Lielson Landin, mayor of the northeast city of Milagres, said six robbers had attacked the banks just after 2am on Friday.
The six were killed in a fierce shoot-out with police which lasted about 20 minutes.
Five of the hostages, believed to be the family of a local businessman, were in a car hijacked on a nearby highway as the robbers tried to flee the scene in two vans.
Reuters news agency reported that two of the hostages were children aged between 10 and 13.
Mr Landin said that “the criminals killed the hostages and the police killed the criminals”.
The gang escaped without taking any money, according to reports.
An unidentified resident told R7: “I could not sleep with the noise of the shots and I also could not leave the house to know what was happening.
“It was total panic.”
The head of the Secretariat of Public Security and Social Defense Andre Costa told Diario de Nordeste that two people had been arrested.
He added: “We still do not know what happened.
“There was an exchange of shots.
“The preliminary information we received is that one of the criminals arrested ended up saying that he killed people who were in the place and were not of the gang.”
He also said that it was too early to blame police for the deaths of the hostages, the newspaper reported.
Milagres is in the state of Ceara, which is one of Brazil’s most violent.
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