Banking liquidity behavior in times of crisis in Brazil

This study’s central objective was to examine the contextualization of the liquidity preference behavior of private banking firms in the Brazilian economy from March 2011 to December 2021. This important period can explain a set of important crises; in particular, the 2014 financial crisis and those that followed until COVID-19. These events damaged the Brazilian development process, especially after Dilma’s impeachment, which transferred the Presidency to President Temer. In the subsequent destabilized political environment in Brazil, a new extreme right political orientation emerged, deepening the national economic (especially the financial) crisis. To empirically demonstrate the severe consequences of the conjecture, we applied the structural break test and the Chow method to this period to identify four breakpoints. The results suggest that, in periods of structural breaks, private banks offered higher levels of credit but tended to retract this credit supply during periods marked by environments of extreme uncertainty due to poor economic performance. This means that in periods of economic recession, banking firms became more rational and thus retained their liquidity.