A note on financial regulation and the brazilian response to the 2008‐09 financial crisis

Brazil was frequently criticized for its interventionist and heavy financial regulation up until the 2008‐09 world financial crisis.  According to the neo‐liberal or pro‐market view that predominated in academic and financial circles during the early 2000s, economic development came together with financial deepening, which in its turn could only be achieved through financial liberalization and deregulation. The currency crises of the 1990s notwithstanding, by the mid‐2000s Brazil’s segmented financial market and its restrictive reserve and capital requirements were seen as a symbol of inefficiency and backwardness by most financial specialists.  To the luck of the Brazilian population, most of the advices of such specialists were ignored by the Brazilian authorities, so that, when the 2008 financial crisis hit the world economy, Brazil still had powerful and efficient instruments to deal with the problem.  The objective of this note is to present the mains aspects of the Brazilian financial regulation and how they helped the economy to deal with the consequences of 2008‐09 financial meltdown.

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.

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