Saturday, Oct 1, 2022
International Finance
Banking

Brazil proposes banking bill in case of financial crisis

Brazil banking bill
Central bank proposed the bill which will mandate the use of public funds to bailout financial firms

The Brazilian government has sent its Congress a banking bill to regulate financial firms during a banking crisis that allows the use of public money for bailouts. The banking bill is proposed by the central bank. 

Brazil’s banking bill will establish two guidelines on how different financial firms should be treated, if approved, according to media reports. The first guideline called the Stabilisation Regime, will focus on larger banks that present a risk to Brazil’s banking system. But, this will necessitate a secondary legislation to dictate how firms are chosen under this category. 

The second, known as the Compulsory Settlement Regime, will aim at smaller entities — and mainly focus on dismissing their senior managers and board. 

The banking bill aims to modernise Brazil’s actions towards banks in the event of a financial crisis. In addition, a greater responsibility will be placed on banks to cover their losses, and in turn, reducing burden on the country’s taxpayers, according to media reports. 

The company and its shareholders’ money will be taken care of under loss of any sort. Those losses will be covered by the industry, with other banks contributing to an emergency fund. This emergency fund is known as the Credit Guarantee Fund.

Currently, Brazil’s Fiscal Responsibility Law does not permit the government to bailout banks. However, certain laws can be passed during the financial crisis to provide due assistance. 

The country’s banking sector is mainly dominated by five major lenders who control more than 80 percent of its assets. But its financial sector has limited competition owing to heavy regulation and complex tax system, according to PwC. 

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