CICR and Emergency DM Deliberation - Deliberation of 12 January 1994

Rome, dated Ministry of the Treasury Via XX Settembre, 97

Interministerial Committee for Credit and Savings

SECRETARIAT

DELIBERATION 12 January 1994

Supervisory capital and solvency ratio of banks and banking groups.

THE INTERMINISTERIAL COMMITTEE FOR CREDIT AND SAVINGS

Having regard to Directive 89/299/EEC of 17 April 1989, concerning the own funds of credit institutions, as amended by Directive 92/16/EEC of 16 March 1992, and to Directive 91/633/EEC of 3 December 1991, laying down provisions implementing Directive 89/299/EEC as well as to Directive 89/647/EEC of 18 December 1989, concerning the solvency ratio of credit institutions;

Having regard to Articles 53, paragraph 1, and 67, paragraph 1, of Legislative Decree No. 385 of 1 September 1993, containing the consolidated text of laws on banking and credit matters, which provide that the Bank of Italy, in compliance with the deliberations of the Interministerial Committee for credit and savings, issues provisions of a general nature concerning the adequacy of capital and the containment of risk in its various configurations, respectively, of banks and banking groups;

Having regard to Article 65, paragraph 1, of Legislative Decree 385/93, which defines the subjects included within the scope of supervision on a consolidated basis;

Having regard to Article 161, paragraph 2, of Legislative Decree 385/93, which confirms the repeal of both Legislative Decree 10 September 1991, No. 302, implementing Directive 89/299/EEC - with the exception of the tax discipline provided for by Article 2, paragraph 5 - and of Legislative Decree 10 September 1991, No. 301 implementing Directive 89/647/EEC;

Having regard to Article 10 of Directive 89/646/EEC, which provides, inter alia, that the own funds of a bank cannot fall below the initial capital

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Rome, dated Ministry of the Treasury Via XX Settembre, 97

Interministerial Committee for Credit and Savings

SECRETARIAT

required by virtue of Article 4 of the same Directive at the time of authorization and that Member States have the option to decide that banks, already existing at the time of application of the Directive and whose own funds do not reach the levels fixed by Article 4 for initial capital, may continue their activities;

Having regard to the Decree of the Minister of the Treasury No. 435584 of 2 May 1992, containing provisions regarding the reference asset aggregate to be used in the discipline of supervisory tools linked to capital and not harmonized;

D E L I B E R A T I O N

ART. 1

(Scope of application)

1. This deliberation sets out the criteria to which the Bank of Italy adheres for the drafting of instructions on supervisory capital and solvency ratio, at both individual and consolidated levels, for banks authorized in Italy, identified by Article 1, paragraph 2, letter d), of Legislative Decree 385/93, and for aggregations of subjects included within the scope of consolidated supervision, pursuant to Article 65, paragraph 1, of the same Legislative Decree.

Section I

(Supervisory Capital)

ART. 2

(Composition)

1. Supervisory capital, determined in confor- mity with the provisions of Directive 89/299/EEC, is used in the application of supervisory rules that implement Community harmonization

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Rome, dated Ministry of the Treasury Via XX Settembre, 97

Interministerial Committee for Credit and Savings

SECRETARIAT

dispositions. The Bank of Italy will take into account any technical adaptations that may be made at the Community level to the aforementioned Directive according to the procedures provided for by Directive 92/16/EEC.

2. The Bank of Italy's instructions provide for the positive and negative aggregates that contribute to deter- mining supervisory capital, taking into account Community prescriptions; they also identify the com- ponents of each aggregate and their relative values based on the rules on accounts contained in Legislative Decree 27 January 1992, No. 87 and in the administrative acts indicated by Article 5 of such Decree.

3. For the purpose of safeguarding the function of supervisory capital as a guarantee of banking stability and with the aim of improving the homogeneity of methods of determination, the instructions may provide for the exclusion of positive aggregates or components, the inclusion of negative aggregates or components as well as the correction of values. The inclusion of positive aggregates or components not permitted by Community directives cannot be provided for.

4. Among the components of supervisory capital, non-redeemable liabilities or those repayable only with the consent of the Bank of Italy may be included, with the consent of the Bank of Italy and within the limits set by it, in any case up to the maximum amount of sums actually paid, when the relevant contract provides for the following conditions:

a) that, in the event of losses in the financial statements that determine a decrease in paid-in capital and reserves below the minimum level of capital required for authorization to carry out banking activity, the sums arising from the aforementioned liabilities and accrued interest may be used to cover losses, in order to allow the issuing bank to continue its activity;

b) that, in the event of negative management trends, the right to remuneration may be suspended to the extent necessary to avoid or limit as much as possible

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Rome, dated Ministry of the Treasury Via XX Settembre, 97

Interministerial Committee for Credit and Savings

SECRETARIAT

the emergence of losses;

c) that, in the event of liquidation of the issuing bank, the debt is repaid only after all other creditors not equally subordinated have been satisfied.

5. Subordinated liabilities presenting the characteristics indicated by the previous paragraph may be included, with the consent of the Bank of Italy and within more restrictive limits than those fixed by paragraph 4, with the exception of the conditions of letters a) and b), provided that the relevant contract provides for the maturity of the loan or a notice period of not less than five years. The optional early repayment right may be attributed only to the issuer and is subject to the no-objection of the Bank of Italy.

6. Even in the presence of the conditions indicated by paragraphs 4 and 5, the Bank of Italy may exclude or limit the inclusion in supervisory capital of the liabilities provided for in the aforementioned paragraphs based on evaluations, including case-by-case, founded on the contractual regulation or on the inadequate potential of the issuing bank.

7. The liabilities provided for in the preceding paragraphs may be issued by banks also in the form of bonds and other similar securities. The securities must reference, when present in the contract, the clause indicated by paragraph 4, letter a).

8. At least semi-annually, banks and banking groups calculate supervisory capital. The Bank of Italy determines the conditions under which banks and subjects included in consolidated supervision may contribute to the formation of supervisory capital profits accrued but not yet approved by the shareholders' meeting or by another body duly authorized for this purpose.

9. The Bank of Italy, in exceptional circumstances, as provided for by Directive 89/299/EEC, may authorize banks and subjects included in consolidated supervision, even individually, to temporarily

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Rome, dated Ministry of the Treasury Via XX Settembre, 97

Interministerial Committee for Credit and Savings

SECRETARIAT

derogate from the provisions on supervisory capital.

ART. 3

(Minimum level of supervisory capital)

1. Italian banks adhere to the instructions of the Bank of Italy regarding the minimum level of supervisory capital, which cannot be lower than the initial capital required for authorization to carry out banking activity.

2. The Bank of Italy may provide that the provisions of the previous paragraph also apply to branches of non-EU banks established in Italy.

ART. 4

(Repealed provisions)

1. The Decree of the Minister of the Treasury No. 435584 of 2 May 1992 is repealed.

Section II

(Solvency Ratio)

ART. 5

(Minimum capital requirements)

1. The Bank of Italy issues instructions aimed at establishing minimum capital requirements in confor- mity with Directive 89/647/EEC and to fix the relative calculation methodologies. Banks and aggregations of subjects included within the scope of consolidated supervision are required to comply with such requirements and to contain operations within the resulting limits.

2. At least semi-annually, banks and aggregations

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Rome, dated Ministry of the Treasury Via XX Settembre, 97

Interministerial Committee for Credit and Savings

SECRETARIAT

of subjects indicated in the previous paragraph transmit to the Bank of Italy, according to the methods fixed by it, the reports necessary to ascertain the possession of minimum capital requirements.

3. The Bank of Italy may provide, in particular cases, minimum capital requirements more restrictive than those determined generally.

ART. 6

(Structure of the solvency ratio)

1. The Bank of Italy's instructions provide for the observance of a solvency ratio, constituted by the ratio between supervisory capital and on-balance-sheet assets and off-balance-sheet operations, the former and the latter taken with defined weightings, taking into account the rules of Directive 89/647/EEC, in function of the risk of loss due to debtor default.

2. For the evaluation of assets and off-balance-sheet operations, the rules on accounts of credit and financial institutions must be observed. The Bank of Italy, in order to improve the homogeneity of reference data, may issue instructions aimed at providing specific calculation methodologies, chosen within the framework of the evaluation criteria indicated in Legislative Decree 27 January 1992, No. 87.

ART. 7

(Banks belonging to aggregations of subjects included within the scope of consolidated supervision)

1. For banks included in aggregations of subjects included within the scope of consolidated supervision, the Bank of Italy may require the observance of the solvency ratio also on a sub-consolidated or individual basis. Alternatively, measures suitable to ensure the adequate distribution of supervisory capital among such subjects are adopted.

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Rome, dated Ministry of the Treasury Via XX Settembre, 97

Interministerial Committee for Credit and Savings

SECRETARIAT

ART. 8

(Derogations)

1. The Bank of Italy may introduce derogations from the rules for calculating the solvency ratio, in respect of the conditions and limits provided for by Directive 89/647/EEC. The Ministry of the Treasury informs the Commission of the European Union of the use of such derogations.

Section III

(Common provisions on Supervisory Capital and Solvency Ratio)

ART. 9

(Branches of non-EU banks established in Italy)

1. The Bank of Italy has the option to exclude from the observance of the provisions of this deliberation the branches of non-EU banks established in Italy when their activities appear adequately subject to supervisory tools equivalent to those applied to Italian banks. To this end, the Bank of Italy takes into account both the existence and effectiveness of supervisory controls exercised by the competent authorities of the country of origin and the relations of reciprocity. The Bank of Italy may subordinate the exclusion to the existence of limits on the operations of branches established in Italy, with particular reference to forms of funding or assumption of risks.

2. The capital requirements that the Bank of Italy prescribes to branches of non-EU banks established in Italy cannot be more favorable than the minimum ones provided for by Directive 89/647/EEC.

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Rome, dated Ministry of the Treasury Via XX Settembre, 97

Interministerial Committee for Credit and Savings

SECRETARIAT

ART. 10

(Collaboration with other Authorities)

1. The Bank of Italy, for the purpose of applying capital requirements to banks operating in multiple countries also with subsidiaries, may agree with supervisory authorities of other countries forms of collaboration as well as the distribution of specific tasks.

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

Rome, 12.1.1994

The President P. Barucci