The cost-benefit of regulation in South African banking

Abstract

In order to continue the economic transformation of South Africa, conditions must be created to encourage private sector activity and enterprise development that will translate into economic growth. The banking industry has a major role to play in the creation of this enabling economic environment and the government is using banking regulation to align the effort of the banks towards this goal. This effort will only be effective if the benefits and costs of the regulations can be identified, the benefits exceed the costs and they accrue to the correct stakeholders. The study reviews five recently promulgated legislative elements using triangulated documentary and primary research. The research reveals a conflict between the objectives of international compliance and social and economic development. The support of the enabling environment by the regulations is skewed towards the international compliance objective at the expense of the social and economic objectives. The benefits in the legislation accrue to banking customers and South African society and the major costs are incurred by the banks. If the banks use a positive, long term approach and view regulation as a business opportunity rather than a compliance initiative, the benefits of the regulation will exceed the costs and the regulation will contribute to the overall enabling economic environment. A model has been developed to show the relationship between the enabling environment, the regulation, the costs and benefits accruing to the stakeholder groups and the effects of the approach of the banks on the achievement of the objectives.