Circular 35/2020 — Extends the Validity of Facilities to Promote Orderly Financial Market Behavior, Strengthen Credit Granting Channels, and Provide Liquidity

Monday, September 28, 2020 OFFICIAL GAZETTE

CIRCULAR 35/2020 addressed to Multiple Banking and Development Banking Institutions, regarding the extension of the validity of the facilities to promote orderly behavior in financial markets, strengthen credit granting channels, and provide liquidity for the healthy development of the financial system.

A logo appears at the margin, stating: Bank of Mexico. "2020, Year of Leona Vicario, Meritorious Mother of the Fatherland."

CIRCULAR 35/2020

TO MULTIPLE BANKING AND DEVELOPMENT BANKING INSTITUTIONS:

SUBJECT: EXTENSION OF THE VALIDITY OF THE FACILITIES TO PROMOTE ORDERLY BEHAVIOR IN FINANCIAL MARKETS, STRENGTHEN CREDIT GRANTING CHANNELS, AND PROVIDE LIQUIDITY FOR THE HEALTHY DEVELOPMENT OF THE FINANCIAL SYSTEM.

The Bank of Mexico, with the objective of continuing to promote the healthy development of the financial system and safeguard its stability, as well as to foster the proper functioning of payment systems and avoid disturbances therein, and considering the impacts that the COVID-19 pandemic has had on the global economy, on the behavior of our country's financial markets, as well as on the foreign exchange and fixed-income markets, which have shown little depth, lower liquidity, and a deterioration of operating conditions, in accordance with the announcement published on April 21, 2020, deemed it necessary to issue a set of measures in order to promote orderly behavior in financial markets, strengthen credit granting channels, and provide liquidity for the healthy development of the financial system, with the aim of creating conditions that facilitate credit institutions in fulfilling their priority function of providing financing to the economy.

Since their entry into force, these measures have contributed to fostering more orderly market behavior, by providing, through credit institutions, additional liquidity support to financial intermediaries, who may have access to liquidity if needed. Furthermore, the measures implemented in the fixed-income and foreign exchange markets have also contributed to a more orderly evolution in these markets in recent dates.

However, although financial markets in our country have shown more stable behavior recently, risks persist that could negatively impact the economy and the Mexican financial system in the short and medium term. Regarding this, the evolution of the pandemic, as well as the duration of containment and social distancing measures, remain uncertain and could delay the process of global economic recovery and, consequently, that of Mexico. If an adverse scenario materializes under these circumstances, new episodes of volatility in financial markets, including those of emerging economies like ours, could be observed.

Consequently, considering the benefits of the facilities and the risks that prevail in the near horizon, and with the objective of promoting that financial markets continue to exhibit orderly behavior; that financial intermediaries can perform their priority function of providing financing to the economy, and with the object of reducing potential stress conditions that could arise from the previously described factors, the Bank of Mexico seeks to maintain a preventive approach regarding the possibility of observing adverse conditions in the functioning of our markets, and therefore determined to extend the validity of nine of the support measures announced on April 21, 2020, until February 28, 2021.

Therefore, based on Articles 25, second paragraph, 28, sixth and seventh paragraphs, of the Political Constitution of the United Mexican States; 7, fractions I, II, and X, 8, 14, first paragraph, 15, 16, 24, 26, first paragraph, 28, and 36, of the Bank of Mexico Law; 53, 54, 81, and 96 Bis, of the Credit Institutions Law; 22 of the Law for Transparency and Ordering of Financial Services; 4, first paragraph, 8, fourth and eighth paragraphs, 10, 12 Bis, first paragraph, in relation to 20 Ter, fraction II, and 20 Quáter, fractions II and IV, 14, first paragraph, in relation to 25, fraction VII, 14 Bis, first paragraph, in relation to 17, fraction I, 14 Bis 1, first paragraph, in relation to 25 Bis 1, fraction IV, and 19 Bis 1, fraction XI, of the Internal Regulations of the Bank of Mexico, which grant the authority to issue provisions through the General Directorate of Payment Systems and Market Infrastructures, the General Directorate of Financial Stability, the General Legal Directorate, the General Directorate of Financial System Affairs, and the Operations Support Directorate, respectively; as well as Second, fractions I, IV, VI, X, and XVII, of the Agreement on the Assignment of Administrative Units of the Bank of Mexico, has resolved the following:

FIRST. The transitional rules SECOND, first paragraph, and THIRD of Circular 15/2020, "Modifications to Circular 10/2015 (Rules Applicable to the Exercise of Financing Granted by the Bank of Mexico to Cover Additional Ordinary Liquidity Needs)," published by the Bank of Mexico in the Official Gazette of the Federation on May 13, 2020, are modified, to read as follows:

"SECOND. The provisions in Rule 1. Definitions. "Global Credit Quality Criterion" and "National Credit Quality Criterion", Rule 2.3. Repo operations, sub-clause "c." of clause ii) under the heading "Securities Subject to Repo" shall only be applicable during the period elapsed from the entry into force of this Circular until February 28, 2021. In virtue thereof, from March 1, 2021, Rule 1. Definitions. "Global Credit Quality Criterion" and "National Credit Quality Criterion", and Rule 2.3. Repo operations, sub-clause "c." of clause ii) under the heading "Securities Subject to Repo" shall be modified as follows: …"

"THIRD. In the event that, on February 28, 2021, any Institution has entered into a repo with the Bank of Mexico, in accordance with these Rules, with the securities indicated in numeral 2.3, clause ii), sub-clause "c.", which is modified according to the previous Transitional Rule, and said repo remains valid on that date, the parties may carry out the renewal of said operation with those same securities in accordance with these Rules."

SECOND. The transitional rule FIRST of the "Rules applicable to securities lending operations with the Bank of Mexico to improve liquidity," issued by the Bank of Mexico through Circular 16/2020, published in the Official Gazette of the Federation on May 19, 2020, is modified, to read as follows:

"FIRST.- These Rules shall enter into force on the day of their publication in the Official Gazette of the Federation and their validity shall expire on February 28, 2021."

THIRD. Numeral 2.1, second paragraph, and transitional rule FIRST of the "Rules applicable to repo operations of government securities with the Bank of Mexico to cover liquidity needs," issued by the Bank of Mexico through Circular 17/2020, published in the Official Gazette of the Federation on May 19, 2020, are modified, to read as follows:

"2.1. Conditions for granting financing. … Calls for applications shall be made known through the SIAC-BANXICO or on the Bank of Mexico's website located at << https://www.banxico.org.mx/ >>. In the event that said system is not available, the Bank of Mexico may make known the calls for applications through any other authorized electronic, computing, or telecommunications medium for this purpose, as announced by the Bank itself to the Institutions. These calls for applications will specify the date and time at which Institutions may request the execution of the repo operations subject to these Rules, as well as the available amount determined for said operations. The Bank of Mexico will issue the aforementioned calls for applications, on the dates it determines for this purpose, during the validity of these Rules, based on the conditions of the country's financial markets, or until the maximum amount determined by the Bank of Mexico for the operations referred to in these Rules has been covered.

Monday, September 28, 2020 OFFICIAL GAZETTE …"

TRANSITIONAL

"FIRST. These Rules shall enter into force on the day of their publication in the Official Gazette of the Federation and their validity shall expire on February 28, 2021."

FOURTH. The first paragraph of the section "Allowed Extensions and Renewals" of numeral 2.2, "Repo Operations," as well as fractions I, II, and III of transitional rule FIRST BIS of the "Rules applicable to repo operations of corporate securities with the Bank of Mexico to cover liquidity needs," issued by the Bank of Mexico through Circular 18/2020, published in the Official Gazette of the Federation on May 19, 2020, and modified through Circular 29/2020, published in said Gazette on July 23, 2020, are modified, to read as follows:

"2.2 Repo Operations. … Allowed Extensions and Renewals: The repo entered into for the first time, in accordance with what is indicated in the section "Term for the Execution of the Repo Operation" of this numeral 2.2, may be extended or renewed, one or more times, at the request of the reported Institution, for terms and characteristics equal to those of said repo, provided that said original repo was entered into by the Institution, on its own account or on behalf of any of the third parties referred to in the previous numeral 2.1, with securities provided for in this numeral 2.2 that have only been issued, in national currency or UDIS, between July 16, 2020, and until February 28, 2021, and update any of the following circumstances: …"

TRANSITIONAL

"FIRST BIS. … I. Until February 28, 2021, regarding any of the securities described in the section "Securities Subject to Repo" included in numeral 2.2 of these Rules; II. Until December 31, 2021, only regarding any of the securities that have been issued, in national currency or UDIS, after July 16, 2020, and until February 28, 2021, and fall under the circumstance of clause i) of the section "Allowed Extensions and Renewals" included in numeral 2.2 of these Rules, and III. Until June 30, 2023, only regarding any of the securities that have been issued, in national currency or UDIS, after July 16, 2020, and until February 28, 2021, and fall under the circumstance of clause ii) of the section "Allowed Extensions and Renewals" included in numeral 2.2 of these Rules. …"

FIFTH. Transitional rule SECOND of the "Rules applicable to the provision of resources to Credit Institutions to channel credit to micro, small, and medium-sized enterprises, as well as to natural persons," issued by the Bank of Mexico through Circular 20/2020, published in the Official Gazette of the Federation on June 2, 2020, and modified through Circulares 30/2020 and 33/2020, published in said Gazette on August 19 and September 11, 2020, respectively, is modified, to read as follows:

"SECOND. The validity of the Rules Applicable to the Provision of Resources to Credit Institutions to Channel Credit to Micro, Small, and Medium-Sized Enterprises, as well as to Natural Persons, provided for in the Resolutive First of this Circular, shall expire on February 28, 2021. In the event that, on the date of expiration of the validity indicated, repos entered into by Institutions with the Bank of Mexico in accordance with said Rules remain in force, these shall remain valid until their settlement date, subject to these provisions and the applicable contracts."

OFFICIAL GAZETTE Monday, September 28, 2020

SIXTH. Transitional rule FIRST of the "Rules applicable to Bank of Mexico financings guaranteed by qualified credit assets of banking, for their channeling to micro, small, and medium-sized enterprises," issued by the Bank of Mexico through Circular 25/2020, published in the Official Gazette of the Federation on June 19, 2020, and modified through Circulares 31/2020, 32/2020, and 34/2020, published in said Gazette on August 19 and 27 and September 11, 2020, respectively, is modified, to read as follows:

"FIRST. This Circular shall enter into force on the day of its publication in the Official Gazette of the Federation and its validity shall expire on February 28, 2021."

TRANSITIONAL

FIRST. This Circular shall enter into force on the day of its publication in the Official Gazette of the Federation.

Mexico City, September 23, 2020.- BANK OF MEXICO: The General Director of Payment Systems and Market Infrastructures, Manuel Miguel Ángel Díaz Díaz.- Signature.- The General Director of Financial Stability, Fabrizio López Gallo Dey.- Signature.- The General Legal Director, Luis Urrutia Corral.- Signature.- The General Director of Financial System Affairs, José Luis Negrín Muñoz.- Signature.- The Director of Operations Support, Joaquín Rodrigo Cano Jauregui Segura Millan.- Signature.

For any inquiries regarding the content of this Circular, the Bank of Mexico is at your disposal through the Central Banking Authorizations and Sanctions Directorate at telephone (55) 5237-2000 extension 3200.