Resolution CMN No. 4192 — Establishes the methodology for calculating Reference Equity (PR)

RESOLUTION NO. 4,192, OF MARCH 1, 2013
Provides for the methodology for calculating Reference Equity (PR).

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 an extraordinary session held on March 1, 2013, based on Articles 4, items VIII and XI, of the aforementioned Law, Article 20, § 1, of Law No. 4,864, of November 29, 1965, Law No. 6,099, of September 12, 1974, and Articles 1 and 12 of Complementary Law No. 130, of April 17, 2009,

HAS RESOLVED:

TITLE I
PRELIMINARY PROVISIONS

CHAPTER I
OF THE OBJECT AND SCOPE OF APPLICATION

Article 1. This Resolution establishes the calculation methodology for Reference Equity (PR), which must be calculated by financial institutions and other institutions authorized to operate by the Central Bank of Brazil, except for microentrepreneur credit societies and small business lending companies.

CHAPTER II
OF DEFINITIONS

Article 2. PR consists of the sum of Level I and Level II.

§ 1. Level I consists of the sum of Principal Capital and Supplementary Capital.

§ 2. For the purpose of calculating the value of PR, the following definitions apply:
I - subsidiary is the entity part of a conglomerate, with the exception of the lead institution; and II - non-controlling interest is the portion of the subsidiary's capital not held, directly or indirectly:
a) by the lead institution of the conglomerate; or b) by the controller, in the case of a subsidiary that is also an institution authorized to operate by the Central Bank of Brazil.

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TITLE II
OF THE CALCULATION OF REFERENCE EQUITY

CHAPTER I
OF REFERENCE EQUITY OF THE CONGLOMERATE

Article 3. The calculation of PR must be performed on a consolidated basis for institutions part of the same conglomerate, observing the following schedule:
I - until December 31, 2013, the calculation applies to institutions part of a financial conglomerate, in accordance with the Accounting Plan of Institutions of the National Financial System (Cosif); and II - from January 1, 2014, the calculation applies to institutions part of the prudential conglomerate, in accordance with Cosif.

CHAPTER II
OF THE CALCULATION OF LEVEL I

Section I
Of the calculation of Principal Capital

Article 4. Principal Capital is calculated by:
I - the sum of the values corresponding to:
a) social capital constituted by quotas, quota shares, or non-redeemable shares without cumulative dividend mechanisms; b) capital reserves, revaluation reserves, and profit reserves; c) unrealized gains resulting from valuation adjustments of business combinations and securities classified in the category of securities available for sale; d) accumulated surpluses or profits; e) credit result accounts; f) the deposit in a linked account to cover capital deficiency, constituted in accordance with Article 6 of Resolution No. 4,019, of September 29, 2011; and g) the balance of the positive adjustment to the market value of financial derivative instruments used for cash flow hedging; and II - the deduction of the values corresponding to:
a) unrealized losses resulting from valuation adjustments of business combinations and securities classified in the category of securities available for sale;

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b) treasury shares eligible to compose Principal Capital; c) accumulated losses or deficits; d) debit result accounts; e) the balance of the negative adjustment to the market value of financial derivative instruments used for cash flow hedging; and f) prudential adjustments listed in Article 5.

§ 1. In the social capital mentioned in item "a" of item I of the main text, the following must not be considered:
I - capital increase in the authorization process in the institutions mentioned in Article 1; and II - savings deposits in savings and loan associations.

§ 2. For the purpose of calculating the values corresponding to items "g" of item I and "e" of item II of the main text, values related to market value adjustments of financial derivative instruments used for cash flow hedging of protected items that do not have their mark-to-market adjustments registered in accounting must not be considered.

Article 5. The prudential adjustments mentioned in Article 4, item II, item "f", correspond to the following equity elements:
I - premiums paid on the acquisition of investments based on the expectation of future profitability, constituted from the effective date of this Resolution, net of associated deferred tax liabilities;
II. Intangible assets constituted from the effective date of this Resolution;
III. Actuarial assets related to defined benefit pension funds, net of associated deferred tax liabilities to which the financial institution does not have unrestricted access;
IV. The aggregated value of participations less than 10% (ten percent) of the social capital of entities similar to financial institutions, not consolidated, that exceeds 10% (ten percent) of the value calculated according to Article 4, disregarding deductions related to the equity elements mentioned in this item and items V and VII of this article;
V. Participations, direct or indirect, greater than 10% (ten percent) of the social capital of entities similar to financial institutions, not consolidated;
VI. Non-controlling interest, in accordance with Article 9, § 1, in subsidiaries part of the conglomerate;

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VII. Tax credits resulting from temporary differences that depend on the generation of future taxable profits or revenues for their realization;
VIII. Tax credits resulting from fiscal losses and negative base of Social Contribution on Net Profit and those originating from this contribution related to assessment periods closed until December 31, 1998, calculated in accordance with Article 8 of Provisional Measure No. 2,158-35, of August 24, 2001;
IX. Deferred permanent assets;
X. Funding instruments issued by an institution authorized to operate by the Central Bank of Brazil or by an institution located abroad that performs activity equivalent to that of a financial institution in Brazil, which does not form the conglomerate, in accordance with Article 8;
XI. Value corresponding to the investment in a branch, a financial institution controlled abroad, or a non-financial entity that forms the conglomerate, regarding which the Central Bank of Brazil does not have access to sufficient information, data, and documents for the purpose of global consolidated supervision;
XII. The difference between the provisioned value and the expected loss in exposures covered by internal credit risk classification systems (IRB approaches); and
XIII. Value corresponding to the minimum capital required for insurance companies, reinsurance companies, capitalization societies, and open complementary pension entities, controlled, as defined by the respective supervisory authority, except for portions associated with credit, market, and operational risks.

§ 1. Premiums paid on the acquisition of investments based on the expectation of future profitability and intangible assets constituted before the effective date of this Resolution, mentioned, respectively, in items I and II of the main text, not fully amortized until December 31, 2017, must be deducted in the calculation of Principal Capital from January 1, 2018.

§ 2. Values related to the equity elements mentioned in items V and VII of the main text, which represent:
I - individually, up to 10% (ten percent) of the value calculated in Article 4, disregarding the deduction of values related to the equity elements mentioned in items V and VII of the main text and the deduction of values resulting from the treatment specified in this paragraph; and II - in aggregate, up to 15% (fifteen percent) of Principal Capital, considering the deduction of values related to all equity elements mentioned in the main text, must not be deducted in the calculation of Principal Capital.

§ 3. For the purpose of calculating the value related to the equity element mentioned in item VII of the main text, it is optional to deduct from the value of tax credits resulting from temporary differences the value of deferred tax obligations of the same entity or of entities belonging to the same conglomerate, with the exception of tax obligations associated with:
I. Premiums paid on the acquisition of investments based on the expectation of future profitability, constituted from the effective date of this Resolution; and
II. Actuarial assets related to defined benefit pension funds.

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§ 4. For the purpose of calculating the value related to the equity element mentioned in item VIII of the main text, it is optional to deduct from the total registered balance of tax credits resulting from fiscal losses and negative base of social contribution on net profit the eventual remaining balance of deferred tax obligations resulting from the treatment provided in § 3.

§ 5. Only the positive value of tax credits after the deductions mentioned in §§ 3 and 4 must be considered for the purpose of calculating the values related to the equity elements mentioned in items VII and VIII of the main text.

§ 6. At the discretion of the Central Bank of Brazil, the value related to the equity element mentioned in item XI of the main text may be replaced by a specific value, limited to the total of assets plus exposures not recognized in the balance sheet of the branch or subsidiary abroad.

§ 7. For the purpose of calculating the value related to the equity elements mentioned in items IV and V of the main text, entities similar to financial institutions are considered:
I. Consortium administrators;
II. Payment institutions acting as credit card issuers or acquirers;
III. Companies that acquire credit operations, including real estate, such as business development companies, securitization companies, and exclusive object companies;
IV. Insurance companies, reinsurance companies, capitalization societies, and open complementary pension entities;
V. Investment funds in which entities part of the conglomerate, in any form, assume or retain substantially risks and benefits, such as exclusive investment funds, credit rights investment funds, and other financial investment funds; and
VI. Other legal entities headquartered in the Country whose corporate purpose is exclusively the equity participation in the entities mentioned in items I to IV.

Section II
Of the calculation of Supplementary Capital

Article 6. Supplementary Capital is calculated by:
I - the sum of the values corresponding to instruments that meet the requirements established in Article 17; and II - the deduction of the values corresponding to:
a) funding instruments issued by an institution authorized to operate by the Central Bank of Brazil or by an institution located abroad that performs activity equivalent to that of a financial institution in Brazil, which does not form the conglomerate, in accordance with Article 8; and b) treasury shares eligible to compose Supplementary Capital.

CHAPTER III
OF THE CALCULATION OF LEVEL II

Article 7. Level II is calculated by:
I - the sum of the values corresponding to:
a) instruments that meet the requirements established in Article 20; and b) the greater difference between the provisioned value and the expected loss in exposures covered by internal credit risk classification systems (IRB approaches); and II - the deduction of the values corresponding to:
a) funding instruments issued by an institution authorized to operate by the Central Bank of Brazil or by an institution located abroad that performs activity equivalent to that of a financial institution in Brazil, which does not form the conglomerate, in accordance with Article 8; and b) treasury shares eligible to compose Level II.

CHAPTER IV
OF THE DEDUCTION OF INVESTMENTS IN OTHER ENTITIES

Article 8. The balances of assets represented by the following funding instruments issued by institutions authorized to operate by the Central Bank of Brazil or by an institution located abroad that performs activity equivalent to that of a financial institution in Brazil must be deducted from Principal Capital, Supplementary Capital, or Level II:
I. Shares;
II. Quotas;

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III. Quota shares; and
IV. Other financial instruments authorized to compose Level I or Level II.

§ 1. The deduction mentioned in the main text must be carried out from the respective portion of PR to which the funding instrument is eligible.

§ 2. In the event that the value to be deducted as established in § 1 exceeds the respective portion of PR, the excess must be deducted:
I - from Supplementary Capital and Principal Capital, in that order, in the case of instruments eligible for Level II; and II - from Principal Capital, in the case of instruments eligible for Supplementary Capital.

§ 3. The deduction provided in the main text must also be carried out for values related to the following situations:
I - acquisition of the instruments mentioned in the main text through a controlled non-financial entity; II - indirect participation of a credit cooperative in a cooperative bank; III - granting of credit to third parties with knowledge that the resources are specifically intended to increase the capital of an institution authorized to operate by the Central Bank of Brazil, with the exception of credit cooperatives; and IV - acquisition of the instruments mentioned in the main text through quotas of an investment fund, proportionally to the participation of these in the fund's portfolio.

§ 4. The value of quota shares corresponding to participations of credit cooperatives in the capital of central credit cooperatives or credit confederations is not subject to deduction.

CHAPTER V
OF THE DEDUCTION OF NON-CONTROLLING INTEREST IN REFERENCE EQUITY OF THE CONGLOMERATE

Article 9. Values of non-controlling interest in the capital of a subsidiary that exceed the minimum requirements for Principal Capital, Level I, and PR of that subsidiary must be deducted, respectively, from Principal Capital, Level I, and PR of the conglomerate.

§ 1. For Principal Capital, the excess mentioned in the main text will be calculated by the following formula:
KEXC-CP = Max {0; [(KSUB-CP – RWASUB x 0.07) x PNCSUB-CP]}, where:
I - KEXC-CP = value of Principal Capital exceeding the respective minimum requirement of the subsidiary; II - KSUB-CP = Principal Capital of the subsidiary; III - RWASUB = value of risk-weighted assets (RWA) of the conglomerate attributable to the subsidiary; and IV - PNCSUB-CP = percentage of non-controlling interest in Principal Capital of the subsidiary.

§ 2. For Level I, the excess mentioned in the main text will be calculated by the following formula:
KEXC-NI = Max {0; [(KSUB-NI – RWASUB x 0.085) x PNCSUB-NI]}, where:
I - KEXC-NI = value of Level I exceeding the respective minimum requirement of the subsidiary; II - KSUB-NI = Level I of the subsidiary; III - RWASUB = value of risk-weighted assets (RWA) of the conglomerate attributable to the subsidiary; and IV - PNCSUB-NI = percentage of non-controlling interest in Level I of the subsidiary.

§ 3. For PR, the excess mentioned in the main text will be calculated by the following formula:
KEXC-PR = Max {0; [(KSUB-PR – RWASUB x 0.105) x PNCSUB-PR]}, where:
I - KEXC-PR = value of PR exceeding the respective minimum requirement of the subsidiary; II - KSUB-PR = PR of the Subsidiary; III - RWASUB = value of risk-weighted assets (RWA) of the conglomerate attributable to the subsidiary; and IV - PNCSUB-PR = percentage of non-controlling interest in PR of the subsidiary.

§ 4. For the purposes of the main text, it is optional to exclude the total value of non-controlling interest in Principal Capital, Level I, and PR of the subsidiary.

§ 5. Debt instruments issued until December 31, 2012 must not be considered in the calculations mentioned in §§ 2 and 3.

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CHAPTER VI
OF LINKED ASSET OPERATIONS

Article 10. Resources delivered or placed by third parties at the disposal of the institutions mentioned in Article 1 for the purpose of carrying out linked asset operations, in accordance with Resolution No. 2,921, of January 17, 2002, are not eligible to compose PR.

CHAPTER VII
OF THE SCHEDULE FOR DEDUCTING PRUDENTIAL ADJUSTMENTS

Article 11. For the purpose of calculating Principal Capital, Level I, and PR, the following factors must be applied to the value of deductions calculated according to Article 5, items I to VII, and Article 9, on each calculation date:
I - from October 1, 2013, 0% (zero percent);
II - from January 1, 2014, 20% (twenty percent); III - from January 1, 2015, 40% (forty percent); IV - from January 1, 2016, 60% (sixty percent); V - from January 1, 2017, 80% (eighty percent); and VI - from January 1, 2018, 100% (one hundred percent).

Article 12. For the purpose of calculating Principal Capital until December 31, 2017, the deduction related to the prudential adjustment mentioned in Article 5, item VIII, must be carried out as follows:
I - for the total amount of tax credits resulting from the exclusion of revenues from the depreciation of assets subject to leasing operations, the factors indicated in Article 11 apply; and II - for the other tax credits cited in Article 5, item VIII:
a) the factors indicated in Article 11 apply for values equal to or less than 10% (ten percent) of the value of Level I, disregarding prudential adjustments; and b) the factor of 100% (one hundred percent) applies, from October 1, 2013, for the value exceeding 10% (ten percent) of the value of Level I, disregarding prudential adjustments.

Sole paragraph. From January 1, 2018, the deduction related to the prudential adjustment mentioned in the main text must be carried out in its entirety.

Article 13. For the purpose of calculating Principal Capital, Level I, and PR, deductions related to the prudential adjustments mentioned in Article 5, items IX to XIII, and those provided in Article 8, must be carried out in their entirety, from the effective date of this Resolution.

TITLE III
OF INSTRUMENTS THAT MAY COMPOSE REFERENCE EQUITY

CHAPTER I
OF THE SUBORDINATION CORE

Article 14. The contract or document governing the funding operation through instruments eligible to compose PR, with the exception of items part of social capital, must contain a specific chapter named Subordination Core, composed of:
I - clauses that allow evidence of compliance with the requirements for Principal Capital, Supplementary Capital, and Level II, provided, respectively, in Articles 16, 17, and 20; II - a clause establishing that any other clause in the contract or other document that prejudices compliance with the requirements provided in Articles 16, 17, and 20 is null; III - a clause establishing that the amendment, alteration, or revocation of the terms of the Subordination Core depends on prior authorization from the Central Bank of Brazil; and IV - a summary of the operation, containing the following information:
a) nature of the funding; b) value raised; and c) structure of the disbursement flow related to the payment of amortizations and charges.

Sole paragraph. The amendment, alteration, or revocation of the terms of the Subordination Core mentioned in the main text can only occur when business conditions are verified, at the discretion of the Central Bank of Brazil, that justify the institution's claim.

Article 15. In funding operations whose terms are defined by more than one contract or document, the Subordination Core must contain the transcription of all clauses of the contracts or accessory instruments of the operation that establish its subordination to the principal instrument.

CHAPTER II
OF INSTRUMENTS ELIGIBLE FOR PRINCIPAL CAPITAL

Article 16. Financial institutions not subject to the procedures established in Law No. 6,024, of March 13, 1974, may compose their Principal Capital with other equity elements that meet the following requirements:
I - have their liquidation subordinated to the payment of other liabilities, in the event of dissolution of the issuing institution; II - have rights to remaining assets in the dissolution process, observing the provision of item I, proportional to the issued value;

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III - provide for the perpetuity of the principal, to be liquidated only in situations of dissolution of the issuing institution or repurchases authorized by the Central Bank of Brazil; IV - not present contractual clauses that lead to the expectation of repurchase, redemption, or cancellation; V - provide for the payment of its remuneration only with resources from profits and profit reserves distributable in the last assessment period; VI - not provide for the obligation of remuneration; VII - not provide for preferential remunerations relative to other equity elements authorized to compose Reference Equity (PR); VIII - establish its immediate use in the compensation of losses calculated by the issuing institution when accumulated profits, profit reserves, and capital reserves are exhausted; IX - not be considered as a financial obligation, in the event of dissolution of the issuing institution; X - be classified as equity according to internationally recognized accounting standards; XI - not have its purchase financed, directly or indirectly, by the issuing institution; XII - not be subject to guarantee, insurance, or any other mechanism that obliges or allows payment or transfer of resources, directly or indirectly, from the issuing institution, an entity part of the same conglomerate, or a controlled non-financial entity, to the holder of the instrument, in a manner that compromises the subordination condition expressed in this article; XIII - be issued only after approval by the shareholders' meeting of the issuing institution or its board of directors, or other persons duly authorized by the shareholders; and XIV - be disclosed in the balance sheet of the issuing institution clearly and separately.

§ 1. In addition to the cited requirements, the elements mentioned in the main text must also:
I - be fully paid in cash or in federal public debt securities, observing the provision of § 3; II - provide for redemption or repurchase only by the issuer, conditioned on authorization from the Central Bank of Brazil; and III - be acquired by the Union.

§ 2. The instruments mentioned in the caput must be accounted for as liabilities of the issuing institution and reclassified as equity for the purposes of disclosing their financial statements.

§ 3. The amounts invested in federal public debt securities and non-monetized amounts may compose Principal Capital subject to the following limits on the non-monetized value:

I - 80% (eighty percent), up to 180 days after the date of issuance of the instrument;

II - 60% (sixty percent), between 181 days and 360 days after the date of issuance of the instrument;

III - 40% (forty percent), between 361 days and 540 days after the date of issuance of the instrument;

IV - 20% (twenty percent), between 541 days and 720 days after the date of issuance of the instrument;

V - 0% (zero percent), after 720 days from the date of issuance of the instrument.

CHAPTER III

OF THE INSTRUMENTS ELIGIBLE FOR COMPLEMENTARY CAPITAL

Art. 17. To compose Complementary Capital, the instruments must meet the following requirements:

I - be registered in the name, when issued in Brazil and, when issued abroad, whenever local legislation so permits;

II - be fully paid in cash;

III - have a perpetual nature;

IV - have their payment subordinated to the payment of the other liabilities of the institution, with the exception of the payment of the elements that compose Principal Capital, in the event of dissolution of the issuing institution;

V - provide for the payment of their remuneration only with resources from profits and profit reserves distributable in the last reporting period;

VI - provide for the suspension of the payment of remuneration that exceeds the resources available for this purpose;

VII - provide for the suspension of the payment of remuneration, in the same proportion as the restriction imposed by the Central Bank of Brazil on the distribution of dividends or other results related to shares, quotas, or quota-shares eligible for Principal Capital;

VIII - provide for the suspension of the payment of remuneration of the instrument in the same percentages of retention of the value to be paid or distributed, mentioned in art. 9, § 4, of Resolution No. 4,193, of March 1, 2013, if the issuing institution presents insufficiency in meeting the Principal Capital Additional or the payment results in disqualification with respect to the minimum requirements of Principal Capital, Level I, and PR;

IX - have the redemption or repurchase, even if carried out indirectly through an entity belonging to the same conglomerate or by a non-financial controlled entity, conditioned to the authorization of the Central Bank of Brazil;

X - be redeemable only at the initiative of the issuer;

XI - not be subject to guarantee, insurance, or any other mechanism that obliges or allows payment or transfer of resources, directly or indirectly, from the issuing institution, an entity of the conglomerate, or a non-financial controlled entity, to the holder of the instrument, in a way that compromises the condition of subordination expressed in this article;

XII - not contain clauses that, directly or indirectly, reduce the value authorized to compose Complementary Capital, with the exception of the cases of repurchase and redemption provided for in art. 18;

XIII - not contain clauses that alter the agreed remuneration periods or conditions;

XIV - not have their purchase financed, directly or indirectly, by the issuing institution;

XV - provide for the extinction, permanent and in value at least corresponding to the balance computed in Level I, or, as defined in §§ 2 and 3 of this article, the conversion of the same value into shares of the issuing institution eligible for Principal Capital, in the following situations:

a) Principal Capital is less than 5.125% (five and one hundred twenty-five thousandths percent) of the RWA amount, calculated in the manner established by Resolution No. 4,193, of 2013;

b) the exception provided for in the caput of art. 28 of Complementary Law No. 101, of May 4, 2000, is verified, with a commitment made for capital injection to the issuing institution;

c) the Central Bank of Brazil decrees a temporary special administration regime or intervention in the institution; or

d) the Central Bank of Brazil, in a discretionary evaluation of the circumstances of each case, according to criteria established in a specific regulation issued by the National Monetary Council, considers it necessary to extinguish or convert the instrument to ensure the continuity of the institution and mitigate relevant risks for the regular functioning of the financial system.

XVI - contain a clause establishing that the occurrence of the situations provided for in items V, VI, VII, VIII, and XV shall not be considered as an event of default or another factor that generates the acceleration of debt maturity in any legal transaction in which the issuing institution participates;

XVII - provide that the remuneration not paid due to the clause referred to in item V and the remuneration relating to the period of suspension put into effect due to the provisions of items VI, VII, and VIII shall be considered extinguished.

§ 1. In the event of issuance abroad, the instruments eligible to compose Complementary Capital must contain a clause choosing the forum in which the requirements for the instrument are recognized, to resolve any judicial disputes.

§ 2. The conversion mentioned in item XV must meet the following requirements:

I - the issuing institution must possess all necessary internal authorizations for the issuance of the instrument eligible for Complementary Capital and the shares to be used in the conversion, including the authorized capital referred to in art. 168 of Law No. 6,404, of December 15, 1976, in a value sufficient to cover any capital increase resulting from the conversion;

II - the conversion into shares must occur prior to the effective entry of resources relating to the situation provided for in item "b" of item XV of the caput; and

III - in the conversion into shares, a maximum limit on the quantity of shares to be delivered to the investor must be established.

§ 3. When requesting the authorization referred to in art. 24, the issuing institution must assume in writing, before the Central Bank of Brazil, the commitment to preserve the limit of authorized capital referred to in art. 168 of Law No. 6,404, of December 15, 1976, necessary for the eventual conversion of the instruments into shares, in the form of item XV and § 2, item I, of this article, during the period in which the credits represented by the instruments remain enforceable.

§ 4. The contract with a clause for conversion into shares must provide for the permanent extinction of the debt in cases where the investor may waive the right to receive the shares.

Art. 18. The instruments eligible to compose Complementary Capital may be issued with a clause for the issuer's option to repurchase or redeem, provided that the following requirements are met:

I - a minimum interval of five years between the date of issuance and the first date of exercise of the option to repurchase or redeem;

II - contractual provision for the exercise of the option to repurchase or redeem to be conditioned, on the date of exercise, to the authorization of the Central Bank of Brazil; and

III - absence of characteristics that create the expectation that the repurchase or redemption will be exercised.

§ 1. The authorization for repurchase or redemption of the instruments authorized to compose Complementary Capital, mentioned in item II, may be granted, provided that:

I - the issuing institution meets the minimum requirements of Principal Capital, Level I, and PR, and complies with the Principal Capital Additional, as provided for in Resolution No. 4,193, of 2013, and the other operational limits;

II - the repurchase or redemption does not result in disqualification with respect to the requirements and limits or insufficiency of Principal Capital Additional mentioned in item I of this paragraph; and

III - the institution manifests to the Central Bank of Brazil its intention to exercise the option to repurchase or redeem, observing the conditions established in §§ 2 and 3 of this article.

§ 2. The repurchase or redemption of the instruments authorized to compose Complementary Capital, even if carried out indirectly through an entity of the conglomerate or by a non-financial controlled entity, may only be permitted in the following cases:

I - issuance of new instruments eligible for Complementary Capital, in an amount equivalent to that of the repurchased or redeemed instruments and under more favorable agreed conditions; or

II - proof of business conditions that, at the discretion of the Central Bank of Brazil, justify the institution's claim.

§ 3. The values relating to the repurchased or redeemed instruments shall cease to compose Complementary Capital, even if indirectly through an entity of the conglomerate or by a non-financial controlled entity.

§ 4. The periods and conditions established for the repurchase or redemption of instruments authorized to compose Complementary Capital also apply to the rescission of the contract or document supporting the funding operation.

Art. 19. The values relating to the re-offering in the market of repurchased instruments, even if indirectly, through an entity of the conglomerate or by a non-financial controlled entity, may return to compose Complementary Capital upon communication to the Central Bank of Brazil.

CHAPTER IV

OF THE INSTRUMENTS ELIGIBLE FOR LEVEL II

Art. 20. To compose Level II, the instruments must meet the following requirements:

I - be registered in the name, when issued in Brazil and, when issued abroad, whenever local legislation so permits;

II - be fully paid in cash;

III - provide for a minimum interval of five years between the date of issuance and the maturity date, and may not provide for the payment of amortizations before this interval has elapsed;

IV - have their payment subordinated to the payment of the other liabilities of the institution, with the exception of the payment of the elements that compose Principal Capital and Complementary Capital, in the event of dissolution of the issuing institution;

V - have the early repurchase or redemption, even if carried out indirectly through an entity of the conglomerate or by a non-financial controlled entity, conditioned to the authorization of the Central Bank of Brazil;

VI - be redeemable only at the initiative of the issuer;

VII - not be subject to guarantee, insurance, or any other mechanism that obliges or allows payment or transfer of resources, directly or indirectly, from the issuing institution, an entity of the conglomerate, or a non-financial controlled entity, to the holder of the instrument, in a way that compromises the condition of subordination expressed in this article;

VIII - not contain clauses that alter the agreed remuneration periods or conditions;

IX - not have their purchase financed, directly or indirectly, by the issuing institution;

X - provide for the extinction, permanent and in value at least corresponding to the balance computed in Level II, or, as defined in §§ 2 and 3, the conversion of the same value into shares of the issuing institution eligible for Principal Capital, in the following situations:

a) Principal Capital is less than 4.5% (four and five tenths percent) of the RWA amount, calculated in the manner established by Resolution No. 4,193, of 2013; or

b) the exception provided for in the caput of art. 28 of Complementary Law No. 101, of 2000, is verified, with a commitment made for capital injection to the issuing institution;

c) the Central Bank of Brazil decrees a temporary special administration regime or intervention in the institution; or

d) the Central Bank of Brazil, in a discretionary evaluation of the circumstances of each case, according to criteria established in a specific regulation issued by the National Monetary Council, considers it necessary to extinguish or convert the instrument to ensure the continuity of the institution and mitigate relevant risks for the regular functioning of the financial system.

XI - contain a clause establishing that the occurrence of the situations provided for in item X shall not be considered as an event of default or another factor that generates the acceleration of debt maturity in any legal transaction in which the issuing institution participates.

§ 1. In the event of issuance abroad, the instruments eligible to compose Level II must contain a clause choosing the forum in which the requirements for the instrument are recognized, to resolve any judicial disputes.

§ 2. The conversion mentioned in item X of the caput must meet the following conditions:

I - the issuing institution must possess all necessary internal authorizations for the issuance of the instrument eligible to compose Level II and the shares to be used in the conversion, including the authorized capital referred to in art. 168 of Law No. 6,404, of 1976, in a value sufficient to cover any capital increase resulting from the conversion;

II - the conversion into shares must occur prior to the effective entry of resources relating to the situation provided for in item "b" of item X of the caput; and

III - in the conversion into shares, a maximum limit on the quantity of shares to be delivered to the investor must be established.

§ 3. When requesting the authorization referred to in art. 24, the issuing institution must assume in writing, before the Central Bank of Brazil, the commitment to preserve the limit of authorized capital referred to in art. 168 of Law No. 6,404, of 1976, necessary for the eventual conversion of the instruments into shares, in the form of item XI and § 2, item I, of this article, during the period in which the credits represented by the instruments remain enforceable.

§ 4. The contract with a clause for conversion into shares must provide for the permanent extinction of the debt in cases where the investor may waive the right to receive the shares.

Art. 21. The instruments eligible to compose Level II may be issued with a clause for the issuer's option to repurchase or redeem early, provided that the following requirements are met:

I - a minimum interval of five years between the date of issuance and the first date of exercise of the option to repurchase or redeem early;

II - contractual provision for the exercise of the option to repurchase or redeem early to be conditioned, on the date of exercise, to the authorization of the Central Bank of Brazil; and

III - absence of characteristics that create the expectation that the early repurchase or redemption will be exercised.

§ 1. The authorization for early repurchase or redemption of the instruments authorized to compose Level II mentioned in item II of the caput may be granted, provided that:

I - the issuing institution meets the minimum requirements of Principal Capital, Level I, and PR, and complies with the Principal Capital Additional, as provided for in Resolution No. 4,193, of 2013, and the other operational limits;

II - the repurchase or redemption does not result in disqualification with respect to the requirements and limits or insufficiency of Principal Capital Additional, mentioned in item I of this paragraph; and

III - the institution manifests to the Central Bank of Brazil its intention to exercise the option to repurchase or redeem, observing the conditions established in §§ 2 and 3 of this article.

§ 2. The repurchase or redemption of the instruments authorized to compose Level II, even if carried out indirectly, through an entity of the conglomerate or by a non-financial controlled entity, may only be permitted in the following cases:

I - issuance of new instruments eligible for Level II, with an effective maturity period greater than or equal to the remaining term of the repurchased or redeemed instruments, in an amount equivalent to that of these and under more favorable agreed conditions; or

II - proof of business conditions that, at the discretion of the Central Bank of Brazil, justify the institution's claim.

§ 3. The values relating to the repurchased or redeemed instruments shall cease to compose Level II, even if indirectly through an entity of the conglomerate or by a non-financial controlled entity.

§ 4. The periods and conditions established for the repurchase or redemption of instruments authorized to compose Level II also apply to the rescission of the contract or document supporting the funding operation.

Art. 22. The values relating to the re-offering in the market of instruments authorized to compose Level II repurchased, even if indirectly, through an entity of the conglomerate or by a non-financial controlled entity, may return to compose Level II upon communication to the Central Bank of Brazil and provided that the interval between the date of re-offering and the maturity date is greater than five years.

Art. 23. The Central Bank of Brazil may authorize the inclusion of resources raised from the funds referred to in Law No. 7,827, of September 27, 1989, art. 10 of Law No. 7,998, of January 11, 1990, and Law No. 8,036, of May 11, 1990, in Level II of PR for non-financial institutions not subject to the procedures established in Law No. 6,024, of March 13, 1974.

§ 1. In the fundraising referred to in the caput, the requirements established in art. 20 must be observed, with compliance with the provisions of item X of the caput and §§ 2 and 3 of the mentioned article being waived.

§ 2. The resources mentioned in the caput authorized to compose the PR of the institutions referred to in the caput of art. 1 before the entry into force of this Resolution shall be eligible until their amortization.

CHAPTER V

OF THE AUTHORIZATION FOR PRINCIPAL CAPITAL, COMPLEMENTARY CAPITAL, AND LEVEL II

Art. 24. The amounts actually invested relating to capital or debt instruments, with the exception of the items mentioned in item I of art. 4, may only compose Principal Capital, Complementary Capital, and Level II with the authorization of the Central Bank of Brazil.

§ 1. For the purposes of the authorization mentioned in the caput, the Subordination Core mentioned in art. 14 must be submitted to the Central Bank of Brazil, which will consider, among other elements, the payment structure and, for Level II, the maturity date.

§ 2. To be authorized to compose Principal Capital, Complementary Capital, and Level II, the instruments must:

I - be issued by an institution authorized to operate by the Central Bank of Brazil or by its branch or subsidiary abroad;

II - possess, at the time of their issuance, a minimum unit nominal value of R$300,000.00 (three hundred thousand reais) or equivalent in foreign currency;

III - be registered in a registration and financial settlement system for assets authorized by the Central Bank of Brazil or by the Securities and Exchange Commission (CVM); and

IV - include, in the registration, the components of the Subordination Core provided for in art. 14.

§ 3. In the case of instruments issued abroad, the request for authorization referred to in this article must be accompanied by a legal opinion, issued by a law firm qualified in the country whose legislation is applicable to the instrument, in which it is attested, without reservation, the adequacy of the instrument's clauses to said legislation.

TITLE IV

OF THE LIMITS AND REDUCERS APPLIED TO REFERENCE EQUITY

CHAPTER I

OF THE LIMITS

Art. 25. The adjusted value of Principal Capital is limited to 200% (two hundred percent) of the value of the share capital mentioned in art. 4, item I, item "a".

§ 1. For verification of compliance with the limit mentioned in the caput, the adjusted value of Principal Capital must correspond to the value of Principal Capital, disregarding:

I - the sum of the values corresponding to items "a", "e", and "f" of item I of art. 4; and

II - the deduction of the values corresponding to item II of art. 4.

§ 2. The limit determined in the caput does not apply to credit cooperatives.

§ 3. Any excess over the limit established in the caput must be excluded from Principal Capital before the deduction of the prudential adjustments mentioned in art. 5.

Art. 26. The participation in the composition of Level II of the difference between the provisioned value and the expected loss calculated according to internal credit risk classification systems authorized (IRB approaches) is limited to a maximum equivalent to 0.6% (six tenths percent) of the RWACIRB portion, as provided for in Resolution No. 4,193, of 2013.

CHAPTER II

OF THE REDUCERS APPLIED TO DEBT INSTRUMENTS ELIGIBLE FOR REFERENCE EQUITY

Art. 27. On the balances of capital or debt instruments authorized to compose Level II that have a maturity date, a reducer shall be applied, observing the following schedule:

I - 20% (twenty percent), from the sixtieth month to the forty-ninth month prior to the respective maturity;

II - 40% (forty percent), from the forty-eighth month to the thirty-seventh month prior to the respective maturity;

III - 60% (sixty percent), from the thirty-sixth month to the twenty-fifth month prior to the respective maturity;

IV - 80% (eighty percent), from the twenty-fourth month to the thirteenth month prior to the respective maturity; and

V - 100% (one hundred percent), in the twelve months prior to the respective maturity.

Art. 28. The instruments authorized to compose PR before the entry into force of this Resolution must have their balances recognized, for the purposes of calculating each of the levels of PR according to the rules established in this Resolution, limited to the following maximum percentages of the value authorized for each level on December 31, 2012:

I - 90% (ninety percent), from October 1, 2013;

II - 80% (eighty percent), from January 1, 2014;

III - 70% (seventy percent), from January 1, 2015;

IV - 60% (sixty percent), from January 1, 2016;

V - 50% (fifty percent), from January 1, 2017;

VI - 40% (forty percent), from January 1, 2018;

VII - 30% (thirty percent), from January 1, 2019; VIII - 20% (twenty percent), from January 1, 2020; IX - 10% (ten percent), from January 1, 2021; and X - 0% (zero percent), from January 1, 2022.

§ 1º Instruments authorized to compose Level I before the entry into force of this Resolution must compose Supplementary Capital.

§ 2º The instruments mentioned in the caput that meet the criteria defined in arts. 17 to 19 and the criteria defined in arts. 20 to 22 may compose, respectively, Supplementary Capital and Level II in full, subject to new authorization by the Central Bank of Brazil.

§ 3º During the analysis period for the authorization provided for in § 2º, respecting the provisions of art. 25, the instruments mentioned in the caput must not have their balances limited in the manner defined in this article.

Art. 29. In the calculation of Level II, from October 1, 2013, the lower value between the following must be considered:
I - the balance of instruments issued prior to December 31, 2012, after application of the percentages established in art. 28; and II - the balance calculated by summing the debt instruments issued prior to December 31, 2012, after application of the reductions established in art. 27.

TITLE V
FINAL PROVISIONS
SINGLE CHAPTER
REFERENCES, COMPETENCIES, AND REPEALS

Art. 30. The reference to Adjusted Equity (PLA) in normative acts published by the Central Bank of Brazil, relating to operational limits, refers to the definition of PR established in this Resolution.

Sole paragraph. The provisions of the caput do not apply to the minimum limits of paid-in capital and equity provided for in the Regulation Annex II of Resolution No. 2,099, of August 17, 1994.

Art. 31. The Central Bank of Brazil will regulate the procedures to be observed for:
I - obtaining the authorizations provided for in this Resolution; II - disclosure of information relating to the calculation of PR; and

Resolution No. 4,192, of March 1, 2013 Page 22 of 22 III - compliance with the provisions of § 2º of art. 16.

Sole paragraph. The provisions of the caput do not apply to the minimum limits of paid-in capital and equity provided for in the Regulation Annex II of Resolution No. 2,099, of 1994.

Art. 32. The Central Bank of Brazil may determine that the values relating to instruments authorized to compose Principal Capital, Supplementary Capital, and Level II, under the terms of arts. 16, 17, and 20, be disregarded for the calculation of PR, in case non-compliance with the requirements and conditions established in this Resolution is found.

Art. 33. Equity elements that meet the requirements set forth in arts. 14 to 16 may integrate Level I of PR subject to authorization by the Central Bank of Brazil, to be granted in the manner of art. 24.

Sole paragraph. The elements mentioned in the caput are not subject to the limit referred to in § 2º of art. 12 of Resolution No. 3,444, of February 28, 2007.

Art. 34. This Resolution enters into force on October 1, 2013, with the exception of art. 33, which shall enter into force on the date of its publication.

Art. 35. The following are repealed, from October 1, 2013:
I - Resolutions Nos. 3,444, of February 28, 2007, 3,532, of January 31, 2008, and 3,655, of December 17, 2008; II - arts. 2º, 3º, and 4º of Resolution No. 3,059, of December 20, 2002; and II - art. 6º of Resolution No. 2,723, of May 31, 2000.

Alexandre Antonio Tombini
President of the Central Bank of Brazil
This text does not replace the published in the DOU of 3/5/2013, Section 1, p. 19-22, and in Sisbacen.