The preferred institutional design of central banks is clear. Most scholars work from a template that imagines an independent central bank capable of freely implementing monetary policy so as to ensure that short-term political considerations do not get in the way of long-term growth, and of regulating the banking industry in such a way as to avoid both private sector oligopolies and the political temptations posed by public sector financial institutions. This implicit model is influential both in academic discourse and in shaping the structure of international legal regimes, such as the Basel accords.

The Brazilian Central Bank (BCB) is a particularly egregious exception to the model. Monetary authority in Brazil’s New Republic (1988–2018) has been marked by subordination to the executive branch, permissiveness with regard to the concentration of the banking sector, and the bifurcation of the banking sector between private and public oligopolies. One consequence is monetary policy that is more ineffective than might otherwise be thought desirable, controlling inflation only through record-setting real interest rates. Somewhat paradoxically, however, despite the strength of domestic financial oligopolies, the BCB has proven capable of undertaking stringent regulatory oversight, with a regulatory framework that is widely considered to meet and even exceed the prudential banking standards set out in the Basel accords. This chapter seeks to explain the resilience of this odd, “second-best” institutional design.