Circular 48/2008 — Liquidity Facilities

"2008, Year of Physical Education and Sport"
CIRCULAR 48/2008
Mexico, D.F., October 13, 2008.
TO THE MULTIPLE BANKING INSTITUTIONS:
SUBJECT: Liquidity Facilities

The Bank of Mexico, based on Article 28 of the Political Constitution of the United Mexican States, sixth and seventh paragraphs; Articles 7 (sections I, II, and X), 8, 14, 16, 24, and 36 of the Bank of Mexico Law; Article 22 of the Law for Transparency and Order of Financial Services; Article 8 (third and sixth paragraphs), Article 12 in relation to Article 19 (section IX), and Article 17 (section I) of the Internal Regulations of the Bank of Mexico, which provide for the attribution of the Central Bank, through the General Directorate of Central Banking Operations and the Directorate of Central Banking Regulations, respectively, to issue provisions; Article 1 (sections I and IV) of the Agreement on the Assignment of Administrative Units of the Bank of Mexico, with the objective of promoting the sound development of the financial system and facilitating the proper functioning of payment systems, has resolved to grant financing to multiple banking institutions that present temporary liquidity needs, in accordance with the following provisions:

RULES APPLICABLE TO THE EXERCISE OF FINANCING

1. Institutions interested in obtaining financing from the Bank of Mexico must submit a communication in terms of the format attached as Annex 1, no later than the day on which they intend to make the first disbursement of funds, during the hours established in the Operation Manual for the Exercise of Liquidity Financing that the Bank of Mexico will provide to them. The aforementioned communication may be sent to the email accounts and fax numbers indicated in the aforementioned Annex. The original copy with handwritten signature of said communication must be presented no later than the second banking business day following the date of subscription.

In the event that the original copy of the communication referred to in the preceding paragraph is not received by the aforementioned date, the Bank of Mexico will terminate the contract referred to in section 2.1 of these Rules.

The exercise of financing may be carried out, at the choice of the institution, through the celebration of credit operations with guarantee and/or repo operations in the terms indicated below.

In the event that an institution requires a greater amount of funds than indicated in the communication previously delivered to the Bank of Mexico, it must send a new communication adhering to what is provided in the preceding paragraphs. In these cases, a new financing will be granted for the amount indicated in said communication.

1.1 Guaranteed Credits

Institutions may exercise the amount of financing through the celebration of credit openings with guarantee with the following characteristics:

Grantor: Bank of Mexico.
Grantee: The institution to which the Bank of Mexico has granted financing.
Term: One banking business day, with automatic renewal for the same term. In the first disbursement, the credits will be renewed obligatorily for the grantee for five calendar days.
The Bank of Mexico may refrain from renewing credit operations when: i) the grantee carries out operations in terms different from those provided in these Rules, in the laws and other provisions applicable to it, as well as what is stipulated in the contract referred to in section 2.1, or ii) when the financing is not used to cover temporary liquidity needs. The Bank of Mexico will inform the institution concerned of such circumstance with one banking business day's advance notice. Amount: To the amount guaranteed with monetary regulation deposits. Interest Rate: It will be equal to that resulting from multiplying the factor 1.2 (one point two) by the target for the One-Day Interbank Interest Rate determined by the Board of Directors of the Bank of Mexico and published on the Bank of Mexico's website on the World Wide Web (Internet) with domain name www.banxico.org.mx, valid on the date of the respective agreement. For the purpose of interest calculation, the interest rate will be divided by 360, and the resulting amount will be multiplied by the number of days effectively elapsed.

Payment of Interest: The credits will generate interest that will be payable every banking business day during the validity of the credit, through charges that the Bank of Mexico will make in the national currency account called the Single Account held by the grantee.
Guarantee: Monetary regulation deposits that the grantee maintains at the Bank of Mexico.
The amount of the deposits in guarantee must cover both the principal and the interest that the credit will accrue.
Furthermore, the deposits must be free of any encumbrance during the validity of the credit.
The Bank of Mexico will make the corresponding credit to the Single Account of the grantee institution up to the guaranteed amount during the deadline established in the Operation Manual for the Exercise of Liquidity Financing.

1.2 Repo Operations

Institutions may request the Bank of Mexico to carry out repo operations with the following characteristics:
Repo Provider: Bank of Mexico.
Repo Recipient: The institution to which the Bank of Mexico has granted financing.
Term: One banking business day with automatic renewal for the same term. In the first disbursement, the repos will be renewed obligatorily for the recipient for five calendar days.
The Bank of Mexico may refrain from renewing repo operations when: i) the recipient carries out operations in terms different from those provided in these Rules, in the laws and other provisions applicable to it, as well as what is stipulated in the contract referred to in section 2.1, or ii) when the funds obtained by reason of the repo are not used to cover temporary liquidity needs. The Bank of Mexico will inform the institution concerned of such circumstance with one banking business day's advance notice. Securities Subject to the Repo: i) Certificates of the Treasury of the Federation denominated in national currency (CETES) excluding those issued under credit restructuring programs in investment units (SPECIAL CETES); ii) Federal Government Development Bonds denominated in national currency (BONDES) or in investment units (UDIBONOS); iii) Segregated Coupons of the Federal Government Development Bonds denominated in national currency with fixed interest rate or in investment units to which the "Rules for the Segregation and Reconstitution of Securities" issued by the Secretariat of Finance and Public Credit refer; iv) Securities issued by the Institute for the Protection of Bank Savings regarding which the Bank of Mexico acts as financial agent for issuance, placement, purchase, and sale, in the national market (BONOS DE PROTECCIÓN AL AHORRO (BPAS)); v) Monetary Regulation Bonds (BREMS); vi) Debt securities issued by the Federal Government denominated in foreign currency, which are deposited in the S.D. Indeval, Institution for the Deposit of Securities, S.A. de C.V., (INDEVAL), and vii) Debt securities denominated in national currency, which are deposited in INDEVAL, with at least two minimum ratings of AA or its equivalent granted by authorized securities rating institutions by the National Banking and Securities Commission and issued by any of the following persons:
a. Parastatal entities; b. Local governments;
c. Municipalities;
d. International organizations; e. Non-financial companies resident in Mexico that do not form part of the same business group or consortium as the recipient, in terms of what is provided in the Securities Market Law; f. Financial companies resident in Mexico distinct from the recipient which issue such instruments to securitize future payment obligations for mortgage credits; g. Trusts constituted by financial companies resident in Mexico distinct from the recipient whose assets are constituted by mortgage credit portfolios, or h. Credit institutions distinct from the recipient that have been inscribed in the National Register of Securities provided for in the Securities Market Law no later than October 10, 2008. The remaining term of the securities must be subsequent to the term of the repo operations to be formalized. Furthermore, the value of the securities subject to the repo determined in accordance with the following paragraph must be equal to or greater than the sum of the price plus the premium of the operation. The Bank of Mexico will inform the institutions intending to carry out repo operations of the market price valuation of the securities to be repoed and the corresponding discount factors. Likewise, the Bank of Mexico will make known to the institutions, through the means it considers appropriate, the specific characteristics of the securities susceptible to being the object of repos, reserving the right not to accept any particular security.

Price: That corresponding to the market value of the securities subject to the repo made known by the Bank of Mexico and on which the discount factors determined by the Bank itself will be applied. In the absence of market prices, the Bank of Mexico reserves the right to determine the value of the securities in the manner it considers appropriate. Premium: That resulting in accordance with the following formula:
Premium = Interest Rate x Price x Days
360
Where:
Interest Rate = the product of multiplying the factor of 1.2 (one point two) by the target for the One-Day Interbank Interest Rate determined by the Board of Directors of the Bank of Mexico and published on the Bank of Mexico's website on the World Wide Web (Internet) with domain name www.banxico.org.mx, valid on the date of the respective agreement. Price = the price agreed upon for the corresponding repo operation. Days = the number of calendar days effectively elapsed. To formalize these repo operations, institutions must previously transfer the securities subject to the repo to the securities deposit account that INDEVAL holds for the Bank of Mexico. Once the Bank of Mexico has credited the aforementioned securities to its account at INDEVAL, it will formalize the repo operations and make the corresponding credit to the Single Account of the recipient.

2. General Provisions

2.1 Contract: To carry out the operations subject to these Rules, interested institutions must enter into a contract with the Bank of Mexico, for which they must present to the Subdirectorate of National Operations Instrumentation, a certified and simple copy of the deed in which the powers of their representative to exercise acts of dominion are recorded, as well as a simple copy of the official identification(s) of the person(s) intending to sign the aforementioned contract.

2.2 Payment of Financing: Except for what is provided for mandatory renewals of the first disbursement of financing, in the Term item of sections 1.1 and 1.2 above, the grantee may pay the financing in total or in part, informing the Bank of Mexico in writing using the format attached as Annex 2, no later than the immediate preceding banking business day to the date on which it intends to make the payment, during the hours established in the Operation Manual for the Exercise of Liquidity Financing.
Once each financing has been fully settled, it will be cancelled.

2.3 Information to the Bank of Mexico: The Bank of Mexico may request information from the institution, in the terms and conditions indicated by it, that it considers necessary to evaluate its financial situation. Likewise, the Bank may require the General Director of the institution to deliver periodic reports on its liquidity and solvency situation.
Non-compliance with the information requests made by the Bank of Mexico will be a cause for early termination of the contract referred to in section 2.1.

Annex 1
"MODEL OF INSTITUTION'S REQUEST TO THE BANK OF MEXICO (INSTITUTION'S LETTERHEAD) 1 Mexico D.F., ______________________.
General Directorate of Central Banking Operations Bank of Mexico Present, By this means, I allow myself to request from the Bank of Mexico, on behalf of (full name of the multiple banking institution, including, if applicable, the financial group to which it belongs), a temporary financing in order to obtain liquidity. Likewise, I declare that I have requested in writing from the President of the Board of Administration of this institution to inform said collegiate body in writing as soon as possible about the submission of this request. 2 The causes that originated the need to access the Central Bank's financing are the following: _________________ The amount of the requested financing is $ __________________ (amount in letters); my represented entity accepts to carry out the financing operations in the form and terms provided in Circular 48/2008 dated October 13, 2008. Sincerely, Name and signature of the General Director of the Institution

1 This communication may be directed to the email accounts and fax numbers indicated below:
Email Account Fax Number dmargoli@banxico.org.mx 5227-8803 ljimenez@banxico.org.mx 5227-2297 asordo@banxico.org.mx 5227-8814 rcanojau@banxico.org.mx 5227-8816

2 In the event that the institution is a subsidiary of a foreign financial entity, it must inform the General Director of its parent company regarding the submission of this communication.

c.c.p.: General Directorate of Analysis of the Financial System National Operations Processing Management Subdirectorate of Market Operations Subdirectorate of Market Analysis"

Annex 2
"MODEL OF INSTITUTION'S PAYMENT TO THE BANK OF MEXICO (INSTITUTION'S LETTERHEAD) Mexico D.F., ____________.
General Directorate of Central Banking Operations Bank of Mexico Present, By this means, I allow myself to inform you that on ___ of _____ of 200 (Full name of the multiple banking institution, including, if applicable, the financial group to which it belongs), will make the payment (total/partial) of the financing granted by the Bank of Mexico in terms of Circular 48/2008 for an amount of $ __________________ (amount in letters), for which I request to make the charge in the Single Account that said Central Bank holds for this institution in terms of the contract. Sincerely, Name and signature of authorized officials c.c.p.: General Directorate of Analysis of the Financial System National Operations Processing Management Subdirectorate of Market Operations Subdirectorate of Market Analysis"

TRANSITORY
SINGLE. These Rules enter into force on October 13, 2008.