South African banking system stable

Local banks remained stable in the face of Europe's debt woes and did not need the level of regulatory reform required elsewhere, SA Finance Minister Pravin Gordhan said yesterday.

Gordhan said one challenge facing the G20 meeting was how to return to a co-ordinated effort in grappling with the crisis without undermining global economic growth. The meeting should, however, not prescribe a uniform formula for all countries.

"We believe that though there has to be co-ordination, there doesn't have to be uniformity. South Africa, with Canada, Australia and India to a point have a common belief that our banking systems and financial systems are secure," he said.

"We don't have to impose the same levels of capital liquidity and other forms of strictures on our banking and financial systems as the rest of the world has to." He said South Africa was "a bit concerned that the level of co-ordination initially at the G20 is not the level that we are seeing now".

UK financial regulatory reform supports SA Reserve Bank

George Osborne, Chancellor in the UK conservative-liberal coalition government, announced, on 16 June, the end of the existing, apparently ineffective, tripartite arrangement for financial regulation, implemented over a decade ago, in favour of a twin peaks approach*. The powers of the Bank of England will be significantly increased.

Click to view a presentation which outlines the UK Government’s plans to reform the institutional framework for financial regulation in order to avoid a repeat of the financial crisis.

SA to implement financial services reforms

South Africa will implement financial regulatory reforms in line with G-20 recommendations, including better management of foreign risk exposure of banks and institutional investors, the National Treasury said (see box below).

“As of March 2010, South African banks will be able to acquire direct and indirect foreign exposure of up to 25% of their total liabilities (excluding equity), covering all foreign exposure but excluding FDI (foreign direct investment).

“The initial limit of 40% has been adjusted downwards in light of recent international developments,” the Treasury said in its 2010 Budget Review (chap 2).

It said research was underway to complete the move from rules-based to principles-based regulation of foreign exposure for institutional investors and to finalise the definition of ’foreign asset’ that captures the underlying risks.