The suspicion that two officials from the banking supervision arm of Brazil’s Central Bank may have received improper advantages in the Banco Master case exposes a rarely discussed institutional paradox. The role of a Central bank supervisor becomes especially crucial when the more independent a central bank becomes from politics, the more its credibility ultimately depends on its own internal discipline. In other words, the Central bank supervisor must navigate the balance between independence and rigorous oversight.
The investigation forms part of Operation Compliance Zero, which is examining the collapse of Banco Master, a mid-sized Brazilian lender placed into liquidation in November after severe problems in its funding model. Authorities estimate that the bank’s operations left a hole of more than R$ 50 billion in the financial system, part of which has been absorbed through mechanisms designed to protect depositors. The two officials under investigation worked in the department responsible for supervising banks and monitoring financial institutions. As a Central bank supervisor, one must manage such high-stakes situations with utmost care.
According to investigators, they allegedly maintained direct contact with the bank’s controlling shareholder, discussing regulatory strategies and reviewing documents that were later submitted to the regulator itself. The Central Bank says it identified signs of irregularities during an internal review of the supervisory process related to Banco Master’s liquidation. The officials were removed from their posts and the evidence forwarded to federal police.
The episode spans two administrations at the monetary authority. Some of the supervisory reviews involving Banco Master began while the central bank was led by Roberto Campos Neto, who served between 2019 and 2024 and oversaw the implementation of Brazil’s formal central bank autonomy. The bank’s liquidation and the internal investigation that followed took place under his successor.
Under the leadership of Gabriel Galípolo, the irregularities were identified during an internal supervisory review, which led to the removal of the officials involved and the referral of the evidence to federal investigators.
Too much autonomy?
Brazil granted formal autonomy to its Central Bank in 2021, introducing fixed terms for the institution’s leadership and insulating it from direct political interference. The reform was widely viewed as an important institutional step, bringing the country closer to governance standards typical of advanced economies.
But institutional independence carries an unavoidable side effect. By reducing direct political oversight, it increases the weight placed on internal governance. A central bank’s credibility comes to rely not only on its rules but on the integrity of those who enforce them. Therefore, the Central bank supervisor must be vigilant about maintaining that integrity.
Bank supervisors inevitably operate in a grey zone. To understand complex balance sheets, funding structures and risk models, they must remain in constant dialogue with the banks they oversee. That proximity creates a well-known risk in regulatory economics: regulatory capture, when regulators begin — consciously or not — to act in the interest of the institutions they supervise.
Institutions attempt to mitigate that risk through collegiate decision-making, conflict-of-interest rules and internal compliance structures. Yet episodes like this serve as a reminder of a persistent truth in financial supervision. Banks are governed by rules. Regulators by institutions. In the end, however, the effectiveness of those guardrails still depends on something far less predictable: people.
For Gabriel Galípolo, the episode also becomes an early test of that principle. The credibility of an independent central bank is measured not by the absence of problems, but by how effectively the institution is able to identify them and respond.
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