ACCOUNTING REQUIREMENTS AND RECORDS ON BANK SUBSCRIBED CAPITAL COMPLIANCE WITH EUROPEAN DIRECTIVES

ACCOUNTING REQUIREMENTS AND RECORDS ON BANK SUBSCRIBED CAPITAL COMPLIANCE WITH EUROPEAN DIRECTIVES LUCIAN-ION MEDAR CONSTANTIN BRANCUSI UNIVERSITY OF TARGU JIU, ROMANIA Email: lucian_iunie@yahoo.com Abstract: Customer confidence in a bank is given and the amount of capital you subscribe shareholders and increases depending on the strategy of each institution. From customer relationships are a series of risks that can be amortized especially through adequate capital. Investments entrepreneurs made using credit institutions are central to economic development and represents mainly the purchase of plant and equipment, structures, machinery and inventory, for the development of production and services. Risks assumed by banks in this relationship are strengthened by capital requirements recommended by the Basel Committee. Subscribed capital increase recorded since the establishment under European regulations and directives. Key word: capital requirements, appropriate capital damper capital conservation, combined damper JEL Classification: E42, E50, F30 1. Introduction The place and role of credit institutions in the economy is well legislated, these acting as main intermediary in the savings and investment relationship, mutually beneficial economic development. Typically, credit institutions are better placed than the general public in ensuring effective fructification of dormant deposits. So, the main role of banks is to make the connection between savers and those supporting banking products, particularly in the form of loans. Credit institutions in Romania are established as joint stock companies after fulfilling minimum authorization and operates according to specific laws banking. Credit institutions may be established and operate as commercial banks, mortgage banks, credit co-operatives, electronic money institutions, savings banks and credit housing. [7] The competent authority with the establishment of credit institutions and the prudential supervision of compliance with banking rules by them is the National Bank of Romania. The licensing of credit institutions by the National Bank of Romania includes first approval of the credit institution and then authorizing the operation of the credit institution. The formalities for the establishment of a credit institution shall be performed in accordance with the legal provisions [8] companies and authorization for operation is received by the credit institution of the central bank meets the conditions provided by law [9] for banking activities. Since the first year of operation of credit institutions must meet the prudential regulations concerning: capital requirements, liquidity requirements and governance requirements. In times of economic and financial crisis, credit institutions as "universal banks" are "caught in between" war unreported entities are sometimes highly indebted that creates a number of risks and people depository which must repay the deadlines. Thus, in this process of mediation, credit institutions assume a number of risks, such as: currency risk (when loans are made in currencies other than deposits); credit risk (when loans are made long-term and short-term deposits); operational risk (related to the internal operations of banks; market risk; 2. The minimum capital requirements Emphasizing the Basel Committee recommendations, the primary objective of banking supervision is to ensure the health and soundness of banks and the banking system. Capital requirements reflecting the institution's capacity to absorb the loss. Higher levels of capital held by the institution shows that it has a better ability to absorb losses internally while reducing risk, reducing the likelihood of entry into the banking resolution. The first refers to the minimum capital requirement that shareholders need to subscribe. The initial capital [10] credit institutions to be set vary depending on the activity of the institution and "work plan" submitted for authorization, as follows: - banks, Romanian legal entities, should have at the time of approval of a minimum level of initial capital of 37 million lei; - mortgage banks at the time of authorization must have a level of initial capital of at least 25 million; - savings and loan banks for housing must have authorization level at the time of the initial capital of at least 25 million; 47

- homes as a central credit institution will record the time of authorization operation consists of an initial equity capital equivalent in RON, EUR 5 million; - credit cooperatives, the minimum own funds is 300 thousand; - and the minimum total capital, respectively, of the own funds of a cooperative network is set at RON equivalent of EUR 10 million. Fulfilling the minimum capital requirements and respecting the regulations imposed by the "Basel Agreements" every credit institution may have a 'passport' to allow him to carry on banking business in any E.U. The basic principles required by the Basel Committee established a direct link between the equity of credit institutions and the risks they assume they comply. The first Basel Accord, adopted in 1988 and submitted to major international banks in the member states G10, gave a definition of capital minimum requirement, recommended measures to be taken by banks for preventing the emergence of risk exposures bank and set rules that specify the level of capital that must be maintained in relation to these risks. In this respect, credit institutions were preoccupied with own funds of at least eight percent, compared with assets weighted according to their degree of risk. Agreement has introduced indicators of capital adequacy based on risk weighted composition of a bank's assets and off-balance sheet exposures, which shall maintain an adequate stock of capital and reserves, to protect solvency. Amid the IT revolution in banking, in June 1999, Banking Supervision Committee of Basel imposed a new requirement on credit institutions own capital, known as "Basel II". Compared to the old agreement, the new agreement credit institutions have become more aware of the risks of the banking process whose manifestation may affect focusing on credit risk, market and operational. Since then the ratio of total assets to their degree of risk and equity is still 8%, but with a requirement that at least 4% is Tier 1, and then in the future, as "Basel III" to represent 4,5% in 2019. Emphasizing elements Basel II recommendations for improving quality of bank capital, greater transparency, and sufficient liquidity in the banking system, they refer to the three pillars implemented by credit institutions. Pillar has established minimum capital requirements, including advanced and flexible rules for determining minimum capital requirements for market risk, credit risk and a new type of risk - operational risk. Pillar II, which refers to the supervision of capital adequacy, has established an active role of the supervisory authority in the evaluation of internal procedures of credit institutions on capital adequacy risk profile by checking banks' internal procedures on risk management and the possibility of imposing the requirement that the they maintain a higher capital than the minimum indicated by the first pillar. Pillar III recommended risk management discipline insurance market by promoting transparency in business conditions. Market risk arising from portfolio transactions consists largely of items permanently transformed market value, namely shares and bonds. By recommendations known as "Basel III" requirements, more stringent credit institutions related to capital adequacy, liquidity standards and leverage, the main goal being reducing the negative effects of financial crises. In addition to minimum capital requirements all credit institutions must have a damper capital conservation and countercyclical capital damper to be able to absorb losses in a financial crisis. Dampener capital conservation buffer of capital banks hold in their highest quality (Tier 1 instruments) must be equal to 2.5% of total risk exposure of the bank in question. The aim is to preserve damper bank funds. The consequence of a breach of this requirement will cause banks to limit or halt dividend payments or premiums. The requirement is the combined damper of the total Tier 1 instruments needed to meet the requirement damper preservation of capital, to which is added the requirements for shock following, where applicable: a) silencer specific countercyclical capital of credit institutions; b) silencer G-SII specific systemically important global financial institutions c) a damper-specific SII other systemically important institutions [11] d) capital damper for systemic risk; The damper counter-cyclical prudential capital is a necessary tool to counter the effects of the cycle on lending activity performed by banks. This requirement requires credit institutions to have an additional amount of capital (CET 1) development in good times, when credit growth is solid. And the less favorable periods of the economic cycle when economic activity slows or contracts, this silencer to be used by the bank to be able to perform normal lending activity. Internal recapitalization, depending on economic developments should be of 0-2.5%, the damper CEST. Dampener for global systemically important financial institutions is mandatory for banks that are identified by the national authority as "global systemically important institutions" (G-SII) to compensate for the higher risk you pose to the financial system To recapitalize banks damper systemic risk should achieve 5% in 2019, consisting of Tier 1 instruments. The purpose of this silencer is to prevent and mitigate systemic risk in the long term that can have serious negative consequences for the real economy of the EU. During this period, credit institutions of the EU Member States must record absorbers systemic risk 1% - 3% for all exposures. Effects specified in the schedule for the gradual introduction of the new Basel III recommendations (Table no. 1) will be felt in the medium and long term. It believes that there should be no delays in banks to increase capital program until 2019. 48

Table no.1. BASEL III -Recommendations Requirements / Indicators 2014 2015 2016 2017 2018 2019 The minimum requirement Tier 1 instruments 4.0% 4.5% 4.5% 4.5% 4.5% 4.5% Suppressors preservation of capital (Tier 1 0,625% 1,25% 1,875% 2,5% instruments) The minimum requirement Tier 1 instruments + 4.0% 4.5% 5,125% 5,75% 6,375% 7% The damper capital conservation The damper countercyclical capital 2,5% 0,625% 1,25% 1,875% Eliminating deductions national 20% 40% 60% 80% 100% 100% The minimum requirement Tier 1 5,50% 6,00% 6,00% 6,00% 6,00% 6,00% Minimum Capital Requirement 8,00% 8,00% 8,00% 8,00% 8,00% 8,00% Minimum Capital Requirement + 8,00% 8,00% 8,625% 9,125% 9,875% 10,50% The damper capital conservation Dampener for the G-SII 1% 2,5% 3% 3,5% Dampener for the O-SII (optional) 1% 2% 2% 2% Dampener Systemic Risk Board (optional) 1% 3% 5% 5% The indicator of liquidity coverage requirement 60% 70% 80% 90% 100% (LCR) Indicator net stable funding (NSFR) 9% G-SII level varies between 1% - 3.5% and depending on the class of systemically important global institution to which he belongs. Implementation of the new regulatory framework CD IV / CRR from 1 January 2014 resulted in strengthening the capital position of systemically important institutions (credit institutions authorized in Romania and identified by the National Bank of Romania, under art. 267 para. (1 ) of NBR Regulation no. 5/2013 and in accordance with the value on the data for the year 2015 as "other systemically important institutions" (a-ibs) are: - Romanian Commercial Bank SA, BRD - Groupe Societe Generale - SA, UniCredit Bank - SA, Raiffeisen Bank - SA, Banca Transilvania - SA, Alpha Bank Romania - SA, Garanti Bank - SA, CEC Bank - Bancpost SA - SA) in Romania. Romanian banking sector capitalization is similar to that of countries in the region, comparing favorably with most countries of origin has as subsidiaries in Romania. European recommendations and structural developments manifested in the Romanian banking sector have contributed to financial stability. Architecture banking system (Table no. 2) shows that the number of credit institutions credit has remained constant in recent. Table no. 2 The banking system 2008 2009 2010 2011 2012 2013 2014 2015 Number of credit institutions 43 42 42 41 40 40 40 40 Number of credit institutions with majority private capital Number banks with majority foreign capital, of which: branches of foreign banks 41 40 40 39 38 38 38 38 37 35 35 34 34 34 34 34 10 10 9 8 8 9 9 9 The share in total assets of banks with majority private capital (%) 94,6 92,5 92,4 91,6 91,6 91,5 91,3 91,6 The share in total assets of banks with foreign capital (%) 88,2 85,3 85 83 89,8 90 89,9 90,2 The share of the top five banks in total assets (%) 54,3 52,4 52,7 54,6 54,7 54,4 54,2 55,3 Herfindahl-Hirschman Index (points) 926 857 871 878 852 821 797 812 Source: BNR 49

As can be seen foreign capital of foreign banks in total assets is very high which can be said that economic development based banking products and services depends heavily on systemically important financial institutions. Capitalized banks under the guidance mentioned gives needed financial stability in the economy and give confidence that the banking system is that customers will resist crises and systemic shocks during financial crises. 3. The accounting records of the subscribed share capital Economic strength of any credit institution is given the amount of capital and depending on how it is, shareholders can be identified in the following categories: equity; adjustments for risks and charges; and borrowed the medium and long term Share capital comprises all amounts, regardless of their name, which, depending on the legal form of the financial institution are recorded as shares subscribed by shareholders. [12] There is mutual interest from the regulatory and supervisory authority and the shareholders, managers and depositors (other creditors), namely, the functioning of the credit institution as a profitable company. The desire of regulators and banking supervisors for a higher level of social capital is motivated by the Basel III committee proposals, to increase the capital of credit institutions. For the purpose of specific reports on capital requirements, credit institutions are required to develop accounting systems with their own procedures, so as to meet the needs imposed by the European directives on international standards As a main component of the equity capital of credit institutions, is represented by shares issued by the bank which may be registered or bearer. In Romania the minimum capital 37 million lei, mentioned above, for the establishment and operation of credit institutions established by the National Bank, according to European directives. The contribution in kind to the establishment of a credit institution is not allowed. Capital of a credit institution to be paid entirely in cash, upon subscription. Accounting records in accordance with European standards of accounting rules [13] are: 508 Shareholders 1. Registered the share subscription: = 5011 Callable capital 2. Disbursement records: 251 Current accounts 3. Stands up capital: 5011 Callable capital = 508 Shareholders = 5012 Paid subscribed capital Other capital items necessary to increase the amounts depending on the commitments placed bank customers, to meet solvency and other recommendations of the Basel Committee are registered in accordance with established accounting procedures based on the European bank accounts accounting. 4. Conclusions A stage of sustainable economic development can be the result of modernization of a society in which credit institutions in various forms mobilizes large amounts of money from businesses or individuals representing income not consumed in the current period and offered for future use, some others developing different productive investment. Regarding the recommendations "Basel III" proposed credit institutions is satisfied that the requirements imposed by the user are designed to improve the ability of banking institutions to withstand shocks of financial crisis through better manage the risks faced in conditions of high transparent. Also in parallel concern credit institutions to effectively manage liquidity, compliance with minimum capital, reducing exposure to risk, the greatest attention should be paid to financial stability; it must provide premises for efficient development and sustainable banking sector. At the level of each credit institution is envisaged optimize evaluation of the level of capital adequacy, to optimize risk management processes and ensure their conformity credit institution regulations required them to "Basel III. Bibliography: 50

[1]. Harle Philipp et all (2010), Basel III AND European banking: Its impact, how bank smightres pond AND the challenge of implementation, EMEA Banking [2]. National Bank of Romania, Financial Stability Report, 2011 [3]. Walter S. (2011), Basel III: Stronger Banks and a More Resilient Financial System, Conference on Basel III, Financial Stability Institute, Basel, 2011 [4]. Mihai Nițoi, Eficiență și productivitate în sistemele bancare din Uniunea Europeană,edit. Economică, București, 2016 [5]. Dedu Vasile, Enciu Adrian, Contabilitate bancara, Editura Economică, Bucuresti, 2009; [6]. Mureşan Mariana, Palfi Cristina, Fülöp Melinda, Ungureanu Camelia, Contabilitatea institutiilor de credit, Editura Casa Cărţii de Ştiinţă, Cluj-Napoca, 2008; [7]. Emergency Ordinance No.99 / 2006 on credit institutions and capital adequacy; Moni-tor Official 27.dec.2006 1027 Part I, Article 3 [8]. Law no. 31/1990, republished, with subsequent amendments [9]. Emergency Ordinance No.99 / 2006 on credit institutions and capital adequacy Your approve with amendments by Law no.227 / 2007 [10]. Regulation no. 5/2013 on prudential requirements for credit institutions Art. 249 - (1) Official Gazette, Part I 841 / 30.12.2013 [11]. Order no. 11/2015 on credit institutions related damper authorized in Romania and identified by the National Bank of Romania as other systemically important institutions (A-IBS), Official Gazette, Part I 980 30.dec.2015 [12]. NBR Order no. 6/2015 approving the Annex on "Accounting Regulations compliant with European directsailing" published in the Official Gazette, Part I no.540 / 2015 [13]. Order no. NBR 27/2010 on "Accounting Regulations compliant with International Financial Reporting Standards applicable to credit institutions" published in the Official Gazette, Part I no. 890bis of 30/12/2010 51