ITALY SETS BANK CAPITAL ADEQUACY REQUIREMENTS
The Bank of Italy issued details of new
bank capital adequacy requirements due to come into force in
June, in a central bank circular.
    The Bank of Italy circular follows an interministerial
committee decision last December to introduce minimum capital
adequacy requirements for banks.
    The requirements, which formalise criteria already in use,
comprise a risk-asset ratio applicable to banking operations
including foreign branches, and a gearing ratio which excludes
business of foreign branches.
     The risk-asset ratio measures solvency, defined as a
bank's ability to meet all its liabilities through the
realisation of its assets, while the second establishes the
minimum capital a bank must hold relative to its size.
    Specifically, total credits and off balance sheet items of
domestic and foreign branches must not exceed an amount
equivalent to 12.5 times the bank's capital, net of stakes held
in Italian banks. The gearing ratio limits total financial
assets of domestic branches to 22.5 times capital, net of
stakes held in Italian banks.
   The Bank of Italy said the requirements corresponded to a
risk-asset ratio of eight pct and a gearing ratio of 4.4 pct.
    For both ratios, the value of equity investments and stakes
other than those in Italian banks will be deducted from the
capital multiple.
    The total credit risk of an individual bank will be
calcluated by assigning specific weights to the various
categories of financial assets and off balance sheet assets.
The weighting will be based essentially on credit risk and will
not take into account guarantees, other forms of risk transfer
or potential losses linked to exchange or interest rates.
    The definition of capital on which the ratios will be
calculated comprises shareholders' equity and disclosed legal
reserves plus "general provisions having the character of
reserves." Own shares held in portfolio will be excluded.
    The Bank of Italy said it would set more stringent
individual ratios for those banks running greater risks
regarding items such as the quality, mobility and concentration
of assets, and to liquidity and management adequacy.
    The new ratios will be applied to all banks operating in
Italy.
    Banks which are not in line with the requirements by June
1987 "must correct their position in the shortest time possible,"
the Bank of Italy said. A transition period would be allowed
but would not be more than four years.
    Italian branches of foreign banks will be exempted from the
risk ratio when the parent banks are already subject to similar
ratios but must comply with the gearing ratio.
    The Bank of Italy said the introduction of capital ratios
aimed to further enhance capital adequacy at a time of
increasing competitiveness and was a further step in bringing
Italy into line with supervisory norms in other countries.
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