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Senator presents project to combat "bank monopoly" in credit operations

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Senator Alessandro Vieira (Citizenship / SE) presented this month a bill that aims to reduce banking concentration in Brazil and thereby increase competition in the National Financial System. In his view, the concentration on credit services in the hands of a few banks is one of the factors responsible for the high interest rate.

According to PLP 13/2020, a limit of 10% of the credit operations of the National Financial System per financial institution will be instituted. The legislative proposal was presented on the 19th.

The text has yet another limitation. These credit operations, as stated in the project, cannot exceed 3% of GDP, for each financial institution.

If the project passes through the two legislative houses and does not suffer any veto by the presidency of the Republic, it will modify article 18 of Law 4.595 / 64, which created the National Monetary Council (CMN) and “provides for the Policy and Monetary Institutions, Banking and Credit ”.

Banks in the Senator's Sight

The proposal is that two new paragraphs be included in this article. One of which makes it clear that:

“No bank or non-bank financial institution may have a total loan exposure greater than 10% (ten percent) of the credit operations of the National Financial System or 3% (three percent) of the previous year's Gross Domestic Product, the whichever is greater ”.

The following paragraph deals with the intervention of CMN, if financial institutions do not obey the law:

"Paragraph 5 – The National Monetary Council will determine the term and conditions for the divestment of the financial institution that exceeds the limit established in Paragraph 4, so that it does not cause a decrease in the total credit."

Reasons for high interest rate

According to the author of the project, CMN should oblige banks to sell these credit operations to other institutions. He explained in the Justification of the legislative proposal that the concentration of loan services to people by large banks is one of the reasons for the high interest rate.

"Currently, two large public banks, two national private banks and one private bank with foreign capital have more than 80% of the credit operations of financial institutions".

The other factor, according to Vieira, would be low competition. According to the senator, even if the collusion hypothesis is ruled out, this phenomenon is easily explained “by the high return on equity of the four largest banks in the country”.

Necessary limits

The senator then cited, as an example, Banco do Brasil, which last year held 20% of all credit operations in the country.

“Banco do Brasil S.A. held credit operations of approximately R $ 700 billion at the end of 2019, which means that the state financial institution held approximately 20% of the credit operations of the National Financial System. According to our proposal, which consists of a limit of 10% (ten percent), the current limit would therefore be R $ 350 billion, as it is a higher limit than the limit of 3% of GDP, which corresponds to about of R $ 207 billion at the end of 2019 ”.

Vieira mentioned, however, that this concern with the excessive size of financial institutions is not only in Brazil, but something that has been happening all over the world.

"Both in the legislature and in the scope of the inspection agencies of several countries, the financial system has been regulated in order to reduce the individual size of financial institutions."

The point, in his view, is that the unrest stems from the fact that these institutions have become too big to fail. He said that at the same time these institutions "should be considered too big to exist at that size, as well as the fact that concentration can lead to less competition".

He explained that this, however, should not be done overnight:

“Given the magnitude of the current banking concentration in Brazil, we propose that the executive branch, in this case, the National Monetary Council, establish a deadline for financial institutions to adapt, so that the measure does not cause an abrupt decrease in total credit in relation to the product of the national economy ”.


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