The bone of contention in the bill that expands the Central Bank's powers to liquidate banks.

Brasilia - Scheduled for a vote in the Chamber's plenary session at any moment, the bill that gives the Central Bank more powers in liquidations, such as in the case of Banco Master, or in bailing out banks with problems, has begun to face resistance from the government regarding a single point: the possibility of direct transfers of funds from the Union to rescue banks in serious crisis situations.

Interestingly, the project was authored by the Executive branch itself, although it was submitted to the National Congress in 2019, during the administration of former President Jair Bolsonaro (PL). In theory, if it were in effect, the new law could allow settlements like Mastercard's to occur more quickly, according to BC (Central Bank) technicians.

Dubbed the "Bank Resolution Bill," a long-standing demand from Central Bank technicians that has been raised within the monetary authority for at least 10 years, the bill, if approved by Congress, would provide the Central Bank with more instruments to act, especially in helping financial institutions "too big to fail," as argued by the bill's rapporteur, Deputy Marcelo Queiroz (PSDB-RJ).

The proposal was ready to be voted on in plenary session, with support even from the Speaker of the House, Hugo Motta (Republicanos-PB), but the recent resistance raised by the Executive branch could delay its vote.

NeoFeed has learned from sources directly involved in the negotiations surrounding the bill that the economic team has expressed concern about the potential narrative that the government will inject public money into banks to prevent them from collapsing.

Especially after the Master scandal, involving Daniel Vorcaro's bank, which was investigated by the Federal Police for an alleged fraud scheme involving more than R$ 12 billion with BRB and possible links to the political world and even ministers of the Supreme Federal Court (STF).

The bill's rapporteur, Representative Marcelo Queiroz (PSDB-RJ), avoids predicting an outcome, but says he is working to ensure the bill goes to a vote as soon as possible. The initial forecast was for a vote this Tuesday, March 17th.

“We will try to reach a consensus. They are discussing with us so that we can vote,” the rapporteur told NeoFeed . “The bill creates safeguards before a possible direct transfer of funds from the federal government to financial institutions.”

Queiroz explains that the bill introduces a major innovation, which is to provide for three new stages of support for banks in crisis, before resorting to the Credit Guarantee Fund (FGC): the sale of shares by the institution; the possibility of subordinated loans that would be structured to try to support these banks; and the so-called "resolution funds," inspired by the FGC, but which would have legal backing under the new law to directly save institutions in difficulty to prevent their future collapse.

All these alternatives involve private money, which could be used according to rules outlined in the bill to try to rescue the banks before drastic measures such as intervention or liquidation by the Central Bank.

If these alternatives involving private resources are not sufficient, the National Monetary Council (CMN) may authorize loans from the Federal Government to bail out banks in crisis, provided that the funds go to this "resolution fund".

In this scenario, the Union would have to be reimbursed in the future, as it is a credit operation. And, as a last resort, the proposed law also provides for direct transfers from the Union, the most recent point of contention highlighted by the government.

"After all these steps, if there is systemic risk and it has to be for large banks, the government would contribute to the resolution fund. And in a second phase, if that doesn't work, the government would have to make a direct contribution," Queiroz explains.

A long debate

The bill on "bank resolution" was submitted during the administration of former Central Bank president Roberto Campos Neto, but internal discussions within the institution had already been underway during previous terms, such as those of Ilan Goldfajn and Alexandre Tombini.

One of the innovations in the proposal is the so-called "stabilization regime," a legal innovation in which the Central Bank forces the bank's controllers to first guarantee the functioning of a bank in crisis before resorting to the last option: liquidation, which would be reserved only for the most critical cases. This regime includes the options for injecting private funds that the rapporteur refers to.

“Bank resolution will improve the Central Bank's ability to oversee regulated entities. And it can expedite liquidation processes like that of Banco Master,” says Thiago Cavalcanti, president of the National Association of Auditors of the Central Bank of Brazil (ANBCB). “It's a long-standing demand, and this is the moment to strengthen the Central Bank.”

In recent weeks, there has been intense lobbying surrounding the new report by Congressman Queiroz, who even met with the president of the Central Bank, Gabriel Galípolo, in recent days.

After the meeting, he presented a new version of his opinion, which included some new elements: one of them is that the National Monetary Council (CMN), when authorizing loans from the Union to banks in difficulty, will also have to notify the Senate. Furthermore, the Central Bank will still have the power to decide on the suspension or cancellation of these credit operations.

Vacuum

The project is championed by Central Bank employees, who believe that the new instruments foreseen in the new law, if approved by the Legislature, will bring more rigor to settlement processes, such as that of Master Banks. It will also bring Brazil into line with international standards.

However, technicians at the monetary authority support the rule changes but warn that without the amendment granting financial autonomy to the Central Bank to strengthen its structure, the regulatory body would be too weak to handle the new responsibilities.

This is because the proposed amendment allows the Central Bank to have its own budget, not subject to government spending cuts, and therefore more freedom and autonomy to better structure itself, mainly by reinforcing its staff.

"If Congress approves one [resolution bill] and not the other [constitutional amendment], we become more busy and the Central Bank gains yet another responsibility with an insufficient staff structure," adds Cavalcanti.

The proposed constitutional amendment, however, is stalled in the Senate. The rapporteur, Plínio Valério (PSDB-AM), is about to present another report, but has been reporting resistance from the government.