Agreement No. 004-2022 Modifying Article 31 of Agreement No. 2-2018 on Liquidity Risk Management and Short-Term Liquidity Coverage Ratio

Republic of Panama Banking Superintendence AGREEMENT No. 004-2022 (of April 19, 2022) "By which Article 31 of Agreement No. 2-2018, which establishes provisions on liquidity risk management and the short-term liquidity coverage ratio, is modified"

THE BOARD OF DIRECTORS

In exercise of its legal powers, and

CONSIDERING:

That following the issuance of Law Decree No. 2 of February 22, 2008, the Executive Branch prepared a systematic ordering in the form of a single text of Law Decree No. 9 of February 26, 1998, and all its modifications, which was approved through Executive Decree No. 52 of April 30, 2008, hereinafter the Banking Law;

That in accordance with what is provided in numerals 1 and 2 of Article 5 of the Banking Law, it is the objective of the Banking Superintendence to ensure that the solidity and efficiency of the banking system are maintained; as well as to strengthen and foster the conditions conducive to the development of the Republic of Panama as an international financial center;

That in accordance with numerals 3 and 5 of Article 11 of the Banking Law, it is the technical attribute of the Board of Directors to approve the general criteria for the classification of risk assets and the guidelines for the constitution of reserves for risk coverage, and to fix, within the administrative scope, the interpretation and scope of legal or regulatory provisions in banking matters;

That in accordance with Article 6 of the Banking Law, it is the function of the Banking Superintendence to ensure that banks maintain appropriate solvency and liquidity coefficients to meet their obligations;

That in accordance with what is established in Article 72 of the Banking Law, the Superintendence may take into consideration and value other risks for the determination of the capital adequacy index;

That Article 73 of the Banking Law provides that every bank with a general license and every bank with an international license whose origin supervisor is the Banking Superintendence must maintain at all times a minimum balance of liquid assets equivalent to the percentage of the total gross of their deposits in Panama or abroad, which the Banking Superintendence periodically fixes;

That in accordance with numeral 10 of Article 75 of the Banking Law, the Superintendence may determine other liquid assets as part of the assets that make up the liquidity basket of banks;

That the Basel Committee has reinforced its liquidity framework by introducing minimum financial liquidity standards, developing the Liquidity Coverage Ratio (LCR), with the objective of guaranteeing that banks have sufficient high-quality liquid asset funds to overcome a significant stress episode over a full month and designed as a fundamental component of the supervisory approach to liquidity risk;

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That through Agreement No. 2-2018 of January 23, 2018, and its modifications, provisions on liquidity risk management and the short-term liquidity coverage ratio are established;

That through Article 31 of Agreement No. 2-2018, the levels and characteristics that make up the high-quality liquid assets fund are established, in which Level 1 assets include negotiable securities representing credits against, or guaranteed by, multilateral development organizations; as well as any other multilateral development organizations approved by the Banking Superintendence, which meet the conditions established in said article;

That in accordance with the guidelines established by Basel, credits against Multilateral Development Banks (MDBs) expressly approved by the Banking Superintendence of Panama shall be entitled to a risk weight of 0%, among which the European Bank for Reconstruction and Development (EBRD) is included;

That in working sessions of this Board of Directors, the need and convenience of modifying Article 31 of Agreement No. 2-2018 has been manifested, in order to incorporate within the Level 1 assets of the high-quality liquid assets fund the European Bank for Reconstruction and Development (EBRD).

AGREES:

ARTICLE 1. Article 31 of Agreement No. 2-2018, is hereby amended as follows:

“ARTICLE 31. HIGH-QUALITY LIQUID ASSETS FUND. The high-quality liquid assets fund is formed by three levels: Level 1, Level 2A, and Level 2B. The characteristics of the assets of each of the levels are defined below.

Characteristics of Level 1 assets:

1. Coins and banknotes.
2. Demand deposits or with a maturity term not exceeding 30 days, in banks of the Federal Reserve of the United States, Bank for International Settlements, or any other financial entity of similar characteristics, which authorizes the Banking Superintendence.
3. Negotiable securities representing credits against, or guaranteed by, sovereigns, central banks, public sector companies, the Bank for International Settlements, the European Central Bank, and the European Community, International Monetary Fund (IMF), the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Inter-American Development Bank (IDB), the European Investment Bank (EIB), the Asian Development Bank (ADB), the African Development Bank (AfDB), the International Fund for Agricultural Development (IFAD), the Andean Development Corporation (CAF), the European Bank for Reconstruction and Development (EBRD), and by any other multilateral development organizations approved by the Banking Superintendence, which meet the following conditions: a. Receive an international rating from AAA to AA-. b. Are traded in active markets, both repo or cash, with a low level of concentration of operations. c. Possess a proven track record as a reliable source of liquidity in repo and cash markets, even during situations of market stress. d. Do not represent a liability of any financial entity, except those mentioned above, nor of any entity belonging to a banking group. Even securities issued with public guarantee by a financial entity are not admissible in the fund.

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4. Negotiable securities issued by the Panamanian government. Characteristics of Level 2A assets: … Characteristics of Level 2B assets: …”

ARTICLE 2. VALIDITY. This Agreement shall enter into force from its promulgation.

Given in the city of Panama, on the nineteenth (19) day of the month of April of two thousand twenty-two (2022).

NOTIFY, PUBLISH, AND COMPLY.

THE PRESIDENT THE SECRETARY Rafael Guardia Pérez Felipe Echandi Lacayo