Resolution CMN No. 2606 — Establishes Limit for Total Exposure in Gold and Assets and Liabilities Referenced in Exchange Rate Variation

RESOLUTION NO. 2606

Establishes limit for the total exposure in gold and in assets and liabilities referenced in exchange rate variation, on consolidated bases, for financial institutions, other institutions authorized to operate by the Central Bank of Brazil and their direct and indirect subsidiaries.

THE CENTRAL BANK OF BRAZIL, in accordance with Article 9 of Law No. 4.595, of December 31, 1964, makes public that the MONETARY POLICY COUNCIL, in a session held on May 27, 1999, having in view the provisions of Article 4, items VIII and XI, of said Law No. 4.595, of 1964, Law No. 4.728, of July 14, 1965, Article 20 of Law No. 4.864, of November 29, 1965, Law No. 6.099, of September 12, 1974, with the changes introduced by Law No. 7.132, of October 26, 1983, and Article 6 of Decree-Law No. 759, of August 12, 1969,

RESOLVES:

Article 1. Establish that the total exposure in gold and in assets and liabilities referenced in exchange rate variation assumed by financial institutions, other institutions authorized to operate by the Central Bank of Brazil and their direct and indirect subsidiaries, calculated on consolidated bases, cannot exceed 60% (sixty percent) of the value of Adjusted Net Worth (PLA) calculated in accordance with Resolution No. 2.543, of August 26, 1998.

Sole Paragraph. The Central Bank of Brazil is tasked with establishing the norms regarding the criteria that will be used for the purpose of calculating the limit referred to in this article.

Article 2. Amend Article 2 of the Regulation annexed to Resolution No. 2.099, of August 17, 1994, with the modification introduced by Resolution No. 2.399, of June 25, 1997, which shall now read as follows:

"Article 2. The calculation of the value of net worth referred to in Article 1 shall follow the following formula:

PLE = F . Apr + F' . Σ RCD_i + F" . Σ max {(S_i |Aprc_i| - 0.2 . PLA); 0} i=1 i=1

where:

PLE = required net worth;

F = factor applicable to Apr, equivalent to 0.11 (eleven hundredths), observed the provisions of Article 1 of Resolution No. 2.212, of November 16, 1995;

Apr = Risk-weighted Asset = total of the product of the titles of Current Assets and Long-Term Receivables (code 1.0.0.00.00-7 of COSIF) by the corresponding risk factors + product of Permanent Assets (code 2.0.0.00.00-4 of COSIF) by the corresponding risk factor + product of the titles of Co-obligations and Risks in Granted Guarantees (code 3.0.1.00.00-4 of COSIF) by the corresponding risk factors;

F' = factor applicable to the credit risk of swap operations, equal to 0.20 (twenty hundredths);

RCD_i = credit risk of the i-th swap operation registered in account 3.0.6.10.60-4 of COSIF consisting in the weighting of the reference value of the operation at the moment of its respective contracting (VN_i) by the corresponding potential risk factor, given its remaining term, by the formula:

RCD_i = VN_i √(Ra_i² + Rp_i² - 2 ra_i p_i . Ra_i . Rp_i), where:

Ra_i = risk of the active reference of the i-th operation; Rp_i = risk of the passive reference of the i-th operation; ra_i p_i = correlation of the active and passive references of the i-th operation;

F" = factor applicable to operations with gold and with assets and liabilities referenced in exchange rate variation, including those carried out in derivatives markets, equal to 0.50 (fifty hundredths);

Σ S_i |Aprc_i| = sum of the absolute values of the net positions in each currency and in gold; i=1

Aprc_i = operations with gold and with assets and liabilities referenced in exchange rate variation, including those carried out in derivatives markets;

PLA = adjusted net worth, calculated in accordance with Resolution No. 2.543, of 1998;

Paragraph 1. For the purpose of calculating the risk of swap operations (RCD_i), the values related to the risks of the underlying references, as well as their correlations, shall be calculated and disclosed in the manner to be defined by the Central Bank of Brazil.

Paragraph 2. For the purpose of calculating Apr, the risks of active operations shall follow the classification contained in the table annexed to this Regulation.

Paragraph 3. The Central Bank of Brazil is authorized to:

I - alter the table referred to in the previous paragraph, as well as the factors F, F' and F" contained in the formula established in the main text of this article;

II - assign risk factors to accounting titles contained in COSIF."

Article 3. The procedures regarding the calculation of the limit established in this Resolution, as well as the respective controls, also constitute the responsibility of the director of the exchange area designated in accordance with Resolution No. 1.620, of July 26, 1989.

Article 4. In the event that the total consolidated operations with gold and with assets and liabilities referenced in exchange rate variation, calculated in the manner to be defined by the Central Bank of Brazil, reveal itself, on the date of entry into force of this Resolution, superior to the percentage established in Article 1, the excess shall be eliminated as the operations are liquidated, with the institution being prevented from contracting new positions that burden said percentage, until its effective compliance.

Article 5. Non-compliance with the limit provided for in this Resolution may imply the disqualification of the institution to operate in exchange, when applicable.

Article 6. The Central Bank of Brazil is authorized to issue norms and adopt the necessary measures for the compliance with the provisions of this Resolution.

Article 7. This Resolution enters into force on the date of its publication.

Article 8. Article 1 of Resolution No. 2.399, of 1997, is hereby revoked.

Brasília, May 27, 1999

Arminio Fraga Neto
President