JPRM-2023-026-M — Reforming Reserve and Liquidity Requirements Regulation

RESOLUTION No. JPRM-2023-026-M MONETARY AND REGULATORY POLICY BOARD

CONSIDERING:

That, Article 226 of the Constitution of the Republic of Ecuador prescribes that public servants and persons acting under a state authority shall exercise only the competencies and powers attributed to them in the Constitution and the Law;

That, Article 227 ibid states that Public Administration constitutes a service to the community governed by the principles of efficiency, quality, hierarchy, coordination, planning, among others;

That, paragraphs 2 and 3 of Article 302 of the Constitution of the Republic provide that monetary, credit, exchange, and financial policies, among others, have as their objective to establish levels of global liquidity that guarantee adequate margins of financial security and to direct liquidity surpluses toward the investment required for the country's development;

That, the first paragraph of Article 303 of the Magna Carta determines that the formulation of monetary, credit, exchange, and financial policies is the exclusive faculty of the Executive Function and shall be implemented through the Central Bank of Ecuador;

That, Article 309 supra establishes: “The national financial system is composed of the public, private, and popular and solidarity sectors, which intermediates public resources. Each of these sectors will have specific and differentiated control norms and entities, which will be responsible for preserving their safety, stability, transparency, and solidity (…)”;

That, Article 47.1 of the Organic Code of Monetary and Financial Affairs created the Monetary and Regulatory Policy Board, as part of the Executive Function, responsible for monetary formulation, the highest governing body of the Central Bank of Ecuador, and determined its composition;

That, Article 47.6 of the same Code, regarding the functions of the Monetary and Regulatory Policy Board, among others, establishes: “1. Formulate policy in the monetary sphere and observe its application by the Central Bank of Ecuador, to preserve the integrity and sustainability of the dollarization monetary system and the financial system, in accordance with the provisions of this Code; (…) 26. Those others conferred by law.”;

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That, Article 118.1 supra determines the instruments to manage liquidity, among which reserve requirements are included, establishing that the Monetary and Regulatory Policy Board will issue a resolution that specifies the terms and conditions for liquidity operations;

That, Article 151 of the Code ibid determines: “Regulation shall recognize the nature and particular characteristics of each of the sectors of the national financial system. Regulation may be differentiated by sector, by segment, by activity, among others.”.

That, Article 240 of the aforementioned norm determines: “Entities of the public and private financial sectors, as well as those of the popular and solidarity financial sector, without prejudice to other reserves established by this Code, are obligated to maintain reserve requirements on the deposits and captations they hold. The reserve shall be maintained at the Central Bank of Ecuador. Under the authority of what is determined in the Constitution, for entities of the popular and solidarity financial sector, the Monetary and Regulatory Policy Board will establish differentiated reserve conditions by segments. The failure of a financial entity to timely cover the requested reserve constitutes a very serious offense, sanctioned by the Central Bank of Ecuador in accordance with this Code.”;

That, Article 241 of the same legal body establishes: “The Monetary and Regulatory Policy Board shall regulate differentiated reserve percentages, which may be by deposit structure, type of entity, among others”;

That, through Resolution No. JPRM-2023-013-M, of June 30, 2023, the Monetary and Regulatory Policy Board issued the “Regulation of the Reserve Percentage and Liquidity Reserves of Entities of the Public, Private, and Popular and Solidarity Financial Sectors”;

That, through Resolution No. JPRM-2023-019-M, of October 12, 2023, Article 1 of Resolution No. JPRM-2023-013-M, of June 30, 2023, was reformed;

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That, the Monetary and Regulatory Policy Board, in ordinary session No. 012-2023 under mixed modality, on December 28, 2023, reviewed the proposal sent via memorandum No. BCE-BCE-2023-0284-M, of December 26, 2023, by the General Manager of the Central Bank of Ecuador to the President of the Monetary and Regulatory Policy Board, as well as the technical report No. BCE-SGPRO-075-2023 / BCE-DNRS-045-2023 / BCE-DNPRMF-074-2023; of December 14, 2023; and, the legal report No. BCE-CGJ-091-2023, of December 14, 2023; and,

In exercise of its functions and in attention to Article 47.7 of the Organic Code of Monetary and Financial Affairs, the Monetary and Regulatory Policy Board resolves:

TO REFORM THE REGULATION OF THE RESERVE PERCENTAGE AND LIQUIDITY RESERVES OF ENTITIES OF THE PUBLIC, PRIVATE, AND POPULAR AND SOLIDARITY FINANCIAL SECTORS, ISSUED THROUGH RESOLUTION NO. JPRM-2023-013-M AND REFORMED THROUGH RESOLUTION NO. JPRM-2023-019-M

Article 1. - Substitute Article 1 of Resolution No. JPRM-2023-013-M, of June 30, 2023, reformed by Resolution No. JPRM-2023-019-M, of October 12, 2023, with the following text:

“Article 1. - Reserve Percentage and Requirement: The reserve level that entities of the public, private, and popular and solidarity financial sectors must maintain will be calculated based on the weekly average of daily balances of deposits and captations of each entity, according to the following table and percentage:

Reserve Percentage by Type of Financial Entity and Asset Level FINANCIAL ENTITY RESERVE REQUIREMENT PERCENTAGE Public and Private Financial Sector Assets: a) Greater than USD 1,000 million 5.0% b) Less than or equal to USD 1,000 million 4.0% Popular and Solidarity Financial Sector Savings and Credit Cooperatives Segment 1 and Central Boxes 3.5% Savings and Credit Mutuals for Housing 3.5% Savings and Credit Cooperatives Segment 2 2.0% ”.

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Article 2. - Suppress the transitional provisions of Resolution No. JPRM-2023-013-M, of June 30, 2023, reformed by Resolution No. JPRM-2023-019-M, of October 12, 2023.

Article 3. - Incorporate as the sole transitional provision in Resolution No. JPRM-2023-013-M, of June 30, 2023, reformed by Resolution No. JPRM-2023-019-M, of October 12, 2023, the following provision:

“SOLE TRANSITIONAL PROVISION. - The Central Bank of Ecuador will carry out the pertinent actions for the implementation of what is resolved in this regulation.”

FINAL PROVISION. - This resolution will enter into force from January 1, 2024, without prejudice to its publication in the Official Register.

The publication of this resolution on the institutional website of the Central Bank of Ecuador is entrusted to the Document Management and Archive Directorate.

NOTIFY AND PUBLISH. - Given in the Metropolitan District of Quito, on December 28, 2023.

THE PRESIDENT Dr. TATIANA MARIBEL RODRÍGUEZ CERÓN

The preceding resolution was signed by Doctor Tatiana Maribel Rodríguez Cerón - President of the Monetary and Regulatory Policy Board, in the Metropolitan District of Quito, on December 28, 2023.- I CERTIFY.

ADMINISTRATIVE SECRETARY Attorney MARÍA ALEXANDRA GUERRERO DEL POZO