Circular 61/2008 — Modifies Circular 48/2008

"2008, Year of Physical Education and Sport"
CIRCULAR 61/2008
Mexico, D.F., December 8, 2008.
TO THE INSTITUTIONS
OF MULTIPLE BANKING:
SUBJECT: LIQUIDITY FACILITIES

The Bank of Mexico, based on articles 28 of the Political Constitution of the United Mexican States, sixth and seventh paragraphs; 7°, fractions I, II and X, 8°, 14, 16, 24 and 36 of the Bank of Mexico Law; 22 of the Law for Transparency and Order of Financial Services; 8th paragraphs third and sixth, 12 in relation to 19 fraction IX and 17 fraction I of the Internal Regulations of the Bank of Mexico, which provide for the attribution of the Central Bank, through the General Directorate of Central Bank Operations and the Directorate of Central Bank Regulations, respectively, to issue provisions; Unique of the Agreement on the Assignment of the Administrative Units of the Bank of Mexico, fractions I and IV, with the objective of promoting the sound development of the financial system and facilitating the proper functioning of payment systems, by adjusting the interest rate of the liquidity facilities it offers to these institutions, as well as expanding the titles subject to repurchase agreements and the guarantees that can be granted to obtain financing in said facilities, has resolved to modify numerals 1.; 1.1, in the title, in the items "Term", "Amount", "Interest Rate" first paragraph and "Guarantee", as well as in the last paragraph; 1.2, in the items "Term", "Titles Subject to Repo" and "Premium" in the paragraph relating to the Interest Rate, as well as in the penultimate paragraph, 2.1, 2.2, 2.3, first paragraph, as well as Annex 1; add a numeral 1.3 and eliminate the last paragraph of numeral 1.2, all of them of Circular 48/2008, modified by Circular 49/2008, to remain in the following terms:

RULES APPLICABLE TO THE EXERCISE OF FINANCING

"1. . . .
In the event that the original copy of the communication referred to in the previous paragraph is not received by the date mentioned, Bank of Mexico will terminate the corresponding contract in accordance with what is provided in numeral 2.1 of these Rules.

The exercise of financing may be carried out, at the institution's choice, through the celebration of credit operations secured with monetary regulation deposits or U.S. dollar deposits that the institutions maintain at Bank of Mexico and/or repo operations, in terms of numerals 1.1 and 1.2 of these Rules, respectively. Additionally, in the event that institutions do not have sufficient U.S. dollars available or titles susceptible to be the object of repo operations to carry out the aforementioned operations, they may carry out with Bank of Mexico the operations referred to in numeral 1.3. To do so, they must send to Bank of Mexico, in the terms specified in the Manual of Operation for the Exercise of Liquidity Financing, all documentation related to credits whose flows they intend to assign to Bank of Mexico itself, which certifies that said credits meet the requirements to be made known in accordance with what is provided in the aforementioned Manual. . . ."

"1.1 Credits secured with monetary regulation deposits and/or U.S. dollar deposits at Bank of Mexico . . .
Term: One banking business day, with automatic renewal for the same term.
Amount: To the amount guaranteed with the monetary regulation deposits and/or with the U.S. dollar deposits that the institution maintains at Bank of Mexico.
Interest Rate: It will be equal to that resulting from multiplying the factor 1.1 (one point one) by the target for the One-Day Interbank Interest Rate that the Board of Governors of the Bank of Mexico has determined for monetary policy purposes, made known on the electronic page of Bank of Mexico itself on the worldwide network (Internet) with domain name www.banxico.org.mx., in effect at the moment of the accreditation of resources or respective renewal. . . . Guarantee: Monetary regulation deposits and/or U.S. dollar deposits that the accredited party maintains at Bank of Mexico. In the case of guarantees constituted with the aforementioned U.S. dollar deposits, institutions must request that for such purposes they be segregated in the special guarantee account that Bank of Mexico holds for them, in accordance with what is provided in the Manual of Operation for the Exercise of Liquidity Financing.

Bank of Mexico will make known to the institutions the value of the guarantee and the applicable discount factor in the terms established in the aforementioned Manual.
. . .
Accreditation of resources: Once the contract is signed and the corresponding communication is presented, Bank of Mexico will make the respective credit in the Single Account of the accredited institution up to the guaranteed amount during the deadline schedule established in the Manual of Operation for the Exercise of Liquidity Financing."

"1.2 Repo operations
. . .
Term: One banking business day with automatic renewal for the same term.
Titles Subject to Repo: i) Certificates of the Treasury of the Federation denominated in national currency (CETES) excluding those issued under credit restructuring programs in investment units (SPECIAL CETES); ii) Development Bonds of the Federal Government denominated in national currency (BONDES) or in investment units (UDIBONOS); iii) Segregated Coupons of the Development Bonds of the Federal Government denominated in national currency with fixed interest rate or in investment units to which the "Rules for the Segregation and Reconstitution of Titles" issued by the Secretariat of Finance and Public Credit refer; iv) Titles issued by the Institute for the Protection of Bank Savings regarding which Bank of Mexico acts as financial agent for issuance, placement, purchase and sale, in the national market (BONOS DE PROTECCIÓN AL AHORRO (BPAS)); v) Monetary Regulation Bonds (BREMS); vi) Debt titles issued by the Federal Government denominated in foreign currency, which are deposited in the S.D. Indeval, Institution for the Deposit of Securities, S.A. de C.V., (INDEVAL); vii) Debt titles denominated in national currency issued by multiple banking institutions other than the reporting one and deposited in INDEVAL, which have been placed no later than October 10, 2008, viii) Debt titles denominated in national currency issued by development banking institutions deposited in INDEVAL whose remaining term is equal to or greater than seven calendar days, and ix) Debt titles denominated in national currency, which are deposited in INDEVAL, with at least two minimum AA ratings or their equivalent granted by securities rating institutions authorized by the National Banking and Securities Commission and issued by any of the following persons:

a. Parastatal entities; b. Local governments;
c. Municipalities;
d. International organizations; e. Non-financial companies resident in Mexico that are not part of the same business group or consortium as the reporting one, in terms of what is provided in the Securities Market Law; f. Financial companies resident in Mexico other than the reporting one which issue such instruments to securitize future payment obligations for mortgage credits, or g. Fiduciary institutions of trusts constituted by financial companies resident in Mexico other than the reporting one whose equity is composed of mortgage credit portfolios. . . . Bank of Mexico will make known to the institutions intending to carry out repo operations, the market price valuation of the titles to be repoed and the corresponding discount factors, in the terms established in the Manual of Operation for the Exercise of Liquidity Financing. Likewise, Bank of Mexico will make known to the institutions, through the means it considers convenient, the specific characteristics of the titles susceptible to be the object of repos, reserving the right not to accept any particular title. . . . Premium: . . . Interest Rate = the product of multiplying the factor of 1.1 (one point one) by the target for the One-Day Interbank Interest Rate that the Board of Governors of the Bank of Mexico has determined for monetary policy purposes, made known on the electronic page of Bank of Mexico itself, in effect at the moment of the accreditation of resources or respective renewal. Accreditation of resources: Once the contract is signed and the corresponding communication is presented to formalize these repo operations, institutions must previously transfer the titles subject to the repo to the securities deposit account that INDEVAL holds at Bank of Mexico. Subsequently, Bank of Mexico will make the respective credit in the Single Account of the reporting institution up to the amount of the value of the titles

during the schedules established in the Manual of Operation for the Exercise of Liquidity Financing."

"1.3 Credits related to credit portfolio
Institutions may, prior to signing the corresponding contract in terms of numeral 2.1, carry out credit opening operations provided for in this numeral, only when they do not have U.S. dollars or titles available, to carry out the operations referred to in numerals 1.1 and 1.2, respectively.
These credits will have the following characteristics:
Accreditor: Bank of Mexico.
Accredited: The institution to which Bank of Mexico has granted financing.
Term: One banking business day, with automatic renewal for the same term.
Amount: To the amount authorized by Bank of Mexico based on the rights over the cash flow of payments of the credit portfolio in question assigned in favor of Bank of Mexico itself.
Interest Rate: It will be equal to that resulting from multiplying the factor 1.1 (one point one) by the target for the One-Day Interbank Interest Rate that the Board of Governors of the Bank of Mexico has determined for monetary policy purposes, made known on the electronic page of Bank of Mexico itself, in effect at the moment of the accreditation of resources or respective renewal. For the purpose of interest calculation, the interest rate will be divided by 360 and the result thus obtained will be multiplied by the number of days effectively elapsed. Payment of interest: The credits will generate interest that will be payable every banking business day during the validity of the credit, through charges that Bank of Mexico makes in the national currency account called Single Account that it holds for the accredited party. Characteristics of the credit portfolio whose payment flow must be assigned in favor of Bank of Mexico, as an alternative payment source: Credits granted by the accredited institution and owed by federative entities and/or municipalities, whose payment source or guarantee are federal participations or contributions included in items 28 or 33 of the Expenditure Budget of the Federation for the corresponding fiscal year.

The aforementioned credits must be: i) up to date in their payment; ii) duly registered in any of the records provided for in the Fiscal Coordination Law, and iii) instrumented through trusts of payment source or guarantee. Likewise, they must meet the other requirements determined by Bank of Mexico and made known in accordance with what is provided in the Manual of Operation for the Exercise of Liquidity Financing. The amount of the credit portfolio must cover both the principal and the interest that the credit will accrue once the discount factors that the Bank itself will make known in the terms established in the Manual of Operation for the Exercise of Liquidity Financing are applied. The institution is obliged to carry out the necessary procedures so that, in its case, the assignment of the payment flow of the credit portfolio referred to in this item takes effect, using the formats established in the Manual. Likewise, it must keep said portfolio free of any encumbrance or affectation during the validity of the credit, in order for the agreed assignment to be carried out if appropriate. Accreditation of resources: Once the contract is signed and the corresponding communication and documentation related to the credits are presented, Bank of Mexico will make the respective credit in the Single Account of the accredited institution up to the authorized amount during the deadline schedule established in the Manual of Operation for the Exercise of Liquidity Financing."

2. General Provisions
   "2.1 Contract: To carry out the operations subject to these Rules, interested institutions must celebrate with Bank of Mexico a contract for the celebration of the operations provided for in numerals 1.1 and 1.2 of these Rules and another to obtain the financing referred to in numeral 1.3, for which they must present to the Subdirectorate of Instrumentation of National Operations, a certified and simple copy of the deed in which the powers of their representative to exercise acts of dominion are recorded, as well as a simple copy of the official identification(s) of the person(s) who intend(s) to sign the cited contracts."

"2.2 Payment of Financing: Bank of Mexico may abstain from renewing the credit and repo operations celebrated in terms of what is provided in these Rules, when: i) the accredited or reporting party carries out operations in terms different from what is established in said Rules, in the laws and other provisions applicable to it, as well as to what is stipulated in the

contracts referred to in numeral 2.1, or ii) when, in the judgment of Bank of Mexico, the financing or the resources obtained by reason of the credit or repo, are not used to cover temporary liquidity needs. Bank of Mexico will inform of said circumstance to the institution in question with one banking business day of advance. Regarding the first provision of each financing, the respective credit and repo operations will be renewed obligatorily for the accredited or reporting party as many times as necessary, in order for the financing to be used for at least five calendar days during which the accredited or reporting party cannot decrease the amount of the exercised financing. The respective term will begin to count from the date of the first disbursement. Likewise, except for what is provided in the previous paragraph, the accredited or reporting party may pay the financing in whole or in part, informing Bank of Mexico in writing using the format attached as Annex 2, no later than the immediate preceding banking business day to the date on which it intends to make the payment, in the schedules established in the Manual of Operation for the Exercise of Liquidity Financing. Once each financing has been settled in its entirety, it will be cancelled."

"2.3 Information to Bank of Mexico: Bank of Mexico may request from the accredited or reporting institution, in the terms and conditions that it indicates, any information it considers necessary, including that related to evaluate its financial situation and the credit portfolio referred to in numeral 1.3 of these Rules. Likewise, the Bank may require the General Director of the institution to deliver periodic reports on its liquidity and solvency situation. . . ."

Annex 1
"MODEL OF INSTITUTION'S REQUEST TO BANK OF MEXICO (INSTITUTION'S LETTERHEAD) 1 Mexico D.F., ______________________.
Central Bank Operations General Directorate
Bank of Mexico
Present,
Through this channel, I allow myself to request from Bank of Mexico on behalf of (full name of the multiple banking institution, including, if applicable, the financial group to which it belongs), a temporary financing in order to obtain liquidity, in terms of what is provided in the "Rules applicable to the exercise of financing", contained in Circular 48/2008 of date October 13, 2008 and its modifications. Likewise, I declare that I have requested in writing to the president of the Board of Administration of this institution, to inform said collegiate body in writing at the earliest possible time about the presentation of this request. 2 The causes that originated the need to access the Central Bank's financing are the following: _________________ The amount of the requested financing is $ __________________ (amount in letters); my represented party accepts to celebrate the financing operations in the form and terms provided in the Rules mentioned in the first paragraph of this communication. Sincerely,

The present communication may be directed to the email accounts and fax numbers indicated below:
Email Account Fax Number dmargoli@banxico.org.mx 5227-8803 ljimenez@banxico.org.mx 5237-2297 asordo@banxico.org.mx 5227-8814 rcanojau@banxico.org.mx 5227-8816 2 In the event that the institution is a subsidiary of a foreign financial entity, it must inform the General Director of its parent company regarding the presentation of this communication.

Name and signature of the General Director of the Institution c.c.p.: General Directorate of Analysis of the Financial System National Operations Processing Management Subdirectorate of Market Operations Subdirectorate of Market Analysis" TRANSITORY UNIQUE. This Circular will enter into force on December 9, 2008.