Tuesday, 17 December 2013
How will lawsuits targeting banks affect Brazil's economy?
In February, Brazil's Supreme Court plans to rule on lawsuits brought by bank depositors affected by banks' adherence to government policies to fight hyperinflation two decades ago.
The suits could cost the banks, which include market leaders Itaú Unibanco and state-held Banco do Brasil, a total of $65 billion (USD) - more than a quarter of the banking system's equity.
What is at stake in the case for Brazil's banking sector and the country's economy? Which way is the court likely to rule? What precedent could a ruling in this matter set for future cases related to other sectors or industries?
Walter José Faiad de Moura, partner at Moura Lamounier Advogados in Brasília and Marilena Lazzarini, president of the board of directors of the Brazilian Institute for Consumer Defense (IDEC), give their assessment.
There is no doubt that the Brazilian government's measures in the 1980s were intended to reduce currency inflation.
However, in July 1987 and January 1989, banks applied a lower indexation to saving accounts, on their own and without any statutory command.
As a consequence, the amount deposited by individuals was reduced.
Banks were not bound by any legal norm to proceed in that way.
Brazilian savers sued banks to recover the values they lost. In addition to the individual lawsuits, IDEC has led class actions under Brazilian law to defend collective interests.
During 25 years of litigation, courts including the Supreme Court ruled that the central bank and the government had no liability because banks had a private relationship with consumers.
The amount owed by the banks is considerable. However, it is far less than $65 billion because banks ignore that many savers have died.
Also, many savers had very little deposited and have not sought justice. The Supreme Court could rule in favor of the plaintiffs without creating a major impact on Brazil's economy nor increasing economic risks.
Any money awarded to savers would return to the economy and in many instances may be deposited in banks.