BRAZIL Law and Practice Contributed by: Thomas Gibello Gatti Magalhães, André Dágola Brostoline and Luisa Grespan Danhoni Neves, Magalhães & Zettel
that are authorised to carry out repurchase and resale agreements; • BRL550,000 for bonds and securities broker - age companies and bonds and securities distributing companies that carry out activi - ties not included in the previous item; and • BRL350,000 for foreign exchange brokerage companies. For institutions operating in the free rate exchange market, BRL6.5 million shall be added to the amounts of paid-in capital and sharehold - ers’ equity established above. Regarding the quality of capital, under CMN Resolution No 4,577/2017, capital management is carried out with the monitoring and control of the capital maintained by the institution, the assessment of the need for capital to face the risks that the institution is exposed to and the planning of goals and capital needs, considering the strategic objectives of the institution. With regard to liquidity, CMN Resolution No 4,557/2017 characterises liquidity risk as the possibility of a financial institution not being able to honour its obligations, whether expected or unexpected, current or future, including those arising from guarantees, without compromising its daily operations and without incurring signifi - cant losses. In addition, it covers the risk of the institution being unable to settle a position at market value, due to its volume being signifi - cantly high compared to what is normally traded, or as a result of a possible discontinuity in the market. The risk management structure shall additionally provide for a liquidity contingency plan and for liquidity risk policies, strategies and processes that ensure:
• identification, measurement, assessment, monitoring, reporting, control and mitiga - tion of liquidity risk in different time horizons, including intra-day, in normal or stressful situations, including the daily assessment of transactions with settlement terms of less than 90 days; • maintenance of an adequate inventory of net assets that can be readily converted into cash in stressful situations; • maintenance of a fund-raising profile appro - priate to the liquidity risk of assets and expo - sures not accounted for in the institution’s balance sheet; and • adequate diversification of sources of fund- raising. Liquidity risk management shall consider all operations carried out in the financial and capital markets, as well as possible contingent or unex - pected exposures, including those associated with settlement services, the provision of accom - modations and guarantees and contracted and unused facilities and liquidity lines. The institu - tion shall also individually consider the liquidity risk in the jurisdictions where it operates and in the currencies to which it is exposed, observing any restrictions on the transfer of liquidity and convertibility between currencies, such as those caused by operational problems or by imposi - tions made by a country. 8. Insolvency, Recovery and Resolution 8.1 Legal and Regulatory Framework In the performance of its institutional mission to ensure that the financial system is sound and efficient, BCB has the power to intervene in the institutions under its jurisdiction through the enactment of prudential and recovery measures
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