REGULATORY MATTERS

12 Months Ended

Dec. 31, 2010

REGULATORY MATTERS

NOTE 31 – REGULATORY MATTERS

Itaú Unibanco Holding is subject to regulation by the Central Bank which issues directions and instructions regarding currency and credit policies for financial institutions operating in Brazil. The Central Bank also determines minimum capital requirements, fixed assets limits, lending limits, accounting practices and compulsory deposit requirements, and requires banks to comply with regulation based on the Basel Accord as regards to capital adequacy. Furthermore, the National Council of Private Insurance (CNSP) and the SUSEP issue regulations on capital requirement which affect our insurance, private retirement plans and capitalization operations

The Basel Accord requires banks to have a ratio of regulatory capital and risk exposure of at least 8%. The regulatory capital is basically composed of two levels:

· Tier I: in general, capital stock, certain reserves and retained earnings, less certain intangibles.

· Tier II: includes, among others and subject to certain limits, asset revaluation reserves, general loan loss reserves and subordinated debt, and it is limited to the amount of Tier I Capital.

However, the Basel Agreement permits that regulatory authorities in each country establish own parameters for the composition of regulatory capital and calculation of portions exposed to risk. Among the main differences arising from the adoption of specific parameters under the Brazilian regulation are: (i) the requirement of a ratio of capital to risk-weighted assets of at least 11%, (ii) certain risk weighting factors attributed to certain assets and other exposures; (iii) the requirement that banks allocate a portion of its equity to cover certain operating risks, ranging from 12% to 18% of the average gross income from financial operations. Additionally, in compliance with the regulations of the Central Bank of Brazil, banks should calculate the compliance with the minimum requirement:

· Based on the consolidation of all financial subsidiaries regulated by the Central Bank, including branches and investments abroad, and

· Based on the full consolidation, considering all companies corporately or operationally controlled by Itaú Unibanco Holding, regardless of whether they are regulated by the Central Bank or not.

The Management manages the capital aiming at complying with BACEN minimum capital requirements. During the period, we complied with all minimum capital requirements we are subject to.

The following table presents the composition of regulatory capital, minimum capital required and the Basel ratio calculated in accordance with the Central Bank rules, both on a financial institution consolidation basis and on a full consolidation basis.

	Unaudited
	Financial institutions (partial consolidation)						Full consolidation
	2010			2009			2010			2009
Regulatory capital
Tier I		60,192			55,624			62,240			57,706
Tier II		18,652			12,837			18,652			12,837
Other deductions required by the Central Bank of Brazil		(173	)		(28	)		(173	)		(28	)
Total		78,671			68,433			80,719			70,515
Minimum regulatory capital required		54,722			44,299			57,525			46,513
Capital to risk-weighted assets ratio - %		15.8			17.0			15.4			16.7
Excess of regulatory capital over minimum regulatory capital required		23,949			24,134			23,194			24,002

The Central Bank also limits the amount of investments in unconsolidated companies, premises and equipment and intangible assets maintained by Itaú Unibanco to 50% of the adjusted regulatory capital on both a financial institution consolidation and a full consolidation basis.  At December 31, 2010 and 2009, our ratio and the excess of capital in relation to the maximum fixed assets ratio were as follows

	Unaudited
	Financial institutions (partial consolidation)				Full consolidation
	2010		2009		2010		2009
Fixed assets ratio - %		37.3		32.9		14.5		15.4
Capital excess in relation to fixed assets ratio		9,976		11,711		28,669		24,397