April 23, 2020 / 11:05 PM / a month ago

Brazil's monetary council allows banks to finance peers backed by deposit fund

SAO PAULO/BRASILIA, April 23 (Reuters) - Brazil’s monetary policy council decided on Thursday to allow banks to buy special certificates of deposit issued by other lenders, with each buyer protected from up to 400 million reais ($72.29 million) in potential losses on the securities by the country’s deposit insurance fund.

The move was the latest by the Brazilian central bank aimed at improving smaller banks’ liquidity during the crisis caused by the coronavirus pandemic.

Earlier this month, the deposit insurance fund doubled its backing for the CDs, normally acquired by institutional investors, to 40 million reais. Despite the added guarantee against losses, investors’ appetite has been weak.

Brazil’s privately funded deposit insurance fund, called FGC, ended October 2019 with nearly 80 billion reais in assets. Among its largest contributors are lenders such as Banco do Brasil SA, Itau Unibanco Holding SA, Banco Bradesco SA and Banco Santander Brasil SA

Brazilian banks have issued roughly 1 billion reais in the special CDs this month.

$1 = 5.5336 reais Reporting by Carolina Mandl in Sao Paulo and Marcela Ayres, in Brasilia; Editing by Peter Cooney

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