TOTTING UP THE COST
minister of finance.
With the exception of banking activities regulated under the Financial Advisory and Intermediary Services Act, banks have never been regulated in the greater sense from a conduct points of view. What this implies is that the FSCA will need to bolster its ranks with regulators who have a deep understanding of the banking sector.
The past few years have seen immense changes in the regulations relating to capital holding for banks. This is a direct consequence of the 2008 financial crisis and the realisation that financial firms were insufficiently capitalised to withstand a serious “tail risk” type crisis. On January 1 2013 SA implemented amended regulations which, in line with the Basel 3 framework, essentially address both bank-specific and broader, systemic risks by:
Raising the quality of capital, with a focus on common equity and the quantity of capital to ensure banks are better able to absorb losses;
Enhancing the risk coverage of the regulatory framework, including exposures related to counterparty credit risk;
Introducing capital buffers which should be built up in prosperous times so that they can be drawn down during periods of stress;
Introducing a leverage ratio to serve as a backstop to the risk-based capital requirement and to prevent the build-up of excessive leverage in the financial system;
Raising standards for supervision and risk management (Pillar 2) and public disclosures (Pillar 3);
Introducing the monitoring of proposed minimum liquidity standards to improve banks’ resilience to acute short-term stress and to improve longer-term funding; and
Introducing additional capital buffers for the most systemically important institutions to address the issue of such institutions being “too big to fail”.
According to the central bank the implementation period for several of the Basel 3 requirements includes transitional arrangements which will be phased in until January 1 2019. The transitional arrangements are aimed at giving banks time to meet the higher standards while still supporting lending to the economy.
Other measures being taken by central banks include the requirements for financial firms to produce
Regulators are getting sharper teeth and the risk for banks failing to comply can be more than just a financial loss