Research on Banco Master exposes vulnerabilities in Rio de Janeiro's pension funds

Brazilian authorities have opened a new investigation focusing on the financial risks faced by state pension funds. Brazil’s Federal Police recently executed search and seizure orders against the Rio de Janeiro state pension fund, Rioprevidencia, in connection with the Banco Master crisis, which was liquidated in November after facing severe resource shortages and violations of Brazilian financial system regulations.

Liquidity Crisis and Its Consequences in the Financial System

The investigation centers on approximately 970 million reais, equivalent to about $183.56 million, linked to financial instruments known as financial letters issued by a private entity. According to reports from sources familiar with the case, these assets were directly related to Banco Master’s operations before its collapse. The bank’s liquidation resulted in the largest payout in the history of Brazil’s private deposit guarantee fund, although the assets acquired by Rioprevidencia could not be covered by this protection.

Rioprevidencia Responds to the Investigation with Legal Measures

The Rio de Janeiro pension fund argues that it has legal protection through a court ruling issued in December, which ordered the retention of the 970 million reais tied to the investments made. This measure aims to safeguard the retirement assets of active public officials, retirees, and pensioners of the state. According to Rioprevidencia’s statement, the funds are already being reimbursed through the withholding of income from loans that would have been transferred to Banco Master, now redirected to the pension system’s treasury.

Recovery Timeline and Statements on Regulatory Compliance

Rioprevidencia projects that the total liquidation of this investment will be completed in approximately two years. The fund emphasized in its statement that all its investments “strictly complied with current legislation and applicable supervisory standards.” This position suggests that the entity maintains it acted within the established regulatory framework, despite subsequent issues arising from the bank’s insolvency.

The investigation, reported after analysis from multiple sources in Rio de Janeiro and Brasilia, continues its course with federal authorities, marking a new chapter in the consequences of Banco Master’s collapse within the Brazilian financial ecosystem.