Resolution 006/2000 Approving Modifications to the Legal Reserve Regulation for Financial System Institutions

BOARD RESOLUTION NO. 006/2000
SUBJECT: ECONOMIC POLICY ADVISORY – APPROVES MODIFICATIONS TO THE LEGAL RESERVE REGULATION FOR INSTITUTIONS OF THE FINANCIAL SYSTEM.

HAVING SEEN:
Law No. 1670 of October 31, 1995.
Board Resolution No. 180/97 of December 23, 1997, which approves the Legal Reserve Regulation for Institutions of the Financial System.
The Report from the Economic Policy Advisory APEC-INEP 002/2000 of January 28, 2000.
The Internal Communication from the Legal Management GAL 033/2000 of January 28, 2000.

CONSIDERING:
That the Economic Policy Advisory recommends modifying certain articles of the Legal Reserve Regulation for Institutions of the Financial System, in order to clarify the method of transferring reserves from cash to securities, and vice versa, and to prevent financial entities from constituting excesses in the RAL Fund due to the effects these have on the profitability of said fund, on decision-making for open market operations, and on the treasury management of financial entities.

That in its thirty-third meeting in 1999, the Monetary and Exchange Policy Committee determined to reduce from 10% to 7.5% of the RAL-ME Fund, the percentage up to which the Central Bank of Bolivia (BCB) may grant immediate liquidity to the financial system using its own resources, as established in the Legal Reserve Regulation for Financial Institutions.

That in the opinion of the Legal Affairs Management, there is no legal impediment for the Board to approve the complements and modifications to the aforementioned Regulation.

THEREFORE,
THE BOARD OF DIRECTORS OF THE CENTRAL BANK OF BOLIVIA RESOLVES:

Article 1.- Modify the first paragraph of Article 23 of the Legal Reserve Regulation for Institutions of the Financial System, in the following terms:
SAYS:
Every seven days, the BCB will credit or debit from the cash reserve account of each financial entity, the amounts necessary to make the corresponding credits or debits to the legal reserve in securities.
SHOULD SAY:
“Every seven days, the BCB will debit (or credit) from the cash reserve account of each financial entity, the amounts necessary to make the corresponding credits (or debits) to the legal reserve in securities.”

Article 2.- Modify the fifth paragraph and include a sixth to Article 23 of the Regulation, as follows:
SAYS:
No financial entity may make withdrawals from its RAL Fund when the preliminary calculations of the Financial System Management of the BCB, upon concluding the required reserve period, show deficiencies in the legal reserve in securities.

SHOULD SAY:
“Financial entities may not make withdrawals from their RAL Fund when the preliminary calculations of the Financial System Management of the BCB, upon concluding the required reserve period, show that these withdrawals would result in deficiencies in the legal reserve in securities. Withdrawal requests will be admissible only for excesses relative to the required reserve.”

“Financial entities may not make deposits to their RAL Fund when the preliminary calculations of the Financial System Management of the BCB, upon concluding the required reserve period, show that these deposits would result in excesses in the legal reserve in securities. Deposit requests will be admissible only for deficiencies relative to the required reserve.”

Article 3.- Modify the sixth paragraph of Article 29 of the Legal Reserve Regulation for Institutions of the Financial System:
SAYS:
The BCB will use its own resources to cover automatic overdrafts and credit the requirements for free availability resources, provided that the total required by the financial system does not exceed 10% of the constituted RAL Fund. If the requirement exceeds said percentage, the BCB may obtain these resources from the Trustee, within the options stipulated in the contract to be signed with the latter. In this case, it will correspond to the Monetary and Exchange Policy Committee of the BCB to determine the source of the resources.

SHOULD SAY:
“When the total required by the financial system does not exceed 7.5% of the constituted RAL Fund, the BCB will use its own resources to cover automatic overdrafts and credit the requirements for free availability resources. If the requirement exceeds said percentage, the BCB may obtain these resources from the Trustee, within the options stipulated in the contract signed with the latter. In this case, it will correspond to the Monetary and Exchange Policy Committee of the BCB to determine the source of the resources.”

Article 4.- The preceding modifications will enter into force on February 7 of the current year.

Article 5.- The Presidency and General Management are charged with the execution and compliance of this Resolution.

La Paz, February 1, 2000

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Juan Antonio Morales A.

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Armando Pinell S.

Jaime Ponce G. Juan Medinaceli V.

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Fernando Campero P.

Armando Méndez M.