Savings account actions could remove R$ 1 trillion from the economy.
Brazilian Supreme Court decision on savings account adjustments during economic plans could lead to a collapse in credit, the bankruptcy of financial institutions, and a general disruption of business; "the risk is evident," says the Attorney General of the Union; the Central Bank warns the Supreme Court that all of society will pay for possible errors in economic plans against thousands of savers; "a blatant distributive injustice," alleges the institution's Attorney General; a consulting firm estimates that banks could lose up to R$ 600 billion, but the negative impact on the country could reach R$ 1 trillion; the trial could begin on Wednesday the 27th, but Minister Marco Aurélio Mello suggests a postponement to 2014; does anyone have an interest in stopping Brazil?
247 - The short- and medium-term fate of the Brazilian economy will be at stake in the plenary session of the Supreme Federal Court starting Wednesday the 25th. This is no exaggeration. The judgment that will be on the agenda deals with requests for corrections to the readjustment indices of savings accounts during the economic plans Bresser (1987), Verão (1989), Collor 1 (1990) and Collor 2 (1991).
According to the consulting firm LCA, Brazilian banks would have to disburse up to R$ 600 billion if they are ordered to pay the full amount of compensation claimed by thousands of savers. This amount corresponds to 130% of the assets of the banking system as a whole. This means that, if they have to pay the bill imposed by the Supreme Federal Court (STF), many banks will have serious problems continuing to operate.
The Central Bank is extremely concerned about the effects that a possible complete victory for savers could have on the economy. The lawsuits request differentiated adjustments for alleged losses in each of the plans. If all are accepted by the judges, the negative impact on the economy could reach up to R$ 1 trillion. This is because, according to the Central Bank, this would be the amount that would disappear from credit offers overnight and, consequently, be extracted from economic activity through the paralysis of a large chain of businesses. Everyone would be affected. In other words, the banks' losses would be cruelly passed on to the whole of society.
"A resounding distributive justice" could occur, argues the Attorney General of the Central Bank, Isaac Mendes Ferreira, before the full Supreme Court. He believes it would be unfair, as a way to recover losses for savers, to now make the entire society pay for mistakes made three decades ago.
Until last week, most predictions regarding the savings account adjustment ruling pointed to a victory for savers. However, the situation may be changing due to the government's offensive to try and convince the Supreme Court of the harmful effects of a decision in that direction. Assessments from institutions like Bank of America already suggest a postponement of the trial or even the defeat of the request for reimbursement with adjustments. In any case, the issue is completely open – and no one can know in advance what is going through the mind of each Supreme Court justice regarding this crucial issue for the country.
Justice Marco Aurélio Mello suggested postponing the trial until next year. Read the news article from Agência Brasil below:
Supreme Court Justice defends the trial of economic plan lawsuits for 2014.
Reporter from Agência Brasil
Brasilia - Supreme Court Justice Marco Aurélio Mello today (25) argued that the judgment of the actions concerning the economic plans should be postponed until next year. The Supreme Court scheduled for Wednesday (27) the judgment of the action in which the National Confederation of the Financial System intends to confirm the constitutionality of the economic plans.
"From my perspective, this case should be the first of the 2014 judicial year. It's not too early, but it's not a matter to be judged at the end of the year," said Marco Aurélio. The minister said that the Court may be missing three justices this week and that the likely interruption of the analysis would be detrimental to the judgment.
"I already know that we will have another absence, since two colleagues will be taking leave on the 28th. To have a trial going too far is very bad. We should listen to those who will be supporting the rapporteurs from the podium and judge in a continuous manner," added Marco Aurélio.
In the lawsuit, the Brazilian Institute for Consumer Protection is asking banks to compensate savers for the financial losses caused by the inflation adjustment indices of the plans. In total, 390 cases are stalled in various levels of the judiciary awaiting the Supreme Court's decision.
Central Bank projections indicate that the banking system is expected to suffer losses of approximately R$ 149 billion if the Supreme Court decides that banks must pay the difference in losses on savings account yields caused by the economic plans Cruzado (1986), Bresser (1998), Verão (1989), (1990) and Collor 2 (1991).
According to the Attorney General of the Union, Luís Inácio Adams, there is a "clear risk" to the financial system. "I think it's an issue that deserves attention. The [financial] system is very strong. But the fact is that Brazil must always be vigilant, so that we don't experience a reduction in growth and a reduction in credit for the population," he explained.