The Banking Scandal Upending Brazil’s Election

Banco Master was a midsize lender that collapsed after raising money through unusually expensive deposits and buying risky, illiquid assets. Its failure drew in bankers, politicians, public officials, and a Supreme Court justice. The scandal matters because it has become a test of accountability at the heart of Brazil’s democracy.

Investigators are examining whether Alexandre de Moraes improperly helped Master’s controlling shareholder, Daniel Vorcaro. They are also examining a legal-services contract between Master and Moraes’s wife’s law firm. Moraes denies wrongdoing and has not been charged. The bank’s collapse also exposed public losses through Banco de Brasília, or BRB.

The Supreme Court delayed deciding whether Moraes should be investigated. That delay lasts beyond the Oct. 25 runoff. The scandal gives Flávio Bolsonaro a rallying cry, leaves Lula defending the court, and gives the newly strengthened right-wing Senate greater influence over the court’s future.

Brazil’s Supreme Court is not only the country’s highest judicial body. Its expanding reach has made it a central arbiter of Brazilian democracy. Brazilian law also requires courts to authorize investigations into their own members, so the Supreme Court controls whether police may formally examine one of its justices.

That power was tested when Chief Justice Edson Fachin convened a televised session about Alexandre de Moraes. Moraes had overseen Jair Bolsonaro’s prosecution and is strongly disliked by the far right. The justices split over a procedural motion, and Moraes voted in his own case. Justice Flávio Dino then requested up to 90 days to study the file.

The delay runs until mid-December, after the Oct. 25 runoff. Meanwhile, the Senate’s role is growing. It confirms and can remove justices, and right-wing parties are expected to control at least 45 of its 81 seats.

The collapse involved two different pools of money. The Credit Guarantee Fund repaid roughly $7.5 billion to about 800,000 savers. That fund is privately financed by member banks, follows government-set rules, and protects eligible deposits up to about $49,000 per investor. Taxpayers did not cover that repayment bill.

Public money was exposed through Banco de Brasília, or BRB, which is controlled by the Federal District government. BRB bought Master’s credit portfolios and agreed in March 2025 to buy 58 percent of the bank. Federal Police found that BRB paid about $1.4 billion for portfolios before completing at least one required risk assessment.

The Central Bank blocked the proposed acquisition in September and shut Master down on Nov. 18. BRB has since asked the district government for fresh capital. The article does not give a final total for BRB’s losses, but says those losses fall on the public.

Right-wing parties are expected to control at least 45 of Brazil’s 81 Senate seats. That matters because the Senate confirms Supreme Court justices and can remove them. The election therefore changes who may influence the court’s membership and accountability, not simply who controls legislation.

The immediate political effect could come before any Senate action. The Supreme Court delayed deciding whether to authorize a Federal Police investigation of Alexandre de Moraes until after the Oct. 25 runoff. Flávio Bolsonaro can present the scandal as evidence of judicial overreach, while Lula is left defending the institution.

The longer-term consequence is uncertainty over the court’s future. A stronger right-wing Senate could become the decisive arena for challenges involving justices. The article does not say that removal will occur, but it identifies the Senate as the arbiter of the court’s future. Court decisions could also shape the runoff itself.

Alexandre de Moraes is a Supreme Court justice who oversaw Jair Bolsonaro’s prosecution and is reviled by the far right. Flávio Bolsonaro is Jair Bolsonaro’s eldest son and a Senate candidate who reached the presidential runoff. President Luiz Inácio Lula da Silva is his opponent and has been left defending the Supreme Court.

Daniel Vorcaro controlled Banco Master before its collapse. Federal Police want to examine whether Moraes improperly assisted Vorcaro. They also want to examine whether that conduct was connected to a legal-services contract between Master and Moraes’s wife’s law firm. Moraes denies wrongdoing and has not been charged.

The links have turned a banking failure into an election issue. The Supreme Court must decide whether police may investigate Moraes, but the decision was delayed until after the runoff. That gives Flávio a rallying cry, while Lula faces pressure over an institution he has no plan to reform.

Banco Master needed a powerful way to attract funding. It offered certificates of deposit paying up to 140 percent of the interbank benchmark, far more than large banks offered. The high rates helped the bank raise money quickly, even though its business relied on illiquid assets and credit portfolios.

The Credit Guarantee Fund made that strategy easier. It is financed by member banks, operates under government-set rules, and covers eligible deposits up to about $49,000 per investor. Because depositors had protection, they had less reason to investigate what Master was buying. Investigators say some assets lacked adequate backing.

The model shifted risk beyond the bank’s own customers. When Master collapsed, the fund repaid roughly $7.5 billion to about 800,000 savers. The fund absorbed that bill rather than taxpayers. The episode also raised questions about whether protection encouraged Master to raise money without sufficient scrutiny.

The article identifies risk assessments as a safeguard against careless purchases. Before acquiring credit portfolios, a bank is expected to evaluate their risks. This is especially important when the buyer is controlled by government, because losses can ultimately affect public finances. The article does not describe a complete regulatory framework beyond this requirement.

Banco de Brasília, or BRB, illustrates the failure alleged by investigators. BRB bought Master’s credit portfolios and paid about $1.4 billion before completing at least one required risk assessment. It later agreed to buy 58 percent of Master. The Central Bank blocked the deal and shut Master down.

Other protections described in the article concern depositors, not portfolio purchases. The Credit Guarantee Fund operates under government-set rules and insures eligible deposits. It repaid roughly $7.5 billion after the collapse. The article does not state what penalties, approval procedures, or review systems apply when a bank skips required assessments.