Brazil to Create Finance Stability Committee to Evaluate System-Wide Risks

Brazil’s central bank created a committee to evaluate risks to the financial system after a fraud investigation of Banco Panamericano SA last year raised investor concerns about the strength of the country’s mid-sized lenders.

Bank director Anthero Meirelles said the creation of the committee, which will have an advisory role, was not in response to the probe of Panamericano or the central bank’s takeover last month of Banco Morada SA. The committee, which will meet every two months, will seek to improve monitoring of credit conditions as Brazil adopts stricter global banking standards, he said. Brazilian banks are “extremely solid,” with capital levels higher than many developed nations, Meirelles added.

Sao Paulo-based Panamericano was bailed out by Brazil’s deposit guarantee fund in November and federal police began investigating executives at the bank for accounting fraud from the sale of its loan portfolios. On April 28, the central bank took control of Morada because the Rio de Janeiro-based lender didn’t comply with capital requirements or provide viable recovery plan to stay solvent.

Brazil’s central bank raised interest rates three times this year and increased bank reserve and capital requirements to slow inflation and prevent a credit bubble. The committee, which will meet every two months, will seek to improve monitoring of credit conditions as Brazil adopts stricter global banking standards.

Credit Performance
“The creation of the committee transcends individual events,” Luiz Pereira da Silva, a central bank director who will oversee the group along with Meirelles, told reporters in Brasilia. “The way credit influences the performance of the economy is certainly a constant concern for the board.”

Brazil’s larger banks “severely” reduced purchases of loan portfolios from smaller lenders since the Panamericano probe, Rafael Guedes, managing director of the Brazilian unit of Fitch Ratings, said in a May 11 interview. These transactions were an “important” source of funding for smaller banks, he said.

Morada and Panamericano both had less than $2 billion in assets.