Explanatory note

This Order amends the Building Societies (Designated Capital Resources) Order 1992 (the Principal Order) which specifies that various resources of a building society may be treated as capital resources aggregable with reserves for the purpose of the first criterion of prudent management (maintenance of adequate reserves and other designated capital resources) under section 45(3) of the Building Societies Act 1986.

The Principal Order limits the extent to which those resources can be aggregated, so as not to exceed the sum of the society’s primary capital as therein defined.

This Order adds undated loan capital, as defined by the Building Societies (Undated Subordinated Debt) Order 1994 (“the Undated Subordinated Debt Order”) to the categories of capital resources set out in article 7 (Limit on Aggregation) of the Principal Order. It thus gives effect in relation to such capital of building societies of the limitation contained in a provision of the European Communities Council Directive on the own funds of credit institutions (89/299/EEC)(OJ No L124, 5.5.89, p.16) specifying the forms of capital which may be taken into account when calculating for solvency and prudential purposes the own funds of a credit institution and imposing a limit on the extent to which capital other than primary capital may be counted as own funds.

This Order, with the Subordinated Debt Order, enables societies to count as capital the proceeds of issue a new category of subordinated debt but does not impose any new burden on business and no compliance cost assessment has been prepared.