factors that drive up revenues, costs, and risks, and hence adversely impact efforts to ensure wide and affordable access to banking services.

35. **Further promoting switching by bank clients would encourage more price competition and contestability, especially in retail banking.** As previously mentioned, banks have been generally able to ‘lock up’ retail clients as a result of non-interoperable ATM networks and of the nature of payroll account relationships. The latter is a particularly important consideration given that the growth of consumer lending in recent years can be attributed primarily to payroll loans. In this realm, initiatives to publicize updated information on bank rates and tariffs for different financial services (2003), to de-link the retail and corporate relationships by allowing portability of wage and loan accounts (2006), and to streamline retail product types and make their cost more transparent and comparable across banks (2007), have already been undertaken by the authorities<sup>41</sup> and should be considered as good steps in facilitating client switching. The recent repeal of the CPMF by the Brazilian Congress could also strengthen these efforts.

36. **The issue of positive credit information sharing is crucial in facilitating a stable increase in credit depth, improving access for lower-income borrowers and for smaller firms** . A draft “ _cadastro positivo_ ” law that provides the legal foundation for the creation of positive information databases is awaiting approval by Congress. This initiative will allow banks to share the positive credit history on prospective borrowers, reducing information asymmetries in credit markets (particularly for lower-income borrowers) and broadening access. Passage of this law would be particularly timely given the current move by banks to expand loans to independently employed individuals and small firms, because the market for lending to employees of larger firms and the public sector is progressively reaching maturity. Expanding this market is conditional on securing access to sufficient credit information<sup>42</sup> . In addition, strengthening the interlinkage among credit registries as well as the links between credit registries and payments systems would increase transparency and contribute to reducing the costs and risks of bank lending, thereby promoting access and decreasing loan spreads.

37. **Expanding payment system interconnection and improving the retail payments mix would also increase banking system competition and efficiency** . While the technological platform for large-value transactions is fully operational and follows best international practices, there is ample room for improvement in the efficiency of retail payment systems and instruments. To address these issues, Bacen is implementing a series of reforms to modernize retail payments systems ( _Sistema de Pagamento Brasileiro_ ) by encouraging integration of networks and promoting electronic means of payment. Going forward, it is of paramount importance that Bacen fully implements this reform agenda since it will promote efficiency and encourage greater competition among payments providers.

> 41 According to the OECD (October 2006), “ _since the traditional antitrust actions can’t solve the conflict between stability and competition, the Brazilian government authorities have turned their attention toward the consumers’ role in the competitive process, implementing pro-competitive interventions on the demand side_ ”.

> 42 Interviews with senior executives of banks that are active in the retail segment indicate that their focus has progressively moved to independent workers and other professionals not affiliated to a corporation.

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