This Technical Note has been prepared by David Hoelscher (external expert, MCM) and Alessandro Gullo (Legal Department, IMF). The FSAP team would like to thank the Brazilian authorities for their excellent cooperation.
The analysis made in this TN is based on a version of the Draft Law shared by the authorities at the time of the FSAP November 2017 mission. The authorities have indicated that, after the mission, they have introduced a number of changes into the Draft Law, in line with the FSAP recommendations.
The analysis of this technical note is also made in light of the KA assessment methodology for the banking sector, published by the FSB in October 2016.
The term “extra-judicial” is used in the English translation of the relevant laws, referring to a proceeding that is led by an administrative authority (the BCB) rather than by the court.
Article 6 of the Banking Law sets out a broader composition of the CMN (including the representatives of BNDES and Banco do Brasil). However, while this provision has not explicitly abrogated, it has been effectively superseded by Law 9.069 of 1995.
Article 3, XXV and XXVII, of the Banking Law.
Financial institutions are defined under the Banking Law as “public or private corporate persons that have as their major or accessory activity the gathering, intermediation or investment of their own or third party financial resources in national or foreign currency, and custody services of assets belonging to third parties.”
See Article 51 of law 6024 of 1974. Presumably, the provision refers to the circumstance that the entity under resolution and the entity “involved in integrated activities” are under common control.
This TN focuses on deposit-taking institutions. However, as the new resolution regime will apply to different segments of the financial sector (insurance, securities, banking), consideration should be given to tailoring its provisions to the needs and specificities of these segments (for instance, to ensure that the sectoral resolution authority has the appropriate toolkit to resolve the relevant firm).
See “Key Attributes Assessment Methodology for the Banking Sector”, October 2016, essential criteria 2.3 and explanatory note 2(d).
Complementary Law 101 of 4 May 2000.
As mentioned in the introductory section, the authorities are embarking on a major reform of the resolution regime. This section of the TN heavily focuses therefore on the envisaged reform, as the Draft Law is still under discussion. However, to give appropriate context and background, an analysis of the current resolution framework is also provided.
For a detailed description of these triggers for each of the three proceedings, see “Safety Net, Bank Resolution, and Crisis Management Framework”, IMF Technical Note, Financial Sector Assessment Program—Brazil, 2012.
See KAs 4 and 5.
The mandatory transfer of tax and employment liabilities was identified as an impediment to an effective purchase and assumption transaction in the technical note prepared for the previous FSAP (see footnote 13).
The authorities conveyed that, during the stabilization regime, all voting rights would be suspended. Any shareholder that acquires a controlling interest on the institution, via bail-in or through other means, will only be able to exercise the related voting rights after the regime is lifted. It is BCB’s intention to establish, in secondary legislation, that the approval of the new shareholder must be decided before the regime is lifted, so as to ensure compliance with the Basel Core Principles for Effective Banking Supervision.
A general provision of the Draft Law exempts the transfer of liabilities of an entity subject to a resolution regime from the required consent of creditors or other stakeholders.
The relevant provisions on this matter are being revised and the authorities have designed a provision that would circumscribe judicial review to the legality of the actions taken by the resolution authority and limit the remedy to the award of damages.
See KA 5.1.
In addition, FGC support to a single institution is limited to 25 percent of the fund’s net worth and 50 percent of the fund’s net worth, for the aggregate of all transactions
Article 28 of FRL.
Article 195, paragraph 3.
See KA 6.