A critical analysis on bank failures in South Africa

Abstract

There are certain financial institutions that are considered to be systemically important financial institutions – which means that these institutions are of such a large scale that should they fail, it would disrupt the financial sector due to their complex nature and interconnectedness amongst other sectors of the economy and this could lead to bank runs and ultimately financial instability. As a result thereof, government authorities would need to step in and provide financial support to prevent the imminent threat associated with the possibility of bank failure. Thus, this dissertation aims to investigate and explore the common reasons and factors that contribute to banking institutions; inability to achieve or maintain financial stability in South Africa, subsequent to our democracy in 1994. The dissertation will further explore the regulatory policy frameworks and the measures put in place to rescue banking institutions. The focus will be on the Banks Act. 94 of 1990, particularly section 68, which facilitates the procedure for winding up of a bank, and sections 69 and 69A, which facilitate the procedure for placing a bank under curatorship. This dissertation will also analyse the cases of African Bank and VBS Mutual Bank which recently fell into hardships, as well as the amendments implemented in terms of the Banks Amendment Act 3 of 2015. Furthermore, the dissertation will highlight the importance of the South African Reserve Bank (SARB) and its evolution as a central bank. The changing roles of the SARB and the powers and responsibilities vested in it in terms of the South African Reserve Bank Act 90 of 1989, the Banks Act 94 of 1990, the Constitution of South Africa Act, 1996 and the Financial Sector Regulation Act 9 of 2017 will be explored in so far as the financial stability mandate is concerned. And finally, the new developments in the South African financial sector will be discussed: the shift to a Twin Peaks model, the Financial Sector Regulation Act and the powers of the Resolution Authorities.