November 2010

‘Basel III’ and IFRS 9

A tightening of the regulations

Summary
During the second half of 2010,
the Basel Committee on Banking
Supervision (BCBS) has provided
further clarification and quantification
of the required global standards for
capital and liquidity. In this briefing
we summarise the new regulations
and look at their impact.

B
ack in 2009, in response to the finan-
cial crisis, the BCBS published two
papers that set out major revisions
and enhancements to the Basel II frame-
work. These were followed in December of
the same year by two consultation papers
on capital and liquidity.

In July 2010, following lobbying from the

financial sector and a parallel impact study,
changes to the BCBS 2009 papers were
agreed. In addition the BCBS published a
new consultative document that laid out
their proposal for a countercyclical capital
buffer.
In September 2010 the Group of Governors
and Heads of Supervision, the oversight
body for the BCBS, announced how the
minimal capital requirements would be set.
Assuming ratification by the G20 in
November 2010, we would expect the Basel
committee to meet in December to finally
adopt the standards, with complete imple-
mentation between 2013 and 2019.
Although there may yet be
some final changes and
adjustments to come, it is
now clearer what the
regulations are, how they
will be applied and when
they will come into force.
While the December 2009 proposals cre-
ated major challenges and uncertainty
about the impact of Basel III, the new papers
and announcements provide much-needed
clarification. In essence, they address and
mitigate some of the most contentious
issues that were raised in the 2009 docu-
ments. In addition they provide more detail
in areas that were previously flagged up for
increased regulation, offering formal guid-
ance on proposed standards and how to
apply them in practice.
Key areas include a modified definition of
capital, the introduction of a leverage ratio
and countercyclical capital buffer, and the
implementation of a global liquidity require-
ment. While implementation dates vary
according to the specific regulatory areas,
the consensus is that the deadlines are
demanding but not unduly onerous.
The drafting and phasing in of IFRS 9 also
continues to move forward and we examine,
in this update, the latest developments and
their impact.
Looking ahead
The uncertainties and worst-case projections
about the impact of ‘Basel III’ have been
replaced by clarity and acceptance.
However, now the hard work must begin for
banks – applying the standards right across
their business and ensuring that they continue
to monitor and meet them.
The five key changes
1. Higher quality capital, and clarity
over regulatory deductions to be taken
at Tier 1
2. Increased capital requirements for
trading book, securitisation and coun-
terparty credit
3. Introduction of a leverage ratio
4. Establishment of countercyclical
capital buffer
5. Minimum liquidity standards

‘Basel III’ and IFRS 9 1

 CRD II (adopted September 2009) The five key changes in more detail
Basel in brief • Tier 1 hybrid capital eligibility
• Large exposure limits to single 1. High quality capital
The key papers
counterparties
• New Article 122(a) for securitisations A clearer picture
In 2010 the BCBS published further (not in Basel II)
clarification: • Certain qualitative measures relating to Common equity has now been defined as
• Calibration and phase-in arrangements liquidity management share capital, plus retained earnings, minus
were agreed
regulatory deductions. This definition of
• Changes to both of the December 2009 CRD III (proposed) common equity will be applied in 2013, but
BCBS documents were agreed • Consistent with July 2009 BCBS paper the deductions (set out in the table opposite)
• Publication of the consultative document • Resecuritisations risk weights introduced will not be implemented until 2014. The mini-
Countercyclical Capital Buffer Proposal • Securitisation 6% (IRB) risk weight mum common equity requirement is set at
removed 3.5% in 2013, 4.0% in 2014 and 4.5% in
• Securitisation TB v BB harmonisation 2015. The regulatory deductions will be
CRD summary • Trading book capital requirements applied at a rate of 20% p.a. from 2014
stressed through 2018.
So many regulations, a little more time – Application pushed back to 31
December 2011 Certain forms of common equity that met

T
he following summary identifies what the old regulations but do not meet the new
new regulations are due to be intro- CRD IV (consultation phase) directive will cease to qualify in 2013 but
duced and when they will take effect, • Consistent with BCBS December 2009 can be grandfathered out over 10 years.
as well as those proposals that are still under- Papers This will provide the opportunity for non-
going consultation. A key change is that the • Subject to amendments proposed in joint-stocks companies or others without
application of the Capital Requirements July and September 2010 following the share capital (such as the Landesbanks
Directive III (CRD III) has now been pushed consultation process and the mutual building societies) to meet
back to December 2011. Full implementation • Including the Countercyclical Buffer ‘Basel III’ while making the necessary
of CRD IV is now between 2013 and 2019. consistent with the BCBS 2009 paper adjustments over an extended timescale. In
• Implementation proposed between 2013 addition, capital instruments that no longer
Technical Provisions Amendment and 2019 qualify as non-common equity Tier 1 or Tier
Directive (adopted July 2009) 2 instruments will also be phased out over
• New rules on significant risk transfer ten years.
(SRT), not in Basel II
• Risk weighting of liquidity facilities Common equity transition
increased • January 2013: common equity with no
• Member states required to apply from regulatory adjustments applied
31 December 2010

‘Basel III’ – timeline

Common Initial Full

Equity Compliance Compliance
Conservation Initial Full
Buffer Compliance Compliance
LCR Regulatory Full
Reporting Compliance
NSFR Regulatory Full
Reporting Compliance
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Leverage Regulatory Public Full
Ratio Reporting Reporting Compliance
Countercyclical Anticipated
Capital Buffer Application
Other G20 CDR III CDR III
Ratification adoption Compliance
– Nov (anticipated)
Basel Translation
Ratification of rules into
– Dec local laws

2 ‘Basel III’ and IFRS 9

• J anuary 2014 to 2018: additional 20% of
regulatory adjustments applied each year
• Public sector capital injections grandfa-
thered until January 2018
• Non-qualifying common equity excluded meet the new capital
from January 2013
• Non-qualifying additional Tier 1 and Tier
2 capital instruments phased out evenly
over ten years
Conservation buffer
In addition, the introduction of a conserva-
tion buffer will require further common
equity to be held for use in times of stress.
Banks will be allowed by the regulator to use
the buffer at such times, but will need to
demonstrate a clear plan to go back above
the minimum requirement. They may also
be restricted in making distributions during
its use.
This regulation will be applied from 2016, after the introduction of the current capital
requiring an allocation of 0.625% a year. requirements has been completed. In the
This means that over the four years to 2019
the Conservation Buffer will reach its
required level of 2.5%.
Transition period
• January 2016 to January 2019, increasing other local regulators will follow, without
by 0.625% each year up to 2.5%
• Subject to acceleration by local regulators
Regulatory deductions
Item
Stock surplus
Minority interest
Unrealised gains and losses
Cash flow hedge reserve relating to projected
cash flows not recognised on balance sheet
Goodwill and other intangibles
Deferred tax assets which rely on future profitability
Investment in own shares
Investment in FIs
Shortfall of stock provisions to EL
Fair value movements on own liabilities
Defined benefit pension fund assets
All other adjustments that currently carry
50% Tier 1/ 50% Tier 2 allocation
Unconsolidated FIs, mortgage servicing rights and
deferred tax assets resulting from timing difference
The expectation is that 2. Increased capital
most banks already requirements
Trading book, securitisation
and counterparty credit
requirements or will do
so shortly. This may mean
T
hese are the ‘quick fixes’ to Basel II.
that regulators will, officially They are the areas that were per-
ceived to have been leading contribu-
or unofficially, bring the tors to the market turmoil and therefore
adoption rates forward. needed to be addressed first.
Trading book
Too big to fail Value at Risk (VaR) will be replaced with a
The Basel committee has not yet stressed VaR. In essence, trading books will
addressed the issue of imposing extra move from looking at the volatility of the
capital requirements on banks that are underlying instruments over the last year to
systemically important to the financial looking at the worst volatility experience for
system. However, they have indicated that a one year period during the last three years.
they will return to this subject, perhaps
Securitisation
There will be increased discloser and due
meantime some regulators are taking diligence requirements. Originators will be
their own view on it. For example the Swiss required to retain ‘skin-in-the-game’ to align
have set their major banks a capital ratio interests and there will be increased require-
of 19% (10% common equity + 9% other ments for and around ‘significant risk transfer’.
loss-absorbing equity). It is likely that Increased capital will be required for
re-securitisation requirements and there
waiting for the relevant Basel directive. will be an alignment of trading book and
banking book capital requirements.
Impact key: high; medium; low.
Core Tier 1 Detail Impact
deduction?
No Unless, for example, preference shares
Yes MI share of excess capital within the subsidiary to be deducted
No If recognised on balance sheet (i.e. fully disclosed)
Yes Remove this component from Core Tier 1 calculation
Yes Net of extinguishable deferred tax liabilities. IFRS may be used.
Yes Net of deferred tax liabilities
Yes Including stock contractually obliged to be purchased, after netting
(of short positions) and look-through (to indices)
Yes A) ‘Corresponding deduction’ for regulatory non-consolidated FIs;
B) Deduction to all holdings in affiliates and reciprocal cross-holdings.
C) Other holdings of common stock, thresholds apply:
(i) >10% of a single FI’s stock, full deduction;
(ii) aggregate holdings in FIs >10% of the bank’s stock, deduct
excess over 10%. Netting and underwriting exemptions apply
Yes An IRB parameter, now 100% from Common Equity
Yes Remove own credit risk gains/losses from Common Equity calculation
Yes With some offset on plan assets with unfettered access
(if supervisor approved); No deduct if pension liability
N/A All to receive 1,250% deduction
Yes Recognition of any one item up to 10% of the Common Equity amount
(prior to these deductions), subject to a maximum of 15% in aggregate
‘Basel III’ and IFRS 9 3
Counterparty credit risk
Financial institutions are encouraged to
clear OTC derivative transactions via
exchanges. Derivative transactions that are
still traded with large financial institutions
will be subject to increased capital require-
ments. This is designed to reduce the con-
centration and/or levels of inter-connected-
ness between large financial institutions.
Timeline
Implementation is from 1 January 2011.
3. Leverage ratio
The leverage ratio acts as a supplement to
the risk-based measures. By limiting gross
lending relative to the capital base of the
lender, it aims to prevent the excessive on-
and off balance sheet leverage that ampli-
fied losses during the financial crisis.
Overview
• Simple, transparent, non-risk-based although there is a question as to whether
measure that is calibrated to:
– Act as a credible supplementary meas-
ure to the risk-based requirements
– Mitigate the pro-cyclical loss amplifica-
tion seen in recent downturns
• After testing and calibration will migrate 4. Countercyclical capital
to Pillar 1
Formula
Tier 1 Capital _ 3%
> to required compliance. Released
Total Exposures
Considerations national level and gives local regulators the
• Total exposures: total gross lending + right to increase banks’ Tier1 capital require-
total off balance sheet exposures + total ments when a country’s economy is judged
derivative exposures, where: to be experiencing excessive growth. This
– Off balance sheet exposures: shall be will require banks to build up greater capital
determined by applying uniform credit reserves during strong growth periods, and
conversion factors to all off balance to be granted the right to call upon them
sheet exposures during periods of stress. It will be set at a
– Derivatives: shall be determined by level between 0 and 2.5% of capital and,
applying Basel II’s netting rules plus a once set, the regulator allows 12 months for
simple measure of PFE, and then using banks to comply. Failure to do so will mean
the standardised rules to convert the regulators can force banks to limit distribu-
aggregate exposure amount into a tions. The buffer can be made up of com-
‘loan equivalent’ amount mon equity, or fully loss-absorbing capital
• Total exposures will be calculated as an subject to national circumstances (for
average over each quarter example German Landesbanks and mutual
building societies).
Transition
• From January 2011 to January 2018: Overview
monitoring and development period • Qualitative decision for each national
• January 2013 to January 2017: parallel regulator based on quantitative input
reporting, with public reporting from • Is designed to protect the banking sector
January 2015. There will be no regulatory from periods of excessive growth by
requirement to comply during this period, – Dampening excess cyclicality of the
minimum capital requirements; and
there will be market pressure to do so. – Building buffers that banks/banking
• January 2018: full reporting and compli- sectors can use in times of stress
ance required
Considerations
• Set based on jurisdiction
• To be increased in times of excessive
growth:
buffers – Subject to upper limit of 2.5%
Limiting the ups and downs – 12 month period from raising the limit
immediately if reduced
This proposal, published in July 2009, aims
• To be made up of common equity or other
to take the pro-cyclicality out of Basel II. The
fully loss-absorbing capital
countercyclical capital buffer is set at a

Minimum Capital Requirements

Basel II 2013 2014 2015 2016 2017 2018 2019

Common Equity1 2.0% 3.5% 4.0% 4.5% 4.5% 4.5% 4.5% 4.5%
Conservation Buffer 0.6% 1.3% 1.9% 2.5%
Total Common Equity 2.0% 3.5% 4.0% 4.5% 5.1% 5.8% 6.4% 7.0%

Additional Tier 1 Capital 2.0% 1.0% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Total Tier 1 Capital 4.0% 4.5% 5.5% 6.0% 6.6% 7.3% 7.9% 8.5%

Tier 2 Capital 4.0% 3.5% 2.5% 2.0% 2.0% 2.0% 2.0% 2.0%
Minimum Total Capital 8.0% 8.0% 8.0% 8.0% 8.6% 9.3% 9.9% 10.5%

Too Big To Fail2

Countercyclical Capital Buffer3 0 -2.5%
Total Capital 8.0% 8.0% 8.0% 8.0% 8.6% 9.3% 9.9% Up to 13.0%
1
Regulatory deductions are applied, 0% 2013; 20% 2014; 40% 2015; 60% 2016; 80% 2017; 100% 2018
2
Still under consideration by the BCBS
3
No guidance has been provided for implementation, although it is possible this will coincide with the implementation of the Conservation Buffer

4 ‘Basel III’ and IFRS 9

Quantitative inputs
• To be driven by the credit/GDP guide, but • High-quality liquid assets must comprise:
may be influenced by other variables,
such as:
– Asset prices
– Funding and CDS spreads
– Credit condition surveys
– Real GDP growth
– Data on non-FI entities to meet their
debt obligations on a timely basis
5. Liquidity
Keeping the right side of the ratio
W
hile Basel II addressed only capital
requirements, ‘Basel III’ has wid-
ened the scope. For the first time
ever, it attempts to set out a global liquidity
requirement. At the heart of this are two new
ratios to ensure adequate short-term and
longer-term liquidity.
Liquidity coverage ratio (LCR)
This is designed to ensure that a bank has
a minimum level of short-term liquidity to
remain solvent over 30 calendar days of
acute liquidity stress. This will be deter-
mined by their having an adequate level of
unencumbered, high-quality assets that are
convertible into cash to fund net outflows.
Formula
_ 100%
Stock of high-quality liquid assets >
Net outflows over a 30-day period
FY10 implied surplus/deficit (in 000,000’s EUR) for a 7% ‘go to’ Common Equity Tier 1
20,000
15,000
10,000
5,000
-5,000
-10,000
Considerations
– Cash
– Excess central bank reserves (addi-
tional to minimum requirements)
– High-quality sovereigns paper (AA-
rated or above)
– Highly rated corporate bonds (AA-
rated or above)
– Covered bonds (AA-rated or above)
– Corporate and covered bond expo-
sures attract a 15% haircut and must funding it requires (ASF).
not exceed 40% in aggregate
• Requirement to evidence the liquid Formula
nature of portfolio through sale or repo
on an ongoing basis
• Requirement to meet the LCR for each
currency where a net outflow exists
Transition
• January 2015 (observation phase from • There will be additional requirements
January 2011 – may require reporting
from this date)
• Local regulators may set early adoption
Basel III’ sets out, for the
first time, a global liquidity
requirement.
Net stable funding ratio (NSFR)
One of the most contentious aspects of
‘Basel III’, the NSFR has been subject to
significant ‘watering down’ by the Basel
committee, and is most likely to change fur-
ther prior to implementation. It is designed
to ensure that banks have sufficient long-
term funding to support their long-term
assets, thus preventing too much reliance
on short-term liquidity markets. The NSFR
establishes a minimum acceptable amount
of stable funding based on the liquidity
characteristics of an institution’s assets and
activities over a one-year horizon of
extended stress. The asset side of the bal-
ance sheet is converted into the required
funding it needs (RSF), while the liabilities
side is converted into the amount of stable
_ 100%
Available stable funding (ASF) >
Required stable funding (RSF)
Considerations
• Off balance sheet commitments would
need to be 5% pre-funded
where concentrations exist
• Is a consolidated level requirement
Transition
• January 2018 (observation phase from
January 2012, but proposals subject to
change)
N.B. The need to fund off balance sheet
commitments is a key factor and will lead to
significant costs for banking clients who use
these facilities. The BCBS has accepted that
this proposal requires more work and it is
likely to change significantly.
‘Basel III’ and IFRS 9 5
‘Basel III’ – a snapshot
• Increased capital charges for risky assets and introduction of a capital buffer
• Improved provisioning and PD techniques
• Incentivise increased use of central counterparties for OTC derivatives
Trading book
Additional capital requirement based on stressed
instead of ordinary VAR. Expected to roughly double
current capital requirements
Extending the existing charge for default risk in the
trading book to capture losses short of issuer default
Aligning trading and banking book securitisation
position charges
Countercyclical Capital Buffer1
Credit growth to be controlled by adjusting capital
buffer requirements
1
Standardised Approach
• Strengthening loss absorption ability of regulatory capital
• Global harmonisation of the definition of capital and the introduction of a capital buffer
• Transparency and disclosure through full reconciliation of capital elements
Tier 1 Capital
Tier 1 capital must help banks remain a going-concern
To comprise two elements: Common Equity (CE, or
Core Tier 1) and Additional Going-Concern Capital
Common Equity: Ordinary shares + retained earnings • Goodwill and intangibles
– regulatory deductions
Additional Going Concern Equity: To include hybrids
and must be able to absorb losses while the bank
remains a going concern (through conversion to
ordinary shares or write down)
Tier 2 Capital
Tier 2 capital must support banks when they are no
longer a going-concern
Must be subordinated to depositor and general creditors
Tier 3 Capital
To be abolished
1
Standardised Approach
Impact assessment
Better the devil you know?
T
he expectation is that many banks
already hold the minimum capital
requirements and that, for most of
those who do not, it will not be a major
stretch. This is likely to drive banks toward
early adoption. It is worth noting, however,
that regulators will be encouraged not to
permit those who are already ‘overmeeting’
the requirements to erode their capital to
minimum levels.
Institutions such as the German
Landesbanks and mutual building societies ments, they will have many different areas
will have to readdress what constitutes
6 ‘Basel III’ and IFRS 9
Asset side changes
Banking book
Resecuritisation positions to be assigned a higher
capital requirement than other securitisation positions
Removal of beneficial risk weighting calculations by
amended CCFs for certain liquidity facilities
Counterparty credit risk
Strengthened counterparty capital requirements for
credit risk exposures arising from derivatives, repos
and securities financing
For derivatives introduce incentives to use central
counterparties (CCPs) for OTC derivatives
Liability side changes
Capital buffer
A capital conservation buffer is established above the
regulatory minimum capital requirement. Distribution
constraints imposed on banks when capital falls below
the buffer
Leverage ratio
Banks required to maintain a minimum level of capital
as a percentage of exposures, where:
• Capital is based on Tier 1
• E
xposures based on gross lending, netted derivative name and aggregated concentration limits apply
exposures and off balance sheet exposures
Liquidity
Introduction of global liquidity standards for
internationally active banks, including a 30-day liquidity
coverage ratio and a 1-year net stable funding ratio
capital for them. However, in doing so they
have the benefit of both a 10-year ‘grand-
fathering’ period and a new certainty about
the exact requirements they need to meet.
The implementation challenge
With many of the most contentious areas now
addressed and quantified, banks at last
know where they stand in relation to ‘Basel
III’. So, having been focused equally on both
the need to change and the impact, they can
now concentrate on implementation.
This will not, however, be a simple task. As
they spend the next six months recalibrating
their three and five year forecasts to take
into account the impact of the new require-
to focus on. For example, their gross
Forward looking provisioning
Dynamic provisioning would require banks to build
up ‘provisions’ for future losses (to be determined
based on expected losses) and to draw down those
provisions to absorb losses in an economic downturn
N.B. The IASB is proposing to align by moving from
the current incurred loss impairment method to one
based on expected losses
Review of PD estimates
To address pro-cyclicality. BIS is reviewing the
use of average PD estimates used by banks
Regulatory adjustments1
To be deducted from CE:
• Excess minority interests
• Unrealised gains and losses
• Deferred tax assets
• Positive or negative cash flow hedges
• Investments in own shares
• C
apital instruments of non-consolidated FIs. Single
• Any provision shortfall
• Pension assets
• Gain or losses on MTM of own liabilities
• 50:50 deductions to be 1,250% RW
• U
nconsolidated FIs, mortgage servicing rights and
deferred tax assets due to timing differences. Single
item and aggregate concentrations limit apply
balance sheet because of the leverage
ratio, their capital base because of the new
definition, and their liquidity in both the short
and longer term.
Even though the final stages of the Basel II
amendments contain little in the way of
shocks or surprises, they still constitute a
major implementation challenge. This must
be met while banks also deal with the exist-
ing imperatives of rebuilding their capital
and customer bases, and meeting their
lending obligations to the market. So in
many ways, now that the dust has settled,
the real work has only just begun.

IFRS 9 – financial instruments
Overview and impacts
T
he IASB continues the process of
drafting and phasing-in IFRS 9, the
replacement standard for IAS 39. This
will not be finalised until the middle of 2011,
with full implementation due to begin in
January 2013. However, many believe this
will slip back into 2014. This appears to be
a realistic assessment as it will need to go
through the EU parliament in its entirety
before it can become law.
The proposals
The IASB’s open project to replace IAS 39
with IFRS 9 comprises three phases:
• Phase 1: Classification and measurement
• Phase 2: Impairment methodology
• Phase 3: Hedge accounting
The EU is yet to endorse any of these pro-
posals, awaiting publication of all phases
IFRS 9 – snapshot and timeline
Jan 2010
Phase 1
Classification & measurement
Classifications
Amortised cost:
• I nstrument held by a designated based on expected losses (i.e. an ‘expected
Amortised Cost business unit.
• If the cash flow characteristics represent
payment of principal and interest.
Fair value: All instruments that do not meet the
above conditions to be fair valued through P&L.
Reclassification
When an entity changes business model for
managing financial assets it must reclassify
all affected assets using the amortised cost
conditions.
OCI option
At initial recognition, can elect to recognise
MtM movements in equity instruments in OCI.
Investment must not have been made for
trading.
Cannot be reclassified out of OCI.
Fair value option
At initial recognition, can designate an asset at
fair value through P&L if it significantly reduces
a measurement/recognition inconsistency.
Embedded derivatives
Component of a hybrid instrument with a
non-derivative host; entire contract to be
fair valued.
If the host is not covered under IFRS 9, it is
classified in line with its appropriate IFRS,
while the derivative is bifurcated and
classified as above.
of IFRS 9. But with the third phase about to
The law of unintended consequences
be published it is likely that there will be little
Many see IFRS 9 as purely about changes
scope to avoid or delay implementation
to accounting rules. However it looks set
without risking putting the EU out of kilter
to have broader implications for banks.
with the rest of the world.
Capital
Key impacts The new accounting rules look set to
Key changes are: impact on retained earnings, and therefore
• Generally simpler classification and on banks capital requirements. This is
measurement approaches and a single because, under ‘Basel III’, retained earn-
impairment method ings are now a key component of common
• Non-vanilla financial assets will be sub- equity. As a result banks will need to care-
ject to MtM accounting fully consider IFRS 9’s impact on their ability
• Subordinated securitisation assets will to meet the new regulations on capital.
be subject to MtM accounting (a partial
Liquidity
reversal of the 2008 reclassifications)
IFRS 9 changes could affect the ability
• No subsequent reclassification
of, and means by which, banks maintain
• Establishment of countercyclical provi-
their liquidity. This is because by changing
sions for credit losses (an expected loss
the classification of some funding instru-
impairment approach)
ments to ‘mark to market’, their attractive-
• Increased disclosure requirements
ness to buyers may reduce. Banks must
• Potential for significant asset derecogni-
carefully consider how best to assess
tion and derivative exposure recognition
and address these impacts.
The chart below illustrates the timings and
summaries of what these key changes are.
IFRS 9 to be finalised Target for full
by mid 2011 implementation
July 2010 Jan 2011 Jan 2013
Phase 2 Phase 3
Impairment methodology Hedge accounting
Impairment methodology Hedge accounting
Introduction of forward looking provisioning Proposals to be published shortly.
cash flows’ assessment).
Derecognition
Control test
Derecognition determined by control test,
no longer risk/reward (not control).
Expected
‘Basel III’ and IFRS 9 7
 Portugal
Focused on your priorities Contacts Adriana Leal
+34 91 438 5252
A tailored approach to delivering Global Solutions adriana.leal@rbs.com
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A
t RBS we are fully committed to nick.pudney@rbs.com Francesco Rizzo
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We hope that this update has provided you +44 (0)20 7085 4276 stefan.krasz@rbs.com
with a useful guide to the requirements of david.simonson@rbs.com
both the ‘Basel III’ and IFRS 9 regulatory Greece
and accounting reforms. However, we real- Solutions Sales Konstantinos Diamantopoulos
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experience, financial and operational resources, and other relevant circumstances. You should consult with such advisers as you deem necessary to assist you in making these determinations.
Both The Royal Bank of Scotland plc and The Royal Bank of Scotland N.V. (“RBS”) will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser or owe
any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on RBS for investment advice or recommendations of any sort. RBS
makes no representations or warranties with respect to the information and disclaims all liability for any use you or your advisers make of the contents of this document. However this
shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not lawfully be disclaimed.

Where the document is connected to Over The Counter (“OTC”) financial instruments you should be aware that OTC derivatives (“OTC Derivatives”) can provide significant benefits but
may also involve a variety of significant risks. All OTC Derivatives involve risks which include (inter-alia) the risk of adverse or unanticipated market, financial or political developments,
risks relating to the counterparty, liquidity risk and other risks of a complex character. In the event that such risks arise, substantial costs and/or losses may be incurred and operational
risks may arise in the event that appropriate internal systems and controls are not in place to manage such risks. Therefore you should also determine whether the OTC transaction is
appropriate for you given your objectives, experience, financial and operational resources, and other relevant circumstances.

RBS and its affiliates, connected companies, employees or clients may have an interest in financial instruments of the type described in this document and/or in related financial instruments.
Such interest may include dealing in, trading, holding, or acting as market-makers in such instruments and may include providing banking, credit and other financial services to any
company or issuer of securities or financial instruments referred to herein.

RBS plc is authorised and regulated in the UK by the Financial Services Authority. The Royal Bank of Scotland plc. Registered in Scotland No. 90312. Registered Office: 36 St Andrew
Square, Edinburgh EH2 2YB.

The Royal Bank of Scotland N.V., established in Amsterdam, The Netherlands. Registered with the Chamber of Commerce in The Netherlands, No. 33002587. Authorised by De Nederlandsche
Bank N.V. and regulated by the Authority for the Financial Markets in The Netherlands. Contact for The Royal Bank of Scotland N.V. Niederlassung Deutschland and The Royal Bank of
Scotland plc. Frankfurt Branch is Junghofstr. 22, 60311 Frankfurt am Main.

The financial instruments described in this document are made in compliance with an applicable exemption from the registration requirements of the US Securities Act of 1933.

The Royal Bank of Scotland plc acts in certain jurisdictions as the authorised agent of The Royal Bank of Scotland N.V.

1376-1010 November 2010