Brazil’s Central Bank said its decision to liquidate Banco Master in November was driven by a lack of liquidity, failures to meet reserve rules and signs of irregularities, according to a filing sent to the Federal Court of Accounts, the audit body that advises Congress.

In the document, the Central Bank said the group controlled by banker Daniel Vorcaro faced an “acute liquidity crisis” that left it unable to meet obligations to investors and depositors, despite attempts to stabilise its position, O Globo reported. 

The authority said it had tracked the bank’s situation since the first half of 2024. At the time of liquidation, Master held BRL22.9mn ($4.25mn) in compulsory reserves, against a requirement of BRL2.53bn, or about 0.9% of the mandated level.

Available cash stood at BRL4.8mn, while expected inflows from maturing CDBs totalled BRL48.6mn, according to supervisors. That was less than 10% of what was needed to repay investors.

The Central Bank said the bank relied on long-dated funding that limited cash generation and had been instructed to submit a contingency plan.

“Thus, faced with the exhaustion of all market-based solutions, the identification of a critical economic and financial situation that would prevent the institution from honouring its obligations, and the verification of serious irregularities — with evidence of crimes affecting the value of the conglomerate's assets and compromising its solvency — liquidation was decreed as an indispensable measure for the protection of the financial system and popular savings,” the authority said.

The case has drawn scrutiny from the Federal Court of Accounts. Rapporteur Jonathan de Jesus ordered the Central Bank to clarify its actions and authorised an inspection “with maximum urgency”.

He said experts should review supervision from 2019 to 2025 and assess “the motivation, coherence and proportionality” of the liquidation.

He added that “in view of the risk of potentially irreversible acts, it is not ruled out that, at an appropriate moment, a precautionary measure directed at the Central Bank may be examined,” warning that asset sales could “reduce the usefulness of any final ruling”.

The Central Bank has appealed, arguing that such steps require approval by the full court. Economists and financial institutions have issued statements backing the regulator’s independence.

The Federal Police are investigating suspected fraud of BRL12.2bn linked to transactions between Master and Banco de Brasília.