Perception of meddling may lead International Monetary Fund and World Bank to downgrade Brazil’s financial soundness
12/30/2025
Actions by the Supreme Court and the Federal Court of Accounts (TCU), Brazil’s public spending watchdog, to review the liquidation process of Banco Master are expected to negatively affect the International Monetary Fund (IMF) and the World Bank’s assessment of the Brazilian financial system’s soundness.
According to sources familiar with the technical consultations held in Brasília and Washington, the episode was raised during the visit by IMF and World Bank delegations to Brazil in mid-December, as part of the country’s Financial Sector Assessment Program (FSAP).
The report will be updated, sources say, to incorporate the effects on the Central Bank stemming from the Master investigations at the Supreme Court. On Monday (29), Justice Dias Toffoli ordered the Federal Police (PF) to question Banco Master owner Daniel Vorcaro, former BRB president Paulo Henrique Costa, and Central Bank Supervision Director Ailton de Aquino on Tuesday (30), ahead of a confrontation hearing also scheduled for this week. The move weakens the regulator’s position vis-à-vis the institutions it supervises.
The fragility of Brazil’s legal environment has long been a concern raised by IMF staff in discussions with Brazilian economic authorities. Historically, however, Brazil has argued that, although there is no explicit legal protection, the Central Bank is de facto independent in its banking supervision.
The actions to revisit the Master liquidation undermine that argument and are likely to lead IMF technicians to downgrade their assessment of Brazil’s financial soundness.
Conducted every five or six years by senior IMF staff, the FSAP is a highly visible report within the international financial community and carries weight in how markets assess Brazil’s risk profile.
A source with experience in Brazil’s interactions with Washington-based multilateral institutions says that, in practice, a negative assessment increases the risk premium investors demand for investing in Brazil.
A technician who has participated in talks with these institutions says Brazil has historically sought to demonstrate a world-class regulatory framework and has been moving quickly to implement all the principles of the Basel Accords.
During the 2018 visit to Brazil, authorities presented the bank resolution bill as an important step to address some of the IMF’s reservations. That bill has yet to be approved by Congress. Now, with the Master case, Brazil loses that argument.
Beyond assessing the existing framework, the IMF and the World Bank conduct in-depth studies and make recommendations to improve banking and financial system regulation.
One of the most frequently cited principles is that Central Bank executives and staff should have legal protection to avoid liability when acting in good faith. Another is that their technical decisions should not be subject to review by other branches of government or the judiciary.
Legal protections are intended to prevent supervisors from feeling intimidated and from refraining from taking necessary action against troubled banks, which often have political connections.
Decisions should not be overturned because doing so creates legal uncertainty and, in practice, undermines market confidence that the Central Bank can act swiftly and decisively in systemic crises.
*By Alex Ribeiro, Valor — São Paulo
Source: Valor International
https://valorinternational.globo.com/