Page 168 - SARB: 100-Year Journey

158
The beginning of the 2008−09 crisis: Mboweni’s second term (2004−2009)
One of the remarkable occurrences during the global financial crisis of 2008 was how well South African banks fared compared to the carnage witnessed elsewhere in the international banking community. Most important, the global contagion did not infect South Africa’s banking sector. The SARB’s intrusive and proactive approach to bank supervision is widely credited for helping to cushion the country. This stance had, in fact, prevented the proliferation of exotic financial instruments and off-balance sheet transactions such that South African banks’ provisioning requirements were more onerous than their peers globally.
Guma, Mokate, Mminele, Kamlana and Kahn provided insights about the SARB’s thinking at the time, while Fuzile and Momoniat recounted events from a National Treasury perspective.
According to Guma: “The issue of looking at the capital and liquidity of the banks that you supervise had been ongoing. The Registrar of Banks at the time had become extremely unpopular because this is what he had a requirement [on] around 2005. Capital adequacy requirements had become more stringent and the banks felt this was an unnecessary burden for them to carry.”
However, it turned out that this was the correct set of considerations in anticipation of changes in the banking environment. “We had little difficulty in ensuring our banks were fully compliant and, in fact, [our banks] were part of the committee that worked on those Basel rules. For us, it was a fairly straightforward operation,” Guma added.
There had been early warning signs that trouble was on the horizon, according to former Deputy Governor Mokate.
“I used to serve as the Central Bank Deputy of the G20 [Group of 20] Forum. I remember a couple of meetings we had, maybe it was 2005−06, and there was an economist from the Bank for International Settlements. Even before this thing happened, [the economist] kept saying he thought that there was a lot of risk in the system,” Mokate said.
The financial sector had evolved. There were different types of instruments in place that allowed for risk to be disbursed and not concentrated. The economist was concerned about risks, particularly with respect to the credit instruments that had evolved, according to Mokate.
The South African central bank took note of what was happening globally, and the financial stability of the system at home was front of mind.
“Fortunately, our laws were strict. We didn’t have as much deregulation as other countries had. So the mortgage-backed securities that the international banks in the US were able to take off-balance sheet, our regulator had required our banks to keep on-balance sheet so they could get an immediate sense of whether we would have a similar problem,” said Mokate.
In addition, South Africa’s regulation was more conservative. That stood the country in good stead. Furthermore, “the vigilance of the SARB, when it came to the key indicators that could pose a challenge the financial sector, was robust,” Mokate revealed.
Said Mminele: “In many ways when the crisis hit South Africa, there was a little bit of a delay compared to other advanced countries. At the time it became clear when it registered that this was going to be of a major severity. Given the delay, we also [had] the benefit of seeing what had happened in countries that were a little bit ahead of us.”
It was clear that there was an impending global crisis. The SARB had to ensure that the financial markets stayed intact, and that the economic and financial stability of the country was preserved.
Forceful monetary actions were taken with interest rates being cut by 500 basis points. South Africa was further cushioned by a healthy fiscal position. In fact, in 2007−08, the country ran its first-ever budget surplus, and provided the resources to respond decisively to the economic crisis. Combined, this ensured the severity and the depth of the recession of the 2008−09 crisis was relatively short-lived in the country.
“A million jobs were lost. But, in principle, the economy recovered fairly quickly because of decisive policy action taken at the time,” Mminele said.
In 2009, the MPC moved to monthly meetings, “rather than meeting every second month, so that we could make decisions on a much more regular basis,” Kahn said.
The events of 2009 gave renewed impetus to the work going into finalising the Red Book.