Implementing the countercyclical capital buffer in South Africa: practical considerations
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Date
2015Author
Burra, Pravin
De Jongh, Pieter Juriaan
Raubenheimer, Helgard
Van Vuuren, Gary
Wiid, Henco
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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.
URI
http://hdl.handle.net/10394/20773http://dx.doi.org/10.17159/2222-3436/2015/v18n1a8
http://sajems.org/index.php/sajems/article/view/956