Standing Committee on Finance
The banking supervision department of the reserve bank plans to implement a comprehensive set of amended banking regulations on 1 January 2012. The regulations will include the package released by the Basel committee on 13 July 2009 as amended.
This was revealed by the registrar of banks, Errol Kruger, during a briefing to the standing committee on finance on the international financial market crisis.
Mr Kruger provided background information on the sub-prime market turmoil that led to the crisis. Lending to high risk borrowers in the housing market in the United States was dependent on house prices continuing to rise. When house prices began to drop, there was a rapid increase in non-performing sub-prime mortgage loans.
A key driver of the development of the sub-prime mortgage market at the time was the demand for high-yielding assets from international investors. Sub-prime mortgages had been securitised and sold on to investors as “collaterised debt obligations”.
Detail was provided on the reserve bank’s response to the crisis, in particular the banking supervision department’s interaction with the management and boards of South Africa’s leading banks since 2007.
Comments received from banks and other interest groups on various draft documents released for public comment would also be incorporated into the amendments.
The Basel committee was driving, to a large extent, the response to the global financial crisis. Initiatives introduced included strengthening the capital base of banks, introducing a framework for counter-cyclical capital buffers and deciding whether a capital surcharge was necessary to lessen the risks to banks.
Mr Kruger added that further proposed amendments to the regulatory framework arising out of the ongoing deliberations of bodies such as the G20 and the financial stability board would be included during the next round of amendments to the regulations.
The next round of amendments would likely come into effect at the beginning of 2013 at the earliest.
Mr Kruger stressed that an internationally agreed precondition would remain, namely, that any further proposals must not impede the recovery of the real economy.
Future draft amendments to be released for public comment will focus on market risk, consolidated supervision, economic returns and further pronouncements of the Basel committee.
Sabinet Cape Town Office
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