Broken banks reveal disparities in policy
Awhile back a friend and I were having a catch-up session in Rosebank when in walked a familiar figure in shorts. My mind couldn’t immediately place him, but my friend, who had only recently left journalism, recognised him as none other than Leon Kirkinis, who presided over the collapse of African Bank.
We wondered why he wasn’t in jail or, at least, being prosecuted. Of course! The Myburgh report was sent to the National Prosecuting Authority (NPA), which has been giving cast-iron excuses for inaction. The bank was rescued, at a cost. Disclosure: this columnist’s modest portfolio suffered.
This came to mind as I was rereading advocate Terry Motau’s “The Great Bank Heist” report on the brazen looting of VBS Mutual Bank, and considering the debates that have ensued. Motau has done 90% of the job for the law enforcement agencies, especially the NPA, SA Revenue Service (Sars) and the Asset Forfeiture Unit, which now have to move with speed to prosecute those he has fingered.
After twiddling its thumbs for weeks, the ANC, which reportedly received R2m from the heist, finally decided to move against those in its ranks who have been identified. Its national executive committee will meet this weekend to suspend provincial players who are implicated.
A new, credible head of the NPA could use the case to stamp her authority. Such prosecutions would deal with some of the issues, namely putting those implicated in the looting behind bars and salvaging whatever remains. Unfortunately, what this process will not address are critical long-term policy issues that have arisen from recent banking failures in SA.
These include: whether the bank should be saved; the role of the regulators — especially the Treasury and the Reserve Bank — in the collapse; the adequacy of banking regulations in supervising an increasingly sophisticated banking system; and whether the banks, auditors and lawyers have become untouchable.
One of the saddest implications of the 2008 global financial crisis is that none of the identifiable perpetrators was jailed. One or two are known to have taken their own lives instead of rotting in jail. In part because it is so small, the VBS story may have a different ending: a quick prosecution.
Motau writes that VBS is “corrupt and rotten to the core” and recommends urgent steps to wind it up.
He comes to this conclusion because there’s hardly any person in a position of authority at VBS “who is not, in some way or other, complicit”. This is understandable.
Unsurprisingly, the Treasury political high-ups, keen to be seen as courageous, have seized on this argument, claiming it will be expensive to save VBS. This is not true, as saving VBS doesn’t mean continuing with the same rotten apples. Also, saving it — with fresh leadership and a new brand — will be cheaper than African Bank, which was saved mainly because the Bank sought to mollycoddle the large banks and global capital.
Truth is, there is a role for a well-run mutual bank in SA that significantly derisks poor black communities (something the commercial banks don’t do). It’s not too late for the Bank, which filed for VBS’s final liquidation this week, to rethink its position. And finance minister Tito Mboweni shouldn’t be ashamed to lead this debate.
Then come the regulators. It is astonishing that they appear not to have learnt anything from the blatant lies they were fed month after month by African Bank’s management. Continued reliance on internal and external auditors, which the Bank and the Treasury like to invoke, seems plainly naïve, especially coming as it does after KPMG’s Sars debacle.
Surely once KPMG was found to have gone rogue — and there are no signs it has been fixed despite clumsy attempts by its apologists to rehabilitate it
— red flags should have gone up to anyone reading its reports, especially the Bank.
It is equally concerning that few people worried about the fact that Deloitte, which was African Bank’s auditor when it imploded, emerged unscathed from the episode only to surface as auditor of Steinhoff.
Even more concerning is the correspondence from the regulators warning VBS and municipalities against depositing their funds with the bank. These read like letters to sweethearts, not stern warnings from a determined regulator. No wonder the municipalities ignored them and the casual meetings between Treasury director-general Dondo Mogajane and VBS officials came to nothing.
Perhaps it’s true that our banks are sophisticated and untouchable. But is our banking regulation effective enough to stop the mice eating the cheese or does it pounce only after the cheese has been eaten? Is it another case of the Bank prioritising the interests of global capital over driving a transformative agenda that supports poor communities?
UNFORTUNATELY, WHAT THIS PROCESS WILL NOT ADDRESS ARE CRITICAL LONG-TERM POLICY ISSUES THAT HAVE ARISEN FROM RECENT BANKING FAILURES IN SA