This paper aims at analysing the relationship among derivatives, financial fragility and systemic... more This paper aims at analysing the relationship among derivatives, financial fragility and systemic risk by discussing the role played by these financial instruments in the collapse or near-collapse of Barings Bank, Long-Term Capital Management (LTCM), Lehman Brothers and AIG. We investigate in which ways derivatives contributed to the build-up of systemic risks in these experiences according to a Post-Keynesian perspective, which is focused on the Minskyian concept of financial fragility and Cardim de Carvalho’s analysis of contagion and systemic risk. Our analysis points out that derivatives’ embedded leverage played a pivotal role in fragilizing the financial positions of Barings, LTCM and AIG, and a supporting role in Lehman’s failure, accelerating its financial debacle. While Barings’ failure did not cause contagion nor systemic consequences via derivative markets, in the case of Lehman derivatives worked as a major mechanism of contagion and contributed to the materialization of a systemic crisis. Yet, concerns on potential contagion effects via derivatives in the cases of LTCM (indirect) and AIG (direct) provided reasons for setting up the bailouts that avoided the collapse of these institutions. Finally, we highlight that, if speculative and Ponzi financing positions are widespread, instead of cushioning financial shocks, derivatives might fragilize even more financial institutions and disseminate difficulties among the financial system, therefore contributing to a systemic crisis to take place.
O artigo analisa como a reforma regulatória implantada após a crise financeira internacional de 2... more O artigo analisa como a reforma regulatória implantada após a crise financeira internacional de 2008 afetou os processos estruturantes do sistema financeiro globalizado. Argumentamos que a reforma buscou re-regular os mercados financeiros, redefinir a estrutura e as bases do modelo de negócios dos bancos globais, influenciando a questão da intermediação, e limitar a capacidade de externalização do risco e de alavancagem das instituições e do sistema como um todo. Concluímos que as mudanças regulatórias, embora tímidas em alguns tópicos, influenciaram os processos estruturantes do sistema financeiro global e alteraram, menos pronunciadamente, seu modus operandi e suas bases de expansão.
Brazil’s economic importance has increased substantially in the past 10
years; the country is con... more Brazil’s economic importance has increased substantially in the past 10 years; the country is consistently ranked among the 10 largest economies in the world. However, despite relevant improvements in the past decade, Brazil’s financial and capital markets still have room to grow and to further support long term sustainable economic development. The present report is the product of a UK-Brazil cooperation research project aimed at addressing important challenges to help further integrate Brazil into global financial markets.
Investment is one of the key drivers of effective demand and plays a pivotal role in determining ... more Investment is one of the key drivers of effective demand and plays a pivotal role in determining long-term growth of monetary economies. Heterodox theory stresses several factors which contribute to define investment dynamics, especially uncertainty and the availability of financial resources (debt and its cost). This present paper aims at analyzing empirically the behavior of investments and their determinants in the period from 2003 to 2012 in Brazil, using the Keynesian-Kaleckian theoretical framework as a reference to our discussion and to offers insights to our econometric model. More specifically, we were interested in assessing whether the 2008-9’s global financial crisis changed the balance between the determinants of investments or not.
The present paper aims at analyzing the functionality of the Brazilian financial system (BFS) to ... more The present paper aims at analyzing the functionality of the Brazilian financial system (BFS) to economic development during Lula’s term (2003-2010). More specifically, we assess the way a set of indicators evolved over time regarding: (i) the channeling of resources from the BFS to the real economy; (ii) the degree of financial fragility, measured from a macroeconomic perspective. The empirical evidence provided indicates a huge growth of resources channeled to productive uses whereas the degree of financial fragility increased, but in a moderated and controlled manner. Therefore we conclude that the BFS’ functionality to economic development has increased in the 2003-10 period. However, the lack of long-term funding supply remains a bottleneck to the BFS, limiting the expansion of investments and, consequently, Brazilian economic development.
PT: O presente trabalho tem dois objetivos centrais. O primeiro consiste em apresentar a reforma ... more PT: O presente trabalho tem dois objetivos centrais. O primeiro consiste em apresentar a reforma regulatória do mercado de derivativos financeiros estruturada após a crise financeira internacional de 2008 e discutir o diagnóstico e as soluções apontadas pelo G20, analisando o processo de gestação das medidas que compuseram o rol de mudanças sugeridas pelo organismo e os papéis dos atores envolvidos neste processo. Em segundo lugar, analisamos criticamente cada um dos elementos componentes da reforma global, destacando como cada medida regulatória pode ser relacionada às potencialidades dos derivativos financeiros como instrumentos de fragilização e de contágio/materialização de uma crise sistêmica.
EN: This work has two aims. The first is to present the derivatives market regulatory reform structured in the aftermath of the 2008 international financial crisis and discuss the diagnosis and the solutions adopted by the G20, analyzing the gestation of the measures that composed the reform and the role played by different agents in this process. The second is to critically assess each of the reform’s components, relating them with the potentiality of financial derivatives as instruments of fragilization of financial positions and instruments of contagion that may contribute to a systemic crisis.
The failure of central counterparties become a major concern to regulators and supervisors after ... more The failure of central counterparties become a major concern to regulators and supervisors after the 2008 international financial crisis. Some few events of this type have been registered in the past and the case of the Brazilian Commodities and Futures Exchange (BM&F) in 1999 is usually referred in the literature as a near-failure event. The paper analyses the details behind BM&F’s supposed near-failure based on the minutes of the Brazilian Congress Investigative Commission on the subject. More specifically it depicts the events that led to a bailout of two minor banks, Marka and FonteCindam, by the Central Bank of Brazil (BCB) and discusses the motivations behind BCB and BM&F. It is argued that despite some concerns on systemic risk were expressed by BCB high-level officers, the (potential) defaults of Marka and FonteCindam would not be sufficient to led BM&F to a failure. Rather, the bailout of these two small banks is related to a failed attempt to maintain the administered exchange rate regime then in force. We also draw some regulatory lessons from the episode, in areas such as trade transparency, market surveillance and mandatory limits on financial fragility.
This paper analyzes the experience of the Brazilian Development Bank (BNDES) from 1952 to 2019 to... more This paper analyzes the experience of the Brazilian Development Bank (BNDES) from 1952 to 2019 to understand how financial regulatory standards influence development banks and their performance as a tool for the socialization of investment and promotion of full employment. We focus on the period after the adoption of Basel standards by Brazilian authorities (1994), presenting and assessing the current regulatory framework that rules BNDES governance, operations, and risk management practices. Our methodology combines a comprehensive review of regulations, relevant data provided by BNDES and the Central Bank of Brazil and semi-structured interviews with BNDES’ staff.
This paper analyzes the main capital markets in Latin America and the process already going on th... more This paper analyzes the main capital markets in Latin America and the process already going on the countries of the Pacific Alliance, Mexico, Colombia, Peru and Chile, named MILA. It also suggests a policy agenda for Brazil.
This paper aims at analysing the relationship among derivatives, financial fragility and systemic... more This paper aims at analysing the relationship among derivatives, financial fragility and systemic risk by discussing the role played by these financial instruments in the collapse or near-collapse of Barings Bank, Long-Term Capital Management (LTCM), Lehman Brothers and AIG. We investigate in which ways derivatives contributed to the build-up of systemic risks in these experiences according to a Post-Keynesian perspective, which is focused on the Minskyian concept of financial fragility and Cardim de Carvalho’s analysis of contagion and systemic risk. Our analysis points out that derivatives’ embedded leverage played a pivotal role in fragilizing the financial positions of Barings, LTCM and AIG, and a supporting role in Lehman’s failure, accelerating its financial debacle. While Barings’ failure did not cause contagion nor systemic consequences via derivative markets, in the case of Lehman derivatives worked as a major mechanism of contagion and contributed to the materialization of a systemic crisis. Yet, concerns on potential contagion effects via derivatives in the cases of LTCM (indirect) and AIG (direct) provided reasons for setting up the bailouts that avoided the collapse of these institutions. Finally, we highlight that, if speculative and Ponzi financing positions are widespread, instead of cushioning financial shocks, derivatives might fragilize even more financial institutions and disseminate difficulties among the financial system, therefore contributing to a systemic crisis to take place.
O artigo analisa como a reforma regulatória implantada após a crise financeira internacional de 2... more O artigo analisa como a reforma regulatória implantada após a crise financeira internacional de 2008 afetou os processos estruturantes do sistema financeiro globalizado. Argumentamos que a reforma buscou re-regular os mercados financeiros, redefinir a estrutura e as bases do modelo de negócios dos bancos globais, influenciando a questão da intermediação, e limitar a capacidade de externalização do risco e de alavancagem das instituições e do sistema como um todo. Concluímos que as mudanças regulatórias, embora tímidas em alguns tópicos, influenciaram os processos estruturantes do sistema financeiro global e alteraram, menos pronunciadamente, seu modus operandi e suas bases de expansão.
Brazil’s economic importance has increased substantially in the past 10
years; the country is con... more Brazil’s economic importance has increased substantially in the past 10 years; the country is consistently ranked among the 10 largest economies in the world. However, despite relevant improvements in the past decade, Brazil’s financial and capital markets still have room to grow and to further support long term sustainable economic development. The present report is the product of a UK-Brazil cooperation research project aimed at addressing important challenges to help further integrate Brazil into global financial markets.
Investment is one of the key drivers of effective demand and plays a pivotal role in determining ... more Investment is one of the key drivers of effective demand and plays a pivotal role in determining long-term growth of monetary economies. Heterodox theory stresses several factors which contribute to define investment dynamics, especially uncertainty and the availability of financial resources (debt and its cost). This present paper aims at analyzing empirically the behavior of investments and their determinants in the period from 2003 to 2012 in Brazil, using the Keynesian-Kaleckian theoretical framework as a reference to our discussion and to offers insights to our econometric model. More specifically, we were interested in assessing whether the 2008-9’s global financial crisis changed the balance between the determinants of investments or not.
The present paper aims at analyzing the functionality of the Brazilian financial system (BFS) to ... more The present paper aims at analyzing the functionality of the Brazilian financial system (BFS) to economic development during Lula’s term (2003-2010). More specifically, we assess the way a set of indicators evolved over time regarding: (i) the channeling of resources from the BFS to the real economy; (ii) the degree of financial fragility, measured from a macroeconomic perspective. The empirical evidence provided indicates a huge growth of resources channeled to productive uses whereas the degree of financial fragility increased, but in a moderated and controlled manner. Therefore we conclude that the BFS’ functionality to economic development has increased in the 2003-10 period. However, the lack of long-term funding supply remains a bottleneck to the BFS, limiting the expansion of investments and, consequently, Brazilian economic development.
PT: O presente trabalho tem dois objetivos centrais. O primeiro consiste em apresentar a reforma ... more PT: O presente trabalho tem dois objetivos centrais. O primeiro consiste em apresentar a reforma regulatória do mercado de derivativos financeiros estruturada após a crise financeira internacional de 2008 e discutir o diagnóstico e as soluções apontadas pelo G20, analisando o processo de gestação das medidas que compuseram o rol de mudanças sugeridas pelo organismo e os papéis dos atores envolvidos neste processo. Em segundo lugar, analisamos criticamente cada um dos elementos componentes da reforma global, destacando como cada medida regulatória pode ser relacionada às potencialidades dos derivativos financeiros como instrumentos de fragilização e de contágio/materialização de uma crise sistêmica.
EN: This work has two aims. The first is to present the derivatives market regulatory reform structured in the aftermath of the 2008 international financial crisis and discuss the diagnosis and the solutions adopted by the G20, analyzing the gestation of the measures that composed the reform and the role played by different agents in this process. The second is to critically assess each of the reform’s components, relating them with the potentiality of financial derivatives as instruments of fragilization of financial positions and instruments of contagion that may contribute to a systemic crisis.
The failure of central counterparties become a major concern to regulators and supervisors after ... more The failure of central counterparties become a major concern to regulators and supervisors after the 2008 international financial crisis. Some few events of this type have been registered in the past and the case of the Brazilian Commodities and Futures Exchange (BM&F) in 1999 is usually referred in the literature as a near-failure event. The paper analyses the details behind BM&F’s supposed near-failure based on the minutes of the Brazilian Congress Investigative Commission on the subject. More specifically it depicts the events that led to a bailout of two minor banks, Marka and FonteCindam, by the Central Bank of Brazil (BCB) and discusses the motivations behind BCB and BM&F. It is argued that despite some concerns on systemic risk were expressed by BCB high-level officers, the (potential) defaults of Marka and FonteCindam would not be sufficient to led BM&F to a failure. Rather, the bailout of these two small banks is related to a failed attempt to maintain the administered exchange rate regime then in force. We also draw some regulatory lessons from the episode, in areas such as trade transparency, market surveillance and mandatory limits on financial fragility.
This paper analyzes the experience of the Brazilian Development Bank (BNDES) from 1952 to 2019 to... more This paper analyzes the experience of the Brazilian Development Bank (BNDES) from 1952 to 2019 to understand how financial regulatory standards influence development banks and their performance as a tool for the socialization of investment and promotion of full employment. We focus on the period after the adoption of Basel standards by Brazilian authorities (1994), presenting and assessing the current regulatory framework that rules BNDES governance, operations, and risk management practices. Our methodology combines a comprehensive review of regulations, relevant data provided by BNDES and the Central Bank of Brazil and semi-structured interviews with BNDES’ staff.
This paper analyzes the main capital markets in Latin America and the process already going on th... more This paper analyzes the main capital markets in Latin America and the process already going on the countries of the Pacific Alliance, Mexico, Colombia, Peru and Chile, named MILA. It also suggests a policy agenda for Brazil.
Uploads
years; the country is consistently ranked among the 10 largest economies in the world. However, despite relevant improvements in
the past decade, Brazil’s financial and capital markets still have room to grow and to further support long term sustainable economic development. The present report is the product of a UK-Brazil cooperation research project aimed at addressing important challenges to help further integrate Brazil into global financial markets.
EN: This work has two aims. The first is to present the derivatives market regulatory reform structured in the aftermath of the 2008 international financial crisis and discuss the diagnosis and the solutions adopted by the G20, analyzing the gestation of the measures that composed the reform and the role played by different agents in this process. The second is to critically assess each of the reform’s components, relating them with the potentiality of financial derivatives as instruments of fragilization of financial positions and instruments of contagion that may contribute to a systemic crisis.
years; the country is consistently ranked among the 10 largest economies in the world. However, despite relevant improvements in
the past decade, Brazil’s financial and capital markets still have room to grow and to further support long term sustainable economic development. The present report is the product of a UK-Brazil cooperation research project aimed at addressing important challenges to help further integrate Brazil into global financial markets.
EN: This work has two aims. The first is to present the derivatives market regulatory reform structured in the aftermath of the 2008 international financial crisis and discuss the diagnosis and the solutions adopted by the G20, analyzing the gestation of the measures that composed the reform and the role played by different agents in this process. The second is to critically assess each of the reform’s components, relating them with the potentiality of financial derivatives as instruments of fragilization of financial positions and instruments of contagion that may contribute to a systemic crisis.