June 11, 2019

SARB published a discussion paper on developing a methodology to determine which banks are systemically important financial institutions (SIFIs) in the South African context, in line with the requirements set out in the Financial Sector Regulation Act 9 of 2017 (FSR Act). The methodology will be reviewed annually, or when there is a significant change in the international guidance or in the information made available to SARB. The paper also includes international comparison of methodologies in which methodologies of other countries with a similar banking and regulatory structure are compared to those of South Africa. The regulatory bodies that have disclosed information on their methodologies include PRA, EBA, Bank of Japan, APRA, Bank of Canada, and RBNZ.

Even though no measurement criteria could fully capture systemic importance, BCBS proposed the use of an indicator-based measurement to reflect the various dimensions of negative externalities and contributions to systemic risk. BCBS approach for the identification of global systemically important banks (G-SIBs) consists of selected indicators with equal weights, including size, interconnectedness, the lack of readily available substitutes, global activity, and complexity, while the BCBS methodology for domestic systemically important banks (D-SIBs) proposes the customization of indicators and weightings to reflect the characteristics of the domestic financial system. The South African approach is broadly based on the BCBS approach and utilizes similar indicators, but it has been enhanced for domestic use by adding indicators and criteria that better reflect the South African conditions.

The indicators that are used to identify potential banking SIFIs in South Africa are size, interconnectedness and substitutability, global activity, and complexity. Each indicator has various sub-indicators that are used to calculate the relative systemic importance of each bank. No quantitative methodology is able to capture all potential risks. There will be a possibility that institutional risks are more systemic than indicated by the methodology. Regulators often have qualitative information available that cannot be quantified in a methodology. Therefore, there should be room for judgment to be applied by the Governor to ensure that all areas and risks are sufficiently considered. The methodology merely serves as a basis for decision making.  Section 29 of the FSR Act provides the Governor with the ability to use his/her discretion when making the determination. Additional elements that might be considered when applying judgment on whether to designate an institution as a SIFI include, but are not limited to, the following:

  • Reaction of investors, depositors, and the broader financial markets in the event of a failure
  • Geographical area serviced and the possibility of a suitable substitute
  • Products provided and the possibility of a suitable substitute
  • Services provided and the possibility of a suitable substitute
  • Number of clients and employees of the institution
  • Possible negative perception from an international market perspective

 

Related Link: Discussion Paper

 

Keywords: Middle East and Africa, South Africa, Banking, Systemic Risk, G-SIBs, D-SIBs, FSR Act, BCBS, SARB

Related Articles
News

US Agencies Consult on Capital Treatment of Land Development Loans

US Agencies (FDIC, FED, and OCC) issued a proposed rule on the treatment of loans that finance the development of land for purposes of the one- to four-family residential properties exclusion in the definition of high volatility commercial real estate (HVCRE) exposure in the regulatory capital rule.

July 12, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Second Update for July 2019

Under the Single Rulebook question and answer (Q&A) updates for this week, EBA published answers to five questions related to supervisory reporting.

July 12, 2019 WebPage Regulatory News
News

ESMA Updates Manual for European Single Electronic Format in EU

ESMA updated the reporting manual for European Single Electronic Format (ESEF).

July 12, 2019 WebPage Regulatory News
News

FED Updates Supplemental Instructions for Reporting Form FR Y-9C

FED updated the supplemental instructions for FR Y-9C reporting.

July 12, 2019 WebPage Regulatory News
News

EBA Publishes Report on Monitoring Implementation of LCR in EU

EBA published its first report on the monitoring of the implementation of liquidity coverage ratio (LCR) in EU.

July 12, 2019 WebPage Regulatory News
News

EIOPA Consults on Reporting and Disclosures Under Solvency II Review

EIOPA launched a consultation package on supervisory reporting and public disclosure in the context of its work linked with the 2020 Solvency II review.

July 12, 2019 WebPage Regulatory News
News

APRA Applies Additional Capital Requirements to Three Australian Banks

APRA is applying additional capital requirements to three major banks in Australia to reflect higher operational risk identified in their risk governance self-assessments.

July 11, 2019 WebPage Regulatory News
News

IMF Report on 2019 Article IV Consultation on Euro Area Policies

IMF published its staff report in context of the 2019 Article IV consultation on euro area policies with member countries.

July 11, 2019 WebPage Regulatory News
News

FSB to Survey Practices on Cyber Incident Response and Recovery

FSB launched a survey on the industry practices on cyber incident response and recovery.

July 11, 2019 WebPage Regulatory News
News

ECB Appoints New Members of Supervisory Board

The Governing Council of ECB appointed Edouard Fernandez-Bollo, Kerstin af Jochnick, and Elizabeth McCaul as representatives to the Supervisory Board of ECB Banking Supervision, for a five-year non-renewable term.

July 11, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3441