Banking concentration in Brazil

Clara Figueiredo_untitled_Digitized analog photography_Havana_2019


Banks serve their own interests, and in our Constitutional Economic Order, should serve the Nation

In May 2020, Minister Paulo Guedes revealed his vision of Brazil: “Two hundred million muggles being exploited by six banks”.1 Unlike so many other statements by the minister, it seems that this time he came close to getting it right.

Brazilian bank concentration is very high, exceeding 80%. The IMF maps numerous experiences in the 40% range; the US in 2016 had a concentration of 43%, which increased between 2000 (28.06%) and 2008 (41.75%), when the financial crisis broke out. With the crisis, the US State ordered bank concentrations, but ten years later the result was just over 40%. China has banking concentration of 37% and India of 36%. Our banking concentration, as stated by the Central Bank, is surpassed in the world only by the Netherlands, whose 5 largest banks hold 89% of total assets.2

Banking concentration and its legal discipline: how did we get here?

Given the character of a “colonial enterprise” and the structural weakness of the State in relation to landowners, monetary instrumentation was, for a long time, a terrain in which individuals obtained, simultaneously, enormous profit and power.

The Civil Code of 1916 ensured (i) that the parties to a given contract could freely agree on the currency in which the obligation would be fulfilled (art. 947, §1st.) and (ii) that the foreigner would carry with him the legislation of his country, in the event of a dispute (since the “normative connecting element” contained in the Introductory Law to the Civil Code was nationality, rather than domicile). Such legal discipline created an environment in which money and the powers/functions it classically engenders (means of exchange, store of value and unit of account/value) tended to be (iii) far from the State and a national development policy and (iv) close to foreigners and private operators connected or subject to them.

From the Revolution of 1930, with Decree nº 23.501/33 and Decree-Law 4.657/42 (which stipulated the obligatoriness of the legal tender of the national currency and, as a connecting element, the domicile), monetary instrumentation became object of action of a national State in search of economic sovereignty. This attempt to make the financial system (i) national and (ii) useful for development purposes was never completed (just like the task of quality public education for the entire Brazilian population or the transformation of our economy into an industrial one, and not merely raw material exporter).

The military dictatorship of 1964, consuming one more of the US ideological cans, postulated the need for (i) the banking sector to concentrate, (ii) with each unit gaining in scale, (iii) which, according to the fairy tale , would allow the reduction of the overall operating costs of the operation and, (iv) at the end, would bring the magical consequence of the reduction of the interest rate and (v) the desired reduction of the inflationary pressure. Thus, bank concentration candidly became a synonym for social justice.

Decree-Law 1.182 of 1971 created the Commission for the Merger and Acquisition of Companies – Cofie, whose objective was to encourage mergers, acquisitions and IPOs in sectors considered to be of “national interest”. The objective of banking concentration was achieved: from 1967 to 1973, the number of banks decreased from 262 to 114, with more than 148 banks ceasing to exist. The privatization of tax collection posts (always leaving a gigantic extra amount of money in bank tellers for several days, until they are sent to the proper state destination) was just one of the gifts from the dictatorship to the banks that “gained scale”, while the publicized fall of interest and inflation, previously announced, was solemnly forgotten.

With the military retreating to the barracks under very high inflation falling on their backs, in December 1988 there were 104 commercial banks and 5 savings banks in operation; Of the total banks, 49 were private banks (controlled 56.85% of assets), 26 banks under foreign control (9.62% of assets) and 29 public banks (21.55% of assets). That same year, the Federal Constitution was promulgated, with at least four commands never swallowed by the financial market: (i) the external debt audit (CF, ADCT, art. 26), (ii) the legal submission of the financial system to the purposes of national development (art. 192, caput), (iii) the constitutional determination of interest (art. 192, paragraph 3.) and (iv) the determination for the existence of a truly competitive environment (art. 192 and art. 170). The regulatory change that authorized the creation of multiple banks also dates back to 1988, which, reversing the trend of the previous period, increased the number of banks, reaching the mark of 244 in December 1994.

From the Real Plan, however, the banking concentration policy renewed its force, with (i) the disappearance of private banks and (ii) the privatization of state banks (the latter, in 1996, corresponded to 17,6% of the resources of the National Banking System). The "Program to Stimulate the Restructuring and Strengthening of the National Financial System - Proer" and the "Program to Encourage the Reduction of the State Public Sector in Banking Activity - Proes" were articulated to organize (i) bank mergers and incorporations (with a view to to the inflationary stability program) and (ii) reduce or eliminate the direct state presence in the economy, enthusiastically following the orders of the World Bank and the International Monetary Fund.3 Banking concentration now became synonymous with national salvation.

Proes resulted in the privatization of 9 institutions, generating an expense of R$ 61,4 billion to clean up the privatized banks; of the 64 existing banks, 41 were privatized, extinguished or transformed into development agencies. The “Program for Strengthening Federal Financial Institutions – Proef” created the Empresa Gestora de Ativos – Emgea and acted in the restructuring of federal banks, through the exchange of low-yield and low-liquidity assets for federal public bonds. During the FHC period, an attempt was also made to prohibit the opening of banks, erecting legal barriers to new entries, such as the 32% equity requirement for new entrants, while only 8% was required for existing banks.4

The banking concentration policy was also expressed by CADE's blockade of controlling the banking sector. In 1997, Bradesco structured the purchase of Banco de Crédito Nacional – BCN, with the transaction submitted only to Bacen. Subsequently, CADE (i) considered itself competent, (ii) analyzed the operation, (iii) decided on the absence of deleterious effects on competition and (iv) imposed a fine, due to the untimely presentation of the Concentration Act.5 This interpretation gave rise to a long legal battle, in which, fundamentally, the banks, the Central Bank and successive federal governments sought to exclude CADE from the legal control of the banking sector, ironically seeking Bacen's regulatory monopoly, as evidenced by the “Binding Opinion” of the Attorney General's Office in 2001.6

The attempt to consolidate the regulatory monopoly for an authority notoriously aligned with its regulated parties, such as the Central Bank, was resolved, albeit timidly, only in 2018, when CADE and Bacen signed a Memorandum of Understanding that disciplined the need for authorization by both parties. bodies, except in cases of Concentration Acts that “indicate that there are relevant and imminent risks to the soundness and stability of the SFN”.7

The intense search for bank concentration by the dictatorship and by the governments that succeeded it was achieved: according to Bacen, only 40% of the banks that operated in December 1988 survived until 2000, when the Brazilian banking system was composed of 191 banks and 1 savings bank , with 16 public banks (24,33% of assets), 104 national private banks (42,56% of assets) and 71 banks under foreign control (33,11% of assets). In 2019, bank concentration in the country reached its peak, realizing the victory of the concentrationist interests that handled the dictatorship and subsequent governments: the five largest banks in the country now hold 81% of the commercial banking market. In 2020, with such power and extreme capacity to subordinate the Brazilian economy to its dictates, even in the face of the pandemic and the historic low of the Selic, the five largest banks profited R$ 61 billion. In the same year, among the five publicly traded companies with the highest profit, four were banks: (i) Itaú Unibanco (R$ 18.9 billion); (ii) Bradesco (R$16.5 billion); (iii) Santander (R$13.4 billion); and (iv) Banco do Brasil (R$12.6 billion).8

The “Matthew theorem”: taking the Public Debt and not sharing efficiencies

The popular reference to the biblical message of the book of Matthew, 13:12 (“To whoever has, more will be given, and he will have abundance. From whoever does not have, even what he has will be taken away”), refers to “circular causation”: those who have power tend to increase their power; those who don't have power tend to diminish the little they have. With the increase in their power, Brazilian banks began to increase their power…

The 2020 Annual Debt Report - RAD points out that the internal Federal Public Securities Debt is now held mostly by financial institutions, with (29,6%), followed by funds (26%), social security (22,6%), no residents (9,2%), government (3,8%) and insurance companies (3,7%). This share rose from third place in 2018 (22,7%) to first, at the same time that the Federal Public Debt – FPD ended 2020 reaching a historic record of approximately R$5 trillion and the Debt ratio Gross – GDP reached 89,3%.9

The domain of the State's debt seeks to be the domain of the State itself, and the banks became “more owners of a debt that has grown bigger”: “To whoever has, more will be given, and he will have in abundance”.

At the other end of “Matthew's tragedy” are the borrowers of the main commodity that banks should offer: bank credit at low prices to instrumentalize Brazilian economic development. Here, the banking oligopoly created concentration without sharing finalistic efficiencies with the consumer (as opposed to instrumental efficiencies, such as high computerization or bank security, whose meaning is evidently self-feeding for the financial conglomerate itself that generates efficiency). Even with the Selic at a historic low, close to 2%, there is no such parity in the interest rates charged by retail banks and the revolving credit card rate remains at astronomical levels, around 300%.10 The other side of the wave is revealed crudely: “From those who do not have, even what they have will be taken away from them”.

In this situation, banking concentration becomes a threat to democracy itself.

Submitting banks to the Economic Order, not the other way around

Banking concentration in Brazil is a factual state that is flagrantly contrary to the Constitutional Economic Order and to the commands emerging from the provisions of Articles 3. and 192 (which determine national development as an objective of the country and the financial system, and not the situation of subordination of the country to its banks), art. 219 (which determines that the internal market is a national asset, aimed at economic and social development and technological autonomy, and never a legal asset instrumental to the dysfunctional and self-centered enrichment of banks) and art. 170 (which determines the existence of effective competition, and not the occurrence of easy strategic alignments, incapable of contributing to the increase of complexity and economic solidarity).

The interpretation/application of the Economic Order by the control and promotion bodies opens at least three paths for the emancipation of Brazilian society in relation to the current framework of banking domination.

The first is to put state-owned banks in their proper place — subject to the Federal Constitution —, syndicating them to (i) offer credit with greater access and better conditions, aimed at small and medium-sized businesses, technological innovation, culture, agriculture and infrastructure, without seeking alignment with private banks, disorganizing the consensus, generating incessant competitive pressure, and (ii) guaranteeing long-term financing for the country's main strategic development projects. The second is the institutional manufacture of a truly competitive financial ecosystem, fertilized and toned with (i) sectorized credit cooperatives, (ii) specialized, local and regional financial institutions, and (iii) the modulation of the capital market and fintechs functionalized to actually compete with the banking oligopoly, and not structurally and tacitly aligned to its fat margins. The third path says, with the generalization of a “prudential competition rule” for all future cases submitted to CADE and Bacen (members of the indirect Administration whose sole purpose and reason for existence is the implementation of the Federal Constitution) involving banks: (i) carry out market analyzes that take as a premise the cogent duty, of Economic Public Order, to obtain banking deconcentration; (ii) veto new banking concentrations that do not assume a “performance commitment to generate finalistic efficiencies shared with consumers” (performance commitment to reduce, with a structural and behavioral approach, the price of money); and (iii) a program to investigate anticompetitive conduct that, in addition to pecuniary penalties, has as its core effectiveness the application of structural remedies, enabling deconcentration and new entries.

In our Constitutional Economic Order, banks serve the Nation, not the other way around. The administrative bodies must implement the Constitution, not reports from the OECD, from ICN or other entities aimed at capturing the capacity and institutional imagination of peripheral countries. The task of legal organization of the banking markets is still to be done and is just as relevant as that of education, health or infrastructure: it is, after all, to remind the Master, of the interrupted construction of the Nation.11 From this perspective, banking deconcentration becomes civilization.

* Alessandro Octaviani, former member of the Administrative Council for Economic Defense (CADE), he is a professor at the USP Law School. Author, among other books, of Genetic resources and development (Hail).

Originally published on the website Counsel.


1 In live with Itaú, Guedes says that '200 million muggles' are explored by six banks. Newspaper. May 09, 2020. Available at>.

2 BRAZIL. Central bank. Banking Economy Report (2017). 2018, p. 91. Available at:>. Banks in the Hands of a Few. UOL. September 18, 2017. Available at:>.

3 Proer was built by several normative instruments, such as Provisional Measures 1179/95 and 1182/95; CMN Resolution 2208/95; BACEN Resolutions 2636/95, 2672/96, 2681/96, 2713/96, 2369/97 and 2748/97. Proes was created with the publication of Provisional Measure 1514/96. Proef was created with the edition of Provisional Measure 2.196-2/2001.

4 Cf., among others, MATIAS, Alberto Borges. METZNER, Talita Dayane. The Brazilian Banking Sector from 1990 to 2010. Barueri: Manole, 2015. VENTURINI, Lilian. What was Proer, a case from the 90s now unarchived by the Supreme Court. Nexus. March 29, 2016. Available at:>.

5 BRAZIL. Administrative Council for Economic Defense. Concentration Act No. 08012.002381/2001-23. Alliance Capital Management Corporation of Delaware and Banco de Crédito Nacional S/A. Rapporteur: Celso Fernandes Campilongo. Decision: May 29, 2002.

6 BRAZIL. Attorney General of the Union. Opinion GM-020/2001, of March 28, 2001.

7 BRAZIL. Brazilian central bank. Administrative Council for Economic Defense. Memorandum of Understanding between Cade and Bacen. 2018. Available here.

8 On data for the year 2000: BRAZIL. Brazilian central bank. Brazilian Banks after Resolution 1524, of 21.09.1988/XNUMX/XNUMX. Available in>. About the data for the year 2019: BRAZIL. Brazilian central bank. Banking Economy Report, 2019. p. 124. Available at: >. About earnings data in 2020: Profits from large banks add up to R$ 61,6 billion in 2020, but have the biggest drop in 21 years; dividends shrink 48%. infomoney. February 17, 2021. Available at>. On the inclusion of four banks among the five largest publicly traded companies in the country: Net profit of publicly traded companies drops 36,8% in 2020. G1. Available at <>.

9 BRAZIL. National treasure. Annual Debt Report (RAD) – 2020. p. 22. Available at>. Gross government debt reaches 89,3% of GDP in 2020. Brazilian Mail. January 29, 2021. Available at:–do-pib-em-2020.html>.

10 Credit card interest rate rises to 311,7% in January. Value Invest. February 25, 2021. Available at>.

11 FURTADO, Celso. Brazil – construction stopped. Petrópolis: Peace and Land, 1992




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