Solvency of Insurance Undertakings (Mueller-Report) - Eiopa

- 63 -AN N EX 32:1)81'65(48,5(0(176)25&5(',7,167,787,2161. GeneralThe principles for adequate provision of the credit institutions of the EU with own fundshave been laid down in Directive 89/ 647/ EEC of 18 December 1989 on a solvency ratiofor credit institutions (solvency Directive). The objective of the Directive is to harmonizeprudential supervision of the banking sector and to strengthen solvency standards tocontribute to the protection of both depositors and investors and to maintain bankingstability in Europe.The solvency Directive together with the second banking law coordination Directive(89/ 646/ EEC), the own funds Directive (89/ 299/ EEC), the Directive on large exposures(92/ 121/ EEC), the second consolidation Directive (92/ 30/ EEC) the Directive onInvestments Services (93/ 22/ EEC) and the Directive on the capital adequacy ofinvestment firms and credit institutions (93/ 6/ EEC) form the applicable legal frameworkfor the European credit institutions and investment firms. The objective of theseregulations is to enhance competition in the banking and investment services sectors andto secure equal chances for all those operating in the European internal market (levelplaying-field).2. Interaction of both own funds Directive and solvency Directive with regardto adequate own funds of credit institutions2.1 Introductory remarksThe own funds Directive lays down the qualitative requirements for the liable capital ofcredit institutions, while the solvency Directive deals with the solvency ratio which isconsidered a particularly suitable parameter for a bank’s own funds, the quantitative ownfunds requirements and thus the absolute level of the liable capital of which a creditinstitution must dispose for its day-to-day operations.The solvency ratio is the relation between the liable own funds of a credit institution and arisk asset weighted with a credit risk and off-balance-sheet items (art. 3 (1) of the solvencyDirective). It must not fall below 8% (art. 10 (1) of the solvency Directive); the sum ofrisk-weighted assets and off-balance-sheet items is, therefore, limited to 12.5 times theliable capital determined in accordance with the own funds Directive. The nationalsupervisory authorities are, however, entitled to fix a higher minimum ratio than 8% asthey consider appropriate and thus higher own funds requirements for the creditinstitutions subject to their supervision (art. 10 (2) of the solvency Directive).