The board of the Credit Guarantee Fund (FGC) approved this Tuesday (10) an emergency plan to restore cash after the financial impact caused by the liquidation of the Master Bank. The measure seeks to ensure that the fund, maintained by financial institutions to cover possible failures and liquidations, has liquidity compatible with the risks of the financial system by the end of the first quarter.
The plan provides for the immediate anticipation of the equivalent of five years of future contributions from associated banks, divided into three monthly installments. The schedule also includes new advances: another 12 months of contributions in 2027 and another 12 months in 2028, which, in practice, would represent up to seven years of advance contributions.
Furthermore, financial institutions agreed to temporarily increase the value of monthly contributions to the FGC. The extraordinary increase should vary between 30% and 60% and be valid for at least five years, according to sources involved in the negotiations.
Under current rules, associated banks collect 0.01% monthly on the total financial instruments covered by the fund’s guarantee. In the case of Term Deposits with Special Guarantee (DPGE), the rates are higher and vary according to the structure of the issues.
In a note, the FGC stated that it is discussing the restoration of its own liquidity with associated institutions and the Central Bank, but avoided detailing the alternatives under analysis. “Discussions are ongoing and a deliberation should take place in the short term,” he declared.
Compulsory
Another alternative under discussion in the sector is the allocation of part of the resources from compulsory demand deposits, reserves that banks are obliged to keep at the Central Bank (BC), to reinforce the FGC’s cash flow. The proposal, however, depends on authorization from the BC, which has not yet commented on the issue.
Until nowthe FGC disbursed around R$36 billion out of a total of more than R$40 billion planned to reimburse Banco Master’s creditors. The fund has not yet started payments related to Will Bank, which was part of the conglomerate and was subsequently ordered to be liquidated. In this case, the estimate is approximately R$6.3 billion in guarantees.
The remainder of the losses are associated with credit lines granted by the FGC itself to companies in the Master group.
Governance
The replenishment of cash is seen by the financial sector as a prior step to a possible reform of the fund’s rules. Among the preliminary discussions are measures to expand supervision of the quality of the balance sheets of associated institutions, restrict high levels of leverage and reduce the concentration of distribution of financial products on a few platforms.
Some financial institutions, especially larger traditional banks, criticize the use of the FGC in recent years. According to this segment, some smaller platforms and institutions used the FGC to leverage balance sheets (using borrowed resources to lend), with the fund being used arbitrarily to recover investor losses in an unsustainable business model.
