The capital buffer regime for SIFI-banks (D-SIBs) in South Africa

Abstract

This contribution examines the potential harmful effects of adopting the international rules known as the Basel Accords on small local banks in developing countries. It argues that while these uniform global financial stability rules may be tenable for larger, often foreign-owned banks, they often place a heavy burden on small financial institutions with limited capital and weak financial resources. This is important because small banks play a vital role in economic growth and financial inclusion in developing nations, particularly in underserved communities in Zambia and other developing countries. The strict capital requirements and increasing regulatory complexity mandated by the Basel Accords risk forcing small banks to either consolidate their market position by merging with larger banks to survive or risk falling into insolvency, thus reducing the number and the role of small banks in an economy. To address this issue, the contribution suggests pragmatic, alternative regulatory frameworks. Key recommendations include, amongst other things, implementation of tiered capital requirements that reflect a bank's size and risk profile, offering targeted government support like “infant industry” support, and fostering a regulatory environment suited to the specific challenges faced by smaller institutions. By adopting customised policies, regulators can safeguard the sustainability of small banks and ensure they remain a crucial driver of economic development.