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Risk and Capital Management — Pillar 3. Gerenciamento de Riscos — Pilar 3. Key indicators. The key indicators based on the Prudential Consolidation, on March 31, , are summarized below. For this reason, the institution must have clearly established risk management objectives. In this context, the risk appetite defines the nature and the level of risks acceptable for the institution, while the risk culture guides the attitudes required to manage them. On August 21, , the Resolution CMN 4, put into in force, which established the structure of risk and capital management.

Supported by our risk culture, we operate based on rigorous ethical and regulatory compliance standards, seeking high and growing results, with low volatility, by means of the long-lasting relationship with clients, correctly pricing risks, well-distributed fund-raising and proper use of capital. Based on this declaration, the bank established five dimensions, each of which comprising a set of metrics associated with the key risks involved, combining complementary measurements and seeking a comprehensive view of its exposure:.

Metrics are regularly monitored and must comply with the limits defined. Aiming at strengthening its values and aligning the behavior of its employees with risk management guidelines, the institution adopts several initiatives to disseminate its risk culture.

The institution promotes its risk culture by emphasizing a behavior that helps people of all company levels to undertake and manage risks in a conscious way. By disseminating these principles, the institution fosters the understanding and an open discussion about the risks, so that they are kept within the risk appetite levels established, so that each employee individually, regardless of their position, area or duties, may also assume responsibility for managing the risks of the business.

All employees or third parties are responsible for informing any problems immediately, as soon as they become aware of a situation.

The Board of Directors is the main body responsible for establishing the guidelines, policies and authority levels regarding risk and capital management. In turn, the CGRC provides support to the Board of Directors in the performance of their duties relating to risk and capital management.

Their decisions are overseen by the CGRC. Additionally, the institution has corporate bodies that perform delegated duties in the risk and capital management, and that are headed by the Vice-President of the Risk and Finance Area ARF.

Furthermore, to support this structure, ARF is structured with specialized departments. The Consolidated Annual Report can be found in the website www. The Compensation guidelines are aimed at attracting, retaining and compensating on merit its employees, encouraging prudent risk exposure levels in short-, medium- and long-term strategies.

The practices of compensation takes into account the strategy of the institution, the general and specific legislation that should be adopted for each business or region of operation, and the adequate risk management over time.

Variable compensation considers the current and potential risks, giving incentive to the achievement of sustainable results and discouraging decisions that involve excess risks and inadequacies.

At the executive level, corporate bodies are responsible for approving risk assessment and capital calculation methodologies, as well as reviewing, monitoring and recommending capital related documents and topics to the Board of Directors. There is a structure in place for coordination and consolidation of information and related processes, which are all subject to verification by the independent validation, internal controls and audit areas.

The guidelines of the institutional capital management policy can be accessed at www. The stress test is a process of simulating extreme economic and market conditions on the institution's results and capital. The institution has been carrying out this test in order to assess its solvency in plausible scenarios of systemic crisis, as well as to identify areas that are more susceptible to the impact of stress that may be the subject of risk mitigation.

For the purposes of the test, the economic research area estimates macroeconomic variables for each stress scenario. The scenarios are defined according to their importance for the institution results and the likelihood of their occurrence, and they are submitted annually to the Board of Directors for approval. Projections for the macroeconomic variables such as GDP, the basic interest rate and inflation and for variables in the credit market such as raisings, lending, rates of default, margins and charges used are based on exogenous shocks or through use of models validated by an independent area.

Then, the stress scenarios adopted are used to influence the budgeted result and balance sheet, of which the risk-weighted assets and the capital and liquidity ratios are derived.

The stress test is also an integral part of the ICAAP Internal Capital Adequacy Process , the main purpose of which is to assess whether, even in severely adverse situations, the institution would have adequate levels of capital, without any impact on the development of its activities. This information enables potential risk factors in the business to be identified, and provides support for the strategic decisions of the Board of Directors, the budgeting and risk management process, as well as serving as an input for measuring risk appetite.

The purpose of this plan is to reestablish adequate levels of capital and liquidity, in excess of the minimum regulatory levels, through appropriate strategies in the event of severe systemic or idiosyncratic shocks. Accordingly, an institution would be able to preserve its financial feasibility and continuity without jeopardizing the operation of the National Financial System, and minimizing the need to resort to bailout. The plan covers the whole conglomerate and the overseas subsidiaries.

The document will be reviewed annually, so as to ensure that the strategies remain up to date and feasible in the event of organizational, competitive or systemic changes.

It also establishes a transparent communications plan for the use of all stakeholders. For purposes of calculating these minimum capital requirements, the total RWA is determined as the sum of the risk-weighted asset amounts for credit, market, and operational risks. The standardized approach continues to be used for external units. From January 1st, to December 31st, , the minimum Total Capital ratio required is 8. The amount of each component and the minimum regulatory requirements, as provided for in CMN Resolution 4,, are described in the table below.

This reform included a phase-out schedule for instruments currently included in capital, which were issued before the rule came into effect and which do not fully meet the new requirements. Should the requirement increase, the new percentage takes effect twelve months after the announcement.

In addition to the minimum capital requirements, BACEN Circular 3, has been in force since the fourth quarter of A institution is considered G-SIB whether its score reaches at least Information on the values of the G-SIBs indicators can been found at www. The pointed out discrepancies were considered immaterial. Minimum capital requirement for Insurance. In December , the National Council of Private Insurance CNSP issued CNSP Resolution and disclosured subsequent amendments in Resolutions and , which, among other things, deals with the minimum capital requirements for underwriting, credit, operating and market risks for insurers, open private pension entities, premium bonds companies and reinsurers.

The table below presents the composition of the referential equity and its components Common Equity Tier I, Additional Tier I Capital and Tier II Capital , taking into consideration their respective prudential adjustments, as required by current regulations. The below table presents subordinated debts and other instruments eligible for Tier II capital:. Therefore, from the second quarter of , the notes will comprise the Additional Tier I, increasing by 0.

The notes were issued at fixed rate of 6. From that date onwards, the interest rate will be recalculated every 5 years based on the interest rate of the securities issued by the United States Treasury for the same period.

For further details of instruments that are part of the Total Capital, please visit the website www. According to CMN Resolution 4, and subsequent amendments, for assessing the minimum capital requirements, the RWA must be calculated by adding the following portions:. The table below includes the breakdown of the market risk component:. The RWA for operational risk is presented below:. Details of its portions are shown below:. Details of its portions are shown below for the relevant jurisdictions:.

The Total Capital Ratio reached The Total Capital and Fixed Assets ratios are presented in the table below. Therefore, from 2nd quarter of and on, the notes will comprise Complementary Capital, increasing by 0. Our Tier I capital ratio fully loaded is This multiplier, which is at The ratio is intended to be a simple measure of non-risk-sensitive leverage, and so it does not take into account risk weighs or risk mitigation.

Material entities. The interests held in other entities valued at acquisition price are classified in Permanent Assets, when there is the intention to hold them, and then are tested for impairment on a six-month basis. Investments in other companies which are not intended to be held for a long term are classified as Securities, and measured at market value. In the first quarter of , there were no significant amendments to policies related to investments in other entities.

The assessment of equity risk not included in the trading book, designated financial investment risk, is realized on ICAAP process. This assessment simulates asset losses in a stress scenario. The table below shows the investments in other entities not classified in the trading book. Such corporate bodies act primarily by assessing the competitive market conditions, setting the credit limits for the institution, reviewing control practices and policies, and approving these actions at the respective authority levels.

The risk communication and reporting process, including disclosure of institutional and supplementary policies on credit risk management, are responsibility of this structure. There is a credit risk management and control structure, centralized and independent of the business units and defines operational limits, risk mitigation mechanisms and processes, and instruments to measure, monitor and control the credit risk inherent to all products, portfolio concentrations and impacts to potential changes in the economic environment.

The key assignments of the business units are i monitoring of the portfolios under their responsibility, ii granting of credit, taking into account current approval levels, market conditions, the macroeconomic prospects, and changes in markets and products, and iii credit risk management aimed at making the business sustainable. Credit proposals are analyzed on a case-by-case basis through the approval governance. The concentrations are monitored continuously for economic sectors and largest debtors, allowing preventive measures to be taken to avoid the violation of the established limits.

In this sense, contractual covenants may be used, such as the right to demand early payment or require additional collateral. Quantifying these risk components is part of the lending process, portfolio management and definition of limits. The information presented in the following tables allow the analysis of the credit portfolio, and its behavior, from different dimensions.

Capital Requirements in Place and in Progress. Acquisitions, Sale or Transfer of Financial Assets. Crisis Management and Business Continuity. Insurance products, pension plans and premium bonds risks. Common Equity Tier I Ratio. Tier I Ratio. Total Capital Ratio. December 31, Common Equity Tier I. Tier I. Total Capital. Credit Risk Exposure. Risk Management. For this reason, the institution is concerned about creating shared values for employees, customers, shareholders and society to ensure the longevity of the business.

The Risk Culture is described in item 1.


Market Profiles

Money Laundering ML is the process through which the offender converts funds earned from illegal activities into assets that apparently have a legal origin. Usually, this practice involves several transactions, used to hide the origin of the financial assets and allow them to be used without compromising the offenders. Dissimulation is, therefore, the basis for all laundering operation dealing with money derived from illegal acts. Financing of Terrorism FT is defined as the gathering of money or capital to perform terrorist activities.


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