SAO PAULO: Brazil may introduce legislation that allows the government to partially bail out struggling banks with taxpayer money as a measure of last resort, the newspaper Valor Econômico reported on Monday.
Before such a move, creditors and depositors could be forced to accept losses, a measure known as “bail-in” designed to reduce the burden on taxpayers, the paper said, without specifying how it obtained the information. The bill would also allow the central bank, which in Brazil is charged with overseeing banks, to segregate distressed assets into a so-called “bad bank,” removing them from the financial institution’s balance sheet, according to the report. The new rules would address long-standing demands from the nation’s banks, bringing Brazil’s regulatory framework closer to that of major developed and emerging economies. Under current laws, the central bank may intervene directly in struggling financial institutions or call for their liquidation but no taxpayer money may be used to shore them up. Over the last decade, policymakers worldwide have been forced to come up with new ways to handle solvency and liquidity issues in the financial sector in the wake of the global financial crisis. Controversy followed a string of bank bail-outs in the United States and the euro zone, which some believe led to the perception that certain institutions were too interconnected to be allowed to fail.
