Recent central bank measures are positive for financial system, says DB

Monday, December 26, 2011

Recently announced liquidity-focused measures by Brazilian central bank BCB are positive for the financial system as a whole, and especially for small and medium-sized banks, Deutsche Bank (NYSE: DB) said in a note to investors.

BCB announced last week several measures to ensure adequate liquidity in the financial system amid the current global situation.

The measures included reducing the remuneration on banks' time deposit reserve requirements to induce larger banks to buy loan portfolios from smaller banks, to ensure that the latter have access to sources of liquidity.

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As a result, starting February 24 deposits held as a reserve requirement at the BCB (which is 32% of banks' time deposits) will be remunerated only by 73% of the Selic benchmark interest rate, and 64% as of June 27. The BCB is offering larger banks the option of counting loan portfolio purchases - and some other assets - from smaller banks as part of the reserve requirement.

Deutsche Bank noted that these measures were "somewhat expected by the market" and that larger banks will need to increase their loan portfolio purchases from small and medium-sized banks to offset the impact of lower remuneration next year on their deposits that are held as a reserve requirement.