South Africa’s new bank resolution and deposit insurance measures are welcome, but more needs to be done to ensure financial stability in the country, according to a new report from the Financial Stability Board (FSB).
While recognising that the nation’s authorities’ introduction of a new resolution regime and a deposit insurance system were both steps in the right direction, the FSB said that South Africa still had some gaps to plug.
In regards to the bank resolution framework, FSB stated that it must set up a clear implementation roadmap that should include the identification and sequencing of key policies, timelines for delivery and resource requirements.
Moreover, the FSB urged South African authorities to enhance the operating model for the South African Reserve Bank as a resolution authority, review emergency liquidity arrangements in light of the new resolution framework, and to introduce a mechanism for ex post recovery from the industry of public funds used for resolution.
Speaking about the deposit insurance measures the body would still like to see, the FSB urged South African regulators to develop the functional expertise at the deposit insurer and to launch a comprehensive public awareness campaign covering different stages of the establishment of the deposit insurance system.
Additionally, the FSB urged the country’s authorities to review the design features after the deposit insurance system is established, and to enhance the funding structure of the deposit insurance fund by building up the size of the equity tranche, determining a long-term target fund size and setting a reasonable time frame to achieve it.
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