Open AccessImplementing the countercyclical capital buffer in South Africa: Practical considerations
Author(s) -
Pravin Burra,
Riaan de Jongh,
Helgard G. Raubenheimer,
Gary van Vuuren,
Henco Wiid
Publication year - 2015
Publication title -
suid-afrikaanse tydskrif vir ekonomiese en bestuurswetenskappe/south african journal of economic and management sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.277
H-Index - 17
eISSN - 2222-3436
pISSN - 1015-8812
DOI - 10.4102/sajems.v18i1.956
Subject(s) - basel iii , systemic risk , capital requirement , capital (architecture) , psychological resilience , economics , warning system , financial system , financial crisis , basel ii , resilience (materials science) , risk weighted asset , business , risk adjusted return on capital , monetary economics , macroeconomics , financial capital , capital formation , engineering , human capital , market economy , geography , psychology , physics , archaeology , aerospace engineering , psychotherapist , incentive , thermodynamics
The Basel II regulatory framework significantly increased the resilience of the banking system, but proved ineffective in preventing the 2008/9 financial crisis. The subsequent introduction of Basel III aimed, inter alia, to supplement bank capital using buffers. The countercyclical buffer boosts existing minimum capital requirements when systemic risk surges are detected. Bolstering capital in favourable economic conditions cushions losses in unfavourable conditions, thereby addressing capital requirement procyclicality. This paper contains an overview of the countercyclical capital buffer and a critical discussion of its implementation as proposed in Basel III. Consequences of the buffer's introduction for South African banks are explored, and in particular, potential systemic risk indicator variables are identified that may be used by the South African Reserve Bank (SARB) as early warning indicators of imminent systemic financial distress. These indicators may be of value to the SARB, which could use them in taking decisions on the build-up and release of the countercyclical buffer for South African banks