¹ Fritsch, W., External Constraints on Economic Policy in Brazil, 1889–1930 (Pittsburgh, 1988)CrossRefGoogle Scholar and Topik, S., The Political Economy of the Brazilian State, 1889–1930 (Austin, 1987)Google Scholar.

² Peláez, C. M., ‘As Consequências Econômicas da Ortodoxia Monetária, Cambial e Fiscal no Brasil entre 1889–1945’, Revista Brasileira de Economia, vol. 5, no. 3 (07–09 1971), pp. 5–82Google Scholar.

³ On Brazilian industrialisation, see: Suzigan, W., Indústria Brasileira: Origem e Desenvolvimento (Sāo Paulo, 1986), chs. 1 and 4Google Scholar; Cano, W., Raizes da Concentraçāo Industrial em Sāo Paulo (Rio de Janeiro, 1977)Google Scholar; Dean, W., The Industrialization of Sāo Paulo: 1880–1945 (Austin, 1969)Google Scholar; and Versiani, F. R. and Versiani, M. T. R. O., ‘A Industrializaçāo Brasileira antes de 1930: Uma Contribuiçāo’, in Versiani, F. R. and de Barros, J. R. M. (eds.), Formaçāo Econômica do Brasil: A Experiéncia de Industrializaçāo (Sāo Paulo, 1977)Google Scholar. Villela, A. V. and Suzigan, W., Político do Governo e Crescimento da Economia Brasileira: 1889–1945 (Rio de Janeiro, 1973)Google Scholar outlines government policy. For regionalised banking studies see: Saes, F., Crédito e Bancos no Desenvolvimento da Economia Paulista, 1850–1930 (Sāo Paulo, 1986)Google Scholar; da Costa, F. N., ‘Bancos em Minas Gerais (1889–1964)’, unpubl. MA thesis, Universidade Estadual de Campinas, 1978Google Scholar. The most important institutional studies of specific banks are: Pacheco, C., História do Banco do Brasil (4 vols., Brasília; completed: 1973)Google Scholar; de Costa, F. N., ‘Banco do Estado: O Caso Banespa’, unpubl. PhD diss., Universidade Estadual de Campinas, 1988Google Scholar. And, for monetary history and policy, see: Neuhaus, P., ‘A Monetary History of Brazil, 1900–1945’ (Chicago, 1974)Google Scholar; and Peláez, C. M. and Suzigan, W., História Monetária do Brasil: A Análise da Política, Comportamento e Instituiçōes Monetárias (Rio de Janeiro, 1976)Google Scholar.

⁴ The sources of this information are the primary business journals: Jornal de Commércio (Rio de Janerio, 1906–31, various issues, hereafter cited as JC) and the Estado de Sāo Paulo (1906–30); also included are the Anuário Estatístico do Estado de Sāo Paulo (Sāo Paulo), and Lagemann, E., O Banc⊙ Pelotense e o Sistema Financeiro Regional (Porto Alegre, 1985)Google Scholar; his sources are the Anuário Estatístico of Rio Grande do Sul and banks' annual reports. All dara on bank balances are as of the year-end. These data are drawn from, and discussed extensively in, Triner, G., ‘Banking and Brazilian Economic Development: 1906–1930’, unpubl. PhD diss., Columbia University, 1994Google Scholar; Appendix.

⁵ These four banks are: Banco do Brasil, Banco de Crédito Hypothecário de Sāo Paulo (Banco do Estado de Sāo Paulo, or BANESPA, after 1926), Banco de Crédito Real de Minas Gerais, and Banco de Commércio e Indústria de Sāo Paulo.

⁶ Aggregated financial data for all banks are available for portions of the period under consideration. These data, however, are generally undocumented and unexplained. They appear to become increasingly reliable over the course of the period. Although the published aggregates have not been used in this study, they are used as a comparative measure for the aggregates that result from the primary data base. The levels of bank balances published are probably fairly accurate for 1930, but they are not accurate or consistent for earlier years.

⁷ On Brazil, see Pacheco, História do Banco do Brasil, passim; and Peláez and Suzigan, História Monetária, pp. 38–52. For a summary of European experiences, see Kindleberger, C. P., Financial History of Western Europe, 2nd edition (Oxford, 1993), chs. 3 and 9Google Scholar; on Argentina, see: Jones, C., ‘The Fiscal Motive for Monetary and Banking Legislation in Argentina, Australia and Canada Before 1914’, in Platt, D. C. M. and Tella, G. di (eds.), Argentina, Australia and Canada: Studies in Comparative Development (New York, 1985)Google Scholar.

⁸ See Saes, Crédito e Bancos and Pacheco, História do Banco do Brasil on Brazil. For the similar process in other economies, see Lamoreaux, N. R., Insider Lending: Banks Personal Connections and Economic Development in Industrial New England (New York, 1994)CrossRefGoogle Scholar; Hudson, P., The Genesis of Industrial Capital: A Study of the West Riding Wool Textile Industry c. 1750–1850 (Cambridge, 1986)CrossRefGoogle Scholar; Marichal, C., ‘Obstacles to Development of Capital Markets in Nineteenth Century Mexico’ (unpublished, 1993)Google Scholar; Potash, R. A., El Banco del Avio en México: elfomento a la industria: 1821–1846 (Mexico, 1959)Google Scholar; Quiroz, A. W., Banqueros en conflicto: estructura y economía peruana, 1884–1930 (Lima, 1990)Google Scholar.

⁹ Triner, ‘Banks and Brazilian Economic Development’, ch. 6.

¹⁰ The best recent source on the monetary instability during the first years of the Republic is Franco, G., Reforma Monetária e Instabilidade durante a Transiçāao Republicana (Rio de Janeiro, 1987)Google Scholar. It is also usefully discussed in P. Neuhaus, ‘Monetary History’, pp. 5–7; Peláez and Suzigan, História Monetária, pp. 177–81; Cano, Raízes de Concentraçāo; and Levy, M. B., 'O Encilhamento', in Neuhaus, P. (ed.), Economia Brasileira: Uma Visāo Histórica (Rio de Janeiro, 1980), pp. 191–256Google Scholar.

¹¹ Topik, Political Economy, p. 148; Luz, N. V., A Luta pela Industrializaçāo do Brasil (Sāo Paulo, 1978), pp. 184–202Google Scholar; Suzigan, Indústria Brasileira, ch. 1; W. Dean, The Industrialization of Sāo Paulo: 1880–1945, ch. 1; W. Cano, Raizes da Concentraçāo; and Versiani and Versiani, ‘A Industrializaçāo Brasileira’.

¹² By most accounts, early stages of Brazilian industrial development could be detected by the late nineteenth century, and sustained industrialisation was assured by the end of World War I. Suzigan, Indústria Brasikira, is the best source for a survey of theories on Brazilian industrialisation.

¹³ This was the third bank with the name Banco do Brasil, and the fourth institution to serve as a central monetary authority, at least to some degree. This institution continues as the current Banco do Brasil.

¹⁴ Triner, ‘Banks and Brazilian Economic Development’, ch. 4.

¹⁵ Neuhaus, ‘Monetary History’, pp. 5–16; Peláez and Suzigan, História Monetária, pp. 141–7.

¹⁶ Ibid. pp. 153–5; Neuhaus, ‘Monetary History’, pp. 17–27 and Fritsch, External Constraints, pp. 16–18. The Conversion Office executed the foreign exchange transactions which maintained the pre-determined value of the mil-réis. Currently, similar institutions are referred to as currency boards.

¹⁷ Retrospecto Commercial de Jomal do Commércio, de Janeiro, Rio, 1905–1930Google Scholar, various issues (hereafter, cited as RC), 1909, p. 24.

¹⁸ Simonsen, R., ‘As Finanças e a Indústria’ (Sāo Paulo, 1930), pp. 47–8Google Scholar. The same sentiments are expressed in Banco de Commércio e Indústria de Sāo Paulo, Relatório (hereafter cited as COMIND, Relatório), 1930 (pp. 3–4).

¹⁹ Ibid. 1920, p. 10.

²⁰ Saes, Crédito e Bancos, pp. 130–60.

²¹ Neuhaus, ‘Monetary History’, p. 15.

²² Peláez, ‘As Consequências Econômicas’.

²³ Mauro, J. E. M., ‘Os Primórdios do Desenvolvimento Econômico Brasileiro (1850–1930)’, in Peláez, C. M. and Buescu, M. (eds.), A Moderna História Econômica (Rio de Janeiro, 1976), pp. 145–6Google Scholar.

²⁴ In keeping with standard practice, the volume of deposits (excluding interbank deposits) defines the size of the banking system. Data have been deflated by the available price indices to remove the effects of price level fluctuations (which were significant). Price adjusted values are referred to as ‘real’. The price index is from: Haddad, C. L. S., ‘Growth of Brazilian Real Output, 1900–47’, PhD thesis, University of Chicago, 1974Google Scholar (republished in IBGE, Séries Estatísticas Históricas do Brasil, Vol. 3; Séries Econômicas, Demográficas e Sociais de 1950 a 1985, table 4.1) and Catão, L. A. V., ‘A New Wholesale Price Index for Brazil during the Period 1870–1913’, Revista Brasileira de Economia, vol. 46, no. 4 (10–12. 1992), pp. 519–33Google Scholar.

²⁵ Triner, ‘Banks and Brazilian Economic Development’, pp. 45–9 and table A.8. Perhaps the most important contribution of foreign banking to the Brazilian system was in the debates about structuring and regulating the system. European, US and other Latin American monetary and banking systems informed the public debàte about mechanisms for maintaining the gold standard, providing central banking and rediscounting facilities, and mortgage banking. See, for example RC, 1890, p. 7; 1917, p. 103; 1920, pp. 6, 46; JC, 29 Nov. 1920; 18 Jul. 1921; 23 Aug. 1923; 20 Nov. 1926; Souto, Vieira, ‘Caixa de Conversāo: Parecer apresentado pelo Dr. Vieira Souto’ (Centro Industrial do Brasil, Rio de Janeiro: Typ. do Jornal do Commércio, 1906), pp. 34–7Google Scholar; Freire, F., História do Banco do Brasil (Rio de Janeiro, 1907), pp. 256–41Google Scholar; and Freire, F., ‘O Banco do Brasil (Como Banco Emissor e futuro Banco de Estado: A Reforma Monetária; medidas econômicas e financeiras complementares)’ (Rio de Janeiro, 1915)Google Scholar.

²⁶ These contractions, and their effects on money suply and monetary policy, are examined in Peláez and Suzigan, História Monetária, pp. 199–216 and 231–7; Fritsch, External Constraints, pp. 38–45 and 138–42; and Neuhaus, ‘Monetary History’, pp. 39–89. Suzigan, Indústria Brasileira, pp. 44–66, provides a good overview of what is known of the effects of these contractions in the productive sectors of the economy.

²⁷ For example, in 1921 the President of the Banco do Brasil mentioned to the Minister of the Treasury that one of the goals of the Rediscount Office was to allow banks to maintain lower cash ratios (Banco do Brasil, Cartas Particulars dos Presidentes, 1909–30 [hereafter cited as BB, Cartas], 14 Dec. 1921). See also Neuhaus, ‘Monetary History’, pp. 21 and 35–42 and Topik, Political Economy, p. 44.

²⁸ Triner, ‘Banking and Brazilian Economic Development’, pp. 19–22.

²⁹ Levy, M. B., A História da Bolsa de Valores de Rio de Janeiro (Rio de Janeiro, 1977), chs. VI and VIIGoogle Scholar.

³⁰ Topik, Political Economy, ch. 2; Fritsch, External Constraints; Neuhaus, ‘Monetary History’; Peláez and Suzigan, História Monetária; and Villela and Suzigan, Politico do Governo e Crescimento.

³¹ The relative size of the Banco do Brasil is derived from the raw material for the data base.

³² Banco do Brasil, Relatório do Banco do Brasil apresentado a Assembléa Geral dos accionistas na Sessāo Ordinaria (hereafter cited as BB, Relatório), 1906, p. 5. In 1923, the Board was enlarged to seven directors, of which three were appointed by the Treasury Minister.

³³ Banco do Brasil, Estátutos do Banco do Brasil, Rio de Janeiro: Imprensa Nacional, 1906 (hereafter cited as BB, Estátutos), and Brasil, Colleçāo das Leis e Decretos do Brasil [hereafter cited as Lei], Decret o no. 1455, 30 Dec. 1905; and Estátutos do Banco de Commércio e Indústria de Sāo Paulo, version amended on 29 March 1917, and Banco de Crédito Real de Minas Gerais (State Decrees no. 1136 [20 May 1898] and no. 4159 [21 March 19147]).

³⁴ Trade and financial disruptions due to World War I partly explain the shift in monetary policy. BB, Relatório, 1915, p. 15; and RC, 1915, p. 148; Lei no. 2986.

³⁵ One conto equalled 1,000 mil-réis.

³⁶ BB, Relatório, 1920, pp. 6–7; and 1921. This programme sharply increased money supply and affected monetary policy. (Neuhaus, ‘Monetary History’, pp. 48–9; Peláez and Suzigan, História Monetária, pp. 24–9.)

³⁷ Coffee valorisation (price support) depended upon banks accepting notes which originally had been issued to finance the acquisition of coffee stocks. The Rediscount Office then bought the coffee notes from the original bank. Lei, Decree no. 14585 authorised this use of the Rediscount Office.

³⁸ BB, Cartas, 14 Dec. 1921. Persistent complaints about banks' high cash holdings continued to be common despite the previous programmes.

³⁹ A third important distinction from earlier facilities was that the Rediscount Office was much larger than the other attempts. The Rediscount Office was authorised to issue notes in order to rediscount commercial notes to the limit of 100,000 contos (with the possibility to expand by another 50,000 contos in the event of an emergency and subject to Treasury approval). Rediscount volume reached its maximum almost immediately and emergency funding became the norm.

⁴⁰ The need for a Rediscount Office to expand lending was not unanimously appreciated because of the inflationary impact of the public financing strategy. Brasil, Ministério da Fazenda, Relatório Apresentado ao President da República dos Estados Unidos do Brasil pelo Ministro de Estado dos Negócios da Fazenda (hereafter cited as MF, Relatório) 1921, pp. 286–308; and JC, 18 July 1921.

⁴¹ BB, Cartas, 8 July 1921, 26 Aug. 1921 and 16 Sep. 1921.

⁴² Ibid. 20 Oct. 1922.

⁴³ Triner, ‘Banking and Economic Development’, table 3.2.

⁴⁴ JC, 18 July 1921.

⁴⁵ Triner, ‘Banking and Economic Development’, graph 2.5.

⁴⁶ Fritsch (External Constraints, pp. 76–7) finds that political concerns determined the establishment of a central banking authority. Arthur Bernardes made three economic and financial concerns central t o his campaign for the presidency (which he wo n in November, 1922): coffee price supports, budget deficit reduction, and ‘banking and credit reorganisation’, incorporating note issuance with fractional gold reserves and strict limitations on convertibility. However, the idea of a Central Bank was not original with Bernardes. It had been discussed previously; and many of the functions delegated to the Banco do Brasil were conscious moves towards central banking.

⁴⁷ Lei, Decree no. 5108 (18 Dec. 1926).

⁴⁸ Niemeyer, O., ‘Reorganisation of Brazilian National Finance’, Report submitted to the Brazilian Government (in Portuguese translation), British Chamber of Commerce (Rio de Janeiro, 1931), p. 24Google Scholar.

⁴⁹ Banco do Brasil, Atas dos Directores: 1897–1930; Livros 009–017 (hereafter, cited as BB, Atas), 12 Sep. 1913.

⁵⁰ Banco de Crédito Real de Minas Gerais, Livros das Atas da Directoria, Livros 1–2, 1889–1940 (hereafter, cited as BCRMG, Atas), 22 Sep. 1923 and 11 Oct. 1924 and Lagemann, o Banco Pelotense, pp. 39 and 116–17. The original contract between Loste et Cie, the original French source of capital, and the State of Sāo Paulo to form Banco de Crédito Hypothecério e Agrícola de Sāo Paulo provided for rediscount capabilities (reprinted in SP, Sec. Faz., Relatórios, 1909, pp. 565–9 and 1925, pp. ix–x).

⁵¹ See for example, BB, Atas, 25 Jan. 1929 and 25 Mar. 1929.

⁵² Rediscounting treasury bills may have allowed cheaper or larger government debt. If this were the case, and it had a stimulatory effect on the rest of the economy, then it could be concluded that the Banco do Brasil rediscounting was a crucial part of a fiscal package that stimulated economic growth.

⁵³ Mortgage credit was considered to be credit with maturity in excess of one year and collateralised by the property which was being financed.

⁵⁴ In the event of default on a debt, the creditor would take ownership of the collateral which guaranteed a loan. The statutes of Brazilian banks specified the assets which were acceptable as collateral, and thxgge minimum collateral required for credit. BB, Estátutos, 1905, Título III, Art. 5 (nos. 4 and 8). BCRMG, Estátutos (as amended 1919, and Sāo Paulo, see Banco de Crédito Hypothecário e Agricola de Sāo Paulo ([BCHASP] after 1926, Banco do Estado de Sāo Paulo [BANESPA]) Relatórios e Contas da Administraçāo… 1912, p. 6 and 1924, pp. 5–6, 1926, pp. 1–3 and 1927, pp. 3–4; contract between BCHASP and the State of Sāo Paulo of 24 Jan. 1924. Early attempts of the State of Sāo Paulo to encourage mortgage lending through the (failed) Banco de Crédito Real de Sāo Paulo are documented in the Secretaria da Fazenda do Estado, Relatório do Presidents do Estado, 1989–1903.

⁵⁷ BB, Relatório, 1915, pp. 41–2.

⁵⁸ Ibid. 1922, p. 10.

⁵⁹ BB, Cartas, 26 Oct. 1921.

⁶⁰ BB, Relatório, 1928, pp. 12–13. In 1928, the cumulative operating loss of the branches was reported to be 3,232 contos.

⁶¹ Ibid, annually, 1908–16. Financial statements for individual branches are only available from 1908 to 1916.

⁶² As late as 1926, the Jornal de Commércio continued to complain about the slow growth of use of cheques (JC, 15 Sep. 1926). However, cheque clearing facilities that accommodated transfers between cities did not open prior to 1930.

⁶³ Interbank deposits are excluded from the data. See n. 24.

⁶⁴ Nevertheless, short-term credit could be, and often was, continually renewed. This served as an effective means for converting short-term credit into medium- or long-term capital. While the short maturity of the credit could protect a bank, its withdrawal could also provoke the default that was also detrimental to the bank. Banks' directors often discussed continually renewed short-term credit. See for example: RC, 1920; 6; BB, Atas, 26 July 1911, 27 Mar. 1912, 31 May 1916). The BCRMG, Atas often recorded debates on restricting or extending roll-overs of discounted notes (e.g. 6 Sep. 1912Google Scholar, and almost constantly through 1920 and 1921). See COMIND, Relatório, 1921, p. 5Google Scholar, for a succinct expansion of concern on this circumstance.

⁶⁵ As the most dramatic example, the average international price of coffee in 1920 was 57% of the average price in 1919 (measured in mil-réis; source: Fritsch, External Constraints, table A.6). Therefore, if a bank extended a constant amount of credit, with unchanged collateral, to a coffee merchant during this period, the value of the bank's collateral would have declined by the same amount as coffee prices (57%, since the collateral would have been coffee). In addition, the likelihood of a problem with the merchant's creditworthiness would have increased, since his revenues would have declined due to the fall of coffee prices.

⁶⁶ Two seminal examples of the theoretical literature on the relationship between property rights and economic growth are North, D., Structure and Change in Economic Development (New York, 1981)Google Scholar, and Scott, W. B., In Pursuit of Happiness (Bloomington, 1977)Google Scholar.

⁶⁷ The issues surrounding property rights are not well documented in Brazilian historiography. A discussion of colonial property rights and laws is found in Schwartz, S., Sugar Plantations in the Formation of Brazilian Society (Cambridge, 1985), pp. 202–44Google Scholar; Dean, W. discusses land rights during the Empire, ‘Latifundia and Land Policy in Nineteenth-Century Brazil’, Hispanic American Historical Review, vol. 51, no. 44 (11 1971), pp. 606–2CrossRefGoogle Scholar.

⁶⁸ British Consuls cite this as a constraint to doing business in Brazil. (Great Britain, Diplomatic and Consular Reports, No. 2080 [1897], p. 19; No. 2747 [1900], pp. 11–12; and No. 3713 [1905], pp. 7–8.)

⁶⁹ Monteiro, H. F., ‘Effeitos da sentenca declaratória de fallencia sobre o contracto de conta corrente…’ (São Paulo, 1929), pp. 6–41Google Scholar.

⁷⁰ At times bankrupted parties did continue to have access to these accounts. The funds would otherwise have been available to settle the bankruptcy. (Ibid. p. 23.)

⁷¹ Lei no. 859, 16 Aug. 1902, Art. 5. This paragraph is based on the provisions of this law, which were in effect until December 1929. A substantially complete draft version of the law is also summarised in Great Britain, Consular Report, vol. 105 (1901), pp. 11–12.

⁷² Vianna, Sa, Das Fallencias (Rio de Janeiro, 1907), pp. 117–18Google Scholar.

⁷³ Ibid., pp. 148–51. During the First Republic, it became commonly accepted that corporate entities could be treated similarly to individuals.

⁷⁴ Ibid., p. 97.

⁷⁵ See for example, BCRMG, Atas, June 1928. The Board of Directors agreed to ‘discount a promissory note for 743 contos of the Botelo Ironworks Company for six months, guaranteed by bonds it issued and the signature of the directors’.

⁷⁶ Sa Vianna, Das Fallencias, pp. 99–100.

⁷⁷ Ibid., p. 103. Sa Vianna identifies this as a reason that bankruptcies were typically only called when it became clear that debtors were severely under-capitalised, and had little likelihood of achieving solvency in the foreseeable future. Late payments were not cause for invoking proceedings which could result in bankruptcy.

⁷⁸ E. S. Hurley, ‘Banking and Credit in Argentina, Brazil, Chile and Peru’ (US Bulletin of the Department of Commerce, Bureau of Foreign and Domestic Commerce, Special Agents Series no. 90; Washington, DC, 1914), pp. 41–2. The last sentence of the quotation referred to the high interest rate charged to borrowers in reflection of their poor creditworthiness. When, and if, debt payments resumed, the recovering businessman faced a higher debt burden to cover his special borrowing needs. If bankruptcy was not avoided, lenders would probably not recover the full interest in settling the account.

⁷⁹ BB, Atas, 21 Sep. 1915 and 24 Nov. 1915.

⁸⁰ COMIND, Relatório, 1928, p. 3Google Scholar.

⁸¹ BB, Atas, 2 08 1928Google Scholar and BB, Relatório, 1928, pp. 13–14Google Scholar.

⁸² BB, Atas, 23 July 1927 , 7 Oct. 1927, 20 Oct. 1927, 30 Nov. 1927.

⁸³ The provisions for the process of declaring and settling bankruptcies continued with the amendment of the bankruptcy laws (Lei no. 5746, 9 Dec. 1929).

⁸⁴ Dr N. Eizerik, interview, 18 Oct. 1991. According to Dr Eizerik, discomfort with the concepts of financial property, as compared to real property, continues to impede financial development, and the day-to-day ability to settle financial disputes and to specify complex financial transactions.

⁸⁵ RC, 1928, p. 3.

⁸⁶ Ibid., p. 12.

⁸⁷ A separate monetary authority, with limited powers, was not established until 1946, and the Central Bank was not fully established until 1964.

⁸⁸ The predominance of the Banco do Brasil has continued through the current structure of the banking system. Lees, F. A., Botts, J. M. and Cysne, R. Penha, Banking and Financial Deepening in Brazil (London, 1990), p. 106.CrossRefGoogle Scholar Alternatively, a stroll through the commercial section of any town or a glance through any newspaper confirms the continued predominance of the Banco do Brasil.