BCB Resolution No. 324 of June 14, 2023, amending Circular No. 3,809 of August 25, 2016, regarding procedures for recognizing mitigating instruments in calculating risk-weighted assets for credit risk exposures under the standardized approach

BCB RESOLUTION
NO. 324, OF JUNE 14, 2023

Amends
Circular No. 3,809, of August 25, 2016, which establishes the procedures for the recognition of mitigating instruments in the calculation of the risk-weighted assets (RWA) portion regarding credit risk exposures subject to the calculation of capital requirements using the standardized approach (RWACPAD) as addressed in CMN Resolution No. 4,958, of October 21, 2021, and BCB Resolution No. 200, of March 11, 2022.

The Collegiate Board of the Central Bank of Brazil, in a session held on June 14, 2023, based on the provisions of Arts. 9, 10, item IX, and 11, item VII, of Law No. 4,595, of December 31, 1964, Art. 9-A of Law No. 4,728, of July 14, 1965, and Art. 9, item II, of Law No. 12,865, of October 9, 2013, and considering Art. 3, § 2, of CMN Resolution No. 4,958, of October 21, 2021, Arts. 3, item VIII, and 14 of Resolution No. 4,282, of November 4, 2013, and Art. 3, § 2, of BCB Resolution No. 200, of March 11, 2022,

R E S O L V E S:

Art.
1º The Circular No. 3,809, of August 25, 2016, shall enter into force with the following alterations:

“Art. 2º ............................................................................................................

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§ 2º .................................................................................................................

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III - when the execution of the mitigating instrument for one or more exposures does not compromise the mitigation of credit risk for the others.

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§ 8º In the case of non-compliance regarding the disclosure of information referred to in item VII of § 1 of Art. 2 of BCB Resolution No. 54, of December 16, 2020, the recognition of the mitigating instruments provided for in the main text may be prohibited, at the discretion of the Central Bank of Brazil, until the non-compliance is corrected.” (NEW)

“Art. 4º
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I - demand deposits, electronic money balances, savings deposits, and gold deposits, held in the institution itself;

II - time deposits, interbank deposits, financial letters, real estate credit letters, agribusiness credit letters, financial leasing letters, secured real estate letters, structured operations certificates (SOCs) and credit-linked notes, when these instruments are of its own issuance, fully paid in cash, and held in the institution itself or custodied in its favor by third parties;

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IV - securities issued by central governments of foreign jurisdictions and their respective central banks whose external risk classification, granted by a credit rating agency registered or recognized in Brazil by the Securities and Exchange Commission (CVM), is equivalent to investment grade or when the conditions of § 9 are observed;

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VI

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a) shares or securities of its own issuance listed on a stock exchange or registered in an organized over-the-counter market subject to government regulation and supervision, in Brazil or abroad; and

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§ 3º For the purposes of the main text, the value considered for credit-linked notes and the SOCs mentioned in item II of the main text must be the total value of minimum payments to be made to the investor in the event of a credit event.

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§ 9º The following may be included in item IV of the main text, securities that:

I - meeting the conditions of Art. 24 of BCB Resolution No. 229, of 2022, receive an FPR equal to or less than 50% (fifty percent); and

II - mitigate exposures referenced in the local currency of the jurisdiction and registered in the balance sheet of the subsidiary located in the same jurisdiction.

§ 10. In the case of repurchase agreements and securities lending and borrowing, the financial resources received in sale agreements with commitment to repurchase or in lending transfers receive the treatment provided for in the deposits mentioned in item I of the main text.” (NEW)

“Art. 6º ............................................................................................................

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§ 1º For the application of the provisions of item I of the main text, the financial collateral referred to in Art. 4, items III, IV, and V, must have their market value reduced by 20% (twenty percent).

§ 2º In the case of the financial collateral referred to in Art. 4, item IV, the treatment provided in this article applies only when the collateral receives an FPR of 0% (zero percent), in accordance with BCB Resolution No. 229, of 2022.

§ 3º The treatment provided in this article does not apply to the portion of the exposure covered by gold deposits mentioned in Art. 4, item I.” (NEW)

“Art. 9º ............................................................................................................

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III - C = value of financial collateral marked to market daily;

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§ 2º The value of the standardized adjustment factor Hc, observing the provisions of §§ 4 to 6 of this article, must be defined as follows:

I - for the financial collateral referred to in Art. 4, items I and II, the value of the standardized adjustment factor is:

a) 20% (twenty percent), if it is a gold deposit; or

b) 0% (zero percent), in other cases;

II - for the financial collateral referred to in Art. 4, item III, the value of the standardized adjustment factor is:

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b) 2% (two percent), when the effective remaining maturity term is less than or equal to 5 (five) years; or

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III - for the financial collateral referred to in Art. 4, item IV, the value of the standardized adjustment factor is:

a) if the external credit risk classification is equal to or higher than AA- or equivalent classification:

1. 0.5% (zero point five percent), when the effective remaining maturity term is less than or equal to 1 (one) year;

2. 2% (two percent), when the effective remaining maturity term is less than or equal to 5 (five) years; or

3. 4% (four percent), when the effective remaining maturity term is greater than 5 (five) years;

b) if the external credit risk classification is equal to or higher than BBB- and lower than AA- or equivalent classification:

1. 1% (one percent), when the effective remaining maturity term is less than or equal to 1 (one) year;

2. 3% (three percent), when the effective remaining maturity term is less than or equal to 5 (five) years; or

3. 6% (six percent), when the effective remaining maturity term is greater than 5 (five) years; or

c) if the external credit risk classification is equal to or higher than BB- and lower than BBB- or equivalent classification, 15% (fifteen percent), for any effective remaining maturity term;

IV - for the financial collateral referred to in Art. 4, item V, the value of the standardized adjustment factor is:

a) if the external credit risk classification is equal to or higher than AA- or equivalent classification:

1. 1% (one percent), when the effective remaining maturity term is less than or equal to 1 (one) year;

2. 3% (three percent), when the effective remaining maturity term is less than or equal to 3 (three) years;

3. 4% (four percent), when the effective remaining maturity term is less than or equal to 5 (five) years;

4. 6% (six percent), when the effective remaining maturity term is less than or equal to 10 (ten) years; or

5. 12% (twelve percent), when the effective remaining maturity term is greater than 10 (ten) years; or

b) if the external credit risk classification is equal to or higher than BBB- and lower than AA- or equivalent classification:

1. 2% (two percent), when the effective remaining maturity term is less than or equal to 1 (one) year;

2. 4% (four percent), when the effective remaining maturity term is less than or equal to 3 (three) years;

3. 6% (six percent), when the effective remaining maturity term is less than or equal to 5 (five) years;

4. 12% (twelve percent), when the effective remaining maturity term is less than or equal to 10 (ten) years; or

5. 20% (twenty percent), when the effective remaining maturity term is greater than 10 (five) years;

V - for the financial collateral referred to in Art. 4, item VI, the value of the standardized adjustment factor is:

a) 12% (twelve percent), when the effective remaining maturity term is less than or equal to 10 (ten) years; or

b) 20% (twenty percent), when the effective remaining maturity term is greater than 10 (ten) years;

VI - for the financial collateral referred to in Art. 4, item VII, the value of the standardized adjustment factor is:

a) 2% (two percent), when the effective remaining maturity term is less than or equal to 1 (one) year;

b) 4% (four percent), when the effective remaining maturity term is less than or equal to 3 (three) years;

c) 6% (six percent), when the effective remaining maturity term is less than or equal to 5 (five) years;

d) 12% (twelve percent), when the effective remaining maturity term is less than or equal to 10 (ten) years; or

e) 20% (twenty percent), when the effective remaining maturity term is greater than 10 (ten) years;

VII - for the financial collateral referred to in Art. 4, item VIII, the value of the standardized adjustment factor is 20% (twenty percent); and

VIII - for the financial collateral referred to in Art. 4, item IX, the value of the standardized adjustment factor is 25% (twenty-five percent).

§ 3º
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II - 30% (thirty percent), for exposures related to securities, securities, investment fund shares, or structured operations not listed in Art. 4;

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§ 6º For institutions classified in Segment 1 (S1), in accordance with Resolution No. 4,553, of January 30, 2017, the values of the standardized adjustment factors referred to in §§ 1 to 5 must be multiplied by 1.40 (one and forty hundredths) when the exposure:

I - is not related to a repurchase agreement, securities lending and borrowing, or an operation with a financial derivative instrument; or

II - is related to an operation with a financial derivative instrument:

a) whose number of operations in the corresponding clearing set exceeds 5,000 (five thousand) at any time in the immediately preceding quarter;

b) whose corresponding clearing set contains financial collateral without a continuously active market in which multiple buy offers that do not represent a significant discount can be obtained within two business days; or

c) whose corresponding clearing set is associated with more than two margin call discrepancies in the two previous quarters and whose terms to resolution exceeded the risk margin period (MPOR) applicable to the institution, defined in Annex I of BCB Resolution No. 229, of 2022.

§ 7º For the purposes of this article, the financial collateral referred to in Art. 4, § 9, whose external credit risk classification is lower than BBB- or equivalent classification, is equated to those whose external credit risk classification is equal to or higher than BBB- and lower than AA-.” (NEW)

“Art.
10. ..........................................................................................................

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§ 3º In the Simple Approach, if the requirements referred to in items II to VII of the main text are met, the 20% (twenty percent) reducer, provided for in § 1 of Art. 6, does not apply to the value of the financial collateral used in the repurchase agreement or securities lending operation.” (NEW)

“Art. 16.
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V - Hs= standardized adjustment factor associated with the financial instrument relative to Es, according to the criteria defined in Art. 9, § 2 to § 4, observing that:

a) Hs has a positive sign when the instrument is granted in a loan, sold with a commitment to repurchase, or transacted in a manner similar to granting asset loans or repurchase commitments; and

b) Hs has a negative sign when the instrument is taken in a loan, purchased with a commitment to resell, or transacted in a manner similar to taking asset loans or resale commitments;

VI - Efx = absolute value of the exposure resulting from the difference between the total of long positions and the total of short positions in currencies different from the settlement currency of the clearing agreement;

VII - Hfx = standardized adjustment factor defined in Art. 9, item VI and § 1; and

VIII - N is the quantity of financial instruments subject to clearing whose Es values are equal to or greater than 10% (ten percent) of the largest Es.

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“Art. 17.
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§ 1º For the purposes of the main text, the portion of the notional value of SOCs and credit-linked notes whose risk transfer is integral and unrestricted may be equated to a credit derivative provided that the institution holds the reference asset and it is the mitigated exposure.

§ 2º In the case mentioned in § 1, the FPR referred to in the main text must be 0% (zero percent).

§ 3º In the case where the credit derivative or surety guarantee stipulates that protection is triggered only from a certain percentage of losses, the portion of the exposure not mitigated must be weighted at 1,250% (one thousand two hundred and fifty percent).

§ 4º In the case where the credit derivative or surety guarantee stipulates that protection is proportional, so that losses are divided according to a proportion with the institution, the non-mitigated portion of the exposure corresponds to the percentage of losses allocated to the institution multiplied by the original value of the exposure.” (NEW)

“Art.
18. ..........................................................................................................

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II - entities mentioned in Art. 27 of BCB Resolution No. 229, of 2022;

III - financial institutions and other institutions authorized to operate by the Central Bank of Brazil, as well as financial institutions located in the jurisdictions referred to in Art. 4, item IV;

IV - large non-financial legal entities subject to an FPR of 65% (sixty-five percent), in accordance with Art. 35 of BCB Resolution No. 229, of 2022;

V - QCCP, as defined in Art. 67, § 1, of BCB Resolution No. 229, of 2022; or

VI - insurance companies subject to prudential requirements consistent with international standards.

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§ 3º The surety guarantee provided by an entity mentioned in item II of the main text that ensures coverage, at minimum, of country risk and transfer risk, as defined in Art. 21 of Resolution No. 4,557, of 2017, and Art. 19 of BCB Resolution No. 265, of November 25, 2022, dispenses with compliance with the requirements of Art. 24 of BCB Resolution No. 229, of 2022, for the application of the FPR established by the regulatory authority of the foreign jurisdiction to operations with the central government of that jurisdiction and its respective central bank, as well as securities and financial instruments issued by them.” (NEW)

“Art. 23. ..........................................................................................................

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§ 1º Operations involving credit derivatives referenced to more than one entity in which protection is triggered only from more than one credit event are not recognized as mitigating instruments.

§ 2º Exposures may only be mitigated by credit derivative operations of the type referred to in item II of the main text if the value of the respective provision or accounting write-down is greater than or equal to the value of gains realized with the credit derivative operation.” (NEW)

“Art. 24.
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V - the entities responsible for determining the occurrence of the credit event must be clearly identified, prohibiting the risk-receiving counterparty from unilaterally choosing said entities; and

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“Art. 27.
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I - guarantee provided by the Union or by the Central Bank of Brazil;

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“Art. 29-B. In the case of surety guarantee provision provided by law regarding the obligation of another financial institution, the exposure may, with the authorization of the Central Bank of Brazil, be substituted, in whole or in part, by exposures related to operations with third parties, provided that:

I - the substituted portion is covered by the debtor balance of operations with third parties whose rights are subrogated in the event of non-compliance with the financial institution's obligation; and

II - the FPR applicable to exposures related to operations with third parties is equal to or lower than the FPR applicable to the financial institution, in accordance with BCB Resolution No. 229, of 2022.

Sole Paragraph. The authorization referred to in the main text must be granted when the resulting exposure to third parties is not subject to the credit risk of the financial institution.” (NEW)

Art.
2º The following are revoked:

I - Art. 1 of BCB Resolution No. 239, of September 1, 2022, in part that alters Art. 18 of Circular No. 3,809, of 2016;

II - the following provisions of Circular No. 3,809, of 2016:

a) item VI of § 1 of Art. 2;

b) § 4 of Art. 4;

c) the sole paragraph of Art. 6;

d) items “c”, “d”, and “e” of item IV of § 2 of Art. 9; and

e) item III of Art. 16.

Art. 3
This Resolution enters into force:

I - on the date of its publication, regarding the provisions of Art. 2, item I;

II - on October 1, 2023, regarding Art. 1, in part that alters § 6 of Art. 9 of Circular No. 3,809, of 2016; and

III - on July 1, 2023, regarding the remaining provisions.

Otávio Ribeiro Damaso
Director of Regulation