How long does it take for the FGC to pay investment compensation when a bank fails and what is the guarantee? – 10/22/2023 – From Grain to Grain

Lack of knowledge about the probability of failure of financial institutions, the time required to pay compensation by the Credit Guarantee Fund (FGC) and what is guaranteed means that many investors miss out on excellent, low-risk opportunities. I explain these doubts below.

I often write suggesting that small investors seek to improve their returns, with low risk, taking advantage of the higher returns that average banks provide. In these articles, comments always appear from individuals who are unaware of the three issues above and replicate what they heard from people who are also unaware of what they were talking about. A situation similar to that child’s game when one tells something in the other’s ear and when they reach the end there is completely different information.

So let’s get to the facts. But I’m not going to give it away on a platter. I will test your knowledge first.

Approximately, how many financial institutions have failed on average per year since the FGC was created in 1995?
a) 1.39 institutions per year;
b) 3.39 institutions per year;
c) 5.39 institutions per year;
d) 7.39 institutions per year;

Since 2015, what is the average time for payment of compensation to investors, after intervention is decreed by the Central Bank?
a) 1 month
b) 2 months
c) 3 months
d) 6 months

When you invest in a bond guaranteed by the FGC, what is guaranteed as compensation up to a limit of R$250,000 per issuer?
a) the principal invested and the income obtained up to the date of intervention decree by the Central Bank;
b) the principal initially invested;
c) the income obtained up to the date of intervention decree by the Central Bank;

Usually, when investing in securities issued by large banks, the investor rarely earns more than 100% of the CDI on taxed products or more than 95% of the CDI on exempt products.

In similar products issued by medium-sized banks, the gain exceeds 120% of the CDI. This 20% higher return more than compensates for the risk, which in this case is practically zero if you invest within the guarantee, as I will explain.

Remember that not every product issued by a bank is guaranteed by the FGC. The only investment products within the guarantee are: savings account, CDB, RDB, LC, LCI, LCA and LH.

The failure of a bank has a strong impact. Therefore, although few are broken, the impact leads us to believe that many more institutions are broken than actually happens.

Since the creation of the FGC in 1995, the average number of institutions that have failed is just 1.39 per year. In the past, the number was higher and that is why this average exceeds 1 bank per year. If we consider since the year 2000, less than one institution fails per year.

There are more than one hundred financial institutions in the country. Therefore, it is possible to assume a probability of less than 1% of a financial institution failing per year.

Despite this low probability, many also do not invest in medium-sized banks, as they are afraid of delays in receiving compensation.

With computerization and the requirement for custody at Cetip for all bank securities, the average payment since 2015 has been 30 days. Only 1 month is the period, with a probability of less than 1%, that you run the risk of not receiving any income.

Let’s face it, this probability is very low. But, let’s assume it happens. So what’s your risk? Just not receiving the return for this month, if it is within the FGC limit.

When the worst happens and you are within the limit, you receive compensation for the principal invested and the profitability until intervention is decreed by the Central Bank, limited to the value of R$250,000. This way, you don’t lose the return on investment. The only return that does not gain is that of the average period of 30 days after the intervention is decreed.

Therefore, the correct alternative in all three questions above is alternative A. All this information is available on the FGC website. So stop listening to nonsense and consult the official source of information.

Another false and frightening information is that the FGC would not be able to cover the guarantee. The people who say this nonsense are doing the wrong thing. The FGC does not guarantee the entire financial system. Only investments in the securities mentioned above and limited to the value of R$250 thousand are covered.

The people who say this nonsense consider the millions of securities that companies of any nature invest in. However, these only have a guarantee up to R$250,000. Thus, FGC resources are capable of completely covering small investors.

Therefore, take the opportunity to improve the profitability of your portfolio by dividing the resources among some medium-sized institutions that pay better.

Michael Viriato is an investment advisor and founding partner of Investor’s House.

Speak directly to me via email.

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