No L 124/16 Official Journal of the European Communities 5.5.89 COUNCIL DIRECTIVE of 17 April 1989 on the own funds of credit institutions (897299/EEC) THE COUNCIL OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Economic Community, and in particular the first and third sentences of Article 57 (2) thereof, Having regard to the proposal from the Commission (1), In cooperation with thé European Parliament (2), Having regard.to the opinion of the Economic and Social Committee (3), : Whereas common basic standards for the own funds of credit institutions are a key factor in the creation of an internal market in the banking sector since own funds serve to ensure the continuity of credit institutions and to protect savings; whereas such harmonization will strengthen the supervision - of credit institutions and contribute to further coordination in the banking sector, in particular the supervision of major risks and solvency ratios; Whereas such standards must apply to all credit institutions authorized in the Community; Whereas the own funds of a credit institution can serve to absorb losses which are not matched by a sufficient volume of profits; whereas 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; Whereas credit institutions in a common banking market engage in direct competition with each other, and the definitions and standards pertaining to own funds must therefore be equivalent; whereas, to that end, the criteria for determining the composition of own funds must not be left solely to Member States; whereas the adoption of common basic standards will be in the best interests of the Community in that it will prevent distortions of competition and will strengthen the Community banking system; Whereas the definition 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; (1) OJ No C 243, 27. 9. 1986, p. 4 and O] No C 32, 5. 2. 1988, p. 2. (?) O] No C 246, 14.9.1987, p. 72 and Of No C 96, 17. 4. 1989. (%) O] No C 180, 8. 7. 1987, p. 51. Whereas this: Directive specifies the qualifying criteria for certain own funds items, and the Member States remain free to apply more stringent provisions; Whereas 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; Whereas, 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; - Whereas it is recognized that due to the special nature of the fund for general banking risks, this item is to be included provisionally in own funds without limit; whereas, however, a decision on its final treatment will have to be taken as soon as possible after the implementation of the Directive; whereas that decision will have to take into account the results of discussions in international fora; Whereas, 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 not exceed the original own funds; whereas, . . moreover, the amount of certain items of additional own funds included must not exceed one-half of the original own funds;- Whereas, in order to avoud distortions of competition, public credit institutions must not include in their own funds guarantees granted them by the Member States or local authorities; whereas, however, the Kingdom of Belgium should be granted a transitional period up to 31 December 1994 in order to permit the institutions concerned to adjust to the new conditions by reforming their statutes; Whereas whenever in the course of supervision it is necessary to determine the amount of the consolidated own funds of a group of credit institutions, that calculation shall be effected in accordance with Council Directive- 83/350/EEC of 13 June 1983-on the supervision of credit institutions on a consolidated basis (4); whereas that Directive leaves the Member States scope to interpret the technical details of its application, and that scope should be in keeping with the spirit of this Directive; whereas the former Directive is currently being revised to achieve greater harmonization; (*) O] No L 193, 18. 7. 1983, p. 18.