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    SARB Issues Liquidity Stress Test Rules and Resolution Regime Proposal

    April 15, 2021

    SARB issued directive (D4/2021) to all banks, branches of foreign institutions, controlling companies, eligible institutions, and auditors of banks or controlling companies regarding the requirements and frequency of conducting externally facilitated liquidity stress simulations. A liquidity simulation focuses not only on the solvency of an individual bank but also on the collective behavior of institutions in response to a shock, with the aim to minimize systemic risk. SARB also proposed requirements for designated institutions to estimate, assess, and develop ex-ante funding arrangements to finance their liquidity needs and preserve the critical functions in a resolution; this consultation, which closes on May 03, 2021, also sets out arrangements to be put in place by SARB as a participant in the financial safety net.

    In yet another development, SARB published the revised the Code of Conduct and Operating Rules (Code) for Johannesburg Interbank Average Rate (JIBAR). The revisions came into effect on April 12, 2021. The reform agenda includes, among other things, strengthening the JIBAR governance framework as an interim measure while an alternative reference rate is being developed. The revisions made to the Code pertain to increase in pricing commitments of contributing banks, inclusion of operating rules regarding adjustment of pricing commitments in the event of abnormal market conditions, and incorporation of obligations of publishing agent of JIBAR reference rate data. As a further step to enhance the credibility of JIBAR, SARB will implement a post-trade disclosure framework for all JIBAR-linked money market transactions. It is envisaged that this framework will include the publication of post-trade primary and secondary transaction data as well as information pertaining to redemption profiles of bank negotiable certificates of deposit and floating-rate notes. The effective date of this disclosure framework will be announced at a later date.

     

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    Comment Due Date: May 03, 2021 (Liquidity Directive)

    Effective Date: April 12, 2021 (JIBAR code)

    Keywords: Middle East and Africa, South Africa, Banking, Securities, Stress Testing, Systemic Risk, Resolution Framework, Interest Rate Benchmark, JIBAR, Liquidity Risk, D-SIBs, Benchmark Reforms, SARB

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