Brazil's audit court TCU finds no fault with central bank in Banco Master wind-down, source says

By Marcela Ayres

BRASILIA, Feb 11 (Reuters) - Brazil's federal audit court TCU has completed a technical review of the central bank's handling of Banco Master's liquidation and found no reservations or recommendations regarding the regulator's conduct, a source familiar with ?the matter said.

The source, who requested anonymity because the ?process is under seal, said the findings were shared with some central bank staff, who were allowed to ?read the conclusions but were not given access to the document.

The central bank did ?not immediately reply to a request for comment. The audit ?court said in a ?statement that the case is confidential and that no further information is available. The date for a ruling ?has yet to be scheduled, the court ?added.

The audit court's involvement in the case, seen by markets as unusual in a bank wind-down in Brazil, has been closely watched after ?Judge Jhonatan de Jesus, who is overseeing ?the case ?at the court, signaled that he could consider measures to prevent asset sales during Banco Master's liquidation.

Jesus was responsible for ordering an inspection of the ?central bank documents underpinning the decision to shut the lender.

Last Thursday, Jesus tightened ?the case's confidentiality status to restrict access to filings, effectively removing the central bank's full access to the proceedings despite being a party to the case.

According to the audit court, this was done to prevent leaks, including of information classified as confidential ?by the ?regulator, and was carried out with the central bank's knowledge.

Banco ?Master, which held under 1% of Brazil's banking assets, was liquidated in November amid ?what the central bank called a severe liquidity crisis, sharp financial deterioration and serious rule violations.

The decision came on the same day federal police launched an operation into the alleged issuance of fraudulent credit securities by the institution, arresting controlling shareholder Daniel Vorcaro.

Vorcaro, a banker with extensive political connections in Brasilia, was later released, but ordered to wear an electronic ankle monitor.

Banco Master's ?collapse drew scrutiny after the commercial lender expanded rapidly by selling high-yield debt marketed as covered by the FGC credit guarantee fund.

Privately-owned FGC estimated it will pay 40.6 ?billion reais ($7.8 billion) to around 800,000 ?investors following the bank's liquidation.

(Reporting by Marcela Ayres; Editing by ?Chris Reese and Diane Craft)