Abstract

FOGGITT, Gregory M.; HEYMANS, Andre; VAN VUUREN, Gary W.  and  PRETORIUS, Anmar. Measuring the systemic risk in the South African banking sector. S. Afr. j. econ. manag. sci. [online]. 2017, vol.20, n.1, pp.1-9. ISSN 2222-3436.  http://dx.doi.org/10.4102/sajems.v20i1.1619.

BACKGROUND: In the aftermath of the sub-prime crisis, systemic risk has become a greater priority for regulators, with the National Treasury (2011) stating that regulators should proactively monitor changes in systemic risk. AIM: The aim is to quantify systemic risk as the capital shortfall an institution is likely to experience, conditional to the entire financial sector being undercapitalised. SETTING: We measure the systemic risk index (SRISK) of the South African (SA) banking sector between 2001 and 2013. METHODS: Systemic risk is measured with the SRISK. RESULTS: Although the results indicated only moderate systemic risk in the SA financial sector over this period, there were significant spikes in the levels of systemic risk during periods of financial turmoil in other countries. Especially the stock market crash in 2002 and the sub-prime crisis in 2008. Based on our results, the largest contributor to systemic risk during quiet periods was Investec, the bank in our sample which had the lowest market capitalisation. However, during periods of financial turmoil, the contributions of other larger banks increased markedly. CONCLUSION: The implication of these spikes is that systemic risk levels may also be highly dependent on external economic factors, in addition to internal banking characteristics. The results indicate that the economic fundamentals of SA itself seem to have little effect on the amount of systemic risk present in the financial sector. A more significant relationship seems to exist with the stability of the financial sectors in foreign countries. The implication therefore is that complying with individual banking regulations, such as Basel, and corporate governance regulations promoting ethical behaviour, such as King III, may not be adequate. It is therefore proposed that banks should always have sufficient capital reserves in order to mitigate the effects of a financial crisis in a foreign country. The use of worst-case scenario analyses (such as those in this study) could aid in determining exactly how much capital banks could need in order to be considered sufficiently capitalised during a financial crisis, and therefore safe from systemic risk.

        · text in English     · English ( pdf )