Financial governance: the Brazilian experience on prudential regulation and its impacts on the effects of the 2008 financial crisis

The Brazilian economy was severely hit by the 2008 crisis. In the beginning of the crisis, the vast majorities of the economic agents and authorities thought that Brazil could face some sort of decoupling since some macroeconomic fundamentals were very good. What we saw, however, was that the Brazilian economy was not decoupled, and expectations faced a huge deterioration soon after the bankruptcy of Lehman Brothers in September 15th. Two aspects regarding the impact of crisis in Brazil, however, deserve a great deal of attention: (a) although deep, the impact did not last for a long time. Actually, the GDP growth experienced a good recovery in the second quarter of 2009, showing that the health of the Brazilian economy was good; (b) the Brazilian banking system performed very well during the crisis, although we cannot say the system was not in danger in the worst time of the crisis. In spite of the confidence crisis faced by the banking system 1, it showed a great deal of resilience. In this aspect, we argue that the restructure faced by the banking system in the aftermath of the Real Plan, as well as the development of a solid supervision regulation helped a lot the system to avoid the systemic crisis that was an open possibility to the Brazilian banking system in the end of 2008. These notes, thus, discusse why the Brazilian banking system performed pretty well in the 2008 financial crisis and how the Brazilian banking (and prudential) regulation can be taken as responsible for this good performance. More specifically, the paper back to the middle of the 1990s, when the Real Plan was implemented, in order to understand the role played by the restructuring of the Brazilian financial system in helping to pave the way to the great resilience experienced by the Brazilian banking system during the 2008 crisis. More specifically, the prudential regulation that was implemented in Brazil in the aftermath of the Real Plan seems to play a decisive role in the resilience of the system nowadays.

A note on Brazilian financial regulation and governance

The question posed by Theme 4 of this workshop is indeed a very broad one and would demand a thorough research on the topics involved. I am afraid I did not have the proper time to think it over and I would not be able to provide a wide ranging answer to this question. Thus, I will be selective and I will present the following issues that need to be addressed to support Brazilian development: i) competition among banks; ii) high rate of interest on liquidity; iii) approval by the Congress of a Complementary Law to regulate the financial sector as required by the 1988 Brazilian Constitution; iv) exploitation of workers through the governance of the Job Time Guarantee Fund (FGTS) and iv) state-owned versus government owned enterprises.

Banking efficiency, governance and financial regulation in Brazil

The paper analyses some dimensions of the relationship between banking efficiency, macroeconomic environment and financial regulation, with special focus on Brazil.

Banking efficiency, governance and financial regulation in Brazil: some brief explorative notes

In this note I will analyze briefly some issues that I consider important in the discussion related to the banking efficiency, governance and financial regulation, with special focus on Brazil. The subject is complex as involve different dimensions and I will explore here only some of them, some related to past researches other that should be explored in further research.