SAO PAULO (Reuters) -Brazilian state-run bank BRB said on Wednesday that its board decided to hire a specialized external audit firm to investigate the facts related to a police operation which targeted mid-sized lender Banco Master.

On Tuesday, Brazil's federal police launched an operation against "the issuance of fraudulent credit securities by financial institutions," and Brazil's central bank effectively halted operations at Banco Master, which had faced mounting liquidity pressures in recent months.

Banco Master controlling shareholder was arrested.

The police investigation involves the sale of assets of Master's loan portfolio to BRB since last year, a source with direct knowledge told Reuters on Tuesday. BRB planned to acquire Master, but the deal was blocked by the central bank in September.

BRB said in a statement on Tuesday that a local court ordered the suspension of its CEO, Paulo Henrique Costa, for 60 days. Later that day, Federal District Governor Ibaneis Rocha appointed Celso Eloi, a superintendent at state-run lender Caixa, to replace Costa.

"BRB reaffirms its commitment to best practices in governance, transparency, and disclosure to the market," it said in Wednesday' securities filing.