Bank­ing sec­tor re­forms a scary maze

Ed­u­ca­tion will be needed for ac­coun­tants, lawyers and cor­po­rate ex­ec­u­tives

Business Day - Business Law and Tax Review - - FRONT PAGE - EVAN PICK­WORTH

NAV­I­GAT­ING the murky wa­ters of bank­ing sec­tor re­form is not for the faint­hearted. So I did what most ad­vis­ers are prob­a­bly in­clined to do when they can’t see the wood for the trees — ask. I put a call in to the Re­serve Bank’s reg­u­la­tion depart­ment a few days ago to check up on progress and was pleased to hear that the unit is work­ing hard to en­sure SA’s bank­ing sys­tem re­mains one of the most sound in the world de­spite the re­cent wob­ble caused by the fail­ure of African Bank.

The only prob­lem is that bank­ing ad­vis­ers and lawyers are be­ing in­un­dated with a tome of new reg­u­la­tions, amended reg­u­la­tions and reg­u­lar guid­ance notes and cir­cu­lars as the latest frame­work is fever­ishly worked on. Re­fin­ing the ideal bank­ing model is clearly a la­bo­ri­ous ex­er­cise and the lurk­ing ques­tion is whether an ideal so­lu­tion can ever be found. Is it re­ally pos­si­ble to reg­u­late your way out of a cri­sis when through­out history mar­kets have proven to be amor­phous beasts? They tend to move in an­i­mal­is­tic cy­cles where ei­ther the bulls win the bat­tle for cap­i­tal, or the bears do. In be­tween is a lot of volatil­ity too — but money is gen­er­ally made. A bank­ing cri­sis, though is the end game to it all and this is the main rea­son for such a de­sire to pre­vent another bank­ing-led cri­sis from hap­pen­ing — to al­le­vi­ate the pain, as it were, while the in­stincts of the mar­kets grease the wheels of the com­pet­i­tive mar­ket.

The good news is the South African Re­serve Bank is more than will­ing to help banks and their ad­vis­ers un­der­stand what is go­ing on and even more time will be made avail­able for ed­u­ca­tion. Clearly, a lot of ed­u­ca­tion will be needed for ac­coun­tants, lawyers and cor­po­rate ex­ec­u­tives.

Es­sen­tially, the en­tire sys­tem is be­ing re­cal­i­brated to en­sure more safety valves are in place when con- di­tions get tough — as they did in 2008-09 when a re­ces­sion was sparked by poor bank­ing prac­tices and over­sight — a lapse for which global economies, SA in­cluded, con­tinue to suf­fer. Just when SA thought it was not go­ing to face a fail­ure, along came the crash and burn of African Bank’s un­se­cured lend­ing model last year.

The av­er­age lawyer be­ing asked by a cor­po­rate client to ad­vise on these things faces a dif­fi­cult chal­lenge — some coun­tries are tak­ing it more se­ri­ously than oth­ers. The banks them­selves are far closer to the process as they are ef­fec­tively liv­ing and breath­ing it and a trend that is now

Pic­ture: THINK­STOCK

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