The Public Ministry at the Federal Court of Auditors (MPTCU) asked the Minister of Finance, Fernando Haddad, to recommend to the CMN (National Monetary Council) the review of the management and use criteria of the FGC (Credit Guarantee Fund).
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As Minister of Finance, Haddad presides over the CMN. The council is also composed of the BC (Central Bank) and the Ministry of Planning and Budget.
In general, CMN members meet once a month to deliberate on the application of resources from financial institutions, promote the improvement of institutions and financial instruments, ensure the liquidity and solvency of financial institutions and coordinate monetary, credit, budgetary and internal and external public debt policies.
In the assessment of the deputy attorney general of the MPTCU, Lucas Rocha Furtado, as the current basis “seems to have allowed fraud to occur in the system, compromising trust and credibility”.
“The review of the current criteria is essential to ensure that the FGC fulfills its purpose in an efficient and transparent manner, preventing new irregularities and strengthening the confidence of economic agents and society in the national financial system”, says the letter.
The CMN already existed. The changes include expanding support for the transfer of control or assets and liabilities of associates, upon recognition of an adverse economic situation by the Central Bank.
Furthermore, the CMN modernized the operational steps for paying FGC guarantees after the January meeting.
According to the fund, the change makes the “rules clearer for sending and correcting information; increased transparency, through the disclosure of information on the balance of instruments covered by each associated institution to the public; clarification on limits and updating of values and establishment of a maximum period of three days for the start of guarantee payments after formal receipt of the information sent by the liquidators”.
The FGC changes approved by the CMN in January also included a reinforcement of governance. After the board meeting, the statute began to provide for “the coverage of expenses or liabilities arising from regular management acts carried out in good faith by the Fund’s administration”, in line with Core Principle 5 – Legal Protection of the IADI (International Association of Deposit Insurers).
Domino effect
The FGC rules came under the crosshairs of the CMN and the Public Ministry with the TCU after the extrajudicial liquidations of financial institutions linked to the Master case. Since November, eight institutions have already been liquidated by the Central Bank, directly impacting the fund’s cash flow.
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- Banco Master S/A;
- Banco Master de Investimento S/A;
- Banco Letsbank S/A;
- Master S/A Foreign Exchange, Titles and Securities Broker;
- CBSF Distribuidora de Títulos e Valores Mobiliários SA (formerly Reag Trust);
- Will Financeira SA Credit, Financing and Investment;
- Banco Pleno SA;
- Pleno Distribuidora Títulos e Valores Mobiliário SA
On November 18, the Central Bank decreed the liquidation of the Banco Master conglomerate. The closure of Daniel Vorcaro’s institutions resulted in the largest rescue in the history of the FGC: R$40.3 billion.
Two months later, in January, . The institution was also controlled by Daniel Vorcaro, and had been operating under Reat (Special Temporary Administration Regime) since the liquidation of Master. The FGC estimates that it will have to reimburse around R$6.3 billion to the bank’s creditors.
Also in January. Like Master, the manager was the target of Operation Compliance Zero, which investigates possible fraud in the financial system. However, investments in securities brokers and distributors such as Reag are not covered by the FGC.
The repercussions of the Master case also had an impact on the Fictor Group, which after experiencing a deterioration in its financial situation. The group tried to buy Daniel Vorcaro’s bank in November, one day before the institution was liquidated by the Central Bank.
Still in the wake of the case, the Central Bank decreed last Wednesday (18) the , controlled by the former CEO and former partner of Banco Master, Augusto Ferreira Lima.
The FGC estimates that the institution has an estimated base of 160 thousand creditors with deposits eligible for payment of the guarantee, totaling R$4.9 billion.
