BANCO CENTRAL DE LA REPUBLICA ARGENTINA

COMUNICACION "A" 3280 I 31/05/01

TO FINANCIAL ENTITIES:

Ref.: Circular
OPRAC 1 - 497
LISOL 1 – 340
Financial Assistance to the National Government. Holdings of Bonds/Promissory Notes. Regulatory Exceptions. Determination of Minimum Capital Requirement

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

“1. Exclude from the limitations established in the regulations on "Financing to the non-financial public sector" the financings that are structured through the issuance of Promissory Notes of the National Government within the framework of the swap operation provided for in Decree 648/01.

The credit assistance covered by this exception may not exceed the total amount of promissory notes delivered in exchange by the financial entities included in Resolutions Nos. 307/99, 163/00, 177/00, 467/00 and 61/01 of the Central Bank.

Establish that the sum of the credit assistance attributable to the issuance referred to in point 1 of this resolution, that corresponding to the issuances included in Resolutions Nos. 307/99, 163/00, 177/00, 467/00 and 61/01 and other financings to the National Government covered by the provisions on fragmentation of credit risk, may exceed by up to 10 percentage points the greater of: a) the maximum lending limits based on computable equity established in points 2.2.1. and 3.2. of Annex II to Communication “A” 2140 or b) the proportions that -for the purposes of said relationships- such assistance represented on 24.5.01 with respect to said equity.
For the purposes of what is provided in point 2 of this resolution, financings instrumented through bonds that are received in exchange for financings previously instrumented through promissory notes or of holdings of bonds subscribed prior to the “Program of Financing instrumented through Promissory Notes or Bonds” of the National Government of the years 1999/2001 shall be considered included, as long as they are not susceptible of being computed for the purposes of determining the minimum capital requirement for market risk.
Incorporate, with effect from 1.6.01, in Section 10. of the regulations on “Minimum Capitals of Financial Entities” the following point:

“10.3. Entities that register holdings of bonds and financings instrumented through promissory notes received in exchange for bonds/promissory notes held previously, delivered on account of the operation referred to in Decree 648/01 may apply:

for the purposes of determining the minimum capital requirement for credit risk, the “modified duration” (“md”) that corresponds to the bonds/promissory notes delivered.
for the purposes of determining the minimum capital requirement for interest rate risk, they may attribute the residual nominal value of the bonds/promissory notes delivered in exchange to the time band that corresponds to the “modified duration” (“md”) of the latter, at the time of the operation.”

We send you attached the justifications for the measure adopted and the sheets that, in replacement of those previously provided, correspond to incorporate in the regulations on "Minimum Capitals of Financial Entities".

We salute you very attentively.

BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Alfredo A. Besio
Manager of Issuance

José I. Rutman
Principal Manager of Norms

ANEXO

B.C.R.A.
JUSTIFICATIONS FOR THE RESOLUTION ON FINANCIAL ASSISTANCE TO THE NATIONAL GOVERNMENT. HOLDINGS OF BONDS/PROMISSORY NOTES. REGULATORY EXCEPTIONS. DETERMINATION OF MINIMUM CAPITAL REQUIREMENT.

Annex
to
Com. “A” 3280

Within the framework of the "Program of Financing instrumented through Promissory Notes or Bonds", the National Government duly issued debt up to USD 4,500 million.
For this reason, the Board of Directors of this Institution adopted Resolutions Nos. 307/99, 163/00, 177/00 and 467/00, by which exceptions to the limitations established in the regulations on "Financing to the non-financial public sector" and on fragmentation and concentration of credit risk were established to enable the participation of entities in the operation. Subsequently, that program was expanded by USD 150 million for the bidding of date 13.2.01, which was excepted from the limitations established in the regulations on "Financing to the non-financial public sector" through Resolution No. 61/01.
Regarding the regulations on fragmentation and concentration of credit risk, the first issuance (July 1999) of USD 1,000 million was excluded from the calculation, while for the three subsequent issuances (November 1999, April 2000 and October 2000) it was provided that the assistance attributable to that program could exceed the respective limits by 25 percentage points of the computable equity of the intervening entity for the set of issuances of November 1999 and April 2000 and another 25 percentage points for the issuance of October 2000, except that, with respect to the latter, differential exceptions were established for certain entities.
Now, the National Government plans to carry out a debt swap operation (Decree 648/01) and within the structure of new papers to be offered there is a bond/promissory note maturing in 2006, with a rate adjustable according to a local variable and amortization of payments quarterly in the last three years to which those financings could be applied.
In order to enable financial entities to participate in the aforementioned placement, it is necessary to give continuity to the franchises established for the financing of the non-financial public sector and admit that they exceed the maximum lending limits based on computable equity, currently in force generally, insofar as they refer to financings that already had the facilities.
On the other hand and with the objective of limiting the degree of aggregate exposure in these instruments, it is considered convenient to establish a global limit including the Bonds or Promissory Notes of the mentioned resolutions. According to a survey carried out by the technical areas, said limit would not generally prevent financial entities from trading these instruments among themselves in the secondary market. Complementarily, it is appropriate to adopt measures in the matter of determination of the minimum capital requirement regarding those instruments that financial entities receive on account of the debt swap operation that the National Government will carry out (Decree 648/01).

This with the purpose that the established regulation does not signify an obstacle to enable the participation of entities in that process, of high importance for the country.
In that sense, an optional procedure is established for entities so that for determining the requirement for credit risk to be observed by the instruments received they can apply the "modified duration" ("md") that corresponds to the bonds/promissory notes delivered, in such a way that said debt swap operation does not generate an increase in minimum capital for them. In addition, within that framework, an additional provision is adopted so that the requirement for interest rate risk is not altered by the new titles received in exchange, whose use also has the character of an optional alternative and that may be replaced by the general method at the discretion of the entity.

MINIMUM CAPITALS OF FINANCIAL ENTITIES B.C.R.A. Section 10. Transitional Provisions.

10.1. Entities that register national public titles attributed to investment accounts received on account of the swap operation referred to in Decree 648/01 may apply, for the purposes of determining the minimum capital requirement for credit risk, the “modified duration” (“md”) that corresponds to the titles delivered also accounted for in those accounts.

10.2. Entities that register national public titles received on account of the swap operation referred to in Decree 648/01, for the purposes of determining the minimum capital requirement for interest rate risk, may attribute the residual nominal value of the assets delivered in exchange to the time band that corresponds to the “modified duration” (“md”) of these latter titles, at the time of the operation.”

10.3. Entities that register holdings of bonds and financings instrumented through promissory notes received in exchange for bonds/promissory notes held previously, delivered on account of the operation referred to in Decree 648/01 may apply:

for the purposes of determining the minimum capital requirement for credit risk, the “modified duration” (“md”) that corresponds to the bonds/promissory notes delivered.
for the purposes of determining the minimum capital requirement for interest rate risk, they may attribute the residual nominal value of the bonds/promissory notes delivered in exchange to the time band that corresponds to the “modified duration” (“md”) of the latter, at the time of the operation.

Version: 2nd Communication “A” 3280 Validity: 01.06.01

ORDERED TEXT ORIGIN NORM

Section	Point	Paragraph	Com. Cap./Anexo	Point	Paragraph	Observations
8.	8.2.4.5.	“A” 414	LISOL-1 VI 3.2.	“A” 1215		Specifications of the items of participations in financial entities not deductible to determine computable equity.
8.	8.2.4.6.	“A” 414	LISOL-1 VI 3.2.
8.	8.2.4.7.	“A” 2863	3.
8.	8.2.4.8.	“A” 414	LISOL-1 VI 3.2.
8.	8.2.4.9.	“A” 2730				Incorporates interpretative clarification.
8.	8.2.4.10.	“A” 2545
8.	8.2.4.11.	“A” 414	LISOL-1 VI 3.2.			Modified by Com. “A” 986.
8.	8.2.4.12.	“A” 414	LISOL-1 VI 3.2.
8.	8.2.4.13.	“A” 2287	4.	“A” 2607	1.
8.	8.2.4.14.	“A” 2893	1.
8.	8.2.4.15.	“A” 3087
8.	8.3.	“A” 414	LISOL-1 VI 3.4.			According to Com. “A” 1858.
9.	9.1.	“A” 2227	único 5.2.1. último			According to Com. “A” 2649.
9.	9.2.	1º	“A” 2227	único 5.1.1. y 5.1.7.		According to Com. “A” 2649.
			“A” 2227	único 5.2.2.
9.	9.2. último	“A” 2461	único V.
10.	10.1	“A” 3278	2.
	10.2.	“A” 3278	2.
	10.3.	“A” 3280	4.