The real stabilisation plan and the banking sector in Brazil

Abstract

The performance of the Brazilian banking industry after price stabilisation and threat of a systemic crisis is evaluated. A theoretical approach to banking crisis as a possible result of credit expansion is developed. The results indicate that problems encountered by the Brazilian banking industry in 1995 were bank-specific and did not constitute a bank crisis. Banks which were over-extended or had unsound credit facilities were denied funds in the interbank credit markets. However, financially sound banks were able to make the transition to price stability conditions, partly due to a successful government support program. JEL Codes: G21, G01 Keywords: Financial Services, Finance and Insurance, Banking industry, Currency stabilisation, Brazil