Bank Failure Uncovers Weaknesses at Another Brazilian Lender

The liquidation of Banco Master SA has exposed financial weaknesses at Banco de Brasilia SA, the lender controlled by Brazil’s capital city that’s now grappling with rating downgrades and questions about its capital needs.

Brazilian authorities have said BRB, as the company is known, purchased almost 13 billion reais ($2.4 billion) in fake credit from Master. More than 10 billion reais of that has already been replaced or liquidated, according to the bank, but doubts remain about the company’s financial strength.

“What’s striking in Banco de Brasilia’s case is the size of the portfolio that had to be replaced,” ...