By Brazil Stock Guide — Brazil’s lower house of Congress is preparing to vote as early as this week on a sweeping overhaul of how the country handles failing financial institutions, after Speaker Hugo Motta signaled lawmakers are finalizing a new resolution framework designed to stabilize — or wind down — troubled banks.
The proposal, known as PLP 281/19, creates a structured system to deal with crises in banks, insurers and other financial entities, aiming to prevent disruptions to credit, payments and the broader economy. The bill’s rapporteur, Congressman Marcelo Queiroz, presented his report last week and is now negotiating with party leaders to secure enough support for a floor vote.
“This project brings more security and creates mechanisms to prevent fraud,” Motta said after a meeting with congressional leaders, adding that the economic team is refining final details of the proposal.
Two paths for failing institutions
At the core of the bill is a simple principle: financial institutions should not collapse in a disorderly way — but they also should not always be rescued.
The proposal introduces two main regimes. The first, a Stabilization Regime, applies to institutions considered critical to the system — those whose failure could disrupt credit, payments or insurance services across the economy.
In practice, regulators can take full control: remove management, suspend shareholder rights and restructure operations. Authorities may transfer assets and liabilities to other institutions, create a temporary “bridge bank,” or engineer a sale or merger — all while keeping essential services running.
The second, a Compulsory Liquidation Regime, applies when there is no systemic risk. In these cases, the institution is shut down in an orderly process, with assets sold and creditors paid according to a defined hierarchy.
How losses are absorbed — step by step
One of the most consequential aspects of the proposal is how it forces losses onto investors before any broader intervention.
The process starts with shareholders. In extreme cases, authorities can reduce a bank’s equity capital to as little as R$1, effectively wiping out existing owners while allowing the institution to continue operating under a new structure.
If losses go beyond equity, creditors may also be required to absorb part of the damage — including through the conversion of debt into equity, a mechanism widely used in international “bail-in” regimes.
Only after these private resources are exhausted do support mechanisms come into play. The bill creates resolution funds, financed by the financial system itself, which can inject liquidity or support restructuring efforts.
Public money remains a last-resort option. Government support would only be used in extreme scenarios, when financial stability is at risk and all private-sector resources have already been exhausted.
What changes from today’s system
The proposal replaces a set of older and more fragmented tools currently used by regulators.
Today, authorities rely on mechanisms such as intervention, extrajudicial liquidation and the Temporary Special Administration Regime (RAET) — instruments designed decades ago, largely focused on either taking control of or shutting down institutions.
The new framework introduces a more structured and flexible system. It expands the scope beyond banks to include insurers and other financial entities, reflects the growing complexity of the financial system and introduces modern tools such as bail-in and pre-funded resolution mechanisms.
In practical terms, the shift is from reacting to crises toward actively managing how a financial institution fails — or survives — without disrupting the broader economy.
How the vote works
As a complementary law, the proposal requires an absolute majority in the Chamber of Deputies — at least 257 votes — to be approved.
Once a consensus is reached among party leaders, the bill can be brought directly to the plenary floor. If approved, it will then move to the Senate for further consideration.
With the Speaker signaling urgency, the vote could mark one of the most significant updates to Brazil’s financial safety net in decades — one that doesn’t eliminate bailouts, but reorganizes them, placing shareholders and creditors on the front line before the taxpayer is ever called upon.