"Regulation within the banking sector is extremely important. It affects everything from the amount of Tier One Capital they must maintain, to whether they have to have segregation between speculating areas and commercial areas of the bank. As such it will have a massive effect on the banks' ability to loan, grow and offer certain services and products," Bullard told CompareGuru.
"Economies require sophisticated financial markets that can make capital available for private-sector investment from such sources as loans from a sound banking sector, well-regulated securities exchanges, venture capital, and other financial products," the WEF says.According to the Banking Association of South Africa, our country has been consistently ranked in the top ten safest banking systems by the WEF.
"South Africa has a well developed and proactively regulated banking system which compares favourably with those of industrialised countries," the association says on its site.
"In order to ensure that the deposits taken from the public are not used irresponsibly and to protect the public at large, banks have to be supervised," the South African Reserve Bank (SARB) says on their site.The Bank is independent of government, meaning that politics cannot interfere with the bank's mandate. Regardless of who is in power, the SARB has a role outlined by the Constitution. This means that, for example, they cannot be forced by government to print more money if it will negatively impact inflation and thus consumers.
"If this is continually jeopardised by the ANC, the banking sector will be the hardest hit," Bullard says.Our five largest banks saw a credit rating downgrade by Moody's last week. The Banking Association of SA says that despite this, our banking system is still fundamentally solid. But even more challenges are arising. On Tuesday, SARB made headlines as Public Protector Busisiwe Mkhwebane made recommendations that Parliament amend the role of the bank as outlined in the Constitution. The Bank is taking the report to Court.
"We need strong and effective regulations – not to stifle financial markets and our economy, but to give them the framework to thrive. And to replace anger with trust, confidence, and hope for the future," he said during the speech.He urged then-President-elect Trump to not haphazardly repeal regulations.
"Regulation of banks hinders their ability to reinvest deposited capital, partake in speculative trading, and generally act in a manner which maximises profits. This will limit the amount of money that is loaned versus the deposit ratio," Bullard says. "It could also limit the return on investment at the institutions due to the increased regulatory and reporting burdens. This results in generally less aggressive and expansionary policies hurting the end consumer and businesses."A balance is needed to weigh risk with promoting business growth. The problem that many have with the Dodd-Frank repeal attempts, is that it also loosens restrictions on large banks. This sets regulation closer to the pre-2008 crisis levels - and we all know how that ended.
"If Trump manages to repeal large sections of the Dodd-Frank Act it could have wide ranging affects. Covering a large swathe of financial regulation, the Dodd-Frank act was the single largest piece of financial legislation in US history. It covered everything from commercial banking, investment banking, the creation of a consumer financial protection bureau, key capital and liquidity requirements, derivative regulations and too big to fail institutions," Bullard says.What do you think of banking regulation? Let us know in the comments below...