FGC: Stability Required, But Not Infinite 🏦💧

In recent days, we have seen renewed attention around bank liquidations and the activation of Brazil’s Credit Guarantee Fund (FGC) in significant volumes.

The FGC plays a critical role in the financial system:
it protects depositors, reduces the risk of bank runs, and reinforces confidence through clearly defined coverage limits.

But there is an important technical point that is rarely discussed openly:

👉 The FGC does not eliminate risk — it redistributes risk and cost across the system.

The fund operates as a mutual protection mechanism financed by participating institutions. In isolated events, it performs exactly as intended.

The challenge emerges when these events stop being exceptional and start becoming recurrent.

At that point, the system begins to resemble a faucet that keeps dripping:

💧 One drop is manageable.
💧 Two drops are still controllable.
💧 But continuous dripping inevitably pressures the reservoir.

And the systemic consequences are clear:
 • 📈 Rising funding costs
 • 🏦 More selective lending
 • ⚖️ Risk repricing across institutions
 • 💧 Liquidity pressure over time

The mature debate is not about predicting an imminent crisis.

The responsible debate is about incentives and sustainability:

❓ At what point does relying on “insurance” weaken market discipline?

True mitigation is not only about reimbursement after failure.

True mitigation requires:
 • 🏛️ Strong governance
 • 🔍 Effective oversight
 • 📊 Transparency and accountability
 • ⚖️ Proper risk pricing
 • 📌 Institutional efficiency

Insurance is essential.
But long-term stability depends on prevention.