Gaining national recognition among leading think-tanks and policy makers in Brazil, Assistant Professor of Economics Felipe Rezende received widespread media coverage this fall regarding his expansive research on the role of public banks in the aftermath of the 2007-2008 global financial crisis. Most recently, Rezende’s op-ed, “BNDES, financial fragility, and external fragility,” was published in Brazil’s largest economic finance and business newspaper, Valor Economico.
The op-ed, which appeared on Sept. 15, uses the theory of financial instability to argue that public banks, in particular the National Economic and Social Development Bank (BNDES), are helping to stabilize the Brazilian economy. During the global financial crisis, public banks allowed policymakers to counter financial instability by sharply expanding credit growth when private sector (domestic and foreign) banks reduced bank lending. Although there’s widespread agreement that public banks have helped to steady the market, BNDES’ current role has been a source of controversy.
“BNDES has been subject to a range of criticisms such as crowding out private sector bank lending and it is said to be hampering the development of the local capital market,” Rezende explains. “But much of the policy discussion has been misplaced. Though the conventional belief assumes that capital markets are efficient and produce an optimal allocation of capital, this view is not supported by evidence.”
In its current form, Rezende argues that BNDES is the main source of long-term funding in Brazil, providing financing for capital development of inherently risky activities such as investment in expensive and long-lived assets such as stocks and bonds. Drawing on financial theory, Rezende says its existence conforms to “Minsky’s call” for designing a financial structure that dampens fragility and instability and provides funding to support the capital development of the economy.
The article is based on Rezende’s project report, “Developing Long-Term Funding in Brazil,” which was funded by the Ford Foundation and the Multidisciplinary Institute for Development and Strategies (MINDS). The two-phase research project is grounded in the theoretical framework of the late-American economist Hyman Minsky and explores the weakening effects of stability on financial structures and the need to redesign the regulatory structure to continually meet its objectives of financial stability while providing finances for development. Rezende is a research fellow at MINDS.
In July 2015, Rezende presented the findings of his first phase of research at “The MINDS/Ford Foundation Conference on Banking, Financial Instability, and Financial Governance” in São Paulo, Brazil, which he organized and coordinated. To expand the dissemination of his results further, Rezende published several articles in other well-known financial and business publications, including New Economic Perspectives and The Multiplier Effect, the Levy Economics Institute blog.
Rezende’s areas of teaching and research include macroeconomics, money and banking, monetary economics, and economic development. He has served as a faculty adviser for the Centennial Center for Leadership’s “Beyond Borders” program, a global leadership initiative on campus that combines international development and leadership studies to equip students with the tools to tackle some of the most pressing global issues. He also led a study abroad group to Brazil in which students took an immersive Brazilian economy course. Rezende holds an M.A. and a Ph.D. in economics with a specialization in monetary theory and financial macroeconomics from the University of Missouri-Kansas City.