Circular No. 3641: Procedures for Calculating Risk-Weighted Assets for Gold, Foreign Currency, and Exchange Rate-Exposed Assets under the Standardized Approach

CIRCULAR NO. 3,641, OF MARCH 4, 2013

Establishes the procedures for calculating the risk-weighted assets (RWA) portion related to gold, foreign currency, and exchange rate-exposed assets whose capital requirement is calculated using the standardized approach (RWACAM), as provided for in Resolution No. 4,193, of March 1, 2013.

The Collegiate Board of the Central Bank of Brazil, in an extraordinary session held on March 1, 2013, based on the provisions of Articles 9, 10, item IX, and 11, item VII, of Law No. 4,595, of December 31, 1964, and Articles 3, paragraph 2, and 15 of Resolution No. 4,193, of March 1, 2013, and taking into account the content of Resolution No. 3,488, of August 29, 2007,

RESOLVES:

Art. 1 The daily calculation of the risk-weighted assets (RWA) portion, related to gold, foreign currency, and exchange rate-exposed assets whose capital requirement is calculated using the standardized approach (RWA), as provided for in Resolution No. 4,193, of March 1, 2013, must be carried out based on the following formula:

RWA = F * F" * EXP

where:
I - F = factor established in Article 4 of Resolution No. 4,193, of 2013; II - F" = factor applicable to gold, foreign currency, and assets and liabilities subject to exchange rate variation, defined in paragraph 3 of this article; III - EXP = exchange exposure calculated according to the following formula:

EXP = Exp1 + H * Exp2 + G * Exp3

where:
a) Exp1 = exchange exposure calculated according to the following formula:

Exp1 = Σ (ECi - EVi)

where:

1. n = number of currencies, including gold, for which the exposures mentioned in the caput are determined;
2. ECi = total of bought exposures in currency "i";
3. EVi = total of sold exposures in currency "i";

b) H = factor applicable to the amount of the lesser of the excesses of bought or sold exposures (Exp2), defined in paragraph 3 of this article;

c) Exp2 = exchange exposure calculated according to the following formula:

Exp2 = Σ min(ExCi, ExVi)

where:

1. n1 = number of currencies, considering only exposures in United States dollars, euro, Swiss franc, yen, British pound, Canadian dollar, and gold;
2. ExCi = excess of the bought exposure relative to the sold exposure, determined for currency "i"; and
3. ExVi = excess of the sold exposure relative to the bought exposure, determined for currency "i";

d) G = factor applicable to the amount of opposite positions in gold, foreign currency, and assets and liabilities subject to exchange rate variation, in Brazil and abroad, defined in paragraph 3; and

e) Exp3 = exchange exposure calculated according to the following formula:

Exp3 = Σ min(ElBi, ElEi)

where:

1. n2 = number of currencies, including gold, for which exposures in Brazil are determined;
2. n3 = number of currencies, including gold, for which exposures abroad are determined, including for subsidiaries and branches located abroad;
3. ElBi = net exposure in Brazil in currency "i", resulting from the difference between the total of bought positions and the total of sold positions in Brazil; and
4. ElEi = net exposure abroad in currency "i", resulting from the difference between the total of bought positions and the total of sold positions abroad, including subsidiaries and branches located abroad.

Paragraph 1. The RWA value is equal to zero for gold, foreign currency, and assets and liabilities subject to exchange rate variation (EXP) exposures equal to or less than 0.02 (two hundredths) of the Reference Equity (PR), defined in accordance with Resolution No. 4,192, of March 1, 2013.

Paragraph 2. Exposures must be determined in Brazilian reais, by converting their respective values, based on the sell quotes available in the PTAX800 transaction, option 5, of the Central Bank Information System (Sisbacen), of the day prior to the day to which the determination refers.

Paragraph 3. For the calculation of the RWA portion, the following must be considered:
I - F" defined from the ratio between gold, foreign currency, and assets and liabilities subject to exchange rate variation (EXP) and Reference Equity (PR), defined in accordance with Resolution No. 4,192, of 2013, considering the following gradation:
a) F" = 0.40 (forty hundredths), if the EXP/PR ratio is equal to or less than 0.05 (five hundredths); b) F" = 0.60 (sixty hundredths), if the EXP/PR ratio is equal to or less than 0.10 (ten hundredths); c) F" = 0.80 (eighty hundredths), if the EXP/PR ratio is equal to or less than 0.15 (fifteen hundredths); and d) F" = 1.00 (one whole), if the EXP/PR ratio is greater than 0.15 (fifteen hundredths); II - H = 0.70 (seventy hundredths); and III - G = 1.00 (one whole), if Σ ElBi and Σ ElEi have opposite positions, and G = 0 (zero), otherwise.

Paragraph 4. For the calculation of Exp1 and Exp3, exposures in United States dollars, euro, Swiss franc, yen, British pound, Canadian dollar, and gold must be considered jointly, as a single currency.

Paragraph 5. For Exp, exposures related to operations carried out between consolidated institutions, including branches, must not be considered, except for exposures related to funds raised abroad and used in lending, transfer, advance, financing, and leasing operations contracted with natural and legal persons in the Country, observed that:
I - positions bought ElBi and ElEi; and
II - the value corresponding to investment in institutions, subsidiaries, and branches abroad, on a percentage basis, subject to consolidation in accordance with current regulations, may be considered, in whole or in part, as a bought position ElBi and ElEi provided that a net sold exposure of equivalent or greater value is maintained, observed further that:
a) the bought position may be composed of one or more foreign currencies, at the institution's discretion; b) the option for the prerogative must be deliberated in a meeting of the board of directors, if any, or of the institution's executive board, with the definition of the percentage of the investment to be considered as a bought position, the respective percentage of participation of each currency, and the start date of the validity of such definition; c) the option for the prerogative referred to herein may not be altered before the first subsequent semi-annual balance sheet following its deliberation; d) the net sold exposure of equivalent or greater value must be maintained during the validity of this option; e) the percentage basis and currency composition of the bought position, effective on the last day of each semester, must be automatically considered for the following semester, except in the case of a new deliberation by the institution in accordance with item "b", to be taken during the semester itself, to take effect in the subsequent semester; and f) information related to the option for the prerogative referred to herein must be documented and kept available to the Central Bank of Brazil.

Paragraph 6. For the determination of the RWA portion, contracted operations that present, at any time, exchange rate risk for the institution must be considered.

Art. 2 For the determination of the daily value of the RWA portion, as well as for the exchange exposure limit provided for in Resolution No. 3,488, of August 29, 2007, the following are defined as:
I - bought exposure: the sum of assets that increase their value in national currency and of passive positions in financial derivative instruments that decrease their value in national currency, due to a devaluation of the value of the national currency relative to the foreign currency in which they are referenced; II - sold exposure: the sum of active positions in financial derivative instruments that decrease their value in national currency and of liabilities that increase their value in national currency, due to a devaluation of the value of the national currency relative to the foreign currency in which they are referenced.

Paragraph 1. Flows referenced in gold and foreign currency must be marked to market, for the remaining period of each contract, taking as a basis the time structure of the interest rate relevant to the currency subject to negotiation.

Paragraph 2. Financial derivative instruments referenced in gold, foreign currency, or assets subject to exchange rate variation must be determined based on the amount of the underlying asset.

Paragraph 3. In the case of open operations of option contracts referenced in gold, foreign currency, or assets subject to exchange rate variation, the relevant calculations for each operation must be carried out separately, and their results must be included in the calculation of the net exposure related to the underlying asset of the contract.

Paragraph 4. For the purpose of determining the value representative of option positions, the variation of the option price relative to the variation of the underlying asset price (delta) multiplied by the quantity of contracts and their size must be considered.

Paragraph 5. The values of positions held as a result of investments in investment fund shares must be treated consistently based on the proportional composition of their portfolios or, if impossible, as a position in one currency, with compensation with any sold position prohibited.

Paragraph 6. The following operations do not integrate the calculation base:
I - in which the institution acts exclusively as an intermediary, assuming no rights or obligations with the parties; and II - maturing until the next business day, provided they are settled by the quote of the determination day.

Paragraph 7. The methodology for determining the rates used for marking to market of exposures in gold, foreign currency, and assets and liabilities subject to exchange rate variation must be established based on consistent and verifiable criteria, in compliance with current regulations.

Art. 3 The value corresponding to participations, on a percentage basis, of foreign investments in the equity of financial institutions and other institutions authorized to operate by the Central Bank of Brazil may be considered, in whole or in part, as a sold position in foreign currency, provided there is a net bought exposure of equivalent or greater value.

Paragraph 1. The sold position referred to in the caput may be composed of one or more foreign currencies, at the institution's discretion.

Paragraph 2. The option for the prerogative referred to in the caput must be deliberated in a meeting of the board of directors, if any, or of the institution's executive board, with the definition of the percentage of the investment to be considered as a sold position, the respective percentage of participation of each currency, and the start date of the validity of such definition.

Paragraph 3. The option for the prerogative referred to in the caput may not be altered before the first subsequent semi-annual balance sheet following its deliberation.

Paragraph 4. The percentage basis and currency composition of the sold position referred to in this article, effective on the last day of each semester, must be automatically considered for the following semester, except in the case of a new deliberation by the institution in accordance with paragraph 2 of this article, to be taken during the semester itself, to take effect in the subsequent semester.

Paragraph 5. Information related to the option for the prerogative referred to in the caput must be documented and kept available to the Central Bank of Brazil.

Art. 4 The sold position in foreign currency carried out with the objective of providing a hedge for participation in investments abroad by financial institutions and other institutions authorized to operate by the Central Bank of Brazil may consider the value necessary to provide effective protection for the referred bought position in foreign currency, including computing fiscal effects, for the purpose of determining the RWA portion.

Paragraph 1. The parameters for determining the value of the protection referred to in the caput must be documented and established based on criteria consistent with the adopted hedge strategy.

Paragraph 2. The option for the prerogative referred to in the caput must be deliberated in a meeting of the board of directors, if applicable, or of the institution's executive board, observed that it may not be altered before the first semi-annual balance sheet following its deliberation.

Paragraph 3. Information related to the option for the prerogative referred to in the caput must be documented and kept available to the Central Bank of Brazil.

Art. 5 A detailed report detailing the determination of the RWA portion must be sent to the Central Bank of Brazil, in the manner to be established.

Paragraph 1. It is the responsibility of the conglomerate institution responsible for sending accounting information to the Central Bank of Brazil to carry out the consolidated determination of the RWA portion.

Paragraph 2. Institutions must keep available to the Central Bank of Brazil, for a period of five years, the information used for the daily determination of the RWA portion, as well as the methodology used for determining the market value of the respective operations.

Art. 6 The following accounting titles in the Accounting Plan of the Institutions of the National Financial System (Cosif) are maintained: 3.0.9.97.00-4 - EQUITY REQUIRED FOR MARKET RISK COVERAGE and 9.0.9.97.00-6 - EQUITY REQUIREMENT FOR MARKET RISK COVERAGE, for the registration of the value determined for the RWA in monthly balance sheets and balance sheets.

Art. 7 This Circular enters into force on October 1, 2013.

Art. 8 Circulars No. 3,389, of June 25, 2008, and No. 3,608, of August 17, 2012, are repealed, effective October 1, 2013.

Sole Paragraph. Citations to Circular No. 3,389, of 2008, shall henceforth refer to this Circular.

Luiz Awazu Pereira da Silva
Director of Regulation of the Financial System

This text does not replace the published in the DOU of 3/6/2013, Section 1, p. 18/19, and in Sisbacen.