BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND ... - BBVA

Bank of Spain Circular 3/2008, of May 22, on the calculation and control of minimum capital base
requirements, regulates the minimum capital base requirements for Spanish credit institutions –both as
individual entities and as consolidated groups– and how to calculate them, as well as the various internal
capital adequacy assessment processes they should have in place and the information they should disclose
to the market.
Circular 3/2008 implements Spanish legislation on capital base and consolidated supervision of financial
institutions, as well as adapting Spanish law to the relevant European Union Directives, in compliance with
the Accord adopted by the Basel Committee on Banking Supervision (Basel II).
The minimum capital base requirements established by Circular 3/2008 are calculated according to the
Group’s exposure to credit and dilution risk, counterparty and liquidity risk relating to the trading portfolio,
exchange rate risk and operational risk. In addition, the Group must fulfill the risk concentration limits
established in said Circular and the internal Corporate Governance obligations.
As of June 30, 2010 and December 31, 2009, the Group's capital exceeded the minimum capital base level
required by regulations in force on each date as shown below:
Millions of Euros
Capital Base
June December
2010 2009
Basic equity 27,965 27,114
Common Stock 1,837 1,837
Parent company reserves 23,200 20,892
Reserves in consolidated companies 4,210 1,600
Non-controlling interests 1,274 1,245
Other equity instruments 7,224 7,130
Deductions (Goodwill and others) (11,200) (8,177)
Attributed net income (less dividends) 1,420 2,587
Additional equity 12,101 12,116
Other deductions (3,605) (2,133)
Additional equity due to mixed group (*) 1,287 1,305
Total Equity 37,748 38,402
Minimum equity required 24,769 23,282
(*) Mainly insurance companies in the Group.
The results of the stress tests of European financial institutions, published as of July 23, 2010, suggest that
the BBVA Group will maintain its current solvency levels in 2011, even in the most adverse scenario that
incorporates the additional impact of a possible sovereign risk crisis.
Capital management
Capital management in the Group has a twofold aim: to preserve the level of capitalization, in accordance
with the business objectives in all the countries in which it operates; and, at the same time, to maximize the
return on shareholders’ funds through the efficient allocation of capital to the different units, good
management of the balance sheet and appropriate use of the various instruments forming the basis of the
Group's equity: stock, preferential stock and subordinate debt.
This capital management is carried out in accordance with the criteria of the Bank of Spain Circular 3/2008,
both in terms of determining the capital base and the solvency ratios. This regulation allows each entity to
apply its own internal ratings based (IRB) approach to risk and capital management.
The Group carries out an integrated management of these risks, in accordance with its internal policies (see
Note 7) and its internal capital estimation model has received the Bank of Spain's approval for certain
portfolios.
Capital is allocated to each business area (see Note 6) according to economic risk capital (ERC) criteria,
which are based on the concept of unexpected loss with a specific confidence level, as a function of a
solvency target determined by the Group. This target is established at two levels: Core equity: adjusted core
capital, which determines the allocated capital and serves as a reference to calculate the return generated
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