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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.

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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.

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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.