Banco Master Liquidation Exposes Regulatory Fault Lines in Brazil

Central Bank Liquidates Banco Master Amid Fraud Allegations

The Central Bank of Brazil ordered the extrajudicial liquidation of Banco Master on November 18, 2025, citing a severe liquidity crisis, failure to meet reserve requirements, and serious irregularities. This decisive action followed months of scrutiny and a federal police investigation into alleged fraud, which has since exposed significant vulnerabilities within Brazil's financial regulatory system.

The Central Bank's decision was driven by Banco Master's inability to honor its obligations to investors and depositors, with the institution holding only BRL 22.9 million in compulsory reserves against a required BRL 2.53 billion. The bank's owner, Daniel Vorcaro, was arrested by Federal Police on the day of the liquidation, though he was later released with an ankle monitor.

Unraveling a Complex Fraud Scheme

Investigations have revealed a fraudulent 'Compliance Zero' operation at Banco Master, involving the sale of fake loan portfolios to Banco de Brasília (BRB). Suspected credit transfers linked to BRB amount to approximately BRL 12.2 billion, with some reports suggesting totals reaching BRL 17 billion in transactions under scrutiny. The Central Bank had been tracking Banco Master's situation since the first half of 2024 and had blocked a proposed acquisition of Master by BRB in September 2025, citing a lack of financial viability.

The bank's rapid growth was attributed to an aggressive strategy of selling high-yield debt through investment platforms, often without sufficient liquidity to cover potential payouts. Finance Minister Fernando Haddad commented on the robustness of the Central Bank's process, stating, 'The central bank is the regulatory authority of the financial system, and I'm certain that, to have reached this point, the process must be very robust.'

Widespread Impact and Regulatory Scrutiny

The collapse has had far-reaching consequences:

• Approximately 1.6 million creditors with deposits and investments totaling BRL 41 billion (over $7.6 billion) are affected.
• The Credit Guarantee Fund (FGC) is responsible for reimbursing eligible creditors up to BRL 250,000 per depositor, with a cap of BRL 1 million over a four-year period. This represents a record payout for the FGC.
• Around 500 bank employees lost their jobs.
• BRB is expected to face significant losses, potentially exceeding BRL 5 billion ($970 million), to cover transactions with Banco Master.

The case has drawn intense scrutiny from the Federal Court of Accounts (TCU), with Rapporteur Jonathan de Jesus ordering the Central Bank to clarify its actions and authorizing an inspection of supervision from 2019 to 2025. Concerns have also been raised regarding the involvement of Supreme Court justices, including Justice Dias Toffoli, who brought the case to the Supreme Court under secrecy, and Justice Alexandre de Moraes, whose wife's law firm had a multi-million dollar contract with Banco Master.

Calls for Structural Changes and Internal Review

The Banco Master scandal has highlighted deep-seated vulnerabilities in Brazil's financial governance and regulatory oversight, particularly concerning institutions operating outside traditional banking. Accusations of negligence against the Central Bank for not acting sooner have surfaced, alongside concerns about the independence of financial institutions and potential political interference in regulatory decisions.

In response to the growing controversy, the Central Bank of Brazil has launched an internal investigation into its oversight and the liquidation process of Banco Master. Meanwhile, financial associations, including the Brazilian Association of Banks, Febraban, Acrefi, and Zetta, have issued a joint statement supporting the Central Bank's independent and technical actions, emphasizing the importance of regulatory stability.