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.
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
The European Securities and Markets Authority (ESMA) has responded to the IFRS consultation on targeted amendments to the IFRS Foundation constitution to accommodate an International Sustainability Standards Board (ISSB) to set IFRS Sustainability Standards.