By Vitor Antony Ferrari and Ivan Kubala*

With the recent bank failures of Silicon Valley Bank (SVB), in California, and Signature Bank, in New York, both in March of this year, there was much speculation about a possible new global banking crisis, similar to that of 2008. These rumors reached Brazil, which, together with the increase in requests for judicial recovery, especially the request by Lojas Americanas, contributed to increasing uncertainty regarding a possible Brazilian banking crisis and, consequently, possible requests for judicial recovery by national financial institutions. 

First, it is important to emphasize that there is no possibility for a banking institution to file for judicial recovery in Brazil, since the Law that governs the procedure in the national territory expressly provides that its legal text does not apply to these companies. However, although the Law excludes them from its procedure, financial institutions are still subject to bankruptcy. 

That said, the following question arises: is there no other way out for financial institutions in crisis other than bankruptcy? 

In fact, before going bankrupt, a financial institution that is in an economic crisis may request, before the authority of the Central Bank, an intervention in its administration (without prejudice to the Central Bank itself decreeing the intervention ex officio). In this procedure, an intervenor is appointed who begins to act in the administration and supervision of the company, seeking to analyze the reasons that led to the crisis and how to solve them, in order to recover the financial institution. Once the crisis is overcome, the institution returns to being managed normally. 

However, if the intervenor is faced with occurrences that abnormally compromise the economic situation of the institution, especially if these prevent the timely satisfaction of obligations, especially of unsecured creditors; or with acts of the administration that seriously violate legal or statutory norms; or even if the operating authorization of the financial institution is revoked and it does not initiate its own liquidation, the intervenor may request the extrajudicial liquidation of the financial institution. 

This is an administrative procedure through which the institution's activities are terminated, as well as its dissolution and subsequent withdrawal from the market. To this end, its assets and liabilities are assessed, and the credits owed to its creditors are subsequently paid. It has the same purpose as bankruptcy, however, as already mentioned, it is an administrative procedure, governed by the Central Bank of Brazil and promoted by the appointed intervenor. 

As for the bankruptcy of the financial institution, this is applied in accordance with the Bankruptcy and Reorganization Law and is only used in extreme cases: when, after the assessment of the institution's assets, it is proven that their value is not sufficient to cover at least half of the unsecured credits; or when there is well-founded evidence of bankruptcy crimes. 

Once the financial institution is declared bankrupt, the request will be forwarded to the competent jurisdiction to judge it, becoming a judicial procedure. 

(with the collaboration of Luís Felipe Meira M. Simão)