Curatorship of banks as a measure to rescue failing banks

Abstract

The purpose of this study is to explore the current status in relation to the concept of curatorship as a measure to rescue failing banks. The world as we came to know it has changed the way banking is done. This dissertation therefore investigates the concept of curatorship of banks in South Africa in terms of the Banks Act and to determine what influences, if any, does the proposed Twin Peaks model of Regulation will have on it. A closer examination of section 69 and 69A of the South African Banks Act is conducted in order to understand the impact of bank curatorship within the South African context. Not only is an examination conducted on the Banks Act, but also on the proposed Financial Sector Regulation Bill. Comparatively this dissertation explores and examines curatorship under Botswana banking law, this is done on the premise that Botswana like any other global financial players has it fair share of financial markets challenges. It examines the measures that Botswana may have put in place in order to assist failing banks through the instrumentality of curatorship, or temporary management as it is known in Botswana. There are several pertinent features that are identified to be contributing factors for banks to be placed under curatorship. These factors include amongst others lack of robust supervision by regulators, lack of risk and management disclosure by banks, poor management of banks, excessive lending and failure of a bank s management to conduct the business of banks in a prudent, safe and sustainable manner. Internationally this dissertation explores international best practices and measures that are in place to deal with the concept of curatorship as a measure of rescuing failing banks. This is done on the understanding that international financial sector is globally integrated but regulated nationally. It is this concept of interconnectedness of banks that perhaps gave birth to the Basel Core Principles on responsible banking and its dedicated Basel Committee of Banking Supervisors to ensure the prudential and liquidity compliance of banks globally. This dissertation explores and examines some of the elements that are likely to lead to banks being placed under curatorship and identify them as lack of global regulation and cooperation amongst others. This lack of global regulation and cooperation are also seen as drivers that poses a risk to global financial markets. Finally this study acknowledged that bank curatorship does not necessarily translate to prevention of banks failures but rather as a tool used to ensure that when failure occurs, it is addressed in an orderly manner so as to cause the least risk to the financial system. This dissertation concludes by making recommendations which incorporates measures that may be put in place for management and effective supervision of banks.