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Document Type

Case Study

Case Series

Ad hoc Emergency Liquidity Programs

Abstract

On November 25, 2015, André Esteves, then CEO of Banco BTG Pactual, a large Brazilian investment bank, was arrested by Brazilian authorities in connection with suspected involvement in a corruption scandal. Although the arrest did not involve BTG in any capacity and Esteves was later acquitted, the company’s stock quickly collapsed and depositors and other creditors rushed to reduce their exposures to the company. Depositors withdrew certificates of bank deposits, which BTG relied on to fund its daily operations. By November 27, BTG shares had fallen 26%. On December 2, the top seven shareholders of BTG took control of the company by swapping their preferred shares for Esteves’s common shares. On December 4, the Credit Guarantee Fund (Fundo Garantidor de Créditos, FGC), Brazil’s private, self-funded deposit insurance organization created by the government, extended a secured credit line to BTG for up to 6 billion Brazilian reais (BRL; USD 1.6 billion) to bolster BTG’s liquidity, with the aim of contributing to national financial stability. The FGC—and, by extension, its members’ fees—funded the credit line. The FGC sought and received confirmation from the Banco Central do Brasil (BCB), the central bank, that the failure of the bank would pose potential systemic risks. The FGC authorized the credit line for five years. It was 120% collateralized by a portion of BTG’s loan portfolio and personally guaranteed by the top seven shareholders of BTG. As of December 31, 2015, BTG had drawn a total of BRL 5 billion from the line. As of October 19, 2016, BTG had repaid all outstanding balances from the credit line. While the BCB itself did not provide the credit line, it played an “active role” in arranging the FGC’s credit line to BTG and also in the change of control by the shareholders.

Date Revised

2025-04-15

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