ABSTRACT OF PAPER
Title: The Bank of Brazil: The Path Since the Mid-90s
Author:
The Bank of Brazil (BB) is the largest bank in Brazil. It is a banking institution whose main shareholder is the Brazilian federal government (72,1% of total capital in December 2005). The bank holds 17,4% of the total assets of the Brazilian banking system. The purpose of this paper is to assess its performance in the 1994-2006 period, with a focus on the following aspects: has the BB actually performed, in this period, the role of a typical public bank, functioning as an important instrument to foster development in Brazil? Or, instead, has its recent path been characterised by the reinforcement of a private logic of behaviour? By doing this, the paper aims at raising a few questions regarding the role of the state in economic activity, particularly the role that a big state-owned bank can and must perform in an environment of financial globalisation and chronic macroeconomic instability in order to finance development in a peripheral (and unequal) country like Brazil. Section 1 provides a theoretical discussion regarding the role of public banks. The purpose is to demarcate in advance essential differences between a variety of banking institutions (public bank, state-owned bank and the private banking firm) regarding their objectives and performance. The subsequent sections map out the course of events from 1986 to 2006, highlighting the “crucial events” in the bank’s history, which brought about profound impacts on its performance. Section 2 analyses the 1986-1994 period. This was an important period, marked by institutional reforms in Brazil, which led the Bank of Brazil to a process of conglomeration, as well as financial fragility and balance sheet deterioration. It is also a time characterised by important changes in the Brazilian banking system, chiefly in the segment of public banks. Section 3 delves into the 1995-2001 period. In this period, the following events took place, after the launch of the Real Plan in mid-1994: the bank found itself technically insolvent, leading the Brazilian government to capitalise it by means of a huge injection of capital, without which the bank would not survive. On the occasion, the bank’s “institutional mission” was revised. The country’s financial system reorganisation, which started in the previous period, was carried on under the lead of the Central Bank of Brazil. Section 4 examines the 2001-2006 period. The distinctive trait of this period is the introduction of the new rules of risk management that the Central Bank tries to enforce on the national banking system, following the implementation of Basel I guidelines. Thus, it is not by chance that this period inaugurates the predominance of a more private logic of behaviour over the bank’s role as agent of socio-economic development, as we try to put forward in the text. Our general conclusion is that, since the mid-80s, the Bank of Brazil has increasingly lost the key function that it formerly exerted as a public bank. One can perfectly point out to the emergence of a distinct pattern of behaviour, whose main feature is the bank becoming “more private, less public”. There is, particularly since 2001, a strengthening of this private enterprise dimension – that is, the firm’s decision-making process mainly concerned with profit-making. Thus, from a conceptual point of view, such situation would allow one to interpret the Bank of Brazil’s current conduct, not as a typical public bank of development, but, instead, as a hybrid (and odd) entity whose main characteristic is that of being a state-owned bank whose primary aim is to be profitable. The point is, then, to what extent this new “personality” can become, in the future, a huge setback to any attempts by the government at trying to promote and finance development in Brazil.
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