Circular 2/2016 — Modifies Circular 3/2012

Tuesday, February 9, 2016 OFFICIAL GAZETTE (Second Section) BANK OF MEXICO CIRCULAR 2/2016 addressed to credit institutions and the National Financial Development Agency for the Agricultural, Rural, Forestry and Fishing Sectors, regarding the Modifications to Circular 3/2012 (Procedures to request and administer other credits from the Bank of Mexico).

A logo appears at the margin, stating: Bank of Mexico.

CIRCULAR 2/2016
TO CREDIT INSTITUTIONS AND THE
NATIONAL FINANCIAL DEVELOPMENT AGENCY FOR THE
AGRICULTURAL, RURAL, FORESTRY AND
FISHING SECTORS:
SUBJECT: MODIFICATIONS TO CIRCULAR
3/2012 (PROCEDURES TO REQUEST AND
ADMINISTER OTHER CREDITS FROM THE BANK OF MEXICO)

The Bank of Mexico, with the purpose of continuing to promote the sound development and stability of the financial system, as well as to facilitate the proper functioning of payment systems, and in consideration of the convenience that multiple banking institutions, on the one hand, keep updated the information on the assets that could be designated as collateral in favor of the Bank of Mexico, with respect to credits other than the financing provided for in Circular 3/2012 that, if applicable, this entity may grant, and, on the other hand, determine in a timely manner the processes that must be followed within their respective structures in case they need to request and administer any of such financing, has determined to establish, through general provisions, the terms and conditions under which multiple banking institutions must carry out the respective actions.

For the above, based on articles 28, sixth and seventh paragraphs, of the Political Constitution of the United Mexican States, 24 and 26, of the Bank of Mexico Law, 48, of the Credit Institutions Law, 4, first paragraph, 8, fourth and seventh paragraphs, 10, first paragraph, 12, first paragraph, in relation to 19 Bis, fraction V, and 19 Bis 1, fraction XI, 14, first paragraph, in relation to 25, fraction VII, 14 Bis 1, first paragraph, in relation to 25 Bis 1, fraction IV, and 17, fraction I, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Directorate of Central Bank Operations, General Directorate of Financial Stability, General Directorate of Financial System Affairs, and Directorate of Central Bank Provisions, respectively, as well as Second, fractions I, IV, VI and X, of the Agreement on the Affiliation of the Administrative Units of the Bank of Mexico, has resolved to modify the index and add a Chapter VII, to Title Three and articles 195 Bis, 195 Bis 1 and 195 Bis 2 to the "Provisions applicable to the operations of credit institutions and the National Financial Development Agency for the Agricultural, Rural, Forestry and Fishing Sectors", contained in Circular 3/2012, to remain in the following terms:

PROVISIONS APPLICABLE TO THE OPERATIONS OF CREDIT INSTITUTIONS AND OF THE NATIONAL FINANCIAL DEVELOPMENT AGENCY FOR THE AGRICULTURAL, RURAL, FORESTRY AND FISHING SECTORS

INDEX
TITLE THREE
OPERATIONS WITH THE BANK OF MEXICO

"CHAPTER VII
PROCEDURES FOR MULTIPLE BANKING INSTITUTIONS TO REQUEST AND ADMINISTER OTHER CREDITS FROM THE BANK OF MEXICO"

"Article 195 Bis.- Operational procedures"
"Article 195 Bis 1.- Identification of assets"

(Second Section) OFFICIAL GAZETTE Tuesday, February 9, 2016 "Article 195 Bis 2.- Review of manuals and exchange of information"

"CHAPTER VII
PROCEDURES FOR MULTIPLE BANKING INSTITUTIONS TO REQUEST AND ADMINISTER OTHER CREDITS FROM THE BANK OF MEXICO

Operational procedures
Article 195 Bis.- Multiple Banking Institutions must have manuals in which they establish the policies and operational procedures to follow in the event that they need to request from the Bank of Mexico any of the financing that the latter is authorized to grant, other than those provided for in Title Three of these Provisions, as well as the procedures they will follow to allocate the resources derived from said financing, in accordance with the conditions and obligations provided for in the applicable legal and contractual provisions.

The manuals of the Multiple Banking Institutions referred to in the preceding paragraph must contain, at a minimum, the following:

I. The responsible areas for authorizing and presenting to the Bank of Mexico the request for the financing referred to in this article.

II. The responsible areas and the procedure they will carry out to:

a) Identify their eventual liquidity needs, for which Multiple Banking Institutions must consider, among other indicators, the situation of said Multiple Banking Institutions resulting from liquidity risk assessments, which are carried out with scenarios that include those in which adverse economic conditions prevail, in accordance with applicable provisions;

b) Determine the amount of financing that, if applicable, the corresponding Multiple Banking Institution needs to request, according to its temporary liquidity needs, considering for this purpose, among other elements, an analysis of alternative sources of financing and the reasons why such sources might be unviable;

c) Identify and determine the available assets that, if applicable, the corresponding Multiple Banking Institution could offer as collateral or report to the Bank of Mexico in accordance with article 195 Bis 1 of these Provisions;

d) Update, compile and provide the information that, if applicable, the Bank of Mexico requires them to identify and value the assets referred to in the previous subsection;

e) Comply with the requirements established by the Bank of Mexico to request the financing in question;

f) Formalize the contracts that document the operations subject to financing;

g) Request the renewal or termination of the financing;

h) Verify that the files of the assets corresponding to credits, loans or financing in which the Multiple Banking Institution has collection rights in its favor are properly integrated, in accordance with applicable provisions, and

i) Inform the Bank of Mexico of the follow-up and compliance with the activities referred to in fraction III of this article.

III. The follow-up activities to verify that the Multiple Banking Institution in question uses the financing referred to in this article to meet its temporary liquidity needs and that it observes the guidelines or restrictions that, if applicable, the Bank of Mexico itself establishes in the contract that documents the respective financing.

IV. Regarding the last instance liquidity financing that, if applicable, Multiple Banking Institutions might need from the Bank of Mexico:

a) The responsible areas and the procedure they will carry out to prepare the action plan to remedy their liquidity shortages that, in this case, the Bank of Mexico requires, and

Tuesday, February 9, 2016 OFFICIAL GAZETTE (Second Section)

b) The follow-up activities to verify that the aforementioned action plan is complied with, which, for this purpose, the Bank of Mexico approves, as well as the responsible areas for carrying out this follow-up.

Multiple Banking Institutions must obtain the approval of their respective boards of directors for the manuals indicated in this article, as well as for any modifications they carry out, if applicable.

Multiple Banking Institutions must incorporate into their internal control and audit processes the review, at least once every year, of the manuals referred to in the first paragraph of this article and the review of the procedures provided for in such manuals.

Identification of assets
Article 195 Bis 1.- The Multiple Banking Institution that, if applicable, presents to the Bank of Mexico its request to receive any of the financing referred to in the first paragraph of article 195 Bis, must have updated information regarding the assets it intends to offer as collateral or report to the Bank of Mexico, as well as the characteristics of said assets.

For the purposes of what is provided in the preceding paragraph, Multiple Banking Institutions must carry out once a month, or with greater frequency if they consider it necessary, the identification of those assets owned by them or under their title that are not restricted, nor subject to any encumbrance, that are susceptible to being offered as collateral or reported, taking into account their situation and eventual liquidity needs in accordance with subsection a) of fraction II of article 195 Bis of these Provisions. To determine the frequency with which they will carry out the identification referred to in this article, Multiple Banking Institutions must consider, among other liquidity indicators, their liquidity coverage ratio, calculated in terms of the "General provisions on liquidity requirements for multiple banking institutions", issued jointly by the Bank of Mexico and the National Banking and Securities Commission.

Multiple Banking Institutions, when carrying out the identification of the assets referred to in the preceding paragraph, must consider, first, those securities with the highest credit rating and, regarding the assets that constitute their credit portfolio, those that have the lowest degree of risk or the lowest probability of default in accordance with applicable provisions.

Likewise, for the purposes of what is provided in this article, Multiple Banking Institutions must maintain in their computer systems, the information regarding the characteristics of the credit portfolio identified in accordance with this article, in the same terms as those included in the forms of the regulatory credit portfolio reports that they must send to the Bank of Mexico or to the National Banking and Securities Commission, as well as the information that is used for the calculation of the preventive reserves that they must make in accordance with applicable provisions.

Review of manuals and exchange of information
Article 195 Bis 2.- Multiple Banking Institutions must make available to the Bank of Mexico, in the form, terms and deadlines that it requests, the manuals and information indicated in articles 195 Bis and 195 Bis 1 of these Provisions, respectively, as well as any other information that the Bank of Mexico requires of them."

TRANSITORY
SINGLE. This Circular will enter into force ninety days following its publication in the Official Journal of the Federation.

Mexico City, February 4, 2016.- The General Director of Central Bank Operations, Jaime José Cortina Morfín.- Rubric.- The General Director of Financial Stability, Pascual Ramón O’Dogherty Madrazo.- Rubric.- The General Director of Financial System Affairs, Jesús Alan Elizondo Flores.- Rubric.- The Director of Central Bank Provisions, Mario Ladislao Tamez López Negrete.- Rubric.

(Second Section) OFFICIAL GAZETTE Tuesday, February 9, 2016 For any inquiries regarding the content of this Circular, please contact the Department of Authorizations, Consultations and Legal Control, at the phones (55) 5237-2308, (55) 5237-2317 or (55) 5237-2000, extension 3200.