This paper employs a general equilibrium approach to model the Brazilian financial system. We show that the model is able to replicate the main characteristics of the data and to predict short-term trends. We calibrate the model for the years of 2002–2006, which comprise a crisis period in Brazil’s financial system. Empirical results suggest that the financial system is improving in terms of financial stability over time. Furthermore, the model has been proven useful to model the Brazilian banking system and could be employed to evaluate the impact of changes in financial regulation on the banking system.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Price excludes VAT (USA)
Tax calculation will be finalised during checkout.
Aspachs O., Goodhart C.A.E., Tsomocos D.P., Zicchino L.: Towards a measure to financial fragility. Ann Finance 3, 37–74 (2007)
Baer W., Nazmi N.: Privatization and restructuring of banks in Brazil. Q Rev Econ Financ 40, 3–24 (2000)
Beck T., Demirguc-Kunt A., Levine R.: Bank concentration, competition and crises: first results. J Bank Financ 30, 1581–1603 (2006)
Bolt, W., de Haan, L., Hoeberichts, M., van Oordt, M., Swank, J.: Bank Profitability During Recessions. DNB Working Papers 251, Netherlands Central Bank, Research Department (2010)
Boyd J.H., Nicoló G.D.: The theory of bank risk taking and competition revisited. J Financ 60(3), 1329–1343 (2005)
Cajueiro D., Tabak B.M.: The role of banks in the Brazilian interbank market: does bank type matter?. Phys A 387, 6825–6836 (2008)
Caprio G., Kinglebiel D.: Episodes of Systematic and Borderline Financial Distress. The World Bank, mimeo (2002)
Catarineu-Rabell E., Jackson P., Tsomocos D.: Procyclicality and the new Basel accord banks’ choice of loan rating system. Econ Theory 26(3), 537–557 (2005)
Chang E.J., Guerra S.M., Lima E.J.A., Tabak B.M.: The stability-concentration relationship in the Brazilian banking system. J Int Financ Mark Inst Money 18(4), 388–397 (2008)
Fang, Y., Hasan, I., Marton, K.: How Institutions Affect Bank Risk: Evidence From a Natural Experiment in Transition Economies, Paper Sessions, FMA Annual Meeting Program (2011)
Freixas X., Parigi B., Rochet J.C.: Systemic risk, interbank relations and liquidity provision by the central bank. J Money Credit Bank 32, 611–638 (2000)
Goodhart C.A.E., Sunirand P., Tsomocos D.P.: A model to analyse financial fragility: applications. J Financ Stab 1, 1–30 (2004)
Goodhart C.A.E., Sunirand P., Tsomocos D.P.: A risk assessment model for banks. Ann Finance 1, 197–224 (2005)
Goodhart C.A.E., Sunirand P., Tsomocos D.P.: A model to analyse financial fragility. Econ Theory 27, 107–142 (2006a)
Goodhart C.A.E., Sunirand P., Tsomocos D.P.: A time series analysis of financial fragility in the UK banking system. Ann Financ 2, 1–21 (2006b)
Goodhart C., Peris M., Tsomocos D., Vardoulakis A.: On the dividend restrictions and the collapse of the interbank market. Ann Finance 6(4), 455–473 (2010)
Hoggarth G., Reis R., Saporta V.: Costs of banking system instability: some empirical evidence. J Bank Finance 26, 825–855 (2002)
Pederzoli C., Torricelli C., Tsomocos D.: Rating systems, procyclicality and Basel II: an evaluation in a general equilibrium framework. Ann Finance 6(1), 33–49 (2010)
Peria M.S.M., Moky A.: How foreign participation and market concentration impact bank spreads: evidence from Latin America. J Money Credit Bank 36(3), 511–537 (2004)
Saade A., Osorio D., Estrada D.: An equilibrium approach to financial stability analysis. Ann Finance 3, 75–106 (2007)
Staub R.B., Souza G., Tabak B.M.: Evolution of bank efficiency in Brazil: a DEA approach. Eur J Oper Res 202(1), 204–213 (2010)
Tabak B.M., Fazio D.M., Cajueiro D.O.: The effects of loan portfolio concentration on Brazilian banks’ return and risk. J Bank Finance 35(11), 3065–3076 (2011)
Tsomocos D.P.: Equilibrium analysis, banking and financial instability. J Math Econ 39, 619–655 (2003)
Tsomocos D.P., Bhattacharya S., Goodhart C.A.E., Sunirand P.: Banks, relative performance and sequential contagion. Econ Theory 32, 381–398 (2007)
World Bank: Global Development Finance. Washington (2002)
The authors are grateful to partial financial support from CNPQ foundation. The opinions expressed in this paper are those of the authors and do not necessarily reflect those of the Banco Central do Brasil or its members. We also thank anonymous referees for helpful suggestions and comments.
Rights and permissions
About this article
Cite this article
Tabak, B.M., Cajueiro, D.O. & Fazio, D.M. Financial fragility in a general equilibrium model: the Brazilian case. Ann Finance 9, 519–541 (2013). https://doi.org/10.1007/s10436-012-0199-9
- General equilibrium
- Financial stability
- Banking system
- Financial regulation