Resolution CMN No. 2837 — Defines the Reference Equity of Financial Institutions and Other Institutions Authorized to Operate by the Central Bank of Brazil

RESOLUTION NO. 2837

Defines the Reference Equity of Financial Institutions and Other Institutions Authorized to Operate by the Central Bank of Brazil.

THE CENTRAL BANK OF BRAZIL, in accordance with Article 9 of Law No. 4,595 of December 31, 1964, makes public that the MONETARY NATIONAL COUNCIL, in a session held on May 30, 2001, considering the provisions of Article 4, items VI, VIII, XI, and XXXI, of the aforementioned law, Article 20, paragraph 1, of Law No. 4,864 of November 29, 1965, Law No. 6,099 of September 12, 1974, amended by Law No. 7,132 of October 26, 1983, and Article 7 of Decree-Law No. 2,291 of November 21, 1986,

RESOLVES:

Article 1. To define as Reference Equity (PR), for the purpose of calculating operational limits, the sum of the following levels:

I - Level I: represented by net equity, increased by the balance of credit result accounts, and reduced by the balance of debit result accounts, excluding revaluation reserves, contingency reserves, and special profit reserves related to mandatory dividends not distributed, and deducting values related to cumulative preferred shares and redeemable preferred shares;

II - Level II: represented by revaluation reserves, contingency reserves, special profit reserves related to mandatory dividends not distributed, cumulative preferred shares, redeemable preferred shares, subordinated debt, and hybrid capital and debt instruments.

Paragraph 1. The hybrid capital and debt instruments referred to in item II of this article:

I - may not contain any guarantee offered by the issuer, or by an individual or legal entity linked to it that forms the economic-financial conglomerate, as provided in Article 3 of Resolution No. 2,723 of May 31, 2000, with the wording given by Resolution No. 2,743 of June 28, 2000;

II - must be fully paid in cash;

III - must have their payment subordinated to the payment of the other liabilities of the issuing institution, in the event of dissolution;

IV - may not provide for a maturity date;

V - may not be redeemed at the creditor's initiative;

VI - must contain a clause establishing their immediate use to offset losses determined by the issuing institution when accumulated profits, profit reserves, including the legal reserve, and capital reserves are exhausted;

VII - must allow for the postponement of the payment of charges while dividends are not being distributed on ordinary shares for the same time period;

VIII - must contain a clause providing for the mandatory postponement of the payment of charges or redemption, including partial, if it implies the issuing institution's disqualification from the minimum Required Shareholders' Equity (PLE) level and other operational limits established in current regulations;

IX - must contain a clause establishing that redemption depends on prior authorization from the Central Bank of Brazil;

X - must be registered;

XI - in the case of placement abroad, must contain a clause choosing the forum for the resolution of any judicial disputes.

Paragraph 2. Instruments that meet the requirements of the preceding paragraph, with the exception of items IV, VI, VII, and IX, may integrate Level II in the capacity of subordinated debts, with redemption or amortizations prohibited before a minimum period of five years has elapsed.

Paragraph 3. For the purposes of this Resolution, redeemable preferred shares are considered those issued by the institution with a fixed term for the payment of their value, not less than five years.

Paragraph 4. The Central Bank of Brazil may authorize the inclusion of other operations in Level II of the PR, provided they present characteristics similar to those described in paragraph 1 of this article.

Article 2. Prior authorization from the Central Bank of Brazil is required for:

I - the eligibility of hybrid capital and debt instruments and subordinated debts to integrate Level II of the PR referred to in Article 1, item II; and

II - the redemption of hybrid capital and debt instruments and the early redemption of subordinated debts.

Paragraph 1. For the purposes of this article, the Central Bank will consider, among other elements, the financial terms and conditions agreed upon.

Paragraph 2. Hybrid capital and debt instruments, subordinated debts, and redeemable preferred shares that integrated Level II of Adjusted Shareholders' Equity (PLA) under Resolution No. 2,543 of August 26, 1998, may compose Level II of the PR, within the limits established in that Resolution, until their respective maturities, with extension or renewal prohibited.

Article 3. For the purposes of this Resolution, the amount of Level II of the PR referred to in Article 1 is limited to the value of Level I mentioned therein, observed that:

I - the amount of revaluation reserves referred to in Article 1, item II, is limited to 25% (twenty-five percent) of the PR, as defined in that article;

II - the amount of subordinated debts referred to in Article 1, paragraph 2, plus the value of redeemable preferred shares referred to in Article 1, paragraph 3, whose original maturity term is less than ten years, is limited to 50% (fifty percent) of the value of Level I;

III - a reduction factor of 20% (twenty percent) per year will be applied to the value of subordinated debts referred to in Article 1, paragraph 2, and redeemable preferred shares referred to in Article 1, paragraph 3, during the last five years prior to their respective maturity.

Article 4. Any citation to Adjusted Shareholders' Equity (PLA), regarding operational limits, in norms published by the Central Bank of Brazil, shall henceforth refer to the definition of PR established in Article 1 of this Resolution.

Article 5. The Central Bank of Brazil is authorized to issue norms and adopt measures deemed necessary for the execution of the provisions of this Resolution.

Article 6. This Resolution enters into force on the date of its publication.

Article 7. Resolution No. 2,802 of December 21, 2000, is hereby revoked.

Brasília, May 30, 2001

Arminio Fraga Neto
President