2018 - YEAR OF THE CENTENARY OF THE UNIVERSITY REFORM

COMMUNICATION “A” 6431
12/01/2018

TO FINANCIAL INSTITUTIONS:

Ref.: Circular
LISOL 1 - 774

Leverage ratio. Ordered text.

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We address you to inform you that this Institution adopted the resolution that, in its pertinent part, is transcribed below:

“1. Approve, with effect from 1.3.18, the rules on “Leverage ratio” referred to in the Annex that forms part of this communication.

2. Incorporate, with effect from 1.3.18, as point 5.2.2.7. of the rules on “Consolidated supervision” the following:

“5.2.2.7. Leverage ratio.”

On the other hand, we send you in annex the sheets that, in replacement of those opportunely provided, should be incorporated into the ordered text of “Consolidated supervision”. Likewise, it is recalled that on the page of this Institution www.bcra.gob.ar, accessing “Financial System - LEGAL AND REGULATORY FRAMEWORK - Orderings and summaries - Ordered texts of general regulations”, you will find the modifications made with texts highlighted in special characters (strikethrough and bold).

We greet you attentively.

CENTRAL BANK OF THE ARGENTINE REPUBLIC

Darío C. Stefanelli
Principal Manager of Issuance and
Regulatory Applications

Agustín Torcassi
General Deputy Manager of Rules

ANNEX

B.C.R.A.
LEVERAGE RATIO
Section 1. General considerations.

1.1. Objective.

The leverage ratio has as objectives to limit the leverage of financial institutions, in order to avoid the adverse consequences of an abrupt reduction of leverage in the supply of credit and the economy in general, and to reinforce the minimum capital requirement with a simple minimum capital requirement not based on risk.

1.2. Determination of the leverage ratio.

The leverage ratio arises from the following expression:

Leverage ratio
=
Capital measure
(expressed as a percentage)
Exposure measure

Capital measure: the capital to be computed shall be the basic net equity (PNb) –tier one capital, defined in Section 8. of the rules on “Minimum capital of financial institutions”–.

Exposure measure: for the purposes of its determination, the provisions established in Section 2 shall be observed.

The leverage ratio shall be greater than or equal to 3 %.

1.3. Calculation frequency.

Both the capital measure and the exposure measure shall be calculated based on the closing balances of each quarter.

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LEVERAGE RATIO B.C.R.A.
Section 2. Exposure measure.

The exposure measure shall result from the sum of:

a) on-balance sheet exposures –excluding items corresponding to derivatives and securities financing transactions (SFT)–;

b) derivative exposures;

c) exposures from SFT operations and

d) off-balance sheet items (PFB).

The specific treatments for each of these four types of exposures are developed in this section.

2.1. General criteria.

In order to determine the exposure measure, the following shall be taken into account:

2.1.1. The included concepts shall be computed at their gross book value, without deducting credit risk hedges, except in cases where their computation is specifically permitted.

2.1.2. On-balance sheet items not generated by derivatives shall be computed net of specific provisions for bad debt and impairment risks and of accumulated depreciation and amortization attributable to them and other regularizing accounts. Provisions for bad debt risk that have been deducted from tier one capital and that, in accordance with point 8.2.3.3. of the rules on “Minimum capital of financial institutions”, can be computed in tier two capital may also be deducted.

2.1.3. Assets and liabilities may not be netted.

2.1.4. Any concept that, in accordance with the provisions of the rules on “Minimum capital of financial institutions”, must be deducted for the purposes of calculating the PNb, except those related to liabilities, may be deducted from the exposure measure.

2.1.5. When a financial institution is the originator of a securitization –in the terms defined in point 3.1.2.1. of the rules on “Minimum capital of financial institutions”–, it may exclude the exposures underlying a traditional securitization if the operational requirements for the recognition of risk transfer established in those rules are met –except for retained positions, which must be included–. In all other cases, the underlying exposures must be included in the financial institution's exposure measure.

Institutions must pay attention to transactions and structured products that do not adequately capture the sources of leverage, such as SFT operations in which the exposure to the counterparty increases as its credit quality deteriorates or in which the credit quality of the counterparty is positively correlated with the value of the securities received in the operation and the use of structured products to remove assets from the asset.

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When the SEFyC considers that such operations are not being adequately captured by the leverage ratio or that they could lead to a potentially destabilizing deleveraging process, it may require the institution to adopt measures aimed at counteracting those situations, such as introducing improvements in its leverage management or that the exposure in question be adequately capitalized through an additional capital requirement, within the framework of the rules on “Guidelines for risk management in financial institutions”.

2.1.6. Exceptionally, the Central Bank of the Argentine Republic (BCRA) may provide that –temporarily– the deposits of financial institutions in the BCRA are not computed in the exposure measure, in which case it will communicate the minimum value of the ratio that financial institutions must observe in order to neutralize the impact of said exemption.

2.1.7. Long settlement transactions (“Long Settlement Transaction”, LST) and failed transactions, defined in points 4.2. and 4.1. of the rules on “Minimum capital of financial institutions” respectively, must be treated according to their accounting registration. If the LST is accounted for as a derivative, the exposure measure will be calculated as indicated in point 2.2.2. If the failed transaction is recorded as an account receivable, the exposure measure will be calculated as indicated in point 2.2.1., unless it is an SFT whose settlement has failed, in which case the provisions of point 2.2.3. must be applied.

2.2. Particular criteria.

2.2.1. Asset exposures.

2.2.1.1. All asset items must be computed, including assets held as collateral for derivative and SFT operations, without computing the assets originated in this type of operations referred to in points 2.2.2. and 2.2.3.

2.2.1.2. Regularizing accounts and concepts associated with liabilities may not be deducted, such as unrealized results originating from variations in the institution's credit risk due to the fair value measurement of liabilities for derivative instruments, referred to in point 8.4.1.17. of the rules on “Minimum capital of financial institutions”.

2.2.1.3. Receivables from conventional sales of financial assets pending settlement may not be netted against obligations from conventional purchases of those assets also pending, except when the following is met:

i) the financial assets giving rise to the receivables and payables are recorded at fair value with changes in results and are included in the trading portfolio; and

ii) the operations are settled under the delivery versus payment (DvP) modality.

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2.2.1.4. The extinguishment of debit and credit balances of a group of entities included in a cash pooling agreement and their transformation into a single balance through daily transfers of debit and credit balances to a single account is not considered netting of assets and liabilities. Cash pooling is understood as treasury products that allow managing liquidity and/or cash flow based on agreements that combine the debit and/or credit balances of multiple individual accounts.

The requirements of extinguishment and transformation into a single balance are also met when the debit and credit balances are transferred with a frequency that is not daily as long as the following conditions are fully met:

i) The pooling agreement establishes that the balances of all individual accounts will be extinguished through their transfer to a single account.

ii) It grants the right to offset, at any time and at the discretion of the financial institution, the individual balances through their transfer to said single account.

iii) There are no maturity mismatches between the balances of the accounts included in the pooling agreement and the financial institution charges or pays interest and/or commissions on the unified balance of the accounts covered.

iv) The SEFyC does not object to the frequency with which the individual balances are transferred.

The extinguishment and transformation requirements will not be considered met if the financial institution could be required to respond in case of default of one or more of the entities involved.

Accounts –with debit or credit balances– reached by an agreement that does not comply with the preceding criteria must be computed separately for the purposes of determining the measure of exposure.

2.2.2. Exposures from derivative transactions.

For an individual exposure not covered by an admissible bilateral netting contract –in accordance with the provisions of subparagraphs ii) and vi) of point 4.2.1.1. of the rules on “Minimum capital of financial institutions”–, the amount to be included in the measure of exposure shall be determined, for each individual transaction, as follows:

Measure of exposure = α x (CR + EPF)

where:

α:
1.40.
CR:
replacement cost; and
EPF:
potential future exposure.

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When the exposure is covered by an admissible bilateral netting contract, the formula in the preceding paragraph shall be applied at the netting set level, but different product categories –derivatives and SFT– may not be netted against each other, even when the contracts so admit. In these cases (“cross-product netting”) netting shall only be admitted separately for each product category.

In the case of written credit derivatives, the provisions of point 2.2.2.6. must also be observed.

2.2.2.1. Calculation of CR.

The CR of a transaction or netting set results from the following expression:

CR = max (V – CVMr + CVMp; 0)

where:

V: market value of the individual derivative or of the set of transactions within the netting set;

CVMr : variation margin in cash received that meets the conditions established in point 2.2.2.4. and that, for accounting purposes, has not been deducted from V; and

CVMp: variation margin in cash provided by the institution and that meets the conditions established in point 2.2.2.4.

2.2.2.2. Calculation of the EPF.

The potential future exposure (EPF) shall be calculated in accordance with the provisions of point 4.2.1.2. of the rules on “Minimum capital of financial institutions” and considering the following:

i) For the purposes of computing the leverage ratio, the multiplier shall be equal to one.

ii) For the calculation of the add-on for transactions with margins, the maturity factor referred to in subparagraph vi) of point 4.2.1.2. of said rules may be used.

iii) The exposure to the underlying of written options shall be included in the measure of exposure even in cases where the counterparty credit risk exposure (EAD) is zero for the calculation of minimum capital.

2.2.2.3. Treatment of collateral.

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The exposure shall not be reduced based on the assets that the financial institution had received from the counterparty as collateral for the derivative transaction. This implies that the CR may not be reduced based on the collateral received and that, when the EPF is calculated, the multiplier shall be equal to one. However, the effect of the periodic exchange of variation margin and the consequent reduction of the maturity factor in the EPF add-on may be recognized.

Assets delivered as collateral that, by application of accounting rules, the institution should not record in its assets must be returned to the measure of exposure.

2.2.2.4. Treatment of variation margin in cash.

The cash portion of the margin exchanged by the counterparties may be considered a form of payment in advance of settlement when all of the following are verified:

i) In transactions that are not cleared through a qualifying central counterparty (“Qualifying Central Counterparty”, QCCP), the counterparty receiving the cash does not maintain it segregated. This non-segregation criterion is satisfied if the receiving party has no legal, regulatory or contractual restrictions to use the cash received, so it may employ the variation margin in cash received as if it were its own cash.

ii) The variation margin is calculated and exchanged, at a minimum, daily based on the market valuation of the derivative positions.

This criterion is met if the derivative positions are subject to daily valuation and the cash margin is transferred to the counterparty, at a minimum, daily. This criterion shall be understood to be met if the variation margin in cash is transferred in the morning of the following business day based on the closing market values of each day.

iii) The variation margin is received in the currency specified in the derivative contract, master netting agreement (“Master Netting Agreement”, MNA), credit support annex (“Credit Support Annex”, CSA) or in the netting agreement with a central counterparty (“Central Counterparty”, CCP).

iv) The variation margin exchanged is the amount necessary to extinguish the exposure for the derivative valued at market, subject to the threshold and minimum transfer amounts applicable to the counterparty.

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v) Derivative transactions and variation margins shall be covered by a single MNA with each counterparty of the transactions. The MNA shall explicitly stipulate that the counterparties agree to settle on a net basis all obligations covered by the agreement, taking into consideration the variation margins received or delivered, when a credit event involving any of the counterparties occurs. The MNA shall be legally valid and enforceable in all relevant jurisdictions, including in the event of default, bankruptcy or insolvency.

In that case the measure of exposure may be reduced as follows:

− The margin received may be deducted from the CR, in accordance with the provisions of point 2.2.2.1.

− If the margin delivered is recorded in assets, it shall be deducted from the measure of exposure and computed in the CR as indicated in the aforementioned point.

2.2.2.5. Treatment of the clearing service.

When an entity offers clearing services to its clients as a clearing member, its exposure to the CCP for the obligation to reimburse clients for changes in the value of transactions – in the event of a CCP default – shall be captured using the same treatment given to any other type of derivative. However, it shall not be necessary to recognize the exposure to the QCCP if the clearing member, based on the contractual agreement with its client, is not obligated to indemnify it for losses suffered in the event of a QCCP default.

If the financial entity offers services as a higher-level client in a multi-level client structure, it may not recognize the exposures with respect to the clearing member or the entity acting as higher-level client if all of the following conditions are met:

i) The QCCP identifies the transactions to be cleared as transactions of a higher-level client and the collateral securing them is held by the QCCP and/or the clearing member, as applicable, under agreements that prevent the higher-level client from suffering losses due to:

a) the failure to pay or insolvency of the clearing member;

b) the failure to pay or insolvency of the other clients of the clearing member; and

c) the joint failure to pay or insolvency of the clearing member and any of its other clients.

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Section 2. Measurement of exposure.

This implies that, in the event of default or insolvency of the clearing member, there will be no legal impediments – except for the need to obtain a court order, to which the client is entitled – to transfer the collateral belonging to the clients of that clearing member to the QCCP, to one or more other clearing members, to the client or to whom the latter designates.

ii) The entity must have conducted an adequate legal review – and carry out such reviews when necessary to ensure continued applicability – and have grounds to conclude that such agreements will be legal, valid, binding and enforceable under the applicable laws in the relevant jurisdiction(s).

iii) The applicable laws, regulations and contractual or administrative agreements make the portability of transactions highly probable. This means that the clearing transactions carried out through the clearing member in default or insolvency will be concluded indirectly through the QCCP or by the QCCP. In such case, the positions and collateral of the higher-level client with the QCCP will be transferred at market value, unless said client requests to close the positions at market value.

iv) The financial entity shall not be obligated to reimburse its client for losses incurred in the event of default of the clearing member or the QCCP.

When the entity – in its capacity as clearing member – guarantees to the CCP the performance of transactions that its clients carry out directly, it must calculate the exposure resulting from such guarantees in accordance with the provisions of point 2.2.2. – up to and including point 2.2.2.4. –, as if it were a party to said transactions, including with respect to the receipt or provision of cash variation margin.

For the purposes of the provisions of this point, associated companies – within the terms of International Accounting Standard 28 – of the financial entity may be treated as clients as long as they are not required to be consolidated as provided in Section 3.

When, by application of the BCRA rules, the associated company is subject to consolidation, although the transaction between the financial entity that is a clearing member and its associate is eliminated, the exposure with the CCP shall become an exposure of the financial entity and, therefore, shall not enjoy the exemption provided in this point.

2.2.2.6. Additional treatment for written credit derivatives.

For these purposes, the term “written credit derivative” comprises a broad range of credit derivatives – including, among others, credit default and total return swaps – through which a financial entity provides credit protection.

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To capture the credit exposure to the reference entity, in addition to the counterparty credit risk treatment for derivatives and their collateral, the effective notional amount referenced by the derivative must be incorporated into the exposure measure, except where the derivative corresponds to a transaction cleared on behalf of a client and the requirements mentioned in subparagraphs i) to iv) of point 2.2.2.5 are met.

The effective notional amount – which is obtained by adjusting the notional amount to reflect the true exposure generated by the instrument based on leverage or improvements provided for in the contract – may be reduced by negative changes in the fair value of the derivative that have been incorporated into Tier 1 capital.

The entity that agrees protection through the sale of a credit derivative may reduce that effective notional amount by the effective notional amount of purchased single-name credit derivatives that have the same reference entity and verify the following:

i) Its reference obligation does not have a higher rank or priority of payment than the reference obligation underlying the written credit derivative. Where it is lower, offsetting shall be allowed provided that a credit event in the obligation referred to by the written derivative results in a credit event in the obligation referred to by the purchased derivative.

ii) Its residual term is equal to or greater than that of the derivative entered into and, in all other respects, is governed by the same essential terms as the derivatives entered into.

iii) The credit quality of the protection seller is not highly correlated with the value of the reference obligation. The hedge may not be counted when there is a legal relationship between the counterparty and the reference obligation or a correlation risk has been identified. The entity must have procedures to identify, monitor and control such cases, both at the time of taking the hedge and during its term.

iv) When the effective notional amount of the credit derivative entered into is reduced by negative changes in the fair value of said derivative recognized in tier one capital, the effective notional amount of the purchased credit protection must also be reduced by positive changes in its fair value reflected in tier one capital.

v) The purchased protection is not included in a transaction cleared on behalf of a client, including through a multi-level structure, a transaction in respect of which the effective notional amount referenced by the derivative entered into has been excluded from the exposure measure as described in this point.

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In the case of written options in which the financial entity undertakes – subject to compliance with certain conditions – to provide credit protection, its effective notional amount may be reduced by the effective notional amount of the purchased options in which the entity has the right to purchase credit protection that meets the requirements of the preceding paragraph and the payment is not less than what it would have to make under the protection sold. In all other cases, options that have not yet been exercised will not qualify – for purposes of their offsetting – as credit protection acquired through credit derivatives.

Two reference obligations are identical if they refer to the same legal person. Purchased protection in respect of a portfolio of reference obligations may be offset against sold protection in respect of individual reference obligations only if the purchased protection is economically equivalent to the purchase of separate protections for each of the obligations in the portfolio – as would occur, for example, if protection were purchased for an entire securitization structure –.

If the purchased protection does not cover the entire portfolio and covers only a subset, as occurs when a tranche of a securitization is hedged or an nth-to-default credit derivative is acquired, it may not be used to offset sold credit derivatives on individual reference obligations. However, it may be used to offset credit derivatives entered into referring to a portfolio to the extent that the purchased protection fully covers a subset of the portfolio covered by the sold credit protection, since offsetting is only appropriate when the reference entities and the level of subordination of both transactions are identical.

For purposes of calculating the EAD, entities may exclude from the netting set the portion of the credit derivative entered into that is not offset in accordance with the provisions of this point, provided that the effective notional amount has been included in the exposure measure.

2.2.3. Exposures from securities financing transactions (SFT).

2.2.3.1. General treatment.

It will be applicable in cases where the entity is a party to the transaction.

The exposure measure will be the sum of the items contemplated in subparagraphs i) and ii).

i) Gross SFT assets recognized for accounting purposes – that is, without recognition of accounting netting –, with the following adjustments:

a) the value of the securities received in SFT transactions will be excluded from the exposure measure, if the entity has recognized them in its assets; and

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b) cash balances receivable from or payable to the same counterparty for SFT transactions may be counted on a net basis, if the following conditions are met:

• The transactions have the same final settlement date explicitly established. This treatment will not be applicable to transactions that do not have an explicit termination date even though either party may terminate them at any time.

• The right to net the amount owed to the counterparty against the amount receivable is legally enforceable in the normal course of business and also in the event of default, insolvency or bankruptcy of the counterparty.

• The parties intend to settle the transactions at their net value or simultaneously, or the transactions are subject to a settlement mechanism that is functionally equivalent to net settlement – that is, the cash flows of the transactions are equivalent, in practice, to a single net amount on the settlement date –. To achieve such equivalence, both transactions must be settled through the same system and the settlement arrangements must provide for the use of liquidity facilities or intraday credit that ensure that the settlement of both transactions will have been effected by the end of the business day. In addition, issues that may arise with the SFT securities may not prevent the settlement of the cash debits and credits. This last condition implies that if the settlement of the securities of one transaction fails, only the settlement of the cash corresponding to that single transaction may be delayed or an obligation will be generated for the settlement mechanism backed by the associated credit facility.

If the failure in the settlement of the securities persists at the end of the settlement period provided for in said mechanism, the transaction and its corresponding cash leg must be segregated from the netting set and settled on a gross basis.

A settlement mechanism shall be deemed to meet the requirements if a failed transaction – both with respect to the securities and to the cash debits or credits – can be re-submitted until settlement is achieved.

In the case of SFT assets cleared through a QCCP, the gross SFT assets recognized for accounting purposes shall be replaced by the final contractual exposure – that is, the exposure to the QCCP after the novation process has been carried out –. However, only the cash to be received and paid to the QCCP may be netted if the provisions of this section are met; any other netting permitted by the QCCP shall not be admissible for the purposes of the leverage ratio.

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ii) Counterparty credit risk (CCR).

It shall be the current exposure, to which the EPE shall not be added and shall be computed in accordance with the following:

a) Under a master netting agreement (MNA) that qualifies in the terms of point 5.2.3.4. of the rules on “Minimum capital of financial institutions”.

The current exposure (E*) shall be the greater of zero and the fair value of the securities and cash lent to the counterparty in all transactions included in the MNA (ΣEi) minus the fair value of the cash and securities received from the counterparty (ΣCi), in accordance with the following expression:

E* = Max {0; [ ΣEi – ΣCi ]}

b) Without a qualifying MNA. The current exposure with each counterparty shall be calculated for each transaction i individually, as if it were a netting set in itself, in accordance with the following expression:

Ei* = Max {0; [Ei – Ci ]}

Ei* shall be equal to 0 if:

• Ei is cash lent to the counterparty.

• The transaction is treated as if it constituted a netting set.

• The cash to be received is not eligible for the net treatment provided for in section i) of this point.

For the purposes of this section ii), the term “counterparty” includes not only the counterparty in a bilateral transaction but also the agent responsible for receiving the collateral in deposit in a triparty repo transaction and for administering it. The securities deposited with these agents shall be part of E (total value of the securities and cash lent to the counterparty) up to the amount effectively lent to the counterparty in the repo transaction. The excess collateral deposited with the triparty agent and that was not lent may be excluded.

When from an accounting point of view a security lent through an SFT should not be recorded, the SFT shall likewise be treated as a financing transaction for the purposes of calculating the exposure measure; that is, the corresponding amounts computed in accordance with sections (i) and (ii) must be included.

2.2.3.2. Special treatment applicable in cases where the entity acts on behalf of third parties.

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When the financial institution is an agent and its exposure to the transaction is limited to guaranteeing to its client the difference between the value of the securities or cash lent by its client and the value of the collateral received from its counterparty, it may calculate its exposure measure by applying only section ii) of point 2.2.3.1. If its exposure were greater – as would be the case if the financial institution administers the collateral received on its own account or if it is not segregated from its assets –, it must include the total amount of the security or cash in its exposure measure.

On the other hand, if the financial institution acting as agent, in addition to meeting the above conditions, has not granted guarantees to any of the intervening parties, it is not exposed to the SFT and, therefore, shall not include it in its exposure measure.

If the entity in its capacity as agent guarantees both parties of an SFT, it must calculate its exposure measure in accordance with the provisions of this point for each of them, separately.

2.2.4. Off-balance sheet exposures.

The off-balance sheet exposures to be computed are both those considered for the calculation of the capital requirement for credit risk – including those originating from securitizations – and those specifically defined for the determination of the leverage ratio.

Derivative exposures receive the treatment detailed in point 2.2.2., therefore they shall not be computed as off-balance sheet exposure.

To determine the exposure, off-balance sheet items shall be converted into credit exposures by multiplying the committed and unused amounts by the corresponding credit conversion factor (CCF), in accordance with the provisions of this point. For this purpose, commitment means the contractual agreement accepted by the client that obliges the financial institution to grant credits, purchase assets or issue some other type of credit substitute.

The general and specific provisions that are deducted from tier one capital may be deducted from the equivalent credit exposure – that is, from the exposure after applying the CCF –, and the resulting amount for those exposures may not be less than zero.

The CCF factors – expressed in % – shall be the following:

2.2.4.1. Direct credit substitutes, such as general guarantees of indebtedness – including “stand-by” letters of credit used as financial guarantees – and acceptances and endorsements with liability. 100

2.2.4.2. Sale and repurchase agreements or sales of assets with recourse – which do not release the entity from the corresponding credit risk –, except where the treatment provided for in the last paragraph of point 2.2.3.1. for SFTs applies to them. 100

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2.2.4.3. Forward asset repurchase, placement of “forward-forward” deposits –contract signed for the deposit of funds on a specific future date, at an agreed rate and for a fixed determined period– and partially paid-up securities and shares that involve a certain commitment of future payments. 100

2.2.4.4. Other off-balance-sheet items not explicitly included in other categories. 100

2.2.4.5. Short-term securities issuance lines (“Note issuance facility” –“NIF”–) and revolving securities underwriting facilities (“Revolving underwriting facility” –“RUF”–), without considering the maturity of the underlying facility. 50

2.2.4.6. Contingent items related to the client's commercial operations –such as those arising from guarantees of performance of commercial obligations–. 50

2.2.4.7. Commitments that do not qualify for more favorable treatment, without considering the maturity of the underlying facility. 40

2.2.4.8. To the entity that issues as well as to the entity that confirms a short-term self-liquidating commercial letter of credit originated in the movement of goods –such as a documentary credit guaranteed by the underlying shipping documents–. 20

2.2.4.9. Commitments that the entity may cancel unconditionally and immediately, without prior notice, or cancelable automatically in the event of deterioration of the debtor's credit quality. The SEFyC may determine that higher conversion factors be applied if it finds that there are factors that limit the practical ability of entities to unilaterally cancel their commitments. 10

2.2.4.10. Off-balance-sheet exposures linked to securitizations.

i) Facilities that are not credit risk hedges. 100

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ii) If it is contractually established that the financial entity acting as paying agent and advancing funds to ensure a continuous flow of payments to investors –to the extent that it may discretionally and unilaterally cancel this facility– has the right to full reimbursement of the advance granted and that right has priority over any other right over the flows generated by the underlying exposures, it may apply to the portion of cash advances or liquidity facilities that is estimated will not be used the CCF provided for unconditionally cancelable commitments.

For this purpose, financial entities may compute as the unused portion of each contract the lower unused proportion resulting from the utilization history of similar securitization positions during the last 7 years. The financial entity must demonstrate that it actively monitors the financial situation of the securitization and that its internal control systems allow canceling the line upon any sign of deterioration of the program's solvency. In addition, it must substantiate the criteria supporting its expectation that the used portion of each of the facilities will not exceed the maximum proportion resulting from its records, considering for this purpose all determining factors and all relevant information. The estimate of the maximum used proportion must be reviewed annually or more frequently, when new relevant information is available. Anything exceeding the proportion estimated not to be used will receive a CCF of 100%.

The promise to assume a commitment that must be treated as an off-balance-sheet item will receive the lower of the two applicable CCFs –such as the case of a commitment to open a short-term self-liquidating commercial letter of credit originated in the movement of goods, which will receive a CCF of 20%, and not 40%, or of an unconditionally cancelable commitment to issue a direct credit substitute that will be subject to a CCF of 10%, and not 100%–.

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B.C.R.A.
LEVERAGE RATIO
Section 3. Bases of observance.

3.1. Individual basis. Financial entities (including their subsidiaries in the country and abroad) shall observe these rules on an individual basis.

3.2. Consolidated basis. Without prejudice to compliance on an individual basis, controlling financial entities subject to consolidated supervision shall observe these rules on a quarterly consolidated basis.

3.3. Treatment of investments in financial entities, insurance companies and commercial companies. In the case of financial entities and other companies not subject to consolidation for the calculation of minimum capital, only the book value of the investment shall be computed –that is, the assets of the investee shall not be computed–. The exposure measure may exclude investment in financial entities and companies providing services complementary to financial activity, not subject to consolidated supervision, and in insurance companies when such investment is deducted from tier one capital (PNb), as described in point 2.1.4.

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B.C.R.A.
ORIGIN OF THE PROVISIONS CONTAINED IN
THE RULES ON “LEVERAGE RATIO”

CENTRAL BANK
OF THE ARGENTINE REPUBLIC

CONSOLIDATED TEXT			SOURCE RULE				OBSERVATIONS
Sect.	Point	Para.	Comm.	Annex	Point	Para.
1.	1.1.		“A” 6431
	1.2.		“A” 6431
	1.3.		“A” 6431
2.	2.1.		“A” 6431
	2.2.1.		“A” 6431
	2.2.2.		“A” 6431
	2.2.3.		“A” 6431
	2.2.4.		“A” 6431
3.	3.1.		“A” 6431
	3.2.		“A” 6431
	3.3.		“A” 6431

CONSOLIDATED SUPERVISION
B.C.R.A.
Section 5. Compliance with standards.

5.2.1.7. Ratio for fixed assets and other items.

5.2.1.8. Liquidity coverage ratio –in the case of financial institutions included in those standards– in accordance with the scope established in point 8.2. of the standards on “Liquidity coverage ratio”.

5.2.2. Quarterly consolidated basis.

Without prejudice to compliance on an individual basis, and in addition to and independently of compliance on a monthly consolidated basis, controlling financial institutions subject to consolidated supervision shall comply on a quarterly consolidated basis with the following standards:

5.2.2.1. Minimum capital.

5.2.2.2. Classification of debtors and minimum provisions for bad debt risk.

5.2.2.3. Splitting of credit risk.

5.2.2.4. Maximum limit for holding interests in companies that do not provide services complementary to financial activity.

5.2.2.5. Ratio for fixed assets and other items.

5.2.2.6. Net stable funding ratio –in the case of financial institutions included– in accordance with the provisions of point 6.2. of the standards on “Net stable funding ratio”.

5.2.2.7. Leverage ratio.

5.2.3. Compliance with the standards on “Prevention of money laundering, terrorist financing and other illicit activities”.

Financial institutions must ensure that the branches and subsidiaries included in this regime consider the following within the internal control scheme:

5.2.3.1. Existence of written policies and procedures for the prevention of money laundering and terrorist financing framed within international standards, in accordance with the specific characteristics of the different activities and consistent with those of the parent and/or controlling company.

Version: 11th COMMUNICATION “A” 6431
Effective date:
01/03/2018
Page 2

CENTRAL BANK OF THE ARGENTINE REPUBLIC

CONSOLIDATED SUPERVISION

CONSOLIDATED TEXT			SOURCE STANDARD			OBSERVATIONS
Section	Point	Paragraph	Com.	Annex	Point	Paragraph
5.	5.2.1.6.		"A" 4891		8.	According to Com. "A" 5557.
	5.2.1.7.		"A" 2227	sole	5.1.8.	According to Com. "A" 2736.
	5.2.1.8.		"A" 5693			According to Com. "A" 5724 (interpretative clarification).
	5.2.2.		"A" 2227	sole	5.1.	According to Com. "A" 2649, 2461, 2736, 2839, 5180, 5272, 5369, 6306, 6327, 6431 and "B" 5902.
	5.2.3.		"A" 4835		4.	According to Com. "A" 5223.
	5.2.4.		"A" 5093
	5.3.1.		"A" 2227	sole	5.2.1.	According to Com. "A" 2649 and 5520.
	5.3.2.		"A" 2227	sole	5.2.2.	According to Com. "A" 5520.
	5.4.1.		"B" 6566		1.
	5.5.		"A" 2227	sole	5.3.	According to Com. "A" 2649.