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Brazil central bank agrees to revision of financial system resolution process

Banco Central do Brasil has agreed to a bill changing the legal framework of the country's financial system resolution process, including tools such as settlement and intervention used for distressed banks, Valor Econômico reported.

A major reform proposed in the bill is the provision requiring the National Treasury to put money into financial institutions, which is banned under the fiscal responsibility law. The provision, however, would be the last resort among the various options proposed under the bill, including the use of the shareholders' resources and the bank's capital for its recapitalization. It would also separate the healthy part of the institution from its problematic unit as well as a suspension of credit liabilities, the report said.

The use of the tools will be at the discretion of the central bank, which will take into account the size and systemic importance of the troubled institution.

The bill also proposes the creation of a creditors' board that will evaluate the liquidators' proposals to reduce subsequent legal questions about the institution's asset sale. A "non-succession" of charges, under which the buyer of the so-called "good part" of the institution will not inherit its liabilities, is also included in the proposed reforms, the publication noted.

The revision of the resolution framework is part of the commitment made by Brazil with the International Monetary Fund, whose representatives will come to the country to review the financial system and its mechanisms.

President Michel Temer will soon forward the bill to Congress, the report added.