Banco Master Scandal: INSS Rules, STF Hearing and IMF Warning

RioTimes Investigation | Series: Banco Master Scandal

Three new threads of the Banco Master scandal converged on Monday, linking a political favor granted during the Bolsonaro administration, the Supreme Court’s growing scrutiny of financial regulators, and an international warning that Brazil’s bank resolution laws remain dangerously inadequate.

Bolsonaro-Era INSS Bent Its Rules for Credcesta — and the Timeline Is Damning

Documents reviewed by Folha de S.Paulo and widely reported by multiple outlets show that Brazil’s National Social Security Institute (INSS) issued a detailed operational framework for payroll-deductible benefit cards — the product category that underpinned Credcesta — just 16 days after Banco Master sent a formal letter requesting exactly that regulatory update.

The timeline is precise. On March 25, 2022, then-INSS president José Carlos Oliveira issued an instruction permitting payroll credit cards for retirees and pensioners — but without operational detail. On June 7, Banco Master formally asked the INSS to add Credcesta to its cooperation agreement. On June 23, a second instruction filled in the blanks; the addendum was signed July 13. INSS data compiled via Dataprev shows Credcesta contracts leaped from 104,800 in 2022 to 2.75 million by 2024 — a 2,500% increase across 24 states and 176 municipalities.

Brazil’s current INSS president Gilberto Waller Júnior describes the arrangement as irregular from the outset, noting that the product’s structure converted personal loans into payroll-deductible credit in a way the agency never sanctioned. Federal police are separately investigating alleged fraud within the Credcesta portfolio. Banco Master’s defense maintains it operated within the rules as written.

The INSS episode extends the scandal’s political timeline back to 2022, raising questions about regulatory capture and the durability of Brazil’s social security credit market. Any investor holding Brazilian consumer-credit paper — particularly consignado-linked instruments — faces the prospect of further regulatory overhaul in this segment.

Dino Summons a Public Hearing: The CVM in the Dock

Supreme Court Justice Flávio Dino has scheduled a public hearing for May 4 at the STF to examine the CVM — Brazil’s securities regulator — on two linked questions: whether the agency’s surveillance fee is proportional to its actual costs, and whether structural underfunding has left it unable to police markets effectively.

Dino cited the Banco Master case directly in his order. The CVM’s own acting president had acknowledged that the regulator identified atypical transactions at Banco Master as early as 2022 but lacked the staff, technology, and budget to complete enforcement proceedings in time. Between 2022 and 2024, the CVM collected roughly R$2.4 billion in surveillance fees — of which R$2.1 billion came from those levies — while its budgetary allocation over the same period was approximately R$670 million. The Partido Novo, whose legal challenge triggered the case, argues the excess is effectively an undeclared tax that nonetheless leaves the CVM chronically under-resourced.

The May 4 session will examine fee proportionality and what Dino called a “growing regulatory difficulty” — a phrase that directly implicates the Master oversight failure. The hearing runs parallel to the criminal investigation, overseen by Justice Dias Toffoli, whose own handling of the Master case has generated controversy over evidence custody and judicial overreach.

For foreign capital markets participants, the CVM hearing represents a potential turning point. A finding of structural underfunding could force legislative changes to the regulator’s budget and powers — either strengthening oversight long-term or creating near-term uncertainty as enforcement capacity is debated.

The IMF’s Warning: Brazil Has Been Here Before and Fixed Nothing

The International Monetary Fund is expected to formally flag Brazil’s bank resolution framework as inadequate following an FSAP review mission completed last week, according to Valor Econômico. The Banco Central’s own expectation is that the IMF will repeat the negative assessment it delivered in 2018 — because the draft bank resolution law flagged in that report has still not been enacted by Congress.

In 2018, the IMF’s FSAP technical note found that Brazil’s resolution powers were “incomplete,” that no formal inter-agency crisis management arrangements existed, and that the legal protection available to central bank supervisors was insufficient to insulate them from political pressure. The central bank had prepared a comprehensive draft law to address all of this. Eight years later, that draft remains stalled in Congress.

Brazil’s standard rebuttal — that the central bank is independent in practice even if not fully protected in law — has been severely weakened by the Banco Master scandal itself. Federal police arrested two former senior central bank officials in March on suspicion of leaking supervisory information to Banco Master’s owner Daniel Vorcaro. STF interventions repeatedly disrupted the investigation timeline. And the TCU questioned the legality of the liquidation, despite holding no banking supervisory authority, before ultimately backing down. The IMF’s FSAP report is expected to take all of this into account.

Analysts at Austin Rating have warned that a negative IMF assessment carries direct market consequences: a higher sovereign risk premium, reduced appetite for Brazilian credit instruments, and increased funding costs for both the government and private sector. A source cited by Rádio Pampa described the FSAP downgrade as having “high visibility in the international financial community” and a direct effect on the risk premium investors require to hold Brazilian assets.

The IMF’s pending assessment is the most internationally legible signal yet that Brazil’s financial regulatory framework has structural gaps. For holders of sovereign debt, bank bonds, or FX positions, the FSAP publication — expected in coming months — will be a key watch item. Legislative progress on the bank resolution bill, long dormant in Congress, is now a live market catalyst.

The BRB Dimension: Red Flags Ignored

Metrópoles has reported that the Bank of Brasília (BRB) identified “heterodox” lending practices at Banco Master before its attempted R$2 billion acquisition in mid-2025. A June 2025 internal analysis flagged eleven business groups with exposures to embryonic companies, insolvency attestations, and negligible guarantees — including R$341 million in credit notes transferred to a company with R$10,000 in share capital backed by only R$30 million in collateral. BRB’s technical staff raised the alarm; leadership proceeded anyway. Of R$30.5 billion in assets eventually acquired, R$11.8 billion was classified as non-performing. The central bank ultimately blocked the deal and liquidated the bank in November 2025.