The Standing Committee on Finance should find time in its schedule to discuss transformation in the banking sector and the monopoly of four banks that currently exists. The Chairperson of the standing committee, Mr Joe Maswanganyi, made these remark on Tuesday morning during a briefing from the National Treasury on the Financial Sector Laws Amendment Bill.
He said: “It is concerning that the National Treasury can appear before a committee of Parliament and say that the four major banks in South Africa are too big to fail and that the state should do whatever it takes to bail them out.” Mr Maswanganyi further said that the assertion by National Treasury implied that previously disadvantaged individuals who may want to enter the banking sector will stand no chance to do so.
During his presentation, Mr Ismail Momoniat who is the Deputy Director-General for Tax and Financial Sector Policy at the National Treasury, said: “Major banks are ‘too big to fail’. This is why banks are often compared to nuclear facilities and described as systematically important financial institutions.”
Mr Momoniat explained further that the failure of one bank could result in devastating and far-reaching problems for the entire economic system. Hence his remark that governments do whatever they can to avoid this outcome, including bail-outs. “The problem of moral hazard must be dealt with, as banks may then take even more risky behaviour, wherein profits are privatised, but loses are socialised,” said Mr Momoniat.
The key objectives of the Financial Sector Laws Amendment Bill include, among others, provision of a framework for the resolution of banks and non-bank systematically important financial institutions; designation of the Reserve Bank as resolution authority with commensurate powers; introduction of a Deposit Insurance Scheme; and creation of creditor hierarchy to ensure depositor protection in liquidation.
The bill in its current form also makes provision for the establishment of a subsidiary company of the Reserve Bank, namely the Corporation for Deposit Insurance, which will be responsible for administering the Deposit Insurance Scheme. The scheme will be underwritten by the National Treasury.
According to the National Treasury, the Deposit Insurance Scheme will have a number of advantages. These include eliminating the risk of depositors losing funds that deprive them of their livelihood; promoting the competitiveness of smaller banks; improving confidence and reducing the risk of a bank run during a crisis and; enhancing South Africa’s market integrity, which in turn ensures investor confidence.
The Standing Committee on Finance will now process the bill. This will include calling on members of the public to submit written comments, holding public hearings, deliberating on the bill clause-by-clause and adopting a committee report that will be tabled in the National Assembly.
Justice Molafo
16 March 2021
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