The Governance of Macroprudential Policy

South Africa’s experience developing a macroprudential role for its central bank could yield lessons for emerging market central banks. An explicit mandate to maintain and enhance financial stability accompanied a re-defined prudential and conduct regulatory (‘Twin Peaks’) framework in the Financial Sector Regulation Act of 2017. Using a macroprudential lens and international comparative analysis, this paper goes further than previous analyses (largely by legal scholars) and reveals weaknesses in the governance design for macroprudential policy. We suggest changes in the design of institutions, processes, transparency and accountability, to improve and future-proof SA macroprudential policymaking. These include: formalising the role of the central bank’s Financial Stability Committee - the de facto executive body for policy but not mentioned in the Act - preferably as a smaller statutory committee with external members and improved reportage; strengthening macroprudential policy in ‘ordinary’ times’ by adopting ‘comply or explain’ recommendations to reduce the Act’s crisis focus and better manage credit cycles; improved data collection to extend the macroprudential instrument toolbox for Borrower Based Measures and create early warning indicators for vulnerable households; and, for the Financial Stability Review, to address gaps in tracking and reporting risk indicators, and policy decisions, to better meet its new role as vehicle for transparency and accountability under the Act. We also consider political economic trade-offs between protecting the SA banking system and wider social and economic goals.