Resolution CMN No. 2543 — Establishes new minimum capital concept compatible with the risk level of active operations of financial institutions

RESOLUTION NO. 2543

Establishes new minimum capital concept compatible with the risk level of active operations of financial institutions and other institutions authorized to operate by the Central Bank of Brazil.

The CENTRAL BANK OF BRAZIL, in accordance with Article 9 of Law No. 4.595 of December 31, 1964, makes public that the MONETARY NATIONAL COUNCIL, in a session held on August 26, 1998, having in view the provisions of Article 4, items VIII and XI, of the aforementioned Law,

RESOLVES:

Article 1. It is determined that the adjusted net worth (PLA), for the purposes of the Regulation Annex IV of Resolution No. 2,099 of August 17, 1994, shall be defined as the sum of the levels listed below:

I - Level I - represented by social capital, capital reserves, profit reserves (excluding reserves for contingencies and special profit reserves related to mandatory dividends not distributed) and accumulated profits or losses adjusted by the net value between revenues and expenses, minus the values related to treasury shares, cumulative preferred shares, and redeemable preferred shares;

II - Level II - represented by revaluation reserves, reserves for contingencies, special profit reserves related to mandatory dividends not distributed, cumulative preferred shares, redeemable preferred shares, subordinate debts, and hybrid instruments of capital and debt.

Paragraph 1. The hybrid instruments of capital and debt referred to in item II of this article:

I - cannot contain any guarantee to the creditor, even if indirect;

II - must be fully paid in cash;

III - must have their payment subordinate to the payment of other liabilities of the issuing institution;

IV - cannot be redeemed at the initiative of the creditor;

V - must contain a clause providing for their use in compensating for losses determined by the issuing institution;

VI - must contain a clause providing that the payment of the corresponding charges may be deferred, if the same implies the issuing institution falling out of the minimum capitalization level required in current regulation;

VII - must be registered;

VIII - must be registered in an organized system of registration and financial settlement of securities, in the country or abroad, that allows access by the Central Bank of Brazil to the information related to them.

Paragraph 2. Instruments that have the same nature as those referred to in the previous paragraph, but that may not meet the conditions provided therein, may integrate Level II as subordinate debts, provided the following is observed:

I - they must have a minimum term of 5 (five) years, and cannot provide for amortizations during this period;

II - if an option for redemption through preferred shares is stipulated, this option may only be exercised before its maturity;

III - they cannot be repurchased or redeemed before their maturity;

IV - they must contain a clause providing for the non-payment of principal and/or interest - even upon redemption - if the same implies the issuing institution falling out of the minimum capitalization level required in current regulation;

V - during the 5 (five) years remaining until maturity, an annual reducer of 20% (twenty percent) shall be applied to the corresponding value;

VI - they must be registered;

VII - they must be registered in an organized system of registration and financial settlement of securities, in the country or abroad, that allows access by the Central Bank of Brazil to the information related to them.

Paragraph 3. The instruments referred to in paragraphs 1 and 2 must be subject to explanatory notes to the financial statements of the issuing institution.

Paragraph 4. Redeemable preferred shares, for the purposes of this Resolution, are considered shares created by the institution with a fixed term for the payment of their value.

Article 2. For the purposes of this Resolution:

I - the amount of Level II is limited to the value of Level I;

II - the amount of revaluation reserves referred to in Article 1, item II, is limited to 25% (twenty-five percent) of the PLA, as defined in that article;

III - the amount of subordinate debts referred to in Article 1, paragraph 2, is limited to 50% (fifty percent) of the value of Level I.

Article 3. Any insufficiency of the PLA of the institution, as defined in Article 1, resulting from the application of the calculation methodology now established, is admitted until December 31, 1998, prohibited, in this case, the contracting of any new operations that burden said insufficiency.

Article 4. The Central Bank of Brazil is authorized to issue the rules and adopt the measures deemed necessary for the execution of the provisions of this Resolution, including the power to alter the date referred to in the previous article.

Article 5. This Resolution enters into force on the date of its publication.

Brasilia, August 26, 1998

Gustavo H. B. Franco
President