Why has domestic banking governance converged towards a prudential regulatory pattern in the context of the climate crisis? Brazil in comparative perspective

• Grant number: 24/19021-2
• Support Opportunities: Regular Research Grants
• Start date: October 01, 2025
• End date: September 30, 2027
• Field of knowledge: Applied Social Sciences - Law - Special Rights
• Principal Investigator: Mario Gomes Schapiro
• Grantee: Mario Gomes Schapiro
• Host Institution: Escola de Direito de São Paulo. Fundação Getúlio Vargas (FGV). São Paulo , SP, Brazil
• City of the host institution: São Paulo

Abstract

The climate crisis directly affects financial systems, as the transition to a low-carbon economy requires substantial investments, which depend on financing from capital markets and banks. Additionally, extreme weather events and the devaluation of carbon-linked assets can lead to significant losses for banks and insurers, with the potential to trigger a sector-wide crisis. Despite the scale of these challenges, regulators have primarily focused on protecting financial systems from such losses, while measures aimed at promoting credit for the green transition have received less attention. Following other jurisdictions, Brazilian financial governance has converged towards a prudential regulatory framework, emphasizing defensive measures to safeguard the banking system. This study seeks to explore the reasons behind this convergence, particularly in light of Brazil's history of state interventions in the financial sector, which would suggest a more proactive role in promotional measures, such as financing the green transition. Using qualitative research and process-tracing methodology, the study will investigate the following explanatory arguments: (i) Bureaucratic politics - The Central Bank leverages its regulatory capacity and autonomy to strengthen its power by implementing prudential measures, and (ii) Market coercion - The government and regulators respond to negative external assessments from market agents, establishing regulatory measures to protect the country's reputation. This study contributes to a deeper understanding of green financial regulation in emerging economies and the impact of the climate crisis on the banking sector. (AU)