Opinion – Marcia Dessen: Credit risk in fixed income

Gone are the days when we only had four or five big banks where we could invest in bank deposits. Profitability was dictated by the banks, there was no competition, the investor was not even considering negotiating with the giants. It is not by chance that savings accounts have gained popularity and the preference of many, a free account, with identical remuneration for everyone, without negotiation or intermediaries.

Times have changed, competition has increased a lot with the arrival of new financial institutions and product distribution platforms have allowed investors access to applications that were previously unavailable.

The investor benefited from more competitive remuneration due to increased competition, but began to face a risk that, although pre-existing, was ignored, the credit risk, the possibility of the financial institution not returning the corrected capital on the maturity date of the deposit.

The FGC (Credit Guarantee Fund) came to offer protection to investors within the scope of the National Financial System, in the event of intervention and extrajudicial liquidation of the financial institution. That is, if the institution does not pay the creditor investor, the FGC pays.

Since its creation in 1995, the protection has benefited thousands of creditors. More recently, the FGC application can be used in claiming guarantee payment. It simplifies and speeds up the payment process, without the lender going to a bank branch with a copy of their documents to receive the guarantee, as was previously done.

All financial institutions, without exception, are members of the FGC, regardless of size. But the guarantee sets out rules and criteria that have changed over time. Always good to remember.

The ordinary guarantee protects the following credits: demand deposit, savings deposit; term deposit (CDB and RDB), bill of exchange (LC), mortgage bill (LH), real estate bill of credit (LCI), agribusiness bill of credit (LCA), repo operation whose purpose is securities issued by a related company.

The following are not covered by the guarantee: real estate bills (LI), guaranteed real estate bills (LIG), deposits or loans taken abroad, judicial deposits, as well as a financial instrument that contains a subordination clause. Securities issued by non-financial companies, such as debentures, CRI and CRA, for example, are not guaranteed by the FGC.

Credits from supplementary pension entities and social security systems, insurance companies, capitalization companies, investment clubs and investment funds are also not guaranteed by the FGC.

The maximum value of each individual (CPF) or legal entity (CNPJ), against the same institution, or against all institutions of the same financial conglomerate, will be guaranteed up to the amount of R$ 250,000. Additionally, for deposits contracted from 12/21/2017, the FGC sets a ceiling of R$ 1 million for each four-year period.

In the case of joint accounts, the limit is per account. Each joint account, regardless of the relationship between the holders, will have a guarantee of R$ 250,000 divided equally between the account holders. See the FGC website for examples of a joint account with two or more account holders, and examples where the same person holds multiple joint accounts.

When there is an intermediary institution (brokerage or distributor), the asset must be registered with B3, formerly Cetip, in the client’s name. Thus, he ensures that his name will appear on the list of creditors of the bankrupt financial institution.