Tighter measures of the Central Bank

Nov 20, 2014 by admin    No Comments    Posted under: Economy

Brazilian legislation on banking regulation has historically been stricter than in the major world economies. This trend has intensified in recent years, with stricter rules related to relations with consumers, new prudential regulation and stronger state involvement in the sector.

The years 1995 – 2002, mandate of the president Fernando Henrique Cardoso, were characterized by reduced state involvement in the banking system, with the reorganization of a number of federal and state banks, most of which were privatized.

This period was marked by a separation between the federal ownership of banks and the federal government itself and entrance of different foreign financial institutions in the Country. However, the governments of Mr. Lula and Mrs. Dilma Rousseff rescued the operations of public banks as agents of monetary policy and investments providers.

In the last six years, the Central Bank (the “CB”) has also tightened control over derivatives and has expanded its operations to the credit cards market and other payment institutions and started to monitor purchase and sale of the loan portfolios among institutions.

This last point proved necessary after the intervention in the bank – PanAmericano in 2010. The CB has also been implementing strictest international standards on banking regulations known as Basel III, in the country. Brazil received the highest score of the Basel Committee for capital regulation of the financial system.

Consumer

According to the CB, this more conservative position proved important to address recent turbulences in the international economy. The result of this action of the CB is a financial system that is resistant to shocks and presents low exposure to external risks.

Since 2009, a period marked by increased interventions in small and midsize banks, the CB has made changes in its supervisory body. For example, the Financial Stability Board was created and also a department that deals with financial education. In October this year, there were initiated remote inspections in the financial institutions through a new system.

In 2006, occurred another turning point in the regulation, as the Federal Supreme Court ruled that Consumer Protection Code also applies to banking relationships.

The CB together with the National Bureau of Consumer Protection that is managed by the Ministry of Justice has established rules on banking fees, banking services, using the credit cards, strengthening ombudsman and debt transfers between banks.

In the last two years there was a reduction in complaints regarding the credit cards. This was no miracle, but it is a result of the CB that regulated fees and created obligations, such as reporting how much is the minimum payment of the credit card payment.

Bank regulations – main measures

2006

• Credit portability: possibility of transferring debt from one bank to another.

2007

• Banking fees: standardization of the name of bank’s fees and definition of free services.
• Total effective cost: The rate that corresponds to all the charges and fees related to loans.

2009

• CB requires registration of derivatives related to foreign loans.

2010

• New rules for credit cards, reduction in number of fees that can be charged.
• Service packages: obligation to provide standardized basic packages.
• End of exclusivity of credit card brands – made it possible that the same machine can accept more than one flag.

2011

• New rules for ordered bank checks and their return: free order up to ten sheets and suspension in delivery in their misuse, for example.

2012

• New rules on bank merges: CB may require banks to share gains with customers.
• Central credit risk department of the CB shall monitor clients with debt from R$ 1,000 (before it was R$ 5,000)
• Entry into force of the Central cession of credits, in order to avoid duplicity in selling loan portfolios.

2013

• Commencement of formation of positive list of good payers.
• CB expands its presence in the market of credit cards and other payment institutions.
• Implementation of Basel III in Brazil: rules that increase the quantity and quality of bank capital in order to cope with crises.

Source: Central Bank of Brazil – www.bcb.gov.br