Financial System in Brazil

Name: Mohd Iqbal Bin Ahmad Azahari

Matric No: 237520

Financial System in Brazil

1. INTRODUCTION

The Brazilian Financial System has been recognized as one of the most developed banking system of the world.  Decades of high inflation obliged banks to develop some complex instruments and information systems, in order to attend demand for agility and structured financial products, which preserved the real value of money. After the Plano Real, in 1994, restructuring promoted by Proer and Proes, has permitted the strengthening of the system with the merger, acquisition or simply bankruptcy of banks in a bad or insolvent situation. Also, the framing of banks to the established capital limits to Basle Agreement (Resolution n. 2099/94) was required. 

Nowadays, Brazil is searching for alternatives to increase economic activity and productivity; the Financial System is required to promote and to consolidate the Nation’s self-sustained growth. 

This paper intends to relate the basic structure and describe the main changes happening to the system, which can produce some transformations in Brazilian society, through the modernization of procedures, credit risk reduction and the improvement of banking transaction security.

The current structure of the financial system and its subdivision in normative function (regulation and inspection) and operational function (intermediation) is demonstrated.

The first topic is relative to the New Brazilian Payment System and the Central Bank’s intention to share the process, allowing banks to assume their part in operation and credit risk of the system.   The Central Bank plans to apply the first measures next February 2001. Also, the creation of market clearing- houses and the implementation of electronic systems in Open-Market interbank transactions are mentioned.

In the second topic a theme which promises serious discussions in Brazilian society is approached.  The restructuring of the federal public banks was the object of a deep study promoted by consulting companies, which diagnosed the role of the federal banks in the Brazilian financial system and their problems, proposing some alternatives to follow.

The reduction of the government’s share in agribusiness financing is the last topic. This part relates to the measures adopted with the intention of opening the market to investors, both internal and external, who are able to provide resources instead of the government, whose financing capacity is exhausted.

1. STRUCTURE

The current structure of the Brazilian Financial System originated in the institutional reform promoted in 1964/65, when the National Monetary Council (Conselho Monetário Nacional – CMN) and the Central Bank of Brazil (Banco Central do Brasil – BCB) were created. The Law n. 4.728, of 07/14/65, has established norms to the capital market and the Law n. 6.385, of 12/07/76, has created the Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM), transferring responsibility for security market regulation from BCB.

1. Normative System

The normative function is executed by regulation and supervision entities, such as CMN, BCB and CVM.  The next chapter will describe questions of regulation in more detail.

1. Intermediation System

The intermediation function is executed by authorized institutions, which are subordinate to the normative entities. They are:

Financial Institutions that Receive Demand Deposits:

     a) Multiple Banks

     b) Commercial Banks

     c) Saving Banks

     d) Credit Cooperatives

 Other Financial Institutions:

     a) Investment Banks

           b) Development Banks

           c) Credit, Financing and Investment Companies

           d) Real Estate Credit Companies

            e) Mortgage Companies

            f) Saving and Loan Companies

Other Financial Intermediaries or Auxiliaries

a) Commodities and Futures Exchanges

b) Stocks Exchanges

c) Security Firms

d) Leasing Companies

e) Foreign Exchange Brokers

f) Independent Agents

      Other Entities

a) Private Pension Funds

b) Insurance Companies

c) Mutual Investment Funds

d) Foreign Investor Portfolios

National Financial System

Table 2.2.1

                         Institution Class                                           Quantity

Commercial Banks                                                                                               22  

Development Banks                                                                                               5  

Saving Banks                                                                                                          1

Multiple Banks                                                                                                   172  

Credit Cooperatives                                                                                        1,119

Investment Banks                                                                                                 21

Credit, Financing and Investment Companies                                                  43  

Security Firms                                                                                                    383

Leasing Companies                                                                                              82