Circular OPRAC 1-470 LISOL 1-280 CONAU 1-324: Holdings of Securities in Investment Accounts. Minimum Capital of Financial Entities. Credit Risk Requirement. Modifications

"1999 - Year of Exportation"

BANCO CENTRAL DE LA REPUBLICA ARGENTINA
__________________________________________________________________ COMMUNICATION "A" 3039 I 16/12/99 __________________________________________________________________ TO FINANCIAL ENTITIES:
Ref.: Circular
OPRAC - 1 – 470
LISOL – 1- 280
CONAU – 1 - 324
Holdings of securities in investment accounts. Minimum capital of financial entities.
Requirement for credit risk.
Modifications

We address you to inform you that this Institution adopted the following resolution:

"1. Substitute, with effect from 1.3.2000, Section 1. of the rules on "Holdings of securities in investment accounts" with the following:
"Section 1. Eligible securities.
Securities representing debt of the country subject to capital requirement for market risk.
Operations involving the transfer (pase) of these holdings will be admitted without affecting their book value when the counterparty is any of the following:

• other financial entities of the country.
• a foreign bank that has an international rating of "A" or higher granted by one of the international rating agencies admitted according to the rules of "Evaluation of Financial Entities".
  The execution of operations involving the transfer of national public securities with the Central Bank of the Republic Argentina will also be admitted."

2. Substitute, with effect from 1.3.2000, Section 2. of the rules on "Holdings of securities in investment accounts" with the following:
   "Section 2. Procedure for the allocation of securities.
   The decision to maintain holdings in investment accounts must be adopted with the intervention of the highest responsible person designated by the entity regarding compliance with the rules on minimum capital requirement for market risk."

3. Substitute, with effect from 1.3.2000, Section 3. of the rules on "Holdings of securities in investment accounts" with the following:
   "Section 3. Valuation.
   3.1. Accounting registration.
   Holdings incorporated into investment accounts will be registered accounting-wise at their cost value -taking into account what is provided in the following paragraph- increased, until the maturity of each service, based on the interest arising from the current coupon. When dealing with pre-existing holdings registered in accounts for intermediation, the cost value will be considered the market quotation of the securities comprised at the close of operations on the day prior to the date of their incorporation into the investment accounts.

3.2. Treatment of valuation differences.
The book value of the holdings will be decreased on the last day of each month by the amount of the positive difference resulting from the following expression:
Pvc - (1.20*Pvm) where
Pvc: book balance of the position in each title on the last day of each month.
Pvm: position in each title, on the last day of each month, considered at its market value.

To this effect, the quantity in nominal values of the position in each title will be multiplied by the value resulting from considering the respective quotation at the close of operations on the last day of each month.

3.3. Registrations for transfer (pase) operations.
Holdings allocated for the execution of admitted transfer operations will be registered at their book value.
Forward purchases will be accounted for in "Other credits for financial intermediation - Forward purchases of public securities for transfer operations with holdings in investment accounts". The difference between the cost value of the securities allocated for the execution of these transfer operations and their quotation value or the purchase value of the Central Bank will be reflected until the settlement of the forward purchase in "Other credits for financial intermediation - Forward purchases of public securities for transfer operations with holdings in investment accounts - Valuation difference".

3.4. Exposure in financial statements.
The valuation criterion employed regarding holdings in investment accounts and the quantification of the difference in relation to their valuation at market prices will be disclosed in a note to the quarterly and annual financial statements.

3.5. Other aspects.
In aspects not expressly contemplated (premiums, usable quotations, etc.), the criteria currently in force generally will be applied supplementarily."

4. Substitute, with effect for the determination of the computable equity responsibility required from 30.4.2000, point 3.1. of Section 3. of the rules on "Minimum capital of financial entities" with the following:
   "3.1. Requirement.
   It will be determined by applying the following expression:
   Cer= k * [a * Ais + b * Aif + c1, ...4 * (CiZ1,..4 + FspnZ1,...4)+ r * (Vrf + Vrani)] where Cer: minimum capital required based on credit risk. k: factor linked to the rating assigned to the entity according to the evaluation carried out by the Superintendence of Financial and Exchange Entities, taking into account the following scale:

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Assigned Rating	Value of "k"
------------------------+--------------
1	0.970
2	1.000
3	1.050
4	1.100
5	1.150

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To this effect, the last reported rating will be considered, for the calculation of the requirement corresponding to the third month following that in which the notification takes place. Until communicated, the value of "k" will be equal to 1. a: 0.15 b: 0.125 Ais: immobilized assets incorporated into equity until 30.6.93. Aif: immobilized assets incorporated into equity from 1.7.93. c1: coefficient to be established by the Central Bank of the Republic Argentina. It will be equal to 0.01. c2: coefficient to be established by the Central Bank of the Republic Argentina. It will be equal to 0.025. c3: coefficient to be established by the Central Bank of the Republic Argentina. It will be equal to 0.04. c4: coefficient to be established by the Central Bank of the Republic Argentina. It will be equal to 0.05. Ci: holdings in investment accounts. Fspn: financings granted to the non-financial national public sector from 1.3.2000. This concept includes the granting of new facilities for any concept, including the assumption of contingent commitments, as well as the concession of renewals, extensions (express or tacit) of operations granted prior to said date. The scope of the non-financial national public sector is comprehensive of financings to provincial, municipal, and Buenos Aires City governments that have the express guarantee of the National Government or federal tax sharing through the assignment (direct or indirect) of the corresponding rights. Z1,...4: zones in which debt securities held in investment accounts and financings to the non-financial national public sector are grouped, in pesos and foreign currency, according to the "modified duration" ("md") of these assets, according to the following classification:
Z1: "md" up to 0.5
Z2: "md" from more than 0.5 up to 1.
Z3: "md" from more than 1 up to 2.5.
Z4: "md" greater than 2.5 r: 0.115
Vrf: risk value of financings, determined by the sum of the values obtained after applying the following expression:
p * Ir * f where p : risk weighter, as a proportion.
Ir : risk indicator. f: loans, other credits for financial intermediation, and other financings granted -including, where applicable, guarantees, sureties, and other eventual liabilities-, except operations between financial entities, in pesos and in foreign currency, regardless of their instrumentation. Also included are diverse credits linked to the sale of immobilized assets, including those taken in defense or in payment of credits. Vrani: risk value of non-immobilized assets, not included in "f", determined by the sum of the values obtained after applying the following expression:
p * (Ani - f) p: risk weighter, as a proportion.
Ani: non-immobilized assets."

5. Incorporate, with effect for the determination of the computable equity responsibility required from 30.4.2000, in point 2. of Section 4. of the rules on "Minimum capital of financial entities", the following point:
   "- In investment accounts. 0%"

6. Render ineffective, with effect from 1.3.2000, the provisions contained in point 8.1. of the rules on "Minimum capital of financial entities" and Section 5. of the rules on "Holdings of securities in investment accounts" regarding the treatment of valuation differences of these holdings.

7. Render ineffective what is provided in point 3. of the resolution disseminated by Communication "A" 2793 (text according to Communication "A" 2872), regarding the risk weighters for national public securities and financings to the non-financial national public sector to determine the minimum capital requirement for credit risk."

We salute you very attentively.
BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Juan Carlos Isi Raúl O. Planes
Submanager of Manager of
Regulatory Regime Open Market a/c Management of Norms for Financial Entities