Circular No. 126 — Amends Rules on Financial Institutions' Equity Participation in Other Companies

CIRCULAR NO. 000126

To
Financial Institutions

We communicate that the National Monetary Council, in a session held on March 11, 1969, in harmony with the provisions of Article 4, item XI, Article 9, and Article 30 of Law No. 4,595 of December 31, 1964, resolved to establish the following regulatory norms:

I - The Central Bank of Brazil will only authorize the participation of financial institutions - except those of investment - in the capital of other companies when it concerns:

a) another financial institution, of a different category, that exercises complementary or subsidiary activities to those of the participating entity;

b) companies that permanently provide technical-professional services to the participating financial institution, on a scale that justifies the equity participation;

c) industrial companies producing goods permanently consumed by the participating financial institution, on a scale that justifies the equity participation;

d) companies specialized in economic and administrative matters;

e) transport companies or those in charge of communication services;

f) companies of notable economic or public interest, created by the federal, state, or municipal governments;

g) insurance companies (a single one) in operation or that will be installed in the Country;

h) general warehouses and silos;

i) joint-stock companies located in the Northeast or the Amazon Region, provided that the equity participation represents investments made strictly in conformity with Article 34 of Law No. 3,995 of December 14, 1961; Chapter III of Law No. 4,229 of June 1, 1963, and Law No. 4,216 of May 6, 1963.

II - Financial institutions may also participate in the constitution or capital of the following entities:

a) charitable, recreational, cultural, assistance, and similar institutions for their respective employees;

b) class associations;

c) associations of a social or recreational nature, when the participation is intended to favor contacts of interest to the participating financial institution.

III - Financial institutions wishing to apply resources derived from tax incentives must observe that the application can only be carried out when it concerns activities linked to:

a) development programs approved by the Superintendence of Fisheries Development (SUDEPE) and the Brazilian Tourism Company (EMBRATUR), provided that the investments are made strictly in conformity with Decree-Laws No. 221 of February 28, 1967, and No. 55 of November 18, 1966;

b) afforestation or reforestation, provided that the investments are made strictly in conformity with § 3 of Article 1 of Law No. 5,106 of September 2, 1966, and that the following provisions are also observed:

1. exclusively within the modalities provided for in Article 2 of Decree No. 59,615 of November 30, 1966, which regulates that instrument, except for land possession under title of ownership;

2. contracts resulting from possession must be made for a term compatible with the time provided for the development of the specific project;

3. only up to the maximum fiscal amount permitted by law may be invested, that is, 50% of the tax, cumulatively with other tax benefits.

IV - Reciprocal capital participations, nor successive interconnections, are not admitted under any pretext. That is to say, in a set of financial institutions that make up the same "economic group," only one of them, the principal one, may participate in the capital of the others; successive, alternating, or combined participation of one in the capital of another is not permitted.

V - Circulars No. 43 and No. 78, dated June 27, 1966, and March 6, 1967, respectively, as well as item V of Circular No. 30 of March 28, 1966, and No. 10 of item II of Instruction No. 253 of October 11, 1963, from the extinct Superintendence of Currency and Credit, are hereby revoked.

Rio de Janeiro-GB, March 20, 1969

Hélio Marques Vianna
Director