New Rules For The Time Deposit Guaranteed By The Brazilian Credit Guarantee Fund

On July 26, 2012 the Brazilian Monetary Council (Conselho Monetário Nacional – CMN), through CMN Resolution No. 4115 (CMN Res. 4115/2012), amended CMN Resolution No. 4087, of May 24, 2012 (CMN Res. 4087/2012), which deals with the bylaws and regulation of the Brazilian Credit Guarantee Fund (Fundo Garantidor de Crédito – FGC), and changed and consolidated the rules on raising Time Deposits with Special Guarantee (Depósitos a Prazo com Garantia Especial – DPGE) of FGC.

The DPGE is one of the main funds' raising instruments used by small and medium size banks in Brazil. The new DPGE not only ensures the liquidity of these banks as well as it brings a major relief to FGC.

FGC is a private institution responsible for the protection of checking/saving account holders and investors against financial institutions in case of intervention, liquidation or bankruptcy. The public policy objective of FGC are: (i) to protect depositors and investors under the financial system up to the limits set forth by regulation; (ii) to contribute to maintenance of the stability of the Brazilian Financial System; and (iii) to contribute to the prevention of systemic banking crises.

The members of FGC are the financial institutions operating in the country that: (a) receive demand deposits, deposits in current account for investments, saving account deposits and time deposits; (b) accept bills of exchange; (c) raise funds by issuing and placing real estate bills, mortgage bills and real estate credit bills; and (d) raise funds by compromised operations linked to securities issued by associated companies. This comprises the following entities: multiple banks, commercial banks, investment banks development banks, the Federal Savings Bank (Caixa Econômica Federal – CEF), credit, financing and investment companies, real estate credit companies and savings and loan associations.

Under the current regulation the limit of value guaranteed by FGC per institution is R$ 70 thousand for each deposit holder or investor1, regardless of the total value and distribution of the deposit and investment. In the case of the DPGE, the guarantee of FGC is limited to R$ 20 million, including principal and interest amounts by investor in each institution (or group of entities belonging to the same financial conglomerate). These limits have been maintained by CMN Res. 4115/2012.

With the changes introduced by CMN Res. 4115/2012, now a financial institution can issue a new modality of DPGE...