A Review of the South African Reserve Bank’s Financial Stability Policies

The establishment of the Financial Stability Board (FSB) in April 2009 by the Group of 20 (G20) leaders legitimized the South African Reserve Bank’s (SARB) role to incorporate a clearly defined strategy to deal with instability generated in the financial sector. Accordingly, as affirmed by the “twin peaks” regulatory framework, in 2017 the SARB was tasked with a new mandate to protect and enhance the financial system. In its capacity as Prudential Authority, the SARB emphasize that the purpose of macroprudential policy is to ensure a resilient financial system and to limit the build-up of systemic risk, with the ultimate objective of curtailing macroeconomic costs associated with any financial distress. Although macroprudential policies are designed to mitigate financial instability, the lack of consensus on a clear definition for financial stability is well-documented. This article contextualizes the SARB’s formal depiction of financial stability in relation to other central banks and in the academic literature. In addition, we also evaluate the appropriateness of the SARB’s framework in limiting financial instability, and its associated influence on the real economy. We pay particular attention to the SARB’s alignment within international best practices (the Basel accords), and whether or not this is sufficient within an integrated global financial system. Our preliminary finding is that the SARB has showcased commendable restraint in the face of mounting pressure to implement macroprudential tools at its disposal.