RESEARCH PROPOSAL
EDUARDO MESQUITA PEREIRA ALVES
CRISIS AND TRANSFORMATION IN THE REGULATION OF
FINANCIAL SYSTEMS: COMPARISON OF THE BRAZILIAN AND JAPANESE
LEGAL FRAMEWORKS
2013
ABSTRACT
This project’s focus is on the performance of Financial System Regulatory
Institutions in Brazil and Japan from the comparative perspective of how both
countries’ legal frameworks have adapted to face internal and external crises,
therefore concerning not only how they react to global and local financial crises,
but also how to deal with crises of trust, autonomy, independence and
democratic deficit. While Japan relied for decades on a rigorous but nontransparent regulation, exercised by the Ministry of Finance and by the BOJ, the
model failed in the face of a changing economic scenario, being replaced by a
system shared between ministries, regulatory agencies and the Central Bank in
a much more transparent and autonomous model. Brazil, in turn, has struggled
with complex, overloaded and inefficient regulation that does not offer enough
space for expert action without influence from the political sphere, despite
recent changes in its legislation. This study aims to extract from the comparison
of these two systems an analysis of structural characteristics of the financial
system, normative and regulatory activity, as well as how it can be optimized to
respond to crises and changes in the economic scenario
Key-words: Financial System, Brazil, Japan, Financial Regulation, Central
Banking
Table of Content
1. Background .................................................................................................... 4
2. Objectives....................................................................................................... 5
3. Justification..................................................................................................... 6
4. Methodology ................................................................................................... 7
6. Research Plan ................................................................................................ 8
References ......................................................................................................... 9
4
1. Background
Japan represented the greatest symbol of economic development
success during the 60’s, 70’s and 80’s, until it finally succumbed to an
unprecedented crisis.
While much of its economic success relied on the solidity and security of
the Financial System, which was able to deal with major global crises for three
decades, the combination of the bubble economy, structural factors and lack of
supervision due to an inefficient regulatory framework made the Japanese
banking and financial crisis in the late 80’s more acute and long-lasting when
compared to similar banking problems in other countries. When new crises hit
the country in the late 90’s and 2000’s, its ability to react was put to the test,
and changing the financial system regulation framework was one of its main
breakthroughs. In 2013 the independence of the Central Bank has been
questioned by the LDP, bringing the financial system framework once more into
discussion.
Brazil, in turn, faced serious social and economic problems during the
second half of the 20th century due to an authoritarian and dictatorial regime
that was unable to develop efficient economic, fiscal and monetary policies. The
Brazilian Financial System was disorganized; its Central Bank did not enjoy a
great deal of autonomy, with constant changes in its main positions. Banking
and credit policy were not well regulated and supervised, and public financial
institutions were used for electoral purposes. These problems led to a major
economic crisis with a critical three digits inflation scenario.
The situation started to change with a new Financial System regulation
framework devised by the 1988’s Constitution and new legislation arising from
this new frame. However, there is much room for improvement, especially in
institutional and legislation remodeling.
The present research intends to focus on the shaping and improvement
of legal institutions that govern both countries’ financial systems, without
forgetting that economic, social and political factors play a fundamental role in
the performance of such institutions.
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Therefore, the comparison should be guided by a careful consideration
of underlying elements that can influence the performance of those systems.
2. Objectives
This study aims to identify the key legal, structural and institutional
aspects of financial system regulation, based on the Japanese and Brazilian
comparison case.
Among the main points to be clarified are: a) the structural modification in
legislation before, during and after serious crises faced by both countries,
especially the role played by Central Banks in those key events; b) the
relevance of features of system adaptability to specific circumstances of a given
economic order and momentum; c) the differences between frameworks
designed for short, medium and long-term challenges and objectives; d) choices
concerning the separation or not of a Central Bank’s supervisory and regulatory
power
Concerning the institutional perspective, the research will deal on how to
legally define clear limits to the role of the Ministry of Finance, Central Bank and
other regulatory authorities.
By studying Japanese and Brazilian law in detail, as well as the
legislative process and reasoning that led to the adoption of the current
regulatory framework, the aim is to not only objectively understand the system,
but to produce a critical analysis of the relations of (in)dependence among
agents that compose the formal and informal division of powers and functions in
the regulation structure.
The comparison also highlights the political and sociological aspect that
differentiates developed and developing countries in relation to formal
obedience to the law, stability and strength of democratic institutions and
regulatory authorities.
More importantly, by deriving general rules and principles it will be
possible to diagnose some of the main legal factors that can lead to the
worsening of crises, helping both countries to devise the best legal solutions to
maintain a healthy regulatory framework even in periods of cyclical economic
crisis.
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By looking at the major legislative changes in Japan, as the revision of
the Bank of Japan Law, the redistribution of some roles previously exercised by
the Ministry of Finance and the creation of a regulatory agency (FSA), Brazil
may be able to provide its regulatory framework with greater legal clarity and
efficiency, making the performance of both the Central Bank and Ministries
more predictable and transparent, based on the definition of rules that establish
objective criteria concerning state intervention on private financial agents.
Japanese researcher, on the other hand, can benefit from this study by
learning more about the financial structure of one of the major emerging
markets in the world. This can lead to a better understanding of law and
economy in developing countries in general and can provide valuable
information concerning the risks of investing in such countries.
3. Justification
The legal researcher does not have a laboratory to test and improve
legislation and institutions. He must look at other time periods and other nations
to learn from their mistakes and successes.
Considering that Financial Systems are highly globalized and integrated,
and that economic patterns repeat themselves around the world, financial
regulation is a fertile field of Comparative Law studies. Also, taking in account
the need for regulatory harmonization, the field actually asks for more studies
that help to conciliate different frameworks, allowing institutional changes to be
consistent with international standards of regulation and supervision.
Therefore, unlike some areas of law that are concerned only with
domestic issues, Comparative Public Economic Law deals with global issues
that can only be solved through international cooperation.
The research is justified in firstly as a theoretical need since it fills gaps in
two areas of law studies.
1) In a general perspective, it fills a gap of Comparative Law due to the
absence, in both Brazil and Japan, of studies in Comparative Public Law
between the two countries.
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Despite the economic success and institutional effectiveness of Japan in
the twentieth century, the country has not received sufficient attention by
Brazilian jurists as a possible source of inspiration for developing effective
public policies and legal solutions.
As much as cultural, economic and social aspects may constitute barriers
to "import" or “export” these solutions between the two countries, the same
argument could be raised with respect to Western nations with significant
differences in social structure, which did not prevent both countries from
adopting even whole legal frameworks from Europe or the United States.
2) With respect to Economic Law, especially Regulatory Law, the
research contributes to the consolidation of new standards of legal and
institutional design in the field. Well-designed legislation establishes a
framework that enables a regulatory authority to pursue those responsibilities
for which it is designed, in the most efficient way.
The research also justifies itself as a pragmatic need. Japanese and
Brazilian experience shows that problems dependent on an efficient relationship
between law and economics cannot be solved by a classical approach. The
drafting of the new legislation concerning financial system regulation is not
based on principles set by administrative law or classic banking law, but on
principles derived from the assessment of needs from a specific economic
order.
The change of intervention methods, the distinctive features of a
legislation that ensures the transparent performance of the regulatory
authorities, and the security of economic agents need the empirical support that
only comparative law can provide. Ultimately this type of research can help
to avoid some of the worst effects of economic crises.
4. Methodology
In order to achieve the proposed objective the research will follow two
lines of investigation.
The first, eminently historical, seek to understand the influence of legal
phenomena on political and economic institutions trying to clarify how they
mutually influence each other through the recent history of crises.
8
The approach does not intend to take an evolutionary perspective of
institutions to demonstrate a supposed superiority of the new over the old.
Rather, the analysis of different historical moments has the scope to
demonstrate that such changes are responses of the legal system to to
transformations in the economic and political reality, and as such, are not better
or worse, but possible reactions necessary for maintaining an acceptable level
of institutional balance.
The second line of investigation will be effectively a survey of the
normative aspects of the Brazilian and Japanese regulation legal framework
based on the careful reading and comparisons of Acts and Laws from both
countries. From those comparisons we hope to devise legal and economic
principles that underlie the legislation, in search of both derivation of general
concepts and principles of economic law and specific techniques of regulation
adopted by these countries.
The theoretical research will be followed by a more practical investigation
of the recent activity of regulatory authorities and institutions in order to check
their commitment with the formal framework .
Finally, the work will counteract the actual results of financial system
transformation in regulation in both Japan and Brazil allowing the empirical
learning of foreign experience in developing legal systems.
6. Research Plan
This research will be conducted in four phases: 1) Conceptual Phase; 2)
design of research , 3) complementary reading of works considered useful to fill
the gaps left by the previous phases, 4) synthesis comparison and writing.
1) Conceptual Phase: This phase is mostly concerned with background
research. It will be conducted by searching and reviewing scientific literature in
order to clearly formulate the problem and develop the theoretical construction
of the research.
Estimated Duration: 10 months
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2) Design of Research: It involves the construction of definitions; selection of
specific objects of study and methods of research, analysis of more specific
literature as well as empirical data. In this phase the formulated questions will
be completely dissected by using the previous acquired theoretical framework.
- Estimated Duration: 5 months
3) Solving Problems: Selections of additional and complementary reading, as
well as review of the most relevant papers and books already read. This phase
is meant to effectively solve the major theoretical and terminological questions
risen during the investigation.
- Estimated Duration: 4 months
4) Analytic Phase: Synthesis of the content researched and final draft of the
work. Represents the synthesis of ideas and the confrontation between the
Japanese and the Brazilian framework. In short, it is the moment to draw critical
conclusions and to identify the main points of convergence and divergence
between both countries.
-Duration: 4 months
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