Management of shadow banks for economic and financial stability in South Africa

Abstract

The global increase in the regulation of banks has encouraged the channeling of investment funds into less regulated institutions such as shadow banks to avoid restriction. Shadow banks are institutions that operate outside the regulatory framework of the traditional banking system and because of that, they lack adequate safety compared to the traditional banks. These among others have raised serious concerns, especially after the recent financial crisis as they see these institutions as a major source of risk and instability in the financial system and the economy as a whole. This study examined the link between shadow banking and financial stability in South African by employing a modest desktop literature review approach. Although the shadow banking in South Africa is advantageous in terms providing alternative source of credit to support economic activities by extending banking services and investment opportunities to the unbanked as well as those who lack knowledge of how to access capital, however, issues of regulations, management and transparency have not been adequately dealt with. These create a great risk to the economy if not properly addressed. Protecting the interest and investment of customers should be a major concern of government or regulatory ABOUT THE AUTHORS

Shadow banking: a bibliometric and content analysis

“…The growth of SB and the inconclusiveness of the debate on SB prospects make studies addressing its implications on financial stability crucial. Some of the studies addressing such implications focused on specific components of SB (e.g., Culp 2013;Bengtsson 2013), and others addressed the overall SB sector (e.g., Barth et al 2015;Liang 2016a, Tsai 2016Zhou and Tewari 2019a, b;Ilesanmi and Tewari 2019). Bengtsson (2013) conducted a study on the European economy and reported that there is a lack of transparency regarding the composition of Money Market Fund (MMFs) assets making it difficult for European MMF investors to distinguish between MMFs based on their asset quality.…”

“…It was additionally found that the SB sector positively impacts aggregate firm profitability (Zhou and Tewari 2019a, b). Another study argued that SB in South Africa is beneficial as it provides alternative sources of credit and extends economic investment opportunities; yet, lack of transparency, management, and regulations poses great risk to the economy (Ilesanmi and Tewari 2019). In contrast, a study on the Canadian economy suggested that Canada's productivity problem could be solved through innovation.…”

“…Many scholars suggest that SB participants that do not fall under the regulatory umbrellas and safety nets of central banks should be eradicated (e.g., Bouguelli 2020). Others suggest that the SB sector should be regulated more effectively according to its unique properties so that the benefits of SB can be enjoyed without leading to greater systemic risk in the economy (e.g., Ilesanmi and Tewari 2019). Furthermore, policy coordination should be improved when unusual measures are taken to protect financial stability, as suggested by Bengtsson (2013).…”

“…However, absolute and specific risk measurement tools have not heretofore been developed to measure the systemic risk posed by SBs, and conventional risk measurement tools may not reflect the realities of the SB sector. To that end, Ilesanmi and Tewari (2019) suggested that a unique systemic risk measurement tool be developed for SBs. There appears then to be a growing need for studies suggesting and implementing unique systemic risk measurement tools for SBs.…”

An Early Warning Signal (EWS) Model for Predicting Financial Crisis in Emerging African Economies

“…The 2007/08 global financial crisis (GFC) which emanated from the United States and spread to other developed and emerging countries resulted in large-scale losses in most economies around the globe (Cunningham and Friedrich, 2016;Ilesanmi and Tewari, 2019a). The devastating effects of the GFC have led to a renewed, global interest in the development of an early warning signal (EWS) model with the purpose of alerting policymakers and other stakeholders to the possibility of the occurrence of a crisis (Ilesanmi and Tewari, 2019b).…”