Prudential Regulation and Safety Net: Recent Transformations in Brazil

Mendonça, Ana Rosa Ribeiro de

doi:10.7135/upo9780857289575.010

Cited by 3 publications

(3 citation statements)

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“…The reforms that were implemented at the beginning of July 1994 -soon after the implementation of the Real Plan -had the explicit aim at strength the financial system (Mendonça, 2006). Thus, in August 1994, in agreement with the Basle Accord (Basle, 1988), BCB published the Resolution 2099 establishing minimum capital limits for the operation of a bank that varied to the degree of risk in bank's assets.…”

Section: Structural Measures: Towards the Liberalization Of The Finanmentioning

confidence: 99%

The Brazilian experience on prudential regulation and its impacts on the 2008 financial crisis

Sobreira

2011

Rev. Econ. Polit.

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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, 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

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Section: Structural Measures: Towards the Liberalization Of The Finanmentioning

confidence: 99%

The Brazilian experience on prudential regulation and its impacts on the 2008 financial crisis

Sobreira

2011

Rev. Econ. Polit.

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show abstract

“…The reforms that were implemented at the beginning of July 1994 -soon after the implementation of the Real Plan -had the explicit aim at strength the financial system (Mendonça, 2006). Thus, in August 1994, in agreement with the Basle Accord (Basle, 1988), BCB published the Resolution 2,099 establishing minimum capital limits for the operation of a bank that varied to the degree of risk in bank's assets.…”

Section: Structural Measures: Towards the Liberalization Of The Finanmentioning

confidence: 99%

The 2008 financial crisis and banking behavior in Brazil: the role of the prudential regulation

Sobreira¹,

Paula²

2010

Journal of Innovation Economics &Amp; Management

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“…guarantees, pledges, other instruments of personal guarantee, co-obligations in credit assignments, assignment in trust of securities, credit derivatives, as well as deposits in cash, gold and federal bonds, inter alia. Thus, in conformity with Basel II, these instruments would determine the risk-weighing factor (MENDONÇA, ANA ROSA RIBEIRO DE, 2010).…”

Section: Real Planmentioning

confidence: 99%

The endogeneity of money supply in Brazil

Ultremare¹

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The evaluation of money endogeneity reveals the complex arrangements that form a banking structure and its ability to create money through credit. In this regard, the key features of the Post-Keynesian structuralist approach of money supply are: (i) money is mostly created in the credit market; and (ii) monetary authorities impose some limits to credit creation, however, they do not entirely determine its process. Hereof, both money demand and liquidity preference of agents (banks, firms and consumers) are the underlying forces that sustain these two attributes. The thesis investigates what has determined credit money supply in Brazil and how monetary policy has bounded this process after the adoption of the Inflation Targeting Regime in 1999. We, first, outline the intrinsic characteristics of money supply in a monetary economy of production by addressing the Post-Keynesian structuralist theory on the subject. Thereafter, we focus on the current dominant academic thinking that guides the formulation of monetary policies for numerous Central Banks by almost three decades, i.e. the New Consensus in Macroeconomics (NCM), and assess its divergences to the Post-Keynesian approach. Even though the global financial crisis of 2007-2009 has raised questions about the scientific foundation of the NCM policy rules, it has not shattered the essence of the pre-crisis theoretical elements, which still claims that the Taylor rule and the use of an inflation target should prevail since any alterations on monetary variables is at the best scenario, ephemeral. Afterwards, even though the Brazilian Central Bank has been constantly updating its models, its background lies on the ultimate ability the monetary authority has to control the monetary base. However, we find evidences, both in empirical analyses and in econometric models, that there are other variables which affect the credit supply decision of banks in Brazil: the long-run expectations of interest rates, influenced by the policy short-term interest rate by the provoked alterations on the yield curve of banks; and credit demand, which influences banks decisions to value their wealth and, in consequence, to increase or not the credit supply. Therefore, credit supply in Brazil is endogenously determinedas expected by the Post-Keynesian theoryby the liquidity preference of banks and the demand for funds, being, thus, bounded by the monetary policy. LIST OF GRAPHSGraph 1. Reserve Requirements by type

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Prudential Regulation and Safety Net: Recent Transformations in Brazil

Cited by 3 publications

References 1 publication

The Brazilian experience on prudential regulation and its impacts on the 2008 financial crisis

The Brazilian experience on prudential regulation and its impacts on the 2008 financial crisis

The 2008 financial crisis and banking behavior in Brazil: the role of the prudential regulation

The endogeneity of money supply in Brazil

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