Resolution CMN No. 2804 — Establishes liquidity risk controls

RESOLUTION NO. 002804

Dispenses on liquidity risk controls.

The CENTRAL BANK OF BRAZIL, in accordance with Article 9 of Law No. 4,595, of December 31, 1964, makes public that the MONETARY POLICY COUNCIL, in a session held on December 21, 2000, based on the provisions of Article 4, item VIII, of the aforementioned law, Articles 9 and 10 of Law No. 4,728, of July 14, 1965, and Law No. 6,099, of September 12, 1974, with the amendments introduced by Law No. 7,132, of October 26, 1983, and taking into account the provisions of Resolution No. 2,554, of September 24, 1998,

HAS RESOLVED:

Article 1. It is established that financial institutions and other institutions authorized to operate by the Central Bank of Brazil must maintain control systems structured in consonance with their operational profiles, periodically reassessed, which allow for permanent monitoring of positions assumed in all operations carried out in the financial and capital markets, so as to highlight the liquidity risk arising from the activities developed by them.

Article 2. For the purposes of this Resolution, liquidity risk is defined as the occurrence of imbalances between negotiable assets and payable liabilities - "mismatches" between payments and receipts - that may affect the institution's payment capacity, taking into consideration the different currencies and settlement terms of its rights and obligations.

Article 3. The controls referred to in Article 1 must allow, at a minimum, the daily evaluation of operations with settlement periods of less than ninety days.

Article 4. With a view to complying with the provisions of Article 1, the institutions mentioned therein must adopt, at a minimum, the following procedures:

I - keep adequately documented the criteria and structure established for liquidity risk control;

II - prepare economic-financial analyses that allow evaluating the impact of different scenarios on the liquidity condition of their cash flows, considering, including, internal and external factors to the institution;

III - prepare reports that allow monitoring the liquidity risks assumed;

IV - carry out evaluations aimed at identifying mechanisms and instruments that allow obtaining the necessary resources to reverse positions that put the economic-financial situation of the institution at risk, encompassing the available liquidity alternatives in the financial and capital markets;

V - periodically carry out evaluation tests of the implemented control systems, including stress tests, adherence tests, and any others that allow identifying problems that, in some way, may compromise the economic-financial equilibrium of the institution;

VI - promote the immediate dissemination of information and analyses undertaken regarding detected liquidity risk to the various executive and managerial sectors of the institution, as well as the conclusions and measures adopted;

VII - establish a contingency plan containing strategies for managing situations of liquidity crisis.

Article 5. The control systems referred to in this Resolution must be capable of identifying:

I - the risks of each institution individually; and

II - the risks of the conglomerate in consolidated terms.

Article 6. The analyses, information, and reports referred to in this Resolution must be made available to the Central Bank of Brazil at the headquarters of the institution and, when applicable, at the headquarters of the leading institution of the financial conglomerate.

Article 7. The institutions referred to in Article 1 must:

I - comply with the provisions of this Resolution within a maximum period of six months counted from the date of its entry into force;

II - designate a statutory director responsible, before the Central Bank of Brazil, for compliance with the provisions of this Resolution, who may be the administrator indicated for the risk management of the institution.

Article 8. The Central Bank of Brazil is authorized to:

I - determine the adoption of corrective measures aimed at adjusting the controls and returning the company to adequate levels of liquidity, as well as request additional information and reports;

II - issue norms and adopt measures deemed necessary for the execution of the provisions of this Resolution, including regarding the period referred to in Article 3.

Article 9. This Resolution enters into force on the date of its publication.

Brasília, December 21, 2000

Arminio Fraga Neto
President