Banking and Finance in South Africa

Abstract

Abstract: The importance of the financial sector is widely recognized by the public––who use and benefit from the products and services of the different financial industries––bank loans, insurance products, investments, and the payments system (to name a few). This chapter describes the different financial intermediaries, financial auxiliaries, and financial market infrastructure that comprise the sophisticated South African financial sector. Emphasis is placed on the banks whose liabilities (deposits) are uniquely the means of payment (money) and whose assets are loans to businesses, households, and the government. The role of banks is straightforward, but their basic fragility and risks they face in an uncertain world are complex. Failure of a major financial intermediary within the context of a deeply integrated system will have significant costs for the rest of the economy. For this reason, regulation tends to err on the side of caution, where stability is prioritized. This leads to a system where conservativism rules and profitability for the systemically important institutions is virtually assured. The chapter argues for greater awareness of the regulatory compromises given that the success of the sector is not costless to society.