Secretariat of the Interministerial Committee for Credit and Savings

The Minister of Economy and Finance

President of the Interministerial Committee for Credit and Savings

SM/MM 933

HAVING REGARD TO Legislative Decree 1 September 1993, No. 385, containing the Consolidated Law on Banking and Credit Regulations (TUB);

HAVING REGARD TO Directives 2006/48/EC and 2006/49/EC of the European Parliament and of the Council of 14 June 2006, concerning the taking up and pursuit of the business of credit institutions and the own-funds requirements of credit institutions and investment firms, which are to be transposed into the national legal order by 31 December 2006;

HAVING REGARD TO the Decree-Law adopted by the Council of Ministers in its meeting of 22 December 2006, which, inter alia, introduces modifications and additions to the TUB for the transposition of the aforementioned directives;

HAVING REGARD TO, in particular, the following provisions of the TUB:

• Articles 53, paragraph 1, letters a), b), d) and d-bis), and 67, paragraph 1, letters a), b), d) and e), which provide that the Bank of Italy, in conformity with the resolutions of the CICR, issues provisions addressed to banks and banking groups concerning, inter alia, own-funds requirements, risk containment in its various configurations, administrative and accounting organization and internal controls, as well as information to be provided to the public on the aforementioned matters;
• Articles 53, paragraph 2, and 67, paragraph 2, which establish that provisions issued by the Bank of Italy may provide that certain operations are subject to authorization by the Bank of Italy itself;
• Articles 53, paragraph 2-bis, and 67, paragraph 2-bis, which establish that provisions of the Bank of Italy concerning the own-funds requirements of banks and banking groups may provide for the possibility of using: a) credit risk assessments issued by external companies or bodies, regulating the requirements of such subjects and the related methods of verification by the Bank of Italy; b) internal risk measurement systems, subject to authorization by the Bank of Italy. For banks and groups subject to the consolidated supervision of an authority in another Member State, the decision is the competence of the same authority if no joint decision with the Bank of Italy is adopted within six months from the submission of the authorization request;

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The Minister of Economy and Finance President of the Interministerial Committee for Credit and Savings

• Article 59, paragraph 1, letter b), pursuant to which the Bank of Italy, in conformity with the resolutions of the CICR, identifies the characteristics of the holdings assumed by "financial companies" for the definition of the notion of the latter within the scope of the banking group regulation;
• Article 60, paragraph 1, letter b), pursuant to which the banking group is composed of the parent financial company and the banking, financial, and instrumental companies controlled by it, when among all the companies controlled by it there is at least one bank and the banking and financial ones have decisive relevance, as established by the Bank of Italy in conformity with the resolutions of the CICR;
• Article 107, paragraph 2, which provides that the Bank of Italy, in conformity with the resolutions of the CICR, issues provisions addressed to intermediaries listed in the special register concerning, inter alia, own-funds requirements and risk containment in its various configurations, administrative and accounting organization and internal controls, as well as information to be provided to the public on the aforementioned matters;
• Article 107, paragraph 2-bis, which establishes that the provisions of the Bank of Italy pursuant to paragraph 2 of the same article provide that financial intermediaries listed in the special register may use: a) credit risk assessments issued by companies or bodies provided for in Article 53, paragraph 2-bis, letter a), of the TUB; b) internal risk measurement systems for the determination of the capital requirement, subject to authorization by the Bank of Italy;

HAVING REGARD TO the Urgent Decree of the Minister of the Treasury - President of the CICR of 7 December 1991, No. 436154, containing "Criteria for the assessment of the decisive relevance, among the subjects controlled by the parent company, of those exercising banking, financial and instrumental activities";

HAVING REGARD TO the Decree of the Minister of the Treasury - President of the CICR of 22 June 1993, No. 242630, on the matter of "Despecialization of credit institutions. Medium and long-term operations";

HAVING REGARD TO the CICR Resolution of 12 January 1994 on the matter of "Supervisory capital and solvency ratio of banks and banking groups";

ON PROPOSAL formulated by the Bank of Italy;

DEEMING the urgency, pursuant to Article 3, paragraph 2, TUB;

D E C R E E S

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The Minister of Economy and Finance President of the Interministerial Committee for Credit and Savings

Article 1 (Scope of Application)

1. Banking groups, banks, and financial intermediaries indicated in Article 8 are required to establish and maintain capital requirements against the different types of risk and to observe the obligations provided for by this decree, as established by the implementing provisions issued by the Bank of Italy, in conformity with Community legislation.

2. The provisions referred to in paragraph 1 may provide that attenuated prudential rules regarding capital requirements and risk concentration apply to banks that are part of a banking group that meets the requirements on a consolidated basis.

Article 2 (Banking Group)

1. The Bank of Italy identifies the characteristics of the holdings assumed by companies, for the purposes of qualifying them as financial companies relevant for the regulation of the banking group, and establishes the criteria for the decisive relevance of the aggregate of the banking and financial subsidiaries of a financial parent company, for the configuration of a banking group, having regard to the needs for the effectiveness of the exercise of supervision over the group and all its components and for the limitation of burdens on supervised subjects.

2. For the purposes referred to in paragraph 1, the provisions set out, inter alia, criteria suitable to: a) avoid, in harmony with Community legislation, the coincidence in the same holding company of the role of banking parent company and of mixed financial holding company, as defined by Article 1, paragraph 1, letter v) of Legislative Decree 30 May 2005, No. 142, on financial conglomerates; b) allow, in coordination with insurance legislation, the unique identification of the prevalence of banking nature holdings over insurance nature holdings for the purposes of including the holding company in the banking group.

Article 3 (Capital Requirements against Credit and Counterparty Risks)

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The Minister of Economy and Finance President of the Interministerial Committee for Credit and Savings

1. The provisions referred to in Article 1 regulate the methods for determining capital requirements against credit exposures according to calculation methodologies that take into account the riskiness of the counterparty, the technical form of the exposure, and the use of risk mitigation techniques.

2. For the determination of the requirements referred to in paragraph 1, banks may use creditworthiness assessments expressed by specialized external subjects. The provisions referred to in Article 1 regulate, in harmony with Community legislation and taking into account the indications elaborated at the European level, the requirements of such subjects and the procedures for the recognition for prudential purposes of the assessments expressed by them, providing inter alia: a) that the same subjects

• are legal entities;
• have significant experience in creditworthiness assessment activities;
• have a high reputation at the international level or demonstrate that a significant number of banks having headquarters in different areas of the national territory intend to use their ratings within the standardized method;
• ensure the accuracy of the information provided, also through the attestation of a third-party subject;
• set up adequate forms of publicity of conflicts of interest; b) the cases in which the use of ratings issued without request by the assessed subject is allowed; c) the possibility of recognizing an external credit rating agency taking into account the investigation carried out in cooperation with other supervisory Authorities of the European Union or based on the recognition effected by another supervisory Authority of the European Union.

3. For the determination of the requirements referred to in paragraph 1, the data collected and the models used by the bank or banking group may be employed. The provisions referred to in Article 1 establish organizational and quantitative requirements for the internal systems used for this purpose and condition the use thereof for prudential purposes to the prior authorization of the Bank of Italy.

4. The provisions referred to in Article 1 establish conditions and legal, economic, and organizational requirements for the recognition for prudential purposes of instruments and techniques that allow risk attenuation, also determining the methods for reducing capital requirements against exposures, and regulate the methods for calculating capital requirements in relation to securitization operations.

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The Minister of Economy and Finance President of the Interministerial Committee for Credit and Savings

5. Banks adhering to a protection system, established on the basis of a contractual agreement for mutual protection against illiquidity and insolvency risks with the aim of preventing or avoiding the crisis of each of them, may be exempted from the application of capital requirements against credit exposures internal to the system. The provisions referred to in Article 1 establish the requirements for the exemption and set conditions aimed at ensuring the compatibility of said systems with the regulation of banking crises and with the exercise of supervisory functions.

6. The prudential treatment provided for exposures to banking counterparties also applies to exposures of a bank or banking group towards the financial intermediaries referred to in Article 8, or to exposures guaranteed by them.

7. The provisions referred to in Article 1 regulate for prudential purposes the guarantees issued by collective guarantee consortia for credit guarantees (confidi), referred to in Article 13 of Decree-Law 30 September 2003, No. 269, converted into law, with modifications, by Law 24 November 2003, No. 326, taking into account the legal form in which such subjects are constituted and the characteristics of the guarantees issued.

Article 4 (Capital Requirements against Market Risks)

1. The provisions referred to in Article 1 regulate the methods for determining capital requirements against risks connected to variations in interest rates, exchange rates, prices of financial instruments, and commodity prices, as well as to the settlement of operations involving financial instruments, currencies, or commodities.

2. For the determination of the capital requirements referred to in paragraph 1, the data collected and the models used by the bank or banking group may be employed. The provisions referred to in Article 1 establish organizational and quantitative requirements for the internal systems used for this purpose and condition the use thereof for prudential purposes to the prior authorization of the Bank of Italy.

Article 5 (Capital Requirements against Operational Risks)

1. The provisions referred to in Article 1 regulate the methods for determining capital requirements against operational risk, understood as the risk of losses deriving from the inadequacy or malfunction of procedures, human resources, and internal systems, or from exogenous events, including legal risk. The

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The Minister of Economy and Finance President of the Interministerial Committee for Credit and Savings

same provisions may provide that the use of different regulatory methods for determining requirements is conditioned to certain size or operational specialization characteristics of the bank or banking group.

2. For the determination of the capital requirements referred to in paragraph 1, the data collected and the models used by the bank or banking group may be employed. The provisions referred to in Article 1 establish organizational and quantitative requirements for the internal systems used for this purpose and condition the use thereof for prudential purposes to the prior authorization of the Bank of Italy.

Article 6 (Prudential Supervision Process)

1. The provisions referred to in Article 1 regulate the scope and requirements of the internal process by which the subjects referred to in Article 1 assess their own capital adequacy, also with reference to risks other than those covered by the requirements determined pursuant to the preceding articles. The provisions take into account, for this purpose, the size, characteristics, and operational complexity of banks and banking groups and may provide for simplified methodologies usable by intermediaries of smaller size and complexity.

2. The provisions referred to in paragraph 1 establish the minimum periodicity of the internal assessment process and regulate information obligations towards the Bank of Italy, in order to allow the review of the process and the assessment of the capital adequacy of the bank and banking group, as well as the adoption of specific measures pursuant to Articles 53, paragraph 3, letter d), and 67, paragraphs 1 and 2-ter, of the TUB.

Article 7 (Public Information)

1. The provisions referred to in Article 1 regulate the information to be provided to the public on the capital and risk situation, as well as on the methods used for risk management, providing methods that favor the usability and comparability of information.

2. The provisions referred to in paragraph 1 identify the public information obligations that constitute a condition for the recognition for prudential purposes of internal systems for the determination of capital requirements against credit and operational risks, as well as of credit risk mitigation techniques.

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The Minister of Economy and Finance President of the Interministerial Committee for Credit and Savings

3. The provisions referred to in paragraph 1 may provide public information obligations for banks and parent companies of significant size belonging to a foreign banking group.

Article 8 (Equivalent Supervision Regime)

1. The provisions of the Bank of Italy establish for financial intermediaries listed in the special register referred to in Article 107 of the TUB, or for certain categories thereof, a supervision regime equivalent to that provided for banks pursuant to this decree, according to criteria of gradualness and proportionality and taking into account the significance of the different risk configurations of the intermediaries in relation to the activity carried out and to organizational and size characteristics. The Bank of Italy retains the right to issue specific provisions for financial intermediaries regarding the risks characterizing their activity.

2. For the purposes referred to in paragraph 1, the Bank of Italy also issues provisions aimed at achieving, according to criteria of gradualness, the convergence of the risk concentration limits assumed by financial intermediaries with those applicable to banks.

Article 9 (Branches of Non-Community Banks Established in Italy)

1. The provisions referred to in Article 1 establish, towards branches in Italy of non-Community banks, the application of the same prudential regime provided for Italian banks not belonging to a banking group. The Bank of Italy has the right to exempt, with general or specific provisions, from one or more prudential rules, branches whose activity is subject in their respective countries of origin to supervisory instruments equivalent to those provided for Italian banks, taking into account reciprocity relations.

Article 10 (Transitional and Final Provisions)

1. Unless otherwise provided by the following paragraphs, the following are repealed as of the entry into force of the Bank of Italy provisions implementing this decree:

• Articles 5, 6, 7, and 8 of the CICR Resolution of 12 January 1994 referred to in the preamble;
• The Decree of the Minister of the Treasury of 22 June 1993 referred to in the preamble;
• The Decree of the Minister of the Treasury of 7 December 1991 referred to in the preamble.

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The Minister of Economy and Finance President of the Interministerial Committee for Credit and Savings

2. Until 1 January 2008, in respect of banks and banking groups that opt for maintaining the prudential regime regulated by the resolution referred to in the first paragraph of paragraph 1, the provisions indicated therein and those on market risks contained in the measure referred to in the second paragraph, together with the related implementing instructions of the Bank of Italy, continue to be effective. Until the same date, the provisions issued by the Bank of Italy pursuant to Articles 3 to 7 do not apply to such banks.

3. In order to achieve conditions of gradualness in the application of the new prudential regime, the Bank of Italy may provide that the provisions issued pursuant to the measures indicated in paragraph 1, first and second paragraphs, continue to be effective.

4. This decree becomes effective as of the entry into force of the Decree-Law adopted by the Council of Ministers in the meeting of 22 December 2006, referred to in the preamble.

This decree will be published in the Official Gazette of the Italian Republic.

Rome, 27 December 2006

THE MINISTER (Signature)