Brazil's survival of the 2008 global financial crisis: were we that good?
| Autor | Haroldo Malheiros Duclerc Verçosa |
| Páginas | 149-155 |
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It's for me a great honor to be at this so important university, to discuss with you a subject that concerns to all the world these days. After all the great question is the trillion do llar one: our world how we know it, will survive the financial crises that started in 2008? Just because, as all of you here certainly know, as somebody said once, that all the things concern to the eco-nomy: "it's the economy, stupid", was the famous expression created by James Car-ville during the elections for president in United States in 1992. Ijustreadthis morn-ing that he gave an advice to President Obama by CNN: "be in panic, fire a lot of people ofyour staff!".
I am very grateful to Professor Guy Hormans, for this opportunity, and, please be kind with my bad English.
As it's widely known, in 2008 a financial crisis was deflagrated with its re-mote roots in the subprime mortgage mar-ket of the United States of America, and spilled over to all the financial system (in-cluding banks, capital market and the insu-rance market).
As it's also known, that major financial institutions in the United States and Europe went bankrupt, among which Lehman Brothers and AIG's cases are noto-rious. The central banks of several coun-tries, their governments, and financial institutions had to take drastic measures in order to impede the crisis effects from going down on a catastrophic road. Even so, the losses reached billions and billions of dollars.
Brazil was affected by the crisis, up to a certain point. In that occasion, no banks broke, only few had some difficulties that were overcome with the aid from the Brazilian Central Bank measures. Some com-
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panies that had speculated in the derivati-ves market (for example, Aracruz Celulose and Sadia) suffered significant losses that sharply affected their survival in the market. Sadia (frozen food field) was the ob-ject of a reversal in an acquisition process by its competitor: Perdigão. It turned out that Perdigão acquired Sadia.
Some small-size and medium-size banks showed some problems of liquidity, which were overcome by resorting to the emergency measures issued by the Brazi-lian Central Bank.
At that time, the Brazilian President, Luiz Inácio Lula da Silva, boasted that the country would suffer only a "marolinha" (in our colloquial language, marolinha is a small wave that softly breaks on the bea-ch). There was an overstatement of opti-mism, though. However, compared to what other nations were going through during the crisis, the Brazilian situation appeared to be quite favorable, having the financial operations carried out in an almost normal pace within a relatively short time.
The protection of the financial market in Brazil was a result of several historic factors, all of which were rooted in both old and more recent institutional reforms aiming at an effective action against infla-tion, connected to the creation of our National Financial System (NFS), with the uprising of the Brazilian Central Bank (BCB).
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Centralization - The NFS structure;
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Previous improvement of NFS;
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Actual autonomy of the BCB;
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Institutionof the Brazilian Payment System - BPS;
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Focus on the battle against infla-tion. Effective monetary policy instru-ments;
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Legal regime of exchange rates and foreign capital;
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Prudential measures. Adhesion to Basel Agreements I and II (ICCMCS - International Convergence of Capital Mea-surement and Capital Standards). Antici-pationof Basel III;
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Emergency measures taken during the crisis.
Our centralized and systemic organi-zationhas its origininthe Superintendence of Currency and Credit - SUMOC (acronym in Portuguese) in 1945. It was the late beginning of a movement that ha-ppened in Latin America, result of the effects of the American recession in the 30's of last century. In this sense, a mission led by Edwin W. Kemmerer, professor of Economics and Finance at University of Princeton visited the region to promote the fundamental principles of central banks, which resulted the foundation of several institutions of this nature in our area, beginning with the Colombian Central Bank in 1923 until the Brazilian Central Bank in 1964, which experienced the previous creation of the SUMOC.
It has been affirmed that a centralized model as the Brazilian, endowed with a sole body in charge of both the financial and capital markets, might have been one of the reasons why Brazil was not sharply affected by the 2008 financial crisis. Act-ing as shield over all the institutions from both markets, its prudential regulation might have been able to hinder the irregulari-ties in the subprime operations in the United States of America.
Let us look to the structure of our National Financial System - NFS as set forth by the Law 4.595 from December, 31st, 1964.
At the top, there is the National Monetary Board - NMB which has competen-ce to regulate all the financial system (financial market formed by the banks) and capital market (stock exchange market,
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public limited companies and brokers part-ners to distributors that operate in the sto-ck market and in the Over Trade Counter OTC2).
The National System of Private Insu-rances...
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