Resolution CMN No. 2891 — Amends the criterion for calculating Required Equity (PLE) to cover risk from financial market operations

RESOLUTION NO. 2891

Amends the criterion for calculating
Required Equity (PLE) to cover the risk arising from exposure to operations conducted in the financial market.

THE CENTRAL BANK OF BRAZIL, in accordance with Article 9 of Law No. 4,595 of December 31, 1964, makes public that the NATIONAL MONETARY COUNCIL, in a session held on September 26, 2001, considering the provisions of Article 4, items VIII and XI, of the aforementioned law, 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 amendments 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. Amend Articles 2 and 4 of the Regulation Annex IV to Resolution No. 2,099 of August 17, 1994, with the modification introduced by Resolution No. 2,692 of February 24, 2000, which shall henceforth be in effect with the following wording:

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

PLE = F.Apr + F'.Σ(RCDi) + F".max{(Σ|Aprci| - K.PR); 0} + Σ ECi i=1 i=1

where:
PLE = required equity;

F = factor applicable to Apr, equivalent to 0.11 (eleven hundredths);

Apr = Risk-weighted Assets = total of the product of the securities of Current Assets and Long-Term Receivables (code 1.0.0.00.00-7 of the Accounting Plan of the Institutions of the National Financial System - 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 securities of Co-obligations and Risks in Guarantees Provided (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);

n1 = number of swap operations registered in account 3.0.6.10.60-4 of COSIF;

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

RCDi = VNi √(Rai² + Rpi² - 2 rai pi Rai Rpi), where:

Rai = risk of the active reference of the i-th operation;

Rpi = risk of the passive reference of the i-th operation;

rai pi = correlation between the active and passive references of the i-th operation;

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

n2 = number of net positions in each currency and in gold;

Aprci = value of the net positions of operations with gold and with assets and liabilities referenced in currency variation, including those conducted in derivatives markets;

K = 0.05 (five hundredths) for (Σ|Aprci|/PR) less than or equal to 0.05 (five hundredths); i=1

K = "ZERO" for (Σ|Aprci|/PR) greater than 0.05 (five hundredths); i=1

PR = Reference Equity, calculated in accordance with Resolution No. 2,837 of 2001;

n3 = number of installments representing the value of PLE to cover market interest rate risk in a specific currency/remuneration base;

ECi = installment representing the value of PLE to cover market interest rate risk in a specific currency/remuneration base.
......- (NR)

"Article 4. The Central Bank of Brazil is authorized to:

I - alter the table referred to in Article 2, paragraph 2, as well as the factors F, F', F", K and other parameters contained in the formula established in the caput of the aforementioned article;

II - assign risk factors to accounting securities contained in COSIF;

III - disclose the calculation methodology for determining the value of each of the installments representing the value of PLE to cover market interest rate risk in a specific currency/remuneration base;

IV - issue recommendations aimed at the assessment and management of risks of financial institutions and other institutions authorized by it to operate, in order to provide better understanding and implementation of the instruments necessary for the control and supervision of financial operations in general, and those conducted in derivatives markets in particular.". (NR)

Article 2. In the event that the value of the required equity, calculated in accordance with Article 2 of the Regulation Annex IV to Resolution No. 2,099 of 1994, with the wording given by the preceding article, proves to be, on the date of entry into force of this resolution, higher than the value now established, solely due to the modifications introduced, the excess must be eliminated within a period of fifteen days, counted from the aforementioned date, with the institution being prohibited from contracting new positions that burden said value, until its effective compliance.

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

I - issue the norms and adopt the measures necessary for compliance with the provisions of this resolution;

II - alter the exposure limit in gold and in assets and liabilities referenced in currency variation, as provided for in Article 1 of Resolution No. 2,606 of May 27, 1999.

Article 4. This resolution enters into force on the date of its publication.

Article 5. Circular No. 2,976 of March 30, 2000 is hereby repealed.

Brasília, September 26, 2001

Arminio Fraga Neto
President

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Note: In the formulas contained in this Resolution, the letter "Σ" means Summation.