Brazil’s Lower House Rejected New Framework for Rescuing Troubled Banks

Brazil’s Chamber of Deputies rejected a proposed bank-resolution framework on 14 October after the measure failed to secure an absolute majority. The substitute text for Complementary Bill 281/2019 received 252 votes in favour and 176 against. It needed at least 257 affirmative votes to pass the lower house.

The proposal would have created new procedures for stabilising or compulsorily liquidating financial institutions in distress. It was designed to replace or supplement existing intervention tools and preserve essential services while losses were allocated. The bill originated with the federal government in 2019 and had the support of the Banco Central do Brasil.

THE PROPOSED RESOLUTION TOOLS

The framework contemplated replacing management, reorganising a troubled institution and transferring operations to another bank under a stabilisation regime. A separate compulsory-liquidation process would have provided for the orderly sale of assets and payment of creditors. The proposal also covered insurers, payment-system institutions and some market-infrastructure entities.

The text placed initial losses on shareholders and allowed certain creditor claims to be converted into equity before public support was considered. It also permitted exceptional federal loans or temporary capital injections when a failure threatened wider financial stability. Folha reported that a late version would have allowed the central bank to direct the deposit-guarantee fund to lend to banks, a provision that drew political opposition.

VOTE LEFT REFORM UNSETTLED

Government and opposition legislators criticised the potential use of public money to support institutions affected by fraud. The official Chamber report said those concerns featured prominently in the debate. Folha reported that lawmakers also disputed how the proposal would define the liability of bank controllers and managers.

The defeat left Brazil without the proposed replacement for its existing resolution regime. Chamber President Hugo Motta ended the session after the vote, and Folha reported that another session was called for 15 October, leaving open the possibility of a revised attempt. Any renewed measure would still need the constitutionally required lower-house majority and, if approved, consideration by the Senate.