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The regulatory capital base is calculated in accordance with the Comité de la réglementation bancaire et financière regulation 90-02 of 23 February 1990 on capital. It is divided into three categories: Tier  1 or core capital, Tier  2 or supplementary capital and Tier  3 capital, from which various deductions are made.

Capital is allocated to these three categories according to decreasing degree of robustness and stability, duration and degree of subordination.

1. Tier 1 or core capital

A. PERMANENT SHAREHOLDERS’ EQUITY LESS DEDUCTIONS

Equity capital;

Reserves, including revaluation reserves and unrealised or deferred gains or losses;

Unrealised gains or losses on available-for-sale financial assets in other comprehensive income are treated as follows:

net unrealised gains on equity instruments are deducted from core capital on a currency by currency basis, net of the amount of tax already deducted for accounting purposes. 45% of the gains before tax are then added back to Tier 2 capital on a currency by currency basis; net unrealised losses are not restated,

unrealised capital gains or losses on cash flow hedges recognised directly in equity are eliminated,

unrealised gains or losses on other financial instruments, including debt instruments or loans and receivables, are eliminated,

impairment losses on available-for-sale assets recognised through profit or loss are not restated,

Share and merger premiums; Retained earnings;

Net earnings for the year, i.e.  net income, Group share less a provision for dividends;

The following items are deducted:

Treasury shares held, measured at their book value, intangible assets including start-up costs and goodwill.

B. OTHER SHAREHOLDERS’ EQUITY

Minority interests include the share of minority interests in equity interests held by Crédit Agricole S.A. as well as the T3CJs (see Note  6.9 to the financial statements), which the Commission bancaire has agreed were not to be included in the class of hybrid instruments below;

Other funds deemed by the Commission bancaire to fulfil the conditions for inclusion in core capital. At 31  December 2009, Crédit Agricole  S.A. had a €3.7  billion shareholders’ advance made by the Regional Banks that fell into this category.

C. HYBRID CAPITAL INSTRUMENTS OR LOWER TIER 1  CAPITAL

These include non-innovative capital instruments and innovative capital instruments which generally include a step-up.

Hybrid instruments that meet the eligibility criteria set out in the Basel Committee’s press release of 27 October 1998 are included in core capital subject to prior approval by the SGCB (General Secretary of the Banking Commission). They consist of the super-subordinated notes issued under the terms of Article L.  228-97 of the Code de commerce, as amended by the Financial Security Act of 1  August 2003, and preferred securities issued under UK and US laws. Hybrid instruments must meet certain limits relative to core capital (before the deductions set out in item 3 below):

“innovative” hybrid instruments, i.e. those with a strong incentive to be redeemed, mainly via a step-up clause, are limited to 15% of core capital subject to prior approval from the SGCB, providing that they meet the criteria for eligibility as core capital;

total hybrid instruments –  both innovative and non-innovative  – may not exceed 35% of core capital.

In addition, the aforementioned hybrid instruments, minority interests and preferred shares, taken collectively, may not exceed 50% of the core capital.

2. Tier 2 or supplementary capital

funds from subordinated debt instruments that meet the conditions set out in Article  4c of regulation  90-02 on capital (perpetual subordinated notes);

funds from subordinated debt instruments that meet the conditions set out in Article 4d of regulation 90-02 (redeemable subordinated notes);

45% of net unrealised gains on equity instruments transferred on a currency by currency basis before tax from Tier 1 to Tier 2 capital; the positive difference between expected losses calculating

using the internal ratings-based approach and the sum of value adjustments and collective impairment allowances on the relevant exposures.

3. Deductions from capital

Deductions are set out in Articles  6, 6 bis and 6 quater of regulation  90-02 on capital. They include equity interests representing more than 10% of the equity capital of a credit

institution or investment firm, as well as any holdings of their subordinated debt and other equity items. 50% of the amount is deducted from Tier  1 capital and 50% from Tier  2 capital. This includes in particular Crédit Agricole  S.A.’s interests in the Regional Banks accounted for by the equity method. Furthermore, as authorised by Article  6 bis of regulation 90-02, the subject institutions deduct positions weighted at 1,250% when those positions are not included in the calculation of weighted amounts and exposures.

However, as authorised by said Article 6 of regulation 90-02, Crédit Agricole S.A.’s interests in insurance companies and its holdings of their subordinated debt and other equity items are deducted from total capital (except for transactions completed after 31 December 2006). In exchange, Crédit Agricole S.A. is subject to an additional capital requirement based on the appendix to regulation 2000-03 applying to financial conglomerates.

4. Tier 3 capital

This includes subordinated debt with an initial term equal to or more than two years, within the regulatory limits imposed.