Creation of the Early Warning System as an Integral Element of the Financial Safety Net

To reform Articles 1, 2, 3, 4, 5, 6, 7, 8 and 9 contained in Executive Decree Number PCM-38-2006 dated September 13, 2006, published in the Official Gazette "La Gaceta" on October 30, 2006, which shall read as follows:

The Early Warning System is hereby created, as an integral element of the financial safety net, which shall be directed by the Early Warning Committee, as the coordination body of the institutions of the Public Sector involved in the prevention and monitoring of systemic and specific risks in the national financial system. Article 2.- The Early Warning Committee shall be composed of the heads of the following institutions: a) National Commission of Banks and Insurance, which shall preside over it; b) Central Bank of Honduras; and, c) Deposit Insurance Fund. In case of temporary absence of any of the heads of the institutions that make up the Early Warning Committee, they shall be replaced by their legal representatives. Article 3.- The Early Warning Committee may incorporate the head of the Secretariat of Finance when it deems appropriate, with mandatory attendance required when matters related to the application of the Extraordinary Capitalization Mechanism, provided for in Articles 148 to 153 of the Financial System Law, are addressed. Article 4.- The sessions of the Early Warning Committee shall be ordinary or extraordinary and shall be held with the frequency determined by its members, and shall hold ordinary sessions at a minimum once per quarter. For the sessions of the Early Warning Committee to be valid, all of its members must attend. Minutes shall be drawn up from each session, which shall be signed by all attending members. The convening of the sessions of the Early Warning Committee shall be the responsibility of its presidency. Any member may request the convening of an extraordinary meeting, indicating the reason. Article 5.- Without prejudice to the powers that are inherent to each of the institutions that compose it, the specific functions of the Early Warning Committee are as follows:

• 1)

  To evaluate the reports presented by the Permanent Work Committee, especially regarding institutions of the financial system that present signs of irregularities, vulnerabilities and tensions that warrant action by the supervisory authorities, with the objective of adopting the corrective measures that correspond according to Law;

• 2)

  To approve information systems, mechanisms, policies, methodologies and procedures to prevent, to the extent possible, any eventual systemic crisis;

• 3)

  To propose the emergency measures necessary to overcome circumstances that threaten the stability of the national financial system;

• 4)

  To function as a body for inter-institutional coordination;

• 5)

  To be informed on the evolution of regularization programs applied to institutions of the financial system; and, 6. To effectively monitor the maintenance of systemic stability and the sound development of the financial system. Article

• 6)

  To achieve its objectives, the Early Warning Committee shall count on the technical support of the Permanent Work Committee constituted as follows:

  • a)

    From the National Commission of Banks and Insurance:

    • 1)

      A principal Commissioner, who shall act as coordinator;

    • 2)

      The head of the Studies Department; and, 3. The head of the Superintendency of Banks, Financial Companies and Savings and Loan Associations.

  • b)

    From the Central Bank of Honduras:

    • 1)

      A Director;

    • 2)

      The head of the Department; and, 3. The head of the Subdepartment of Economic Studies, who shall act as Secretary.

  • c)

    From the Deposit Insurance Fund: 1. The Executive President. Officials whom their members deem appropriate to invite may attend the sessions of the Permanent Work Committee, to address specific matters. Article 7.- The Permanent Work Committee shall analyze the periodic reports presented to it that consolidate information on the trend of a set of indicators prepared based on economic and financial variables and qualitative factors that it may be appropriate to consider. On the basis of this information and the recommendations that are formulated, the Permanent Work Committee may recommend the adoption of preventive actions that contribute to achieving the objectives of the Early Warning System. When the state of the indicators analyzed suggests the advisability of adopting the measures contemplated in the Seventh and Eighth Titles of the Financial System Law, the Permanent Work Committee shall submit a justified report to the Early Warning Committee, formulating the appropriate recommendations. The receipt of a justified report shall be sufficient for the Early Warning Committee to meet immediately, in extraordinary form, and recommend what is appropriate. Article 8.- Upon convening by the Coordinator of the Committee, the sessions of the Permanent Work Committee shall be ordinary or extraordinary and shall be held with the frequency determined by its members, holding at a minimum one ordinary session on a monthly basis. Nevertheless, any of the member institutions of the Permanent Work Committee, if it detects any risk before the next session, shall request the coordinator to convene said Committee. With the information provided to it, the Committee shall decide what is appropriate. For the sessions of the Permanent Work Committee to be valid, a majority of its members must attend and be represented at minimum by the National Commission of Banks and Insurance (CNBS) and the Central Bank of Honduras (BCH). Article 9.- The information handled within the committees shall be treated with the strictest confidentiality and shall be supplied by the responsible institution in a timely manner. In the event that information from other public institutions is required, they shall be obligated to provide it promptly.