Conjuring Systemic Risk Through Financial Regulation by SADC Central Banks

Abstract

This article is the first attempt at drawing a picture of the Southern African Development Community (SADC) Central Bank Model Law within the overall frame of regional financial integration and enhanced risk regulation in the financial industry. The SADC Committee of Central Bank Governors (CCBG) in 2009 adopted a Central Bank Model Law whose Chapter VI enshrines central banks’ strategies for stabilising financial systems in the SADC region. Chapter VI embodies key principles; it is not binding law, yet it derives a great deal of legitimacy from its origins in the CCBG. The prevention of systemic risk is the central objective of financial regulatory policy and the prism through which the efficiency of the Model Law is to be viewed. This article lays out the tenor of the concept systemic risk and the means to avoid it generally. It then describes the Model Law’s specific tools for conjuring that risk. The significance of risk regulation is underscored by recent financial crises and the growing part played by financial institutions in the economic development and integration of SADC. The Model Law’s provisions on disclosure, the accommodation of banks, emergency liquidity assistance, and central bankers’ banker role, including as lender of last resort, are robust. However, the article’s greatest concern is the provision - or, more precisely, the lack thereof - on capital and liquidity standards. The lack of such provision is unjustifiable in an era of economic globalisation and in light of the financial integration objectives of the legal framework of SADC as a regional development community.