CMN Resolution No. 3444 — Defines Reference Equity (PR)

RESOLUTION NO. 3444

Defines Reference Equity (PR).

The CENTRAL BANK OF BRAZIL, in accordance with Article 9 of Law No. 4.595, of December 31, 1964, makes public that the MONETARY COUNCIL, in a session held on February 28, 2007, based on Article 4, items VI, VIII, XI, and XXXI of the aforementioned law, Article 20, § 1º, of Law No. 4.864, of November 29, 1965, Law No. 6.099, of September 12, 1974, amended by Law No. 7.132, of October 26, 1983, Law No. 10.194, of February 14, 2001, amended by Law No. 11.110, of April 25, 2005, and Article 7 of Decree-Law No. 2.291, of November 21, 1986,

RESOLVES:

Definition and Calculation of Reference Equity

Art. 1. Reference Equity (PR), for the purpose of verifying compliance with the operational limits of financial institutions and other institutions authorized to operate by the Central Bank of Brazil, excluding microentrepreneur credit societies, consists of the sum of Level I and Level II.

§ 1º Level I of PR is calculated by summing the values corresponding to shareholders' equity, the balances of credit result accounts, and the deposit in a linked account to cover capital deficiency, constituted in accordance with Article 2°, § 4°, of Resolution No. 3.398, of August 29, 2006, excluding the values corresponding to:

I - balances of debit result accounts;

II - revaluation reserves, contingency reserves, and special profit reserves related to mandatory dividends not distributed;

III - preferred shares issued with a redemption clause and preferred shares with cumulative dividends;

IV - tax credits defined in accordance with Articles 2º to 4º of Resolution No. 3.059, of December 20, 2002;

V - deferred permanent asset, net of premiums paid in the acquisition of investments;

VI - balance of unrealized gains and losses resulting from the adjustment to market value of securities and financial instruments classified in the category "securities available for sale" and of financial derivative instruments used for cash flow hedging.

§ 2º Level II of PR is calculated by summing the values corresponding to revaluation reserves, contingency reserves, and special profit reserves related to mandatory dividends not distributed, plus the values corresponding to:

I - hybrid capital and debt instruments, subordinated debt instruments, preferred shares issued with a redemption clause, and preferred shares with cumulative dividends issued by financial institutions and other institutions authorized to operate by the Central Bank of Brazil;

II - balance of unrealized gains and losses resulting from the adjustment to market value of securities and financial instruments classified in the category "securities available for sale" and of financial derivative instruments used for cash flow hedging.

§ 3º For the purpose of calculating PR, the deduction of the values referred to in § 1º, items V and VI, and the addition referred to in § 2º, item II, refer to values constituted from the date of entry into force of this resolution.

Art. 2. For institutions that are part of a financial conglomerate, the calculation of PR must be performed on a consolidated basis, using the criteria of the Accounting Plan of the Institutions of the National Financial System - Cosif.

Sole Paragraph. Institutions that are part of a financial conglomerate and of an economic-financial consolidation must calculate the value of PR on a consolidated basis, both for the financial conglomerate and for the economic-financial consolidation.

Art. 3. Starting from July 2, 2007, the balance of assets represented by the following funding instruments issued by financial institutions and other institutions authorized to operate by the Central Bank of Brazil must be deducted from PR:

I - shares;

II - hybrid capital and debt instruments and subordinated debt instruments;

III - other financial instruments authorized by the Central Bank of Brazil to integrate Level I of PR, in accordance with Article 12, and Level II of PR, in accordance with Article 13, § 3º.

§ 1º The deduction referred to in the caput must also be performed in the event of acquisition or indirect participation in a financial conglomerate, through a non-financial institution that is part of the respective economic-financial consolidation.

§ 2º A portion of the value applied in investment fund shares, proportional to the participation in the fund's portfolio of the funding instruments mentioned in the caput, must be deducted from PR.

Art. 4. The value corresponding to a branch or participation in a financial institution abroad, regarding which the Central Bank of Brazil does not have access to sufficient information, data, and documents for the purposes of global consolidated supervision, must be deducted from PR.

Art. 5. Any excess of resources applied in Permanent Assets relative to the percentages established in Articles 3º and 4º of Resolution No. 2.283, of June 5, 1996, with the wording given by Resolution No. 2.669, of November 25, 1999, must be deducted from PR.

Art. 6. Resources delivered or placed at the disposal of the institutions mentioned in Article 1º by third parties, for the purpose of carrying out linked active operations, as provided in Resolution No. 2.921, of January 17, 2002, are not eligible to integrate Level II of PR.

Subordination Core

Art. 7. The contract or document that supports the funding operation through subordinated debt instruments or hybrid capital and debt instruments must contain a specific chapter, called Subordination Core, composed of:

I - clauses that allow evidence of compliance with all the requirements referred to in Articles 8º, in the case of hybrid capital and debt instruments, and 9º, in the case of subordinated debt instruments;

II - a clause establishing that any other clause in the contract or other accessory document that prejudices compliance with the requirements referred to in Articles 8º, in the case of hybrid capital and debt instruments, and 9º, in the case of subordinated debt instruments, is null and void;

III - a clause establishing that the amendment, alteration, or revocation of the terms of the Subordination Core depends on prior authorization from the Central Bank of Brazil;

IV - a summary of the operation, containing the following information:

a) nature of the funding;

b) amount funded;

c) structure of the disbursement flow related to the payment of amortizations and charges.

§ 1º In funding operations whose terms are defined by more than one contract or document, the Subordination Core must contain the transcription of all clauses of the contracts or accessory instruments of the operation that establish its subordination to the principal instrument.

§ 2º The amendment, alteration, and revocation of the terms of the Subordination Core, referred to in the caput, can only occur when business conditions are verified that, at the discretion of the Central Bank of Brazil, justify the institution's claim.

Hybrid Capital and Debt Instruments

Art. 8. To integrate Level I and Level II of PR, the hybrid capital and debt instruments, referred to in Article 1º, must meet the following requirements:

I - be registered, when issued in Brazil and, when issued abroad, whenever local legislation so permits;

II - be fully paid in cash;

III - have a perpetual nature, not providing for a maturity date or a clause for the issuer's option to repurchase;

IV - have their payment subordinated to the payment of the other liabilities of the issuing institution, in the event of its dissolution;

V - establish their immediate use in offsetting losses determined by the issuing institution when accumulated profits, profit reserves, and capital reserves are exhausted;

VI - provide for the mandatory postponement of the payment of charges while dividends related to ordinary shares referring to the same fiscal year are not distributed;

VII - provide for the mandatory postponement of any payment of charges, if the issuing institution is out of compliance with operational limits or if the payment creates a situation of non-compliance;

VIII - have the redemption or repurchase, even if carried out indirectly, through a legal entity affiliated with the issuer with which it forms a financial conglomerate or economic-financial consolidation, conditioned to the authorization of the Central Bank of Brazil;

IX - cannot be redeemed at the creditor's initiative;

X - cannot be subject to any type of guarantee;

XI - cannot be subject to insurance, through any instruments or insurance structures that obligate or allow payments or transfer of resources, directly or indirectly, from the issuing institution or from a legal entity affiliated with it with which it forms a financial conglomerate or economic-financial consolidation, to the holder of the instrument and that compromise the condition of subordination expressed in this article.

§ 1º In the event of placement abroad, the hybrid capital and debt instruments, referred to in Article 1º, must contain a clause choosing the forum where the requirements for the instrument are recognized, in the event of any judicial disputes.

§ 2º Permission for the repurchase or redemption of hybrid capital and debt instruments authorized to integrate Level I and Level II of PR may be granted, provided that the issuing institution is not out of compliance with operational limits and the repurchase or redemption does not create a situation of non-compliance.

§ 3º The redemption or repurchase of hybrid capital and debt instruments authorized to integrate Level I and Level II of PR, even if carried out indirectly, through a legal entity affiliated with the issuer with which it forms a financial conglomerate or economic-financial consolidation, can only be permitted in the following cases:

I - issuance of new hybrid capital and debt instruments, in an amount equivalent to that of the repurchased or redeemed instruments and under more favorable conditions regarding the payment of charges; or

II - business conditions that, at the discretion of the Central Bank of Brazil, justify the institution's claim.

§ 4º The values related to hybrid capital and debt instruments repurchased, even if indirectly, by a legal entity affiliated with the issuing institution with which it forms a financial conglomerate or economic-financial consolidation, cease to integrate Level I and Level II of PR.

§ 5º The timeframes and conditions established for the repurchase or redemption of hybrid capital and debt instruments also apply to the termination of the contract or document that supports the funding operation.

§ 6º The values related to the relisting in the market of hybrid capital and debt instruments repurchased, even if indirectly, by a legal entity affiliated with the issuing institution with which it forms a financial conglomerate or economic-financial consolidation, may return to integrate Level I and Level II of PR upon communication to the Central Bank of Brazil.

Subordinated Debt Instruments

Art. 9. To integrate Level II of PR, the subordinated debt instruments, referred to in Article 1º, must meet the following requirements:

I - be registered, when issued in Brazil and, when issued abroad, whenever local legislation so permits;

II - be fully paid in cash;

III - have an effective maturity term of at least five years, not providing for the payment of amortizations before this period has elapsed;

IV - have their payment subordinated to the payment of the other liabilities of the issuing institution, in the event of its dissolution;

V - provide for the mandatory postponement of any payment of charges, amortizations, or redemption, if the issuing institution is out of compliance with operational limits or if the payment creates a situation of non-compliance;

VI - have the early repurchase or redemption, even if carried out indirectly, through a legal entity affiliated with the issuing institution with which it forms a financial conglomerate or economic-financial consolidation, conditioned to the authorization of the Central Bank of Brazil;

VII - cannot be redeemed at the creditor's initiative;

VIII - cannot be subject to any type of guarantee;

IX - cannot be subject to insurance, through any instruments or insurance structures that obligate or allow payments or transfer of resources, directly or indirectly, from the issuing institution or from a legal entity affiliated with it with which it forms a financial conglomerate or economic-financial consolidation, to the holder of the instrument and that compromise the condition of subordination expressed in this article.

§ 1º In the event of placement abroad, subordinated debt instruments must contain a clause choosing the forum where the requirements for the instrument are recognized, in the event of any judicial disputes.

§ 2º Permission for the early repurchase or redemption of subordinated debt instruments authorized to integrate Level II of PR may be granted, provided that the issuing institution is not out of compliance with operational limits and the payment does not create a situation of non-compliance.

§ 3º In the first five years from the date of authorization, the redemption or repurchase of subordinated debt instruments authorized to integrate Level II of PR, even if carried out indirectly, through a legal entity affiliated with the issuing institution with which it forms a financial conglomerate or economic-financial consolidation, can only be permitted in the following cases:

I - issuance of new subordinated debt instruments, with an effective maturity term greater than or equal to the remaining term of the repurchased or redeemed instruments, in an amount equivalent to these and under more favorable conditions;

II - business conditions that, at the discretion of the Central Bank of Brazil, justify the institution's claim.

§ 4º The values related to subordinated debt instruments repurchased, even if indirectly, by a legal entity affiliated with the issuing institution with which it forms a financial conglomerate or economic-financial consolidation, cease to integrate Level II of PR.

§ 5º The timeframes and conditions established for the repurchase or redemption of subordinated debt instruments also apply to the termination of the contract or document that supports the funding operation.

§ 6º The values related to the relisting in the market of subordinated debt instruments repurchased, even if indirectly, by a legal entity affiliated with the issuing institution with which it forms a financial conglomerate or economic-financial consolidation, may return to integrate Level II of PR upon communication to the Central Bank of Brazil and provided that the effective remaining term to maturity is greater than five years.

§ 7º For subordinated debt instruments issued with a call option by the issuer, combined or not with a modification of their financial charges if the option is not exercised, the date scheduled for the exercise of the option will be considered as the effective maturity term referred to in the caput, item III.

Preferred Shares Issued with a Redemption Clause

Art. 10. To integrate Level II of PR, the preferred shares issued with a redemption clause, referred to in Article 1º, must meet the following requirements:

I - have a minimum redemption term of five years;

II - provide for the mandatory postponement of the redemption payment, if the issuing institution is out of compliance with operational limits or if the payment creates a situation of non-compliance;

III - have the early repurchase or redemption, even if carried out indirectly, through a legal entity affiliated with the issuing institution with which it forms a financial conglomerate or economic-financial consolidation, conditioned to the authorization of the Central Bank of Brazil;

IV - cannot be redeemed at the investor's initiative.

§ 1º The redemption or repurchase of preferred shares issued with a redemption clause, even if carried out indirectly, through a legal entity affiliated with the issuing institution with which it forms a financial conglomerate or economic-financial consolidation, can only be permitted, before five years have elapsed from issuance, in the case of business conditions that, at the discretion of the Central Bank of Brazil, justify the institution's claim.

§ 2º The values related to preferred shares issued with a redemption clause repurchased, even if indirectly, by a legal entity affiliated with the issuing institution with which it forms a financial conglomerate or economic-financial consolidation, cease to integrate Level II of PR.

§ 3º The values related to the relisting in the market of preferred shares issued with a redemption clause repurchased, even if indirectly, by a legal entity affiliated with the issuing institution with which it forms a financial conglomerate or economic-financial consolidation, may return to integrate Level II of PR upon communication to the Central Bank of Brazil and provided that the remaining term for redemption is greater than five years.

Preferred Shares with Cumulative Dividends

Art. 11. To integrate Level II of PR, the preferred shares with cumulative dividends, referred to in Article 1º, must meet the following requirements:

I - allow the postponement of the payment of charges, if the issuing institution is out of compliance with operational limits or if the payment creates a situation of non-compliance;

II - have the redemption or repurchase, even if carried out indirectly, through a legal entity affiliated with the issuing institution with which it forms a financial conglomerate or economic-financial consolidation, conditioned to the authorization of the Central Bank of Brazil.

§ 1º The redemption or repurchase of preferred shares with cumulative dividends, even if carried out indirectly, through a legal entity affiliated with the issuing institution with which it forms a financial conglomerate or economic-financial consolidation, can only be permitted, before five years have elapsed from issuance, in the case of business conditions that, at the discretion of the Central Bank of Brazil, justify the institution's claim.

§ 2º The values related to preferred shares with cumulative dividends repurchased, even if indirectly, by a legal entity affiliated with the issuing institution with which it forms a financial conglomerate or economic-financial consolidation, cease to integrate Level II of PR.

§ 3º The values related to the relisting in the market of preferred shares with cumulative dividends repurchased, even if indirectly, by a legal entity affiliated with the issuing institution with which it forms a financial conglomerate or economic-financial consolidation, may return to integrate Level II of PR upon communication to the Central Bank of Brazil.

Authorization for Level I

Art. 12. The Central Bank of Brazil may authorize the inclusion of effectively paid-in values corresponding to hybrid capital and debt instruments to integrate Level I of PR.

§ 1º Only hybrid capital and debt instruments that meet the requirements referred to in Article 8º, items I to V and VII to XI, caput, and provide for the non-payment of their respective charges while dividends related to ordinary shares referring to the same fiscal year are not distributed and the non-cumulativity of unpaid charges are eligible to integrate Level I of PR.

§ 2º The values corresponding to hybrid capital and debt instruments authorized to compose Level I of PR are limited to 15% (fifteen percent) of the total Level I of PR.

§ 3º For the purpose of the authorization referred to in the caput, the institution must submit the Subordination Core, referred to in Article 7º, to the Central Bank of Brazil, which will consider, among other elements, the structure of the payment of charges.

Authorization for Level II

Art. 13. The effectively paid-in values related to preferred shares with cumulative dividends, preferred shares issued with a redemption clause, subordinated debt instruments, and hybrid capital and debt instruments can only integrate Level II of PR with the authorization of the Central Bank of Brazil.

§ 1º For the purpose of authorization for subordinated debt instruments or hybrid capital and debt instruments to integrate Level II of PR, the institution must submit the Subordination Core, referred to in Article 7º, to the Central Bank of Brazil, which will consider, among other elements, the effective maturity term and the structure of the payment of amortizations and charges.

§ 2º For the purpose of calculating Level II of PR, the value of hybrid capital and debt instruments must be deducted from the value of the respective instruments used in the calculation of Level I of PR.

§ 3º The Central Bank of Brazil may authorize the inclusion of other operations to integrate Level II of the PR, equating them to subordinated debt instruments, provided they meet the subordination requirements established in Art. 9.

Limits

Art. 14. The following limits apply to the PR referred to in Art. 1:

I - the amount of Level II is limited to the value of Level I;

II - the amount of revaluation reserves is limited to 25% (twenty-five percent) of the value of Level I;

III - the value of preferred shares issued with a redemption clause with an original maturity term of less than ten years, plus the value of subordinated debt instruments, is limited to 50% (fifty percent) of the value of Level I.

§ 1º A discount shall be applied to the values of subordinated debt instruments and preferred shares issued with a redemption clause authorized to integrate Level II of the PR, observed the following schedule:

I - 20% (twenty percent), from the sixtieth month to the forty-ninth month prior to the respective maturity;

II - 40% (forty percent), from the forty-eighth month to the thirty-seventh month prior to the respective maturity;

III - 60% (sixty percent), from the thirty-sixth month to the twenty-fifth month prior to the respective maturity;

IV - 80% (eighty percent), from the twenty-fourth month to the thirteenth month prior to the respective maturity;

V - 100% (one hundred percent), in the twelve months prior to the respective maturity.

§ 2º The limit referred to in the caput, item III, applies to the values of subordinated debt instruments and preferred shares issued with a redemption clause after the application of the discount referred to in § 1º.

Art. 15. Any mention of Adjusted Shareholders' Equity (ASE) in regulations issued by the Central Bank of Brazil, referring to operational limits, remains referring to the definition of PR established in this resolution.

Art. 16. The Central Bank of Brazil shall regulate the procedures to be observed for the purposes of obtaining the authorizations referred to in this resolution.

Art. 17. The Central Bank of Brazil may determine that the values of preferred shares with cumulative dividends, preferred shares issued with a redemption clause, subordinated debt instruments, hybrid capital and debt instruments, and other operations authorized under Arts. 12 and 13, § 3º, be disregarded for the purposes of calculating the PR, if non-compliance with the requirements established in this resolution is found.

Art. 18. The Central Bank of Brazil shall observe the procedures established in Resolution No. 2,837, of May 30, 2001, for the purposes of authorization to compose Level II of the PR, for the funds raised by financial institutions and other institutions authorized to operate by it until the date of entry into force of this resolution.

Art. 19. This resolution enters into force on the date of its publication.

Art. 20. Resolution No. 2,837, of May 30, 2001, is hereby repealed.

Brasília, February 28, 2007.

Henrique de Campos Meirelles
President