BCB President, Roberto Campos Neto, announced measures to address the impact of COVID-19 pandemic. These measures focus on directing credit and liquidity to small and medium size companies. The measures include reduction in capital requirement for smaller institutions, working capital program for business preservation, regulation on purchase of private securities by BCB, deduction on reserve requirement on savings deposits, reduction in Risk Weighting Factor in Time Deposit with Special Guarantee (DPGE), and use of property as collateral for more than one loan.
The measures announced by BCB include the following:
- Reduction in capital requirement for smaller institutions—The capital requirement for financial institutions in the regulatory Segment 5 (S5) has been reduced. The expected impact of the measure includes potential liquidity increase of BRL 1.3 billion, which may raise the provision of credit by up to BRL 16.5 billion. The re-establishment of the original capital requirement will be gradual, starting in May 2021 and ending in May 2022 (Resolution 4.813).
- Working Capital Program for Business Preservation—This measure complements the programs already announced by the government with regard to working capital and providing credit for micro, small, and medium-size companies. The loans granted under the program will have a minimum term of three years, with a grace period of six months. The credit risk of these operations will be fully assumed by the financial institutions. In July 2020, the National Monetary Council (CMN) also decided to regulate the working capital program (Resolution 4.838).
- Purchase of private securities—The regulation of the purchase of private securities by BCB in the secondary market was announced. The purpose is to provide liquidity to the private credit market, allowing the sector to function better.
- Deduction on reserve requirement on savings deposits—For up three years, financial institutions are allowed to deduct up to 30% of their reserve requirements on savings deposits, provided that the deducted amount is used in credit operations for micro and small companies. Under the same conditions, the deduction may also be applied to the balance of interbank transfers made by cooperative banks to individual cooperatives. Financial institutions must provide 5% of the loans to micro and small companies by August 10, 2020, with another 5% of loans by September 08, 2020. If a financial institution fails to comply with the measure, it will not receive remuneration on the 30% on its savings-reserve balance until the end of 2020 (Circular No. 4.033).
- Risk-Weighting Factor—The Risk Weighting Factor in DPGE has been reduced from 50% to 35%. For this, the depositor must be an institution associated with the Credit Guarantee Fund (Circular No. 4.030).
- Real Estate as collateral for more than one loan—The measure allows the use of the same real estate as collateral for additional credit operations with the original creditors, at their own discretion. The objective of the measure is to stimulate the credit market and preserve financial stability. In July 2020, CMN decided to regulate this measure (Resolution 4.837).
Related Links (in Portuguese)
- Press Release on Relief Measures
- Press Release on Regulation of Certain Measures
- Resolution 4.813
- Resolution 4.838
- Resolution 4.837
- Circular 4.033
- Circular 4.030
- Presentation on Relief Measures (PDF)
- Overview of COVID-19 Measures (in English)
Keywords: Americas, Brazil, Banking, COVID-19, Credit Risk, Regulatory Capital, Collateral, SME, BCB
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
EBA published the annual report on asset encumbrance of banks in EU.
EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.
FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
ECB published a letter from Andrea Enria, the Chair of the Supervisory Board of ECB, answering questions raised by the President of the Bundestag (the German federal parliament) on how ECB assesses the financial stability of the euro area in the context of the significant level of nonperforming loans.