Banco Central do Brasil has drafted a bill for differentiated regulation of financial companies in the event of a banking crisis, Reuters reported.
The bill, which the Brazilian government sent to Congress on Dec. 23, would establish two new mechanisms to determine how banks will be dealt with based on their size. It allows for the use of public funds for bank bailouts, but only after all other options have been exhausted.
The first mechanism is geared toward bigger banks that might present risks for the domestic banking sector but will need secondary legislation to determine which banks it will apply to.
The second mechanism, which is designed for smaller firms, would target the removal of the entity's senior management and directors, as well as prioritize company and shareholder funds in the event of losses.
If that mechanism fails, the bill calls for the industry itself to cover the losses through contributions banks make to the emergency Credit Guarantee Fund. The government will offer a taxpayer-funded bailout only as a last resort, Reuters reported.