In a significant development that could impact regulatory stability in Latin America's largest economy, a senior member of Brazil's Federal Court of Accounts (TCU) has mandated an investigation into the central bank's procedures for liquidating Banco Master SA. This move introduces potential uncertainty regarding the legal finality of the bank regulator's decisions.
Audit Court Scrutinises Liquidation Rationale
Minister Jhonatan de Jesus issued the order, calling for a swift inspection of relevant central bank documents. The probe aims to clarify the "motivation, coherence and proportionality" behind the decision to dismantle the financial institution. While the investigation does not immediately reverse the liquidation of Banco Master, it formally opens the door to that possibility.
Minister de Jesus has indicated that "precautionary measures" to protect the liquidated bank's assets could be considered, though the audit court has not set a specific timeline for the inquiry. The court's chief, Vital do Rego, endorsed de Jesus's request, firmly stating there is "no doubt" about the TCU's jurisdiction over the central bank, citing constitutional authority over federal administration, including autonomous bodies.
Fraud Allegations and Political Connections
The liquidation of Banco Master culminated months of scrutiny into its operations and its politically connected Chief Executive Officer, Daniel Vorcaro. Vorcaro was arrested and spent approximately a month in jail before being released with an ankle monitor.
The central bank's action followed evidence suggesting attempted fraud in a proposed sale of Master to Banco de Brasilia SA, a bank owned by the government of Brazil's capital. These findings were passed to federal police and prosecutors, who sought the arrest of Vorcaro and other executives in November 2025. Authorities are also investigating two separate accusations of irregularities linked to the bank.
The case took a further complex turn in early December 2025 when Supreme Court Justice Dias Toffoli intervened. He moved to take control of the investigation after a defense lawyer argued police actions might affect individuals with parliamentary immunity. This decision was prompted by documents related to a real estate transaction involving a federal lawmaker, found during a search of Vorcaro's home.
Broader Implications for Financial System
Once considered a rising star, Banco Master attracted billions of reais from retail investors by promoting bonds as safe, backed by Brazil's deposit insurance system, the Credit Guarantee Fund (FGC). The FGC covers up to 250,000 reais per investor, with a cap of 1 million reais over four years.
However, a 2023 central bank rule change that tightened access to the FGC severely impacted Master's business model. A subsequent rule approved in August 2025 will require banks to contribute to the fund based on their risk profile starting in June 2026.
The fallout from Master's collapse is substantial. The liquidation could cost the FGC as much as 55 billion reais ($10 billion), especially if other smaller banks fail. According to sources familiar with the matter, authorities are concerned that undoing the liquidation of troubled banks like Master could damage the credibility of Brazil's entire judicial and regulatory system.
As the controversy intensifies, the central bank faces mounting pressure not only from the audit court but also from the nation's highest court, placing a critical spotlight on Brazil's financial regulatory framework.
