Public Banks in the Age of Financialization
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Public Banks in the Age of Financialization

A Comparative Perspective

Edited by Christoph Scherrer

This book asks the important question of whether public banks are a better alternative to profit-seeking private banks. Do public banks provide finance for development? Do they serve as stability anchors in financial markets? What kind of governance keeps public banks accountable to the public? Theoretically the book draws on the works of Minsky for the question on stability and on interpretative policy analysis for the issue of governance. It compares empirically three countries with significant public banks: Brazil, Germany, and India.
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Chapter 3: Facing the 2008 crisis: Brazilian Central Bank and public banking system as Minskyan ‘big banks’

Simone Deos and Ana Rosa Ribeiro de Mendonça

Abstract

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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