Mark-To-Market in Brazil
The Central Bank of Brazil recently changed the rules for how financial institutions report securities held as propietary assets or managed fiduciary funds. The change, while positive, has some immediate consequences for bank financial statements.
In the second quarter of this year, the Brazilian Central
Bank imposed on financial institutions stricter rules for
reporting securities held as proprietary assets or as managed
fiduciary funds. Such securities are primarily federal
government bonds, many with maturities running to 2006.
Mark-to-market reporting became the rule, which upon
implementation caused extraordinary portfolio losses to banks
and investors. The size of the impact for banks will become
visible when mid-year, audited financial statements are
published in August. We expect the impact to be negligible at
The principle of mark-to-market is a positive step to
modernize the Brazilian banking system. But the Central Bank's
timing could not have been worse. General elections will occur
in October and a new government will take office January 1,
2003. All four presidential candidates agree that the size of
local currency government debt is a source of concern and needs
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