Circular 2/2010 of the Bank of Spain Modifying Circular 4/2004 on Financial Information and UEM Statistical Requirements

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Circular 2/2010, of January 27, from the Bank of Spain, to credit institutions, modifying Circular 4/2004, of December 22, on rules for public and reserved financial information, and models for financial statements. (BOE of February 5)

The fundamental purpose of this Circular is to modify, under the accounting powers of the Bank of Spain provided for in Articles 1 and 2 of the Order of March 31, 1989, the statistical requirements of the Economic and Monetary Union (hereinafter, UEM statements), contained in Title II and Annex VII of Circular 4/2004.

The changes introduced in the UEM statements allow the Bank of Spain, in addition to using these statements to prepare statistics, to continue employing them to meet the requirement to remit to the European Central Bank statistics on balance sheet data, the content of which is affected by the publication of ECB Regulation (EC) 25/2009 of December 19, 2008, on the balance sheet of the monetary financial institutions sector (consolidated version) (hereinafter, the new Regulation).

The increased statistical requirements imply the modification of UEM.1, UEM.2, and UEM.3 statements, and the creation of five new statements, three of monthly frequency and two of quarterly frequency. In summary, the new information requested consists, on the one hand, in greater breakdowns for certain assets and liabilities (transferable deposits, liabilities exempt from coverage requirements, deposits with securitization vehicles and funds, temporary acquisitions and disposals of assets through central counterparties, syndicated operations, loans to individual entrepreneurs, revolving credits and overdrafts, single-payment cash and deferred-payment credit cards, loans to households with real estate collateral); and, on the other hand, in information, both on net flows in the period and on accumulated balances, of operations affected by securitizations and other asset transfers.

In order to reduce the excessive administrative burden that the increase in information requirements could entail for smaller entities, exceptions are foreseen for those entities whose total assets in UEM.1, Summary Balance Sheet, as of December 31, 2009, do not reach the threshold of 1,500 million euros. In particular, entities that do not reach this threshold will be obliged to send only UEM.1 and UEM.2 statements quarterly and will have a longer deadline for submission than the rest of the entities. Likewise, the criterion for determining the application of the general declaration regime for those entities that exceed the 1,500 million euro threshold in the future is established.

The Circular also introduces minor modifications to address other information needs, primarily of a statistical nature.

Finally, this Circular expands the content of the information in the special accounting register of mortgage operations to avoid entities having to maintain two different registers: the one from Circular 4/2004 and the one regulated in Royal Decree 716/2009, of April 24, which develops certain aspects of Law 2/1981, of March 25, on the regulation of the mortgage market and other norms of the mortgage and financial system.

Consequently, in exercise of the powers granted, the Governing Council of the Bank of Spain, upon proposal of the Executive Committee, has approved this Circular, which shall be governed by the following rules:

First Rule.

The following modifications are introduced in Circular 4/2004, of December 22, to credit institutions, on rules for public and reserved financial information, and models for financial statements [1]:

1. In Rule Sixty-Fourth. Recognition, valuation, and presentation criteria, letter c) of paragraph 9 is modified, which shall read as follows:

«9.c) Deposits with notice: These are deposits not susceptible of transformation into means of payment, without an agreed maturity date, which cannot be converted into cash without a notice period, before which conversion into cash is not possible, or is only possible with a significant penalty or restriction.»

2. Rule Sixty-Fifth. Off-balance sheet items is renamed Rule Sixty-Fifth. Off-balance sheet items and complementary information, and paragraph 9 is added to it with the following text:

«9. In complementary information to the Balance Sheet, the following items have the content indicated below:

a) Balances in the name of own branches abroad: Collects the amount of balances that, in accordance with what is stated in rule forty-fifth, appear in the assets and liabilities of the business balance sheet in Spain in the name of branches owned by the entity opened abroad. This concept includes:

(i) Endowments: Collects the amount, recorded in the item "deposits in credit institutions", of specific resource endowments to branches located in countries where they are mandatory to operate, as well as those that have the legal nature of social funds in the branch's country because they have been instrumented as such.

(ii) Other permanent financing granted: Collects the amount of financing that does not have the legal nature of resource endowments, but whose settlement is not contemplated nor is it possible to occur in the foreseeable future.

(iii) Other asset accounts: Collects the amount of the remaining balances recorded in asset items.

(iv) Liability accounts: Collects the amount of the balances recorded in liability items.

The items "Endowments" and "Other permanent financing granted" will be broken down by the country where the branch is located into "Residents in other Economic and Monetary Union (EMU) States" and "Rest of the world".

b) Balances in the name of the rest of the entity (only branches in Spain of foreign entities): Amount of balances that appear in the assets and liabilities of the balance sheet of branches in Spain of foreign credit institutions in the name of the head office and other branches of the entity of which it is part. This concept includes:

(i) Asset accounts: Collects the amount of balances recorded in asset items.

(ii) Endowments: Collects the amount recorded in "other social funds" corresponding to specific resource endowments written as such.

(iii) Other permanent funds received: Collects the amount of financing received that does not have the nature of resource endowments, but whose settlement is not contemplated nor is it possible to occur in the foreseeable future.

(iv) Other liability accounts: Collects the amount of the remaining balances recorded in liability items.

The items "Endowments" and "Other permanent funds received" will be broken down by the country where the holder of the balances is located into "Residents in other Economic and Monetary Union (EMU) States" and "Rest of the world".»

3. In Rule Sixty-Sixth. Sectorization of personal balances according to holders, the second paragraph of paragraph 1, letter b) of paragraph 4, letter d) of paragraph 7, and paragraph 8 are modified, which shall read as follows:

«1. (…) These attributes will include, among others, with respect to holders, the sector, type of entity, and condition of residence, according to the categories listed in Annex VIII.1, the geographic location (province or country) and, if applicable, the economic activity; and with respect to operations, the type of instrument and guarantees, the currency, the start and maturity dates, the status regarding credit risk, and the purpose of the operation, especially in credit operations.»

«4.b) Foreign entities that carry out the activity described in number 1 of Article 1 of the cited rule that are registered and qualified as credit institutions in the registers of their country of origin, as well as multilateral development banks.»

«7.d) Households: Includes all natural persons, even when they are individual entrepreneurs or conduct business through entities without legal personality. Likewise, communities of owners and of goods with their own legal nature are included.»

«8. In the classification of balances corresponding to other sectors not resident in Spain, criteria equivalent to those mentioned in the preceding paragraph will be applied. In particular, in addition to entities equivalent to those listed in Annex VIII.2, those that carry out activities similar to those of credit institutions but do not have such status in their country of origin due to incurring liabilities other than deposits and close substitutes thereof will be classified as "other financial intermediaries".»

4. In Rule Sixty-Seventh. Reserved individual statements of deposit credit institutions, the second paragraph of paragraph 1 is modified, which shall read with the following text:

«1. (…) Credit institutions that do not form part of a consolidatable group of Spanish credit institutions, provided they have investments in equity instruments or form part of an economic group, and branches in Spain of foreign credit institutions will also send statement C.5 quarterly, and the detail of off-balance sheet customer resources in statement C.8, in the formats included in Annex V, before the 10th day of the second month following the date to which they correspond.»

5. In Rule Sixty-Eighth. Reserved individual statements of credit financial establishments, the second paragraph of paragraph 1 is modified, which shall read with the following text:

«1. (…) Credit financial establishments that do not form part of a consolidatable group of Spanish credit institutions, provided they have investments in equity instruments or form part of an economic group, must send statement C.5 quarterly before the 10th day of the second month following the date to which they correspond.»

6. In Rule Sixty-Ninth. Reserved statements of consolidatable groups of credit institutions, paragraph 3 is modified, which shall read as follows:

«3. Statement C.5 will include information, in addition to the equity instruments owned by the entity and those received on loan, of the economic group of which it is part.»

7. In Rule Seventy-First. Reserved statements relating to the statistical requirements of the Economic and Monetary Union, paragraph 1 is modified, as well as point (ii) of letter b), points (iii) and (ix) of letter c), point (i) of letter d), and letter e) of paragraph 2, and point (iv) in letter b), points (iii) and (iv) in letter d), and letters f) to h) are added to this last paragraph, which shall read with the following text:

«1. All Spanish credit institutions and branches in Spain of foreign credit institutions (hereinafter, the entities) must send to the Bank of Spain the following reserved statements (hereinafter, UEM statements), in the formats included in Annex VII, with the periodicity and submission deadlines indicated for each of them:

Notwithstanding the above, entities whose total assets in UEM.1, Summary Balance Sheet, as of December 31, 2009, are less than 1,500 million euros will send to the Bank of Spain exclusively UEM.1 and UEM.2 statements, both with quarterly periodicity and a maximum submission deadline until the 20th day inclusive of the following month. The Bank of Spain may require entities that do not reach the aforementioned amount to submit all UEM statements with the periodicity and maximum submission deadline established generally whenever it deems it necessary for the amount declared by the entities to reach the required representativeness. In the latter case, the Bank of Spain will communicate in writing to the corresponding entities their obligation to submit all statements, giving them, at minimum, a period of six months from the date of communication to begin submitting the statements.

Entities that have been submitting all UEM statements, even if their total assets in UEM.1 subsequently to December 31, 2009, do not reach 1,500 million euros, will continue to submit them with the same periodicity and maximum submission deadline until the Bank of Spain communicates in writing to them the period from which they will only have to send UEM.1 and UEM.2 statements quarterly.

Entities that submit exclusively UEM.1 and UEM.2 statements and whose total assets in UEM.1 become equal to or greater than 1,500 million euros will not have to submit all UEM statements until the Bank of Spain communicates in writing, with a minimum advance of six months, that they must submit them with the periodicity and frequency established generally.

Entities that only send UEM.1 and UEM.2 statements quarterly will cover the minimum reserve coefficient in accordance with Article 3.4 of ECB Regulation (EC) 1745/2003 of September 12, 2003, on the application of minimum reserves.

Statement UEM.10, Minimum Reserve Coefficient, will only be sent by entities acting as intermediaries for other entities in fulfilling said coefficient. Intermediary entities will submit a statement for each entity for which they fulfill the coefficient; when intermediary entities only submit UEM.1 and UEM.2 statements, the data relating to these entities will be sent quarterly, extending exclusively for the data of these entities the maximum submission deadline until the 20th day inclusive of the following month.»

«2.b) (ii) The aggregate termed "Monetary Financial Institutions" (MFI) is composed of the European Central Bank, national central banks and monetary authorities, multilateral development banks that carry out activities similar to those of a central bank, credit institutions, and the rest of monetary financial institutions referred to in paragraph 7.a) (i) of rule sixty-sixth. The European Central Bank will be classified in the sector residents in the Economic and Monetary Union, indicating Germany as the country of residence. Likewise, those entities that the European Central Bank qualifies as such will be included in this aggregate.»

«2.b) (iv) All operations with central counterparty entities as defined in paragraph 6 of rule sixty-sixth will be classified in the aggregate Financial Auxiliaries and other financial intermediaries.»

«2.c) (iii) Securities other than shares: Will include the balance of the item "debt securities" from the reserved balance sheet, except for amounts corresponding to "valuation adjustments". Additionally, amounts from the items "short positions in securities" corresponding to "debt securities" will be deducted, if applicable, even if the amount of the item "securities other than shares" becomes negative. Furthermore, the absolute amounts of the items "debt securities" that, if applicable, appear in the liability items "less: own issued participations" will be added.»

«2.c) (ix) Issued securities other than shares: Will include the balance of the items "negotiable securities debits" and "subordinated negotiable securities debits" from the reserved balance sheet, except for amounts corresponding to the items "valuation adjustments".»

«2.d) (i) The term in which different assets and liabilities must be classified is the total term agreed at inception (original term or initial maturity), except as provided in point (iv) of this letter. The term of assets will be counted from the start of the operation until its maturity, even in operations with partial amortizations, except for "securities other than shares", which will be counted from the date of issuance of the security, even if acquired subsequently. The term of deposits will be counted from the start of the operation until maturity; however, if they have partial amortizations agreed in the contract, their amount will be divided and classified according to each of the partial maturities. The term of issued securities other than shares will be counted from the start of the operation until maturity. Savings-housing accounts will be included among term deposits of more than two years. Financial products with extension clauses must be classified in the original term without considering possible extensions.»

«2.d) (iii) Amounts corresponding to liabilities associated with assets transferred in securitizations held on the balance sheet, regardless of their initial maturity, will be classified, by convention, as term deposits of more than 2 years.»

«2.d) (iv) In statement UEM.13, Detail of some loans and credits, the classification based on their residual maturity will be done by counting the term from the date to which the statement refers to the date of its maturity.»

«2.e) Loans and credits to households and non-profit institutions serving households will be classified based on their purpose into:

(i) "Housing credit": amounts of loans and credits to households, with or without real collateral, intended to invest in housing for own use or rental, including in this concept acquisitions, constructions, rehabilitations, and renovations; except when it is known to the entity that the housing is used predominantly for purposes related to the holders' business, either as individual entrepreneurs or through entities without legal personality, in which case they will be classified as "Other credits".

(ii) "Consumer credit": amounts of loans and credits to households granted mainly for personal use in the consumption of goods and services, including those granted to entrepreneurs when it is known to the entity that they are used predominantly for personal consumption.

(iii) "Other credits": amounts of loans and credits to households granted for purposes other than consumer credit and housing credit as defined in the previous points, such as business, debt consolidation, and education, as well as all loans and credits to non-profit institutions serving households.»

«2.f) The breakdowns of loans and credits requested in the UEM statements will have the following content:

(i) Syndicated loans: amounts disbursed from loans and credits in which several lenders participate in the contract itself.

(ii) Temporary acquisitions. Central counterparty entities: amounts of temporary acquisitions of assets carried out through central counterparty entities as defined in paragraph 6 of rule sixty-sixth.

(iii) Other credits. Individual entrepreneurs: amounts of loans and credits classified as "other credits", as defined in point (iii) of letter e) above, in the name of natural persons who are individual entrepreneurs or conduct business through entities without legal personality.

(iv) Revolving credits and overdrafts: amounts disbursed in revolving credits, even if they are outside the quantitative or temporal limits agreed in the contracts, understood as those loans and credits other than those instrumented as credit cards that have the following characteristics: 1) the borrower can use or withdraw funds up to a previously approved credit limit without having to notify the lender in advance; 2) the amount of available credit can increase or decrease as borrowed funds are obtained and returned; 3) the credit can be used repeatedly, and 4) there is no obligation of periodic repayment of funds. Revolving credits include amounts disbursed through credit lines, even if they have a maturity established in the contract, that have not yet been repaid. This item also includes the amounts of overdrafts, that is, debtor balances in current accounts.

(v) Single-payment cash credit cards: amounts disbursed via deferred debit cards or credit cards for which holders have not requested deferred payment (that is, after the date on which single cash payment at the end of the billing cycle is due), with an interest rate of 0% between the disbursement date and the repayment date.

(vi) Deferred-payment credit cards: amounts disbursed via credit cards for which holders have requested deferred payment, with an interest rate normally above 0%.

(vii) Loans with real estate collateral: amounts disbursed from loans and credits guaranteed with any of the real rights on real estate regulated in paragraphs 11 and 12 of rule thirty-ninth of Circular 3/2008, of May 22, on determination and control of minimum own resources, provided that the loan-to-value ratio is equal to or less than 1.»

«2.g) The breakdowns of deposits requested in the UEM statements will have the following content:

(i) Demand deposits, Term deposits, Notice deposits, and Temporary transfers: amounts of deposits, regardless of the holder, that meet the definitions of the same term found in paragraph 9 of rule sixty-fourth for customer deposits.

(ii) Deposits. Rest: for Monetary Financial Institutions and Central Administrations, amounts of all notice deposits, as well as term deposits with an original term equal to or less than two years.

(iii) Transferable deposits: amounts of "demand deposits" that are transferable directly to make payments to third parties by usual means of payment, such as transfers, checks, bank orders, account debits, credit or debit cards, electronic money transactions, or other similar means, without significant delay, restriction, or penalty. This type of deposit does not include those that can only be used for cash withdrawal, nor those in which funds can only be withdrawn or transferred through another account of the same holder.

(iv) Temporary transfers. Central counterparty entities: amounts of temporary transfers of assets carried out through central counterparty entities as defined in paragraph 6 of rule sixty-sixth.

(v) Syndicated deposits: amounts disbursed from deposits instrumented as loans or credits to the entity in which several lenders participate in the contract itself.

(vi) Deposits. Up to 2 years and nominal capital guarantee less than 100%: amounts of hybrid financial instruments issued by the entity, with initial maturity up to 2 years, accounted for as deposits, that at maturity can be reimbursed, in the denomination currency, for a value lower than the initially disbursed amount, due to the evolution