The Central Bank of Brazil (BCB) is consulting on changes related to certain aspects of the regulatory framework for market risk, based on the Fundamental Review of the Trading Book (FRTB) under Basel III. The consultation represents the second phase—out of the four expected phases—of the process of reviewing the prudential standard for determining the capital requirements related to market risk. The consultation period for this proposal ends on September 06, 2021 and these second-phase requirements have been proposed to come into force on July 01, 2022.
In addition, BCB published Resolution No. 111 that sets out the criteria for classifying instruments in the trading book or banking book, the governance requirements related to the trading desks in which instruments subject to market risk are managed, and the requirements for the recognition of internal transfers of risk in the determination of the minimum requirements. This resolution enters into force on March 01, 2022. Also published was Resolution No. 112, which establishes new regulation on the Governance, Risks, and Controls Committee (GRC). The GRC has the objective of defining guidelines and strategies related to corporate governance, strategic and risk management, and internal controls as well as adopting measures to systematize practices in these areas within the scope of BCB. This resolution enters into force on the date of its publication.
Finally, BCB established the Financial Liquidity Facilities in national currency (LFL) to enhance its role as lender of last resort. To be permanently available to financial institutions, the Financial Liquidity Facilities in the form of a loan against a collateral basket will start their operations on November 08, 2021 and become fully operational from November 16, 2021. The Financial Liquidity Facilities include Immediate Liquidity Facility and Term Liquidity Facility. Immediate Liquidity Facility is a very short-term standing facility (up to 5 business days). With the objective of meeting liquidity needs arising from mismatches between the assets and liabilities of financial institutions, the provision of the Term Liquidity Facility—with a maximum term of 359 calendar days— is a discretionary facility, by request of the financial institution. The Term Liquidity Facility may also be offered at the initiative of the BCB—in case of market dysfunction—by which pre-authorized financial amounts will be available for financial institutions, without the need for an individual authorization.
Related links (in Portuguese)
- Press Release on Consultation
- Consultation Document (PDF)
- Resolution No. 111
- Resolution No. 112
- Press Release on Financial Liquidity Facilities (in English)
- Resolution on Financial Liquidity Facilities
Comment Due Date: September 06, 2021
Effective Date: July 01, 2022 (Market Risk Rules)/March 01, 2022 (Resolution No. 111)/July 06, 2021 (Resolution No. 112)
Keywords: Americas, Brazil, Banking, Basel, Market Risk, Regulatory Capital, FRTB, Trading Book, Governance, Liquidity Risk, Liquidity Facility, BCB
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