Ana Rosa Ribeiro de Mendonça and Simone Deos
The authors emphasize an overlooked raison d’être for public banks. They argue that limiting public banks to filling the gaps left by private banks, the standard argument in economics, neglects a very important dimension of public banks, that is, their capacity to act countercyclically and thereby stabilize access to credit during economic downturns. Taking a cue from Hyman Minsky, they point to the immanent volatility of financial markets dominated by private actors. In order to counter destabilizing tendencies, the presence of institutions with the logic of action that differs from that of the market is necessary. As public banks are not primarily concerned with profitability, they can play this role. To a certain extent, their presence in the market is an automatic stabilizer because public banks provide credit with long maturation. In times of crisis, they can also be used for discretionary intervention, that is, opening up new credit lines.
Kurt Mettenheim and Olivier Butzbach
The authors explore the genesis of alternatives to private banks, that is, savings banks, cooperative banks and development banks in the nineteenth century. They interpret the establishment of alternative banks as social reactions of self-defense in Karl Polanyi’s sense. The strengths of these alternative banks are rooted in what they call patient capital. Financial investments can be called patient when they are not made in expectation of short-term profits but in anticipation of more sustainable returns over time toward social missions or public policy. Patient capital provides alternative banks with competitive advantages for which the authors provide evidence from statistical analysis and comparison of bank balance sheets in historical data and standard measures of bank performance using bankscope data on bank balance sheets from 2006 to 2012. The success of alternative banks in recent years allows them to argue that although reforms have marginalized alternative banks in liberal market economies, liberalization produced back-to-the-future modernization of patient capital practices at alternative banks in coordinated market economies and emerging and developing nations.
Simone Deos and Ana Rosa Ribeiro de Mendonça
The authors pick up on Hyman Minsky’s concept of a ‘big bank’, that is, the central bank as a lender of last resort, which together with big government stabilizes the economy. According to the authors, the provision of liquidity in order to avoid the financial crisis can be performed by a group of public banks in coordination with the central bank, thereby jointly playing the role of big banks. Empirically, they show that the impact of the 2008 crisis on the Brazilian economy was rather limited because the Brazilian Central Bank together with the public banks supplied sufficient liquidity for non-financial agents. Specific institutional characteristics of the Brazilian financial system have allowed these big banks to react promptly to the crisis.
Simone Deos, Camilla Ruocco and Everton Sotto Tibiriçá Rosa
The authors empirically explore the claim that public banks can counteract the volatility of financial markets at the hand of public banks in Brazil during the financial crisis of 2008. They provide a historical overview of two important Brazilian public banks, Banco do Brasil and Caixa Econômica Federal. They detail these banks’ anticyclical interventions during the crisis, which did not lower the quality of their respective portfolios. Only the shift to restrictive macroeconomic policies well after the crisis in 2014 has offset the expansion of public credit. The authors draw lessons from this: the anticyclical credit instruments have to be better coordinated with macroeconomic and currency policies.
Ana Rosa Ribeiro de Mendonça and Brunno Henrique Sibin
The authors analyse the parallels between the crisis response of the Brazilian public bank Caixa Econômica Federal (Caixa) and its Chilean counterpart BancoEstado in their different political and economic environments. Both banks acted anticyclically, but encouraged by the strong pro-growth orientation of the Brazilian government and enabled by the institutionalized access to compulsory savings funds, Caixa continued the expansion of lending even after the crisis had been overcome. This procyclical behaviour is a sign that Caixa’s mandate went beyond the function of a stability anchor.
Adriana Nunes Ferreira and Everton Sotto Tibiriçá Rosa
The authors trace the history of one of the largest development banks in the world, Banco Nacional de Desenvolvimento Econômico e Social. In its various phases since the 1950s, the history of the BNDES has mirrored the vision of development held by the leaders of the Brazilian economy. It moved from support for industrialization based on import substitution to relieving private companies of their foreign-denominated debt, to facilitating privatization and finally to carrying out industrial policy initiatives. While it undoubtedly contributed to economic growth in Brazil, the country has yet to fulfil the original vision of development with an endogenous technical progress and social justice.
The author looks at one of the biggest public banking sectors in the world from a historical perspective. Besides supporting employment-intensive sectors such as agriculture and small enterprises, Indian banks are charged with reaching out to a great number of people without bank accounts, especially in rural areas, since the broad-based nationalization of banks in the late 1960s. Until the financial liberalization phase in the 1990s, branch outreach increased rapidly and bank credit became much more accessible in agriculture. The expansion of public banking was accompanied by a striking increase in national savings and investments. However, the policy of financial liberalization brought about a reversal in most of these accomplishments. The policy of financial inclusion and low interest–bearing loans to address agrarian distress resumed after 2005, but also included bulky loans to infrastructure and core industrial sectors with a higher propensity for default. Rejecting the call for privatization, she asserts the need not only to preserve the public character of these banks by way of recapitalization given their role in financial inclusion but also for professional and transparent management of these banks.
The author makes use of the sociological literature on organizations to answer the question of how a development bank can fulfil its public mandate of promoting industrialization under the conditions of uncertainty typical for many countries trying to catch up economically. With references to the internationally active German development bank KfW, the author comes to the conclusion that development banks can successfully pursue their mission, even under conditions of uncertainty, if their board includes stakeholders beyond the government, if they can diversify their sources of capital, and if they strengthen their own knowledge in creating and learning capacities. These measures could increase their input as well as output legitimacy and thereby strengthen their standing in society.
The author highlights the political vulnerability of public banks with the example of German public banks. He introduces the reader to the traditional structure of the German banking system, the role of the public banks therein, and the relevance of this structure for the German production regime. He then traces the conflict between private and public banks as the latter increasingly competed for the same business. The conflict stalemated in the national arena until the European Single Market project was launched. This offered the private banks the opportunity to bypass the strong opposition in Germany. As European competition law presumes that all actors act like profit-maximizing private investors, the state liability guarantee for German public banks was considered to be an unfair competitive advantage. Under the dictates of the European Commission, this guarantee had to be withdrawn by the year 2005.