Financial institutions will be able to borrow from the Central Bank. The forecast is for the release of R $ 650 billion in the economy.

On the night of this Wednesday (1st), in an extraordinary meeting, the National Monetary Council (CMN) authorized the Central Bank (BC) to grant loans to banks with the guarantee of the credit portfolios of these institutions. The operations will have a term of at least 30 days and a maximum of 359 consecutive days.

According to the BC, the Special Temporary Liquidity Line (LTEL) has the objective of offering the liquidity (available resources) “necessary for the National Financial System to remain stable in the face of the increased demand observed in the credit market, as a result of the reflexes the spread of Covid-19 ”.

The BC informed in a note, released today (2), that the adoption of these special liquidity lines by the main central banks in the world has been an “widely used” instrument as one of the responses to the crisis.

"In order to provide greater security to the operation, the credits will be pledged as a financial asset register and transferred to BC by issuing a Guaranteed Financial Bill (LFG), deposited in a central depository," says the BC.

According to the BC, credits with low levels of risk, rated AA, A and B, will be accepted, subject to a guarantee requirement in an amount higher than that of the loan, proportionally to the risk of the credit operations offered in guarantee.

The Central Bank informed that it will establish the criteria and operational conditions.

Contract with the American BC 

At the extraordinary meeting, the CMN also authorized the BC to enter into a swap contract (exchange, in English) with the Federal Reserve, the central bank of the United States.

On the 19th, the BC and the Federal Reserve announced the establishment of a US $ 60 billion liquidity swap line, expanding the potential dollar supply in the domestic market.

The swap agreement between the Central Bank of Brazil and the Federal Reserve will remain in effect for at least six months. "The liquidity line adds to the BC's set of instruments available to deal with the high volatility of the markets due to the Covid-19 pandemic," said the BC.