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South African Reserve Bank
 
 
     
 
 

Domestic 

Apart from monitoring the stability of the financial system and conducting research on financial stability issues, the SARB has three distinct roles in pursuing financial stability.  Firstly, it contributes to financial stability through the qualitative assessment and enhancement of the regulatory environment.  Where possible, use is made of independent assessments of adherence to international best practice standards.  Wherever it can, the SARB takes the role of illuminating the issues and facilitating multilateral initiatives to improve the strength of the financial system.
The assessment of the robustness of the financial system infrastructure results in actions to make the financial system more resilient, robust and less crisis-prone.  Four broad tasks are performed, namely:
      Assess qualitative strengths and weaknesses of the financial regulatory framework and environment.
      Identify and research developments relevant to the structure and functioning of the financial system and its various markets.
      Propose and participate in initiatives to increase the effectiveness, efficiency and robustness of the financial system.
      Assess risks and threats that may affect or impact on the stability of the financial system.
 
Secondly, it analyses reliable financial soundness indicators (FSI) to quantify the likelihood of the financial system being subjected to shocks.  A quantitative approach of integrating aggregated microprudential data of the banking system, i.e. capital adequacy, asset quality and related data derived from the statutory returns, with certain macro-economic variables and macro-financial data such as aggregated government, non-bank corporate and household balance sheets, is used.  The objective is to develop a model that helps to analyse the financial system in the context of the current phase of the macro-economic cycle.  In this way monetary and regulatory policy can be better informed by a “radar-screen” showing build-up of imbalances that may trigger or exacerbate disturbances.
Notwithstanding these efforts to prevent and detect instability, financial sector crises can still occur.  A third financial stability responsibility of the SARB is therefore to plan and coordinate the authorities’ responses to crises, develop and maintain safety-net policies and procedures, and coordinate contingency planning for systemic crisis resolution.  After all, the social cost of financial system failure usually exceeds the private costs, which is full justification for the role of the central bank as the source of emergency liquidity during times of systemic risk.
The South African Reserve Bank (SARB) regards the achievement and maintenance of price stability as its primary goal.  On 16 February 2010 government clarified and extended the mandate of the Bank. The Minister of Finance’s open letter to the Governor of the Bank confirmed that the Bank should continue to pursue a target of 3 to 6 per cent for headline consumer price inflation, and should do so within a flexible inflation-targeting framework.  The letter also reaffirmed the role of the Bank in overseeing and maintaining financial stability and, in the aftermath of the global financial crisis, has now also made this financial stability role an explicit part of the Bank’s mandate.
To pursue the maintenance of financially stable conditions and contain systemic risk, the SARB continuously assesses the stability and efficiency of the key components of the financial system and formulates and reviews policies for intervention and crisis resolution.  The SARB’s approach to financial stability places considerable reliance on private and market forces to achieve financial stability, and therefore any intervention should be at the minimum level needed to contain systemic risk.  This is also the reason why transparent debate, such as that encouraged by the publication of a six-monthly Financial Stability Review, is important.
It is, however, important to realise that the stability of the financial system cannot be achieved by the central bank, or by the government authorities alone.   What is necessary is that all financial system participants act in ways that enhance the robustness of the financial system, which of course requires good, reliable information.  It is envisaged that in South Africa, models similar to those used in countries like the UK and Canada could be introduced, whereby the responsibility for financial system stability is shared among, and coordinated between, the central bank and other specialised agencies.  A process has commenced recently whereby such a national financial stability committee or regulatory council will be established.
 
In late 2010, the SARB decided to elevate and reconstitute its Financial Stability Committee (FSC) to a level equal to and alternating with the Monetary Policy Committee (MPC) meetings.  The main function of the FSC is to consider periodic conjunctural and cyclical assessments of risks to the broad financial system, and to consider, initiate and monitor possible steps to mitigate them.  Another logical function of the FSC is to consider periodic qualitative assessments of the financial system’s inherent strength by reference to objective standards such as the Financial Stability Board’s (FSB) “Twelve Standards” framework, and against the generic objectives of stability, efficiency, and fairness. 
For more information click here ( A safer financial sector to serve South Africa better )  http://www.treasury.gov.za/documents/national%20budget/2011/A%20safer%20financial%20sector%20to%20serve%20South%20Africa%20better.pdf
 

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