Circular No. 29 — Lowering regulatory norms for acceptance and the provision of suretyship and guarantee to be observed by banks

CIRCULAR NO. 000029

THE CENTRAL BANK OF THE REPUBLIC OF BRAZIL, in accordance with the deliberation of the National Monetary Council, in a session held on March 24 of the current year, having regard to the provisions of Articles 4, item VI, and 9 of Law No. 4,595 of December 31, 1964, communicates to Banks that they shall observe, from this date, the following regulatory norms for acceptance and the provision of suretyship and guarantee:

I - Banks may only provide suretyship that has perfect characterization of the value in national currency and maturity.

II - Unless prior authorization is granted in each case by the Central Bank:

a) the balance of suretyships contracted and in force may not exceed, at any time, five (5) times the amount of the paid-in capital and free reserves of the granting bank; and

b) no suretyship, individually, may exceed, in value, half the sum of the paid-in capital and free reserves of the Bank.

III - It shall be considered as an indicative norm of good banking practice the requirement, by the granting bank, of counter-guarantees compatible with the amounts and maturities of the guarantees granted.

IV - Banks are prohibited from:

a) assuming liabilities by aval or granting acceptance;

b) granting suretyship or any other guarantee that may, directly or indirectly, enable the beneficiaries to obtain loans in general, or to withdraw funds from the public; and

c) granting aval or suretyship in foreign currency or that involves the risk of exchange rate variation, except when it concerns operations linked to foreign trade.

V - The provision of suretyship by Federal and State Savings Banks depends on prior and express authorization by this Central Bank, in each case, observing the provisions of the preceding item.

VI - Credit, Financing and Investment Companies may not provide suretyship and aval; regarding acceptance, they remain subject to specific regulatory norms.

VII - The provisions of this Circular do not apply to private investment or development banks, which continue to be regulated, in this regard, by Resolution No. 18 of February 18, 1966.

VIII - Other Financial Institutions, including Credit Cooperatives and Credit Sections of Mixed Cooperatives, may not grant acceptance, suretyship, or aval.

IX - Circular No. 12/65 of September 17, 1965, from this Central Bank, is hereby revoked.

Rio de Janeiro-GB, March 28, 1966

FINANCIAL SUPERVISION DIRECTORATE

Arino Ramos da Costa
Acting Manager