With the decree issued by the Central Bank (BC) on the extrajudicial liquidation of Banco Master – the largest intervention ever carried out by the monetary authority in a financial institution in the country – investors with money invested in the bank can turn to the Credit Guarantee Fund (FGC) for compensation.
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- The FGC was created 30 years ago, in 1995, and is a private, non-profit institution, which acts as a kind of insurance, protecting some types of investments and deposits held in financial institutions. In addition to clients, the FGC also helps the banks themselves.
- The Fund consists of resources deposited periodically by associated financial institutions (see full list here) – including the federal, commercial, investment and development banks Caixa Econômica.
- Banks make deposits that create a financial margin of safety from which money comes to pay customers and investors in the event that the financial institution goes bankrupt.
- The deposit amount with FGC is one basis point (0.01%) per month on the balance of all eligible deposits. The maximum amount covered by the Fund is R$250,000 per CPF or CNPJ and per financial institution.
- Currently, FGC has more than 220 financial institutions associated with it. According to the Fund’s data, 99.6% of the clients of these institutions are 100% covered by a guarantee of R$250,000.
- The FGC does not cover all types of investments. Among the protected items are demand deposits, savings deposits, certificates of bank deposits (CDB), receiving bank deposits (RDB), real estate letters of credit (LCI), farm business letters of credit (LCA), letters of exchange (LC) and letters of mortgage (LH).
- One of the most popular types of investment is the China Development Bank (CDB), which is a type of fixed income investment issued by banks. When investing in the China Development Bank, a person “lends” money to the bank in exchange for interest after a specified period.
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What Banco Master Investors Should Do
Investors who own more than one Banco Master title must add up the value of each title to calculate how much they will receive. If the maximum of R$250,000 is exceeded, the “extra” amount will not be covered by the FGC. The investor can claim the excess amount in court, seeking to recover funds from the bankrupt bank’s holdings, but the process is much slower in this case.
Following the issuance of a decree of liquidation of the main bank by the BC, a list of the bank’s creditors must be sent within 30 business days to the FGC, specifying the identity of each investor and the respective amounts to be repaid. The investor can then directly request the amount due for FGM.
Using the information received from the institution, the FGC issues the application in the creditors’ request to register their bank accounts, verify the authenticity of the biometrics and send the required documents. Payment request for individuals must be submitted through the FGC application.
After signing the solution agreement through the application, payment is made to the registered bank account.
In the FGC application, it is possible to access the list of institutions subject to a special regime issued by the BC and find out whether it is now possible to request a guarantee payment, as well as receive notifications accompanying the request.
Investors are not automatically paid. The FGC begins paying guarantees to people whose registrations have been updated.
Practical examples
“When the Central Bank issues a decision to liquidate a bank, it also appoints a liquidator for that institution. The liquidator arrives and starts compiling a database, which is the list of creditors. Once the list is consolidated, he sends this file to the FGC, and that is where our work begins – which is, in effect, paying these creditors,” explained the FGC’s head director, Daniel Lima, in an interview with Capitals Published December 2022.
“In the past, it would take the liquidator three or four weeks to compile this information. Then, the FGC needed to decide where people would actually get their benefits. That took another three weeks. The payment process started more than a month after the bank went bankrupt. In October 2020, we launched a cell phone app. Today, the person goes there, takes a selfie, fills out the data, submits the documents, signs electronically, and now we can make the payment two days after we receive the payment. List of creditors: The total duration of approximately 45 days has now reduced to approximately 20.
For example: If someone has a savings account for R$100,000, an ADB from the same bank is worth more than R$100,000 and also buys an ADB from that bank through a broker, worth more than R$100,000, which adds up to R$310,000 in equity, with interest. Since the FGC limit is R$250,000, it will receive this amount from the guarantee fund and will be a creditor of R$60,000 to the bank being liquidated.
“It will depend on how long it takes for the bankruptcy to occur, but there is a chance to recover this other part,” Lima explained. “In any case, the fact is that the person immediately receives R$250,000. It is not just R$250,000 for each CPF, but for each CPF and for each bank. This mechanism is generous and works to protect the small depositor. The limits are appropriate to the Brazilian reality.” Capitals.
Payment mechanism for companies (legal entities)
In the case of legal entities, the company representative must request the FGM guarantee through the investor portal. After filling out the required information, an email will be sent containing the necessary next steps.
Payment is made by transfer to a current or savings account, with the same CNPJ, in the name of the company.
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The request for special guarantee (creditors with time deposits with special guarantee – DPGE) is submitted via the FGC website. When a partner is liquidated, the link becomes available for private order.
The CPF/CNPJ holder must fill out the form to receive guidance and submit the necessary documents.
After validating the powers of representation, the Subrogation Clause and the Asset Transfer Letter will be signed with the Registrar (B3), thus making payment to the account maintained by the creditor.
Panco Master Filter
On Tuesday (11/18), BC ordered the extrajudicial liquidation of Banco Master, owned by Daniel Forcaro. He was arrested by the Federal Police (PF) during Operation Zero Compliance, targeting a scheme for the issuance and trading of counterfeit credit securities involving financial institutions in the national financial system.
According to the BC, extrajudicial liquidation is a resolution regime aimed at interrupting the operation of an institution and promoting its withdrawal, in an orderly manner, from the secure network. It is approved when irrecoverable insolvency occurs or when serious violations of the rules regulating its activity are committed, among other legal assumptions. BC appoints a liquidator, who will seek to sell existing assets to enable payment, if possible, to creditors.
There is no set deadline for closing the settlement. It ends with a decision from the Central Bank or the declaration of bankruptcy of the institution.
Market impact
According to Bruno Shahini, investment specialist at Nomad, the focus of the financial market “is on the turmoil in the banking sector caused by the extrajudicial liquidation of Banco Master and legal developments related to its leadership.”
“The negative reaction in major bank stocks reflects the fear that the consumption of FGM resources will require additional contributions from financial institutions to rebuild the fund’s assets,” explains Shahini.
“Despite the immediate volatility and impact on Ibovespa, the reading is that the event neither pollutes the foundations of the national financial system nor generates systemic risks, being a one-off, albeit onerous, adjustment of the rules and FGM balance by major financial institutions,” he concludes.
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