General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
August 03, 2018

IMF published its staff report report under the 2018 Article IV consultation with Brazil. Directors concurred that the financial system is broadly resilient. Nonetheless, they agreed with the FSAP recommendation that further action is needed to strengthen the micro-prudential, macro-prudential, and safety net frameworks. Directors underscored the importance of improving the efficiency of the financial system, especially by reducing the high intermediation costs.

The staff report reveals that the recent FSAP found the banks to be well-capitalized, profitable, and liquid, largely due to high interest margins and fees. Capital ratios are above regulatory minima. The FSAP systemic risk analysis suggests that bank solvency and liquidity are broadly resilient to further severe macro-financial shocks. Four banks (public and private) would fail the solvency stress test, but with a small capital shortfall. Some banks are also exposed to concentration, exchange rate, and market risks. Pillar 2 capital requirements could help mitigate identified risks in banks, supporting the need to build additional capital buffers for banks that failed the stress test. Structural indicators for the banking sector reveal that Brazil fares considerably worse than other countries because of the high level of state intervention in credit markets. Reforms should thus aim to foster a stronger and more efficient private credit market. Bank reforms are also relatively easy to legislate since various measures can be undertaken by the government without congressional approval.

The recent FSAP has called for further action to strengthen the prudential, safety net, and macro-prudential frameworks. To strengthen the underpinnings of the BCB as the bank supervisor, its independence, along with the legal protection of staff, should be ingrained in law. The regulatory and supervisory approach should be upgraded to better deal with related-party exposures and transactions, large exposures, country and transfer risk, and restructured loans. The existing resolution regime is inadequate and a new framework in line with the FSAP recommendations should be introduced promptly. Furthermore, the process for dealing with weak banks and emergency liquidity assistance should be tightened and the deposit guarantee fund should be brought into the public sector. The increasing complexity of the financial system and gaps in systemic risk oversight call for closer coordination among supervisory agencies—the creation of high-level multi-agency committees with mandates for macro-prudential policy and crisis management should be a priority.

Raising the efficiency of financial intermediation would boost productivity. Proposed laws on corporate bankruptcy, electronic collateral registration, and positive credit registry will help reduce banks’ costs. A new regulation on fintech will ease market entry and foster bank competition. Legislations granting central bank independence and legal protection to its staff, strengthening bank resolution framework, and creating a committee responsible for macro-prudential policy and crisis management are under way. The central bank is working on new regulation on supervision of related party and large exposures, in line with the FSAP recommendations. The authorities disagreed with staff’s recommendation regarding supervision of country and transfer risks, arguing that the current monitoring tools already in place ensure timely identification of those risks and swift supervisory actions. The central bank also noted that the current supervisory processes ensure close monitoring of restructured loans and the extent of inappropriate forbearance. Moreover, the central bank is already taking steps to improve the Pillar 2 capital requirements framework to address bank-specific risk profiles, which will boost their resilience.

 

Related Link: Staff Report

Keywords: Americas, Brazil, Banking, Article IV, FSAP, Pillar 2, BCB, IMF

Related Insights
News

BCBS Finds Liquidity Risk Management Principles Remain Fit for Purpose

BCBS completed a review of its 2008 Principles for sound liquidity risk management and supervision. The review confirmed that the principles remain fit for purpose.

January 17, 2019 WebPage Regulatory News
News

MAS Guidelines on Risk Mitigation Requirements for OTC Derivatives

MAS published guidelines on risk mitigation requirements for non-centrally cleared over-the-counter (OTC) derivatives contracts.

January 17, 2019 WebPage Regulatory News
News

HKMA Urges Local Banks to Start Working on FRTB Implementation

HKMA announced that it plans to issue a consultation paper on the new market risk standard in the second quarter of 2019.

January 17, 2019 WebPage Regulatory News
News

EBA Finalizes Guidelines for High-Risk Exposures Under CRR

EBA published the final guidelines on the specification of types of exposures to be associated with high risk under the Capital Requirements Regulation (CRR). The guidelines are intended to facilitate a higher degree of comparability in terms of the current practices in identifying high-risk exposures.

January 17, 2019 WebPage Regulatory News
News

BoE Publishes the Schedule for Statistical Reporting for 2019

BoE published the updated schedule for statistical reporting for 2019. The reporting institutions use the online statistical data application (OSCA) to submit statistical data to BoE.

January 16, 2019 WebPage Regulatory News
News

PRA Delays Final Direction on Reporting of Private Securitizations

PRA and FCA have delayed the issuance of final direction, including the final template, on reporting of private securitizations, from January 15, 2019 to the end of January 2019.

January 15, 2019 WebPage Regulatory News
News

SNB Updates Forms on Supervisory Reporting for Banks

SNB published Version 1.7 of reporting forms (AUR_U, AUR_UEA, AUR_UES, AURH_U, AUR_K, AUR_KEA, and AURH_K) and the related documentation for supervisory reporting on an individual and consolidated basis.

January 15, 2019 WebPage Regulatory News
News

BCBS Finalizes Market Risk Capital Framework and Work Program for 2019

BCBS published the final framework for market risk capital requirements and its work program for 2019. Also published was an explanatory note to provide a non-technical description of the overall market risk framework, the changes that have been incorporated into in this version of the framework and impact of the framework.

January 14, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: First Update for January 2019

EBA published answers to 13 questions under the Single Rulebook question and answer (Q&A) updates for this week.

January 11, 2019 WebPage Regulatory News
News

PRA Proposes to Amend Supervisory Statement on Credit Risk Mitigation

PRA published the consultation paper CP1/19 that is proposing changes to the supervisory statement (SS17/13) on credit risk mitigation.

January 10, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2473