1. INTRODUCTION
The political and economic stability of the Second Reign (1840-1889) provided conditions for a set of measures to modernise the Brazilian economy by the Imperial State, led by an elite formed mainly from the ruling class of large landowners and slavesFootnote 1. The imperial government promoted several institutional changes, such as the Commercial Code, Land Law and the end of the Atlantic slave trade in the middle of the 19th century, which had major repercussions on the economy. Although of a conservative nature, preserving slavery, these initiatives encouraged the development of the country, mainly in commercial, financial, industrial and transportation activitiesFootnote 2. Several credit institutions were created, many of them with rights to issue money, such as the Banco do Brasil in the early 1850s. Mortgages had been used since the beginning of the colonial period; however, the lack of publicity and specificity of debts made it difficult to develop this market. In this very fertile moment of new measures of the Second Reign, public registration began in 1846 by means of the inscription in the district of the properties given as collateral and the priority of payment according to the date of the registryFootnote 3. This new law facilitated the spread of mortgages as a means of financing for different urban and rural agents. Subsequently, the mortgage reform of 1864 improved the registration system, through increased advertising and specialisation. Finally, the introduction of the Banco do Brasil's mortgage portfolio also boosted the financing of farmers, especially larger ones.
In this study, we analysed the use of mortgages before and after two measures: the mortgage reform of 1864 and the creation of the mortgage portfolio of the Banco do Brasil in 1867. We examined whether such government initiatives improved the Brazilian mortgage market. The 1860 Barriers Act, the 1864 financial crisis, and the difficulties in lending to farming motivated the conclusion of the lengthy discussion of mortgage reform in 1864 and, subsequently, a change in the role of the country's main bankFootnote 4. The Banco do Brasil did not make mortgage loans until 1866. In the context of the War of the Triple Alliance (1864-1870), the government negotiated, pressured and encouraged this institution to meet the demands of farmers. The bank was then reformed, and the mortgage portfolio was created to serve the large farmers in the south-east who were influential in the imperial government. The justification for these measures was the need to expand mortgages in terms of volumes borrowed, mainly for farmers. Thus, the two governmental interventions should have led to the expansion of the use of mortgages in the country but aimed at different groups. The first would have a larger impact on society and the other would be restricted to a more highly selective agrarian elite.
The availability of mortgage information increased as a result of the 1864 law, when the registry of mortgages experienced a far-reaching reorganisation which facilitated the preservation of this documentation. For the previous period, there was little quantitative data, limited to some very specific reports on the use of mortgages. In this paper, our objective is to analyse the mortgage information collected by the Secretary of Justice Paranaguá for the period from 1855 to 1859, in order to encourage the discussion of the reform of this regime. At this point, the registry had been operating for almost a decade, allowing a representative view of this new institution before the reform. For the period after 1864, we do not have reports for the country similar to those in Paranaguá and we used mainly the work of several researchers for specific counties.
The paper aims to discuss, in a first section, the mortgage negotiations in 1855-1859, that allow us to know the distribution of loans by the counties, their interest rates and the types of collateral. In addition to the information collected by Paranaguá, we used mortgage data from bank balance sheets and more qualitative information from newspapers to analyse the types of mortgage used at the time. Subsequently, based on the evidence of mortgages registered after the 1864 reform already made available in the literature, we compared these results with the information from Paranaguá. This allowed us to analyse the dynamics of the mortgage market in the second half of the 19th century in relation to exports, demography and money. Finally, we analysed the loans in the mortgage portfolio of the Banco do Brasil until the end of the Empire. We highlight the volumes transacted, destinations of resources and their representativeness compared with other loans of the institution.
2. MORTGAGES (1855-1859)
The literature shows the use of mortgages since the colonial period. During the Empire, the use of this instrument grew alongside economic, financial and institutional development, such as the legal changes to the Commercial Code (1850) and, especially, the General Mortgage Registry (1846). This registry sought to remedy the lack of public knowledge about mortgages. This lack of information meant that mortgages were not widely used, due to the possibility of hidden mortgages arising that hinders the creditor's payment commitment. Such complaints had been recurrent since the beginning of the 19th century and inhibited the development of this type of credit. The publicity obtained with the creation of the public registry provided information to the creditor about debts already incurred by debtors, reducing information asymmetry. The priority of payment for creditors who first registered their mortgage also facilitated the debt enforcement process. Thus, more credit should have been available, more cheaply and with longer terms than before, because creditors had access to more guarantees and information.
After 1850, the creation of financial institutions specialised in real credit for agriculture aimed at boosting loans in this sector. This can be seen in the literature, showing that some of these banks operated significantly through mortgages in the 1850s, especially for urban real estate. Guimarães (Reference Guimarães2013, Reference Guimarães, Motta and Guimarães2007) showed its use by the Banco Rural and the Hipotecário do Rio de Janeiro (created in 1854) and by the Banco Comercial e Agrícola (created in 1857), but at lower values than the other loans of these institutions. In 1856, the first bank discounted 184 mortgage bills with a term of up to 12 months and an interest rate in general of 10 per cent per year, totalling almost 2,000 contos Footnote 5. Such amounts continued to increase until 1859, when they represented 2,800 contos in the balance of June of that year (Guimarães Reference Guimarães, Motta and Guimarães2007, p. 36). Subsequently, the Banco Rural reduced its mortgage operations from 1860, following the changes in the economic policy of the barriers lawFootnote 6.
Still in the Rio de Janeiro market, the Banco Comercial e Agrícola held only 240 contos in three mortgages on its balance sheet for August 1859Footnote 7. In the Bahian province, in March 1860, the Banco da Bahia held 389 contos in urban mortgages and ninety-eight in mortgage bills, noting that this institution issued this type of bill as a way of raising funds for its loansFootnote 8. Thus, some banking institutions operated mortgages in the main Brazilian markets, mainly that of Rio. However, the mortgage volumes tended to decline in relation to total borrowed and asset totals.
Most mortgages did not involve banks at that time. Ryan (Reference Ryan2007, p. 89) did a great deal of research in the deeds of Rio de Janeiro debts throughout the 19th century, looking at mortgages in notary books since the second decade of this century. He noted a significant expansion of credit in general from 1840 to 1850, increasing from £145,000 to £240,000. Even before the impact of the major institutional innovations of 1850, there was a 65.0 per cent increase during the 1840s. Perhaps the institution of the 1846 mortgage registry may have contributed to this expansionFootnote 9. Subsequently, the growth trend deepened, reaching 737,500 pounds in 1860. Even if we exclude bank debts, there was a total of £505,500 in 1860 (Ryan Reference Ryan2007, p. 100). Thus, most of the credit operated outside the banking system, although its presence was growing.
According to Ryan, the new banking institutions of the mid-19th century might have contributed to the dynamism of Rio's credit. However, the evidence for the year 1870 denotes a stagnation of credit in general (7.5 per cent growth in a decade), even with the approval of the mortgage reform and the new portfolio of the Banco do Brasil, as well as the expansionary monetary policy of the War of the Triple Alliance. Perhaps the devaluation of the national currency reduced the values in pounds in this decade. Finally, the author himself noted that the second registry did not record a bank debt until 1853, but, subsequently, less than 15 per cent of the loans that took place from 1853 to 1859 were recorded. Thus, this information highlights the reduced effect of the two measures in question in the 1860s on credit more generally in the Rio market.
Saraiva and Piñeiro (Reference Saraiva and Piñero2014, p. 137), also for Rio de Janeiro, showed the wide use of mortgages in the city since 1821, totalling more than 2,000 until 1850. In the 1840s, more than 100 mortgages were signed each year, reaching a peak in 1846 of about 250. For Minas Gerais, Flausino (Reference Flausino2006, pp. 34-35) verified sixty-four mortgage deeds in Mariana between 1850 and 1859, of which fifty-one only had slaves as collateral. In that period, the number of slaves recorded in all the analysed documents was 297. In the following decade, the number of mortgages did not increase, but the total number of slaves as collateral reached 456.
The newspapers of the period also show that mortgages were frequently used in different transactions, mainly urban ones. We have verified various mortgage loan offers and applications, generally with «free» collateral from any liens that could be verified in the public record. The newspaper published the response to the demand or offer on another day, informing the interested party to look for a specific address or even the publication's officeFootnote 10. The printed medium seemed to facilitate the meeting of interested parties, ensuring anonymity for creditors and debtors. The journals published the levy, the restriction on the sale of goods or the cancellation of the mortgageFootnote 11. In addition to providing information, the newspaper took on the role of an intermediary for business.
In the newspapers, various assets, mainly real estate, but also slaves, were regularly offered as collateralFootnote 12. We observe the occurrence of advertisements for loans with maritime risk and vessels as collateral, such as a galley with hull, keels and devices demanding 21.6 contosFootnote 13. Finally, the government itself awarded mortgages to companies, such as a cotton fabric factory or arsenalFootnote 14. Collateral values exceeded that of the loan, usually doubling it; but sometimes even higher values were announced, making it easier to obtain financing.
The Jornal do Comércio itself reported the cost of registering the mortgage deed as 3,000 réis Footnote 15. The cost only seemed to restrict the smaller businesses. In certain cases, the ease of obtaining financing shocks was advertised: «Money is given over with a reasonable premium, private money, with all the secrecy» (Jornal do Comércio, 16 February 1855: 4).
Mortgages were used to discount bills, wages, pensions, monte pio, slave rentals, etc.Footnote 16. They were also used to finance the acquisition of property, and this possibility was advertised. At that time, an anonymous text reported the scope of business in the province of Rio de Janeiro: «The registration of mortgages attests to the employment of more than 30,000 contos entrusted to guaranteeing the mortgage, only in the province of Rio de Janeiro» (Jornal do Comércio, 25 October 1857: 2). Mortgage credit was, then, very common in the daily life of the Rio market.
The creation of the public mortgage registry in 1846 led to the establishment of specific offices for this purpose throughout the territory. According to the 1855 Ministry of Justice report, there were sixty-eight offices in different provinces (1856: A-B-110)Footnote 17. Paranaguá (1860a, pp. 29-31) gathered aggregated data from 151 registry offices throughout Brazil; probably some had been newly created. These data included the mortgage debt, registered in several counties of the Empire according to the asset provided as collateral, contracted during 1855 and 1859Footnote 18. These reports helped to ground the mortgage reform discussions under debate at the time.
According to information from Paranaguá referring to 1855-1859, 8,312 mortgages were awarded in Brazilian counties. Of this total, the vast majority of transactions exceeded 2 contos (60.8 per cent), the average being slightly over 8 contos. Thus, the amounts negotiated were concentrated in very high values, representing the possibility of buying many slaves at that time.
The amounts negotiated amounted to almost 68,000 contos, a significant figureFootnote 19. Of this total, 40.3 per cent corresponded to mortgages on rural properties, while mortgages for urban buildings accounted for 35.1 per cent and those for movable goods and that whether moves 24.7 per cent. Urban financing proved to be quite relevant, although the country was characterised as an agrarian economy at that time. Thus, complaints from farmers about the scarcity of financing seem to be justified.
Paranaguá himself drew attention to the increase in debts without corresponding remissions, indicating an increase in debtors' insolvency, despite the more precarious quality of the mortgage payment informationFootnote 20. On the other hand, the secretary reported high interest rates (1.5 per cent per month) on loans, reaching 4 to 5 per cent per month (Paranagua 1860b, p. 122).
A consideration of the three types of asset given as collateral by district allows a view of the differences between the guarantees, especially for the more heterogeneous grouping «Other assets, movables and semoventes (slaves, animals etc.)». When mortgage values are listed according to these three types, it appears that rural mortgages did not correlate with the others (0.23 and 0.31). However, urban and other asset mortgages showed a significant correlation (0.88). Thus, the counties with higher values of mortgaged rural properties did not have proportionally large amounts of the other types of mortgages. Urban and other mortgages were correlated by counties. One possibility is that the movable and semoventes assets pledged as collateral for mortgages would concentrate diverse assets strongly related to the urban economy. Thus, this association of diverse and real urban properties reinforced the idea of a lower supply of credit for agriculture in relation to the importance of this sector in the economy.
A large number of provinces traded mortgages in very small amounts. In addition to the incipient economic and mainly financial activity in these regions, the delay in establishing and operating the registry may have contributed to less information. As can be seen in Table 1, ten provinces represented less than 1 percentage point of the total. Fifteen of the twenty-one provinces reached less than 4 percentage points. As expected, the most representative in terms of values were the province of Rio de Janeiro and the Neutral Municipality of the Court, accounting for more than half of the total amount negotiated (57.1 per cent). The coffee and sugar areas increased transactions in Rio de Janeiro, as almost all counties traded more than 1,000 contos. The major coffee centre of Vassouras reported greater values than the capital of the province, NiteróiFootnote 21. Thus, in the agricultural interior of Rio de Janeiro, high transactions were made for the time. Finally, the country's capital brought together a very large set of transactions guaranteed mainly by urban buildings and various goods.
TABLE 1 DISTRIBUTION OF VALUES REGISTERED BY PROVINCE (1855-1859)
Source: Paranaguá (1860b). Values in contos.
In the other parts of the south-east, the economy of coffee sustained most of the mortgaged values observed. The most active counties in terms of mortgages for Minas Gerais were Paraibuna (currently Juiz de Fora) and Pomba in Zona da Mata, totalling more than 1,000 contos each. Still in the region of Minas Gerais, Muriaé traded just over 800 contos. In São Paulo, Campinas alone held more than 1,000 contos, but Bananal, Mogi Mirim and Guaratinguetá reached amounts between 500 and 800 contos. In Bahia, as well as the capital, Salvador, several counties of the Recôncavo also stood out; mainly Santo Amaro with more than 1,000 contos and Cachoeira with just over 500. Finally, Rio Grande do Sul presented an urban and commercial coastal economy in the county of Rio Grande and in the capital that totalled more than 1,000 contos each. In the interior of Rio Grande do Sul, Rio Pardo obtained just over 800 contos.
The presence of rural property mortgages was not only significant for the Neutral Municipality, but also for all the provinces of the North, Central West and Rio Grande do Sul, indicating the reduced use of this instrument in the areas of products from the Amazon forest and livestock. On the other hand, the greatest participation of rural people occurred in Ceará, São Paulo and Rio de Janeiro, characterised by greater presence of agricultural economies, such as cotton and coffeeFootnote 22. In the set of capitals of the provinces, we verified a participation of 18.7 per cent of the total of mortgages, being greater for those guaranteed by urban properties (33.0 per cent of this total).
The high inequality of values between counties can be better analysed by the coefficient of variation, which reached 3.33 for the total values. For rural mortgages, inequality was lower, 2.26 and, at the opposite extreme, for urban mortgages it reached a higher coefficient: 5.92. On the other hand, the average value per district was very low, reaching only 450 contos in the 5-year period. This amount did not allow an annual average of 100 contos per county. Finally, the average annual number of mortgages per county was only eleven. However, few counties and provinces accounted for a large share of mortgages.
We can still observe the territorial coverage of the reports from 1855 to 1859, which included 150 counties, in relation to the total existing in the Empire. If we use the list of counties presented by Mendes in his Atlas of 1868, we find that there were just over 200 counties in the Empire (Almeida Reference Almeida2000). Thus, just over two-thirds of the counties reported mortgages registered in the 5-year period (71.4 per cent). This first result allows us to conclude that there was a reasonable coverage of the Brazilian territory at that timeFootnote 23. On the other hand, if we use the 1872/74 census as a basis for comparison, it can be seen that the counties that had mortgages registered represented the majority of the Brazilian population and mainly slaves (76.3 per cent and 82.1 per cent, respectively). As expected, the correlation between the mortgage values and the number of inhabitants in the counties was significant, both for the population as a whole and for slaves (0.59). Despite the proportion of slaves in the population being different across the territory, there was no distinct impact on mortgages. Both slaves and freemen generated mortgage business.
Even if more inhabitants lead to more business, the proportion of mortgage values by population was not similar by territory. If in the capital of the Empire there were 62,539 réis in mortgages per capita, in Recife and Juiz de Fora the values were much lower (11,103 and 11,793). Finally, in Belém and São Paulo these values were even lower (7,317 and 5,498). Thus, the results show a significant spread of mortgages throughout Brazilian counties and provinces, but a significant inequality between regions. The capital of the Empire held a very significant share of the credit.
At that time, the debate on the need for a mortgage reform expressed the demand for credit expansion, aimed mainly at farming. Despite the fact that the commercial houses involved in the financial crisis of 10 September 1864 made few mortgage loans in relation to their operations, the financing difficulties in the Rio market and even for the Banco do Brasil due to the crisis led the government to complete the approval of new mortgage legislation during the month of SeptemberFootnote 24. In the next section, we compare the amounts mortgaged in 1855-1859 with those after the 1864 reform, in order to analyse the possible growth between the two periods due to the impact of institutional changes.
3. COMPARATIVE EXERCISE OF MORTGAGES BEFORE AND AFTER 1864
After the registry started to operate in 1846, criticisms of the institute continued, mainly from farmers who wanted longer-term credits and lower interest ratesFootnote 25. The mortgage reform of 1864 and the regulation of the following year were new initiatives aimed at developing this market, improving advertising, specificity (of the parties and real estate) and ways of raising funds by banks, through mortgage bills. To better analyse the effect of the reform, we needed data similar to those of Paranaguá. Unfortunately, we did not find any general information for the entire Brazilian territory. Even newspapers did not publish reports of negotiated amounts, although they remained a means of disseminating information and facilitating the connection between borrowers and lenders of resources.
Some scholars have collected data for some counties, and so we can try to compare it with information prior to 1864 for equal spacesFootnote 26. In order to carry out this comparison, the later values for 1855-1859 were deflated, reducing the effects of monetary issuance and inflation, which was very significant during the War of the Triple AllianceFootnote 27. In Table 2, we present the results for several counties and Brazil, keeping information comparable from 1855-1859 with that of the later period deflated to 1855-1859 and, finally, the real variation between the two periods. We understand the comparison made as an exercise that can indicate more general trends, but there were several problems that hinder the comparison, as shown below. We also emphasise that the mortgage portfolio of the Banco do Brasil treated in the next section also had an impact on the results presented in this section after 1866.
TABLE 2 MORTGAGED VALUES IN 1855-59 AND SUBSEQUENTLY DEFLATED (IN CONTOS OF 1855-59)
1 Values transformed into average 5-year data over the period from the original information.
Sources: Data from Campinas were published by Ribeiro and Camargo Penteado (Reference Ribeiro and Camargo Penteado2018: 5), whom we thank. Data from Juiz de Fora were published by Pires (Reference Pires2009), whom we thank for the information. The Paraibuna district held 1,249 contos of mortgages in 1855-59, probably including Barbacena and Rio Preto. Diamantina data were published by Martins (2016: 21). The reference period for Diamantina's information was 1860-64. Data from Recife and Belém were published by Leandro (Reference Leandro2017), whom we thank. Data from Franca were provided by Oliveira, whom we thank.
From this already published literature, we obtained reports for six municipalities shortly after the start of the new mortgage registry and another three for a slightly later period. All of the first six showed significant growth in a decade, and may reflect, at least in part, the institutional changes of the period. The counties showed a very wide variation, revealing not only the effect of the mortgage reform, but also of the dynamism of the local economy. The cases of São Paulo and Belém show a large real growth, largely derived from the economic and urban boom experienced by these areas in the 1860s. São Paulo presented one of the two lowest mortgaged values in 1855-1859 of the counties considered in Table 2, but the greatest variation, due to a rapid expansion of the municipality and the province's economy. Another notorious movement in the capital of São Paulo and Pará was that of growing urbanisation at that time. The share of rural mortgage values was already reduced, but decreased further, from 20.8 and 24.2 per cent in 1855-1859 to 16.7 per cent in 1865-1869 and 20.1 per cent in 1870-1874, respectively Footnote 28.
Juiz de Fora showed a variation close to Belém, demonstrating a significant dynamism reflecting the growth of its economy at a time of expansion of coffee in the region. On the other hand, the oldest coffee areas showed a real decrease or small increase. Vassouras had a large mortgage value in 1855-1859, higher than all the other counties under analysis in Table 2, with the exception of the capital of the Empire. However, there was a significant decline in this municipality in the Paraíba valley of Rio de Janeiro, due to the fact that the information reflected a later period and suffered a greater effect from the decrease of coffee in the municipality. A little dynamism was also observed later in the interior of São Paulo—Guaratinguetá, Franca and Campinas. However, this last county already had a greater developmentFootnote 29. Finally, Diamantina substantially increased its traded values, but in the initial period the traded value was one of the lowestFootnote 30.
Recife had a higher mortgage value than São Paulo, Juiz de Fora and Belém in 1855-1859, but it also showed a smaller, although significant, growth than these counties. Probably, this growth was not only due to the dynamism of the sugar economy in Pernambuco, but to the urban and mercantile expansion of the city. It is worth noting that the share of rural mortgages in total values increased between 1855-1859 and 1865-1869 from 24.8 to 30.9 per cent for the capital of Pernambuco, in contrast to São Paulo and Belém. Thus, we verified an expansion of mortgage credit from the previous period to the one after the new legislation of 1864. Considering almost all the municipalities under study, we only observed a retraction of the values of Vassouras. This result must be understood in comparison with other economic and financial variables. Thus, the economic dynamism of the regions may be the main factor for the results achieved in relation to mortgages.
For Belém and Recife, the growth of exports through their respective ports can be used as a proxy for the economic expansion of the region. This procedure makes it possible to try to separate the effect of institutional change from mortgage reform and that of the economyFootnote 31. The former presented a real increase of 169.9 per cent of the values mortgaged between 1855-1859 and 1870-1874, however, in Pará exports grew 129.1 per cent between 1854-1855 and 1869-1874, when these data are available. In this case, and although other factors may explain this growth, there is an indication, grosso modo, that the expansion of mortgage credit was slightly higher than the economic one, possibly showing a gain in terms of institutional change.
In the case of the latter, exports from Pernambuco showed a real expansion of 70.7 per cent between 1854-1855 and 1869-1871, driven by the boom in cotton exports with the American Civil War. However, the growth of mortgages in Recife was 77.6 per cent between 1855-1859 and 1865-1869Footnote 32. Despite a certain overestimation of exports, there seems to be a greater proximity between the two dynamics in this region. Thus, little could be attributed to other factors, such as the institutional reforms of the 1860s.
The capital of the Empire and after the Union had regular information only from 1890Footnote 33. The first 5 years of these data (1890-1894) were used as a comparison, despite the large time difference between the data. Real growth proved to be extraordinary, increasing almost five-fold in 35 years. In addition to the significant economic and urban dynamism of the capital, at the end of the chosen period the Encilhamento of a feverish monetary and financial period took place. Information on Brazilian exports was used as the most representative to try to estimate the economic dynamism of the capital, since the port of Rio was the main port in the country. Brazilian exports grew 103.8 per cent between 1855-1859 and 1890-1894, but the rise in mortgage values in the same period reached 495.8 per cent. On the other hand, we can use the population in 1858 and 1890 to estimate the per capita value, which would be 90,294 réis in 1858 and 196,227 réis in 1890Footnote 34. Thus, the institutional transformations of the 1864 and later laws had a greater impact than exports. These institutional changes included real credit banks, Banco do Brasil's mortgage portfolio and even Encilhamento's monetary policy Footnote 35.
The broadest information for the whole country is available only for 1909 published in the Statistical Yearbook of Brazil, later resumed from 1913. For the first year, the total number of mortgages reached 10,416 and the negotiated face value was 160,436 contos. If we transform this information into 5-year figures and values from 1855-1859, we can attempt to compare it with ParanaguáFootnote 36. Despite the large time interval between the two moments, this comparison showed a significant increase in the number of mortgages, although much greater than that of mortgage values. The average value of a mortgage in 1909 decreased significantly compared with that of 1855-1859, being 5.3 contos at the end of the period. Financial and economic changes had made it possible for slightly less fortunate people to take out mortgages. Finally, we can make a per capita comparison of the amounts mortgaged in the country. If we use the population estimated by Mortara (1941) for 1860 and 1910, we see a per capita value of just over 8,000 réis in 1855-1859 and 11,507 réis in 1909. Thus, the amount mortgaged per inhabitant grew between the two periods, but this expansion was not so significant for a period of about half a century Footnote 37.
If we compare with exports, we see a real expansion of trade of 277.6 against 307.5 per cent of mortgages, as seen in Table 2. Thus, we can only attribute a small gain to the institutional changes from 1864 onwards to the country as a whole. A caveat must be made about this comparative exercise with exports, as we can expect financial variables to grow more than economic variables in a period of monetary and banking expansion. To analyse this possibility, we performed another comparative procedure, using the M2 payment method as a controlFootnote 38. In this way, it was possible to verify the behaviour relative to another monetary and financial variable. The real growth of the money stock in the same periods as those presented for mortgages in Table 2 was 338.2 per cent from 1855-1859 to 1890-1894 and 415.2 per cent from 1855-1859 to 1909. The former was revealed to be even lower than the mortgage expansion of the country's capital, noting that the monetary and financial effect of Encilhamento was not sufficient to explain the increase. There is a possibility of institutional gains specific to the mortgage market in this period from 1855-1859 to 1890-1894 Footnote 39.
For Brazil in 1909, the rise in mortgages proved to be less than that of means of payment. This result indicated some reversal of the advances produced by the institutional changes that had occurred previously. One possibility would be the crisis in the Bank of the Republic of Brazil and the downturn in real credit banks, which experienced great difficulties at the turn of the 19th to the 20th century. As these banks were very active in the mortgage market, their withdrawal from offering credit had repercussions for the entire economy and the financial market, especially for mortgages.
It is still possible to analyse the distribution of mortgages by regions between 1855-1859 and 1909. The south-east maintained almost three-quarters of the total and the north region increased its share to 6.6 per cent; this last area had the greatest dynamism due to the rubber boom. However, values in the province of Rio de Janeiro decreased significantly in 1909 (2.9 per cent) while those in São Paulo increased to 47.3 per cent. Both areas enjoyed coffee preeminence, but very different dynamisms. Large new areas in São Paulo were employed to produce coffee in relation to the small space available in the north of the province of Rio de Janeiro. The share of capitals rose significantly to 43.7 per cent of the total, highlighting the dynamism of the urban economy in different parts of the country. Bahia and Rio Grande do Sul maintained similar holdings in 1855-1859 and in 1909 (8.1 and 6.0 per cent, respectively), but shares in Pernambuco and Minas Gerais reduced more significantly (2.6 and 4.8 per cent, respectively). Thus, São Paulo and the capitals tended to concentrate more and more mortgages in this period.
Newspapers continued to advertise and facilitate mortgage dealsFootnote 40. A qualitative analysis of the effect of the mortgage reform can be made from the foreclosures published in the newspapers. Despite the few cases analysed, the references became more common after the reform. Most of the executions raised dealt with urban transactions in different parts of the country, comprising letters, houses and buildings, as in the cases of Paraíba (1869), Capivari (1871), Belém (1874), Campinas (1875), Recife (1878), Rio de Janeiro (1877, 1880, 1882, 1885 and 1887) and São Paulo (1870)Footnote 41. However, there was a public notice of a foreclosure action for a farm in Piraí of 160 alqueires of land and 183,500 coffee trees and eighty-seven slaves and another for a property in Resende with 227,000 coffee trees and twelve slavesFootnote 42. This indicates other consequences of the reform, not only with respect to mortgages, but also for debt collection. These two farms in the Paraíba Fluminense valley at the end of the 1870s went through an execution process, possibly due to the deterioration of the conditions of the coffee plantation itself in this region. The reduction in the productivity of coffee plantations made it difficult to maintain the payments established for better coffee results at an earlier time. The conditions for the solvency of mortgages in the valley worsened as production and productivity fell, as well as the value of land and property. On the other hand, the threat of the abolition of slavery removed the last real guarantee which had not suffered a loss of value at that time. In the next section, we focus on the mortgage loans of the main Brazilian bank to help us understand this dynamic in the second half of the 19th century, when it became a major creditor and executor of farms in the Paraíba valley.
4. THE MORTGAGE PORTFOLIO OF THE BANCO DO BRASIL
All the evidence indicates that the Banco do Brasil did not give any mortgages in its first years of operation in the 1850s and early 1860sFootnote 43. As we have seen, the Banco Rural e Hipotecário do Rio de Janeiro already made loans in this way in the 1850s, maintaining this type of loan operation, although involving more modest amounts, in the following decades. After the 1864 crisis, the country's main bank was having trouble and the government pressed and encouraged it to award mortgages in return for assistanceFootnote 44. The Banco do Brasil's statutes were reformed and it was opened to financing for farming. In August 1867, the bank started to operate a portfolio different from the commercial portfolio that already existed, based on a specific fund, making loans from 10 contos to 120 contos restricted to the south-eastFootnote 45. The lowest amount lent by the bank would correspond to more than a dozen slaves, thus excluding the vast majority of people and even farmers. In addition, the maturities could reach 10 or even 30 years in some cases. The capital of the portfolio totalled 35,000 contos, formed mainly from discounted bills guaranteed by the bank (Peláez and Suzigan Reference Pelaéz and Suzigan1981, pp. 115-117). Thus, after the creation of the portfolio, the bank started to operate through pledge and mainly mortgage, opening a new area of operation for the main financial institution in the country (Sweigart Reference Sweigart1980).
In its first year of operation, the bank carried out agricultural financing for the extraordinary amount of 7,940 contos, as reported in the balance sheet at the end of the first half of 1868 (Piñeiro Reference Piñero, Motta and Guimarães2007, p. 52). This amount far exceeded the sum of the loans in the 1850s by the banks mentioned in the first section. One hypothesis for this rapid expansion stems from the possibility that farmers' intermediaries would transfer the bonds to the bank Footnote 46. Another alternative was that the bank itself converted bills from its portfolio into mortgages. The growth of the Banco do Brasil's portfolio continued in the following years, as can be seen in Figure 1, reaching 11,667 a year later and, at the end of 1869, a total of 15,380 contosFootnote 47. The province of Rio de Janeiro maintained the largest portion of the portfolio, reaching around 12,000 contos in 1872Footnote 48. Thus, about 5 years after its creation, the portfolio reached almost 18,858 contos in May 1872.
FIGURE 1 MORTGAGE PORTFOLIO OF BANCO DO BRASIL (values in contos de réis and % non-mortgage loans, 1868-1890).
Source: Balance sheets published by the bank in several newspapers, Almanacs and Reports from the Ministry of Finance.
Note: We consider as loans: bills (discounted, guaranteed, receivable and bankruptcy) and current accounts (with guarantee, miscellaneous and from the National Treasury and provincial governments).
In order to better analyse the relative importance of this portfolio for the Banco do Brasil's business, we compare it with their non-mortgage loans. This form of providing financing had been used since the beginning of the bank's operations, assuming significant proportions of assets and new forms and customers over timeFootnote 49. As can be seen in Figure 1, the representativeness of the mortgage portfolio in relation to these non-mortgage loans also grew rapidly in the late 1860s and early 1870s, making up about two-thirds of the bank's non-mortgage loans throughout the 1870s. Only in the 1880s, we verified a more effective decrease of the proportion, but still making up about one-third until the end of the Empire. Thus, for more than two decades, the mortgage portfolio represented a very significant portion of the bank's financing activity.
Despite the representativeness in the balance sheets, the clients in the portfolio were a very small and very fortunate group. Until 30 June 1872, 364 mortgage loans totalling 27,000 contos were made, but on 307 assets totalling 19,700 contos. Of this last total, thirty-nine were urban mortgages on 254 buildings, adding up to just over 3,000 contos, that is, 23.5 per cent of the bank's total mortgagesFootnote 50. The average amount borrowed exceeded 60 contos, which was equivalent to a large property at that time. Demands for the bank's mortgage loans exceeded the portfolio's capacity, producing complaints from neglected provinces and even from farmers in general. Although we did not find any advertisements for the Banco do Brasil in its newspapers about its mortgage operations, the growth in this financing produced the need for the collection, execution, auction and sale of agricultural properties. From 1868 onwards, we noticed several cases of the auctioning and sale of farms by the bank, such as those in Barra Mansa, Vassouras, Bananal, Rio Claro and Paraíba do SulFootnote 51. The securities in liquidation corresponded to late payments, which reached the value of 3,146 contos in June 1873 (17.2 per cent of mortgages). Another significant portion of the portfolio's resources was in cash or in government bonds, reaching just over 5,000 contos. This demonstrates a certain fear of lending on the part of the bank and a political and social pressure on the institution, also revealed by the retraction of the portfolio's business shown in Figure 1.
The government and the Banco do Brasil entered into a new agreement in September 1873, which allowed the launch of mortgage notes to finance longer-term mortgages. In addition, the bank would no longer accept the forced adjudication that required it to acquire all the assets as collateral on the execution of the debt. The established interest rate was reduced to 6 per cent per year and the amortisation rate was no more than 5 per cent. The mortgage portfolio expanded its application to Paraná and Santa Catarina. Despite the expansion, the concentration in the province of Rio de Janeiro continued in 1874, as it represented 60.0 per cent of the total and those in Minas and São Paulo accounted for 17.6 and 20.7 per cent, respectively. If the urban mortgages in the capital of the Empire totalled 1,460 contos that year, several municipalities reached levels close to or higher in rural loans, such as Valença (3.42), Vassouras (2.13), Mar de Hespanha (1.57), Paraíba do Sul (1.53), São Fidelis (1.31), Leopoldina (1.29), Campinas (1.25), Cantagalo (1.20) and Juiz de Fora (0.98)Footnote 52. Some of these locations are already mentioned in the previous sections and the amounts lent by the bank represented, despite a time difference of just over 5 years, a large portion of the total traded in the counties present in Table 2, highlighting the relevant role of the Banco do Brasil for mortgage financingFootnote 53. In the province of Rio de Janeiro alone, business reached 256 mortgages and 286 farms with 16,248 slaves, amounting to just over 16,000 contos in loansFootnote 54. The concentration in the Rio de Janeiro province was due, not only to the economic relevance of the region, but also, possibly, to the political influence in the government of these great farmers and coffee barons.
Most of the portfolio consisted of rural loans and during the 1870s the financing terms were extended after the agreement with the government. The first launch of mortgage notes worth 2,000 contos in 1875 helped in this expansion, raising the loaned capital to just over 26,000 contos later that yearFootnote 55. Subsequently, letters were released in 1876 and 1878, with the three batches totalling approximately 5,000 contos. If, in 1873, more than nine-tenths of mortgages were short-term, just over 5 years later, more than two-thirds were lent in the long term. There was an improvement in late payments, as the securities in liquidation reduced to 841 contos in 1877, making up just under 3 percentage points of mortgages. Finally, the bank also reduced the resources of the portfolio in cash and in mortgage bills, applying almost allFootnote 56.
Throughout the second half of the 1870s, the portfolio did not expand in the same way. The bank's stock of mortgages reached 764 operations, with the remaining 31,313 in 1880. The distribution of these loans was entirely concentrated in the south-east: 83 in the Neutral Municipality, 319 in the province of Rio de Janeiro, 214 in the province of São Paulo, 136 in the Minas Gerais and 12 in Espírito SantoFootnote 57. Half of the values were still in the Court and the province of Rio de Janeiro (50.2 per cent), but São Paulo already accounted for almost a third (32.1 per cent) and Minas about a sixth (16.9 per cent).
The Banco do Brasil stopped issuing mortgage bills in the third issue in 1878, which limited the possibility of expansion. That year, the Commercial Retrospect of the main economic newspaper showed that these titles were well received: «their solidity; already several small capitalists, who are looking for secure jobs for their economies, give them preference over other values of higher income, well guaranteed, but subject to various causes to frequent price fluctuations in the market. Mortgage bills were traded every month of the year and almost every day» (Jornal do Comércio 1879, p. 36). Such securities continued to be traded at variable discounts on the secondary market during the 1880s, maintaining the liquidity of the securities.
In addition to not accepting slaves as collateral in 1884 due to the growing abolitionist movement, the institution decided to liquidate the portfolio definitively, while respecting current contracts and reducing new credit operationsFootnote 58. At that time, the portfolio totalled almost 29,000 contos, mainly long-term rural mortgages (86.9 per cent). Of the 781 active contracts in June 1884, about half were up to date and, in terms of values, slightly more than half of the total (52.6 per cent). There were slightly more than 700 rural mortgage loans comprising 773 farms, 97 million coffee trees and 34,500 slavesFootnote 59. The abolition of slavery threatened to destroy a large portion of the collateralised amounts of loans. Rio de Janeiro's participation in rural mortgages reduced to 45.0 per cent of the values and the São Paulo province reached 36.0 per cent, and Minas Gerais 18.4 per cent. Following the expansion of coffee to other areas, the portfolio shifted its financing further to the interior of Minas and São Paulo. If at the time the mortgage was granted, the loan was 44.3 per cent of the valuation of real estate assets and slaves, the remaining balance of these loans represented almost three-tenths of the equity given as collateral (29.2 per cent). Even without slaves, the property valuation exceeded the remaining mortgage debt balance.
Beyond the Banco do Brasil, the banks of real credit with interest guarantee began to finance through mortgages, using mortgage notes to raise fundsFootnote 60. For example, the Banco Predial held 4,000 contos in urban and rural mortgages in 1881, issuing slightly less in mortgage billsFootnote 61. According to reports by Laërne (1885, pp. 218-223) for 1883, coffee farms in the province of Rio de Janeiro were crucially dependent on the Banco do Brasil's mortgage financing, much more than the other provinces. We estimate that about 7.6 per cent of slaves in the municipalities of Rio de Janeiro who had loans with the Banco do Brasil were mortgaged to the bankFootnote 62. The captives used as collateral of the credits for the area bordering the Rio de São Paulo and Minas (Paraíba valley São Paulo and Minas Gerais) represented 5.7 per cent of the slave population of these municipalities. For the Santos area, the Banco do Brasil's share was lower (62.4 per cent), with the Banco de Crédito Real de São Paulo and the Banco Predial taking on significant shares. Even so, the Banco do Brasil alone mortgaged 10.2 per cent of the slaves in that area, possibly the higher incidence of financing in that area was due to the more favourable prospects for coffee growing. As a result, these new institutions quickly gained market share mainly in the most recent cultivation areas, however the Banco do Brasil still maintained the largest share of the mortgage market captured by banks.
Laërne's reports allow us to measure the collateral for the Banco do Brasil's loans in 1883. The bank maintained, at that time, the mortgage of 776 farms in the south-east, which grew mainly coffee, but some mixed with other productions such as sugar north of Rio de Janeiro and more diverse crops in the west of São Paulo. The average number of slaves reached almost forty-five, revealing that the large producing units benefited from this more favourable creditFootnote 63. The other two institutions maintained just over 9,000 contos in mortgaged values, covering more than 5,000 slavesFootnote 64. For them, the average number of slaves was much lower than that of the Banco do Brasil, but still a large number: 20.6. Thus, small and medium coffee farmers had little chance of obtaining mortgage loans from these institutions, especially the Banco do Brasil.
According to Laërne's data, the amounts lent by the portfolio corresponded to just over four-fifths of the mortgaged assetsFootnote 65. Slaves still represented a significant portion of collateral (44.1 per cent)Footnote 66. In the Rio zone, this share reached almost half of the total (46.4 per cent), however in the Santos zone the total reached a little more than a third (38.5 per cent). The Rio zone depended more heavily on its captives as collateral for financing; prices should have been similar in these two regions due to the mobility of this asset. The value of the remaining debts of the bank's mortgages amounted to about 29,000 contos at that time. These loans still accounted for almost a third of the collateral amounts (30.6 per cent). The bank maintained large sums associated with coffee farms and, to a lesser extent, sugar from the south-east and slaves. Many of the assets provided as collateral lost value during the 1880s, both with regards to slaves and farms in the Rio zone.
The bank gradually reduced the portfolio's operations over the last years of the 1880s, from almost 25,000 contos in 1886 to just 10,000 contos at the end of 1890Footnote 67. After almost 20 years of operation, the portfolio had totalled, from its beginning until June 1887, 1,342 mortgage loans with a value of 75,742 contos (Tocantins 1887, p. 26). The average loan amounted to more than 50 contos. Despite the very significant amount of resources mobilised by the portfolio, the share of the population benefiting from these loans proved to be quite limited. In that same year, the mortgage portfolio produced a profit for the bank in excess of 1,000 contos. Finally, until 1886 the bank had already received over two-thirds of the total (67.0 per cent)Footnote 68. These results demonstrated the solvency of the mortgage portfolio until that moment.
The board's justification for closing the portfolio was reduced profitability, despite the small amount of losses recorded until 1890. However, of the 391 remaining borrowers in the portfolio that year, less than a quarter (22.8 per cent) paid on time in that same bank report. The Banco do Brasil already owned twenty-eight farms and sold nine in the last yearFootnote 69. The remainder of the portfolio probably comprised of the debtors with the greatest difficulty in making payments. The Paraíba valley suffered from a decrease in production and especially in the productivity of coffee plantations, leading to a fall in land and property prices. Debts often contracted for long periods through the portfolio became unpayable due to the deterioration of production conditions and the loss of value of assets. The bank executed its debtors, but the possibilities of recovering credit were very limited under these conditionsFootnote 70.
In compensation, the bank created an agricultural credit section that received part of the remaining funds from the mortgage portfolio and the other part from the government, thanks to a new agreement signed in August 1888, in order to lend based on discounted bills, current accounts guaranteed by mortgage, pledge or policies, actions, etc. At the end of 1888, the section comprised of 13,000 contos, of which just over 5,000 were in mortgages. These amounts were at least initially much lower than the peak of the mortgage portfolio. In this way, only a part of the resources of the new credit section was invested in mortgages, reducing the risks of loss of value of land and improvements. The province of Rio de Janeiro accounted for 35.5 per cent of loans and São Paulo accounted for 39.7 per cent of the total, leaving Minas Gerais with 23.8 per cent. Finally, there was agricultural credit to aid the northern states, which also received contributions from the mortgage portfolio and the government.
The Banco do Brasil, the Banco de Crédito Real do Brasil and that of São Paulo accumulated more than 10,000 contos in bills in 1886, which was directed to mortgage credit. In 1889, the imperial government, in an effort to secure political support, made several agreements with various banks to expand mortgage loans, taking over half of the resources to be lentFootnote 71. Thus, the Banco do Brasil and, subsequently, those of real credit became important financing agents through mortgages as of the end of the 1860s. The bases for the continuity of the policy, however, proved to be quite dependent on government support either through the Banco do Brasil or real credit institutions.
5. CONCLUSIONS
Despite the restrictions on financial resources typical of a developing economy, mortgage credit in 1855-1859 reached a significant amount, spread over most Brazilian counties and covering the vast majority of the population. It still made short-term loans to the fortunate, with high interest rates and mainly for more urban activities, concentrated in the capital of the Empire and its main commercial centres. Inequality between regions, provinces and even counties was already high at that time. The average values also proved to be significant, excluding a large portion of the population. On the other hand, newspapers were a means of facilitating business by spreading information and bringing parties together, as well as mortgage transactions. When approaching applicants and providers of resources, journalistic establishments announced and brokered credit proposals and other businesses.
The analysis made it possible to evaluate the possibility of institutional advances in the mortgage market from 1864 until the beginning of the 20th century. The mortgage reform and the creation of the Banco do Brasil's mortgage portfolio had, until Encilhamento, a positive effect of mortgage credit expansion for most of the counties under analysis. Even if we compare the demographic or economic dynamism measured by exports, we see smaller, but still significant, expansions for most counties. However, the change in economic policy at the end of the 19th century led to a fall in mortgage credit throughout the country, reversing previous advances in relation to the expansion of this type of financing. Even so, we noticed, after the reform, a higher penetration of mortgage credit among the slightly less fortunate.
The Banco do Brasil, encouraged by the government from the end of the 1860s, became an important financier providing mortgages with favourable conditions for the most fortunate farmers of south-east Brazil. The high amounts lent by the bank represented a large proportion in relation to the bank's other loans until the end of the Empire. The collaterals offered were mainly coffee farms in the south-east and their slaves, corresponding to a significant portion of the labour force in that region. The growing risks of the portfolio both of coffee plantations in the Paraíba valley as well as of slavery itself led the bank to restrict its operations even before the end of the Empire. Thus, we verify that the institutional changes in the mortgage market in the 1860s, both general and more specifically affecting the Banco do Brasil, produced a progressive advance in the use of this instrument in the second half of the 19th century.
ACKNOWLEDGEMENTS
This research was supported by Fapesp – São Paulo Research Foundation (2012/09121-2). The author acknowledges the comments received in the XII Congresso Brasileiro de História Econômica da Associação Brasileira de Pesquisadores em História Econômica.
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