Federal Banking in Brazil
A problem with government banks is that liberal market economies such asthe United States and United Kingdom have none (ignoring support/owner-ship during crisis and past experiences). Government banks remain dissonantrom liberal principles such as ree trade and ree market equilibrium. Nonethe-less, these institutions remain at the centre o political economy in advanced anddeveloping countries. Federal banks in Brazil have persisted because they pro- vide valued policy alternatives and retain competitive advantages over privateand oreign banks.Tis returns to old ideas about how public banks may steer development andsustain social economies. However, the question is not whether commanding heights can centralize power and policy. Tis study is about commanding depth,both in a social and a fnancial sense. From Lenin through Alexandre Gerschenk-ron, Arthur Lewis and Gunnar Myrdal, central government banks were seen ascritical agents or rapid industrialization and modernization. o
implies decentralization and diusion to embed government banks in society, politics, frms and markets. Unless government banks are part o the complex-ity, diversity and contestation involved in citizenship, political parties, interestgroups, social movements and transparent government that reect the separa-tion and diusion o power true to democracy, then government banks will allshort o their potential. Large-scale lending oends liberal principles and oendamages the environment. It also distances decisions rom citizens, institutionso representative government and measures o supervision and control that areneeded or democracy
prudent banking, sound risk analysis and inormeddecision making about resource allocation.Tese claims are grounded in theories o political economy, banking anddemocratization. However, they dier rom neo-liberal theory. Te Brazilian casecounters the idea o global convergence toward private banking through liberali-zation and privatizations. Tis is not an anti-market observation. Te Brazilianstock market Bovespa grew rom 3 per cent o GDP in 1990 to over 100 per cento GDP in 2008 (beore losing then regaining
its value), with a variety o utures markets, mutual unds and fnancial instruments now available to frmsand investors. Tese advances notwithstanding, government banks still provideover a third o domestic credit. Government banks have not impeded fnancialdevelopment. o the contrary, Brazilian ederal banks have led in the creationo new markets and new banking services in Brazil. Case studies describe howthese institutions have been central players in the record number o initial publicoerings, the unprecedented capitalization o frms on the stock market, policiesdesigned to democratize stock and bond ownership and the creation o uturesmarkets or interest rates, oreign exchange and commodities that have served asbellwethers to approximate public policy and investor confdence. Without gov-ernment banks, Brazilian fnancial markets would not be where they are today.