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Annex 6: Overview of Deductions from Original Own Funds Across Europe

Core Content

This document provides an overview of the rules regarding deductions from original own funds in European countries, based on the Capital Requirements Directive (CRD) and other regulatory frameworks. The deductions are applied to ensure that the capital of banks and financial institutions is robust enough to absorb potential losses and meet prudential requirements.

Main Deductions Categories

The following are the main categories of deductions from original own funds:

1. Own Shares
2. Intangible Assets
3. Material Losses of the Current Year
4. Other Deductible Items

Each country has its own specific rules and exceptions regarding these categories.

Country-Specific Deductions

Own Shares

• Austria: Deducted indirectly through the reduction of own funds components in advance.
• Belgium: Deducted directly.
• Cyprus: Not allowed to hold or trade own shares.
• Czech Republic: Deducted directly.
• Denmark: Deducted indirectly (book value is 0).
• Estonia: Deducted directly, except for preferred shares treated as own shares.
• Finland: Deducted directly.
• France: Deducted directly.
• Germany: Deducted indirectly, with specific exclusions.
• Greece: Deducted directly.
• Hungary: Deducted indirectly.
• Ireland: Deducted directly.
• Italy: Deducted directly.
• Latvia: Deducted directly.
• Lithuania: Deducted directly.
• Luxembourg: Deducted directly.
• Malta: Deducted directly.
• Netherlands: Deducted directly.
• Norway: Deducted directly.
• Poland: Deducted directly.
• Portugal: Deducted directly.
• Slovakia: Deducted directly.
• Slovenia: Deducted directly.
• Spain: Deducted directly, with specific rules for subsidiaries and participations.
• Sweden: Deducted directly.
• United Kingdom: Deducted directly.

Intangible Assets

• Austria: Deducted directly.
• Belgium: Deducted directly.
• Cyprus: Deducted directly.
• Czech Republic: Deducted directly.
• Denmark: Deducted directly.
• Estonia: Deducted directly.
• Finland: Deducted directly.
• France: Deducted directly.
• Germany: Deducted directly.
• Greece: Deducted directly.
• Hungary: Deducted directly.
• Ireland: Deducted directly.
• Italy: Deducted directly.
• Latvia: Deducted directly.
• Lithuania: Deducted directly.
• Luxembourg: Deducted directly.
• Malta: Deducted directly.
• Netherlands: Deducted directly.
• Norway: Deducted directly.
• Poland: Deducted directly.
• Portugal: Deducted directly.
• Slovakia: Deducted directly.
• Slovenia: Deducted directly.
• Spain: Deducted directly.
• Sweden: Deducted directly.
• United Kingdom: Deducted directly.

Material Losses of the Current Year

• Austria: Deducted as net loss and substantial negative results.
• Belgium: Deducted all losses brought forward and interim losses.
• Cyprus: Deducted any losses.
• Czech Republic: Deducted directly.
• Denmark: Deducted directly.
• Estonia: Deducted any losses.
• Finland: Deducted directly.
• France: Deducted accumulated losses and losses determined on dates other than the end of the annual accounting period.
• Germany: Deducted directly.
• Greece: Deducted any losses.
• Hungary: Deducted all losses.
• Ireland: Deducted directly.
• Italy: Deducted losses of actual and previous years.
• Latvia: Deducted directly.
• Lithuania: Deducted any losses.
• Luxembourg: Deducted losses brought forward and interim losses.
• Malta: Deducted directly.
• Netherlands: Deducted directly.
• Norway: Deducted directly.
• Poland: Deducted net loss.
• Portugal: Deducted material losses brought forward from previous financial years and current year.
• Slovakia: Deducted any losses.
• Slovenia: Deducted net loss brought forward from previous years and net loss of the current financial year.
• Spain: Deducted any losses.
• Sweden: Deducted directly.
• United Kingdom: Deducted all interim net losses.

Other Deductible Items

• Belgium: Excludes potential charges, cash flow hedge reserves, gains/losses on own credit risk, and revaluation reserves on debt instruments.
• Cyprus: Excludes prior years' accumulated losses and bonus issue of share capital.
• Denmark: Excludes proposed dividends, deferred tax assets, and tax-related adjustments to Tier 1 and Tier 2 reserves.
• Finland: Excludes unpaid shares, 92% of cumulative gains from investment properties, changes in fair value of financial liabilities due to own credit risk, and items of retained earnings considered 'ear-marked'.
• France: Excludes pension commitments, unpaid capital, and revaluation differences on fixed assets (45% included in supplementary capital).
• Germany: Excludes BaFin-regulated elements, material losses from trading book positions, loans to shareholders, IFRS prudential filters, and net gains from securitisation.
• Italy: Excludes net cumulative capital gains on financial liabilities at fair value and negative reserves on available-for-sale securities.
• Malta: Excludes shares issued by capitalisation of property revaluation reserve, unrealised fair value movements on designated at inception financial instruments, net gains from securitisation, and excess on innovative instruments.
• Portugal: Excludes insufficient building up of provisions and deferred costs regarding post-employment benefits.
• Slovakia: Excludes expected on-balance sheet and off-balance sheet asset losses, start-up expenses, and equity investments in shareholders with 5% or more.
• Slovenia: Excludes impairments of financial assets measured at amortised cost, differences between declared and regulatory impairments, and other items related to own shares, intangible assets, and losses.
• Spain: Excludes loans to third parties for share acquisition, preferential shares issued by foreign subsidiaries, and participaciones preferentes exceeding certain thresholds.
• Sweden: Excludes deferred tax assets.
• United Kingdom: Excludes excess of drawings over profits for partnerships and net losses on equities held in available-for-sale category.

Key Information

• Original own funds are adjusted for various items to reflect the true capital available for risk absorption.
• Deductions are typically based on regulatory and accounting rules, and some countries apply specific prudential filters or exclusions.
• Intangible assets and own shares are generally deductible, except in countries like Cyprus where own shares are not allowed.
• Material losses are a key factor in many countries, with varying definitions (e.g., net loss, accumulated losses, etc.).
• Other deductible items include provisions, revaluation reserves, deferred tax assets, and specific financial instruments, depending on the country.
• Prudential filters are applied in some countries (e.g., France, Malta, Portugal) to ensure capital adequacy.

Conclusion

The document outlines the regulatory framework for adjusting original own funds in European countries, emphasizing the importance of deducting certain items to ensure financial institutions have sufficient capital to withstand losses and meet prudential requirements. The rules vary significantly by country, reflecting different regulatory approaches and accounting practices.