Circular 10/2008 — Modifies Circular 2019/95

"2008, Year of Physical Education and Sport" CIRCULAR 10/2008 Mexico, D.F., March 28, 2008. TO THE MULTIPLE BANKING INSTITUTIONS: SUBJECT: MODIFICATIONS TO CIRCULAR 2019/95.

The Bank of Mexico, based on Articles 28 of the Political Constitution of the United Mexican States, sixth and seventh paragraphs; 24 and 33 of the Bank of Mexico Law; 22 of the Law for Transparency and Ordering of Financial Services; 8°, third and fourth paragraphs, 10, 14 in relation with 25, fraction II, and 17, fraction I, which grant the General Directorate of Analysis of the Financial System and the Directorate of Central Banking Regulations, respectively, the authority to participate in the issuance of regulations, all of which are from the Internal Regulations of the Bank of Mexico published in the Official Gazette of the Federation on September 30, 1994, whose last modification was published in the aforementioned Official Gazette on April 26, 2007, with the purpose of promoting the healthy development of the financial system through the updating of regulations directed at these institutions and considering: a) The need to establish a mechanism so that newly created institutions and those that have recently increased their contributed capital can calculate the limit to be observed in their foreign exchange risk position, and b) That titles issued or guaranteed by the Mexican Government already have investment grade, as well as that the position of titles issued or guaranteed by foreign governments held by institutions is not significant, and that according to capitalization rules they must be considered within their capital for the risks incurred when taking positions in this type of securities.

Has resolved to modify the title of section M.6; M.61.3, second, third and fifth paragraphs; M.61.61.; M.72.23. fifth paragraph; M.83. first paragraph; as well as Annex 20; add a fourth paragraph to section M.61.3; relocate the current fourth paragraph of section M.61.3 to become the sixth paragraph; as well as repeal sections M.63 to M.63.52., all of Circular 2019/95, to remain as follows:

“M.6 FOREIGN EXCHANGE RISK POSITIONS.”

2

M.61. FOREIGN EXCHANGE RISK POSITIONS. “M.61.3 LIMITS. … Institutions may request authorization from the Bank of Mexico so that the limits referred to in the previous paragraph, applicable to the Long Position or Short Position, are calculated from a certain Long Position, up to the equivalent in U.S. dollars of their equity capital. In the corresponding authorization that, if applicable, the Bank of Mexico grants whenever, in its judgment, circumstances so warrant, the amount of said Long Position will be established. For the purposes of what is provided in this section, basic capital will be that determined in terms of the rules applicable to credit institutions for capitalization requirements, issued by the Ministry of Finance and Public Credit, corresponding to the third month immediately preceding the month in question. Without prejudice to the foregoing: a) Regarding institutions constituted in the month for which the calculations are made, as well as in the month immediately preceding it, the basic capital relative to the date on which resources were effectively contributed for constitution will be used; b) Regarding institutions constituted in the second month immediately preceding the month for which the calculations are made, the basic capital relative to the close of said second month will be used; c) Regarding institutions that have increased their contributed capital in the month immediately preceding the month for which the calculations are made, through increases in share capital or capital contributions already made pending formalization, the basic capital relative to the date on which said increase was effectively made will be used, and d) Regarding institutions that have increased their contributed capital in the second month immediately preceding the month for which the calculations are made, through increases in share capital or capital contributions already made pending formalization, the basic capital relative to the close of said second month will be used.

3

The provisions in subsections c) and d) above will be applicable only if the institutions report the basic capital used as a reference to the Financial System Information Directorate of the Bank of Mexico, in the manner it establishes. In the event that, subsequent to the month in question, the amount of the institution's basic capital, applied in said month, is subject to modification for any reason, the Bank of Mexico may determine in each case whether new calculations of the Foreign Exchange Risk Position considering the modified basic capital must or must not be made. For the purposes of calculating the limits referred to in this section, the dollar equivalent of the corresponding basic capital will be considered, using the exchange rate published by the Bank of Mexico in the Official Gazette of the Federation in accordance with what is established in the "Applicable Provisions for the Determination of the Exchange Rate to Fulfill Obligations Denominated in Foreign Currency Payable in the Mexican Republic", on the next banking business day following the date corresponding to the basic capital.”

M.61.6 OTHER PROVISIONS. “M.61.61. Authorization Requests. Authorization requests referred to in the last paragraph of M.61.2, the second paragraph of M.61.3 and the second paragraph of subsection ii) of M.61.4, must be presented to the Bank of Mexico through the Directorate of Authorizations, Queries and Legal Control.”

“M.63 Repealed. M.63.1 Repealed. M.63.2 Repealed. M.63.3 Repealed. M.63.4 Repealed. M.63.5 Repealed.

4

M.63.51. Repealed. M.63.52. Repealed.”

M.7 OPERATIONAL RULES M.72. COMPENSATION AND TRANSFER OF FUNDS. M.72.2 NATIONAL CURRENCY COMPENSATION. “M.72.23 … For the purposes of what is provided in the previous paragraph, net capital will be that determined in terms of the rules applicable to credit institutions for capitalization requirements, issued by the Ministry of Finance and Public Credit, relative to the month corresponding as established in Annex 20. …”

“M.83. AUTHORIZABLE EXCESSES TO VARIOUS REGIMES. The Bank of Mexico may authorize excesses to the limits referred to in sections M.13.2 and M.61.3, up to five natural days in a period of twelve months for each limit, provided that within a period not exceeding ten banking business days, counted from the next banking business day following the date on which the excess in question occurred, a duly signed authorization request is presented to the Directorate of Authorizations, Queries and Legal Control by officials with sufficient powers for this purpose, in which: …”

“ANNEX 20 DETERMINATION OF THE BASE AMOUNT USED TO CALCULATE THE MAXIMUM CREDIT LIMITS RELATIVE TO PAYMENT SYSTEMS The Bank of Mexico will determine credit limits and some other parameters regarding payment systems, for each institution, based on the amount resulting from the following formula:

5

base amount = (e - C) * α / (β - δ)

Where: α = 2.460 β = 0.000735 δ = 0.033333 e = Value of the Investment Unit (UDI) on the calculation date. C = the amount, expressed in millions of UDIs, that results according to the case in question, as follows: a) It will be equal to the net capital -calculated in accordance with the rules applicable to credit institutions for capitalization requirements, issued by the Ministry of Finance and Public Credit- corresponding to the multiple banking institution, in the event that it is not a member of any financial group or belongs to a financial group in which it participates only as a multiple banking institution, or b) It will be equal to the sum of the net capitals -calculated in accordance with the rules applicable to credit institutions for capitalization requirements, issued by the Ministry of Finance and Public Credit- corresponding to the multiple banking institutions that belong to the same financial group in which two or more of said institutions participate. In the case of multiple banking institutions that belong to the same financial group, credit limits will be distributed among the institutions of said financial group in proportion to the net capital of each of them, unless said institutions request the Operational Processing Directorate of the Bank of Mexico to establish proportions different from those described above, using for this purpose the request whose model is attached as an Appendix, duly signed by authorized officials who have the power to perform administrative acts. Said request, accompanied by a certified copy of the deed in which the respective powers are recorded, must be presented at least 3 banking business days in advance of the date on which the new distribution is intended to take effect.

6

The Bank of Mexico will apply the limits calculated in accordance with sections M.71.31.4, M.71.32.1, and M.72.23. of Circular 2019/95 starting from the first banking business day of each month. To carry out said calculation, the net capital it will consider will be that determined in terms of the rules applicable to credit institutions for capitalization requirements, issued by the Ministry of Finance and Public Credit, corresponding to the third month immediately preceding the month in question. Without prejudice to the foregoing: a) Regarding institutions constituted in the month for which the calculations are made, as well as in the month immediately preceding it, the net capital relative to the date on which resources were effectively contributed for constitution will be used; b) Regarding institutions constituted in the second month immediately preceding the month for which the calculations are made, the net capital relative to the close of said second month will be used; c) Regarding institutions that have increased their contributed capital in the month immediately preceding the month for which the calculations are made, through increases in share capital or capital contributions already made pending formalization, the net capital relative to the date on which said increase was effectively made will be used, and d) Regarding institutions that have increased their contributed capital in the second month immediately preceding the month for which the calculations are made, through increases in share capital or capital contributions already made pending formalization, the net capital relative to the close of said second month will be used. The provisions in subsections c) and d) above will be applicable only if the institutions report the net capital used as a reference to the Financial System Information Directorate of the Bank of Mexico, in the manner it establishes. In the event that any credit institution reports a negative net capital for the calculation date, said capital will be considered equal to zero. Without prejudice to the foregoing, the Bank of Mexico may decrease any of the mentioned limits. Likewise, it may establish for any institution in particular, limits different from those corresponding to it in terms of this Annex and the cited sections.

7

Appendix REQUEST TO MODIFY THE DISTRIBUTION OF THE MAXIMUM CREDIT LIMIT RELATIVE TO THE RSP AND SICAM AMONG THE MULTIPLE BANKING INSTITUTIONS MEMBERS OF THE SAME FINANCIAL GROUP. (LETTERHEADS OF MULTIPLE BANKING INSTITUTIONS) Mexico, D.F., on ____ of ____ 20__.

BANK OF MEXICO Operational Processing Directorate Av. 5 de Mayo No. 2, 3rd floor, Col. Centro, Mexico, D.F. 06059. Present.

(DENOMINATIONS OF MULTIPLE BANKING INSTITUTIONS) irrevocably instruct Bank of Mexico so that in accordance with what is provided in sections M.71.31.4, M.71.32.1, M.72.23., as well as in Annex 20 of Circular 2019/95, it distributes among them, starting from the first banking business day of the next month, the maximum credit limit and other parameters corresponding to them in the payment systems in proportion to the following percentages:

DENOMINATION OF THE INSTITUTION PERCENTAGE

---

---

---

Sincerely,

(DENOMINATIONS OF MULTIPLE BANKING INSTITUTIONS) (NAME AND SIGNATURE OF AUTHORIZED OFFICIALS)

Note:

1. The same percentage will be applied in the RSP and the SICAM.”

8

TRANSITORY SINGLE.- This Circular will enter into force on March 31, 2008.