Post global recession, the Brazilian banking model is now internationally recognized as a highly efficient system. Many attribute its recent success to the sophisticated mechanisms and regulatory systems that were created during the ‘lost-decade’ of hyper-inflation.
Nowadays, financial regulation is very conservative and was created to ensure the banks would be able to regularly stress test their processes to check and balance their activities in a variety of hypothetical unstable environments. Internal controls, limits for client exposure, loss provisions, company credit capital are all closely and strictly monitored. The following practices are also worth highlighting:
– The minimum Basel Ratio of the Brazilian banking system is set at 11 percent, which 3 percent higher than what is suggested in the Basel Accord. Most banks, in reality, operate much higher than this level (at over 17.5 percent) with low leverage ratios (over six times the level of their capital holdings);
– All banking limits and requirements are applied in consolidated terms which means that so called toxic assets or special investment vehicles are put under heavy scrutiny;
– All investment funds are weighted in line with their corresponding assets. This is undertaken to ensure that leverage levels are reasonable and over-exposure is kept to a minimum;
– Over the Counter (OTC) derivatives need to be registered with the Central Bank (or face legal action);
– The Brazilian Securities and Exchange Commission (Comisso de Valores Mobilirio) legally obliges all public companies to disclose all information with regards to the financial instruments that are being used. In addition, full sensibility’ analyses are undertaken on a regular basis;
– The central bank has control over all non-financial subsidiaries of banking institutions;
– Expected loss provisions are taken into consideration (not just actual losses);
– Liquidity and market risks are monitored intensively by the Central Bank on a daily basis;
– Bank reserves must cover all debt payments past;
– All lending above the value of $BRL 5,000 must be registered with the Central Bank;
– Issue ratings are regularly undertaken;
– Regulatory procedures are applied to all banks and are also regularly updated in line with financial innovations (approved by the Central Bank), international standards and conjuncture changes.
Many commentators attributed Brazils above average resistance to the effects of the global recession to these reasons. Indeed, at the onset of the global economic crisis, the securitisation market was less than 10 percent in comparison to the credit volume of the country which meant that the intersection between the two markets did not bring any significant damage.
At the close of first decade of the 2000s, Brazil was one of only four countries in the world with a wide spread on lending, with an average at over 30 percent. Indeed, the country was awarded first place for its high regulatory standards at the 2009 Financial Stability Forum’ in Basel that “helped it avoid the worst of the global economic crisis.” As pointed by Alexandre Tombini, Director of Regulation at the Central Bank: “We are used to dealing with challenging environments at our institutions and our regulations. Everything we have done since the mid-1990s has tended to take a more cautious approach.”
Below is a list of the main banking institutions of Brazil:
Central Bank of Brazil the highest monetary authority and the country’s governing body in all matters related to finance and economics. The institution is linked with the Ministry of Finance and decides the monthly SELIC interest rate.
Banco do Brasil the largest Brazilian and Latin American bank by asset values. With its headquarters in Braslia, it is also the oldest active bank in Brazil (founded in 1808).
Caixa Econmica Federal founded in 1861 (more commonly referred to as Caixa), nowadays the bank is well known for financing the civil and construction sectors; administering the Minha Casa, Minha Vida housing programme as well as being the large stakeholder in Brazils largest property and land portal: Zap.
The Brazilian Development Bank (Banco Nacional de Desenvolvimento Econmico e Social or BNDES) established in 1952, it is now the second largest development bank in the world and is a federal public company associated with the Ministry of Development, Industry and Foreign Trade.
Bradesco founded in 1943, it is one of the largest banks in operation in the country (it was formerly the largest until Banco Ita and Unibanco merged in 2009).
Ita Unibanco based in So Paulo, the bank was formed out a merger of Banco Ita and Unibanco in late 2008 and now operates as the largest financial conglomerate in the Southern Hemisphere and the 10th largest bank in the world.
Banco Santander Brasil founded in 1982, with its headquarters in So Paulo, major acquisitions were made in the late 1990s and 2000s including Banco Real, Banco Geral do Comrio, Banco Noroeste and Banespa.
Banco Real a Brazilian bank that was previously owned by ABN AMRO.
HSBC Brazil in 1997 Banco HSBC Bamerindus was set up to take over Banco Bamerindus do Brasil which was subsequently changed to HSBC Bank Brasil in 1999.
Safra with its headquarters in So Paulo, the bank is part of the larger Safra Group of financial institutions.
Banco Nossa Caixa the bank was incorporated into the Banco do Brasil in 2008, formerly serving as the financial agent of the State of So Paulo.