Signficado descriptivo VS significado no descriptivo

The basic institutional framework of the Brazilian financial system was established by the Banking Reform Law. The Banking Reform Law created the CMN and granted the Central Bank, among others, the right to issue Brazil's currency and exercise credit control.

Main Regulatory Agencies National Monetary Council (CMN)

The CMN is the highest authority of the Brazilian financial system, responsible for monetary, credit, budgeting, fiscal and public-debt policies. CMN policies include, among other objectives, the following:

• adjusting the volume of currency to the needs of the Brazilian economy;

• regulating the domestic value of the currency;

• regulating the external value of the currency and the country's balance of payments;

• regulating the establishment and operation of financial institutions;

• directing the investment of funds by government-owned or private financial institutions, taking into account different regions of the country and favorable conditions for the harmonious development of the national economy;

• enabling improvement of the resources of financial institutions and of financial instruments;

• monitoring the liquidity and solvency of financial institutions;

• coordinating monetary, credit, budgeting, fiscal and public-debt policies;

• establishing the policy to be followed in the organization and operation of the Brazilian securities market; and

• establishing standards and rules for currency exchange policies, including purchase and sale of gold and transactions in foreign currencies.

The Minister of Finance is the chairman of the CMN, which is also composed of the Ministry of Planning, Budgeting and Management and the President of the Central Bank.

The Central Bank

The Banking Reform Law empowered the Central Bank of Brazil to implement the monetary and credit policies of the CMN, as well as to supervise public and private financial institutions and, when needed, apply the penalties set forth by law to such institutions. Further, it also made the Central Bank responsible for, among others, controlling credit and foreign capital, receiving mandatory payments and voluntary demand deposits made by financial institutions, engaging in rediscount operations and loans to financial banking institutions, and being the depository of official reserves of gold and foreign currency. The Central Bank also controls and approves the operation, control transfer, and corporate reorganization of financial institutions, as well as the transfer of the location of its branches (in Brazil or abroad). The Central Bank is also responsible for requiring periodic disclosure of financial institution's financial statements and for setting minimum capital requirements, compulsory reserve requirements and operational limits to be met by Brazilian financial institutions.

The President of the Central Bank is appointed by the President of Brazil, subject to ratification by the Senate, to hold office for an indefinite period of time.

- 85 -

Brazilian Securities Exchange Commission (CVM)

The CVM is the agency responsible for implementing CMN policy for the securities market and regulating, developing, controlling and supervising the securities market, pursuant to the securities laws and to the Brazilian Corporations Law. With headquarters in the City of Rio de Janeiro, State of Rio de Janeiro, and jurisdiction over the entire Brazilian territory, the CVM is an agency of the Ministry of Finance. It is an independent legal entity with its own corporate existence and assets.

The CVM is responsible, among other things, for regulating, monitoring and inspecting publicly-held companies, the trading and intermediation in the securities and derivatives markets, the organization, functioning and operation of stock exchanges and commodities and futures exchanges, and the management and custody of securities.

Pursuant to Law No. 10,303 of October 31, 2001, the regulation and supervision of mutual and investment funds (originally regulated and supervised by the Central Bank) were transferred to the CVM.

The CVM is managed by a president and four officers appointed by the President of Brazil among individuals of high reputation who are known for their expertise in matters of capital markets and whose appointment shall be ratified by the Senate. The term of office of CVM officers is five years, reappointment is not permitted and one fifth of such officers are appointed each year.

Brazilian Council of Private Insurance (CNSP)

The CNSP establishes the guidelines and rules governing private insurance policies. The CNSP is comprised of the Minister of Finance (Chairman), members appointed by the Ministries of Justice and Social Security, the SUSEP, the Central Bank and CVM. CNSP's duties include: (i) regulating the establishment, organization, operation and oversight of those who conduct activities subject to the Brazilian Private Insurance System (SNSP); (ii) enforcing penalties; (iii) setting the general provisions for insurance contracts, pension plans, capitalization and reinsurance; and (iv) establishing the general guidelines of reinsurance operations.

Legal Reform of Brazilian Banking System

Article 192 of the Brazilian Federal Constitution, enacted in 1988, set a maximum interest rate per annum of 12% on bank loans. However, the limit has not been enforced since the enactment of the Brazilian Federal Constitution because this provision requires complementary regulation that has not yet been issued. Several attempts to regulate the maximum interest on bank loans have been unsuccessful.

In May 2003, EC 40/03 was approved in lieu of Article 192 of the Brazilian Federal Constitution. EC 40/03 replaced the restrictive constitutional provision on the maximum interest rate by granting overall authority to the Brazilian Congress to regulate the Brazilian financial system through specific legislation.

After the enactment of the Brazilian Civil Code, the maximum interest rate was indexed to the SELIC rate, unless parties agreed to a different interest rate.

As of the date hereof, uncertainty still remains as to which should be the maximum interest rate in Brazil, the SELIC or the former interest rate of 12% per annum, and as to the enforceability of this limit on transactions carried out by financial institutions.

Foreign Investments Foreign Banks

The Brazilian Federal Constitution prohibits foreign financial institutions from opening branches in Brazil, unless authorized by a presidential decree. A foreign financial institution duly authorized to operate in Brazil through a branch or a subsidiary is subject to the same rules, regulations and requirements that are applicable to any Brazilian financial institution.

- 86 -

Foreign Investments in Brazilian Financial Institutions

The Brazilian Federal Constitution permits individuals and companies residing, or incorporated abroad, to invest in the voting capital of Brazilian financial institutions, provided that such investors have a specific authorization from the Brazilian Government and investments are within the limits set forth by the Central Bank.

Foreign investors who have not obtained such specific authorization may, however, by public negotiation, acquire non-voting shares issued by Brazilian financial institutions or depositary receipts representing non-voting shares, offered abroad through public offerings.

The Role of the Government in the Brazilian Banking System

In light of the global financial crisis, on October 6, 2008, the then Brazilian President issued a provisional measure on the internal use of reserves denominated in foreign currency by the Central Bank to provide liquidity to financial institutions by means of re-discount and loan transactions. In addition, Law No. 11,908 of March 3, 2009 authorized: (i) Banco do Brasil and Caixa Econômica Federal to acquire, directly or indirectly, with or without control, equity interests in private and government-owned companies in Brazil, including insurance companies, pension plan institutions and capitalization companies; (ii) Caixa Banco de Investimentos S.A. to be established as a wholly-owned subsidiary of Caixa Econômica Federal for investment bank operations; and (iii) the Central Bank to carry out swap transactions in foreign currency with central banks of other countries.

CMN Resolution No. 3,656 of December 17, 2008 amended the by-laws of the FGC to allow it to invest up to 50% of its net equity in: (i) acquisition of credit rights from financial institutions and leasing companies;

(ii) certificated and non-certificated banking deposits, leasing notes and bills of exchange accepted by associated institutions, provided that they are guaranteed by credit rights created or to be created in the respective transaction, or other credit rights with in rem or in personam guarantee; and (iii) linked transactions, under the terms of CMN Resolution No. 2,921 of January 17, 2002. FGC may sell other assets acquired in the transactions listed in items (i), (ii) and (iii). As per CMN Resolution No. 3,931 of December 3, 2010, the raising of funds through banking deposits without issuance of certificates and with special guarantees to be provided by the FGC will decrease gradually until such deposits cease to be accepted by financial institutions in January 2016.

Corporate Structure

Except as provided by law, financial institutions must be organized as corporations (sociedades por ações) and be subject to the provisions of Brazilian Corporations Law and the regulations issued by the Central Bank, and also to inspections by the CVM if they are publicly-held corporations.

The share capital of financial institutions may be divided into voting or non-voting shares, but non-voting shares may not exceed 50% of the total share capital.

Limitations and Restrictions on Financial Institutions Limitations on the Extension of Credit

The activities carried out by financial institutions are subject to several limitations and restrictions. These limitations and restrictions are generally related to the granting of credit, risk concentration, investments, sales under repurchase transactions, foreign currencies loans, asset management, micro-credit and payroll-deducted credit.

The main restrictions and limitations imposed on financial institutions are the prohibitions to grant loans or make advances to (i) individuals or companies holding, directly or indirectly, more than 10% of the institution's capital stock, except under specific circumstances authorized by the Central Bank; (ii) companies in which they hold more than 10% of the capital stock; and (iii) its directors or officers and their immediate family members or companies in which any of these persons hold, directly or indirectly, more than 10% of the capital stock.

Restrictions to transactions with related parties do not apply to transactions between financial institutions in the interbanking market. Restrictions to loan or advances to individuals or companies holding more than 10% of the institution's capital stock are not applicable for public financial institutions.

- 87 -

Furthermore, financial institutions must also comply with certain limitations regarding concentration of risk. Such restrictions prevent financial institutions to grant loans or make advances to any individual or legal entity or a group of persons representing a common economic interest in an amount that exceeds 25% of the value of its regulatory capital.

Limitations on Repurchase Transactions

Repurchase transactions (operações compromissadas) are transactions involving assets that are sold or purchased that may subject the seller or the buyer to repurchase or resell the assets (as the case may be) upon the occurrence of certain conditions contractually agreed. The conditions triggering the repurchase or resale obligation vary from one transaction to the other, and typically must occur within a particular timeframe.

Repurchase transactions executed in Brazil are subject to operational capital limits, based on the financial institution's shareholders' equity, as adjusted in accordance with Central Bank regulations. A financial institution may only hold repurchase transactions in an amount up to 30 times its regulatory capital. Within this limit, repurchase transactions involving private securities may not exceed five times the amount of the regulatory capital.

Limits on repurchase transactions involving securities backed by Brazilian government authorities vary in accordance with the type of security involved in the transaction and the perceived risk of the issuer, as established by the Central Bank.

Limitations on Foreign Currency Loans

Financial institutions may borrow foreign currency denominated funds in the international markets (either through bilateral loans or the issuance of debt securities), for onlending or other purposes contemplated in the applicable regulation. Banks conduct these onlending transactions through loans payable in Brazilian currency and denominated in foreign currency. The terms of the onlending must correspond to the terms of the original transaction. The interest rate charged on the underlying foreign loan must also conform to international market practices. In addition to the original cost of the transaction, the financial institution may only charge an onlending commission.

The Central Bank may establish limitations on the term, interest rate and general conditions of foreign currency loans. It frequently changes these limitations in accordance with the economic environment and the monetary policy of the Brazilian Government.

Regulations Affecting Financial Market Liquidity Compulsory Deposits and Other Requirements

The Central Bank currently imposes several compulsory deposits, requirements to financial institutions.

Some of the current types of reserves required under Brazilian law include:

Demand Deposits

Pursuant to Central Bank Circular No. 3,274, dated February 10, 2005, as amended by Circular No. 3,323, dated May 30, 2006, and Circular No. 3,497, dated June 24, 2010, banks and other financial institutions in general are currently required to deposit with the Central Bank, on a non-interest bearing basis, 43% of the sum of the daily average balance of their demand deposits, bank drafts, banking collections, collection receivables and tax receipts, debt assumption transactions and proceeds from the realization of guarantees granted to financial institutions in excess of R$44 million. This requirement has increased to 43% on July 7, 2010 and will increase to 44% on July 18, 2012; and 45% on July 2, 2014. As of the closing of each day, the balance in such account must be equivalent to at least 80% of the reserve requirement for the respective calculation period.

Savings Accounts

The Central Bank currently requires Brazilian financial institutions to deposit, on a weekly basis, in an interest-bearing account with the Central Bank, an amount equivalent to 20% of the weekly average of the aggregate balance of savings accounts during the prior week. These requirements are set forth in Central Bank Circular No. 3,093, dated March 1, 2002, as amended by Central Bank Circular No. 3,128, dated June 24, 2002 and Central

- 88 -

Bank Circular No. 3,130, dated June 27, 2002. In addition, pursuant to CMN Resolution No. 3,932, dated December 16, 2011, a minimum of 65% of the total amount of deposits in savings accounts must generally be used to finance residential real estate or the housing construction sector. Amounts that can be used to satisfy this requirement include, in addition to direct residential real estate financings, mortgage notes, written-off residential real estate loans, and certain other financings, all as specified in guidance issued by the Central Bank. Pursuant to Resolution No. 3,023, dated October 11, 2002, as amended, the CMN established an additional reserve requirement of 10% on the rural savings accounts we and other state-owned banks hold and on the savings account funds captured by the entities of SBPE.

Time Deposits

Pursuant to Central Bank Circular No. 3,569, dated December 22, 2011, as amended, 20% of the financial institutions' time deposits exceeding R$30 million must be deposited with the Central Bank, in the amount exceeding: (i) R$3.0 billion for financial institutions with Tier 1 component of the regulatory capital below R$2.0 billion; (ii) R$2.0 billion for financial institutions with Tier 1 component of the regulatory capital equal to or higher than R$2.0 billion and below R$5.0 billion; (iii) R$1.0 billion for financial institutions with Tier I component of the regulatory capital equal to or higher than R$5.0 billion and below R$15.0 billion; and (iv) zero for financial institutions with Tier 1 component of the regulatory capital equal to or higher than R$15.0 billion. Financial institutions that hold compulsory time deposits up to R$0.5 million are exempted from the reserve requirement of Circular No. 3,569, as amended, although they must provide information to the Central Bank on time deposits held by them. Interest on part of such deposits is paid at a SELIC-based rate. As of the closing of each day, the balance in such account must be equivalent to 100% of such reserve requirement.

Additional Deposit Requirements (Demand Deposits, Savings Accounts and Time Deposits)

On August 14, 2002, the Central Bank, by means of Circular No. 3,144, as amended by Circular No. 3,486 of February 24, 2010, Circular No. 3,514 of December 3, 2010, Circular No. 3,528 of March 23, 2011 and Circular No. 3,576 of February 10, 2012, established an additional reserve requirement on deposits captured by multiple-service banks, investment banks, commercial banks, development banks, credit, financing and investment companies, real estate companies and savings and loan associations.

Pursuant to such regulations, these entities are required to reserve, on a weekly basis, the cash equivalent to the sum of (i) 12% of the arithmetic average of the time deposits funds and certain other amounts subject to the respective reserve requirement; (ii) 10% of the arithmetic average of the savings deposits funds subject to the respective reserve requirement; and (iii) 12% of the arithmetic average of the demand deposits funds subject to the respective reserve requirement. These entities will only be required to reserve these funds to the extent they exceed (i) R$3.0 billion, for financial institutions with adjusted Tier 1 component of the regulatory capital below R$2.0 billion; (ii) R$2.0 billion, for financial institutions with Tier 1 component of the regulatory capital below R$5.0 billion and equal to or higher than R$2.0 billion; (iii) R$1.0 billion, for financial institutions with Tier I component of the regulatory capital below R$15.0 billion and equal to or higher than R$5.0 billion, or (iv) zero, for financial institutions with Tier 1 component of the regulatory capital equal to or higher than R$15.0 billion. If the applicable reserve requirement of a financial institution is equal to or below R$0.5 million, such financial institution will be exempt from the reserve requirements set forth by Circular No. 3,144 and amendments thereto. The reserve requirement must be met in cash in a specific account and, at the end of each day, the balance in such account must be equivalent to 100% of such additional reserve requirement.

Rural Credit

The MCR, published by the Central Bank, requires certain financial institutions authorized to conduct rural credit operations to maintain a daily average balance of rural credit not lower than (i) 28% (to be gradually reduced to 27%, 26% and 25%, on July 2013, 2014 and 2015) of resources arising from a certain amount calculated over demand deposits; and (ii) 68% (to be gradually reduced to 67%, 66% and 65%, on July 2012, 2013 and 2014) of its agricultural savings deposits. A financial institution that does not meet these requirements will be subject to payment of fines, calculated on the daily difference between the required balance and the portion actually used for agricultural lending, and to a penalty or, if the financial institution wishes, it must deposit the unused amount in a non-interest bearing account maintained with the Central Bank until the last business day of the subsequent month.

- 89 -

We, as a development bank, are not required to meet the minimum daily average balance of rural credit of 28% of demand deposits.

Foreign currency

Pursuant to Circular No. 3,548, dated July 8, 2011, the Central Bank established that Brazilian financial institutions authorized to carry out foreign exchange transactions are required to deposit 60% of daily exposure in foreign currencies exceeding the lesser of the following: (i) the amount equivalent to US$1.0 billion; or (ii) the amount equivalent to the Tier 1 component of the regulatory capital of the financial institution. Financial conglomerates may calculate these reserve requirements on a consolidated basis, in which case, a 60% rate will be applied over the financial conglomerate's daily exposure in foreign currencies exceeding the lesser of the following:

(i) the amount equivalent to US$1.0 billion; or (ii) the amount equivalent to the Tier 1 component of the regulatory capital of the financial conglomerate. Deposits will be made with the Central Bank on a non-interest bearing basis.

If the applicable reserve requirement of a financial institution or financial conglomerate is equal to or below R$0.1 million, such financial institution will be exempt from setting aside reserve requirements set forth by Circular No. 3,548.

Deposits and Guarantees

Pursuant to the Central Bank Circular No. 3,090, dated as of March 1, 2002, certain financial institutions

Pursuant to the Central Bank Circular No. 3,090, dated as of March 1, 2002, certain financial institutions