Prudential developmentalism: Explaining the combination of the developmental state and Basel rules in Brazilian banking regulation

This article discusses Brazil's prudential developmentalism through a case study that challenges the expected trade‐off between Basel rules and the developmental state. Under the Brazilian arrangement, the Central Bank has substantially implemented the new Basel rules, while policymakers have dealt with significant developmental mechanism. This piece's central claim is that two institutional capacities support prudential developmentalism. The first is the Brazilian Central Bank's regulatory capacity to enforce Basel, which derives from the maximization of its institutional conditions and the minimization of the banks' regulatory costs. The second is the developmental state's capacity to foster economically relevant domestic business, observing prudential standards. Despite providing stability and room for local policy, the arrangement has downsides, mainly the restricted credit market and less transformative finance.