving institutions other
        than credit institutions. It is necessary to specify the conditions under which such
        exchanges of information ⌦ in such cases ⌫ are ⌦ is ⌫ authorised.
                                                                2000/12/EC Recital 28
                                                             (adapted)
   (22) Where it is stipulated that information may be disclosed only with the express
        agreement of the competent authorities, these may ⌦ should be able ⌫, where
   15
        OJ L 3, 7.1.2004, p. 28
EN                                              17                                                EN
 ---pagebreak---             appropriate, ⌦ to ⌫ make their agreement subject to compliance with strict
            conditions.
                                                                    2000/12/EC Recital 29
   (23)     Exchanges of information between, on the one hand, the competent authorities and, on
            the other, central banks and other bodies with a similar function in their capacity as
            monetary authorities and, where appropriate, other public authorities responsible for
            supervising payment systems should also be authorised.
                                                                    2000/12/EC Recital 30
                                                                 (adapted)
   (24)     For the purpose of strengthening the prudential supervision of credit institutions and
            ⌦ the ⌫ protection of clients of credit institutions, it should be stipulated that an
            auditors must ⌦ should ⌫ have a duty to report promptly to the competent
            authorities, wherever, as provided for by this Directive, he ⌦ during the performance
            of their tasks, ⌫ becomes aware, while carrying out his tasks, of certain facts which
            are liable to have a serious effect on the financial situation or the administrative and
            accounting organisation of a credit institution. Having regard to the aim in view, it is
            desirable for the ⌦ For the same reason ⌫ Member States to ⌦ should also ⌫
            provide that such a duty should apply ⌦ applies ⌫ in all circumstances where such
            facts are discovered by an auditor during the performance of his tasks in an
            undertaking which has close links with a credit institution. The duty of auditors to
            communicate, where appropriate, to the competent authorities certain facts and
            decisions concerning a credit institution which they discover during the performance
            of their tasks in a non-financial undertaking does ⌦ should ⌫ not in itself change
            the nature of their tasks in that undertaking nor the manner in which they must
            perform those tasks in that undertaking.
                                                                    2000/12/EC Recitals 31 to 35
                                                                 (adapted)
   Common basic standards for the own funds of credit institutions are a key factor in the
   creation of an internal banking market since own funds serve to ensure the continuity of credit
   institutions and to protect savings. Such harmonisation strengthens the supervision of credit
   institutions and contributes to further coordination in the banking sector.
   Such standards must apply to all credit institutions authorised in the Community.
   The own funds of a credit institutions can serve to absorb losses which are not matched by a
   sufficient volume of profits. The own funds also serve as an important yardstick for the
   competent authorities, in particular for the assessment of the solvency of credit institutions
   and for other prudential purposes.
   Credit institutions, in an internal banking market, engage in direct competition with each
   other, and the definitions and standards pertaining to own funds must therefore be equivalent.
   To that end, the criteria for determining the composition of own funds must not be left solely
   to Member States. The adoption of common basic standards will be in the best interests of the
EN                                                 18                                                EN
 ---pagebreak---    Community in that it will prevent distortions of competition and will strengthen the
   Community banking system.
   The definition of own funds laid down in this Directive provides for a maximum of items and
   qualifying amounts, leaving it to the discretion of each Member State to use all or some of
   such items or to adopt lower ceilings for the qualifying amounts.
                                                                   2000/12/EC Recital 36
                                                                (adapted)
   (25)     This Directive specifies the ⌦ that for certain own funds items ⌫ qualifying criteria
            for certain own funds items ⌦ should be specified, without prejudice to the
            possibility of ⌫ and the Member States remain free to apply more stringent
            provisions.
                                                                   2000/12/EC Recital 37
                                                                (adapted)
   At the initial stage common basic standards are defined in broad terms in order to encompass
   all the items making up own funds in the different Member States.
                                                                   2000/12/EC Recital 38
   (26)     According to the nature of the items making up own funds, this Directive distinguishes
            between on the one hand, items constituting original own funds and, on the other,
            those constituting additional own funds.
                                                                   2000/12/EC Recital 39
                                                                (adapted)
   (27)     To reflect the fact that items constituting additional own funds are not of the same
            nature as those constituting original own funds, the amount of the former included in
            own funds must ⌦ should ⌫ not exceed the original own funds. Moreover, the
            amount of certain items of additional own funds included must ⌦ should ⌫ not
            exceed one half of the original own funds.
                                                                   2000/12/EC Recital 39
                                                                (adapted)
   (28)     In order to avoid distortions of competition, public credit institutions must
            ⌦ should ⌫ not include in their own funds guarantees granted them by the Member
            States or local authorities.
                                                                   2000/12/EC Recital 40
                                                                (adapted)
   (29)     Whenever in the course of supervision it is necessary to determine the amount of the
            consolidated own funds of a group of credit institutions, the calculation shall
            ⌦ should ⌫ be effected in accordance with this Directive.
EN                                                 19                                              EN
 ---pagebreak---                                                                      2000/12/EC Recital 41
                                                                  (adapted)
                                                                     new
   (30)     The precise accounting technique to be used for the calculation of own funds, the
            solvency ratio their adequacy for the risk to which a credit institution is exposed ,
            and for the assessment of the concentration of exposures must ⌦ should ⌫ take
            account of the provisions of Council Directive 86/635/EEC of 8 December 1986 on
            the annual accounts and consolidated accounts of banks and other financial
            institutions16, which incorporates certain adaptations of the provisions of Council
            Directive 83/349/EEC of 13 June 1983 based on Article 44(2)(g) of the Treaty on
            consolidated accounts ⌦ 17 ⌫            or of Regulation (EC) No 1606/2002 of the
            European Parliament and Council of 19 July 2002 on the application of international
            accounting standards18 whichever governs the accounting of the credit institutions
            under national law .
                                                                     2000/12/EC Recital 42 to 47
                                                                  (adapted)
   The provisions on own funds, form part of the wider international effort to bring about
   approximation of the rules in force in major countries regarding the adequacy of own funds.
   In an internal banking market, institutions are required to enter into direct competition with
   one another and the common solvency ration in the form of a minimum ratio prevent
   distortions of competition and strengthen the Community banking system.
   The Commission will draw up a report and periodically examine, with the aim of tightening
   them, the provisions on own funds and thus achieving greater convergence on a common
   definition of own funds. Such convergence will allow the alignment of Community credit
   institutions' own funds.
   The provisions on solvency ratios are the outcome of work carried out by the Banking
   Advisory Committee which is responsible for making suggestions to the Commission with a
   view to coordinating the coefficients applicable in the Member States.
   The establishment of an appropriate solvency ratio plays a central role in the supervision of
   credit institutions.
   A ratio which weights assets and off-balance-sheet items according to the degree of credit risk
   is a particularly useful measure of solvency.
   16
            OJ L 372, 31.12.1986, p. 1.
   17
            OJ L 193, 18.7.1983, p. 1. Directive as last amended by Directive ⌦ 2003/51/EC (OJ L 178,
            17.7.2003, p. 16). ⌫
   18
            OJ L 243, 11.9.2002, p. 1.
EN                                                   20                                               EN
 ---pagebreak---                                                                     new
   (31)    Minimum capital requirements play a central role in the supervision of credit
           institutions and in the mutual recognition of supervisory techniques. In that respect,
           the provisions on minimum capital requirements should be considered in conjunction
           with other specific instruments also harmonising the fundamental techniques for the
           supervision of credit institutions.
   (32)    In order to prevent distortions of competition and to strengthen the banking system in
           the internal market, it is appropriate to lay down common minimum capital
           requirements.
   (33)    For the purposes of ensuring adequate solvency it is important to lay down minimum
           capital requirements which weight assets and off-balance-sheet items according to the
           degree of risk.
                                                                    2000/12/EC Recitals 48 to 51
                                                                 (adapted)
   The development of common standards for own funds in relation to assets and off-balance-
   sheet items exposed to credit risk is, accordingly, an essential aspect of the harmonisation
   necessary for the achievement of the mutual recognition of supervision techniques and thus
   the completion of the internal banking market.
   In that respect, the provisions on a solvency ratio must be considered in conjunction with
   other specific instruments also harmonising the fundamental techniques of the supervision of
   credit institutions.
   In an internal banking market, institutions are required to enter into direct competition with
   one another and the common solvency standards in the form of a minimum ratio prevent
   distortions of competition and strengthen the Community banking system.
   This Directive provides for different weightings to be given to guarantees issued by different
   financial institutions. The Commission accordingly undertakes to examine whether this
   Directive taken as a whole significantly distorts competition between credit institutions and
   insurance undertakings and, in the light of that examination, to consider whether any remedial
   measures are justified.
                                                                    new
   (34)    It is essential to take account of the diversity of credit institutions in the Community
           by providing alternative approaches to the calculation of minimum capital
           requirements for credit risk incorporating different levels of risk-sensitivity and
           requiring different degrees of sophistication. Use of external ratings and credit
           institutions’ own estimates of individual credit risk parameters represents a significant
           enhancement in the risk-sensitivity and prudential soundness of the credit risk rules.
           There should be appropriate incentives for credit institutions to move towards the
           more risk-sensitive approaches.
EN                                                 21                                                EN
 ---pagebreak---    (35)     The minimum capital requirements should be proportionate to the risks addressed. In
            particular the reduction in risk levels deriving from having a large number of relatively
            small exposures should be reflected in the requirements.
   (36)     Increased recognition should be given to techniques of credit risk mitigation within a
            framework of rules designed to ensure that solvency is not undermined by undue
            recognition.
   (37)     In order to ensure that the risks and risk reductions arising from credit institutions’
            securitisation activities and investments are appropriately reflected in the minimum
            capital requirements of credit institutions it is necessary to include rules providing for
            a risk-sensitive and prudentially sound treatment of such activities and investments.
                                                                     2000/12/EC Recital 52
                                                                  (adapted)
   Annex III lays down the treatment of off-balance-sheet items in the context of the calculation
   of credit institutions' capital requirements. With a view to the smooth functioning of the
   internal market and in particular with a view to ensuring a level playing field Member States
   are obliged to strive for uniform assessment of contractual netting agreements by their
   competent authorities. Annex III takes account of the work of an international forum of
   banking supervisors on the supervisory recognition of bilateral netting, in particular the
   possibility of calculating the own-funds requirements for certain transactions on the basis of a
   net rather than a gross amount provided that there are legally binding agreements which
   ensure that the credit risk is confined to the net amount. For internationally active credit
   institutions and groups of credit institutions in a wide range of third countries, which compete
   with Community credit institutions, the rules adopted on the wider international level will
   result in a refined supervisory treatment of over-the-counter (OTC) derivative instruments.
   This refinement results in a more appropriate compulsory capital cover taking into account the
   risk-reducing effects of supervisorily recognised contractual netting agreements on potential
   future credit risks. The clearing of OTC derivative instruments provided by clearing houses
   acting as a central counterparty plays an important role in certain Member States. It is
   appropriate to recognise the benefits from such a clearing in terms of a reduction of credit risk
   and related systemic risk in the prudential treatment of credit risk. It is necessary for the
   current and potential future exposures arising from cleared OTC derivatives contracts to be
   fully collateralised and for the risk of a build-up of the clearing house's exposures beyond the
   market value of posted collateral to be eliminated in order for cleared OTC derivatives to be
   granted for a transitional period the same prudential treatment as exchange-traded derivatives.
   The competent authorities must be satisfied as to the level of the initial margins and variation
   margins required and the quality of and the level of protection provided by the posted
   collateral. For credit institutions incorporated in the Member States, Annex III creates a
   similar possibility for the recognition of bilateral netting by the competent authorities and
   thereby offers them equal conditions of competition. The rules are both well balanced and
   appropriate for the further reinforcement of the application of prudential supervisory measures
   to credit institutions. The competent authorities in the Member States should ensure that the
   calculation of add-ons is based on effective rather than apparent national amounts.
EN                                                   22                                                EN
 ---pagebreak---                                                                    new
   (38)   Operational risk is a significant risk faced by credit institutions requiring coverage by
          own funds. It is essential to take account of the diversity of credit institutions in the
          Community by providing alternative approaches to the calculation of operational risk
          requirements incorporating different levels of risk-sensitivity and requiring different
          degrees of sophistication. There should be appropriate incentives for credit institutions
          to move towards the more risk-sensitive approaches. In view of the emerging state of
          the art for the measurement and management of operational risk the rules should be
          kept under review and updated as appropriate including in relation to the charges for
          different business lines and the recognition of risk mitigation techniques.
   (39)   In order to ensure adequate solvency of credit institutions within a group it is essential
          that the minimum capital requirements apply on the basis of the consolidated financial
          situation of the group. In order to ensure that own funds are appropriately distributed
          within the group and available to protect savings where needed, the minimum capital
          requirements should apply to individual credit institutions within a group, unless this
          objective can be effectively otherwise achieved.
                                                                   2000/12/EC Recital 53
                                                                (adapted)
   The minimum ratio provided for in this Directive reinforces the capital of credit institutions in
   the Community. A level of 8% has been adopted following a statistical survey of capital
   requirements in force at the beginning of 1988.
                                                                   2000/12/EC Recital 54
   (40)   The essential rules for monitoring large exposures of credit institutions should be
          harmonised. Member States should still be able to adopt provisions more stringent
          than those provided for by this Directive.
                                                                   2000/12/EC Recital 55
                                                                (adapted)
   (41)   The monitoring and control of a credit institution's exposures is ⌦ should be ⌫ an
          integral part of its supervision. ⌦ Therefore ⌫ Eexcessive concentration of
          exposures to a single client or group of connected clients may result in an
          unacceptable risk of loss. Such a situation may ⌦ can ⌫ be considered prejudicial to
          the solvency of a credit institution.
                                                                   2000/12/EC Recital 56
                                                                (adapted)
   (42)   In an internal banking market, ⌦ Since ⌫ credit institutions ⌦ in the internal
          market ⌫ are engaged in direct competition, with one another and monitoring
          requirements throughout the Community should therefore be equivalent
          ⌦ throughout the Community ⌫. To that end, the criteria applied to determining the
          concentration of exposures must be the subject of legally binding rules at Community
EN                                                 23                                                EN
 ---pagebreak---         level and cannot be left entirely to the discretion of the Member States. The adoption
        of common rules will therefore best serve the Community's interests, since it will
        prevent differences in the conditions of competition, while strengthening the
        Community's banking system.
                                                                 2000/12/EC Recital 57
                                                              (adapted)
                                                                 new
   (43) The provisions on a solvency ratio for credit institutions include a list of credit risks
        which may be incurred by credit institutions. That list should therefore be used also for
        the definition of exposures for the purposes of limits to large exposures. It is not,
        however, While it is appropriate to base the definition of exposures for the purposes
        of limits to large exposures on that provided for the purposes of minimum own funds
        requirements for credit risk, it is not  appropriate to refer on principle to the
        weightings or degrees of risk laid down in the said provisions. Those weightings and
        degrees of risk were devised for the purpose of establishing a general solvency
        requirement to cover the credit risk of credit institutions. In the context of the
        regulation of large exposures, the aim is. ⌦ In order ⌫ to limit the maximum loss
        that a credit institution may incur through any single client or group of connected
        clients. It ⌦ it ⌫ is therefore appropriate to adopt a prudent approach in which, as a
        general rule, account is taken of the nominal value of exposures, but no ⌦ rules for
        the determination of large exposures which take account of the nominal value of the
        exposure without applying ⌫ weightings or degrees of risk are applied.
                                                                 new
   (44) While it is desirable, pending further review of the large exposures provisions, to
        permit the recognition of the effects of credit risk mitigation in a manner similar to
        that permitted for minimum capital requirement purposes in order to limit the
        calculation requirements, the rules on credit risk mitigation were designed in the
        context of the general diversified credit risk arising from exposures to a large number
        of counterparties. Accordingly, recognition of the effects of such techniques for the
        purposes of limits to large exposures designed to limit the maximum loss that may be
        incurred through any single client or group of connected clients should be subject to
        prudential safeguards.
                                                                 2000/12/EC Recital 58
                                                              (adapted)
   (45) When a credit institution incurs an exposure to its own parent undertaking or to other
        subsidiaries of its parent undertaking, particular prudence is necessary. The
        management of exposures incurred by credit institutions must ⌦ should ⌫ be carried
        out in a fully autonomous manner, in accordance with the principles of sound banking
        management, without regard to any ⌦ other ⌫ considerations other than those
        principles. The provision of this Directive require that wWhere the influence exercised
        by persons directly or indirectly holding a qualifying participation in a credit
        institution is likely to operate to the detriment of the sound and prudent management
        of that institution, the competent authorities shall ⌦ should ⌫ take appropriate
        measures to put an end to that situation. In the field of large exposures, specific
EN                                               24                                               EN
 ---pagebreak---         standards ⌦ , including more stringent restrictions, ⌫ should also be laid down for
        exposures incurred by a credit institution to its own group, and in such cases more
        stringent restrictions are justified than for other exposures. More stringent restrictions
        ⌦. Such standards ⌫ need not, however be applied where the parent undertaking is a
        financial holding company or a credit institution or where the other subsidiaries are
        either credit or financial institutions or undertakings offering ancillary banking
        services, provided that all such undertakings are covered by the supervision of the
        credit institution on a consolidated basis. In such cases the consolidated monitoring of
        the group of undertakings allows for an adequate level of supervision, and does not
        require the imposition of more stringent limits on exposure. Under this approach
        banking groups will also be encouraged to organise their structures in such a way as to
        allow consolidated monitoring, which is desirable because a more comprehensive
        level of monitoring is possible.
                                                                 new
   (46) Credit institutions should ensure that they have internal capital which, having regard to
        the risks to which they are or might be exposed, is adequate in quantity, quality and
        distribution. Accordingly, credit institutions should have strategies and processes in
        place for assessing and maintaining the adequacy of their internal capital.
   (47) Competent authorities have responsibility to be satisfied that credit institutions have
        good organisation and adequate own funds, having regard to the risks to which the
        credit institutions are or might be exposed to.
   (48) In order for the internal market in banking to operate effectively the Committee of
        European Banking Supervisors should contribute to the consistent application of this
        directive and to the convergence of supervisory practices throughout the Community.
   (49) For the same reason and to ensure that Community credit institutions which are active
        in several Member States are not disproportionately burdened as a result of the
        continued responsibilities of individual Member State competent authorities for
        authorisation and supervision, it is essential to significantly enhance the co-operation
        between competent authorities. In this context the role of the consolidated supervisor
        should be strengthened. The Committee of European Banking Supervisors should
        support and enhance such co-operation.
                                                                 2000/12/EC Recital 65
                                                              (adapted)
   (50) Supervision of credit institutions on a consolidated basis must be aimed ⌦ aims ⌫
        at, in particular, protecting the interests of the depositors of the said ⌦ credit ⌫
        institutions and ⌦ at ⌫ ensuring the stability of the financial system.
                                                                 2000/12/EC Recital 59
                                                              (adapted)
   (51) In order to be effective, supervision on a consolidated basis must ⌦ should
        therefore ⌫ be applied to all banking groups, including those the parent undertakings
EN                                               25                                                EN
 ---pagebreak---            of which are not credit institutions. The competent authorities must ⌦ should ⌫ hold
           the necessary legal instruments to be able to exercise such supervision.
                                                                    2000/12/EC Recital 60
                                                                 (adapted)
   (52)    In the case of groups with diversified activities ⌦ where ⌫ the parent undertakings
           of which control at least one credit institution subsidiary, the competent authorities
           must ⌦ should ⌫ be able to assess the financial situation of a credit institution in
           such a group. Pending subsequent coordination, the Member States may lay down
           appropriate methods of consolidation for the achievement of the objective of this
           Directive. The competent authorities must ⌦ should ⌫ at least have the means of
           obtaining from all undertakings within a group the information necessary for the
           performance of their function. Cooperation between the authorities responsible for the
           supervision of different financial sectors must ⌦ should ⌫ be established in the case
           of groups of undertakings carrying on a range of financial activities ⌦ . Pending
           subsequent coordination, the Member States should be able to lay down appropriate
           methods of consolidation for the achievement of the objective of this Directive. ⌫
                                                                    2000/12/EC Recital 61
                                                                 (adapted)
   (53)    The Member States can, furthermore, ⌦ should be able to ⌫ refuse or withdraw
           banking authorisation in the case of certain group structures considered inappropriate
           for carrying on banking activities, in particular because such structures could not be
           supervised effectively. In this respect the competent authorities ⌦ should ⌫ have the
           ⌦ necessary ⌫ powers mentioned in the first subparagraph of Article 7(1), Article
           7(2), point (c) of Article 14(l), and Article 16 of this Directive, in order to ensure the
           sound and prudent management of credit institutions.
                                                                    2000/12/EC Recitals 62 to 64
                                                                 (adapted)
   The Member States can equally apply appropriate supervision techniques to groups with
   structures not covered by this Directive. If such structures become common, this Directive
   should be extended to cover them.
   Supervision on a consolidated basis must take in all activities defined in Annex I. All
   undertakings principally engaged in such activities must therefore be included in supervision
   on a consolidated basis. As a result, the definition of financial institutions must be widened in
   order to cover such activities.
   Directive 86/635/EEC, together with Directive 83/349/EEC, established the rules of
   consolidation applicable to consolidated accounts published by credit institutions. It is
   therefore possible to define more precisely the methods to be used in prudential supervision
   exercised on a consolidated basis.
EN                                                  26                                                EN
 ---pagebreak---                                                                   new
   (54) In order for the internal market in banking to operate with increasing effectiveness and
        for citizens of the Community to be afforded adequate levels of transparency, it is
        necessary that competent authorities disclose publicly and in a way which allows for
        meaningful comparison the manner in which this Directive is implemented.
   (55) In order to strengthen market discipline and stimulate credit institutions to improve
        their market strategy, risk control and internal management organization, appropriate
        public disclosure by credit institutions should be provided for.
                                                                  2000/12/EC Recital 66
                                                               (adapted)
   (56) The examination of problems connected with matters covered by this Directive as well
        as by other Directive on the business of credit institutions requires cooperation
        between the competent authorities and the Commission within a banking advisory
        committee, particularly when conducted with a view to closer coordination. The
        Banking Advisory Committee of the competent authorities of the Member States does
        not rule out other forms of cooperation between authorities which supervise the taking
        up and pursuit of the business of credit institutions and, in particular, cooperation
        within the «groupe de contact» (contact group) set up between the banking supervisory
        authorities.
                                                                  2000/12/EC Recital 67
                                                               (adapted)
   (57) Technical modifications to the detailed rules laid down in this Directive may from
        time to time be necessary to take account of new developments in the banking sector.
        The Commission shall accordingly make such modifications as are necessary, after
        consulting the Banking Advisory Committee, within the limits of the implementing
        powers conferred on the Commission by the Treaty. The measures necessary for the
        implementation of this Directive should be adopted in accordance with Council
        Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of
        implementing powers conferred on the Commission ⌦ 19 ⌫ .
                                                                  new
   (58) In order to avoid disruption to markets and to ensure continuity in overall levels of
        own funds it is appropriate to provide for specific transitional arrangements.
   (59) In view of the risk-sensitivity of the rules relating to minimum capital requirements, it
        is desirable to keep under review whether these have significant effects on the
        economic cycle. The Commission, taking into account the contribution of the
        European Central Bank should report on these aspects to the European Parliament and
        to the Council.
   19
        ⌦ OJ L 184, 17.7.1999, p. 23. ⌫
EN                                               27                                               EN
 ---pagebreak---                                                                   2000/12/EC Recital 68
                                                               (adapted)
   Article 36 (1) of this Directive permits joint and several commitments of borrowers in the
   case of credit institutions organised as cooperative societies or funds to be treated as own
   funds items under Article 34 (2)(7). The Danish Government has expressed a strong interest
   in having its few mortgage credit institutions organised as cooperative societies or funds
   converted into public limited liability companies. In order to facilitate the conversion or to
   make it possible, a temporary derogation allowing them to include part of their joint and
   several commitments as own funds is required. This temporary derogation should not
   adversely affect competition between credit institutions.
                                                                  2000/12/EC Recitals 69 to 71
   (69) The application of a 20% weighting to credit institutions' holdings of mortgage bonds
   may unsettle a national financial market on which such instruments play a preponderant role.
   In this case, provisional measures are taken to apply a 10% risk weighting. The market for
   securitisation is undergoing rapid development. It is therefore desirable that the Commission
   should examine with the Member States the prudential treatment of asset-backed securities
   and put forward, before 22 June 1999, proposals aimed at adapting existing legislation in
   order to define an appropriate prudential treatment for asset-backed securities. The competent
   authorities may authorise a 50% weighting to assets secured by mortgages on offices or on
   multipurpose commercial premises until 31 December 2006. The property to which the
   mortgage relates must be subject to rigorous assessment criteria and regular revaluation to
   take account of the developments in the commercial property market. The property must be
   either occupied or let by the owner. Loans for property development are excluded from this
   50% weighting.
   (70) In order to ensure harmonious application of the provisions on large exposures, Member
   States should be allowed to provide for the two-stage application of the new limits. For
   smaller credit institutions, a longer transitional period may be warranted inasmuch as too
   rapid an application of the 25% rule could reduce their lending activity too abruptly.
   (71) Moreover, the harmonisation of the conditions relating to the reorganisation and
   winding-up of credit institutions is also proceeding.
                                                                  2000/12/EC Recital 72
                                                               (adapted)
   (60)    The arrangements necessary for the supervision of liquidity risks will also have to be
           harmonised.
                                                                  2000/12/EC Recital 73
                                                               (adapted)
   This Directive must not affect to obligations of the Member States concerning the deadlines
   for transposition set out in Annex V, Part B
EN                                                28                                              EN
 ---pagebreak---                                                                    new
   (61)   This Directive respects the fundamental rights and observes the principles recognised
          in particular by the Charter of Fundamental Rights of the European Union as general
          principles of Community law.
   (62)   The obligation to transpose this Directive into national law should be confined to those
          provisions which represent a substantive change as compared with the earlier
          Directives. The obligation to transpose the provisions which are unchanged arises
          under the earlier Directives.
   (63)   This Directive should be without prejudice to the obligations of the Member States
          relating to the time-limits for transposition into national law of the Directives set out in
          Annex XIII, Part B.
                                                                    2000/12/EC
   HAVE ADOPTED THIS DIRECTIVE:
                                                                   new
                                              CONTENTS
   TITLE I                   SUBJECT MATTER, SCOPE AND DEFINITIONS
   TITLE II                  REQUIREMENTS FOR ACCESS TO THE TAKING UP AND
                             PURSUIT OF THE BUSINESS OF CREDIT INSTITUTIONS
   TITLE III                 PROVISIONS CONCERNING THE FREEDOM OF
                             ESTABLISHMENT AND THE FREEDOM TO PROVIDE SERVICES
   Section 1                 Credit institutions
   Section 2                 Financial institutions
   Section 3                 Exercise of the right of establishment
   Section 4                 Exercise of the freedom to provide services
   Section 5                 Powers of the competent authorities of the host Member State
   TITLE IV                  RELATIONS WITH THIRD COUNTRIES
   Section 1                 Notification in relation to third countries' undertakings and
                             conditions of access to the markets of these countries
   Section 2                 Cooperation with third countries' competent authorities regarding
                             supervision on a consolidated basis
   TITLE V                   PRINCIPLES AND TECHNICAL INSTRUMENTS FOR
EN                                                 29                                                  EN
 ---pagebreak---                 PRUDENTIAL SUPERVISION AND DISCLOSURE
   Chapter 1    Principles of prudential supervision
   Section 1    Competence of home and host Member State
   Section 2    Exchange of information and professional secrecy
   Section 3    Duty of persons responsible for the legal control of annual and
                consolidated accounts
   Section 4    Power of sanction and right to apply to the courts
   Chapter 2    Technical instruments of prudential supervision
   Section 1    Own funds
   Section 2    Provision against risks
   Subsection 1 Level of application
   Subsection 2 Calculation of requirements
   Subsection 3 Minimum Level of Own Funds
   Section 3    Minimum own funds requirements for credit risk
   Subsection 1 Standardised Approach
   Subsection 2 Internal Ratings based Approach
   Subsection 3 Credit risk mitigation
   Subsection 4 Securitisation
   Section 4    Minimum own funds requirements for operational risk
   Section 5    Large exposures
   Section 6    Qualifying holdings outside the financial sector
   Chapter 3    Credit institutions' assessment process
   Chapter 4    Supervision and disclosure by competent authorities
   Section 1    Supervision
   Section 2    Disclosure by competent authorities
   Chapter 5    Disclosure by credit institutions
   TITLE VI     POWERS OF EXECUTION
EN                                     30                                       EN
 ---pagebreak---    TITLE VII         TRANSITIONAL AND FINAL PROVISIONS
   Chapter 1         Transitional provisions
   Chapter 2         Final provisions
   ANNEX I           List of activities subject to mutual recognition
   ANNEX II          Classification of off-balance-sheet items
   ANNEX III         The treatment of derivative instruments
   ANNEX IV          Types of derivatives
   ANNEX V           Technical criteria on organisation and treatment of risks
   ANNEX VI          Standardised Approach
   ANNEX VI Part 1   Risk weights
   ANNEX VI Part 2   Recognition of ECAIs and mapping of their credit assessments
   ANNEX VI Part 3   Use of ECAIs’ credit assessments for the determination of risk
                     weights
   ANNEX VII         Internal Ratings based Approach
   ANNEX VII Part 1  Risk weighted exposure amounts and expected loss amounts
   ANNEX VII Part 2  PD, LGD, and Maturity
   ANNEX VII Part 3  Exposure value
   ANNEX VII Part 4  Minimum Requirements for IRB Approach
   ANNEX VIII        Credit risk mitigation
   ANNEX VIII Part 1 Eligibility
   ANNEX VIII Part 2 Minimum Requirements
   ANNEX VIII Part 3 Calculating the effects of credit risk mitigation
   ANNEX VIII Part 4 Maturity mismatches
   ANNEX VIII Part 5 Combinations of credit risk mitigation in the Standardised Approach
   ANNEX VIII Part 6 Basket CRM techniques
   ANNEX IX          Securitisation
   ANNEX IX Part 1   Definitions for purposes of Annex X
EN                                          31                                           EN
 ---pagebreak---    ANNEX IX Part 2   Minimum requirements for recognition of significant credit risk
                     transfer and calculation of risk-weighted exposure amounts and
                     expected loss amounts for securitised exposures
   ANNEX IX Part 3   External credit assessments
   ANNEX IX Part 4   Calculation
   ANNEX X           Operational Risk
   ANNEX X Part 1    Basic Indicator Approach
   ANNEX X Part 2    Standardised Approach
   ANNEX X Part 3    Advanced Measurement Approaches
   ANNEX X Part 4    Combined use of different methodologies
   ANNEX X Part 5    Loss event type classification
   ANNEX XI          Technical criteria on the review and evaluation by the competent
                     authorities
   ANNEX XII         Technical criteria on disclosure
   ANNEX XII Part 1  General criteria
   ANNEX XII Part 2  General requirements
   ANNEX XII Part 3  Qualifying requirements for the use of particular instruments or
                     methodologies
   ANNEX XIII Part A Repealed Directives, together with their successive amendments
                     (referred to in Article 158)
   ANNEX XIII Part B Deadlines for implementation (referred to in Article 159)
   ANNEX XIV         Correlation table
EN                                          32                                        EN
 ---pagebreak---                                                                   2000/12/EC (adapted)
                                              TITLE I
      ⌦ SUBJECT MATTER, SCOPE AND ⌫ DEFINITIONS AND SCOPE
                                                                  2000/12/EC Article 2(1) and (2)
                                                               (adapted)
                                                Article 1
   1.      This Directive concerns ⌦ lays down rules concerning ⌫ the taking up and pursuit
           of the business of credit institutions ⌦ , and their prudential supervision ⌫. This
           Directive shall apply to all credit institutions.
   2.      Article ⌦39⌫ and 52 to 56 ⌦ Title V, Chapter 4, Section 1 ⌫ shall also apply to
           financial holding companies and mixed-activity holding companies which have their
           head offices in the Community.
   3.      The institutions permanently excluded by paragraph 3 ⌦ pursuant to Article 5 ⌫,
           with the exception, however, of the Member States’ central banks ⌦ of the Member
           States ⌫, shall be treated as financial institutions for the purposes of Articles 25 and
           52 to 56 ⌦ 39 and Title V, Chapter 4, Section 1⌫.
                                                                  2000/12/EC Article 2(3)
                                                               (adapted)
                                                Article 2
   This Directive shall not apply to ⌦ the following ⌫ :
   –       the central banks of Member States,
   –       post office giro institutions,
   –       in Belgium, the «Institut de Réescompte et de Garantie/Herdiscontering- en
           Waarborginstituut»,
   –       in Denmark, the «Dansk Eksportfinansieringsfond»,                     the    «Danmarks
           Skibskreditfond», and «Dansk Landbrugs Realkreditfond»,
   –       in Germany, the «Kreditanstalt für Wiederaufbau», undertakings which are
           recognised under the «Wohnungsgemeinnützigkeitsgesetz» as bodies of State
           housing policy and are not mainly engaged in banking transactions, and undertakings
           recognised under that law as non-profit housing undertakings,
EN                                                 33                                               EN
 ---pagebreak---    – in Greece, the «Ελληνική Τράπεζα Βιομηχανικής Αναπτύξεως,», (Elliniki Trapeza
     Viomichanikis Anaptyxeos), the «Ταμείο Παρακαταθηκών και Δανείων» (Tamio
     Parakatathikon kai Danion), and the «Ταχυδρομικό Ταμιευτήριο» (Tachidromiko
     Tamieftirio),
   – in Spain, the «Instituto de Crédito Oficial»,
   – in France, the «Caisse des dépôts et consignations»,
   – in Ireland, credit unions and the friendly societies,
   – in Italy, the «Cassa depositi e prestiti»,
   – in the Netherlands, the «Netherlandse Investeringsbank voor Ontwikkelingslanden
     NV», the «NV Noordelijke Ontwikkelingsmaatschappij», the «NV Industriebank
     Limburgs Instituut voor Ontwikkeling en Financiering» and the «Overijsselse
     Ontwikkelingsmaatschappij NV»,
   – in Austria, undertakings recognised as housing associations in the public interest and
     the «Österreichische Kontrollbank AG»,
   – in Portugal, «Caixas Económicas» existing on 1 January 1986 with the exception of
     those incorporated as limited companies and of the «Caixa Económica Montepio
     Geral»,
   – in Finland, the «Teollisen yhteistyön rahasto Oy/Fonden för industriellt samarbete
     AB», and the «Kera Oy/Kera Ab»,
   – in Sweden, the «Svenska Skeppshypotekskassan»,
   – in the United Kingdom, the National Savings Bank, the Commonwealth
     Development Finance Company Ltd, the Agricultural Mortgage Corporation Ltd, the
     Scottish Agricultural Securities Corporation Ltd, the Crown Agents for overseas
     governments and administrations, credit unions and municipal banks.
                                                           Act of accession 2003
   – in Latvia, the “kra¯jaizdevu sabiedrı¯bas”, undertakings that are recognised under
     the “kra¯jaizdevu sabiedrı¯bu likums” as cooperative undertakings rendering
     financial services solely to their members,
   – in Lithuania, the “kredito unijos” other than the “Centrine˙ kredito unija”,
   – in Hungary, the “Magyar Fejlesztési Bank Rt.” and the “Magyar Export-Import Bank
     Rt.”,
   – in Poland, the “Spółdzielcze Kasy Oszcze˛dnos´ciowo - Kreditowe” and the “Bank
     Gospodarstwa Krajowego”.’
EN                                           34                                             EN
 ---pagebreak---                                                                       Directive 2004/xx/EC Art. 3.1
                                                                   (adapted)
   4.        The Commission, pursuant to the procedure set out in Article 60(2) shall decide on
   any amendments to the list in paragraph 3.
                                                                      2000/12/EC Article 2(5) and (6)
                                                                   (adapted)
                                                  Article 3
   1.        ⌦ One or more ⌫ cCredit institutions situated in the same Member State and
   ⌦ which are ⌫ permanently affiliated, on 15 December 1977, to a central body which
   supervises them and which is established in that ⌦ the ⌫ same Member State, may be
   exempted from the requirements of Articles ⌦ 7 and 11(1)⌫ 6(1), 8 and 59 if, no later than
   15 December 1979, national law provides that:
   (a)        the commitments of the central body and affiliated institutions are joint and several
              liabilities or the commitments of its affiliated institutions are entirely guaranteed by
              the central body,
   (b)        the solvency and liquidity of the central body and of all the affiliated institutions are
              monitored as a whole on the basis of consolidated accounts,
   (c)        the management of the central body is empowered to issue instructions to the
              management of the affiliated institutions.
   Credit institutions operating locally which are ⌦ permanently ⌫ affiliated, subsequent to 15
   December 1977, to a central body within the meaning of the first subparagraph, may benefit
   from the conditions laid down therein if they constitute normal additions to the network
   belonging to that central body.
                                                                      Directive 2004/xx/EC Art. 3.2
                                                                   (adapted)
   In the case of credit institutions other than those which are set up in areas newly reclaimed
   from the sea or have resulted from scission or mergers of existing institutions dependent or
   answerable to the central body, the Commission, pursuant to the procedure set out in Article
   60(2) ⌦ 150 ⌫ may lay down additional rules for the application of the second
   subparagraph including the repeal of exemptions provided for in the first subparagraph, where
   it is of the opinion that the affiliation of new institutions benefiting from the arrangements laid
   down in the second subparagraph might have an adverse effect on competition.
                                                                      2000/12/EC Article 2(5) and (6)
                                                                   (adapted)
   2.        A credit institution which, as defined ⌦ referred to ⌫ in the first subparagraph of
   paragraph 5 ⌦ 1 ⌫, may also be exempted from the provisions of Articles⌦ 9 and 10 ⌫
   5, and also Articles 40 to 51, and 65 ⌦ Title V, Chapter 2, Sections 2, 3, 4, 5 and 6 and
EN                                                   35                                                 EN
 ---pagebreak---    Chapter 3 ⌫ provided that, without prejudice to the application of those provisions to the
   central body, the whole as constituted by the central body together with its affiliated
   institutions is subject to the abovementioned ⌦ those ⌫ provisions on a consolidated basis.
   In case of exemption, Articles ⌦ 16, 23, 24, 25, 26(1) to (3), 28 and 29 to 37 ⌫ 13, 18, 19,
   20(1) to (6), 21 and 22 shall apply to the whole as constituted by the central body together
   with its affiliated institutions.
                                                                     2000/12/EC Art. 1 (adapted)
                                                 Article 4
                                                Definitions
   For the purposes of this Directive, ⌦ the following definitions shall apply: ⌫
                                                                     2000/28/EC Art. 1(1) to (5)
                                                                  (adapted)
   (1)      «credit institution» shall mean ⌦ means ⌫ :
              (a)   an undertaking whose business is to receive deposits or other repayable funds
                    from the public and to grant credits for its own account;or
              (b)   an electronic money institution within the meaning of Directive 2000/46/EC of
                    the European Parliament and of the Council of 18 September 2000 on the
                    taking up, pursuit and prudential supervision of the business of electronic
                    money institutions20.
            For the purposes of applying the supervision on a consolidated basis, shall be
   considered as a credit institution, a credit institution according to the first paragraph and any
   private or public undertaking which corresponds to the definition in the first paragraph and
   which has been authorised in a third country.
            For the purposes of applying the supervision and control of large exposures, shall be
   considered as a credit institution, a credit institution according to the first paragraph, including
   branches of a credit institution in third countries and any private or public undertaking,
   including its branches, which corresponds to the definition in the first paragraph and which
   has been authorised in a third country;
   (2)      «authorisation» shall mean ⌦ means ⌫ an instrument issued in any form by the
            authorities by which the right to carry on the business of a credit institution is granted;
   (3)      «branch» shall mean ⌦ means ⌫a place of business which forms a legally
            dependent part of a credit institution and which carries out directly all or some of the
            transactions inherent in the business of credit institutions; any number of places of
   20
            OJ L 275, 27.10.2000, p. 39.
EN                                                   36                                                 EN
 ---pagebreak---         business set up in the same Member State by a credit institution with headquarters in
        another Member State shall be regarded as a single branch;
   (4)  «competent authorities» shall mean ⌦ means ⌫ the national authorities which are
        empowered by law or regulation to supervise credit institutions;
   (5)  «financial institution» shall mean ⌦ means ⌫ an undertaking other than a credit
        institution, the principal activity of which is to acquire holdings or to carry on one or
        more of the activities listed in points 2 to 12 of Annex I;
                                                                 new
   (6)  «institutions», for the purposes of Sections 2 and 3 of Title V, Chapter 2, means
        institutions as defined in [Article 2(3) of Council Directive 96/3/EEC21];
                                                                 2000/12/EC Art. 1 (6) to (8)
                                                              adapted (adapted)
   (7)  «home Member State» shall mean ⌦ means ⌫ the Member State in which a credit
        institution has been authorised in accordance with Articles 4 to 11 ⌦ 6 to 9 and 11 to
        14 ⌫ ;
   (8)  «host Member State» shall mean ⌦ means ⌫ the Member State in which a credit
        institution has a branch or in which it provides services;
   (9)  «control» shall mean ⌦ means ⌫ the relationship between a parent undertaking and
        a subsidiary, as defined in Article 1 of Directive 83/349/EEC, or a similar relationship
        between any natural or legal person and an undertaking;
                                                                 2002/87/EC Art. 29(1)(a)
                                                              (adapted)
                                                                 new
   (10) «participation» for the purposes of supervision on a consolidated basis and for the
        purposes of points ⌦ (o) and (p) ⌫ 15 and 16 of Articles 34 ⌦ 57 ⌫ (2), ⌦ 71 to
        73 ⌫ Article 42 and Title V, Chapter 4 shall mean ⌦ means ⌫ participation within
        the meaning of the first sentence of Article 17 of ⌦ Council ⌫ Directive
        78/660/EEC ⌦ 22 ⌫, or the ownership, direct or indirect, of 20 % or more of the
        voting rights or capital of an undertaking;
                                                                 2000/12/EC Art. 1 (10) to (13)
                                                              (adapted)
   (11) «qualifying holding» shall mean ⌦ means ⌫ a direct or indirect holding in an
        undertaking which represents 10 % or more of the capital or of the voting rights or
   21
        OJ L 141, 11.6.1993, p. 1.
   22
        OJ L 222, 14.8.1978, p.11.
EN                                               37                                               EN
 ---pagebreak---            which makes it possible to exercise a significant influence over the management of the
           ⌦ that ⌫ undertaking in which a holding subsists. ⌦ ; ⌫
   (12) «initial capital» shall mean capital as defined in Article 34 (2)(1) and (2);
   (12)    «parent undertaking» shall mean ⌦ means ⌫
             (a)   a parent undertaking as defined in Articles 1 and 2 of Directive 83/349/EEC.
             (b)   It shall, for the purposes of supervision on a consolidated basis and control of
                   large exposures, mean ⌦ Articles 71 to 73, Title V, Chapter 2, Section 5 and
                   Chapter 4 ⌫, a parent undertaking within the meaning of Article 1(1) of
                   Directive 83/349/EEC and any undertaking which, in the opinion of the
                   competent authorities, effectively exercises a dominant influence over another
                   undertaking;
   (13)    «subsidiary» shall mean ⌦ means ⌫
             (a)   a subsidiary undertaking as defined in Articles 1 and 2 of Directive
                   83/349/EEC;
             (b)   It shall, for the purposes of supervision on a consolidated basis and control of
                   large exposures, mean ⌦ Articles 71 to 73, Title V, Chapter 2, Section 5, and
                   Chapter 4 ⌫ a subsidiary undertaking within the meaning of Article 1(1) of
                   Directive 83/349/EEC and any undertaking over which, in the opinion of the
                   competent authorities, a parent undertaking effectively exercises a dominant
                   influence.
             All subsidiaries of subsidiary undertakings shall also be considered subsidiaries of
             the undertaking that is their original parent;
                                                                      new
   (14)    “parent credit institution in a Member State” means a credit institution which has a
           credit institution or a financial institution as a subsidiary or which holds a participation
           in such an institution, and which is not itself a subsidiary of another credit institution
           authorised in the same Member State, or of a financial holding company set up in the
           same Member State, and in which no other credit institution authorised in the same
           Member State holds a participation;
   (15)    “parent financial holding company in a Member State” means a financial holding
           company which is not itself a subsidiary of a credit institution authorised in the same
           Member State, or of a financial holding company set up in the same Member State;
   (16)    “EU parent credit institution” means a parent credit institution in a Member State
           which is not a subsidiary of another credit institution authorised in any Member State,
           or of a financial holding company set up in any Member State, and in which no other
           credit institution authorised in any Member State holds a participation;
EN                                                    38                                                EN
 ---pagebreak---    (17)    “EU parent financial holding company” mean a parent financial holding company in a
           Member State which is not a subsidiary of a credit institution authorised in any
           Member State;
                                                                  2000/12/EC Art. 1 (14) to (18)
                                                               (adapted)
   (14) “Zone A» shall comprise all the Member States and all other countries which are full
   members of the Organisation for Economic Cooperation and Development (OECD) and those
   countries which have concluded special lending arrangements with the International Monetary
   Fund (IMF) associated with the Fund's general arrangements to borrow (GAB). Any country
   which reschedules its external sovereign debt is, however, precluded from Zone A for a
   period of five years;
   (15) «Zone B» shall comprise all countries not in Zone A;
   (16) «Zone A credit institutions»    shall mean all credit institutions authorised in the
   Member States, in accordance with Article 4, including their branches in third countries, and
   all private and public undertakings covered by the definitions in point 1, first subparagraph
   and authorised in other Zone A countries, including their branches;
   (17) Zone B credit institutions»     shall mean all private and public undertakings
   authorised outside Zone A covered by the definition in point 1, first subparagraph, including
   their branches within the Community;
   (18) «non-bank sector» shall mean all borrowers other than credit institutions as defined in
   points 16 and 17, central governments and central banks, regional governments and local
   authorities, the European Communities, the European Investment Bank (EIB) and multilateral
   development banks as defined in point 19;
                                                                  2004/69/EC Art. 1 (adapted)
   «multilateral development banks» shall mean the International Bank for Reconstruction and
   Development, the International Finance Corporation, the Inter-American Development Bank,
   the Asian Development Bank, the African Development Bank, the Council of Europe
   Resettlement Fund, the Nordic Investment Bank, the Caribbean Development Bank, the
   European Bank for Reconstruction and Development, the European Investment Fund, the
   Inter-American Investment Corporation and the Multilateral Investment Guarantee Agency;
                                                                  2000/12/EC Art. 1 (20)
   (20) «full-risk», «medium-risk», «medium/low-risk» and «low-risk» off-balance-sheet items»
   shall mean the items described in Article 43(2) and listed in Annex II;
                                                                  new
   (18)    “public sector entities” means non-commercial administrative bodies responsible to
           central governments, regional governments or local authorities, or authorities that in
           the view of the competent authorities exercise the same responsibilities as regional and
           local authorities;
EN                                                39                                                EN
 ---pagebreak---                                                                    2002/87/EC Art. 29.1(b)
                                                                adapted (adapted)
   (19)    «financial holding company» shall mean ⌦ means ⌫ a financial institution, the
           subsidiary undertakings of which are either exclusively or mainly credit institutions or
           financial institutions, at least one of such subsidiaries being a credit institution, and
           which is not a mixed financial holding company within the meaning of Directive
           2002/87/EC of the European Parliament and of the Council of 16 December 2002 on
           the supplementary supervision of credit institutions, insurance undertakings and
           investment firms in a financial conglomerate23;
   (20)    «mixed-activity holding company» shall mean ⌦ means ⌫ a parent undertaking,
           other than a financial holding company or a credit institution or a mixed financial
           holding company within the meaning of Directive 2002/87/EC, the subsidiaries of
           which include at least one credit institution;
                                                                   2000/12/EC Art. 1 (23)
                                                                (adapted)
   (21)    «ancillary banking services undertaking» shall mean ⌦ means ⌫ an undertaking the
           principal activity of which consists in owning or managing property, managing data-
           processing services, or any other similar activity which is ancillary to the principal
           activity of one or more credit institutions;
                                                                   new
   (22)    “operational risk” means the risk of loss resulting from inadequate or failed internal
           processes, people and systems or from external events, and includes legal risk;
                                                                   2000/12/EC Art. 1 (24)
                                                                (adapted)
   «exposures» for the purpose of applying Articles 47, 48 and 49 shall mean the assets and off-
   balance-sheet items referred to in Article 43 and in Annexes II and IV thereto Title V, Chapter
   2, Section 2, and 3, without application of the risk weightings or degrees of risk there
   provided for; the risks referred to in Annex IV must be calculated in accordance with one of
   the methods set out in Annex III, without application of the weightings for counterparty risk;
   all elements entirely covered by own funds may, with the agreement of the competent
   authorities, be excluded from the definition of exposures provided that such own funds are not
   included in the credit institution’s own funds calculation of the solvency ratio for the purposes
   of Article 44 or in the calculation of other monitoring ratios provided for in this Directive and
   in other Community acts; exposures shall not include:
             –     in the case of foreign exchange transactions, exposures incurred in the ordinary
                   course of settlement during the 48 hours following payment, or
   23
           OJ L 35, 11.2.2003, p. 1.
EN                                                  40                                               EN
 ---pagebreak---           –      in the case of transactions for the purchase or sale of securities, exposures
                 incurred in the ordinary course of settlement during the five working days
                 following payment or delivery of the securities, whichever is the earlier;
                                                                 new
   (23) “central banks” include the European Central Bank unless otherwise indicated;
   (24) “dilution risk” means the risk that an amount receivable is reduced through cash or
        non-cash credits to the obligor;
   (25) “probability of default” means the probability of default of a counterparty over a one
        year period;
   (26) “loss” means economic loss, including material discount effects, and material direct
        and indirect costs associated with collecting on the instrument;
   (27) “loss given default” means the ratio of the loss on an exposure due to the default of a
        counterparty to the amount outstanding at default;
   (28) “conversion factor” means the ratio, to the currently undrawn amount of the
        commitment, of the currently undrawn amount of a commitment subject to an advised
        limit that will be drawn and outstanding at default;
   (29) “expected loss (EL)” shall mean the ratio of the amount expected to be lost on an
        exposure from a potential default of a counterparty or dilution over a one year period
        to the amount outstanding at default;
   (30) “credit risk mitigation” means a technique used by a credit institution to reduce the
        credit risk associated with an exposure or exposures which the credit institution
        continues to hold;
   (31) “funded credit protection” means a technique of credit risk mitigation where the
        reduction of the credit risk on the exposure of a credit institution derives from the right
        of the credit institution - in the event of the default of the counterparty or on the
        occurrence of other specified credit events relating to the counterparty - to liquidate, or
        to obtain transfer or appropriation of, or to retain certain assets or amounts, or to
        reduce the amount of the exposure to, or to replace it with, the amount of the
        difference between the amount of the exposure and the amount of a claim on the credit
        institution;
   (32) “unfunded credit protection” means a technique of credit risk mitigation where the
        reduction of the credit risk on the exposure of a credit institution derives from the
        undertaking of a third party to pay an amount in the event of the default of the
        borrower or on the occurrence of other specified events;
   (33) “repurchase transaction” means any transaction governed by an agreement falling
        within the definition of ‘repurchase agreement’ or ‘reverse repurchase agreement’ as
        defined in [Article 3 point (m) of Directive 93/6/EEC];
EN                                              41                                                  EN
 ---pagebreak---    (34) “securities or commodities lending or borrowing transaction” means any transaction
        falling within the definition of ‘securities or commodities lending’ or ‘securities or
        commodities borrowing’ as defined in [Article 3 point (n) of Directive 93/6/EEC];
   (35) “cash assimilated instrument” means a certificate of deposit or other similar
        instrument issued by the lending credit institution;
   (36) “securitisation” means a transaction or scheme, whereby the credit risk associated with
        an exposure or pool of exposures is tranched, having the following characteristics:
          (a)    payments in the transaction or scheme are dependent upon the performance of
                 the exposure or pool of exposures;
          (b)    the subordination of tranches determines the distribution of losses during the
                 ongoing life of the transaction or scheme;
   (37) “traditional securitisation” means a securitisation involving the economic transfer of
        the exposures being securitised to a securitisation special purpose entity which issues
        securities. This shall be accomplished by the transfer of ownership of the securitised
        exposures from the originator credit institution or through sub-participation. The
        securities issued do not represent payment obligations of the originator credit
        institution;
   (38) “synthetic securitisation” means a securitisation where the tranching is achieved by the
        use of credit derivatives or guarantees, and the pool of exposures is not removed from
        the balance sheet of the originator credit institution;
   (39) “tranche” means a contractually established segment of the credit risk associated with
        an exposure or number of exposures, where a position in the segment entails a risk of
        credit loss greater than or less than a position of the same amount in each other such
        segment, without taking account of credit protection provided by third parties directly
        to the holders of positions in the segment or in other segments;
   (40) “securitisation position” shall mean an exposure to a securitisation;
   (41) “originator” means either of the following:
          (a)    an entity which, either itself or through related entities, directly or indirectly,
                 was involved in the original agreement which created the obligations or
                 potential obligations of the debtor or potential debtor giving rise to exposure
                 being securitised;
          (b)    an entity which purchases a third party’s exposures onto its balance sheet and
                 then securitises them;
   (42) “sponsor” means a credit institution other than an originator credit institution that
        establishes and manages an asset-backed commercial paper programme or other
        securitisation scheme that purchases exposures from third party entities;
   (43) “credit enhancement” means a contractual arrangement whereby the credit quality of a
        position in a securitisation is improved in relation to what it would have been if the
EN                                               42                                                  EN
 ---pagebreak---         enhancement had not been provided, including the enhancement provided by more
        junior tranches in the securitisation and other types of credit protection;
   (44) “securitisation special purpose entity (SSPE)” means a corporation trust or other
        entity, other than a credit institution, organised for carrying on a securitisation or
        securitisations, the activities of which are limited to those appropriate to
        accomplishing that objective, the structure of which is intended to isolate the
        obligations of the SSPE from those of the originator credit institution, and the holders
        of the beneficial interests in which have the right to pledge or exchange those interests
        without restriction;
                                                                 2000/12/EC Article 1(25) to
                                                              (27) (adapted)
   (45) «group of connected clients» shall mean ⌦ means ⌫ :
          (a)   two or more natural or legal persons who, unless it is shown otherwise,
                constitute a single risk because one of them, directly or indirectly, has control
                over the other or others; or
          (b)   two or more natural or legal persons between whom there is no relationship of
                control as defined ⌦ set out ⌫ in the first indent but who are to be regarded
                as constituting a single risk because they are so interconnected that, if one of
                them were to experience financial problems, the other or all of the others would
                be likely to encounter repayment difficulties;
   (46) «close links» shall mean ⌦ means ⌫ a situation in which two or more natural or
        legal persons are linked by ⌦ in any of the following ways ⌫ :
          (a)   participation , which shall mean the ⌦ in the form of ⌫ ownership, direct or
                by way of control, of 20% or more of the voting rights or capital of an
                undertaking, or;
          (b)   control, which shall mean the relationship between a parent undertaking and a
                subsidiary, in all the cases referred to in Article 1(1) and (2) of Directive
                83/349/EEC, or a similar relationship between any natural or legal person and
                an undertaking; any subsidiary undertaking of a subsidiary undertaking shall
                also be considered a subsidiary of the parent undertaking which is at the head
                of those undertakings.;
          (c)   A situation in which two or more natural or legal persons are permanently
                linked ⌦ the fact that both or all are permanently linked ⌫ to one and the
                same ⌦ third ⌫ person by a control relationship shall also be regarded as
                constituting a close link between such persons;
   (47) «recognised exchanges» shall mean ⌦ means ⌫ exchanges ⌦ which are ⌫
        recognised ⌦ as such ⌫ by the competent authorities ⌦ and ⌫ which ⌦ meet the
        following conditions:⌫
          (a)   ⌦they ⌫ function regularly;
EN                                              43                                                EN
 ---pagebreak---              (b)    ⌦they ⌫have rules, issued or approved by the appropriate authorities of the
                    home country of the exchange, which define ⌦ defining ⌫the conditions for
                    the operation of the exchange, the conditions of access to the exchange as well
                    as the conditions that must be satisfied by a contract before it can effectively be
                    dealt on the exchange;
             (c)    ⌦they ⌫have a clearing mechanism that provides for ⌦ whereby ⌫
                    contracts listed in Annex IV to be ⌦ are ⌫ subject to daily margin
                    requirements providing an appropriate protection ⌦ which, ⌫ in the opinion
                    of the competent authorities ⌦, provide appropriate protection ⌫ in the
                    opinion of the competent authorities.
                                                                    2000/12/EC Art. 3 (adapted)
                                                 Article 5
        Prohibition for undertakings other than credit institutions from carrying on the
               business of taking deposits or other repayable funds from the public
   The Member States shall prohibit persons or undertakings that are not credit institutions from
   carrying on the business of taking deposits or other repayable funds from the public.
   ⌦ The first paragraph ⌫ This prohibition shall not apply to the taking of deposits or other
   funds repayable by a Member State or by a Member State's regional or local authorities or by
   public international bodies of which one or more Member States are members or to cases
   expressly covered by national or Community legislation, provided that those activities are
   subject to regulations and controls intended to protect depositors and investors and applicable
   to those cases.
                                                                    2000/12/EC
                                               TITLE II
     REQUIREMENTS FOR ACCESS TO THE TAKING UP AND PURSUIT
                     OF THE BUSINESS OF CREDIT INSTITUTIONS
                                                                    2000/12/EC Art. 4 (adapted)
                                                                    1 Directive 2004/xx/EC Art. 3
                                                 Article 6
                                             Authorisation
   Member States shall require credit institutions to obtain authorisation before commencing
   their activities. ⌦ Without prejudice to Articles 7 to 9, 11 and 12⌫ Tthey shall lay down the
EN                                                  44                                                  EN
 ---pagebreak---    requirements for such authorisation subject to Articles 5 to 9, and notify them to        1 the
   Commission  .
                                                                 2000/12/EC Art. 8 (adapted)
                                              Article 7
                      Programme of operations and structural organisation
   Member States shall require applications for authorisation to be accompanied by a programme
   of operations setting out, inter alia, the types of business envisaged and the structural
   organisation of the institution.
                                                                 2000/12/EC Article 9 (adapted)
                                              Article 8
                                         Economic needs
   Member States may not require the application for authorisation to be examined in terms of
   the economic needs of the market.
                                                                 2000/12/EC Art. 5(1) (adapted)
                                              Article 9
                                           Initial capital
   1.       Without prejudice to other general conditions laid down by national law, the
            competent authorities shall not grant authorisation when the credit institution does
            not possess separate own funds or in cases where initial capital is less than EUR 5
            million.
                                                                 2000/12/EC Art. 1 (11)
                                                              (adapted)
            «Initial capital» shall mean ⌦ comprise ⌫ capital ⌦ and reserves as referred to
            ⌫ as defined in Article 34 ⌦ 57(a) and (b) ⌫ (2)(1) and (2).
                                                                 2000/12/EC Article 5(1) and (2)
                                                              (adapted)
            Member States may decide that credit institutions which do not fulfil the requirement
            of separate own funds and which were in existence on 15 December 1979 may
            continue to carry on their business. They may exempt such credit institutions from
            complying with the requirement contained in the first subparagraph of Article
            ⌦ 11 ⌫ 6(1).
EN                                               45                                                EN
 ---pagebreak---    2.         The Member States ⌦ may, subject to the following conditions, grant ⌫ shall,
              however, have the option of grantingauthorisation to particular categories of credit
              institutions the initial capital of which is less than that ⌦ specified ⌫ prescribed in
              paragraph 1. In such cases:
              (a)    the initial capital ⌦ must ⌫ shall not be less than EUR 1 million;
              (b)    the Member States concerned must notify the Commission of their reasons for
                     ⌦ exercising ⌫ using ⌦ this option ⌫making use of the option provided
                     for in this paragraph,
              (c)    when the list referred to in Article 11 is published, the name of each credit
                     institution that does not have the minimum capital ⌦ specified ⌫ prescribed
                     in paragraph 1 ⌦ must ⌫ shall be annotated to that effect ⌦ in the list
                     referred to in Article 14. ⌫
                                                                       2000/12/EC Art. 5(3) to (7)
                                                                    (adapted)
                                                   Article 10
   1.       A credit institution's own funds may not fall below the amount of initial capital
   required by ⌦ under Article 9 ⌫ paragraphs 1 and 2 at the time of its authorisation.
   2.       The Member States may decide that credit institutions already in existence on 1
   January 1993, the own funds of which do not attain the levels specified for initial capital in
   ⌦ Article 9 ⌫ paragraphs 1 and 2, may continue to carry on their activities. In that event,
   their own funds may not fall below the highest level reached with effect from 22 December
   1989.
   3.       If control of a credit institution falling within the category referred to in paragraph
   ⌦ 2 ⌫ 4 is taken by a natural or legal person other than the person who controlled the
   institution previously, the own funds of that ⌦ credit ⌫ institution must attain at least the
   level ⌦ specified ⌫ prescribed for initial capital in ⌦ Article 9 ⌫ paragraphs 1 and 2.
   4.       In certain specific circumstances and with the consent of the competent authorities,
   where there is a merger of two or more credit institutions falling within the category referred
   to in paragraph 4 ⌦ 2 ⌫ , the own funds of the ⌦ credit ⌫ institution resulting from the
   merger may not fall below the total own funds of the merged ⌦ credit ⌫ institutions at the
   time of the merger, as long as the appropriate levels ⌦ specified in ⌫ pursuant to
   ⌦ Article 9 ⌫ paragraphs 1 and 2 have not been attained.
   5.       If, in the cases referred to in paragraphs ⌦ 1, 2 and 4 ⌫ 3, 4 and 6, the own funds
   should be reduced, the competent authorities may, where the circumstances justify it, allow an
   ⌦ credit ⌫ institution a limited period in which to rectify its situation or cease its activities.
EN                                                     46                                             EN
 ---pagebreak---                                                                        2000/12/EC Article 6 (adapted)
                                                Article 11
          Management body and place of the head office of credit institutions
   1.  The competent authorities shall grant an authorisation to the credit institution only
       when there are at least two persons who effectively direct the business of the credit
       institution.
       ⌦ They ⌫ Moreover, the authorities concerned shall not grant authorisation if
       these persons are not of sufficiently good repute or lack sufficient experience to
       perform such duties.
   2.  Each Member State shall require that:
       (a)     any credit institution which is a legal person and which, under its national law,
               has a registered office ⌦ shall ⌫ have its head office in the same Member
               State as its registered office;
       (b)     any other credit institution ⌦ shall ⌫ have its head office in the Member
               State which issued its authorisation and in which it actually carries on its
               business.
                                                                       2000/12/EC Art. 7 (adapted)
                                                Article 12
                                    Shareholders and members
   1.  The competent authorities shall not grant authorisation for the taking-up of the
       business of credit institutions ⌦ unless ⌫ before they have been informed of the
       identities of the shareholders or members, whether direct or indirect, natural or legal
       persons, that have qualifying holdings, and of the amounts of those holdings.
       ⌦ In determining a ⌫ For the purpose of the definition of qualifying holding in the
       context of this Article, the voting rights referred to in Article 7 ⌦ 92 ⌫ of
       CouncilDirective 88/627/EEC24 ⌦ 2001/34/EC of the European Parliament and of
       the Council25 ⌫ shall be taken into consideration.
   2.  The competent authorities shall refuse authorisation if, taking into account the need
       to ensure the sound and prudent management of a credit institution, they are not
       satisfied as to the suitability of the abovementioned shareholders or members.
   24
      Council Directive 88/627/EEC of 12 December 1988 on the information to be published when a major
      holding in a listed company is acquired or disposed of (OJ L 348, 17.12.1988, p. 62).
   25
      OJ L 184 , 6.7.2001, p. 1.
EN                                                   47                                                EN
 ---pagebreak---    3.       Where close links exist between the credit institution and other natural or legal
            persons, the competent authorities shall grant authorisation only if those links do not
            prevent the effective exercise of their supervisory functions.
            The competent authorities shall also refuse authorisation if the laws, regulations or
            administrative provisions of a ⌦ third ⌫ non-member country governing one or
            more natural or legal persons with which the credit institution has close links, or
            difficulties involved in their enforcement ⌦ of those laws, regulations or
            administrative provisions ⌫ , prevent the effective exercise of their supervisory
            functions.
            The competent authorities shall require credit institutions to provide them with the
            information they require to monitor compliance with the conditions referred to in this
            paragraph on a continuous basis.
                                                                   2000/12/EC Articles 8 & 9
                                                                (adapted)
                                                Article 8
                       Programme of operations and structural organisation
   Member States shall require applications for authorisation to be accompanied by a programme
   of operations setting out, inter alia, the types of business envisaged and the structural
   organisation of the institution.
                                                Article 9
                                           Economic needs
   Member States may not require the application for authorisation to be examined in terms of
   the economic needs of the market.
                                                                   2000/12/EC Article 10
                                                                (adapted)
                                               Article 13
                                        Authorisation refusal
   Reasons shall be given whenever an authorisation is refused and the applicant shall be
   notified thereof within six months of receipt of the application or, should the latter be
   incomplete, within six months of the applicant's sending the information required for the
   decision. A decision shall, in any case, be taken within 12 months of the receipt of the
   application.
EN                                                 48                                               EN
 ---pagebreak---                                                                     2000/12/EC Article 11
                                                                 (adapted)
                                                Article 14
                       Notification of the authorisation to the Commission
   Every authorisation shall be notified to the Commission.
   ⌦ The name of e ⌫ Each credit institution ⌦ to ⌫ shall be entered in a list ⌦ which
   authorisation has been granted shall be entered in a list ⌫. which t ⌦ The ⌫ the
   Commission shall publish ⌦ that list ⌫ in the Official Journal of the European
   ⌦ Union ⌫ Communities and shall keep ⌦ it ⌫ up to date.
                                                                    2000/12/EC Art. 12 (adapted)
                                                Article 15
            Prior consultation with the competent authorities of other Member States
   1.       ⌦ The competent authority shall, before granting authorisation to a credit
   institution, ⌫ There must be prior consultation with ⌦ consult ⌫ the competent authorities
   of the other Member State involved on the authorisation of a credit institution ⌦ in the
   following cases ⌫ which is:
             ⌦ (a) the credit institution concerned is ⌫ a subsidiary of a credit institution
                  authorised in another Member State, or
             ⌦ (b) the credit institution concerned is ⌫ a subsidiary of the parent undertaking of
                  a credit institution authorised in another Member State, or;
             ⌦ (c) the credit institution concerned is ⌫ controlled by the same persons, whether
                  natural or legal, as control a credit institution authorised in another Member
                  State.
                                                                    2002/87/EC Art. 29.2 (adapted)
   2.       The competent authority ⌦ shall, before granting authorisation to a credit institution,
   consult the competent authority ⌫ of a Member State involved, responsible for the
   supervision of insurance undertakings or investment firms, shall be consulted prior to the
   granting of an authorisation to a credit institution which is: ⌦ in the following cases: ⌫
             (a)  ⌦ the credit institution concerned is ⌫ a subsidiary of an insurance
                  undertaking or investment firm authorised in the Community, or;
             (b)  ⌦ the credit institution concerned is ⌫ a subsidiary of the parent undertaking
                  of an insurance undertaking or investment firm authorised in the Community;or
EN                                                  49                                              EN
 ---pagebreak---             (c)    ⌦ the credit institution concerned is ⌫ controlled by the same person,
                   whether natural or legal, ⌦ as ⌫ who controls an insurance undertaking or
                   investment firm authorised in the Community.
   3.      The relevant competent authorities referred to in the first and second paragraphs ⌦ 1
   and 2 ⌫ shall in particular consult each other when assessing the suitability of the
   shareholders and the reputation and experience of directors involved in the management of
   another entity of the same group. They shall ⌦ exchange ⌫ inform each other of any
   information regarding the suitability of shareholders and the reputation and experience of
   directors which is of relevance to the other competent authorities involved for the granting of
   an authorisation as well as for the ongoing assessment of compliance with operating
   conditions.
                                                                   2000/12/EC Article 13
                                                                (adapted)
                                                Article 16
                Branches of credit institutions authorised in another Member State
   Host Member States may not require authorisation or endowment capital for branches of
   credit institutions authorised in other Member States. The establishment and supervision of
   such branches shall be effected ⌦ in accordance with Articles 22, 25, 26(1) to (3), 29 to 37
   and 40⌫ as prescribed in Articles 17, 20(l) to (6) and Articles 22 and 26.
                                                                   2000/12/EC Art. 14 (adapted)
                                                Article 17
                                      Withdrawal of authorisation
   1.       The competent authorities may withdraw the authorisation issued to a credit
            institution only where such an institution:
            (a)    does not make use of the authorisation within 12 months, expressly renounces
                   the authorisation or has ceased to engage in business for more than six months,
                   if the Member State concerned has made no provision for the authorisation to
                   lapse in such cases;
            (b)    has obtained the authorisation through false statements or any other irregular
                   means;
            (c)    no longer fulfils the conditions under which authorisation was granted;
            (d)    no longer possesses sufficient own funds or can no longer be relied on to fulfil
                   its obligations towards its creditors, and in particular no longer provides
                   security for the assets entrusted to it;
EN                                                  50                                              EN
 ---pagebreak---              (e)    falls within one of the other cases where national law provides for withdrawal
                    of authorisation.
   2.        Reasons ⌦ shall ⌫ must be given for any withdrawal of authorisation and those
             concerned informed thereof;. Ssuch withdrawal shall be notified to the Commission.
                                                                      2000/12/EC Article 15
                                                                   (adapted)
                                                 Article 18
                                                    Name
   For the purposes of exercising their activities, credit institutions may, notwithstanding any
   provisions ⌦ in the host Member State ⌫ concerning the use of the words «bank», «savings
   bank» or other banking names which may exist in the host Member State, use throughout the
   territory of the Community the same name as they use in the Member State in which their
   head office is situated. In the event of there being any danger of confusion, the host Member
   State may, for the purposes of clarification, require that the name be accompanied by certain
   explanatory particulars.
                                                                      2000/12/EC Art. 16 (1)
                                                                   (adapted)
                                                 Article 19
                               Qualifiying holding in a credit institution
   1.        The Member States shall require any natural or legal person who proposes to hold,
             directly or indirectly, a qualifying holding in a credit institution first to inform the
             competent authorities, telling them of the size of the intended holding.
             Such a person must likewise inform the competent authorities if he proposes to
             increase his qualifying holding so that the proportion of the voting rights or of the
             capital held by him would reach or exceed 20%, 33% or 50% or so that the credit
             institution would become his subsidiary.
             Without prejudice to the provisions of paragraph 2, the competent authorities shall
             have a maximum of three months from the date of the notification provided for in the
             first ⌦ and second subparagraphs ⌫ subparagraph to oppose such a plan if, in view
             of the need to ensure sound and prudent management of the credit institution, they
             are not satisfied as to the suitability of the person ⌦ concerned ⌫ referred to in the
             first subparagraph. If they do not oppose the plan referred to in the first
             subparagraph, they may fix a maximum period for its implementation.
                                                                      2002/87/EC Art. 29.3 (adapted)
   2.        If the ⌦ person proposing to acquire ⌫ acquirer of the holdings referred to in
             paragraph 1 is a credit institution, insurance undertaking or investment firm
EN                                                    51                                              EN
 ---pagebreak---             authorised in another Member State or the parent undertaking of a credit institution,
            insurance undertaking or investment firm authorised in another Member State or a
            natural or legal person controlling a credit institution, insurance undertaking or
            investment firm authorised in another Member State, and if, as a result of that
            acquisition, the ⌦ credit ⌫ institution in which the acquirer proposes to hold a
            holding would become a subsidiary or subject to the control of the acquirer, the
            assessment of the acquisition ⌦ shall ⌫ must be subject to the prior consultation
            ⌦ provided for ⌫ referred to in Article ⌦ 15 ⌫ 12.
                                                                  2000/12/EC Article 16(3)
                                               Article 20
   3. The Member States shall require any natural or legal person who proposes to dispose,
   directly or indirectly, of a qualifying holding in a credit institution first to inform the
   competent authorities, telling them of the size of his intended holding. Such a person must
   likewise inform the competent authorities if he proposes to reduce his qualifying holding so
   that the proportion of the voting rights or of the capital held by him would fall below 20%,
   33% or 50% or so that the credit institution would cease to be his subsidiary.
                                                                  2000/12/EC Art. 16 (4) to (6)
                                                               (adapted)
                                               Article 21
   14.      On becoming aware of them, c ⌦ Credit ⌫ credit institutions shall ⌦ , on
            becoming aware ⌫ inform the competent authorities of any acquisitions or disposals
            of holdings in their capital that cause holdings to exceed or fall below one of the
            thresholds referred to in ⌦ Article 19(1) and Article 20 ⌫ paragraphs 1 and 3 ⌦ ,
            inform the competent authorities of those acquisitions or disposals. ⌫
            They shall also, at least once a year, inform ⌦ the competent authorities ⌫ them of
            the names of shareholders and members possessing qualifying holdings and the sizes
            of such holdings as shown, for example, by the information received at the annual
            general meetings of shareholders and members or as a result of compliance with the
            regulations relating to companies listed on stock exchanges.
   25.      The Member States shall require that, where the influence exercised by the persons
            referred to in ⌦ Article 19(1) ⌫ paragraph 1 is likely to operate to the detriment of
            the prudent and sound management of the institution, the competent authorities shall
            take appropriate measures to put an end to that situation. Such measures may consist
            for example in injunctions, sanctions against directors and managers, or the
            suspension of the exercise of the voting rights attaching to the shares held by the
            shareholders or members in question.
            Similar measures shall apply to natural or legal persons ⌦ who fail ⌫ failing to
            comply with the obligation to provide prior information, as laid down in
            ⌦ Article 19 (1). ⌫ paragraph 1. If a holding is acquired despite the opposition of
            the competent authorities, the Member States shall, regardless of any other sanctions
EN                                                 52                                             EN
 ---pagebreak---         to be adopted, provide either for exercise of the corresponding voting rights to be
        suspended, or for the nullity of votes cast or for the possibility of their annulment.
   36.  ⌦ In determining a ⌫ For the purposes of the definition of qualifying holding and
        other levels of holding ⌦ referred to ⌫ set out in this Article, the voting rights
        referred to in Article 7 ⌦ 92 ⌫ of Council Directive 88/627/EEC ⌦ Directive
        2001/34/EC ⌫ shall be taken into consideration.
                                                                2000/12/EC Article 17
                                                             (adapted)
                                                                new
                                           Article 22
                       Procedures and internal control mechanisms
   1.   Home Member State competent authorities shall require that every credit institution
        have sound administrative and accounting procedures and adequate internal control
        mechanisms.        have robust governance arrangements, which include a clear
        organisational structure with well defined, transparent and consistent lines of
        responsibility, effective processes to identify, manage, monitor and report the risks it
        is or might be exposed to, and adequate internal control mechanisms, including
        sound administrative and accounting procedures. 
   2.   The arrangements, processes and mechanisms referred to in paragraph 1 shall be
        comprehensive and proportionate to the nature, scale and complexity of the credit
        institution’s activities. The technical criteria laid down in Annex V shall be taken
        into account.
                                                                2000/12/EC
                                         TITLE III
    PROVISIONS CONCERNING THE FREEDOM OF ESTABLISHMENT
                AND THE FREEDOM TO PROVIDE SERVICES
                                                                2000/12/EC (adapted)
                       ⌦ SECTION 1 CREDIT INSTITUTIONS ⌫
                                                                2000/12/EC Art. 18 (adapted)
                                           Article 23
                                      Credit institutions
EN                                             53                                                EN
 ---pagebreak---    The Member States shall provide that the activities listed in Annex I may be carried on within
   their territories, in accordance with Articles ⌦ 25, 26(1) to (3), 28(1) and (2) and 29 to 37 ⌫
   20(1) to (6), 21(1) and (2), and 22, either by the establishment of a branch or by way of the
   provision of services, by any credit institution authorised and supervised by the competent
   authorities of another Member State, provided that such activities are covered by the
   authorisation.
                                                                      2000/12/EC (adapted)
                           ⌦ SECTION 2 FINANCIAL INSTITUTIONS ⌫
                                                                      2000/12/EC Article 19 1st &
                                                                   3rd paragraphs (adapted)
                                                 Article 24
                                           Financial institutions
   1.        The Member States shall also provide that the activities listed in Annex I may be
             carried on within their territories, in accordance with Articles ⌦ 25, 26(1) to (3),
             28(1) and (2) and 29 to 37 ⌫ 20(1) to (6), 21(1) and (2), and 22, either by the
             establishment of a branch or by way of the provision of services, by any financial
             institution from another Member State, whether a subsidiary of a credit institution or
             the jointly-owned subsidiary of two or more credit institutions, the memorandum and
             aArticles of association of which permit the carrying on of those activities and which
             fulfils each of the following conditions:
             (a)    the parent undertaking or undertakings must be authorised as credit institutions
                    in the Member State by the law of which the ⌦ financial institution ⌫
                    subsidiary is governed.;
             (b)    the activities in question must actually be carried on within the territory of the
                    same Member State.;
             (c)    the parent undertaking or undertakings must hold 90% or more of the voting
                    rights attaching to shares in the capital of the ⌦ financial institution; ⌫
                    subsidiary.
             (d)    the parent undertaking or undertakings must satisfy the competent authorities
                    regarding the prudent management of the ⌦ financial institution ⌫
                    subsidiary and must have declared, with the consent of the relevant home
                    Member State competent authorities, that they jointly and severally guarantee
                    the commitments entered into by the ⌦ financial institution; ⌫ subsidiary,
             (e)    the ⌦ financial institution ⌫ subsidiary must be effectively included, for the
                    activities in question in particular, in the consolidated supervision of the parent
                    undertaking, or of each of the parent undertakings, in accordance with Articles
                    52 to 56 ⌦ Title V, Chapter 4, Section 1 ⌫ , in particular for the calculation
EN                                                   54                                                 EN
 ---pagebreak---                     of the solvency ratio, for the control of large exposures and for purposes of the
                    limitation of holdings provided for in Article ⌦ 120 ⌫ 50.
             Compliance with these conditions ⌦ shall ⌫ must be verified by the competent
             authorities of the home Member State and the latter ⌦ shall ⌫ must supply the
             ⌦ financial institution ⌫ subsidiary with a certificate of compliance which must
             form part of the notification referred to in Articles ⌦ 25 and 28 ⌫ 20(1) to (6), and
             21(1) and (2).
             The competent authorities of the home Member State shall ensure the supervision of
             the ⌦ financial institution ⌫ subsidiary in accordance with Articles ⌦10 (1), 19
             to 22, 40, 42 to 52 and 54 ⌫ 5(3), 16, 17, 26, 28, 29, 30, and 32.
                                                                      2000/12/EC Art. 19
                                                                  (sixth paragraph) (adapted)
   2.        If a financial institution ⌦ as referred to in the first subparagraph of paragraph 1 ⌫
             eligible under this Article should ceases to fulfil any of the conditions imposed, the
             home Member State shall notify the competent authorities of the host Member State
             and the activities carried on by that ⌦ financial ⌫ institution in the host Member
             State shall become subject to the legislation of the host Member State.
                                                                      2000/12/EC Art. 19
                                                                  fourth paragraph (adapted)
   3.        The provisions mentioned in ⌦ paragraphs 1 and 2 ⌫ this Article shall apply
             mutatis mutandis to subsidiaries ⌦of a financial institution as referred to in the first
             subparagraph of paragraph 1 ⌫subject to the necessary modifications. In particular,
             the words «credit institution» should be read as «financial institution fulfilling the
             conditions laid down in Article 19» and the word «authorisation» as «memorandum
             and Articles of association».
                                                                      2000/12/EC Art. (19) 5th & 6th
                                                                  paragraphs (adapted)
   The second subparagraph of Article 20(3) shall read:
   «The home Member State competent authorities shall also communicate the amount of own
   funds of the subsidiary financial institution and the consolidated solvency ratio of the credit
   institution which is its parent undertaking».
   If a financial institution eligible under this Article should cease to fulfil any of the conditions
   imposed, the home Member State shall notify the competent authorities of the host Member
   State and the activities carried on by that institution in the host Member State become subject
   to the legislation of the host Member State.
EN                                                   55                                                EN
 ---pagebreak---                                                              2000/12/EC (adapted)
       ⌦ SECTION 3 EXERCISE OF THE RIGHT OF ESTABLISHMENT⌫
                                                             2000/12/EC Art. 20 (1) (2) &
                                                          (3) 1st & 2nd subparagraphs
                                                          (adapted)
                                          Article 25
                          Exercise of the right of establishment
   1. A credit institution wishing to establish a branch within the territory of another
      Member State shall notify the competent authorities of its ⌦ home ⌫ Member
      State.
   2. TheMember States State shall require every credit institution wishing to establish a
      branch in another Member State to provide the following information when effecting
      the notification referred to in paragraph 1:
      (a)    the Member State within the territory of which it plans to establish a branch;
      (b)    a programme of operations setting out, inter alia, the types of business
             envisaged and the structural organisation of the branch;
      (c)    the address in the host Member State from which documents may be obtained;
      (d)    the names of those ⌦ to be ⌫ responsible for the management of the branch.
   3. Unless the competent authorities of the home Member State have reason to doubt the
      adequacy of the administrative structure or the financial situation of the credit
      institution, taking into account the activities envisaged, they shall within three
      months of receipt of the information referred to in paragraph 2 communicate that
      information to the competent authorities of the host Member State and shall inform
      the ⌦ credit ⌫ institution accordingly.
      The home Member State competent authorities shall also communicate the amount of
      own funds and the solvency ratio of the credit institution.
                                                             2000/12/EC Art. 19 5th
                                                          subparagraph (adapted)
      ⌦ By way of derogation from the second subparagraph, in the case referred to in
      Article 24,⌫ “The the home Member State competent authorities shall also
      communicate the amount of own funds of the subsidiary the financial institution and
      the consolidated solvency ratio of the credit institution which is its parent
      undertaking.”
EN                                            56                                            EN
 ---pagebreak---                                                                2000/12/EC Art. 20 (3) 3rd
                                                            subparagraph (adapted)
   4.  Where the competent authorities of the home Member State refuse to communicate
       the information referred to in paragraph 2 to the competent authorities of the host
       Member State, they shall give reasons for their refusal to the ⌦ credit ⌫ institution
       concerned within three months of receipt of all the information.
       That refusal, or a failure to reply, shall be subject to a right to apply to the courts in
       the home Member State.
                                                               2000/12/EC Art. 20(4) to (7)
                                                            (adapted)
                                          Article 26
   14. Before the branch of a credit institution commences its activities the competent
       authorities of the host Member State shall, within two months of receiving the
       information ⌦ referred to ⌫ mentioned in ⌦ Article 25 ⌫ (paragraph3), prepare
       for the supervision of the credit institution in accordance with ⌦ Section 5 ⌫
       Article 22 and if necessary indicate the conditions under which, in the interest of the
       general good, those activities must be carried on in the host Member State.
   25. On receipt of a communication from the competent authorities of the host Member
       State, or in the event of the expiry of the period provided for in paragraph 14 without
       receipt of any communication from the latter, the branch may be established and
       ⌦ may ⌫ commence its activities.
   36. In the event of a change in any of the particulars communicated pursuant to
       ⌦ points (b), (c) or (d) of Article 25 ⌫ (paragraph2) (b), (c) or (d), a credit
       institution shall give written notice of the change in question to the competent
       authorities of the home and host Member States at least one month before making the
       change so as to enable the competent authorities of the home Member State to take a
       decision pursuant to ⌦ Article 25 ⌫(paragraph3) and the competent authorities of
       the host Member State to take a decision on the change pursuant to paragraph 14
       ⌦ of this Article. ⌫ 4.
   47. Branches which have commenced their activities, in accordance with the provisions
       in force in their host Member States, before 1 January 1993, shall be presumed to
       have been subject to the procedure laid down in ⌦ Article 25 and in ⌫ paragraphs
       1 ⌦ and 2 ⌫ to 5 ⌦ of this Article. ⌫ They shall be governed, from ⌦ that ⌫
       the abovementioned date, by paragraph 6 ⌦ 3 of this Article ⌫ , and by ⌦ Article
       23, Sections 2 and 5 and Article 43 ⌫ Articles 18, 19, 22 and 29.
EN                                            57                                                  EN
 ---pagebreak---                                                                   2000/12/EC Art. 1 (3) final
                                                               clause
                                               Article 27
   Any any number of places of business set up in the same Member State by a credit institution
   with headquarters in another Member State shall be regarded as a single branch;.
                                                                  2000/12/EC (adapted)
         ⌦ SECTION 4 EXERCISE OF THE FREEDOM TO PROVIDE SERVICES ⌫
                                                                  2000/12/EC Art. 21 (adapted)
                                               Article 28
                            Exercise of the freedom to provide services
   1.      Any credit institution wishing to exercise the freedom to provide services by carrying
           on its activities within the territory of another Member State for the first time shall
           notify the competent authorities of the home Member State, of the activities on the
           list in Annex I which it intends to carry on.
   2.      The competent authorities of the home Member State shall, within one month of
           receipt of the notification ⌦ provided for ⌫ mentioned in paragraph 1, send that
           notification to the competent authorities of the host Member State.
   3.      This Article shall not affect rights acquired by credit institutions providing services
           before 1 January 1993.
                                                                  2000/12/EC (adapted)
        ⌦ SECTION 5 POWERS OF THE COMPETENT AUTHORITIES OF THE HOST
                                       MEMBER STATE ⌫
                                                                  2000/12/EC Art. 22(1)
                                                               (adapted)
                                               Article 29
                  Power of the competent authorities of the host Member State
   1.Host Member States may, for statistical purposes, require that all credit institutions having
   branches within their territories shall report periodically on their activities in those host
   Member States to the competent authorities of those host Member States.
EN                                                 58                                              EN
 ---pagebreak---    In discharging the responsibilities imposed on them in Article ⌦ 41 ⌫ 27, host Member
   States may require that branches of credit institutions from other Member States provide the
   same information as they require from national credit institutions for that purpose.
                                                                    2000/12/EC Art. 22(2) to (4)
                                                                 (adapted)
                                                Article 30
   12.      Where the competent authorities of a host Member State ascertain ⌦ that ⌫ than
            an ⌦ credit ⌫ institution having a branch or providing services within its territory
            is not complying with the legal provisions adopted in that State pursuant to the
            provisions of this Directive involving powers of the host Member State's competent
            authorities, those authorities shall require the ⌦ credit ⌫ institution concerned to
            put an end to that irregular situation.
   23.      If the ⌦ credit ⌫ institution concerned fails to take the necessary steps, the
            competent authorities of the host Member State shall inform the competent
            authorities of the home Member State accordingly.
            The competent authorities of the home Member State shall, at the earliest
            opportunity, take all appropriate measures to ensure that the ⌦ credit ⌫ institution
            concerned puts an end to that irregular situation. The nature of those measures shall
            be communicated to the competent authorities of the host Member State.
   34.      If, despite the measures taken by the home Member State or because such measures
            prove inadequate or are not available in the Member State in question, the
            ⌦ credit ⌫ institution persists in violating the legal rules referred to in paragraph 2
            ⌦ 1 ⌫ in force in the host Member State, the latter State may, after informing the
            competent authorities of the home Member State, take appropriate measures to
            prevent or to punish further irregularities and, in so far as is necessary, to prevent that
            ⌦ credit ⌫ institution from initiating further transactions within its territory. The
            Member States shall ensure that within their territories it is possible to serve the legal
            documents necessary for these measures on credit institutions.
                                                                    2000/12/EC Art. 22(5)
                                                                 (adapted)
                                                Article 31
   5.The provisions of ⌦ Articles 29 and 30 ⌫ paragraph 1 to 4 shall not affect the power of
   host Member States to take appropriate measures to prevent or to punish irregularities
   committed within their territories which are contrary to the legal rules they have adopted in
   the interests of the general good. This shall include the possibility of preventing offending
   ⌦ credit ⌫ institutions from initiating any further transactions within their territories.
EN                                                  59                                                  EN
 ---pagebreak---                                                                  2000/12/EC Art. 22(6)
                                                              (adapted)
                                                 Article 32
   6. Any measure adopted pursuant to paragraph (2) ⌦ Article 30(2) and (3), or Article 31 ⌫
   paragraph 3, 4 and 5 involving penalties or restrictions on the exercise of the freedom to
   provide services must be properly justified and communicated to the ⌦ credit ⌫ institution
   concerned. Every such measure shall be subject to a right of appeal to the courts in the
   Member State the authorities of which adopted it.
                                                                 2000/12/EC Art. 22(7)
                                                              (adapted)
                                                 Article 33
   7. Before following the procedure provided for in ⌦ Article 30 ⌫ paragraph 2, 3 and 4, the
   competent authorities of the host Member State may, in emergencies, take any precautionary
   measures necessary to protect the interests of depositors, investors and others to whom
   services are provided. The Commission and the competent authorities of the other Member
   States concerned must be informed of such measures at the earliest opportunity.
   The Commission may, after consulting the competent authorities of the Member States
   concerned, decide that the Member State in question must amend or abolish those measures.
                                                                 2000/12/EC Art. 22 (8)
                                                              (adapted)
                                                 Article 34
   8.Host Member States may exercise the powers conferred on them under this Directive by
   taking appropriate measures to prevent or to punish irregularities committed within their
   territories. This shall include the possibility of preventing ⌦ credit ⌫ institutions from
   initiating further transactions within their territories.
                                                                 2000/12/EC Art. 22(9)
                                                              (adapted)
                                                 Article 35
   9.In the event of the withdrawal of authorisation, the competent authorities of the host
   Member State shall be informed and shall take appropriate measures to prevent the
   ⌦ credit ⌫ institution concerned from initiating further transactions within its territory and
   to safeguard the interests of depositors.
EN                                                   60                                           EN
 ---pagebreak---                                                                     2000/12/EC Art. 22 (10)
                                                                 (adapted)
                                               Article 36
   10.The Member States shall inform the Commission of the number and type of cases in which
   there has been a refusal pursuant to Article ⌦ 25 and 26 ⌫ 20(1) to (6) or in which
   measures have been taken in accordance with paragraph 4 of this Article ⌦ Article 30(3) ⌫
   paragraph 4 of this Article.
                                                                    2000/12/EC Art. 22(11)
                                                                 (adapted)
                                               Article 37
   11.⌦ This Section shall not ⌫ Nothing in this Article shall prevent credit institutions with
   head offices in other Member States from advertising their services through all available
   means of communication in the host Member State, subject to any rules governing the form
   and the content of such advertising adopted in the interests of the general good.
                                                                    2000/12/EC
                                              TITLE IV
                         RELATIONS WITH THIRD COUNTRIES
                                                                    2000/12/EC (adapted)
           ⌦ SECTION 1 NOTIFICATION IN RELATION TO THIRD COUNTRIES'
       UNDERTAKINGS AND CONDITIONS OF ACCESS TO THE MARKETS OF THESE
                                             COUNTRIES ⌫
                                                                    2000/12/EC Art. 23 (adapted)
   Notification of the subsidiaries of third countries' undertakings and conditions of access to the
                                        markets of these countries
   1.       The competent authorities of the Member States shall inform the Commission 1 and
            the competent authorities of the other Member States :
            (a) of any authorisation of a direct or indirect subsidiary one or more parent
            undertakings of which are governed by the laws of a third country;
            (b) whenever such a parent undertaking acquires a holding in a Community credit
            institution such that the latter would become its subsidiary.
EN                                                  61                                               EN
 ---pagebreak---       When authorisation is granted to the direct or indirect subsidiary of one or more
      parent undertakings governed by the law of third countries, the structure of the group
      shall be specified in the notification which the competent authorities shall address to
      the Commission in accordance with Article 11.
   2. The Member States shall inform the Commission of any general difficulties
      encountered by their credit institutions in establishing themselves or carrying on
      banking activities in a third country.
   3. The Commission shall periodically draw up a report examining the treatment
      accorded to Community credit institutions in third countries, in the terms referred to
      in paragraphs 4 and 5, as regards establishment and the carrying-on of banking
      activities, and the acquisition of holdings in third-country credit institutions. The
      Commission shall submit those reports to the Council, together with any appropriate
      proposals.
   4. Whenever it appears to the Commission, either on the basis of the reports referred to
      in paragraph 3 or on the basis of other information, that a third country is not
      granting Community credit institutions effective market access comparable to that
      granted by the Community to credit institutions from that third country, the
      Commission may submit proposals to the Council for the appropriate mandate for
      negotiation with a view to obtaining comparable competitive opportunities for
      Community credit institutions. The Council shall decide by a qualified majority.
   5. Whenever it appears to the Commission, either on the basis of the reports referred to
      in paragraph 1 or on the basis of other information that Community credit institutions
      in a third country do not receive national treatment offering the same competitive
      opportunities as are available to domestic credit institutions and the conditions of
      effective market access are not fulfilled, the Commission may initiate negotiations in
      order to remedy the situation.
   6. In the circumstances described in the first subparagraph, it may also be decided at
      any time, and in addition to initiating negotiations, in accordance with the procedure
      laid down in Article 60 (2), that the competent authorities of the Member States must
      limit or suspend their decisions regarding requests pending at the moment of the
      decision or future requests for authorisations and the acquisition of holdings by direct
      or indirect parent undertakings governed by the laws of the third country in question.
      The duration of the measures referred to may not exceed three months.
      Before the end of that three-month period, and in the light of the results of the
      negotiations, the Council may, acting on a proposal from the Commission, decide by
      a qualified majority whether the measures shall be continued.
   6. Whenever it appears to the Commission that one of the situations described in
      paragraphs 4 and 5 of Article 39 obtains, the Member States shall inform it at its
      request:
      (a) of any request for the authorisation of a direct or indirect subsidiary one or
      more parent undertakings of which are governed by the laws of the third country in
      question;
EN                                           62                                                EN
 ---pagebreak---             (b) whenever they are informed in accordance with Article 16 that such an
            undertaking proposes to acquire a holding in a Community credit institution such that
            the latter would become its subsidiary.
            This obligation to provide information shall lapse whenever an agreement is reached
            with the third country referred to in paragraph 4 or 5or when the measures referred to
            in the second and third subparagraphs of paragraph 5 cease to apply.
   7.       Measures taken pursuant to this Article comply with the Community's obligations
            under any international agreements, bilateral or multilateral, governing the taking-up
            and pursuit of the business of credit institutions.
                                                                ê 2000/12/EC Art. 24 (adapted)
                                                                   1 Directive 2004/xx/EC Art. 3.7
                                               Article 38
        Branches of credit institutions having their head offices outside the Community
   1.      Member States shall not apply to branches of credit institutions having their head
   office outside the Community, when commencing or carrying on their business, provisions
   which result in more favourable treatment than that accorded to branches of credit institutions
   having their head office in the Community.
   2.      The competent authorities shall notify the Commission and the 1 European Banking
   Committee  of all authorisations for branches granted to credit institutions having their
   head office outside the Community.
   3.      Without prejudice to paragraph 1, the Community may, through agreements concluded
   in accordance with the Treaty with one or more third countries, agree to apply provisions
   which, on the basis of the principle of reciprocity, accord to branches of a credit institution
   having its head office outside the Community identical treatment throughout the territory of
   the Community.
                                                                   new
                                             SECTION 2
          COOPERATION WITH THIRD COUNTRIES' COMPETENT AUTHORITIES
                    REGARDING SUPERVISION ON A CONSOLIDATED BASIS
                                                                   2000/12/EC Art. 25 (adapted)
                                               Article 39
   1.       The Commission may submit proposals to the Council, either at the request of a
            Member State or on its own initiative, for the negotiation of agreements with one or
EN                                                 63                                              EN
 ---pagebreak---       more third countries regarding the means of exercising supervision on a consolidated
      basis over ⌦ the following ⌫:
      (a)   credit institutions the parent undertakings of which have their head offices
            situated in a third country; and
      (b)   credit institutions situated in third countries the parent undertakings of which,
            whether credit institutions or financial holding companies, have their head
            offices in the Community.
   2. The agreements referred to in paragraph 1 shall, in particular, seek to ensure ⌦ the
      following ⌫ both:
      (a)   that the competent authorities of the Member States are able to obtain the
            information necessary for the supervision, on the basis of their consolidated
            financial situations, of credit institutions or financial holding companies
            situated in the Community and which have as subsidiaries credit institutions or
            financial institutions situated outside the Community, or holding participation
            in such institutions;
      (b)   that the competent authorities of third countries are able to obtain the
            information necessary for the supervision of parent undertakings the head
            offices of which are situated within their territories and which have as
            subsidiaries credit institutions or financial institutions situated in one or more
            Member States or holding participation in such institutions.
                                                              Directive 2004/xx/EC Art. 3.8
   3. Without prejudice to Article 300(1) and (2) of the Treaty establishing the European
      Community, the Commission shall, with the assistance of the European Banking
      Committee, examine the outcome of the negotiations referred to in paragraph 1 and
      the resulting situation.
EN                                            64                                               EN
 ---pagebreak---                                                              2000/12/EC
                                        TITLE V
                                                             2000/12/EC
                                                             new
      PRINCIPLES AND TECHNICAL INSTRUMENTS FOR
      PRUDENTIAL SUPERVISION AND DISCLOSURE 
                                                             2000/12/EC
                                    CHAPTER 1
          PRINCIPLES OF PRUDENTIAL SUPERVISION
                                                             new
                                       SECTION 1
                COMPETENCE OF HOME AND HOST MEMBER STATE
                                                             2000/12/EC Art. 26 (adapted)
                                         Article 40
                     Competence of control of the home Member State
   1.   The prudential supervision of a credit institution, including that of the activities it
        carries on accordance with Articles 18 and 19 ⌦ 23 and 24 ⌫ , shall be the
        responsibility of the competent authorities of the home Member State, without
        prejudice to those provisions of this Directive which give responsibility to the
        authorities of the host Member State.
   2.   Paragraph 1 shall not prevent supervision on a consolidated basis pursuant to this
        Directive.
                                                             2000/12/EC Art 27 (adapted)
                                         Article 41
                           Competence of the host Member State
EN                                            65                                                EN
 ---pagebreak---    Host Member States shall ⌦ , pending further coordination, ⌫ retain responsibility in
   cooperation with the competent authorities of the home Member State for the supervision of
   the liquidity of the branches of credit institutions pending further coordination.
   Without prejudice to the measures necessary for the reinforcement of the European Monetary
   System, host Member States shall retain complete responsibility for the measures resulting
   from the implementation of their monetary policies.
   Such measures may not provide for discriminatory or restrictive treatment based on the fact
   that a credit institution is authorised in another Member State.
                                                                    2000/12/EC Art 28 (adapted)
                                                 Article 42
                                 Collaboration concerning supervision
   The competent authorities of the Member States concerned shall collaborate closely in order
   to supervise the activities of credit institutions operating, in particular by having established
   branches there, in one or more Member States other than that in which their head offices are
   situated. They shall supply one another with all information concerning the management and
   ownership of such credit institutions that is likely to facilitate their supervision and the
   examination of the conditions for their authorisation, and all information likely to facilitate
   the monitoring of such institutions, in particular with regard to liquidity, solvency, deposit
   guarantees, the limiting of large exposures, administrative and accounting procedures and
   internal control mechanisms.
                                                                    2000/12/EC Art. 29 (adapted)
                                                 Article 43
            On-the-spot verification of branches established in another Member State
   1.        Host Member States shall provide that, where a credit institution authorised in
             another Member State carries on its activities through a branch, the competent
             authorities of the home Member State may, after having first informed the competent
             authorities of the host Member State, carry out themselves or through the
             intermediary of persons they appoint for that purpose on-the-spot verification of the
             information referred to in Article ⌦ 42 ⌫ 28.
   2.        The competent authorities of the home Member State may also, for purposes of the
             verification of branches, have recourse to one of the other procedures laid down in
             Article ⌦ 141 ⌫ 55(7).
   3.        This Article ⌦ Paragraphs 1 and 2 ⌫ shall not affect the right of the competent
             authorities of the host Member State to carry out, in the discharge of their
             responsibilities under this Directive, on-the-spot verifications of branches established
             within their territory.
EN                                                   66                                               EN
 ---pagebreak---                                                                      2000/12/EC (adapted)
     ⌦ SECTION 2 EXCHANGE OF INFORMATION AND PROFESSIONAL SECRECY ⌫
                                                                     2000/12/EC Art. 30 (1) to (3)
                                                                  (adapted)
                                                Article 44
                          Exchange of information and professional secrecy
   1.         TheMember States shall provide that all persons working ⌦ for ⌫ or who have
              worked for the competent authorities, as well as auditors or experts acting on behalf
              of the competent authorities, shall be bound by the obligation of professional
              secrecy.
              ⌦ No ⌫ This means that no confidential information which they may receive in
              the course of their duties may be divulged to any person or authority whatsoever,
              except in summary or collective form, such that individual ⌦ credit ⌫ institutions
              cannot be identified, without prejudice to cases covered by criminal law.
              Nevertheless, where a credit institution has been declared bankrupt or is being
              compulsorily wound up, confidential information which does not concern third
              parties involved in attempts to rescue that credit institution may be divulged in civil
              or commercial proceedings.
   2.         Paragraph 1 shall not prevent the competent authorities of the various Member States
              from exchanging information in accordance with this Directive and with other
              Directives applicable to credit institutions. That information shall be subject to the
              conditions of professional secrecy indicated in paragraph 1.
                                                                     2000/12/EC Art. 30 (4)
                                                                  (adapted)
                                                Article 45
   4.Competent authorities receiving confidential information under ⌦ Article 44 ⌫
   paragraphs 1 or 2 may use it only in the course of their duties ⌦ and only for the following
   purposes ⌫:
   (a)      to check that the conditions governing the taking-up of the business of credit
   institutions are met and to facilitate monitoring, on a non-consolidated or consolidated basis,
   of the conduct of such business, especially with regard to the monitoring of liquidity,
   solvency, large exposures, and administrative and accounting procedures and internal control
   mechanisms;, or
   (b)      to impose sanctions;, or
EN                                                  67                                                EN
 ---pagebreak---    (c)      in an administrative appeal against a decision of the competent authority;, or
   (d)      in court proceedings initiated pursuant to Article 33 ⌦ 55 ⌫ or to special provisions
   provided for in this in other Directives adopted in the field of credit institutions.
                                                                    2000/12/EC Art. 30 (3)
                                                                 (adapted)
                                                Article 46
   3.       Member States may conclude cooperation agreements, providing for exchanges of
   information, with the competent authorities of third countries or with authorities or bodies of
   third countries as defined in paragraphs 5 and 6 ⌦ Articles 47 and 48(1) ⌫ only if the
   information disclosed is subject to guarantees of professional secrecy at least equivalent to
   those referred to in this Article. Such exchange of information must be for the purpose of
   performing the supervisory task of the authorities or bodies mentioned.
   Where the information originates in another Member State, it may not be disclosed without
   the express agreement of the competent authorities which have disclosed it and, where
   appropriate, solely for the purposes for which those authorities gave their agreement.
                                                                    2000/12/EC Art 30 (5)
                                                                 (adapted)
                                                Article 47
   5. Paragraphs 1 and 4 ⌦ Articles 44(1) and 45 ⌫ shall not preclude the exchange of
   information within a Member State, where there are two or more competent authorities in the
   same Member State, or between Member States, between competent authorities and ⌦ the
   following⌫:
   (a)      authorities entrusted with the public duty of supervising other financial organisations
   and insurance companies and the authorities responsible for the supervision of financial
   markets.;
   (b)      bodies involved in the liquidation and bankruptcy of credit institutions and in other
   similar procedures.;
   (c)      persons responsible for carrying out statutory audits of the accounts of credit
   institutions and other financial institutions.,
   in the discharge of their supervisory functions., and
   ⌦ Nor shall they preclude ⌫ the disclosure to bodies which administer deposit-guarantee
   schemes of information necessary to the exercise of their functions.
   ⌦ In both cases, the ⌫ The information received shall be subject to the conditions of
   professional secrecy ⌦ specified ⌫ indicated in paragraph 1⌦ Article 44(1) ⌫.
EN                                                  68                                              EN
 ---pagebreak---                                                                2000/12/EC Art. 30 (6) & (7)
                                                            (adapted)
                                           Article 48
   16. Notwithstanding ⌦ Articles 44 to 46 ⌫ paragraphs 1 to 4, Member States may
       authorise the exchanges of information between the competent authorities and ⌦ the
       following⌫:
       (a)    the authorities responsible for overseeing the bodies, involved in the
              liquidation and bankruptcy of credit institutions and other similar procedures; ,
              or
       (b)    the authorities responsible for overseeing persons charged with carrying out
              statutory audits of the accounts of insurance undertakings, credit institutions,
              investment firms and other financial institutions.
       ⌦ In such cases, ⌫ Member States which have recourse to the provisions of the
       first subparagraph shall require ⌦ fulfilment of ⌫ at least that the following
       conditions are met:
       (a) the information ⌦ must ⌫ shall be for the purpose of performing the
       supervisory task referred to in the first subparagraph.;
       (b)    information received in this context ⌦ must ⌫ shall be subject to the
              conditions of professional secrecy imposed in ⌦ Article 44(1) ⌫
              paragraph1).;
       (c)    where the information originates in another Member State, it may not be
              disclosed without the express agreement of the competent authorities which
              have disclosed it and, where appropriate, solely for the purposes for which
              those authorities gave their agreement.
       Member States shall communicate to the Commission and to the other Member
       States the names of the authorities which may receive information pursuant to this
       paragraph.
   27. Notwithstanding ⌦ Articles 44 to 46 ⌫ paragraphs 1 to 4, Member States may,
       with the aim of strengthening the stability, including integrity, of the financial
       system, authorise the exchange of information between the competent authorities and
       the authorities or bodies responsible under law for the detection and investigation of
       breaches of company law.
       ⌦ In such cases ⌫ Member States which have recourse to the provision in the first
       subparagraph shall require ⌦ fulfilment of ⌫ at least that the following conditions
       are met:
       (a)    the information is for the purpose of performing the task referred to in the first
              subparagraph.;
EN                                             69                                                EN
 ---pagebreak---             (b)    information received in this context ⌦ is ⌫ shall be subject to the conditions
                   of professional secrecy imposed in ⌦ Article 44(1) ⌫ (paragraph1).;
            (c)    where the information originates in another Member State, it may not be
                   disclosed without the express agreement of the competent authorities which
                   have disclosed it and, where appropriate, solely for the purposes for which
                   those authorities gave their agreement.
            Where, in a Member State, the authorities or bodies referred to in the first
            subparagraph perform their task of detection or investigation with the aid, in view of
            their specific competence, of persons appointed for that purpose and not employed in
            the public sector, the possibility of exchanging information provided for in the first
            subparagraph may be extended to such persons under the conditions ⌦ specified ⌫
            stipulated in the second subparagraph.
            In order to implement the third indent of the second subparagraph, the authorities or
            bodies referred to in the first subparagraph shall communicate to the competent
            authorities which have disclosed the information, the names and precise
            responsibilities of the persons to whom it is to be sent.
            Member States shall communicate to the Commission and to the other Member
            States the names of the authorities or bodies which may receive information pursuant
            to this ⌦ Article ⌫ paragraph.
   Before 31 December 2000, t The Commission shall draw up a report on the application of the
   provisions of this ⌦ Article ⌫ paragraph.
                                                                    2000/12/EC Art 30 (8)
                                                                 (adapted)
                                                Article 49
   8.This ⌦ Section ⌫ Article shall not prevent a competent authority from transmitting
   ⌦ information to the following for the purposes of their tasks ⌫:
   (a)     central banks and other bodies with a similar function in their capacity as monetary
   authorities.;
   (b)     where appropriate, to other public authorities responsible for overseeing payment
   systems.
   information intended for the performance of their task, nor ⌦ Nor ⌫ shall it prevent such
   authorities or bodies from communicating to the competent authorities such information as
   they may need for the purposes of ⌦ Article 45⌫ paragraph 4.
   Information received in this context shall be subject to the conditions of professional secrecy
   ⌦ set out ⌫ imposed in this Article ⌦ 44(1) ⌫.
EN                                                  70                                             EN
 ---pagebreak---                                                                    2000/12/EC Art. 30 (9) 1st and
                                                                 nd
                                                                2 paragraphs (adapted)
                                               Article 50
   9. In addition, nNotwithstanding the provisions referred to in ⌦ Articles 44(1) and 45⌫
   paragraph 1 and 4, the Member States may, by virtue of provisions laid down by law,
   authorise the disclosure of certain information to other departments of their central
   government administrations responsible for legislation on the supervision of credit
   institutions, financial institutions, investment services and insurance companies and to
   inspectors acting on behalf of those departments.
   However, such disclosures may be made only where necessary for reasons of prudential
   control.
                                                                   2000/12/EC Art 30 (9) 3rd
                                                                paragraph (adapted)
                                               Article 51
   However, tThe Member States shall provide that information received under ⌦ Articles
   44(2) and 47 ⌫ paragraph 2 and 5 and ⌦ information ⌫ that obtained by means of the on-
   the-spot verification referred to in Article ⌦ 43 ⌫ 29(1) and (2) may never be disclosed in
   the cases referred to in this ⌦ Article ⌫ paragraph except with the express consent of the
   competent authorities which disclosed the information or of the competent authorities of the
   Member State in which on-the-spot verification was carried out.
                                                                   2000/12/EC Art. 30 (10)
                                                                (adapted)
                                               Article 52
   10.⌦ This Section ⌫ Article shall not prevent the competent authorities ⌦ of a Member
   State ⌫ from communicating the information referred to in ⌦ Articles 44 to 46⌫
   paragraph 1 to 4 to a clearing house or other similar body recognised under national law for
   the provision of clearing or settlement services for one of their Member States' markets if they
   consider that it is necessary to communicate the information in order to ensure the proper
   functioning of those bodies in relation to defaults or potential defaults by market participants.
   The information received in this context shall be subject to the conditions of professional
   secrecy ⌦ laid down ⌫ imposed in ⌦ Article 44(1) ⌫ paragraph 1.
   The Member States shall, however, ensure that information received under paragraph 2
   ⌦ Article 44(2) ⌫ may not be disclosed in the circumstances referred to in this
   ⌦ Article ⌫ paragraph without the express consent of the competent authorities which
   disclosed it.
EN                                                 71                                                EN
 ---pagebreak---                                                                           new
                                                  SECTION 3
      DUTY OF PERSONS RESPONSIBLE FOR THE LEGAL CONTROL OF ANNUAL AND
                                      CONSOLIDATED ACCOUNTS
                                                                          2000/12/EC Art. 31 (adapted)
                                                   Article 53
      Duty of persons responsible for the legal control of annual and consolidated accounts
   1.       Member States shall provide at least that: (a) any person authorised within the
            meaning of ⌦ eight ⌫ Council Directive 84/253/EEC26, performing in a credit
            institution the task described in Article 51 of ⌦ fourth ⌫ Council Directive
            78/660/EEC27, or Article 37 of Council Directive 83/349/EEC, or Article 31 of
            ⌦ Council ⌫ Directive 85/611/EEC28, or any other statutory task, shall have a duty
            to report promptly to the competent authorities any fact or decision concerning that
            ⌦ credit ⌫ institution of which he has become aware while carrying out that task
            which is liable to:
            (a)    constitute a material breach of the laws, regulations or administrative
                   provisions which lay down the conditions governing authorisation or which
                   specifically govern pursuit of the activities of credit institutions, or;
            (b)    affect the continuous functioning of the credit institution, or;
            (c)    lead to refusal to certify the accounts or to the expression of reservations.
            ⌦ Member States shall provide at least that ⌫ (b) that person shall likewise have a
            duty to report any fact ⌦ or ⌫ and decision of which he becomes aware in the
            course of carrying out a task as described in ⌦ the first sub-paragraph ⌫ (a) in an
            undertaking having close links resulting from a control relationship with the credit
            institution within which he is carrying out ⌦ that ⌫ the abovementioned task.
   2.       The disclosure in good faith to the competent authorities, by persons authorised
            within the meaning of Directive 84/253/EEC, of any fact or decision referred to in
            paragraph 1 shall not constitute a breach of any restriction on disclosure of
            information imposed by contract or by any legislative, regulatory or administrative
            provision and shall not involve such persons in liability of any kind.
   26
          OJ L 126, 12.5.1984, p. 20.
   27
          OJ L 222, 14.8.1978, p. 11, as last amended by Directive 1999/60/EC (OJ L 62, 26.6.1999, p. 65).
   28
          OJ L 375, 31.12.1985, p. 3, as last amended by Directive 95/26/EC (OJ L 168, 18.7.1995, p. 7).
EN                                                     72                                                  EN
 ---pagebreak---                                                                    2000/12/EC (adapted)
    ⌦SECTION 4 POWER OF SANCTION AND RIGHT TO APPLY TO THE COURTS ⌫
                                                                   2000/12/EC Art. 32 (adapted)
                                              Article 54
                          Power of sanction of the competent authorities
   Without prejudice to the procedures for the withdrawal of authorisations and the provisions of
   criminal law, the Member States shall provide that their respective competent authorities may,
   as against credit institutions, or those who effectively control the business of credit
   institutions, which breach laws, regulations or administrative provisions concerning the
   supervision or pursuit of their activities, adopt or impose in respect of them penalties or
   measures aimed specifically at ending ⌦ the ⌫ observed breaches or the causes of such
   breaches.
                                                                   2000/12/EC Art. 33 (adapted)
                                              Article 55
                                     Right to apply to the courts
   Member States shall ensure that decisions taken in respect of a credit institution in pursuance
   of laws, regulations and administrative provisions adopted in accordance with this Directive
   may be subject to the right to apply to the courts. The same shall apply where no decision is
   taken, within six months of its submission, in respect of an application for authorisation which
   contains all the information required under the provisions in force.
                                                                   2000/28/EC 1.2 (adapted)
                                              Article 33a
   Article 3 of Directive 2000/46/EC shall apply to credit institutions
EN                                                73                                                EN
 ---pagebreak---                                                                    2000/12/EC
                                             CHAPTER 2
         TECHNICAL INSTRUMENTS OF PRUDENTIAL SUPERVISION
                                              SECTION 1
                                             OWN FUNDS
                                                                   2000/12/EC Art. 34 (1)
                                                                (adapted)
                                                Article 56
                                           General principles
   1.Wherever a Member State lays down by law, regulation or administrative action a provision
   in implementation of Community legislation concerning the prudential supervision of an
   operative credit institution which uses the term or refers to the concept of own funds, it shall
   bring this term or concept into line with the definition given in ⌦ Articles 57 to 61 and
   Articles 63 to 66⌫paragraph 2, 3 and 4 and Articles 35 to 38.
                                                                   2000/12/EC Art. 34 (2) 1st
                                                                paragraph (adapted)
                                                                   new
                                                Article 57
   Subject to the limits imposed in Article 38 ⌦ 66 ⌫ , the unconsolidated own funds of credit
   institutions shall consist of the following items:
             (1a) capital within the meaning of Article 22 of Directive 86/635/EEC, in so far as
                   it has been paid up, plus share premium accounts but excluding cumulative
                   preferential shares;
             (2b) reserves within the meaning of Article 23 of Directive 86/635/EEC and profits
                   and losses brought forward as a result of the application of the final profit or
                   loss;.. The Member States may permit inclusion of interim profits before a
                   formal decision has been taken only if these profits have been verified by
                   persons responsible for the auditing of the accounts and if it is proved to the
                   satisfaction of the competent authorities that the amount thereof has been
                   evaluated in accordance with the principles set out in Directive 86/635/EEC
                   and is net of any foreseeable charge or dividend;
EN                                                  74                                              EN
 ---pagebreak---    (3c) funds for general banking risks within the meaning of Article 38 of Directive
         86/635/EEC;
   (4d) revaluation reserves within the meaning of Article 33 of Directive 78/660/EEC;
   (5e) value adjustments within the meaning of Article 37(2) of Directive
         86/635/EEC;
   (6f) other items within the meaning of Article 35 ⌦ 63 ⌫ ;
   (7g) the commitments of the members of credit institutions set up as cooperative
         societies and the joint and several commitments of the borrowers of certain
         institutions organised as funds, as referred to in Article 36 ⌦ 64 ⌫ (1);
   (8h) fixed-term cumulative preferential shares and subordinated loan capital as
         referred to in Article 36 ⌦ 64 ⌫ (3).
   The following items shall be deducted in accordance with Article 38 ⌦ 66 ⌫ :
   (9i) own shares at book value held by a credit institution;
   (10j) intangible assets within the meaning of Article 4(9) («Assets») of Directive
         86/635/EEC;
   (k11) material losses of the current financial year;
                                                           2002/87/EC Art. 29.4(a)
                                                        (adapted)
   (l12) holdings in other credit and financial institutions amounting to more than 10 %
         of their capital;
   (m13)subordinated claims and instruments referred to in Article 35 ⌦ 63 ⌫ and
         Article 36 ⌦ 64 ⌫ (3) which a credit institution holds in respect of credit and
         financial institutions in which it has holdings exceeding 10 % of the capital in
         each case;
   (n14) holdings in other credit and financial institutions of up to 10 % of their capital,
         the subordinated claims and the instruments referred to in Article 35 ⌦ 63 ⌫
         and Article 36 ⌦ 64 ⌫ (3) which a credit institution holds in respect of credit
         and financial institutions other than those referred to in points 12 and 13 of this
         subparagraph in respect of the amount of the total of such holdings,
         subordinated claims and instruments which exceed 10 % of that credit
         institution's own funds calculated before the deduction of items in points ⌦ (l)
         to (p) ⌫ 12 to 16 of this subparagraph;
   (o15) participations within the meaning of Article ⌦ 4(10) ⌫ 1(9) which a credit
         institution holds in:
EN                                        75                                                 EN
 ---pagebreak---               (i)    insurance undertakings within the meaning of Article 6 of ⌦ First
                     Council ⌫ Directive 73/239/EEC ⌦ 29 ⌫ , Article 6 of ⌦ First
                     Council ⌫ Directive 79/267/EEC ⌦ 30 ⌫ or Article 1(b) of Directive
                     98/78/EC of the European Parliament and of the Council31;
              (ii)   reinsurance undertakings within the meaning of Article 1(c) of Directive
                     98/78/EC;
              (iii) insurance holding companies within the meaning of Article 1(i) of
                     Directive 98/78/EC;
       (p16) each of the following items which the credit institution holds in respect of the
              entities defined in point (15o) in which it holds a participation:
              (i)    instruments referred to in Article 16(3) of Directive 73/239/EEC,
              (ii)   instruments referred to in Article 18(3) of Directive 79/267/EEC.
                                                               new
       (q)    For credit institutions calculating risk-weighted exposure amounts under
              Section 3, Subsection 2, negative amounts resulting from the calculation in
              Annex VII, Part 1, paragraph 34 and expected loss amounts calculated in
              accordance with Annex VII, Part 1 paragraphs 30 and 31;
       (r)    The exposure amount of securitisation positions which receive a risk weight of
              1250% under Annex IX, Part 4, calculated in the manner there specified.
                                                                2000/12/EC Art. 34 (2) point 2,
                                                            final sentence (adapted)
                                                                new
       ⌦ For the purposes of point (b), the ⌫ The Member States may permit inclusion of
       interim profits before a formal decision has been taken only if these profits have been
       verified by persons responsible for the auditing of the accounts and if it is proved to
       the satisfaction of the competent authorities that the amount thereof has been
       evaluated in accordance with the principles set out in Directive 86/635/EEC and is
       net of any foreseeable charge or dividend;.
           In the case of a credit institution which is the originator of a securitisation, net
       gains arising from the capitalisation of future income from the securitised assets and
       providing credit enhancement to positions in the securitisation shall be excluded
       from the item specified in point (b).
   29
      ⌦ OJ L 228, 16.8.1973, p. 3 ⌫
   30
      ⌦ OJ L 63, 13.3.1979, p. 1 ⌫
   31
      OJ L 330, 5.12.1998, p. 1.
EN                                             76                                               EN
 ---pagebreak---                                                                   2002/87/EC Art. 29.4(b)
                                                               (adapted)
                                              Article 58
   Where shares in another credit institution, financial institution, insurance or reinsurance
   undertaking or insurance holding company are held temporarily for the purposes of a financial
   assistance operation designed to reorganise and save that entity, the competent authority may
   waive the provisions on deduction referred to in points ⌦ (l) to (p) ⌫12 to 16.
                                              Article 59
   As an alternative to the deduction of the items referred to in points ⌦ (o) to (p) ⌫ 15 and
   16, Member States may allow their credit institutions to apply mutatis mutandis methods 1, 2,
   or 3 of Annex I to Directive 2002/87/EC. Method 1 (Accounting consolidation) ⌦ may ⌫
   shall only be applied ⌦ only ⌫ if the competent authority is confident about the level of
   integrated management and internal control regarding the entities which would be included in
   the scope of consolidation. The method chosen shall be applied in a consistent manner over
   time.
                                              Article 60
   Member States may provide that for the calculation of own funds on a stand-alone basis,
   credit institutions subject to supervision on a consolidated basis in accordance with Chapter
   ⌦ 4, Section 1 ⌫ 3, or to supplementary supervision in accordance with Directive
   2002/87/EC, need not deduct the items referred to in points ⌦ (l) to (p) ⌫12 to 16 which are
   held in credit institutions, financial institutions, insurance or reinsurance undertakings or
   insurance holding companies, which are included in the scope of consolidated or
   supplementary supervision.
   This provision shall apply to all the prudential rules harmonised by Community acts.
                                                                  2000/12/EC Art 34 (3)
                                                               (adapted)
                                              Article 61
   3.The concept of own funds as defined in points ⌦ (a) to (h) ⌫ (1) to (8) of paragraph 2
   ⌦ Article 57 ⌫ embodies a maximum number of items and amounts. The use of those items
   and the fixing of lower ceilings, and the deduction of items other than those listed in points
   (9) to (13) ⌦ (i) to (r) ⌫ of ⌦ Article 57 ⌫ paragraph 2 shall be left to the discretion of
   the Member States. Member States shall nevertheless be obliged to consider increased
   convergence with a view to a common definition of own funds.
   To that end, the Commission shall, by 1 January 1996 at the latest, submit a report to the
   European Parliament and to the Council on the application of this Article and Articles 35 to
   39, accompanied, where appropriate, by such proposals for amendment as it shall deem
EN                                                 77                                             EN
 ---pagebreak---    necessary. Not later than 1 January 1998, the European Parliament and the Council shall,
   acting in accordance with the procedure laid down in Article 251 of the Treaty and after
   consultation of the Economic and Social Committee, examine the definition of own funds
   with a view to the uniform application of the common definition.
                                                                     2000/12/EC Art 34 (4)
                                                                  (adapted)
   4The items listed in points ⌦ (a) to (e) ⌫ (1) to (5) of ⌦ Article 57 ⌫ paragraph 2 must
   be available to a credit institution for unrestricted and immediate use to cover risks or losses
   as soon as these occur. The amount must be net of any foreseeable tax charge at the moment
   of its calculation or be suitably adjusted in so far as such tax charges reduce the amount up to
   which these items may be applied to cover risks or losses.
                                                                     new
                                                Article 62
   Member States will report to the Commission on the progress achieved in convergence with a
   view to a common definition of own funds. On the basis of these reports the Commission
   shall, if appropriate, by 1 January 2009 at the latest, submit a proposal to the European
   Parliament and to the Council for amendment of this Article and Articles 35 to 39.
                                                                     2000/12/EC Art 35 (adapted)
                                                Article 63
                                               Other items
   1.        The concept of own funds used by a Member State may include other items provided
             that, whatever their legal or accounting designations might be, they have the
             following characteristics:
             (a)   they are freely available to the credit institution to cover normal banking risks
                   where revenue or capital losses have not yet been identified;
             (b)   their existence is disclosed in internal accounting records;
             (c)   their amount is determined by the management of the credit institution, verified
                   by independent auditors, made known to the competent authorities and placed
                   under the supervision of the latter.
   2.        Securities of indeterminate duration and other instruments that fulfil the following
             conditions may also be accepted as other items:
             (a)   they may not be reimbursed on the bearer's initiative or without the prior
                   agreement of the competent authority;
EN                                                  78                                               EN
 ---pagebreak---       (b)   the debt agreement must provide for the credit institution to have the option of
            deferring the payment of interest on the debt;
      (c)   the lender's claims on the credit institution must be wholly subordinated to
            those of all non-subordinated creditors;
      (d)   the documents governing the issue of the securities must provide for debt and
            unpaid interest to be such as to absorb losses, whilst leaving the credit
            institution in a position to continue trading;
      (e)   only fully paid-up amounts shall be taken into account.
      To these may be added cumulative preferential shares other than those referred to in
      point ⌦ (h) ⌫ 8 of Article 34 ⌦ 57 ⌫ (2).
                                                              new
   3. For credit institutions calculating risk-weighted exposure amounts under Section 3,
      Subsection 2, positive amounts resulting from the calculation in Annex VII, Part 1,
      paragraph 34, may, up to 0.6% of risk weighted exposure amounts calculated under
      Subsection 2, be accepted as other items. For these credit institutions value
      adjustments and provisions included in the calculation referred to in Annex VII,
      Section 3, Part 1, paragraph 34 and value adjustments and provisions for exposures
      referred to in point (e) of Article 57 shall not be included in own funds other than in
      accordance with this provision. For these purposes, risk-weighted exposure amounts
      shall not include those calculated in respect of securitisation positions which have a
      risk weight of 1250%.
                                                             2000/12/EC Art 36 (adapted)
                                          Article 64
                         Other provisions concerning own funds
   1. The commitments of the members of credit institutions set up as cooperative
      societies referred to in point ⌦ (g) ⌫ 7 of Article 34(2)⌦57⌫, shall comprise
      those societies' uncalled capital; together with the legal commitments of the members
      of those cooperative societies to make additional non-refundable payments should
      the credit institution incur a loss, in which case it must be possible to demand those
      payments without delay.
      The joint and several commitments of borrowers in the case of credit institutions
      organised as funds shall be treated in the same way as the preceding items.
      All such items may be included in own funds in so far as they are counted as the own
      funds of institutions of this category under national law.
   2. Member States shall not include in the own funds of public credit institutions
      guarantees which they or their local authorities extend to such entities.
EN                                            79                                              EN
 ---pagebreak---    3. Member States or the competent authorities may include fixed-term cumulative
      preferential shares referred to in point ⌦ (h) ⌫ (8) of Article 34(2)⌦57⌫ and
      subordinated loan capital referred to in that provision in own funds, if binding
      agreements exist under which, in the event of the bankruptcy or liquidation of the
      credit institution, they rank after the claims of all other creditors and are not to be
      repaid until all other debts outstanding at the time have been settled.
      Subordinated loan capital must also fulfil the following additional criteria:
      (a)    only fully paid-up funds may be taken into account;
      (b)    the loans involved must have an original maturity of at least five years, after
             which they may be repaid; if the maturity of the debt is not fixed, they shall be
             repayable only subject to five years' notice unless the loans are no longer
             considered as own funds or unless the prior consent of the competent
             authorities is specifically required for early repayment. The competent
             authorities may grant permission for the early repayment of such loans
             provided the request is made at the initiative of the issuer and the solvency of
             the credit institution in question is not affected;
      (c)    the extent to which they may rank as own funds must be gradually reduced
             during at least the last five years before the repayment date;
      (d)    the loan agreement must not include any clause providing that in specified
             circumstances, other than the winding-up of the credit institution, the debt will
             become repayable before the agreed repayment date.
                                                                2000/12/EC Art. 36(3)(b),
                                                             excluding first 19 words
                                                                new
          For the purposes of point (b) of the second subparagraph,  if the maturity of the
      debt is not fixed, they shall be repayable only subject to five years' notice unless the
      loans are no longer considered as own funds or unless the prior consent of the
      competent authorities is specifically required for early repayment. The competent
      authorities may grant permission for the early repayment of such loans provided the
      request is made at the initiative of the issuer and the solvency of the credit institution
      in question is not affected;
                                                                new
   4. Credit institutions shall not include in own funds either the fair value reserves related
      to gains or losses on cash flow hedges of financial instruments measured at amortised
      cost, or any gains or losses on their liabilities valued at fair value that are due to
      changes in the credit institutions’ own credit standing.
EN                                             80                                                EN
 ---pagebreak---                                                                   2000/12/EC Art 37 (adapted)
                                               Article 65
                         Calculation of own funds on a consolidated basis
   1.       Where the calculation is to be made on a consolidated basis, the consolidated
            amounts relating to the items listed under Article 34 ⌦57⌫(2) shall be used in
            accordance with the rules laid down in Articles 52 to 56⌦Chapter 4, Section 1⌫.
            Moreover, the following may, when they are credit («negative») items, be regarded
            as consolidated reserves for the calculation of own funds:
            (a)   any minority interests within the meaning of Article 21 of Directive
                  83/349/EEC, where the global integration method is used;
            (b)   the first consolidation difference within the meaning of Articles 19, 30 and 31
                  of Directive 83/349/EEC;
            (c)   the translation differences included in consolidated reserves in accordance with
                  Article 39(6) of Directive 86/635/EEC;
            (d)   any difference resulting from the inclusion of certain participating interests in
                  accordance with the method prescribed in Article 33 of Directive 83/349/EEC.
   2.       Where the above debit (“positive”) items, they must be deducted in the calculation of
            consolidated own funds ⌦ Where the items referred to in points (a) to (d) of
            paragraph 1 are debit («positive») items, they shall be deducted in the calculation of
            consolidated own funds. ⌫
                                                                  2000/12/EC Art 38 (1)
                                                               (adapted)
                                                                  new
                                               Article 66
                                        Deductions and limits
   1. The items referred to in points ⌦ (d) to (h) ⌫ (4) to (8) of Article 34(2)⌦57⌫, shall be
            subject to the following limits:
            (a)   the total of the items in points ⌦ (d) to (h) ⌫ (4) to (8) may not exceed a
                  maximum of 100% of the items in points ⌦ (a) plus (b) and (c) ⌫ (1) plus
                  (2) and (3) minus ⌦ (i) to (k) ⌫ (9), (10) (11) and 50% of the amounts in
                  item (q) ;
            (b)   the total of the items in points ⌦ (g) to (h) ⌫ (7) and (8) may not exceed a
                  maximum of 50% of the items in points ⌦ (a) plus (b) and (c) ⌫ (1) plus (2)
                  and (3) minus (i) to (k) (9), (10) and (11) and 50% of the amounts in item
                  (q)  ;
EN                                                 81                                               EN
 ---pagebreak---             (c)   the total of the items in points (l) (12) and (13)     to (q) shall be deducted
                  from the total of the items.
                                                                   new
   2.       The items referred to in point (r) of Article 57 shall be deducted from the total of the
            items specified in points (a) to (h) of that Article, unless the credit institution
            includes the former items in its calculation of risk-weighted exposure amounts for
            the purposes of Article 75 as specified in Annex IX, Part 4.
                                                                   2000/12/EC Art 38 (2)
   23.      The competent authorities may authorise credit institutions to exceed the limit laid
            down in paragraph 1 in temporary and exceptional circumstances.
                                                                   2000/12/EC Art 39 (adapted)
                                               Article 67
                          Provision of proof to the competent authorities
   Compliance with the conditions laid down in ⌦ this Section ⌫ Article 34 (2), (3) and (4)
   and Articles 35 to 38 must be proved to the satisfaction of the competent authorities.
                                                                   new
                                             SECTION 2
                                   PROVISION AGAINST RISKS
                            SUBSECTION 1 - LEVEL OF APPLICATION
                                               Article 68
   1.       Credit institutions shall comply with the obligations laid down in Articles 22 and 75
            and Section 5 on an individual basis.
   2.       Every credit institution which is neither a subsidiary in the Member State where it is
            authorised and supervised, nor a parent undertaking, and every credit institution not
            included in the consolidation pursuant to Article 73, shall comply with the
            obligations laid down in Articles 120 and 123 on an individual basis.
   3.       Every credit institution which is neither a parent undertaking, nor a subsidiary, and
            every the credit institution not included in the consolidation pursuant to Article73,
            shall comply with the obligations laid down in Chapter 5 on an individual basis.
EN                                                 82                                                EN
 ---pagebreak---                                                     Article 69
   1.        The Member States may choose not to apply Article 68(1) to any subsidiary of a
             credit institution, where both the subsidiary and the credit institution are subject to
             authorisation and supervision by the Member State concerned, and the subsidiary is
             included in the supervision on a consolidated basis of the credit institution which is
             the parent undertaking, and all of the following conditions are satisfied, in order to
             ensure that own funds are distributed adequately among the parent undertaking and
             the subsidiaries:
             (a)    there is no current or foreseen material or legal impediment to the prompt
                    transfer of own funds or repayment of liabilities by its parent undertaking;
             (b)    its parent undertaking is committed to an unconditional, explicit and
                    irrevocable obligation to transfer own funds to the subsidiary and meet its
                    liabilities, or the risks in the subsidiaries are of negligible interest;
             (c)    the risk evaluation, measurement and control procedures of the parent
                    undertaking cover the subsidiary;
             (d)    the parent undertaking has the right to appoint or remove a majority the
                    members of the management body of the subsidiary.
   2.        The Member States may exercise the option provided for in paragraph 1 where the
             parent undertaking is a financial holding company set up in the same Member State
             as the credit institution, provided that it is subject to the same supervision as that
             exercised over credit institutions, and in particular to the standards laid down in
             Article 71(1).
                                                    Article 70
   The competent authorities may allow on a case by case basis parent credit institutions in a
   Member State to incorporate in the calculation of their requirement under Article 68(1)
   subsidiaries in the Community which meet the conditions laid down in the points (a), (c) and
   (d) of Article 69(1), and whose material exposures or material liabilities are to that parent
   credit institution in a Member State.
                                                    Article 71
   1.        Without prejudice to Articles 68 to 70, parent credit institutions in a Member State
             shall comply, to the extent and in the manner prescribed in Article 133, with the
             obligations laid down in Articles 75, 120, 123 and Section 5 on the basis of their
             consolidated financial situation.
   2.        Without prejudice to Articles 68 to 70, credit institutions controlled by a parent
             financial holding company in a Member State shall comply, to the extent and in the
             manner prescribed in Article 133, with the obligations laid down in Articles 75, 120,
             123 and Section 5 on the basis of the consolidated financial situation of that financial
             holding company.
EN                                                      83                                            EN
 ---pagebreak---        Where more than one credit institution is controlled by a parent financial holding
       company in a Member State, the first subparagraph shall apply only to the credit
       institution to which supervision on a consolidated basis applies in accordance with
       Articles 125 and 126.
                                           Article 72
   1.  EU parent credit institutions shall comply with the obligations laid down in Chapter
       5 on the basis of their consolidated financial situation.
       However, in respect of their significant subsidiaries, they shall disclose the
       information specified in Annex XII, Part 1, paragraph 5, on an individual or sub-
       consolidated basis.
   2.  Credit institutions controlled by an EU parent financial holding company shall
       comply with the obligations laid down in Chapter 5 on the basis of the consolidated
       financial situation of that financial holding company.
       However, in respect of their significant subsidiaries, they shall disclose the
       information specified in Annex XII, Part 1, paragraph 5, on an individual or sub-
       consolidated basis.
   3.  The competent authorities responsible for exercising supervision on a consolidated
       basis pursuant to Articles 125 to 131 may decide not to apply in full or in part
       paragraphs 1 and 2 to the credit institutions which are included within comparable
       disclosures provided on a consolidated basis by a parent undertaking established in a
       third country.
                                                               2000/12/EC Art. 52 (3)
                                                            (adapted)
                                           Article 73
   61. The Member States or the competent authorities responsible for exercising
       supervision on a consolidated basis pursuant to Article 53 ⌦ 125 to 131 ⌫ may
       decide in the ⌦ following ⌫ cases listed below that a credit institution, financial
       institution or ancillary banking services undertaking which is a subsidiary or in
       which a participation is held need not be included in the consolidation:
       (a)    where if the undertaking ⌦ concerned ⌫ that should be included is situated
              in a third country where there are legal impediments to the transfer of the
              necessary information.;
       (b)    where if, in the opinion of the competent authorities, the undertaking
              ⌦ concerned ⌫ that should be included is of negligible interest only with
              respect to the objectives of monitoring credit institutions and in ⌦ any
              event where⌫ all cases the balance-sheet total of the undertaking
              ⌦ concerned ⌫ that should be included is less than the smaller of the
              following two amounts:
EN                                             84                                            EN
 ---pagebreak---              (i)    EUR 10 million;
             (ii)   or1% of the balance-sheet total of the parent undertaking or the
                    undertaking that holds the participation.
      If several undertakings meet the above criteria, they must nevertheless be included in
      the consolidation where collectively they are of non-negligible interest with respect
      to the aforementioned objectives, or
      (c)    where if, in the opinion of the competent authorities responsible for exercising
             supervision on a consolidated basis, the consolidation of the financial situation
             of the undertaking ⌦ concerned ⌫ that should be included would be
             inappropriate or misleading as far as the objectives of the supervision of credit
             institutions are concerned.
                                                              2000/12/EC Art. 52 (3) 2nd
                                                           indent, final sentence (adapted)
      If ⌦ , in the cases referred to in point (b) of the first subparagraph ⌫ , several
      undertakings meet the above criteria ⌦ set out therein ⌫ , they must nevertheless
      be included in the consolidation where collectively they are of non-negligible interest
      with respect to the specified aforementioned objectives, or.
                                                              new
   2. Competent authorities shall require subsidiary credit institutions to apply the
      requirements laid down in Articles 75, 120, 123 and Section 5 on a sub-consolidated
      basis if those credit institutions, or the parent undertaking where it is a financial
      holding company, have a credit institution or a financial institution or an asset
      management company as defined in Article 2(5) of Directive 2002/87/EC as a
      subsidiary in a third country, or hold a participation in such an undertaking.
   3. The competent authorities shall require the parent undertakings and subsidiaries
      subject to this Directive to meet the obligations laid down in Article 22 on a
      consolidated or sub-consolidated basis, to ensure that their arrangements, processes
      and mechanisms are consistent and well-integrated and that any data and information
      relevant to the purpose of supervision can be produced.
                 SUBSECTION 2 - CALCULATION OF REQUIREMENTS
                                         Article 74
   1. Save where otherwise provided, the valuation of assets and off-balance-sheet items
      shall be effected in accordance with the accounting framework to which the credit
      institution is subject under Regulation (EC) No 1606/2002 and Directive
      86/635/EEC.
   2. Notwithstanding the requirements laid down in Articles 68 to 72, the competent
      authorities shall ensure that the calculations to verify the compliance of credit
EN                                           85                                                EN
 ---pagebreak---              institutions with the obligations laid down in Article 75 are carried out not less than
             twice each year.
             The calculations shall be carried out either by the credit institutions themselves, in
             which case they shall communicate the results and any component data required to
             the competent authorities, or by the competent authorities, using data supplied by the
             credit institutions.
                       SUBSECTION 3 - MINIMUM LEVEL OF OWN FUNDS
                                                Article 75
   Without prejudice to Article 136, Member States shall require credit institutions to provide
   own funds which are at all times more than or equal to the sum of the following capital
   requirements:
   (a)     for credit risk and dilution risk in respect of all of their business activities with the
   exception of their trading book business and illiquid assets if deducted from own funds under
   [Directive 93/6/EEC, Article 13(2)(d) ], 8 per cent of the total of their risk-weighted exposure
   amounts calculated in accordance with Section 3;
   (b)     in respect of their trading-book business, for position risk, settlement and counter-
   party risk and, in so far as the limits laid down in Articles 111 to 117 are authorised to be
   exceeded, for large exposures exceeding such limits, the capital requirements determined in
   accordance with [Directive 93/6/EEC, Chapter V, Section 4];
   (c)     in respect of all of their business activities, for foreign-exchange risk and for
   commodities risk, the capital requirements determined according to [Article 18 of Directive
   93/6/EEC];
   (d)     in respect of all of their business activities, for operational risk, the capital
   requirements determined in accordance with Section 4.
                                                                   2000/12/EC
                                              SECTION 2
                                          SOLVENCY RATIO
                                                Article 40
                                           General principles
   1. The solvency ratio expresses own funds, as defined in Article 41, as a proportion of total
   assets and off-balance-sheet items, risk-adjusted in accordance with Article 42.
EN                                                  86                                               EN
 ---pagebreak---    2. The solvency ratios of credit institutions which are neither parent undertakings as defined
   in Article 1 of Directive 83/349/EEC, nor subsidiaries of such undertakings shall be
   calculated on an individual basis.
   3. The solvency ratios of credit institutions which are parent undertakings shall be calculated
   on a consolidated basis in accordance with the methods laid down in this Directive and in
   Directive 86/635/EEC.
   4. The competent authorities responsible for authorising and supervising a parent undertaking
   which is a credit institution may also require the calculation of a subconsolidated or
   unconsolidated ratio in respect of that parent undertaking and of any of its subsidiaries which
   are subject to authorisation and supervision by them. Where such monitoring of the
   satisfactory allocation of capital within a banking group is not carried out, other measures
   must be taken to attain that end.
   5. Without prejudice to credit institutions' compliance with the requirements of paragraphs 2,
   3 and 4, and of Article 52(8) and (9), the competent authorities shall ensure that ratios are
   calculated not less than twice each year, either by credit institutions themselves, which shall
   communicate the results and any component data required to the competent authorities, or by
   the competent authorities, using data supplied by the credit institutions.
   6. The valuation of assets and off-balance-sheet items shall be effected in accordance with
   Directive 86/635/EEC.
                                               Article 41
                                     The numerator: own funds
   Own funds as defined in this Directive shall form the numerator of the solvency ratio.
                                               Article 42
                The denominator: risk-adjusted assets and off-balance-sheet items
   1. Degrees of credit risk, expressed as percentage weightings, shall be assigned to asset items
   in accordance with Articles 43 and 44, and exceptionally Articles 45, 62 and 63. The balance-
   sheet value of each asset shall then be multiplied by the relevant weighting to produce a risk-
   adjusted value.
   2. In the case of the off-balance-sheet items listed in Annex II, a two-stage calculation as
   prescribed in Article 43(2) shall be used.
   3. In the case of the off-balance-sheet items referred to in Article 43(3), the potential costs of
   replacing contracts in the event of counterparty default shall be calculated by means of one of
   the two methods set out in Annex III. Those costs shall be multiplied by the relevant
   counterparty weightings in Article 43(1), except the 100% weightings as provided for there
   shall be replaced by 50% weightings to produce risk-adjusted values.
   4. The total of the risk-adjusted values of the assets and off-balance-sheet items mentioned in
   paragraphs 2 and 3 shall be the denominator of the solvency ratio.
EN                                                 87                                                 EN
 ---pagebreak---                                               Article 43
                                          Risk weightings
   1. The following weightings shall be applied to the various categories of asset items, although
   the competent authorities may fix higher weightings as they see fit:
   (a)    Zero weighting
            (1)  cash in hand and equivalent items;
            (2)  asset items constituting claims on Zone A central governments and central
                 banks;
            (3)  asset items constituting claims on the European Communities;
            (4)  asset items constituting claims carrying the explicit guarantees of Zone A
                 central governments and central banks or of the European Communities;
            (5)  asset items constituting claims on Zone B central governments and central
                 banks denominated and funded in the national currencies of the borrowers;
            (6)  asset items constituting claims carrying the explicit guarantees of Zone B
                 central governments and central banks denominated and funded in the national
                 currency common to the guarantor and the borrower;
            (7)  asset items secured to the satisfaction of the competent authorities, by collateral
                 in the form of Zone A central government or central bank securities or
                 securities issued by the European Communities or by cash deposits placed with
                 the lending institution or by certificates of deposit or similar instruments issued
                 by and lodged with the latter;
   (b)    20% weighting
            (1)  asset items constituting claims on the EIB;
            (2)  asset items constituting claims on multilateral development banks;
            (3)  asset items constituting claims carrying the explicit guarantee of the EIB;
            (4)  asset items constituting claims carrying the explicit guarantees of multilateral
                 development banks;
            (5)  asset items constituting claims on Zone A regional governments or local
                 authorities, subject to Article 44;
            (6)  asset items constituting claims carrying the explicit guarantees of Zone A
                 regional governments or local authorities, subject to Article 44;
            (7)  asset items constituting claims on Zone A credit institutions but not
                 constituting such institutions' own funds;
EN                                                88                                                 EN
 ---pagebreak---         (8)    asset items constituting claims with a maturity of one year or less, on Zone B
               credit institutions, other than securities issued by such institutions which are
               recognised as components of their own funds;
        (9)    asset items carrying the explicit guarantees of Zone A credit institutions;
        (10) asset items constituting claims with a maturity of one year or less carrying the
               explicit guarantees of Zone B credit institutions;
        (11) asset items secured, to the satisfaction of the competent authorities, by
               collateral in the form of securities issued by the EIB or by multilateral
               development banks;
        (12) cash items in the process of collection;
   (c) 50% weighting
        (1)    loans fully and completely secured, to the satisfaction of the competent
               authorities, by mortgages on residential property which is or will be occupied
               or let by the borrower, and loans fully and completely secured, to the
               satisfaction of the competent authorities, by shares in Finnish residential
               housing companies, operating in accordance with the Finnish Housing
               Company Act of 1991 or subsequent equivalent legislation, in respect of
               residential property which is or will be occupied or let by the borrower;
               «mortgage-backed securities» which may be treated as loans referred to in the
               first subparagraph or in Article 62(1), if the competent authorities consider,
               having regard to the legal framework in force in each Member State, that they
               are equivalent in the light of the credit risk. Without prejudice to the types of
               securities which may be included in and are capable of fulfilling the conditions
               in this point 1, «mortgage-backed securities» may include instruments within
               the meaning of Section B(1)(a) and (b) of the Annex to Council Directive
               93/22/EEC32. The competent authorities must in particular be satisfied that:
               (i)     such securities are fully and directly backed by a pool of mortgages
                       which are of the same nature as those defined in the first subparagraph or
                       in Article 62(1) and are fully performing when the mortgage-backed
                       securities are created;
               (ii)    an acceptable high-priority charge on the underlying mortgage-asset
                       items is held either directly by investors in mortgage-backed securities or
                       on their behalf by a trustee or mandated representative in the same
                       proportion to the securities which they hold;
        (2)    prepayments and accrued income: these assets shall be subject to the weighting
               corresponding to the counterparty where a credit institution is able to determine
               it in accordance with Directive 86/635/EEC. Otherwise, where it is unable to
               determine the counterparty, it shall apply a flat-rate weighting of 50%;
   32
       Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field (OJ L 141,
       11.6.1993, p. 27). Directive as last amended by Directive 97/9/EC (OJ L 84, 26.3.1997, p. 22).
EN                                                   89                                                     EN
 ---pagebreak---    (d)     100% weighting
            (1)   asset items constituting claims on Zone B central governments and central
                  banks except where denominated and funded in the national currency of the
                  borrower;
            (2)   asset items constituting claims on Zone B regional governments or local
                  authorities;
            (3)   asset items constituting claims with a maturity of more than one year on Zone
                  B credit institutions;
            (4)   asset items constituting claims on the Zone A and Zone B non-bank sectors;
            (5)   tangible «Assets» within the meaning of Article 4(10) of Directive
                  86/635/EEC;
            (6)   holdings of shares, participation and other components of the own funds of
                  other credit institutions which are not deducted from the own funds of the
                  lending institutions;
            (7)   all other assets except where deducted from own funds.
   2. The following treatment shall apply to off-balance-sheet items other than those covered in
   paragraph 3. They shall first be grouped according to the risk groupings set out in Annex II.
   The full value of the full-risk items shall be taken into account, 50% of the value of the
   medium-risk items and 20% of the medium/low-risk items, while the value of low-risk items
   shall be set at zero. The second stage shall be to multiply the off-balance-sheet values,
   adjusted as described above, by the weightings attributable to the relevant counterparties in
   accordance with the treatment of asset items prescribed in paragraph 1 and Article 44. In the
   case of asset sale and repurchase agreements and outright forward purchases, the weightings
   shall be those attaching to the assets in question and not to the counterparties to the
   transactions. The portion of unpaid capital subscribed to the European Investment Fund may
   be weighted at 20%.
   3. The methods set out in Annex III shall be applied to the off-balance-sheet items listed in
   Annex IV except for:
   –        contracts traded on recognised exchanges,
   –        foreign-exchange contracts (except contracts concerning gold) with an original
            maturity of 14 calendar days or less.
   Until 31 December 2006, the competent authorities of Member States may exempt from the
   application of the methods set out in Annex III over-the-counter (OTC) contracts cleared by a
   clearing house where the latter acts as the legal counterparty and all participants fully
   collateralise on a daily basis the exposure they present to the clearing house, thereby
   providing a protection covering both the current exposure and the potential future exposure.
   The competent authorities must be satisfied that the posted collateral gives the same level of
   protection as collateral which complies with paragraph 1(a)(7) and that the risk of a build-up
   of the clearing house's exposures beyond the market value of posted collateral is eliminated.
   Member States shall inform the Commission of the use they make of this option.
EN                                                90                                              EN
 ---pagebreak---    4. Where off-balance-sheet items carry explicit guarantees, they shall be weighted as if they
   had been incurred on behalf of the guarantor rather than the counterparty. Where the potential
   exposure arising from off-balance-sheet transactions is fully and completely secured, to the
   satisfaction of the competent authorities, by any of the asset items recognised as collateral in
   paragraph 1(a)(7) and (b)(11), weightings of 0% or 20% shall apply depending on the
   collateral in question.
   The Member States may apply a 50% weighting to off-balance-sheet items which are sureties
   or guarantees having the character of credit substitutes and which are fully guaranteed, to the
   satisfaction of the competent authorities, by mortgages meeting the conditions set out in
   paragraph 1(c)(1), subject to the guarantor having a direct right to such collateral.
   5. Where asset and off-balance-sheet items are given a lower weighting because of the
   existence of explicit guarantees or collateral acceptable to the competent authorities, the lower
   weighting shall apply only to that part which is guaranteed or which is fully covered by the
   collateral.
                                                Article 44
    Weighting of claims for regional governments or local authorities of the Member States
   1. Notwithstanding the requirements of Article 43(1)(b), the Member States may fix a
   weighting of 0% for their own regional governments and local authorities if there is no
   difference in risk between claims on the latter and claims on their central governments
   because of the revenue-raising powers of the regional governments and local authorities and
   the existence of specific institutional arrangements the effect of which is to reduce the
   chances of default by the latter. A zero-weighting fixed in accordance with these criteria shall
   apply to claims on and off-balance-sheet items incurred on behalf of the regional governments
   and local authorities in question and claims on others and off-balance-sheet items incurred on
   behalf of others and guaranteed by those regional governments and local authorities or
   secured, to the satisfaction of the competent authorities concerned, by collateral in the form of
   securities issued by those regional governments or local authorities.
   2. The Member States shall notify the Commission if they believe a zero-weighting to be
   justified according to the criteria laid down in paragraph 1. The Commission shall circulate
   that information. Other Member States may offer the credit institutions under the supervision
   of their competent authorities the possibility of applying a zero-weighting where they
   undertake business with the regional governments or local authorities in question or where
   they hold claims guaranteed by the latter, including collateral in the form of securities.
                                                Article 45
                                            Other weighting
   1. Without prejudice to Article 44(1) the Member States may apply a weighting of 20% to
   asset items which are secured, to the satisfaction of the competent authorities concerned, by
   collateral in the form of securities issued by Zone A regional governments or local authorities,
   by deposits placed with Zone A credit institutions other than the lending institution, or by
   certificates of deposit or similar instruments issued by such credit institutions.
EN                                                  91                                               EN
 ---pagebreak---    2. The Member States may apply a weighting of 10% to claims on institutions specialising in
   the inter-bank and public-debt markets in their home Member States and subject to close
   supervision by the competent authorities where those asset items are fully and completely
   secured, to the satisfaction of the competent authorities of the home Member States, by a
   combination of asset items mentioned in Article 43(1)(a) and (b) recognised by the latter as
   constituting adequate collateral.
   3. The Member States shall notify the Commission of any provisions adopted pursuant to
   paragraphs 1 and 2 and of the grounds for such provisions. The Commission shall forward
   that information to the Member States. The Commission shall periodically examine the
   implications of those provisions in order to ensure that they do not result in any distortions of
   competition.
                                               Article 46
                      Administrative bodies and non-commercial undertakings
   For the purposes of Article 43 (1)(b), the competent authorities may include within the
   concept of regional governments and local authorities non-commercial administrative bodies
   responsible to regional governments or local authorities or authorities which, in the view of
   the competent authorities, exercise the same responsibilities as regional and local authorities.
   The competent authorities may also include within the concept of regional governments and
   local authorities, churches and religious communities constituted in the form of a legal person
   under public law, in so far as they raise taxes in accordance with legislation conferring on
   them the right to do so. However, in this case the option set out in Article 44 shall not apply.
                                               Article 47
                                          Solvency ratio level
   1. Credit institutions shall be required permanently to maintain the ratio defined in Article 40
   at a level of at least 8%.
   2. Notwithstanding paragraph 1, the competent authorities may prescribe higher minimum
   ratios as they consider appropriate.
   3. If the ratio falls below 8% the competent authorities shall ensure that the credit institution
   in question takes appropriate measures to restore the ratio to the agreed minimum as quickly
   as possible.
EN                                                 92                                                EN
 ---pagebreak---                                                                    new
                                             SECTION 3
                  MINIMUM OWN FUNDS REQUIREMENTS FOR CREDIT RISK
                                               Article 76
   Credit institutions shall apply either the Standardised Approach provided for in Articles 78 to
   83 or, if permitted by the competent authorities in accordance with Article 84, the Internal
   Ratings Based Approach provided for in Articles 84 to 89 to calculate their risk-weighted
   exposure amounts for the purposes of Article 75(a).
                                               Article 77
   “Exposure” for the purposes of this Section means an asset or off-balance sheet item.
                         SUBSECTION 1 – STANDARDISED APPROACH
                                               Article 78
   1.       Subject to paragraph 2, the exposure value of an asset item shall be its balance-sheet
            value and the exposure value of an off-balance sheet item listed in Annex II shall be
            the following percentage of its value: 100% if it is a full-risk item, 50% if it is a
            medium-risk item, 20% if it is a medium/low-risk item, 0% if its is a low-risk item.
            The off-balance sheet items referred to in the first sentence of this paragraph shall be
            assigned to risk categories as indicated in Annex II.
   2.       The exposure value of a derivative instrument listed in Annex IV shall be determined
            in accordance with one of the two methods set out in Annex III with the effects of
            contracts of novation and other netting agreements taken into account for the
            purposes of those methods in accordance with Annex III.
   3.       Where an exposure is subject to funded credit protection, the exposure value
            applicable to that item may be modified in accordance with Subsection 3.
   4.       In the case of a credit institution using the Financial Collateral Comprehensive
            Method under Annex VIII, Part 3, where an exposure takes the form of securities or
            commodities sold, posted or lent under a repurchase transaction or under a securities
            or commodities lending or borrowing transaction, the exposure value shall be the
            value of the securities or commodities determined in accordance with Article 74(1)
            and shall be increased by the volatility adjustment appropriate to such securities or
            commodities as prescribed in Annex VIII, Part 3, paragraphs 35 to 60.
EN                                                 93                                                EN
 ---pagebreak---                                         Article 79
   1. Each exposure shall be assigned to one of the following exposure classes:
      (a)  claims or contingent claims on central governments or central banks;
      (b)  claims or contingent claims on regional governments or local authorities;
      (c)  claims or contingent claims on administrative bodies and non-commercial
           undertakings;
      (d)  claims or contingent claims on multilateral development banks;
      (e)  claims or contingent claims on international organisations;
      (f)  claims or contingent claims on institutions;
      (g)  claims or contingent claims on corporates;
      (h)  retail claims or contingent retail claims;
      (i)  claims or contingent claims secured on real estate property;
      (j)  past due items;
      (k)  items belonging to regulatory high-risk categories;
      (l)  claims in the form of covered bonds;
      (m) securitisation positions;
      (n)  short-term claims on institutions and corporate;
      (o)  claims in the form of collective investment undertakings (CIU);
      (p)  other items.
   2. To be eligible for the retail exposure class referred to in point (h) of paragraph 1, an
      exposure shall meet the following conditions:
      (a)  the exposure must be either to an individual person or persons, or to a small or
           medium sized entity;
      (b)  the exposure must be one of a significant number of exposures with similar
           characteristics such that the risks associated with such lending are substantially
           reduced;
      (c)  the total amount owed to the credit institution and any parent undertaking and
           its subsidiaries, including any past due exposure, by the obligor client or group
           of connected clients must not, to the knowledge of the credit institution, exceed
           EUR 1 million. The credit institution must take reasonable steps to acquire this
           knowledge.
EN                                          94                                                 EN
 ---pagebreak---       Securities shall not be eligible for the retail exposure class.
                                          Article 80
   1. To calculate risk-weighted exposure amounts, risk weights shall be applied to all
      exposures, unless deducted from own funds, in accordance with the provisions of
      Annex VI, Part 1. The application of risk weights shall be based on the exposure
      class to which the exposure is assigned and, to the extent specified in Annex VI, Part
      1, its credit quality. Credit quality may be determined by reference to the credit
      assessments of External Credit Assessment Institutions (‘ECAIs’) in accordance with
      the provisions of Articles 81 to 83 or the credit assessments of Export Credit
      Agencies as described in Annex VI, Part 1.
   2. For the purposes of applying a risk weight, as referred to in paragraph 1, the
      exposure value shall be multiplied by the risk weight specified or determined in
      accordance with this Subsection.
   3. For the purposes of calculating risk-weighted exposure amounts for exposures to
      institutions, competent authorities shall decide whether to adopt the method based on
      the credit quality of the central government of the jurisdiction in which the credit
      institution is incorporated or the method based on the credit quality of the
      counterparty institution in accordance with Annex VI.
   4. Notwithstanding paragraph 1, where an exposure is subject to credit protection the
      risk weight applicable to that item may be modified in accordance with Subsection 3.
   5. Risk-weighted exposure amounts for securitised exposures shall be calculated in
      accordance with Subsection 4.
   6. Exposures the calculation of risk-weighted exposure amounts for which is not
      otherwise provided for under this Subsection shall be assigned a risk-weight of
      100%.
   7. With the exception of exposures giving rise to liabilities in the form of the items
      referred to in points (1) to (8) of Article 57(1), competent authorities may exempt
      from the requirements of paragraph 1 of this Article the exposures of a credit
      institution to a counterparty which is its parent undertaking, its subsidiary or a
      subsidiary of its parent undertaking, provided that the following conditions are met:
      (a)    the counterparty is an institution or a financial holding company, financial
             institution, asset management company or ancillary services undertaking
             subject to appropriate prudential requirements;
      (b)    the counterparty is included in the same consolidation as the credit institution
             on a full basis;
      (c)    the counterparty is subject to the same risk evaluation, measurement and
             control procedures as the credit institution;
      (d)    the counterparty is established in the same Member State as the credit
             institution;
EN                                            95                                              EN
 ---pagebreak---       (e)   there is no current or foreseen material or legal impediment to the prompt
            transfer of own funds or repayment of liabilities from the counterparty to the
            credit institution.
      In such a case, a risk weight of 0% shall be applied.
                                          Article 81
   1. An external credit assessment may be used to determine the risk weight of an
      exposure in accordance with Article 80 only if the ECAI which provides it has been
      recognised as eligible for those purposes by the competent authorities, hereinafter
      “an eligible ECAI’.
   2. Competent authorities shall recognise an ECAI as eligible for the purposes of Article
      80 only if they are satisfied that its assessment methodology complies with the
      requirements of objectivity, independence, ongoing review and transparency, and
      that the resulting credit assessments meet the requirements of credibility and
      transparency. For those purposes; the competent authorities shall take into account
      the technical criteria set out in Annex VI, Part 2.
   3. If an ECAI has been recognised as eligible by the competent authorities of a Member
      State, the competent authorities of other Member States may recognise that ECAI as
      eligible without carrying out their own evaluation process.
   4. Competent authorities shall make publicly available an explanation of the
      recognition process, and a list of eligible ECAIs.
                                          Article 82
   1. The competent authorities shall determine, taking into account the technical criteria
      set out in Annex VI, Part 2, with which of the credit quality steps set out in Part 1 of
      that Annex the relevant credit assessments of an eligible ECAI are to be associated.
      Those determinations shall be objective and consistent.
   2. When the competent authorities of a Member State have made a determination under
      paragraph 1, the competent authorities of other Member States may recognise that
      determination without carrying out their own determination process.
                                          Article 83
   1. The use of ECAI credit assessments for the calculation of a credit institution’s risk-
      weighted exposure amounts shall be consistent and in accordance with Annex VI,
      Part 3. Credit assessments shall not be used selectively.
   2. Credit institutions shall use solicited credit assessments. However, with the
      permission of the relevant competent authority, they may use unsolicited
      assessments.
EN                                            96                                               EN
 ---pagebreak---             SUBSECTION 2 - INTERNAL RATINGS BASED APPROACH
                                           Article 84
   1. In accordance with this Subsection, the competent authorities may permit credit
      institutions to calculate their risk-weighted exposure amounts using the Internal
      Ratings Based Approach (IRB Approach). Explicit permission shall be required in
      the case of each credit institution.
   2. Permission shall be given only if the competent authority is satisfied that the credit
      institution's systems for the management and rating of credit risk exposures are
      sound and implemented with integrity and, in particular, that they meet the following
      standards in accordance with Annex VII, Part 4:
      (a)    the credit institution’s rating systems provide for a meaningful assessment of
             obligor and transaction characteristics, a meaningful differentiation of risk and
             accurate and consistent quantitative estimates of risk;
      (b)    internal ratings and default and loss estimates used in the calculation of capital
             requirements and associated systems and processes play an essential role in the
             risk management and decision-making process, and in the credit approval,
             internal capital allocation and corporate governance functions of the credit
             institution;
      (c)    the credit institution has a credit risk control unit responsible for its rating
             systems that is appropriately independent and free from undue influence;
      (d)    the credit institution collects and stores all relevant data to provide effective
             support to its credit risk measurement and management process;
      (e)    the credit institution documents its rating systems, the rationale for their design
             and validates its rating systems.
      Where an EU parent credit institution and its subsidiaries or an EU parent financial
      institution and its subsidiaries use the IRB Approach on a unified basis for the parent
      and its subsidiaries, the competent authorities may allow minimum requirements of
      Annex VII, Part 4 to be met by the parent and its subsidiaries considered together.
   3. A credit institution applying for the use of the IRB Approach shall demonstrate that
      it has been using for the IRB exposure classes in question rating systems that were
      broadly in line with the minimum requirements set out in this Annex for internal risk
      measurement and management purposes for at least three years prior to its
      qualification to use the IRB Approach. This requirement shall apply from the 31
      December 2010 onwards.
   4. A credit institution applying for the use of own estimates of LGDs and/or conversion
      factors shall demonstrate that it has been estimating and employing own estimates of
      LGDs and/or conversion factors in a manner that was broadly consistent with the
      minimum requirements for use of own estimates of those parameters set out in this
      Annex for at least three years prior to qualification to use own estimates of LGDs
EN                                             97                                                EN
 ---pagebreak---       and/or conversion factors. This requirement shall apply from the 31 December 2010
      onwards.
   5. If a credit institution ceases to comply with the requirements set out in this
      Subsection, it shall either present to the competent authority a plan for a timely return
      to compliance or demonstrate that the effect of non-compliance is immaterial.
   6. When the IRB Approach is intended to be used by the EU parent credit institution
      and its subsidiaries, or by the EU parent financial holding company and its
      subsidiaries, the competent authorities of the different legal entities shall co-operate
      closely as provided for in Articles 129 to 132.
                                         Article 85
   1. Without prejudice to Article 89, credit institutions and any parent undertaking and its
      subsidiaries shall implement the IRB Approach for all exposures.
      Subject to the approval of the competent authorities, implementation may be carried
      out sequentially across the different exposure classes, referred to in Article 86, within
      the same business unit, across different business units in the same group or for the
      use of own estimates of LGDs or conversion factors for the calculation of risk
      weights for exposures to corporates, institutions, and central governments and central
      banks.
      In the case of the retail exposure class referred to in Article 86, implementation may
      be carried out sequentially across the categories of exposures to which the different
      correlations in Annex VII, Part 1, paragraphs 9, 10 and 11 correspond.
   2. Implementation as referred to in paragraph 1 shall be carried out within a reasonable
      period of time to be agreed with the competent authorities. The implementation shall
      be carried out subject to strict conditions determined by the competent authorities.
      Those conditions shall be designed to ensure that the flexibility under paragraph 1 is
      not used selectively with the purpose of achieving reduced minimum capital
      requirements in respect of those exposure classes or business units that are yet to be
      included in the IRB Approach or in the use of own estimates of LGDs and
      conversion factors.
   3. Credit institutions using the IRB Approach for any exposure class shall at the same
      time use the IRB Approach for the equity exposure class.
   4. Subject to paragraphs 1 to 3 and Article 89, credit institutions which have obtained
      permission under Article 84 to use the IRB Approach shall not revert to the use of
      Subsection 1 for the calculation of risk-weighted exposure amounts except for
      demonstrated good cause and subject to the approval of the competent authorities.
   5. Subject to paragraphs 1 and 2 and Article 89, credit institutions which have obtained
      permission under Article 87(9) to use own estimates of LGDs and conversion factors,
      shall not revert to the use of LGD values and conversion factors referred to in Article
      87(8) except for demonstrated good cause and subject to the approval of the
      competent authorities.
EN                                            98                                                EN
 ---pagebreak---                                                Article 86
   1.      Each exposure shall be assigned to one of the following exposure classes:
            (a)   claims or contingent claims on central governments and central banks;
            (b)   claims or contingent claims on institutions;
            (c)   claims or contingent claims on corporates;
            (d)   retail claims or contingent retail claims;
            (e)   equity claims;
            (f)   securitisation positions;
            (g)   other non credit-obligation assets.
   2.      The following exposures shall be treated as exposures to central governments and
   central banks:
            (a)   exposures to regional governments and local authorities which are treated as
                  exposures to central governments under Subsection 1;
            (b)   exposures to Multilateral Development Banks and International Organisations
                  which attract a risk weight of 0% under Subsection 1.
   3.      The following exposures shall be treated as exposures to institutions:
            (a)   exposures to regional governments and local authorities which are not treated
                  as exposures to central governments under Subsection 1;
            (b)   exposures to Public Sector Entities which are treated as exposures to
                  institutions under the Subsection 1;
            (c)   exposures to Multilateral Development Banks which do not attract a 0% risk
                  weight under Subsection 1.
   4.      To be eligible for the retail exposure class referred to in point (d) of paragraph 1,
   exposures shall meet the following criteria:
            (a)   they shall be either to an individual person or persons, or to a small or medium
                  sized entity, provided in the latter case that the total amount owed to the credit
                  institution and to any parent undertaking and its subsidiaries by the obligor
                  client or group of connected clients does not, to the knowledge of the credit
                  institution, which must have taken reasonable steps to confirm the situation,
                  exceed EUR 1 million;
            (b)   they are treated by the credit institution in its risk management consistently
                  over time and in a similar manner;
            (c)   they are not managed individually in a way comparable to exposures in the
                  corporate exposure class;
EN                                                 99                                                EN
 ---pagebreak---             (d)    they each represent one of a significant number of similarly managed
                   exposures.
   5.      The following exposures shall be classed as equity exposures:
            (a)    non-debt exposures conveying a subordinated, residual claim on the assets or
                   income of the issuer;
            (b)    debt exposures the economic substance of which is similar to the exposures
                   specified in point (a).
   6.      Within the corporate exposure class, credit institutions shall separately identify as
   specialised lending exposures, exposures which possess the following characteristics:
            (a)    the exposure is to an entity which was created specifically to finance and/or
                   operate physical assets;
            (b)    the contractual arrangements give the lender a substantial degree of control
                   over the assets and the income that they generate;
            (c)    the primary source of repayment of the obligation is the income generated by
                   the assets being financed, rather than the independent capacity of a broader
                   commercial enterprise.
   7.      Any credit obligation not assigned to the exposure classes referred to in points (a), (b)
   and (d) to (f) of paragraph 1 shall be assigned to the exposure class referred to in point (c) of
   that paragraph.
   8.      The exposure class referred to in point (g) of paragraph 1 shall include the residual
   value of leased properties, if not covered elsewhere in this Directive.
   9.      The methodology used by the credit institution for assigning exposures to different
   exposure classes shall be appropriate and consistent over time.
                                               Article 87
   1.      The risk-weighted exposure amounts for credit risk for exposures belonging to one of
   the exposure classes referred to in points (a) to (e) or (g) of Article 86(1) shall, unless
   deducted from own funds, be calculated in accordance with Annex VII, Part 1, paragraphs 1
   to 25.
   2.      The risk-weighted exposure amounts for dilution risk for purchased receivables shall
   be calculated according to Annex VII, Part 1, paragraph 26.
   3.      The calculation of risk-weighted exposure amounts for credit risk and dilution risk
   shall be based on the relevant parameters associated with the exposure in question. These
   shall include probability of default (PD), loss given default (LGD), maturity (M) and the
   exposure value of the exposure. PD and LGD may be considered separately or jointly, in
   accordance with Annex VII, Part 2.
EN                                                100                                                EN
 ---pagebreak---    4.       Notwithstanding paragraph 3, the calculation of risk-weighted exposure amounts for
   credit risk for all exposures belonging to the exposure class referred to in point (e) of Article
   86(1) shall be calculated in accordance with Annex VII, Part 1, paragraphs 15 to 24 subject to
   approval of competent authorities. Competent authorities shall only allow a credit institution
   to use the approach set out in Annex VII, Part 1, paragraphs 24 to 25, if the credit institution
   meets the minimum requirements Annex VII, Part 4, paragraphs 114 to 122.
   5.       Notwithstanding paragraph 3, the calculation of risk weighted exposure amounts for
   credit risk for specialised lending exposures may be calculated in accordance with Annex VII,
   Part 1, paragraph 5. Competent authorities shall publish guidance on how institutions should
   assign risk weights to specialised lending exposures under Annex VII, Part 1, paragraph 5 and
   shall approve institutions assignment methodologies.
   6.       For exposures belonging to the exposure classes referred to in points (a) to (d) of
   Article 86(1), credit institutions shall provide their own estimates of PDs in accordance with
   Article 84 and Annex VII, Part 4.
   7.       For exposures belonging to the exposure class referred to in point (d) of Article 86(1),
   credit institutions shall provide own estimates of LGDs and conversion factors in accordance
   with Article 84 and Annex VII, Part 4.
   8.       For exposures belonging to the exposure classes referred to in points (a) to (c) of
   Article 86(1), credit institutions shall apply the LGD values set out in Annex VII, Part 2,
   paragraph 8, and the conversion factors set out in Annex VII, Part 3, paragraph 11 points (a)
   to (c).
   9.       Notwithstanding paragraph 8, for all exposures belonging to the exposure classes
   referred to in points (a) to (c) of Article 86(1), competent authorities may permit credit
   institutions to use own estimates of LGDs and conversion factors in accordance with Article
   84 and Annex VII, Part 4.
   10.      The risk-weighted exposure amounts for securitised exposures and for exposures
   belonging to the exposure class referred to in point (f) of Article 86(1) shall be calculated in
   accordance with Subsection 4.
   11.      Where exposures to a collective investment undertaking (CIU) meet the criteria set out
   in Annex VI, Part 1, paragraphs 74 to 75 and the credit institution is aware of all of the
   underlying exposures of the CIU, the credit institution shall look through to those underlying
   exposures in order to calculate risk-weighted exposure amounts and expected loss amounts in
   accordance with the methods set out in this Subsection.
   Where the credit institution does not meet the conditions for using the methods set out in this
   Subsection, risk weighted exposure amounts and expected loss amounts shall be calculated in
   accordance with the following approaches:
             (a)    for exposures belonging to the exposure class referred to in point (e) of Article
                    86(1), the approach set out in Annex VII, Part 1, paragraphs 17 to 19. If, for
                    those purposes; the credit institution is unable to differentiate between private
                    equity, exchange-traded and other equity exposures, it shall treat the exposures
                    concerned as other equity exposures.
EN                                                 101                                                EN
 ---pagebreak---              (b)   for all other underlying exposures, the approach set out in Subsection 1, subject
                   to the following modifications:
                   (i)    the exposures are assigned to the appropriate exposure class and
                                 attributed the risk weight of the credit quality step immediately
                                 above the credit quality step that would normally be assigned to the
                                 exposure;
                   (ii)   exposures assigned to the higher credit quality steps, to which a risk
                                 weight of 150% would normally be attributed, are assigned a risk
                                 weight of 200%.
   12.     Where exposures to a CIU do not meet the criteria set out in Annex VI, Part 1,
   paragraphs 74 to 75, or the credit institution is not aware of all of the underlying exposures of
   the CIU, the credit institution shall look through to the underlying exposures and calculate
   risk-weighted exposure amounts and expected loss amounts in accordance with the approach
   set out in Annex VII, Part 1, paragraphs 17 to 19. If, for those purposes, the credit institution
   is unable to differentiate between private equity, exchange-traded and other equity exposures,
   it shall treat the exposures concerned as other equity exposures. For these purposes, non-
   equity exposures are assigned to one of the classes (private equity, exchange traded equity or
   other equity) set out in Annex VII, Part 1, paragraph 17 and unknown exposures are assigned
   to other equity class.
   Alternatively to the method described above, credit institutions may rely on a third party to
   calculate and report the average risk weighted exposure amounts based on the CIUs underling
   exposures and calculated in accordance with the following approaches, provided that the
   correctness of the calculation and the report is adequately ensured:
             (a)   for exposures belonging to the exposure class referred to in point (e) of Article
                   86(1), the approach set out in Annex VII, Part 1, paragraphs 17 to 19. If, for
                   those purposes, the credit institution is unable to differentiate between private
                   equity, exchange-traded and other equity exposures, it shall treat the exposures
                   concerned as other equity exposures.
             (b)   for all other underlying exposures, the approach set out in Subsection 1, subject
                   to the following modifications:
                   (i)    the exposures are assigned to the appropriate exposure class and
                          attributed the risk weight of the credit quality step immediately above the
                          credit quality step that would normally be assigned to the exposure;
                   (ii)   exposures assigned to the higher credit quality steps, to which a risk
                          weight of 150% would normally be attributed, are assigned a risk weight
                          of 200%.
                                                 Article 88
   1.      The expected loss amounts for exposures belonging to one of the exposure classes
   referred to in points (a) to (e) of Article 86(1) shall be calculated in accordance with the
   methods set out in Annex VII, Part 1, paragraphs 27 to 33.
EN                                                  102                                               EN
 ---pagebreak---    2.      The calculation of expected loss amounts in accordance with Annex VII, Part 1,
   paragraphs 27 to 33 shall be based on the same input figures of PD, LGD and the exposure
   value for each exposure as being used for the calculation of risk-weighted exposure amounts
   in accordance with Article 87.
   3.      The expected loss amounts for securitised exposures shall be calculated in accordance
   with Subsection 4.
   4.      The expected loss amount for exposures belonging to the exposure class referred to in
   point (g) of Article 86(1) shall be zero.
   5.      The expected loss amounts for dilution risk of purchased receivables shall be
   calculated in accordance with the methods set out in Annex VII, Part 1, paragraph 33.
   6.      The expected loss amounts for exposures referred to in Article 87(11) and (12) shall
   be calculated in accordance with the methods set out in Annex VII, Part 1, paragraphs 27 to
   33.
                                               Article 89
   1.      Subject to the approval of the competent authorities, credit institutions permitted to
   use the IRB Approach in the calculation of risk-weighted exposure amounts and expected loss
   amounts for one or more exposure classes may apply Subsection 1 for the following:
            (a)   the exposure class referred to in point (a) of Article 86(1), where the number of
                  material counterparties is limited and it would be unduly burdensome for the
                  credit institution to implement a rating system for these counterparties;
            (b)   the exposure class referred to in point (b) of Article 86(1), where the number of
                  material counterparties is limited and it would be unduly burdensome for the
                  credit institution to implement a rating system for these counterparties;
            (c)   exposures in non-significant business units as well as exposure classes that are
                  immaterial in terms of size and perceived risk profile;
            (d)   exposures to central governments of the home Member State and to their
                  regional governments, local authorities and administrative bodies, provided
                  that:
                  (i)    there is no difference in risk between the exposures to that central
                         government and those other exposures because of specific public
                         arrangements;
                  (ii)   exposures to the central government are associated with credit quality
                         assessment step 1 under Subsection 1.
            (e)   exposures of a credit institution to a counterparty which is its parent
                  undertaking, its subsidiary or a subsidiary of its parent undertaking provided
                  that the counterparty is an institution or a financial holding company, financial
                  institution, asset management company or ancillary services undertaking
                  subject to appropriate prudential requirements.
EN                                                103                                               EN
 ---pagebreak---              f)    equity exposures to entities whose credit obligations qualify for a zero risk
                   weight under Subsection 1 (including those publicly sponsored entities where a
                   zero weight can be applied).
             g)    equity exposures incurred under legislated programmes to promote specified
                   sectors of the economy that provide significant subsidies for the investment to
                   the credit institution and involve some form of government oversight and
                   restrictions on the equity investments. This exclusion is limited to an aggregate
                   of 10% of original own funds plus additional own funds.
             This paragraph shall not prevent the competent authorities of other Member State to
             allow the application of the rules of Subsection 1 for equity exposures which have
             been allowed for this treatment in other Member States.
   2.       For the purposes of point (c), the equity exposure class of a credit institution shall be
   considered material if their aggregate value, excluding equity exposures incurred under
   legislative programmes as referred to in point (g), exceeds, on average over the preceding
   year, 10% of the credit institution’s own funds. If the number of those equity exposures is less
   than 10 individual holdings, that threshold shall be 5% of the credit institution’s own funds.
                            SUBSECTION 3 - CREDIT RISK MITIGATION
                                                 Article 90
   For the purposes of this Subsection, ‘lending credit institution’ shall mean the credit
   institution which has the exposure in question, whether or not deriving from a loan.
                                                 Article 91
   Credit institutions using the Standardised Approach under Articles 78 to 83 or using the IRB
   Approach under Articles 84 to 89, but not using their own estimates of LGD and conversion
   factors under Articles 87 and 88, may recognise credit risk mitigation in accordance with this
   Subsection in the calculation of risk-weighted exposure amounts for the purposes of Article
   75 point (a) or as relevant expected loss amounts for the purposes of the calculation referred
   to in point (q) of Article 57, and Article 63(3).
                                                 Article 92
   1.        The technique used to provide the credit protection together with the actions and
             steps taken and procedures and policies implemented by the lending credit institution
             shall be such as to result in credit protection arrangements which are legally effective
             and enforceable in all relevant jurisdictions.
   2.        The lending credit institution shall take all appropriate steps to ensure the
             effectiveness of the credit protection arrangement and to address related risks.
   3.        In the case of funded credit protection, to be eligible for recognition the assets relied
             upon must be sufficiently liquid and their value over time sufficiently stable to
             provide appropriate certainty as to the credit protection achieved having regard to the
             approach used to calculate risk-weighted exposure amounts and to the degree of
EN                                                  104                                                EN
 ---pagebreak---             recognition allowed. Eligibility shall be limited to the assets set out in Annex VIII,
            Part 1.
   4.       In the case of funded credit protection, the lending credit institution shall have the
            right to liquidate or retain, in a timely manner, the assets from which the protection
            derives in the event of the default, insolvency or bankruptcy - or other credit event
            set out in the transaction documentation - and, where applicable, of the custodian
            holding the collateral. The degree of correlation between the value of the assets
            relied upon for protection and the credit quality of the borrower must not be undue.
   5.       In the case of unfunded credit protection, to be eligible for recognition the party
            giving the undertaking must be sufficiently reliable, and the protection agreement
            legally effective in the relevant jurisdictions, to provide appropriate certainty as to
            the credit protection achieved having regard to the approach used to calculate risk-
            weighted exposure amounts and to the degree of recognition allowed. Eligibility
            shall be limited to the protection providers and types of protection agreement set out
            in Annex VIII, Part 1.
   6.       The minimum requirements set out in Annex VIII, Part 2 shall be complied with.
                                                Article 93
   1.       Where the requirements of Article 92 are met the calculation of risk-weighted
            exposure amounts, and, as relevant, expected loss amounts, may be modified in
            accordance with Annex VIII, Parts 3 to 6.
   2.       No exposure in respect of which credit risk mitigation is obtained shall produce a
            higher risk-weighted exposure amount or expected loss amount than an otherwise
            identical exposure in respect of which there is no credit risk mitigation.
   3.       Where the risk-weighted exposure amount already takes account of credit protection
            under Articles 78 to 83 or Articles 84 to 93, as relevant, the calculation of the credit
            protection shall not be further recognised under this Subsection.
                                SUBSECTION 4 - SECURITISATION
                                                Article 94
   Where a credit institution uses the Standardised Approach set out in Subsection 1 for the
   calculation of risk-weighted exposure amounts for the exposure class to which the securitised
   exposures would be assigned under Article 79, it shall calculate the risk-weighted exposure
   amount for a securitisation position in accordance with Annex IX, Part 4, paragraphs 6 to 35.
   In all other cases, it shall calculate the risk-weighted exposure amount in accordance with
   Annex IX, Part 4, paragraphs 36 to 74.
EN                                                 105                                               EN
 ---pagebreak---                                                 Article 95
   1.      Where significant credit risk associated with securitised exposures has been
   transferred from the originator credit institution in accordance with the terms of Annex IX,
   Part 2, that credit institution may:
             (a)   in the case of a traditional securitisation, exclude from its calculation of risk-
                   weighted exposure amounts, and, as relevant, expected loss amounts, the
                   exposures which it has securitised;
             (b)   in the case of a synthetic securitisation, calculate risk-weighted exposure
                   amounts, and, as relevant, expected loss amounts, in respect of the securitised
                   exposures in accordance with Annex IX, part 2.
   2.      Where paragraph 1 applies, the originator credit institution shall calculate the risk-
   weighted exposure amounts prescribed in Annex IX for the positions that it may hold in the
   securitisation.
   Where the originator credit institution fails to transfer significant credit risk in accordance
   with paragraph 1, it need not calculate risk-weighted exposure amounts for any positions it
   may have in the securitisation in question.
                                                Article 96
   1.      To calculate the risk-weighted exposure amount of a securitisation position, risk
   weights shall be applied to the exposure value of the position in accordance with Annex IX,
   based on the credit quality of the position, which may be determined by reference to an ECAI
   credit assessment or otherwise, as set out in Annex IX.
   2.      Where there is an exposure to different tranches in a securitisation, the exposure to
   each tranche shall be considered a separate securitisation position. The providers of credit
   protection to securitisation positions shall be considered to hold positions in the securitisation.
   Securitisation positions shall include exposures to a securitisation arising from interest rate or
   currency derivative contracts.
   3.      Where a securitisation position is subject to funded or unfunded credit protection the
   risk-weight to be applied to that position may be modified in accordance with Articles 90 to
   93, read in conjunction with Annex IX.
   4.      Subject to point (r) of Article 57 and Article 66(2), the risk-weighted exposure amount
   shall be included in the credit institution’s total of risk-weighted exposure amounts for the
   purposes of Article 75(a).
                                                Article 97
   1.      An ECAI credit assessment may be used to determine the risk weight of a
   securitisation position in accordance with Article 96 only if the ECAI has been recognised as
   eligible by the competent authorities for this purpose, hereinafter “an eligible ECAI”.
EN                                                 106                                                 EN
 ---pagebreak---    2.      The competent authorities shall recognise an ECAI as eligible for the purposes of
   paragraph 1 only if they are satisfied as to its compliance with the requirements laid down in
   Article 81, taking into account the technical criteria in Annex VI, Part 2, and that it has a
   demonstrated ability in the area of securitisation, which may be evidenced by a strong market
   acceptance.
   3.      If an ECAI has been recognised as eligible by the competent authorities of a Member
   State for the purposes of paragraph 1, the competent authorities of other Member States may
   recognise that ECAI as eligible for those purposes without carrying out their own evaluation
   process.
   4.      The competent authorities shall make publicly available an explanation of the
   recognition process and a list of eligible ECAIs.
   5.      To be used for this purpose a credit assessment of an eligible ECAI shall comply with
   the principles of credibility and transparency as elaborated in Annex IX, Part 3.
                                               Article 98
   1.      For the purposes of applying risk weights to securitisation positions, the competent
   authorities shall determine with which of the credit quality steps set out in Annex IX the
   relevant credit assessments of an eligible ECAI are to be associated. Those determinations
   shall be objective and consistent.
   2.      When the competent authorities of a Member State have made a determination under
   paragraph 1, the competent authorities of other Member States may recognise that
   determination without carrying out their own determination process.
                                               Article 99
   The use of ECAI credit assessments for the calculation of a credit institution’s risk-weighted
   exposure amounts under Article 96 shall be consistent and in accordance with Annex IX, Part
   3. Credit assessments shall not be used selectively.
                                               Article 100
   1.        Where there is a securitisation of revolving exposures subject to an early
             amortisation provision, the originator credit institution or sponsor credit institution
             shall calculate, in accordance with Annex IX, an additional risk-weighted exposure
             amount in respect of the risk that the levels of credit risk to which it is exposed may
             increase following the operation of the early amortisation provision.
   2.        For those purposes, a revolving exposure shall be an exposure whereby a customer
             may vary the amount drawn within an agreed limit, and an early amortisation
             provision shall be a contractual clause which requires, on the occurrence of defined
             events, investors’ positions to be redeemed before the originally stated maturity of
             the securities issued.
EN                                                 107                                               EN
 ---pagebreak---    3.        In the case of securitisations subjects to an early amortisation provision of retail
             exposures which are uncommitted and unconditionally cancellable without prior
             notice, where the early amortisation is triggered by a quantitative value in respect of
             something other than the three months average excess spread, the competent
             authorities may apply a treatment which approximates closely to that prescribed in
             Annex IX, Part 4, paragraphs 27 to 30 for determining the conversion figure
             indicated.
   4.        Where a competent authority intends to apply a treatment in accordance with
             paragraph 3 in respect of a particular securitisation, it shall first of all inform the
             relevant competent authorities of all the other Member States. Before the application
             of such a treatment becomes part of the general policy approach of the competent
             authority to securitisations containing early amortisation clauses of the type in
             question, the competent authority shall consult the relevant competent authorities of
             all the other member States and take into consideration the views expressed. The
             views expressed in such consultation and the treatment adopted shall be publicly
             disclosed by the competent authority in question.
                                               Article 101
   1.      An originator credit institution or sponsor credit institution shall not, with a view to
   reducing potential or actual losses to investors, provide support to the securitisation beyond its
   contractual obligations.
   2.      If an originator credit institution or a sponsor credit institution fails to comply with
   paragraph 1 in respect of a securitisation, the competent authority shall require it at a
   minimum, to hold capital against all of the securitised exposures as if they had not been
   securitised. The credit institution shall disclose publicly that it has provided non-contractual
   support and the regulatory capital impact of having done so.
                                              SECTION 4
              MINIMUM OWN FUNDS REQUIREMENTS FOR OPERATIONAL RISK
                                               Article 102
   1.      Competent authorities shall require credit institutions to hold own funds against
   operational risk in accordance with the approaches set out in Articles 103, 104 and 105.
   2.      Without prejudice to paragraph 4, credit institutions that use the approach set out in
   Article 104 shall not revert to the use of the approach set out in Article 103, except for
   demonstrated good cause and subject to approval by the competent authorities.
   3.      Without prejudice to paragraph 4, credit institutions that use the approach set out in
   Article 105 shall not revert to the use of the approaches set out in Articles 103 or 104 except
   for demonstrated good cause and subject to approval by the competent authorities.
EN                                                 108                                                EN
 ---pagebreak---    4.       Competent authorities may allow credit institutions to use a combination of
   approaches in accordance with Annex X, Part 4.
                                                Article 103
   The capital requirement for operational risk under the Basic Indicator Approach shall be a
   certain percentage of a relevant indicator, in accordance with the parameters set out in Annex
   X, Part 1.
                                                Article 104
   1.        Under the Standardised Approach, credit institutions shall divide their activities into
             a number of business lines as set out in Annex X, Part 2.
   2.        For each business line, credit institutions shall calculate a capital requirement for
             operational risk as a certain percentage of a relevant indicator, in accordance with the
             parameters set out in Annex X, Part 2.
   3.        For certain business lines, the competent authorities may under certain conditions
             authorise a credit institution to use an alternative indicator for determining its capital
             requirement for operational risk.
   4.        The capital requirement for operational risk under the Standardised Approach shall
             be the sum of the capital requirements for operational risk across all individual
             business lines.
   5.        The parameters for the Standardised Approach are in Annex X, Part 2.
   6.        To qualify for use of the Standardised Approach, credit institutions shall meet the
             criteria set out in Annex X, Part 2.
                                                Article 105
   1.       Credit institutions may use Advanced Measurement Approaches based on their own
   internal risk measurement systems, provided that the competent authority expressly approves
   the use of the models concerned for calculating the own funds requirement.
   2.       Credit institutions must satisfy their competent authorities that they meet the
   qualifying criteria set out in Annex X, Part 3.
   3.       When an Advanced Measurement Approach is intended to be used by an EU parent
   credit institution and its subsidiaries or by the subsidiaries of an EU parent financial holding
   company, the competent authorities of the different legal entities shall cooperate closely as
   provided for in Articles 128 to 132. The application shall include the elements listed in Annex
   X, Part 3.
   4.       Where an EU parent credit institution and its subsidiaries or an EU parent financial
   institution and its subsidiaries use an Advanced Measurement Approach on a unified basis for
EN                                                  109                                                 EN
 ---pagebreak---    the parent and its subsidiaries, the competent authorities may allow the qualifying criteria set
   out in Annex X, Part 3 to be met by the parent and its subsidiaries considered together.
                                                                  2000/12/EC
                                             SECTION 35
                                         LARGE EXPOSURES
                                                                  2000/12/EC Art 1(24) (adapted)
                                                                  new
                                               Article 106
   1.       «eExposures», for the purposes of applying Articles 48, 49 and 50 ⌦ this
            Section ⌫ , shall mean the assets ⌦ any asset ⌫ or off-balance-sheet items
            referred to in Article 43 and in Annexes II and IV thereto ⌦ Section 3, Subsection
            1 ⌫ , without application of the ⌦ risk ⌫ weightings or degrees of risk there
            provided for;.
            the risks ⌦ Exposures arising from the items ⌫ referred to in Annex IV must
            ⌦ shall ⌫ be calculated in accordance with one of the methods set out in Annex
            III;.
            without application of the weightings for counterparty risk; all ⌦ All ⌫ elements
            entirely covered by own funds may, with the agreement of the competent authorities,
            be excluded from the determination of exposures, provided that such own funds are
            not included in the      credit institution’s own funds  calculation of the solvency
            ratio     for the purposes of Article 75 or           in the calculation  of other
            monitoring ratios provided for in this Directive and in other Community acts.;
   2.       eExposures shall not include either of the following:
            (a)   in the case of foreign exchange transactions, exposures incurred in the ordinary
                  course of settlement during the 48 hours following payment, or ⌦ ; ⌫
            (b)   in the case of transactions for the purchase or sale of securities, exposures
                  incurred in the ordinary course of settlement during the five working days
                  following payment or delivery of the securities, whichever is the earlier;.
EN                                                 110                                              EN
 ---pagebreak---                                                                       2000/12/EC Art. 1(1) 3rd
                                                                  subparagraph (adapted)
                                                 Article 107
   For the purposes of applying the supervision and control of large exposures ⌦ this
   Section ⌫ , shall be considered as a credit institution, ⌦ the term “credit institution” shall
   cover the following: ⌫
   (a)       a credit institution according to the first paragraph, including ⌦ its ⌫ branches of a
             credit institution in third countries; and
   (b)       any private or public undertaking, including its branches, which corresponds to
             ⌦ meets ⌫ the definition in the first paragraph of “credit institution” and which
             has been authorised in a third country;.
                                                                      2000/12/EC Art. 48(1)
                                                                  (adapted)
                                                                      new
                                                 Article 108
                                       Reporting of large exposures
   1.       A credit institution's exposure to a client or group of connected clients shall be
   considered a large exposure where its value is equal to or exceeds 10% of its own funds.
       For those purposes, Section 1 may be read without the inclusion of point (q) of Article 57
   and Article 63(3) and shall be read without the inclusion of Article 66(2). 
                                                                      2000/12/EC Art 48 (4) 1st
                                                                  paragraph (adapted)
                                                 Article 109
   The competent authorities shall require that every credit institution have sound administrative
   and accounting procedures and adequate internal control mechanisms for the purposes of
   identifying and recording all large exposures and subsequent changes to them, ⌦ in
   accordance with ⌫ as defined and required by this Directive, and for that of monitoring those
   exposures in the light of each credit institution's own exposure policies.
EN                                                   111                                            EN
 ---pagebreak---                                                                      2000/12/EC Art. 48(2)
                                                                  (adapted)
                                                Article 110
                                      Reporting of large exposures
   21.      A credit institution shall report every large exposure within the meaning of paragraph
   1to the competent authorities.
   Member States shall provide that reporting is to be carried out, at their discretion, in
   accordance with one of the following two methods:
   (a)       reporting of all large exposures at least once a year, combined with reporting during
             the year of all new large exposures and any increases in existing large exposures of at
             least 20% with respect to the previous communication;
   (b)       reporting of all large exposures at least four times a year.
                                                                     2000/12/EC Art. 48.3 (adapted)
                                                                     new
   3.2     Except in the case of credit institutions relying on Article 114 for the recognition of
   collateral in calculating the value of exposures for the purposes of paragraphs 1, 2 and 3 of
   Article 111,  eExposures exempted under Article 49 ⌦ 111 ⌫ (7) (3) (a), (b), (c), (d),
   (f), (g) and (h) need not, however, be reported as laid down in paragraph 1  2 and the
   reporting frequency laid down in point (b) of  the second indent to paragraph 1  2
   may be reduced to twice a year for the exposures referred to in Article 49 ⌦ 111 ⌫
   (7) (3) (e) and (i), and also in paragraphs 8, 9 and 10 Articles 115 and 116 .
                                                                     2000/12/EC Art. 48(4) 2nd
                                                                  subparagraph (adapted)
   Where a credit institution invokes paragraph ⌦ 2 ⌫ 3, it shall keep a record of the grounds
   advanced for at least one year after the event giving rise to the dispensation, so that the
   competent authorities may establish whether it is justified.
                                                                     new
   3. Member States may require the reporting of concentrated exposures to the issuers of
   collateral taken by the credit institution.
EN                                                  112                                              EN
 ---pagebreak---                                                                 2000/12/EC Art 49(1) to (5)
                                                             (adapted)
                                                                1 2004/xx/EC Art. 3.7
                                                                new
                                              Article 111
                                    Limits on large exposures
   1.     A credit institution may not incur an exposure to a client or group of connected
          clients the value of which exceed 25% of its own funds . For these purposes and
          the purposes of the other provisions of this Article, Section 1 may be read without
          taking into account point (q) of Article 57 and Article 63(3) and shall be read without
          the inclusion of Article 66(2).
   2.     Where that client or group of connected clients is the parent undertaking or
          subsidiary of the credit institution and/or one or more subsidiaries of that parent
          undertaking, the percentage laid down in paragraph 1 shall be reduced to 20%.
          Member States may, however, exempt the exposures incurred to such clients from
          the 20% limit if they provide for specific monitoring of such exposures by other
          measures or procedures. They shall inform the Commission and the 1 European
          Banking Committee  of the content of such measures or procedures.
   3.     A credit institution may not incur large exposures which in total exceed 800% of its
          own funds.
                                                                2000/12/EC Art. 49.4 (adapted)
   4. Member States may impose limits more stringent than those laid down in paragraphs 1, 2
   and 3.
                                                                2000/12/EC Art 49(1) to (5)
   54.    A credit institution shall at all times comply with the limits laid down in paragraphs
          1, 2 and 3 in respect of its exposures. If in an exceptional case exposures exceed
          those limits, that fact must be reported without delay to the competent authorities
          which may, where the circumstances warrant it, allow the credit institution a limited
          period of time in which to comply with the limits.
                                                                new
                                              Article 112
   1.     For the purposes of Articles 113 to 117, ‘guarantee’ shall include credit derivatives
          recognised under Articles 90 to 93 other than credit linked notes.
   2.     Subject to paragraph 3, where, under Articles 113 to 117, the recognition of funded
          or unfunded credit protection may be permitted, this shall be subject to compliance
EN                                                113                                             EN
 ---pagebreak---              with the eligibility requirements and other minimum requirements, set out under
             Articles 90 to 93 for the purposes of calculating risk-weighted exposure amounts
             under Articles 78 to 83.
   3.        Where a credit institution relies upon Article 114(2), the recognition of credit
             protection shall be subject to the relevant requirements under Articles 84 to 89.
                                                                   2000/12/EC Art 49(4) & (6)
                                                                 adapted (adapted)
                                                Article 113
   1.      Member States may impose limits more stringent than those laid down in Article
   ⌦ 111 ⌫ 75 paragraphs 1, 2 and 3.
   62.     Member States may fully or partially exempt from the application of Article
   ⌦ 111 ⌫ 75 paragraphs 1, 2 and 3 exposures incurred by a credit institution to its parent
   undertaking, to other subsidiaries of that parent undertaking or to its own subsidiaries, in so
   far as those undertakings are covered by the supervision on a consolidated basis to which the
   credit institution itself is subject, in accordance with this Directive or with equivalent
   standards in force in a third country.
                                                                   2000/12/EC Art 49(7) (adapted)
                                                                   new
   73. Member States may fully or partially exempt the following exposures from the application
   of paragraphs (1), (2) and (3) ⌦ Article 111 ⌫:
           (a)     asset items constituting claims on Zone A central governments or central
                   banks; central governments or central banks which would unsecured receive
                   a 0% risk weighting under Articles 78 to 83; 
           (b)     asset items constituting claims on the European Communities international
                   organisations or multilateral development banks which would unsecured
                   receive a 0% risk weight under Articles 78 to 83; 
           (c)     asset items constituting claims carrying the explicit guarantees of Zone A
                   central governments or central banks or of the European Communities
                      central governments, central banks, international organisations or
                   multilateral development banks, where unsecured claims on the entity
                   providing the guarantee would achieve a 0% risk weight under Articles 78 to
                   83; 
           (d)     other exposures attributable to, or guaranteed by, Zone A central governments
                   or central banks or the European Communities central governments, central
                   banks, international organisations, or multilateral development banks where
                   unsecured claims on the entity to which the exposure is attributable or by
                   which it is guaranteed would receive a 0% risk weight under Articles 78 to
                   83;
EN                                                  114                                            EN
 ---pagebreak---    (e) asset items constituting claims on and other exposures to Zone B central
       governments or central banks not mentioned in paragraph a) above  which
       are denominated and, where applicable, funded in the national currencies of the
       borrowers;
   (f) asset items and other exposures secured, to the satisfaction of the competent
       authorities, by collateral in the form of debt securities issued by Zone A
       central governments or central banks, securities, or securities issued by the
       European Communities or by Member State regional or local authorities for
       which Article 44 lays down a zero weighting for solvency purposes
          international organisations, multilateral development banks or Member
       States’ regional governments or local authorities, which securities constitute
       claims on their issuer which would receive a 0% risk weighting under Articles
       78 to 83;
   (g) asset items and other exposures secured, to the satisfaction of the competent
       authorities, by collateral in the form of cash deposits placed with the
       lending ⌦ credit ⌫ institution or with a credit institution which is the parent
       undertaking or a subsidiary of the lending institution;
   (h) asset items and other exposures secured, to the satisfaction of the competent
       authorities, by collateral in the form of certificates of deposit issued by the
       lending ⌦ credit ⌫ institution or by a credit institution which is the parent
       undertaking or a subsidiary of the lending ⌦ credit ⌫ institution and lodged
       with either of them;
   (i) asset items constituting claims on and other exposures to credit institutions,
       with a maturity of one year or less, but not constituting such institutions' own
       funds;
   (j) asset items constituting claims on and other exposures to those institutions
       which are not credit institutions but which fulfil the conditions referred to in
       Article 45(2) Annex VI, Part 1, paragraph 82 , with a maturity of one year
       or less, and secured in accordance with the same paragraph;
   (k) bills of trade and other similar bills, with a maturity of one year or less, bearing
       the signatures of other credit institutions;
   (l) debt securities as defined in Article 22(4) of Directive 85/611/EEC;        covered
       bonds as defined in Articles 78 to 83;
                                                         2000/12/EC (adapted)
   (m) pending subsequent coordination, holdings in the insurance companies referred
       to in Article 51(3) ⌦ 122(1) ⌫ up to 40% of the own funds of the credit
       institution acquiring such a holding;
   (n) asset items constituting claims on regional or central credit institutions with
       which the lending ⌦ credit ⌫ institution is associated in a network in
       accordance with legal or statutory provisions and which are responsible, under
       those provisions, for cash-clearing operations within the network;
EN                                      115                                                 EN
 ---pagebreak---                                                              2000/12/EC
   (o)     exposures secured, to the satisfaction of the competent authorities, by collateral
           in the form of securities other than those referred to in (f); provided that those
           securities are not issued by the credit institution itself, its parent company or
           one of their subsidiaries, or by the client or group of connected clients in
           question. The securities used as collateral must be valued at market price, have
           a value that exceeds the exposures guaranteed and be either traded on a stock
           exchange or effectively negotiable and regularly quoted on a market operated
           under the auspices of recognised professional operators and allowing, to the
           satisfaction of the competent authorities of the Member State of origin of the
           credit institution, for the establishment of an objective price such that the
           excess value of the securities may be verified at any time. The excess value
           required shall be 100% it shall, however, be 150% in the case of shares and
           50% in the case of debt securities issued by credit institutions, Member State
           regional or local authorities other than those referred to in Article 44, and in the
           case of debt securities issued by the EIB and multilateral development banks
           Securities used as collateral may not constitute credit institutions' own funds;
                                                             2000/12/EC
   (p)     loans secured, to the satisfaction of the competent authorities, by mortgages on
           residential property or by shares in Finnish residential housing companies,
           operating in accordance with the Finnish Housing Company Act of 1991 or
           subsequent equivalent legislation and leasing transactions under which the
           lessor retains full ownership of the residential property leased for as long as the
           lessee has not exercised his option to purchase, in all cases up to 50% of the
           value of the residential property concerned; The value of the property shall be
           calculated, to the satisfaction of the competent authorities, on the basis of strict
           valuation standards laid down by law, regulation or administrative provisions.
           Valuation shall be carried out at least once a year. For the purposes of this
           point residential property shall mean a residence to be occupied or let by the
           borrower;
                                                            new
   (q)     the following, where they would receive a 50% risk weight under Articles 78 to
           83, and only up to 50% of the value of the property concerned:
     (i)   exposures secured by mortgages on offices or other commercial premises, or
           by shares in Finnish housing companies, operating in accordance with the
           Finnish Housing Company Act of 1991 or subsequent equivalent legislation, in
           respect of offices or other commercial premises;
     (ii)  exposures related to property leasing transactions concerning offices or other
           commercial premises;
     For the purposes of point (ii), until 31 December 2011, the competent authorities of
     each Member State may allow credit institutions to recognise 100% of the value of
EN                                          116                                                 EN
 ---pagebreak---    the property concerned. At the end of this period, this treatment shall be reviewed.
   Member states shall inform the Commission of the use they make of this preferential
   treatment.
                                                            2000/12/EC (adapted)
   (qr) 50% of the medium/low-risk off-balance-sheet items referred to in Annex II;
   (rs) subject to the competent authorities' agreement, guarantees other than loan
   guarantees which have a legal or regulatory basis and are given for their members by
   mutual guarantee schemes possessing the status of credit institutions, subject to a
   weighting of 20% of their amount.
   Member States shall inform the Commission of the use they make of this option in
   order to ensure that it does not result in distortions of competition;
   (st) the low-risk off-balance-sheet items referred to in Annex II, to the extent that
   an agreement has been concluded with the client or group of connected clients under
   which the exposure may be incurred only if it has been ascertained that it will not
   cause the limits applicable under ⌦ Article 111(1) to (3) ⌫ paragraphs 1, 2 and 3
   to be exceeded.
                                                            new
   Cash received under a credit linked note issued by the credit institution and loans and
   deposits of a counterparty to or with the credit institution which are subject to an on-
   balance sheet netting agreement recognised under Articles 90 to 93 shall be deemed
   to fall under point (g).
                                                            2000/12/EC Art 49(o) 2nd & 3rd
                                                         sentences (adapted)
                                                            new
   ⌦ For the purposes of point (o), the ⌫ The securities used as collateral must be
   valued at market price, have a value that exceeds the exposures guaranteed and be
   either traded on a stock exchange or effectively negotiable and regularly quoted on a
   market operated under the auspices of recognised professional operators and
   allowing, to the satisfaction of the competent authorities of the Member State of
   origin of the credit institution, for the establishment of an objective price such that
   the excess value of the securities may be verified at any time. The excess value
   required shall be 100%. iIt shall, however, be 150% in the case of shares and 50% in
   the case of debt securities issued by credit institutions, Member State regional
   ⌦ governments ⌫ or local authorities other than those referred to in Article 44
   ⌦ sub-point (f) ⌫, and in the case of debt securities issued by the EIB and
   multilateral development banks         other than those receiving a 0% risk weighting
   under the Standardised Approach. Where there is a mismatch between the maturity
   of the exposure and the maturity of the credit protection, the collateral shall not be
   recognised.  ⌦ Securities used as collateral may not constitute credit institutions'
   own funds. ⌫
EN                                        117                                               EN
 ---pagebreak---              ⌦ For the purposes of point (p) , the ⌫ The value of the property shall be
             calculated, to the satisfaction of the competent authorities, on the basis of strict
             valuation standards laid down by law, regulation or administrative provisions.
             Valuation shall be carried out at least once a year. For the purposes of this point
             ⌦ (p), ⌫ residential property shall mean a residence to be occupied or let by the
             borrower;.
             Member States shall inform the Commission of any exemption granted ⌦ under
             point (s) ⌫ the use they make of this optionin order to ensure that it does not result
             in distortion of competition;.
                                                                   new
                                               Article 114
   1.      Subject to paragraph 3, for the purposes of calculating the value of exposures for the
   purposes of Article 111(1) to (3) Member States may, in respect of credit institutions using
   the Financial Collateral (Comprehensive Method) under Articles 90 to 93, in the alternative to
   availing of the full or partial exemptions permitted under points (f), (g), (h), and (o) of Article
   113(3), permit such credit institutions to use a value lower than the value of the exposure, but
   no lower than the total of the fully-adjusted exposure values of their exposures to the client or
   group of connected clients.
   For these purposes ‘fully adjusted exposure value’ means that calculated under Articles 90 to
   93 taking into account the credit risk mitigation, volatility adjustments, and any maturity
   mismatch (E*).
   Where this paragraph is applied to a credit institution, points (f), (g), (h), and (o) of Article
   113(3) shall not apply to the credit institution in question.
   2.      Subject to paragraph 3, a credit institution permitted to use own estimates of LGDs
   and conversion factors for an exposure class under Articles 84 to 89 may be permitted, where
   it is able to the satisfaction of the competent authorities to estimate the effects of financial
   collateral on their exposures separately from other LGD-relevant aspects, to recognise such
   effects in calculating the value of exposures for the purposes of Article 113(3).
   Competent authorities shall be satisfied as to the suitability of the estimates produced by the
   credit institution for use for the reduction of the exposure value for the purposes of
   compliance with the provisions of Article 111.
   Where a credit institution is permitted to use its own estimates of the effects of financial
   collateral, it must do so on a consistent basis to the satisfaction of the competent authorities.
   In particular, this approach must be adopted for all large exposures.
   Credit institutions permitted to use own estimates of LGDs and conversion factors for an
   exposure class under Articles 84 to 89 which does not calculate the value of their exposures
   using the method referred to in the first subparagraph, may be permitted to use the approach
   set out in paragraph 9(1) above or the approach set out in point (o) of Article 113(3) above for
   calculating the value of exposures. A credit institution shall use only one of these two
   methods.
EN                                                 118                                                 EN
 ---pagebreak---    3.      A credit institution which is permitted to use the methods described in paragraphs 1
   and 2 in calculating the value of exposures for the purposes of Article 111(1) to (3) shall
   conduct periodic stress tests of their credit risk concentrations including in relation to the
   realisable value of any collateral taken.
   These shall address risks arising from potential changes in market conditions that could
   adversely impact the credit institutions’ adequacy of own funds and risks arising from the
   realisation of collateral in stressed situations.
   The credit institution shall satisfy the competent authorities that the stress tests carried out are
   adequate and appropriate for the assessment of such risks.
   In the event that such a stress test indicates a lower realisable value of collateral taken than
   would be permitted to be taken into account under paragraphs 2 and 3 as appropriate, the
   value of collateral permitted to be recognised in calculating the value of exposures for the
   purposes of Article 111(1) to (3) shall be reduced accordingly.
   Such credit institutions shall include the following in their strategies to address concentration
   risk:
   (a)       policies and procedures to address risks arising from maturity mismatches between
             exposures and any credit protection on those exposures;
   (b)       policies and procedures relating to concentration risk arising from the application of
             credit risk mitigation techniques, and in particular large indirect credit exposures
             (e.g. to a single issuer of securities taken as collateral).
   4.      Where the effects of collateral are recognised under the terms of paragraphs 1 or 2
   above, Member States may treat any covered part of the exposure as having been incurred to
   the collateral issuer rather than to the client.
                                                                       2000/12/EC Art 49 (8) & (9)
                                                                    (adapted)
                                                                       new
                                                 Article 115
   81.     For the purposes of ⌦ Article 111(1) to (3) ⌫paragraphs 1, 2 and 3, Member States
   may apply a weighting of 20% to asset items constituting claims on Member State regional
   ⌦ governments ⌫ and local authorities               where those claims would receive a 20% risk
   weight under Article 78 to 83 and to other exposures to or guaranteed by such governments
   and authorities claims on which receive a 20% risk weight under Article 78 to 83. and to
   other exposures to or guaranteed by such authorities; subject to the conditions laid down in
   Article 44, however, Member States may reduce that rate to 0%.
       However, Member States may reduce that rate to 0% in respect of to asset items
   constituting claims on Member States’ regional governments and local authorities where those
   claims would receive a 0% risk weight under Article 78 to 83 and to other exposures to or
   guaranteed by such governments and authorities claims on which receive a 0% risk weight
   under Article 78 to 83. 
EN                                                    119                                               EN
 ---pagebreak---    9.2.    For the purposes of ⌦ Article 111(1) to (3) ⌫ paragraphs 1, 2 and 3, Member States
   may apply a weighting of 20% to asset items constituting claims on and other exposures to
   credit institutions with a maturity of more than one but not more than three years and a
   weighting of 50% to asset items constituting claims on credit institutions with a maturity of
   more than three years, provided that the latter are represented by debt instruments that were
   issued by a credit institution and that those debt instruments are, in the opinion of the
   competent authorities, effectively negotiable on a market made up of professional operators
   and are subject to daily quotation on that market, or the issue of which was authorised by the
   competent authorities of the Member State of origin of the issuing credit institutions. In no
   case may any of these items constitute own funds.
                                                                     2000/12/EC Art 49 (10)
                                                                  (adapted)
                                               Article 116
   10.By way of derogation from paragraphs 7 (i) and 9 ⌦ Article 113(3)(i) and Article
   115(2) ⌫, Member States may apply a weighting of 20% to asset items constituting claims
   on and other exposures to credit institutions, regardless of their maturity.
                                                                     2000/12/EC Art. 49 (11)
                                                                  (adapted)
                                               Article 117
   111.     Where an exposure to a client is guaranteed by a third party, or by collateral in the
            form of securities issued by a third party under the conditions laid down in paragraph
            7 ⌦ Article 113(3)⌫ (o), Member States may:
            (a)    treat the exposure as having been incurred to the ⌦ guarantor ⌫ third party
                   rather than to the client, if the exposure is directly and unconditionally
                   guaranteed by that third party, to the satisfaction of the competent authorities,;
            (b)    treat the exposure as having been incurred to the third party rather than to the
                   client, if the exposure defined in sub-paragraph 7 ⌦ Article 113(3) ⌫ (o) is
                   guaranteed by collateral under the conditions there laid down.
                                                                     new
   2.       Where Member States apply the treatment provided for in point (a) of paragraph 1:
            (a)    where the guarantee is denominated in a currency different from that in which
                   the exposure is denominated the amount of the exposure deemed to be covered
                   will be calculated in accordance with the provisions on the treatment of
                   currency mismatch for unfunded protection in Annex VIII;
            (b)    a mismatch between the maturity of the exposure and the maturity of the
                   protection will be treated in accordance with the provisions on the treatment of
                   maturity mismatch in Annex VIII;
EN                                                 120                                                EN
 ---pagebreak---              (c)    partial coverage may be recognised in accordance with the treatment set out in
                    Annex VIII.
                                                                     2000/12/EC Art 49 (2)
                                                                  (adapted)
   12. By 1 January 1999 at the latest, the Council shall, on the basis of a report from the
   Commission, examine the treatment of interbank exposures provided for in paragraphs 7(i), 9
   and 10. The Council shall decide on any changes to be made on a proposal from the
   Commission.
                                                                     2000/12/EC Art 50 (adapted)
                                                                     new
                                                 Article 118
             Supervision on a consolidated or unconsolidated basis of large exposures
   1. If the credit institution is neither a parent undertaking nor a subsidiary, compliance with the
   obligations imposed in Articles 48 and 49 or in any other Community provision applicable to
   this area shall be monitored on an unconsolidated basis.
   2. In the other cases, compliance with the obligations imposed in Articles 48 and 49 or in any
   other Community provision applicable to this area shall be monitored on a consolidated basis
   in accordance with Articles 52 to 56.
   3. Member States may waive monitoring on an individual or subconsolidated basis of
   compliance with the obligations imposed in Articles 48 and 49 or in any other Community
   provision applicable to this area by a credit institution which, as a parent undertaking, is
   subject to monitoring on a consolidated basis and by any subsidiary of such a credit institution
   which is subject to their authorisation and supervision and is covered by monitoring on a
   consolidated basis.
   Member States also waive such monitoring where the parent undertaking is a financial
   holding company established in the same Member State as the credit institution, provided that
   company is subject to the same monitoring as credit institutions.
   In the cases referred to in the first and second subparagraphs.
      Where compliance by a credit institution on an individual or sub-consolidated basis with
   the obligations imposed in this Section is disapplied under Article 69(1), or the provisions of
   Article 70 are applied in the case of parent credit institutions in a Member State,  measures
   must be taken to ensure the satisfactory allocation of risks within the group.
EN                                                   121                                              EN
 ---pagebreak---                                                                      new
                                                 Article 119
   By 31 December 2007, the Commission shall submit to the European Parliament and to the
   Council a report on the functioning of this Section, together with any appropriate proposals.
                                                                     2000/12/EC
                                                SECTION 6
                  QUALIFYING HOLDINGS OUTSIDE THE FINANCIAL SECTOR
                                                                     2000/12/EC Art. 51 (1) & (2)
                                                                  (adapted)
                                                 Article 120
                              Limits to non-financial qualifying holdings
   1.       No credit institution may have a qualifying holding the amount of which exceeds 15%
   of its own funds in an undertaking which is neither a credit institution, nor a financial
   institution, nor an undertaking carrying on an activity referred to in the second subparagraph
   of Article 43(2)(f) of Directive 86/635/EEC.
   2.       The total amount of a credit institution's qualifying holdings in undertakings other than
   credit institutions, financial institutions or undertakings carrying on activities referred to in the
   second subparagraph of Article 43(2)(f) of Directive 86/635/EEC may not exceed 60% of its
   own funds.
                                                                     2002/87/EC Art. 29(5)
                                                                  (adapted)
   5. The Member States need not apply the limits laid down in paragraphs 1 and 2 to holdings in
   insurance companies as defined in Directive 73/239/EEC and Directive 79/267/EEC, or in
   reinsurance companies as defined in Directive 98/78/EC.
                                                                     2000/12/EC Art. 51(4)
                                                                  (adapted)
   4. Shares held temporarily during a financial reconstruction or rescue operation or during the
   normal course of underwriting or in an institution's own name on behalf of others shall not be
   counted as qualifying holdings for the purpose of calculating the limits laid down in
   paragraphs 1 and 2. Shares which are not financial fixed assets as defined in Article 35(2) of
   Directive 86/635/EEC shall not be included.
EN                                                   122                                                 EN
 ---pagebreak---                                                                      2000/12/EC Art. 51 (5)
   53.      The limits laid down in paragraphs 1 and 2 may be exceeded only in exceptional
   circumstances. In such cases, however, the competent authorities shall require a credit
   institution either to increase its own funds or to take other equivalent measures.
                                                                     2000/12/EC Art. 51 (6)
                                                                  (adapted)
   6. The Member States may provide that the competent authorities shall not apply the limits
   laid down in paragraphs 1 and 2 if they provide that 100% of the amounts by which a credit
   institution's qualifying holdings exceed those limits must be covered by own funds and that
   the latter shall not be included in the calculation of the solvency ratio. If both the limits laid
   down in paragraphs 1 and 2 are exceeded, the amount to be covered by own funds shall be the
   greater of the excess amounts.
                                                                     2000/12/EC Art. 51 (4)
                                                Article 121
   4.Shares held temporarily during a financial reconstruction or rescue operation or during the
   normal course of underwriting or in an institution's own name on behalf of others shall not be
   counted as qualifying holdings for the purpose of calculating the limits laid down in
   paragraphs 1 and 2. Shares which are not financial fixed assets as defined in Article 35(2) of
   Directive 86/635/EEC shall not be included.
                                                                     2002/87/EC Art. 29(5)
                                                Article 122
   31.       The Member States need not apply the limits laid down in paragraphs 1 and 2 to
             holdings in insurance companies as defined in Directive 73/239/EEC and Directive
             79/267/EEC, or in reinsurance companies as defined in Directive 98/78/EC.
                                                                     2000/12/EC Art. 51(6)
                                                                  (adapted)
   62.       The Member States may provide that the competent authorities are not to apply the
             limits laid down in ⌦ Article 120(1) and (2) ⌫ paragraphs 1 and 2 if they provide
             that 100% of the amounts by which a credit institution's qualifying holdings exceed
             those limits must be covered by own funds and that the latter shall not be included in
             the calculation of the solvency ratio. If both the limits laid down in ⌦ Article 120(1)
             and (2) ⌫ paragraphs 1 and 2 are exceeded, the amount to be covered by own funds
             shall be the greater of the excess amounts.
EN                                                  123                                               EN
 ---pagebreak---                                                                    new
                                            CHAPTER 3
                  CREDIT INSTITUTIONS' ASSESSMENT PROCESS
                                               Article 123
   Credit institutions shall have in place sound, effective and complete strategies and processes
   to assess and maintain on an ongoing basis the amounts, types and distribution of internal
   capital that they consider adequate to cover the nature and level of the risks to which they are
   or might be exposed.
   These strategies and processes shall be subject to regular internal review to ensure that they
   remain comprehensive and proportionate to the nature, scale and complexity of the activities
   of the credit institution concerned.
                                                                   2000/12/EC (adapted)
                                            CHAPTER 34
              SUPERVISION ⌦ AND DISCLOSURE BY COMPETENT
                   AUTHORITIES ⌫ ON A CONSOLIDATED BASIS
                                                                   2000/12/EC (new)
                                                                   1 2002/87/EC Art. 29.6
                                               Article 52
                      Supervision on a consolidated basis of credit institutions
   1. Every credit institution which has a credit institution or a financial institution as a
   subsidiary or which holds a participation in such institutions shall be subject, to the extent and
   in the manner prescribed in Article 54, to supervision on the basis of its consolidated financial
   situation. Such supervision shall be exercised at least in the areas referred to in paragraphs 5
   and 6.
   2. Every credit institution the parent undertaking of which is a financial holding company
   shall be subject, to the extent and in the manner prescribed in Article 54, to supervision on the
   basis of the consolidated financial situation of that financial holding company. Such
   supervision shall be exercised at least in the areas referred to in paragraphs 5 and 6.
      1 Without prejudice to Article 54a, the consolidation of the financial situation of the
   financial holding company shall not in any way imply that the competent authorities are
EN                                                 124                                                EN
 ---pagebreak---    required to play a supervisory role in relation to the financial holding company on a stand-
   alone basis. 
                                                                    2000/12/EC Art. 52.3
   3. The Member States or the competent authorities responsible for exercising supervision on a
   consolidated basis pursuant to Article 53 may decide in the cases listed below that a credit
   institution, financial institution or auxiliary banking services undertaking which is a
   subsidiary or in which a participation is held need not be included in the consolidation:
   –         if the undertaking that should be included is situated in a third country where there
             are legal impediments to the transfer of the necessary information,
   –         if, in the opinion of the competent authorities, the undertaking that should be
             included is of negligible interest only with respect to the objectives of monitoring
             credit institutions and in all cases if the balance-sheet total of the undertaking that
             should be included is less than the smaller of the following two amounts: EUR
             10 million or 1% of the balance-sheet total of the parent undertaking or the
             undertaking that holds the participation. If several undertakings meet the above
             criteria, they must nevertheless be included in the consolidation where collectively
             they are of non-negligible interest with respect to the aforementioned objectives, or
   –         if, in the opinion of the competent authorities responsible for exercising supervision
             on a consolidated basis, the consolidation of the financial situation of the undertaking
             that should be included would be inappropriate or misleading as far as the objectives
             of the supervision of credit institutions are concerned.
                                                                    2000/12/EC Art. 52 (5) to (8
   5. Supervision of solvency, and of the adequacy of own funds to cover market risks and
   control of large exposures shall be exercised on a consolidated basis in accordance with this
   Article and Articles 53 to 56. Member States shall adopt any measures necessary, where
   appropriate, to include financial holding companies in consolidated supervision, in
   accordance with paragraph 2.
   Compliance with the limits set in Article 51(1) and (2) shall be supervised and controlled on
   the basis of the consolidated or subconsolidated financial situation of the credit institution.
   6. The competent authorities shall ensure that, in all the undertakings included in the scope of
   the supervision on a consolidated basis that is exercised over a credit institution in
   implementation of paragraphs 1 and 2, there are adequate internal control mechanisms for the
   production of any data and information which would be relevant for the purposes of
   supervision on a consolidated basis.
   7. Without prejudice to specific provisions contained in other directives, Member States may
   waive application, on an individual or subconsolidated basis, of the rules laid down in
   paragraph 5 to a credit institution that, as a parent undertaking, is subject to supervision on a
   consolidated basis, and to any subsidiary of such a credit institution which is subject to their
   authorisation and supervision and is included in the supervision on a consolidated basis of the
   credit institution which is the parent company. The same exemption option shall be allowed
   where the parent undertaking is a financial holding company which has its head office in the
EN                                                  125                                               EN
 ---pagebreak---    same Member State as the credit institution, provided that it is subject to the same supervision
   as that exercised over credit institutions, and in particular the standards laid down in
   paragraph 5.
   In both cases set out in the first subparagraph, steps must be taken to ensure that capital is
   distributed adequately within the banking group.
   If the competent authorities apply those rules individually to such credit institutions, they
   may, for the purpose of calculating own funds, make use of the provision in the last
   subparagraph of Article 3(2).
   8. Where a credit institution the parent of which is a credit institution has been authorised and
   is situated in another Member State, the competent authorities which granted that
   authorisation shall apply the rules laid down in paragraph 5 to that institution on an individual
   or, when appropriate, a subconsolidated basis.
                                                                     2000/12/EC Art. 52.9 (adapted)
                                                                     1 2004/xx/EC Art. 3.9
   9. Notwithstanding the requirements of paragraph 8, the competent authorities responsible for
   authorising the subsidiary of a parent undertaking which is a credit institution may, by
   bilateral agreement, delegate their responsibility for supervision to the competent authorities
   which authorised and supervise the parent undertaking so that they assume responsibility for
   supervising the subsidiary in accordance with this Directive. The Commission must be kept
   informed of the existence and content of such agreements.              1 The competent authority
   concerned shall forward such information to the competent authorities of the other Member
   States. 
                                                                     new
                                     SECTION 1 - SUPERVISION
                                                Article 124
   1.        Taking into account the technical criteria set out in Annex XI, the competent
             authorities shall review the arrangements, strategies, processes and mechanisms
             implemented by the credit institutions to comply with this Directive and evaluate the
             risks to which the credit institutions are or might be exposed.
   2.        The scope of the review and evaluation referred to in paragraph 1 shall be that of the
             requirements of this Directive.
   3.        On the basis of the review and evaluation referred to in paragraph 1, the competent
             authorities shall determine whether the arrangements, strategies, processes and
             mechanisms implemented by the credit institutions and the own funds held by these
             ensure a sound management and coverage of their risks.
   4.        Competent authorities shall establish the frequency and intensity of the review and
             evaluation referred to in paragraph 1 having regard to the systemic importance,
EN                                                  126                                              EN
 ---pagebreak---         nature, scale and complexity of the activities of the credit institution concerned. The
        review and evaluation shall be updated at least on an annual basis.
   5.   The review and evaluation performed by competent authorities shall include the
        exposure of credit institutions to the interest rate risk arising from non-trading
        activities. Measures shall be required in the case of institutions whose economic
        value declines by more than 20% of their own funds as a result of a sudden and
        unexpected change in interest rates the size of which shall be prescribed by the
        competent authorities and shall not differ between credit institutions.
                                                               2000/12/EC Art 53(1) and (2)
                                                           first sub-paragraph (adapted)
                                                               new
                                           Article 125
                      Competent authorities responsible for exercising
   1.   Where a parent undertaking is a           parent  credit institution     in a Member
        State or an EU parent credit institution , supervision on a consolidated basis shall
        be exercised by the competent authorities that authorised it under Article 4⌦ 6 ⌫.
   2.   Where the parent of a credit institution is a parent  financial holding company
           in a Member State or an EU parent financial holding company , supervision on
        a consolidated basis shall be exercised by the competent authorities which authorised
        that credit institution under Article 4⌦ 6 ⌫.
                                                               2000/12/EC Art. 53 (2) second
                                                           and third sub-paragraph and (3)
                                                               new
                                           Article 126
   3.1. However wWhere credit institutions authorised in two or more Member States have
        as their parent the same parent  financial holding company in a Member State
        or the same EU parent financial holding company  , supervision on a consolidated
        basis shall be exercised by the competent authorities of the credit institution
        authorised in the Member State in which the financial holding company was set up.
        If no credit institution subsidiary has been authorised in the Member State in which
        the financial holding company was set up, the competent authorities of the Member
        States concerned (including those of the Member State in which the financial holding
        company was set up) shall seek to reach agreement as to who amongst them will
        exercise supervision on a consolidated basis. In the absence of such agreement,
        supervision on a consolidated basis shall be exercised by the competent authorities
        that authorised the credit institution with the greatest balance-sheet total; if that
        figure is the same, supervision on a consolidated basis shall be exercised by the
        competent authorities which first gave the authorisation referred to in Article 4.
EN                                             127                                              EN
 ---pagebreak---             3. The competent authorities concerned may by common agreement waive the rules
            laid down in the first and second subparagraph of paragraph 2.
                                                                   new
            Where credit institutions authorised in two or more Member States have as their
            parents more than one financial holding company with head offices in different
            Member States and there is a credit institution in each of these States, supervision on
            a consolidated basis shall be exercised by the competent authority of the credit
            institution with the largest balance sheet total.
   2.       Where more than one credit institution authorised in the Community has as its parent
            the same financial holding company and none of these credit institutions has been
            authorised in the Member State in which the financial holding company was set up,
            supervision on a consolidated basis shall be exercised by the competent authority that
            authorised the credit institution with the largest balance sheet total, which shall be
            considered, for the purposes of this Directive, as the credit institution controlled by
            an EU parent financial holding company.
                                                                   2000/12/EC Art 53(4)
   4. The agreements referred to in the third subparagraph of paragraph 2 and in paragraph 3
   shall provide for procedures for cooperation and for the transmission of information such that
   the objectives of supervision on a consolidated basis can be attained.
                                                                   new
   3.       In particular cases, the competent authorities may by common agreement waive the
            criteria referred to in paragraphs 1 and 2 if their application would be inappropriate,
            taking into account the credit institutions and the relative importance of their
            activities in different countries, and appoint a different competent authority to
            exercise supervision on a consolidated basis. In these cases, before taking their
            decision, the competent authorities shall give the EU parent credit institution, or EU
            parent financial holding company, or credit institution with the largest balance sheet,
            as appropriate, an opportunity to state its opinion on that decision.
   4.       The competent authorities shall notify the Commission of any agreement falling
            within paragraph 3
                                                                   2000/12/EC Art. 52(2) last
                                                                sentence (adapted)
                                                                   new
                                               Article 127
   1.          Member States shall adopt any measures necessary, where appropriate, to include
            financial holding companies in consolidated supervision. Without prejudice to
            Article 135,  the consolidation of the financial situation of the financial holding
            company shall not in any way imply that the competent authorities are required to
EN                                                 128                                              EN
 ---pagebreak---             play a supervisory role in relation to the financial holding company ⌦ on a stand-
            alone basis ⌫ standing alone.
                                                                   2000/12/EC Art. 52 (4)
                                                                (adapted)
   42.      When the competent authorities of a Member State do not include a credit institution
            subsidiary in supervision on a consolidated basis under one of the cases provided for
            in the second and third indents of paragraph 3 ⌦ points (b) and (c) of Article
            73(1) ⌫, the competent authorities of the Member State in which that credit
            institution subsidiary is situated may ask the parent undertaking for information
            which may facilitate their supervision of that credit institution.
                                                                   2000/12/EC Art. 52 (10)
                                                                (adapted)
   103.     Member States shall provide that their competent authorities responsible for
            exercising supervision on a consolidated basis may ask the subsidiaries of a credit
            institution or a financial holding company, which are not included within the scope
            of supervision on a consolidated basis for the information referred to in Article 55
            ⌦ 137 ⌫. In such a case, the procedures for transmitting and verifying the
            information laid down in that Article shall apply.
                                                                   2000/12/EC Art 53(5)
                                              Article 128
   5Where Member States have more than one competent authority for the prudential
   supervision of credit institutions and financial institutions, Member States shall take the
   requisite measures to organise coordination between such authorities.
                                                                   new
                                              Article 129
   1.       The competent authority responsible for the exercise of supervision on a consolidated
            basis of EU parent credit institutions and credit institutions controlled by EU parent
            financial holding companies shall carry out the following tasks:
            (a)    supervisory overview and assessment of compliance with the requirements laid
                   down in Articles 71, 72(1), 72(2) and 73(3);
            (b)    coordination of the gathering and dissemination of relevant or essential
                   information in going concern and emergency situations;
            (c)    planning and coordination of supervisory activities in going concern as well as
                   in emergency situations, including in relation to the activities in Article 124, in
EN                                                129                                                  EN
 ---pagebreak---                    cooperation with the competent authorities involved, and in relation to Articles
                   43 and 141.
   2.       In the case of applications for the permissions referred to in Articles 84(1), 87(9) and
            105, respectively, submitted by an EU parent credit institution and its subsidiaries, or
            jointly by the subsidiaries of an EU parent financial holding company, the competent
            authorities shall work together, in full consultation, to determine whether or not to
            grant the permission sought and to determine the terms and conditions, if any, to
            which such permission should be subject.
            An application as referred to in the first subparagraph shall be submitted only to the
            competent authority referred to in paragraph 1.
            The competent authorities shall in a single document agree together, within no more
            than six months, their determination on the application. This document shall be
            provided to the applicant. In the absence of a determination within six months, the
            competent authority referred to in paragraph 1 shall make its own determination on
            the application.
                                               Article 130
   1.       Where an emergency situation arises, which potentially jeopardises the stability,
            including the integrity, of the financial system, the competent authorities responsible
            for the exercise of supervision on a consolidated basis shall alert as soon as is
            practicable, subject to Title V, Chapter 1, Section 2, the authorities referred to in
            Article 49(a) and Article 50. This obligation shall apply to all competent authorities
            identified under Articles 125 and 126 in relation to a particular group, and to the
            competent authority identified under paragraph 1 of Article 129.
   2.       The competent authority responsible for supervision on a consolidated basis shall,
            when it needs information which has already been given to another competent
            authority, contact this authority whenever possible in order to prevent duplication of
            reporting to the various authorities involved in supervision.
                                               Article 131
   In order to facilitate and establish effective supervision, the competent authority responsible
   for supervision on a consolidated basis and the other competent authorities shall have written
   coordination and cooperation arrangements in place.
   Under these arrangements additional tasks may be entrusted to the competent authority
   responsible for supervision on a consolidated basis and procedures for the decision-making
   process and for cooperation with other competent authorities, may be specified.
                                                                   2000/12/EC Art. 52 (9)
                                                                (adapted)
   Notwithstanding the requirements of paragraph 8, the ⌦ The ⌫ competent authorities
   responsible for authorising the subsidiary of a parent undertaking which is a credit institution
EN                                                 130                                               EN
 ---pagebreak---    may, by bilateral agreement, delegate their responsibility for supervision to the competent
   authorities which authorised and supervise the parent undertaking so that they assume
   responsibility for supervising the subsidiary in accordance with this Directive. The
   Commission must be kept informed of the existence and content of such agreements. It shall
   forward such information to the competent authorities of the other Member States and to the
   Banking Advisory Committee.
                                                                   new
                                              Article 132
   1.       The competent authorities shall cooperate closely with each other. They shall provide
            one another with any information which is essential or relevant for the exercise of the
            other authorities’ supervisory tasks under this Directive. In this regard, the competent
            authorities shall communicate on request all relevant information and shall
            communicate on their own initiative all essential information.
            In particular, competent authorities responsible for consolidated supervision of EU
            companies shall ensure that relevant information is provided to competent authorities
            in other Member States who supervise subsidiaries of these parents. In determining
            the extent of relevant information, the importance of these subsidiaries within the
            financial system in those Member States shall be taken into account.
            The essential information referred to in the first subparagraph shall include, in
            particular, the following items:
            (a)   identification of the group structure of all major credit institutions in a group,
                  as well as of the competent authorities of the credit institutions in the group;
            (b)   procedures for the collection of information from the credit institutions in a
                  group, and the verification of that information;
            (c)   adverse developments in credit institutions or in other entities of a group,
                  which could seriously affect the credit institutions;
            (d)   major sanctions and exceptional measures taken by competent authorities in
                  accordance with this Directive, including the imposition of an additional
                  capital charge under Article 136 and the imposition of any limitation on the use
                  of the Advanced Measurement Approach for the calculation of the own funds
                  requirements under Article 105.
   2.       The competent authorities responsible for the supervision of credit institutions
            controlled by an EU parent credit institution shall contact the competent authority
            referred to in Article 129(1) when they need information regarding the
            implementation of approaches and methodologies set out in this Directive that may
            already be available to that competent authority.
   3.       The competent authorities concerned shall, prior to their decision, consult each other
            with regard to the following items, where these decisions are of importance for other
            competent authorities’ supervisory tasks:
EN                                                131                                                EN
 ---pagebreak---       (a)    changes in the shareholder, organisational or management structure of credit
             institutions in a group, which require the approval or authorisation of
             competent authorities;
      (b)    major sanctions or exceptional measures taken by competent authorities,
             including the imposition of an additional capital charge under Article 136 and
             the imposition of any limitation on the use of the Advances Measurement
             Approaches for the calculation of the own funds requirements under Article
             105.
      For the purposes of point (b), the competent authority responsible for supervision on
      a consolidated basis shall always be consulted.
      However, a competent authority may decide not to consult in cases of urgency or
      where such consultation may jeopardise the effectiveness of the decisions. In this
      case, the competent authority shall, without delay, inform the other competent
      authorities.
                                                               2000/12/EC Art 54 (1)
                                                            (adapted)
                                         Article 133
                             Form and extent of consolidation
   1. The competent authorities responsible for exercising supervision on a consolidated
      basis ⌦ shall ⌫ must, for the purposes of supervision, require full consolidation of
      all the credit institutions and financial institutions which are subsidiaries of a parent
      undertaking.
      However, ⌦ the competent authorities may require only ⌫proportional
      consolidation may be prescribed where, in ⌦ their ⌫ the opinion of the competent
      authorities, the liability of a parent undertaking holding a share of the capital is
      limited to that share of the capital ⌦ in view ⌫ because of the liability of the other
      shareholders or members whose solvency is satisfactory. The liability of the other
      shareholders and members must be clearly established, if necessary by means of
      formal signed commitments.
                                                               2002/87/EC Art. 29(7)(a)
      In the case where undertakings are linked by a relationship within the meaning of
      Article 12 (1) of Directive 83/349/EEC, the competent authorities shall determine
      how consolidation is to be carried out.
                                                               2000/12/EC Art 54(2) & (3)
                                                            (adapted)
   2. The competent authorities responsible for carrying out supervision on a consolidated
      basis ⌦ shall ⌫ must, in order to do so, require the proportional consolidation of
EN                                           132                                                EN
 ---pagebreak---              participations in credit institutions and financial institutions managed by an
             undertaking included in the consolidation together with one or more undertakings not
             included in the consolidation, where those undertakings' liability is limited to the
             share of the capital they hold.
   3.        In the case of participations or capital ties other than those referred to in paragraphs 1
             and 2, the competent authorities shall determine whether and how consolidation is to
             be carried out. In particular, they may permit or require use of the equity method.
             That method shall not, however, constitute inclusion of the undertakings concerned
             in supervision on a consolidated basis.
                                                                      2000/12/EC Art. 54(4) 1st
                                                                   paragraph (adapted)
                                                Article 134
   41.      Without prejudice to ⌦ Article 133 ⌫ paragraphs 1, 2 and 3, the competent
   authorities shall determine whether and how consolidation is to be carried out in the following
   cases:
             (a)   where, in the opinion of the competent authorities, a credit institution exercises
                   a significant influence over one or more credit institutions or financial
                   institutions, but without holding a participation or other capital ties in these
                   institutions,;
             (b)   where two or more credit institutions or financial institutions are placed under
                   single management other than pursuant to a contract or clauses of their
                   memoranda or articles of association.
                                                                      2002/87/EC Art. 29(7)(b)
   ---------
                                                                      2000/12/EC Art 54(4) 2nd
                                                                   paragraph
   In particular, the competent authorities may permit, or require use of, the method provided for
   in Article 12 of Directive 83/349/EEC. That method shall not, however, constitute inclusion
   of the undertakings concerned in consolidated supervision.
                                                                      2000/12/EC Art 54(5) (adapted)
                                                                      new
   52       Where consolidated supervision is required pursuant to Article 52 (1) and (2)
   ⌦Articles 125 and 126 ⌫, ancillary banking services undertakings                          and asset
   management companies as defined in Directive 2002/87/EC  shall be included in
   consolidations in the cases, and in accordance with the methods, laid down in ⌦ Article 133
   and paragraphs 1 ⌫ to 4 of this Article.
EN                                                  133                                                 EN
 ---pagebreak---                                                                     2002/87/EC Art. 29(8)
                                                                 (adapted)
                                               Article 135
                         Management body of financial holding companies
   The Member States shall require that persons who effectively direct the business of a financial
   holding company ⌦ be ⌫ of sufficiently good repute and have sufficient experience to
   perform those duties.
                                                                    new
                                               Article 136
   1.      Competent authorities shall require any credit institution that does not meet the
   requirements of this Directive to take the necessary actions or steps at an early stage to
   address the situation.
   For those purposes, the measures available to the competent authorities shall include the
   following:
   (a)      obliging credit institutions to hold own funds in excess of the minimum level laid
            down in Article 75;
   (b)      reinforcing the arrangements and strategies implemented to comply with Articles 22
            and 123;
   (c)      requiring credit institutions to apply a specific provisioning policy or treatment of
            assets in terms of own funds requirements;
   (d)      restricting or limiting the business, operations or network of credit institutions;
   (e)      reducing the risk inherent in activities, products and systems by credit institutions.
   The adoption of these measures shall be subject to Title V, Chapter 1, Section 2.
   2.      A specific own funds requirement in excess of the minimum level laid down in Article
   75 shall be imposed by the competent authorities at least on the credit institutions which have
   in place inadequate arrangements, processes, mechanisms and strategies for the management
   and coverage of their risks, if the sole application of other measures is unlikely to reinforce
   those arrangements within an appropriate timeframe.
                                                                    2000/12/EC Art 55(1) (adapted)
                                               Article 137
    Information to be supplied by mixed-activity holding companies and their subsidiaries
EN                                                 134                                             EN
 ---pagebreak---    1.       Pending further coordination of consolidation methods, Member States shall provide
            that, where the parent undertaking of one or more credit institutions is a mixed-
            activity holding company, the competent authorities responsible for the authorisation
            and supervision of those credit institutions shall, by approaching the mixed-activity
            holding company and its subsidiaries either directly or via credit institution
            subsidiaries, require them to supply any information which would be relevant for the
            purpose of supervising the credit institution subsidiaries.
                                                                   2000/12/EC Art. 55(2)
                                                                (adapted)
   2.       Member States shall provide that their competent authorities may carry out, or have
            carried out by external inspectors, on-the-spot inspections to verify information
            received from mixed-activity holding companies and their subsidiaries. If the mixed-
            activity holding company or one of its subsidiaries is an insurance undertaking, the
            procedure laid down in Article 56(4) ⌦ 140(1) ⌫ may also be used. If a mixed-
            activity holding company or one of its subsidiaries is situated in a Member State
            other than that in which the credit institution subsidiary is situated, on-the-spot
            verification of information shall be carried out in accordance with the procedure laid
            down in Article 56(7) ⌦ 140(1) ⌫.
                                                                   2002/87/EC Art. 29(9)
                                                                (adapted)
                                              Article 138
                  Intra-group transactions with mixed-activity holding companies
   1.      Without prejudice to the provisions ofTitle V, Chapter 2, Section 3 ⌦ 5 ⌫, this
   Directive, Member States shall provide that, where the parent undertaking of one or more
   credit institutions is a mixed-activity holding company, the competent authorities responsible
   for the supervision of these credit institutions shall exercise general supervision over
   transactions between the credit institution and the mixed-activity holding company and its
   subsidiaries.
   2.      Competent authorities shall require credit institutions to have in place adequate risk
   management processes and internal control mechanisms, including sound reporting and
   accounting procedures, in order to identify, measure, monitor and control transactions with
   their parent mixed-activity holding company and its subsidiaries appropriately. Competent
   authorities shall require the reporting by the credit institution of any significant transaction
   with these entities other than the one referred to in Article 48 ⌦ 110 ⌫ . These procedures
   and significant transactions shall be subject to overview by the competent authorities.
            Where these intra-group transactions are a threat to a credit institution's financial
            position, the competent authority responsible for the supervision of the institution
            shall take appropriate measures.
EN                                                 135                                              EN
 ---pagebreak---                                                                     2000/12/EC Art. 56 (1) to (3)
                                                                (adapted)
                                             Article 139
                     Measures to facilitate supervision on a consolidated basis
   1.      Member States shall take the necessary steps to ensure that there are no legal
   impediments preventing the ⌦ exchange, as between ⌫ undertakings included within the
   scope of supervision on a consolidated basis, mixed-activity holding companies and their
   subsidiaries, or subsidiaries of the kind covered in Article 52(10) ⌦ 127(3) ⌫, ⌦ of ⌫
   from exchanging amongst themselves any information which would be relevant for the
   purposes of supervision in accordance with Articles 52 to 55 ⌦ 124 to 138 ⌫ and this
   Article.
   2.      Where a parent undertaking and any of its subsidiaries that are credit institutions are
   situated in different Member States, the competent authorities of each Member State shall
   communicate to each other all relevant information which may allow or aid the exercise of
   supervision on a consolidated basis.
            Where the competent authorities of the Member State in which a parent undertaking
            is situated do not themselves exercise supervision on a consolidated basis pursuant to
            Article 53 ⌦ Articles 125 and 126 ⌫ , they may be invited by the competent
            authorities responsible for exercising such supervision to ask the parent undertaking
            for any information which would be relevant for the purposes of supervision on a
            consolidated basis and to transmit it to these authorities.
   3.      Member States shall authorise the exchange between their competent authorities of the
   information referred to in paragraph 2, on the understanding that, in the case of financial
   holding companies, financial institutions or ancillary banking services undertakings, the
   collection or possession of information shall not in any way imply that the competent
   authorities are required to play a supervisory role in relation to those institutions or
   undertakings standing alone.
            Similarly, Member States shall authorise their competent authorities to exchange the
            information referred to in Article 55 ⌦ 137 ⌫ on the understanding that the
            collection or possession of information does not in any way imply that the competent
            authorities play a supervisory role in relation to the mixed-activity holding company
            and those of its subsidiaries which are not credit institutions, or to subsidiaries of the
            kind covered in Article 52(10) ⌦ 127(3) ⌫.
                                                                    2000/12/EC Art 56(4) to (6)
                                                                adapted (adapted)
                                             Article 140
   41.     Where a credit institution, financial holding company or a mixed-activity holding
   company controls one or more subsidiaries which are insurance companies or other
EN                                                136                                                  EN
 ---pagebreak---    undertakings providing investment services which are subject to authorisation, the competent
   authorities and the authorities entrusted with the public task of supervising insurance
   undertakings or those other undertakings providing investment services shall cooperate
   closely. Without prejudice to their respective responsibilities, those authorities shall provide
   one another with any information likely to simplify their task and to allow supervision of the
   activity and overall financial situation of the undertakings they supervise.
   52.     Information received, in the framework of supervision on a consolidated basis, and in
   particular any exchange of information between competent authorities which is provided for
   in this Directive, shall be subject to the obligation of professional secrecy defined in ⌦ Title
   V, Chapter 1, Section 2 ⌫ Article 30.
   63.     The competent authorities responsible for supervision on a consolidated basis shall
   establish lists of the financial holding companies referred to in Article 52(2) ⌦ 71(2) ⌫.
   Those lists shall be communicated to the competent authorities of the other Member States
   and to the Commission.
                                                                    2000/12/EC Art 56(7) (adapted)
                                                                    1 2002/87/EC Art. 29.10
                                                Article 141
   7.Where, in applying this Directive, the competent authorities of one Member State wish in
   specific cases to verify the information concerning a credit institution, a financial holding
   company, a financial institution, an ancillary banking services undertaking, a mixed-activity
   holding company, a subsidiary of the kind covered in Article 55 ⌦ 137 ⌫ or a subsidiary of
   the kind covered in Article 52(10) ⌦ 127(3) ⌫, situated in another Member State, they
   ⌦ shall ⌫ must ask the competent authorities of that other Member State to have that
   verification carried out. The authorities which receive such a request must, within the
   framework of their competence, act upon it either by carrying out the verification themselves,
   by allowing the authorities who made the request to carry it out, or by allowing an auditor or
   expert to carry it out. 1 The competent authority which made the request may, if it so
   wishes, participate in the verification when it does not carry out the verification itself. 
                                                                    2000/12/EC Art 56(8) (adapted)
                                                Article 142
   8.Without prejudice to their provisions of criminal law, Member States shall ensure that
   penalties or measures aimed at ending observed breaches or the causes of such breaches may
   be imposed on financial holding companies and mixed-activity holding companies, or their
   effective managers, that infringe laws, regulation or administrative provisions enacted to
   implement Articles 52 to 55 ⌦ 124 to 141 ⌫ and this Article. In certain cases, such
   measures may require the intervention of the courts.
   The competent authorities shall cooperate closely to ensure that ⌦ those ⌫ the
   abovementioned penalties or measures produce the desired results, especially when the central
   administration or main establishment of a financial holding company or of a mixed-activity
   holding company is not located at its head office.
EN                                                  137                                             EN
 ---pagebreak---                                                                     2002/87/EC Art. 29(11)
                                                                 (adapted)
                                                                    1 2004/xx/EC Art. 3.10
                                                Article 143
                                 Third-country parent undertakings
   1.      Where a credit institution, the parent undertaking of which is a credit institution or a
   financial holding company, the head office of which is ⌦ in a third country ⌫ outside the
   Community, is not subject to consolidated supervision under Article 52 ⌦Articles 125 and
   126 ⌫, the competent authorities shall verify whether the credit institution is subject to
   consolidated supervision by a third-country competent authority which is equivalent to that
   governed by the principles laid down in Article 52 ⌦ this Directive ⌫.
            The verification shall be carried out by the competent authority which would be
            responsible for consolidated supervision if the fourth sub paragraph ⌦ 3 ⌫ were to
            apply, at the request of the parent undertaking or of any of the regulated entities
            authorised in the Community or on its own initiative. That competent authority shall
            consult the other competent authorities involved.
   2.         1 The Commission may request the European Banking Committee to  give
   general guidance as to whether the consolidated supervision arrangements of competent
   authorities in third countries are likely to achieve the objectives of consolidated supervision as
   defined in this Chapter, in relation to credit institutions, the parent undertaking of which has
   its head office ⌦ in a third country ⌫ outside the Community. The Committee shall keep
   any such guidance under review and take into account any changes to the consolidated
   supervision arrangements applied by such competent authorities.
            The competent authority carrying out the verification specified in the ⌦ first ⌫
            second subparagraph ⌦ of paragraph 1 ⌫ shall take into account any such
            guidance. For this purpose the competent authority shall consult the Committee
            before taking a decision.
   3.      In the absence of such equivalent supervision, Member States shall apply the
   provisions of Article 52 Ö this Directive Õ to the credit institution by analogy Ö or shall allow
   their competent authorities to apply other appropriate supervisory techniques which achieve
   the objectives of supervision on a consolidated basis of credit institutions ⌫.
   As an alternative, Member States shall allow their competent authorities to apply other
   appropriate supervisory techniques which achieve the objectives of the supervision on a
   consolidated basis of credit institutions.
            Those ⌦ supervisory techniques ⌫ methods must ⌦ , after consultation with the
            other competent authorities involved, ⌫ be agreed upon by the competent authority
            which would be responsible for consolidated supervision, after consultation with the
            other competent authorities involved.
            Competent authorities may in particular require the establishment of a financial
            holding company which has its head office in the Community, and apply the
EN                                                  138                                               EN
 ---pagebreak---             provisions on consolidated supervision to the consolidated position of that financial
            holding company.
            The ⌦ supervisory techniques ⌫ methods must ⌦ be designed to ⌫ achieve the
            objectives of consolidated supervision as defined in this Chapter and must be notified
            to the other competent authorities involved and the Commission.
                                                                  new
                                             SECTION 2
                          DISCLOSURE BY COMPETENT AUTHORITIES
                                             Article 144
   1.      Competent authorities shall disclose the following information:
   (a)      the texts of laws, regulations, administrative rules and general guidance adopted in
            their Member State in the field of prudential regulation;
   (b)      the manner of exercise of the options and discretions available in Community
            legislation;
   (c)      the general criteria and methodologies they use in the review and evaluation referred
            to in Article 124;
   (d)      without prejudice to the provisions laid down in Title V, Chapter 1, Section 2,
            aggregate statistical data on key aspects of the implementation of the prudential
            framework in each Member State.
   The disclosures provided for in the first subparagraph shall be sufficient to enable a
   meaningful comparison of the approaches adopted by the competent authorities of the
   different Member States.
                                           CHAPTER 5
                       DISCLOSURE BY CREDIT INSTITUTIONS
                                             Article 145
   1.      For the purposes of this Directive, credit institutions shall publicly disclose the
   information laid down in Annex XII, Part 2, subject to the provisions laid down in Article
   146.
   2.      Recognition by the competent authorities under Chapter 2, Section 3, Subsections 2
   and 3 and Article 105 of the instruments and methodologies referred to in Annex XII, Part 3
EN                                               139                                               EN
 ---pagebreak---    shall be subject to the public disclosure by credit institutions of the information laid down
   therein.
   3.       Credit institutions shall adopt a formal policy to comply with the disclosure
   requirements laid down in paragraphs 1 and 2, and have policies for assessing the
   appropriateness of their disclosures, including their verification and frequency.
                                               Article 146
   1.       Notwithstanding Article 145, competent authorities shall permit credit institutions not
   to make one or more disclosures listed in Annex XII, Part 2 if the credit institution concerned
   considers that the information provided by such disclosures is not, in the light of the criterion
   specified in Annex XII, Part 1, paragraph 1, to be regarded as material.
   2.       Notwithstanding Article 145, competent authorities shall permit credit institutions not
   to publish one or more items of information included in the disclosures listed in Annex XII,
   Parts 2 and 3 if the credit institution concerned considers that those items would include
   information which, in the light of the criteria specified in Annex XII, Part 1, paragraphs 2 and
   3, is to be regarded as proprietary or confidential.
   3.       In the exceptional cases referred to in paragraph 2, the credit institution concerned
   shall state in its disclosures the fact that the specific items of information are not disclosed,
   the reason for non-disclosure, and publish more general information about the subject matter
   of the disclosure requirement.
                                               Article 147
   1.       Credit institutions shall publish the disclosures required under Article 145 on an
   annual basis at a minimum. Disclosures shall be published as soon as practicable.
   2.       Credit institutions shall also determine whether more frequent publication than is
   provided for in paragraph 1 is necessary in the light of the criteria set out in Annex XII, Part
   1, paragraph 4.
                                               Article 148
   1.       Competent authorities shall permit credit institutions to determine the appropriate
   medium, location and means of verification to comply effectively with the disclosure
   requirements laid down in Article 145. To the degree feasible, all disclosures shall be
   provided in one medium or location.
   2.       Equivalent disclosures made by credit institutions under accounting, listing or other
   requirements may be deemed to constitute compliance with Article 145. If disclosures are not
   included in the financial statements, credit institutions shall indicate where they can be found.
EN                                                 140                                               EN
 ---pagebreak---                                                  Article 149
   Notwithstanding Articles 146 to 148, Member States shall empower the competent authorities
   to require credit institutions:
   (a)      to make one or more of the disclosures referred to in Annex XII, Parts 2 and 3;
   (b)      to publish one or more disclosures more frequently than annually, and to set
            deadlines for publication;
   (c)      to use specific media and locations for disclosures other than the financial
            statements;
   (d)      to use specific means of verification for the disclosures not covered by statutory
            audit.
                                                                      2004/xx/EC Art. 3.11
   -----
                                                                      2000/12/EC
                                                TITLE VI
                                    POWERS OF EXECUTION
                                                                      2000/12/EC Art. 60 (adapted)
                                                                      new
                                                 Article 150
                                          Technical adaptations
   1.       Without prejudice, regarding own funds, to the report referred to in the second
            subparagraph of Article 34(3) proposal that the Commission is to submit pursuant
            to Article 62 , the technical adaptations         amendments  in the following areas
            shall be adopted in accordance with the procedure ⌦ referred to ⌫ laid down in
            ⌦ Article 151 ⌫ paragraph 2:
                   (a)    clarification of the definitions in order to take account, in the application
                          of this Directive, of developments on financial markets;
                   (b)    clarification of the definitions to ensure uniform application of this
                          Directive in the Community;
                   (c)    the alignment of terminology on, and the framing of definitions in
                          accordance with, subsequent acts on credit institutions and related
                          matters;
EN                                                   141                                                EN
 ---pagebreak---               the definition of «Zone A» in Article 1(14),
              the definition of «multilateral development banks» in Article 1(19),
              (d)   amendments to the list in Article 2
              (e)   alteration of the amount of initial capital prescribed in Article ⌦ 9 ⌫ 5
                    to take account of developments in the economic and monetary field;
              (f)   expansion of the content of the list referred to in Articles ⌦ 23 and
                    24 ⌫ 18 and 19 and set out in Annex I or adaptation of the terminology
                    used in that list to take account of developments on financial markets;
              (g)   the areas in which the competent authorities must exchange information
                    as listed in Article ⌦ 42 ⌫ 28;
              (h)       amendments to Article 56 to 67 in order to take into account
                    developments in accounting standards or requirements set out in
                    Community legislation set out Community legislation; 
              (i)   amendment of the ⌦ list ⌫ definitions of the assets ⌦ exposure
                    classes ⌫ listed in Article 43 ⌦ Articles 79 and 86 ⌫ in order to take
                    account of developments on financial markets;
              (j)       the amount specified in Article 79(2)(c) and in Article 86(4)(a) to take
                    into account the effects of inflation; 
              (k)   the list and classification of off-balance-sheet items in Annexes II and IV
                    and their treatment in the calculation of the ratio as described in Articles
                    42, 43 and 44 and Annex III in the determination of exposure values
                    for the purposes of Title V, Chapter 2, Section 3 ;
              (l)       adjustment of the provisions in Annexes V to XII in order to take
                    account of developments on financial markets in particular new financial
                    products, or in accounting standards or requirements set out in
                    Community legislation; 
   ⌦ 2. The Commission may adopt the following implementing measures in accordance
        with the procedure in Article 151. ⌫
              (a)      specification of the size of sudden and unexpected changes in the
                    interest rates referred to in Article 124(5); 
              (b)   a temporary reduction in the minimum ratio ⌦ level of own funds laid
                    down ⌫ prescribed in Article 47 ⌦ 75 ⌫ the weighting ⌦ risk
                    weights laid down ⌫ prescribed in Article 43 ⌦ Title V, Chapter 2,
                    Section 3 ⌫ in order to take account of specific circumstances;
              (c)       without prejudice to the report referred to in Article 119 ,
                    clarification of exemptions provided for in Article 49(5) to
                    (10) ⌦ 111(4), 113, 115 and 116 ⌫;
EN                                             142                                               EN
 ---pagebreak---                   (d)      specification of the key aspects on which aggregate statistical data are
                        to be disclosed under Article 144 (1) (d) ;
                  (e)      specification of the format, structure, contents list and annual
                        publication date of the disclosures provided for in Article 114; 
                                                                  2004/xx/EC Art. 3.12 (adapted)
                                              Article 151
   1.       The Commission shall be assisted by the European Banking Committee instituted by
            Commission Decision 2004/10/EC (hereinafter referred to as "the Committee"),
            composed of representatives of the Member States and chaired by the representative
            of the Commission.
   2.       Where reference is made to this paragraph ⌦ Article ⌫, the "comitology"
            procedure laid down in Article 5 of Decision 1999/468/EC shall apply, in compliance
            with Article 7 (3) and Article 8 thereof.
            The period provided for in Article 5(6) of Decision 1999/468/EC shall be three
            months.
                                                                  2000/12/EC
                                             TITLE VII
                      TRANSITIONAL AND FINAL PROVISIONS
                                           CHAPTER 1
                               TRANSITIONAL PROVISIONS
                                                                  2000/12/EC Art 60(2) (adapted)
                                               Article 61
                           Transitional provisions regarding Article 36
   Denmark may allow its mortgage credit institutions organised as cooperative societies or
   funds before 1 January 1990 and converted into public limited liability companies to continue
   to include joint and several commitments of members, or of borrowers as referred to in
   Article 36(1) claims on whom are treated in the same way as such joint and several
   commitments, in their own funds, subject to the following limits:
EN                                                143                                               EN
 ---pagebreak---    (a)     the basis for calculation of the part of joint and several commitments of borrowers
   shall be the total of the items referred to in Article 35 (2)(1) and (2), minus those referred to in
   Article 35(2)(9), (10) and (11);
   b)      the basis for calculation on 1 January 1991 or, if converted at a later date, on the date
   on conversion, shall be the maximum basis for calculation. The basis for calculation may
   never exceed the maximum basis for calculation
   c)      the maximum basis for calculation shall, from 1 January 1997, be reduced by half of
   the proceeds from any issue of new capital, as defined in Article 35(2)(1), made after that
   date; and
   (d)     the maximum amount of joint and several commitments of borrowers to be included as
   own funds must never exceed:
           50% in 1991 and 1992,
           45% in 1993 and 1994,
           40% in 1995 and 1996,
           35% in 1997,
           30% in 1998,
           20% in 1999,
           10% in 2000, and
           0% after 1 January 2001, of the basis for calculation.
                                                                     2000/12/EC
                                                 Article 62
                             Transitional provisions regarding Article 43
   1. Until 31 December 2006, the competent authorities of the Member States may authorise
   their credit institutions to apply a 50% risk weighting to loans fully and completely secured to
   their satisfaction by mortgages on offices or on multi-purpose commercial premises situated
   within the territory of those Member States that allow the 50% risk weighting, subject to the
   following conditions:
   (i)     the 50% risk weighting applies to the part of the loan that does not exceed a limit
   calculated according to either (a) or (b):
             (a)   50% of the market value of the property in question.
                   The market value of the property must be calculated by two independent
                   valuers making independent assessments at the time the loan is made. The loan
                   must be based on the lower of the two valuations.
EN                                                  144                                                 EN
 ---pagebreak---                    The property shall be revalued at least once a year by one valuer. For loans not
                   exceeding EUR 1 million and 5% of the own funds of the credit institution, the
                   property shall be revalued at least every three years by one valuer;
              (b)  50% of the market value of the property or 60% of the mortgage lending value,
                   whichever is lower, in those Member States that have laid down rigorous
                   criteria for the assessment of the mortgage lending value in statutory or
                   regulatory provisions.
                   The mortgage lending value shall means the value of the property as
                   determined by a valuer making a prudent assessment of the future
                   marketability of the property by taking into account long-term sustainable
                   aspects of the property, the normal and local market conditions, the current use
                   and alternative appropriate uses of the property. Speculative elements shall not
                   be taken into account in the assessment of the mortgage lending value. The
                   mortgage lending value shall be documented n a transparent and clear manner.
                   At least every three years or if the market falls by more than 10% the mortgage
                   lending value and in particular the underlying assumptions concerning the
                   development of the relevant market, shall be reassessed.
            In both (a) and (b) «market value» shall mean the price at which the property could be
   sold under private contract between a willing seller and an arm's-length buyer on the date of
   valuation, it being assumed that the property is publicly exposed to the market, that market
   conditions permit orderly disposal and that a normal period, having regard to the nature of the
   property, is available for the negotiation of the sale;
   (ii)     the 100% risk weighting applies to the part of the loan that exceeds the limits set out in
   (i);
   (iii)    the property must be either used or let by the owner.
   The first subparagraph shall not prevent the competent authorities of a Member State, which
   applies a higher risk weighting in its territory, from allowing, under the conditions defined
   above, the 50% risk weighting to apply for this type of lending in the territories of those
   Member States that allow the 50% risk weighting.
   The competent authorities of the Member States may allow their credit institutions to apply a
   50% risk weighting to the loans outstanding on 21 July 2000 provided that the conditions
   listed in this paragraph are fulfilled. In this case the property shall be valued according to the
   assessment criteria laid down above not later than 21 July 2003.
   For loans granted before 31 December 2006, the 50% risk weighting remains applicable until
   their maturity, if the credit institution is bound to observe the contractual terms.
   Until 31 December 2006, the competent authorities of the Member State may also authorise
   their credit institutions to apply a 50% risk weighting to the part of the loans fully and
   completely secured to their satisfaction by shares in Finnish housing companies operating in
   accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent
   legislation, provided that the conditions laid down in this paragraph are fulfilled.
   Member States shall inform the Commission of the use they make of this paragraph.
EN                                                  145                                                EN
 ---pagebreak---    2. Member States may apply a 50% risk weighting to property leasing transactions concluded
   before 31 December 2006 and concerning assets for business use situated in the country of the
   head office and governed by statutory provisions whereby the lessor retains full ownership of
   the rented asset until the tenant exercises his option to purchase. Member States shall inform
   the Commission of the use they make of this paragraph.
   3. Article 43(3) shall not affect the competent authorities' recognition of bilateral contracts for
   novation concluded concerning:
   –        Belgium, before 23 April 1996,
   –        Denmark, before 1 June 1996,
   –        Germany, before 30 October 1996,
   –        Greece, before 27 March 1997,
   –        Spain, before 7 January 1997,
   –        France, before 30 May 1996,
   –        Ireland, before 27 June 1996,
   –        Italy, before 30 July 1996,
   –        Luxembourg, before 29 May 1996,
   –        the Netherlands, before 1 July 1996,
   –        Austria, before 30 December 1996,
   –        Portugal, before 15 January 1997,
   –        Finland, before 21 August 1996,
   –        Sweden, before 1 June 1996, and
   –        United Kingdom, before 30 April 1996.
                                               Article 63
                            Transitional provisions regarding Article 47
   1. A credit institution, the minimum ratio of which has not reached the 8% prescribed in
   Article 47(1), by 1 January 1991, must gradually approach that level by successive stages. It
   may not allow the ratio to fall below the level reached before that objective has been attained.
   Any fluctuation should be temporary and the competent authorities should be apprised of the
   reasons for it.
EN                                                146                                                  EN
 ---pagebreak---                                                                     2000/12/EC, Art. 62 (2) and (3)
                                                                (adapted)
   2. For not more than five years after 1 January 1993, the Member States may fix a weighting
   of 10% for the bonds defined in Article 22(4) of Directive 85/611/EEC and maintain if for
   credit institutions when and if they consider it necessary, to avoid grave disturbances in the
   operation of their markets. Such exceptions shall be reported to the Commission.
   3. For not more than seven years after 1 January 1993, Article 47(1) shall not apply to the
   Agricultural Bank of Greece. However, the latter must approach the level prescribed in
   Article 47(1) by successive stages according to the method described in paragraph 1 of this
   Article.
                                                                    2000/12/EC (adapted)
                                                                   1 2004/xx/EC Art. 3.13
                                               Article 64
                            Transitional provisions regarding Article 49
   1. If, on 5 February 1993, a credit institution had already incurred an exposure or exposures
   exceeding either the large exposure limit or the aggregate large exposure limit laid down in
   Article 49, the competent authorities shall require the credit institution concerned to take steps
   to have that exposure or those exposures brought within the limits laid down in Article 49.
   2. The process of having such an exposure or exposures brought within authorised limits shall
   be devised, adopted, implemented and completed within the period which the competent
   authorities consider consistent with the principle of sound administration and fair competition.
   The competent authorities shall inform the Commission and the                1 European Banking
   Committee  of the schedule for the general process adopted.
   3. A credit institution may not take any measure which would cause the exposures referred to
   in paragraph 1 to exceed their level on 5 February 1993
   4. The period applicable under paragraph 2 shall expire no later than 31 December 2001.
   Exposures with a longer maturity, for which the lending institution is bound to observe the
   contractual terms, may be continued until their maturity.
                                                                    2000/12/EC Art. 64 (5) to (7)
                                                                (new)
                                                                   1 2004/xx/EC Art. 3.13
   5. Until 31 December 1998, Member States may increase the limit laid down in Article 49(1)
   to 40% and the limit laid down in Article 49(2) to 30%. In such cases and subject to
   paragraphs 1 to 4, the time limit for bringing the exposures existing at the end of this period
   within the limit laid down in Article 49 shall expire on 31 December 2001.
   6. In the case of credit institutions the own funds of which do not exceed EUR 7 million and
   only in the case of such institutions, Member States may extend the time limits laid down in
EN                                                147                                                 EN
 ---pagebreak---    paragraph 5 by five years. Member States that avail themselves of the option provided for in
   this paragraph shall take steps to prevent distortions of competition and shall inform the
   Commission and the 1 European Banking Committee  thereof.
   7. In the cases referred to in paragraphs 5 and 6, an exposure may be considered a large
   exposure if its value is equal to or exceeds 15% of own funds.
                                                                   2000/12/EC Art. 64 (8)
                                                                (adapted)
   8. Until 31 December 2001 Member States may substitute a frequency of at least twice a year
   for the frequency of notification of large exposures referred to in the second indent of Article
   48(2).
                                                                   2000/12/EC Art. 64 (9)
   9. Member States may fully or partially exempt from the application of Article 49(1), (2) and
   (3) exposures incurred by a credit institution consisting of mortgage loans as defined in
   Article 62(1) concluded before 1 January 2002 as well as property leasing transactions as
   defined in Article 62(2) concluded before 1 January 2002, in both cases up to 50% of the
   value of the property concerned.
   The same treatment applies to loans secured, to the satisfaction of the competent authorities,
   by shares in Finnish residential housing companies, operating in accordance with the Finnish
   Housing Company Act of 1991 or subsequent equivalent legislation which are similar to the
   mortgage loans referred to in the first subparagraph.
                                                                   2000/12/EC Art. 65 (adapted)
                                               Article 65
                              Transitional provisions regarding Article 51
   Credit institutions which, on 1 January 1993, exceeded the limits laid down in Articles 51(1)
   and (2) shall have until 1 January 2003 to comply with them.
                                                                   new
                                              Article 152
   1.      Credit institutions calculating risk-weighted exposure amounts in accordance with
   Articles 84 to 89 or using the Advanced Measurement Approaches as specified in Article 105
   for the calculation of their capital requirements for operational risk shall during the first,
   second and third twelve-month periods after the date specified in Article 157 provide own
   funds which are at all times more than or equal to the amounts indicated in paragraphs 2, 3
   and 4.
EN                                                148                                               EN
 ---pagebreak---    2.      For the first twelve-month period referred to in paragraph 1, the amount of own funds
   shall be 95% of the total minimum amount of own funds that would be required to be held
   during that period by the credit institution under Article 4 of Directive 93/6/EEC as that
   Directive and Directive 2000/12/EC stood prior to the date specified in Article 157 of this
   Directive.
   3.      For the second twelve-month period referred to in paragraph 1, the amount of own
   funds shall be 90% of the total minimum amount of own funds that would be required to be
   held during that period by the credit institution under Article 4 of Directive 93/6/EEC as that
   Directive and Directive 2000/12/EC stood prior to the date specified in Article 157 this
   Directive.
   4.      For the third twelve-month period referred to in paragraph 1, the amount of own funds
   shall be 80% of the total minimum amount of own funds that would be required to be held
   during that period by the credit institution under Article 4 of Directive 93/6/EEC as that
   Directive and Directive 2000/12/EC stood prior to the date specified in Article 157 of this
   Directive.
   5.      Compliance with the requirements of paragraphs 1 to 4 shall be on the basis of
   amounts of own funds fully adjusted to reflect differences in the calculation of own funds
   under Directive 2000/12/EC and Directive 93/6/EEC as those Directives stood prior to the
   date specified in Article 157 of this Directive and the calculation of own funds under this
   Directive deriving from the separate treatments of expected loss and unexpected loss under
   Articles 84 to 89 of this Directive.-
   6.      For the purposes of paragraphs 1 to 5 of this Article, Articles 68 to 73 shall apply.
   7.      Until 31 December 2007 credit institutions may treat the articles constituting the
   Standardised Approach set out in Title V, Chapter 2, Section 3, Subsection 1 as being
   replaced by Articles 42 to 46 of Directive 2000/12/EC as those articles stood prior to the date
   referred to in Article 157.
   8.      Where the discretion referred to in paragraph 7 is exercised the following shall apply
   concerning the provisions of Directive 2000/12/EC:
                   (a)    the provisions of that Directive referred to in Articles 42 to 46 shall apply
                          as they stood prior to the date referred to in Article 157;
                   (b)    ‘risk-adjusted value’ as referred to in Article 42(1) of that Directive shall
                          mean ‘risk-weighted exposure amount’;
                   (c)    the figures produced by Article 42(2) of that Directive shall be
                          considered risk-weighted exposure amounts;
                   (d)    ‘credit derivatives’ shall be included in the list of ‘Full risk’ items in
                          Annex II of that Directive;
                   (e)    the treatment set out in Article 43(3) of that Directive shall apply to
                          derivative instruments listed in Annex IV of that Directive whether on- or
                          off-balance sheet and the figures produced by the treatment set out in that
                          Annex shall be considered risk-weighted exposure amounts;
EN                                                  149                                                 EN
 ---pagebreak---    9.       Where the discretion referred to in paragraph 7 is exercised the following shall apply
   in relation to the treatment of exposures for which the Standardised Approach is used:
                    (a)   Title V, Chapter 2, Section 3, Subsection 3 relating to the recognition of
                          credit risk mitigation shall not apply;
                    (b)   Title V, Chapter 2, Section 3, Subsection 4 concerning the treatment of
                          securitisation may be disapplied by competent authorities;
                    (b)   The following provisions of Annex XII setting out disclosure
                          requirements for credit institutions shall not apply:
                          (i)   Part 2, paragraph 4(b),
                          (ii)  Part 2, paragraph 6,
                          (iii) Part 2, paragraph 10.
   10.      Where the discretion referred to in paragraph 7 is exercised the capital requirement for
   operational risk under Article 75(e) shall be reduced by the percentage representing the ratio
   of the value of the credit institution’s exposures for which risk-weighted exposure amounts
   are calculated in accordance with the discretion referred to in paragraph 7 to the total value of
   its exposures.
   11.      Where a credit institution calculates risk-weighted exposure amounts for all of its
   exposures in accordance with the discretion referred to in paragraph 7, Articles 48 to 50 of
   Directive 2000/12/EC relating to large exposures may apply as they stood prior to the date
   referred to in Article 157;
   12.       Where the discretion referred to in paragraph 7 is exercised, references to Articles 46
             to 52 of this Directive shall be read as references to Articles 42 to 46 of Directive
             2000/12/EC as those articles stood prior to the date referred to in Article 157.
                                                Article 153
   In the calculation of risk-weighted exposure amounts for exposures arising from property
   leasing transactions concerning offices or other commercial premises situated in their territory
   and meeting the criteria set out in Annex VI, Part 1, paragraph 51, the competent authorities
   may, until 31 December 2012 allow a 50% risk weighting to be applied without the
   application of Annex VI, Part 1, paragraphs 55 and 56.
   Until 31 December 2010, competent authorities may, for the purpose of defining the secured
   portion of a past due loan for the purposes of Annex VI, recognise collateral other than
   eligible collateral as set out under Articles 90 to 93.
                                                Article 154
   1.        The requirements in Article 84(3) and (4) shall apply from the 31 December 2009.
EN                                                  150                                              EN
 ---pagebreak---    2.       Until 31 December 2010 the exposure weighted average LGD for all retail exposures
            secured by residential properties and not benefiting from guarantees from central
            governments shall not be lower than 10%.
   3.       Until 31 December 2017, the competent authorities of the Member States may
            exempt from the IRB treatment certain equity exposures held at 31 December 2007.
            The exempted position shall be measured as the number of shares as of that date and
            any additional arising directly as a result of owning those holdings, as long as they
            do not increase the proportional share of ownership in a portfolio company.
            If an acquisition increases the proportional share of ownership in a specific holding
            the exceeding part of the holding shall not be subject to the exemption. Nor shall the
            exemption apply to holdings that were originally subject to the exemption, but have
            been sold and then bought back.
            Equity exposures covered by this transitional provision shall be subject to the capital
            requirements calculated in accordance with Title V, Chapter 2, Section 3,
            Subsection 1.
   4.       Until 31 December 2011, for corporate exposures the competent authorities of each
            Member State may set the number of days past due that all credit institutions in its
            jurisdiction shall abide by under the definition of default set out in Annex VII, Part 4,
            paragraph 44 for exposures to such counterparts situated within this Member State.
            The specific number shall fall within 90- up to a figure of 180 days if local
            conditions make it appropriate. For exposures to such counterparts situated in the
            territories of other Member States, the competent authorities shall set a number of
            days past due which is not higher than the number set by the competent authority of
            the respective Member State.
   5.       In respect of the observation period referred to in Annex VII, Part 4, paragraph 66,
            Member States may allow credit institutions which are not permitted to use own
            estimates of LGDs or conversion factors to have, when they implement the IRB
            Approach, but at the latest at the 31 December 2007, relevant data covering a period
            of two years. Until 31 December 2010 the period to be covered shall increase by one
            year each year.
   6.       In respect of the observation period referred to in Annex VII, Part 4, paragraphs 71,
            85 and 94 Member States may allow credit institutions to have, when they implement
            the IRB Approach, but at the latest at the 31 December 2007, relevant data covering
            a period of two years. Until 31 December 2010 the period to be covered shall
            increase by one year each year.
                                              Article 155
   Until 31 December 2012, for credit institutions the relevant indicator for the trading and sales
   business line of which represents at least 50% of the total of the relevant indicators for all of
   its business lines accordance with Annex X, Part 2, paragraphs 1 to 8, Member States may
   apply a percentage of 15% to the business line “trading and sales”.
EN                                                151                                                 EN
 ---pagebreak---                                                                    2000/12/EC
                                           CHAPTER 2
                                      FINAL PROVISIONS
                                                                   new
                                              Article 156
   The Commission, in cooperation with Member States, and taking into account the
   contribution of the European Central Bank, shall periodically monitor whether this Directive
   taken as a whole, together with Directive [93/6/EEC], has significant effects on the economic
   cycle and, in the light of that examination, shall consider whether any remedial measures are
   justified.
   Based on that analysis and taking into account the contribution of the European Central Bank,
   the Commission shall draw up a biennial report and submit it to the European Parliament and
   to the Council, together with any appropriate proposals.
                                              Article 157
   1.      Member States shall adopt and publish, by 31 December 2006 at the latest, the laws,
   regulations and administrative provisions necessary to comply with Articles 4, 22, 57, 61, 62,
   63, 64, 66, 68 to 106, 108, 110 to 115, 117 to 119, 123 to 127, 129 to 132, 133, 136, 144 to
   149, 152 to 155 and the Annexes II, III, V to XII. They shall forthwith communicate to the
   Commission the text of those provisions and a correlation table between those provisions and
   this Directive.
              Notwithstanding paragraph 2, they shall apply those provisions from 31 December
              2006.
              When Member States adopt those provisions, they shall contain a reference to this
              Directive or be accompanied by such a reference on the occasion of their official
              publication. They shall also include a statement that references in existing laws,
              regulations and administrative provisions to the directive[s] repealed by this
              Directive shall be construed as references to this Directive. Member States shall
              determine how such reference is to be made and how that statement is to be
              formulated.
              Member States shall communicate to the Commission the text of the main provisions
              of national law which they adopt in the field covered by this Directive.
   2.      Member States shall apply, by 31 December 2007 at the latest, and not earlier, the
   laws regulations and administrative provisions necessary to comply with Articles 87(9) and
   105.
EN                                                 152                                            EN
 ---pagebreak---                                                                  2000/12/EC Art. 66 (adapted)
                                              Article 66
                                      Commission information
   Member States shall communicate to the Commission the text of the main laws, regulations
   and administrative provisions ⌦ of national law ⌫ which they adopt in the field covered by
   this Directive.
                                                                 2000/12/EC Art 67 (adapted)
                                             Article 158
   1. Directives 73/183/EEC, 77/780/EEC, 89/299/EEC, 89/646/EEC, 89/647/EEC, 92/30/EEC
   and 92/121/EEC, Directive 2000/12/EC as amended by the Directives set out in Annex V
   ⌦ XV ⌫ , Part A, are ⌦ is ⌫ hereby repealed without prejudice to the obligations of the
   Member States concerning the deadlines for transposition of the said Directives listed in
   Annex V ⌦ XV ⌫ , Part B.
   2. References to the repealed Directives shall be construed as references to this Directive and
   should be read in accordance with the correlation table in Annex VI ⌦ XVI ⌫.
                                                                 2000/12/EC Art 68 (adapted)
                                             Article 159
                                          Implementation
   This Directive shall enter into force on the 20th day following its publication in the Official
   Journal of the ⌦ Union ⌫ European Communities.
                                                                 2000/12/EC Art. 69 (adapted)
                                             Article 160
                                             Addressees
   This Directive is addressed to the Member States.
   Done at Brussels, […].
                                                For the European Parliament
                                                The President
EN                                               153                                               EN
 ---pagebreak---    For the Council
   The President
EN  154            EN
 ---pagebreak---                                                                              2000/12/EC
                                                    ANNEX I
               LIST OF ACTIVITIES SUBJECT TO MUTUAL RECOGNITION
   1. Acceptance of deposits and other repayable funds
   2. Lending including, inter alia: consumer credit, mortgage credit, factoring, with or without
   recourse, financing of commercial transactions (including forfeiting).33
   3. Financial leasing
   4. Money transmission services
   5. Issuing and administering means of payment (e.g. credit cards, travellers' cheques and
   bankers' drafts)
   6. Guarantees and commitments
   7. Trading for own account or for account of customers in:
   (a)     money market instruments (cheques, bills, certificates of deposit, etc.)
   (b)     foreign exchange;
   (c)     financial futures and options;
   (d)     exchange and interest-rate instruments;
   (e)     transferable securities
   8. Participation in securities issues and the provision of services related to such issues
   9. Advice to undertakings on capital structure, industrial strategy and related questions and
   advice as well as services relating to mergers and the purchase of undertakings
   10. Money broking
   11. Portfolio management and advice
   12. Safekeeping and administration of securities
   13. Credit reference services
   14. Safe custody services
   33
           Including, inter alia: consumer credit, mortgage credit, factoring, with or without recourse, financing of
           commercial transactions (including forfeiting).
EN                                                      155                                                           EN
 ---pagebreak---                                                                     2004/39/EC Art. 68 (adapted)
   The services and activities provided for in Section A and B of annex I of Directive
   2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in
   financial instruments34 when referring to the financial instruments provided for in Section C
   of Annex I of that Directive are subject to mutual recognition according to this Directive.
                                                                    2000/12/EC
                                               ANNEX II
                                                                    2000/12/EC
                                                                    new
                     CLASSIFICATION OF OFF-BALANCE-SHEET ITEMS
   Full risk:
   –         Guarantees having the character of credit substitutes,
   –            Credit derivatives 
   –         Acceptances,
   –         Endorsements on bills not bearing the name of another credit institution,
   –         Transactions with recourse,
   –         Irrevocable standby letters of credit having the character of credit substitutes,
   –         Assets purchased under outright forward purchase agreements,
   –         Forward forward deposits,
   –         The unpaid portion of partly-paid shares and securities,
   –            Asset sale and repurchase agreements as defined in Article 12(3) and (5) of
             Directive 86/635/EEC, 
   –         Other items also carrying full risk.
   Medium risk:
   –         Documentary credits issued and confirmed (see also medium/low risk),
   –         Warranties and indemnities (including tender, performance, customs and tax bonds)
             and guarantees not having the character of credit substitutes,
   34
           OJ n° L 145 of 30.04.2004, p. 1
EN                                                 156                                           EN
 ---pagebreak---    –        Asset sale and repurchase agreements as defined in Article 12(3) and (5) of Directive
            86/635/EEC,
   –        Irrevocable standby letters of credit not having the character of credit substitutes,
   –        Undrawn credit facilities (agreements to lend, purchase securities, provide guarantees
            or acceptance facilities) with an original maturity of more than one year,
   –        Note issuance facilities (NIFs) and revolving underwriting facilities (RUFs),
   –        Other items also carrying medium risk                and as communicated to the
            Commission  .
   Medium/low risk:
   –        Documentary credits in which underlying shipment acts as collateral and other self-
            liquidating transactions,
   –           Undrawn credit facilities (agreements to lend, purchase securities, provide
            guarantees or acceptance facilities) with an original maturity of up to and including
            one year which may not be cancelled unconditionally at any time without notice or
            that do not effectively provide for automatic cancellation due to deterioration in a
            borrower’s creditworthiness, 
   –        Other items also carrying medium/low risk              and as communicated to the
            Commission  .
   Low risk:
   –        Undrawn credit facilities (agreements to lend, purchase securities, provide guarantees
            or acceptance facilities) with an original maturity of up to and including one year or
            which may be cancelled unconditionally at any time without notice, Undrawn
            credit facilities (agreements to lend, purchase securities, provide guarantees or
            acceptance facilities) which may be cancelled unconditionally at any time without
            notice, or that do effectively provide for automatic cancellation due to deterioration
            in a borrower’s creditworthiness. Retail credit lines may be considered as
            unconditionally cancellable if the terms permit the credit institution to cancel them to
            the full extent allowable under consumer protection and related legislation; 
   –        Other items also carrying low risk     and as communicated to the Commission  .
   The Member States undertake to inform the Commission as soon as they have agreed to
   include a new off-balance-sheet item in any of the last indents under each category of risk.
   Such items will be definitively classified at Community level once the procedure laid down in
   Article 59 has been completed.
                                                                   2000/12/EC
                                              ANNEX III
EN                                                157                                                EN
 ---pagebreak---                                                                         2000/12/EC (adapted)
                                                                        new
          THE TREATMENT OF OFF-BALANCE-SHEET ITEMS                                  DERIVATIVE
                                            INSTRUMENTS 
   1. CHOICE OF THE METHOD
   To measure the credit risks associated with              determine the exposure value of  the
   contracts listed in points 1 and 2 of Annex IV, credit institutions may choose, subject to the
   consent of the competent authorities, one of the methods set out ⌦ in this Annex ⌫ below.
   Credit institutions which have to comply with Article 6(1) ⌦ 33(1) and (2) ⌫ of Directive
   93/6/EEC35 must use method 1 set out ⌦ in this Annex ⌫ below. To measure the credit
   risks associated with determine the exposure value for  the contracts listed in point 3 of
   Annex IV all credit institutions must use method 1 set out ⌦ in this Annex ⌫ below.
                                                                       new
   Contracts traded on recognised exchanges, and foreign-exchange contracts (except contracts
   concerning gold) with an original maturity of 14 calendar days or less are exempt from the
   application of the methods set out in this Annex and shall be attributed an exposure value of
   zero.
   Competent authorities may exempt from the application of the methods set out in this Annex
   and attribute an exposure value of zero to over-the-counter (OTC) contracts cleared by a
   clearing house where the latter acts as the legal counterparty and all participants fully
   collateralise on a daily basis the exposure they present to the clearing house, thereby
   providing a protection covering both the current exposure and the potential future exposure.
   The posted collateral must:
                     (a)   qualify for a 0% risk weight, or
                     (b)   be cash deposits placed with the lending institution, or
                     (c)   be certificates of deposit or similar instruments issued by and lodged with
                           the latter.
   The competent authorities must be satisfied that the risk of a build-up of the clearing house's
   exposures beyond the market value of posted collateral is eliminated.
   35
           Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment firms and credit
           institutions (OJ L 141, 11.6.1993, p. 1). Directive amended by Directive 98/33/EC (OJ L 204,
           21.7.1998, p. 29).
EN                                                   158                                                      EN
 ---pagebreak---                                                                              2000/12/EC (adapted)
   2. METHODS
   Method 1: the «mark to market» approach
   Step (a):        by attaching current market values to contracts (mark to market), the current
   replacement cost of all contracts with positive values is obtained.
   Step (b):        to obtain a figure for potential future credit exposure36, ⌦ except in the case
   of single-currency «floating/floating» interest rate swaps in which only the current
   replacement cost will be calculated, ⌫ the notional principal amounts or underlying values
   are multiplied by the following percentages ⌦ in Table 1 ⌫ :
                                                    TABLE 13738
      Residual       Interest-rate         Contracts           Contracts         Contracts           Contracts
     maturity39        contracts          concerning          concerning        concerning          concerning
                                            foreign-            equities          precious         commodities
                                           exchange                           metals except          other than
                                        rates and gold                              gold              precious
                                                                                                       metals
   One year or     0%                   1%                   6%               7%                  10%
   less
   Over one        0,5%                 5%                   8%               7%                  12%
   year, less
   than five
   years
   Over five       1,5%                 7,5%                 10%              8%                  15%
   years
             For the purpose of calculating the potential future exposure in accordance with step
             (b) the competent authorities may allow credit institutions until 31 December 2006 to
             apply the following percentages instead of those prescribed in Table 1 provided that
   36
           Except in the case of single-currency «floating/floating» interest rate swaps in which only the current
           replacement cost will be calculated.
   37
           Contracts which do not fall within one of the five categories indicated in this table shall be treated as
           contracts concerning commodities other than precious metals.
   38
           For contracts with multiple exchanges of principal, the percentages have to be multiplied by the number
           of remaining payments still to be made according to the contract.
   39
           For contracts that are structured to settle outstanding exposure following specified payment dates and
           where the terms are reset such that the market value of the contract is zero on these specified dates, the
           residual maturity would be equal to the time until the next reset date. In the case of interest-rate
           contracts that meet these criteria and have a remaining maturity of over one year, the percentage shall
           be no lower than 0,5%.
EN                                                        159                                                         EN
 ---pagebreak---              the institutions make use of the option set out in Article 11a of Directive 93/6/EEC
             for contracts within the meaning of paragraph 3(b) and (c) of Annex IV:
                                                       TABLE 1a
     Residual maturity        Precious metals            Base             Agricultural           Other, including
                                (except gold)           metals          products (softs)         energy products
   One year or less          2%                       2,5%            3%                        4%
   Over one year, less       5%                       4%              5%                        6%
   than five years
   Over five years           7,5%                     8%              9%                        10%
                                                                              2000/12/EC (adapted)
   Step (c):        the sum of current replacement cost and potential future credit exposure is
   multiplied by the risk weightings allocated to the relevant counterparties in Article 43 ⌦ is
   the exposure value. ⌫
                                                                              2000/12/EC (adapted)
   Method 2: the «original exposure» approach
   Step (a):        the notional principal amount of each instrument is multiplied by the
   percentages given ⌦ in Table 2 ⌫ below:
                                                       TABLE 2
           Original maturity40                       Interest-rate            Contracts concerning foreign-
                                                       contracts                 exchange rates and gold
   One year or less                             0,5%                      2%
   More than one year but not                   1%                        5%
   exceeding two years
   Additional allowance for each                1%                        3%
   additional year
                                                                              2000/12/EC
                                                                              new
   Step (b):        the original exposure thus obtained is multiplied by the risk weightings
   allocated to the relevant counterparties in Article 43 shall be the exposure value
   40
           In the case of interest-rate contracts, credit institutions may, subject to the consent of their competent
           authorities, choose either original or residual maturity.
EN                                                         160                                                        EN
 ---pagebreak---    For methods 1 and 2 the competent authorities must ensure that the notional amount to be
   taken into account is an appropriate yardstick for the risk inherent in the contract. Where, for
   instance, the contract provides for a multiplication of cash flows, the notional amount must be
   adjusted in order to take into account the effects of the multiplication on the risk structure of
   that contract.
                                                                   2000/12/EC (adapted)
   3. CONTRACTUAL NETTING (CONTRACTS FOR NOVATION AND OTHER
            NETTING AGREEMENTS)
   (a) Types of netting that competent authorities may recognise
   For the purpose of this ⌦ section ⌫ point 3 «counterparty» means any entity (including
   natural persons) that has the power to conclude a contractual netting agreement.
   The competent authorities may recognise as risk-reducing the following types of contractual
   netting:
   (i)      bilateral contracts for novation between a credit institution and its counterparty under
            which mutual claims and obligations are automatically amalgamated in such a way
            that this novation fixes one single net amount each time novation applies and thus
            creates a legally binding, single new contract extinguishing former contracts;
   (ii)     other bilateral agreements between a credit institution and its counterparty.
   (b) Conditions for recognition
   The competent authorities may recognise contractual netting as risk-reducing only under the
   following conditions:
   (i)      a credit institution must have a contractual netting agreement with its counterparty
            which creates a single legal obligation, covering all included transactions, such that,
            in the event of a counterparty's failure to perform owing to default, bankruptcy,
            liquidation or any other similar circumstance, the credit institution would have a
            claim to receive or an obligation to pay only the net sum of the positive and negative
            mark-to-market values of included individual transactions;
   (ii)     a credit institution must have made available to the competent authorities written and
            reasoned legal opinions to the effect that, in the event of a legal challenge, the
            relevant courts and administrative authorities would, in the cases described under (i),
            find that the credit institution's claims and obligations would be limited to the net
            sum, as described in (i), under:
            –     the law of the jurisdiction in which the counterparty is incorporated and, if a
                  foreign branch of an undertaking is involved, also under the law of the
                  jurisdiction in which the branch is located;
            –     the law that governs the individual transactions included; , and
EN                                                 161                                               EN
 ---pagebreak---              –     the law that governs any contract or agreement necessary to effect the
                   contractual netting;
   (iii)     a credit institution must have procedures in place to ensure that the legal validity of
             its contractual netting is kept under review in the light of possible changes in the
             relevant laws.
   The competent authorities must be satisfied, if necessary after consulting the other competent
   authorities concerned, that the contractual netting is legally valid under the law of each of the
   relevant jurisdictions. If any of the competent authorities are not satisfied in that respect, the
   contractual netting agreement will not be recognised as risk-reducing for either of the
   counterparties.
   The competent authorities may accept reasoned legal opinions drawn up by types of
   contractual netting.
   No contract containing a provision which permits a non-defaulting counterparty to make
   limited payments only, or no payments at all, to the estate of the defaulter, even if the
   defaulter is a net creditor (a «walkaway» clause), may be recognised as risk-reducing.
   The competent authorities may recognise as risk-reducing contractual-netting agreements
   covering foreign-exchange contracts with an original maturity of 14 calendar days or less
   written options or similar off-balance-sheet items to which this Annex does not apply because
   they bear only a negligible or no credit risk. If, depending on the positive or negative market
   value of these contracts, their inclusion in another netting agreement can result in an increase
   or decrease of the capital requirements, competent authorities must oblige their credit
   institution to use a consistent treatment.
   (c) Effects of recognition
   (i) Contracts for novation
   The single net amounts fixed by contracts for novation, rather than the gross amounts
   involved, may be weighted. Thus, in the application of method 1, in
   –         step (a): the current replacement cost, and in
   –         step (b): the notional principal amounts or underlying values
   may be obtained taking account of the contract for novation. In the application of method 2, in
   step (a) the notional principal amount may be calculated taking account of the contract for
   novation; the percentages of Table 2 must apply.
   (ii) Other netting agreements
   In application of method 1:
   –         in step (a) the current replacement cost for the contracts included in a netting
             agreement may be obtained by taking account of the actual hypothetical net
             replacement cost which results from the agreement; in the case where netting leads to
             a net obligation for the credit institution calculating the net replacement cost, the
             current replacement cost is calculated as «0»,
EN                                                162                                                 EN
 ---pagebreak---    –        in step (b) the figure for potential future credit exposure for all contracts included in
            a netting agreement may be reduced according to the following equation: PCEred =
            0.4 * PCEgross + 0.6 * NGR * PCEgross
   where:
   —     PCEred        =      the reduced figure for potential future credit exposure for all
                              contracts with a given counterparty included in a legally valid
                              bilateral netting agreement
   —     PCEgross      =      the sum of the figures for potential future credit exposure for all
                              contracts with a given counterparty which are included in a legally
                              valid bilateral netting agreement and are calculated by multiplying
                              their notional principal amounts by the percentages set out in Table 1
   —     NGR           =      «net-to-gross ratio»: at the discretion of the competent authorities
                              either:
                              (i)       separate calculation: the quotient of the net replacement
                                        cost for all contracts included in a legally valid bilateral
                                        netting agreement with a given counterparty (numerator)
                                        and the gross replacement cost for all contracts included in
                                        a legally valid bilateral netting agreement with that
                                        counterparty (denominator), or
                              (ii)      aggregate calculation: the quotient of the sum of the net
                                        replacement cost calculated on a bilateral basis for all
                                        counterparties taking into account the contracts included in
                                        legally valid netting agreements (numerator) and the gross
                                        replacement cost for all contracts included in legally valid
                                        netting agreements (denominator).
                                        If Member States permit credit institutions a choice of
                                        methods, the method chosen is to be used consistently.
   For the calculation of the potential future credit exposure according to the above formula
   perfectly matching contracts included in the netting agreement may be taken into account as a
   single contract with a notional principal equivalent to the net receipts. Perfectly matching
   contracts are forward foreign-exchange contracts or similar contracts in which a notional
   principal is equivalent to cash flows if the cash flows fall due on the same value date and fully
   or partly in the same currency.
   In the application of method 2, in step (a)
   –        perfectly matching contracts included in the netting agreement may be taken into
            account as a single contract with a notional principal equivalent to the net receipts,
            the notional principal amounts are multiplied by the percentages given in Table 2,
   –        for all other contracts included in a netting agreement, the percentages applicable
            may be reduced as indicated in Table 3:
EN                                                  163                                               EN
 ---pagebreak---                                                        TABLE 3
                Original maturity41                             Interest-rate              Foreign-exchange
                                                                  contracts                     contracts
   One year or less                                       0.35%                       1.50%
   More than one year but not more than two 0.75%                                     3.75%
   years
   Additional allowance for each additional               0.75%                       2.25%
   year
                                                                              2000/12/EC
                                                      ANNEX IV
                                                                              2000/12/EC
                                                                              new
                TYPES OF OFF-BALANCE-SHEET ITEMS                                DERIVATIVES 
                                                                              2000/12/EC (adapted)
   1. Interest-rate contracts:
   (a)     single-currency interest rate swaps;
   (b)     basis-swaps;
   (c)     forward rate agreements;
   (d)     interest-rate futures;
   (e)     interest-rate options purchased;
   (f)     other contracts of similar nature.
   2. Foreign-exchange contracts and contracts concerning gold:
   (a)     cross-currency interest-rate swaps;
   (b)     forward foreign-exchange contracts;
   (c)     currency futures;
   (d)     currency options purchased;
   41
           In the case of interest-rate contracts, credit institutions may, subject to the consent of their competent
           authorities, choose either original or residual maturity.
EN                                                         164                                                        EN
 ---pagebreak---    (e)     other contracts of a similar nature;
   (f)     contracts concerning gold of a nature similar to (a) to (e).
   3. Contracts of a nature similar to those in points 1(a) to (e) and 2(a) to (d) concerning other
   reference items or indices concerning:
   (a)     equities;
   (b)     precious metals except gold;
   (c)     commodities other than precious metals;
   (d)     other contracts of a similar nature. Step (b): to obtain a figure for potential future
   credit exposure42, the notional principal amounts or underlying values are multiplied by the
   following percentages:
   42
           Except in the case of single-currency «floating/floating» interest rate swaps in which only the current
           replacement cost will be calculated.
EN                                                      165                                                        EN
 ---pagebreak---                                                                      new
                                           ANNEX V TO XII
   [OMISSIS]
                                                                     new
                                              ANNEX XIII
   PART A
   REPEALED           DIRECTIVES           TOGETHER          WITH         THEIR        SUCCESSIVE
   AMENDMENTS
   (referred to in Article 158)
   Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000
   relating to the taking up and pursuit of the business of credit institutions
   Directive 2000/28/EC of the European Parliament and of the Council of 18 September 2000
   amending Directive 2000/12/EC relating to the taking up and pursuit of the business of credit
   institutions
   Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002
   on the supplementary supervision of credit institutions, insurance undertakings and
   investment firms in a financial conglomerate and amending Council Directives 73/239/EEC,
   79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and
   2000/12/EC of the European Parliament and of the Council,
             Only Art. 29.1(a)(b), Art. 29.2,, Art. 29.4(a)(b), Art. 29.5, Art. 29.6, Art. 29.7 (a) (b),
             Art. 29.8, Art. 29.9, Art. 29.10, Art. 29.11
   Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on
   markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and
   Directive 2000/12/EC of the European Parliament and of the Council and repealing Council
   Directive 93/22/EEC
             Only Art. 68
   Commission Directive 2004/69/EC of 27 April 2004 amending Directive 2000/12/EC of the
   European Parliament and of the Council as regards the definition of "multilateral development
   banks" (Text with EEA relevance)
   Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on
   amending Council Directives 73/239/EEC, 85/611/EEC, 91/675/EEC, 92/49/EEC, 93/6/EEC
   and 94/19/EC and Directives 98/78/EC, 2000/12/EC, 2001/34/EC, 2002/83/EC and
   2002/87/EC, in order to establish a new financial services committee organisational structure.
             Only Article 3
EN                                                  166                                                  EN
 ---pagebreak---    NON-REPEALED MODIFICATIONS
            Act of accession 2003
   PART B
   DEADLINES FOR IMPLEMENTATION
   (referred to in Article 158)
                   Directive          Deadline for implementation
     Directive 2000/12/EC                         -----
     Directive 2000/28/EC                      27.4.2002
     Directive 2002/87/EC,                     11.8.2004
     Directive 2004/39/EC                  Not yet available
     Directive 2004/69/EC                      30.6.2004
     Directive 2004/xx/EC                  Not yet available
EN                                167                             EN
 ---pagebreak---                                                      ANΝΕΧ XIV
                                            CORRELATION TABLE
     This Directive        Directive         Directive        Directive     Directive     Directive
                         2000/12/EC        2000/28/EC       2001/87/EC     2004/69/EC   2004/xx/EC
   Article 1           Article 2(1) and
                       (2)
   Article 2(1)        Article 2(3)
                       Act            of
                       Accession
   Article 2(2)        Article 2(4)
   Article 3           Article 2(5) and
                       (6)
   Article 3 (1) final                                                                Article 3.2
   sentence
   Article 4.1 (1)     Article 1(1)
   Article 4.1 (2) to                    Article 1(2) to
   (5)                                   (5)
   Article 4.1 (7) to                    Article 1(6) to
   (9)                                   (8)
   Article 4 .1 (10)                                      Article 29.1 (a)
   Article 4.1 (11) to Article 1 (10),
   (14)                (12) and (13)
   Article 4.1 (21)                                       Article 29.1 (b)
   and (22)
   Article 4.1 (23)    Article 1 (23)
   Article 4.1 (45 to  Article 1 (25 to
   (47)                (27)
   Article 4 .2        Article      1(1)
                       second       sub-
                       paragraph
   Article 5           Article 3
   Article 6           Article 4
   Article 7           Article 8
   Article 8           Article 9
   Article 9 (1)       Article 5(1) and
                       1(11)
   Article 9 (2)       Article 5(2)
EN                                                       168                                        EN
 ---pagebreak---    Article 10         Article 5 (3) to
                      (7)
   Article 11         Article 6
   Article 12         Article 7
   Article 13         Article 10
   Article 14         Article 11
   Article 15 (1)     Article 12
   Article 15 (2) and                     Article 29.2
   (3)
   Article 16         Article 13
   Article 17         Article 14
   Article 18         Article 15
   Article 19 (1)     Article 16 (1)
   Article 19 (2)                         Article 29.3
   Article 20         Article 16(3)
   Article 21         Article 16 (4) to
                      (6)
   Article 22         Article 17
   Article 23         Article 18
   Article 24 (1)     Article         19
                      paragraphs     (1)
                      to (3)
   Article 24 (2)     Article         19
                      paragraph (6)
   Article 24 (3)     Article         19
                      paragraph (4)
   Article 25 (1) to  Article 20 (1) to
   (3)                (3) 1 and 2 sub-
                      paragraph
   Article 25 (3)     Article         19
                      paragraph (5)
   Article 25 (4)     Article 20 (3) 3
                      sub-paragraph
   Article 26         Article 20 (4) to
                      (7)
   Article 27         Article 1      (3)
                      final clause
   Article 28         Article 21
EN                                       169           EN
 ---pagebreak---    Article 29         Article 22
   Article 30         Article 22 (2) to
                      (4)
   Article 31         Article 22 (5)
   Article 32         Article 22 (6)
   Article 33         Article 22 (7)
   Article 34         Article 22 (8)
   Article 35         Article 22 (9)
   Article 36         Article 22 (10)
   Article 37         Article 22 (11)
   Article 38         Article 24
   Article 39 (1) and Article 25
   (2)
   Article 39 (2)                           Article 3.8
   Article 40         Article 26
   Article 41         Article 27
   Article 42         Article 28
   Article 43         Article 29
   Article 44         Article 30(1) to
                      (3)
   Article 45         Article 30(4)
   Article 46         Article 30(3)
   Article 47         Article 30(5)
   Article 48         Article     30(6)
                      and (7)
   Article 49         Article 30(8)
   Article 50         Article 30(9) 1
                      and             2
                      paragraphs
   Article 51         Article 30(9) 3
                      paragraph
   Article 52         Article 30(10)
   Article 53         Article 31
   Article 54         Article 32
   Article 55         Article 33
EN                                      170             EN
 ---pagebreak---    Article 56         Article 34(1)
   Article 57         Article 34(2) 1    Article 29.4(a)
                      paragraph
                      Article     34(1)
                      point 2 final
                      sentence
   Article 58                            Article 29.4 (b)
   Article 59                            Article 29.4 (b)
   Article 60                            Article 29.4 (b)
   Article 61         Article     34(3)
                      and (4)
   Article 63         Article 35
   Article 64         Article 36
   Article 65         Article 37
   Article 66 (1) and Article 38 (1)
   (2)                and (2)
   Article 67         Article 39
   Article 73         Article 52(3)
   Article 106        Article 1(24)
   Article 107        Article 1(1) 3
                      sub-paragraph
   Article 108        Article 48(1)
   Article 109        Article 48 (4) 1
                      paragraph
   Article 110        Article 48(2) to
                      (4)2         sub-
                      paragraph
   Article 111        Article 49 (1) to
                      (5)
   Article 113 (1) to Article 49 (4)
   (3)                (6) and (7)
   Article 115 (1)    Article     49(8)
   and (2)            and (9)
   Article 116        Article 49(10)
   Article 117        Article 49(11)
   Article 118        Article 50
   Article 120        Article
                      51(1)(2)(5)
EN                                      171               EN
 ---pagebreak---    Article 121         Article 51(4)
   Article 122 (1)     Art. 51 (6)        Article 29(5)
   and (2)
   Article 125         Article     53(1)
                       and (2)
   Article 126         Article 53 (3)
   Article 128         Article 53(5)
   Article 133 (1)     Article 54(1)      Article 29(7)(a)
   Article 133 (2)     Article 54 (2)
   and (3)             and (3)
   Article 134(1)      Article     54(4)
                       first paragraph
   Article 134 (2)     Article     54(4)
                       second
                       paragraph
   Article 135                            Article 29(8)
   Article 137         Article     55(1)
                       and (2)
   Article 138                            Article 29(9)
   Article 139         Article 56(1) to
                       (3)
   Article 140         Article 56(4) to
                       (6)
   Article 141         Article 56 (7)     Article 29(10)
   Article 142         Article 56(8)
   Article 143                            Article 29(11)              Art. 3.10
   Article 150         Article 60(1)
   Article 151         Article 60(2)                                  Art. 3.10
   Article 158         Art. 67
   Article 159         Art. 68
   Article 160         Article 69
   Annex I             Annex I
   Annex     I   final                                     Article 68
   clause
   Annex II            Annex II
   Annex III           Annex III
EN                                       172                                    EN
 ---pagebreak---    Annex IV Annex IV
EN                   173 EN
 ---pagebreak--- EN 174 EN