Brazil liquidates two banks amid slowdown Brazil's central bank has liquidated two of the country's lenders in what is estimated to be the nation's biggest bank collapse in seven years, as the sharp economic slowdown and stricter regulation put a strain on the industry. After failing to find a buyer for Banco Cruzeiro do Sul, the bankrupt mid-sized lender, the central bank said on Friday it would shut down the bank as well as Rio de Janeiro's Banco Prosper, which Cruzeiro do Sul had been in the process of buying. "It's a really difficult time for small and mid-sized banks in Brazil," said Luis Miguel Santacreu at Austin Asis, a banking sector consultancy. "While the central bank is getting tougher on them, the economic situation is also not helping," he said. Cruzeiro do Sul's collapse comes after the authorities have uncovered losses at several of Brazil's smaller lenders over the past two years, often involving suspected fraud as executives have allegedly tried to cover up holes in their accounts. Greater competition in the industry, slowing demand for credit, poor business models, deteriorating funding conditions, and stricter "Basel III" international rules on capital requirements have all been blamed for putting pressure on Brazil's smaller banks. However, the appearance of problems in the industry is also a result of a more proactive attitude by Brazil's central bank itself, which has cracked down on lenders since the near-collapse of the larger Banco PanAmericano in 2010. "The central bank will continue to take appropriate measures to investigate who is responsible [for Cruzeiro do Sul's losses] . . . which could lead to the application of punitive measures," the central bank said in a statement on Friday. While analysts said the collapse of Cruzeiro do Sul, estimated to be the biggest since Banco Santos was liquidated in 2005, would shake investors" confidence in some other smaller banks, it was unlikely to cast doubt over the banking system itself. Brazil's larger banks, such as Banco do Brasil and Itaú Unibanco, have some of the highest reserves in the industry and are considered relatively conservative - a legacy of having survived decades of economic crises in the country. However, Cruzeiro do Sul's collapse is still likely to come as a huge blow to the bank's bondholders, who are now set to lose more than if the bank had been sold. After taking control of the payroll lender in June, the central bank has been in discussions with investors and rival banks to cut the lender's debt and find a buyer. According to local media, Santander had shown the most interest. "Only now will the central bank be able to see the exact size of Cruzeiro do Sul's losses and it's possible bondholders will get back less than half of their money," said Mr Santacreu, adding that the process could take as long as five years.