ABSTRACT
This chapter discusses why the Brazilian banking system performed reasonably well during the 2008 financial crisis and why Brazil's banking regulation should be treated as responsible for this good performance. More specifically, the prudential regulation that was implemented in Brazil in the aftermath of the Real Plan seems to have been decisive in explaining the system's resilience today. The idea behind this new prudential regulation was to provide incentives to banks to operate in sustainable and profitable ways rather than to use direct intervention. Along with prudential regulation and the injection of liquidity into the system, the liberalization of the Brazilian financial system was followed by the opening of the banking sector to more foreign institutions. The apparatus of prudential regulation set up in the aftermath of the Real Plan also played a very important role in ensuring the resilience of the banking system.
