The Relevance of Global Reform of Bank Regulation: A Perspective from Africa

Abstract

The global financial crisis exposed fundamental weaknesses in the financial regulation, prompting ongoing efforts to strengthen the regulatory framework. The key features of the global reforms are: higher mandatory minimum capital adequacy ratios, together with improvements in the quality of capital; introduction of minimum liquidity requirements; introduction of macro-prudential tools; proposals for the resolution of globally systemically important banks. The international character of banking provides a clear rationale for global minimum regulatory standards, especially to avoid regulatory arbitrage, whereby banks locate in the jurisdictions with the least onerous regulations, spurring a race to the regulatory bottom. Hence key regulatory innovations have been drawn up at the global level and most governments around the world, including those in Africa, have incorporated them into their own national banking regulations. The aim of this paper is to assess the implications of the global regulatory reforms for bank regulation in Africa and, in particular, whether the specific reforms are likely to be helpful or counterproductive for banking system stability in Africa. The paper aims to help fill a gap in the literature on the latest global reforms to bank regulation; relatively little of which has assessed these issues from the standpoint of developing countries.