JPRM-2023-019-M — Reforming Regulation on Reserve Requirements and Liquidity Reserves

RESOLUTION No. JPRM-2023-019-M MONETARY AND FINANCIAL POLICY 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 ibid states that Public Administration constitutes a service to the community governed by principles of efficiency, quality, hierarchy, coordination, planning, among others;

That, paragraphs 2 and 3 of Article 302 of the Constitution of the Republic provide that monetary, credit, exchange, and financial policies, among others, have as their objective to establish levels of global liquidity that guarantee adequate margins of financial security and to direct liquidity surpluses toward the investment required for the country's development;

That, the first paragraph 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 shall be implemented through the Central Bank of Ecuador;

That, Article 309 supra establishes: “The national financial system is composed of the public, private, and popular and solidary sectors, which intermediated public resources. Each of these sectors will have specific and differentiated control norms and entities, which will be responsible for preserving their security, stability, transparency, and solidity (…)”;

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

That, Article 47.6 of the same Code, regarding the functions of the Monetary and Financial Policy 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”;

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

That, Article 151 of the Code ibid determines: “Regulation must recognize the nature and particular characteristics of each of the sectors of the national financial system. Regulation may be differentiated by sector, by segment, by activity, among others”.

That, Article 189 of the aforementioned Code provides that entities of the national financial system must maintain sufficient levels of high-quality liquid assets, free of liens or restrictions, that can be transformed into cash within a certain period of time without significant loss of value, in relation to their obligations and contingencies, weighted as determined by the Board;

That, Article 240 of the aforementioned norm determines: “Entities of the public and private financial sectors, as well as those of the popular and solidary financial sector, without prejudice to other reserves established by this Code, are obligated to maintain reserve requirements on the deposits and collections they hold. The reserve requirement shall be maintained at the Central Bank of Ecuador. Under the authority of what is determined in the Constitution, for entities of the popular and solidary financial sector, the Monetary and Financial Policy Board will establish differentiated reserve requirement conditions by segments. 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 legal body establishes: “The Monetary and Financial Policy Board will regulate differentiated reserve requirement percentages, which may be by collection structure, type of entity, among others”;

That, through Resolution No. JPRM-2023-013-M, of June 30, 2023, the Monetary and Financial Policy Board issued the “Regulation of the Reserve Requirement Percentage and Liquidity Reserves of Entities of the Public, Private, and Popular and Solidary Financial Sectors”;

That, in Article 1 of the aforementioned Resolution No. JPRM-2023-013-M, in the table “Reserve Requirement Percentage by Type of Financial Entity and Asset Level”, due to a clerical error, the percentage of “3.5%” was included as the reserve requirement for entities of the Public Financial Sector with assets less than or equal to USD 1,000 million, when the correct percentage is “5.0%”;

That, the Monetary and Financial Policy Board, through Extraordinary Session No. 007-2023 under virtual modality, on October 12, 2023, reviewed the proposal sent via Memorandum No. BCE-BCE-2023-0232-M, of October 28, 2023, by the General Manager of the Central Bank of Ecuador to the President of the Monetary and Financial Policy Board, as well as the Technical Report No. BCE-SGPRO-055-2023 of September 25, 2023; and the Legal Report No. BCE-CGJ-062-2023, of September 26, 2023; and,

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

REFORM THE REGULATION OF THE RESERVE REQUIREMENT PERCENTAGE AND LIQUIDITY RESERVES OF ENTITIES OF THE PUBLIC, PRIVATE, AND POPULAR AND SOLIDARY FINANCIAL SECTORS, ISSUED THROUGH RESOLUTION NO. JPRM-2023-013-M

Sole Article.- In Article 1 of Resolution No. JPRM-2023-013-M, of June 30, 2023, substitute the penultimate row of the table “Reserve Requirement Percentage by Type of Financial Entity and Asset Level”, corresponding to assets for the Public Financial Sector; with the following text:

a) Less than or equal to USD 1,000 million 5.0%

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

The publication of this resolution on the institutional website of the Central Bank of Ecuador is entrusted to the Document Management and Archive Directorate.

NOTIFY AND PUBLISH.- Given in the Metropolitan District of Quito, on October 12, 2023.

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THE PRESIDENT Dr. TATIANA MARIBEL RODRÍGUEZ CERÓN

The aforementioned resolution was signed by Dr. Tatiana Maribel Rodríguez Cerón - President of the Monetary and Financial Policy Board, in the Metropolitan District of Quito, on October 12, 2023.- I CERTIFY.

ADMINISTRATIVE SECRETARY Attorney MARÍA ALEXANDRA GUERRERO DEL POZO