JPRM-2023-002-M — Reforming the Regulation on Reserve Requirements and Liquidity Reserves

MONETARY POLICY AND REGULATION BOARD (JPRM) Ecuador Resolution No. JPRM-2023-002-M

THE MONETARY POLICY AND REGULATION BOARD

CONSIDERING:

That, Article 226 of the Constitution of the Republic of Ecuador prescribes that public servants and persons acting under a state authority shall exercise only the competencies and powers attributed to them in the Constitution and the Law;

That, Article 227 ibidem states that Public Administration constitutes a service to the community governed by principles of efficiency, quality, hierarchy, coordination, planning, among others;

That, the first clause of Article 303 of the Magna Carta determines that the formulation of monetary, credit, exchange, and financial policies is the exclusive faculty of the Executive Function and will be implemented through the Central Bank of Ecuador;

That, Article 47.1 of the Organic Code of Monetary and Financial Law created the Monetary Policy and Regulation Board as part of the Executive Function, responsible for monetary formulation, the highest governing body of the Central Bank of Ecuador, and determines its composition;

That, Article 47.6 of the same Code, regarding the functions of the Monetary Policy and Regulation Board, among others, establishes: "1. Formulate policy in the monetary sphere and observe its application by the Central Bank of Ecuador, to preserve the integrity and sustainability of the dollarization monetary system and the financial system, in accordance with the provisions of this Code; (...) 26. Those others conferred by law."

That, Article 118.1 supra determines the instruments to manage liquidity, among which reserve requirements are included, establishing that the Monetary Policy and Regulation Board will issue a resolution specifying the terms and conditions for liquidity operations;

That, Article 240 of the aforementioned norm determines: "Entities of the public and private financial sectors, as well as those of the popular and solidarity financial sector, without prejudice to other reserves established by this Code, are obligated to maintain reserve requirements on the deposits and captations they hold. The reserve requirement shall be maintained at the Central Bank of Ecuador."

That, for entities of the popular and solidarity financial sector, the Monetary Policy and Regulation Board will establish differentiated reserve requirement conditions by segment, under the authority determined in the Constitution;

That, the failure of a financial entity to timely cover the requested reserve requirement constitutes a very serious offense, sanctioned by the Central Bank of Ecuador in accordance with this Code;

That, Article 241 of the same normative body establishes: "The Monetary Policy and Regulation Board will regulate differentiated reserve requirement percentages, which may be based on capture structure, type of entity, among others."

That, number 24 of Article 261 of the referred Code states: "The following are very serious offenses: (...) 24. Failure to comply with the reserve requirement level on deposits or captations;"

That, Article 29 of the Organic Administrative Code establishes: "Administrative offenses are actions or omissions provided for in the law. Each administrative offense corresponds to an administrative sanction. Norms that provide for offenses and sanctions are not susceptible to analogical application, nor to extensive interpretation."

That, Article 128 of the referred Code determines: "Normative act of an administrative character. It is any unilateral declaration made in the exercise of an administrative competence that produces general legal effects, which is not exhausted with its compliance and is direct in form."

That, the Monetary Policy and Regulation Board, through Resolution No. JPRM-2022-002-M of January 20, 2022, issued the "Regulation on the Percentage of Reserve Requirements and Liquidity Reserves of Entities of the Public, Private, and Popular and Solidarity Financial Sectors":

That, Article 3 of the aforementioned regulation states: "The aforementioned reserve requirement must be maintained on average by each entity of the public, private, and popular and solidarity financial sectors, during the immediate subsequent weekly period."

By weekly period, the period from Thursday to Wednesday is understood, including non-working days.

Weekly reserve deficiencies of entities in the public, private, and popular and solidarity financial sectors may be compensated by an excess position verified in the week following the deficiency.

That, it is necessary to clearly and precisely regulate the conditions for the configuration of eventual non-compliance with the reserve requirement, safeguarding legal certainty and complying with the principles of strengthening confidence and protecting rights;

That, the Monetary Policy and Regulation Board, through extraordinary session No. 001-2023 under mixed modalities, on January 20, 2023, reviewed the proposal sent via memorandum No. BCE-BCE-2023-0009-M, of January 17, 2023, by the General Manager of the Central Bank of Ecuador to the President of the Monetary Policy and Regulation Board, as well as the technical report No. BCE-SGSERV-2023-009/BCE-DNSP-2023-037 of January 17, 2023; and the legal report No. BCE-CGJ-007-2023 of January 17, 2023; and,

In exercise of its functions and in attention to Article 47.7 of the Organic Code of Monetary and Financial Law, the Monetary Policy and Regulation Board resolves:

REFORM THE REGULATION ON THE PERCENTAGE OF RESERVE REQUIREMENTS AND LIQUIDITY RESERVES OF ENTITIES OF THE PUBLIC, PRIVATE, AND POPULAR AND SOLIDARITY FINANCIAL SECTORS

Article 1.- Substitute the first clause of Article 1 of Resolution No. JPRM-2022-002-M, of January 20, 2022, with the following text:

"Art. 1.- Percentage and reserve requirement.- The reserve level that entities of the public, private, and popular and solidarity financial sectors must maintain will be calculated based on the weekly average of daily balances of deposits and captations of each entity, according to the following table and percentage:"

Article 2.- Incorporate, following the third clause of Article 3 of Resolution No. JPRM-2022-002-M, of January 20, 2022, the following provision:

"For the purpose of verifying compliance with the reserve level that entities of the public, private, and popular and solidarity financial sectors must maintain, the corresponding weekly period and the compensation period inclusive shall be observed."

Article 3.- Substitute Article 5 of Resolution No. JPRM-2022-002-M, of January 20, 2022, with the following text:

"Art. 5.- Monitoring of Reserves.- At the end of the weekly period, the Central Bank of Ecuador must monitor that entities of the public, private, and popular and solidarity financial sectors have composed the reserve level in the manner and with the instruments indicated in Article 4 of this section. If as a result of the monitoring weekly deficiencies in the reserve level are determined, it will be reported to the control body, even if these deficiencies have been compensated.

Likewise, the reserve level covered in the compensation period provided for in Article 3 of this resolution will be considered timely fulfilled, if applicable."

Article 4.- Substitute Article 9 of Resolution No. JPRM-2022-002-M, of January 20, 2022, with the following text:

"Art. 9.- Sanction for non-compliance.- In case entities of the public, private, and popular and solidarity financial sectors do not timely cover and maintain the required reserve level, the Central Bank of Ecuador will sanction according to what is established in the Organic Code of Monetary and Financial Law and will communicate to the respective control body about said non-compliance."

Article 5.- Substitute Article 10 of Resolution No. JPRM-2022-002-M, of January 20, 2022, with the following text:

"Art. 10.- Reprocessing.- The Superintendencies may request the Central Bank of Ecuador, within a maximum period of two (2) months counted from the date of presentation of the daily balance, prior to analysis of the justifications presented by financial entities and their favorable technical pronouncement, the execution of a reprocessing in the calculation of the reserve percentage requirement level."

Article 6.- Substitute Article 22 of Resolution No. JPRM-2022-002-M, of January 20, 2022, with the following:

"Art. 22.- Sending of information to control bodies.- The General Management of the Central Bank of Ecuador, in case there are financial entities that do not comply with the liquidity reserve requirement and its composition, will send the report of said entities to the Superintendency of Banks and the Superintendency of Popular and Solidarity Economy."

Article 7.- Following the Second General Provision of Resolution No. JPRM-2022-002-M, of January 20, 2022, add the following provisions:

"THIRD.- The General Manager of the Central Bank of Ecuador, through an administrative resolution, will issue the calendar for the entry into force for the calculation of the reserve level and liquidity reserve requirement applicable, up to December 15 of each immediate preceding fiscal year."

"FOURTH.- The Central Bank of Ecuador will request information from the control bodies of financial entities that it requires for the implementation of this resolution, which must be delivered within a maximum term of fifteen (15) days by said institutions."

Article 8.- Following the Fourth Transitional Provision of Resolution No. JPRM-2022-002-M, of January 20, 2022, add the following provisions:

"FIFTH.- The application of the required reserve level for the fiscal year 2023 will apply from March 8, 2023, based on daily balance information generated between February 23 and March 1, 2023, or with the last information available at the Central Bank of Ecuador. Until then, they will continue to comply with the reserve level provided for the 2022 fiscal year.

During this period, entities of the financial system may send information to verify their compliance with the required reserve level, without prejudice to the power of the Central Bank of Ecuador to request information, if applicable."

"SIXTH.- For the fiscal year 2023, the requirement of the reserve percentage level provided in the First Transitional Provision will be applied progressively according to the following detail:

Type of Entity / Month | March | June | September Public and Private Financial Sector Assets < USD 1,000 million | 4% | | Popular and Solidarity Financial Sector Savings and Credit Cooperatives Segment 1 and Central Box | 2.5% | 3% | 3.5% Mutual Savings and Credit for Housing | 2.5% | 3% | 3.5% Savings and Credit Cooperatives Segment 2 | 0.5% | 1.2% | 2%

FINAL PROVISION.- This resolution will enter into force from the present date, without prejudice to its publication in the Official Register.

The Direction of Documentary Management and Archive is entrusted with its publication on the institutional website of the Central Bank of Ecuador.

COMMUNICATE AND PUBLISH.- Given in the Metropolitan District of Quito, on January 20, 2023.

THE PRESIDENT Dr. TATIANA MARIBEL RODRÍGUEZ CERÓN

The aforementioned resolution was signed by Dr. Tatiana Maribel Rodríguez Cerón, in her capacity as President of the Monetary Policy and Regulation Board, in the Metropolitan District of Quito, on January 20, 2023.- I CERTIFY.

ADMINISTRATIVE SECRETARY Att. MARÍA ALEXANDRA GUERRERO DEL POZO