Brazil Audit Court Orders Probe Into Liquidation of Banco Master
(Bloomberg) — A member of Brazil’s supervisory court ordered an investigation into the procedures the central bank used to liquidate Banco Master SA; It’s a move that risks undermining the legal certainty of the bank’s regulatory decisions in Latin America’s largest economy.
Minister Jhonatan de Jesus wrote in his decision that a review of relevant central bank documents should act quickly to clarify the “motivation, consistency and proportionality” behind the decision to dissolve the financial institution.
The investigation does not reverse the Master’s purge, but it opens the door to the possibility. De Jesus did not rule out that “precautionary measures” could be taken to protect liquidated assets, but the audit court did not set a timeline.
Banco Master’s liquidation follows months of investigations into Banco Master’s operations and political connections Chief Executive Daniel Vorcaro, who spent nearly a month in jail before being released on an ankle monitor.
The central bank found evidence of attempted fraud in the proposed sale of Master to Banco de Brasilia SA, an institution owned by the government of Brazil’s capital. The findings were forwarded to the federal police and the federal prosecutor’s office, which requested the arrest of Vorcaro and other executives last November. Two separate charges of impropriety are also under investigation by authorities.
As the debate over Master intensifies, the central bank is under increasing pressure from both the supervisory court and the country’s highest court.
In early December, Supreme Court Judge Dias Toffoli moved to take control of the investigation after a defense lawyer argued that police actions could affect individuals with parliamentary immunity.
Among the documents seized during the search of Vorcaro’s home were documents related to a real estate transaction involving a federal lawmaker. Although unrelated to the Master investigation, Toffoli ruled that the document was sufficient to warrant any legal action being considered first by the Supreme Court rather than a lower court.
Although the decision to investigate the central bank had to be approved by other ministers, the head of the audit court, Vital do Rego, accepted de Jesus’ request. Do Rego said in a statement that there was “no doubt” that his court had jurisdiction over the central bank. He pointed to constitutional provisions that give the audit court control over direct and indirect federal public administration, extending to autonomous bodies such as the central bank.
Once considered a rising star in Brazilian finance, Master attracted billions of reais from retail investors through investment platforms and promoted his bonds as safe because they were backed by Brazil’s deposit insurance system, the Credit Guarantee Fund, or FGC. The fund covers 250,000 Reais per investor and has a limit of 1 million Reais for four years.
A central bank rule change in 2023 tightened access to the FGC, punching a hole in Master’s business model. The second rule change, approved in August, will require banks to contribute to the fund based on their risk profiles, starting in June.
Master’s liquidation could cost FGC up to 55 billion reais ($10 billion) if other smaller banks also fail. Authorities worry that relaxing the liquidation of troubled banks like Master could jeopardize the credibility of Brazil’s judicial system, according to people with knowledge of the matter.
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