Financial System in Brazil
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Name: Mohd Iqbal Bin Ahmad AzahariMatric No: 237520Financial System in BrazilINTRODUCTIONThe 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.STRUCTUREThe 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.
Normative SystemThe 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.Intermediation SystemThe 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 PortfoliosNational Financial SystemTable 2.2.1 Institution Class QuantityCommercial Banks 22 Development Banks 5 Saving Banks 1Multiple Banks 172 Credit Cooperatives 1,119 Investment Banks 21Credit, Financing and Investment Companies 43 Security Firms 383Leasing Companies 82