Resolution 080/2000 Modifying the Legal Reserve Regulation

BOARD RESOLUTION NO. 080/2000 SUBJECT: ECONOMIC POLICY ADVISORY – APPROVES MODIFICATIONS TO THE LEGAL RESERVE REGULATION

HAVING VIEWED: Law 1670 of the Central Bank of Bolivia (BCB) of October 31, 1995. Board Resolutions 180/97 of December 23, 1997; 077/99 of September 14, 1999; 006/2000 of February 1, 2000, and 040/2000 of June 27, 2000.

The Technical Report from the Economic Policy Advisory (APEC-INEP) No. 032/2000 of November 1, 2000. Minutes No. 040/2000 of the Monetary and Exchange Policy Committee meeting of November 6, 2000. The Report from the Legal Affairs Management (SANO) 032/2000 of November 7, 2000.

CONSIDERING: That the Central Bank of Bolivia, in compliance with Law 1670, has established a legal reserve regime of mandatory compliance for banks and financial intermediation entities.

That as a result of the evaluation of the Legal Reserve Regulation, the need has arisen to make new modifications to said Regulation in order to update and make its provisions more effective.

That the Economic Policy Advisory, in coordination with other BCB Departments, through Report APEC-INEP No. 032/2000 of November 1, 2000, recommends modifying certain articles of the Legal Reserve Regulation for financial intermediation institutions.

That the Monetary and Exchange Policy Committee in Minutes No. 040/2000, proposes to the Board to accept the recommendations of the Economic Policy Advisory.

That in the opinion of the Legal Affairs Management through Report SANO 032/2000, it corresponds to the BCB Board to approve the modifications to the Reserve Regulation.

That in merit of the powers conferred by articles 7, 8, and 54, subsections a); i) and o) of Law 1670, the BCB Board is authorized to modify the current regulations.

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

Article 1.- Modify the Legal Reserve Regulation approved through Board Resolution No. 180/97 of December 23, 1997, in the following Articles:

• Article 1 (Scope of Application) .- Add a second paragraph with the following text: "Those branches abroad authorized for operation by the Superintendence of Banks and Financial Entities of Bolivia, which capture resources in Bolivia, must constitute legal reserve under the terms of this Regulation when they are exempt from reserve in the country where they operate. When in said countries they are subject to a reserve requirement lower than that of this Regulation, such entity must constitute reserve in the amount and modality that allows covering the difference, which will be determined by the BCB Board."

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• Article 2 (Terms and Abbreviations) .- Modify paragraph 7 in the following terms: SAYS: National Currency RAL Fund (RAL-MN): Fund administered by the Trustee and constituted by national sovereign titles in bolivianos, acquired with the legal reserve funds in titles. SHOULD SAY: "National Currency RAL Fund (RAL-MN): Fund administered by the BCB or by one or several Trustees contracted by the BCB and constituted by national sovereign titles in bolivianos, acquired with the legal reserve funds in national currency titles."

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• Modify paragraph 8 of Article 2 in the following terms: SAYS: Foreign Currency RAL Fund (RAL-ME): Fund administered by a Trustee and constituted by titles, securities, or instruments authorized, acquired with the legal reserve funds in foreign currency titles. SHOULD SAY: "Foreign Currency RAL Fund (RAL-ME): Fund administered by one or several Trustees contracted by the BCB and constituted by titles, securities, or instruments authorized, acquired with the legal reserve funds in foreign currency titles."

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• Correct paragraph 9 of Article 2 in the following terms: SAYS: Trustee of RAL-MN: The BCB acts as Trustee in the administration of the RAL-MN Fund investments. SHOULD SAY: "Trustee of RAL-MN: The BCB or the bank that acts as trustee in the administration of the RAL-MN Fund. When it is a bank other than the BCB, it will be selected based on competitive mechanisms and technical and economic criteria approved by the BCB Board through express resolution."

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• Correct paragraph 10 of Article 2 in the following terms: SAYS: Trustee of RAL-ME: Foreign private bank with rating for long-term issuances of at least Aa2 according to Moody’s, selected based on competitive mechanisms approved by the BCB, and acts as Trustee in the administration of the RAL-ME Fund. SHOULD SAY: "Trustee of RAL-ME: Foreign financial institution, which acts as trustee in the administration of the RAL-ME Fund, selected based on competitive mechanisms and technical and economic criteria approved by the BCB Board through express resolution."

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• Article 5 (Exemptions) .- Modify the first paragraph as indicated: SAYS: Time deposits greater than one year, which were constituted prior to the validity of this Regulation, will remain exempt from the legal reserve constitution requirement until their maturity. SHOULD SAY: "Time deposits greater than one year, which were constituted prior to May 4, 1998, and remain in force, will remain exempt from the legal reserve constitution requirement until their maturity."

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• Eliminate the second paragraph of Article 5.

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• Article 7 (Schedule) .- Substitute the text of Article 7 with the following text: "Article 7 (Legal Reserve Rates) .- The legal reserve percentages on the liabilities detailed in articles 3 and 4 in national currency, MVDOL, and foreign currency, are the following: two percent (2%) for cash reserve ten percent (10%) for securities reserve"

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• Article 8 (Reserve Requirement for Other Deposits) .- Modify the second paragraph of Article 8 in the following terms: SAYS: Other Deposits

• Judicial Deposits

• Third-party funds for operations in the Bolsín

• Third-party funds for authorized operations

• Funds to be delivered to third parties by the placement of securities

//6. B.D. No. 080/2000

• Other obligations with the Public on sight

• Judicial Retentions

• Prepayment letters of credit guarantee deposits

• Other guarantee deposits

• Other restricted obligations with the Public

• Advance collections from credit card clients

• Transfer Current Accounts for Non-Bank Financial Entities SHOULD SAY: "Other Deposits

• Judicial Deposits

• Third-party funds for operations in the Bolsín

• Third-party funds for authorized operations

• Funds to be delivered to third parties by the placement of securities

• Other obligations with the Public on sight

• Judicial Retentions

• Prepayment letters of credit guarantee deposits

• Other guarantee deposits

• Other restricted obligations with the Public

• Advance collections from credit card clients

• Transfer Current Accounts for Non-Bank Financial Entities

• Public official check"

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• Article 11 (Legal Reserve Accounts) .- Modify Article 11 as follows: SAYS: Financial entities must constitute the legal reserve in cash, in the accounts enabled for this purpose at the BCB, or in entities authorized in the currency in which the deposits were captured. //7. B.D. No. 080/2000 SHOULD SAY: "Banking entities must maintain at the BCB a single account called 'current and reserve account' in each of the three currencies (national currency, MVDOL, and foreign currency), in replacement of the current and legal reserve cash accounts they maintained at the BCB. Banking entities must constitute the legal reserve in cash, in the current and reserve account enabled at the BCB, or in the account enabled for this purpose in entities authorized by the BCB. This account will not be subject to any type of judicial embargo or retention by third parties. Non-bank financial entities that maintained legal reserve cash accounts at the BCB, may maintain only one account called reserve account in each of the three currencies (national currency, MVDOL, and foreign currency), in replacement of the aforementioned legal reserve cash accounts. The legal reserve in cash must be constituted: (i) in national currency, for deposits in the same currency, (ii) in MVDOL, for deposits in MVDOL, and, (iii) in US dollars, for deposits in foreign currency."

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• Article 14 (Reporting of Liabilities Subject to Legal Reserve) .- Modify the second paragraph as follows: SAYS: Cash deposits at the BCB or its correspondents for the purpose of constituting legal reserve, must be made until 18:00 hours each day. Transfers of accounts for the purpose of constituting legal reserve will be admitted until 19:30 hours each day. //8. B.D. No. 080/2000 SHOULD SAY: "Cash deposits at the BCB or its correspondents and account transfers for the purpose of constituting legal reserve, will be subject to the schedules established by the General Management of the BCB through express circular."

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• Article 22 (Legal Reserve in Securities) .- Modify subsection (ii) of the first paragraph in the following terms: SAYS: (ii) for deposits in foreign currency and MVDOL, deposits in US dollars that will be invested by the Trustee of the RAL-ME Fund in the following titles, securities, or instruments: Treasury Bills, Treasury Notes, Titles of the Government Agency of the United States of North America, deposits and money market instruments, or Government Titles issued by governments with a minimum rating of Aa1 for long term, according to Moody's. SHOULD SAY: "(ii) for deposits in foreign currency and MVDOL, deposits in US dollars that will be invested by the or the Trustees of the RAL-ME Fund according to investment guidelines expressly approved by the BCB Board through express resolution."

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• Eliminate the second paragraph of Article 22.

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• Article 23 (Frequency of Transfers to/from Securities Reserve) Modify the third paragraph as indicated: //9. B.D. No. 080/2000 SAYS: At the end of the required legal reserve period, the movement of funds will be attended based on requests from financial entities, only on the next and subsequent business day and before 12:00 noon on the last day. SHOULD SAY: "At the end of the required legal reserve period, the movement of funds will be attended based on requests from financial entities, only on the next and subsequent business day and during the hours established by the General Management of the BCB through express circular."

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• Article 27 (Fund Administration) .- Eliminate the first paragraph of Article 27.

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Modify the second and third paragraphs of Article 27 as indicated: SAYS: The RAL-MN Fund will be administered by the Financial Entities Management of the BCB, according to a contract signed with financial entities and within the operational guidelines determined by the Open Market Operations Committee (COMA). The administration of the RAL-ME Fund will be entrusted to a specialized entity in trust, with recognized technical capacity and international solvency, according to the norms approved by the BCB and used for the hiring of the BCB reserve advisory, given the exceptional characteristics of this service and charged to the resources of the RAL-ME Fund. //10. B.D. No. 080/2000 SHOULD SAY: "The RAL-MN Fund will be administered by the Financial Entities Management of the BCB, or by one or several Trustees expressly contracted by the BCB for such effect, according to contracts signed with financial entities and within the operational guidelines determined by the Open Market Operations Committee (COMA). The administration of the RAL-ME Fund will be entrusted to one or several specialized entities in trust, with recognized technical capacity and international solvency, according to the norms approved by the BCB Board."

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• Add the following paragraph at the end of Article 27: "The commissions that Trustees charge for the administration of the RAL-MN and ME Funds will be charged to the resources of the Fund itself. The BCB Board will incorporate annually in the Table of Commissions and Other Income, the commissions that the BCB will charge for the administration of the RAL-MN and ME Funds. These commissions will be charged to the resources of the Fund itself."

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• Article 29 (Liquidity Loan Tranches) .- Modify the second and third paragraphs of Article 29 as indicated: SAYS: The BCB may lend for a term not greater than seven days, an amount equivalent to up to the first 40% of the value deposited in the Fund by each financial entity, to finance: (i) automatic overdraft coverage operations, without prior communication, and/or (ii) free availability resources, requested through written instruction to the Financial System Management of the BCB. //11. B.D. No. 080/2000 The BCB may grant an amount equivalent to up to an additional 30% in free availability resources for a term not greater than seven days, prior written request to the Financial System Management of the BCB, justifying the reasons motivating this requirement. SHOULD SAY: "The BCB may lend for a term not greater than seven days, an amount equivalent to up to the first 40% of the value deposited in the RAL Fund by each financial entity, to finance: (i) automatic overdraft coverage operations, without prior communication, and/or (ii) free availability resources, required through request to the Financial Entities Management of the BCB by the means it determines. The BCB may grant an amount equivalent to up to an additional 30% in free availability resources for a term not greater than seven days, prior written request to the Financial Entities Management of the BCB, justifying the reasons motivating this requirement."

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• Modify the fifth paragraph of Article 29 as indicated: SAYS: At the maturity of the loans granted both in the first tranche and in the second, the BCB will automatically debit the amount lent and its interests from the cash accounts that financial entities maintain at the BCB." SHOULD SAY: "At the maturity of the loans granted both in the first tranche and in the second, the BCB will automatically debit the amount lent, its interests, and surcharges linked to the functioning of the payment system, from the current and reserve account that financial entities maintain at the BCB. In case of insufficient funds in said account, the guarantee of titles of the RAL Fund will be enforced."

⇔⇔⇔⇔⇔⇔⇔⇔⇔ //12. B.D. No. 080/2000

• Article 31 (Interest Rates for Liquidity Loans) .- Modify Article 31 as indicated: SAYS: The Open Market Operations Committee of the BCB will determine biweekly the interest rates to be charged for the granting of resources in each of the tranches. SHOULD SAY: "The Open Market Operations Committee of the BCB will determine the interest rates that will be applied to liquidity credits with guarantee of the RAL Fund in tranches I and II."

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• Article 32 (Fund Financial Statements) .- Substitute the text of Article 32 as follows: SAYS: Article 32 (Fund Financial Statements).- The accounting and preparation of the Financial Statements of the RAL-MN and RAL-ME Funds will be the responsibility of the respective Trustees. The Trustees will present this information daily to the Financial System Management of the BCB. Financial intermediation entities may request information from the BCB regarding the results of the Fund administration. SHOULD SAY: "Article 32 (Fund Financial Information).- The financial information of the RAL-MN and RAL-ME Funds will be in charge of the Financial Entities Management and International Operations Management, respectively. Financial intermediation entities may request //13. B.D. No. 080/2000 information regarding the results of the Fund administration from the Financial Entities Management when it concerns the RAL-MN Fund and from the International Operations Management if it concerns the RAL-ME Fund."

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• A Transitory Article is incorporated into the Legal Reserve Regulation in the following terms: "Article 35 (Transitory).- The obligation to constitute legal reserve in cash for the account 'Public official checks' incorporated into Article 8 of this Regulation, will apply from July 1, 2001."

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Article 2.- Repeal Board Resolutions 077/1999 of September 14, 1999, and 040/2000 of June 27, 2000.

Article 3.- The Legal Reserve Regulation modified by this Resolution will enter into force from January 1, 2001.

Article 4.- The Presidency and General Management are charged with the execution and compliance of this Resolution.

La Paz, November 7, 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.