This peer review examined the framework for bank resolution and deposit insurance in South Africa. The review finds that good progress has been made in recent years on both topics. The authorities have applied the lessons from recent bank failures to inform the proposals for adoption of a resolution regime broadly aligned with the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions. Moreover, the proposed introduction of a deposit insurance system demonstrates the authorities’ commitment to implement the International Association of Deposit Insurers (IADI) Core Principles for Effective Deposit Insurance Systems.
Notwithstanding this progress, the review concludes there is additional work to be done to ensure the new measures can be implemented effectively:
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On the bank resolution framework:
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setting a clear implementation roadmap, including the identification and sequencing of key policies, timelines for delivery and resource requirements;
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enhancing the operating model for the South African Reserve Bank as resolution authority;
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reviewing emergency liquidity arrangements in light of the new resolution framework; and
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introducing a mechanism for ex post recovery from the industry of public funds used for resolution.
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On deposit insurance:
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developing the functional expertise at the deposit insurer;
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launching a comprehensive public awareness campaign covering different stages of the establishment of the deposit insurance system;
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reviewing the design features after the deposit insurance system is established; and
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enhancing 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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